CollaGenex Pharmaceuticals Reports Record Revenues and Profitability in the Third Quarter of 2002; Net Income was $0.03 per Share and Revenues Increased 21% to $11.2 Million.

Business Editors/Health & Medical Writers

NEWTOWN, Pa.--(BUSINESS WIRE)--Oct. 29, 2002

Third quarter of 2002 marks the first quarter of

profitability for CollaGenex

CollaGenex Pharmaceuticals, Inc. (Nasdaq:CGPI) today reported record revenues for the third quarter of 2002.

Total revenues in the third quarter of 2002 increased 21% to $11.2 million compared to $9.2 million in the third quarter of 2001. Net product sales were $10.8 million in the third quarter of 2002, a 29% increase over net product sales of $8.3 million recorded in the third quarter of 2001.

Net income allocable to common stockholders for the third quarter of 2002 was $356,000, or $0.03 per basic and diluted share, compared to a net loss of $2.0 million, or $0.18 per basic and diluted share, in the third quarter of 2001. This marks the company's first quarter of profitability.

"We are extremely gratified to have achieved our goal of attaining profitability," remarked Brian M. Gallagher, PhD, chairman, president and chief executive officer of CollaGenex. "Moreover, we achieved this important milestone for our shareholders while continuing to invest in our pipeline and planned expansion of our dermatology business."

"During the third quarter, we initiated a 160-patient clinical study to evaluate the potential use of Periostat(R) to treat rosacea, and we acquired the rights to our first marketed dermatology prescription product, Pandel(R), a mid-potency topical corticosteroid indicated for the relief of mild-to-moderate inflammatory disorders of the skin, such as atopic dermatitis and psoriasis. Our entire sales force is now fully trained and began making sales calls on dermatologists in early October. We are executing our strategy to become a profitable, diversified specialty pharmaceutical company," continued Gallagher.

CollaGenex recently announced that it has entered into an agreement with Novartis to co-promote Denavir(R), a prescription medication for the treatment of cold sores, to the dental market.

CollaGenex and Merck & Co., Inc. have also extended their agreement for the co-promotion of Vioxx(R) to the dental market through the end of 2003 on substantially the same terms as the original agreement, which was executed in September 1999.

For the nine months ended September 30, 2002, CollaGenex achieved total revenues of $33.0 million, a 32% increase from total revenues of $25.0 million recorded during the nine months ended September 30, 2001. Net product sales for the first nine months ended September 30, 2002 were $31.0 million, a 43% increase over the $21.7 million in net product sales during the corresponding period in 2001.

The net loss allocable to common stockholders for the first nine months of 2002 was $1.4 million, or $0.13 per basic and diluted share, compared to a net loss allocable to common stockholders of $8.2 million, or $0.80 per basic and diluted share, during the first nine months of 2001.

"We are pleased with the significant increases in our net product sales during both the third quarter and first nine months of 2002 compared to the corresponding periods in 2001," commented Nancy C. Broadbent, chief financial officer of CollaGenex. "These increases reflect growth in net sales of Periostat as well as the addition of the Atrix dental products and Pandel."

"Importantly, we achieved this growth while reducing S,G&A expense by redirecting marketing funds toward professional promotion efforts to dentists and reducing direct-to-consumer advertising," Ms. Broadbent continued. "During the first nine months of both 2001 and 2002, we spent approximately $25 million on S,G&A. However, we achieved significantly higher net product sales of $31.0 million in the first nine months of 2002 versus $21.7 million in the corresponding period a year earlier. We also increased our investment in our pipeline, setting a foundation for future growth."

CollaGenex Pharmaceuticals, Inc. is a specialty pharmaceutical company focused on providing innovative medical therapies to the dental and dermatology markets.

The Company's 120-person professional dental pharmaceutical sales force markets Periostat, the first and only pharmaceutical to treat periodontal disease by inhibiting the enzymes that destroy periodontal support tissues, Vioxx, a Merck & Co. drug that CollaGenex co-promotes for the treatment of acute dental pain, Atridox(R), Atrisorb(R) and Atrisorb-D(R), Atrix Laboratories Inc.'s products for the treatment of adult periodontitis and Pandel, a mid-potency prescription corticosteroid licensed from Savage Laboratories.

Research has shown that the enzyme suppression technology underlying Periostat may also be applicable to other diseases involving inflammation and/or destruction of the body's connective tissues, including acne, rosacea, meibomianitis and cancer metastasis, among others.

CollaGenex is further developing Periostat, as well as a series of novel, proprietary compounds known as IMPACS(TM) (Inhibitors of Multiple Proteases and Cytokines), to address these applications.

