Bentley Pharmaceuticals Announces Fourth Quarter and Full Year 2007 Financial Results

Bentley Pharmaceuticals, Inc. (NYSE: BNT), a specialty pharmaceutical company, today reported financial results for the fourth quarter and year ended December 31, 2007. Fourth quarter 2007 revenues were $34.8 million, a 29% increase (16% in constant currency) from $27.1 million reported in the fourth quarter of 2006. Gross margins on net product sales for the quarters ended December 31, 2007 and 2006 were 43.1% and 48.7%, respectively. The Company noted that reduced margins resulted from the implementation of price reductions by the Spanish government on March 1, 2007. Operating income for the fourth quarter 2007 was $0.9 million compared with $2.9 million reported in the same quarter of the prior year. The Company noted that the fourth quarter 2007 operating expenses include $0.9 million of strategic consulting expenses incurred in connection with the Company’s plan to spin off its drug delivery business and $1.2 million of impairment charges, primarily related to the Company’s U.S. generic pharmaceutical projects. Net income for the fourth quarter 2007 was $0.3 million, or $0.01 per diluted share, compared with $4.4 million, or $0.19 per diluted share, a year ago. The Company noted that the fourth quarter of 2006 included an income tax benefit of $2.7 million, or $0.12 per diluted share, resulting from a litigation settlement recorded in the third quarter of 2006. Fluctuations in foreign currency provided a benefit of $0.4 million, or $0.02 per diluted share in the fourth quarter 2007. Bentley’s specialty generics segment’s revenue for the fourth quarter 2007 increased 27% (13% in constant currency) to $31.5 million from $24.8 million in the fourth quarter 2007. Specialty generics revenue outside of Spain as a percentage of total generics revenue increased to 31% for the fourth quarter 2007 from 23% reported in the fourth quarter 2006. Gross margins on net product sales decreased to 43% in the fourth quarter 2007 from 49% in the fourth quarter 2006. The decrease in gross margins primarily reflects the impact of reduced pricing. Operating expenses increased 32% to $10.0 million from $7.6 million for the fourth quarter 2006 and were significantly impacted by changes in foreign exchange rates. Sales and marketing cost increases were consistent with rising revenues and included normal increases in related compensation. General and administrative expenses also included normal compensation increases. Net income reported for specialty generics was $2.8 million for the fourth quarter 2007 compared to $6.0 million in the comparable quarter of 2006. The Company notes that the fourth quarter of 2006 included an income tax benefit of $2.7 million. Fluctuations in foreign currency provided a benefit of $0.4 million, or $0.02 per diluted share, in the fourth quarter 2007. Drug delivery revenues in the fourth quarter 2007 increased by 43%, or $1.0 million, to $3.2 million compared to the fourth quarter of 2006 due to increased royalties on sales of Testim®. General and administrative expenses increased 32% compared to the prior year fourth quarter, primarily related to increased compensation and benefits due to increased headcount. The Company noted that it incurred $0.9 million in strategic consulting expenses in the fourth quarter in connection with its planned spin-off. Research and development expenses increased 23% to $2.7 million in the fourth quarter 2007 primarily related to increased investments in Nasulin™, Bentley’s intranasal insulin product candidate, and increased compensation and benefits. Net loss reported for the fourth quarter 2007 increased $0.9 million to $2.5 million from the comparable quarter of 2006. Cash, cash equivalents and marketable securities were $34.7 million at December 31, 2007, and $15.6 million at December 31, 2006. In June 2007, Bentley’s Spanish subsidiary borrowed $14.8 million (approximately 