UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-K

(Mark one)

þ		ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

o		TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission file number 000-51348

 

ev3 Inc.

(Exact name of registrant as specified in its charter)

Delaware (State or other jurisdiction of incorporation or organization)		32-0138874 (I.R.S. Employer Identification No.)

3033 Campus Drive Plymouth, Minnesota (Address of principal executive offices)		55441 (Zip Code)

(763) 398-7000
(Registrant’s telephone number, including area code)

Securities registered pursuant to section 12(b) of the Act:

Title of each class:		Name of each exchange on which registered:
Common Stock, par value $0.01 per share		The NASDAQ Stock Market

Securities registered pursuant to section 12(g) of the Act: None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. YES þ   NO o

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. YES o   NO þ

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES þ   NO o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). YES o   NO o

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. þ

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Indicate by check mark whether registrant is a shell company (as defined in Rule 12b-2 of the Act). YES o   NO þ

The aggregate market value of the registrant’s common stock, excluding outstanding shares beneficially owned by affiliates, computed by reference to the closing sale price at which the common stock was last sold as of July 3, 2009 (the last business day of the registrant’s second fiscal quarter) as reported by the NASDAQ Global Select Market, was approximately $772.1 million.

As of February 18, 2010, 112,618,003 shares of common stock of the registrant were outstanding.

Part III of this annual report on Form 10-K incorporates by reference information (to the extent specific sections are referred to in this annual report) from the registrant’s proxy statement for its 2010 annual meeting of stockholders.

 

 

TABLE OF CONTENTS

				Page
PART I
Item 1.		Business			1
Item 1A.		Risk Factors			32
Item 1B.		Unresolved Staff Comments			58
Item 2.		Properties			58
Item 3.		Legal Proceedings			58
Item 4.		Submission of Matters to a Vote of Security Holders			59
Item 4A.		Executive Officers of the Registrant			59
PART II
Item 5.		Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities			62
Item 6.		Selected Financial Data			65
Item 7.		Management’s Discussion and Analysis of Financial Condition and Results of Operations			67
Item 7A.		Quantitative and Qualitative Disclosures About Market Risk			89
Item 8.		Financial Statements and Supplementary Data			90
Item 9.		Changes In and Disagreements With Accountants on Accounting and Financial Disclosure			91
Item 9A.		Controls and Procedures			91
Item 9B.		Other Information			91
PART III
Item 10.		Directors, Executive Officers and Corporate Governance			92
Item 11.		Executive Compensation			93
Item 12.		Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters			93
Item 13.		Certain Relationships and Related Transactions, and Director Independence			94
Item 14.		Principal Accounting Fees and Services			94
PART IV
Item 15.		Exhibits, Financial Statement Schedules			95
EX-10.9
EX-10.21
EX-21.1
EX-23.1
EX-31.1
EX-31.2
EX-32.1
EX-32.2

     

This annual report on Form 10-K contains and incorporates by reference not only historical information, but also forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, which are subject to the safe harbor created by those sections. We refer you to the information under the heading “Part I. Item 1. Business—Forward-Looking Statements.”

As used in this report, references to “ev3,” the “company,” “we,” “our” or “us,” unless the context otherwise requires, refer to ev3 Inc. and its subsidiaries.

We own or have rights to various trademarks, trade names or service marks, including the following: ev3®, PROTEGE®, EVERFLEX™, PARAMOUNT™ MINI, PRIMUS™, SPIDERFX, THE CLOT BUSTER®, GOOSE NECK®, VISI-PRO™, NITREX®, NEXUS™, PIPELINE EMBOLIZATION DEVICE™, ONYX®, MORPHEUS™, NXT™, ECHELON™, ULTRAFLOW™, MARATHON™, HYPERFORM™, REBAR™ HYPERGLIDE™, MIRAGE™, AXIUM™, APOLLO™, SOLITAIRE™, SILVERSPEED®, X-PEDION™, X-CELERATOR™, FOXHOLLOW®, SILVERHAWK®, MEC™ TECHNOLOGY, RINSPIRATOR®, ROCKHAWK™, TURBOHAWK™, EVERCROSS™, NANOCROSS™, POWERCROSS™, TRAILBLAZER™ and BEVEL 360™ . The trademarks PLETAL®, PLAVIX® and ACCULINK® referred to in this annual report on Form 10-K are the registered trademarks of others.

PART I

ITEM 1. BUSINESS

Company Overview

ev3 Inc. is a leading global endovascular company focused on identifying and treating peripheral vascular disease, including, in particular, lower extremity arterial disease and neurovascular disease. Since our founding in 2000, we have been dedicated to developing innovative, breakthrough and clinically proven technologies and solutions for the treatment of peripheral vascular and neurovascular diseases, a strategy that we believe is uncommon in the medical device industry. We believe our unique approach of focusing on emerging and under-innovated opportunities which treat peripheral vascular and neurovascular disease allows us to compete with smaller companies that have narrow product lines and lack an international sales force and infrastructure, yet also compete with larger companies that do not have our focus and agility.

The competitive strengths that have been responsible for our past success and the strategies that we believe will drive our future growth include:

	•		targeting under-innovated and emerging markets;
	•		leveraging our products across major endovascular sub-markets;
	•		investing in clinical research to demonstrate the benefits of our products;
	•		expanding our business through product innovation and strategic acquisitions;
	•		driving our global organization and presence; and
	•		leading our business by an experienced management team.

Our product portfolio includes a broad spectrum of over 100 products consisting of over 1,500 stock keeping units (SKUs), including plaque excision, stents, embolic protection and thrombectomy devices, carotid stenting solutions, percutaneous transluminal angioplasty (PTA) balloons and other procedural support products for the peripheral vascular market and embolic coils, flow diversion and flow restoration devices, liquid embolics, flow directed and other micro catheters, occlusion balloon systems, guidewires, neuro stents and retrieval devices, for the neurovascular market.

Our customers include a broad cross-section of physicians, including interventional radiologists, neuroradiologists, vascular surgeons, neuro surgeons, other endovascular specialists and interventional cardiologists. We sell our products in more than 65 countries through a direct sales force in the United States, Canada, Europe, Australia and other countries and distributors in selected other international markets. As of December 31, 2009, our U.S. sales organization consisted of 114 sales representatives selling our peripheral vascular products and 25 sales representatives selling our neurovascular products and our international sales organization consisted of 43 sales representatives selling our peripheral vascular products, 31 sales representatives selling our neurovascular products and seven sales representatives selling both.

We have organized our company into two business segments: peripheral vascular and neurovascular. We manage our business and report our operations internally and externally on this basis. Our peripheral vascular segment includes products that are used primarily in peripheral vascular procedures by interventional radiologists, vascular surgeons and interventional cardiologists and in targeted cardiovascular procedures. Our neurovascular segment includes products that are used primarily by neuroradiologists, interventional neurologists and neurosurgeons. During 2009 and 2008, these combined segments generated net sales of $449.1 million and $422.1 million, respectively.

In June of 2009, we acquired Chestnut Medical Technologies, Inc. (Chestnut), a privately-held California-based company focused on developing minimally invasive therapies for interventional neuroradiology. We acquired 100

percent of the equity interests of Chestnut for total consideration valued at $116.7 million, consisting of upfront consideration of common stock and cash valued at $79.4 million, as well as an additional milestone-based contingent payment of up to $75.0 million, payable in a combination of common stock and equity, upon FDA pre-market approval of the Pipeline Embolization Device. The transaction broadens our neurovascular product portfolio by adding the Pipeline Embolization Device for the treatment of cerebral aneurysms and the Alligator Retrieval Device for foreign body retrieval to our existing neurovascular embolic products and neuro access technologies.

The following represents net sales (in thousands) by our two business segments and revenues from our former research collaboration with Merck & Co., Inc. as well as by geography during the periods indicated:

		For the Year Ended												For the Year Ended
		December 31,								Percent				December 31,								Percent
Net Sales by Segment		2009				2008				Change				2008				2007				Change
Net product sales:
Peripheral vascular (1)		$	279,531			$	269,929				3.6	%		$	269,929			$	173,775				55.3	%
Neurovascular			169,541				132,304				28.1	%			132,304				104,451				26.7	%
Total net product sales			449,072				402,233				11.6	%			402,233				278,226				44.6	%
Research collaboration (2)			—				19,895				-100.0	%			19,895				5,957				234.0	%
Total		$	449,072			$	422,128				6.4	%		$	422,128			$	284,183				48.5	%

		For the Year Ended												For the Year Ended
		December 31,								Percent				December 31,								Percent
Net Sales by Geography		2009				2008				Change				2008				2007				Change
United States		$	270,961			$	275,433				-1.6	%		$	275,433			$	177,198				55.4	%
International			178,111				146,695				21.4	%			146,695				106,985				37.1	%
Total		$	449,072			$	422,128				6.4	%		$	422,128			$	284,183				48.5	%

For additional financial information regarding each of our segments and our foreign operations, see Note 19 to our consolidated financial statements.

The Endovascular Market

Vascular disease can involve either an artery or a vein, and is generally manifested as an occlusion (closure) or rupture of a blood vessel. It may occur in any part of the body, and is a progressive, pathological condition that leads most often to blood vessel narrowing and obstruction, but can also lead to blood vessel wall weakening and rupture. Vascular disease can occur in the blood vessels of every organ and anatomic area of the body, and can cause a range of conditions including pain, functional impairment, amputation and death.

When the treatment for vascular disease is performed from within a vessel, it is referred to as an endovascular procedure. Endovascular procedures are minimally invasive means of treating the two major problems that can develop within blood vessels: an occlusion, or stenosis, where the vessel is blocked or narrowed, and an aneurysm, or focal expansion of the vessel wall. Endovascular procedures are performed by utilizing an easily accessible artery to reach an occlusion or aneurysm and may or may not require general anesthesia. During most endovascular procedures, a catheter is placed into the femoral artery in the groin. X-ray imaging or fluoroscopy is used to help the physician advance the catheter to the area to be treated. Endovascular procedures are less invasive and require a smaller incision than conventional, open surgery and we believe have a number of distinct benefits over surgery, including:

	•		the use of local or regional anesthesia frequently instead of general anesthesia;
	•		reduced patient discomfort and shorter recovery times;
	•		the reduced need for blood products and transfusions;
	•		shorter hospital stays for recovery;
	•		lower risks of patient complications related to procedures; and
	•		potentially lower costs.

The endovascular device markets which we serve are conventionally divided into three specialties based on anatomic location. We principally focus and serve the peripheral vascular and neurovascular markets.

	•		The peripheral vascular market includes products used to treat arterial and venous disease in the legs, pelvis, neck, kidney and any other vascular anatomy other than that in the brain or the heart.
	•		The neurovascular market includes products used to treat vascular disease and disorders in the brain, including arterio-venous malformations, or AVMs, and strokes caused by either vascular occlusion (ischemic) or rupture (hemorrhagic).
	•		The cardiovascular market includes products used to treat coronary artery disease, atrial fibrillation and other disorders in the heart and adjacent vessels.

Our Peripheral Vascular Markets

Peripheral Vascular Disease

Peripheral vascular disease is characterized by the narrowing or total occlusion of blood vessels outside of the heart or brain and can cause conditions including pain, loss of function, amputation and death. Mortality from peripheral vascular disease can occur as a result of stroke, kidney failure or diabetes related vascular complications. The most common type of peripheral vascular disease is peripheral artery disease, which is often used interchangeably with the term peripheral vascular disease, although technically a subset of peripheral vascular disease.

A common cause of peripheral artery disease is atherosclerosis, or “hardening of the arteries.” Atherosclerosis is a complex, progressive and degenerative condition resulting from the build-up of cholesterol and other obstructive materials, known as plaque, on the walls of the arteries. The accumulation of plaque narrows the interior or lumen of arteries, thereby reducing blood flow. In addition, plaque may rupture and trigger the release of a blood clot that can further narrow or block an artery.

Plaque occurs in the arteries in several different forms and may be located in many different anatomies throughout the arterial system. Plaque varies in composition, with portions that are hard and brittle, referred to as calcified plaque, and other portions that are fatty or fibrous. Plaque lesions can be long or short, focused or diffuse and can be present in all types of arteries, including straight or curved arteries of varying diameters. Atherosclerosis in arteries outside of the heart and brain causes peripheral artery disease.

Peripheral artery disease is most common in the arteries of the pelvis and legs. Occlusive disease of the iliac arteries, the main vessels descending through the pelvis, is a peripheral artery disease that affects the flow of blood to the legs. Patients with this condition often experience leg pain and numbness or tingling. Restoring the flow of blood in these occluded vessels is essential to maintaining leg function and avoiding complications such as significantly reduced mobility and/or gangrene, which in severe cases can lead to amputation.

Other types of peripheral artery disease involve arteries in the legs, including the superficial femoral artery, or SFA. The legs receive their supply of blood through the femoral arteries, which originate at the groin. The SFA extends

from the iliac arteries in the upper thigh down the leg to the knee. At the knee, the SFA becomes the popliteal artery, which branches into arteries that supply blood to the lower leg and foot. Arteries above the knee are generally long, straight and relatively wide although subjected to extreme torsion and compression, while arteries below the knee are shorter and branch into arteries that are progressively smaller in diameter, although still subject to compression.

Plaque build-up in the pelvic and leg arteries reduces blood flow to the surrounding tissue, causing claudication, the most common early symptom of peripheral artery disease. Claudication refers to pain, cramping or tiredness in the leg or hip muscles while walking. Symptoms may progress to include numbness, tingling or weakness in the leg and, in severe cases, burning or aching pain in the foot or toes while resting. Restoring the flow of blood in these occluded arteries and vessels is essential to maintaining leg function or quality of life and avoiding complications such as gangrene, which in severe cases can lead to amputation.

As peripheral artery disease progresses, additional signs and symptoms occur, including loss of hair on the legs, cooling or color changes in the skin of the legs or feet, and sores on the legs and feet that do not heal. If untreated, peripheral artery disease may lead to critical limb ischemia, or CLI, a condition in which the limb does not receive enough oxygenated blood being delivered to the limb to keep the tissue alive.

The carotid arteries are another common site of peripheral artery disease. Carotid arteries are located on each side of the neck and provide the primary blood supply to the brain. In carotid artery disease, plaque accumulates in the artery walls, narrowing the artery and disrupting the blood supply. This disruption in blood supply, together with plaque debris breaking off the artery walls and traveling to the brain, are the primary causes of stroke.

While peripheral vascular disease is most common in the arterial side where arteries carry oxygenated blood to various organs, it can also occur on the venous side where veins carry blood back to the heart and lungs. Peripheral venous disease is a general term for damage, defects or blockages in the peripheral veins. Like peripheral artery disease, it can occur almost anywhere in the body but is most often found in the arms and legs. The most common form of peripheral venous disease is the formation of blood clots that block the flow of blood in the vessel. Clots that occur in veins close to the surface of the skin are referred to as superficial venous thrombophlebitis, while clotting of veins deep within the body are called deep vein thrombosis. Treatment options for blood clots in the veins are similar to those used to treat clots in arteries.

Peripheral Vascular Market

According to the American Heart Association, or AHA, peripheral vascular disease, including peripheral artery disease, affects approximately eight million people in the United States. Primary risk factors associated with peripheral vascular disease are diabetes and smoking. Other significant risk factors include advanced age, high cholesterol, high blood pressure, obesity and physical inactivity. A family history of cardiovascular disease may also put individuals at higher risk for peripheral vascular disease.

Approximately 20% to 30% of patients with peripheral arterial disease in the U.S. today are undergoing treatment for the disease, according to the AHA. Underdiagnosis is due in large part to the fact that over one-half of the peripheral vascular disease population does not display classic symptoms of the disease. In addition, others dismiss their symptoms as part of the normal aging process or attribute them to another cause.

Over the next several years, we expect to see continued growth in the peripheral vascular disease patient population, driven by three specific trends: growing prevalence of the disease, increased diagnosis rate and approximately 6% to 8% growth in the use of endovascular treatments for infrainguinal peripheral artery disease. While today only approximately 25% of patients with peripheral vascular disease are diagnosed, we believe that the following factors are contributing to a growing diagnosed peripheral vascular disease patient population:

•

Increased Awareness. Recent emphasis on peripheral vascular disease education from medical associations, insurance companies and online medical communities, as well as publication in medical journals, is increasing public and physician awareness of peripheral vascular disease risk factors, symptoms and treatment options. The Legs for Life®, P.A.D. Peripheral Arterial Disease Coalition, and Save a Leg Save a Life FoundationTM are examples of organizations working to increase the awareness and screening

			for peripheral arterial disease. The American Diabetes Association, or ADA, recommends that all diabetics over the age of 50 be screened for peripheral vascular disease.
	•		Evolving Physician Practice Patterns. Given that many patients with coronary artery disease also have peripheral vascular disease, we believe that interventional cardiologists and vascular surgeons are increasingly screening patients for both diseases. As a consequence, we believe that physicians are diagnosing more cases of peripheral vascular disease. In addition, heightened awareness of peripheral vascular disease, its symptoms and treatment options is leading to increased referrals from general practitioners, podiatrists who treat patients with pain and lesions in the feet that may be caused by peripheral vascular disease, and nephrologists, diabetologists and endocrinologists, who treat diabetics often experiencing complications resulting from peripheral vascular disease.
	•		Increased Peripheral Vascular Disease Screening. Studies and medical articles have advocated increased peripheral vascular disease screening by primary care physicians using an ankle-brachial index, or ABI, a simple technique that compares blood pressure in a patient’s foot to blood pressure in the patient’s arm to determine how well blood is flowing to the foot. In addition to the ABI, physicians are increasingly using established techniques, such as angiography and ultrasound, to either diagnose or confirm diagnosis of peripheral vascular disease.

Peripheral Vascular Disease Treatment Options

Peripheral vascular disease is treated depending upon the severity of the disease with either non-invasive management, including lifestyle changes and/or drug treatment, for mild to moderate peripheral vascular disease, or minimally invasive endovascular procedures or surgery for more severe peripheral vascular disease.

Non-Invasive Management. For some patients, lifestyle changes and/or drug treatment may slow or reverse the progression of peripheral vascular disease. Lifestyle changes include improving diet, exercising regularly and quitting smoking. Although these adjustments can be effective, many people are unable to maintain this new lifestyle. In addition to lifestyle changes, physicians often prescribe medications that increase blood flow but do not treat the underlying obstruction. Pletal, a commonly prescribed medication for claudication, should not be taken if the patient also has heart disease, which often exists in peripheral vascular disease patients. In addition, physicians often prescribe cholesterol-lowering drugs and drugs for high blood pressure. Patients generally need to take the prescribed drugs for the rest of their lives.

Minimally Invasive Endovascular Procedures. Minimally invasive endovascular procedures for the treatment of peripheral vascular disease consist primarily of angioplasty, stenting and atherectomy, and to a lesser extent, other procedures, such as stents, angioplasty and atherectomy combined with embolic protection devices, laser therapy, drug-eluting stents and vascular cryotherapy. In angioplasty, a catheter with a balloon tip is inserted into the blocked or narrowed part of the artery over a previously positioned guidewire that directs the catheter to the affected area. The balloon is then inflated to compress the plaque and to stretch the artery wall, thereby enlarging, or dilating, the opening of the vessel and restoring blood flow. Stenting is often performed in tandem with angioplasty. Stents are tubular mesh devices typically consisting of interconnected metal struts, which are inserted inside the artery to act as scaffolding in order to hold the vessel open. Atherectomy is a procedure for opening up an artery by removing the plaque that can block arteries throughout the body. It can be performed by various methods of inserting a catheter into the artery. Plaque excision, a form of atherectomy, uses a tiny rotating blade to shave away plaque from inside the artery. The plaque is collected in a reservoir nosecone located at the tip of the device and is subsequently removed from the patient. Laser atherectomy uses a laser beam to reduce the plaque to relatively small particles which are released in the bloodstream. Rotational atherectomy uses a rotating shaver to sand the plaque to relatively small particles which depending on the device are released into the bloodstream or aspirated back into the device.

Other interventional treatments for peripheral vascular disease include:

•

stents, angioplasty and atherectomy combined with embolic protection systems, which protect against plaque and debris from traveling downstream, blocking off the vessel and disrupting blood flow;

	•		drug-eluting stents, where a stent is coated with a slow-to-moderate release drug formulation intended to reduce restenosis, which occurs when the treated vessel becomes blocked again;
	•		drug-coated balloons, where an angioplasty balloon is coated with a drug formulation intended to reduce restenosis; and
	•		vascular cryotherapy, where an angioplasty balloon is inflated with nitrous oxide in an attempt to reduce inflammation caused by treatment of the lesion.

We estimate that in 2009 over 900,000 endovascular procedures to treat peripheral vascular disease were performed in the United States.

Surgical Procedures. Surgery is used when non-invasive management or minimally invasive endovascular procedures have failed or if the patient is diagnosed when the peripheral vascular disease has progressed to an advanced state. The three main types of surgical procedures include bypass surgery, endarterectomy and amputation.

In bypass surgery, the surgeon reroutes blood around a lesion using a vessel from another part of the body or a tube made of synthetic fabric. Bypass surgery is not advisable for some patients because of the inherent risks of surgery, the symptoms are not deemed to be critical enough to warrant such an intervention, or the existence of other diseases. Bypass surgery has a high risk of procedure-related complications from blood loss, post-procedural infection or reaction to general anesthesia and may require patients to remain hospitalized for several days.

Endarterectomy involves the surgical removal of plaque. While endarterectomy is sometimes used, the procedure is highly invasive and subjects the patient to the same procedural risks and complications as bypass surgery. Endarterectomy is rarely used below the knee because the arteries below the knee are generally too small to accommodate the procedure.

If CLI progresses to an advanced state, bypass surgery or endarterectomy may not be used. In this case, physicians may amputate all or a portion of the limb.

Our Peripheral Vascular Product Portfolio

Our peripheral vascular product portfolio includes products for peripheral vascular procedures which, in some instances, may also be used for selected cardiovascular procedures. Our strategy is to provide a broad portfolio of products for the peripheral vascular market that includes devices used in frequently performed procedures and also innovative devices for use in emerging therapies. We opportunistically pursue selected cardiovascular markets where some of these products can be used by our cardiologist customers. We do not compete in cardiovascular markets in which several large companies are firmly entrenched, such as coronary stents. The increase in the breadth of our portfolio of peripheral vascular devices has significantly expanded our participation in the peripheral markets over the last few years. Our peripheral vascular product portfolio includes atherectomy plaque excision products, stents, embolic protection and thrombectomy products, carotid stenting solutions, PTA balloons and other procedural support products.

Atherectomy Plaque Excision Products

We offer atherectomy plaque excision products, which are designed to remove plaque from artery walls in order to re-establish blood flow. Unlike most treatments for peripheral artery disease that leave the plaque in the artery, atherectomy plaque excision products are designed to remove the plaque, instead of compressing it against the vessel walls.

SilverHawk Plaque Excision System. The SilverHawk Plaque Excision System is a minimally invasive, catheter system that treats peripheral artery disease by removing plaque in order to reopen narrowed or blocked arteries. The SilverHawk uses a tiny rotating blade to shave away plaque from inside the artery. It is the only currently available device that both allows the operator to remove the disease and is directional during treatment. SilverHawk also

creates the largest vessel opening for blood flow of the currently available atherectomy devices. The plaque is collected in a reservoir nosecone located at the tip of the device and is subsequently removed from the patient. The SilverHawk is capable of removing significant amounts of plaque without overstretching the artery, which could lead to dissection or perforation. Plaque excision has helped alleviate severe leg pain for thousands of patients and in many cases has successfully saved the legs of patients who were scheduled for limb amputation after other peripheral interventions had failed.

The SilverHawk provides a treatment approach for peripheral artery disease that we believe offers significant benefits, including:

	•		Safety. The SilverHawk is designed not to stretch or damage the artery walls, which can lead to dissection or perforation of the artery. The SilverHawk procedure is minimally-invasive and typically performed under local anesthesia. Therefore, it does not have many of the risks associated with more invasive surgeries and general anesthesia. To date, we have not conducted studies designed to directly compare the safety of the SilverHawk against alternative procedures, such as angioplasty, stenting or bypass grafting.
	•		Efficacy. Unlike most treatments for peripheral artery disease that leave plaque behind in the artery, the SilverHawk removes plaque. The SilverHawk has removed over 700 milligrams of plaque in a single procedure, with an average of approximately 100 milligrams of plaque per procedure. We believe that excising plaque without causing stretch injury to the artery wall may minimize restenosis and the need for reintervention. We also believe that the efficacy of the SilverHawk, measured by low 12-month reintervention rates is supported by the results of five single site studies as well as our TALON registry. In order to further evaluate the long term efficacy data of the SilverHawk during endovascular treatment of peripheral arterial disease, we are conducting the DEFINITIVE LE (Lower Extremity) Study, a prospective, multi-center, non-randomized, single-arm study to evaluate the intermediate and long-term effectiveness of stand-alone SilverHawk Plaque Excision for endovascular treatment of peripheral arterial disease in femoropopliteal or tibial-peroneal arteries. The primary effectiveness endpoint for patients with claudication is expected to be primary patency at one year as defined by duplex ultrasound peak velocity ratio. The primary effectiveness endpoint for patients with critical limb ischemia is amputation-free survival at 12 months. We commenced enrollment for the DEFINITIVE LE Study during the second quarter of 2009.
	•		Ability to Treat Difficult to Treat Lesions. The SilverHawk enables physicians to remove plaque from long, bifurcated and difficult to treat lesions in a wide variety of locations, including arteries behind and below the knee and in the foot. Approximately one-third of SilverHawk procedures to date have been performed below the knee, an area where lesions have traditionally gone untreated until they require bypass surgery or amputation. Certain treatment locations, such as arteries below the knee or in the foot, are not suited for physicians with limited experience using the device.
	•		Utilizes Familiar Techniques. The SilverHawk procedure employs techniques similar to those used in angioplasty, which are familiar to approximately 12,000 interventional cardiologists, vascular surgeons and interventional radiologists in the United States who are generally trained in endovascular techniques. This significantly increases the number of physicians who are able to perform the procedure compared to surgical alternatives that must be performed by highly-trained vascular surgeons. In addition, the SilverHawk was designed to be easy to use. The SilverHawk operates with one switch that controls all device functionality, and has a unique torque shaft designed for a one-to-one correlation between the handle and the tip, providing physicians with precise control of the position of the cutting blade. We continue to focus on providing further enhancements to the SilverHawk as part of our research and development efforts.
	•		Cost and Time Efficient. A single SilverHawk device can be used to treat multiple and long lesions where more than one stent might otherwise be required. Compared to surgical alternatives, the SilverHawk procedure reduces cost by allowing physicians to treat patients in a catheterization lab instead of an operating room, decreasing the length of hospitalization and reducing complications.

	•		Allows for Follow-Up Treatment Options. Physicians can, and sometimes do, use adjunctive angioplasty and occasionally stenting during a SilverHawk procedure. When the SilverHawk procedure is performed without stenting, which we estimate is greater than 90% of the time, increased future treatment options remain available in the event that restenosis does occur and reintervention is required as there is no metal left behind post procedure, as is the case with stenting.
	•		Captures and Removes Plaque. The patient and the physician get immediate feedback by seeing the volume of plaque removed, visibly reinforcing the benefits of the procedure.

In the United States, the SilverHawk is approved for use in the peripheral vasculature. This means that our product may not be marketed in the United States for use in the heart, brain or in specific peripheral anatomy without additional clearances from the FDA. In the United States, the SilverHawk is contraindicated, and should therefore not be used, for in-stent restenosis, which is restenosis after the use of stents, or for use in the carotid, iliac and renal arteries.

The SilverHawk family of products includes MEC (Micro Efficient Compression) Technology, a novel advancement which features precision laser-drilled vent holes in the tip of the catheter. These micro vent holes release fluid pressure, providing more space for the collection of tissue in the tip of the device. This technology has the potential to reduce overall procedure time by enabling physicians to increase tissue collection during plaque removal procedures in large vessels above the knee.

