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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549

FORM 10-K

WORLD HEART CORPORATION

(801) 355-6255
(Registrant's Telephone Number)

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

Securities registered pursuant to Section 12(g) of the Exchange 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 o    No ý

         Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Exchange Act. Yes o    No ý

         Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act 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 ý    No o

         Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) 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 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. ý

         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 the definitions of "large accelerated filer," "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act.

         Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o    No ý

         The aggregate market value of the voting and non-voting common equity held by non-affiliates computed by reference to the price at which the common equity was sold, as of June 30, 2009 was $2,608,652. Shares of voting stock held by each executive officer and director have been excluded from this calculation. This determination of affiliate status is not necessarily a conclusive determination for other purposes.

         The number of common shares outstanding as of March 15, 2010 was 13,312,265.

DOCUMENTS INCORPORATED BY REFERENCE

         The information called for by Part III of this form 10-K is incorporated by reference to the definitive proxy statement for the annual meeting of stockholders of the Company, which will be filed no later than 120 days after December 31, 2009.

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PART I

Item 1.    Business.

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

        This Annual Report on Form 10-K includes "forward-looking statements" within the meaning of Section 27A of the United States Securities Act of 1933, as amended (the Securities Act) and Section 21E of the United States Securities Exchange Act of 1934, as amended (the Exchange Act). All statements other than statements of historical fact are "forward-looking statements" for purposes of these provisions, including statements regarding our ongoing Levacor™ VAD (Ventricular Assist Device) clinical trial, our expectations with respect to future development plans for our next-generation product candidates, the Levacor VAD (Levacor), the timing and scope of pre-clinical testing and clinical trials, our ability to secure additional funding or to form strategic partnerships, our cost reduction efforts and their impact on our ability to maintain operations, as well as other statements that can be identified by the use of forward-looking language, such as "believe," "feel," "expect," "may," "will," "should," "seek," "plan," "anticipate," or "intend" or the negative of those terms, or by discussions of strategy or intentions. These forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause our actual results and performance to be materially different from any future results and performance expressed or implied by these forward-looking statements. Important factors that could cause our actual results to differ materially from those expressed or implied by such forward-looking statements include:

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clinical trial outcomes;



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costs and delays associated with clinical trials for our products and next-generation product candidates, such as Levacor, MiVAD and PediaFlow;



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our need for additional significant financings in the future;



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our ability to manufacture, sell and market our products;



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decisions, and the timing of decisions, made by health regulatory agencies regarding approval of our products;



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competition from other products and therapies for heart failure;



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continued slower than anticipated Destination Therapy adoption rate for VADs;



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limitations on third-party reimbursements;



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our ability to obtain and enforce in a timely manner patent and other intellectual property protection for our technology and products;



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our ability to avoid, either by product design, licensing arrangement or otherwise, infringement of third parties' intellectual property;



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our ability to enter into corporate alliances or other strategic relationships relating to the development and commercialization of our technology and products;



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our ability to remain listed on the NASDAQ Capital Market; and



•

other factors we discuss under the heading "RISK FACTORS."

        We undertake no obligation to update publicly or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as may be required under applicable securities laws.

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CORPORATE STRUCTURE

        World Heart Corporation, ("Corporation", "Company") and collectively with its subsidiaries, "WorldHeart") was incorporated by articles of incorporation under the laws of the Province of Ontario on April 1, 1996. On December 14, 2005, WorldHeart filed articles of continuance and continued under the laws of Canada. On January 1, 2010 WorldHeart changed its jurisdiction of incorporation from the federal jurisdiction of Canada to the state of Delaware in the United States through a plan of arrangement. Our head office is located at 4750 Wiley Post Way, Suite 120, Salt Lake City, Utah, USA, 84116 and our head office telephone number is 801-355-6255. We have a research facility at 7799 Pardee Lane, Oakland, California, USA 94621.

Intercorporate Relationships

        World Hearts Inc. (WHI) is a wholly owned subsidiary, incorporated under the laws of the State of Delaware on May 22, 2000. WHI acquired the assets and liabilities of the Novacor division of Edwards in June 2000, and is primarily responsible for next-generation product development, including product development of our Levacor™.

        World Heart B.V. (WHBV) is a wholly-owned subsidiary, incorporated under the laws of the Netherlands on March 5, 2004. On October 30, 2007 ownership of WorldHeart B.V. was transferred from World Heart Corporation to World Hearts Inc. WHBV has been responsible for European clinical trials and European commercialization of product candidates and devices.

        7210914 Canada Inc. is a wholly-owned subsidiary, incorporated under the laws of Canada in 2009. 7210914 Canada maintains certain Canadian intellectual property.

BUSINESS OF WORLDHEART

The Corporation

        Our business is focused on the development and sale of ventricular assist devices (VADs), particularly our Levacor VAD. VADs are mechanical assist devices that supplement the circulatory function of the heart by re-routing blood flow through a mechanical pump allowing for the restoration of normal blood circulation. In August 2009, we received conditional approval from the U.S. Food and Drug Administration (FDA) to begin a Bridge-to-Transplant (BTT) clinical study for the Levacor and in January 2010 we received unconditional approval of the investigational device exemption (IDE) from the FDA. We have enrolled three subjects in the BTT study. BTT clinical study enrollment will involve approximately 160 subjects at ten U.S. centers initially. To date, three clinical centers have received Institutional Review Board (IRB) approval, have been fully trained, and have executed all associated research and business agreements. The follow-up period for subjects in the clinical trial is six months with the end points of the clinical BTT study being survival to heart transplant, six month survival on the device or device removal for recovery and survival to 60 days after device removal. We expect to initiate a CE Mark trial in Europe with Levacor by the end of 2010 and plan to initiate a Destination Therapy clinical study in the U.S. with Levacor by the first half of 2011, both contingent on our ability to obtain future financing and on our ability to satisfactorily complete all regulatory requirements.

        VADs are used for treatment of patients with severe heart failure including patients whose hearts are irreversibly damaged and cannot be treated effectively by medical or surgical means other than transplant. BTT therapy involves implanting a VAD in a transplant-eligible patient to maintain or improve the patient's health until a donor heart becomes available. Destination Therapy is the implanting of a VAD to provide long-term support for a patient not currently eligible for a natural heart transplant. Bridge-to-Recovery involves the use of VADs to restore a patient's cardiac function helping the natural heart to recover and thereby allowing removal of the VAD.

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        We are focused on the development of the Levacor, the next-generation rotary device that we acquired as part of our acquisition of the assets of MedQuest Products, Inc. (MedQuest) in July 2005. The Levacor uses a magnetically-levitated rotor resulting in no moving parts subject to wear, which is expected to provide multi-year support. The Levacor is currently in a BTT clinical trial in the United States.

        In the past, we derived most of our revenue from our Novacor LVAS and related peripheral equipment, which we sold directly to medical clinics and hospitals in the United States, Europe and Canada and through a distributor in certain other countries. In November 2006, we announced a restructuring plan, which included a reduction of commercial operations associated with the Novacor LVAS, and a refocusing of our resources on the development of next generation products, particularly the Levacor.

Three-Year History and Development of WorldHeart

        On January 26, 2010, we announced that we completed a private placement of common stock and warrants to purchase common stock. Gross proceeds from the offering were approximately $7.3 million. We issued an aggregate of 1,418,726 newly-issued shares of common stock and warrants to purchase up to 2,837,452 additional shares of common stock.

