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ISTA Pharmaceuticals Reports First Quarter 2011 Financial Results

May 4, 2011 - IRVINE, CA

ISTA Pharmaceuticals, Inc. (NASDAQ: ISTA), todayreported financial results and progress on key milestones for the quarterended March 31, 2011.

First Quarter 2011 Highlights

-- First quarter 2011 net revenues were $36.7 million, an increase of 30%
from the first quarter of 2010.
-- On an adjusted cash basis, and excluding expenses incurred in
connection with financing and due diligence activities to pursue an
uncompleted acquisition, ISTA had an adjusted cash net loss of
$5.6 million, or $0.17 per share, based on 34 million shares
outstanding. ISTA's management is introducing these non-GAAP financial
measures as they believe the numbers provide useful information for
investors to better evaluate the ongoing business performance.
-- ISTA's sales and marketing team successfully converted the majority of
ISTA's twice-daily XIBROM™ prescriptions to once-daily BROMDAY™
and discontinued XIBROM in February 2011.
-- In April 2011, ISTA announced positive, topline results from its
Phase 2 study of bepotastine besilate nasal spray for allergic
-- Enrollment in ISTA's Phase 3 efficacy and short-term safety studies for
REMURA™ for dry eye is on schedule, with topline results anticipated
by early in the second half of 2011.
-- Under accounting principles generally accepted in the United States
(GAAP), net loss for the first quarter ended March 31, 2011, was $84.1
million, or $2.49 per share, impacted primarily by a non-cash warrant
valuation adjustment of $72.2 million resulting from a 97% increase in
the Company's stock price in the quarter.

"Our results for the first quarter reflect strong product revenue growthover the prior year quarter, driven by our success with the launch andmarket acceptance of BROMDAY, our once-daily prescription eye drop for thetreatment of postoperative inflammation and reduction of ocular pain inpatients who have undergone cataract extractions, along with BEPREVE®,our ophthalmic solution for ocular itching associated with allergicconjunctivitis," stated Vicente Anido, Jr., Ph.D., President and ChiefExecutive Officer of ISTA Pharmaceuticals. "In terms of expenses, we hadmultiple clinical trials underway and expenses for business developmentactivities related to an acquisition that did not come to fruition. As weexpected and guided, we had a loss for the first quarter, but anticipate wewill be profitable on an adjusted cash basis for the full year 2011. Ourbusiness is growing and generates the cash we need to fuel our productdevelopment, repay our debt and further expand our business.

"The key highlight of the first quarter was the achievement of our first2011 milestone -- the successful conversion of our twice-daily XIBROMprescriptions to once-daily BROMDAY, our ophthalmic non-steroidalanti-inflammatory (NSAID) eye drops. Since BROMDAY has market exclusivitythrough October 2013 and is the only once-daily NSAID on the market, wehave the potential to gain additional market share. With the BROMDAYconversion behind us, our sales force has increased its focus on promotingBEPREVE as the spring allergy season advances. Based on current highpollen counts in much of the U.S., it looks to be a robust allergy season,and our new prescription (NRx) market share for BEPREVE has more thandoubled to 4.5% for March 2011 from the 2.0% share we had in March 2010. "

Dr. Anido concluded, "In terms of pipeline, two clinical milestones are nowcomplete, and we are making solid progress on our third milestone. We areannouncing today we initiated the low-concentration BROMDAY Phase 3 studiesthis week, which follow a similar design to the Phase 3 studies conductedfor the now approved once-daily BROMDAY. And last week, we announcedpositive, topline results from our Phase 2 study of bepotastine besilatenasal spray for allergic Rhinitis. A next step in the development plan forthis drug candidate is to explore clinical study designs for a bepotastinebesilate/steroid combination nasal spray and, after completing discussionswith the FDA, we plan to initiate a Phase 2 study in Mountain Cedar pollenwith our bepotastine besilate/steroid combination nasal spray before theend of 2011. Finally, with enrollment proceeding well, we are on trackto report topline Phase 3 efficacy and short-term safety results forREMURA™ for dry eye by early in the second half of the year."

