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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549





FORM 10-Q







|x | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|- | ---------------------------------------------------------------------------------------

For the quarterly period ended September 30, 2009

OR



| ̈ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|- | ----------------------------------------------------------------------------------------

For the transition period from              to

Commission file number 000-30334





Angiotech Pharmaceuticals, Inc.

(Exact Name of Registrant as Specified in Its Charter)







|                                                               |  |                                        
|-------------------------------------------------------------- |  | ---------------------------------------
|British Columbia, Canada                                       |  | 98-0226269                             
|(State or Other Jurisdiction of Incorporation or Organization) |  | (I.R.S. Employer Identification Number)
|                                                               | 
|1618 Station Street Vancouver, B.C. Canada                     |  | V6A 1B6                                
|(Address of Principal Executive Offices)                       |  | (Zip Code)                             

Registrants telephone number, including area code: (604) 221-7676





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 (as amended, 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  x    No   ̈

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 (§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   ̈    No   ̈

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.



|                        |  |                                                  |  |                           |  |  
|----------------------- |  | ------------------------------------------------ |  | ------------------------- |  | -
|Large accelerated filer |  |  ̈                                                |  | Accelerated filer         |  | x
|                        |  |                                                  | 
|Non-accelerated filer   |  |  ̈  (Do not check if a smaller reporting company) |  | Smaller reporting company |  |  ̈

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

Indicate the number of shares outstanding of each of the issuers classes of common stock, as of the latest practicable date.

85,136,700 Common Shares, no par value, as of November 9, 2009









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##### Table of Contents

ANGIOTECH PHARMACEUTICALS, INC.

QUARTERLY REPORT ON FORM 10-Q

For the Three Months Ended September 30, 2009

TABLE OF CONTENTS



|                             |  |                                                                                                                   |  |     
|---------------------------- |  | ----------------------------------------------------------------------------------------------------------------- |  | ----
|                             |  |                                                                                                                   |  | Page
|PART IFINANCIAL INFORMATION
|Item 1                       |  | Financial Statements:                                                                                             |  |     
|                             |  |                                                                                                                  
|                             |  | Consolidated Balance Sheets as of September 30, 2009 (unaudited) and December 31,
2008                            |  | 1   
|                             |  |                                                                                                                  
|                             |  | Consolidated Statements of Operations for the Three and Nine Months Ended September 30, 2009 and 2008 (unaudited) |  | 2   
|                             |  |                                                                                                                  
|                             |  | Consolidated Statements of Stockholders Equity (Deficit) as of September 30, 2009 and 2008 (unaudited)           |  | 3   
|                             |  |                                                                                                                  
|                             |  | Consolidated Statements of Cash Flows for the Three and Nine Months Ended September 30, 2009 and 2008 (unaudited) |  | 5   
|                             |  |                                                                                                                  
|                             |  | Notes to Unaudited Consolidated Financial Statements                                                              |  | 6   
|                             |  |                                                                                                                  
|Item 2                       |  | Managements Discussion and Analysis of Financial Condition and Results of Operations                             |  | 36  
|                             |  |                                                                                                                  
|Item 3                       |  | Quantitative and Qualitative Disclosures about Market Risk                                                        |  | 56  
|                             |  |                                                                                                                  
|Item 4                       |  | Controls and Procedures                                                                                           |  | 56  
|                            
|PART IIOTHER INFORMATION   
|                             |  |                                                                                                                  
|Item 1                       |  | Legal Proceedings                                                                                                 |  | 57  
|                             |  |                                                                                                                  
|Item 1A                      |  | Risk Factors                                                                                                      |  | 59  
|                             |  |                                                                                                                  
|Item 2                       |  | Unregistered Sales of Equity Securities and Use of Proceeds                                                       |  | 60  
|                             |  |                                                                                                                  
|Item 3                       |  | Defaults Upon Senior Securities                                                                                   |  | 60  
|                             |  |                                                                                                                  
|Item 4                       |  | Submission of Matters to a Vote of Security Holders                                                               |  | 60  
|                             |  |                                                                                                                  
|Item 5                       |  | Other Information                                                                                                 |  | 61  
|                             |  |                                                                                                                  
|Item 6                       |  | Exhibits                                                                                                          |  | 62  
|                             | 
|SIGNATURES                   |  | 63                                                                                                               



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##### Table of Contents

PART IFINANCIAL INFORMATION



|Item 1. | Financial Statements
|------- | --------------------

Angiotech Pharmaceuticals, Inc.

CONSOLIDATED BALANCE SHEETS

(All amounts expressed in thousands of U.S. dollars)

(Unaudited)



|                                                        |  |                   |          |   |                  |   |          |  
|------------------------------------------------------- |  | ----------------- | -------- | - | ---------------- | - | -------- | -
|                                                        |  | September 30,2009 |          |   | December 31,2008 |  
|ASSETS                                                  |  |                   |          |   |                  |   |          |  
|Current assets                                          |  |                   |          |   |                  |   |          |  
|Cash and cash equivalents [note 5]                      |  | $                 | 51,458   |   |                  | $ | 38,952   |  
|Short-term investments [note 6]                         |  |                   | 2,298    |   |                  |   | 848      |  
|Accounts receivable                                     |  |                   | 28,874   |   |                  |   | 25,524   |  
|Inventories [note 7]                                    |  |                   | 37,954   |   |                  |   | 38,594   |  
|Deferred income taxes, current portion                  |  |                   | 3,090    |   |                  |   | 3,820    |  
|Prepaid expenses and other current assets               |  |                   | 4,072    |   |                  |   | 5,234    |  
|                                                        |  |                   |          |   |                  |   |          |  
|Total current assets                                    |  |                   | 127,746  |   |                  |   | 112,972  |  
|                                                        |  |                   |          |   |                  |   |          |  
|Long-term investments                                   |  |                   | 1,561    |   |                  |   | 1,561    |  
|Assets held for sale                                    |  |                   | 8,391    |   |                  |   | 8,422    |  
|Property, plant and equipment [note 8]                  |  |                   | 46,903   |   |                  |   | 49,108   |  
|Intangible assets [note 9(a)]                           |  |                   | 176,447  |   |                  |   | 195,477  |  
|Deferred financing costs [note 11]                      |  |                   | 11,993   |   |                  |   | 11,363   |  
|Deferred income taxes                                   |  |                   | 1,835    |   |                  |   |         |  
|Other assets                                            |  |                   | 2,257    |   |                  |   | 6,294    |  
|                                                        |  |                   |          |   |                  |   |          |  
|Total assets                                            |  | $                 | 377,133  |   |                  | $ | 385,197  |  
|                                                        |  |                   |          |   |                  |   |          |  
|LIABILITIES AND STOCKHOLDERS DEFICIT                   |  |                   |          |   |                  |   |          |  
|                                                        |  |                  
|Current liabilities                                     |  |                   |          |   |                  |   |          |  
|Accounts payable and accrued liabilities [note 10]      |  | $                 | 38,932   |   |                  | $ | 46,620   |  
|Income taxes payable                                    |  |                   | 7,261    |   |                  |   | 8,071    |  
|Interest payable on long-term debt                      |  |                   | 10,797   |   |                  |   | 6,514    |  
|Deferred revenue, current portion                       |  |                   | 210      |   |                  |   | 210      |  
|                                                        |  |                   |          |   |                  |   |          |  
|Total current liabilities                               |  |                   | 57,200   |   |                  |   | 61,415   |  
|                                                        |  |                   |          |   |                  |   |          |  
|Deferred revenue                                        |  |                   | 842      |   |                  |   | 999      |  
|Deferred leasehold inducement                           |  |                   | 2,968    |   |                  |   | 2,780    |  
|Deferred income taxes                                   |  |                   | 40,587   |   |                  |   | 40,577   |  
|Other tax liabilities                                   |  |                   | 3,145    |   |                  |   | 3,145    |  
|Long-term debt [note 11]                                |  |                   | 575,000  |   |                  |   | 575,000  |  
|Other liabilities                                       |  |                   | 686      |   |                  |   | 1,154    |  
|                                                        |  |                   |          |   |                  |   |          |  
|Total non-current liabilities                           |  |                   | 623,228  |   |                  |   | 623,655  |  
|                                                        |  |                   |          |   |                  |   |          |  
|Commitments and contingencies [note 14]                 |  |                   |          |   |                  |   |          |  
|                                                        |  |                  
|Stockholders deficit                                   |  |                   |          |   |                  |   |          |  
|Share capital [note 13]                                 |  |                   |          |   |                  |   |          |  
|Authorized:                                             |  |                   |          |   |                  |   |          |  
|200,000,000 Common shares, without par value            |  |                   |          |   |                  |   |          |  
|50,000,000 Class I Preference shares, without par value |  |                   |          |   |                  |   |          |  
|Common shares issued and outstanding:                   |  |                   |          |   |                  |   |          |  
|September 30, 2009  85,136,725                         |  |                   |          |   |                  |   |          |  
|December 31, 2008  85,121,983                          |  |                   | 472,742  |   |                  |   | 472,739  |  
|Additional paid-in capital                              |  |                   | 33,278   |   |                  |   | 32,107   |  
|Accumulated deficit                                     |  |                   | (850,908 | ) |                  |   | (843,673 | )
|Accumulated other comprehensive income                  |  |                   | 41,593   |   |                  |   | 38,954   |  
|                                                        |  |                   |          |   |                  |   |          |  
|Total stockholders deficit                             |  |                   | (303,295 | ) |                  |   | (299,873 | )
|                                                        |  |                   |          |   |                  |   |          |  
|Total liabilities and stockholders deficit             |  | $                 | 377,133  |   |                  | $ | 385,197  |  
|                                                        |  |                   |          |   |                  |   |          |  

See accompanying notes to the consolidated financial statements



1



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##### Table of Contents

Angiotech Pharmaceuticals, Inc.

