Gross margin percentage was 80.3% in the third quarter of 2008, compared with 82.5% in the same quarter last year, primarily as a result of lower license fees and additional promotions.

Selling, general and administrative expenses increased $1.4 million to $15.0 million, with cost cutting programs more than offset by expenses associated with the SoluCLENZ Rx Gel(TM) launch and support, the direct-to-customer (DTC) awareness campaign and double rent paid during the quarter in conjunction with the Company's move to new headquarters. As anticipated, these expenses amounted to $1.6 million on a pre-tax basis, or $0.04 per diluted share.

Net interest income for the third quarter amounted to $63,000, compared to net interest expense of $355,000 during the same quarter last year. This improvement of $418,000 was due to positive cash flow and paying off outstanding debt.

Net income was $2.9 million, or $0.13 per diluted share, versus $3.9 million, or $0.18 per diluted share, for the third quarter of 2007.

Highlights from the Company's third quarter and the subsequent weeks include:

-- Signed new international distribution agreements for China and Australia, with several new agreements pending;

-- Established 294 new physician accounts and increased active accounts as of September 30, 2008 to more than 5,600, up 12% from a year ago;

-- Expanded the Company's domestic sales force to 133 people, up from 130 in mid-August 2008;

-- Launched SoluCLENZ Rx Gel, the only prescription "solubilized" benzoyl peroxide (BPO) gel for the treatment of acne, marking Obagi's entry into the Rx channel. The initial net sales from SoluCLENZ Rx Gel recognized based on actual prescriptions totaled $25,000 since the soft launch in September;

-- Presented three posters at the Summer American Academy of Dermatology meeting that demonstrated greater efficacy in the treatment of mild to moderately severe acne vulgaris at early intervals up to six weeks for Obagi's solubilized BPO formulation (CLENZIderm M.D.(TM) and SoluCLENZ Rx Gel) compared to a leading BPO/Clindamycin drug combination, without the concerns associated with antibiotic resistance;

-- Published a study of Obagi's copper-zinc malonate eye treatment ELASTIderm(TM) in the September 2008 issue of Experimental Dermatology, a premier journal of investigative dermatology. The results of the study suggest that six weeks of treatment with ELASTIderm can enhance the biosynthesis of elastin in skin; and

-- Announced positive study results at the Fall Clinical Dermatology Conference showing that use of Obagi's ELASTIderm(TM) Decolletage System is highly effective in improving photodamaged skin of the chest and neck in as early as two weeks.

Chief Executive Officer, Steve Carlson, stated, "Given the current turbulent economic conditions and our seasonally weakest time of the year, we are pleased with our overall third quarter financial performance. While the consumer environment has been deteriorating and the worldwide economy remains unstable, our revenue was flat compared to last year. We will continue to take actions to improve operating efficiencies and financial discipline and make adjustments to our spending levels as necessary to improve upon our proven track record of profitability."

"More importantly, Obagi remains an industry leader. Looking at our opportunities, we will continue our strategy of launching at least two new product innovations each year and 2009 will be no exception. We are also enthusiastic about the potential for growth for our international business. While this remains a smaller portion of our revenue, we are encouraged by progress in key geographies."

Results for the First Nine Months of 2008

For the first nine months of 2008, compared with the first nine months of 2007:

-- Net sales were $79.2 million, an increase of 5%, compared with $75.4 million;

-- Operating income declined 13% to $17.1 million, compared with $19.7 million;

-- Net income was $10.4 million, or $0.46 per diluted share, compared with net income of $10.7 million, or $0.49 per diluted share;

-- Gross margin percentage was 81.2%, compared with 82.6%; and

-- Net interest income was $186,000, compared with net interest expense of $2.0 million, resulting from the elimination of outstanding debt.

The above operating income and earnings per diluted share through September 2008 included expenses associated with the SoluCLENZ Rx Gel launch and support, the DTC awareness campaign and double rent, which in aggregate amounted to $1.9 million on a year-to-date pre-tax basis, or an EPS impact of $0.05 per diluted share.