Financial Results

Net revenues for the first quarter ended March 31, 2011 were $36.7 million,or an increase of 30% over the same period in 2010. Net revenue growth wasdriven primarily by strong demand for BROMDAY/XIBROM and BEPREVE.

 Net Revenues (in millions, except percentage data) Quarter Quarter Ended Ended March 31, March 31, 2011 2010 Change ---------- ---------- ----------BROMDAY/XIBROM $ 23.0 $ 20.3 13%BEPREVE 4.2 0.5 740%ISTALOL 6.2 5.4 15%VITRASE 3.3 2.1 57% ---------- ----------Total net revenues $ 36.7 $ 28.3 30% ========== ==========

Gross margin for the first quarter ended March 31, 2010 was 75%, or $27.5million, as compared to 74%, or $21.0 million, for the same period in 2010.The increase in gross margin for the first quarter of 2011 as compared toprior year was due primarily to the continued growth in revenues from ourhighest margin products, BROMDAY / XIBROM and BEPREVE.

Research and development (R&D) expenses for the first quarter ended March31, 2011 were $10.3 million, as compared to $4.8 million during thecorresponding period of 2010. The increase over the prior-year period wasdue primarily to the 2011 cost of on-going Phase 3 efficacy and short-termsafety studies related to REMURA™ for dry eye and Phase 2 Mountain CedarPollen studies for bepotastine besilate nasal spray.

Selling, general, and administrative (SG&A) expenses for the first quarterended March 31, 2011 increased to $26.9 million from $20.9 million for thecorresponding period in 2010. The increase primarily reflects expenses of$4.5 million in legal, professional and other fees incurred in connectionwith financing and due diligence activities to pursue a potentialacquisition of a company with marketed products, for which the Company wassuccessful in securing a financing commitment but was unsuccessful inconcluding the acquisition.

Operating loss for the first quarter ended March 31, 2011 was $9.8 million,compared to an operating loss of $4.7 million in the corresponding quarterof 2010, primarily due to expenses in connection with financing and duediligence activities to pursue an uncompleted acquisition.

Net loss for the first quarter ended March 31, 2011, was $84.1 million, or$2.49 per basic and diluted share, including a non-cash warrant valuationexpense of $72.2 million, based on 34 million shares outstanding. Excludingexpenses incurred in connection with financing and due diligence activitiesto pursue an uncompleted acquisition, the adjusted cash net loss for thefirst quarter ended March 31, 2011, was $5.6 million, or $0.17 per sharebased on 34 million shares outstanding. The non-cash warrant valuationadjustments are driven primarily by the change in the Company's stock priceover the quarter. Over the first quarter of 2011, ISTA's stock priceincreased 97%, from $5.13 to $10.12.

At March 31, 2011, ISTA had cash of $75.8 million, which included $13million under ISTA's revolving line of credit with Silicon Valley Bank and$27 million in accrued royalties on BROMDAY and XIBROM.

ISTA Reaffirms 2011 Financial Outlook, Adds Adjusted Cash Net Income andEPS Guidance

ISTA expects 2011:

-- Net revenues of approximately $175 million to $190 million.-- Gross margins of 75% to 77% of net revenues.-- R&D expenses of 18% to 22% of net revenues.-- SG&A expenses of 44% to 48% of net revenues.-- Operating income of $13 million to $16 million.-- Non-GAAP adjusted cash net income of $13 million to $16 million.-- Non-GAAP adjusted cash earnings per diluted share of $0.26 to $0.32, using 50 million fully diluted shares on a treasury basis calculated at a stock price of $10. The Company defines "adjusted cash net income" as the Company's net income adjusted for the non-cash mark-to-market adjustments relating to warrants, plus non-cash interest expense and non-cash stock-based compensation costs of approximately $7.5 million to $8.5 million annually.-- Year-end cash balance of at least $90 million. This amount is after scheduled debt repayment and includes amounts drawn from our bank line and the reserves for BROMDAY/XIBROM royalties.