CONSOLIDATED STATEMENTS OF OPERATIONS

(All amounts expressed in thousands of U.S. dollars, except share and per share data)

(Unaudited)



|                                                                                      |  |                                 |        |   |                                |   |          |      |  |   |                      |   |  |   |          |  
|------------------------------------------------------------------------------------- |  | ------------------------------- | ------ | - | ------------------------------ | - | -------- | ---- |  | - | -------------------- | - |  | - | -------- | -
|                                                                                      |  | Three Months EndedSeptember 30, |        |   | Nine Months EndedSeptember 30, |  
|                                                                                      |  | 2009                            |        |   | 2008Restated[note 1]           |   |          | 2009 |  |   | 2008Restated[note 1] |  
|REVENUE                                                                               |  |                                 |        |   |                                |   |          |      |  |   |                      |   |  |   |          |  
|Royalty revenue                                                                       |  | $                               | 14,531 |   |                                | $ | 21,405   |      |  | $ | 48,638               |   |  | $ | 75,871   |  
|Product sales, net                                                                    |  |                                 | 48,660 |   |                                |   | 46,502   |      |  |   | 141,976              |   |  |   | 144,761  |  
|License fees                                                                          |  |                                 | 53     |   |                                |   | 453      |      |  |   | 25,503               |   |  |   | 558      |  
|                                                                                      |  |                                 |        |   |                                |   |          |      |  |   |                      |   |  |   |          |  
|                                                                                      |  |                                 | 63,244 |   |                                |   | 68,360   |      |  |   | 216,117              |   |  |   | 221,190  |  
|                                                                                      |  |                                 |        |   |                                |   |          |      |  |   |                      |   |  |   |          |  
|EXPENSES                                                                              |  |                                 |        |   |                                |   |          |      |  |   |                      |   |  |   |          |  
|License and royalty fees                                                              |  |                                 | 2,463  |   |                                |   | 3,452    |      |  |   | 7,937                |   |  |   | 11,484   |  
|Cost of products sold                                                                 |  |                                 | 25,958 |   |                                |   | 24,772   |      |  |   | 75,606               |   |  |   | 77,430   |  
|Research and development                                                              |  |                                 | 4,596  |   |                                |   | 10,658   |      |  |   | 17,526               |   |  |   | 45,468   |  
|Selling, general and administration                                                   |  |                                 | 17,924 |   |                                |   | 23,370   |      |  |   | 59,102               |   |  |   | 77,100   |  
|Depreciation and amortization                                                         |  |                                 | 8,285  |   |                                |   | 8,560    |      |  |   | 24,845               |   |  |   | 25,577   |  
|In-process research and development                                                   |  |                                 |       |   |                                |   |         |      |  |   |                     |   |  |   | 2,500    |  
|Write-down of goodwill [note 9(b)]                                                    |  |                                 |       |   |                                |   | 599,400  |      |  |   |                     |   |  |   | 599,400  |  
|                                                                                      |  |                                 |        |   |                                |   |          |      |  |   |                      |   |  |   |          |  
|                                                                                      |  |                                 | 59,226 |   |                                |   | 670,212  |      |  |   | 185,016              |   |  |   | 838,959  |  
|                                                                                      |  |                                 |        |   |                                |   |          |      |  |   |                      |   |  |   |          |  
|                                                                                      |  |                                 |        |  
|Operating income (loss)                                                               |  |                                 | 4,018  |   |                                |   | (601,852 | )    |  |   | 31,101               |   |  |   | (617,769 | )
|                                                                                      |  |                                 |        |   |                                |   |          |      |  |   |                      |   |  |   |          |  
|                                                                                      |  |                                 |        |  
|Other income (expenses):                                                              |  |                                 |        |   |                                |   |          |      |  |   |                      |   |  |   |          |  
|Foreign exchange (loss) gain                                                          |  |                                 | (518   | ) |                                |   | 1,009    |      |  |   | (1,227               | ) |  |   | 1,569    |  
|Investment and other income (expense)                                                 |  |                                 | 46     |   |                                |   | 187      |      |  |   | 74                   |   |  |   | 1,630    |  
|Interest expense on long-term debt                                                    |  |                                 | (9,286 | ) |                                |   | (10,790  | )    |  |   | (28,971              | ) |  |   | (33,851  | )
|Write-down / loss on investments                                                      |  |                                 |       |   |                                |   | (1,901   | )    |  |   |                     |   |  |   | (12,561  | )
|Write-down and other deferred financing charges                                       |  |                                 |       |   |                                |   | (13,544  | )    |  |   | (643                 | ) |  |   | (13,544  | )
|                                                                                      |  |                                 |        |   |                                |   |          |      |  |   |                      |   |  |   |          |  
|Total other expenses                                                                  |  |                                 | (9,758 | ) |                                |   | (25,039  | )    |  |   | (30,767              | ) |  |   | (56,757  | )
|                                                                                      |  |                                 |        |   |                                |   |          |      |  |   |                      |   |  |   |          |  
|                                                                                      |  |                                 |        |  
|(Loss) / income before income taxes                                                   |  |                                 | (5,740 | ) |                                |   | (626,891 | )    |  |   | 334                  |   |  |   | (674,526 | )
|Income tax (recovery) / expense                                                       |  |                                 | 2,062  |   |                                |   | (4,513   | )    |  |   | 7,569                |   |  |   | (10,314  | )
|                                                                                      |  |                                 |        |   |                                |   |          |      |  |   |                      |   |  |   |          |  
|Net loss                                                                              |  | $                               | (7,802 | ) |                                | $ | (622,378 | )    |  | $ | (7,235               | ) |  | $ | (664,212 | )
|                                                                                      |  |                                 |        |   |                                |   |          |      |  |   |                      |   |  |   |          |  
|Basic and diluted net loss per common share:                                          |  | $                               | (0.09  | ) |                                | $ | (7.31    | )    |  | $ | (0.08                | ) |  | $ | (7.80    | )
|                                                                                      |  |                                 |        |   |                                |   |          |      |  |   |                      |   |  |   |          |  
|                                                                                      |  |                                 |        |  
|Basic and diluted weighted average number of common shares outstanding (in thousands) |  |                                 | 85,136 |   |                                |   | 85,122   |      |  |   | 85,125               |   |  |   | 85,117   |  
|                                                                                      |  |                                 |        |   |                                |   |          |      |  |   |                      |   |  |   |          |  

See accompanying notes to the consolidated financial statements



2



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##### Table of Contents

Angiotech Pharmaceuticals, Inc.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY (DEFICIT)

(All amounts expressed in thousands of U.S. dollars, except share data)

