Advanced Neuromodulation Systems Announces Denial of IPG Reclassification by The FDA.

Business Editors

DALLAS--(BUSINESS WIRE)--Feb. 27, 2001

Advanced Neuromodulation Systems, Inc. (ANS) (NASDAQ:ANSI) announced today that the FDA has denied ANS' petition to reclassify the Totally Implanted Pulse Generator (IPG) Spinal Cord Stimulator for relief of chronic pain from a Class III Device to a Class II Device.

"By delaying the commercial release of ANS' IPG in the United States, this stunning decision by the FDA protects the monopoly position in the U.S. IPG market currently enjoyed by Medtronic Corporation and deals a serious blow to American doctors and their patients who want and deserve a choice regarding IPGs. We will pursue a vigorous campaign to reverse this inexplicable decision, and we will immediately pursue in parallel the Pre-Market Approval (PMA) route for our IPG in the U.S. market," said Chris Chavez, president and chief executive officer.

Chavez continued, "We are surprised and disappointed by the FDA's decision, but we will overcome this setback. Employing ANS' considerable technical, financial and human resources, we will achieve our goals for growth in the neuromodulation industry, a market that is expanding by 25% a year and is expected to exceed $1 billion by 2003.

"We have already made dramatic progress toward this goal with the receipt of regulatory approval to market our IPG in Europe, where implants of our device have already begun. Our recent acquisition of Hi-tronics Designs, which increases our revenue and earnings and dramatically enhances our technology portfolio, solidifies our technology leadership in the IPG segment. ANS is also the technology leader in the Radio Frequency (RF) segment of the spinal cord stimulation market, where we have built a 50% U.S. market share in competition with Medtronic. In addition, ANS has completed development of its proprietary implantable drug pump, received CE Mark approval, and will launch this product in Europe during the second quarter.

"Everything the FDA had previously said and done regarding our petition pointed unequivocally toward ultimate approval of the reclassification. The FDA's decision is contrary to the recommendation of the agency's own Neurological Medical Devices Panel, which recommended approval of the reclassification petition in September 1999. It also is contrary to the agency's own preliminary decision, which was published on September 6, 2000 in the Federal Register, to follow the Panel's recommendation to reclassify the device.

"Now, fully two years into the process, the agency suddenly claims that the Special Controls identified do not adequately address all the risks associated with the Totally Implantable Spinal Cord Stimulation system for pain relief. This comes as a complete surprise to ANS and lacks credibility since a Special Control Guidance Document was published by the FDA for comment in the Federal Register last September. In addition, this startling decision directly contradicts the spirit of the 'Least Burdensome Path to Market' provisions of Food and Drug Modernization Act. At this point, we can only assume that the FDA's sudden and surprising change of mind is attributable to the influence of Medtronic, our only opponent to the reclassification petition."

Medtronic, with over $5 billion in annual sales, currently controls 100% of the U.S. market for IPGs. "The record clearly shows that Medtronic waged an aggressive and continuous campaign to defeat ANS' reclassification petition. Medtronic was the only company that argued against ANS' petition at the September 17, 1999 FDA Neurological Medical Devices Panel Meeting. On January 31, 2000, Medtronic submitted a letter to the FDA that blasted ANS, the FDA and the Panel with numerous unfounded allegations. Medtronic held at least one private and therefore inappropriate meeting with the FDA to lobby against the reclassification. Medtronic requested and was granted an extension of the comment period with no apparent justification, and submitted redundant information to the FDA in attempt to pack the administrative record. Medtronic clearly solicited a number of physicians to send letters to the FDA opposing the reclassification, citing inappropriate references to FDA documents and letters. Notwithstanding Medtronic's many efforts, though, the FDA had consistently led us to believe that we were on track for approval," Chavez said.

Chavez said that in its denial letter, the FDA rationalized its decision with the claim that its own draft guidance document did not adequately address the risks associated with the IPG device. "We are completely mystified by the FDA's arbitrary reversal of all of its past statements and actions, and we wholeheartedly disagree with the agency's decision and rationale for denying the reclassification. We intend to discuss with the agency the rationale and background for its decision, and will request an internal review of the administrative record and the reversal of the decision. We are also evaluating all of our other legal and business options," he said.

"Throughout the reclassification process, ANS acted with absolute integrity and played by the FDA's rules. We have done our best along the way to communicate with the agency, and to keep our customers, employees and investors fully informed on the IPG's regulatory progress. Ironically, had ANS simply started down the PMA path in February 1999, we might very well have received approval for the IPG by now. However, the reclassification approach, which the FDA recommended and encouraged us to follow in this case, was believed by all parties concerned to be the least burdensome path to market," Chavez said.

Chronology of the Regulatory Process for the Reclassification of the IPG

-- In February 1999, ANS meets with the FDA to discuss the submission of the
IPG for market approval. Rather than pursue the PMA process, the agency
recommends that ANS seek to reclassify the device to Class II.

-- On June 11, 1999, ANS submits its reclassification petition to the FDA.

-- On September 17, 1999, the Company presents its petition to the FDA's
Neurological Devices Panel. The Panel recommends reclassification, as ANS
requests. The Federal Food and Drug Cosmetic Act and the procedural
requirements of the regulation state that "within 90 days after the panel's
recommendation is received (and no later than 210 days after the petition was
filed), the Commissioner denies or approves the petition by order in the form
of a letter to the petitioner."

-- On January 11, 2000, the statutory 210 days pass following the filing of the
petition, without a decision or status update from the agency.

-- On February 25, 2000, six weeks after the statutory date for a decision, ANS
receives a letter from the FDA advising that enough information is now
available to make a decision and that "Special Controls" may be available to
support a reclassification decision.

-- During the next several months, ANS attempts to determine the status of the
petition. In a meeting with the FDA in May 2000, ANS strongly expresses the
need for clarity on timing, process and intent to enable ANS to plan. ANS
offers to provide whatever support is required by the agency to bring the issue
to final closure. Notwithstanding the delays, ANS receives assurances from the
FDA that the "510k elements are on the right path." ANS continues to press the
FDA for a response on the petition.

-- Frustrated by lack of communication or clarity on the status of the
petition, ANS finally secures a dialogue with the FDA. The FDA apologizes for
its handling of the petition and assures ANS that the matter will receive
prompt attention.

-- On September 6, 2000, affirming the recommendation of the Neurological
Devices Panel, the FDA finally publishes its position supporting a
reclassification decision in the Federal Register. The FDA allows 30 days for
comments and ANS provides its comments within the thirty-day period.

-- On October 3, 2000, three days before the expiration of the comment period,
at Medtronic's request, the FDA extends the comment period until November 3,
2000 without any apparent justification. Medtronic submits its comments on
November 2, 2000. The comments simply reiterate Medtronic's prior comments.

-- On February 26, 2001, two years after ANS' first meeting with the FDA on the
IPG, and more than 170 days after the FDA publishes its position supporting the
reclassification in the Federal Register, the FDA delivered its letter of
denial to ANS.

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. Additional information is available at www.ans-medical.com.

Conference Call

Advanced Neuromodulation Systems will host a conference call tomorrow, Wednesday, February 28, 2001, at 9:00 A.M. EST to discuss today's announcement. To participate in the call, please dial [phone] a few minutes prior to the scheduled start time. A replay of the call will be available at [phone], reservation #18124996.

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