Bentley Pharmaceuticals Reports Second Quarter Results

Bentley Pharmaceuticals, Inc. (NYSE: BNT), a specialty pharmaceutical company, today reported financial results for the three and six months ended June 30, 2007. Bentley’s consolidated revenues increased 8% to $31.2 million from $29.0 million reported in the second quarter of 2006. Bentley’s results in the second quarter of 2007 reflect the impact of a full quarter of reduced selling prices on the Company’s Spanish pharmaceutical products. Price reductions were implemented by the Spanish government on March 1, 2007. Increased unit volume has offset the impact of the price reductions on revenues. Revenues remained consistent with the comparable quarter of the prior year when expressed in constant currency. Gross margins on net product sales decreased to 44% in the second quarter of 2007 compared to 53% in the second quarter of 2006. The decrease reflects the impact of price reductions as well as a $0.1 million increase in the inventory obsolescence reserve related to U.S. simvastatin inventories. Bentley’s licensing and collaboration revenues increased $0.3 million in the second quarter of 2007 due to increased royalties on sales of Testim®. Operating expenses increased 16% to $13.4 million in the second quarter of 2007 compared to the same period of the prior year. Included in the operating expenses were increased research and development investments of approximately $1.0 million primarily related to Nasulin™, Bentley’s intranasal insulin product candidate. The combination of reduced gross profit and increased operating expenses resulted in net income of $0.7 million or $0.03 per diluted share in the second quarter of 2007 compared to $2.6 million or $0.12 per diluted share in the second quarter of 2006. John Sedor, president of Bentley, commented on the pricing challenges faced by the Company’s generic business as well as progress made by the Company’s drug delivery business in clinical trials and patent issuances. "This was a challenging three months for our generics business which saw a double digit percentage reduction in pricing for the quarter in our Spanish business. The government reduction in reimbursement rates went into effect in March 2007, and this was the first quarter where we experienced the full impact. We initiated an aggressive price reduction on certain products in our portfolio in the hopes of strengthening our market position. This did yield some increases in volume but overall our market share is unchanged.” Sedor continued, "In our drug delivery business, we are progressing with our U.S. Phase II Nasulin trials. We have also initiated Nasulin Phase II clinical trials in India which are designed for 80-90 patients. We expect the India trials to be completed in early 2008. In June we presented three abstracts of our Nasulin clinical trials at the American Diabetes Association’s 67th Annual Meeting. These abstracts were titled: "Interim Results of a Randomized, Single-Dose, 4-Way Crossover, Pharmacokinetic Study of Intranasal Insulin Spray (Nasulin™), Injectable Regular Insulin (Humulin R®), Injectable Fast-Acting Insulin (Humalog®), and Saline Nasal Spray in Patients with Type I Diabetes Mellitus,” "Results of a Randomized, Single-Dose, 2/3-Way Crossover Comparison Study of Intranasal Insulin Spray (Nasulin™) and Injectable Fast-Acting Insulin (Humalog®) in Normal Nonsmoking and Smoking Subjects,” and "Intranasal Insulin Spray (Nasulin™) in Healthy Subjects: Choice of Nostril”. These presentations created more visibility for Nasulin and effectively communicated our continuing progress in bringing this therapy to the next level.” Mr. Sedor then commented on status of the Company’s patents, "Progress continues on our pending applications with the U.S. Patent and Trademark Office. We are gratified to have received a broad U.S. patent in July which we believe will provide us with far-reaching protection for the use of our intranasal drug delivery technology with other peptides as well as a wide range of peptidomimetics and proteins. Additionally, in April, we filed a Supplementary