Of note, one-third of our $65 million debt facility comes due in September2011. ISTA anticipates making the $21.5 million principal repayment out ofcash on hand, which was $75.8 million at the end of the first quarter,March 31, 2011, and cash generated from operations.

Company Files Shelf Registration

Later today, ISTA plans to file a universal shelf registration statement onForm S-3 with the U.S. Securities and Exchange Commission (SEC). TheCompany's intent with respect to the registration statement is to providethe Company with flexibility for financing future growth throughacquisitions and strategic transactions, and does not reflect a change inits financing strategy. At present, the Company has no specific plans toissue any form of securities under the registration.

When the registration statement is declared effective by the SEC, ISTA willbe able to offer and sell up to $150 million of any form of securitiesincluding, but not limited to, equity, debt and other securities asdescribed in the registration statement. The terms of any offering underthe shelf registration statement will be determined at the time of suchoffering. Proceeds from the sale of any securities will be used for thepurposes described in a prospectus supplement filed at the time of suchoffering.

Conference Call

ISTA will host a conference call with a simultaneous webcast today, May 4,2011, at 4:30 PM Eastern Time, to discuss its first quarter 2011 results.To access the live conference call, U.S. and Canadian participants may dial866-761-0749; international participants may dial 617-614-2707. The accesscode for the live call is 51591817. To access the 24-hour audio replay,U.S. and Canadian participants may dial 888-286-8010; internationalparticipants may dial 617-801-6888. The access code for the replay is59551940. This conference call also will be webcast live and archived onISTA's website for 30 days at


ISTA Pharmaceuticals, Inc., is a fast growing and the fourth largestbranded prescription eye care business in the United States, with anexpanding focus on allergy therapeutics. ISTA currently markets fourproducts, including treatments for ocular inflammation and painpost-cataract surgery, glaucoma and ocular itching associated with allergicconjunctivitis. The Company's development pipeline contains additionalcandidates in various stages of development to treat dry eye, ocularinflammation and pain, and nasal allergies. Headquartered in Irvine,California, ISTA generated revenues of $156.5 million in 2010. Foradditional information about ISTA, please visit the corporate website

BROMDAY™ (bromfenac ophthalmic solution) 0.09%, XIBROM (bromfenacophthalmic solution)® 0.09%, ISTALOL® (timolol maleate ophthalmicsolution) 0.5%, VITRASE® (hyaluronidase injection) Ovine, 200 USPUnits/mL, BEPREVE® (bepotastine besilate ophthalmic solution) 1.5% andREMURA™ (bromfenac ophthalmic solution for dry eye) are trademarks ofISTA Pharmaceuticals, Inc.

Full prescribing information for BROMDAY is available on ISTAPharmaceuticals' website at

Full prescribing information for ISTALOL is available on ISTAPharmaceuticals' website at

Full prescribing information for VITRASE is available on ISTAPharmaceuticals' website at

Full prescribing information for BEPREVE is available on ISTAPharmaceuticals' website at


Any statements contained in this press release that refer to future eventsor other non-historical matters are forward-looking statements. Withoutlimiting the foregoing, but by way of example, statements contained in thispress release related to ISTA's 2011 financial outlook and expectedfinancial results, market share growth for BROMDAY and BEPREVE, initiationof new clinical trials, announcement of clinical trial results in 2011, itsplans to file a shelf registration statement and future issuance ofsecurities under the shelf registration are forward-looking statements.Except as required by law, ISTA disclaims any intent or obligation toupdate any forward-looking statements. These forward-looking statements arebased on ISTA's expectations as of the date of this press release and aresubject to risks and uncertainties that could cause actual results todiffer materially. Important factors that could cause actual results todiffer from current expectations include, among others, delays anduncertainties related to the conduct and success of clinical trials, thetransition of prescribers from XIBROM to BROMDAY, the FDA or otherregulatory agency approval or actions, ISTA's ability to find andsuccessfully integrate acquisition candidates, the dispute with Senjuregarding XIBROM and BROMDAY royalties, and such other risks anduncertainties as detailed from time to time in ISTA's public filings withthe U.S. Securities and Exchange Commission, including but not limited toISTA's Annual Report on Form 10-K for the year ended December 31, 2010.

