PolyMedica Reports Results for Fiscal 2007 Third Quarter.

WAKEFIELD, Mass. -- PolyMedica Corporation (NASDAQ: PLMD):

Highlights:

* Earnings per share, including stock-based compensation expense of $0.08 per diluted share, were $0.43, representing a 26% sequential increase over the second quarter;

* Revenues for the third quarter of fiscal 2007 were $177.2 million, a 34% increase over the prior year quarter and an increase of 8% over the second quarter;

* Diabetes revenue increased 10% year over year and 5% over the second quarter;

* Pharmacy revenue increased 157% year over year and 16% over the second quarter;

* The Company dispensed 566,000 prescriptions in the third quarter, a 17% sequential increase over the second quarter; and

* The Company generated $21 million in operating cash flow and reduced its outstanding debt by $26 million in the third quarter.

PolyMedica Corporation (NASDAQ: PLMD) today reported revenue growth of 34% to $177.2 million in the third fiscal quarter of 2007 compared with $131.9 million for the same period last year. Income from continuing operations, net of taxes, for the quarter was $9.8 million, or $0.43 per diluted share, compared sequentially with $8.0 million, or $0.34 per diluted share, in the second quarter. In accordance with Statement of Financial Accounting Standards (SFAS) No. 123R, "Share-Based Payment," the Company recognized $3.0 million of pre-tax stock-based compensation expense ($1.9 million after taxes, or $0.08 per diluted share) during the third quarter of fiscal 2007. Excluding the impact of stock-based compensation expense, earnings per share for the quarter were $0.51 compared with $0.42 in the second quarter of fiscal 2007. Earnings per share in the third quarter of fiscal 2006 were $0.40.

Commenting on the Company's quarterly results, President and Chief Executive Officer Patrick Ryan said, "We continue to be pleased by the performance in our core diabetes business and our success to date in building our pharmacy business. The Company's focus on meeting the comprehensive needs of people suffering from diabetes has been well received by our patients. Overall, it was a strong quarter for the Company and yielded solid revenue and earnings growth. Operating cash flow for the third quarter was $21 million and provided us with the opportunity to reduce outstanding debt by $26 million."

Mr. Ryan continued, "We are now processing prescriptions under the Medco pharmacy fulfillment agreement, and we expect to complete the transition to Medco by March 31st. The Medco agreement allows us to leverage the Liberty brand and our call center expertise to reach and serve patients, and it provides world class fulfillment services to our patients."

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Net revenues in the third quarter of fiscal 2007 increased 34% to $177.2 million compared with $131.9 million for the same period last year. Diabetes revenue increased $11.6 million, or 10%, from last year, primarily due to the 7% increase in diabetes patients and an increase in revenue generated from the Company's diabetes commercial business.

Pharmacy revenue increased $33.7 million, or 157%, from last year, primarily due to the increase in patients served through the Company's Medicare Part D drug benefit program. The Company dispensed 566,000 prescriptions in the third quarter compared with 174,000 dispensed prescriptions in the prior year period.

The provision for sales returns and allowances in the third quarter of 2007 was $2.9 million, or 1.6% of gross revenues, compared with $4.2 million, or 3.1% of gross revenues, in last year's third quarter. The decrease in the amount and the percentage of sales returns and allowances to gross revenues in the third quarter ended December 31, 2006, was attributable to the revenue growth of the Pharmacy segment, which generates a lower rate of sales returns and allowances; a reduction in sales returns of diabetes products during the quarter; and, the fiscal 2006 acquisition of IntelliCare, which does not have sales returns.

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Gross margin dollars in the third quarter increased 14% to $78.3 million from $68.9 million for the same period last year. Diabetes gross margin dollars increased $8 million and Pharmacy gross margin dollars increased $1.4 million from last year. Overall, the Company's gross margin was 44.2% of net revenues in the third quarter compared with 52.2% last year and 46.3% in the second quarter of fiscal 2007. Diabetes gross margin was 56.5% in the third quarter compared with 55.2% last year and 57.3% in the second quarter. The increase in Diabetes gross margin from last year was primarily attributable to a decrease in diabetes strip pricing and related product costs. The reduction in Diabetes gross margin from the second quarter was due to an increase in the Diabetes commercial business and insulin pump supply business, which generate lower gross margin rates.

Pharmacy gross margin was 17.0% in the third quarter ended December 31, 2006, compared with 37.3% in the prior year and 19.2% in the second quarter. The decrease in Pharmacy gross margin from last year and the second quarter was due to the growth in net revenues attributable to the Liberty Part D drug benefit program, which generates a lower product gross margin than the historical Pharmacy business.

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The $8.7 million increase in selling, general and administrative expense from last year related primarily to the $2.4 million increase in stock-based compensation as a result of the implementation of SFAS 123R in fiscal 2007 and the $1.7 million increase in the amortization of direct-response advertising. In addition, there were increases in the amortization of intangible assets, headcount and other costs associated with the 13 diabetes companies acquired since September 30, 2005, and the fiscal 2006 acquisition of IntelliCare. Other SG&A expense primarily includes legal, accounting, communications cost and marketing expense. SG&A expense, in dollars, was similar to the amount reported in the second quarter of 2007. As a percentage of revenue, SG&A expense in the third quarter was 34.4% compared with 39.7% last year and 36.7% in the second quarter.

