IsoRay Inc. Reports Fiscal Year End 2007 Results

RICHLAND, Washington – IsoRay Inc. (AMEX: ISR) a medical isotope company focusing on the treatment of prostate and other malignant disease through use of its proprietary radioisotope technology, announces its financial results for the quarter and year ended June 30, 2007.

All of the Company’s revenues were generated through sales of Proxcelan™ Cesium-131 seeds for the treatment of prostate cancer.  Since the first patient implant in October 2004 through September 2007, over 1,600 prostate cancer patients have been treated with Cesium-131.

For the fiscal year, product sales increased by 188% to $5,738,033 over fiscal year 2006, highlighted by same-quarter product sales increase of 102% to $1,652,740 for Q4-FY2007 over Q4-FY2006. Centers ordering in fiscal year 2007 have increased to 59, or a 127% increase from 26 in fiscal year 2006. The increase in Proxcelan sales during the fiscal year can be attributed to several factors, including an increase in the Company’s direct sales team (from three to ten sales associates), and the increased number of medical centers ordering Proxcelan seeds. Sales were further influenced by the availability of peer-reviewed clinical data, including the completion of a 100 patient, multi-institutional trial showing homogeneous gland coverage, quicker resolution of side effects, and rapidly declining PSAs for Proxcelan patients.

The increase in product sales in Q4-FY2007 over the Q3-FY2007 sales was nominal, and the Company has observed that seasonality plays a role in ordering as implantation procedures are often deferred due to physician vacations (particularly in the summer months), holidays, medical conventions, and sabbaticals.  In addition, the Company has also observed that physicians, once they have implanted a few patients, may wait to observe their own patients' outcomes before choosing to regularly use Cesium-131 over their existing preferred isotope.

Gross loss for Q4-FY2007 was $7,372, an improvement of 99% over the gross loss of $569,306 for Q4-FY2006.  Gross loss for the fiscal year ended June 30, 2007 was $54,597, which represents an improvement of 97% over the fiscal year 2006 gross loss of $1,820,816.  The improvement in each period is due to increased sales volume offsetting fixed production costs and increased production efficiency.

Gross loss in Q4-FY2007 decreased by 104% over the Q3-FY2007 gross margin of $188,716.  The decrease in gross margin is due to rental payments for the new production, facility that was being constructed, and were not capitalized and depreciation on additional equipment placed in service.

The Company had cash of $9,355,730 and short-term investments of $9,942,840 as of June 30, 2007.

As of September 28, 2007, management believes that top line revenues in Q1-FY2008 will be up about 12% from Q4-FY2007. This revenue number does not take into account any adjustments that may be required in connection with the completion of the Company’s review process and should be considered preliminary until IsoRay files its Form 10-QSB for the fiscal quarter ended September 30, 2007.

“This was a year of milestones for the Company, with a robust increase in Proxcelan sales, a stream of new clinical data and the opening of a new production facility,” said IsoRay Chairman and CEO Roger Girard. “Furthermore, we have laid the groundwork for additional technology opportunities.”

Another major milestone achieved this fiscal year is the removal of the going concern paragraph from the audit report issued by our independent registered public accounting firm.  Due to the capital raised in various financing rounds throughout the fiscal year, management believes our current cash and short-term investment positions are sufficient to meet our cash requirements for operations, debt service, and capital expenditures during fiscal year 2008.  This will allow management to focus on executing our business strategy without the need to raise additional capital over the coming fiscal year.

Several clinical trials and studies supported the growing adoption of Proxcelan during the past fiscal year:

• A multi-institutional Cesium-131 monotherapy protocol was fully enrolled as of February 2007. Conducted by Dr. Bradley Prestidge and Dr. Bill Bice, the 100 patient trial demonstrated that Cesium-131 provided patients relatively rapid resolution of side effects compared to similar studies with Iodine-125, and low levels of PSA with no biochemical failures.
  

• A second ongoing study compared the dosimetry of Cesium-131 and Palladium-103 directly.  The study showed a 17.5% reduction in number of seeds, 6% reduction in planned needles, 35.5% reduction in V150 (percent of gland that receives more than 150% of the prescription dose), and 44.2% reduction in R100 (percent of rectal tissue that receives the full prescription dose).  (Musmacher, J., “Dosimetric comparison of Cesium-131 and Palladium-103 for permanent prostate brachytherapy”, poster presented at 49th AAPM Annual Conference, Minneapolis, MN, July 22-26, 2007.)

• A continuing prospective randomized monotherapy trial headed by Dr. Brian Moran compares Cesium-131 and Iodine-125 treatment related morbidities such as sexual dysfunction and incontinence in low to intermediate risk patients. Initial data was released at the American Brachytherapy Association annual meeting in April, concluding that Cesium-131 “is effective and well-tolerated in its use to kill cancer cells in low dose (LDR) brachytherapy therapy for the treatment of prostate cancer,” stated Moran.

• The Company has also commissioned a dual therapy protocol. This multi-institutional trial observes the dosimetric characteristics of Cesium-131 and health related quality of life (HRQOL) results following combined Cesium-131 transperineal permanent prostate brachytherapy and external beam radiation therapy in patients with intermediate to high risk prostate cancer. This protocol is being conducted to confirm clinically what radiobiological data suggests regarding this treatment modality. The quantified dosimetric variables collected will be correlated to the reported HRQOL data and ultimately compared to existing data in the literature for similar investigations using Iodine-125 and Palladium-103. Patient enrollment for this study began in April 2007.

