The disappointing results from our AngioJet® in Myocardial Infarction (AiMI) clinical study negatively affected our coronary customer order patterns and made 2005 a challenging year for Possis Medical. I am proud to say, however, that our strength and resilience as a company allowed us to return to sequential quarterly growth by the fourth quarter and make significant progress in preparing for future growth.

During this difficult time, we never wavered in our firm belief that the AngioJet® System is the premier thrombectomy product worldwide and that the clinical value of intravascular thrombectomy remains evident. In spite of the special challenges we faced, Possis achieved significant accomplishments in fiscal 2005, including:

• Stabilizing coronary sales and preparing for future coronary growth
• Increasing peripheral sales by nearly 30 percent
• Growing AV dialysis access sales by 4 percent
• Introducing several new products, and filling our new product pipeline with additional designs staged to enter the market in fiscal 2006 and beyond
• Successfully responding to increasing Sarbanes-Oxley requirements
• Achieving profitability for the 19th consecutive quarter

Annual revenue for fiscal 2005 was $65.1 million, down from $72.4 million in fiscal 2004, but still in line with our second-half guidance. Although pre-tax earnings decreased to $10.1 million from $18.8 million in fiscal 2004, we generated a very healthy operating cash flow of $11.9 million. Net income per diluted share was $0.34, compared to $0.60 in fiscal 2004.

Proven business model fuels growth

Our proven business model and strong balance sheet – cash reserves exceeding $40 million with no long-term debt – allowed us to remain profitable, while investing aggressively in research and development to fuel future growth. The average selling prices for all of our products were stable and our gross profit margin remained robust at 74 percent of sales. We also expanded the footprint of our drive units, which now number over 1500 in the U.S. and 1600 worldwide. We also repurchased shares of the company’s stock to offset any dilution from granting employee stock options.

Continued strong support for current AngioJet applications

Throughout the year, Possis continued to build on its proven leadership in three core thrombectomy markets: coronary, peripheral arterial, and AV access.

We believe that AngioJet technology will continue as the treatment of choice for visible thrombus in high-risk cardiac patients. Two separate key patient registries presented at the annual scientific session of the American College of Cardiology (ACC) support this view. The registries document real-world AngioJet use producing favorable patient outcomes, both when AngioJet was used to treat high-risk coronary patients with complicating thrombus, and when AngioJet technology was used prior to stent placement for patients with ST-segment elevation myocardial infarction (STEMI). The presenting physicians were Dr. Charles Simonton of the Sanger Clinic in Charlotte, North Carolina, and Dr. Samin Sharma of Mt. Sinai Medical Center, New York City. At the annual Transcatheter Cardiovascular Therapeutics (TCT) Conference this October, Dr. Simonton presented his updated registry data and Dr. Sharma presented on the positive benefits of AngioJet therapy with direct stenting in a sub-group of patients with large thrombus. Dr. Fadi Matar of Cardioquest in Tampa, Florida, presented his positive experience in employing a combination therapy of AngioJet and an embolic protection filter wire to treat high-risk coronary patients. Also at TCT, Dr. Ray Matthews of Good Samaritan Hospital, Los Angeles, presented his patient registry of favorable results with use of AngioJet in rescue percutaneous coronary intervention.

We are advancing other important coronary clinical research as well, including additional real-world registries from major medical centers and a European-based, multi-center prospective randomized trial called JETSTENT: AngioJet Thrombectomy Before Direct Infarct Artery Stenting. This large, randomized trial is expected to demonstrate that AngioJet treatment before direct stenting improves clinical success in heart attack patients presenting with visible thrombus. Such findings will help validate the credibility of existing real-world registries and further demonstrate the outlier nature of the AiMI study results.

I am pleased to report strong sales results for our non-coronary franchises. We achieved nearly 30 percent growth in our peripheral business in 2005, attesting to the depth of realizable market opportunities in that area, and posted four percent growth in our AV dialysis access business.

Investing in new products for both arterial and venous solutions

Possis is on the path to growth again, poised to regain momentum and recover stock value. In large part, this is a result of our reinvesting in our business through expanded R&D activities, yielding many exciting new product solutions.

This year we expanded our catheter line with a variety of new products, including the XMI®-RX+ catheter and the DVX™ catheter. The XMI-RX+ catheter, released commercially this July with a peripheral indication, builds on the success of the AngioJet XMI® and XMI®-RX catheters, the only mechanical thrombectomy catheters specifically FDA-approved for use in native coronary arteries and saphenous vein grafts. The latest SpiroFlex™ version incorporates additional valuable features such as a more flexible and kink-resistant shaft. Early customer feedback has been very positive, and we are expecting to proceed with a full market release in fiscal 2006.

Our recently released DVX catheter reflects our close work with peripheral interventionalists, who requested a tool for more effective removal of larger and tougher thrombus in large peripheral vessels. The DVX catheter increases thrombus removal by five times over previous catheter models.