Strengthened Balance Sheet

As of September 30, 2008, the Company was debt free with cash and cash equivalents totaling $24.4 million, compared with $14.1 million at December 31, 2007. Working capital totaled $46.4 million and stockholders' equity totaled $62.0 million as of September 30, 2008. This compares with $34.2 million in working capital and $49.7 million in stockholders' equity as of December 31, 2007.

Revisions to Financial Guidance

The Company is revising guidance for the fourth quarter taking into consideration the continuing deterioration in the economy and its effect on strategic investments that it previously thought would create growth opportunities in the fourth quarter. As a result of the changes in the economy and its plans to continue to invest in strategic growth opportunities, the Company now expects the fourth quarter revenue to be in the range of $26.0 to $27.0 million, with EPS of $0.12 to $0.14, down from the previously guided $31.0 to $33.0 million and EPS of $0.26 to $0.29. This represents a flat to 4% decline in year over year revenue.

Conference Call Information

Obagi's management will host a conference call to discuss the Company's financial performance today at 4:30 p.m. Eastern time (1:30 p.m. Pacific time). Investors interested in participating in the live call can dial (800)762-8908 from the U.S. International callers can dial (480) 629-9031. A telephone replay will be available approximately two hours after the call concludes and will be available through Thursday, November 20, by dialing (800) 406-7325 from the U.S., or (303) 590-3030 for international callers and entering confirmation code 3932987. There also will be a simultaneous webcast that will be archived for 30 days on the Investor Relations section of the Company's web site at www.obagi.com.

About Obagi Medical Products, Inc. (www.obagi.com)

Obagi Medical Products develops and commercializes skin health products for the dermatology, plastic surgery, and related aesthetic markets. Using its Penetrating Therapeutics(TM) technologies, Obagi Medical's products are designed to improve penetration of agents across the skin barrier for common and visible skin conditions in adult skin including chloasma, melasma, senile lentigines, acne vulgaris and sun damage. Obagi's skin care product introductions are as follows: Obagi Nu-Derm(TM), 1988; Obagi-C Rx(TM) (the only prescription-strength vitamin C and hydroquinone system), 2004; Obagi Professional-C(TM) (a line of highly stable vitamin C serums), 2005; Obagi Nu-Derm(TM) Condition and Enhance for use with cosmetic procedures, 2006; Obagi ELASTIderm(TM) eye treatment and Obagi CLENZIderm M.D.(TM) acne therapeutic systems, 2007; a formulation of CLENZIderm M.D.(TM) Systems for normal to dry skin, June 2007; ELASTIderm(TM) Decolletage System, January 2008 and SoluCLENZ Rx Gel(TM), August 2008.

Forward Looking Statements

There are forward-looking statements contained herein, which can be identified by the use of forward-looking terminology such as the words "believes," "expects," "may," "will," "should," "potential," "anticipates," "plans," or "intends" and similar expressions. Such forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause actual results, events or developments to be materially different from the future results, events or developments indicated in such forward-looking statements. Such factors include, but are not limited to the current and continued deterioration in the global economy, intense competition our products face and will face in the future, the level of market acceptance of our products, including SoluCLENZ Rx Gel, the possibility that our products could be rendered obsolete by technological or medical advances, the possibility that we may become involved in intellectual property claims and litigation that could adversely affect the profitability of or our ability to sell our products, the possibility that our products may cause undesirable side effects and the fact that our ability to commercially distribute our products may be significantly harmed if the regulatory environment governing our products changes. A more detailed discussion of these and other factors that could affect results is contained in our filings with the U.S. Securities and Exchange Commission. These factors should be considered carefully and readers are cautioned not to place undue reliance on such forward-looking statements. No assurance can be given that the future results covered by the forward-looking statements will be achieved. All information in this press release is as of the date of this press release and Obagi Medical Products does not intend to update this information.