(Unaudited)



|                                                                                             |  |               |  |                   |         |             |   |         |                               |   |          |               |  |      |                    |   |        |   |          |   |  |   |          |  
|-------------------------------------------------------------------------------------------- |  | ------------- |  | ----------------- | ------- | ----------- | - | ------- | ----------------------------- | - | -------- | ------------- |  | ---- | ------------------ | - | ------ | - | -------- | - |  | - | -------- | -
|                                                                                             |  | Common Shares |  | Additionalpaid-in |         | Accumulated |   |         | Accumulatedothercomprehensive |   |          | Comprehensive |  |      | Totalstockholders |  
|                                                                                             |  | Shares        |  | Amount            |         | capital     |   | deficit |                               |   | income   |               |  | loss |                    |   | equity |  
|Balance at December 31, 2007                                                                 |  | 85,073,983    |  | $                 | 472,618 |             | $ | 29,669  |                               | $ | (102,497 | )             |  | $    | 42,282             |   |        |   |          |   |  | $ | 442,072  |  
|                                                                                             |  |               |  |                   |         |             |   |         |                               |   |          |               |  |      |                    |   |        |   |          |   |  |   |          |  
|Exercise of stock options for cash                                                           |  | 48,000        |  |                   | 121     |             |   |         |                               |   |          |               |  |      |                    |   |        |   |          |   |  |   | 121      |  
|Stock-based compensation                                                                     |  |               |  |                   |         |             |   | 817     |                               |   |          |               |  |      |                    |   |        |   |          |   |  |   | 817      |  
|Net unrealized loss on available-for-sale securities, net of taxes (nil)                     |  |               |  |                   |         |             |   |         |                               |   |          |               |  |      | (4,133             | ) |        | $ | (4,133   | ) |  |   | (4,133   | )
|Cumulative translation adjustment                                                            |  |               |  |                   |         |             |   |         |                               |   |          |               |  |      | 10,583             |   |        |   | 10,583   |   |  |   | 10,583   |  
|Net loss                                                                                     |  |               |  |                   |         |             |   |         |                               |   | (15,763  | )             |  |      |                    |   |        |   | (15,763  | ) |  |   | (15,763  | )
|                                                                                             |  |               |  |                   |         |             |   |         |                               |   |          |               |  |      |                    |   |        |   |          |   |  |   |          |  
|Comprehensive loss                                                                           |  |               |  |                   |         |             |   |         |                               |   |          |               |  |      |                    |   |        | $ | (9,313   | ) |  |   |          |  
|                                                                                             |  |               |  |                   |         |             |   |         |                               |   |          |               |  |      |                    |   |        |   |          |   |  |   |          |  
|Balance at March 31, 2008                                                                    |  | 85,121,983    |  | $                 | 472,739 |             | $ | 30,486  |                               | $ | (118,260 | )             |  | $    | 48,732             |   |        |   |          |   |  | $ | 433,697  |  
|                                                                                             |  |               |  |                   |         |             |   |         |                               |   |          |               |  |      |                    |   |        |   |          |   |  |   |          |  
|Stock-based compensation                                                                     |  |               |  |                   |         |             |   | 608     |                               |   |          |               |  |      |                    |   |        |   |          |   |  |   | 608      |  
|Net unrealized loss on available-for-sale securities, net of taxes                           |  |               |  |                   |         |             |   |         |                               |   |          |               |  |      | (2,235             | ) |        | $ | (2,235   | ) |  |   | (2,235   | )
|Reclassification of net unrealized loss on available-for-sale securities, net of taxes (nil) |  |               |  |                   |         |             |   |         |                               |   |          |               |  |      | 10,656             |   |        |   | 10,656   |   |  |   | 10,656   |  
|Cumulative translation adjustment                                                            |  |               |  |                   |         |             |   |         |                               |   |          |               |  |      | 9                  |   |        |   | 9        |   |  |   | 9        |  
|Net loss                                                                                     |  |               |  |                   |         |             |   |         |                               |   | (26,071  | )             |  |      |                    |   |        |   | (26,071  | ) |  |   | (26,071  | )
|                                                                                             |  |               |  |                   |         |             |   |         |                               |   |          |               |  |      |                    |   |        |   |          |   |  |   |          |  
|Comprehensive loss                                                                           |  |               |  |                   |         |             |   |         |                               |   |          |               |  |      |                    |   |        | $ | (17,641  | ) |  |   |          |  
|                                                                                             |  |               |  |                   |         |             |   |         |                               |   |          |               |  |      |                    |   |        |   |          |   |  |   |          |  
|Balance at June 30, 2008                                                                     |  | 85,121,983    |  | $                 | 472,739 |             | $ | 31,094  |                               | $ | (144,331 | )             |  | $    | 57,162             |   |        |   |          |   |  | $ | 416,664  |  
|                                                                                             |  |               |  |                   |         |             |   |         |                               |   |          |               |  |      |                    |   |        |   |          |   |  |   |          |  
|Stock-based compensation                                                                     |  |               |  |                   |         |             |   | 556     |                               |   |          |               |  |      |                    |   |        |   |          |   |  |   | 556      |  
|Cumulative translation adjustment                                                            |  |               |  |                   |         |             |   |         |                               |   |          |               |  |      | (17,613            | ) |        | $ | (17,613  | ) |  |   | (17,613  | )
|Net loss                                                                                     |  |               |  |                   |         |             |   |         |                               |   | (622,378 | )             |  |      |                    |   |        |   | (622,378 | ) |  |   | (622,378 | )
|                                                                                             |  |               |  |                   |         |             |   |         |                               |   |          |               |  |      |                    |   |        |   |          |   |  |   |          |  
|Comprehensive loss                                                                           |  |               |  |                   |         |             |   |         |                               |   |          |               |  |      |                    |   |        | $ | (639,991 | ) |  |   |          |  
|                                                                                             |  |               |  |                   |         |             |   |         |                               |   |          |               |  |      |                    |   |        |   |          |   |  |   |          |  
|Balance at September 30, 2008                                                                |  | 85,121,983    |  | $                 | 472,739 |             | $ | 31,650  |                               | $ | (766,709 | )             |  | $    | 39,549             |   |        |   |          |   |  | $ | (222,771 | )
|                                                                                             |  |               |  |                   |         |             |   |         |                               |   |          |               |  |      |                    |   |        |   |          |   |  |   |          |  

