BRIAN GALLAGHER - COLLAGENEX PHARMACEUTICALS INC (CGPI)
CEO Interview - published 07/08/2002

DOCUMENT # PAX638

BRIAN M. GALLAGER, PhD, is the Chairman, President and Chief Executive
Officer of CollaGenex Pharmaceuticals, Inc., and has been with the
company since 1994. Dr. Gallagher previously was employed by Bristol-
Myers Squibb between 1988 and 1994 in a number of executive positions in
strategic planning, business development, marketing and as President of
Squibb Diagnostics, a $350 million division. Prior to Bristol-Myers,
between 1978 and 1988, Dr. Gallagher held a number of research,
development, marketing and business management positions with the
pharmaceuticals division of E.I. du Pont de Nemours. He began his career
in 1974 in the Chemistry Department of the Brookhaven National
Laboratory as a research scientist. He currently also serves on the
Board of Directors for Adams Laboratories, a privately held, specialty
pharmaceutical company in the respiratory medicine field. 

SECTOR - BIOTECHNOLOGY

TWST: Would you begin with a brief historical sketch of CollaGenex and
an overview of the things you're doing now?

Dr. Gallagher: CollaGenex was founded just over 10 years ago in 1992
based on technology that derives from the State University of New York
at Stony Brook. It involved the discovery that a certain class of well-
known antibiotics ' namely, the tetracyclines ' had properties that were
unique and distinct from their anti-microbial properties. These distinct
properties include the ability to inhibit the inflammatory cascade and
the destruction of the connective tissue in a wide range of acute and
chronic diseases. This forms the platform for the company's fundamental
IMPACS' (Inhibitors of Multiple Proteases and Cytokines) technology. Our
lead product, which is derived from the IMPACS technology, is called
Periostat', and it is the first and only pill-based systemic therapy for
treating adult periodontitis, more commonly called gum disease. We
developed this product internally and launched it to the professional
dental market in 1998. We have a 120-person professional detailing
force, and to date, over 2 million prescriptions have been filled since
launch. Periostat continues to gain increased acceptance by the dental
community and it is the first and only oral prescription periodontal
drug to receive the Seal of Acceptance by the American Dental
Association. Although we originated in the dental pharmaceutical area,
as we'll be talking about later, we are a diversified specialty
pharmaceutical company that is rapidly moving into both the dermatology
and the oncology areas.

TWST: And there's no other product out there that is comparable to
Periostat?

Dr. Gallagher: That's correct. Periostat is the only pill-based therapy.
There are other pharmaceutical products for treating adult periodontal
disease, primarily locally-applied antimicrobial (LAA) products. We
market an LAA under an exclusive license from Atrix Laboratories, and it
is called Atridox'. It is a locally applied liquid anti-microbial agent
that is administered into the pocket between the tooth and the gum
tissue. When in place, the liquid solidifies and releases high levels of
the antibiotic doxycycline over a two-week time period, which kills the
bacteria that initiates this whole process. It's not a competitive
product. It's actually complementary to Periostat since it works by a
different mechanism of action. However, Atridox does have two other
competing products. One is a product from Dexcel Pharma, called
Periochip, which is another locally applied anti-microbial, and the
other is a product called Arestin, being marketed by OraPharma. However,
Atridox has by far the strongest clinical data and the only LAA with an
FDA-approved claim for improved attachment level (between the gums and
the teeth).

TWST: Roughly how many people in this country have the kind of gum
disease that can be dealt with by Periostat?

Dr. Gallagher: With respect to periodontal disease, it's estimated that
somewhere around 67 million Americans, or one out of every three adults,
have some form of the disease. About 25 million people of those affected
by the disease have moderate to more severe disease, which involves deep
pocketing around the tooth and some bone loss. It's a very common
disorder ' one of the most common disorders there is. So the market
potential is very large for innovative therapies. As I've said,
Periostat is the only pill-based therapy that has ever been conceived
for this purpose. So we're in a very good position.

TWST: Attitudes today seem to favor you in that a lot of people accepted
things that were wrong with their teeth and gums in the past and they
don't want them to be that way anymore.