Obagi Medical Products, Inc.
Condensed Consolidated Balance Sheets
(Dollars in thousands, except share and per share amounts)
                                                                                              September 30,                December 31,
                                                                                              2008                         2007
Assets                                                                                        (unaudited)
              Current assets
              Cash and cash equivalents                                                       $      24,373                $      14,054
              Accounts receivable, net                                                               18,567                       17,370
              Accounts receivable from related parties, net                                          794                          982
              Inventories, net                                                                       7,826                        6,047
              Prepaid expenses and other current assets                                              5,641                        5,782
                                                Total current assets                                 57,201                       44,235
Property and equipment, net                                                                          4,231                        2,759
Goodwill                                                                                             4,629                        4,629
Intangible assets, net                                                                               5,417                        5,760
Other assets                                                                                         2,247                        2,380
                                                Total assets                                  $      73,725                $      59,763
Liabilities and Stockholders' Equity
Current liabilities
              Accounts payable                                                                $      7,566                 $      6,664
              Current portion of long-term debt                                                      47                           54
              Accrued liabilities                                                                    3,234                        3,274
                                                Total current liabilities                            10,847                       9,992
Long-term debt                                                                                       24                           42
Other long-term liabilities                                                                          904                          -
              Total liabilities                                                                      11,775                       10,034
Commitments and contingencies
Stockholders' equity
              Common stock, $.001 par value; 100,000,000 shares authorized,                          23                           23
              22,691,238 and 22,653,349 shares issued and 22,670,460 and
              22,643,564 shares outstanding at September 30, 2008 and December
              31, 2007, respectively
              Additional paid-in capital                                                             57,626                       55,805
              Accumulated earnings (deficit)                                                         4,373                        (6,031  )
              Accumulated other comprehensive loss                                                   (72     )                    (68     )
                                                Total stockholders' equity                           61,950                       49,729
                                                Total liabilities and stockholders' equity    $      73,725                $      59,763

Obagi Medical Products, Inc.
Condensed Consolidated Statements of Income
(Dollars in thousands, except share and per share amounts)
                                                                                    Three months ended September 30,                          Nine months ended September 30,
                                                                                    2008                          2007                        2008                          2007
                                                                                    (unaudited)                                               (unaudited)
Net sales                                                                           $     26,012                  $     26,281                $     79,158                  $     75,394
Cost of sales                                                                             5,114                         4,604                       14,888                        13,125
                                Gross profit                                              20,898                        21,677                      64,270                        62,269
Selling, general and administrative expenses                                              14,985                        13,610                      43,260                        38,446
Research and development expenses                                                         1,155                         1,355                       3,872                         4,121
                                        Income from operations                            4,758                         6,712                       17,138                        19,702
Interest income                                                                           91                            -                           279                           100
Interest expense                                                                          (28         )                 (355        )               (93         )                 (2,110      )
                                        Income before provision for income taxes          4,821                         6,357                       17,324                        17,692
Provision for income taxes                                                                1,914                         2,495                       6,920                         6,968
                                        Net income                                  $     2,907                   $     3,862                 $     10,404                  $     10,724
Net income attributable to common shares:
        Basic                                                                       $     0.13                    $     0.18                  $     0.46                    $     0.49
        Diluted                                                                     $     0.13                    $     0.18                  $     0.46                    $     0.49
Weighted average common shares outstanding:
        Basic                                                                             22,658,232                    21,808,483                  22,652,205                    21,804,159
        Diluted                                                                           22,693,197                    22,032,881                  22,703,071                    21,967,641