See accompanying notes to the consolidated financial statements



3



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##### Table of Contents

|                                                                         |  |               |  |                   |         |         |             |        |         |                               |   |          |               |  |        |                    |   |           |   |         |   |  |   |          |  
|------------------------------------------------------------------------ |  | ------------- |  | ----------------- | ------- | ------- | ----------- | ------ | ------- | ----------------------------- | - | -------- | ------------- |  | ------ | ------------------ | - | --------- | - | ------- | - |  | - | -------- | -
|                                                                         |  | Common Shares |  | Additionalpaid-in |         |         | Accumulated |        |         | Accumulatedothercomprehensive |   |          | Comprehensive |  |        | Totalstockholders |  
|                                                                         |  | Shares        |  | Amount            |         | capital |             |        | deficit |                               |   | income   |               |  | income |                    |   | (deficit) |  
|Balance at December 31, 2008                                             |  | 85,121,983    |  | $                 | 472,739 |         | $           | 32,107 |         |                               | $ | (843,673 | )             |  | $      | 38,954             |   |           |   |         |   |  | $ | (299,873 | )
|                                                                         |  |               |  |                   |         |         |             |        |         |                               |   |          |               |  |        |                    |   |           |   |         |   |  |   |          |  
|Stock-based compensation                                                 |  |               |  |                   |         |         |             | 386    |         |                               |   |          |               |  |        |                    |   |           |   |         |   |  |   | 386      |  
|Net unrealized gain on available-for-sale securities, net of taxes (nil) |  |               |  |                   |         |         |             |        |         |                               |   |          |               |  |        | 847                |   |           | $ | 847     |   |  |   | 847      |  
|Cumulative translation adjustment                                        |  |               |  |                   |         |         |             |        |         |                               |   |          |               |  |        | (1,152             | ) |           |   | (1,152  | ) |  |   | (1,152   | )
|Net income                                                               |  |               |  |                   |         |         |             |        |         |                               |   | 12,444   |               |  |        |                    |   |           |   | 12,444  |   |  |   | 12,444   |  
|                                                                         |  |               |  |                   |         |         |             |        |         |                               |   |          |               |  |        |                    |   |           |   |         |   |  |   |          |  
|Comprehensive income                                                     |  |               |  |                   |         |         |             |        |         |                               |   |          |               |  |        |                    |   |           | $ | 12,139  |   |  |   |          |  
|                                                                         |  |               |  |                   |         |         |             |        |         |                               |   |          |               |  |        |                    |   |           |   |         |   |  |   |          |  
|Balance at March 31, 2009                                                |  | 85,121,983    |  | $                 | 472,739 |         | $           | 32,493 |         |                               | $ | (831,229 | )             |  | $      | 38,649             |   |           |   |         |   |  | $ | (287,348 | )
|                                                                         |  |               |  |                   |         |         |             |        |         |                               |   |          |               |  |        |                    |   |           |   |         |   |  |   |          |  
|Exercise of stock options                                                |  | 4,742         |  |                   | 1       |         |             | (1     | )       |                               |   |          |               |  |        |                    |   |           |   |         |   |  |   |         |  
|Stock-based compensation                                                 |  |               |  |                   |         |         |             | 423    |         |                               |   |          |               |  |        |                    |   |           |   |         |   |  |   | 423      |  
|Net unrealized gain on available-for-sale securities, net of taxes (nil) |  |               |  |                   |         |         |             |        |         |                               |   |          |               |  |        | (38                | ) |           | $ | (38     | ) |  |   | (38      | )
|Cumulative translation adjustment                                        |  |               |  |                   |         |         |             |        |         |                               |   |          |               |  |        | 1,796              |   |           |   | 1,796   |   |  |   | 1,796    |  
|Net loss                                                                 |  |               |  |                   |         |         |             |        |         |                               |   | (11,877  | )             |  |        |                    |   |           |   | (11,877 | ) |  |   | (11,877  | )
|                                                                         |  |               |  |                   |         |         |             |        |         |                               |   |          |               |  |        |                    |   |           |   |         |   |  |   |          |  
|Comprehensive loss                                                       |  |               |  |                   |         |         |             |        |         |                               |   |          |               |  |        |                    |   |           | $ | (10,119 | ) |  |   |          |  
|                                                                         |  |               |  |                   |         |         |             |        |         |                               |   |          |               |  |        |                    |   |           |   |         |   |  |   |          |  
|Balance at June 30, 2009                                                 |  | 85,126,725    |  | $                 | 472,740 |         | $           | 32,915 |         |                               | $ | (843,106 | )             |  | $      | 40,407             |   |           |   |         |   |  | $ | (297,044 | )
|                                                                         |  |               |  |                   |         |         |             |        |         |                               |   |          |               |  |        |                    |   |           |   |         |   |  |   |          |  
|Exercise of stock options                                                |  | 10,000        |  |                   | 2       |         |             |        |         |                               |   |          |               |  |        |                    |   |           |   |         |   |  |   | 2        |  
|Stock-based compensation                                                 |  |               |  |                   |         |         |             | 363    |         |                               |   |          |               |  |        |                    |   |           |   |         |   |  |   | 363      |  
|Net unrealized gain on available-for-sale securities, net of taxes (nil) |  |               |  |                   |         |         |             |        |         |                               |   |          |               |  |        | 641                |   |           | $ | 641     |   |  |   | 641      |  
|Cumulative translation adjustment                                        |  |               |  |                   |         |         |             |        |         |                               |   |          |               |  |        | 545                |   |           |   | 545     |   |  |   | 545      |  
|Net loss                                                                 |  |               |  |                   |         |         |             |        |         |                               |   | (7,802   | )             |  |        |                    |   |           |   | (7,802  | ) |  |   | (7,802   | )
|                                                                         |  |               |  |                   |         |         |             |        |         |                               |   |          |               |  |        |                    |   |           |   |         |   |  |   |          |  
|Comprehensive loss                                                       |  |               |  |                   |         |         |             |        |         |                               |   |          |               |  |        |                    |   |           | $ | (6,616  | ) |  |   |          |  
|                                                                         |  |               |  |                   |         |         |             |        |         |                               |   |          |               |  |        |                    |   |           |   |         |   |  |   |          |  
|Balance at September 30, 2009                                            |  | 85,136,725    |  | $                 | 472,742 |         | $           | 33,278 |         |                               | $ | (850,908 | )             |  | $      | 41,593             |   |           |   |         |   |  | $ | (303,295 | )
|                                                                         |  |               |  |                   |         |         |             |        |         |                               |   |          |               |  |        |                    |   |           |   |         |   |  |   |          |  

See accompanying notes to the consolidated financial statements



4



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Angiotech Pharmaceuticals, Inc.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(All amounts expressed in thousands of U.S. dollars)

(Unaudited)



|                                                                              |  |                                 |        |   |                                |   |          |      |  |   |        |   |  |   |          |  
|----------------------------------------------------------------------------- |  | ------------------------------- | ------ | - | ------------------------------ | - | -------- | ---- |  | - | ------ | - |  | - | -------- | -
|                                                                              |  | Three Months EndedSeptember 30, |        |   | Nine Months EndedSeptember 30, |  
|                                                                              |  | 2009                            |        |   | 2008                           |   |          | 2009 |  |   | 2008   |  
|OPERATING ACTIVITIES                                                          |  |                                 |        |   |                                |   |          |      |  |   |        |   |  |   |          |  
|Net loss                                                                      |  | $                               | (7,802 | ) |                                | $ | (622,378 | )    |  | $ | (7,235 | ) |  | $ | (664,212 | )
|Adjustments to reconcile net loss to cash provided by operating activities:   |  |                                 |        |   |                                |   |          |      |  |   |        |   |  |   |          |  
|Depreciation and amortization                                                 |  |                                 | 9,198  |   |                                |   | 9,680    |      |  |   | 27,423 |   |  |   | 28,808   |  
|Loss on disposition of property and equipment                                 |  |                                 | 342    |   |                                |   |         |      |  |   | 410    |   |  |   | 12       |  
|Write-down / loss on redemption of investments                                |  |                                 |       |   |                                |   | 1,962    |      |  |   |       |   |  |   | 12,622   |  
|Write-down and other deferred financing charges                               |  |                                 |       |   |                                |   | 13,544   |      |  |   | 643    |   |  |   | 13,544   |  
|Write-down of goodwill                                                        |  |                                 |       |   |                                |   | 599,400  |      |  |   |       |   |  |   | 599,400  |  
|Loss on disposal of intangible assets                                         |  |                                 |       |   |                                |   | 113      |      |  |   |       |   |  |   | 113      |  
|Unrealized foreign exchange (loss) gain                                       |  |                                 | (986   | ) |                                |   | 821      |      |  |   | (1,630 | ) |  |   | 865      |  
|Deferred leasehold inducements                                                |  |                                 | (84    | ) |                                |   |         |      |  |   | (219   | ) |  |   |         |  
|Deferred income taxes                                                         |  |                                 | 1,514  |   |                                |   | (7,134   | )    |  |   | (1,082 | ) |  |   | (12,499  | )
|Stock-based compensation expense                                              |  |                                 | 363    |   |                                |   | 556      |      |  |   | 1,172  |   |  |   | 1,980    |  
|Deferred revenue                                                              |  |                                 | (53    | ) |                                |   | (202     | )    |  |   | (158   | ) |  |   | (158     | )
|Non-cash interest expense                                                     |  |                                 | 624    |   |                                |   | 559      |      |  |   | 1,991  |   |  |   | 1,676    |  
|In-process research and development                                           |  |                                 |       |   |                                |   |         |      |  |   |       |   |  |   | 2,500    |  
|Other                                                                         |  |                                 |       |   |                                |   | (65      | )    |  |   |       |   |  |   | (183     | )
|Net change in non-cash working capital items relating to operations [note 18] |  |                                 | (163   | ) |                                |   | 1,545    |      |  |   | 1,509  |   |  |   | (4,496   | )
|                                                                              |  |                                 |        |   |                                |   |          |      |  |   |        |   |  |   |          |  
|Cash provided by (used in) operating activities                               |  |                                 | 2,953  |   |                                |   | (1,599   | )    |  |   | 22,824 |   |  |   | (20,028  | )
|                                                                              |  |                                 |        |   |                                |   |          |      |  |   |        |   |  |   |          |  
|                                                                              |  |                                 |        |  
|INVESTING ACTIVITIES                                                          |  |                                 |        |   |                                |   |          |      |  |   |        |   |  |   |          |  
|Proceeds from short-term investments                                          |  |                                 |       |   |                                |   | 605      |      |  |   |       |   |  |   | 605      |  
|Purchase of property, plant and equipment                                     |  |                                 | (1,901 | ) |                                |   | (1,398   | )    |  |   | (3,590 | ) |  |   | (7,183   | )
|Purchase of intangible assets                                                 |  |                                 |       |   |                                |   |         |      |  |   | (2,500 | ) |  |   | (1,000   | )
|Loans advanced                                                                |  |                                 |       |   |                                |   |         |      |  |   | (1,200 | ) |  |   |         |  
|In-process research and development                                           |  |                                 |       |   |                                |   |         |      |  |   |       |   |  |   | (2,500   | )
|Other                                                                         |  |                                 |       |   |                                |   | 143      |      |  |   | 252    |   |  |   | 447      |  
|                                                                              |  |                                 |        |   |                                |   |          |      |  |   |        |   |  |   |          |  
|Cash used in investing activities                                             |  |                                 | (1,901 | ) |                                |   | (650     | )    |  |   | (7,038 | ) |  |   | (9,631   | )
|                                                                              |  |                                 |        |   |                                |   |          |      |  |   |        |   |  |   |          |  
|                                                                              |  |                                 |        |  
|FINANCING ACTIVITIES                                                          |  |                                 |        |   |                                |   |          |      |  |   |        |   |  |   |          |  
|Deferred financing charges and costs                                          |  |                                 | (218   | ) |                                |   | (2,170   | )    |  |   | (3,194 | ) |  |   | (3,791   | )
|Proceeds from stock options exercised                                         |  |                                 | 2      |   |                                |   |         |      |  |   | 2      |   |  |   | 121      |  
|                                                                              |  |                                 |        |   |                                |   |          |      |  |   |        |   |  |   |          |  
|Cash used in financing activities                                             |  |                                 | (216   | ) |                                |   | (2,170   | )    |  |   | (3,192 | ) |  |   | (3,670   | )
|                                                                              |  |                                 |        |   |                                |   |          |      |  |   |        |   |  |   |          |  
|Effect of exchange rate changes on cash and cash equivalents                  |  |                                 | (36    | ) |                                |   | (1,545   | )    |  |   | (88    | ) |  |   | (1,046   | )
|Net increase (decrease) in cash and cash equivalents                          |  |                                 | 800    |   |                                |   | (5,964   | )    |  |   | 12,506 |   |  |   | (34,375  | )
|Cash and cash equivalents, beginning of period                                |  |                                 | 50,658 |   |                                |   | 62,915   |      |  |   | 38,952 |   |  |   | 91,326   |  
|                                                                              |  |                                 |        |   |                                |   |          |      |  |   |        |   |  |   |          |  
|Cash and cash equivalents, end of period                                      |  | $                               | 51,458 |   |                                | $ | 56,951   |      |  | $ | 51,458 |   |  | $ | 56,951   |  
|                                                                              |  |                                 |        |   |                                |   |          |      |  |   |        |   |  |   |          |  

