Connetics expects second-quarter results below guidance, withdraws full-year estimates

By E. Janene Geiss

Philadelphia, July 10 - Connetics Corp. said Monday that it expects revenues and earnings per share for the second quarter and for the full-year 2006 to be materially below the amounts included in the guidance that the company provided on May 3.

In addition, the company also said it is withdrawing its 2006 financial guidance previously provided on May 3. And the company said it expects to provide an update on its business and second-quarter results in August.

The shortfall in second-quarter revenue is due, in part, to the company's decision to reduce wholesaler inventory by shipping product volumes that were below estimated prescription demand and due to lower product orders from an international distributor, according to a company news release.

By shipping less than demand, overall wholesaler inventory levels for the company's products have been reduced by about $7 million, a greater amount than originally planned, officials said.

The company said it estimates that wholesalers had on average about 3½ months of inventory on hand as of June 30.

The company said it intends to continue to ship below estimated prescription demand during the remainder of 2006 with a goal of further reducing average wholesaler inventory levels to about two months on hand by the end of 2006.

Connetics said on May 3 that it has delayed filing its form 10-Q for the first quarter of 2006 until completion of a restatement of financial statements for the year ended Dec. 31, and potentially additional periods, which will affect the financial statements to be included in its quarterly report on form 10-Q.

Connetics has said it determined that its rebate reserves as of the end of 2005 were understated and that the rebate accruals had not been adequately capturing the full liability associated with units at distributors.

The company said it has largely completed its internal work regarding its reserves analysis and is evaluating and resolving items in addition to rebate reserves that could materially impact the restated periods or the company's results for the first quarter of 2006.

Completion of the restatement remains subject to further review by the company's audit committee and independent auditors.

Connetics said it will file its form 10-Q for the first quarter of 2006 as well as its restated financial statements in amendments to prior reports with the Securities and Exchange Commission as soon as is practicable.

Connetics is a specialty pharmaceutical company focused on dermatology products.

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