Reply and more recently filed our Supplemental Response with amendments to our Testim patent claims. Our current patent covering Testim is scheduled to expire in June 2008. We believe a new patent covering testosterone gels utilizing our CPE-215® drug delivery technology will be issued in late 2007 or early 2008 – extending our protection through 2023.” Bentley’s results by operating segment were as follows: (in thousands) For the Three Months Ended June 30, 2007 2006 SpecialtyGenerics DrugDelivery Consoli-dated SpecialtyGenerics DrugDelivery Consoli-dated Revenues $ 28,524 $ 2,655 $ 31,179 $ 26,622 $ 2,361 $ 28,983 Cost of net product sales   15,790   -     15,790   12,471   -     12,471 Gross profit 12,734 2,655 15,389 14,151 2,361 16,512 Operating expenses   8,040   5,400     13,440   7,425   4,155     11,580 Gain on sale of drug license   -   -     -   -   -     - Income (loss) from operations 4,694 (2,745 ) 1,949 6,726 (1,794 ) 4,932 Other income (expenses), net   166   112     278   11   176     187 Income (loss) before income taxes 4,860 (2,633 ) 2,227 6,737 (1,618 ) 5,119 Provision for income taxes   1,517   -     1,517   2,484   -     2,484 Net income (loss) $ 3,343 $ (2,633 ) $ 710 $ 4,253 $ (1,618 ) $ 2,635   EBITDA $ 6,326 $ (2,522 ) $ 3,804 $ 7,948 $ (1,630 ) $ 6,318 Significant components of Bentley’s revenues for the three months ended June 30, 2007 are summarized below: (in thousands) Revenues Within Spain Branded Generics Generics Other Revenues Outside of Spain Total     Product Line           % of Total Revenues Omeprazole $ 410 $ 3,955 $ – $ – $ 4,365 14 % Enalapril 1,237 373 – – 1,610 5 % Simvastatin 204 1,251 – – 1,455 5 % Paroxetine 366 793 – – 1,159 4 % Lansoprazole 910 287 – – 1,197 4 % All other products 2,880 3,353 92 1,157 7,482 24 % Sales to licensees and others – – 3,317 7,768 11,085 35 % Licensing and collaborations   –       –       171       2,655       2,826     9 % Total Revenues $ 6,007     $ 10,012     $ 3,580     $ 11,580     $ 31,179     100 % % of Q2 2007 Revenues 19 % 32 % 12 % 37 % 100 % Significant components of Bentley’s revenues for the three months ended June 30, 2006 are summarized below: (in thousands) Revenues Within Spain Product Line Branded Generics   Generics   Other   Revenues Outside of Spain   Total   % of Total Revenues Omeprazole $ 712 $ 4,310 $ – $ – $ 5,022 17 % Enalapril 1,379 407 – – 1,786 6 % Simvastatin 482 1,492 – – 1,974 7 % Paroxetine 398 799 – – 1,197 4 % Lansoprazole 665 211 – – 876 3 % All other products 2,478 2,609 171 270 5,528 19 % Sales to licensees and others – – 4,285 5,789 10,074 35 % Licensing and collaborations   –       –       166       2,360       2,526     9 % Total Revenues $ 6,114     $ 9,828     $ 4,622     $ 8,419     $ 28,983     100 % % of Q-2 2006 Revenues 21 % 34 % 16 % 29 % 100 % Bentley’s consolidated revenues increased 9% (2% in constant currency) to $62.6 million in the first half of 2007 compared to $57.3 million reported in the first half of 2006. Gross margins on net product sales decreased to 45% compared to 52% in the first six months of 2006. The Spanish price reductions and $0.4 million of inventory reserves and write-downs on U.S. simvastatin inventories have decreased gross profit to $30.9 million in the first six months of 2007 compared to $31.9 million in the first six months of 2006. Bentley’s licensing and collaboration revenues increased $0.9 million or 21% compared to the first six months of 2006, primarily from increased royalties on sales of Testim. Operating expenses increased 5% to $24.7 million compared to $23.6 million in the same period of the prior year. The combination of reduced gross profit and increased operating expenses resulted in net income of $3.0 million or $0.14 per diluted share in the first six months of 2007 compared to $3.8 million or $0.16 per diluted share in the same period of the prior year. Bentley’s results by operating segment were as follows: For the Six Months Ended June 30, 2007 2006 SpecialtyGenerics DrugDelivery Consoli-dated SpecialtyGenerics DrugDelivery Consoli-dated Revenues $ 57,752 $ 4,818 $ 62,570 $ 