See accompanying notes to the consolidated financial statements



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##### Table of Contents

Angiotech Pharmaceuticals, Inc.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(All tabular amounts expressed in thousands of U.S. dollars, except share and per share data)

(Unaudited)



|1. | BASIS OF PRESENTATION
|-- | ---------------------

These unaudited interim consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States of America (U.S. GAAP) and pursuant to the rules and regulations of
the United States Securities and Exchange Commission (SEC) for the presentation of interim financial information. Accordingly, certain information and footnote disclosures normally included in annual financial statements prepared in
accordance with U.S. GAAP have been omitted. The information included in this Quarterly Report on Form 10-Q should be read in conjunction with the consolidated financial statements and accompanying notes included in the Companys Annual Report
amended by Form 10-K/A, for the year ended December 31, 2008.

In managements opinion, all adjustments (which
include reclassification and normal recurring adjustments) necessary to present fairly the consolidated balance sheets, consolidated statements of operations, consolidated statements of stockholders deficit and consolidated statements of cash
flows at September 30, 2009 and for all periods presented, have been made.

The consolidated statement of operations for
the three and nine months ended September 30, 2008 have been restated to correct the classification of the $599.4 million goodwill impairment write-down from other expenses to operating expenses in accordance with the Companys Form 10-K/A
for the year ended December 31, 2008.

The following table presents the impact of the correction:



|                     |  |                                      |          |   |                                     |   |          |          |  |   |                       |   |  |            |          |   |          |   |          |   |  |   |          |  
|-------------------- |  | ------------------------------------ | -------- | - | ----------------------------------- | - | -------- | -------- |  | - | --------------------- | - |  | ---------- | -------- | - | -------- | - | -------- | - |  | - | -------- | -
|                     |  | Three months endedSeptember 30,
2008 |          |   | Nine months endedSeptember 30,
2008 |  
|                     |  | As previouslyreported                |          |   | Correction                          |   |          | Restated |  |   | As previouslyreported |   |  | Correction |          |   | Restated |  
|Operating loss       |  | $                                    | (2,452   | ) |                                     | $ | (599,400 | )        |  | $ | (601,852              | ) |  | $          | (18,369  | ) |          | $ | (599,400 | ) |  | $ | (617,769 | )
|Total other expenses |  |                                      | (624,439 | ) |                                     |   | 599,400  |          |  |   | (25,039               | ) |  |            | (656,157 | ) |          |   | 599,400  |   |  |   | (56,757  | )

The restatement had no impact on the consolidated balance sheet as at
December 31, 2008, the consolidated statements of stockholders equity or consolidated statements of cash flows for any of the periods presented. See note 9(b) for a detailed description of the goodwill impairment write-down.

In connection with the preparation of the interim financial statements and in accordance with Accounting Standards Codification
(ASC) No. 855, Subsequent Events, we evaluated subsequent events after the balance sheet date of September 30, 2009 through November 9, 2009, which is the date the financial statements were issued. The results of
operations for the three and nine months ended September 30, 2009 may not necessarily be indicative of the results for the full year ending December 31, 2009.

All amounts herein are expressed in U.S. dollars unless otherwise noted. The year end balance sheet data was derived from audited financial statements but does not include all of the disclosures required
under U.S. GAAP.

Liquidity risk

Liquidity risk is the risk that the Company will encounter difficulty in meeting obligations associated with its financial liabilities and other contractual obligations. We monitor and manage our
liquidity risk by preparing rolling cash flow forecasts, monitoring the condition and value of assets available to be used as security in financing arrangements, seeking flexibility in financing arrangements and establishing programs to monitor and
maintain compliance with terms of financing agreements. A key component of managing liquidity risk is also ensuring that operating cash flows are optimized. Our principal objective in managing liquidity risk is to maintain cash and access to cash at
levels sufficient to meet our day-to-day operating requirements.

For the nine months ended September 30, 2009, we
reported a balance of cash and cash equivalents (cash resources) of $51.5 million, which represented a net increase in cash resources of $12.5 million as compared to December 31, 2008. During the three months ended
September 30, 2009, operating activities provided $3.0 million, and we used $1.9 million to fund investing activities and $0.2 million for financing activities. For the nine months ended September 30, 2009, operating activities provided
$22.8 million, and we used $7.0 million to fund investing activities and $3.2 million for financing activities. Our cash resources are used to support clinical studies, research and development initiatives, sales and marketing initiatives, working
capital



6



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##### Table of Contents

requirements, debt servicing requirements and for general corporate costs. Our cash resources may also be used to fund acquisitions of, or investments in, businesses, products or technologies
that expand, complement or are otherwise related to our business.

During 2008 and continuing in 2009, we undertook various
initiatives and developed a plan to manage our operating and liquidity risks including:



| |  |  | Reduction of research and development activities and reduction in staffing within the clinical and research and development departments.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Gross margin improvement initiatives including the transfer of certain manufacturing operations to lower cost regions and the closure of the Syracuse,
NY operations.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Cost containment initiatives including staffing reductions in general and administrative departments, a supplier concession program and other cost
reduction initiatives.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Selective reduction in certain sales and marketing investments and investments in medical affairs.
| | - |  | --------------------------------------------------------------------------------------------------



| |  |  | Postponement of selected planned capital expenditures.
| | - |  | ------------------------------------------------------



| |  |  | Obtaining a financing commitment from Wells Fargo Foothill, LLC (Wells Fargo) as described below and in note 11(c).
| | - |  | ---------------------------------------------------------------------------------------------------------------------



| |  |  | Completing an Amended and Restated Distribution and License Agreement with our partner Baxter International Inc. (Baxter) for which we
received an up-front payment of $25.0 million in lieu of future royalty and milestone obligations related to the existing formulations of CoSeal or any future products under the terms of the Amended and Restated Distribution and License Agreement.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

