IsoTis Reports Q2 2007 Results and Recommends Stockholders Approve Merger With Integra LifeSciences



    IRVINE, CA, Aug. 7 /CNW/ - IsoTis, Inc (NASDAQ:   ISOT), an orthobiologics
company, today reported its results for the second quarter and six months
ended June 30, 2007. Product revenues were $10.4 million for the second
quarter of 2007, representing a 4% decrease over product revenues of
$10.8 million for the second quarter of 2006. For the first six months of
2007, product revenues were $20.3 million, representing a 1% decrease over
product revenues of $20.5 million for the same period in 2006. Total revenue,
including income from the transfer of IsoTis' intellectual property rights for
PolyActive to OctoPlus (Euronext: OCTO) and the extension of the company's
private label agreement with AlloSource, was $14.6 million for the second
quarter of 2007 and $24.5 million for the first six months of 2007.

    Revenue Analysis

    IsoTis' two chief distribution channels are its U.S. network of
independent agents and its network of international distributors, while the
remaining portion of its revenues are derived from private label agreements
and deferred revenue proceeds. In the second quarter of 2007, revenues from
the U.S. network decreased 3% to $6.1 million compared to $6.3 million in the
second quarter of 2006, while in the first six months of 2007 revenues from
the U.S. network grew 1% to $12.6 million, compared to $12.4 million in the
first six months of 2006. In the second quarter of 2007, international
revenues grew 20% to $3.0 million compared to $2.5 million in the second
quarter of 2006, while in the first six months of 2007 international revenues
grew 3% to $5.1 million, compared to $5.0 million in the first six months of
2006.

    Results Comparison & Cash Position

    Income from operations for the second quarter of 2007 was $0.3 million,
compared to a loss from operations of $2.1 million for the second quarter of
2006. In the first six months of 2007, the loss from operations was
$5.3 million, compared to $4.6 million in the first six months of 2006.
    Due to the impact of other revenue recorded in the second quarter of 2007
in connection with the transfer of our intellectual property rights for
PolyActive and the extension of our private label agreement with AlloSource,
the net result for the second quarter of 2007 was a profit of $37,000, while
for the first half of 2007 we recorded a net loss of $5.0 million.
    At June 30, 2007, IsoTis had cash and cash equivalents and restricted
cash of $14.4 million.

    Recommendation to Accept Terms of Merger with Integra Lifesciences

    Earlier today, IsoTis announced a definitive agreement to combine with
Integra LifeSciences Holdings Corporation (NASDAQ:   IART) ("Integra") in a cash
transaction. The Company believes that this strategic combination, unanimously
approved by the Board of Directors of IsoTis, will create a global leader in
regenerative medicine. The transaction is expected to be completed in the
fourth calendar quarter of 2007.
    Under the terms of the merger agreement, IsoTis stockholders will receive
$7.25 in cash for each share of IsoTis common stock they own. The total
consideration of the transaction is approximately $51 million, plus debt
assumed at closing.
    As disclosed earlier this year, IsoTis embarked on a process to raise
capital to fund the Company's operations with the filing on January 29, 2007
of a registration statement on Form S-1 for a proposed public offering. That
registration statement was later withdrawn as a result of a delay in the
approval of its 510(k) application with the FDA regarding its Accell products.
Still requiring capital, the Company elected to pursue financing in the
private markets. The Company successfully secured a $20 million Credit
Facility with Merrill Lynch Capital and Silicon Valley Bank on May 30, 2007,
which credit facility contains the condition that the Company must raise net
proceeds of $18.6 million in new equity capital by August 31, 2007 or repay
Merrill Lynch $7.5 million by September 1, 2007. IsoTis has been unable to
negotiate such financing on terms that the Board of Directors deems acceptable
for the stockholders.
    Without additional financing, the Company will not be able to finance its
operations beyond October 2007. Consequently, the Company and its advisors
pursued potential strategic partners, resulting in today's announcement. The
transaction is subject to approval by holders of more than 50% of the
outstanding shares of IsoTis' common stock at a special meeting of
stockholders to be held later this year, as well as other closing conditions
and approvals. The transaction is expected to close in the fourth calendar
quarter of 2007. The Board of Directors unanimously approved the agreement and
plan of merger with Integra, and unanimously recommends that IsoTis'
stockholders vote in favor of approval and adoption of the agreement.
    Pieter Wolters, President and CEO of IsoTis said, "With the challenges of
the last quarters, we are happy to have kept the sales of our Accell products
at or around the same levels compared with the same periods of last year. As
communicated earlier, the U.S. FDA has reinitiated the review of our Accell
510(k) submission, and we are optimistic that a decision will be reached in
the next few weeks.
    "Our employees and partners have been successful in building IsoTis to a
leading orthobiologics company to date. We're proud of the innovative product
and technology platforms we have created, as well as our established
distribution channels in the US and overseas. We have been unable to secure
the necessary financial resources to support continued growth within the
limited period of time and cash available after the regulatory approval delay.
The time required to reach cash flow breakeven as a standalone company would
require substantial additional capital that has proven to be unavailable on
acceptable terms."
    "We have followed Integra's success in building an industry leader over
the years. During our recent discussions with Integra's team leading to
today's announcement, we were impressed by the capabilities and integrity of
their leadership. We are confident that under the new ownership and with
Integra's resources backing us, our products, technology platforms and
employees will once again flourish and continue the growth path that we
started in 2004."
    "We believe this transaction represents a fair value to our stockholders.
For our other stakeholders, the transaction enables both IsoTis and Integra to
reach their shared goal of improving patient outcomes in an innovative,
cost-effective manner. We are very excited about the benefits this combination
of industry leaders will provide to employees, physicians and their patients,
and to our business partners. Therefore the Board of Directors unanimously
recommends that IsoTis' stockholders vote in favor of approval and adoption of
the agreement."