Possis is also making significant progress on our launch of the AngioJet® Ultra Console. In July we filed for FDA approval, which we anticipate by the end of fiscal year 2006. The Ultra Console will be used with our new disposable thrombectomy sets that combine the catheter and pump into one unit, providing “plug-and-go” convenience for hospital staff. This increased ease-of-use will save precious time in emergency procedures, providing an extra measure of assurance and reliability. We are confident that the Ultra Console is the platform for the long-term growth of our AngioJet System business, and a key element in our plan to encourage increasing AngioJet catheter use.

Possis is staying current with the growing practice to use drug/device combination therapies for the treatment of thrombus. One example of this uses the AngioJet System and our Power Pulse™ Delivery Kit to intravascularly deliver a lytic drug to soften tough thrombus, followed by AngioJet thrombectomy to evacuate the thrombus.

Finally, our new GuardDOG® system uses balloon occlusion guidewires to temporarily stop blood flow past the lesion site during interventional procedures. This helps prevent embolic material from moving downstream and blocking smaller vessels, which can cause irreversible tissue damage. GuardDOG can be used with the AngioJet Thrombectomy System and the Power Pulse delivery technique to inject lytic drugs locally to the treatment site, preventing systemic dispersion to maximize effectiveness with a minimal drug dose. We believe this technique has great potential to minimize procedure-related embolization in applications throughout the body. Because it also enhances the performance of our thrombectomy catheters, we believe these devices will significantly increase the clinical value of our core AngioJet therapy. The GuardDOG system is expected to have FDA clearance for peripheral use in the second half of fiscal 2006.

Advancing emerging venous solutions

We see AngioJet technology expanding into broader applications and new markets. There are early signs that it may prove to be an important treatment for deep vein thrombosis (DVT), especially in patients presenting with acute symptoms in the upper legs.

The peripheral interventional community’s growing practice of applying AngioJet technology to the treatment of DVT, while currently off-label, underscores the large market potential on the venous side of our business. Circulatory disease is affecting increasing numbers of our aging population and those living with diabetes and obesity. Today, deep-vein thrombosis (DVT) and pulmonary embolism (PE), collectively known as venous thromboembolism (VTE), amount to a public health crisis: in the U.S., more people die each year from VTE than from car accidents, breast cancer, or AIDS.

In November 2004, Possis supported Albert Einstein College of Medicine and Montefiore Medical Center located in New York City to produce a continuing medical education (CME) opportunity named “Aggressive Management of Deep Vein Thrombosis with Description of the Power Pulse Technique.” In addition, in February 2005, Possis partnered with Genentech, Inc. to support a national Combination Therapy Summit, during which AngioJet therapy combined with a lytic drug was discussed and found to be very effective. The results were provided as a CME opportunity in the April 2005 Supplement to Endovascular Today.

Based on the potential for successful AngioJet System use in treating VTE as supported in the CME activities noted above, we will continue our expansion into DVT and PE markets, building a suite of therapeutic tools for use by peripheral interventionalists in the complex cases they encounter in daily practice. Initial results from the ADVENTT study (Accelerated Deep Venous Thrombectomy and Thrombolysis), sponsored by principal investigator Dr. Ziv Haskal of the College of Physicians & Surgeons at Columbia University, will be available in fiscal 2006, and will help define AngioJet use in treating DVT. We plan a new IDE clinical trial of AngioJet in DVT to begin in fiscal 2006, and also are working with European clinicians to analyze and publish results from a registry of PE patients.

Expanding reimbursement to drive peripheral growth

By January 2006, we expect the American Medical Association to publish new CPT (Current Procedural Terminology) codes allowing physician reimbursement for peripheral thrombectomy procedures (arterial and venous), a milestone that will facilitate physicians offering AngioJet thrombectomy to their patients with peripheral thrombus.

Neurovascular markets promise long-term growth

In the neurovascular market, AngioJet technology holds possible long-term promise especially as a treatment therapy for people suffering from ischemic cerebrovascular disease (stroke). We are confident that there will be opportunities to link our technology with existing neurointerventional technologies such as drug treatments and embolic protection.

Positioned for growth in 2006

I have been impressed by the show of confidence from so many of our shareholders, employees, and partners this year. Their belief in the enduring value of our solutions allowed us to not only achieve our goals for the last half of fiscal 2005, but to lay a solid foundation for growth in fiscal year 2006 and beyond. Most importantly, Possis Medical has now helped to save more than 250,000 lives and limbs.

We believe 2006 will be an exciting year with new product introductions, clinical study initiatives, and a return to growth. Thank you for standing by us this year. The best days for Possis Medical are directly ahead.

Robert G. Dutcher
Chairman, President and Chief Executive Officer