We face a number of risks and uncertainties that may significantly impact our ability to generate cash flows
from our operations and to fund our capital expenditures and future opportunities that might be available to us. These risks and uncertainties may materially impact our liquidity position throughout the remainder of 2009 and future years. The more
significant risks and uncertainties that have and may continue to impact our future operating results, cash flows and liquidity position are as follows:



| |  |  | Revenue in our Pharmaceutical Technologies segment declined $7.3 million for the three months ended September 30, 2009, as compared to the same
period in 2008, primarily as a result of decrease in royalty revenue derived from sales by Boston Scientific Corporation (BSC) of TAXUS® coronary stent systems primarily due to new competitive entrants into the U.S. drug-eluting stent market beginning in 2008. The decrease in royalty revenue derived
from sales by BSC of TAXUS® coronary stent systems was $25.6 million for the nine months ended
September 30, 2009, as compared to the same period in 2008. However, our Pharmaceutical Technologies segment revenues in total decreased by $2.3 million for the nine months ended September 30, 2009 as compared to the same period in 2008,
primarily as a result of a one-time license fee received in the first quarter of 2009 from Baxter of $25.0 million for an Amended and Restated Distribution and License Agreement. Under our license agreement with BSC, we do not control the direct or
indirect sales of the TAXUS products. We expect the impact of new competitive conditions to be reflected through the full year 2009 and in subsequent years, which, accordingly, is expected to result in lower revenues and cash flows derived from
sales of TAXUS in the fourth quarter of 2009 and subsequent years.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Revenue from the Medical Products segment for the three and nine months ended September 30, 2009 was $48.7 million and $142.0 million,
respectively, compared to $46.5 million and $144.8 million, respectively in the same periods in 2008. The current economic environment and difficult credit markets and liquidity environment may have an impact on our customers and therefore on our
product sales in the fourth quarter of 2009 and future years. In light of these conditions, we are continuously monitoring and managing our sales activities; however, several factors that may affect our revenues are not within our control. In
addition, we continue to implement our marketing plans for our newer promoted brand products such as the Quill SRS product line and the Option Inferior Vena Cava (IVC) Filter, with the expectation of continued growth in the fourth quarter of 2009. It is possible that the expected growth in
revenue in the fourth quarter of 2009 for these newer product lines may not be achieved and revenues for other products may decline.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | For the three and nine months ended September 30, 2009, our product sales gross margin of 47% remained consistent with same respective periods in
2008. Gross margins in 2009 compared to 2008 were positively impacted by a relative increase in sales of higher margin product lines and the continued launch of certain new higher margin product lines for which there were no material sales in the
comparable prior year period. These positive factors were offset by unforeseen production inefficiencies at our Aguadilla, Puerto Rico facility. Specifically, we have incurred costs for labor, inventory, materials and overhead at our Aguadilla
facility in anticipation of surgical needle order levels consistent with what was recorded during 2008. With the unexpected cancellation of orders by one of our largest customers at the beginning of 2009, we took steps to eliminate excess costs in
this facility that were no longer justified by the lower resulting production volumes. These excess costs have been expensed over the second and third quarters of 2009 with no concurrent revenue recorded as originally anticipated.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | We have implemented initiatives to reduce our research and development costs, selling, general and administrative costs and capital expenditures for
2009. We continue to closely monitor costs in relation to sales activity and forecasted revenues. We
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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##### Table of Contents

| | expect that some limited future cost reductions could be achieved if forecasted revenues are not achieved. However, such cost reductions may affect our future opportunities. In addition, as
reported in note 14, we have entered into certain commitments and are exposed to certain contingencies for which the outcome is not necessarily within our control. Acceleration of research and development activities under collaboration agreements by
counterparties and any unexpected outcomes in respect of contingencies may require payments earlier than they are currently expected.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | As noted in note 11, on May 29, 2009, we entered into an amendment to our senior secured term loan and revolving credit facility with Wells Fargo
that we originally entered into in February 2009. This financing originally included a delayed draw secured term loan facility of up to $10.0 million and a secured revolving credit facility, with a borrowing base derived from the value of certain of
our finished goods inventory and accounts receivable, providing up to an additional $22.5 million in available credit, subject to certain terms and conditions. The amendment included, among other things, early termination of the term loan facility,
which was originally scheduled to terminate on August 31, 2009. The amendment also expanded the definition of Permitted Investments and eliminated a $2.5 million availability block, increasing the total available credit under the revolving
credit facility to $25.0 million (subject to a borrowing base formula derived from the value of certain of our finished goods inventory and accounts receivable). As of September 30, 2009, the amount of financing available under the revolving
credit facility was approximately $13.0 million and there were no borrowings outstanding under the revolving credit facility. The secured credit facility includes certain covenants and restrictions with respect to our operations and requires us to
maintain certain levels of adjusted earnings before interest, taxes, depreciation and amortization (Adjusted EBITDA) and interest coverage ratios, among other terms and conditions. These covenants may limit our ability to borrow under
the revolving credit facility or may require repayment. While we expect to be able to maintain the Adjusted EBITDA and interest coverage covenants during the fourth quarter of 2009, it is possible that events and circumstances may occur that may
affect our ability to operate our business within the restrictions proposed by the financial covenants and other restrictions relating to the revolving credit facility.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Our future interest payments related to our existing long-term debt continue to be significant. During the three and nine months ended
September 30, 2009, we incurred interest expense of $9.3 million and $29.0 million respectively on the outstanding long-term debt obligations, as compared to $10.8 million and $33.9 million respectively for the same periods in 2008. Additional
interest expense will be incurred if the revolving credit facility described above is utilized. The Senior Floating Rate Notes due 2013 (Floating Rate Notes) reset quarterly to an interest rate of 3-month London Interbank Offered Rate
(LIBOR) plus 3.75% and bore an interest rate of 4.1% at September 30, 2009 compared to 6.6% at September 30, 2008. Volatility in the LIBOR and interest rates in general are outside of our control. We do not use derivatives to
hedge against this interest rate risk and it is possible that volatility in the LIBOR will continue throughout the remainder of 2009 and into 2010. Changes in the LIBOR will affect interest costs.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | We are significantly leveraged and have significant future interest payments. We are continuing to evaluate a range of financial and strategic
alternatives with our financial and legal advisors with respect to our capital structure. There can be no assurance that we will be able to consummate any new financing or other transaction that would be favorable to us. Actions to pursue
alternative financing structures may require us to incur additional costs, which may impact our cash and liquidity position.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

While we believe that we have developed planned courses of action and identified other opportunities to mitigate the operating and liquidity risks outlined above, there can be no assurance that we will be
able to achieve any or all of the opportunities we have identified or obtain sufficient liquidity to execute our business plan. Furthermore, there may be other material risks and uncertainties that may impact our liquidity position that we have not
yet identified.



|2. | SIGNIFICANT ACCOUNTING POLICIES
|-- | -------------------------------

Other than the changes in accounting policies described below in these interim consolidated financial statements, all accounting policies are the same as described in note 2 to our audited consolidated financial statements for the year
ended December 31, 2008 included in our 2008 Annual Report on Form 10-K for the year ended December 31, 2008, as amended by our Form 10-K/A, filed with the SEC on November 6, 2009.

The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the
reported amount of assets and liabilities and disclosures of contingent assets and liabilities at the dates of the financial statements and the reported amounts of revenue and expenses during the reported periods. Estimates are used when accounting
for the collectability of receivables, valuing deferred tax assets, provisions for inventory obsolescence, accounting for manufacturing variances, determining stock-based compensation expense and reviewing long-lived assets for impairment. Actual
results may differ materially from these estimates.

Recently adopted accounting policies

In June 2009 the Financial Accounting Standards Board (FASB) issued ASC No. 105-10  Generally Accepted Accounting
Principles. ASC No. 105-10 identifies the sources of accounting principles and the framework for selecting the principles used in the preparation of US GAAP financial statements for non-governmental entities. The new ASC framework
supersedes all existing literature by restructuring the



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hierarchy into two levels of U.S. GAAP from authoritative and non-authoritative sources. ASC No. 105-10 is effective for interim and annual periods ending after September 15, 2009.
Adoption of this standard had no impact on the Companys financial results, presentation or disclosure given that the substance of the literature remained unchanged. References to US authoritative GAAP recognized by the FASB in these interim
unaudited consolidated financial statements reflect the FASB codification.

The Company currently accounts for business
combinations in accordance with ASC No. 805  Business Combinations based on Statement of Financial Accounting Standards (SFAS) No. 141 (R), Business Combinations. ASC No. 805 changes accounting for
business combinations by requiring acquiring entities to recognize all assets acquired and liabilities assumed in a transaction at the acquisition-date fair value with limited exceptions. This includes a change in the accounting treatment and
disclosure of specific items in a business combination. ASC No. 805 applies prospectively to business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after
December 15, 2008. The impact on accounting for business combinations will depend on the occurrence of future acquisitions.

The Company accounts for assets and liabilities, which are assumed in a business combination and arise from contingencies, in accordance with the guidance specified under ASC No. 805  Business Combinations based on FASB Staff
Position (FSP) Financial Accounting Standard (FAS) No. 141 (R)-1  Accounting for Assets Acquired and Liabilities Assumed in a Business Combination that Arise from Contingencies. Consistent with the prior standard,
ASC No. 805 amends and clarifies the initial recognition and measurement, subsequent measurement and accounting, and related disclosures arising from contingencies in a business combination. The impact on accounting for business combinations
will depend on the occurrence of future acquisitions.