The SilverHawk family of products also includes several different catheters, which enable the treatment of both calcified and non-calcified lesions of any length, pending the specific device indication. The catheters vary in diameter to treat a wide range of peripheral vessel sizes. The devices also vary in tip length to accommodate lesions with heavier or lighter plaque burden.

TurboHawk Plaque Excision System. During third quarter of 2009, we announced the U.S. launch of the TurboHawk Plaque Excision System for surgical use. The TurboHawk features four angled, Super Cutter blades that are designed to increase the efficiency of directional plaque excision for above the knee interventions, including severely calcified lesions in varying vessel diameters for which very limited options are available to date. In November of 2009, the TurboHawk Plaque Excision System was cleared for endovascular use in mild to moderate calcium. We also received FDA approval to include the TurboHawk in our DEFINITIVE Ca⁺⁺ IDE study. We have expanded availability for the TurboHawk Plaque Excision System to international markets and plan to launch the TurboHawk Plaque Excision System for below the knee use in the second half of 2010.

Stents

Although our stents, like most of our competitors’ stents, have been approved by the FDA for the palliative treatment of malignant neoplasms in the biliary tree, even though not promoted or marketed for such use, they are used by physicians not only in the biliary duct, which transports bile from the liver and gall bladder to the small intestines, but also “off label” in various other locations in the body, including renal arteries, which transport blood from the aorta to the kidneys; iliac, femoral and popliteal arteries, which are major arteries in the legs and subclavian arteries, which are major vessels of the upper body, originating at the aortic arch. We believe that our portfolio of self-expanding stents is differentiated from our competitors’ offerings due to their fracture resistance, flexibility and lengths, and that both our self-expanding and balloon expandable stent platforms provide advanced radiopacity (visibility under fluoroscopy), placement accuracy, deliverability and strong clinical performance.

Protégé EverFlex, Protégé GPS and Protégé GPS BIGGS. Our self-expanding stent portfolio includes our Protégé EverFlex Self-Expanding Stent and our Protégé GPS Family of Self-Expanding Stents, all of which are “shape memory” nitinol stents that expand to a predetermined diameter upon deployment. Nitinol is a highly flexible metal with shape retention and fatigue resistance properties. We offer a number of sizes of the EverFlex, Protégé GPS and Protégé GPS BIGGS stents. The EverFlex stent has enhanced flexibility and resistance to fractures, which we believe provides superior performance in vessels that are subjected to repeated flexing and bending. The EverFlex stent encompasses a unique spiral cell geometry, which is constructed to withstand extreme movement.

We believe the design of our EverFlex stents is unique in that it features:

	•		Spiral cell interconnections that greatly enhance flexibility;
	•		New wave peak structure that more efficiently distributes stress and resists compression; and
	•		Longer lengths (up to 200 mm and all 6 French compatible), which minimize the need for overlapping stents when treating long lesions.

In October 2008, 12-month follow-up results were reported for our European DURABILITY I clinical study, the world’s first prospective study to specifically test the efficacy and integrity of a long stent in challenging femoral lesions. It is also the first study to specifically evaluate the use of a single stent up to 15 centimeters long per patient. A total of 151 patents were treated in 13 European centers. At 12 months follow-up, primary patency was 72%, which compares quite favorably to other studies and was notable considering the average lesion length was almost 10 centimeters and 40% of the vessel were occluded. We are currently conducting our DURABILITY II study in the U.S. with the objective of expanding our Protégé EverFlex Self-Expanding Stent’s indication for use to include treatment of peripheral artery disease in the superficial femoral and proximal popliteal arteries of the leg. Additionally, we have received conditional approval for our PROVE-IT study in the U.S., which will study the use of both the Protégé EverFlex Self-Expanding Stent and the Visi-Pro Balloon Expandable Stent in iliac arteries.

PRIMUS and Visi-Pro Balloon Expandable Stents. Our balloon expandable stent portfolio includes stents that incorporate embedded tantalum markers to provide superior visualization under fluoroscopy, allowing the physician to quickly confirm the correct placement. The inclusion of markers is a unique feature in the balloon expandable stent market. We plan to evaluate in our PROVE-IT study the use of both the Protégé EverFlex Self-Expanding Stent and the Visi-Pro Balloon Expandable Stent in iliac arteries. To our knowledge, this will be the first study of its kind, which evaluates the use of two different stent platforms in one study.

Embolic Protection and Thrombectomy Products

During peripheral vascular and cardiovascular procedures, plaque and debris may dislodge or embolize, potentially blocking blood flow and damaging distal tissue. Embolic protection devices are intended to trap plaque and debris from traveling downstream, blocking off the vessel and disrupting blood flow. Similarly, thrombectomy devices are designed to remove blood clots, or thrombus, in order to re-establish blood flow or to prevent a clot from breaking up and blocking smaller downstream vessels. We offer thrombectomy tools for peripheral vascular and cardiovascular procedures that meet a broad spectrum of physician needs, including the mechanical removal of thrombus and the delivery of peripheral blood clot therapies designed to help dissolve the clot.

SpiderFX Embolic Protection Devices. The SpiderFX family of embolic protection devices are low-profile devices featuring a unique braided nitinol embolic filter compatible with most guidewires on the market. Filter-based embolic protection devices allow blood to continue flowing in the artery while the filter traps the debris, minimizing downstream tissue damage and improving clinical outcomes. We believe that the SpiderFX family has a significant competitive advantage because it permits physicians to use their guidewire of choice, allowing improved durability and a more efficient procedure. We believe the SpiderFX also exhibits superior trackability, enhanced visibility and excellent stability.

The SpiderFX is indicated for use as a guidewire and embolic protection system to contain and remove embolic material, such as thrombus or debris, while performing angioplasty and stenting procedures in carotid arteries, as well as indicated for use as protection, while performing percutaneous transluminal coronary angioplasty or stenting procedures in coronary saphenous vein bypass grafts. We are currently conducting the DEFINITIVE Ca++ clinical study to evaluate the safety and effectiveness of the SilverHawk with Calcium Tip (i.e. RockHawk and TurboHawk) Plaque Excision System when used in conjunction with the SpiderFX Embolic Protection Device for capture, containment and removal of excised plaque and embolic debris during endovascular treatment of moderate to severely calcified peripheral arterial disease in the superficial femoral and/or popliteal arteries. This study, if successful, should support approval for a combined RockHawk and SpiderFX system, thereby expanding the

indication of the SpiderFX into the periphery. The SpiderFX is currently indicated for general vascular use outside the United States.

Blood Clot Therapy Products or Infusion Catheters. Our blood clot therapy products include flexible catheters with small holes that can allow for the delivery of drugs to help dissolve or break up a clot. Referred to as infusion catheters, this form of treatment relies on various pharmacologic agents to restore blood flow rather than physically removing or compressing the clot.

Carotid Stenting Solutions

Carotid artery stenting represents an emerging minimally invasive treatment option for carotid artery disease. We believe it has the opportunity to become a significant alternative to carotid endarterectomy, where a surgeon accesses the blocked carotid artery though an incision in the neck, and then surgically removes the plaque. Endovascular techniques using stents and embolic protection systems, which protect against plaque and debris from traveling downstream, blocking off the vessel and disrupting blood flow, have been developed and are in an early stage of adoption. The use of a stent with an embolic protection system avoids open surgery and we believe will increase the number of patients being treated. In 2005, the Centers for Medicare & Medicaid Services, or CMS, expanded reimbursement of percutaneous transluminal angioplasty of the carotid artery concurrent with stent placement outside of trial settings for patients who are at high risk for carotid endarterectomy in certain circumstances. Coverage is limited to procedures at CMS-approved facilities performed using FDA-approved carotid artery stenting, or CAS, systems and embolic protection devices, which has limited the CAS near-term market potential.

Our carotid stenting product offering (Protégé RX straight and tapered stents used together with our SpiderFX embolic protection devices) are available in the United States, Europe and certain other countries. In support of our FDA pre-market approval submission, we conducted the CREATE Pivotal clinical trial, which was designed to evaluate the use of our carotid stenting technology in patients who are high-risk candidates for carotid endarterectomy. We also have received FDA 510(k) clearance of our SpiderFX embolic protection device for use in carotid artery stenting in conjunction with the Guidant RX ACCULINK stent. We are currently conducting the CREATE Post Approval Study with the objective of further studying the Protégé GPS and Protégé RX Carotid Stent Systems and SpiderFX in the treatment of carotid artery disease in subjects at high risk for complications during surgical treatment of carotid artery disease.

PTA Balloons and Other Procedural Support Products

As part of our peripheral vascular marketing strategy, we market and sell a number of products to be used in conjunction with our other peripheral vascular portfolio products, including balloon angioplasty catheters, snares, microsnares, guidewires and other accessories.

Balloon Angioplasty Catheters. Balloon angioplasty catheters are designed to open up the vessel via balloon dilation. In angioplasty, a catheter with a balloon tip is inserted into the blocked or narrowed part of the artery over a previously positioned guidewire that directs the catheter to the affected area. The balloon is then inflated to compress the plaque and to stretch the artery wall, thereby enlarging, or dilating, the opening of the vessel and restoring blood flow.

In January of 2009, we globally launched our EverCross and NanoCross percutaneous transluminal angioplasty (PTA) balloons. In the United Sates and internationally, these balloon catheters are cleared for non-coronary dilatation of the vascular anatomy excluding the carotid arteries.

The EverCross is a PTA catheter system with 0.035 guidewire compatibility. We believe the design of our EverCross PTA balloon is unique in that it features:

•

unmatched longer lengths (up to 200 cm) which allows a physician to use a single balloon once (vs. a shorter length balloon multiple times);

	•		low tip entry and crossing profile optimizing the ability to cross tight lesions; and
	•		robust catheter shaft and flexible balloon design enhancing the ability to reach the desired treatment area.

The NanoCross is a PTA catheter system with 0.014 guidewire compatibility. We believe the design of our EverCross PTA balloon is unique in that it features:

	•		Bevel 360 technology optimizing the ability to cross tight lesions;
	•		catheter design providing optimal pushability and trackability to reach the target vessel area of the diseased vessel; and
	•		increased inner diameter catheter lumen allowing for dramatically reduced deflation times.

In the first quarter of 2010, we launched our PowerCross PTA catheter system with 0.018 guidewire compatibility.

Prior to January of 2009, we offered in the United States a portfolio of peripheral vascular balloon angioplasty catheters, which we purchased from Invatec pursuant to a distribution agreement, which expired on December 31, 2008. Our distribution agreement with Invatec allowed us to continue distribution of our remaining inventory of these products through June 30, 2009.

Goose Neck Snares and Microsnares. Foreign objects can be retrieved from the vascular system by using snares and other devices. Examples of foreign objects that require retrieval include broken catheter or guidewire tips, as well as stents that are dislodged from their delivery system and carried downstream. Our Goose Neck snares and microsnares incorporate a single, radiopaque (visible under fluoroscopy) loop mounted at the tip of a guidewire. The loop is deployed and retrieved through a catheter. We believe that our snares are unique because the loop remains positioned at a 90 degree angle relative to the wire. This increases the ability of the loop to encircle the foreign object, thereby improving the rate of success of retrieval. Nitinol shaft technology used in the wire provides kink resistance and durability. Our Goose Neck snares and microsnares are available in a wide variety of sizes for optimal fit within the vessel. Our Goose Neck snares are approved for use in the cardiovascular system or hollow viscus to retrieve and manipulate foreign objects. Our Goose Neck microsnares are also approved for use in the retrieval and manipulation of atraumatic foreign bodies located in the coronary and peripheral cardiovascular system and the extra-cranial neurovascular anatomy.

Nitrex Guidewires. Guidewires are threaded through vessels as a first step in most endovascular procedures. Balloon and stent catheters are advanced over guidewires to the target treatment area. For this reason, they are an indispensable component in the catheterization laboratory. Our Nitrex guidewires are characterized by both flexibility and kink resistance which are particularly useful when negotiating tortuous vascular anatomy. Some interventional procedures demand a wire with maximum lubricity, while others require enhanced purchase or ability to maintain placement in a vessel. Our Nitrex guidewires offer the ability to maintain placement in the vessel and maximum control through the procedure. Our proprietary manufacturing processes create a wire with a gently tapered, continuous solid nitinol core that extends from the proximal end through the distal tip. Gold tungsten coils provide excellent radiopacity for enhanced visualization and to ensure precise navigation through the vasculature. Our Nitrex guidewires are versatile since they are available in a variety of tip lengths and angles for broad applications and are used in a wide range of endovascular procedures.

Our Neurovascular Markets

Neurovascular Disease and Strokes

The most devastating complication of neurovascular disease is stroke. A stroke usually occurs when the flow of oxygen rich blood to the brain is suddenly interrupted. There are two types of stroke:

	•		Ischemic stroke, which is caused by the blockage of an artery to the brain; or
	•		Hemorrhagic stroke, which is caused by a sudden rupture of a brain artery, leading to bleeding into or around the brain.

If either stroke is left untreated for more than a few minutes, brain cells may die due to the lack of blood flow. Both forms of stroke may result in permanent brain damage or even death. Patients who survive a stroke are often left with disabilities, including paralysis, coma, impaired cognition, decreased coordination, loss of visual acuity, loss of speech, loss of sensation or some combination of these conditions. A significant need for effective prevention and treatment of stroke exists because of the severity of the disorder, its prevalence in society, the shortcomings of current therapies and the high cost of treatment and care.

Ischemic strokes can be caused by several different kinds of disease, with the most common being a narrowing of the arteries caused by atherosclerosis or gradual cholesterol deposits. If arteries become too narrow, clots may form. There are two different types of ischemic stroke: thrombotic (cerebral thrombosis) and embolic (cerebral embolism). A thrombotic stroke is the most common and occurs when arteries in the brain become blocked by the formation of a clot within the brain. An embolic stroke occurs when a clot or small piece of plaque formed in one of the arteries leading to the brain, such as the heart or carotid artery, travels through the bloodstream to the brain where it lodges in narrower brain arteries and blocks blood flow.

Transient ischemic attack, commonly referred to as a TIA, is a warning sign of the potential for a future stroke. By definition, the symptoms of a TIA may last up to 24 hours, but they often last only a few minutes. TIA occurs when the blood supply to part of the brain is briefly interrupted. TIA symptoms are similar to those of stroke but do not last as long. Most symptoms of a TIA disappear within an hour. About one-third of strokes are preceded by one or more TIAs that can occur days, weeks or even months before a stroke.

Two common causes of hemorrhagic stroke are ruptures of cerebral aneurysms and arterio-venous malformations, or AVMs. An aneurysm is a weakening of the vessel wall that forms a balloon-shaped pouch, which fills with blood. Aneurysms typically grow over time and, due to pressure placed on the wall of the aneurysm, are prone to rupture. Ruptured aneurysms can easily result in death as a result of massive intracranial bleeding and loss of perfusion to the brain in the area affected by the aneurysm rupture. Brain aneurysms are all different. They vary in size, shape and location. Small aneurysms are less than 5 mm (1/4 inch) but can grow as large as 25 mm (1¹/4 inches) or more. Aneurysms can be saccular (sac-like), with a well-defined neck, or saccular with a wide neck or fusiform (spindle shaped) without a distinct neck. An aneurysm is usually located along the major arteries deep within brain structures. Aneurysms can occur in the front part of the brain (anterior circulation) or the back part of the brain (posterior circulation). If an aneurysm ruptures, it leaks blood into the space around the brain. This is called a “subarachnoid hemorrhage.” If the hemorrhage bleeds into the brain itself causing damage to the brain directly, this results in a hemorrhagic stroke. Once an aneurysm bleeds, there is a 30% to 40% chance of death, and a 20% to 35% chance of moderate to severe brain damage, even if the aneurysm is treated. If the aneurysm is not treated quickly enough, another bleed may occur from the already ruptured aneurysm.

In an AVM, the flow of blood between arteries and veins, which normally occurs through very small capillary vessels, is short circuited by the development of a network of larger vessels directly connecting the arteries and veins. The higher blood pressure flowing directly to the veins makes these vessels highly prone to rupture. Although all blood vessel malformations involving the brain and its surrounding structures are commonly referred to as AVMs, they are actually several types, including: (1) a true arteriovenous malformation, which is the most common brain vascular malformation and consists of a tangle of abnormal vessels connecting arteries and veins with no normal intervening brain tissue; (2) an occult or cryptic AVM or cavernous malformation, which is a vascular

malformation in the brain that does not divert large amounts of blood, but may bleed and often produce seizures; (3) venous malformation, which is an abnormality only of the veins, which are either enlarged or appear in abnormal locations within the brain; (4) hemangioma, which are abnormal blood vessel structures usually found at the surface of the brain and on the skin or facial structures and represent large and abnormal pockets of blood within normal tissue planes of the body; and (5) dural fistula, which is an abnormal connection between blood vessels that involve the covering of the brain called “dura matter.”

Neurovascular Market

According to the American Heart Association, there are approximately 795,000 strokes annually in the United States, making stroke the third leading cause of death and a leading cause of long-term disability. Acute ischemic stroke affects approximately 690,000 patients annually while hemorrhagic stroke is a less common disorder, affecting approximately 105,000 patients per year in the United States.

While an estimated 25,000 hemorrhagic stroke deaths in the United States in 2009 were caused by ruptured cerebral aneurysms, autopsy studies suggest that unruptured aneurysms may exist in approximately 1.5% to 6% of the general population in the United States. Annually, between 0.5% to 3% of people with a brain aneurysm may suffer from bleeding. If you have one aneurysm, there is a 15-20% chance that you have at least one or more additional aneurysms. It is unknown whether the presence of multiple aneurysms affects their rupture rates. We believe that with the development of new diagnostic and interventional technologies, the pool of patients that may benefit from intervention will continue to expand to include increasing numbers of those with unruptured aneurysms discovered in conjunction with other examinations.

It is estimated that in the United States, one in 200-500 individuals have an AVM in the brain. About 5-10% of AVMs are discovered by accident while the individual is being tested for other unrelated medical problems. Patients with AVMs may have additional vascular anomalies that increase the complexity of treatment.

Treatment Options

Current interventional therapies serve primarily the hemorrhagic stroke market while some of the recent developments are focused on the larger and underserved ischemic stroke market.

Ischemic Strokes. Ischemic strokes are treated with either non-invasive management, including lifestyle changes and/or drug treatment, surgery or minimally invasive endovascular procedures.

For some patients, lifestyle changes and/or drug treatment may slow or reverse the progression of neurovascular disease. Lifestyle changes include improving diet, exercising regularly and quitting smoking. Although these adjustments can be effective, many people are unable to maintain this new lifestyle. In addition to lifestyle changes, physicians often prescribe medications, such as clot-dissolving medications, anticoagulants or antiplatelet drugs. If used intravenously, therapy with clot-busting drugs for the treatment of an ischemic stroke must be started within three hours of the onset of ischemia. After that, the risks of bleeding or other complications from this type of therapy begin to outweigh potential benefits. After three hours, these medications may sometimes be given directly into the site of the clot (intra-arterial therapy). Anticoagulants, often called blood thinners, such as warfarin, may be prescribed by physicians following a stroke. By reducing the ability of the blood to clot, they may help to keep blood vessels open and delivering oxygen and nutrients to brain cells. Antiplatelet drugs, such as aspirin, may be administered during or immediately after a stroke to help prevent clot formation. While they work differently from anticoagulants, the result is similar. They help to keep blood vessels open and delivering oxygen and nutrients to brain cells.

The two main types of surgical procedures include bypass surgery or revascularization and endarterectomy. In bypass surgery or revascularization, the surgeon reroutes blood around a lesion using a vessel from another part of the body or a tube made of synthetic fabric. Bypass surgery is not advisable for some patients because of the inherent risks of surgery, the symptoms are not deemed to be critical enough to warrant such an intervention, or the existence of other diseases. Bypass surgery has a high risk of procedure-related complications from blood loss, post-

procedural infection or reaction to general anesthesia and may require patients to remain hospitalized for several days. Endarterectomy involves the surgical removal of plaque. While endarterectomy in an internal carotid artery is sometimes used, the procedure is highly invasive and subjects the patient to the same procedural risks and complications as bypass surgery. Carotid endarterectomy could even trigger a stroke because the operation may dislodge clots or other material that can then travel through the bloodstream and block an artery.

Minimally invasive endovascular procedures for the treatment of ischemic strokes currently utilize several different medical device options. In such procedures, often a stent with an umbrella filter is placed in the carotid artery. The stent helps keep the artery open and the filter catches blood clots and prevents them from reaching the brain and causing a stroke. Sometimes snare-like devices are used to access and remove blood clots. Another treatment option is a tiny corkscrew-shaped device that is attached to a catheter, threaded to the clot, and used to snag the clot. The clot is then drawn out through the catheter. In addition, the removal of blood clots from the cerebral vasculature often utilizes aspiration catheters that promote recanalization.

Hemorrhagic Strokes. Hemorrhagic strokes are treated based upon the cause of the stroke.

The best treatment for an aneurysm depends upon many things, including whether the aneurysm has ruptured or not. If an aneurysm has not ruptured, the treatment decision depends upon its size, location and shape, and the patient’s symptoms. Small, unruptured aneurysms that are not creating any symptoms may not need treatment unless they grow, trigger symptoms or rupture. A ruptured aneurysm usually requires treatment right away, because the re-bleeding rate remains quite high. However, the treatment time and options for treatment depend upon the size, location and shape of the aneurysm, as well as the patient’s overall medical condition.

Depending on an individual’s risk factors, surgical clipping, a microsurgery, of an aneurysm may be recommended. In this procedure, patients are placed under general anesthesia, an opening is made in the skull, the brain tissue is spread apart, and the aneurysm is surgically exposed. The neurosurgeon then places a surgical clip around the aneurysm’s base. The clip seals off the aneurysm so blood cannot enter. Possible complications from surgical clipping include infection at the incision site, rupturing the aneurysm during surgery and damage to the artery and bleeding into the brain which could result in brain damage. As with other surgical procedures, the anesthesia used during the procedure also has risks.

Driven by rapid advances in device technology and results from the International Subarachnoid Aneurysm Trial, or ISAT, the results of which were published in The Lancet in October of 2002, the treatment of aneurysms, as well as AVMs, has been shifting from open surgical techniques, such as surgical clipping, to minimally invasive, endovascular techniques, such as embolic coiling. The ISAT was an independent, randomized clinical trial involving 2,143 patients in Europe, North America and Australia that compared aneurysm clipping with embolic coiling as a method of treating cerebral aneurysms. The trial concluded, based on a survey of patients participating in the trial, endovascular intervention with detachable platinum coils resulted in a 23% relative and 7% absolute reduction in the risk of major brain injury or death compared with neurosurgical clipping of the aneurysm at one-year follow up. The seven-year follow up data published in The Lancet in September 2005 indicated a continued clinical advantage for patients who underwent coiling versus clipping procedures. The market transition to endovascular techniques, such as embolic coiling, has been more rapid in geographies outside of the United States. The primary endovascular procedure for treating both aneurysms and AVMs uses a repair technique called embolization, the objective of which is to induce a blood clot, or thrombus, in the diseased vasculature. The purpose of the thrombus is to limit blood flow through the diseased vascular anatomy, thereby reducing blood pressure and flow to a ruptured area or the likelihood of rupture in an unruptured area.

The endovascular embolization of cerebral aneurysms usually involves the deployment of small coils composed of metal or a combination of metal and polymer. We believe that embolic coils represent one of the largest categories of products in the neurovascular device market and were used in over 70,000 procedures worldwide in 2009. Embolic coils are used in virtually all endovascular treatments of aneurysms and in some AVMs. During a coiling procedure, the physician accesses the femoral artery through a tiny incision in the groin or inner thigh where a tiny hollow tube or sheath is inserted into the artery wall to allow the introduction of a catheter which is inserted and guided by a guidewire and with the use of computer-aided X-ray scanners through the artery and up towards the brain. Once the catheter is in place, the guidewire is removed, leaving the catheter in place. A contrast dye is introduced via the catheter into the bloodstream in order to make the artery and the aneurysm clearly visible and to

aid in obtaining clear radiographic images. A microcatheter is then introduced through the larger catheter and used to deliver coils through the neck and into the sac of the aneurysm. The coils are approximately twice the thickness of a human hair and there are several types of coils which vary in shape, pliability and levels of softness. They are attached to the end of the microcatheter. The coils placed are generally of progressively smaller sizes. They are individually placed and often detached from the microcatheter by a small electric current or a mechanical detachment mechanism. Within the microcatheter the coils are straight but, after placement in the aneurysm, they bend in a helix shape and conform to the shape of the aneurysm walls. This process is repeated until approximately 35% to 45% of the volume of the aneurysm is filled with coils. The coils then form a mesh similar to steel wool. Eventually, blood cells are caught and clot on the mesh in a process called “thrombosis,” effectively filling and sealing off the aneurysm from the artery circulation. The procedure requires a high level of precision and skill to avoid either under or over-filling the aneurysm, since over-filling may cause rupture or painful pressure on adjacent tissue and under-filling may permit the aneurysm to reform or grow. Balloon-assisted coiling involves a tiny balloon catheter which covers the neck or entrance to the aneurysm, holding the coils in place. Stent-assisted coiling involves a small cylindrical mesh tube which acts as scaffolding along the neck of the aneurysm to hold the mass of coils in place. The development of supple, more flexible stents and balloons has allowed stent-assisted and balloon-assisted coiling of irregular fusiform and wide-necked aneurysms in some cases. Coiling does not involve surgically opening the head and may be done under local or general anesthesia. Possible complications include rupture of the aneurysm during treatment and damage to the artery and bleeding into the brain which could result in brain damage, as well as risks from the anesthesia. However, because coiling is a less invasive procedure than surgical clipping and results in lower treatment costs, shorter recovery times and less trauma to the patient, it has become a widely accepted treatment for aneurysms.

Embolic coiling, however, is not as effective in treating large and giant, wide-neck or non-saccular aneurysms. In addition, incomplete aneurysm occlusion and recurrence are major shortcomings of embolic coiling, as well as other current therapy options. An alternative treatment to coiling or one that could be used in conjunction with coiling is flow diversion. Flow diversion represents a new class of cerebral embolization device that is designed to divert blood flow away from an aneurysm in order to provide a complete and durable aneurysm embolization while maintaining patency of the parent vessel. Although flow diversion devices are used in certain European countries to treat aneurysms, they have not yet gained regulatory approval in the United States.

The best treatment for an AVM depends upon what type it is, the symptoms it may be causing, its location and size and whether the AVM has bled before. If there are no symptoms or almost none, or if an AVM is in an area of the brain that cannot be easily treated, no medical intervention may be recommended. Instead, the person is often advised to simply avoid any activities that may excessively elevate blood pressure, such as heavy lifting or straining, and avoid blood thinners, like warfarin. If an AVM has bled, there is an increased risk that it will bleed again thus prompting a more aggressive approach to treatment. If the AVM is located in an area that can be easily operated upon, then surgical resection, or removal, may be recommended. An AVM that is not too large, but is in an area that is difficult to reach by regular surgery, may be treated by performing stereotactic radiosurgery. In this procedure, a cerebral angiogram is done to localize the AVM and focused-beam high energy sources are then concentrated on the brain AVM to produce direct damage to the vessels that will cause a scar and allow the AVM to “clot off.” Finally, as with aneurysms, minimally invasive, endovascular techniques are increasingly being used to treat AVMs and may be used in conjunction with surgical resection or radiosurgery. In such procedures, a catheter is placed inside the blood vessels that supply the AVM, and the abnormal blood vessels are intentionally blocked to stop blood flowing to the AVM with a variety of different materials, such as liquid glues, liquid polymers or other very small polymer particles, microcoils and other materials.

Our Neurovascular Product Portfolio

Our neurovascular product portfolio includes embolic coils, flow diversion and restoration devices, liquid embolics, flow directed and other micro catheters, occlusion balloon systems, guidewires, neuro stents and retrieval devices.

Embolic Coils

Our embolic coil products are delivered using a combination of our minimally invasive guidewires, microcatheters, stents and balloons. During an aneurysm procedure, the embolization coils are attached to a hypotube and are passed

through a delivery catheter into the aneurysm space. The coil is then detached from the hypotube, the hypotube is removed and the next coil is advanced through the catheter.