    Conference Call

    IsoTis has scheduled a conference call to discuss these results today
August 7, 2007 at 4 p.m. EST (1 p.m. PST, 10 p.m. CET). US Dial In: toll free
1-866-966-5335; UK Dial In +44-20-3023-4442; Continental Europe Dial In:
+41-22-592-7103; no password required. Digital playback is available from
August 7 at 8:00 p.m. for 24 hours. US Dial In: 1-866-583-1035; European Dial
In +41-22-580-3314; playback ID: 573240No.. To listen to the conference call
live via the internet, visit the Investors section of the IsoTis website at
http://www.isotis.com. Please go to the website 15 minutes prior to the call
to register, download and install the necessary audio software.

    About IsoTis

    IsoTis is an orthobiologics company that develops, manufactures and
markets proprietary products for the treatment of musculoskeletal diseases and
disorders. IsoTis' current orthobiologics products are bone graft substitutes
that promote the regeneration of bone and are used to repair natural,
trauma-related and surgically-created defects common in orthopedic procedures,
including spinal fusions. IsoTis' current commercial business is highlighted
by its Accell line of products, which the company believes represents the next
generation in bone graft substitution.

    Certain statements in this press release are "forward-looking statements"
within the meaning of Section 21E of the Securities Exchange Act of 1934, as
amended, including those that refer to management's plans and expectations
for, among other things, future operations, strategies, prospects, performance
and financial condition and IsoTis' proposed acquisition by Integra. Words
such as "strategy," "expects," "plans," "anticipates," "believes," "may,"
"will," "might," "could," "would," "continues," "estimates," "intends,"
"pursues," "projects," "goals," "targets" or the negative or other variations
thereof and other words of similar meaning are intended to identify such
forward-looking statements. One can also identify them by the fact that they
do not relate strictly to historical or current facts. Such statements are
based on the current expectations and projections of the management of IsoTis
only. Undue reliance should not be placed on these statements because, by
their nature, they are subject to known and unknown risks and can be affected
by factors that are beyond the control of IsoTis. Actual results could differ
materially from current expectations and projections due to a number of
factors and uncertainties affecting IsoTis' business, including, but not
limited to the following factors as well as other factors described from time
to time in IsoTis' reports filed with the SEC: the effects of economic, credit
and capital market conditions on the economy in general and on medical device
and health care companies in particular; IsoTis' need to raise additional
capital to continue operations; a competitive sales and marketing environment;
the timely commencement and success of IsoTis' clinical trials and research
endeavors; delays in receiving U.S. Food and Drug Administration or other
regulatory approvals (i.e., EMEA, CE), including the risk that the FDA
determines that IsoTis' Accell Putty and Accell TBM products are not human
tissue or class II medical devices, that IsoTis is unable to obtain 510(k)
clearance for its Accell products, that the FDA requires IsoTis to obtain
premarket approval of its Accell products prior to continuing their marketing,
that the FDA requires IsoTis to produce additional clinical data to support
approval or clearance of its products, and that the FDA imposes compliance
measures against IsoTis for the marketing of its Accell products, including
imposing fines and injunctions or causing IsoTis to recall its Accell
products; market acceptance of IsoTis' products; the effectiveness of IsoTis'
distribution channels; the development of competing therapies and/or
technologies; the terms of any future strategic alliances; changes in laws
(including increased tax rates), regulations or accounting standards,
third-party relations and approvals, and decisions of courts, regulators and
governmental bodies; litigation outcomes and judicial actions; and the
inability to obtain, or meet, conditions imposed for required governmental and
regulatory approvals and consents. IsoTis expressly disclaims any intent or
obligation to update these forward-looking statements except as required by
law. For a more detailed description of the risk factors and uncertainties
affecting IsoTis, refer to the Annual Report on Form 20-F for the fiscal year
ended December 31, 2006 of IsoTis S.A. (the predecessor to IsoTis, Inc.), and
IsoTis S.A.'s other reports filed with the SEC, IsoTis S.A.'s reports filed
from time to time with the Swiss Stock Exchange (SWX), Euronext Amsterdam
N.V., SEDAR at http://www.sedar.com and the Toronto Stock Exchange (TSX) and
the quarterly report on Form 10-Q for the quarter ended March 31, 2007 and
other reports filed with the SEC from time to time by IsoTis, Any
forward-looking statements are made pursuant to the Private Securities
Litigation Reform Act of 1995 and, as such, speak only as of the date made.
IsoTis undertakes no obligation to publicly update any forward-looking
statements, whether as a result of new information, future events or
otherwise.

