MENTOR REPORTS SECOND QUARTER FINANCIAL RESULTS AND
REITERATES GUIDANCE; PROVIDES UPDATE ON PRODUCT
DEVELOPMENT PIPELINE

•     Sales Were $114.3 Million and Earnings Per Share were $0.25 in the Second Quarter Fiscal Year 2006

 

•     Fiscal Year Sales Expected to Grow at a Low Double-Digit Rate over Sales in Fiscal Year 2005, with
  Earnings per Share Expected to be in the Range of $1.60 to $1.65

   •     Phase 2 Study of Botulinum Toxin Product Initiated in U.S. for Cosmetic Indication and Enrollment
         Completed

   •     All Patients in Puragen Plus™ Hyaluronic Acid-Based Dermal Filler Pivotal Study Completed 6 Month
         Follow-Up; PMA to be Filed by End of Fiscal Year

SANTA BARBARA, October 31, 2005 - Mentor Corporation (NYSE:MNT), a leading supplier of medical products in the United States and internationally, today announced financial results for the second quarter of fiscal year 2006, with sales of $114.3 million, compared to sales of $108.8 million in the second quarter of 2006, and earnings per share of $0.25, compared to $0.26 in the second quarter of fiscal year 2005.  The Company also reiterated its expectations for fiscal year 2006 with sales expected to grow at a low double-digit rate over sales in 2005 and earnings per share expected to be in the range of $1.60 to $1.65.  In addition, the Company provided updates on key programs in its product development pipeline.

"Mentor's results in the second quarter are consistent with the expectations we communicated earlier in the month.  The overall health of our businesses remains strong and we remain confident in our performance expectations for the full year," commented Joshua H. Levine, President and Chief Executive Officer of Mentor Corporation.  "Through the first six months, our strong cash flow increased our-short term liquidity to $180 million in cash and marketable securities.  Gross margin improved to 65.4% and operating margin improved to 21.3%, compared to 63.4% and 19.9%, respectively, in the first six months of fiscal year 2005."

"During the quarter, we completed the six month follow-up of the U.S. pivotal study of Puragen Plus™, our dermal filler product, and we began the Phase 2 study in the U.S. of our botulinum toxin type A product for cosmetic indications and completed patient enrollment.  In addition, we continue to address the conditions in the approvable letter we received in late July from the FDA related to our pending Memory Gel™ silicone gel breast implant PMA," added Levine.  "We also launched two new products in the U.S., our Moderate Plus Saline breast implant and our Self Cath HydroGel™ intermittent catheter."

Strategy
In October, Mentor announced its strategy to increase its focus on aesthetic medicine.  As a result, the Company also announced that it is evaluating strategic alternatives for its urology business that would both enhance shareholder value and enable the Company to focus more fully on its aesthetics business.

Product Sales
Total sales were $114.3 million in the second quarter of fiscal year 2006, an increase of 5% over sales of $108.8 million in the second quarter of fiscal year 2005, including $0.6 million of positive foreign currency exchange effects, principally from the Euro.

•     Aesthetics Segment
Mentor's Aesthetics sales were $58.7 million in the second quarter of fiscal year 2006, an increase of 8% over sales in the second quarter of fiscal year 2005.

 

•     Surgical Urology Segment
Mentor's Surgical Urology sales were $29.9 million in the second quarter of fiscal year 2006, a decrease of 2% from sales in the second quarter of fiscal year 2005.

 

 

•     Clinical and Consumer Healthcare Segment
Mentor's Clinical and Consumer Healthcare sales were $25.8 million in the second quarter of fiscal year 2006, an increase of 7% over sales in the second quarter of fiscal year 2005.

Gross Profit
Gross profit for the second quarter of fiscal year 2006 was $73.7 million, or 64.5% of sales, compared to $68.1 million, or 62.6% of sales, in the second quarter of fiscal year 2005, with significant improvements in each business segment.  Key contributors to the improvement in Mentor's gross profit margin for the first quarter were strong sales of higher margin products, improved manufacturing efficiencies and lower material costs.

Selling, General & Administrative
Selling, general and administrative (SG&A) expense in the first quarter of fiscal year 2006 was $45.4 million, or 39.7% of sales, compared to $40.6 million, or 37.3% of sales, in the second quarter of fiscal year 2005.  The increase in SG&A expense during the quarter was related to Mentor's direct-to-consumer advertising programs, the Company's patient and physician education programs, increased reserves for bad debt related to the severe weather in the Gulf Coast, and Mentor's emerging facial aesthetics business.

Research & Development
Research and development (R&D) expense in the second quarter of fiscal year 2006 was $9.1 million, compared to $8.6 million in the second quarter of fiscal year 2005.  During the quarter, the Company's investment in R&D supported the ongoing review of Mentor's pending silicone gel-filled breast implant Pre-Market Approval ("PMA") application and key clinical programs for the Company's botulinum toxin and hyaluronic acid-based dermal filler products.

•     Hyaluronic Acid-Based Dermal Filler
Mentor announced that all patients in the pivotal registration study had completed the 6 month follow-up visit during the second quarter and that the Company plans to complete the filing of its PMA by the end of fiscal year 2006.