Axium Detachable Coil System. We launched our Axium Detachable Coil System on a worldwide basis in the fourth quarter of 2007. During the fourth quarter of 2009, we concluded our physician preference testing for two new versions of the Axium coil, the Axium PGLA and Axium Nylon microfilament coils, in the U.S. and Europe and are in the process of launching these products for broad commercial availability. Our Axium coils are intended for the endovascular embolization of intracranial aneurysms and the embolization of other neurovascular abnormalities, such as AVMs and arteriovenous fistulae. They are also indicated for use in the European Union for the treatment of peripheral vascular abnormalities. We designed our Axium coils in an effort to meet the performance criteria of a diverse group of leading neurosurgeons and interventional neuroradiologists. Unique features and benefits of our Axium coils include:

	•		a high degree of coil conformability, which facilitates the physician’s goal of more easily and completely filling and packing the aneurysm, regardless of its shape and size;
	•		coil softness combined with stretch resistance, which allows the coil to be positioned or re-positioned within the aneurysm without adding to the risk of bleeding or hemorrhagic stroke;
	•		ease of coil placement though the microcatheter, providing the physician with enhanced control and deliverability; and
	•		rapid, safe and simple detachment of the coil through a proprietary, micro-machined mechanical detachment system that offers instantaneous coil detachment without the use of wires or syringes. This facilitates precise and rapid coil deployment thereby minimizing procedure time, which may be especially important in a ruptured aneurysm or when blood flow to the brain has been restricted.

Nexus Embolic Coils. We also offer our Nexus line of coils in the United States and international markets, including our latest addition to the Nexus family, the Nexus Morpheus. Our Nexus coils are intended for the endovascular embolization of intracranial aneurysms that because of their morphology, their location or the patient’s general medical condition are considered by the treating neurosurgical team to be very high risk for management by traditional operative techniques or inoperable. Our Nexus coils are also intended for the embolization of other neurovascular abnormalities, such as AVMs and arteriovenous fistulae. Our Nexus line of coils consists of framing, filling and finishing coil offerings, allowing physicians to treat a wide range of aneurysm shapes and sizes. All Nexus coils incorporate a nitinol filament, which offers improved shape retention and increased resistance to coil compaction. Nexus also incorporates a bioactive microfilament technology to enhance aneurysm healing. The Morpheus is a three-dimensional soft and conformable coil that does not sacrifice the compaction resistance inherent with the nitinol core.

NXT. We also offer our older generation NXT line of detachable coils in the United States and international markets. The NXT family includes framing, filling and finishing coils and are sold in a wide range of shapes and configurations. Many of the NXT products incorporate the use of nitinol technology, resulting in less stretching for more confident positioning and better resistance to compaction, while its enhanced shape memory provides a more supportive basket and optimal bridging of the neck of the aneurysm, compared to coils without nitinol.

Flow Diversion Devices

Pipeline Embolization Device. As a result of our acquisition of Chestnut Medical Technologies, Inc. in June of 2009, we market and sell the Pipeline Embolization Device in Europe and on a limited basis in other international markets such as Canada, Australia and the Middle East and are in the process of conducting two clinical studies under U.S. FDA investigational device exemptions (IDE) to gain approval for the Pipeline Embolization Device in the United States. Our Pipeline Embolization Device is a new class of cerebral embolization device that is designed to divert blood flow away from an aneurysm in order to provide a complete and durable aneurysm embolization while maintaining patency of the parent vessel. The Pipeline Embolization Device is a self-expanding, microcatheter-delivered, cylindrical mesh device composed of individual braided cobalt chromium and platinum strands. Multiple devices

can be deployed within each other (telescoped) to create a composite endovascular construct. The degree of metal surface area coverage can be manipulated by varying the technique of device deployment, as well as by choosing the number of overlapping devices placed in a particular vascular segment. Because the Pipeline Embolization Device reconstructs the entire length of the treated parent vessel, it has proven effective despite the neck width of the aneurysm, large or giant size, or the presence of intra-aneurysmal thrombus. The flexibility of the Pipeline Embolization Device allows it to be delivered and used in tortuous anatomy and because it is an “intravascular” as opposed to “intrasaccular” therapy, the device can be used to treat even thin walled aneurysms.

In a trial known as the PITA trial, 31 patients at four study sites received the Pipeline Embolization Device for the treatment of difficult-to-treat intracranial aneurysms. All patients had either wide-necked saccular aneurysms or aneurysms that had failed to respond to previous endovascular coiling. The average aneurysm size was 11.5 mm, with an average neck width of 5.8 mm; thus, the study was predominantly one of large, wide-necked aneurysms. Overall, the device was delivered successfully in 100% of the cases, with a 6% rate of periprocedural complications (two strokes, no deaths). At 6-month follow-up, 28 of 30 lesions (93%) available for evaluation demonstrated complete angiographic occlusion.

PUFS and COCOA are two clinical studies we are currently conducting under IDEs from the FDA. These studies are investigating the use of the Pipeline Embolization Device in the treatment of uncoilable aneurysm and coilable aneurysm, respectively. We expect to submit the results of the PUFS study to the FDA in first quarter of 2010. Outside of these clinical studies, there is commercial use of the Pipeline Embolization Device in our international markets as well as compassionate use cases within the United States.

Liquid Embolics

We estimate that liquid embolics were used in approximately 15,000 worldwide neurovascular procedures in 2009, including the majority of AVM and some aneurysm procedures. One embolization technique for AVMs involves the injection of acrylic-based glue. We believe, however, that glues have multiple drawbacks including the lack of controlled delivery and extreme adhesion to all surfaces, including that of the delivery catheter. Glue solidifies upon contact with blood which reduces physician control during filling and necessitates very rapid withdrawal of the delivery catheter in order to avoid it being permanently glued in place. We believe our Onyx Liquid Embolic System is a superior solution to glue.

Onyx Liquid Embolic System. Onyx is our proprietary biocompatible copolymer which is delivered, in liquid form, through proprietary microcatheters to blood vessels in the brain, where it fills a vascular defect and transforms into a solid polymer cast. Onyx offers a unique form, fill and seal approach to the interventional treatment of aneurysms and AVMs associated with hemorrhagic stroke. Because Onyx is non-adhesive, and solidifies over a few minutes’ time, the injection and filling of the vascular defect can take place in a very controlled manner. When the vascular defect is completely filled with the Onyx polymer cast, the delivery catheter is removed. We believe our randomized clinical trial revealed that Onyx was at least as effective as acrylic-based glue in filling aneurysms, had a better percentage reduction in AVMs and resulted in the use of fewer coils. In addition to providing a controlled and measured delivery, other benefits of Onyx include the soft malleable cast for ease of surgical resection and enhanced radiopacity for bright visualization of material.

In April of 2007, we received Humanitarian Device Exemption, or HDE, approval from the FDA for our Onyx HD 500 Liquid Embolic System for the treatment of intracranial aneurysms. This approval allows us to commercialize our Onyx Liquid Embolic System to a population of patients with wide-necked cerebral aneurysms. The approval is limited to saccular, sidewall aneurysms with a dome to neck ratio less than 2 millimeters that are not amenable to treatment with surgical clipping.

Flow Directed and Other Micro Catheters

We market several micro catheters that are intended to allow access to, and treatment in, difficult-to-reach anatomical locations such as the remote vessels in the brain or other challenging vascular structures. In addition to their use with our embolic coils and liquid embolics, these products are compatible with, and are often used with, our competitors’ products.

UltraFlow and Marathon Flow Directed Micro Catheters. The UltraFlow Flow Directed Micro Catheter and Marathon Flow Directed Micro Catheter are intended to access the peripheral and neuro vasculature for the controlled selective infusion of physician-specified therapeutic agents, such as embolization materials and of diagnostic materials, such as contrast media. The UltraFlow micro catheter is specifically designed to enable access to distal locations and to allow super-selective vessel positioning. The Marathon is an improved flow directed micro catheter that contains both a nitinol braid and a stainless steel helical wire, which improves navigability while retaining pushability and tip softness. We believe that both the UltraFlow and Marathon micro catheters provide excellent trackability over a wire.

Echelon and Pre-shaped Echelon Micro Catheters. Using a unique blend of materials and construction, our Echelon family of over-the-wire micro catheters provide what we believe to be one of the largest inner channels in its class while still enabling the physician to access difficult anatomy and deliver a wide range of coils. The pre-shaped Echelon catheter represents a key line extension for our Echelon family of products, and offers improved navigation, deliverability and stability.

Other Micro Catheters. We also market several other micro catheters, including the Rebar Reinforced Micro Catheter which is designed to deliver a wide variety of pharmacologic, diagnostic and therapeutic agents, including detachable coils and the Onyx Liquid Embolic System, and the Nautica Micro Catheter, which is an over-the-wire micro catheter designed to deliver detachable coils. In addition, we have recently developed the Apollo microcatheter. This unique microcatheter is specially designed with a detachable tip for the delivery of the Onyx Liquid Embolic System.

Occlusion Balloon Systems

HyperForm and HyperGlide Occlusion Balloon Systems. Our HyperForm and HyperGlide Occlusion Balloon families are highly flexible balloons designed for use in blood vessels where temporary occlusion is desired. They are useful in selectively stopping or controlling blood flow, and are capable of accessing small diameter and tortuous vessels. Accordingly, they may be used to control blood flow to remote sites to allow for embolization treatment of vascular abnormalities such as aneurysms.

Guidewires

Hydrophilic Guidewires. Our portfolio of neurovascular guidewires includes the Mirage Hydrophilic Guidewire. This guidewire is designed for precise torque control and is compatible with several sizes of flow-directed and over-the-wire micro catheters. It assists the physician in micro catheter navigation and remote vessel access while providing a flexible and shapeable tip. Its durable coating allows it to glide through tortuous vasculature. Other hydrophilic guidewires include the SilverSpeed, Meridian, X-Pedion and the X-Celerator.

Neuro Stents

Solitaire AB Neck Bridging Device. Stenting is of increasing importance in the aneurysm and ischemic stroke markets. The Solitaire is a self-expanding nitinol stent, for use in bridging the neck of aneurysms to facilitate more secure coil placement. The Solitaire AB device is fully retrievable before detachment, allowing for more precise placement and if required, replacement of the stent is possible. Solitaire AB is available in our international markets.

Solitaire FR Revascularization Device. In July of 2009, we received a CE mark for the neurovascular use of the Solitaire FR Revascularization Device. We have initiated commercialization of the Solitaire platform outside the United States. Solitaire FR is used to immediately restore blood flow and assist in the removal of clot burden and

with intracranial stenotic disease where vessels within the brain become narrowed. Solitaire FR products are fully retrievable, allowing for more precise placement and if required, replacement of the stent is possible.

Retrieval Devices

Endovascular retrieval devices are used in intravascular foreign body retrieval procedures. Examples of foreign objects that require retrieval include misplaced coils, broken catheter or guidewire tips, as well as stents that are dislodged from their delivery system and carried downstream.

Alligator Retrieval Device. Our Alligator Retrieval Device is a dedicated microforceps which allows intravascular access and retrieval of foreign objects. The Alligator Retrieval Device consists of four small microprecision grasping arms mounted on a flexible microguidewire and is used with a standard 0.21 mm microcatheter. Once the system is advanced adjacent to the foreign body, the microguidewire is held in place and its atraumatic gripping arms are deployed by withdrawing the microcatheter. The Alligator Retrieval Device has been specifically designed and indicated for use in the peripheral and neurovasculature for foreign body retrieval.

Sales, Marketing and Distribution

Structure and Strategy

We have dedicated substantial resources to establish a direct sales capability in the United States, Canada, Europe, Australia and other countries as well as establishing distribution networks in selected international markets. We believe our global presence enables us to embrace and capitalize on the growing market for endovascular devices that exists outside of the United States. In addition, our global strategy allows us to commercialize technologies internationally while pursuing regulatory approval in the United States, increasing near-term sales and helping us refine our commercialization strategies in anticipation of product launches in the United States. Individuals in our sales organization generally have substantial medical device experience and are responsible for marketing our products directly to a variety of specialists engaged in endovascular therapies. Our direct sales representatives provided 84% and 86% of our net sales in 2009 and 2008, respectively, with the balance generated by independent distributors who represent us in certain international markets.

As of December 31, 2009, our global endovascular marketing team was comprised of approximately 54 individuals covering product management, corporate communications and education and training. We devote significant resources to training and educating physicians in the use and benefits of our products. In the United States, we instruct our employees, including our sales professionals, not to discuss the use of our products outside of the FDA-approved indication. If unsolicited questions are posed by physicians, we inform them of the approved use of our products. Although we do not promote or market our products for off-label uses, physicians may choose to use our products as they see fit, including outside of the FDA-approved applications. For example, although our stent products are approved in the United States for use in the biliary duct, as are most competing peripheral stent systems in the United States, some physicians choose to use the stents in peripheral vessels. If the FDA concludes, however, that we promote our device for such off-label uses or that our promotional activities otherwise fail to comply with the FDA’s regulations or guidelines, we may be subject to warning letters from, or other enforcement action by, the FDA or the U.S. Department of Justice.

United States

As of December 31, 2009, we had 114 direct sales representatives selling our peripheral vascular products and 25 direct sales representatives selling our neurovascular products in the United States. Our U.S. sales force is organized by geographic sales territories, and each territory is managed by a district sales manager, or direct sales representative, who acts as the primary customer contact. Our regional sales managers supervise the district sales managers and also focus on maintaining key customer relationships.

During 2009, we replaced several U.S. peripheral vascular territory and referral manager positions with several newly created SilverHawk specialist positions. As of December 31, 2009, we had 36 of the “Hawk Specialists”.

These “Hawk Specialists” partner with each of our regions to drive focused selling and clinical case support for our plaque excision business.

In August of 2007, we were awarded three, three-year contracts by Novation, the health care contracting and services company of VHA Inc. and the University HealthSystem Consortium covering our peripheral interventional, thrombus management and neuro interventional products. In March of 2007, we were awarded a single-source, new technology agreement by Novation for our Onyx Liquid Embolic System. In January of 2009, we were awarded a one-year contract by Premier, a healthcare purchasing network, covering our self-expanding and balloon-expandable stent line. All of these group purchasing organization contracts are up for renewal during 2010.

Europe, Canada and Australia

Our direct selling organization in Europe has a presence in Austria, Belgium, Denmark, Finland, France, Germany, Italy, Luxembourg, the Netherlands, Norway, Poland, Spain, Sweden, Switzerland and the United Kingdom. As of December 31, 2009, our European sales team had 67 direct sales representatives, including 38 selling our peripheral vascular products, 24 selling our neurovascular products and five selling both.

We also sell our products in Canada and Australia through a four and one person direct sales force, respectively, as of December 31, 2009.

Other International

In the major markets of Asia Pacific, Latin America, Eastern Europe and the Middle East, we sell our products through distributors. In addition to sales, these distributors are involved in product launch planning, education and training, physician support and clinical trial management. Through dedicated distributors and several sales managers and support professionals, we have a sales presence in all major other international markets, including Brazil, Argentina, Singapore, Japan and China.

Manufacturing

We currently have a manufacturing facility located in Plymouth, Minnesota, at which we manufacture most of our peripheral vascular products, and a manufacturing facility located in Irvine, California, at which we manufacture most of our neurovascular products and a few of our peripheral vascular products. As a result of our acquisition of Chestnut, we also have a manufacturing facility in Menlo Park, California, where we manufacture our flow diversion and foreign retrieval neurovascular devices. In order to streamline our operations and improve efficiencies, we relocated the sales, manufacturing and research and development activities performed in our former Redwood City, California facility to our existing facilities located in Plymouth and Irvine. We manufacture our products at facilities in a controlled environment and have implemented quality control systems as part of our manufacturing processes. We believe we are in material compliance with FDA Quality System Regulations for medical devices, with ISO 9001 quality standards and applicable medical device directives promulgated by the European Union and Canada and ISO/EN 13485, which facilitates entry of our products into the European Union and Canada. The FDA and European Union competent authorities have recently inspected our manufacturing facilities and found no significant issues. We rely on independent manufacturers for certain product components and processes. On an ongoing basis, to improve yields and cycle times, we are investing in developing internal capabilities and applying lean manufacturing concepts at all of our manufacturing facilities.

Research and Development

Our research efforts are directed toward the development of new endovascular products that expand the therapeutic alternatives available to physicians, and improvements to and extensions of our existing product offerings. Our product development process incorporates teams organized around each of our core technologies, with each team having representatives from research and development, marketing, regulatory, quality, clinical affairs and manufacturing. Consultants are used when additional specialized expertise is required.

Our research and development team has a demonstrated record of new product initiatives and significant product improvements. Specific product improvement initiatives have included:

	•		broadening acquired technologies in order to address a larger share of the target markets;
	•		incorporating important features which we believe appeal to the physicians who use our products; and
	•		leveraging core technologies to develop new product platforms and enter new markets.

Our research and development expenditures were $49.1 million in 2009, compared with $48.8 million and $48.4 million in 2008 and 2007, respectively. Our research and development costs include traditional research and development expenses as well as the cost of our clinical studies.

Clinical Studies

We support many of our new product initiatives with clinical studies in order to obtain regulatory approval and new indications and provide demonstrated medical evidence and best practices on our technologies. The goal of a clinical trial is to meet the primary endpoints, which measures the clinical effectiveness and safety of a device and is the basis for FDA or other regulatory approvals. Primary endpoints for clinical trials are selected based on the intended benefit of the medical device. Although clinical trial endpoints are measurements at an individual patient level, the results are extrapolated to an entire population of patients based on clinical similarities to patients in the clinical trials.

We continually evaluate the potential financial benefits and costs of our clinical trials and the products being evaluated in them. If we determine that the costs associated with attaining regulatory approval of a product or new indication exceed the potential financial benefits of that product or new indication, or if the projected development timeline is inconsistent with our investment horizon, we may choose to stop a clinical trial and/or the development of a product.

The following tables summarize our key current and planned clinical trials.

Peripheral Stent Clinical Trials:

Trial		Product		Study Design		Status
PROVE-IT (Global)		EverFlex stent, Protégé GPS stent and Visi-Pro stent		Prospective, multi-center, global study to evaluate the safety and effectiveness of primary stenting for the treatment of iliac lesions		Enrollment anticipated to begin in the second half of 2010
				Protocol currently under development
DURABILITY II (Global)		EverFlex Stent		Prospective, multi-center, non-randomized study to evaluate the safety and effectiveness of the primary stenting compared to PTA performance goals for the treatment of SFA lesions		Enrollment and follow-up continuing
				Primary safety endpoint of 30-day major adverse event
				Primary effectiveness endpoint of 12-month patency by duplex

Plaque Excision Clinical Trials:

Trial		Product		Study Design		Status
DEFINITIVE Ca++ (U.S.)		RockHawk and TurboHawk Peripheral Calcium Tip Plaque Excision System with SpiderFX Embolic Protection Device		U.S. IDE, prospective, multi-center, non-randomized, single-arm study to evaluate the safety and effectiveness of the SilverHawk with Calcium Tip (i.e. RockHawk/TurboHawk) Plaque Excision System when used in conjunction with the SpiderFX Embolic Protection Device in the treatment of moderate to heavily calcified lesions in the femoropopliteal arteries		Enrollment and follow-up continuing
DEFINITIVE LE (Global)		SilverHawk and TurboHawk		Prospective, multi-center, non-randomized, single-arm study to evaluate the intermediate and long-term effectiveness of stand-alone SilverHawk/TurboHawk Plaque Excision Catheter for endovascular treatment of peripheral arterial disease in femoropopliteal or tibial-peroneal arteries.		Enrollment and follow up continuing
DEFINITIVE AR (Europe)		SilverHawk, TurboHawk and drug coated balloon		Treatment of femoropopliteal arteries Protocol currently under development		Enrollment anticipated to begin in the second half of 2010

Carotid Clinical Trials:

Trial		Product		Study Design		Status
CREATE PAS (U.S)		Protégé GPS Stent with an ev3 Embolic Protection Device		Prospective, multi-center single-arm confirmatory post-approval study		Enrollment and follow-up continuing
				Primary endpoint of major adverse cardiovascular and cerebral event rate in broad use at investigative centers

Neuro Clinical Trials:

Trial		Product		Study Design		Status
SWIFT — Solitaire With the Intention For Thrombectomy Trial (U.S./Europe)		Solitaire FR Stent		U.S. IDE, prospective, randomized, 2-arm, multi-center study		Enrollment anticipated to begin first quarter 2010
				Goal: FDA approval

Trial		Product		Study Design		Status
RACER — Axium Post Market and Expanded Approvals Trial(U.S.)		Axium Coil		Prospective, single-arm, multi-center study Goal: Scientific clinical data for publications and possible outside the United States regulatory submissions		Enrollment completed and follow-up continuing
PUFS — Pipeline for Uncoilable or Failed Aneurysms (U.S.)		Pipeline Embolization Device		U.S. IDE, non-randomized, single-arm study using historical control		Enrollment completed and follow-up continuing
				6-mo safety (death and ipsilateral stroke) and effectiveness (complete occlusion —no recurrence) endpoints
				Goal: Pre-market approval for large aneurysms
COCOA — Complete Occlusion of Coilable Aneurysms (U.S.)		Pipeline Embolization Device		U.S. IDE, prospective, randomized 2-arm study (Pipeline Embolization Device vs coils)		Enrollment and follow-up continuing
				6-mo safety (death and ipsilateral stroke) and effectiveness (complete occlusion —no recurrence) endpoints
				Goal: Pre-market approval for smaller aneurysms (<10 mm)

Government Regulation

United States

Our products are regulated in the United States as medical devices by the FDA and other regulatory bodies. FDA regulations govern, among other things, the following activities that we perform:

	•		product design, development and manufacture;
	•		conduct of clinical trials;
	•		product safety, testing, labeling and storage;
	•		submission to FDA for pre-marketing clearance or approval;
	•		record keeping procedures;
	•		product marketing, sales and distribution; and
	•		post-marketing surveillance, reporting of deaths or serious injuries and medical device reporting.

Unless an exemption applies, each medical device we wish to commercially distribute in the United States will require either prior 510(k) clearance or prior pre-market approval from the FDA. The FDA classifies medical devices into one of three classes, depending on the degree of risk associated with each medical device and the extent of controls that are needed to ensure safety and effectiveness. Devices deemed to pose the least risk are placed in Class I. Intermediate risk devices are placed in class II, which, in most instances, requires the manufacturer to submit to the FDA a pre-market notification requesting authorization for commercial distribution, known as “510(k) clearance.” A 510(k) clearance is provided when the device is deemed “substantially equivalent” to a predicate device, i.e. one that was previously cleared by the FDA. Class II 510(k) devices may be subjected to special controls such as performance standards, guidance documents specific to the device or post-market surveillance. Most Class I and some low-risk Class II devices are exempted from this 510(k) requirement. Class III devices are deemed by the FDA to pose the greatest risk, such as life-sustaining, life-supporting or implantable devices, or devices deemed to be not substantially equivalent to previously cleared 510(k) devices. In general, a Class III device cannot be marketed in the United States unless the FDA approves the device after submission of a pre-market approval application.

510(k) Clearance Pathway. When we are required to obtain 510(k) clearance for devices that we wish to market, we must submit a pre-market notification to the FDA demonstrating that the device is substantially equivalent to a previously cleared 510(k) device or a device that was in commercial distribution before May 28, 1976 (or to a pre-1976 class III device for which the FDA has not yet called for the submission of pre-market approval applications). In essence, the basic safety and effectiveness of the predicate device supports clearance of the new product. The 510(k) applicant is typically only required to demonstrate substantial equivalence to the predicate device. The FDA attempts to respond to a 510(k) pre-market notification within 90 days of submission of the notification, but the response may be a request for additional information or data, sometimes including clinical data. As a practical matter, pre-market clearance can take significantly longer than 90 days, including up to one year or more.

After a device receives 510(k) clearance for a specific intended use, any modification that could significantly affect its safety or effectiveness, or that would constitute a major change in its intended use, design or manufacture, will require a Special 510(k) clearance, a new 510(k) clearance, or could require pre-market approval. In addition, new “claims” not found in the cleared labeling for the device can be deemed a new intended use and can trigger the requirement for a new 510(k). The FDA requires each manufacturer to make its own determination whether a change requires a new submission, but the FDA can review and can disagree with a manufacturer’s determination. If the FDA disagrees with a manufacturer’s determination that a new clearance or approval is not required for a particular modification, the FDA can require the manufacturer to cease marketing and/or recall the modified device until 510(k) clearance or pre-market approval is obtained. Also, in these circumstances, the manufacturer may be subject to significant regulatory fines or penalties.

The FDA recently has requested that the Institute of Medicine perform a study on whether legislative, regulatory or administrative changes are needed to the FDA’s 510(k) process. The Institute of Medicine report is due in 2011. The FDA also announced an internal working group to evaluate and improve the consistency of FDA decision making in the clearance process, and recently released an internal report in which FDA officials questioned the 510(k) process in general. Various committees of the U.S. Congress also have indicated that they may consider investigating the FDA’s 510(k) process.

Pre-Market Approval Pathway. A pre-market approval, or PMA, application must be submitted if the device cannot be cleared through the 510(k) process. The PMA process is much more demanding than the 510(k) pre-market notification process. A PMA application must be supported by extensive data and information including, but not limited to, technical, pre-clinical, clinical, manufacturing and labeling, to establish to the FDA’s satisfaction the safety and effectiveness of the device.

If the FDA determines that a PMA application is complete, the FDA can accept the application and begin an in-depth review of the submitted information. The FDA, by statute and regulation, has 180 days to review an accepted PMA application, although the review generally occurs over a significantly longer period of time, and can take up to several years. During this review period, the FDA may request additional information or clarification of information already provided. Also during the review period, an advisory panel of experts from outside the FDA may be convened to review and evaluate the application and provide recommendations to the FDA as to the approvability of

the device. In addition, the FDA will typically conduct a pre-approval inspection of the manufacturing facility to ensure compliance with the Quality System Regulations. New PMA applications or Supplemental PMA applications are required for significant modifications to the manufacturing process, labeling, use and design of a device that is approved through the PMA process. PMA Supplements often require submission of the same type of information as a pre-market approval, except that the supplement is limited to information needed to support any changes from the device covered by the original PMA application, and may not require as extensive clinical data or the convening of an advisory panel.

Clinical Trials. A clinical trial is almost always required to support an original PMA application. Historically, clinical trials were infrequently required for a 510(k) clearance. Today, information from clinical trials is increasingly required to support 510(k) clearance. Clinical trials for a “significant risk” device require submission of an application for an investigational device exemption, or IDE, to the FDA. The IDE application must be supported by appropriate data, such as animal and laboratory testing results, showing that it is safe to test the device in humans and that the testing protocol is scientifically sound. Clinical trials for a significant risk device may begin once the application is approved by the FDA. In addition, the Institutional Review Board, or IRB, overseeing the clinical trial at each clinical site must approve the clinical study and an executed Investigator Agreement must be in place prior to patient enrollment at the site. If the product is deemed a “non-significant risk” device under FDA regulations, only the abbreviated IDE requirements apply. Clinical trials must be monitored by the study sponsor and are subject to extensive record keeping and reporting requirements. Clinical trials must be conducted in accordance with applicable regulations and policies including, but not limited to, the FDA’s good clinical practice, or GCP, requirements.

For the protection of human subjects in a clinical trial, the FDA and IRB require patients to be informed of both the benefits and risks of the investigational device and the treatment and/or procedure. This is called “informed consent” and the subject must sign a written document stating that he or she understands the risks and consent to be involved in the trial. In addition, study subjects are protected by the Health Insurance Portability and Accountability Act of 1996, or HIPAA. The study subject is asked to provide authorization to the clinical trial site and manufacturer so they can collect and use certain personally identifiable health information about the patient from the clinical trial for use in seeking FDA approval and any other specified uses outlined in the HIPAA authorization.

The study sponsor, the FDA or the IRB at each site at which a clinical trial is being performed may suspend a clinical trial at any time for various reasons, including a belief that the risks to study subjects outweigh the anticipated benefits. The FDA may inspect a clinical investigation and, if it determines that the study sponsor failed to comply with the FDA regulations governing clinical investigations, it may issue a warning letter to or take other enforcement action against the study sponsor, the clinical investigation site or the principal investigator. There is always a risk that the results of clinical testing may not be sufficient to obtain approval of the product.