        On January 19, 2010, we announced that the first U.S. implant of the Levacor was successfully performed at INTEGRIS Baptist Medical Center (INTEGRIS) in Oklahoma City, Oklahoma, on Wednesday, January 13, 2010.

        On January 8, 2010, we announced that we had received unconditional approval from the FDA for the BTT clinical study of the Levacor. Study enrollment will encompass 160 subjects, a reduction from the approximately 200 subjects of the original statistical plan. The primary study endpoint comprises survival to heart transplant, six month survival on the device or device removal for recovery and survival to 60 days after device removal.

        On January 4, 2010, we announced that effective January 4, 2010, World Heart Corporation changed its jurisdiction of incorporation from the federal jurisdiction of Canada to the state of Delaware in the United States through a planned arrangement.

        On August 20, 2009, we announced that we had received FDA conditional approval to begin a BTT clinical study of the Levacor at ten U.S. centers.

        On October 27, 2008, we announced that we effected a reverse stock split on the basis of thirty pre-consolidated common shares for one post-consolidated common share. The effect of the reverse stock split has been retroactively applied throughout the financial statements contained herein.

        On August 21, 2008, we announced that we were embarking on a phased consolidation into a primary facility at our current location in Salt Lake City, Utah. Our focus is on the development, including clinical trials, and subsequent commercialization of the Levacor. On August 22, 2008, we completed the first phase of our consolidation plan and eliminated five positions at our Oakland facility, including the position of Vice President of Manufacturing. On February 4, 2009, as part of our consolidation plan, we announced that we appointed Mr. John Alexander Martin as our President and Chief Executive Officer, and on August 10, 2009 we announced that we had appointed Morgan R. Brown as our Executive Vice President and Chief Financial Officer, with both positions based in Salt Lake City, Utah. Mr. Jal S. Jassawalla, our former President and CEO, currently our Executive Vice President and Chief Technology Officer, continues to be based in Oakland, California, along with certain key employees in areas such as Research and Development, Clinical Affairs and Regulatory Affairs. Mr. Martin also replaced Mr. Jassawalla on the Board of Directors.

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        On June 20, 2008, we entered into a $30.0 million private placement transaction and recapitalization. Simultaneously with the closing of the recapitalization, Abiomed Inc. (Abiomed) entered into a Termination and Release Letter Agreement dated July 31, 2008 with us. Under the terms of the Termination and Release Letter Agreement, we converted the full amount of principal and interest owed on the $5,000,000, 8% Secured Convertible Promissory Note (Abiomed Note) into 2,866,667 of our common shares (Conversion).

        On June 12, 2008, we announced that we would voluntarily delist our common shares from the Toronto Stock Exchange. Our business moved primarily to the United States in 2005 and as of June 2008 approximately 80% of the stock trades occurred on the NASDAQ Capital Market. At the end of the day on June 13, 2008, our common shares were delisted from the Toronto Stock Exchange. Our common shares continue to be listed on the NASDAQ Capital Market.

        On December 11, 2007, we entered into the Abiomed Note in the principal amount of up to $5.0 million. The Abiomed Note was secured by our assets and contained certain covenants and customary events of default.

        On May 30, 2007, we announced that we effected a reverse stock split on the basis of ten pre-consolidated common shares for one post-consolidated common share.

        In addition, we, in conjunction with a consortium consisting of the University of Pittsburgh, Children's Hospital of Pittsburgh, Carnegie Mellon and LaunchPoint Inc. have been developing a small, magnetically levitated, axial rotary pediatric VAD (PediaFlow™) since 2002. The PediaFlow is intended for use in newborns and infants and has been primarily funded by the National Institutes of Health (NIH). The technology embodied in the PediaFlow is also intended to form the basis for a small, minimally invasive VAD (MiVAD). The MiVAD is aimed at providing partial circulatory support in early-stage heart failure patients. Included in this population are patients who do not respond to cardiac resynchronization therapy and currently have no optimal available therapeutic option. On February 4, 2010, we announced that we were part of a consortium awarded a $5.6 million, 4-year contract by the NIH to further develop the PediaFlow to clinical trial readiness. We are in the process of negotiating an agreement with the prime NIH contractor. The ultimate execution of the subcontract agreement is contingent upon certain items, including a cost sharing arrangement.

Our Products

        Our products in development include the Levacor, the PediaFlow VAD for pediatrics and the MiVAD. Specifically:

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The Levacor is a small, fourth-generation, magnetically levitated, centrifugal, rotary VAD. Unconditional IDE approval for the Bridge-to-Transplant therapeutic application of this device occurred in January 2010 with three subjects being enrolled in the BTT clinical study to date.



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The PediaFlow VAD is a small, magnetically levitated, axial rotary VAD intended for use in infants and currently under development by a consortium, including us. Development is funded primarily by the NIH, under a contract awarded to the University of Pittsburgh, with supplemental funding and technology contributions from us.



•

The MiVAD is based on the technology incorporated in the PediaFlow device using vascular connections to allow placement through minimally invasive techniques. The MiVAD incorporates existing intellectual property as well as internal and external design features from the Levacor. It is intended to provide partial circulatory support in patients at an earlier stage of heart failure than currently used VADs.

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Levacor

        Through the acquisition of MedQuest in July of 2005, we obtained the Levacor, a fourth-generation, rotary blood pump intended for a range of circulatory support indications. Unlike earlier generation rotary pumps with blood-lubricated bearings, the fourth generation Levacor is a compact, bearingless, magnetically-levitated, centrifugal pump with an impeller that is completely magnetically levitated. Full magnetic levitation eliminates wear mechanisms within the pump and provides for greater clearances for more optimized blood flow around the impeller, while eliminating dependence on the patient's blood for suspension. The product's levitation technology employs a unique combination of passive and single-axis active control, resulting in a system of enhanced simplicity.

        We have received unconditional approval from the FDA to conduct a BTT clinical study with the Levacor and we have enrolled our first three subjects in this clinical study. To date, three clinical centers have received Institutional Review Board (IRB) approval, have been fully trained, and have executed all associated research and business agreements. We intend to start a U.S. Destination Therapy clinical study in the first half of 2011 and a CE mark trial in Europe in late 2010, subject to obtaining regulatory approval and the availability of funding.

PediaFlow VAD

        The PediaFlow VAD is a small, magnetically levitated , axial rotary VAD intended for use in newborns and infants. It is currently under development by a consortium, consisting of WorldHeart, the University of Pittsburgh, Children's Hospital of Pittsburgh, Carnegie Mellon and LaunchPoint. Development is primarily being funded by the NIH under two contracts awarded to the University of Pittsburgh, one in 2002 and the second in 2010. The PediaFlow is based on the proprietary maglev technology incorporated in the Levacor. Prototype devices have been successfully tested in acute and chronic animal implants.

MiVAD

        The MiVAD is a miniature maglev rotary pump, intended to provide partial circulatory support in patients at an earlier stage of heart failure than currently used VADs. Its small size is anticipated to allow placement through minimally invasive techniques, reducing the trauma associated with surgically placed devices. The MiVAD design is based on the PediaFlow VAD as well as our intellectual property from the Levacor, including internal and external design features.