Dr. Gallagher: You're exactly right. The other factor that plays very
well for the future of CollaGenex and for our products is that the aging
population ' the so-called baby boomer population ' has a very different
attitude toward health care than even a generation ago. The vast
majority of people who are now turning 50 years of age, unlike a
generation ago, still have their teeth and want to keep them. They are
willing to accept new approaches, such as taking medications, if they
believe that it will actually help them to keep their teeth. This is not
only for cosmetic reasons but also for health reasons. There have been
several reports, both in the scientific literature and in the popular
press over the last couple of years, where researchers have reported
that people who have periodontal disease ' particularly periodontal
disease that's poorly managed ' are frequently at much higher risk to
develop certain cardiovascular problems such as heart attacks and
strokes. They also have a much higher predisposition to develop diabetes
and osteoporosis. In females, there's a much higher tendency for them to
give premature birth to infants.  There are a number of disorders that
have become linked with periodontal disease. I think people are becoming
increasingly aware of that, realizing that the worst thing that could
happen may not just be that you would lose your teeth; you might be
putting yourself at risk for something far more serious.

TWST: It's an amazing connection, I must say.

Dr. Gallagher: A lot of these studies have been done retrospectively,
where people went back and looked at populations of people who were
diagnosed with periodontal disease, and then experienced the incidence
of heart attacks in this population versus individuals without
periodontal disease. It's very difficult to do a prospective study. A
number of people have looked at this area now, and I think there
probably is a correlation between these diseases.

TWST: I've heard of cases where severe gum problems occurred because
something went wrong with implants. Does that occur very often?

Dr. Gallagher: It does occur and is not uncommon. In fact, although
Periostat is not approved for treating a condition called peri-
implantitis, which is periodontitis associated with dental implants,
dentists, oral surgeons and periodontists have successfully prescribed
Periostat for that purpose.

TWST: Would you explain what you're doing outside the dental area?

Dr. Gallagher: Our interest in dermatology derives largely from a
serendipitous discovery. After Periostat had been on the market for
several months, we began hearing numerous anecdotal reports of patients
who were taking Periostat for their gum disease who were reporting
dramatic improvements in their dermatological conditions, principally
acne and/or rosacea. At first we were skeptical that there could be a
real connection between Periostat and these improvements, so last year
we conducted a 60-patient double-blinded, placebo-controlled clinical
trial to evaluate Periostat versus placebo in patients with mild to
moderate acne. What we discovered was that, indeed, Periostat was highly
effective in reducing the number of comedones, also known as blackheads,
and inflammatory lesions in these patients, who experienced on average a
greater than 50% reduction in comedones and inflammatory lesions. The
reason we're excited about this discovery is that Periostat has already
been approved by the FDA and is on the market. Safety has been fully
established. Therefore, we are planning to conduct a larger clinical
trial and submit that data to the FDA to seek additional indications for
applications in dermatology. We have been working with the thought
leaders in dermatology on the design and management of our clinical
trials, and they have expressed great enthusiasm about the prospect of a
drug to treat acne and rosacea that is efficacious with virtually no
side effects. As a part of our strategy in dermatology, we're also
actively seeking to in-license existing dermatology products so we can
start building a commercial presence in the dermatology market. In
February, we licensed a novel drug delivery technology, named
RestoradermTM, which is designed to enhance the dermal delivery of a
variety of active ingredients and will form the basis for a proprietary
and differentiated portfolio of topical dermatological pharmaceuticals.
The number of people suffering from acne and rosacea is estimated to be
somewhere between 15 million and 20 million people. I suspect that's
underestimated. Last year $1.2 billion was spent in prescription
pharmaceuticals to treat acne and rosacea. That number increased 16% in
2001 over the previous year. that We're quite excited to be able to
participate in this large and rapidly growing segment.

TWST: What is rosacea?