 

•     Botulinum Toxin Type A
Mentor announced that it had started the phase 2 dose-finding study of it botulinum toxin type A product for cosmetic indications in the second quarter, and that it had completed enrollment of all patients in the study.

Tax Rate
The tax rate was 35.0% in the second quarter 2006, compared to 31.6% in the second quarter of fiscal year 2005.  This increase was primarily related to the impact of the repatriation of profit from the Company's foreign operations under the American Jobs Creation Act of 2004.

Earnings Per Share
Earnings per share for the second quarter of fiscal year 2006 were $0.25, a decrease of 4% from earnings per share of $.026 in the second quarter of fiscal year 2005.  The shares outstanding used to calculate earnings per share for the second quarter 2006 was 51.5 million shares outstanding, compared to 50.5 million shares in the second quarter 2005.  This increase in shares outstanding was primarily related to the effect of the higher share price of Mentor stock and its impact on warrants associated with the Company's convertible notes.

Dividend
Mentor declared a dividend of $0.18 per share in the second quarter of fiscal year 2006, compared to $0.17 per share in the second quarter of fiscal year 2005.

Balance Sheet
Mentor ended the second quarter of fiscal year 2006 with $180.1 million in cash and marketable securities, an increase of approximately $67 million over the $112.9 million recorded at the end of fiscal year 2005.

 

Fiscal Year 2006 Outlook
Consistent with the guidance the Company provided at the beginning of the year, Mentor expects that fiscal year 2006 EPS will be in the range of $1.60 to $1.65.  The Company also expects that sales in fiscal year 2006 will grow at a low double-digit rate over sales of $483.4 million in fiscal year 2005.  These sales and earnings per share expectations do not include any positive impact of a potential approval by the U.S. Food and Drug Administration of the Company's pending silicone gel-filled breast implant PMA application or any impact related to the Company's announced strategy to increase its focus on aesthetic medicine and seek strategic alternatives for its urology business.

Conference Call
Mentor Corporation has scheduled a conference call today regarding this announcement.  Those interested in listening to a recording of the call may dial (800) 839-2488 at 6:00 p.m. EST today until Midnight EST November 7, 2005.  You may also listen to the live webcast at 5:00 p.m. EST today or the archived call at www.mentorcorp.com, Investor Relations site under "Conference Calls".

About Mentor Corporation
Founded in 1969, Mentor Corporation is a leading supplier of medical products for the global healthcare market.  The Company develops, manufactures and markets innovative, science-based products for the aesthetics, urologic specialties and clinical and consumer healthcare markets around the world.  The Company's website is www.mentorcorp.com.

Safe Harbor Statement
This release contains forward-looking statements including, but not limited to, statements relating to Mentor's expectations for fiscal year 2006 sales at a low double-digit rate over prior year sales, expectations for earnings per share to be in the range of $1.60 to $1.65, the Company's plans to complete the filing of its Puragen Plus PMA by the end of fiscal year 2006, a potential approval by FDA of the Company's silicone gel-filled breast implant PMA, and any future potential decisions related to strategic alternatives for the Company's urology business that would both enhance shareholder value and enable the Company to focus more fully on its aesthetics business.  Forward-looking statements are also identified by words such as "anticipates," "scheduled", "expects,"  "intends," "plans," "predicts," "on-track," "believes," "seeks," "estimates," "may," "will," "should," "would," "could," "potential," "continue", similar expressions, and variations or negatives of these words.  In addition, any statements that refer to expectations, projections or other characterizations of future events or circumstances, including any underlying assumptions, are forward-looking statements.  These forward-looking statements are based on Mentor's current expectations, estimates, projections, beliefs and assumptions.  These forward-looking statements speak only as of the date hereof and are based upon the information available to the Company at this time.  Such information is subject to change, and Mentor will not necessarily inform you of such changes.  These statements are not guarantees of future results and are subject to risks, uncertainties and assumptions that are difficult to predict.  Therefore, Mentor's actual results could differ materially and adversely from those expressed in any forward-looking statement as a result of various factors.

Important factors that may cause such a difference for Mentor include, but are not limited to competitive pressures and other factors such as the introduction or regulatory approval of new products by our competitors and pricing of competing products and the resulting effects on sales and pricing of our products, disruptions or other problems with our sources of supply, significant product liability or other claims, difficulties with new product development and market acceptance, changes in the mix of our products sold, patent conflicts, product recalls, United States Food and Drug Administration (FDA) delay in or approval or rejection of new or existing products, changes in Medicare, Medicaid or third-party reimbursement policies, changes in government regulation, use of hazardous or environmentally sensitive materials, our inability to implement new information technology systems, our inability to integrate new acquisitions, and other events.  Our Annual Report on Form 10-K, subsequent Quarterly Reports on Form 10-Q, recent Current Reports on Form 8‑K, and other Securities and Exchange Commission filings discuss the foregoing risks as well as other important risk factors that could contribute to such differences or otherwise affect our business, results of operations and financial condition.  We undertake no obligation to revise or update publicly any forward-looking statement for any reason.

Contact:
Mentor Corporation
Peter R. Nicholson
(805) 879-6082

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