    Important Information for Investors and Stockholders

    IsoTis will file a proxy statement and other relevant materials with the
SEC in connection with the proposed merger. IsoTis urges its stockholders to
read the proxy statement when it becomes available and any other relevant
documents filed by IsoTis with the SEC because they will contain important
information.
    Investors and stockholders will be able to obtain the proxy statement and
other documents filed with the SEC free of charge at the website maintained by
the SEC at http://www.sec.gov. Documents filed with the SEC by IsoTis will be
available free of charge on the investor relations portion of the IsoTis
website at http://www.IsoTis.com.

    Participants in the Solicitation

    IsoTis, and its directors and executive officers may be deemed to be
participants in the solicitation of proxies from IsoTis' stockholders in
connection with the merger. The names of IsoTis' directors and executive
officers and a description of their interests in IsoTis are set forth in
IsoTis S.A.'s Annual Report on Form 20-F, which was filed with the SEC on May
11, 2007. Investors and stockholders can obtain more detailed information
regarding the direct and indirect interests of IsoTis' directors and executive
officers in the merger by reading the definitive proxy statement when it
becomes available.

    
         Condensed Consolidated Statements of Operations (Unaudited)

                                 Three Months                Six Months
                                    Ended                       Ended
                                   June 30,                    June 30,

                              2007          2006          2007          2006

    Revenue
    Product sales     $ 10,369,555  $ 10,766,162  $ 20,344,044  $ 20,544,527
    Other revenue        4,196,250             -     4,196,250        35,816

    Total revenue       14,565,805    10,766,162    24,540,294    20,580,343

    Operating expenses
    Costs of sales       4,429,513     3,952,695     8,434,209     7,646,523
    General and
     administrative      3,750,605     2,988,899     9,121,686     5,596,094
    Sales and marketing  4,529,910     4,219,414     9,134,592     8,533,204
    Research and
    development          1,549,947     1,739,668     3,110,968     3,453,489

    Total operating
     expenses           14,259,975    12,900,676    29,801,455    25,229,310

    Income (loss) from
     operations            305,830    (2,134,514)   (5,261,161)   (4,648,967)
    Interest income         40,661       137,402       146,874       278,237
    Interest expense      (212,526)      (28,624)     (340,583)      (56,484)
    Foreign exchange
     loss                  (67,183)   (4,106,757)      (60,149)   (5,509,544)
    Other (expense)
     income, net           (21,020)       (3,919)       17,385        (3,919)

    Net income (loss)
     before provision
     for taxes              45,762    (6,136,412)   (5,497,634)   (9,940,677)
    Provision for income
     taxes                   4,850             -         9,850             -

    Net income (loss)
     before minority
     interest               40,912    (6,136,412)   (5,507,484)   (9,940,677)
    Minority interest       (3,887)            -       494,633             -


    Net income (loss)      $37,025   $(6,136,412)  $(5,012,851)  $(9,940,677)

    Basic net income
     (loss) per common
     share                  $ 0.01       $ (0.87)      $ (0.78)      $ (1.40)
    Diluted net income
     (loss) per common
     share                  $ 0.01       $ (0.87)      $ (0.78)      $ (1.40)

    Weighted average
     shares used in per
     share calculation -
     basic               6,418,046     7,094,046     6,409,193     7,090,699
    Weighted average
     shares used in per
     share calculation
     -diluted            6,420,727     7,094,046     6,409,193     7,090,699

    The accompanying notes are an integral part of these condensed
    consolidated financial statements.



    IsoTis, Inc.

