Advanced Neuromodulation Systems Fourth Quarter Revenue From Product Sales Increases 28 Percent.Business Editors DALLAS--(BUSINESS WIRE)--March 2, 2000 Advanced Neuromodulation Systems Advanced Neuromodulation System is a subsidiary of St. Jude Medical, Inc based in Plano, Texas. Among the products ANS makes and sells include spinal cord stimulators for intractable pain. , Inc. (ANS (ANS Communications, Inc, Purchase, NY) An ISP, Internet backbone and provider of private data network services, founded in 1990 as Advanced Network & Services, Inc., by IBM, MCI and Merit (consortium of Michigan universities). ) (Nasdaq:ANSI (American National Standards Institute, New York, www.ansi.org) A membership organization founded in 1918 that coordinates the development of U.S. voluntary national standards in both the private and public sectors. It is the U.S. member body to ISO and IEC. ) announced today that revenue from product sales for the fourth quarter of 1999 surged 28 percent to $5,325,000, reflecting pain clinicians' enthusiastic response to ANS' advanced Renew(TM) radio-frequency (RF) neurostimulation system for treating chronic intractable pain intractable pain Refractory pain Pain medicine Persistent pain which does not respond to at least 3 dosease of parenteral analgesics given over a 12-24 hr period; pain that does not respond to appropriate doses of opioid analgesics. . The Renew system was launched in the United States United States, officially United States of America, republic (2005 est. pop. 295,734,000), 3,539,227 sq mi (9,166,598 sq km), North America. The United States is the world's third largest country in population and the fourth largest country in area. in June 1999. For the fourth quarter of 1998, revenue from sales of the Company's earlier-generation RF neuromodulation system was $4,146,000. Total revenue for the 1998 fourth quarter was $5,346,000, which included the $1,200,000 of contract revenue associated with the former agreement with Sofamor Danek. Net earnings for the three months ended December 31, 1999 were $118,000, or $0.02 per diluted di·lute tr.v. di·lut·ed, di·lut·ing, di·lutes 1. To make thinner or less concentrated by adding a liquid such as water. 2. To lessen the force, strength, purity, or brilliance of, especially by admixture. share. This compares to net earnings from continuing operations continuing operations Parts of a business that are expected to be maintained as an ongoing segment of an overall business operation. Income and losses from continuing operations are reported separately if any segments have been discontinued during the of $549,000, or $0.07 per diluted share, for the same period a year earlier, which included a $1,200,000 contract revenue from Sofamor Danek ($0.10 per share net of taxes). Including a loss on sale of assets of discontinued operations Discontinued operations Divisions of a business that have been sold or written off and that no longer are maintained by the business. (net of taxes) of $615,000, or $0.08 per share, the net loss for the 1998 fourth quarter was $66,000, or $0.01 per share. Gross margin for the 1999 fourth quarter increased to 70 percent of product revenue from 62 percent for the 1999 third quarter, the first full quarter of Renew system production, and 65 percent for the 1998 fourth quarter. President and Chief Executive Officer Chris Chavez said, "Our manufacturing process for the Renew system improved significantly during the fourth quarter. We are now approaching normal levels of efficiency and are still focused on making more improvements. "During the past few quarters we have invested heavily in research and development and assembled high-performance sales and marketing, regulatory affairs Regulatory Affairs (RA), also called Government Affairs, is a profession within regulated industries, such as pharmaceuticals, medical devices, energy, and banking. Regulatory Affairs professionals usually have responsibility for the following general areas: adj. 1. Of the same size, extent, or duration as another. 2. Corresponding in size or degree; proportionate: a salary commensurate with my performance. 3. increase in costs, knowing that this would penalize pe·nal·ize tr.v. pe·nal·ized, pe·nal·iz·ing, pe·nal·iz·es 1. To subject to a penalty, especially for infringement of a law or official regulation. See Synonyms at punish. 2. short-term earnings. As a result, we have built substantial operating leverage Operating Leverage A measurement of the degree to which a firm or project relies on fixed rather than variable costs. Notes: The higher the degree of operating leverage, the greater the potential danger from forecasting risk. into our company as revenue rises from its current pace." The CEO (1) (Chief Executive Officer) The highest individual in command of an organization. Typically the president of the company, the CEO reports to the Chairman of the Board. continued, "Today, ANS competes in just the RF segment of the neuromodulation market and enjoys 50 percent market share. In the second half of this year we expect to increase the markets in which we participate from $42 million to $200 million with the launch of two additional neuromodulation products for pain management. "Our top priority is to complete the development and achieve U.S. and European marketing approval for our fully implantable pulse generator implantable pulse generator Cardiac pacing A pacemaker used for permanent pacing, which is placed inside a pocket under the skin; the leads are positioned in or on the heart (IPG IPG Implantable pulse generator, see there ) for treating pain of the trunk and/or limbs. The IPG market currently exceeds $125 million annually, is growing at a 30 percent annual rate and is dominated by a single competitor. Based on our success in the RF segment, and recognizing that the very same pain practitioners to whom we now sell our RF product also routinely implant implant /im·plant/ (im-plant´) to insert or to graft (tissue, or inert or radioactive material) into intact tissues or a body cavity. IPG devices, we are confident that ANS can quickly participate in the IPG market once regulatory approvals are achieved. In addition, we expect to receive European approval for our fixed rate implantable drug pump later this year." In September 1999, the Neurological neurological, neurologic pertaining to or emanating from the nervous system or from neurology. neurological assessment evaluation of the health status of a patient with a nervous system disorder or dysfunction. Devices Panel of the Medical Devices Advisory Committee recommended to the FDA FDA abbr. Food and Drug Administration FDA, n.pr See Food and Drug Administration. FDA, n.pr the abbreviation for the Food and Drug Administration. to reclassify Verb 1. reclassify - classify anew, change the previous classification; "The zoologists had to reclassify the mollusks after they found new species" class, classify, sort out, assort, sort, separate - arrange or order by classes or categories; "How would you Totally Implanted im·plant v. im·plant·ed, im·plant·ing, im·plants v.tr. 1. To set in firmly, as into the ground: implant fence posts. 