ANSI Advanced Neuromodulation Systems (MM)

Advanced Neuromodulation Systems Reports First Quarter Results Revenue Increases 21% DALLAS, April 28 /PRNewswire-FirstCall/ -- Advanced Neuromodulation Systems, Inc. (NASDAQ:ANSI) (ANS) today announced operating results for the first quarter, provided a review of its strategy and recent accomplishments, and updated guidance for 2005. First Quarter Results For the three months ended March 31, 2005, revenue increased 21.4% to a record $32,335,000 from $26,633,000 for the first quarter of 2004. Sales of neuro products increased 18.5% to $28,717,000 for this year's first quarter compared to $24,228,000 a year earlier, as sales of ANS' Genesis(R) and GenesisXP(TM) implantable spinal cord stimulation (SCS) systems for the treatment of chronic pain continued to perform well in the marketplace. Gross margin was 74% for both periods. Net income for the first quarter of 2005 was $58,568,000, or $2.76 per diluted share. This compares to net income for the first quarter of 2004 of $3,969,000, or $0.19 per diluted share. Net income for this year's first quarter included a pre-tax gain of $85,244,000 from the previously announced sale of Cyberonics common stock acquired in August 2004. Excluding the effects of this gain as reconciled in the attached table, earnings for this year's first quarter were $0.22 per diluted share. At March 31, 2005, ANS had total cash and marketable securities of approximately $181 million. ANS has no debt. Board Increases Share Repurchase Authorization to 2,000,000 Shares To date, the company has repurchased 923,674 shares of its common stock under a 1,000,000-share repurchase authorization. ANS announced today that the Board of Directors has increased the repurchase authorization to a total of 2,000,000 shares. Repurchases may be made from time to time in open market or privately negotiated transactions, subject to price and availability, and financed out of working capital. "The Board of Directors believes that ANS common stock is an attractive investment, and repurchasing shares is a sound use of working capital under the right circumstances," said President and CEO Chris Chavez. Following its repurchases to date, ANS currently has about 19.8 million issued and outstanding shares. Strategic Review Chavez continued: "The interventional neuromodulation market now exceeds one billion dollars, and promises to become a multi-billion dollar, multi- indication modality in the years ahead. As described in the cover story in the March 7, 2005 edition of Business Week, as well as in recent feature stories in Time, the Wall Street Journal, and in a week-long segment on the Today Show, the clinical indications that neuromodulation can address are large, under-served and under-penetrated. Now more than ever, neuromodulation holds the promise to improve the quality of life for millions of people who suffer from chronic pain and other chronic diseases. With the increasing awareness of the benefits of neuromodulation, we are increasingly excited about our mission to develop ever-improving neuromodulation technologies to address an expanding set of clinical indications. "As we announced last quarter, we have decided to pursue new indications for our technology more aggressively, by accelerating clinical studies, regulatory approval efforts and product development. We are leveraging our platform technologies into emerging clinical applications that we believe will fuel strong organic growth for years to come. In addition to planned pivotal studies to treat migraine headaches, essential tremor and Parkinson's disease, we are systematically incubating such promising new indications as depression, pelvic pain, obesity, tinnitus, angina, ischemic pain associated with peripheral vascular disease, and traumatic brain injury. ANS also recently acquired exclusive intellectual property rights to stimulate a specific target in the brain to treat Obsessive Compulsive Disorder (OCD), and we hope to initiate a pilot study to further evaluate safety and efficacy for this indication." Received FDA Approval Of Its Second Rechargeable IPG ANS recently received FDA approval to market and sell its second rechargeable implantable pulse generator (IPG), the Eon(TM) Neurostimulation System. This was ANS' second rechargeable system to be approved by the FDA since December 2004. "With approval of our new Eon system now in hand, we are manufacturing product to support a limited launch in the second quarter and a full market launch in the third quarter of 2005," Chavez said. "We believe that ANS has the broadest, most advanced product offering in the industry to address the diverse needs of