Research and Development Expenditures

        Our research and development expenditures were $10.1 million, $9.0 million and $9.9 million for the years ended December 31, 2009, 2008 and 2007, respectively, primarily related to one of our three products.

Third-party Reimbursement for VADs

        The United States Centers for Medicare and Medicaid Services (CMS) currently provide for public reimbursement of VADs used as a BTT or as Destination Therapy. Many of the state Medicaid programs have also followed CMS and provide for public reimbursement as well. In addition, the majority of private insurance carriers also provide for coverage for VAD use. In October 2007, the CMS promulgated a final rule allowing for the implementation of Medical Severity Diagnostic Related Groups (MSDRGs). These MSDRGs replaced the DRG system and have MSDRG payments assigned based on the presence of complications or other diseases a patient may have. The base payment rate for MSDRG-1 (heart transplant or heart assist system implantation with major complications and comorbidities) for fiscal year 2009 is $124,500. In October of 2005, CMS issued HCPCS (healthcare

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common procedural coding systems) codes to allow for reimbursement of outpatient supplies and replacements. Hospitals now are reimbursed for both inpatient and outpatients costs.

        Japan and several countries in Europe provide reimbursement for VADs. Reimbursement, however, varies among countries and governmental budget constraints can limit certain reimbursements.

Application of VADs in Patient Care

Current Treatment Methods for End-Stage Heart Failure

        Research is ongoing in the industry for an effective treatment for advanced heart failure. While providing some benefit, therapies such as medication and transplantation have significant limitations, and alternative emerging technologies are being investigated. The following are treatment methods currently being employed for advanced heart failure:

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Medication.  Pharmaceutical drugs are the first line of defense against heart failure. However, in spite of many advances, drug therapies are currently able to provide only limited benefit in advanced heart failure patients. Drug therapies usually do not, in all cases, treat the underlying disorder and, thus, can only slow progression of the disease. Moreover, a number of heart failure patients may be resistant to treatment with drug therapies, and often such therapies have adverse side effects.



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Heart Transplantation.  Heart transplantation is currently the intervention of choice for patients with end-stage heart failure. However, the availability of donor organs, as well as other major limitations, has limited the number of transplants worldwide to about 3,300 per year and about 2,150 in the United States according to the International Society for Heart & Lung Transplantation (ISHLT) and the United Network for Organ Sharing (UNOS). The ISHLT's data for worldwide use is reportedly conservative, as ISHLT only reports data submitted by transplanting centers. Limited availability of and waiting times for suitable donor hearts adversely impact the utility of heart transplantation.



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Surgical Repair and Cardiac Resynchronization.  Surgical repair (reshaping) of the left ventricle and valve replacements are also utilized in some patients as heart failure treatments. Cardiac resynchronization therapy is increasingly being used in New York Heart Association (NYHA) Class III patients (the NYHA classification is a measure of the degree of heart failure with Class IV patients representing the most advanced heart failure classification) but is not effective for many patients who subsequently become candidates for VAD support.



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Artificial Heart Technology.  Both VADs and total artificial hearts (each a form of mechanical circulatory support) have been shown to be viable treatments for end-stage heart failure. These devices have saved thousands of lives during temporary use as a BTT and have selectively been used for Bridge-to-Recovery or as an alternative to transplantation. Adoption rates for long-term use are continuing to increase, although at a slower rate than anticipated.

Advantages of VADs

        VADs that are either externally placed or implanted have been demonstrated as being effective in supporting blood circulation in patients with a failing heart. To date, more than 21,000 patients have been supported by VADs.

        The following advantages over other treatments generally apply to VADs that are currently approved and in use. Although certain advantages may not apply in every situation or for all patients, we expect that these potential advantages will also apply to our Levacor :

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Supply.  As a manufactured device, VADs are generally available as and when needed, including on an emergency basis, to treat advanced heart failure patients.

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Reduced Hospitalization.  Unlike transplant patients, VAD patients go to surgery without a protracted wait for a donor organ, and in the case of implantable VADs, patients may be able to leave the hospital after a relatively short recovery period.



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Improved Patient Health and Quality of Life.  After VAD implantation, blood circulation is usually improved and most patients experience improved levels of health, as shown in a number of clinical studies. The quality of life for most VAD recipients has been shown to improve and most experience symptomatic relief. There is typically an improvement in NYHA classification for most recipients.



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Reduction in Medication Use.  Unlike transplants, VADs typically do not cause rejection responses and, as a result, VAD patients typically do not need the administration of immuno-suppressive medication. Accordingly, patients are not subject to the risks and costs associated with long-term administration of these medications.



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Natural Heart Recovery.  Unlike total artificial heart systems, VADs leave the natural heart intact and assist it when it is unable to provide sufficient cardiac function to maintain blood circulation. The first two Levacor patients in the feasibility study were successfully weaned from the device.

        There are also limitations and risks associated with VADs. Implanted and externally placed VADs require external power sources (batteries) and controllers. Furthermore, as with other implanted cardiovascular devices, there is the risk of adverse events such as bleeding, stroke, infection and device malfunction.

Marketing, Manufacturing and Distribution Strategy

        We manufacture, distribute and service our clinical products out of our Salt Lake City, Utah facility. We have two field based clinical team members that support our clinical trials and distribution of clinical products.

Intellectual Property

        We hold numerous patents and licenses to patents related to the Levacor and other potential future products. We have ownership of seven United States patents related to the Levacor implantable blood pump technology, either as sole owner or with exclusive licenses from the co-owners. These patents have seven to 15 years remaining life before expiration. A subset of these patents has also been filed and granted in the major European countries, in Canada and in Australia. We hold exclusive licenses to four additional patents, with remaining lives of seven years. In addition, two patents related to control of rotary blood pumps, with seven years remaining life, are non-exclusively licensed. Additional patents are pending.

        We hold a number of registered trademarks and service marks, including WorldHeart. Trademark applications are pending for Levacor, PediaFlow, and MiVAD.

        We generally enter into confidentiality and invention agreements with our employees and consultants, and control access to and distribution of information related to our technology and products, documentation and other proprietary information.

        Licenses related to the Levacor include an exclusive license from the University of Utah to four issued patents for which we have no future obligations, an exclusive royalty-based license to four patents from the University of Virginia, an exclusive royalty-based license from the University of Pittsburgh, an exclusive royalty-based license from Carnegie Mellon University, an exclusive royalty-based assignment agreement with LaunchPoint, and an exclusive royalty-based license with Vertellus UK Limited for a proprietary compound to be applied to Levacor. We also have a royalty-based agreement with The Heart Lung Institute, LLC, which funded early research of the Levacor.

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Competition

Overview

        In addition to competing with other less-invasive therapies for heart failure, our VADs compete with commercially approved VADs and VADs under development, sold by a number of companies. Competition from medical device companies is intense and may increase. Many of our competitors have substantially greater financial, technical, manufacturing, distribution and marketing resources than us.

        At present, there is only one company that has developed implantable, adult VADs that are currently on the market and approved for BTT and Destination Therapy in the United States: Thoratec Corporation (Thoratec). Thoratec has two left ventricular assist device models of its HeartMate that have been approved in the United States for commercial sale. One is pulsatilely driven (Heartmate IP) and the other is rotary driven (HeartMate XVE LVAS). In April 2008, Thoratec received FDA approval of its rotary Heartmate II LVAS for BTT and in January 2010 received FDA approval of its Heartmate II LVAS for Destination Therapy.

