POSSIS MEDICAL REPORTS 3RD QTR NET SALES UP 7%.

Possis Medical, Inc. (NASDAQ:POSS), Minneapolis a, developer, manufacturer and marketer of pioneering medical devices used in endovascular procedures, has reported results for its fiscal 2007 third quarter.

For the third quarter ended April 30, 2007, Possis delivered net sales of $16.2 million, a 7 percent increase from fiscal 2006 third-quarter sales of $15.2 million. The company reported third-quarter net income on a generally accepted accounting principles (GAAP) basis of $44,000, or $0.00 per diluted share, improved from a GAAP net loss of $278,000, or $0.02 per diluted share, for the prior-year period. This includes stock-based compensation expense of $669,000, net of tax, or $0.04 per diluted share, and $820,000, net of tax, or $0.05 per diluted share, for the fiscal 2007 and 2006 third quarters, respectively. As adjusted to eliminate the effect of stock-based compensation expense, net income (non-GAAP) was $713,000, or $0.05 per diluted share in the third fiscal quarter of 2007 compared to net income of $542,000, or $0.03 per diluted share, in the third quarter of fiscal 2006.

Due to the recent AngioJet Ultra Thrombectomy System launch, Possis' expense for sales returns has increased from approximately 1 percent of gross revenue to 3.3 percent of gross revenue in the fiscal 2007 third quarter. This increase is due to the expected rise in returns of customers' disposable product inventory usable only with the previous generation AngioJet System. At the customer's request, these returns are often delayed 30 to 60 days until the customer is fully trained and converted to the new Ultra System. Gross revenue in the third quarter increased 9 percent to $16.8 million, versus the same period one year ago; gross revenue was up 5 percent sequentially from the fiscal 2007 second quarter. Possis anticipates that sales returns will moderate as the Ultra System becomes the preferred thrombectomy system. Please refer to the table on page 7 for additional details on revenue and sales returns. "Year over year, we delivered revenue growth in spite of higher sales returns. We did, however, come up somewhat short of our guidance," said Robert G. Dutcher, CEO of Possis Medical. "Possis is in the midst of a growth recovery phase and at a pivotal transition in our business. As we convert from the legacy AngioJet Systems to the new Ultra Consoles, we're going to market with a whole new product lineworking to turn over an installed base of over 1,800 drive units and prior-generation catheters and pumps. This transition is expected to result in increased sales returns, higher manufacturing start-up costs, and a higher ratio of capital equipment versus disposable product sales that will impact gross margins and product sales mix while we focus on the Ultra System near-term."

"Our focus as a company is long term and strategic, and an important part is to place Ultra Consoles and secure complete market access for additional Ultra Catheter Set designs. These are future revenue generators and keys to growth. It's encouraging that Ultra Console placements and sales exceeded our expectations for the third quarter and early indications are that Ultra System disposable usage will significantly exceed historic usage rates."

Continued Dutcher, "Moreover, the FDA just recently cleared our AngioJet Ultra Spiroflex catheter set for blood clot removal in coronary conduits. This approval means our flagship Ultra Spiroflex catheter set is now approved for both coronary and peripheral thrombus removal, an important forward step in establishing the Ultra System. Additionally, the FDA cleared our FETCH Aspiration Catheter specifically for coronary vasculature use, on top of its original clearance for generic arteries. These two newest indications further broaden the on-label scope of our product family and offer physicians a more complete solution for treating coronary thrombus."

In the fiscal 2007 third quarter, Possis sold 36 new AngioJet Ultra Consoles and 15 prior-generation drive units worldwide. Total U.S. drive units in the field, which contributes to catheter usage and sales, increased sequentially to 1,777 at the end of the fiscal 2007 third quarter from 1,719 units at the end of the fiscal 2007 second quarter. Of total U.S. drive units in the field, 109 are the new AngioJet Ultra consoles.

For the third quarter, Possis' gross profit margin was 68 percent, versus 71 percent in the year-ago third quarter. The quarterly, year-over-year decrease was primarily due to the impact of higher start-up costs for new products and customer conversion to the Ultra System. Average selling prices remained firm across the company's product lines. Selling, general and administrative expenses (SG&A) increased by $869,000 from the year-earlier third quarter, to $9.2 million. Sales force commissions and a sales force operating at full staff contributed to the rise.