De Novo Pathway. There is another pathway that may be used to market a medical device. This is called the “de novo” clearance which was established by the Food and Drug Administration Act of 1997, known as “FDAMA.” The de novo pathway is for products that do not qualify for 510(k) clearance because there is no predicate upon which to claim substantial equivalence. If the FDA, after reviewing a 510(k) application, sends a “not substantially equivalent” or “NSE” letter to a manufacturer, that manufacturer can request a de novo clearance. This is done by making the request in writing within 30 days of receipt of the NSE letter. The FDA then has 60 days to review the 510(k) application de novo and decide whether to clear the product. If the product is cleared via this pathway, the FDA publishes the clearance in the Federal Register and the cleared product receives a 510(k) and becomes a predicate for future products. If the product fails to be cleared by this pathway, it can only be approved via the PMA pathway.

Humanitarian Device Exemptions. A Humanitarian Device Exemption, or HDE, authorizes the marketing of a humanitarian use device for a limited patient population. An HDE designation is based on the FDA’s determination that a device is intended for the treatment and diagnosis of a disease or condition that affects fewer than 4,000 individuals in the United States per year. Once an HDE designation has been obtained, an applicant may seek marketing approval under an HDE. While the HDE application is similar to a pre-market approval application and requires a demonstration of safety, unlike a pre-market approval application, an HDE does not require a demonstration of effectiveness. Certain limitations apply to the sale and use of devices under an HDE.

Post-Marketing Requirements. After a device is approved for marketing, numerous regulatory requirements apply, including:

	•		Quality System Regulations, which require manufacturers to follow design, testing, control, documentation and other quality assurance procedures during the manufacturing process;
	•		labeling, advertising and promotion regulations, which govern product labels and labeling, prohibit the promotion of products for unapproved or “off-label” uses and impose other restrictions on labeling and promotional activities;
	•		medical device reporting regulations, which require that manufacturers report to the FDA if their device may have caused or contributed to a death or serious injury or malfunctioned in a way that would likely cause or contribute to a death or serious injury if it were to recur; and
	•		notices of correction or removal, and recall regulations.

The advertising and promotion of “restricted” devices, i.e. those requiring a prescription, are regulated by the FDA. The advertising and promotion of all other devices are regulated by the Federal Trade Commission, or FTC, and by state regulatory and enforcement authorities. But the FDA often asserts itself in those situations as well because it has continuing authority over the labeling of a product that can be affected by the way it is advertised. Recently, some promotional activities for FDA-regulated products have been the subject of enforcement actions brought under health care reimbursement laws and consumer protection statutes. In addition, under the federal Lanham Act, competitors and others can initiate litigation relating to advertising claims.

We have registered with the FDA as a medical device manufacturer. Compliance with regulatory requirements is tested through periodic, pre-scheduled or unannounced “for cause” facility inspections by the FDA and these inspections may include the manufacturing facilities of our subcontractors. “For cause” inspections are generally conducted when FDA suspects the manufacturer is in serious violations of current Good Manufacturing Practice regulations that have not been remedied. Failure to comply with applicable regulatory requirements can result in enforcement action by the FDA, which may include any of the following sanctions:

	•		warning letters, fines, injunctions, and civil penalties;
	•		repair, replacement, refund, recall or seizure of our products;
	•		operating restrictions, partial suspension or total shutdown of production;
	•		refusing a request for 510(k) clearance or pre-market approval of new products;
	•		withdrawing 510(k) clearance or pre-market approvals that are already granted; and
	•		criminal prosecution.

International

We conduct sales and marketing activities in various foreign countries. Most major markets have different levels of regulatory requirements for medical devices. Modifications to the approved products often require a new regulatory submission in major markets. The regulatory requirements, and the review times, vary significantly from country to country. Our products also can be marketed in several other countries that have minimal requirements for medical devices. Frequently, we obtain regulatory approval for medical devices in foreign countries first because their regulatory approval is faster and simpler than the FDA. However, as a general matter, foreign regulatory requirements are becoming increasingly stringent.

In the European Union, a single harmonized regulatory approval process has been created according to the New Approach regulations. Devices granted market access can be recognized by the European Conformance (CE) Mark,

under the European Medical Devices Directive, 93/42/EEC as amended 2007/47/EC. Medical devices for human use that receive CE designation in one Member State can be sold in all EU Member States. In the European Union, the European Community uses third parties called “notified bodies,” to review products for approval. They are private, independent third parties certified by the “competent authorities” (or Member State representative) to review and approve medical device applications and grant products labeled with the CE Mark to be sold in the European Union. The competent authorities designate and accredit and otherwise oversee the notified bodies they accredit. To obtain a CE Mark in the European Union, defined products must meet minimum standards of safety and quality and then comply with one or more of a selection of conformity routes. The European Community has regulations similar to that of the FDA for pre-market review and approval of medical devices, clinical investigations, and adverse events. Certification of our quality system for product distribution in the European Union is performed by Société Générale de Surveillance (SGS), located in the United Kingdom.

In China, medical devices must be approved by the China State Food and Drug Administration (SFDA) prior to importation and commercial sale. In addition, medical devices must be approved in the country of origin before the registration process can begin in China and as such we must first obtain FDA approval before applying for market approval in China. China requires sample product testing at SFDA Accredited Laboratories for most products. Fees and testing requirements depend on the risk category of the device being registered. Initial registration of medical devices takes approximately 18 to 24 months to obtain marketing approval. Licenses are issued in the name of the device manufacturer for a period of four years. A local after-sale service provider must be located in China and is designated in the registration process. After the device is registered with the health authorities, manufacturers can sell product through multiple distributors. Medical devices imported into China must be labeled in Chinese and include the registration number, product features and the scope of usage for the product. New regulations went into effect on December 30, 2008 which require medical device manufacturers and distributors to include the device shelf life duration on the product labeling as well as adverse event reporting to Chinese authorities. The new regulation has tight reporting deadlines and does not follow the Global Harmonization Task Force recommendations for reporting adverse events. In addition, the Chinese Government has recently suggested that they will require clinical data collected from clinical sites within China prior to approval of new medical devices. If these requirements go into effect, the approval cycle for the market release of new medical devices in China will be significantly increased.

In Japan, medical devices must be approved prior to importation and commercial sale by the Ministry of Health, Labor and Welfare, or MHLW. Manufacturers of medical devices outside of Japan that do not operate through a Japanese entity are required to use a contractually bound in-country caretaker to submit an application for device approval to the MHLW. The MHLW evaluates each device for safety and efficacy. As part of the approval process, the MHLW may require that the product be tested in Japanese laboratories. The approval process ranges in length and certain medical devices may require a longer review period for approval. Once approved, the manufacturer may import the device into Japan for sale by the manufacturer’s contractually bound office, importer or distributor. After a device is approved for importation and commercial sale in Japan, the MHLW continues to monitor sales of approved products for compliance with labeling regulations, which prohibit promotion of devices for unapproved uses, and reporting regulations, which require reporting of product malfunctions, including serious injury or death caused by any approved device.

In addition to MHLW oversight, the regulation of medical devices in Japan is also governed by the Japanese Pharmaceutical Affairs Law, or PAL. PAL was substantially revised in July of 2002, and the new provisions were implemented in stages through April of 2005. The revised law changes class categorizations of medical devices in relation to risk, introduces a third-party certification system, strengthens safety countermeasures for biologically derived products and reinforces safety countermeasures at the time of resale or rental.

You should read the information set forth under “Item 1A. Risk Factors—Our products and our product development and marketing activities are subject to extensive regulation as a result of which we may not be able to obtain required regulatory approvals for our products in a cost-effective manner or at all, which could adversely affect our business and operating results.”

Fraud and Abuse Laws

A variety of U.S. federal and state laws apply to the sale, marketing and promotion of medical devices that are paid for, directly or indirectly, by federal or state health care programs, such as Medicare, Medicaid and TRICARE. The restrictions imposed by these laws are in addition to those imposed by the FDA, FTC and corresponding state agencies. Some of these laws significantly restrict or prohibit certain types of sales, marketing and promotional activities by medical device manufacturers. Violation of these laws can result in significant criminal, civil and administrative penalties, including imprisonment of individuals, fines and penalties and exclusion or debarment from federal and state health care and other programs.

The principal federal laws include: (1) the Anti-Kickback Statute, which prohibits offers to pay or receive remuneration of any kind for the purpose of inducing or rewarding referrals of items of services reimbursable by a federal healthcare program; (2) the False Claims Act, which prohibits the submission of false or otherwise improper claims for payment to a federally-funded health care program; (3) the Stark law, which prohibits physicians from referring Medicare or Medicaid patients to an entity for the provision of certain designated health services if the physician (or a member of the physician’s immediate family) has a financial relationship with that entity, and (4) HIPAA, which prohibits knowingly and willfully executing a scheme to defraud any health care benefit program, including private payors, and falsifying, concealing or covering up a material fact or making any materially false, fictitious or fraudulent statement in connection with the delivery of or payment for health care benefits, items or services.

Privacy and Security

HIPAA requires certain “covered entities” to comply with established standards regarding the privacy and security of protected health information, or PHI, and to use standardized code sets when conducting certain electronic transactions. HIPAA further requires that covered entities enter into agreements meeting certain regulatory requirements with their “business associates,” which effectively obligate the business associates to safeguard the covered entity’s protected health information against improper use and disclosure. While not directly regulated by HIPAA, a business associate may face significant contractual liability pursuant to such an agreement if the business associate breaches the agreement or causes the covered entity to fail to comply with HIPAA. The company often has possession of PHI in situations such as where clinical studies are conducted or sales representatives are asked by a surgeon to be in a surgical suite to provide technical advice on a device during surgery. HIPAA does not require a business associate agreement to be signed in these circumstances. In the course of our business operations, we may become the business associate of one or more covered entities. Accordingly, we may incur compliance related costs in meeting HIPAA-related obligations under business associates agreements to which we become a party.

The European Union has its own privacy standards to which we are subject. Recognizing that our business continues to expand internationally, we intend to review our compliance with these standards and update or enhance our procedures and practices.

Third Party Reimbursement

In the United States, as well as in foreign countries, government-funded or private insurance programs, commonly known as third-party payors, pay the cost of a significant portion of a patient’s medical expenses. A uniform policy of reimbursement does not exist among all these payors. Therefore, reimbursement can be quite different from payor to payor. We believe that reimbursement is an important factor in the success of any medical device. Consequently, we seek to obtain reimbursement for all of our products.

Reimbursement in the United States depends on our ability to obtain FDA clearances and approvals to market these products. Reimbursement also depends on our ability to demonstrate the short-term and long-term clinical and cost-effectiveness of our products from the results we obtain from clinical experience and formal clinical trials. We present these results at major scientific and medical meetings and publish them in respected, peer-reviewed medical journals.

The United States Center for Medicare and Medicaid Services, or CMS, sets reimbursement policy for the Medicare program in the United States. CMS policies may alter coverage and payment for vascular device technologies in the future. These changes may occur as the result of National Coverage Decisions issued by CMS headquarters or as the result of local or regional coverage decisions by contractors under contract with CMS to review and make coverage and payment decisions. This administration has a national coverage policy, which provides for the diagnosis and treatment of vascular disease in Medicare beneficiaries.

All third-party reimbursement programs, whether government funded or insured commercially, whether inside the United States or outside, are developing increasingly sophisticated methods of controlling health care costs through prospective reimbursement and capitation programs, group purchasing, redesign of benefits, second opinions required prior to major surgery, careful review of bills and exploration of more cost-effective methods of delivering health care. These types of programs and legislative changes to reimbursement policies could potentially limit the amount which health care providers may be willing to pay for medical devices.

International Trade

The sale and shipment of our products and services across international borders, as well as the purchase of components and products from international sources, subject us to extensive governmental trade regulations. A variety of laws and regulations, both in the United States and in the countries in which we transact business, apply to the sale, shipment and provision of goods, services and technology across international borders, which include import and export laws and regulations, anti-boycott laws and anti-bribery laws. Because we are subject to extensive regulations in the countries in which we operate, we are subject to the risk that laws and regulations could change in a way that would expose us to additional costs, penalties or liabilities.

Environmental

We are subject to various environmental health and safety laws, directives and regulations both in the U.S. and abroad. Our operations, like those of other medical device companies, involve the use of substances regulated under environmental laws, primarily in manufacturing and sterilization processes. We do not expect that compliance with environmental protection laws will have a material impact on our capital expenditures, earnings or competitive position. Given the scope and nature of these laws, however, there can be no assurance that environmental laws will not have a material impact on our results of operations. Our leased Redwood City facility sits on property formerly occupied by Rohm & Haas and Occidental Chemical Company and contains residual contamination in soil and groundwater from these past industrial operations. Rohm & Haas and Occidental Chemical Company previously performed soil remediation on the property under the supervision of the California Regional Water Quality Control Board. Rohm & Haas has indemnified the owner of the facility and its tenants against costs associated with the residual contamination.

Competition

The markets in which we compete are highly competitive, subject to change and impacted by new product introductions and other activities of industry participants. We compete primarily on the basis of our ability to treat vascular diseases and disorders safely and effectively. Our success can be impacted by the ease and predictability of product use, adequate third-party reimbursement, brand name recognition and cost. We believe we compete favorably with respect to these factors, although there can be no assurance that we will be able to continue to do so in the future or that new products that perform better than those we offer will not be introduced. Because of the size of the peripheral vascular and neurovascular markets, competitors and potential competitors have historically dedicated and will continue to dedicate significant resources to aggressively promote their products and develop new and improved products.

Our competitors range from small start-up companies to much larger companies. The larger companies with which we compete include Abbott Laboratories, Boston Scientific Corporation, Cook Incorporated, Cordis Corporation (a Johnson & Johnson company), Covidien Public Limited Company, C.R Bard Inc., Medtronic, Inc., Terumo/MicroVention, Inc. and W.L. Gore & Associates, Inc. All of these larger companies have substantially greater capital resources, larger customer bases, broader product lines, larger sales forces, greater marketing and management resources, larger research and development staffs and larger facilities than ours and have established

reputations and relationships with our target customers, as well as worldwide distribution channels that are more effective than ours. We also compete, however, and in some cases even more intensely, with smaller manufacturers. In the peripheral vascular market, we compete against, among others: MEDRAD, Inc., Cardiovascular Systems, Inc., Pathway Medical Technologies, Inc., Idev Technologies, Inc., Invatec s.r.l. (which recently agreed to be acquired by Medtronic) and Spectranetics Corporation. In the neurovascular market, we compete against, among others: Balt Extrusion, Inc. and Micrus Corporation. In addition, we compete with a number of drug therapy treatments manufactured by major pharmaceutical companies, including Otsuka Pharmaceutical, the manufacturer of Pletal, and Sanofi Aventis, the manufacturer of Plavix.

Many of our physician customers like to experiment with new technologies. Within the plaque excision market, although we believe our SilverHawk plaque excision products compete favorably against other competing technologies, surgical procedures and pharmaceutical products, recently introduced atherectomy products have adversely affected and may continue to adversely affect future sales of our plaque excision products, at least in the short term while physician customers experiment with such new products. Within the peripheral vascular stent market, we may experience increased competition from C. R. Bard Inc. which announced in 2009 that the FDA approved certain of its stents for use in the superficial femoral arteries and proximal popliteal arteries, if physicians decide to use C. R. Bard Inc.’s FDA cleared stents rather than our stents off-label.

We believe our continued success depends on our ability to:

	•		continue to innovate and maintain scientifically advanced technology, being responsive to the changing needs of our diverse customer base;
	•		apply our technology across disease states, product lines and markets;
	•		attract and retain skilled personnel;
	•		obtain and maintain regulatory approvals; and
	•		cost-effectively manufacture and successfully market our products.

Employees

As of December 31, 2009, we had approximately 1,350 employees worldwide. From time to time, we also employ independent contractors to support our operations.

Intellectual Property Rights

We believe that in order to maintain a competitive advantage in the marketplace, we must develop and maintain protection of the proprietary aspects of our technology. We rely on a combination of patent, trademark, trade secret, copyright and other intellectual property rights and measures to aggressively protect our intellectual property that we consider important to our business.

We have developed a patent portfolio internally, as well as through acquisitions, that cover many aspects of our product offerings. As of December 31, 2009, we had 498 issued patents and over 475 pending patent applications in the United States, Europe, Japan, Australia, Canada and other countries throughout the world. The expiration dates of our material patents range from 2010 to 2026. Additionally, we own or have rights to material trademarks or trade names that we use in conjunction with the sale of our products.

We continue to invest in internal research and development of concepts and product ideas for the peripheral vascular and neurovascular markets. This, combined with our patent program, has increased the number of patentable concepts we generate. We also continually evaluate the potential financial benefits and costs of the development of our products and maintenance of our intellectual property rights. If we determine that the costs associated with developing our products and/or maintaining our intellectual property rights exceed the potential financial benefits of

that product or right, or if the projected development timeline is inconsistent with our investment horizon, we may choose to stop development of a product and sell the underlying intellectual property rights.

We manufacture and market our products both under our own patents and under license agreements. While we believe that our patents are valuable, our knowledge and experience, our creative product development teams and marketing staff, and our confidential information regarding manufacturing processes, materials and product design have been equally important in maintaining our proprietary product offering. To protect that value, we have instituted policies and procedures, as well as a requirement that, as a condition of employment, all employees execute a confidentiality agreement relating to proprietary information and the assignment of intellectual property rights to us.

We also rely on unpatented proprietary technology. We seek to protect our trade secrets and proprietary know-how, in part, with confidentiality agreements with consultants, vendors and employees.

Despite measures we have taken to protect our intellectual property, we cannot be certain that such measures will be successful or that unauthorized parties will not copy aspects of our products or obtain and use information that we regard as proprietary. In such instances, we may not have adequate remedies for any such breach. These and other risks related to our intellectual property rights are described in more detail under “Item 1A. Risk Factors. We may be subject to intellectual property litigation and infringement claims, which could cause us to incur liabilities and costs, prevent us from selling our products, cause us to redesign our products, require us to enter into costly license agreements and result in other adverse consequences” and “Item 1A. Risk Factors—If our patents and other intellectual property rights do not adequately protect our products, we may lose market share to our competitors, which would harm our business.”

Forward-Looking Statements

This annual report on Form 10-K contains and incorporates by reference not only historical information, but also forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, which are subject to the safe harbor created by those sections. In addition, we or others on our behalf may make forward-looking statements from time to time in oral presentations, including telephone conferences and/or web casts open to the public, in press releases or reports, on our Internet web site or otherwise. All statements other than statements of historical facts included in this report that address activities, events or developments that we expect, believe or anticipate will or may occur in the future are forward-looking statements including, in particular, the statements about our plans, objectives, strategies and prospects regarding, among other things, our financial condition, results of operations and business. We have identified some of these forward-looking statements with words like “believe,” “may,” “could,” “would,” “might,” “forecast,” “possible,” “potential,” “project,” “will,” “should,” “expect,” “intend,” “plan,” “predict,” “anticipate,” “estimate,” “approximate” “outlook” or “continue” or the negative of these words or other words and terms of similar meaning or the use of future dates. These forward-looking statements may be contained in the notes to our consolidated financial statements and elsewhere in this report, including under the heading “Part II. Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.”

Forward-looking statements involve risks and uncertainties. These uncertainties include factors that affect all businesses as well as matters specific to us. Some of the factors known to us that could cause our actual results to differ materially from what we have anticipated in our forward-looking statements are described under the heading “Item 1A. Risk Factors” below.

We wish to caution readers not to place undue reliance on any forward-looking statement that speaks only as of the date made and to recognize that forward-looking statements are predictions of future results, which may not occur as anticipated. Actual results could differ materially from those anticipated in the forward-looking statements and from historical results, due to the risks and uncertainties described under the heading “Item 1A. Risk Factors” below, as well as others that we may consider immaterial or do not anticipate at this time. Although we believe that the expectations reflected in our forward-looking statements are reasonable, we do not know whether our expectations will prove correct. Our expectations reflected in our forward-looking statements can be affected by inaccurate assumptions we might make or by known or unknown risks and uncertainties, including those described below under the heading “Item 1A. Risk Factors.” The risks and uncertainties described under the heading “Item 1A. Risk

Factors” below are not exclusive and further information concerning us and our business, including factors that potentially could materially affect our financial results or condition, may emerge from time to time. We assume no obligation to update forward-looking statements to reflect actual results or changes in factors or assumptions affecting such forward-looking statements. We advise you, however, to consult any further disclosures we make on related subjects in our quarterly reports on Form 10-Q and current reports on Form 8-K that we file with or furnish to the Securities and Exchange Commission.

Available Information

ev3 LLC, our predecessor company prior to our initial public offering in June 2005, was formed in September 2003. Immediately prior to the consummation of our initial public offering in June 2005, ev3 LLC merged with and into ev3 Inc., at which time ev3 Inc. became the holding company for all of ev3 LLC’s subsidiaries. Our principal executive offices are located at 3033 Campus Drive, Plymouth, Minnesota 55441. Our telephone number is (763) 398-7000, and our Internet web site address is www.ev3.net. We are a Delaware corporation. The information contained on our web site or connected to our website is not incorporated by reference into and should not be considered part of this report.

We make available, free of charge and through our Internet web site, our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and any amendments to any such reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended, as soon as reasonably practicable after we electronically file such material with, or furnish it to, the Securities and Exchange Commission. We also make available, free of charge and through our Internet web site under the Investors—Corporate Governance section, to any stockholder who requests, the charters of our board committees and our Code of Business Conduct. Requests for copies can be directed to Investor Relations at (949) 680-1375.

ITEM 1A. RISK FACTORS

The following are significant factors known to us that could materially adversely affect our business, financial condition or operating results.

Risks Related to Our Business and Industry

Despite our recent profitability, we have a history of net losses and no assurance can be provided that we will continue to remain profitable.

We had net income of $41.9 million for the year ended December 31, 2009. We recognized net income in each of our last three quarters of 2009. Although we expect to be profitable for the year ending December 31, 2010, our quarterly results are subject to substantial fluctuations and no assurance can be provided that we will be profitable for each quarter of 2010 or achieve our goal of sustained profitability. Especially in light of the current economic conditions, it is difficult to predict our future financial performance and our failure to accurately predict future financial performance may lead to volatility in the price of our common stock. Our ability to achieve our goal of sustained profitable operations will be influenced by many factors, including the level and timing of future sales and expenditures, our ability to increase net sales and decrease costs, market acceptance of our products, the results and scope of ongoing research and development projects, the volatility of changes in contingent consideration, the effect of competing technologies, market and regulatory developments and the other risks described in this section. If we do not achieve sustained profitability within expected time frames, our business and stock price will be negatively impacted.

Adverse worldwide economic conditions may continue to result in reduced procedures using our products, which would adversely affect our net sales.

We believe the adverse worldwide economic conditions during the past 18 months or so have resulted and may continue to result in reduced procedures using our products. Many of the procedures that use our products are, to some extent, elective and therefore can be deferred by patients. In the face of adverse economic conditions, patients may not be as willing to take time off from work or spend their money on deductibles and co-payments often

required in connection with the procedures that use our products. In particular, patients that have high-deductible health plans and health savings accounts and thus require the patients to incur significant out-of-pocket costs are especially more apt to defer procedures at times when cash is tight. Although the specific impact of worldwide economic conditions is difficult to measure and although we believe such conditions did not have a material adverse effect on our net sales for 2009, we are unable to predict whether continuing adverse economic conditions will impact our sales in 2010 or beyond.

Adverse worldwide economic conditions may have other adverse implications on our business, operating results and financial condition.

Beyond patient demand, adverse worldwide economic conditions, including in particular continuing tight credit and capital markets, may have other adverse implications on our business. For example, our customers’ and distributors’ ability to borrow money from their existing lenders or to obtain credit from other sources to purchase our products may be impaired resulting in a decrease in sales. Although we review our customers’ financial condition and ability to pay on an ongoing basis and we maintain allowances for doubtful accounts for estimated losses resulting from the inability of our customers to make required payments and such losses have historically been within our expectations and the provisions established, we cannot guarantee that we will continue to experience the same loss rates that we have in the past. A significant change in the liquidity or financial condition of our customers or distributors could cause unfavorable trends in our receivable collections and additional allowances may be required, which could adversely affect our operating results. In addition, adverse worldwide economic conditions may adversely impact our suppliers’ ability to provide us with materials and components, which could adversely affect our business and operating results.

Finally, we believe adverse worldwide economic conditions have caused many of our hospital customers to demand purchasing our products on a consignment basis and thus purchase our products as they use them as opposed to purchasing large stocking orders from time to time. Selling products on consignment involves other risks. For example, in these consignment locations, we do not have physical possession of our products. We therefore must rely on information from our customers as well as periodic inspections by our sales personnel to determine when our products have been used. Our efforts to strengthen our monitoring and management of consigned inventory may not be adequate to meaningfully reduce the risk of inventory loss. If we are not able to effectively manage appropriate consigned inventory levels, we may suffer inventory losses which will reduce our operating results.

Disruptions in the global financial markets could impact the ability of our counterparties and others to perform their obligations to us and our ability to obtain any additional future financing if needed or desired.

Disruptions in the global financial markets, including the bankruptcy, failure, collapse or sale of various financial institutions and an unprecedented level of intervention from the United States and other governments and the related liquidity crisis, considerably disrupted the credit and capital markets at the end of 2008 and have not fully recovered since then. Our credit risk consists of cash and cash equivalents, trade receivables, lending commitments and insurance relationships in the ordinary course of business. We place cash and cash equivalents with high quality financial institutions, which we monitor regularly and take action where possible to mitigate risk. We do not hold investments in auction rate securities, mortgage backed securities, collateralized debt obligations, individual corporate bonds, special investment vehicles or any other investments which were directly impacted by the worldwide financial crisis. Our insurance programs are with carriers that remain highly rated and we have no significant pending claims. However, future disruptions in the credit and capital markets could cause our counterparties and others to breach their obligations or commitments to us under our contracts with them. To date, our credit arrangement with Silicon Valley Bank remains available to us. Although we do not anticipate requiring any additional financing in the near future, in the event we needed or desired such additional financing, we may be unable to obtain it by borrowing money in the credit markets and/or raising money in the capital markets.

Our business, financial condition, results of operations and cash flows could be significantly and adversely affected if certain types of healthcare reform programs are adopted in our key markets and other administration and legislative proposals are enacted into law.

Recently, President Obama and members of Congress have proposed significant reforms to the U.S. healthcare system. Both the U.S. Senate and House of Representatives have conducted hearings about healthcare reform. The

Obama administration’s fiscal year 2010 budget included proposals to limit Medicare payments, reduce drug spending and increase taxes. In addition, members of Congress have proposed a single-payer healthcare system, a government health insurance option to compete with private plans and other expanded public healthcare measures, including an excise tax on all medical devices that could require the medical device industry to contribute over $2 billion to healthcare reform each year. Various healthcare reform proposals also have emerged at the state level. We cannot predict what healthcare initiatives, if any, will be implemented at the federal or state level, or the effect any future legislation or regulation will have on us. However, an expansion in government’s role in the U.S. healthcare industry may lower reimbursements for our products, reduce medical procedure volumes and adversely affect our business and results of operations, possibly materially. In addition, if an excise tax on medical devices is enacted into law, our operating results could be materially and adversely affected.

Our marketing activities are subject to regulation regarding the promotion of “off-label” uses, which restrict our ability to market our products. If we are found to have improperly promoted off-label use of our products, we may become subject to enforcement action by the FDA or the U.S. Department of Justice and/or incur significant liabilities. Any off-label use of our products also may result in injuries that could lead to product liability claims against us.

