Penederm Reports Fourth Quarter and Fiscal 1997 Financial Results; Adds $10 Million Equity Line of Credit.

FOSTER CITY, Calif.--(BW HealthWire)--Jan. 29, 1998--Penederm Incorporated (NASDAQ:DERM) today reported financial results for the fourth quarter and fiscal year ended December 31, 1997.

For the year ended December 31, 1997, total revenues increased 210% to $9,005,000 from $2,905,000 in 1996. Net loss was $12,717,000 ($1.59 per share) in 1997, compared to a net loss of $7,643,000 ($1.05 per share) in 1996. Cash and investments totaled $5,621,000 at December 31, 1997.

Product sales increased to $6,341,000 in 1997, compared to $2,258,000 in 1996, primarily due to the commercial launch of the Company's first two pharmaceutical products, Mentax and Avita. License fee revenues increased from $647,000 in 1996 to $2,664,000 in 1997 due to the timing and scope of partnering arrangements. In the fourth quarter the Company announced partnering arrangements with a division of Mylan Laboratories, Inc. for the co-promotion of Mentax to primary care physicians and with a subsidiary of Allergan Incorporated for the distribution of its Mentax and Avita products in Central and South America.

Research and development expenses in 1997 increased 31% to $6,950,000 as a result of the Company initiating two pivotal phase III human clinical studies of its combination product (project name 501 cream) for the treatment of skin fungal conditions. The studies involve 32 clinical sites and approximately 1,600 patients. Sales and marketing expenses increased 614% to $10,103,000 from $1,414,000 in 1996 due to the commercial launch of its two pharmaceutical products.

For the fourth quarter ended December 31, 1997, revenues were $2,214,000, compared to revenues of $943,000 in the fourth quarter of 1996. Net loss in the fourth quarter 1997 was $4,745,000 ($.58 per share), compared to a net loss of $1,726,000 ($.24 per share) in the fourth quarter of 1996.

"We are entering 1998 with several new initiatives completed or near completion. First, our co-promotion arrangement with Mylan adds approximately 100 sales representatives to the Mentax promotion effort. Second, the FDA recently approved a one-week treatment label claim to Mentax which will help differentiate the product in the topical antifungal class. Third, we announced yesterday our collaboration with Alpharma, Inc. on the Acticin scabies product.

Finally, our sales force transition from a contract selling organization to an employee-based, internally managed sales force to represent our pharmaceutical products to dermatologists is nearing completion, stated Lloyd H. Malchow, President and Chief Executive Officer of Penederm. During 1998 we are also looking forward to the launch of the gel formulation of Avita currently scheduled for the end of the first quarter, and the completion of pivotal studies and the filing of an NDA on the combination product for the treatment of skin fungal conditions. The NDA filing is currently scheduled for the second half of 1998. All of these events should make 1998 another year of substantial progress," continued Malchow.

The Company also announced that on January 21, it entered into an agreement with an investment group for an equity line which allows the Company to access up to $10 million through sales of its common stock over a two-year period. The decision to draw any funds and the timing for any such draw is solely at the Company's discretion. Should the Company draw upon the equity line, any shares sold will be at a discount to the average trading price of the Company's common stock over a specified period of time preceding the sale of shares. Drawing under the equity line is subject to the satisfaction of certain conditions, including registration of the shares, a minimum trading price per share, and certain limitations on the number of shares of the Company's common stock being held by the investment group at any point in time. No assurances can be given that the Company will be able to obtain funds when and if it desires to do so.

Penederm is a pharmaceutical company that specializes in development and marketing of dermatology products. The Company has launched MENTAX, a once-a-day prescription topical cream for treatment of skin fungus, and AVITA, a prescription acne cream product. The Company has initiated pivotal phase III human clinical trials of a combination product (project name: 501 cream) for the treatment of skin fungal conditions. Products for nail fungus and psoriasis are in earlier stages of clinical development, along with next-generation MENTAX skin treatment line extensions. The Company also markets its patented Topicare Delivery Compounds as specialty ingredients to major cosmetic companies for incorporation into their commercial products.

Any statements contained in this release that relate to future plans, events or performance, including the scheduled product launch date and product development activities, are forward-looking statements that involve risks and uncertainties, including, but not limited to, product development and market acceptance risks, product manufacturing risks, risks associated with the establishment and management of a sales force, the impact of competitive products and pricing, the results of current and future licensing and other collaborative relationships, the results of financing efforts, developments regarding intellectual property rights and litigation, risks of product nonapproval or delays or post-approval reviews by the FDA or foreign regulatory authorities, and other risks identified in the Company's most recent Form 10-K and other Securities and Exchange Commission filings.

Actual results, events or performance may differ materially. Readers are cautioned not to place undo reliance on these forward-looking statements, which speak only as of the date hereof. The Company undertakes no obligation to publicly release the results of any revisions to these forward-looking statements that may be made to reflect events or circumstances after the date hereof or to reflect the occurrence of unanticipated events. -0-

                         PENEDERM INCORPORATED
            CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
                 (in thousands, except per share data)
                              (unaudited)


                                Three Months Ended     Year Ended
                                  December 31,         December 31,
                                1997        1996      1997      1996

Revenues
     Product sales           $  1,135   $    513   $  6,341 $  2,258
     Licensing revenues         1,079        430      2,664      647
Total revenues                  2,214        943      9,005    2,905

Costs and expenses:
     Cost of product sales        526        341      2,661    1,472
     Sales and marketing        3,074        457     10,103    1,414
     Research and development   2,521      1,152      6,950    5,292
     General and
       administrative             924        807      2,432    2,903
Total costs and expenses        7,045      2,757     22,146   11,081
Loss from operations           (4,831)    (1,814)   (13,141)  (8,176)
Interest income, net               86         88        424      533
Net loss                      $(4,745)  $ (1,726)  $(12,717) $(7,643)

Basic and diluted net
  loss per share              $ (0.58)  $  (0.24)  $  (1.59) $ (1.05)

Number of shares used in
 computing basic and
  diluted net loss per
   share                        8,147      7,299      7,995    7,275

CONTACT: Penederm Incorporated

Michael A. Bates, 415/358-0100

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