Fiscal 2007 third-quarter research and development (R&D) spending decreased by $498,000 from the prior-year period to $2.4 million. The year-over-year decrease is due to the timing of specific expenses for R&D initiatives as several new products are now moving to market release. R&D spending represented 14.6 percent of third-quarter revenue. On April 30, 2007, cash, cash equivalents, and marketable securities totaled $43.3 million. On December 19, 2006, Possis' board of directors authorized the company to repurchase up to $15 million of its common stock over the two years ending December 31, 2008. During the third quarter, Possis repurchased $1.88 million, or 149,738 shares, of common stock at an average price of $12.54 per share. Based on market conditions, Possis plans to repurchase additional shares going forward to offset dilution from stock-based compensation programs. For the nine-month period ended April 30, 2007, net sales increased 4 percent and totaled $47.6 million, versus $45.8 million in the prior year.

The company reported a net loss of $16,000 for the nine months on a GAAP basis, including stock-based compensation expense of $2 million, net of tax, or $0.12 per diluted share. GAAP net income for the prior-year nine months was $330,000, or $0.02 per diluted share, including stock-based compensation expense of $2.3 million, net of tax, or $0.13 per diluted share. As adjusted to eliminate the effect of stock-based compensation expense, net income (non-GAAP) for the fiscal 2007 nine months was $2.0 million, or $0.11 per diluted share, compared to $2.6 million, or $0.14 per diluted share, for fiscal 2006.

AngioJet Product Update

Said Dutcher, "Possis continues to be the established leader in the thrombus management space. Through ongoing new product introductions and additional clinical science, we have returned to growth and our goal remains to leverage our proven technology and market strength to provide physicians and hospitals with a broader portfolio of endovascular treatment options."

AngioJet Ultra System

During the third quarter, Possis initiated the full market release of its new AngioJet Ultra Thrombectomy System. Leading up to full-market release, the Ultra System was broadly evaluated by experienced AngioJet operators in several hospitals across the country. According to Possis, cathlab staff found the Ultra System to be much faster to set up and significantly easier to use than the previous generation AngioJet System, while retaining the same therapeutic effectiveness and physician response has been overwhelmingly positive.

Ultra Spiroflex Thrombectomy Set

Possis' new Ultra Thrombectomy System combines catheters and pump sets into a single disposable device called a Thrombectomy Set. The Spiroflex catheter was approved for coronary use with the previous generation AngioJet System in January 2007. Recently, the FDA approved the Ultra Spiroflex thrombectomy set for coronary use with the Ultra System. The Ultra Spiroflex thrombectomy set is now cleared for both coronary and peripheral use.

Said Dutcher, "Approval of the Ultra Spiroflex thrombectomy set demonstrates the continued forward progress we're making with our new Ultra System."

Spiroflex Catheters

In April 2007, the FDA approved Possis' AngioJet Spiroflex VG rapid exchange catheter for thrombus removal in coronary conduits. First introduced in July 2006 for removing thrombus in larger peripheral arteries, the recent FDA approval allows the Spiroflex VG catheter to be marketed for use in saphenous vein bypass grafts in the heart and larger native coronary arteries.

Sharing the same platform technology, Possis' Spiroflex and Spiroflex VG catheters are the company's most flexible and maneuverable rapid exchange catheters. The Spiroflex and Spiroflex VG catheters are now approved for thrombus removal in both coronary and peripheral arteries. The Spiroflex catheter is uniquely suited for thrombus removal in smaller native coronary arteries, while the Spiroflex VG catheter provides more power and is specifically designed for thrombus removal in bypass grafts in the heart and larger peripheral and coronary arteries. According to Possis, interventions in saphenous vein bypass grafts represent approximately 15 percent of all coronary interventions. These bypass grafts are generally larger in diameter than native coronary arteries and often contain larger, more difficult to remove thrombus.

Non-AngioJet Products