We sell a number of our products to physicians who may elect to use the products in ways that are not within the scope of the approval or clearance given by the FDA or for other than FDA-approved indications, often referred to as “off-label” use. For example, although our SilverHawk Plaque Excision System received FDA clearance for the treatment of atherosclerosis in the peripheral vasculature, off-label use of our SilverHawk outside the peripheral vasculature, in coronary and carotid arteries, has occurred, as well as off-label use of the SilverHawk for treatment of in-stent restenosis. In addition, although most of our stents received FDA clearance for the palliative treatment of malignant neoplasms in the biliary tree, off-label use of our stents occurs regularly in the peripheral arteries for the treatment of peripheral artery disease. In fact, most of our U.S. stent sales are attributable to off-label use. While off-label uses of medical devices are common and the FDA does not regulate physicians’ choice of treatments, the FDA does restrict a manufacturer’s communications regarding such off-label use. Such laws and regulations prohibiting the promotion of products for off-label use restrict our ability to market our products. Although we have strict policies against the unlawful promotion of products for off-label use and we train our employees on these policies, it is possible that one or more of our employees will not follow the policies, or that regulations would change in a way that may hinder our ability to sell such products or make it more costly to do so, which could expose us to enforcement action by the FDA and the potential loss of approval to market and sell the affected products and/or significant financial and other penalties and liabilities.

The FDA and other regulatory agencies actively enforce regulations prohibiting promotion of off-label uses and the promotion of products for which marketing clearance has not been obtained. During a March of 2007 meeting, the FDA warned device makers, including us, about promoting biliary stents for off-label uses. It is our understanding that certain biliary stent manufacturers, including some at the March 2007 FDA meeting, have since become involved in civil investigations by the U.S. Department of Justice alleging that they have improperly promoted their biliary stents for off-label uses. Although we have received no notice of any such investigation involving the sales practices of our biliary stents, no assurance can be provided that we will not become the subject of such an investigation, which could adversely affect our business, operating results and stock price. It is also possible that our company or board of directors could become subject to civil litigation or breach of fiduciary duty claims alleging that we improperly promoted off-label use of our products, which in turn improperly inflated our historical net sales.

Off-label use of our products may not be safe or effective and may result in unfavorable outcomes to patients, resulting in potential liability to us. For example, the use or misuse of the SilverHawk in the peripheral and coronary arteries has resulted in complications, including damage to the treated artery, internal bleeding, limb loss and death, potentially leading to a product liability claim. In addition, the use or misuse of our biliary stents in the peripheral arteries to treat peripheral artery disease has resulted in complications, potentially leading to a product liability claim. A third-party study published in 2008 found that off-label use of biliary stents was increasing and that the majority of adverse events and device malfunctions associated with the use of such stents occurs during off-label usage.

If we want to market any of our products in the U.S. for uses in ways for which they are not currently approved or cleared, we will need to obtain approval or clearance from the FDA and in most cases conduct additional clinical trials to support such approvals and clearances. Such trials are often time-consuming and costly. Although we continue to enroll patients for our DEFINITIVE Ca++ trial to support an FDA application to use our RockHawk/TurboHawk and SpiderFX in the treatment of lower extremity (SFA/Popliteal) calcified lesions and intend to conduct other clinical trials to expand the indication of use of our RockHawk/TurboHawk, no assurance can be provided that the results of these trials will adequately demonstrate the safety and efficacy of the SilverHawk for use in those expanded indications. In addition, although we continue to enroll patients for our DURABILITY II IDE trial to support an FDA application to use our EverFlex stent in long lesions in the superficial femoral artery, no assurance can be provided that the results of this trial will adequately demonstrate the safety and efficacy of our EverFlex stent for use in the peripheral arteries. In 2009, C. R. Bard Inc. announced that the FDA cleared certain of its stents for use in the superficial femoral arteries and proximal popliteal arteries. It is possible that physicians have decided to use and may continue to decide to use C. R. Bard Inc.’s FDA cleared stents rather than our stents off-label, which would harm sales of our stents. It is also possible that governmental or private health care payors could limit reimbursement for products used off-label, in which case, sales of our products and our business would be materially adversely affected.

Since a significant portion of our sales are derived from products that physicians in the past have elected to use and may continue to elect to use “off-label,” ultimately, if physicians cease or lessen their use of our products for other than FDA-approved indications, sales of our products likely would decline, which could materially adversely affect our net sales and operating results. In addition, if we are perceived not to be in compliance with all of the restrictions limiting the promotion of our products for off-label use, we could be subject to various enforcement measures, including investigations, administrative proceedings and federal and state court litigation, which likely would be costly to defend and harmful to our business. If the FDA or another governmental authority ultimately concludes we are not in compliance with such restrictions, we could be subject to significant liability, including civil and administrative remedies, injunctions against sales for off-label uses, significant monetary and punitive penalties and criminal sanctions, any or all of which would be harmful to our business.

Our business strategy relies on assumptions about the market for our products, which, if incorrect, would adversely affect our business and operating results.

We are focused on the market for endovascular devices used to treat vascular diseases and disorders. We believe that the aging of the general population and inactive lifestyles will continue and that these trends will increase the need for our products. However, the projected demand for our products could materially differ from actual demand if our assumptions regarding these trends and acceptance of our products by the medical community prove to be incorrect or do not materialize or if drug therapies gain more widespread acceptance as a viable alternative treatment, which in each case, would adversely affect our business and operating results.

If we fail to comply with laws prohibiting “kickbacks” and false or fraudulent claims and other similar laws, we could be subject to criminal and civil penalties and exclusion from governmental health care programs, which could have a material adverse effect on our business and operating results.

We are subject to various federal, state and foreign laws concerning health care fraud and abuse, including false claims laws, anti-kickback laws, physician self-referral laws and other similar laws. Many of these laws constrain the sales, marketing and other promotional activities of manufacturers of medical devices by limiting the kinds of financial arrangements, including sales programs, with physicians, hospitals, laboratories and other potential purchasers of medical devices. The scope of these laws and related regulations are very broad and many of their provisions have not been uniformly or definitively interpreted by existing case law or regulations, and thus are subject to evolving interpretations. There is very little precedent related to these laws and regulations. All of our financial relationships with health care providers and others who provide products or services to federal health care program beneficiaries are potentially governed by these laws. While we have established policies and procedures based on the AdvaMed Code of Ethics on Interactions with Health Care Professionals and implemented a broad-based corporate compliance program in order to inform our employees regarding these laws and maintain compliance with them, no assurance can be given that we will not be subject to investigations or litigation alleging violations of these laws. Increased funding for enforcement of these laws and regulations has resulted in greater scrutiny of financial relationships with physicians and marketing practices and resulted in several governmental

investigations by various governmental authorities, including investigations of the sales practices of several of our competitors. Any investigation or litigation against us, even if we were to successfully defend against it, would likely be time-consuming and costly for us to defend. It also would likely divert the attention of our management from the operation of our business, cause adverse publicity and damage our reputation. If our arrangements were found to have violated any of these laws, we and our officers and employees could be subject to severe criminal and/or civil penalties, including fines, imprisonment and exclusion from participation in government health care programs, which could have a material adverse effect on our reputation, business and operating results. Similarly, if the physicians or other providers or entities with which we do business are found to be non-compliant with such laws, they may be subject to sanctions, which also could have a negative impact on us.

Some of our products are emerging technologies or have only recently been introduced into the market. If physicians do not recommend and endorse them or if our working relationships with physicians deteriorate, our products may not be accepted in the marketplace, which would adversely affect our business and operating results.

In order for us to sell our products, physicians must recommend and endorse them. We may not obtain the necessary recommendations or endorsements from physicians. Acceptance of our products depends on educating the medical community as to the distinctive characteristics, perceived benefits, safety, clinical efficacy and cost-effectiveness of our products compared to products of our competitors, and on training physicians in the proper application of our products. We often need to invest in significant training and education of our sales representatives or our physician customers to achieve market acceptance of our products with no assurance of success. For example, the future success of our plaque excision products are dependent in part upon us educating first our sales representatives and second, physicians, and in particular interventional cardiologists, vascular surgeons, as well as general practitioners and other physicians, about screening for peripheral artery disease, or PAD, referral opportunities and the benefits of our plaque excision products in relating to competitive products and other treatment options. As another example, the future success of our Pipeline Embolization Device is also dependent in part upon us educating our sales organization and physician customers regarding the advantages of flow diversion and our Pipeline product in particular in treating wide-necked aneurysms. If we are not successful in obtaining the recommendations or endorsements of physicians for our products, if customers prefer our competitors’ products or if our products otherwise do not gain market acceptance, our business could be adversely affected.

In addition, if we fail to maintain our working relationships with physicians, many of our products may not be developed and marketed consistent with the needs and expectations of professionals who use and support our products. We rely on these professionals to provide us with considerable knowledge and experience regarding our products and the marketing of our products. If we are unable to maintain these strong relationships with these professionals and continue to receive their advice and input, the development and marketing of our products could suffer, which could adversely affect the acceptance of our products in the marketplace and our operating results. At the same time, we recognize and are careful to ensure that our relationships with physicians comply with applicable fraud and abuse and other laws and regulations and our Code of Ethics on Interactions with Health Care Professionals, which is based on the AdvaMed Code of Ethics on Interactions with Health Care Professionals.

We acquired Chestnut Medical Technologies, Inc. primarily for its Pipeline Embolization Device. If the Pipeline Embolization Device cannot be shown to be safe and effective in clinical trials, is not approvable or not commercially successful, or if we do not receive the pre-market approval letter from the FDA for any reason, then the benefits of our acquisition of Chestnut may never be fully realized.

In June of 2009, we acquired Chestnut primarily for its Pipeline Embolization Device, which is a new class of embolization device that is designed to divert blood flow away from an aneurysm in order to provide a complete and durable aneurysm embolization while maintaining patency of the parent vessel. The Pipeline Embolization Device has received CE Mark approval in Europe and we are currently conducting two clinical studies under FDA investigational device exemptions to gain approval for the Pipeline device in the United States. Under the terms of our agreement and plan of merger with Chestnut, we made an initial closing payment in the amount of approximately $75.0 million, approximately $26 million of which was paid in cash with the remaining approximately $49 million paid in shares of our common stock. In addition to the initial closing payment, we may be obligated to make an additional milestone payment of up to $75 million if the FDA issues a letter granting pre-market approval for the commercialization of the Pipeline Embolization Device in the United States pursuant to an

indication to treat intracranial aneurysms on or before December 31, 2012. If the Pipeline Embolization Device cannot be shown to be safe and effective in clinical trials, is not approvable or not commercially successful, or if we do not receive the pre-market approval letter from the FDA for any reason, then the benefits of our acquisition of Chestnut may never be fully realized.

Demand for our plaque excision products in the United States has suffered due in part, we believe, to the lack of long-term clinical data regarding their safety and efficacy. Future long-term data regarding the safety and efficacy of our plaque excision products may not be positive or consistent with data currently available, which would adversely affect their market acceptance and our operating results.

One of the primary reasons we completed our acquisition of FoxHollow Technologies, Inc. in October of 2007 was to add FoxHollow’s SilverHawk and other products to our broad spectrum of technologically advanced products to treat vascular disease in the peripheral market to allow us to offer a more comprehensive and better integrated set of endovascular products to our customers. At the time of the acquisition, we expected SilverHawk sales to represent a significant portion of our future net sales. However, we experienced decreased demand and sales of the SilverHawk compared to levels experienced by FoxHollow prior to our acquisition due in part to sales force integration challenges, elevated inventory levels of the product at some of our customers and increased competition. We also believe the decreased demand and sales was due in part to a lack of definitive long-term clinical data regarding the safety and efficacy of the SilverHawk.

In 2008, we retained a third party research firm to help us examine our U.S. plaque excision business. The research firm conducted interviews with a significant number of physicians and sales force representatives and analyzed secondary data to understand factors driving the change in SilverHawk usage and plaque excision procedures. The results of this research confirmed our previously stated belief in the importance of investing in the necessary clinical trials to build the clinical foundation for the SilverHawk and capitalizing on our next generation technologies to expand clinical usage, particularly in treating calcified lesions, total occlusions and longer lesions.

Based on this third party research and our own due diligence, we believe that future demand for our plaque excision products will not increase if physicians are not presented with compelling data from long-term studies of the safety and efficacy of our products compared against alternative procedures, such as angioplasty, stenting or bypass grafting and alternative technologies. As a result, we have commenced our DEFINITIVE trial series, which we expect to consist of three trials using our plaque excision products. We are currently enrolling patients into our DEFINITIVE Ca++ trial to evaluate RockHawk/TurboHawk and SpiderFX in the treatment of lower extremity (SFA/Popliteal) calcified lesions and our DEFINITIVE LE trial, which is a post-market non-randomized study of SilverHawk/TurboHawk in the treatment of femoropopliteal and tibial arteries. We anticipate commencing enrollment in our DEFINITIVE AR trial in the second half of 2010 to evaluate SilverHawk/TurboHawk in the treatment of femoropopliteal arteries. These studies will be expensive and time consuming and there are no assurances that the results will prove favorable for our plaque excision products. If the results do not meet physicians’ expectations, our plaque excision products may not become widely adopted and physicians may recommend alternative treatments for their patients.

Other significant factors that physicians will consider include acute safety data on complications that occur during the SilverHawk procedure. If the results obtained from any future clinical studies or clinical or commercial experience indicate that the SilverHawk is not as safe or effective as other treatment options or as prior short-term or long-term data would suggest, market acceptance of the product may suffer and the number of SilverHawk procedures may decrease, which would harm our business. Even if the data collected from clinical studies or clinical experience indicate positive results, each physician’s actual experience with the SilverHawk may vary and may not be as favorable, which would also adversely affect the demand for our SilverHawk product. Other factors that may adversely affect the market acceptance of the SilverHawk include the time required to perform the procedure and the lack of on-board visualization capability. If we do not incorporate certain design improvements to the SilverHawk to respond to these and other physician preferences, we may be unable to generate new customers or retain our existing customers. However, we have limited funds dedicated to research and development; and therefore, we will not be able to pursue all of these suggested design changes. A decrease in SilverHawk procedures and any failure by us to generate additional demand for the SilverHawk will likely adversely affect our future net sales as well as our other operating results.

The demand for our products, the prices which customers and patients are willing to pay for our products and the number of procedures performed using our products depend upon the ability of our customers and patients to obtain sufficient third party reimbursement for their purchases of our products.

Sales of our products depend in part on sufficient reimbursement by governmental and private health care payors to our physician customers or their patients for the purchase and use of our products. In the United States, health care providers that purchase our products generally rely on third-party payors, principally federal Medicare, state Medicaid and private health insurance plans, to pay for all or a portion of the cost of endovascular procedures. Reimbursement systems in international markets vary significantly by country, and by region within some countries, and reimbursement approvals must be obtained on a country-by-country basis and can take up to 18 months or longer. Many international markets have government-managed health care systems that govern reimbursement for new devices and procedures. In most markets, there are private insurance systems as well as government-managed systems. Additionally, some foreign reimbursement systems provide for limited payments in a given period and therefore result in extended payment periods. Any delays in obtaining, or an inability to obtain, reimbursement approvals or sufficient reimbursement for our products could significantly affect the acceptance of our products and have a material adverse effect on our business. For example, international sales of our plaque excision products and Pipeline Embolization Device may be hampered by delay in obtaining reimbursement. In addition, if the reimbursement policies of domestic or foreign governmental or private health care payors were to change, our customers likely would change their purchasing patterns and/or the frequency of their purchases of the affected products. Additionally, payors continue to review their coverage policies carefully for existing and new therapies and can, without notice, deny coverage for treatments that include the use of our products. Our business would be negatively impacted to the extent any such changes reduce reimbursement for our products.

Healthcare costs have risen significantly over the past decade. There have been and may continue to be proposals by legislators, regulators and third-party payors to keep these costs down. The continuing efforts of governments, insurance companies and other payors of healthcare costs to contain or reduce these costs, combined with closer scrutiny of such costs, could lead to patients being unable to obtain approval for payment from these third-party payors. The cost containment measures that healthcare providers are instituting both in the United States and internationally could harm our business. Some health care providers in the United States have adopted or are considering a managed care system in which the providers contract to provide comprehensive health care for a fixed cost per person. Health care providers may attempt to control costs by authorizing fewer elective surgical procedures or by requiring the use of the least expensive devices possible, which could adversely affect the demand for our products or the price at which we can sell our products.

We also sell a number of our products to physician customers who may elect to use these products in ways that are not within the scope of the approval or clearance given by the FDA, often referred to as “off-label” use. In the event that governmental or private health care payors limit reimbursement for products used off-label, sales of our products and our business would be materially adversely affected.

Our stents and plaque excision products generate a significant portion of our product sales. Accordingly, if sales of these products were to decline, our operating results would be adversely affected.

Our stents and plaque excision products generate a significant portion of our net sales. During 2009, our stents and plaque excision products generated approximately 26% and 19% of our product sales, respectively. A decline in sales from these products as a result of increased competition, regulatory matters, intellectual property matters or any other reason would negatively impact our operating results.

Our products face the risk of technological obsolescence, which, if realized, could have a material adverse effect on our business and operating results.

The medical device industry is characterized by extensive research and development and rapid and significant technological change. The peripheral vascular and neurovascular markets in which we compete are in particular highly competitive and new technologies and products are often introduced. Therefore, product life cycles are relatively short. Developments by us and other companies of new or improved products, processes or technologies may make our products or proposed products obsolete or less competitive and may negatively impact our net sales or cause us to incur significant charges or write-offs. For example, new procedures and medications that are more

effective or less invasive or expensive could be developed that replace or reduce the importance of current procedures that use our products or our future products or may cause our customers to cease, delay or defer purchasing our products, which would adversely affect our business and operating results. As another example, it is possible that our recently acquired Pipeline Embolization Device could, over time, have an adverse effect on sales of our neurovascular coils.

Our future success depends in part on the introduction of new products. Failure to introduce and market new products in a timely fashion that are accepted by the marketplace could adversely affect our business and operating results.

Our success depends in part upon our ability to respond quickly to medical and technological changes through the development or acquisition and introduction of new products. If we do not introduce new products and technologies, or if our new products and technologies are not accepted by the physicians who use them or the payors who reimburse the costs of the procedures performed with them, or if there are any delays in our introduction of new products, we may not be successful and our business and operating results would suffer. Accordingly, we must devote substantial efforts and financial resources to develop or acquire scientifically advanced technologies and products, obtain patent and other protection for our technologies and products, obtain required regulatory and reimbursement approvals and successfully manufacture and market our products. For example, in June of 2009, we acquired Chestnut and paid $75.0 million up front and agreed to pay an additional $75.0 million milestone payment if the FDA issues a letter granting pre-market approval for the commercialization of the Pipeline Embolization Device in the United States pursuant to an indication to treat intracranial aneurysms on or before December 31, 2012. We cannot assure you that the Pipeline Embolization Device will obtain regulatory approval or will be accepted by the marketplace, which if not would adversely affect our business and operating results.

We plan to introduce additional products during 2010 which we expect to result in additional net sales. We may experience delays in any phase of a product launch, including during research and development, clinical trials, regulatory approvals, manufacturing, marketing and the education process. The relative speed with which we can develop or acquire products, complete clinical testing and regulatory clearance or approval processes, train physicians in the use of our products, gain reimbursement acceptance and supply commercial quantities of the products to the market are important competitive factors. Any delays could result in a loss of market acceptance and market share.

Product development involves a high degree of risk, and we cannot provide assurance that our product development efforts will result in any commercially successful products. Many of our clinical trials have durations of several years and it is possible that such trials may not be successful or that competing therapies, such as drug therapies, may be introduced while our products are still undergoing clinical trials. New products and technologies introduced by competitors may reach the market earlier, may be more effective or less invasive or expensive than our products or render our products obsolete, all of which would harm our business and operating results.

A number of our proposed products are in the early stages of development and some are in clinical trials. If the development of these products is not successfully completed or if these trials are unsuccessful, or if the FDA or other regulatory agencies require additional trials to be conducted, these products may not be commercialized and our business prospects may suffer.

Several of our products are in the early stages of development. Some only recently emerged from clinical trials and others have not yet reached the clinical trial stage. Our ability to market our products in the United States and abroad depends upon our ability to demonstrate the safety, and in the case of the United States, efficacy, of our products with clinical data to support our requests for regulatory approval. Our products may not be found to be safe and, where required, effective in clinical trials and may not ultimately be approved for marketing by U.S. or foreign regulatory authorities. Our failure to develop safe and effective products that are approved for sale on a timely basis would have a negative impact on our net sales.

Our current and anticipated trials for 2010 include the PROVE-IT (U.S.), CREATE Post Approval Study (U.S.), DURABILITY II Trial (U.S.), the DEFINITIVE Ca++ Trial (U.S.), the DEFINITIVE LE Trial (U.S), the DEFINITIVE AR Trial (Europe), the SWIFT Trial (U.S.) and the RACER Trial (U.S.). In addition, as a result of our acquisition of Chestnut, we are currently conducting two clinical studies in the U.S., PUFS and COCOA, under

Investigational Device Exemptions from the FDA investigating the use of Chestnut’s Pipeline Embolization Device in the treatment of uncoilable aneurysms and coilable aneurysms, respectively. There is no assurance that we will be successful in achieving the endpoints in these trials or, if we do, that the FDA or other regulatory agencies will approve the devices for sale without the need for additional clinical trial data to demonstrate safety and efficacy. Some of the products for which we are currently conducting trials are already approved for sale outside of the United States. As a result, while our trials are ongoing, unfavorable data may arise in connection with usage of our products outside the United States which could adversely impact the approval of such products in the United States. Conversely, unfavorable data from clinical trials in the United States may adversely impact sales of our products outside of the United States.

We continually evaluate the potential financial benefits and costs of clinical trials and the products being evaluated in them. If we determine that the costs associated with obtaining regulatory approval of a product exceed the potential financial benefits of that product or if the projected development timeline is inconsistent with our investment horizon, we may choose to stop a clinical trial and/or the development of a product, which could result in a decrease in our stock price if investors are disappointed in our decision.

Our future success depends in part on our ability to sell our products internationally. There are risks inherent in operating internationally and selling and shipping our products and purchasing our components internationally, which may adversely impact our business, operating results and financial condition.

One of our strategic objectives is to leverage our strong international presence to increase sales of our products, including in particular the Pipeline Embolization Device that we recently acquired from Chestnut and our plaque excision products that we acquired from FoxHollow. For the year ended December 31, 2009 and 2008, 40% and 35%, respectively, of our net sales were derived from our international operations. We expect to continue to derive a significant portion of our net sales from operations in international markets. Our international distribution system consisted of 10 direct sales offices and 56 stocking distribution partners as of December 31, 2009. In addition, we purchase some of our components and products from international suppliers.

The sale and shipping of our products and services across international borders, as well as the purchase of components and products from international sources, subject us to extensive U.S. and foreign governmental trade regulations. Compliance with such regulations is costly and exposes us to penalties for non-compliance. Other laws and regulations that can significantly impact us include various anti-bribery laws, including the U.S. Foreign Corrupt Practices Act, laws restricting business with suspected terrorists and anti-boycott laws. Any failure to comply with applicable legal and regulatory obligations could impact us in a variety of ways that include, but are not limited to, significant criminal, civil and administrative penalties, including imprisonment of individuals, fines and penalties, denial of export privileges, seizure of shipments, restrictions on certain business activities, and exclusion or debarment from government contracting. Also, the failure to comply with applicable legal and regulatory obligations could result in the disruption of our shipping and sales activities.

In addition, many of the countries in which we sell our products are, to some degree, subject to political, economic and/or social instability. Our international sales operations expose us and our representatives, agents and distributors to risks inherent in operating in foreign jurisdictions. These risks include:

	•		the imposition of additional U.S. and foreign governmental controls or regulations;
	•		the imposition of costly and lengthy new export licensing requirements;
	•		the imposition of U.S. and/or international sanctions against a country, company, person or entity with whom the company does business that would restrict or prohibit continued business with the sanctioned country, company, person or entity;
	•		a shortage of high-quality sales people and distributors;
	•		loss of any key personnel that possess proprietary knowledge, or who are otherwise important to our success in certain international markets;

	•		the imposition of different reimbursement requirements and changes in reimbursement policies that may require some of the patients who receive our products to directly absorb medical costs or that may necessitate the reduction of the selling prices of our products;
	•		changes in duties and tariffs, license obligations and other non-tariff barriers to trade;
	•		the imposition of new trade restrictions;
	•		the imposition of restrictions on the activities of foreign agents, representatives and distributors;
	•		scrutiny of foreign tax authorities which could result in significant fines, penalties and additional taxes being imposed on us;
	•		pricing pressure that we may experience internationally;
	•		laws and business practices favoring local companies;
	•		significantly longer payment cycles;
	•		difficulties in maintaining consistency with our internal guidelines;
	•		difficulties in enforcing agreements and collecting receivables through certain foreign legal systems;
	•		difficulties in enforcing or defending intellectual property rights;
	•		exposure to different legal and political standards due to our conducting business in over 65 countries; and
	•		fluctuation in the rate of exchange between the U.S. dollar and foreign currencies which may make the effective price of our products more expensive to our distributors in foreign markets.

No assurance can be given that one or more of the factors will not harm our business. Any material decrease in our international sales would adversely impact our operating results and financial condition. Our international sales are predominately in Europe. In Europe, health care regulation and reimbursement for medical devices vary significantly from country to country. This changing environment could adversely affect our ability to sell our products in some European countries.

Fluctuations in the rate of exchange between the U.S. dollar and foreign currencies in which we transact business could adversely affect our financial results or cause our results to fluctuate.

We sell our products to customers in the United States, Europe and elsewhere throughout the world. Although most of our sales are made in U.S. dollars, a significant portion of our sales are denominated in foreign currencies, especially the Euro. Approximately 27% and 24% of our net sales were denominated in foreign currencies in 2009 and 2008, respectively. Our principal exposure to movements in foreign currency exchange rates relate to non-U.S. dollar denominated sales in Europe and throughout the world, as well as non-U.S. dollar denominated operating expenses incurred in Europe and throughout the world. Our reported net earnings may be significantly affected by fluctuations in currency exchange rates, with earnings generally decreasing with a strengthening U.S. dollar and increasing with a weaker U.S. dollar. For sales not denominated in U.S. dollars, if there is an increase in the rate at which a foreign currency is exchanged for U.S. dollars, it will require more of the foreign currency to equal a specified amount of U.S. dollars than before the rate increase. In such cases, we will receive less in U.S. dollars than we did before the exchange rate increase went into effect. Thus, a strengthening U.S. dollar relative to the foreign currencies in which we transact business will adversely affect the U.S. dollar value of our foreign currency-denominated sales and earnings. Although we may raise international pricing in such circumstances, such price increases may potentially reduce demand for our products, and thus in most circumstances, due to competition or

other reasons, we may decide not to raise local prices to the full extent of the U.S. dollar’s strengthening or at all. A weakening of the U.S dollar relative to the foreign currencies in which we transact business is generally beneficial to our foreign currency-denominated sales and earnings. However, it may cause us to reduce our international pricing, thereby limiting the benefit. Additionally, strengthening of foreign currencies also may increase our operating costs or costs of product components denominated in those currencies, thus adversely affecting our gross margins. If we price our products in U.S. dollars and competitors price their products in local currency, an increase in the relative strength of the U.S. dollar could result in our price not being competitive in a market where business is transacted in the local currency.

We have hedged and may continue to hedge exposure to foreign currency exchange rates in the future. If we engage in hedging activities, such activities involve risk and may not limit our underlying exposure from currency fluctuations or minimize our net sales and earnings volatility associated with foreign currency exchange rate changes.

A substantial portion of our assets consist of goodwill and intangible assets and any impairment in the value of our goodwill and intangible assets would have the effect of decreasing our earnings or increasing our losses.