        Thoratec, and other companies such as Abiomed, have VADs that are designed for temporary use but are not typically implanted in the body. Their pumps are external and are attached to the natural heart via connecting tubes running through the recipient's skin and tissue. In the U.S., several companies including HeartWare International Inc. (HeartWare), Jarvik Heart, Inc., Terumo Heart Inc. and CircuLite, Inc., have products in clinical trials aimed at the BTT indication. In Europe and certain other countries outside North America, several companies including Berlin Heart, Medos Medizentechnik AG, Micromed Inc., Jarvik Heart, Inc., Terumo Heart Inc., CircuLite, Inc. and HeartWare provide VADs commercially or for clinical trials.

Future Product Competition

Rotary Flow VADs

        There are a number of rotary flow VADs in varying stages of development. Thoratec is commercializing the Heartmate II, a second generation axial rotary pump, that has been approved by the FDA for Bridge-to-Transplantation and for Destination Therapy. HeartWare is in clinical trials with a third generation rotary device called the HeartWare HVAD. Another rotary device, which had been undergoing U.S. clinical trials and is approved for use in Europe, is the MicroMed DeBakey® VAD being developed by MicroMed Technology, Inc. The Jarvik 2000 Flowmaker®, developed by Jarvik Heart, is a device at a comparable state of development to the MicroMed VAD. The Incor rotary pump from Berlin Heart is approved for use in Europe.

        We believe that the Levacor we are developing is a technologically advanced, fourth-generation, rotary pump. This bearingless, centrifugal, magnetically-levitated rotor results in a pump with no moving parts subject to wear, in a small device designed to provide multi-year support. The Levacor is the only fourth-generation, bearingless, centrifugal pump in clinical use.

Government Regulations

Overview

        Most countries, including the United States, Canada and countries that comprise the European Community (EC), require regulatory approval prior to the commercial distribution of medical devices. In particular, active implantable medical devices generally are subject to rigorous clinical testing as a condition of approval by the FDA and by similar authorities in Canada, in the EC and in other countries. The approval process for our Levacor and subsequent products will be expensive and time consuming.

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United States Regulation

        In the United States, the FDA regulates the clinical development, manufacture, distribution, import, export, labeling and promotion of medical devices pursuant to the United States Federal Food, Drug and Cosmetic Act (FDC Act) and regulations under the FDC Act. The Levacor and other such devices are regulated as Class III medical devices that are subject to tracking. Human clinical trials are conducted pursuant to an IDE in the United States, the results of which must demonstrate, to the satisfaction of the FDA, the safety and efficacy of the device. Human clinical trials of medical devices are also required to be listed in a clinical trials registry such as www.clinicaltrials.gov.

        On January 8, 2010 we announced that we had received unconditional approval from the FDA for the BTT clinical study using the Levacor. Study enrollment will encompass 160 subjects, a reduction from the approximate 200 subjects of the original statistical plan. The primary study endpoint comprises survival to heart transplant, or device removal for recovery and survival to 60 days after device removal, or six month survival on the device.

        Before commercial distribution of our devices is permitted in the United States, an application for Pre-Market Approval (PMA) must be approved by the FDA, which often convenes an Advisory Panel comprised of specialists in the clinical field to provide advice on the approvability of particular devices.

        In addition, any medical device distributed in the United States is subject to continuing regulation by the FDA. Products must be manufactured in registered establishments and must be manufactured in accordance with the Quality System Regulation. Labeling and promotional activities are subject to scrutiny by the FDA and, in certain instances, by the Federal Trade Commission. Adverse event reports must be timely submitted to the FDA. Failure to comply with these requirements could result in enforcement action, including seizure, injunction, prosecution, civil penalties, recall and suspension of FDA approval.

Regulatory Requirements in Other Countries

        It is also our intention to market the Levacor and subsequent products in Canada, the EC and other countries. We will be required to meet the applicable medical devices requirements in each such country or region. Although harmonization has been under negotiation for some time among various countries, the approval process varies from country to country and approval in one country does not necessarily result in approval in another.

        The International Standards Organization (ISO) is a worldwide federation of national bodies, founded in Geneva, Switzerland in 1946. ISO standards are integrated requirements which, when implemented, form the foundation and framework for an effective quality management system. These standards are developed and published by the ISO. ISO certification is essential to enter European markets. All companies are required to obtain ISO certification and the "CE" mark, in order to market medical devices in Europe. ISO 13485:2003 certification is the most current and most stringent standard in the ISO series and covers design, production, installation and servicing of products. Subject to availability of funding, we intend to apply for "CE" marking, an international symbol of quality and compliance, for the Levacor and our subsequent products.

Other Regulatory Requirements

        We are also subject to various United States federal, state and local laws and regulations relating to such matters as health care fraud and abuse prevention, safe working conditions, laboratory and manufacturing practices, and the use, handling and disposal of hazardous or potentially hazardous substances used in connection with our research, development and production work. The manufacture of biomaterials is also subject to compliance with various federal environmental regulations and those of various provincial, state and local agencies. Although we believe that we are in compliance with

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these laws and regulations in all material respects, there can be no assurance that we will not be required to incur significant costs to comply with environmental and health and safety regulations in the future.

Our Employees

        At March 1, 2010, we had 53 full time employees. We have 43 employees located in Salt Lake City, Utah with 10 employees working in Oakland, California. Approximately 83% of our employees are involved with research, development, manufacturing, quality, clinical affairs and regulatory, and 17% are in finance, human resources and administration.

        We currently maintain compensation, benefits, equity participation and work environment policies intended to assist in attracting and retaining qualified personnel. We believe that the success of our business will depend, to a significant extent, on our ability to attract and retain such personnel. We have access to skilled labor resources in Salt Lake City, Utah. None of our employees are subject to a collective bargaining agreement nor have we experienced any work stoppages.

Item IA.    RISK FACTORS

        You should carefully consider the following risk factors in evaluating WorldHeart and our common shares. Additional risks and uncertainties not presently known to us or that we currently consider not material may also impair our business, financial condition and results of operations. If any of the events described below actually occurs, our business, financial condition and results of operations could be materially adversely affected.

Risk Factors Relating to Our Business

         We will require significant capital investment to continue our product development programs and to bring future products and product enhancements to market, and if adequate funding is not available, our financial condition will be adversely affected and we may have to further curtail or eliminate our development programs and significantly reduce our expenses or be forced to cease operations.

        Our investment of capital has been and will continue to be significant. Developing our technology, future products and continued product enhancements, including those of the Levacor and other technologies, requires a commitment of substantial funds to conduct the costly and time-consuming research and clinical trials necessary for such development and regulatory approval. If adequate funds are not available when needed, we may be required to delay, reduce the scope of, or eliminate one or more of our research or development programs (including our lead Levacor program) or obtain funds through arrangements with collaborative partners or others that may require us to relinquish rights to certain of our technologies, potential products or products that we would otherwise seek to develop or commercialize ourselves. In addition, while in November 2006 and August 2008, we embarked on significant restructuring and cost reduction initiatives, we may be required to further reduce our operating expenses, including but not limited to, reductions in salaries and/or elimination of employees and consultants or cessation of operations. We believe that cash on hand, including the $7.3 million raised in January 2010, will be sufficient to support our planned operations through the end of 2010. We are continuing to explore strategic and financing alternatives, including equity financing transactions and corporate collaborations. The inability to obtain additional financing or enter into strategic relationships when needed will have a material adverse effect on our business, financial condition and results of operations. There can be no assurance that we will be able to obtain any sources of financing on acceptable terms, or at all. If we are unsuccessful in raising additional capital from any of these sources, we may need to defer, reduce or eliminate certain planned expenditures. If we are not able to reduce or defer our expenditures, secure additional sources of revenue or otherwise secure additional

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funding, we may be unable to continue as a going concern, and we may be forced to restructure or significantly curtail our operations, file for bankruptcy or cease operations.