interventional pain physicians and their pain patients who suffer from chronic pain. ANS offers a full array of spinal cord stimulation devices to meet this demand, including two rechargeable IPGs, five conventionally powered IPGs and radio-frequency powered stimulators. Additionally, ANS' Axxess(R) neurostimulation leads, designed for superior handling and precise placement, recently received a 2005 Medical Design Excellence Award (MDEA). We firmly believe that each kind of system has its place in the treatment armamentarium. With our impressive list of generators and equally impressive list of leads and programmers, ANS is uniquely positioned to address the broad needs of the market at many different price points," Chavez added. Received FDA Approval For Pivotal Study of Migraine Headache ANS also has received approval from the FDA to expand its feasibility study to a pivotal study of neurostimulation for the treatment of migraine headache. The first implants are expected in the second quarter. "We expect the results of this pivotal trial to support a future PMA submission for chronic headache. With an estimated 2.2 million people in the U.S. who suffer from severe migraines, we believe that this application has significant clinical potential," Chavez said. Received IDE to Investigate DBS System For Essential Tremor ANS recently received an FDA Investigational Device Exemption (IDE) approval to implant 160 patients at 12 sites to investigate the safety and efficacy of the ANS Libra(TM) Deep Brain Stimulation (DBS) System to treat essential tremor. The company has identified a number of sites for the clinical study. The first implants of the Libra DBS System to treat essential tremor are anticipated to occur in the second quarter. Received IDE to Investigate DBS System For Parkinson's Disease ANS also received IDE approval from the FDA to implant 136 patients at 12 sites to investigate the safety and efficacy of the ANS Libra DBS System to treat Parkinson's disease. The company has identified a number of sites for the clinical study. The first implants of the Libra DBS System to treat Parkinson's disease are anticipated to occur in the second quarter. "With these two approvals for essential tremor and Parkinson's, we are moving into the deep brain stimulation arena, which presents many new growth opportunities for our platform technologies to address various neurological conditions," Chavez said. "Estimates of the prevalence of these two conditions vary significantly, but it is generally estimated that approximately 1.9 million people in the U.S. alone suffer from Parkinson's disease, while approximately 5 million people in the U.S. suffer from essential tremor. An independent market research firm estimates that the market for DBS for these specific indications will grow to approximately $180 million by 2008 and will continue to grow as improvements in the procedure and stereotactic targeting are made." Acquired Exclusive Rights For Method To Treat Depression Through DBS ANS also recently announced that it has acquired exclusive rights to intellectual property covering a unique method of treating chronic treatment- resistant depression through DBS. The highly-respected neuroscience journal Neuron recently reported clinical results in a depression research study using this method of deep brain neurostimulation. Authored by noted clinical researchers including the inventors, the article reports "a striking and sustained remission of depression in four of six patients." Treatment-resistant depression, or TRD, is a severely disabling disorder with very limited proven treatment options once multiple medications, psychotherapy have failed and electroconvulsive therapy has either been declined or failed. The National Institutes of Health (NIH) estimate that 9.9 million adult Americans suffer from major depressive disorder. Research indicates that approximately 20% of these patients are resistant to existing treatments. Approximately 100,000 people in the United States are treated with electroconvulsive therapy (ECT) each year. "We caution that these results cover only six patients, follow-up was limited, and no sham surgery or systematic placebo control arm was used. Despite these and other limitations in this research, the response rate in these patients is striking given their extreme resistance to other treatments and the well-documented low placebo response in these patients. Based on the strength of this study, we are pursuing a multi-center feasibility study to further evaluate efficacy, and if the expanded study continues to impress, ANS intends to pursue a pivotal trial for this important application," Chavez said. Management