As of December 31, 2009, goodwill and intangible assets represented $621.8 million, or approximately 69%, of our total assets. During 2008, we recorded $288.8 million in goodwill and intangible asset impairment charges. The accounting standards require goodwill to be reviewed at least annually for impairment, and do not permit amortization. In the event that impairment is identified, a charge to earnings will be recorded and our stock price may decline as a result. We review our intangible assets for impairment when events or changes in circumstances indicate that the carrying amount of the assets may not be recoverable. An impairment loss on intangible assets is recognized when future undiscounted cash flows expected to result from the use of the asset and its eventual disposition are less than the carrying amount. If we experience additional substantial declines in our market capitalization or if we experience other events or changes in circumstances that may indicate that the carrying amount of our goodwill and/or other intangible assets may not be recoverable, we may incur additional non-cash impairment charges to both our goodwill and intangible assets in future periods. For example, such other events or changes in circumstances may include a significant adverse change in the extent or manner in which an asset is being used or in the business climate that could affect the value of the asset, or significant reductions in operating cash flows, or a projection or forecast that demonstrates continuing losses associated with the use of the asset and a current expectation that, more likely than not, an asset will be sold or otherwise disposed of significantly before the end of its previously estimated useful life. If we are required to record an impairment charge to earnings relating to goodwill or intangible assets, it will have the effect of decreasing our earnings or increasing our losses.

Consolidation in the healthcare industry could lead to demands for price concessions or to the exclusion of some suppliers from certain of our markets, which could have an adverse effect on our business, financial condition or operating results.

Because healthcare costs have risen significantly over the past decade, numerous initiatives and reforms initiated by legislators, regulators and third-party payors to curb these costs have resulted in a consolidation trend in the healthcare industry to create new companies with greater market power, including hospitals. As the healthcare industry consolidates, competition to provide products and services to industry participants has become and will continue to become more intense. This in turn has resulted and will likely continue to result in greater pricing pressures and the exclusion of certain suppliers from important market segments as group purchasing organizations, independent delivery networks and large single accounts continue to use their market power to consolidate purchasing decisions for some of our hospital customers. We expect that market demand, government regulation, third-party reimbursement policies and societal pressures will continue to change the worldwide healthcare industry, resulting in further business consolidations and alliances, which may increase competition, exert further downward pressure on the prices of their products and may adversely impact our business, financial condition or operating results.

Our group purchasing organization contracts are up for renewal during 2010 and if such contracts are not renewed, our net sales could suffer.

Our ability to sell our products to hospitals in the United States depends in part on our relationships with group purchasing organizations, or GPOs. Many existing and potential customers for our products are or become members of GPOs. GPOs negotiate pricing arrangements and contracts, sometimes on an exclusive basis, with medical supply manufacturers and distributors, and these negotiated prices are made available to a GPO’s affiliated hospitals and other members. If we are not one of the providers selected by a GPO, affiliated hospitals and other members may be less likely to purchase our products, and if the GPO has negotiated a strict sole source, market share compliance or bundling contract for another manufacturer’s products, we may be precluded from making sales to members of the GPO for the duration of the contractual arrangement.

We currently have contracts with multiple GPOs, several of which are subject to renewal during 2010. More than 50% of our total U.S. net sales in 2009 was derived from the GPO relationships that are subject to renewal this year. Our failure to renew one or more of these GPO contracts may cause us to lose market share and could have a material adverse effect on our net sales and operating results. We cannot assure you that we will be able to renew, renegotiate or replace these contracts at the current or substantially similar terms. If we are unable to maintain our current GPO relationships and/or develop new GPO relationships, our net sales and competitive position likely would suffer.

We may be subject to intellectual property litigation and infringement claims, which could cause us to incur liabilities and costs, prevent us from selling our products, cause us to redesign our products, require us to enter into costly license agreements and result in other adverse consequences.

The medical device industry is litigious with respect to patents and other intellectual property rights. Companies operating in our industry routinely seek patent protection for their product designs, and many of our principal competitors have large patent portfolios. Companies in the medical device industry have used intellectual property litigation to gain a competitive advantage, including aggressively challenging the patent rights of other companies in order to prevent the marketing of new products. The fact that we have patents issued to us for our products does not mean that we will always be able to successfully defend our patents and proprietary rights against challenges or claims of infringement by our competitors. Whether a product infringes a patent involves complex legal and factual issues, the determination of which is often uncertain. We have incurred in the past significant costs in connection with patent litigation, including in connection with our previous litigation with the Regents of the University of California and Boston Scientific Corporation. We continue to face the risk of claims that we have infringed on third parties’ intellectual property rights.

From time to time, in the ordinary course of business, we receive notices from third parties alleging infringement or misappropriation of the patent, trademark or other intellectual property rights of third parties by us or our customers in connection with the use of our products or we otherwise may become aware of possible infringement claims against us. We routinely analyze such claims and determine how best to respond in light of the circumstances existing at the time, including the importance of the intellectual property right to us and the third party, the relative strength of our position of non-infringement or non-misappropriation and the product or products incorporating the intellectual property right at issue.

We also may be unaware of intellectual property rights of others that may cover some of our technology. Prior to launching major new products in our key markets, we normally evaluate existing intellectual property rights. However, our competitors may have filed for patent protection which is not as yet a matter of public knowledge or claim trademark rights that have not been revealed through our availability searches. Our efforts to identify and avoid infringing on third parties’ intellectual property rights may not always be successful.

Any claims of patent or other intellectual property infringement, even those without merit, could:

	•		be expensive and time consuming to defend;
	•		result in us being required to pay significant damages to third parties;

	•		cause us to cease making or selling products that incorporate the challenged intellectual property;
	•		require us to redesign, reengineer or rebrand our products, if feasible;
	•		require us to enter into license agreements in order to obtain the right to use a third party’s intellectual property, which agreements may require us to pay significant license fees, including royalties, or may not be available on terms acceptable to us or at all and which licenses may be non-exclusive, which could provide our competitors access to the same technologies;
	•		divert the attention of our management and other personnel from other business issues; or
	•		result in our customers or potential customers deferring or limiting their purchase or use of the affected products until resolution of the litigation.

In addition, new patents obtained by our competitors could threaten a product’s continued life in the market even after it has already been introduced. Any of these adverse consequences could have a material adverse effect on our business, operating results and financial condition.

If our patents and other intellectual property rights do not adequately protect our products, we may lose market share to our competitors, which would harm our business.

Our future success depends significantly on our ability to protect our proprietary rights to the technologies used in our products. We rely on patent protection, as well as a combination of copyright and trademark laws and nondisclosure, confidentiality and other contractual arrangements to protect our proprietary technology. However, these legal means afford only limited protection and may not adequately protect our rights or permit us to gain or keep any competitive advantage. In addition, we cannot be assured that any of our pending patent applications will result in the issuance of a patent to us. The United States Patent and Trademark Office, or PTO, may deny or require significant narrowing of claims in our pending patent applications, and patents issued as a result of the pending patent applications, if any, may not provide us with significant commercial protection or be issued in a form that is advantageous to us. We also could incur substantial costs in proceedings before the PTO. These proceedings could result in adverse decisions as to the priority of our inventions and the narrowing or invalidation of claims in issued patents. Our issued patents and those that may be issued in the future may be challenged, invalidated or circumvented, which could limit our ability to stop competitors from marketing related products. Litigation also may be necessary to enforce patent rights we hold or to protect trade secrets or techniques we own. Intellectual property litigation is costly and may adversely affect our operating results. Although we have taken steps to protect our intellectual property and proprietary technology, there is no assurance that third parties will not be able to design around our patents. We also rely on unpatented proprietary technology. In addition, we rely on the use of registered trademarks with respect to the brand names of some of our products. We also rely on common law trademark protection for some brand names, which are not protected to the same extent as our rights in the use of our registered trademarks. We cannot assure you that we will be able to meaningfully protect all of our rights in our unpatented proprietary technology or that others will not independently develop substantially equivalent proprietary products or processes or otherwise gain access to our unpatented proprietary technology. We seek to protect our know-how and other unpatented proprietary technology, in part with confidentiality agreements and intellectual property assignment agreements with our employees, independent distributors and consultants. However, such agreements may not be enforceable or may not provide meaningful protection for our proprietary information in the event of unauthorized use or disclosure or other breaches of the agreements or in the event that our competitors discover or independently develop similar or identical designs or other proprietary information. For example, we are currently involved in litigation with Cardiovascular Systems, Inc. in which we allege misappropriation and use of our confidential information by CSI and certain of CSI’s employees who were formerly employees of our subsidiary, FoxHollow. The complaint also alleges that certain of CSI’s employees violated their employment agreements with FoxHollow requiring them to refrain from soliciting FoxHollow employees.

Furthermore, the laws of foreign countries may not protect our intellectual property rights to the same extent as the laws of the United States. For example, foreign countries generally do not allow patents to cover methods for performing surgical procedures. If we cannot adequately protect our intellectual property rights in these foreign

countries, our competitors may be able to compete more directly with us, which could adversely affect our competitive position and business.

We also hold licenses from third parties that are necessary to use certain technologies used in the design and manufacturing of some of our products. The loss of such licenses would prevent us from manufacturing, marketing and selling these products, which could harm our business and operating results.

We manufacture our products at single locations. Any disruption in these manufacturing facilities, any patent infringement claims with respect to our manufacturing process or otherwise any inability to manufacture a sufficient number of our products to meet demand could adversely affect our business and operating results.

We rely on our manufacturing facilities in Plymouth, Minnesota, Irvine, California and Menlo Park, California. Any damage or destruction to our facilities and the manufacturing equipment we use to produce our products would be difficult to replace and could require substantial lead-time to repair or replace. The lease for our Plymouth manufacturing facility expires in 2010. If we are unable to renew this lease or find an alternative location on a timely basis, our manufacturing capabilities could be disrupted. Our facilities may be affected by natural or man-made disasters. In the event we are unable to renew our Plymouth manufacturing facility lease or if one of our facilities was affected by a disaster, we would be forced to rely on third-party manufacturers if we could not shift production to one of our other manufacturing facilities. In the case of a device with a premarket approval application, we might in such event be required to obtain prior FDA or notified body approval of an alternate manufacturing facility, which could delay or prevent our marketing of the affected product until such approval is obtained. Although we believe that we possess adequate insurance for damage to our property and the disruption of our business from casualties, such insurance may not be sufficient to cover all of our potential losses and may not continue to be available to us on acceptable terms, or at all. It is also possible that one of our competitors could claim that our manufacturing process violates an existing patent. If we were unsuccessful in defending such a claim, we might be forced to stop production at one of our manufacturing facilities in the United States and to seek alternative facilities. Even if we were able to identify such alternative facilities, we might incur additional costs and experience a disruption in the supply of our products until those facilities are available. Any disruption in our manufacturing capacity could have an adverse impact on our ability to produce sufficient inventory of our products or may require us to incur additional expenses in order to produce sufficient inventory, and therefore would adversely affect our net sales and operating results.

We have limited experience in manufacturing our products in commercial quantities and therefore may encounter unforeseen situations that could result in delays or shortfalls. Manufacturers often experience difficulties in increasing production, including problems with production yields and quality control and assurance. Any disruption or delay at our manufacturing facilities, any inability to accurately predict the number of products to manufacture or to expand our manufacturing capabilities if necessary could impair our ability to meet the demand of our customers and these customers may cancel orders or purchase products from our competitors, which could adversely affect our business and operating results.

Our dependence on key suppliers puts us at risk of interruptions in the availability of our products, which could reduce our net sales and adversely affect our operating results. In addition, increases in prices for raw materials and components used in our products could adversely affect our operating results.

We rely on a limited number of suppliers for certain raw materials and components used in our products. For reasons of quality assurance, cost effectiveness or availability, we procure certain raw materials and components from sole and limited source suppliers. We generally acquire such raw materials and components through purchase orders placed in the ordinary course of business, and as a result we do not have a significant inventory of these materials and components and do not have any guaranteed or contractual supply arrangements with many of these suppliers. In addition, we also rely on independent contract manufacturers for some of our products. Independent manufacturers have possession of, and in some cases hold title to, molds for certain manufactured components of our products. Our dependence on third-party suppliers involves several risks, including limited control over pricing, availability, quality and delivery schedules, as well as manufacturing yields and costs. Suppliers of raw materials and components may decide, or be required, for reasons beyond our control to cease supplying raw materials and components to us or to raise their prices.

Shortages of raw materials, quality control problems, production capacity constraints or delays by our contract manufacturers could negatively affect our ability to meet our production obligations and result in increased prices for affected parts. Any such shortage, constraint or delay may result in delays in shipments of our products or components, which could adversely affect our net sales and operating results. Increases in prices for raw materials and components used in our products could also adversely affect our operating results.

In addition, the FDA and foreign regulators may require additional testing of any raw materials or components from new suppliers prior to our use of these materials or components. In the case of a device with a premarket approval application, we may be required to obtain prior FDA approval of a new supplier, which could delay or prevent our access or use of such raw materials or components or our marketing of affected products until such approval is granted. In the case of a device with clearance under section 510(k) of the Federal Food, Drug and Cosmetic Act, referred to as a 510(k), we may be required to submit a new 510(k) if a change in a raw material or component supplier results in a change in a material or component supplied that is not within the 510(k) cleared device specifications. If we need to establish additional or replacement suppliers for some of these components, our access to the components might be delayed while we qualify such suppliers and obtain any necessary FDA approvals. Our suppliers of finished goods also are subject to regulatory inspection and scrutiny. Any adverse regulatory finding or action against those suppliers could impact their ability to supply us raw materials and components for our products.

Our inability to successfully grow through future acquisitions, our failure to integrate any acquired businesses successfully into our existing operations or our discovery of previously undisclosed liabilities could negatively affect our business and operating results.

In order to build our core technology platforms, we have acquired several businesses since our inception. For example, most recently, in June of 2009, we completed our acquisition of Chestnut. In October of 2007, we completed our acquisition of FoxHollow. In September of 2006, FoxHollow acquired Kerberos Proximal Solutions, Inc. In January of 2006, we acquired the outstanding shares of Micro Therapeutics, Inc. that we did not already own. We expect to continue to actively pursue additional targeted acquisitions of, investments in or alliances with, other companies and businesses in the future as a component of our business strategy. Our ability to grow through future acquisitions, investments and alliances will depend upon our ability to identify, negotiate, complete and integrate attractive candidates on favorable terms and to obtain any necessary financing. Our inability to complete one or more acquisitions, investments or alliances could impair our ability to develop our product lines and to compete against many industry participants, many of whom have product lines broader than ours. Acquisitions, investments and alliances involve risks, including:

	•		difficulties in integrating any acquired companies, personnel and products into our existing business;
	•		delays in realizing projected efficiencies, cost savings, revenue synergies and other benefits of the acquired company or products;
	•		inaccurate assessment of the future market size or market acceptance of any acquired products or technologies or the hurdles in obtaining regulatory approvals of such products;
	•		inaccurate assessment of undisclosed, contingent or other liabilities or problems;
	•		diversion of our management’s time and attention from other business concerns;
	•		limited or no direct prior experience in new markets or countries we may enter;
	•		higher costs of integration than we anticipated;
	•		adverse accounting consequences; or
	•		difficulties in retaining key employees of the acquired business who are necessary to manage the acquired business.

In addition, an anticipated or completed acquisition, investment or alliance could materially impair our operating results and liquidity by causing us to use our cash resources to pay the purchase price, incur debt or reallocate amounts of capital from other operating initiatives or requiring us to expense incurred transaction and restructuring costs and amortize acquired assets, incur non-recurring charges as a result of incorrect estimates made in the accounting for such transactions or record asset impairment charges. For example, we incurred impairment charges to our goodwill and other intangible assets totaling $288.8 million in our fourth quarter of 2008 which charges related primarily to assets derived from previous acquisitions. We also may discover deficiencies in internal controls, data adequacy and integrity, product quality, regulatory compliance and product liabilities which we did not uncover prior to our acquisition of such businesses, which could result in us becoming subject to penalties or other liabilities. Any difficulties in the integration of acquired businesses or unexpected penalties or liabilities in connection with such businesses could have a material adverse effect on our operating results and financial condition. These risks could be heightened if we complete several acquisitions within a relatively short period of time. Finally, any acquisitions that involve the issuance of our common stock could be dilutive to our stockholders.

Our products and our product development and marketing activities are subject to extensive regulation as a result of which we may not be able to obtain required regulatory approvals for our products in a cost-effective manner or at all, which could adversely affect our business and operating results.

The production and marketing of our products and our ongoing research and development, preclinical testing and clinical trial activities are subject to extensive regulation and review by numerous governmental authorities both in the United States and abroad. U.S. and foreign regulations applicable to medical devices are wide-ranging and govern, among other things, the development, testing, marketing and premarket review of new medical devices, in addition to regulating manufacturing practices, reporting, advertising, exporting, labeling and record keeping procedures. We are required to obtain FDA approval or clearance before we can market our products in the United States and certain foreign countries. The regulatory process requires significant time, effort and expenditures to bring products to market, and it is possible that our products will not be approved for sale.

The FDA recently has requested that the Institute of Medicine perform a study on whether legislative, regulatory or administrative changes are needed to the FDA’s 510(k) clearance process. The Institute of Medicine report is due in 2011. The FDA also announced an internal working group to evaluate and improve the consistency of FDA decision making in the clearance process, and recently released an internal report in which FDA officials questioned the 510(k) process in general. Various committees of the U.S. Congress also have indicated that they may consider investigating the FDA’s 510(k) process. Under the current 510(k) rules, certain types of medical device can obtain FDA approval without lengthy and expensive clinical trials. Among our product offerings, those products that require FDA approval have received such approval under the 510(k) rules. Most of our research and development programs and new product programs contemplate obtaining any required FDA approvals under the current 510(k) rules. Any changes to the current 510(k) or related FDA rules that make such rules more stringent or require more clinical data, could significantly increase the time and costs associated with bringing new products to market. This likely would have a material adverse effect on our business, financial condition and operating results.

Even if regulatory approval or clearance of a product is granted, it may not be granted within the timeframe that we expect, which could have an adverse effect on our operating results and financial condition. In addition, even if regulatory approval or clearance of a product is granted, the approval or clearance could limit the uses for which the product may be labeled and promoted, which may limit the market for our products. Even after a product is approved or cleared by the FDA, we may have ongoing responsibilities under FDA regulations, non-compliance of which could result in the subsequent withdrawal of such approvals or clearances, or such approvals or clearances could be withdrawn due to the occurrence of unforeseen problems following initial approval. We also are subject to medical device reporting regulations that require us to report to the FDA if any of our products causes or contributes to a death or serious injury or if a malfunction were it to occur might cause or contribute to a death or serious injury. Any failure to obtain regulatory approvals or clearances on a timely basis or the subsequent withdrawal of such approvals or clearances could prevent us from successfully marketing our products, which could adversely affect our business and operating results.

Our failure to comply with applicable regulatory requirements could result in governmental agencies:

	•		imposing fines and penalties on us;
	•		preventing us from manufacturing or selling our products;
	•		bringing civil or criminal charges against us;
	•		delaying the introduction of our new products into the market;
	•		suspending any ongoing clinical trials;
	•		issuing an injunction preventing us from manufacturing or selling our products or imposing restrictions;
	•		recalling or seizing our products; or
	•		withdrawing or denying approvals or clearances for our products.

Our failure to comply with applicable regulatory requirements also may result in us not being able to meet the demands of our customers and our customers canceling orders or purchasing products from our competitors, which could adversely affect our business and operating results.

When required, with respect to the products we market in the United States, we have obtained premarket notification clearance under section 510(k), but do not believe certain modifications we have made to our products require us to submit new 510(k) notifications. However, if the FDA disagrees with us and requires us to submit a new 510(k) notification for modifications to our existing products, we may be subject to enforcement actions by the FDA and be required to stop marketing the products while the FDA reviews the 510(k) notification. If the FDA requires us to go through a lengthier, more rigorous examination than we had expected, our product introductions or modifications could be delayed or canceled, which could cause our sales to decline. In addition, the FDA may determine that future products will require the more costly, lengthy and uncertain premarket approval application process. Products that are approved through a premarket approval application generally need FDA approval before they can be modified. If we fail to submit changes to products developed under IDEs or premarket approval applications in a timely or adequate manner, we may become subject to regulatory actions.

In addition, we market our products in certain countries outside of the United States. In order to market our products abroad, we are required to obtain separate regulatory approvals and comply with numerous requirements. If additional regulatory requirements are implemented in the foreign countries in which we sell our products, the cost of developing or selling our products may increase. We depend on our distributors outside the United States in seeking regulatory approval to market our devices in certain other countries and we therefore are dependent on persons outside of our direct control to secure such approvals. For example, we are highly dependent on distributors in emerging markets such as China and Brazil for regulatory submissions and approvals and do not have direct access to health care agencies in those markets to ensure timely regulatory approvals or prompt resolution of regulatory or compliance matters. If our distributors fail to obtain the required approvals or do not do so in a timely manner, our sales from our international operations and our operating results may be adversely affected.

If we or others identify side effects after any of our products are on the market, we may be required to withdraw our products from the market, which would hinder or preclude our ability to generate sales.

As part of our post-market regulatory responsibilities for our products classified as medical devices, we are required to report all serious injuries or deaths involving our products, and any malfunctions where a serious injury or death would be likely if the malfunction were to recur. If we or others identify side effects after any of our products are on the market:

	•		regulatory authorities may withdraw their approvals;
	•		we may be required to redesign or reformulate our products;
	•		we may have to recall the affected products from the market and may not be able to reintroduce them onto the market;
	•		our reputation in the marketplace may suffer; and
	•		we may become the target of lawsuits, including class action suits.

Any of these events, some of which have happened to us in the recent past, could harm or prevent sales of the affected products or could substantially increase the costs and expenses of commercializing or marketing these products.

Our manufacturing facilities are subject to extensive governmental regulation with which compliance is costly and which expose us to penalties for non-compliance.

We and our third party manufacturers are required to register with the FDA as device manufacturers and as a result, we and our third party manufacturers are subject to periodic inspections by the FDA for compliance with the FDA’s Quality System Regulation, or QSR, requirements, which require manufacturers of medical devices to adhere to certain regulations, including testing, quality control and documentation procedures. In addition, the federal Medical Device Reporting regulations require us and our third party manufacturers to provide information to the FDA whenever there is evidence that reasonably suggests that a device may have caused or contributed to a death or serious injury or, if a malfunction were to occur, could cause or contribute to a death or serious injury. Compliance with applicable regulatory requirements is subject to continual review and is rigorously monitored through periodic inspections by the FDA. We also are subject to similar state requirements and licenses. In the European Community, we are required to maintain certain International Organization for Standardization, or ISO, certifications in order to sell products and we are required to undergo periodic inspections by notified bodies to obtain and maintain these certifications. If we or our manufacturers fail to adhere to QSR or ISO requirements, this could delay production of our products and lead to fines, difficulties and delays in obtaining regulatory approvals and clearances, the withdrawal of regulatory approvals and clearances, recalls or other consequences, which could in turn have a material adverse effect on our financial condition and operating results. In addition, regulatory agencies may not agree with the extent or speed of corrective actions relating to product or manufacturing problems.

Our operations are subject to environmental, health and safety, and other laws and regulations, with which compliance is costly and which expose us to penalties for non-compliance.

Our business, properties and products are subject to foreign, federal, state and local laws and regulations relating to the protection of the environment, natural resources and worker health and safety and the use, management, storage, and disposal of hazardous substances, wastes, and other regulated materials. Because we operate real property, various environmental laws also may impose liability on us for the costs of cleaning up and responding to hazardous substances that may have been released on our property, including releases unknown to us. These environmental laws and regulations also could require us to pay for environmental remediation and response costs at third-party locations where we disposed of or recycled hazardous substances. The costs of complying with these various environmental requirements, as they now exist or may be altered in the future, could adversely affect our financial condition and operating results.

We may require additional capital in the future, which may not be available or may be available only on unfavorable terms. In addition, any equity financings may be dilutive to our stockholders.

As of December 31, 2009, we had $98.1 million in cash and cash equivalents. We believe that our proposed operating plan can be accomplished without additional financing based on our cash and cash equivalent balance, current and projected net sales and expenses, working capital and current and anticipated financing arrangements. However, there can be no assurance that our anticipated net sales or expense projections will be realized. Furthermore, there may be delays in obtaining necessary governmental approvals of our products or introducing our products to market or other events that may cause our actual cash requirements to exceed those for which we have budgeted. Our capital requirements will depend on many factors, including our ability to sustain profitability, the amount and timing of any losses, our cash flows from operations, expenditures on intellectual property and technologies, the number of clinical trials which we will conduct, new product development and acquisitions. To the extent that our then existing capital, including amounts available under our current and anticipated financing arrangements, is insufficient to cover any losses and meet these requirements, we will need to raise additional funds through financings or borrowings or curtail our growth and reduce our assets. Any equity or debt financing, if available at all, may be on terms that are not favorable to us, especially in light of the difficult market conditions for raising additional financing. Equity or debt financing arrangements could result in dilution to our stockholders, and the securities issued in future financings as well as in any future acquisitions may have rights, preferences and privileges that are senior to those of our common stock. If we obtain debt financing, a portion of our operating cash flow would be dedicated to the payment of principal and interest on such indebtedness, thus limiting funds available for our business activities, and we could be subject to covenants that restrict our ability to operate our business and make distributions to our stockholders. If our need for capital arises because of continued losses, the occurrence of these losses may make it more difficult for us to raise the necessary capital.

Our quarterly operating results are subject to substantial fluctuations and you should not rely on them as an indication of our future results.

Our quarterly operating and financial results may fluctuate from period to period due to a combination of factors, many of which are beyond our control. These include:

	•		the seasonality of our product sales, which typically results in higher demand in our fourth quarter and lower sales volumes in our third quarter;
	•		the mix of our products sold;
	•		demand for, and pricing of, our products and the products of our competitors;
	•		timing of or failure to obtain regulatory approvals for products;
	•		costs, benefits and timing of new product introductions by us and our competitors;
	•		increased competition;
	•		the timing and extent of promotional pricing or volume discounts;
	•		the timing of larger orders by customers and the timing of shipment of such orders;
	•		field inventory levels;
	•		changes in average selling prices;
	•		the availability and cost of components and materials;
	•		the number of selling days;

	•		fluctuations in foreign currency exchange rates;
	•		the possible deferral of revenue under our revenue recognition policies;
	•		the timing of operating expenses in anticipation of sales;
	•		the timing of operating expenses for clinical and other product development activities;
	•		unanticipated expenses;
	•		the accounting treatment of the contingent consideration we agreed to pay in connection with our acquisition of Chestnut;
	•		the accounting treatment for income taxes, including the potential future reversal of our valuation allowance and the resulting impact on our future recorded effective tax rate;
	•		other costs related to acquisitions of technologies or businesses;
	•		restructuring, impairment and other special charges; and
	•		fluctuations in investment returns on invested cash balances.

Because of these and other factors, our quarterly sales and other operating results may vary significantly in the future and thus period to period comparisons may not be meaningful and should not be relied upon as indications of our future performance. Any shortfalls in sales or earnings from levels expected by securities analysts or investors could cause our stock price to decline significantly.

We may become obligated to make large milestone payments that are not reflected in our consolidated financial statements in certain circumstances, which would negatively impact our cash flows. In addition, due to changes in applicable generally accepted accounting principles, the milestone payment for our recent acquisition of Chestnut likely could negatively impact our future operating results.

Pursuant to the acquisition agreements relating to our purchases of Chestnut, MitraLife and Appriva and FoxHollow’s purchase of Kerberos Proximal Solutions, Inc., we and/or our subsidiaries agreed to make additional payments to the sellers of these businesses in the event that we achieve contractually defined milestones. Generally, in each case, these milestone payments become due upon the completion of specific regulatory steps in the product commercialization process.

Under the terms of our acquisition agreement with Chestnut, we may be obligated to make an additional milestone payment of up to $75 million if the FDA issues a letter granting pre-market approval for the commercialization of the Pipeline Embolization Device in the United States pursuant to an indication to treat intracranial aneurysms on or before December 31, 2012. The milestone payment is to be made in cash and shares of our common stock and is subject to certain rights of set-off for permitted indemnification claims by us against Chestnut. If we are required to make an additional milestone payment of cash and common stock to the former Chestnut shareholders and if we do not have a sufficient amount of cash and cash equivalents to make this milestone payment, we will be required to raise additional financing, which may be difficult or impossible, depending upon our business and operating results and the market for such financings at that time.