         We have had substantial losses since incorporation and expect to continue to operate at a loss while our products are under development, and we may never become profitable.

        Since our inception in 1996 through December 31, 2009, we have incurred cumulative losses of approximately $332.7 million, a significant portion of which relates to the costs of internally developed and acquired technologies. Our research and development expenses have increased over the past years, primarily due to our investment in the development programs for the Levacor device. Our research and development activities will likely result in additional significant losses in future periods. These expenditures include costs associated with performing pre-clinical testing and clinical trials for our next generation products, continuing research and development, seeking regulatory approvals and, if we receive these approvals, commencing commercial manufacturing, sales and marketing of our products.

         We may be unable to obtain regulatory approvals, which will prevent us from selling our products and generating revenue.

        Most countries, including the United States, Canada and countries in Europe, require regulatory approval prior to the commercial distribution of medical devices. In particular, implanted medical devices generally are subject to rigorous clinical testing as a condition of approval by the FDA and by similar authorities in Canada, Europe and other countries. The approval process is expensive and time consuming. Non-compliance with applicable regulatory requirements can result in, among other things, fines, injunctions, civil penalties, recall or seizure of products, total or partial suspension of production, government refusal to grant marketing approval for devices, withdrawal of marketing approvals and criminal prosecution. The inability to obtain the appropriate regulatory approvals for our products in the United States and the rest of the world will prevent us from selling our products, which would have a material adverse effect on our business, financial condition and results of operations.

        We are currently conducting a clinical trial under an IDE. During the clinical trial, we may experience unanticipated device issues or clinical outcomes, either of which may cause us to delay or stop our clinical trial. If we were to experience device issues or unanticipated clinical outcomes, the FDA might impose additional conditions or restrictions which could also delay or stop our clinical trial. Any such delays or additional restrictions could impact our ability to get our product approved or could cause material delay in the time period to get approval, which in turn would have a material adverse impact on our business.

        The FDA or any other regulatory authority may not act favorably or quickly in its review of our applications, if and when made, and we may face significant difficulties and costs obtaining such approvals that could delay or preclude us from selling our products in the United States, Europe, Canada and elsewhere. Failure to receive, or delays in receiving, such approvals, including the need for extended clinical trials or additional data as a prerequisite to approval, limitations on the intended use of our products, the restriction, suspension or revocation of any approvals obtained or any failure to comply with approvals obtained could have a material adverse effect on our business, financial condition and results of operations.

         Our clinical trials may be subject to costly delays.

        In order to conduct clinical studies, we must generally receive an IDE for each device from the FDA. We are currently conducting a BTT clinical trial for Levacor product under an IDE. During this clinical trial we may experience unanticipated device issues or clinical outcomes, either of which may

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cause us to delay or stop our clinical trial. The completion of any of our clinical trial may be delayed or halted for numerous reasons, including:

•

subjects may not enroll in clinical trials at the rate we expect and/or subjects may not be followed-up on at the rate we expect;



•

subjects may experience adverse side effects or events related or unrelated to our products;



•

third-party clinical investigators may not perform our clinical trials on our anticipated schedule or consistent with the clinical trial protocol and good clinical practices, or other third-party organizations may not perform data collection and analysis in a timely or accurate manner;



•

the interim results of any of our clinical trials may be inconclusive or negative; and



•

regulatory inspections of our clinical trials or manufacturing facilities may require us to undertake corrective action or suspend or terminate our clinical trials if investigators find us not to be in compliance with regulatory requirements;

        If we were to experience device issues or unanticipated clinical outcomes, the FDA might impose additional conditions or restrictions which could also delay or stop our clinical trial. Any such delays or additional restrictions could impact our ability to get our products approved or could cause material delay in the time period to get approval, which in turn would have a material adverse impact on our business.

         Clinical trials are long, expensive and uncertain processes; if the data collected from pre-clinical and clinical trials of our product candidates is not sufficient to support approval by the FDA, our profitability and stock price could be adversely affected.

        Before we receive regulatory approval for the commercial sale of our devices, our devices are subject to extensive pre-clinical testing and clinical trials to demonstrate their safety and efficacy. Clinical trials are long, expensive and uncertain processes. Clinical trials may not be commenced or completed on schedule, and the FDA may not ultimately approve our product candidates for commercial sale.

        Further, even if the results of our pre-clinical studies or clinical trials are initially positive, it is possible that results seen in clinical trials will not continue with longer-term treatment. The clinical trials of any of our devices, including Levacor, could be unsuccessful, which would prevent us from commercializing the device. Our failure to develop safe, commercially viable devices would substantially impair our ability to generate revenues and sustain our operations and would materially harm our business and adversely affect our stock price.

         We are dependent on a limited number of products.

        To date, our revenues have resulted primarily from sales of the Novacor LVAS and related equipment. With our restructurings announced in November 2006 and August 2008, those revenues have continued to decline and as of the end of 2008, we are no longer selling the Novacor LVAS. Our future financial performance depends primarily on our ability to realign our resources to focus on the development, regulatory approval, introduction, customer acceptance and sales and marketing of the Levacor. Prior to any commercial use, our products currently under development will require significant additional capital for research and development efforts, extensive pre-clinical and clinical testing and regulatory approval.

        New product development is highly uncertain and unanticipated developments, clinical and regulatory delays, adverse or unexpected side effects or inadequate therapeutic efficacy could delay or prevent the commercialization of the Levacor, MiVAD and PediaFlow VAD. Any significant delays in,

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or premature termination of, clinical trials of our products under development would have a material adverse effect on our business, financial condition and results of operations.

         Market acceptance of our technologies and products is uncertain and our selling and distribution capability is limited and has been further reduced by our recent cost reduction initiatives.

        Our next-generation Levacor must compete with other products as well as with other therapies for heart failure, such as medication, transplants, cardiomyoplasty and total artificial heart devices. In addition, although we believe that the Destination Therapy market opportunity for VADs is significant, adoption rates have continued to be slower than anticipated.

        We have a limited number of technical support personnel compared with other medical device companies in our industry segment, and our financial condition has required us to make significant personnel reductions in those areas, which may put us at a further competitive disadvantage in the marketplace. Failure of our products to achieve significant market acceptance due to competitive therapies and our very limited selling and distribution capability could have a material adverse effect on our business, financial condition and results of operations.

         We face significant competition and technological obsolescence of our products.

        In addition to competing with other less-invasive therapies for heart failure, including medications and pacing technology, our products, if regulatory approvals are obtained, will compete with ventricular assist technology being developed and sold by a number of other companies. Competition from medical device companies and medical device subsidiaries of healthcare and pharmaceutical companies is intense and expected to increase.