2. Spinal Cord Stimulators Spinal Cord Stimulator (SCS) or Dorsal Column Stimulator (DCS) is an implantable medical device used to treat chronic pain of neurologic origin. An electric impulse generated by the device near the dorsal surface of the spinal cord provides a paresthesia ("tingling") (IPGs)for treatment of pain of the trunk and/or limbs from a Class III device class III device Regulatory affairs A highly regulated 'high risk' medical device–eg, life-support or life-sustaining devices–eg, pacemakers and heart valves, approved by the FDA for use in humans; CIIIDs are also defined as those which pose a to a Class II device. Class II devices have a shorter approval cycle than Class III devices. The Company expected to receive a final reclassification Reclassification The process of changing the class of mutual funds once certain requirements have been met. These requirements are generally placed on load mutual funds. Reclassification is not considered to be a taxable event. decision from the FDA in January but has been disappointed by a delay that it believes is related to the FDA's workload The term workload can refer to a number of different yet related entities. An amount of labor While a precise definition of a workload is elusive, a commonly accepted definition is the hypothetical relationship between a group or individual human operator and task demands. . ANS has an on-going dialogue with the agency and believes that a decision on the Company's petition is receiving priority. The Company received a written progress report dated February 25, 2000 in which the FDA stated that it had received adequate information to move forward toward a final decision. The agency's letter further indicated that there might be "special controls" available to ensure the safety and effectiveness of this type of device. ANS is encouraged by this letter, since the use of "special controls" is a key criteria for the reclassification of the device. The Company remains optimistic op·ti·mist n. 1. One who usually expects a favorable outcome. 2. A believer in philosophical optimism. op that the FDA will follow the recommendation of its panel to reclassify the IPG and will communicate with investors immediately upon receipt of the notice from the FDA. Subsequent to the reclassification notice, ANS is prepared to move quickly to file the 510(k) pre-market notification for clearance to market the IPG. For the twelve months ended December 31, 1999, revenue from product sales increased 21 percent to $20,578,000 from $17,006,000 for 1998. Revenue from contract research and development was $8,900,000 for 1999 versus $3,100,000 for the prior year. Accordingly, total revenue rose to $29,478,000 for 1999 compared to $20,106,000 for 1998. This contract revenue was related to a research and development agreement with Sofamor Danek, which was terminated in January 1999. The Company has entered into no additional contract research and development arrangements. Net earnings from continuing operations were $6,003,000, or $0.75 per diluted share. This compares to net earnings from continuing operations of $2,586,000, or $0.30 per diluted share. Net earnings from discontinued operations for 1998 were $4,373,000, or $0.51 per diluted share, bringing final net earnings for the year to $6,959,000, or $0.81 per diluted share. At December 31, 1999, ANS reported cash and short-term investments of $8,752,000, working capital of $16,178,000, a current ratio of 4.9 to 1, no debt and shareholders' equity Shareholders' Equity A firms' total assets minus its total liabilities. Equivalently, it is share capital plus retained earnings minus treasury shares. Shareholders' equity is the amount by which a company is financed through common and preferred shares. of $37,038,000. 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. Statements contained in this document that are not based on historical facts are "forward-looking statements forward-looking statement A projected financial statement based on management expectations. A forward-looking statement involves risks with regard to the accuracy of assumptions underlying the projections. ." 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: completion of research and development projects in an efficient and timely manner; obtaining regulatory approvals on a timely and cost-efficient basis to permit the introduction of new products; the successful reclassification of the IPG by the FDA; the satisfactory completion of clinical trials and/or market tests prior to the introduction of new products; the adequacy, acceptability and timeliness of component supply; the approval of new products by reimbursement Reimbursement Payment made to someone for out-of-pocket expenses has incurred. agencies like insurance companies, HMOs, Medicare and Medicaid Medicare and Medicaid U.S. government programs in effect since 1966. Medicare covers most people 65 or older and those with long-term disabilities. Part A, a hospital insurance plan, also pays for home health visits and hospice care. ; the efficacy of the Company's products for new applications; and other risks detailed from time to time in the Company's SEC filings. Consequently, if such management assumptions prove to be incorrect or such risks or uncertainties materialize ma·te·ri·al·ize v. ma·te·ri·al·ized, ma·te·ri·al·iz·ing, ma·te·ri·al·iz·es v.tr. 1. To cause to become real or actual: By building the house, we materialized a dream. , anticipated results could differ materially from those forecast in forward-looking statements.