With respect to the MitraLife acquisition, the maximum potential milestone payments totaled $25 million, and with respect to the Appriva acquisition, the maximum potential milestone payments totaled $175 million. Although we do not believe that it is likely that the milestone payment obligations to MitraLife or Appriva became due, the former stockholders of Appriva disagree with our position and have brought litigation against us making a claim for such payments and it is possible that the former stockholders of MitraLife also could disagree with our position and make a claim for such payments. Pursuant to the acquisition agreement relating to FoxHollow’s purchase of Kerberos Proximal Solutions, Inc., FoxHollow agreed to pay certain earn-out payments which are capped at $117 million upon the achievement of contractually defined net sales milestones. We have received correspondence from counsel for the shareholder representatives of Kerberos alleging that FoxHollow has not used commercially reasonable efforts to market, promote, sell and distribute Kerberos’s Rinspirator products, as required under the

agreement and plan of merger. There can be no assurance that the stockholder representatives of Kerberos will not commence litigation on the alleged claims. The defense of the outstanding litigation related to our Appriva acquisition and the outstanding claims related to FoxHollow’s Kerberos acquisition is, and any such additional dispute with MitraLife would likely be, costly and time-consuming and divert our management’s time and attention away from our business. In the event any such milestone payments become due and/or any other damages become payable, our costs would increase correspondingly which would negatively impact our cash flow from operations.

We have accounted for our acquisition of Chestnut using the acquisition method. The fair value of the potential $75 million milestone payment in connection with our acquisition of Chestnut has been included as a component of consideration transferred at the acquisition date fair value and is classified as a liability on our consolidated balance sheet and is remeasured at fair value at each reporting date with changes in fair value recognized as income or expense. Therefore, any change in the fair value will impact our earnings in such reporting period thereby resulting in potential variability in our earnings until the contingent consideration is resolved. Assuming that we continue to expect to achieve the regulatory milestone, the accounting impact of the future milestone payment likely will negatively impact our future operating results.

We rely on independent sales distributors and sales associates to market and sell our products outside of the United States, Canada, Australia and Europe.

Our future success outside of the United States, Canada, Australia and Europe depends largely upon marketing arrangements with independent sales distributors and sales associates, in particular their sales and service expertise and relationships with the customers in the marketplace. Independent distributors and sales associates may terminate their relationship with us, or devote insufficient sales efforts to our products. We are not able to control our independent distributors, including their sales activities. Accordingly, although we require all of our independent sales distributors and sales associates to comply with all applicable laws and regulations, we cannot assure that they will do so. In addition, because we have no control over their sales activities, we cannot assure that they will be successful in implementing our marketing plans. Many of our independent distributors outside of the United States, Canada, Australia and Europe initially obtain and maintain foreign regulatory approval for sale of our products in their respective countries. Our failure to maintain our relationships with our independent distributors and sales associates outside of the United States, Canada, Australia and Europe, or our failure to recruit and retain additional skilled independent sales distributors and sales associates in these locations, could have an adverse effect on our operations. We have experienced turnover with some of our independent distributors in the past that has adversely affected our short-term financial results while we transitioned to new independent distributors. Similar occurrences could happen to us in the future. Fluctuations in foreign currency exchange rates, including in particular any strengthening of the U.S. dollar may cause our independent sales distributors to seek longer payment terms to offset the higher prices they are paying in local currency for our products. In addition, in light of adverse worldwide economic conditions, the ability of our distributors to borrow money from their existing lenders or to obtain credit from other sources to purchase our products may be impaired or our distributors could experience a significant change in their liquidity or financial condition, all of which could impair their ability to distribute our products and eventually lead to distributor turnover.

We are exposed to product liability claims that could have an adverse effect on our business and operating results.

The design, manufacture and sale of medical devices expose us to significant risk of product liability claims, some of which may have a negative impact on our business. Most of our products were developed relatively recently and defects or risks that we have not yet identified may give rise to product liability claims. Our product liability insurance coverage may be inadequate to protect us from any liabilities we may incur or we may not be able to maintain adequate product liability insurance at acceptable rates. If a product liability claim or series of claims is brought against us for uninsured liabilities or in excess of our insurance coverage and it is ultimately determined that we are liable, our business could suffer. Additionally, we could experience a material design defect or manufacturing failure in our products, a quality system failure, other safety issues or heightened regulatory scrutiny that would warrant a recall of some of our products. A recall of our products also could result in increased product liability claims. Further, while we train our physician customers on the proper usage of our products, there can be no assurance that they will implement our instructions accurately. If our products are used incorrectly by our customers, injury may result and this could give rise to product liability claims against us. Even a meritless or

unsuccessful product liability claim could harm our reputation in the industry, lead to significant legal fees and could result in the diversion of management’s attention from managing our business and may have a negative impact on our business and our operating results. In addition, successful product liability claims against one of our competitors could cause claims to be made against us.

We face competition from other companies, which could adversely impact our business and operating results.

The markets in which we compete are highly competitive, subject to change and significantly affected by new product introductions and other activities of industry participants. Because of the size of the peripheral vascular and neurovascular markets, competitors and potential competitors have historically dedicated and will continue to dedicate significant resources to aggressively promote their products, develop new and improved products and/or acquire smaller companies with established and/or promising product lines. Our competitors and potential competitors may develop or acquire technologies and products that are safer, more effective, easier to use, less expensive or more readily accepted than ours. Their products could make our technology and products obsolete or noncompetitive. None of our customers have long-term purchase agreements with us and at any time may switch to the use of our competitors’ products. Many of our physician customers like to experiment with new technologies. Within the plaque excision market, although we believe our plaque excision products compete favorably against other competing technologies, surgical procedures and pharmaceutical products, recently introduced plaque excision products by our competitors have adversely affected and may continue to adversely affect future sales of our plaque excision products, at least in the short term while physician customers experiment with such new products. Within the peripheral vascular stent market, we have experienced and may continue to experience increased competition from C. R. Bard Inc. which announced in 2009 that the FDA cleared certain of its stents for use in the superficial femoral arteries and proximal popliteal arteries, if physicians decide to use C. R. Bard Inc.’s FDA cleared stents rather than our stents off-label.

Our competitors range from small start-up companies to much larger companies. The larger companies with which we compete include Abbott Laboratories, Boston Scientific Corporation, Cook Incorporated, Cordis Corporation (a Johnson & Johnson company), Covidien Public Limited Company, C.R. Bard Inc., Medtronic, Inc., Terumo/MicroVention, Inc. and W.L. Gore & Associates, Inc. All of these larger companies have substantially greater capital resources, larger customer bases, broader product lines, larger sales forces, greater marketing and management resources, larger research and development staffs and larger facilities than ours and have established reputations and relationships with our target customers, as well as worldwide distribution channels that are more effective than ours. We also compete, however, and in some cases even more intensely, with smaller manufacturers. In the peripheral vascular market, we compete against, among others: MEDRAD, Inc., Cardiovascular Systems, Inc., Pathway Medical Technologies, Inc., Idev Technologies, Inc., Invatec s.r.l. (which recently agreed to be acquired by Medtronic) and Spectranetics Corporation. In the neurovascular market, we compete against, among others: Balt Extrusion, Inc. and Micrus Corporation. In addition, we compete with a number of drug therapy treatments manufactured by major pharmaceutical companies, including Otsuka Pharmaceutical, the manufacturer of Pletal, and Sanofi Aventis, the manufacturer of Plavix.

We also compete with other manufacturers of medical devices for clinical sites to conduct human trials. If we are not able to locate clinical sites on a timely or cost-effective basis, this could impede our ability to conduct trials of our products and, therefore, our ability to obtain required regulatory clearance or approval.

We rely on our management information systems for accounting and finance, inventory management, distribution and other functions and to maintain our research and development and clinical data. If our information systems fail to adequately perform these functions or if we experience an interruption in their operation, our business and operating results could be adversely affected.

The efficient operation of our business is dependent on our management information systems, on which we rely to effectively manage accounting and financial functions; manage order entry, order fulfillment and inventory replenishment processes; and to maintain research and development and clinical data. The failure of our management information systems to perform as we anticipate could disrupt our business and product development and could result in decreased sales, increased overhead costs, excess inventory and product shortages, causing our business and operating results to suffer. In addition, our management information systems are vulnerable to damage or interruption from:

	•		earthquake, fire, flood and other natural disasters;
	•		terrorist attacks and attacks by computer viruses or hackers; and
	•		power loss or computer systems, Internet, telecommunications or data network failure.

Any such interruption could adversely affect our business and operating results.

We face a risk of non-compliance with certain financial covenants in our loan agreement with Silicon Valley Bank. If we are unable to meet the financial or other covenants under the agreement or negotiate future waivers or amendments of the covenants, we could be in default under the agreement, which would give Silicon Valley Bank a range of remedies, including declaring all outstanding debt to be due and payable, foreclosing on the assets securing the loan agreement and/or ceasing to provide additional revolving loans or letters of credit, which could have a material adverse effect on us.

Our operating subsidiaries, ev3 Endovascular, Inc., ev3 International, Inc., Micro Therapeutics, Inc. and FoxHollow Technologies, Inc., are parties to a loan and security agreement with Silicon Valley Bank. The facility consists of a $50.0 million revolving line of credit and a $10.0 million term loan. As of December 31, 2009, we had approximately $6.5 million in outstanding borrowings under the term loan and no outstanding borrowings under the revolving line of credit; however, we had approximately $934,000 of outstanding letters of credit issued by Silicon Valley Bank. The loan agreement requires us to maintain a monthly specified liquidity ratio and a quarterly adjusted earnings before interest, taxes, depreciation and amortization, or EBITDA, level. The loan agreement contains customary events of default, including, among others, the failure to comply with certain covenants or other agreements. Upon the occurrence and during the continuation of an event of default, amounts due under the loan agreement may be accelerated by Silicon Valley Bank. If we are unable to meet the financial or other covenants under the loan agreement or negotiate future waivers or amendments of such covenants, an event of default could occur under the loan agreement. Upon the occurrence and during the continuance of an event of default under the loan agreement, Silicon Valley Bank has available a range of remedies customary in these circumstances, including declaring all outstanding debt, together with accrued and unpaid interest thereon, to be due and payable, foreclosing on the assets securing the loan agreement and/or ceasing to provide additional revolving loans or letters of credit, which could have a material adverse effect on us.

The restrictive covenants in our loan agreement could limit our ability to conduct our business and respond to changing economic and business conditions and may place us at a competitive disadvantage relative to other companies that are subject to fewer restrictions.

Our loan and security agreement with Silicon Valley Bank requires us to maintain a specified liquidity ratio and an adjusted EBITDA level. Our failure to comply with these financial covenants could adversely affect our financial condition. The loan agreement limits our ability and the ability of certain of our subsidiaries to, among other things:

	•		transfer all or any part of our business or properties;
	•		permit or suffer a change in control;
	•		merge or consolidate, or acquire any entity;
	•		engage in any material new line of business;
	•		incur additional indebtedness or liens with respect to any of their properties;
	•		pay dividends or make any other distribution on or purchase of, any of their capital stock;
	•		make investments in other companies; or
	•		engage in related party transactions,

subject in each case to certain exceptions and limitations. As of December 31, 2009, our cash and cash equivalents were $98.1 million. In light of the amount of our cash and cash equivalents and the amounts outstanding under the loan agreement, it is possible that if we needed to we could pay off the outstanding amounts under the loan agreement at this time. However, it is also possible that if we do not generate cash from operations as we anticipate or if we incur significant unanticipated costs that we may need the flexibility provided under our Silicon Valley Bank loan agreement. The restrictive covenants under the loan agreement could limit our ability, and that of certain of our subsidiaries, to obtain future financing, withstand a future downturn in our business or the economy in general or otherwise conduct necessary corporate activities. The financial and restrictive covenants contained in the loan agreement also could adversely affect our ability to respond to changing economic and business conditions and place us at a competitive disadvantage relative to other companies that may be subject to fewer restrictions. Transactions that we may view as important opportunities, such as acquisitions, may be subject to the consent of Silicon Valley Bank, which consent may be withheld or granted subject to conditions specified at the time that may affect the attractiveness or viability of the transaction.

If we remain profitable, we cannot assure you that our net operating losses will be available to reduce our tax liability.

Our ability to use, or the amount of, our net operating losses may be limited or reduced. Generally under section 382 of the Internal Revenue Code of 1986, in the event of an “ownership change” of a company, the company is only allowed to use a limited amount of its net operating losses arising prior to the ownership change for each taxable year thereafter. As a result of prior acquisitions, including Chestnut and FoxHollow, and potential future acquisitions, our ability to use existing net operating losses to offset U.S. federal taxable income, if we continue to generate taxable income, may be subject to substantial limitations. These limitations could potentially result in increased future tax liability for us.

Risks Related to our Common Stock

One of our principal stockholders and its affiliates are able to influence matters requiring stockholder approval and could discourage the purchase of our outstanding shares at a premium.

As of December 31, 2009, Warburg Pincus beneficially owned approximately 24.2% of our outstanding common stock. In addition, under a holders agreement, we are required to nominate and use our best efforts to have elected to our board of directors two persons designated by Warburg Pincus and certain of its affiliates, which we refer to collectively as the “Warburg Pincus Entities,” and Vertical Fund I, L.P. and Vertical Fund II, L.P., which we refer to together as the “Vertical Funds,” if the Warburg Pincus Entities, the Vertical Funds and their affiliates collectively beneficially own 20% or more of our common stock. As a result of Warburg Pincus’s share ownership and representation on our board of directors, Warburg Pincus is able to influence our affairs and actions, including matters requiring stockholder approval, such as the election of directors and approval of significant corporate transactions. The interests of Warburg Pincus may differ from the interests of our other stockholders. For example, Warburg Pincus could oppose a third party offer to acquire us that the other stockholders might consider attractive, and the third party may not be able or willing to proceed unless Warburg Pincus, as one of our significant stockholders, supports the offer. Warburg Pincus’s concentration of ownership may have the effect of delaying, preventing or deterring a change in control of our company, could deprive our stockholders of an opportunity to receive a premium for their common stock as part of a sale or merger of our company and may negatively affect the market price of our common stock. Transactions that could be affected by this concentration of ownership include proxy contests, tender offers, mergers or other purchases of common stock that could give our stockholders the opportunity to realize a premium over the then-prevailing market price for shares of our common stock. In such case and in similar situations, our other stockholders may disagree with Warburg Pincus as to whether the action opposed or supported by Warburg Pincus is in the best interest of our stockholders.

Certain of our principal stockholders may have conflicts of interests with our other stockholders or our company in the future.

Certain of our principal stockholders, including Warburg Pincus, may make investments in companies and from time to time acquire and hold interests in businesses that compete directly or indirectly with us. These other investments may:

	•		create competing financial demands on our principal stockholders;
	•		create potential conflicts of interest; and
	•		require efforts consistent with applicable law to keep the other businesses separate from our operations.

These principal stockholders also may pursue acquisition opportunities that may be complementary to our business and, as a result, those acquisition opportunities may not be available to us. Furthermore, these principal stockholders may have an interest in us pursuing acquisitions, divestitures, financings or other transactions that, in their judgment, could enhance their equity investment, even though such transactions might involve risks to our stockholders. In addition, these principal stockholders’ rights to vote or dispose of equity interests in us are not subject to restrictions in favor of us other than as may be required by applicable law.

Our corporate documents and Delaware law contain provisions that could discourage, delay or prevent a change in control of our company.

Provisions in our certificate of incorporation and bylaws may discourage, delay or prevent a merger or acquisition involving our company that our stockholders may consider favorable. For example, our certificate of incorporation authorizes our board of directors to issue up to 100 million shares of “blank check” preferred stock. Without stockholder approval, the board of directors has the authority to attach special rights, including voting and dividend rights, to this preferred stock. With these rights, preferred stockholders could make it more difficult for a third party to acquire our company. In addition, our certificate of incorporation provides for a staggered board of directors,

whereby directors serve for three-year terms, with approximately one-third of the directors coming up for reelection each year. Having a staggered board makes it more difficult for a third party to obtain control of our board of directors through a proxy contest, which may be a necessary step in an acquisition of our company that is not favored by our board of directors.

We also are subject to the anti-takeover provisions of Section 203 of the Delaware General Corporation Law. Under these provisions, if anyone becomes an “interested stockholder,” we may not enter into a “business combination” with that person for three years without special approval, which could discourage a third party from making a takeover offer and could delay or prevent a change of control. For purposes of Section 203, “interested stockholder” means, generally, someone owning 15% or more of our outstanding voting stock or an affiliate of our company that owned 15% or more of our outstanding voting stock during the past three years, subject to certain exceptions as described in Section 203. Under one such exception, Warburg Pincus does not constitute an “interested stockholder.”

A large percentage of our outstanding common stock is held by insiders, and, as a result, the trading market for our common stock may not be as liquid as the stock of other public companies, and our common stock price could be volatile.

As of December 31, 2009, we had 112.3 million shares of common stock outstanding and 27.1% of the shares were beneficially owned by directors, executive officers and their respective affiliates. Companies with a substantial amount of stock held by insiders can be subject to a more volatile stock price. Fluctuations in the price of our common stock could be significant and likely will be impacted by a number of factors, such as:

	•		the introduction of new products or product enhancements by us or our competitors;
	•		changes in our growth rate or our competitors’ growth rates;
	•		strategic actions by us or our competitors, such as acquisitions or restructurings;
	•		our ability to develop, obtain regulatory clearance or approval for, and market new and enhanced products on a timely basis;
	•		loss of any of key management personnel;
	•		disputes or other developments with respect to intellectual property rights;
	•		product liability claims or other litigation;
	•		public concern as to the safety or efficacy of our products;
	•		the public’s reaction to our press releases and other public announcements and our filings with the SEC;
	•		sales of common stock by us, our significant stockholders, executive officers or directors;
	•		changes in stock market analyst recommendations or earnings estimates regarding our common stock, other comparable companies or our industry generally;
	•		changes in expectations or future performance;

	•		new laws or regulations or new interpretations of existing laws or regulations applicable to our business; and
	•		changes in health care policy in the United States and internationally, including changes in the availability of third-party reimbursement.

A significant decline in the price of our common stock could result in substantial losses for individual stockholders and could lead to costly and disruptive securities litigation. Securities class action litigation is sometimes brought against a company following periods of volatility in the market price of its securities or for other reasons. We may become the target of similar litigation. Securities litigation, whether with or without merit, could result in substantial costs and divert management’s attention and resources, which could harm our business and financial condition, as well as the market price of our common stock.

We do not intend to pay cash dividends for the foreseeable future.

We have never declared or paid any cash dividends on our common stock and we currently intend to retain all of our earnings for the foreseeable future to finance the operation and expansion of our business, and do not anticipate paying any cash dividends in the future. As a result, our stockholders will only receive a return on their investment in our common stock if the market price of our common stock increases.

ITEM 1B.		UNRESOLVED STAFF COMMENTS

None.

ITEM 2.		PROPERTIES

Our worldwide corporate headquarters is located in Plymouth, Minnesota. The sales, manufacturing and research and development activities of our peripheral vascular business are primarily located in Plymouth, and to a lesser extent, in Irvine, California. The sales, manufacturing and research and development activities of our neurovascular business are primarily located in Irvine and Menlo Park, California. Our U.S. distribution center is located in Plymouth. Outside the United States, our European headquarters is in Paris, France, and includes our sales and marketing, and administrative activities. Our European warehouse facilities are located in Maastricht, Netherlands. In addition to our sales office in Paris, we have European sales and marketing offices in Bonn, London, Madrid, Maastricht, Milan and Stockholm. Our total manufacturing space is approximately 160,000 square feet and our total warehouse space is approximately 39,000 square feet. All of our real properties are leased with terms ending at various times from 2010 to 2017. We believe that our premises are adequate for our needs for the foreseeable future.

We are subject to three leases associated with our former FoxHollow operations in Redwood City, California, which operations we relocated to our Irvine and Plymouth facilities in 2008. We have entered into an agreement to sublease one of the Redwood City leases until January 15, 2012. Although we plan to sublease the other two facilities, we have not yet entered into definitive agreements to do so.

ITEM 3.		LEGAL PROCEEDINGS

We are from time to time subject to, and are presently involved in, various pending or threatened legal actions and proceedings, including those that arise in the ordinary course of our business. Our significant legal proceedings are discussed in Note 18 to our consolidated financial statements and incorporated herein by reference. While it is not possible to predict the outcome for most of the legal proceedings discussed in Note 18, the costs associated with such proceedings could have a material adverse effect on our consolidated results of operations, financial position or cash flows of a future period.

ITEM 4.		SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

No matter was submitted to a vote of our security holders during the fourth quarter ended December 31, 2009.

ITEM 4A.		EXECUTIVE OFFICERS OF THE REGISTRANT

Our executive officers, their ages and positions held, as of February 19, 2010, are as follows:

Name		Age				Position
Robert J. Palmisano			65			President and Chief Executive Officer
Pascal E.R. Girin			50			Executive Vice President and Chief Operating Officer
Stacy Enxing Seng			45			Executive Vice President and President, Worldwide Peripheral Vascular
Kevin M. Klemz			48			Senior Vice President, Secretary and Chief Legal Officer
Shawn McCormick			45			Senior Vice President and Chief Financial Officer
Gregory Morrison			46			Senior Vice President, Human Resources
David H. Mowry			47			Senior Vice President and President, Worldwide Neurovascular
Julie D. Tracy			48			Senior Vice President, Chief Communications Officer
Brett A. Wall			44			Senior Vice President and President, International

Each of our executive officers serves at the discretion of our board of directors and holds office until his or her successor is elected and qualified or until his or her earlier resignation or removal. Information regarding the business experience of our executive officers is set forth below.

Robert J. Palmisano has served as our President and Chief Executive Officer and as one of our directors since April 2008. Mr. Palmisano served as President and Chief Executive Officer of IntraLase Corp., a company engaged in the design, development and manufacture of laser products for vision correction, from April 2003 to April 2007, when IntraLase was acquired by Advanced Medical Optics, Inc. From April 2001 to April 2003, Mr. Palmisano was the President, Chief Executive Officer and a director of MacroChem Corporation, a development stage pharmaceutical corporation. From April 1997 to January 2001, Mr. Palmisano served as President and Chief Executive Officer and a director of Summit Autonomous, Inc., a global medical products company that was acquired by Alcon, Inc. in October 2000. Prior to 1997, Mr. Palmisano held various executive positions with Bausch & Lomb Incorporated, a global eye care company. Mr. Palmisano earned his B.A. in Political Science from Providence College. Mr. Palmisano serves on the board of directors of Osteotech, Inc., a publicly held company, Bausch & Lomb Incorporated and LenSx Lasers Inc., both privately held companies and is a member of the Board of Trustees for Providence College in Providence, Rhode Island. During the past five years, Mr. Palmisano previously served on the board of directors of Abbott Medical Optics Inc.

Pascal E.R. Girin has served as our Executive Vice President and Chief Operating Officer since January 2010. Mr. Girin served as our Executive Vice President and President, Worldwide Neurovascular and International from July 2008 to December 2009. Mr. Girin served as our Senior Vice President from August 2007 to July 2008 and President, International from August 2005 to October 2009. Mr. Girin previously served as our General Manager, Europe from September 2003 to July 2005. From September 1998 to August 2003, Mr. Girin served in various capacities at BioScience Europe Baxter Healthcare Corporation, most recently as Vice President. Mr. Girin received an Engineering Education at the French Ecole des Mines.

Stacy Enxing Seng has served as our Executive Vice President and President, Worldwide Peripheral Vascular since January 2010. Prior to January 2010, Ms. Enxing Seng served as Executive Vice President and President, U.S. Peripheral Vascular since December 2008. Prior to December 2008, Ms. Enxing Seng served as President, FoxHollow Technologies Division since October 2007, Senior Vice President since August 2007 and President, Peripheral Vascular Division since March 2005. Ms. Enxing Seng also previously served as our Vice President, Marketing and New Business Development. Ms. Enxing Seng has served in various positions at our company since April 2001. Ms. Enxing Seng has been in the endovascular business since joining Scimed Life Systems, Inc. in 1993, and immediately prior to joining ev3, she served as Vice President of Global Marketing for the cardiology division at Boston Scientific/Scimed. Ms. Enxing Seng has a Bachelor of Arts in Public Policy from Michigan State University and a Master of Business Administration from Harvard University.

Kevin M. Klemz has served as our Senior Vice President since August 2007 and Secretary and Chief Legal Officer since January 2007. Prior to joining ev3, Mr. Klemz was a partner in the law firm Oppenheimer Wolff & Donnelly LLP where he was a corporate lawyer for over 20 years. Mr. Klemz has a Bachelor of Arts in Business Administration from Hamline University and a Juris Doctorate from William Mitchell College of Law.

Shawn McCormick has served as our Senior Vice President and Chief Financial Officer since January 2009. Prior to joining ev3, Mr. McCormick served as Vice President, Corporate Development at Medtronic, Inc., a global medical device company, where he was responsible for leading Medtronic’s worldwide business development activities and previously had served in key corporate and divisional financial leadership roles within the Medtronic organization. Mr. McCormick joined Medtronic in July 1992 and held various finance positions during his tenure. From May 2008, he served as Vice President, Corporate Technology and New Ventures of Medtronic. From July 2002 to July 2007, he was Vice President, Finance for Medtronic’s Spinal, Biologics and Navigation business. Prior to that, Mr. McCormick held various other positions with Medtronic, including Corporate Development Director, Principal Corporate Development Associate, Manager, Financial Analysis, Senior Financial Analyst and Senior Auditor. Prior to joining Medtronic, he spent almost four years with the public accounting firm KPMG Peat Marwick. Mr. McCormick earned his Master of Business Administration from the University of Minnesota’s Carlson School of Management and his Bachelor of Science in Accounting from Arizona State University. He is a Certified Public Accountant.

Gregory Morrison has served as our Senior Vice President, Human Resources since August 2007 and from March 2002 to August 2007 as our Vice President, Human Resources. From March 1999 to February 2002, Mr. Morrison served as Vice President of Organizational Effectiveness for Thomson Legal & Regulatory, a division of The Thomson Corporation that provides integrated information solutions to legal, tax, accounting, intellectual property, compliance, business and government professionals. Mr. Morrison has a Bachelor of Arts in English and Communications from North Adams State College and a Master of Arts in Corporate Communications from Fairfield University.

David H. Mowry has served as our Senior Vice President and President, Worldwide Neurovascular since January 2010. From July 2008 to December 2009, Mr. Mowry served as Senior Vice President, Strategic and Corporate Operations and from October 2007 to July 2008, served as Senior Vice President, Corporate Manufacturing. Prior to October 2007, Mr. Mowry served as Vice President of Operations for ev3 Neurovascular since November 2006. From February 2004 to November 2006, Mr. Mowry served as Vice President of Operations and Logistics at the Zimmer Spine division of Zimmer Holdings Inc., a reconstructive and spinal implants, trauma and related orthopaedic surgical products company. Prior to Zimmer, Mr. Mowry was the President and Chief Operating Officer of HeartStent Corp., a medical device company. Mr. Mowry is a graduate of the United States Military Academy in West Point, New York with a degree in Engineering and Mathematics.

Julie D. Tracy has served as our Senior Vice President and Chief Communications Officer since January 2008. From March 2007 to November 2007, Ms. Tracy served as Vice President, Chief Communications Officer of Kyphon Inc., a medical device company that was purchased by Medtronic, Inc. in November 2007. From April 2005 to March 2007, Ms. Tracy served as Vice President, Investor Relations and Corporate Marketing of Kyphon Inc. From January 2003 to April 2005, Ms. Tracy served as Vice President of Marketing at Kyphon Inc. Prior to joining Kyphon Inc., Ms. Tracy held senior level positions in marketing, business development and reimbursement at Thoratec Corporation from January 1998 to January 2003. Ms. Tracy has a Bachelor of Science in Business Administration from the University of Southern California and a Master of Business Administration from Pepperdine University.