11 million Euros). The proceeds are being used to help fund capital and research and development projects. The loan carries a variable interest rate equal to the Euro Interbank Offered Rate plus 0.5%. Payments commence in December 2008 and end in December 2013. During the fourth quarter of 2007 the Company invested $2.5 million in fixed asset additions and $0.9 million in drug licenses. This compares to additions of $3.2 million in fixed assets and $1.0 million in drug licenses during the fourth quarter 2006. Bentley invested $10.0 million in fixed asset additions in 2007 compared to $15.3 million in 2006. The Company invested $2.7 million in drug licenses in 2007, compared with $2.8 million in 2006. The Company expects to invest between $13.0 million and $17.0 million in fixed asset and drug license additions during 2008. Management Comments "Our generics and drug delivery businesses both performed well in the fourth quarter,” said Bentley President John Sedor. "Generics demand in Spain remains robust, and our subsidiaries continue to be aggressive in launching products into the growing Spanish market. Unit volume for our generic products in that market increased 36% from the fourth quarter of 2006. Given the reimbursement environment and resulting price constraints in Spain, we were pleased with our gross margins in the generics business this quarter.” "We have made it a strategic priority over the past few years to expand beyond Spain and capitalize on growing demand for generic pharmaceuticals in other European markets, and generics revenue outside of Spain increased 72% this quarter compared with the fourth quarter of 2006,” said Sedor. "Just last month we announced a multiple approval through the Mutual Recognition Process to commercialize our omeprazole capsule products in the major markets of Germany and Italy, as well as in other EU countries. Additional European approvals for other Bentley products are pending. We expect that commercializing these products along with omeprazole in our new European markets will grow our generics revenues outside of Spain by approximately 25% in 2008.” "As previously announced, we are in the process of spinning off our drug delivery business to be named CPEX Pharmaceuticals, Inc.,” Sedor said. "During the fourth quarter we identified four strategic objectives for the drug delivery business: growing our existing drug delivery revenue, building the value of Nasulin and attracting a suitable licensing partner, building a product pipeline that CPEX can license or take to market, and securing partners for our CPE-215 platform technology.” "Our success in achieving the first of these objectives, to grow our existing drug delivery revenue, is being driven by sales of Testim – Bentley’s first licensed drug delivery product,” said Sedor. "As we announced in January 2008, we received a new U.S. patent for Testim that protects our intellectual property until 2025, and we recently received our European patent and foreign filing issuances in six other countries. Meanwhile, Testim’s share of the U.S. testosterone gel market is more than 22% compared to approximately 19% in 2006, and prescriptions for Testim grew nearly twice as fast as the market during the year. As a result, Bentley’s drug delivery revenues for the fourth quarter of 2007 grew 43% from the year-earlier quarter.” "Our second strategic objective for the drug delivery business is to build the value of Nasulin and attract a suitable licensing partner,” said Sedor. "Our original clinical objective for our nasal administration product was limited to demonstrating glucodynamic equivalence with the injectable insulin products currently marketed. Our Phase II results have resulted in changes to our clinical goals for Nasulin, with the intent of demonstrating better glycemic control and less hypoglycemia. This will require additional Phase II trials, which we hope to complete in the first half of 2009 leading to