At ASTRO 2008, to be held in Los Angeles this November, abstracts will be presented from each of the protocols (with the exception of the dual therapy, which is in the process of enrolling patients) and other institutions will also be presenting on Cesium-131.

The sales opportunity pipeline during Q4-2007 included 22 new sites or customers that placed 18 orders for Proxcelan Cesium-131 brachytherapy seeds. Nineteen sites received amended Radioactive Active Material (RAM) licenses; 14 sites have submitted RAM licenses for amendment and 29 potential new sites have started the process for amending their license.

In September 2007, three months ahead of schedule and under budget, the Company opened a new manufacturing and production facility at the Applied Process Engineering Laboratory in Richland, WA, to support the increasing production requirements. The 19,000 square-foot facility-- four times the size of the original facility—will initially increase IsoRay’s capacity to 100,000 seeds per month.

Several continuing initiatives by the Company include: 

• The Company has used Pacific Northwest National Laboratory (PNNL) to provide third-party assay of its products.  Management is currently setting up facilities to move the independent assay of its products to its new production facility and will utilize in-house resources which will reduce isotope depletion and also minimize assay expenditures.

• The Company is currently developing an enrichment device to produce “enriched barium” having a higher concentration of the Barium-130 isotope than is found in naturally occurring barium.  Irradiating enriched barium will result in higher yields of Cesium-131.  The Company anticipates the use of enriched barium will also streamline the manufacturing process and significantly reduce Cesium-131 production costs.

• The Company anticipates signing a contract with the ATR Nuclear facility in Idaho in fiscal year 2008 to irradiate enriched barium targets. This will serve not only as an additional supply source in the United States, but through the enrichment initiative, gives IsoRay flexibility in meeting the world demand for Cesium-131 either from the United States or Russia, or both.

• IsoRay intends to expand the benefits of Cesium-131 to other organs. Currently the Company is drafting a protocol for using Cesium-131 to support the treatment of lung cancer.  The protocol once completed will require IRB approval from the institutions participating, which can take several months to complete.  In addition to the protocol, a 510(k) or premarket notification with the FDA will be required for the device the Company intends to use for this application.  Finalizing the protocols and receiving approval on the 510(k) should take approximately four months.  The Company has no control over the length of each institution’s IRB approval process.

About IsoRay

IsoRay, Inc., through its subsidiary, IsoRay Medical, Inc., is the sole producer of the Cesium-131 brachytherapy seed, used to treat prostate and other cancers. The Cesium-131 seed offers a significantly shorter half-life than the two other isotopes commonly used for brachytherapy, which results in a substantially faster delivery of therapeutic radiation, lower probability of cancer cell survival and reduction of the longevity of common brachytherapy side effects(a)(b). IsoRay is based in Richland, Washington. More information is available about IsoRay at www.isoray.com.

(a) Armpilia CI, Dale RG, Coles IP, et al. The Determination of Radiobiologically Optimized Half-lives for Radionuclides Used in Permanent Brachytherapy Implants. Int. J. Radiation Oncology Biol. Phys. 2003; 55 (2): 378-385.

(b) Prestidge B.R., Bice W.S., Jurkovic I., et al. Cesium-131 Permanent Prostate Brachytherapy: An Initial Report. Int. J. Radiation Oncology Biol. Phys. 2005; 63 (1): 5336-5337.

Safe Harbor Statement

Statements in this news release about IsoRay's future expectations, including: the advantages of our Cesium-131 seed, the use of the Proxcelan Cesium-131 seed to treat cancers other than prostate cancer in the future, future demand for IsoRay's existing and planned products, IsoRay's manufacturing needs and capabilities, production capabilities of the new facility, whether our cash and short-term investments will be sufficient to fund our operations for the next fiscal year, whether new sites will achieve licensure and result in future sales, whether we will be successful in moving independent product assay to the new facility and whether this will result in decreased expenditures, whether we will be successful in developing a barium enrichment device and whether this will reduce costs, whether we will enter into any definitive agreement with ATR, revenues for the quarter ended September 30, 2007, and all other statements in this release, other than historical facts, are "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995 ("PSLRA"). This statement is included for the express purpose of availing IsoRay, Inc. of the protections of the safe harbor provisions of the PSLRA.  It is important to note that actual results and ultimate corporate actions could differ materially from those in such forward-looking statements based on such factors as physician acceptance, training and use of IsoRay's products, changing levels of demand for IsoRay's current and proposed future products; whether later studies and protocols support the findings of the initial studies, success of future research and development activities, IsoRay's ability to successfully manufacture, market and sell its products, IsoRay's ability to manufacture its products in sufficient quantities to meet demand within required delivery time periods while meeting its quality control standards, IsoRay's ability to successfully negotiate terms for future definitive agreements, IsoRay's ability to enforce its intellectual property rights, and other risks detailed from time to time in IsoRay's reports filed with the SEC.

Media Contacts:

Lori Woods, Vice President, IsoRay, Inc.
206.604.6400 (cell) 
lwoods@isoray.com

Ralph Schatzmair, Director--Investor Relations
IsoRay, Inc. 416.322.2225
rschatzmair@isoray.com

The Bartlett Group Public Relations Barry Bartlett
206.285.0673; Cell: 206.335.4694
barry@bartlettgrouppr.com

IsoRay Medical, Inc.                                                            877.4.ISORAY
350 Hills Street, Suite 106                                                 509.375.1202 TEL    
Richland, WA 99352                                                           509.375.3473 FAX

www.isoray.com
www.cesium131.com