Effective July 1, 2009 ASC No. 808-10, Collaborative
Arrangements,replaced Emerging Issues Task Force (EITF) Issue 07-01, Accounting for Collaborative Arrangements.The standard requires collaborators to present the results of activities for which they act as the principal on a
gross basis. Any payments received from (made to) other collaborators should be recorded in accordance with other applicable GAAP or, in the absence of other applicable GAAP, guidance provided by authoritative accounting literature or a reasonable,
rational, and consistently applied accounting policy. Furthermore, the standard clarifies whether transactions under a collaborative arrangement are part of a vendor-customer (or analogous) relationship and addresses appropriate income statement
classification and disclosures related to these arrangements. ASC 808-10 is effective for fiscal years beginning December 15, 2008. This standard had no impact on the Companys financial results given that it relates to disclosure and
presentation only.

Effective July 1, 2009 ASC 275-10-50, Risks and Uncertainties Disclosureand ASC 350,
Intangibles  Goodwill and Other,replaced FSP FAS No. 142-3, Determination of the Useful Life of Intangible Assets. Consistent with the prior standards, ASC 275-10-50 amends the factors that should be considered in
developing renewal or extension assumptions used to determine the useful life of a recognized intangible asset under ASC No. 350. The intent of the position is to improve the consistency between the useful life of a recognized intangible asset
under ASC No. 350 and the period of expected cash flows used to measure the fair value of the intangible asset. ASC No. 275-10-50 and ASC No. 350 are effective for fiscal years beginning after December 15, 2008. Adoption of this
standard had no material impact on our consolidated balance sheets, results of operations or cash flows.

The Company has
adopted ASC No. 350-30, Intangibles  Goodwill and Otherand ASC No. 805-20-20, Business Combinations  Identifiable Assets and Liabilities and Any Noncontrolling interest.This standard considers how defensive
intangible assets should be accounted for subsequent to their acquisition, including the estimated useful life that should be assigned to such assets. ASC No. 350-30 is effective for intangible assets acquired on or after the beginning of the
first annual reporting period beginning on or after December 15, 2008. The impact on accounting for defensive intangible assets will depend on future acquisitions.

The Company has adopted ASC No. 825-10-65-1, Financial Instruments.This standard amends the disclosure requirements of the former FAS No. 107, Disclosures about Fair Value of
Financial Instruments, for interim reporting periods of publicly traded companies as well as in annual financial statements. ASC No. 825-10-65-1 is effective for interim periods beginning after June 15, 2009. This standard had no
impact on our financial results given that it relates to disclosure and presentation only.

The Company has adopted ASC
No. 320-10-65-1, Investments  Debt and Equity Securities.This standard amends the impairment guidance for certain debt securities and requires an investor to assess the likelihood of selling the security prior to recovering the
cost base. If the investor is able to sufficiently demonstrate that it will not have to sell the security before recovery, impairment charges related to non-credit losses would be reflected in other comprehensive income. The standard also expands
and increases disclosure requirements related to debt and equity securities. ASC No. 320-10-65-1 is effective for interim periods beginning after June 15, 2009. Adoption of this standard had no material impact on our consolidated balance
sheets, results of operations or cash flows.



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The Company has adopted ASC No. 820-10-65, Fair Value Measurements and Disclosures.
This section provides additional guidance on fair value measurements in inactive markets. The new approach is designed to address whether a market is inactive, and if so, whether a transaction in that market should be considered distressed. It also
provides additional guidance on how fair value measurements might be determined in an active market. ASC No. 820-10-65 is effective for interim periods beginning after June 15, 2009 and shall be applied prospectively. Adoption of this standard
had no material impact on our consolidated balance sheets, results of operations or cash flows.

In September 2009, the FASB
issued Accounting Standards Update (ASU) No. 2009-06, Implementation Guidance on Accounting for Uncertainty in Income Taxes and Disclosure Amendments for Nonpublic Entities.The update provides additional implementation
guidance on accounting for uncertainty in income taxes and eliminates certain disclosures required for nonpublic entities. The guidance is effective for periods ending after September 15, 2009 for all entities currently applying the
recognition, measurement, and disclosure provisions for uncertain tax positions under ASC No. 740. Adoption of ASU No. 2009-06 did not have a material impact on our consolidated financial statements or disclosures.



|3. | RECENT ACCOUNTING PRONOUNCEMENTS
|-- | --------------------------------

In August 2009 the FASB issued an accounting standard update on measuring liabilities at fair value under ASC No. 820, Fair Value Measurements and Disclosures.The update provides clarification on how to measure the fair value
of a liability when a quoted price for an identical liability is not available in an active market. This includes a discussion of appropriate valuation techniques. ASC No. 820 is effective for periods beginning after August 26, 2009. We
are assessing the potential impact of ASC No. 820 on the valuation of the Companys liabilities.

In September 2009,
the FASB issued ASU No. 2009-09, Accounting for Investments-Equity Method and Joint Ventures and Accounting for Equity-Based Payments to Non-Employees. This update represents a correction to ASC No. 323-10-S99-4, Accounting by an
Investor for Stock-Based Compensation Granted to Employees of an Equity Method Investee. Additionally, it adds observer comment Accounting Recognition for Certain Transactions Involving Equity Instruments Granted to Other Than Employees
to the Codification. We are still assessing the impact of the correction.

In October 2009 the FASB issued ASU
No. 2009-13, Multiple-Deliverable Revenue Arrangements, under ASC No. 605. The new guidance provides a more flexible alternative to identify and allocate consideration among multiple elements in a bundled arrangement when
vendor-specific objective evidence or third-party evidence of selling price is not available. ASU No. 2009-13 also eliminates the residual method of allocation arrangement consideration and requires expanded qualitative and quantitative
disclosures. The guidance is effective prospectively for revenue arrangements entered into or materially modified in years beginning on or after June 15, 2010. We are assessing the potential impact that the adoption of ASU No. 2009-13 may have
on our consolidated balance sheets, results of operations and cash flows.



|4. | FINANCIAL INSTRUMENTS AND FINANCIAL RISK
|-- | ----------------------------------------

For certain of our financial assets and liabilities, including cash and cash equivalents, accounts receivable, and accounts payable and accrued liabilities, the carrying amounts approximate fair value due
to their short-term nature. The fair value of the short-term investments approximates their carrying value of $2.3 million as of September 30, 2009 (December 31, 2008 - $0.8 million) as these investments are marked-to-market each period. The
total fair value of the long-term debt approximates $453.4 million (December 31, 2008 - $224.2 million) and has a carrying value of $575.0 million as of September 30, 2009 and December 31, 2008. The fair values of the short-term
investments and long-term debt are based on quoted market prices at September 30, 2009 and at December 31, 2008.

Financial risk includes interest rate risk, exchange rate risk and credit risk:



| |  |  | Interest rate risk arises due to our long-term debt bearing fixed and variable interest rates. The interest rate on the Floating Rate Notes is reset
quarterly to 3-month LIBOR plus 3.75%. These Floating Rate Notes currently bear interest at a rate of 4.1%. We do not use derivatives to hedge against interest rate risks.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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| |  |  | Foreign exchange rate risk arises as a portion of our investments, revenues and expenses are denominated in currencies other than U.S. dollars. Our
financial results are subject to the variability that arises from exchange rate movements in relation to the U.S. dollar, and is primarily limited to the Canadian dollar, the Swiss franc, the Euro, the Danish krone and the UK pound sterling. Foreign
exchange risk is primarily managed by satisfying foreign denominated expenditures with cash flows or assets denominated in the same currency.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Credit risk arises as we provide credit to our customers in the normal course of business. We perform credit evaluations of our customers on a
continuing basis and the majority of our trade receivables are unsecured. The maximum credit risk loss that we could face is limited to the carrying amount of accounts receivable. Concentrations of credit risk with respect to trade accounts
receivable are limited due to the large number of customers and their dispersion across many geographic areas. However, a significant amount of trade accounts receivable is with the national healthcare systems of several countries. Efforts by
governmental and third-party payers to reduce health care costs or the announcement of legislative proposals or reforms to implement government controls could impact our credit risk. Although we do not currently foresee a significant credit risk
associated with these receivables, collection is dependent to some extent upon the financial stability of those countries national economies. At September 30, 2009, accounts receivable is net of an allowance for uncollectible accounts of
$0.3 million (December 31, 2008  $0.3 million).
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|5. | CASH AND CASH EQUIVALENTS
|-- | -------------------------