an end of Phase II meeting with the FDA in the second half of 2009.” "CPEX filed a Form 10 with the SEC in late December 2007,” Sedor said, "Completion of the proposed spin-off is subject to numerous conditions, including the Form 10 being declared effective by the SEC and approved by Bentley’s Board of Directors. In addition, as previously announced, Bentley is continuing to explore strategic opportunities for its generics business.” For the full year 2007, Bentley’s total revenues increased 14% (5% in constant currency) to $124.7 million from $109.5 million in 2006. Bentley’s licensing and collaboration revenues increased by $2.8 million, or 32%, compared with 2006, primarily reflecting increased royalties on sales of Testim. Gross profit increased to $60.7 million in 2007 from $59.6 million in 2006. Gross margins on net product sales decreased to 43.4% from 50.4% in 2006, primarily due to reduced pricing in Spain. Operating expenses decreased by $1.0 million to $53.2 million from $54.2 million in 2006. The Company noted that the prior year operating expenses included $10.9 million of litigation settlement expenses. The Company also noted that the current year operating expenses include approximately $2.0 million of strategic consulting expenses and $1.4 million of impairment charges. Net income was $2.8 million in 2007, or $0.12 per diluted share, compared with net income of $1.0 million, or $0.04 per share, in 2006. Fluctuations in foreign currency provided a benefit of $0.04 per share in 2007. Bentley’s results by operating segment for the fourth quarter and 2007 were as follows: For the three month periods ended December 31: (in thousands) 2007   2006 Specialty Generics   Drug Delivery   Consol-idated Specialty Generics   Drug Delivery   Consol-idated Revenues $ 31,529 $ 3,240 $ 34,769 $ 24,796 $ 2,258 $ 27,054 Cost of net product sales   17,872   -     17,872   12,668     -     12,668   Gross profit 13,657 3,240 16,897 12,128 2,258 14,386 Operating expenses 10,016 5,915 15,931 7,578 3,988 11,566 Loss (gain) on sale of drug license   111   -     111   (38 )   -     (38 ) Income (loss) from operations 3,530 (2,675 ) 855 4,588 (1,730 ) 2,858 Other income (expenses), net   296   190     486   (101 )   132     31   Income (loss) before income taxes 3,826 (2,485 ) 1,341 4,487 (1,598 ) 2,889 Provision (benefit) for income taxes   1,025   -     1,025   (1,525 )   -     (1,525 ) Net income (loss) $ 2,801 $ (2,485 ) $ 316 $ 6,012   $ (1,598 ) $ 4,414     EBITDA $ 5,476 $ (2,518 ) $ 2,958 $ 5,853   $ (1,544 ) $ 4,309   For the years ended December 31: (in thousands) 2007   2006 Specialty Generics   Drug Delivery   Consol-idated Specialty Generics   Drug Delivery   Consol-idated Revenues $ 113,560 $ 11,127 $ 124,687 $ 101,105 $ 8,366 $ 109,471 Cost of net product sales   64,010   -     64,010   49,850     -     49,850   Gross profit 49,550 11,127 60,677 51,255 8,366 59,621 Operating expenses 32,314 20,861 53,175 37,451 16,771 54,222 Loss (gain) on sale of drug license   111   -     111   (38 )   -     (38 ) Income (loss) from operations 17,125 (9,734 ) 7,391 13,842 (8,405 ) 5,437 Other income (expenses), net   369   559     928   (64 )   683     619   Income (loss) before income taxes 17,494 (9,175 ) 8,319 13,778 (7,722 ) 6,056 Provision for income taxes   5,534   -     5,534   5,082     -     5,082   Net income (loss) $ 11,960 $ (9,175 ) $ 2,785 $ 8,696   $ (7,722 ) $ 974     EBITDA $ 23,541 $ (9,004 ) $ 14,537 $ 18,770   $ (7,727 ) $ 11,043   Significant components of Bentley’s revenues for the fourth quarter and year are summarized below: For the year ended December 31, 2007: Revenues Within Spain   Revenues Outside of Spain     Branded       % of Total Product Line Generics   Generics   Other       Total   Revenues Omeprazole $1,912 $15,818 $ – $ – $17,730 14 % Enalapril 5,176 1,522 – – 6,698 5 % Simvastatin 1,022 4,866 – – 5,888 5 % Paroxetine 1,521 3,424 – – 4,945 4 % Lansoprazole 3,610 1,265 – – 4,875 