Updates Guidance for 2005 Chavez said that management continues to expect revenue for 2005 of approximately $145 million. With respect to the earnings outlook for 2005, the CEO continued, "As previously announced, we have decided to accelerate our pursuit of new indications for our technology more aggressively, by accelerating clinical studies, regulatory approval efforts and product development. While we will remain focused on profitable bottom-line performance and growth in our core pain business, we continue to expect to significantly increase our investment in clinical studies, regulatory and R&D in 2005 compared to 2004. Including the impact of these increases, we currently expect net income for 2005 in the range of $3.49 to $3.52 per diluted share." Conference Call ANS has scheduled a conference call today at 11:00 a.m. EDT. The simultaneous webcast is available at http://www.ans-medical.com/investors . A replay will be available at this same Internet address, or at (800) 633-8284, reservation #21244484, after 1:00 p.m. EDT. About Advanced Neuromodulation Systems Advanced Neuromodulation Systems designs, develops, manufactures and markets implantable systems used to manage chronic intractable pain and other disorders of the central nervous system. Fortune magazine recently ranked ANS as the 8th fastest growing small company in its annual list of the Top 200 Fastest Growing Small Companies in the United States. Forbes magazine recently recognized ANS as one of America's 200 Best Small Companies. Frost & Sullivan, an international strategic market research firm, also recently presented ANS with its Product Innovation Award, recognizing ANS as the technology innovation leader in the neurostimulation market and ANS' Genesis(R) Implantable Pulse Generator system as the most advanced fully implantable spinal cord stimulator on the market. Additional information is available at http://www.ans-medical.com/ . "Safe harbor" statement under the Private Securities Litigation Reform Act of 1995: Statements contained in this document that are not based on historical facts are "forward-looking statements." Terms such as "plan," "should," "would," "anticipate," "believe," "intend," "estimate," "expect," "predict," "scheduled," "new market," "potential market applications" and similar expressions are intended to identify forward-looking statements. Such statements are by nature subject to uncertainties and risks, including but not limited to market acceptance of our new rechargeable IPGs, as well as continued market acceptance of our conventional IPGs and radio-frequency powered SCS systems; competition from and the launch of new competitive products by Medtronic, Advanced Bionics/Boston Scientific or others, as well as other market factors that could impede growth in or reduce sales of the Company's IPG and RF systems, which could adversely affect revenues and profitability; patient or physician selection of less invasive or less expensive alternatives; adverse changes in coverage or reimbursement amounts by Medicare, Medicaid, private insurers, managed care organizations or workers' comp programs; intellectual property protection and potential infringement issues; the cost, uncertainty and other risks inherent in litigation generally, including without limitation the intellectual property and patent litigation against Advanced Bionics; obtaining necessary government approvals for other new products or applications and maintaining compliance with FDA product and manufacturing requirements; product liability; reliance on single suppliers for certain components; completion of research and development projects in an efficient and timely manner; successful patient enrollment in and timely implementation of the IDE clinical studies for migraine headache, Essential Tremor and Parkinson's disease; physician and patient acceptance of the Libra DBS system for the Essential Tremor and Parkinson's disease studies, for which already-approved products are already available on the market; the uncertainty of clinical results that may ensue from these clinical studies; the risk that the FDA may not approve our PMA applications for these applications following the completion of the clinical trials; the satisfactory completion of feasibility, pilot and pivotal studies and/or market tests prior to the introduction of new products generally; successful integration of acquired businesses, products and technologies; international trade risks; and other risks detailed from time to time in the Company's SEC filings. In addition, despite the encouraging results reported in the Neuron article, there are limitations to this first study of DBS for