Brett A. Wall has served as our Senior Vice President and President, International since October 2009. From August 2008 to October 2009, Mr. Wall served as Vice President, Sales and Marketing for ev3 Neurovascular. Mr. Wall has served in various Vice President positions since April 2001. Mr. Wall served as Vice President of Marketing for ev3 Peripheral Vascular from January 2008 to August 2008, Vice President of Marketing for ev3 Neurovascular from April 2007 to January 2008, Vice President of Marketing for ev3 Peripheral Vascular from November 2005 to April 2007 and Vice President of Marketing for ev3 Neurovascular from April 2001 to November 2005. Mr. Wall was an early employee of MicroTherapeutics, Inc., serving in a variety of positions. We acquired MicroTherapeutics in 2006. From September 1995 to September 2000, Mr. Wall served in a variety of positions for Boston Scientific

including Director of Cardiovascular Marketing for the Asia Pacific region. Mr. Wall holds a Bachelor of Science Degree in Comprehensive Business Administration from the University of Nebraska at Kearney.

PART II

ITEM 5.		MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

Market Price

Our common stock is listed for trading on the NASDAQ Global Select Market under the symbol “EVVV.” Our common stock has traded on that market, which was formerly known as the NASDAQ National Market System, since the date of our initial public offering on June 16, 2005.

The following table sets forth the high and low daily sales prices for our common stock, as reported by the NASDAQ Global Select Market, for each quarter during 2009 and 2008.

		High				Low
2009
First Quarter		$	7.82			$	4.40
Second Quarter		$	11.19			$	7.05
Third Quarter		$	13.19			$	9.60
Fourth Quarter		$	13.93			$	11.20

		High				Low
2008
First Quarter		$	12.72			$	7.36
Second Quarter		$	10.69			$	7.32
Third Quarter		$	12.58			$	8.60
Fourth Quarter		$	9.92			$	3.37

Number of Record Holders; Dividends

As of February 18, 2010, there were 188 record holders of our common stock. To date, we have not declared or paid any cash dividends on our common stock. The restrictive covenants in our loan agreement with Silicon Valley Bank limit our ability to pay cash dividends.

Recent Sales of Unregistered Equity Securities

During the fourth quarter ended December 31, 2009, we did not issue or sell any shares of our common stock or other equity securities of our company without registration under the Securities Act of 1933, as amended.

Issuer Purchases of Equity Securities

The following table sets forth the information with respect to purchases made by or on behalf of us or any “affiliated purchaser” (as defined in Rule 10b-18(a)(3) under the Securities Exchange Act of 1934, as amended), of shares of our common stock during each month of our fourth quarter ended December 31, 2009.

Total

Total Number of

Maximum Number of

Number

Shares Purchased as

Shares that May Yet

of

Average Price

Part of Publicly

Be Purchased Under

Shares

Paid Per

Announced Plans or

the Plans or

Period

Purchased(1)

Share

Programs(2)

Programs(2)

Month # 1 (October 5, 2009 — November 8, 2009)

2,144

$

12.18

N/A

N/A

Month # 2 (November 9, 2009 — December 6, 2009)

34,600

12.57

N/A

N/A

Month # 3 (December 7, 2009 — December 31, 2009)

—

—

N/A

N/A

Total:

36,744

$

12.55

N/A

N/A

Except as set forth in the table above, we did not purchase any shares of our common stock or other equity securities of our company registered pursuant to Section 12 of the Securities Exchange Act of 1934, as amended, during the fourth quarter ended December 31, 2009.

Stock Performance Graph

The following graph compares the annual cumulative total stockholder return on our common stock from June 16, 2005, the date of our initial public offering, until December 31, 2009, with the annual cumulative total return over the same period of The NASDAQ Stock Market (U.S.) Index and The NASDAQ Medical Equipment Index.

The comparison assumes the investment of $100 in each of our common stock, The NASDAQ Stock Market (U.S.) Index and The NASDAQ Medical Equipment Index on June 16, 2005, and the reinvestment of all dividends.

The foregoing Stock Performance Graph shall not be deemed to be “filed” with the Securities and Exchange Commission or subject to the liabilities of Section 18 of the Securities Exchange Act of 1934, as amended. Notwithstanding anything to the contrary set forth in any of our previous filings under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended, that might incorporate future filings, including this annual report on Form 10-K, in whole or in part, the foregoing Stock Performance Graph shall not be incorporated by reference into any such filings.

ITEM 6. SELECTED FINANCIAL DATA

The following selected consolidated financial data set forth our results of operations and balance sheet data for the fiscal years and as of the dates indicated. Certain prior year items have been reclassified to conform to the current year presentation.

		For the Year Ended December 31,
		2009(1)				2008				2007(2)				2006				2005
		(dollars in thousands, except per unit and per share amounts)
Results of Operations:
Sales:
Net product sales		$	449,072			$	402,233			$	278,226			$	202,438			$	133,696
Research collaboration			—				19,895				5,957				—				—
Net sales			449,072				422,128				284,183				202,438				133,696
Operating expenses:
Product cost of goods sold			120,613				136,847				99,879				71,321				55,094
Research collaboration			—				6,051				1,065				—				—
Sales, general and administrative			225,023				232,200				194,289				141,941				130,627
Research and development			49,060				48,784				48,413				26,725				39,280
Amortization of intangible assets			25,143				31,072				20,306				17,223				10,673
Contingent consideration			4,876				—				—				—				—
Goodwill and intangible asset impairment(3)			—				299,263				—				—				—
Acquired in-process research and development			—				—				70,700				1,786				868
Special charges (4)			—				—				19,054				—				—
Total operating expenses			424,715				754,217				453,706				258,996				236,542
Income (loss) from operations			24,357				(332,089	)			(169,523	)			(56,558	)			(102,846	)
Other (income) expense:
(Gain) loss on investments, net			(4,113	)			(487	)			116				(1,063	)			(4,611	)
Interest expense (income), net			788				(223	)			(1,910	)			(1,695	)			9,916
Minority interest in loss of subsidiary			—				—				—				—				(2,013	)
Other expense (income), net			1,588				2,427				(2,934	)			(2,117	)			3,360
Income (loss) before income taxes			26,094				(333,806	)			(164,795	)			(51,683	)			(109,498	)
Income tax (benefit) expense			(15,823	)			1,816				949				688				526
Net income (loss)			41,917				(335,622	)			(165,744	)			(52,371	)			(110,024	)
Accretion of preferred membership units to redemption value(5)			—				—				—				—				12,061
Net income (loss) attributable to common unit/share holders		$	41,917			$	(335,622	)		$	(165,744	)		$	(52,371	)		$	(122,085	)
Net income (loss) per common unit/share(6):
Basic		$	0.39			$	(3.22	)		$	(2.37	)		$	(0.93	)		$	(4.48	)
Diluted		$	0.38			$	(3.22	)		$	(2.37	)		$	(0.93	)		$	(4.48	)
Weighted average units/shares outstanding:
Basic			107,997,738				104,378,828				69,909,708				56,585,025				27,242,712
Diluted			108,998,528				104,378,828				69,909,708				56,585,025				27,242,712

		As of December 31,
		2009				2008				2007				2006				2005
						(dollars in thousands)
Balance Sheet Data:
Cash and cash equivalents		$	98,050			$	59,652			$	81,060			$	24,053			$	69,592
Short-term investments			—				—				9,744				14,700				12,000
Total current assets			240,460				187,123				228,370				135,845				151,675
Total assets			896,289				720,664				1,087,106				352,826				296,828
Total current liabilities			73,929				67,448				119,159				41,767				37,671
Long-term debt			3,958				6,458				6,429				5,357				—
Total liabilities			141,795				80,123				128,625				47,592				38,523
Total stockholders’ equity			754,494				640,541				958,481				305,234				245,455

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

This Management’s Discussion and Analysis provides material historical and prospective disclosures intended to enable investors and other users to assess our financial condition and results of operations. Statements that are not historical are forward-looking and involve risks and uncertainties discussed under the headings “Part I. Item 1. Business—Forward-Looking Statements” and “Part I. Item 1A. Risk Factors” of this report. The following discussion of our results of operations and financial condition should be read in conjunction with our consolidated financial statements and the related notes thereto included elsewhere in this report. This Management’s Discussion and Analysis is organized in the following major sections:

	•		Business Overview. This section provides a brief overview description of our business, focusing in particular on developments during the most recent year.
	•		Summary of 2009 Results and 2010 Outlook. This section provides a brief summary of our financial results and financial condition for 2009 and our outlook for 2010.
	•		Items Impacting Comparability. This section provides a brief description of the significant items impacting comparability for 2009, 2008 and 2007.
	•		Sales and Expense Components. This section provides a brief description of the significant line items in our consolidated statements of operations.
	•		Results of Operations. This section provides our analysis of the significant line items in our consolidated statements of operations.
	•		Seasonal and Quarterly Fluctuations. This section describes the effects of seasonal and quarterly fluctuations in our business.
	•		Liquidity and Capital Resources. This section provides an analysis of our liquidity and cash flows and a discussion of our outstanding debt and commitments.
	•		Critical Accounting Policies and Estimates. This section discusses the accounting estimates that are considered important to our financial condition and results of operations and require us to exercise subjective or complex judgments in their application. All of our significant accounting policies, including our critical accounting estimates, are summarized in Note 2 to our consolidated financial statements.
	•		Recently Issued Accounting Pronouncements. This section discusses recently issued accounting pronouncements that have had or may affect our results of operations and financial condition.

Business Overview

We are a leading global endovascular company focused on identifying and treating peripheral vascular disease, including, in particular, lower extremity arterial disease, and neurovascular disease. Since our founding in 2000, we have been dedicated to developing innovative, breakthrough and clinically proven technologies and solutions for the treatment of peripheral vascular and neurovascular diseases, a strategy that we believe is uncommon in the medical device industry. We believe our unique approach of focusing on emerging and under-innovated opportunities, which treat peripheral vascular and neurovascular disease, allows us to compete with smaller companies that have narrow product lines and lack an international sales force and infrastructure, yet also compete with larger companies that do not have our focus and agility.

We believe the overall market for endovascular devices will grow as the demand for minimally invasive treatment of vascular diseases and disorders continues to increase. We intend to capitalize on this market opportunity through the continued introduction of new products. We expect to originate these new products primarily through our internal

research and development and clinical efforts, but we may supplement them with targeted acquisitions or other external collaborations. Most recently, in June 2009, we acquired Chestnut Medical Technologies, Inc., a then privately held, California-based company focused on developing minimally invasive therapies for interventional neuroradiology. This transaction broadened our neurovascular product portfolio by adding the Pipeline Embolization Device for the treatment of cerebral aneurysms and the Alligator Retrieval Device for foreign body retrieval to our existing embolic product and neuro access technologies. Additionally, our growth has been, and will continue to be, impacted by our expansion and penetration into new geographic markets, the expansion and penetration of our direct sales organization in existing geographic markets, and our continuing focus to increase the efficiency of our existing direct sales organization.

Our product portfolio includes a broad spectrum of over 100 products consisting of over 1,500 stock keeping units (SKUs), including plaque excision, stents, embolic protection and thrombectomy devices, carotid stenting solutions, percutaneous transluminal angioplasty (PTA) balloons, and other procedural support products for the peripheral vascular market and embolic coils, flow directed and other micro catheters, liquid embolics, occlusion balloon systems, guidewires, neuro stents and retrieval devices for the neurovascular market. Our management, including our chief executive officer who is our chief operating decision maker, report and manage our operations in two reportable business segments based on similarities in the products sold, customer base and distribution system. We have corporate infrastructure and direct sales capabilities in the United States, Europe, Canada, Australia and other countries and have established distribution relationships in selected international markets. In order to drive sales growth, we have invested heavily throughout our history in not only the expansion of our global distribution system, but also new product development and clinical trials to obtain regulatory approvals. A significant portion of our net sales historically has been, and we expect to continue to be, attributable to new and enhanced products.

During 2009, our neurovascular net sales were benefited by continued market penetration of the Axium coil, Onyx Liquid Embolic System and the launch of our Pipeline Embolization Device in Europe and other international markets. Building on the success we have experienced to date with our Axium coils, we concluded our physician preference testing for two new versions of the Axium coil, the Axium PGLA and Axium Nylon microfilament coils in the U.S. and Europe during the fourth quarter of 2009 and are in the process of launching these products for broad commercial availability. We recently launched our new Marksman delivery catheter and Alligator Retrieval Device in the U.S. and Europe and introduced access product line extensions, including the HyperGlide 5.0 balloon in the U.S. and Europe and the HyperGlide 3.0 balloon in the U.S. Since receiving the CE Mark for our Solitaire FR, or flow restoration, device to treat ischemic stroke in July of 2009, we have completed our European physician preference testing, and the Solitaire FR device is now fully launched in Europe. We also expect to launch our new Apollo delivery catheter for our Onyx Liquid Embolic System in 2010.

Our peripheral vascular net sales for 2009 were benefited by increased market penetration of our EverFlex family of stents and our new PTA balloons. During fourth quarter of 2009, we launched our new TurboHawk Plaque Excision System, which we expect to positively affect our plaque excision sales in 2010, and our redesigned TrailBlazer Support Catheter. At the beginning of 2010, we also launched our PowerCross 0.018 PTA balloon platform and now have a variety of platform sizes available worldwide.

We expect to continue to further validate the clinical and competitive benefits of our technology platforms to drive utilization of our current products and the development of new and enhanced products. To accomplish this, we have a number of clinical trials underway and others that are currently in development, including our DURABILITY II trial in the U.S. with the objective of expanding our EverFlex stent’s U.S. indication to include treatment of peripheral artery disease and our DEFINITIVE trial series designed to expand the clinical evidence supporting the value of our plaque excision systems to drive increased procedure adoption, expand clinical indications and support the use of atherectomy as a front-line therapy. In our neurovascular business, we anticipate commencing enrollment during the first quarter of 2010 of our Solitaire with Immediate Flow Restoration, or SWIFT, study under a U.S. investigational device exemption, or IDE, to obtain FDA clearance for our Solitaire neuro stent, and will continue with our PUFS and COCOA studies of our Pipeline Embolization Device.

It is our understanding that certain biliary stent manufacturers have received subpoenas from the U.S. Department of Justice. Based on publicly available information, we believe that these subpoenas requested information regarding the sales and marketing activities of these manufacturers’ biliary stent products and that the Department of Justice is seeking to determine whether any of these activities violated civil and/or criminal laws, including the Federal False Claims Act, the Food and Drug Cosmetic Act and the Anti-Kickback Statute in connection with Medicare and/or Medicaid reimbursement paid to third parties. As of the date of this report, we have not received a subpoena from the U.S. Department of Justice relating to this investigation. No assurance can be provided, however, that we will not receive such a subpoena or become the subject of such an investigation, which could adversely affect our business and stock price.

Summary of 2009 Financial Results and Outlook for 2010

During 2009, we achieved profitability and cash generation. Our operating results reflect sales growth in both our peripheral vascular and neurovascular segments, continued expansion of our international business, improvement in our gross margins and continued expense control. During 2010, we will continue to focus on growing our revenue at or above market rates, improving profitability and generating cash.

Our 2009 results and financial condition included the following items of significance, some of which we expect also may affect our results and financial condition in 2010:

	•		Net sales of our peripheral vascular products increased 4% to $279.5 million in 2009 compared to 2008 primarily as a result of continued market penetration of our embolic protection devices and EverFlex family of stents, partially offset by a decline in sales of our plaque excision products. We expect continued growth of our EverFlex family of stents during 2010, although we are prohibited from marketing and promoting these devices in the U.S. outside of their approved indication and, we remain cautious of the current regulatory environment regarding the off-label utilization of our stents and the increased competition we may experience. Although our plaque excision sales decreased in 2009 compared to 2008, we expect the recent launch of our new TurboHawk Plaque Excision System to have a positive impact on our Plaque Excision sales going forward.
	•		Net sales of our neurovascular products increased 28% to $169.5 million in 2009 compared to $132.3 million in 2008 primarily as a result of continued market penetration of our Axium coil and Onyx Liquid Embolic System and the launch of our Pipeline Embolization Device in Europe and other international markets. We believe our neurovascular business should benefit from the continued market penetration of the Axium coil and Onyx Liquid Embolic System in 2010, from new product introductions, including our Pipeline and Solitaire FR devices, and expanded geographic presence.
	•		On a geographic basis, 60% of our net sales for 2009 were generated in the United States and 40% were generated outside the United States. Our international net sales increased 21% to $178.1 million in 2009 compared to 2008 primarily driven by market penetration of the Axium coil and neuro stent, as well as the launch of our Pipeline Embolization Device. We expect our international business to continue to benefit from our ability to sell our EverCross, NanoCross and PowerCross PTA balloon catheters, the recent launch of our Pipeline Embolization Device in Europe and other international markets, the launch of our Axium PGLA and Nylon microfilament coils, Marksman delivery catheter and Alligator Retrieval Device, and expansion of sales of our plaque excision devices. Changes in foreign currency exchange rates had a negative impact on our 2009 net sales of $6.7 million compared to 2008, principally resulting from the relationship of the U.S. dollar as compared to the euro. At current exchange rates, we expect foreign currency exchange rates to have a negligible impact on our 2010 net sales compared to our 2009 net sales.
	•		Product gross margin increased to 73% in 2009 compared to 66% in 2008 primarily attributable to manufacturing efficiencies in our peripheral vascular segment, including synergies related to the consolidation of our FoxHollow manufacturing operations and manufacturing process improvements associated with our self-expanding stents. Product gross margin was also positively impacted by selling our own line of PTA balloons and the mix of neurovascular products sold. We expect to continue to

increase our product gross margins through our focus on manufacturing efficiencies and opportunities to increase product pricing. Product gross margin for internal measurement purposes is defined as net product sales less product cost of goods sold, excluding amortization of intangible assets, divided by net product sales.

	•		Our sales, general and administrative expenses decreased in absolute dollars in 2009 compared to 2008, and as a percentage of net sales, represented 50% of our net sales in 2009 compared to 55% of our net sales in 2008. We expect our sales, general and administrative expenses as a percentage of net sales to continue to decrease in 2010 compared to 2009 primarily as a result of our ability to improve our processes and leverage our infrastructure to grow expenses at a lesser rate than our anticipated revenue growth.
	•		Our net income for 2009 was $41.9 million, or $0.38 per diluted common share, compared to a net loss of $335.6 million, or $3.22 per diluted share, in 2008.
	•		We had $98.1 million of cash and cash equivalents at December 31, 2009, an increase of $38.4 million compared to December 31, 2008. This increase was primarily a result of cash provided by operating activities, totaling $69.3 million during 2009 driven primarily by our operating performance, offset by $24.7 million of net cash paid in conjunction with our acquisition of Chestnut. We plan to continue to focus on generating positive cash flow from operations during 2010.

Items Impacting Comparability

The following items impacted the comparability of our financial results for 2009, 2008 and 2007:

2009

•

Charge of $3.4 million to increase reserves on our vacated FoxHollow lease facilities.

•

Gain of $4.1 million attributed to the divestiture of non-strategic investments.

•

Tax benefit of $19.0 million triggered by the purchase accounting for our acquisition of Chestnut.

•

Charges relating to the estimated change in fair value of the contingent consideration of $4.9 million associated with the Chestnut acquisition.

2008

•

Research collaboration revenue and expense of $19.9 million and $6.1 million, respectively, from our former collaboration and license agreement with Merck.

•

An aggregate of $288.8 million in non-cash, asset impairment charges in our peripheral vascular segment to reduce the carrying amounts of goodwill and other intangible assets to their estimated fair values, which were driven primarily by the then substantial disruption in the general credit and equity markets and in particular the decline in our stock price and market capitalization and certain product discontinuations during our fourth quarter of 2008.

•

Non-cash asset impairment charge of $10.5 million to write off the remaining carrying amount of the Merck intangible asset that was established at the time of our acquisition of FoxHollow.

2007

•

Incremental net sales from FoxHollow products of $20.9 million.

•

Research collaboration revenue and expense of $6.0 million and $1.1 million, respectively, from our former collaboration and license agreement with Merck.

•

Charge of $70.7 million for acquired in-process research and development, integration costs of $14.9 million and a charge of $3.3 million for excess and obsolete inventory associated with our FoxHollow acquisition.

•

Special charges of $19.1 million recorded as a result of entering into agreements in principle to settle certain patent infringement and other litigation with The Regents of the University of California and Boston Scientific Corporation.

Sales and Expense Components

The following is a description of the primary components of net sales and expenses:

Net product sales. We derive our net product sales from the sale of endovascular devices in two primary business segments: peripheral vascular and neurovascular devices. Sales are generated by our global, direct sales force and are shipped and billed to hospitals or clinics throughout the world. In countries where we do not have a direct sales force, sales are generated by shipments to distributors who, in turn, sell to hospitals and clinics. In cases where our products are held in consignment at a customer’s location, we generate sales at the time the product is used in a procedure and we are notified in writing by the hospital that the product was used, rather than at shipment. We charge our customers for shipping and record shipping income as part of net sales.

Research collaboration (revenue). Research collaboration revenue was derived from our former collaboration and license agreement with Merck, which we assumed as a result of our acquisition of FoxHollow. For additional discussion, see Note 2 to our consolidated financial statements included elsewhere in this report.

Product cost of goods sold. We manufacture a substantial majority of the products that we sell. Our product cost of goods sold consists primarily of direct labor, allocated manufacturing overhead, raw materials, components and royalties and excludes amortization of intangible assets, which is presented as a separate component of operating expenses.

Research collaboration (expense). Research collaboration expense consists primarily of costs associated with our former collaboration and license agreement with Merck.

Sales, general and administrative. Our selling and marketing expenses consist primarily of sales commissions and support costs for our global, direct distribution system, marketing costs and freight expense that we pay to ship products to customers. General and administrative expenses consist primarily of salaries and benefits, compliance systems, and other costs for our accounting, finance, legal, information technology and human resources functions.

Research and development. Research and development expense includes costs associated with the design, development, testing, deployment, enhancement and regulatory approval of our products. It also includes costs associated with the design and execution of our clinical trials and regulatory submissions.

Amortization of intangible assets. This caption includes amortization expense for intangible assets, such as purchased developed technology, distribution channels and intellectual property, including patents and trademarks.

Contingent consideration. Contingent consideration is recorded at the acquisition-date estimated fair value of the contingent payment for all acquisitions beginning in 2009. The fair value of the contingent consideration is remeasured at each reporting date with the change in fair value included in our consolidated statements of operations. For additional discussion, see Note 4 to our consolidated financial statements included elsewhere in this report.

Goodwill and other intangible asset impairment. Goodwill and other intangible asset impairment consists of non-cash charges to reduce the carrying amounts of goodwill and other intangible assets to their estimated fair values. For additional discussion, see Note 9 to our consolidated financial statements included elsewhere in this report.

Acquired in-process research and development. Acquired in-process research and development reflects amounts assigned to those projects acquired in business combinations prior to January 1, 2009 or the acquisition of assets for which the related products have not received regulatory approval and have no alternative future use. In-process research and development acquired in business combinations subsequent to December 31, 2008 have been recorded as indefinite-lived intangible assets on the consolidated balance sheets.

Special charges. Special charges relate to settlements of certain former patent infringement and other litigation between us, The Regents of the University of California and Boston Scientific Corporation. The special charges include amounts paid by us to the parties and legal fees and expenses associated with the litigation.

(Gain) loss on investments, net. (Gain) loss on investments, net includes the difference between the proceeds received from the sale of an investment and its carrying amount. In addition, this caption includes losses from other than temporary declines in investments accounted for on a cost basis.

Interest expense, net. Interest expense, net results primarily from interest associated with loans from Silicon Valley Bank. Interest income consists of interest earned on investments in investment-grade, interest-bearing securities and money market accounts.

Other expense (income), net. Other expense (income), net primarily includes foreign currency exchange gains and losses net of gains and losses incurred on forward exchange contracts intended to partially offset our exposure to foreign currency exchange rate fluctuations.

Income tax (benefit) expense. Income tax (benefit) expense includes federal income taxes (primarily alternative minimum tax), income tax in foreign jurisdictions, state income tax and changes to our deferred tax valuation allowance.

Results of Operations

The following table sets forth, for the periods indicated, our results of operations expressed as dollar amounts (in thousands), and the changes between the specified periods expressed as percent increases or decreases or “NM” if such increases or decreases are not material or applicable:

		For the Year Ended												For the Year Ended
		December 31,												December 31,
										Percent												Percent
Results of Operations:		2009(1)				2008				Change				2008				2007(2)				Change
Sales:
Net product sales		$	449,072			$	402,233				11.6	%		$	402,233			$	278,226				44.6	%
Research collaboration			—				19,895				-100.0	%			19,895				5,957			234.0		%
Net sales			449,072				422,128				6.4	%			422,128				284,183				48.5	%
Operating expenses:
Product cost of goods sold			120,613				136,847				-11.9	%			136,847				99,879				37.0	%
Research collaboration			—				6,051				-100.0	%			6,051				1,065			NM
Sales, general and administrative			225,023				232,200				-3.1	%			232,200				194,289				19.5	%
Research and development			49,060				48,784				0.6	%			48,784				48,413				0.8	%
Amortization of intangible assets			25,143				31,072				-19.1	%			31,072				20,306				53.0	%
Contingent consideration			4,876				—			NM					—				—			NM
Goodwill and intangible asset impairment(3)			—				299,263				-100.0	%			299,263				—			NM
Acquired in-process research and development			—				—			NM					—				70,700				-100.0	%
Special charges(4)			—				—			NM					—				19,054				-100.0	%
Total operating expenses			424,715				754,217				-43.7	%			754,217				453,706				66.2	%
Income (loss) from operations			24,357				(332,089	)		NM					(332,089	)			(169,523	)		-95.9		%
Other (income) expense:
(Gain) loss on investments, net			(4,113	)			(487	)		NM					(487	)			116			NM
Interest expense (income), net			788				(223	)		NM					(223	)			(1,910	)		88.3		%
Other expense (income), net			1,588				2,427			-34.6		%			2,427				(2,934	)		NM
Income (loss) before income taxes			26,094				(333,806	)		NM					(333,806	)			(164,795	)		-102.6		%
Income tax (benefit) expense			(15,823	)			1,816			NM					1,816				949				91.4	%
Net income (loss)		$	41,917			$	(335,622	)		NM				$	(335,622	)		$	(165,744	)		-102.5		%

The following tables set forth, for the periods indicated, our net sales by segment and geography expressed as dollar amounts (in thousands) and the changes in net sales between the specified periods expressed as percentages:

		For the Year Ended												For the Year Ended
		December 31,								Percent				December 31,								Percent
NET SALES BY SEGMENT		2009				2008				Change				2008				2007				Change
Net sales
Net product sales:
Peripheral vascular:
Plaque excision(1)		$	84,072			$	88,800				-5.3	%		$	88,800			$	20,884				325.2	%
Stents			114,900				107,146				7.2	%			107,146				86,035				24.5	%
Thrombectomy and embolic protection			31,513				27,779				13.4	%			27,779				25,998				6.9	%
Procedural support and other			49,046				46,204				6.2	%			46,204				40,858				13.1	%
Total peripheral vascular		$	279,531			$	269,929				3.6	%		$	269,929			$	173,775				55.3	%
Neurovascular:
Embolic products		$	103,081			$	74,642				38.1	%		$	74,642			$	56,003				33.3	%
Neuro access and delivery products			66,460				57,662				15.3	%			57,662				48,448				19.0	%
Total neurovascular		$	169,541			$	132,304				28.1	%		$	132,304			$	104,451				26.7	%
Total net product sales			449,072				402,233				11.6	%			402,233				278,226				44.6	%
Research collaboration:		$	—			$	19,895				-100.0	%		$	19,895			$	5,957				234.0	%
Total net sales		$	449,072			$	422,128				6.4	%		$	422,128			$	284,183				48.5	%

		For the Year Ended												For the Year Ended
		December 31,								Percent				December 31,								Percent
NET SALES BY GEOGRAPHY		2009				2008				Change				2008				2007				Change
United States		$	270,961			$	275,433				-1.6	%		$	275,433			$	177,198				55.4	%
International
Before foreign exchange impact			184,803				146,695				26.0	%			141,704				106,985				32.5	%
Foreign exchange impact			(6,692	)			—			NM					4,991				—			NM
Total			178,111				146,695				21.4	%			146,695				106,985				37.1	%
Total		$	449,072			$	422,128				6.4	%		$	422,128			$	284,183				48.5	%