Dr. Gallagher: Rosacea is another inflammatory skin condition, mostly
confined to the face and upper-body, which is characterized by reddening
followed by the appearance of inflammatory lesions, typically on the
cheeks and the nasal area. As the disease progresses, the patient
develops lesions that look very much like acne. However, the disease
occurs in middle-aged people, not in adolescents or in young people
typically seen with acne. Rosacea, in its final stages, can produce a
permanent disfigurement.  Acne has two patient populations. The first
includes patients who are in their pre-teens through their early 20s.
The second patient population are women of childbearing age,
particularly those who undergo wide hormonal swings from using oral
contraceptives. This actually is the largest growing segment of the acne
market ' the middle-aged female population.

TWST: What do you worry about? What obstacles or impediments could there
be to your success?

Dr. Gallagher: Even though Periostat has been on the market for three
years, a pill-based therapy is still a relatively new concept and
approach to the treatment of this disease. One can never predict with
certainty what the market acceptance of a novel therapy will be. From a
competitive standpoint, there is nothing I can foresee at this point
that would directly affect us.  The dermatology area is a more crowded
segment. There are a number of companies, large and small, participating
in this market. But again, Periostat appears to be efficacious in
treating acne with virtually no side effects. That suggests that the
product can be taken over long periods of time with an outstanding
safety record. I think that we're in a very strong competitive position
as far as that goes.

TWST: What are your feelings about acquisitions, joint ventures,
partnerships, etc.?

Dr. Gallagher: We would view any of these as a major opportunity for us
to grow the company. I spend a good deal of my time in this regard '
looking for strategic opportunities, both on the product acquisition
phase and in terms of potential mergers or other acquisitions.

TWST: What would you look for in a company that you would merge with or
acquire?

Dr. Gallagher: We have communicated to the market that we expect to turn
profitable next quarter. We would like to post a profit for the full
calendar year 2002. Therefore, we probably wouldn't want to acquire
anything that would be dilutive to our earnings objectives. We're
looking for products that are either already on the market or are very
close to the market and that have largely overcome any development
risks. We're looking for products that would be accretive from day one
to our revenue and earnings growth.

TWST: Can you tell us about the company's management style and general
culture?

Dr. Gallagher: Most of the senior management, including myself, have
significant prior experience in large pharmaceutical companies. My
background was at Bristol-Myers Squibb. Before that, I was at DuPont
Pharmaceuticals, which of course was recently acquired by Bristol-Myers
Squibb. Another key member of our group is David Pfeiffer, who's our
Senior Vice President of Sales and Marketing. Prior to joining
CollaGenex in 1997, he held various positions ' mostly in the marketing
area, with both Smith-Kline-Beecham and AstraZeneca. Doug Gehrig is our
Vice President of Sales. He had a longstanding career at Johnson &
Johnson with McNeil Laboratories, as well as prior experience with
Warner Lambert. Robert Ashley is our Senior Vice President of Commercial
Development. He was a colleague of mine at Bristol-Myers Squibb. Before
that, he was with Amersham Corporation in the UK, in a wide range of
technical and business positions. Nancy Broadbent is our Chief Financial
Officer. She was formerly CFO for a couple of high profile biotechnology
companies, including Human Genome Sciences and Cangene Corporation. She
also has 11 years of investment banking experience with Salomon Brothers
and PaineWebber. Michael Romanowicz is our Vice President of
Professional Affairs and Managed Care and is also a licensed dentist.

Dr. Romanowicz was with Independence Blue Cross and managed their
pharmacy programs prior to joining CollaGenex. Lastly, a recent addition
to our team is Jeffrey Day, who's our Vice President of Dermatology. He
comes with 14 years of experience from Ferndale Laboratories, which is a
private dermatology company in Michigan, and the dermatology division of
Allergen. Jeff heads up our strategic initiatives in the dermatology
area.

TWST: How many employees do you have overall?

Dr. Gallagher: We have about 155 employees, of whom about 135 are in
sales and marketing. We consider sales and marketing to be a key core
competency for the company, although we certainly have ' as evidenced by
our ability to get Periostat through the FDA ' internal development
capabilities as well.

TWST: Would you just tell us how you handle your sales force? Is there
anything distinctive about your approach to sales?

