Escalon Medical Corp. Announces That the Restructuring of Its IVD Business is Largely Completed

WAYNE, Pa., Feb. 23, 2012 /PRNewswire/ -- Escalon Medical Corp.'s (Nasdaq Market: ESMC) subsidiary, Drew Scientific, Inc. ("Drew"), today announced that it has successfully completed the outsourced manufacturing of its HbA1c instruments and recently received the first lot of instruments for sale. Drew has also identified an outsourcing partner for its hematology instruments and anticipates outsourced hematology units being available for sale by the summer of 2012. Drew will continue to produce certain hematology instruments until its partner is able to deliver units in the summer of 2012. The outsourcing initiative started in 2011 was designed to significantly reduce Drew's labor force and eliminate an expensive manufacturing site, reduce inventory carrying costs and streamline operations. We believe the outsourcing initiative implemented thus far will result in annual savings of approximately $1,100,000. Upon completion of the outsourcing initiative we anticipate additional annual savings.

As previously reported, due to a change in French law that required the consolidation of laboratories in France, Drew's Biocode Hycell ("BHH") division's business model was essentially rendered obsolete. Considerable effort was given to composing an alternate business plan that would have shifted BHH's focus to international sales. Unfortunately, employment laws and regulations in France made it prohibitively expensive to implement any reorganization plan. Consequently, Drew's decision not to continue to fund BHH was based on the economic realities of the BHH operation and limited restructuring opportunities. We were disappointed with the lack of reasonable alternatives available to the Company in regards to BHH. Fortunately, revenues of approximately $1,200,000 of high margin legacy Drew diabetes reagents that were being produced by BHH were preserved by production being successfully transferred to our Miami facility without supply interruption to our customers. Historical losses from operations at BHH were ($1,232,904), ($635,952) and ($1,068,040) in 2011, 2010, 2009, respectively. Given the lack of acceptable reorganization alternatives these losses were likely to increase. We expect that the insolvency declaration will limit these projected losses from encumbering future earnings. Furthermore, our other clinical diagnostics business unit Escalon Clinical Diagnostics, which includes Drew Scientific and JAS Diagnostics, will continue to service the IVD market. Our plan to consolidate its reagent manufacturing to our Miami facility allows our management's focus to be on adding new product offerings to bring to market through its extensive distribution network.

To that end, Drew is actively pursuing business development and strategic opportunities for us and/or our product segments. Drew's North American presence, historical installed instrument base and portfolio of high margin reagent offerings position us as an attractive partner in the IVD industry. Active discussions are underway with potential business partners in China, India, Eastern Europe, United Kingdom and Latin America. The Company believes that these actions could have a positive effect on the operations of the clinical diagnostics group and the Company as a whole. However, we cannot assure that Drew will be successful in these initiatives.

Founded in 1987, the Company (www.escalonmed.com) develops, markets and distributes ophthalmic diagnostic, surgical and pharmaceutical products. Drew Scientific, which operates as a separate business unit, provides instrumentation and consumables for the diagnosis and monitoring of medical disorders in the areas of diabetes, cardiovascular diseases and hematology, as well as veterinary hematology and blood chemistry. The Company seeks to utilize strategic partnerships to help finance its development programs and is also seeking acquisitions to further diversify its product line to achieve critical mass in sales and take better advantage of the Company 's distribution capabilities, although such partnerships or acquisitions may not occur. The Company has headquarters in Wayne, Pennsylvania and operations in Long Island, New York, New Berlin, Wisconsin, Lawrence, Massachusetts, Dallas, Texas, Waterbury, Connecticut, Miami, Florida and Barrow-in-Furness, U.K.

Note: This press release contains statements that are considered forward-looking under the Private Securities Litigation Reform Act of 1995, including statements about the Company's future prospects. These statements are based on the Company's current expectations and are subject to a number of uncertainties and risks, and actual results may differ materially. The uncertainties and risks include whether the Company is able to:

• implement its growth and marketing strategies, improve upon the operations of the Company business units, including the ability to make acquisitions and the integration of any acquisitions it may undertake, if any, of which there can be no assurance,
• implement cost reductions,
• generate cash,
• identify, finance and enter into business relationships and acquisitions.
• ability to continue as a going concern

Other factors include uncertainties and risks related to:

• ability to continue as a going concern
• new product development, commercialization, manufacturing and market acceptance of new products,
• changes and the impact of foreign laws,
• marketing acceptance of existing products in new markets,
• research and development activities, including failure to demonstrate clinical efficacy,
• delays by regulatory authorities, scientific and technical advances by the Company or third parties,
• introduction of competitive products,
• ability to reduce staffing and other costs and retain benefit of prior reductions
• third party reimbursement and physician training,
• the effects of asset or other business dispositions and divestments, and
• general economic conditions.

Further information about these and other relevant risks and uncertainties may be found in the Company's reports and its other filings with the Securities and Exchange Commission, all of which are available from the Securities and Exchange Commission as well as other sources.

SOURCE Escalon Medical Corp.