Oct 12, 2000
Guidant Posts Third Quarter Sales of $600.8 million; Net Income and Earnings Per Share of $0.40 Grow 25 Percent

PRIZM 2 and MULTI-LINK TETRA Provide Foundation for Fourth Quarter Growth

Indianapolis, IN - Reporting strong implantable defibrillator, pacemaker, and angioplasty revenues as well as growth from emerging therapies such as endovascular abdominal aortic aneurysm (AAA) repair and heart failure, Guidant Corporation (NYSE and PCX: GDT) today reported third quarter sales of $600.8 million, an increase of 6 percent over the same period of 1999. As previously reported, lower coronary stent sales due to customer anticipation of the new MULTI-LINK TETRA(tm) Coronary Stent System in the U.S. and a $13.5 million unfavorable currency rate impact negatively affected the quarter's sales. Record third quarter net income of $122.8 million and earnings per share of $0.40 each grew 25 percent over the third quarter of 1999, excluding special charges in the prior period*.

Three Months Ended September 30, 2000 Revenue Performance Strong for Implantable Defibrillators, Pacemakers, and Angioplasty Systems

Strong implantable defibrillator, pacemaker, and angioplasty systems sales drove revenue growth for Guidant in the third quarter. In addition, Guidant continued to show promising growth in emerging technologies to treat heart failure and peripheral vascular disease, as well as endovascular AAA. "Both our U.S. implantable defibrillator and pacemaker businesses demonstrated robust year-over-year growth led by VENTAK® PRIZM(tm) dual chamber implantable pacemaker/defibrillators and the PULSAR(tm) MAX family of dual sensor pacemakers," commented Ronald W. Dollens, Guidant President and Chief Executive Officer. U.S. implantable defibrillator revenues of $137.6 million grew 24 percent versus the third quarter of 1999. Worldwide defibrillator revenues increased 21 percent to $165.6 million. Pacemaker sales grew 11 percent in the U.S. to $88.1 million and 9 percent worldwide to $140.1 million.

"Guidant recently received U.S. regulatory approvals to market several important new products which will position us well for immediate future growth," continued Dollens. "While not contributing to third quarter U.S. sales, the VENTAK® PRIZM(tm) 2 dual chamber implantable pacemaker/defibrillator, and the MULTI-LINK TETRA Coronary Stent System will provide the foundation for growth in the fourth quarter. These products give us the opportunity to advance our positions in each of these large and important markets," Dollens added.

In Europe, Guidant coronary stents experienced 19 percent unit growth in the third quarter as compared to the prior year, driven by the launch of the MULTI-LINK TETRA. "The customer anticipation for TETRA in the U.S. has been extraordinary," explained Dollens. "TETRA's success in Europe and domestic customer anticipation bode well for its U.S. launch during the fourth quarter." TETRA incorporates VTS(tm) (Variable Thickness Strut) technology to achieve optimal flexibility and visibility while offering outstanding vessel scaffolding. In addition, TETRA incorporates the successful delivery system features that made its predecessor, the MULTI-LINK TRISTAR(tm) Coronary Stent System, the world's leading coronary stent. Worldwide coronary stent sales were $165.0 million and U.S. sales were $111.5 million. These sales reflect declines of 20 and 24 percent, respectively. Average selling prices for Guidant coronary stent products in the U.S. declined by 3 percent sequentially versus the second quarter, which is in line with recent trends.

The VENTAK PRIZM 2 dual chamber implantable pacemaker/defibrillator, which Guidant will launch in early November in both the U.S. and Europe, represents the latest in Guidant's leading-edge technology in tachycardia therapy. Dollens stated, "PRIZM 2 will continue Guidant's technology leadership by offering the smallest (32cc) and longest lived (6 years) full-featured dual chamber implantable defibrillator ever. Combined with the ease of programming enabled by the ZOOM(tm) programmer and sophisticated diagnostics, the PRIZM 2 represents another opportunity for growth for Guidant's cardiac rhythm management products."

"Guidant's worldwide angioplasty revenues grew 10 percent to $87.9 million, led by the introduction of RX CrossSail(tm) and OTW OpenSail(tm) Coronary Dilatation Catheters around the world. Japan led angioplasty revenue growth through a substantial share increase in the largest dilatation catheter market in the world," commented Dollens.