Segment information:
                                  Three months ended September 30,          Nine months ended September 30,
                                  2008                    2007              2008                    2007
                                  (unaudited)                               (unaudited)
Net sales by segment
        Physician dispensed       $       24,773          $       24,880    $       75,725          $       72,045
        Pharmacy Rx                       25                      -                 25                      -
        Licensing                         1,214                   1,401             3,408                   3,349
                Net sales         $       26,012          $       26,281    $       79,158          $       75,394
Gross profit by segment
        Physician dispensed       $       19,695          $       20,310    $       60,941          $       59,029
        Pharmacy Rx                       22                      -                 22                      -
        Licensing                         1,181                   1,367             3,307                   3,240
                Gross profit      $       20,898          $       21,677    $       64,270          $       62,269
Geographic information
        United States             $       21,743          $       22,155    $       66,510          $       63,685
        International                     4,269                   4,126             12,648                  11,709
                Net sales         $       26,012          $       26,281    $       79,158          $       75,394
                                  Three months ended September 30,          Nine months ended September 30,
                                  2008                    2007              2008                    2007
                                  (unaudited)                               (unaudited)
Net sales by product line
        Physician dispensed
                Nu-Derm           $       14,764          $       16,259    $       43,973          $       45,851
                Vitamin C                 3,104                   2,692             9,386                   8,531
                Elasticity                2,399                   1,646             9,502                   6,077
                Therapeutic               1,780                   1,812             4,689                   4,219
                Other                     2,726                   2,471             8,175                   7,367
                         Total            24,773                  24,880            75,725                  72,045
        Pharmacy Rx                       25                      -                 25                      -
        Licensing                         1,214                   1,401             3,408                   3,349
                Total net sales   $       26,012          $       26,281    $       79,158          $       75,394

SOURCE: Obagi Medical Products, Inc.

Obagi Medical Products, Inc. 
Preston Romm 
CFO, EVP of Finance, Operations and Administration 
562-628-1007 
or 
ICR, Inc. 
Ina McGuinness/Lena Adams 
310-954-1100

Results from the histological analyses suggest that repair and regeneration of the elastic fiber network occurred during the 6 weeks of treatment with ELASTIderm. Regeneration of the elastic fiber network is thought to be due to reduced degradation of the elastic fibers or enhanced biosynthesis of tropoelastin, the precursor molecule of elastin.

"As skin ages it naturally loses elasticity and recoil, a process compounded by overexposure to the sun. There are few products that can reverse these changes," said Jouni Uitto, MD, PhD, Chair, Department of Dermatology and Cutaneous Biology, Jefferson Medical College in Philadelphia and investigator of the study. "The data show that ELASTIderm eye treatment can help increase the presence of elastic fibers in the treated periorbital areas of skin. This improvement is likely to be caused by the bi-metal complex in the product."

Fine lines and wrinkles are the result of sun exposure and the normal intrinsic aging process, which contribute to the loss of elastin. ELASTIderm eye treatment is a one-of-a-kind topical eye treatment clinically proven to help restore elasticity to skin around the eye and reduce the appearance of fine lines and wrinkles.

"While most products target either collagen or elastin, ELASTIderm eye treatment is unique because it helps increase production of both, reinforcing Obagi Medical Products as the leader in science-based skincare products," said Steven Carlson, Chief Executive Officer of Obagi Medical Products. "ELASTIderm eye treatment uses Obagi's exclusive Penetrating Therapeutics(TM) technology that allows for greater penetration across the skin barrier to help stimulate elasticity and collagen to enhance the resilience of the skin around the eyes."

Physicians interested in obtaining a copy of the manuscript can visit the "For Physicians" section of www.obagi.com to request a copy.

About ELASTIderm(TM) Eye treatment

ELASTIderm Eye treatment is a novel eye treatment that is clinically proven to help the natural abilities of skin to repair photodamage by decreasing the number of visible fine lines and wrinkles and increasing the elasticity of the skin. Although most cosmetic treatment products to date utilize moisturizing ingredients to help reduce the appearance of lines around the eyes, ELASTIderm eye treatment utilizes a patent-pending bi-mineral complex technology with malonic acid to offer a new, clinically-proven approach to anti-aging treatment without the use of line-plumping moisturizers. Visit www.ELASTIderm.com for more information.