53,266 $ 3,995 $ 57,261 Cost of net product sales   31,687   -     31,687   25,404     -     25,404 Gross profit 26,065 4,818 30,883 27,862 3,995 31,857 Operating expenses   15,533   9,181     24,714   14,713     8,858     23,571 Gain on sale of drug license   -   -     -   -     -     - Income (loss) from operations 10,532 (4,363 ) 6,169 13,149 (4,863 ) 8,286 Other income (expenses), net   278   221     499   (3 )   383     380 Income (loss) before income taxes 10,810 (4,142 ) 6,668 13,146 (4,480 ) 8,666 (Benefit) provision for income taxes   3,598   -     3,598   4,877     -     4,877 Net income (loss) $ 7,212 $ (4,142 ) $ 3,070 $ 8,269   $ (4,480 ) $ 3,789   EBITDA $ 13,609 $ (3,948 ) $ 9,661 $ 15,490   $ (4,538 ) $ 10,952 Significant components of Bentley’s revenues for the six months ended June 30, 2007 are summarized below: (in thousands) Revenues Within Spain Product Line Branded Generics   Generics   Other   Revenues Outside of Spain   Total   % of Total Revenues Omeprazole $ 961 $ 7,825 $ – $ – $ 8,786 14 % Enalapril 2,551 764 – – 3,315 5 % Simvastatin 570 2,590 – – 3,160 5 % Paroxetine 815 1,690 – – 2,505 4 % Lansoprazole 1,766 601 – – 2,367 4 % All other products 6,340 7,221 367 2,114 16,042 26 % Sales to licensees and others – – 6,987 14,305 21,292 34 % Licensing and collaborations   –       –       285       4,818       5,103     8 % Total Revenues $ 13,003     $ 20,691     $ 7,639     $ 21,237     $ 62,570     100 % % of YTD 2007 Revenues 21 % 33 % 12 % 34 % 100 % Significant components of Bentley’s revenues for the six months ended June 30, 2006 are summarized below: (in thousands) Revenues Within Spain Product Line Branded Generics   Generics   Other   Revenues Outside of Spain   Total   % of Total Revenues Omeprazole $ 1,341 $ 8,693 $ – $ – $ 10,034 18 % Enalapril 2,297 1,130 – – 3,427 6 % Simvastatin 926 2,963 – – 3,889 7 % Paroxetine 775 1,615 – – 2,390 4 % Lansoprazole 1,325 452 – – 1,777 3 % All other products 5,285 5,592 481 627 11,985 21 % Sales to licensees and others – – 6,911 12,614 19,525 34 % Licensing and collaborations   –       –       239       3,995       4,234     7 % Total Revenues $ 11,949     $ 20,445     $ 7,631     $ 17,236     $ 57,261     100 % % of YTD 2006 Revenues 21 % 36 % 13 % 30 % 100 % The Company 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 our "EBITDA” to our net income, the most directly comparable financial measure calculated and presented in accordance with GAAP. (in thousands) For the three months ended June 30, 2007 2006 SpecialtyGenerics DrugDelivery Consoli-dated SpecialtyGenerics DrugDelivery Consoli-dated Net income (loss) $ 3,343 $ (2,633 ) $ 710 $ 4,253 $ (1,618 ) $ 2,635 Provision for income taxes 1,517 - 1,517 2,484 - 2,484 Interest expense (income) (22 ) (112 ) (134 ) 25 (176 ) (151 ) Depreciation & amortization   1,488     223     1,711     1,186   164     1,350   EBITDA $ 6,326   $ (2,522 ) $ 3,804   $ 7,948 $ (1,630 ) $ 6,318   (in thousands) For the six months ended June 30, 2007 2006 SpecialtyGenerics DrugDelivery Consoli-dated SpecialtyGenerics DrugDelivery Consoli-dated Net income (loss) $ 7,212 $ (4,142 ) $ 3,070 $ 8,269 $ (4,480 ) $ 3,789 Provision for income taxes 3,598 - 3,598 4,877 - 4,877 Interest expense (income) (42 ) (224 ) (266 ) 39 (383 ) (344 ) Depreciation & amortization   2,841     418     3,259     2,305   325     2,630   EBITDA $ 13,609   $ (3,948 ) $ 9,661   $ 15,490 $ (4,538 ) $ 10,952   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. Cash, cash equivalents and marketable securities increased to $36.2 million at June 30, 2007 compared to $15.6 December 31, 2006. The increase reflects the closing of a $14.8 million loan agreement with a Spanish financial institution in June 2007. The proceeds will be used to help fund current and future capital and research and development projects. The Company invested $4.3 million in capital additions in the first half of 2007 compared to $7.3 million in the first half of 2006. The Company reaffirms its previous guidance that capital expenditures should be between $13.0 million and $16.0 million and research and development costs should be between $15.0 million and $16.0 million during 2007. Management will host a conference call to discuss the second quarter 2007 results and provide a business update at 10:00 A.M. (Eastern Time) on August 2, 2007. 