Sales of cardiac and vascular surgery products totaled $31.4 million worldwide. "Our cardiac and vascular surgery product sales are accelerating rapidly, and are now two and one half times greater than last year's third quarter totals. The ANCURE® ENDOGRAFT® System for endovascular AAA repair continues to set the standard for clinical success and patency as the endovascular graft technique gains acceptance in the clinical community," stated Dollens. He continued, "The ANCURE System, the ACHIEVE(tm) Off-Pump System for 'beating heart' bypass procedures, which was launched during the third quarter, along with the VASOVIEW UNIPORT(tm) PLUS Vessel Harvesting System created substantial new platforms for growth going forward in these important clinical categories."

Summarizing, Dollens stated, "Our core markets in vascular intervention and cardiac rhythm management are strong. Further, we have an extraordinary opportunity to advance our share positions in each of our markets while we prepare to launch exciting new technologies for heart failure, radiation therapy, and peripheral vascular disease during 2001."

Guidant Delivers Third Quarter Record Net Income of $122.8 million

Gross profit for Guidant in the third quarter of $451.6 million represented 75.2 percent of sales versus 76.2 percent in the same period last year. The decline of gross margin as a percent of sales was due principally to manufacturing start-up costs in preparation for the launch of TETRA and PRIZM 2 in the U.S.

Operating expenses grew at the same rate as sales, with R&D amounting to peer-group leading 14.2 percent of sales. Sales, marketing, and general administrative expenses increased 3 percent with growth in sales and marketing expenses offset by declines in administrative expenses.

Income before taxes of $178.0 million grew by 13.6 percent over third quarter 1999 levels. Additionally, income before taxes reflects a $12.9 million benefit as the result of a favorable legal ruling involving the cardiac and vascular surgery product area. Other expenses decreased $4.7 million to $27.5 million versus 1999 due principally to income from an up-front license access fee in the cardiac and vascular surgery area. The company's effective tax rate for the quarter of 31.0 percent reflects the reduction of the year-to-date rate to 32.0 percent from 32.5 percent and stems principally from the ramp-up of coronary stent manufacturing in Guidant's tax-advantaged Ireland operation.

Overall in the quarter, net income and earnings per share grew 25 percent to $122.8 million and $0.40, respectively, versus adjusted third quarter 1999 levels.

Nine Months Ended September 30, 2000 Year-to-Date Net Income and EPS grow 22 and 23 Percent, respectively

For the first nine months of the year, Guidant reported net sales of $1,899.9 million, or 7 percent higher than the same period last year. Adjusted gross profit increased 7 percent to $1,447.6 million and represented 76.2 percent of sales. Total operating expenses, excluding special items in 1999, grew 7 percent--in line with sales growth. Income before taxes of $538.2 million grew by 13 percent versus the previous year due to higher income from operations, lower other expenses, and the previously mentioned legal ruling. The effective tax rate for the first nine months of 2000 is 32 percent versus 37.5 percent in 1999. Excluding special items in 1999, net income grew by 22 percent to $365.9 million, while adjusted earnings per share grew 23 percent to $1.18.

Guidant will conduct a live webcast of its third quarter 2000 earnings conference call today, Thursday, October 12, at 5:00PM EDT. The live webcast of Guidant's conference call will be accessible to all investors through Guidant's website at http://www.guidant.com/financial/webcast/ or at http://www.streetfusion.com. The webcast will be archived on both websites for future on-demand replay.

System requirements for the webcast include Internet Explorer 5.0 (or higher) or Netscape Navigator 4.0 (or higher). Users also should have the most recent version of Windows Media Player, which can be downloaded for free at http://www.microsoft.com/windows/windowsmedia/en/download/. Users may experience varying levels of performance based on their connection speed, system capabilities and presence of a corporate firewall. To ensure a connection, users should go to the program five to 15 minutes before its start.

A global leader in the medical technology industry, Guidant provides innovative, minimally invasive and cost-effective products and services for the treatment of cardiovascular and vascular disease. For more information on Guidant's products and services, visit the company's web site at www.guidant.com.

This release contains forward-looking statements about the company's future financial results, the company's prospects and products in research and development. This information is based upon management's current expectations, but actual results may differ materially from those discussed in the forward-looking statements. Factors affecting future results include those outlined in Exhibit 99.1 to the company's Form 10-Q filed August 2000.

*For a description of prior year special charges, see notes on attached financial statements.