        Most of our competitors have financial, technical, manufacturing, distribution and marketing resources substantially greater than ours. Third parties may succeed in developing or marketing technologies and products that are safer, more effective and more timely than those developed or marketed by us which could render our technology and products non-competitive or obsolete, or we may not be able to keep pace with technological developments or our competitors' time frames, all of which could have a material adverse effect on our business, financial condition and results of operations.

        In addition, companies in similar businesses are entering into business combinations with one another, which may create more powerful or aggressive competitors. We may not be able to compete successfully as future markets evolve, and we may have to pursue additional acquisitions or other business combinations or strategic alliances. Increased competitive pressure could lead to lower sales and prices of our products, and this could harm our business, results of operations and financial condition.

         There are limitations on third-party reimbursement for the cost of implanting our devices.

        Individual patients will seldom be able to pay directly for the costs of implanting our devices. Successful commercialization of our products will depend in large part upon the availability of adequate reimbursement for the treatment and medical costs from third-party payers, including governmental and private health insurers and managed care organizations. Consequently, we expect that our products will typically be purchased by healthcare providers, clinics, hospitals and other users who will bill various third-party payers, such as government programs and private insurance plans, for the healthcare services provided to their patients.

        The coverage and the level of payment provided by third-party payers in the United States and other countries vary according to a number of factors, including the medical procedure, third-party payer, location and cost. In the United States, many private payers follow the recommendations for

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Centers for Medicare and Medicaid Services, which establish guidelines for governmental coverage of procedures, services and medical equipment.

        There can be no assurance with respect to any markets in which we seek to distribute our products that third-party coverage and reimbursement will be adequate, that current levels of reimbursement will not be decreased in the future or that future legislation, regulation or reimbursement policies of third-party payers will not otherwise adversely affect the demand for our products or our ability to sell our products on a profitable basis, particularly if the installed cost of our systems and devices should be more expensive than competing products or procedures. The unavailability of third-party payer coverage or the inadequacy of reimbursement would have a material adverse effect on our business, financial condition and results of operations.

         If we cannot protect our intellectual property, our business could be adversely affected.

        Our intellectual property rights, including those relating to our Levacor, are and will continue to be, a critical component of our success. The loss of critical licenses, patents or trade secret protection for technologies or know-how relating to our current product and our products in development could adversely affect our business prospects. Our business will also depend in part on our ability to defend our existing and future intellectual property rights and conduct our business activities free of infringement claims by third parties. We intend to seek additional patents, but our pending and future patent applications may not be approved, may not give us a competitive advantage and could be challenged by others. Patent proceedings in the United States and in other countries may be expensive and time consuming. In addition, patents issued by foreign countries may afford less protection than is available under United States intellectual property law, and may not adequately protect our proprietary information.

        Our competitors may independently develop proprietary non-infringing technologies and processes that are substantially similar to ours, or design around our patents. In addition, others could develop technologies or obtain patents, which would render our patents and patent rights obsolete. We could encounter legal and financial difficulties in enforcing our licenses and patent rights against alleged infringers. The medical device industry and cardiovascular device market, in particular, is characterized by frequent and substantial intellectual property litigation. Intellectual property litigation is complex and expensive and the outcome of this litigation is difficult to predict. Any future litigation, regardless of outcome, could result in substantial expense and significant diversion for our technical and management personnel. An adverse determination in any such proceeding could subject us to significant liabilities or require us to seek additional licenses from third parties, pay damages and/or royalties that may be substantial or force us to redesign the related product. These alternatives may be uneconomical or impossible. Furthermore, we cannot assure you that if additional licenses are necessary they would be available on satisfactory terms or at all. Accordingly, an adverse determination in a judicial or administrative proceeding or failure to obtain necessary licenses could prevent us from manufacturing or selling certain of our products, any of which could have a material adverse effect on our business, financial condition and results of operations.

         Our products and product candidates may infringe the intellectual property rights of others, which could increase our costs and negatively affect our profitability.

        Our success also depends on avoiding infringement of the proprietary technologies of others. In particular, there may be certain issued patents and patent applications claiming subject matter that we or our collaborators may be required to license in order to research, develop or commercialize at least some of our product candidates, including Levacor and MiVAD. In addition, third parties may assert infringement or other intellectual property claims against us based on our patents or other intellectual property rights. An adverse outcome in these proceedings could subject us to significant liabilities to third parties, require disputed rights to be licensed from third parties or require us to cease or modify

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our use of the technology. If we are required to license such technology, we cannot assure you that a license under such patents and patent applications will be available on acceptable terms or at all. Further, we may incur substantial costs defending ourselves in lawsuits against charges of patent infringement or other unlawful use of another's proprietary technology.

         We are exposed to product liability claims.

        Our business exposes us to an inherent risk of potential product liability claims related to Levacor and other future products, by device recipients or by their families. Claims of this nature, if successful, could result in substantial damage awards to the claimants, which may exceed the limits of any applicable insurance coverage held by us. A successful claim brought against us in excess of, or outside of, our insurance coverage would have a material adverse effect on our financial condition. Claims against us, regardless of their merit or potential outcome, could also have a material adverse effect on our ability to obtain physician acceptance of our products, to expand our business or obtain insurance in the future, which could have a material adverse effect on our business and results of operations.

         We face risks associated with our manufacturing operations, risks resulting from dependence on third-party manufacturers, and risks related to dependence on sole suppliers.

        The manufacture of our products is a complex operation involving a number of separate processes and components. Material costs are high and certain of the manufacturing processes involved are labor-intensive. The conduct of manufacturing operations is subject to numerous risks, including reliance on third-party manufacturers, unanticipated technological problems and delays. From time to time, we have experienced manufacturing challenges and delays, and we may experience manufacturing challenges and delays in the future. Any such challenges or delays, if significant, could negatively affect our ability to develop and deliver our products in a timely manner, which could have a material adverse effect on our business, financial condition and results of operations. In addition, we, or any entity manufacturing products or components on our behalf, may not be able to comply with applicable governmental regulations or satisfy regulatory inspections in connection with the manufacture of our products, which would have a material or adverse effect on our business, financial condition and results of operation.

        We often depend on single-source third-party manufacturers for several of the components used in our products. We do not have agreements with many of such single-source manufacturers and purchase these components pursuant to purchase orders placed from time to time in the ordinary course of business. We are substantially dependent on the ability of these manufacturers to provide adequate inventories of these components on a timely basis and on favorable terms. These manufacturers also produce components for certain of our competitors, as well as other large customers, and there can be no assurance that such manufacturers will have sufficient production capacity to satisfy our inventory or scheduling requirements during any period of sustained demand, or that we will not be subject to the risk of price fluctuations and periodic delays. Although we believe that our relationships with our manufacturers are satisfactory and that alternative sources for the components we currently purchase from single-source suppliers are currently available, the loss of the services of such manufacturers or substantial price increases imposed by such manufacturers, in the absence of readily available alternative sources of supply, would have a material adverse effect on us. Failure or delay by such manufacturers in supplying components to us on favorable terms could also adversely affect our operating margins and our ability to develop and deliver our products on a timely and competitive basis, which could have a material adverse effect on our business, financial condition and results of operations.

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         We are dependent on key personnel.

        As a result of the specialized scientific nature of our business, we are dependent on our ability to attract and retain qualified scientific, technical and key management personnel. We face intense competition for such persons and we may not be able to attract or retain such individuals. Our restructuring, cost reduction and consolidation efforts in November 2006 and August 2008 may make it more difficult for us to attract and retain qualified personnel.