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. The access code for this call is 8987783. The conference call will also be broadcast live on the Internet and may be accessed via Bentley’s web site, www.bentleypharm.com. Please dial in or log on through Bentley’s web site approximately 10 minutes prior to the scheduled start time. A telephone replay will be available for 30 days by dialing (877) 519-4471 from the U.S. and Canada or (973) 341-3080 for international callers. Please reference reservation number 8987783. A replay of the conference will also be available on Bentley’s web site for 30 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 web site 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 spending on research and development and capital investment in 2007, the prospects and timetable for further clinical development of Bentley’s intranasal insulin program, and the extent of Bentley’s patent portfolio, including the prospects for extension of Bentley’s patent claims covering the Testim product. 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: the timing and results of 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. (tables to follow) Bentley Pharmaceuticals, Inc. and Subsidiaries Consolidated Income Statements   (in thousands, except per share data) For the Three Months Ended June 30, For the Six Months Ended June 30, 2007 2006 2007 2006 Revenues: Net product sales $ 28,353 $ 26,457 $ 57,467 $ 53,027 Licensing and collaboration revenues 2,826 2,526 5,103 4,234   Total revenues 31,179 28,983 62,570 57,261   Cost of net product sales 15,790 12,471 31,687 25,404   Gross profit 15,389 16,512 30,883 31,857   Operating expenses: Selling and marketing 4,813 4,242 9,258 8,381 General and administrative 4,579 3,665 8,225 7,569 Research and development 3,502 2,495 6,177 5,403 Litigation settlement — 733 — 1,337 Depreciation and amortization 546 445 1,054 881   Total operating expenses 13,440 11,580 24,714 23,571   Income from operations 1,949 4,932 6,169 8,286   Other income (expenses): Interest income 185 185 367 438 Interest expense (51 ) (34 ) (101 ) (94 ) Other, net 144 36 233 36   Income before income taxes 2,227 5,119 6,668 8,666   Provision for income taxes 1,517 2,484 3,598 4,877   Net income $ 710 $ 2,635 $ 3,070 $ 3,789   Net income per common share: Basic $ 0.03 $ 0.12 $ 0.14 $ 0.17 Diluted $ 0.03 $ 0.12 $ 0.14 $ 0.16   Weighted average common shares outstanding:   Basic 22,318 22,170 22,305 22,063 Diluted 22,892 22,876 22,695 23,380 Bentley Pharmaceuticals, Inc. and Subsidiaries Consolidated Balance Sheets   (in thousands, except per share data) June 30, 2007 December 31, 2006 Assets   Current assets: Cash and cash equivalents $ 35,661 $ 12,424 Marketable securities 529 3,177 Receivables, net 34,222 32,963 Inventories, net 15,801 16,279 Deferred taxes 1,257 1,049 Prepaid expenses and other 2,116 1,798   Total current assets 89,586 67,690   Non-current assets: Fixed assets, net 51,404 48,556 Drug licenses and related costs, net 16,425 16,026 Restricted cash 1,000 1,000 Deferred taxes 148 240 Other 1,009 844   Total non-current assets 69,986 66,666 $ 159,572 $ 134,356   Liabilities and Stockholders’ Equity   Current liabilities: Accounts payable $ 16,224 $ 14,566 Accrued expenses 12,180 9,704 Short-term borrowings — 247 Current portion of long-term debt — 307 Deferred income 853 1,045 Other current liabilities 1,253 1,518   Total current liabilities 30,510 27,387   Non-current liabilities: Long term debt 14,807 — Deferred income 4,305 3,899 Other 3,772 2,739   Total non-current liabilities 22,884 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, 22,297 and 22,262 shares   445 445 Additional paid-in capital 141,194 140,030 Accumulated deficit (46,351 ) (49,016 ) Accumulated other comprehensive income 10,890 8,872   Total stockholders’ equity 106,178 100,331 $ 159,572 $ 134,356