Dr. Gallagher: I think our sales force is highly experienced. We have
recently converted our sales force from a paper-based reporting system
to a handheld computer automated system. The sales force is very well
managed by a group of experienced managers. Communication is rapid
throughout the team. We have all the sophisticated electronic tracking
sources in place so we know exactly the levels of business being carried
out by each of our representatives and can manage their performance very
closely.

TWST: At some point do you expect to do a lot of business beyond the
borders of the United States?

Dr. Gallagher: We do have partners outside the United States in several
areas ' primarily in Europe, the Middle East, Canada and Japan.
Periostat is being marketed in the UK through our partner, Dexcel
Dental. We are finishing the process of obtaining final marketing
approvals for other European countries. We announced a few months ago
that we now have approvals in more than half of the European countries.
We're expecting further approvals throughout the rest of this year.

TWST: Where would you reasonably expect the company to be, let's say, in
about 2005? What would be some of the milestones that you might pass
along the way that investors should keep their eye open for?

Dr. Gallagher: I think first and foremost is what I mentioned earlier,
and that is our turning profitable in 2002. We expect to continue the
growth in our profitability, certainly over the 2002 to 2005 time frame.
By 2005, we believe that our dermatology business will be significant
and highly profitable, complementing our ongoing dental pharmaceutical
business. We have had a longstanding collaboration with the National
Cancer Institute ' the NCI ' to develop a drug called Metastat'. We are
currently conducting Phase II studies in HIV-related Kaposi's sarcoma '
KS as it's called ' which is the most common malignancy associated with
HIV. We've previously announced some very dramatic results and we appear
to be observing the same types of results in the current Phase II
trials. It is possible that by 2005 we could have Metastat on the market
for treating this condition as well. Metastat is a once-a-day, pill-
based therapy and, if successful, it would be the only effective pill-
based therapy for treating this disease. The current drugs that are
used, such as Taxol and Doxil, require two to four-hour intravenous
infusions, and the patient has to take time off from work and go into
the hospital or clinic every two to three weeks.

TWST: How well are you understood by the Street at this point?

Dr. Gallagher: I think we're probably not well understood by the Street.
I think the fact that our first product is in the dental area
immediately leads to confusion, with potential investors thinking that
we're a dental company instead of a specialty pharmaceutical company.
There are a number of dental supply companies, and these tend to be much
lower-margin businesses. We are a specialty pharmaceutical company that
earns pharmaceutical-type gross margins. I think we've worked hard to
try to correct that impression that people may have and our
institutional ownership has grown substantially.  I think the market
also needs to understand that, in the specialty pharmaceutical arena,
we're rapidly entering the dermatology area with Periostat for acne and
the potential applications for the Restoraderm technology. The total
prescription market for dermatology products is between $5 billion and
$6 billion; so even penetrating just a small piece of that for a company
such as ours can have very dramatic impact on our growth prospects.
We're also a technology-rich company with a pipeline. We have near-term,
middle-term and longer-term drivers to our business.

TWST: Can you give us the three or four best reasons why the long-term
investor should take a good look at CollaGenex?

Dr. Gallagher: First, management is committed to rapid revenue and
earnings growth in the very near term to drive shareholder value. Last
year, total revenues increased about 40% over the prior year. We've also
been very aggressive in executing our strategy by acquiring new products
through license and co-promotion agreements. We also possess a very rich
product line, and the drug delivery technology to back it up ' both
middle term and long term. We continue to make excellent progress in
developing our pipeline ' most notably, in the cancer and dermatology
areas. And we're executing on our strategy to grow the business.

TWST: Is there a closing statement that you would like to make?

Mr. Gallagher: The investment community needs to understand that we are
different from many of the other specialty pharmaceutical companies. We
are on the verge of profitability, and that's going to happen very
quickly. At the same time, we have middle-term and longer-term pipelines
that are going to be the key drivers over the next several years.

TWST: Thank you. (MC)

BRIAN M. GALLAGHER
 Chairman, President & CEO
 CollaGenex Pharmaceuticals, Inc.
 41 University Drive
 Suite 200
 Newtown, PA 18940
 (215) 579-7388
 (215) 579-8577 - FAX
 www.collagenex.com

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Copyright 2002 The Wall Street Transcript Corporation
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