ADVANCED NEUROMODULATION SYSTEMS, INC. and SUBSIDIARIES
Consolidated Statements of Operations
(Unaudited)
Three Months Ended Year Ended
December 31, December 31,
1999 1998 1999 1998
Net revenue-
product sales $ 5,325,053 $ 4,145,878 $20,578,384 $17,006,407
Net revenue-
contract research
and development -- 1,200,000 8,900,000 3,100,000
Total net revenue 5,325,053 5,345,878 29,478,384 20,106,407
Costs and expenses:
Cost of product
sales 1,608,637 1,441,597 6,628,983 4,985,887
Research and
development 1,069,438 861,046 3,772,579 2,801,175
Marketing 1,659,468 1,221,169 6,290,004 4,682,423
Amortization of
intangibles 287,888 295,035 1,187,689 1,170,585
General and
administrative 723,609 686,911 2,756,931 2,633,250
5,349,040 4,505,758 20,636,186 16,273,320
Earnings (loss)
from operations (23,987) 840,120 8,842,198 3,833,087
Other income (expenses):
Interest expense -- (77,335) (44,861) (331,468)
Interest and other
income 141,596 168,890 751,238 830,391
141,596 91,555 706,377 498,923
Earnings from
continuing operations
before income taxes 117,609 931,675 9,548,575 4,332,010
Income taxes (benefit) (685) 382,438 3,545,294 1,746,304
Net earnings from
continuing
operations 118,294 549,237 6,003,281 2,585,706
Discontinued Operations:
Loss from discontinued
operations, net of
income tax benefits -- -- -- (211,634)
Gain (loss) on sale of
assets of discontinued
operations, net of
income tax benefit of
$353,759 and income tax
expense of $2,473,293,
respectively -- (615,445) -- 4,585,130
Net earnings (loss)
from discontinued
operations -- (615,445) -- 4,373,496
Net earnings
(loss) $ 118,294 $ (66,208) $6,003,281 $6,959,202
Basic earnings (loss)
per share:
Continuing
operations $ .02 $ .07 $ .79 $ .31
Discontinued
operations $ -- $ (.08) $ -- $ .53
Net earnings
(loss) $ .02 $ (.01) $ .79 $ .84
Number of basic
shares 7,441,572 7,670,792 7,583,159 8,314,290
Diluted earnings
(loss) per share:
Continuing
operations $ .02 $ .07 $ .75 $ .30
Discontinued
operations $ -- $ (.08) $ -- $ .51
Net earnings
(loss) $ .02 $ (.01) $ .75 $ .81
Number of diluted
shares 7,866,728 7,874,767 8,003,087 8,544,040
These Statements of Operations sets forth financial data for the
continuing operations of Advanced Neuromodulation Systems for the
three months and twelve months ended December 31, 1999 and 1998.
Results of operations of the discontinued cardiovascular business are
shown as "discontinued operations."
Advanced Neuromodulation Systems, Inc. and Subsidiaries
Condensed Consolidated Balance Sheets
December 31, December 31,
1999 1998
Assets (unaudited)
Current assets:
Cash and short-term investments $ 8,751,866 $ 12,263,281
Receivables, net 3,856,684 3,260,126
Inventories 5,999,217 2,643,262
Deferred income taxes 654,086 887,609
Net assets of building and land sold
in 1999 -- 6,310,985
Prepaid expenses and other
current assets 1,107,380 852,025
Total current assets 20,369,233 26,217,288
Net property, plant and equipment 5,688,570 1,888,592
Patents, trademarks, purchased
technology and other assets, net 17,496,971 17,379,488
Total assets $ 43,554,774 $ 45,485,368
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable $ 1,765,377 $ 904,899
Short-term notes payable and
current maturities of
Long-term notes payable -- 3,633,475
Deferred revenue -- 900,000
Income taxes payable 511,848 2,276,655
Accrued salary and employee
benefit costs 793,275 562,618
Accrued tax abatement liability 969,204 969,204
Other accrued expenses 151,372 544,295
Total current liabilities 4,191,076 9,791,146
Deferred income taxes 2,325,403 2,390,475
Stockholders' equity:
Common stock, $.05 par value 435,418 435,418
Additional capital 40,423,457 41,156,582
Retained earnings (deficit) 5,694,422 (308,859)
Accumulated other comprehensive
income (loss), net (241,550) (130,760)
Cost of common shares in treasury (9,273,452) (7,848,634)
Total stockholders' equity 37,038,295 33,303,747
Total liabilities and
stockholders' equity $ 43,554,774 $ 45,485,368
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