 ISTA PHARMACEUTICALS, INC. Unaudited Statement of Operations (in thousands, except per share data) Three Months Ended March 31, -------------------------- 2011 2010 ------------ ------------Revenues: Product sales, net $ 36,720 $ 28,304 ------------ ------------Total revenues 36,720 28,304Cost of products sold 9,216 7,284 ------------ ------------Gross profit margin 27,504 21,020Costs and expenses: Research and development 10,344 4,803 Selling, general and administrative 26,931 20,868 ------------ ------------ Total costs and expenses 37,275 25,671 ------------ ------------Loss from operations (9,771) (4,651) Other (expense) income: Interest expense (2,072) (2,071) Gain on derivative valuation - 7 (Loss) gain on warrant valuation (72,234) 7,191 Other, net 4 - ------------ ------------Total other (expense) income (74,302) 5,127 ------------ ------------Net (loss) income $ (84,073) $ 476 ============ ============Net (loss) income per common share, basic and diluted $ (2.49) $ 0.01 ============ ============Shares used in computing net (loss) income per common share, basic 33,715 33,364 ============ ============Shares used in computing net (loss) income per common share, diluted 33,715 43,895 ============ ============ ISTA PHARMACEUTICALS INC. Unaudited Summary of Balance Sheet Data (in thousands) March 31, December 31, 2011 2010 ------------ ------------Cash and cash equivalents $ 75,763 $ 78,777Working capital 6,626 15,822Total assets 131,725 134,240Current portion of Facility Agreement 21,450 21,450Facility Agreement, net of current portion and unamortized discounts and derivatives 39,418 38,706Warrant liability 138,419 66,185Total liabilities 293,376 213,337Total stockholders' deficit (161,650) (79,097) 

Non-GAAP Financial Measures

ISTA believes the metric "adjusted cash net income (loss) and adjusted cashEPS excluding non-cash interest expense, stock option expense and non-cashwarrant valuation adjustments," are useful financial measures for investorsin evaluating the Company's performance for the periods presented. ISTA'smanagement believes the presentation of these non-GAAP financial measuresprovides useful information to investors regarding ISTA's results ofoperations as these non-GAAP financial measures allow investors to betterevaluate ongoing business performance. These metrics, however, are not ameasure of financial performance under accounting principles generallyaccepted in the United States (GAAP) and should not be considered asubstitute for net income (loss) or EPS in accordance with GAAP and may notbe comparable to similarly titled measures reported by other companies. Fora reconciliation of net income (loss) to adjusted cash net loss, see thetable below.

 ISTA PHARMACEUTICALS, INC. Reconciliation of GAAP Net Loss to Adjusted Cash Net Loss (in thousands) Three Months Ended March 31, -------------------------- 2011 2010 ------------ ------------Net (loss) income $ (84,073) $ 476Add:Stock-based compensation costs 769 868Amortization of deferred financing costs 267 270Amortization of discounts on Facility Agreement 712 711Change in value of warrants related to Facility Agreement 72,234 (7,191)Change in value of derivatives related to Facility Agreement - (7) ------------ ------------Cash net loss (10,091) (4,873)Add:Costs associated with uncompleted acquisition 4,506 - ------------ ------------Adjusted cash net loss $ (5,585) $ (4,873) Net (loss) income per share - basic $ (2.49) $ 0.01 ============ ============Net loss per share - diluted $ (2.49) $ 0.01 ============ ============Adjusted cash net loss per share - basic and diluted $ (0.17) $ (0.11) ============ ============Shares used in computing net loss per common share, basic 33,715 33,364 ============ ============Shares used in computing net loss per common share, diluted 33,715 43,895 ============ ============

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