Collagen Corp. Confirms Fiscal 1995 Analysts' Estimates and Comments on Outlook for Fiscal 1996.

PALO ALTO, Calif.--(BUSINESS WIRE)--June 27, 1995--Collagen Corporation (NASDAQ:CGEN) today announced that its earnings per share results for the 1995 fiscal year, ending June 30, 1995, are expected to be at the upper end of analysts' estimates, currently ranging from 85 to 93 cents per share for the fiscal year. Fiscal 1995 operating income and net income will be up in the range of 30 to 40 percent and 70 to 85 percent, respectively, over fiscal 1994 results.

"Our worldwide plastic surgery and dermatology products have performed very well during fiscal 1995 and growth prospects for these products look good for the coming fiscal year," stated Howard D. Palefsky, chairman and chief executive officer of Collagen Corporation. "We are delighted with the recent growth in unit and dollar volumes of sales of these products in the United States and in the international markets," Mr. Palefsky added.

New Product Launched

Collagen Corporation is pleased to announce that it has begun marketing in the United Kingdom the Trilucent(TM) Mammary Implant ("Trilucent implant"), manufactured by Lipomatrix, Incorporated. The Trilucent implant is the first-ever vegetable triglyceride-filled mammary implant to be marketed in the world and has been in multicenter, multinational clinical trials for more than 18 months. This new breast implant was designed to pose less of an obstruction to mammography images than currently available silicone gel- or saline-filled implants and is expected to offer other safety advantages over implants presently on the market. Current plans for marketing the Trilucent implant include product launches throughout Europe during the next year. LipoMatrix, Inc., is headquartered in Neuchatel, Switzerland. Collagen Corporation has an approximate 40 percent ownership position in and marketing agreement with LipoMatrix.

Mr. Palefsky continued, "Collagen Corporation will be expanding its worldwide salesforce during fiscal 1996, reflecting both the launch of the Trilucent implant as well as the results we've been experiencing in our worldwide collagen-based plastic surgery and dermatology business."

FY 1996 Expectations

Collagen Corporation has been shipping quantities of its Contigen(R) Bard(R) Collagen Implant ("Contigen implant"), a product for the treatment of stress urinary incontinence due to intrinsic sphincter deficiency, to its marketing partner, C.R. Bard ("Bard"), since prior to receipt in September 1993 of FDA clearance to market the product. These shipments, in total, have exceeded Bard's sales of product into the marketplace and have created excess inventory for Bard. As a result of this situation and in consultation with Bard, Collagen Corporation currently plans to ship little, if any, product to Bard during fiscal year 1996, beginning July 1, 1995. Collagen Corporation's loss of revenue caused by reduced product shipments to Bard will, however, be partially offset by an increase in the rate of revenues Collagen receives (similar to royalties) based on Bard's end-market sales and by a $2 million milestone payment from Bard in the first quarter of fiscal 1996, ending September 30, 1995, versus the $1 million paid in the prior year period. Although Bard's end-market sales for this product were $35 million in the first full calendar year of product launch, recent end-market sales have been below company expectations.

"We are independently investigating the reasons for this below expectations performance as well as working closely with Bard to increase demand for this clinically proven product. As a result of these events, total revenue from Contigen implant received by Collagen Corporation in fiscal year 1996 may decline by more than 50 percent compared with fiscal 1995," stated Mr. Palefsky.

In response to expected lower revenue from sales of Contigen implant during fiscal 1996, Collagen Corporation will be reducing certain expenses. This will include reductions in production volume, temporary help, contract employees, outside consultants, travel expenses, certain capital expenditures, and overtime hours. Regrettably, this cost reduction program will also include the elimination of approximately 20 staff positions from several areas of the company, representing approximately 6 percent of the work force. In addition, many open replacement positions will not be filled.

"These decisions were made with careful consideration of our corporate goals to preserve and develop the company's technology and market franchises, safeguard our ability to launch new products and support current products on a worldwide basis, while maintaining the highest level of safety and regulatory compliance. We acknowledge and appreciate the significant contributions of the departing employees and, included with their severance package, the company will provide out-placement services to assist them in finding employment," commented Mr. Palefsky.

The company believes these events will result in revenues and operating income for fiscal 1996 similar to those expected for fiscal 1995. Net income and earnings per share for fiscal 1996 are likely to be up over expectations for fiscal 1995, because of continued gains from sales of common stock in the company's affiliate, Target Therapeutics, Inc. Collagen Corporation currently holds approximately 2 million shares of Target Therapeutics, Inc. common stock.

In fiscal 1996, the company expects to continue to make significant investments in its internal research and development programs as well as its affiliate companies, as part of Collagen Corporation's ongoing strategy to expand its existing medical franchise, extend therapuetic applications, and enhance its biomaterials technology base.

"We hope to resume shipments of the Contigen implant product to Bard in fiscal 1997 at levels more reflective of end-market sales. We believe that our plan to manage expenses, the resumption of shipments of Contigen implant, and expansions in our plastic surgery, dermatology and orthopedic businesses, should set the stage for better financial performance," said Mr. Palefsky.

Stock Repurchase Program Update

Collagen Corporation also announced today that it has completed the repurchase of 300,000 shares of its common stock (authorized by the Board of Directors in November 1994) and that the Board of Directors has authorized the repurchase of an additional 300,000 shares of common stock in the open market.

To date, Collagen Corporation has repurchased a total of 1.5 million shares, at an average acquisition price of approximately $22.00 per share, since the stock repurchase program was initiated in February 1993, reducing the total number of shares outstanding by more than 14 percent. The company has retained the repurchased shares but may use a portion of the stock in various employee benefit plans.

"The Board's decision to authorize the repurchase of additional shares was made in view of the recent trading price of the company's common stock and continues to underscore the Board's confidence in the company's future", Palefsky concluded.

Collagen Corporation is a technology-based company that develops, manufactures and markets biomedical devices for the treatment of defective, diseased, traumatized or aging human tissues.

CONTACT: Collagen Corporation

David Foster, 415/856-0200

or

Edelman Public Relations 

Jon Greer, 415/433-5381