TRD. Sample size was small, follow-up was limited, and no sham surgery or systematic placebo control arm was used. There were also limitations on identifying markers that might predict response. Differences in electrode targeting and placement may have also contributed to the observed response variance. The mechanisms of action of DBS are incompletely understood. These and other factions require testing of additional subjects. Consequently, if such management assumptions prove to be incorrect or such risks or uncertainties materialize, anticipated results could differ materially from those forecast in forward-looking statements. Such forward-looking statements speak only as of the date on which they are made, and the Company does not undertake any obligation to update any forward-looking statement to reflect events or circumstances after the date of this release. Advanced Neuromodulation Systems, Inc. and Subsidiaries Condensed Consolidated Statements of Income (Unaudited) Three Months Ended March 31, 2005 2004 Net revenue $32,335,463 $26,632,863 Cost of revenue 8,446,834 6,965,532 Gross profit 23,888,629 19,667,331 Operating expenses: Sales and marketing 10,090,319 8,564,046 Research and development 3,324,707 2,314,950 General and administrative 3,343,454 2,316,740 Amortization of intangibles 639,980 574,874 17,398,460 13,770,610 Income from operations 6,490,169 5,896,721 Other income (expense): Gain on sale of marketable securities 85,244,301 --- Foreign currency transaction loss (47,625) (29,347) Investment income 546,861 251,329 85,743,537 221,982 Income before income taxes 92,233,706 6,118,703 Income taxes 33,665,303 2,150,112 Net income $58,568,403 $3,968,591 Basic income per share: Net income $2.88 $.20 Number of basic shares 20,366,990 19,928,946 Diluted income per share: Net income $2.76 $.19 Number of diluted shares 21,192,297 21,187,163 ADVANCED NEUROMODULATION SYSTEMS, INC. and SUBSIDIARIES Condensed Consolidated Balance Sheets (Unaudited) March 31, December 31, 2005 2004 Assets Current assets: Cash and marketable securities $180,676,803 $124,016,064 Receivable, trade net 25,598,912 25,322,813 Receivable, interest and other 1,106,898 638,987 Inventories 24,754,210 23,923,851 Deferred income taxes 1,994,747 2,029,091 Prepaid expenses and other current assets 1,357,241 1,888,957 Total current assets 235,488,811 177,819,763 Net property, equipment and fixtures 33,277,977 33,175,329 Minority equity investments in preferred stock 1,104,000 1,104,000 Goodwill, patents, tradenames, purchased technology & other assets, net 35,342,461 35,388,049 Total assets $305,213,249 $247,487,141 Liabilities and Stockholders' Equity Current liabilities: Accounts payable $2,688,037 $3,206,516 Accrued salary and employee benefit costs 1,933,556 2,390,721 Accrued commissions 1,579,853 2,656,112 Income taxes payable 33,526,811 708,412 Deferred revenue 107,028 165,861 Other accrued expenses 445,318 342,075 Total current liabilities 40,280,603 9,469,697 Deferred income taxes 6,056,418 14,734,487 Non-current deferred revenue 670,362 718,820 Total stockholders' equity 258,205,866 222,564,137 Total liabilities and stockholders' equity $305,213,249 $247,487,141 Advanced Neuromodulation Systems, Inc. and Subsidiaries Non-GAAP Reconciliation (Unaudited) Three Months Ended March 31, 2005 Impact of Cyberonics, Inc. Gain Income before income taxes $92,233,706 Gain on sale of Cyberonics, Inc. investment, net of acquisition costs (85,244,301) Income before gain on sale of Cyberonics, Inc. investment and income taxes 6,989,405 Income tax expense 33,665,303 Impact of gain on sale of Cyberonics investment (31,267,937) Income tax expense before gain on sale of Cyberonics, Inc. 2,397,366 Net income before gain on sale of Cyberonics, Inc. investment $4,592,039 Number of diluted shares 21,192,297 Diluted income per share $.22 Note: The Company believes that the Non-GAAP measurement of net income before the gain on sale of Cyberonics, Inc. investment assists investors in understanding the impact on the Company's diluted earnings per share of the gain on sale of Cyberonics, Inc. investment. The Company's effective tax rate of 36.5% was adjusted to 34.3% for purposes of the Non-GAAP measurement above, which closely approximates the Company's 2004 effective tax rate of 34.4%. DATASOURCE: Advanced Neuromodulation Systems, Inc. CONTACT: investors, Neil Berkman Associates, +1-310-277-5162, or , for Advanced Neuromodulation Systems, Inc.; or Chris Chavez, President & CEO of Advanced Neuromodulation Systems, Inc., +1-972-309-8000 Web site: http://www.ans-medical.com/ http://www.ans-medical.com/investors

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