NEWS RELEASE for February 12, 2004 at 9:04 AM EST

Contact:            Allen & Caron Inc                                                                       CLOSURE Medical Corp        

Joe Allen (investors)                   Len Hall (media)                         Benny Ward, CFO

212-691-8087                             949-474-4300                             919-876-7800

                        joe@allencaron.com                   len@allencaron.com       

CLOSURE MEDICAL REPORTS CONTINUED GROWTH IN REVENUE AND NET INCOME FOR FOURTH QUARTER AND FISCAL YEAR 2003 

Market Acceptance of Key Products Drives 47 Percent Annual Revenue Growth   

RALEIGH, NC (February 12, 2004) … CLOSURE Medical Corporation (Nasdaq:CLSR), a global leader in biomaterial-based medical devices, today announced results for the fourth quarter and fiscal year ended December 31, 2003, and provided revenue and earnings guidance for the first quarter of 2004.

Fourth-quarter revenues increased 40 percent to $9.5 million, from $6.8 million during the same period of 2002.  Full-year revenues increased by 47 percent, totaling $35.0 million, versus $23.7 million in the 2002 period.  DERMABOND adhesive continued to be the Company’s main revenue contributor, driven by the early-2003 introduction of High-Viscosity DERMABOND, a thicker, easier to use formulation.  Introduced into international markets in 2003, BAND-AID® Brand Liquid Bandage continued to provide significant revenue growth in just its second year of availability in the U.S.

 

Net income for the fourth quarter of 2003 was $2.3 million, or $0.15 per share, compared to prior-year adjusted net income of $1.2 million, or $0.08 per share.  Full-year 2003 net income was $7.8 million, or $0.54 per share, representing an increase of 187 percent over adjusted 2002 net income of $2.7 million.  The adjusted net income for the 2002 periods assumes the Company was required to report fully-taxed earnings at a 36 percent tax rate, as well as the elimination of a tax benefit recorded during the periods.  The reported net income for the three- and twelve-month periods ended December 31, 2002, was $7.7 million and $10.1 million, respectively.

 

Daniel A. Pelak, President and CEO, commented, “Our financial performance in 2003 was unprecedented for CLOSURE, and we set forth a number of initiatives that we feel will provide a platform for long-term growth at CLOSURE.  We enhanced the design of the DERMABOND delivery system by introducing ProPen and ProPen XL, which we launched in the U.S. in January 2004.  By providing greater precision of application and control, we believe that these devices could increase the market penetration of DERMABOND.  We also reorganized the management structure and added new senior executives in order to execute our strategy and continue growing the Company.”

 

Pelak continued, “Looking ahead, we are excited about the prospects for 2004.  The strategic plan we adopted last year calls for continuing extensions of the current product portfolio, as well as a road map for expanding the core technology into new products, applications and markets.  With our new synthetic vascular sealant product, we are now applying our core technology in an application inside the human body for the first time.  Our pilot study for this product is now complete and, given the positive results thus far, we anticipate beginning the definitive study in the first half of 2004.”

 

Gross margins for both the fourth quarter and year ended December 31, 2003 were 76 percent, up from 74 and 73 percent, respectively, in the comparable 2002 periods.  The improvement in gross margins during the 2003 periods is primarily attributable to increased efficiencies in both the automation of a filling process and the expansion of our adhesive manufacturing scale.  The Company’s fourth-quarter and full-year 2003 operating margins also improved to 36 and 34 percent, respectively, compared to 25 and 17 percent in the corresponding 2002 periods.

 

“Our solid financial performance during 2003 demonstrates the operating leverage of our business model and its ability to generate positive cash flow.  Our commitment to operational efficiency and expense control provided cash flow from operations of $11.5 million.  Total cash and investments increased by $16.4 million, totaling $33.4 million at December 31, 2003,” said Benny Ward, VP of Finance and CFO.

 

Revenues for the first quarter of 2004 are expected to be in the range of $10.1 to $10.7 million, and earnings per share are expected to be in the range of $0.13 to $0.16.  These estimates include a one-time revenue reduction of $490,000 for incentive payments to be made by CLOSURE to ETHICON, INC., a Johnson & Johnson Company.  These incentive payments are being made to resolve issues related to the payment provisions of the supply and distribution agreement for the DERMABOND product and to maintain goodwill and the positive relationship between the companies.  The Company maintains its current full-year 2004 guidance for revenue and earnings per share of $45.0 to $47.0 million and $0.65 to $0.70 per share, respectively.