About Obagi Medical Products, Inc.

Obagi Medical Products develops and commercializes skin health products for the dermatology, plastic surgery, and related aesthetic markets. Using its Penetrating Therapeutics(TM) technologies, Obagi Medical's products are designed to improve penetration of agents across the skin barrier for common and visible skin conditions in adult skin including chloasma, melasma, senile lentigines, acne vulgaris and sun damage. The history of Obagi's skin care product introductions is as follows: Obagi Nu-Derm(R), 1988; Obagi-C(R) Rx (the first and only prescription-strength vitamin C and hydroquinone system), 2004; Obagi(R) Professional-C (a line of highly stable vitamin C serums), 2005; Obagi(R) Condition and Enhance for use with cosmetic procedures to enhance patient outcomes and satisfaction, 2006; Obagi ELASTIderm(TM) eye treatment and Obagi CLENZIderm(R) M.D. acne therapeutic systems, 2007; a formulation of Obagi CLENZIderm(R) M.D. Systems for normal to dry skin, June 2007; and Obagi ELASTIderm(TM) Decolletage System, January 2008 and SoluCLENZ Rx Gel(TM) for the pharmacy channel in August 2008. Visit www.obagi.com for information.

Forward Looking Statements

There are forward-looking statements contained herein, which can be identified by the use of forward-looking terminology such as the words "believes," "expects," "may," "will," "should," "potential," "anticipates," "plans," or "intends" and similar expressions. Such forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause actual results, events or developments to be materially different from the future results, events or developments indicated in such forward-looking statements. Such factors include, but are not limited to the impact of the current economy on our ability to sell products at historical levels, the intense competition our products face and will face in the future, the level of market acceptance of our products, the possibility that our products could be rendered obsolete by technological or medical advances, the possibility that we may become involved in intellectual property claims and litigation that could adversely affect the profitability of or our ability to sell our products, the possibility that our products may cause undesirable side effects and the fact that our ability to commercially distribute our products may be significantly harmed if the regulatory environment governing our products changes. A more detailed discussion of these and other factors that could affect results is contained in our filings with the U.S. Securities and Exchange Commission, including our Form 10-K for the year ended December 31, 2007. These factors should be considered carefully and readers are cautioned not to place undue reliance on such forward-looking statements. No assurance can be given that the future results covered by the forward-looking statements will be achieved. All information in this press release is as of the date of this press release and Obagi Medical Products does not intend to update this information.

SOURCE: Obagi Medical Products, Inc.

Obagi Medical Products 
Investor Contact: 
ICR, Inc. 
Ina McGuinness or Lena Adams 
310-954-1100 
or 
Media Contact: 
HealthSTAR Public Relations 
Shannon Coughlin, 646-722-8839 
scoughlin@healthstarpr.com

Expected next investor conference call information:
Conference Call Date: 11/6/2008
Conference Call Time: 4:30 PM
Conference Call URL: http://phx.corporate-ir.net/phoenix.zhtml?c=124836&p=IROL-Guestbook&UniqueId=2006671&mp=irol-EventDetails&mpdp=EventId~2006671!WebCastId~809935!StreamId~1211117&pp=IROL-EnhancedWebCast&ppdp=EventId~2006671!WebCastId~809935!StreamId~1211117&pph=540&ppw=788&rdu=&rdt=&upv=2

Expected next investor conference call information:
Conference Call Date: 11/6/2008
Conference Call Time: 4:30 PM
Conference Call URL: http://phx.corporate-ir.net/phoenix.zhtml?c=124836&p=IROL-Guestbook&UniqueId=2006671&mp=irol-EventDetails&mpdp=EventId~2006671!WebCastId~809935!StreamId~1211117&pp=IROL-EnhancedWebCast&ppdp=EventId~2006671!WebCastId~809935!StreamId~1211117&pph=540&ppw=788&rdu=&rdt=&upv=2