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Executive Summary

SMITH LABS CHYMODIACTIN UNIT VOLUME DOWN IN SECOND QUARTER due to a decline in the number of chemonucleolysis procedures being performed, and the market entry of Baxter Travenol's Discase brand of chymopapain, Smith Labs President Henry Kuehn said May 22 at an Alex Brown & Sons seminar in Baltimore. Revenues for the three months ended April 30 slipped 23.4% to $6.3 mil., the company announced, with net income slumping 70.2% to $1.77 mil. Smith expects the third and fourth quarters to "mimic" second quarter results, according to Kuehn Kuehn attributed the decline in chemonucleolysis procedures to several factors. First, he pointed out, chemonucleolysis was a "totally new procedure" when Smith Labs introduced Chymodiactin in November 1982. "It hit the market, everybody tried it, everybody had his back injected who had a bad back, and there were a number of reactions to it," Kuehn said. The backlog of patients eligible for chymopapain treatments now has dissipated, he noted, and new patients are becoming "much more selective" in their choice of treatment. Second, the firm is seeing a "weeding out" among surgeons performing the procedure, Kuehn continued. Of the 6,200 surgeons trained to perform chymonucleolysis last year, Smith Labs expects that ultimately, "no more than 3,000 or 3,500 surgeons" will be doing the procedure, he maintained. Those physicians will become chemonucleolysis "specialists," he predicted. Discase, Kuehn maintained," has had remarkably little success in gaining any sort of sizable market share." Smith Labs, however, is beginning to see some price discounting "in selected accounts . . . [but] no more than 5-10%," he added. On the internatl. front, Smith expects to receive marketing approval for Chymodiactin in Britain, Canada and Germany by the end of the year, Kuehn said. The product recently was cleared for marketing in France, he added. Internatl. licensing agreements should add about $1 mil. to 1984 revenues, the company predicts. Smith Labs is understood to be discussing with FDA the possibility of revised labeling for Chymodiactin due to the occurrence of three instances of transverse myelitis-related paraplegia following chemonucleolysis procedures ("The Pink Sheet" May 21, T&G-6). Chymodiactin labeling already reports one case of transverse myelitis, but notes that a causal relationship had not been established since the onset of the event occurred three weeks after the procedure was done. The future of the company will depend on its ability to identify and market new products, Kuehn emphasized. Smith Labs has contracted several consultants to help the firm in its search, he said. The company is targeting products that fit into the firm's existing market niche, such as foreign products that could be repackaged or put in new dosage forms for orthopedic and neurosurgeons, as well as products where the company can exploit its "expertise" in moving products through the regulatory system. Smith Labs has about $35 mil. from its public offering available for new business development, he noted.

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