 

About CLOSURE Medical Corporation

CLOSURE Medical Corporation is a global leader in the development and manufacture of innovative biomaterial-based medical devices that fulfill the needs of healthcare practitioners, patients and consumers.

 

For additional information on CLOSURE Medical visit its website at www.closuremed.com or visit the "Clients" section of the Allen & Caron website at www.allencaron.com.

 

This release contains certain forward-looking statements which involve known and unknown risks, delays, uncertainties or other factors not under the Company's control which may cause actual results, performance or achievements of the Company to be materially different from the results, performance, or other expectations implied by these forward-looking statements. These factors include, but are not limited to the early stage of commercialization of the Company’s products; the progress of its research and development programs for future products; the need for regulatory approval and effects of governmental regulation; technological uncertainties; the satisfactory conclusion of negotiations with, and dependence on marketing partners, and dependence on patents and trade secrets, as well as those detailed in the Company's Annual Report on Form 10-K for the year ended December 31, 2002, filed with the Securities and Exchange Commission.  Although the Company believes that the expectations in the forward-looking statements are reasonable, the Company cannot guarantee such results.  The Company undertakes no obligation to publicly revise these forward-looking statements to reflect events or circumstances that arise after the date hereof.

 

CLOSURE Medical Corporation

 

Reconciliation of Non – GAAP Financial Measures

 

(In thousands)

 
   
 

THREE MONTHS ENDED

TWELVE MONTHS ENDED

 

DECEMBER 31, 2002

DECEMBER 31, 2002

               

Net income, as reported

$

7,739

   

$

10,123

 

Reversal of tax expense recorded

 

(5,941)

     

(5,864)

 

Income before income taxes, as reported

 

1,798

     

4,259

 

Tax expense assuming a 36% tax rate

 

647

     

1,533

 

Adjusted net income

$

1,151

   

$

2,726

 

CLOSURE Medical Corporation
Statement of Operations
(In thousands, except per share data)

     

THREE MONTHS ENDED

 

TWELVE MONTHS ENDED

     

DECEMBER 31,

 

DECEMBER 31,

     

2003

 

2002

 

2003

 

2002

                   

Product sales

 

$

9,220

$

6,515

$

33,933

$

22,711

License and product development revenue

   

264

 

258

 

1,054

 

1,020

Total revenues

   

9,484

 

6,773

 

34,987

 

23,731

Cost of products sold

   

2,250

 

1,747

 

8,332

 

6,496

Gross profit

   

7,234

 

5,026

 

26,655

 

17,235

Research, development and regulatory affairs

               

expenses

 

2,103

 

1,519

 

8,134

 

6,436

General and administrative expenses

   

1,716

 

1,799

 

6,592

 

6,855

Total operating expenses

   

3,819

 

3,318

 

14,726

 

13,291

Income from operations

   

3,415

 

1,708

 

11,929

 

3,944

Interest income, net

   

96

 

90

 

312

 

315

Income before income taxes

   

3,511

 

1,798

 

12,241

 

4,259

Provision (benefit) for income taxes

   

1,240

 

(5,941)

 

4,430

 

(5,864)

Net income

 

$

2,271

$

7,739

$

7,811

$

10,123

                   

Shares used in computation of net income

                 

per common share:

                 

Basic

   

13,991

 

13,549

 

13,758

 

13,535

Diluted

   

15,588

 

13,709

 

14,457

 

13,783

                   

Net income per common share:

                 

Basic

 

$

0.16

$

0.57

$

0.57

$

0.75

Diluted

 

$

0.15

$

0.56

$

0.54

$

0.73


CLOSURE Medical Corporation

Balance Sheet Data

(In thousands)

           
     

December 31,

 

December 31,

     

2003

 

2002

           

Cash, cash equivalents and investments

 

$

33,427

$

17,042

Working capital

 

$

30,974

$

16,815

Total assets

 

$

53,768

$

36,747

Total debt obligations

 

$

-

$

336

Total stockholders' equity

 

$

47,428

$

29,190

           

Total shares outstanding

   

14,126

 

13,549