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Obagi Medical Products Inc. Reports Operating Results (10-K)

March 08, 2012 | About:
10qk

10qk

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Obagi Medical Products Inc. (OMPI) filed Annual Report for the period ended 2011-12-31.

Obagi Medical has a market cap of $208.9 million; its shares were traded at around $11.89 with a P/E ratio of 13.5 and P/S ratio of 1.9.

Highlight of Business Operations:

Physician-dispensed sales increased $1.3 million to $109.7 million during the year ended December 31, 2011, as compared to $108.4 million during the year ended December 31, 2010. We experienced net increases in the following product categories: (i) an increase in the Other category of $1.3 million; (ii) a $0.9 million increase in Nu-Derm sales; and (iii) an increase in Vitamin C of $0.2 million. The growth in the Other category was primarily attributable to the launch of Blue Peel RADIANCE in January 2011, which contributed $1.6 million, partially offset by $0.2 million in sales returns related to Texas. The growth in our Nu-Derm sales was primarily due to the launch of Nu-Derm Sun Shield SPF 50 in January 2011, which contributed $2.6 million; partially offset by $1.1 million in sales returns related to Texas. These product category increases were partially offset by: (i) a decrease of $0.8 million in the Therapeutic category; and (ii) a decrease of $0.2 million in Elasticity sales. The decline in the Therapeutic category was primarily due to a decline in sales of our CLENZIderm product line. Licensing fees remained fairly flat at $4.4 million during the year ended December 31, 2011, as compared to the year ended December 31, 2010.

Selling, general and administrative. Selling, general and administrative expenses consist primarily of salaries and other personnel-related costs, professional fees, insurance costs, stock-based compensation, depreciation and amortization not attributable to products sold, warehousing costs, marketing costs, travel expenses, general and administrative support expenses and other selling expenses. Selling, general and administrative expenses increased $2.5 million to $71.9 million during the year ended December 31, 2011, as compared to $69.4 million for the year ended December 31, 2010. The increase was primarily due to the following: (i) a $1.9 million increase in costs associated with the litigation and settlement of matters related to Dr. Obagi (see Notes 9 and 10 to our Consolidated Financial Statements); (ii) a $1.4 million increase in professional fees primarily related to consultants for our operations group and towards the evaluation of strategic alternatives to grow the business; (iii) $1.0 million in expenses related to the Texas regulatory matter, which includes costs for coordinating the return of product from our customers residing in Texas, as well as legal and other related costs; (iv) a $0.9 million increase in other marketing principally due to increased efforts in market research and consumer engagement initiatives; (v) a $0.6 million increase in promotions and training expenses; (vi) $0.5 million in impairment charges (see Note 2 to our Consolidated Financial Statements); (vii) a $0.1 million increase in non-cash compensation; and (viii) a $0.1 million increase in other expenses. These increases were partially offset by: (i) a $1.7 million decrease in headcount-related expenses primarily due to a decrease in commissions and bonus; (ii) a $1.3 million decrease in bad debt expense, due to the provision on a non-performing international distributor of $0.5 million during the year ended December 31, 2010, and due to an improvement in collections, reducing the number of accounts written-off; (iii) a $0.8 million decrease in expenses related to the secondary offering completed in November 2010; (iv) a $0.1 million decrease in rent expense due to the termination of the Agreement with Dr. Obagi in September 2010; and (v) a $0.1 million decrease in depreciation and amortization. As a percentage of net sales, selling, general and administrative expenses in the year ended December 31, 2011 increased to 63% as compared to 62% for the year ended December 31, 2010. We anticipate operating costs to increase, due to our investment in certain strategic initiatives during fiscal year 2012.

Physician-dispensed sales increased $8.9 million to $108.4 million during the year ended December 31, 2010, as compared to $99.5 million during the year ended December 31, 2009. We experienced an increase in the majority of our product categories as follows: (i) an increase in Vitamin C of $4.0 million, of which $1.7 million was attributable to our normal to oily line extension of Obagi-C Rx launched in January 2010; (ii) an increase in Nu-Derm sales of $3.1 million; (iii) a $2.1 million increase in Elasticity sales, of which $1.1 million was attributable to the launch of our ELASTILash product in October 2010; and (iv) an increase in the Other category of $1.1 million. The growth in the Other category was primarily attributable to the launch of Refissa in September 2009, which accounted for $0.7 million of the increase. These increases were partially offset by a decrease of $1.4 million in the Therapeutic category. The decline in the Therapeutic category was primarily attributable to the increased promotional activity surrounding the launch of our Rosaclear product in January 2009 and our exit of the pharmacy channel in April 2009. Licensing fees decreased by $0.2 million due to a decline in unit sales by our Japanese partner Rohto during the year ended December 31, 2010, as compared to the year ended December 31, 2009.

Carlson, our former President and Chief Executive Officer, in October 2010; (iv) a $1.0 million increase in other marketing expenses primarily due to the launch of ELASTILash in October 2010; (v) a $1.0 million increase in promotions and training expenses; (vi) $0.8 million in expenses related to our secondary offering completed in November 2010; (vii) a $0.5 million increase in expenses related to our third party logistics provider; (viii) a $0.3 million increase in other expenses, $0.2 million of which was due to losses on disposal of fixed assets; (ix) a $0.2 million increase in volume-driven expenses; (x) a $0.2 million increase in product development expenses; and (xi) a $0.1 million increase in other expenses, primarily due to a loss on dissolution of foreign subsidiary. These increases were partially offset by: (i) a $2.2 million decrease in SoluCLENZ-related expenses as a result of our exit from the pharmacy channel, of which $1.4 million was due to the distribution and support of the product in the pharmacy channel and $0.8 million was due to the write-off of nonrefundable deposits and the accrual of other contract termination costs; (ii) a $0.3 million decrease in professional fees; (iii) a $0.3 million decrease in depreciation and amortization; (iv) a $0.2 million decrease in non-cash compensation; (v) a $0.1 million decrease in expenses driven by being a public company; and (vi) a $0.1 million decrease in rent expense. As a percentage of net sales, selling, general and administrative expenses in the year ended December 31, 2010 increased to 62% as compared to 57% for the year ended December 31, 2009.

Research and development. Research and development expenses decreased $0.5 million to $3.9 million for the year ended December 31, 2010, as compared to $4.4 million for the year ended December 31, 2009. During 2010 we recorded $0.5 million in accelerated advisory and related fees pursuant to the termination of the 2006 Agreement with Dr. Obagi. In addition, salaries and related expenses increased $0.3 million. These increases were offset by: (i) a $0.6 million decrease in expenses related to the development of line extensions and reformulations of existing products; (ii) a $0.5 million decrease in expenses related to the development of new products; and (iii) $0.2 million in grant funds received under the Qualifying Therapeutic Discovery Grant Program administered by the Internal Revenue Service and the Department of Health and Human Services in support of the Company s development of Nu-Derm for the treatment of melasma, which were recorded as an offset to research and development expense. As a percentage of net sales, research and development costs in the year ended December 31, 2010 were 3% as compared to 4% in the year ended December 31, 2009.

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