    Condensed Consolidated Balance Sheets

                                                    June 30,     December 31,
                                                      2007           2006
                                                         (Unaudited)

    ASSETS
    Current assets:
    Cash and cash equivalents                  $   4,502,721   $  13,362,915
    Restricted cash                                9,105,643       1,659,787
    Trade receivables, net of
     allowances for doubtful
     accounts of $689,039 and
     $616,347 at June 30, 2007
     and December 31, 2006,
     respectively                                  8,277,162       7,463,194
    Inventories                                   14,893,397      14,211,189
    Other receivables                                443,679         374,061
    Prepaid expenses and other
    current assets                                 2,583,280         923,746

    Total current assets                          39,805,882      37,994,892

    Restricted cash                                  750,000       1,250,000
    Property, plant and
     equipment, net                                4,118,044       3,907,175
    Goodwill                                      16,383,069      16,383,069
    Intangible assets, net                         9,735,056      11,026,656

    Total assets                                $ 70,792,051    $ 70,561,792

    LIABILITIES AND
    STOCKHOLDERS' EQUITY
    Current liabilities:
    Trade payables                              $   3,367,089   $  6,707,212
    Accrued liabilities                             6,301,240      6,560,894
    Deferred revenue                                1,342,797      1,342,797
    Current portion of
     interest-bearing loans and
     borrowings                                    13,137,638      3,751,201

    Total current liabilities                      24,148,764     18,362,104

    Deferred revenue                                4,121,240      4,792,638
    Interest-bearing loans and
     borrowings                                     1,211,722      1,696,963
    Other long term
     liabilities                                      237,605        279,025

    Total liabilities                              29,719,331     25,130,730

    Commitments and
     contingencies (Note 6)
     Stockholders' equity:
     Common stock; $0.0001 par
     value; 100,000,000 shares
     authorized at June 30,
     2007 and December 31,
     2006; 6,418,046 issued and
     outstanding at June 30,
     2007 and 7,094,661 issued
     and outstanding at
     December 31, 2006 (Note 1)                           581            709
    Additional paid-in capital                    143,496,335    157,595,929
    Minority interest (Note 1)                      3,933,171              -
    Accumulated other
    comprehensive income                           18,393,309     20,141,408
    Accumulated deficit                          (124,750,676)  (132,306,984)

    Total stockholders' equity                     41,072,720     45,431,062

    Total liabilities and
     stockholders' equity                        $ 70,792,051   $ 70,561,792

    The accompanying notes are
    an integral part of these
    condensed consolidated
    financial statements.



    IsoTis, Inc.

    Condensed Consolidated Statements of Cash Flows

                                                       Six Months Ended
                                                            June 30,
                                                      2007           2006

    Cash flows from operating activities:
    Net loss                                     $ (5,012,851)  $ (9,940,677)
    Adjustments to reconcile net loss to net
     cash used in operating activities:
    Depreciation and amortization                   1,774,303      1,669,722
    Bad debt expense                                   63,605        191,348
    Gain on sale of assets                                  -           (642)
    Stock-based compensation                          962,490        226,087
    Minority interest                                (494,633)             -
    Foreign currency transaction loss                  60,149      5,509,544
    Change in operating assets and liabilities:
    Inventories                                      (665,376)    (1,047,881)
    Trade receivables                                (843,869)      (862,124)
    Other current assets                           (1,721,069)       (87,752)
    Deferred revenue                                 (671,399)      (217,830)
    Trade and other payables                       (3,603,048)       544,156
    Other long term liabilities                       (41,420)             -

    Net cash used in operating activities         (10,193,118)    (4,016,049)
    Cash flows from investing activities
    Purchase of property, plant and equipment        (683,335)      (883,073)
    Change in restricted cash                      (6,930,881)     1,128,164

    Net cash (used in) provided by investing       (7,614,216)       245,091
     activities
    Cash flow from financing activities
    Proceeds from exercise of stock options            66,173              -
    Proceeds from issuance of common shares                 -        100,610
    Proceeds from interest-bearing loans and        8,900,158              -
     borrowings
    Repayments of interest-bearing loans and                -       (507,895)
     borrowings

    Net cash provided by (used in) financing        8,966,331       (407,285)
     activities
    (Loss) gain on cash held in foreign currency      (19,191)        42,820

    Net decrease in cash and cash equivalents      (8,860,194)    (4,135,423)
    Cash and cash equivalents at the beginning
     of period                                     13,362,915     15,714,442

    Cash and cash equivalents at the end
     of period                                    $ 4,502,721   $ 11,579,019

    The accompanying notes are an integral part of these condensed
    consolidated financial statements.
    





For further information:

For further information: Rob Morocco, CFO, (949) 855-7155,
robert.morocco@isotis.com; Hans Herklots, Director IR, (949) 855-7195 or
+41-21-620-6011, hans.herklots@isotis.com

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ISOTIS, INC.

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