         Moving our operations may be disruptive.

        On August 21, 2008, we announced a phased consolidation into a primary facility at our current location in Salt Lake City, Utah. In this context, we eliminated positions at our facility in Oakland, California, including the position of Vice President of Manufacturing. The consolidation is still on-going and will be through the end of our facility lease in November 2010 at our Oakland, California facility. The consolidation of our operations may result in ongoing disruptions to our operations and the loss of personnel who would be costly to replace. The loss of employees could also have a significant impact on the continuity and progress of our research and development programs. The costs and possible disruptions that may result from this consolidation could have a material adverse effect on our business, financial condition and results of operations.

Risk Factors Relating to Our Common Stock

         Our stock price has been and will continue to be volatile and an investment in our common stock could suffer a decline in value.

        You should consider an investment in our common stock as risky and invest only if you can withstand a significant loss and wide fluctuations in the market value of your investment. We receive only limited attention by securities analysts and frequently experience an imbalance between supply and demand for our common stock. The market price of our common stock has been highly volatile and is likely to continue to be volatile. Factors affecting our common stock price include:

•

fluctuations in our operating results;



•

announcements of technological innovations or new commercial products by us or our competitors;



•

governmental regulation and changes in medical device reimbursement policies;



•

developments in patent or other intellectual property rights;



•

public concern as to the safety and efficacy of devices that we and our competitors develop;



•

our ability to meet market expectations with respect to FDA approval or the timing for FDA approval for our product candidates; and



•

general market conditions.

         We may not be able to maintain our listing on The NASDAQ Capital Market, which would adversely affect the price and liquidity of our common stock.

        Currently our common stock is quoted on the NASDAQ Capital Market under the symbol "WHRT". We must satisfy certain minimum listing maintenance requirements to maintain the NASDAQ Capital Market quotation, including certain governance requirements and a series of financial tests relating to shareholders equity or net income or market value, public float, number of market makers and stockholder, market capitalization, and maintaining a minimum bid price of $1.00 per share.

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        During 2009 and 2008, we received notices from The NASDAQ Stock Market stating non-compliance with various listing maintenance requirements. On February 1, 2010, we received a NASDAQ Staff Deficiency Letter notifying us that we do not comply with the independent audit committee requirements set forth in NASDAQ Listing Rule 5605. On October 28, 2008 and August 31, 2009, we received letters from the NASDAQ Staff notifying us that we failed to maintain a minimum of 500,000 publicly held shares requirement for continued listing on the NASDAQ Capital Market as set forth in NASDAQ Listing Rule 5550(a)(4). To date, we are in compliance with all minimum listing requirements of the NASDAQ Capital Market and all matters have been closed with NASDAQ. We have had difficulties maintaining compliance in the past and we might not be able to maintain compliance with all minimum listing requirements in the future. If we do not meet NASDAQ's continued listing requirements NASDAQ may take action to delist our common stock. A delisting of our common stock could negatively impact us by reducing the liquidity and market price of our common stock and potentially reducing the number of investors willing to hold or acquire our common stock.

         The sales of common stock by our stockholders could depress the price of our common stock.

        If our stockholders sell substantial amounts of our common stock in the public market, the market price of our common stock could fall. These sales might also make it more difficult for us to sell equity or equity related securities at a time and price that we would deem appropriate. None of the common stock we issued in the private placement in January 2010 has been registered pursuant to a resale registration statement. However, we also registered for resale stock issued in connection with prior private placements completed in 2010, 2008, 2006 and 2005. Sales by these stockholders could have an adverse impact on the trading price of our common stock.

         The concentration of our capital stock ownership, following the completion of the July 2008 private placement and recapitalization and the January 2010 private placement, may limit your ability to influence corporate matters.

        Our common stock is held by a relatively small number of investors. After the completion of our $7.3 million private placement in January 2010 and our $30.0 million private placement financing in July 2008, four of our largest stockholders collectively beneficially own approximately 95% of our common stock. These investors also have certain rights to designate members of our Board of Directors and may exercise significant influence over all matters requiring stockholder approval, including elections of directors and significant corporate transactions, such as a merger or other sale of WorldHeart or our assets for the foreseeable future. This concentrated control may limit your ability to influence corporate matters and, as a result, we may take actions that our stockholders do not view as beneficial.

         Inquiries or proceedings regarding our stock option granting practices may be disruptive.

        We have been the subject of an inquiry from the Ontario Securities Commission (OSC) relating to our historical option granting practices in the past. We, and our current and former directors and officers, may become the subject of government inquiries, shareholder derivative and class action lawsuits and other legal proceedings relating to our historical option granting practices in the future. Should any of these events occur, they could require us to expend significant management time and incur significant accounting, legal and other expenses.

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         Because we do not intend to pay, and have not paid, any cash dividends on our common stock, our shareholders will not be able to receive a return on their common stock unless the value of our common stock appreciates and they sell them.

        We have never paid any cash dividends on our common stock and intend to retain future earnings, if any, to finance the development and expansion of our business. We do not anticipate paying any cash dividends on our common stock in the foreseeable future. As a result, our stockholders will not be able to receive a return on their common stock unless the value of our common stock appreciates and they sell them.

         Provisions of Delaware corporate law and provisions of our charter and bylaws may discourage a takeover attempt.

        Our charter and bylaws and provisions of Delaware law may deter or prevent a takeover attempt, including an attempt that might result in a premium over the market price for our common stock. Our board of directors has the authority to issue shares of preferred stock and to determine the price, rights, preferences and restrictions, including voting rights of those shares without any further vote or action by the stockholders. The issuance of preferred stock, while providing desirable flexibility in connection with possible acquisitions and other corporate purposes, could have the effect of making it more difficult for a third party to acquire a majority of our outstanding voting stock. These provisions, along with Section 203 of the Delaware General Corporation Law, prohibiting certain business combinations with an interested stockholder, could discourage potential acquisition proposals and could delay or prevent a change of control.

Item 2.    Properties

Our Facilities

        Our facility in Salt Lake City, Utah is comprised of 32,888 square feet of research and office space of which 24,044 is leased through January 31, 2011. The additional square feet of space was added on October 1, 2007 by expanding into an adjacent vacant suite. The lease on this additional space expires January 31, 2013.

        We have a leased manufacturing and research and development facility located in Oakland, California consisting of approximately 19,200 square feet. The lease on this facility expires November 30, 2010 and we do not plan to renew, or extend the lease.

        We are not aware of any environmental issues that may affect the use of our properties. We currently have no investments in real estate, real estate mortgages or real estate securities, and do not anticipate making any such investments. However, our policy with respect to investments in real estate assets may change in the future without a vote of shareholders.

Item 3.    Legal Proceedings.

        In the normal course of business, we may be a party to legal proceedings. We are not currently a party to any material legal proceedings, except as mentioned below.

        On December 21, 2007 our registered office in Ottawa, Ontario, Canada received a claim filed in the Court of Queen's Bench of Alberta, Judicial District of Calgary, alleging a breach of a letter of intent we entered into with Network Capital, Inc. (NCI) in relation to a potential tax monetization transaction. The claim sought specific performance of the contract or, in the alternative, damages in the amount of $35.0 million plus costs and interest. The claim was not properly served and the deadline to properly service the claim has passed. We believe this claim to be null and void.