4 % All other products 12,788 13,330 466 3,409 29,993 24 % Sales to licensees and others – – 13,925 28,945 42,870 35 % Licensing and collaborations –     –     561     11,127     11,688     9 % Total Revenues $26,029     $40,225     $14,952     $43,481     $124,687     100 % % of 2007 Revenues 21 % 32 % 12 % 35 % 100 % For the year ended December 31, 2006: Revenues Within Spain   Revenues Outside of Spain     Branded       % of Total Product Line Generics   Generics   Other     Total   Revenues Omeprazole $2,679 $16,451 $ – $ – $19,130 18 % Enalapril 4,826 1,824 – – 6,650 6 % Simvastatin 1,851 5,620 – – 7,471 7 % Paroxetine 1,449 3,045 – – 4,494 4 % Lansoprazole 2,689 852 – – 3,541 3 % All other products 10,628 11,263 795 1,763 24,449 22 % Sales to licensees and others – – 12,741 22,114 34,855 32 % Licensing and collaborations –     –     515     8,366     8,881     8 % Total Revenues $24,122     $39,055     $14,051     $32,243     $109,471     100 % % of 2006 Revenues 22 % 36 % 13 % 29 % 100 % For the three months ended December 31, 2007:         Revenues Within Spain Revenues Outside of Spain Branded       % of Total Product Line Generics   Generics   Other     Total   Revenues Omeprazole $545 $3,902 $ – $ – $4,447 13 % Enalapril 1,398 410 – – 1,808 5 % Simvastatin 299 1,235 – – 1,534 4 % Lansoprazole 1,039 370 – – 1,409 4 % Paroxetine 409 939 – – 1,348 4 % All other products 3,824 3,506 (6 ) 869 8,193 24 % Sales to licensees and others – – 3,863 8,799 12,662 36 % Licensing and collaborations –     –     128     3,240     3,368     10 % Total Revenues $7,514     $10,362     $3,985     $12,908     $34,769     100 % % of Q4 2007 Revenues 20 % 34 % 12 % 34 % 100 % For the three months ended December 31, 2006:         Revenues Within Spain Revenue Outside of Spain Branded       % of Total Product Line Generics   Generics   Other     Total   Revenues Omeprazole $667 $3,862 $ – $ – $4,529 17 % Enalapril 1,288 347 – – 1,635 6 % Simvastatin 468 1,286 – – 1,754 6 % Lansoprazole 731 181 – – 912 3 % Paroxetine 355 656 – – 1,011 4 % All other products 2,935 3,091 13 663 6,702 25 % Sales to licensees and others – – 3,188 4,959 8,147 30 % Licensing and collaborations –     –     106     2,258     2,364     9 % Total Revenues $6,444     $9,423     $3,307     $7,880     $27,054     100 % % of Q4 2006 Revenues 24 % 35 % 12 % 29 % 100 % Bentley uses both GAAP and certain non-GAAP measures to assess performance. The Company’s management believes the non-GAAP measure of EBITDA may also provide useful supplemental information to investors in order that they may evaluate Bentley’s financial performance using the same measures as management. The Company’s management believes that with this supplemental information investors are afforded greater transparency in assessing the Company’s financial performance. This non-GAAP financial measure should not be considered as a substitute for, nor superior to, measures of financial performance prepared in accordance with GAAP. Set forth below is a reconciliation of "EBITDA” to net income, the most directly comparable financial measure calculated and presented in accordance with GAAP. (in thousands) For the year ended December 31, 2007   2006 Specialty Generics   Drug Delivery   Consol-idated Specialty Generics   Drug Delivery   Consol-idated Net income (loss) $ 11,960 $ (9,175 ) $ 2,785 $ 8,698 $ (7,724 ) $ 974 Provision (benefit) for income taxes 5,534 - 5,534 5,082 - 5,082 Interest expense (income) 87 (581 ) (494 ) 99 (682 ) (583 ) Depreciation & amortization   5,960   752     6,712     4,891   679     5,570   EBITDA $ 23,541 $ (9,004 ) $ 14,537   $ 18,770 $ (7,727 ) $ 11,043   (in thousands) For the three months ended December 31, 2007   2006 Specialty Generics   Drug Delivery   Consol-idated Specialty Generics   Drug Delivery   Consol-idated Net income (loss) $ 2,801 $ (2,485 ) $ 316 $ 6,012 $ (1,598 ) $ 4,414 Provision (benefit) for income taxes 1,025 - 1,025 (1,525 ) - (1,525 ) Interest expense (income) 71 (207 ) (136 ) 19 (131 ) (112 ) Depreciation & amortization   1,579   174     1,753     1,347     185     1,532   EBITDA $ 5,476 $ (2,518 ) $ 2,958   $ 5,853   $ (1,544 ) $ 4,309   EBITDA is calculated as earnings before interest, income taxes, depreciation and amortization. The Company uses EBITDA as a supplemental financial measure of its operational performance. Management believes EBITDA to be an important measure as it excludes the effects of items which primarily reflect the impact of long-term investment decisions, rather than the performance of the Company’s day-to-day operations. The Company believes that this measurement is useful to measure a company’s ability to service debt and to meet other payment obligations or as a valuation measurement. As compared to net income according to GAAP, this measure is more limited in scope because it does not reflect the periodic costs of certain capitalized tangible and intangible assets used in generating revenues in the company’s business. Management evaluates those items through other financial measures such as capital expenditures and cash flow provided by operating activities. Management will host a conference call at 10:00 A.M. EST on March 13, 2008 to discuss Bentley's fourth quarter and full year 2007 results. To participate on the live call, please dial (888) 332-7254 from the U.S. and Canada or, for international callers, please dial (973) 582-2856 (access code 33823748), approximately 10 minutes prior to the scheduled start time. A telephone replay will be available for 30 days by dialing (800) 642-1687 from the U.S. and Canada or (706) 645-9291 for international callers (please reference reservation number 33823748). The conference call will also be broadcast live on the Internet and may be accessed via Bentley’s website, www.bentleypharm.com. Please go to the Company’s website approximately 10 minutes prior to the scheduled start time to register. A replay of the conference will also be available on Bentley’s website for 90 days. Bentley Pharmaceuticals, Inc. is a specialty pharmaceutical company focused on advanced drug delivery technologies and generic pharmaceutical products. Bentley's proprietary drug delivery technologies enhance the absorption of pharmaceutical compounds across various membranes. Bentley manufactures and markets a growing portfolio of generic and branded generic pharmaceuticals in Europe for the treatment of cardiovascular, gastrointestinal, infectious and central nervous system diseases through its subsidiaries -- Laboratorios Belmac, Laboratorios Davur, Laboratorios Rimafar and Bentley Pharmaceuticals Ireland. Bentley also manufactures and markets active pharmaceutical ingredients through its subsidiary, Bentley API. Additional information regarding Bentley Pharmaceuticals may be obtained through Bentley's website at www.bentleypharm.com. Safe Harbor Statement under the Private Securities Litigation Reform Act of 1995: This press release contains forward looking statements, including without limitation statements regarding Bentley’s plans for separating its drug delivery and specialty generics businesses and exploring strategic alternatives for its specialty generics business, future prospects for the two businesses as independent companies, anticipated completion of clinical trials, the application of the Company’s CPE-215 technology to complex molecules in addition to testosterone, growth prospects for the Company’s drug delivery and specialty generics businesses, and Bentley’s plans to continue increased spending on research and development in 2008. These forward-looking statements are subject to a number of risks and uncertainties that could cause actual results to differ materially from future results expressed or implied by such statements. Factors that may cause such differences include, but are not limited to, risks associated with the following: clinical trials, the timing and