Other income and expense:

Other income and expense of $1.7 million increased $282,000 from last year due to the higher level of debt outstanding during the period. Compared with the second quarter, other income and expense decreased $1.5 million, or 46%, primarily due to the reduction in the overall interest rate as a result of the Company's issuance of 1% coupon convertible notes in the second quarter and the $26 million reduction in debt outstanding under the Company's credit facility during the quarter. The average borrowing rate under the credit facility was 6.3% in the third quarter compared with 6.9% in the second quarter and the overall weighted average interest rate on all debt was 2.7% in the third quarter compared with 6.1% in the second quarter and 5.2% in last year's third quarter.

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Net revenues for the nine months ended December 31, 2006, increased 42% to $497.2 million compared with $350.9 million for the same period last year. Diabetes revenue increased $63.5 million, or 22%, from last year, due to the increase in patients and the fiscal 2006 acquisitions of NDP and IntelliCare. Pharmacy revenue increased $82.8 million, or 134%, from last year due to the growth of dispensed prescriptions resulting from patients enrolling in the Company's Medicare Part D drug benefit program.

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Gross margin dollars for the nine months ended December 31, 2006, increased 20% to $226.6 million from $189.4 million for the same period last year due to revenue growth in both the Diabetes and Pharmacy segments this year. Diabetes gross margin dollars increased $31.8 million and Pharmacy gross margin dollars increased $5.4 million from last year. Overall, the Company's gross margin decreased to 45.6% of net revenues compared with 54.0% last year due to a higher percentage of revenues derived from the Pharmacy segment, and the NDP and IntelliCare acquisitions, all of which generate lower gross margins than the Company's historical business. Diabetes gross margin decreased to 56.6% compared with 58.0% last year primarily due to the revenue generated from the NDP and IntelliCare acquisitions.

Pharmacy gross margin decreased to 18.8%, compared with 35.2% last year, due to the growth in net revenue attributable to the Liberty Part D drug benefit program that generates a lower gross margin than the historical pharmacy business.

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The $40.9 million increase in selling, general and administrative expense from last year related primarily to increased headcount to support the growth of the Diabetes and Pharmacy businesses, amortization expense and other general costs associated with the fiscal 2006 acquisitions of NDP and IntelliCare, the acquisitions of certain assets of 13 diabetes companies acquired since September 30, 2005, the inclusion of stock-based compensation in the financial statements in fiscal 2007 and an increase in direct-response advertising amortization. Other SG&A expense primarily includes legal, accounting, communications costs and marketing expense. As a percentage of revenue, SG&A expense for the nine months ended December 31, 2006, was 36.5% compared with 40.1% in the year earlier period.

Other income and expense:

Other income and expense of $7.7 million increased $5.7 million from last year due to the higher level of average debt outstanding during the period. The Company's average debt balance increased primarily due to the repurchase of the Company's common stock during fiscal 2006 and the completion of several acquisitions during fiscal 2006 and fiscal 2007.

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Conference Call and Replay

PolyMedica management will host a conference call and live webcast tomorrow, Tuesday, February 6, 2007, at 9:00 a.m. Eastern time to discuss the Company's financial results. The number to call for this interactive conference call is 1-888-313-1094. A 90-day online replay will be available beginning approximately one hour following the conclusion of the live broadcast. A link to these events can be found on the Company's website at www.polymedica.com or at www.earnings.com.

About PolyMedica

For more than a decade, PolyMedica Corporation has been the nation's largest provider of blood glucose testing supplies and related services to people with diabetes and today serves more than 925,000 active diabetes patients. The Company also offers a full service pharmacy to meet patients' medication needs and provides patient education to help its patients better manage their health conditions. Through proactive patient outreach, convenient home delivery and administrative support, PolyMedica makes it simple for patients to obtain the supplies and medications they need, while encouraging compliance with physicians' orders. More information about PolyMedica can be found on the Company's website at www.polymedica.com.

This press release contains forward-looking statements as that term is defined in the Private Securities Litigation Reform Act of 1995. Such forward-looking statements are subject to risks and uncertainties, which could cause actual results to differ materially from those anticipated. Such risks and uncertainties include, but are not limited to, rules and regulations promulgated under the Act, unanticipated changes in Medicare reimbursement, successful participation in new reimbursement programs, outcomes of government reviews, inquiries, investigations and related litigation, continued compliance with government regulations, fluctuations in customer demand, management of rapid growth, competition from other healthcare product vendors, timing and acceptance of new product introductions, general economic conditions, geopolitical events and regulatory changes, as well as other especially relevant risks detailed in the Company's filings with the Securities and Exchange Commission, including its Annual Report on Form 10-K for the period ended March 31, 2006, and Quarterly Reports on Form 10-Q for the periods ended June 30, 2006 and September 30, 2006. The information set forth herein should be read in light of such risks. The Company assumes no obligation to update the information contained in this press release.

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