Item 4.    Submission of Matters to a Vote of Security Holders

N/A

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PART II

Item 5.    Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.

        Our common shares are traded on the NASDAQ Capital Market under the symbol WHRT. Our common shares have been trading on one of the NASDAQ exchanges since August 1998.

        The following table sets forth the high and low sales prices for our common stock as reported on NASDAQ for the periods indicated. Share prices have been adjusted to reflect the thirty-for-one reverse stock split effected on October 27, 2008.

        As of March 1, 2010, the approximate number of holders of record of our common shares was 350.

        We have never paid any dividends to stockholders and presently intend to retain our future earnings, if any, to fund the development and growth of our business and, therefore, do no anticipate paying any cash dividends in the foreseeable future.

Item 6.    Selected Financial Data

        N/A

Item 7.    Management's Discussion and Analysis of Financial Condition and Results of Operations.

INTRODUCTION

        World Heart Corporation and its subsidiaries are collectively referred to as "WorldHeart" or the "Company". The following Management Discussion and Analysis of Financial Condition and Results of Operations (MD&A) was prepared by management and discusses material changes in our financial condition and results of operations and cash flows for the years ended December 31, 2009, 2008, and 2007. Such discussion and comments on the liquidity and capital resources should be read in conjunction with the information contained in the accompanying audited consolidated financial statements prepared in accordance with U.S. GAAP. In this discussion, all amounts are in United States dollars (U.S. dollars) unless otherwise stated.

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OVERVIEW

        The discussion and comments contained hereunder include both historical information and forward-looking information. The forward-looking information, which generally is information stated to be anticipated, expected, or projected by management, involves known and unknown risks, uncertainties and other factors that may cause the actual results and performance to be materially different from any future results and performance expressed or implied by such forward-looking information. Potential risks and uncertainties include, without limitation: our need for additional significant financing in the future; risks associated with our Levacor clinical trial; costs and delays associated with research and development, manufacturing, pre-clinical testing and clinical trials for our products and next-generation candidates, such as the Levacor, and MiVAD; our ability to manufacture, sell and market our products; decision, and the timing of decisions made by health regulatory agencies regarding approval of our products; competition from other products and therapies for heart failure; continued slower than anticipated destination therapy adoption rate for VADS; limitations on third-party reimbursements; our ability to obtain and enforce in a timely manner patent and other intellectual property protection for our technology and products; our ability to obtain and enforce in a timely manner patent and other intellectual property protection for our technology and products; our ability to avoid, either by product design, licensing arrangement or otherwise, infringement of third parties' intellectual property; our ability to enter into corporate alliances or other strategic relationships relating to the development and commercialization of our technology and products; loss of commercial market share to competitors due to our financial condition; our ability to remain listed on the NASDAQ Capital Market; as well as other risks and uncertainties set forth under Item 1A. "Risk Factors".

        Our business is focused on the development and sale of ventricular assist devices (VADs), particularly our Levacor VAD (Levacor). VADs are mechanical assist devices that supplement the circulatory function of the heart by re-routing blood flow through a mechanical pump allowing for the restoration of normal blood circulation. In August 2009, we received conditional approval from the U.S. Food and Drug Administration (FDA) for Levacor to begin a Bridge-to-Transplant (BTT) clinical study and in January 2010 we received unconditional approval from the FDA. BTT clinical study enrollment will involve approximately 160 subjects at ten U.S. centers initially. The follow-up period for subjects in the BTT clinical trial is six months with the end points of the BTT study being survival to heart transplant, six month survival on device or device removal for recovery and survival to 60 days after device removal. We expect to initiate a CE Mark clinical trial in Europe with Levacor by the end of 2010 and plan to initiate a Destination Therapy clinical study in the U.S. with Levacor by the first half of 2011, both contingent on our ability to obtain future financing and our ability to satisfactorily complete all regulatory requirements. To date we have enrolled three subjects in the BTT clinical study.

        In addition, we, in conjunction with a consortium consisting of the University of Pittsburgh, Children's Hospital of Pittsburgh, Carnegie Mellon University and LaunchPoint Technologies, Inc. (LaunchPoint) have been developing a small, magnetically levitated, axial rotary pediatric VAD (PediaFlow™). The PediaFlow is intended for use in newborns and infants and has been primarily funded by the National Institutes of Health (NIH). The technology embodied in the PediaFlow is also intended to form the basis for a small, minimally invasive VAD (MiVAD). The MiVAD is aimed at providing partial circulatory support in an earlier-stage heart failure patient. We expect to be in a clinical trial with the MiVAD by the first half of 2014.

        On January 26, 2010, we announced that we completed a private placement of our common stock and warrants to purchase common stock. Gross proceeds from the offering were approximately $7.3 million. We issued an aggregate of 1,418,726 newly-issued shares of common stock and warrants to purchase up to 2,837,452 additional shares of common stock.

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        On January 4, 2010, we announced that effective January 1, 2010, World Heart Corporation changed its jurisdiction of incorporation from the federal jurisdiction of Canada to the state of Delaware in the United States through a plan of arrangement.

        On July 31, 2008, we completed a $30.0 million private placement transaction and recapitalization (Recapitalization Agreement). Under the terms of the recapitalization, we issued 10.0 million common shares (Issuance). In connection with the Issuance, the parties to the recapitalization entered into a Registration Rights Agreement dated July 31, 2008, as amended October 31, 2008, to register the common shares issued in connection with the Issuance and Abiomed conversion. We paid aggregate cash commission of $750,000 and issued warrants to purchase an aggregate of 83,333 common shares to our advisors.

        On August 21, 2008, we announced that we were embarking on a phased consolidation into a primary facility at our current location in Salt Lake City, Utah. As part of our consolidation plan, on February 4, 2009, we announced that we had appointed Mr. John Alexander Martin as our President and Chief Executive Officer and on August 10, 2009 we announced that we had appointed Mr. Morgan R. Brown as our Executive Vice President and Chief Financial Officer, with both positions based in Salt Lake City, Utah. Mr. Jal S. Jassawalla, our former President and CEO, currently our Executive Vice President and Chief Technology Officer, continues to be based in Oakland, California, along with certain key employees in areas such as Research and Development, Clinical Affairs and Regulatory Affairs.

        Research and development by our competitors is proceeding on several rotary flow devices. Certain of these devices have received the CE mark in Europe and are advancing through clinical trials in the United States and Europe, and one device has received U.S. marketing approval for the BTT and Destination Therapy indications. We believe that our Levacor has significant clinical, blood handling, durability, and ease of use benefits as compared to our competitors.

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RESULTS OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 2009 COMPARED WITH THE YEAR ENDED DECEMBER 31, 2008
In thousands (000's)

        Revenue.    Historically, sales of Novacor LVAS implant kits and related peripheral equipment and services accounted for the majority of our revenue. In addition, we generated revenue from sales of SPUS (Segmented Poly Urethane Solution), used by one other medical device manufacturer. We do not expect any sale of Novacor LVAS or any significant sales of SPUS to occur in the future. We have historically sold our products directly, except for a few countries where we sold through distributors.

        The composition of revenue in thousands ($000's), except for units, is as follows:

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Purchase obligations primarily represent commitments for services, manufacturing agreements and other research and purchase commitments.

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Management contract or compensatory plan or arrangement