nature of regulatory approvals, changes in third-party reimbursement and government mandates that impact pharmaceutical pricing, development and commercialization of Bentley’s proprietary products and formulations, competition from other manufacturers of generic and proprietary pharmaceuticals, intellectual property litigation, the efficacy and safety of Bentley’s products, the unpredictability of patent protection, international operations, and other uncertainties detailed under "Risk Factors” in Bentley’s most recent Annual Report on Form 10-K and its other subsequent periodic reports filed with the Securities and Exchange Commission. Bentley cautions investors not to place undue reliance on the forward-looking statements contained in this release. These statements speak only as of the date of this document, and Bentley undertakes no obligation to update or revise the statements, except as may be required by law. Bentley Pharmaceuticals, Inc. and Subsidiaries Consolidated Income Statements (Unaudited)   (in thousands, except per share data) For the Three Months Ended December 31, For the Year Ended December 31, 2007 2006 2007 2006 Revenues: Net product sales $ 31,401 $ 24,690 $ 112,999 $ 100,590 Licensing and collaboration revenues 3,368 2,364 11,688 8,881 Total revenues 34,769 27,054 124,687 109,471 Cost of net product sales 17,872 12,668 64,010 49,850 Gross profit 16,897 14,386 60,677 59,621 Operating expenses: Selling and marketing 5,185 4,277 18,523 16,153 General and administrative 4,957 3,481 16,973 14,801 Research and development 4,406 2,609 13,600 10,459 Litigation settlement — 645 — 10,914 Separation costs 867 — 2,020 — Depreciation and amortization 516 554 2,059 1,895 Total operating expenses 15,931 11,566 53,175 54,222 (Loss) gain on sale of drug license (111 ) 38 (111 ) 38   Income from operations 855 2,858 7,391 5,437 Other income (expenses): Interest income 386 159 1,092 820 Interest expense (250 ) (49 ) (598 ) (158 ) Other, net 350 (79 ) 434 (43 ) Income before income taxes 1,341 2,889 8,319 6,056 Provision (benefit) for income taxes 1,025 (1,525 ) 5,534 5,082 Net income $ 316 $ 4,414 $ 2,785 $ 974 Net income per common share: Basic $ 0.01 $ 0.20 $ 0.12 $ 0.04 Diluted $ 0.01 $ 0.19 $ 0.12 $ 0.04 Weighted average common shares outstanding: Basic 22,391 22,242 22,339 22,141 Diluted 23,322 22,735 22,957 23,068 Bentley Pharmaceuticals, Inc. and Subsidiaries Consolidated Balance Sheets (Unaudited)   (in thousands, except per share data) December 31, 2007 December 31, 2006 Assets   Current assets: Cash and cash equivalents $ 33,706 $ 12,424 Marketable securities 1,010 3,177 Receivables, net 39,324 32,963 Inventories 17,658 16,279 Deferred taxes 1,067 1,049 Prepaid expenses and other 2,015 1,798 Total current assets 94,780 67,690   Non-current assets: Fixed assets, net 59,191 48,556 Drug licenses and related costs, net 16,624 16,026 Restricted cash 1,000 1,000 Deferred taxes 676 240 Other 925 844 Total non-current assets 78,416 66,666 Total assets $ 173,196 $ 134,356 Liabilities and Stockholders’ Equity   Current liabilities: Accounts payable $ 19,413 $ 14,566 Accrued expenses 10,019 9,704 Short-term borrowings 116 247 Current portion of long-term debt 608 307 Deferred income 1,186 1,045 Other current liabilities 1,137 1,518 Total current liabilities 32,479 27,387   Non-current liabilities: Long-term debt 15,595 — Deferred income 5,976 3,899 Other 3,074 2,739 Total non-current liabilities 24,645 6,638 Commitments and contingencies Stockholders’ equity: Preferred stock, $1.00 par value, authorized 2,000 shares, issued and outstanding, none — — Common stock, $0.02 par value, authorized 100,000 shares, issued and outstanding, 22,376 and 22,262 shares 447 445 Additional paid-in capital 143,269 140,030 Accumulated deficit (46,636 ) (49,016 ) Accumulated other comprehensive income 18,992 8,872 Total stockholders’ equity 116,072 100,331 Total liabilities and stockholders’ equity $ 173,196 $ 134,356