In addition CollaGenex has licensed the Restoraderm(TM) technology, a unique, proprietary dermal drug delivery system, in order to develop a range of topical dermatological products with enhanced pharmacologic and cosmetic properties.

To receive additional information on the Company, please visit our Web site at www.collagenex.com, which is not a part of this press release.

Periostat(R), Metastat(R), IMPACS(TM) and Restoraderm(TM) are United States trademarks of CollaGenex Pharmaceuticals, Inc. Periostat(R) is a European Community trademark of CollaGenex Pharmaceuticals, Inc.

Periostat(R), IMPACS(TM) and Restoraderm(TM) are United Kingdom trademarks of the Company's wholly owned subsidiary, CollaGenex International Limited. CollaGenex(R) is a European Community and United Kingdom trademark of CollaGenex International Limited.

Pandel(R) is a trademark of Taisho Pharmaceuticals .

VIOXX(R)is a trademark of Merck & Co., Inc.

Atridox(R), Atrisorb(R) and Atrisorb-D(R) are trademarks of Atrix Laboratories, Inc.

Financial Tables Follow

                        Summary Financial Data
                              (Unaudited)
                 (In thousands, except share amounts)

                                      Three Months Ended September 30,
                                               2002            2001
                                               ----            ----
Statement of Operations Data
Revenues:
   Product sales                              $10,767          $8,320
   Contract revenues                              422             913
   License revenues                                40              16
                                         ------------    ------------
                                               11,229           9,249
Operating Expenses:
   Cost of product sales                        1,713           1,274
   Research and development                     1,355           1,024
   Selling, general and administrative          7,420           8,548
                                         ------------    ------------
     Total operating expenses                  10,488          10,846

Other Income (Expense):
   Interest income                                 18              53
   Interest expense                                (3)             (2)
                                         ------------    ------------
Net income (loss)                                 756          (1,546)
   Preferred stock dividend                       400             420
                                         ------------    ------------
Net income (loss) allocable to common
 stockholders                                    $356         $(1,966)
                                         ============    ============

Basic net income (loss) per share
 allocable to common stockholders               $0.03          $(0.18)
                                         ============    ============

Shares used in computing basic net
 income (loss) per share allocable to
 common stockholders                       11,321,679      10,745,876

Diluted net income (loss) per share
 allocable to common stockholders               $0.03          $(0.18)
                                         ============    ============

Shares used in computing diluted net
 income (loss) per share allocable to
 common stockholders                       11,589,483      10,745,876





                                       Nine Months Ended September 30,
                                                2002           2001
                                                ----           ----

Statement of Operations Data
Revenues:
   Product sales                              $31,026         $21,701
   Contract revenues                            1,769           2,812
   License revenues                               162             472
                                         ------------    ------------
                                               32,957          24,985
Operating Expenses:
   Cost of product sales                        4,891           4,156
   Research and development                     3,054           2,842
   Selling, general and administrative         25,248          25,095
                                         ------------    ------------
     Total operating expenses                  33,193          32,093

Other Income (Expense):
   Interest income                                 55             189
   Interest expense                                (5)             (7)
   Other income                                    --               8
                                         ------------    ------------
Net loss                                         (186)         (6,918)
   Preferred stock dividend                     1,229           1,260
                                         ------------    ------------
Net loss allocable to common
 stockholders                                 $(1,415)        $(8,178)
                                         ============    ============

Basic and diluted net loss per share
 allocable to common stockholders              $(0.13)         $(0.80)
                                         ============    ============

Shares used in computing basic and
 diluted net loss per share allocable
 to common stockholders                    11,189,318      10,216,213





Selected Balance Sheet Data:                  Sept. 30,       Dec. 31,
---------------------------                   ---------       --------
                                                2002            2001
                                                ----            ----
Cash, cash equivalents and short-term
 investments                                   $5,137          $6,171
Total current assets                           13,482          13,251
  Total assets                                 16,230          14,698

Total current liabilities                       7,706           6,957
Long-term debt                                     --              --
  Total liabilities                             8,228           7,571

Total stockholders' equity                      8,002           7,127

This press release contains forward-looking statements within the meaning of Section 21E of the Securities and Exchange Act of 1934, as amended. Investors are cautioned that forward-looking statements involve risks and uncertainties that may affect the company's business and prospects.

The company's business of selling, marketing and developing pharmaceutical products is subject to a number of significant risks, including marketing plans; risks inherent in research and development activities; risks associated with conducting business in a highly regulated environment and uncertainty relating to clinical trials of products under development, all as discussed in the company's periodic filings with the U.S. Securities and Exchange Commission.