Cash and cash equivalents are comprised of the following:



|                 |  |                   |        |                  |   |       
|---------------- |  | ----------------- | ------ | ---------------- | - | ------
|                 |  | September 30,2009 |        | December 31,2008
|U.S. dollars     |  | $                 | 39,985 |                  | $ | 21,866
|Canadian dollars |  |                   | 1,701  |                  |   | 3,942 
|Swiss franc      |  |                   | 1,085  |                  |   | 3,053 
|Euro             |  |                   | 6,379  |                  |   | 5,263 
|Danish krone     |  |                   | 1,065  |                  |   | 2,022 
|Other            |  |                   | 1,243  |                  |   | 2,806 
|                 |  |                   |        |                  |   |       
|                 |  | $                 | 51,458 |                  | $ | 38,952
|                 |  |                   |        |                  |   |       



|6. | SHORT-TERM INVESTMENTS
|-- | ----------------------



|                                     |  |      |     |                       |   |                |  |   |      
|------------------------------------ |  | ---- | --- | --------------------- | - | -------------- |  | - | -----
|September 30, 2009                   |  | Cost |     | Gross unrealizedgains |   | Carrying value
|Short-term investments:              |  |      |     |                       |   |                |  |   |      
|Available-for-sale equity securities |  | $    | 848 |                       | $ | 1,450          |  | $ | 2,298
|                                     |  |      |     |                       |   |                |  |   |      
|                                     |  |      |    
|December 31, 2008                    |  | Cost |     | Gross unrealizedgains |   | Carrying value
|Short-term investments:              |  |      |     |                       |   |                |  |   |      
|Available-for-sale equity securities |  | $    | 848 |                       | $ |               |  | $ | 848  
|                                     |  |      |     |                       |   |                |  |   |      



|7. | INVENTORIES:
|-- | ------------

Inventories
are comprised of the following:



|                |  |                   |        |                  |   |       
|--------------- |  | ----------------- | ------ | ---------------- | - | ------
|                |  | September 30,2009 |        | December 31,2008
|Raw materials   |  | $                 | 10,090 |                  | $ | 10,357
|Work in process |  |                   | 13,772 |                  |   | 12,232
|Finished goods  |  |                   | 14,092 |                  |   | 16,005
|                |  |                   |        |                  |   |       
|                |  | $                 | 37,954 |                  | $ | 38,594
|                |  |                   |        |                  |   |       



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|8. | PROPERTY, PLANT AND EQUIPMENT
|-- | -----------------------------



|                               |  |      |        |                         |   |               |  |   |       
|------------------------------ |  | ---- | ------ | ----------------------- | - | ------------- |  | - | ------
|September 30, 2009             |  | Cost |        | Accumulateddepreciation |   | Net bookvalue
|Land                           |  | $    | 4,799  |                         | $ |              |  | $ | 4,799 
|Buildings                      |  |      | 14,600 |                         |   | 1,894         |  |   | 12,706
|Leasehold improvements         |  |      | 18,968 |                         |   | 5,918         |  |   | 13,050
|Manufacturing equipment        |  |      | 20,322 |                         |   | 8,551         |  |   | 11,771
|Research equipment             |  |      | 7,634  |                         |   | 5,028         |  |   | 2,606 
|Office furniture and equipment |  |      | 4,347  |                         |   | 3,517         |  |   | 830   
|Computer equipment             |  |      | 8,385  |                         |   | 7,244         |  |   | 1,141 
|                               |  |      |        |                         |   |               |  |   |       
|                               |  | $    | 79,055 |                         | $ | 32,152        |  | $ | 46,903
|                               |  |      |        |                         |   |               |  |   |       
|                               |  |      |       
|December 31, 2008              |  | Cost |        | Accumulateddepreciation |   | Net bookValue
|Land                           |  | $    | 4,755  |                         | $ |              |  | $ | 4,755 
|Buildings                      |  |      | 14,200 |                         |   | 1,257         |  |   | 12,943
|Leasehold improvements         |  |      | 17,944 |                         |   | 5,108         |  |   | 12,836
|Manufacturing equipment        |  |      | 18,815 |                         |   | 6,302         |  |   | 12,513
|Research equipment             |  |      | 7,316  |                         |   | 4,363         |  |   | 2,953 
|Office furniture and equipment |  |      | 3,698  |                         |   | 2,486         |  |   | 1,212 
|Computer equipment             |  |      | 9,000  |                         |   | 7,104         |  |   | 1,896 
|                               |  |      |        |                         |   |               |  |   |       
|                               |  | $    | 75,728 |                         | $ | 26,620        |  | $ | 49,108
|                               |  |      |        |                         |   |               |  |   |       

Depreciation expense, including depreciation expense allocated to cost of goods sold,
for the three and nine months ended September 30, 2009 amounted to $1.7 million and $5.2 million, respectively ($2.1 million and $6.1 million, respectively for the three and nine months ended September 30, 2008).



|9. | INTANGIBLE ASSETS AND GOODWILL
|-- | ------------------------------



| | a) | Intangible Assets
| | -- | -----------------



|                         |  |      |         |                         |   |               |  |   |        
|------------------------ |  | ---- | ------- | ----------------------- | - | ------------- |  | - | -------
|September 30, 2009       |  | Cost |         | Accumulatedamortization |   | Net bookvalue
|Acquired technologies    |  | $    | 130,561 |                         | $ | 61,719        |  | $ | 68,842 
|Customer relationships   |  |      | 110,950 |                         |   | 39,141        |  |   | 71,809 
|In-licensed technologies |  |      | 56,038  |                         |   | 29,125        |  |   | 26,913 
|Trade names and other    |  |      | 14,575  |                         |   | 5,692         |  |   | 8,883  
|                         |  |      |         |                         |   |               |  |   |        
|                         |  | $    | 312,124 |                         | $ | 135,677       |  | $ | 176,447
|                         |  |      |         |                         |   |               |  |   |        
|                         |  |      |        
|December 31, 2008        |  | Cost |         | Accumulatedamortization |   | Net bookvalue
|Acquired technologies    |  | $    | 128,061 |                         | $ | 52,303        |  | $ | 75,758 
|Customer relationships   |  |      | 110,509 |                         |   | 32,426        |  |   | 78,083 
|In-licensed technologies |  |      | 55,829  |                         |   | 24,104        |  |   | 31,725 
|Trade names and other    |  |      | 14,410  |                         |   | 4,499         |  |   | 9,911  
|                         |  |      |         |                         |   |               |  |   |        
|                         |  | $    | 308,809 |                         | $ | 113,332       |  | $ | 195,477
|                         |  |      |         |                         |   |               |  |   |        



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Amortization expense for the three and nine months ended September 30, 2009 amounted to
$7.5 million and $22.3 million, respectively ($7.6 million and $22.7 million, respectively for the three and nine months ended September 30, 2008).



| | (b) | Goodwill Impairment
| | --- | -------------------

During the three and nine months ended September 30, 2008 the Company recorded a write-down of goodwill of $599.4 million associated with the Medical Products segment. The interim impairment test of goodwill and acquired intangible
assets was performed in response to the significant and sustained decline in our public share price and market capitalization during that period, and the announcement on September 22, 2008 that the Company would not likely meet the closing
conditions of the proposed financing transaction initially announced on July 7, 2008 with Ares Management (Ares) and New Leaf Venture Partners (New Leaf). The write-down of goodwill was determined by comparing the
carrying value of goodwill assigned to the Medical Products reporting unit with the implied fair value of the goodwill. The Company utilized the income approach in determining the implied fair value of the goodwill, which requires estimates of
future operating results and discounted cash flows using estimated discount rates.

As described in note 1, the Company
restated the consolidated statements of operations for the three and nine months ended September 30, 2008 to correct the classification of the $599.4 million write-down of goodwill from other expenses to operating expenses.



|10. | ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
|--- | ----------------------------------------



|                                 |  |                    |        |                   |   |       
|-------------------------------- |  | ------------------ | ------ | ----------------- | - | ------
|                                 |  | September 30, 2009 |        | December 31, 2008
|Trade accounts payable           |  | $                  | 4,736  |                   | $ | 4,700 
|Accrued license and royalty fees |  |                    | 6,245  |                   |   | 4,196 
|Employee-related accruals        |  |                    | 13,078 |                   |   | 17,382
|Accrued professional fees        |  |                    | 4,313  |                   |   | 9,888 
|Accrued contract research        |  |                    | 1,248  |                   |   | 2,121 
|Other accrued liabilities        |  |                    | 9,312  |                   |   | 8,333 
|                                 |  |                    |        |                   |   |       
|                                 |  | $                  | 38,932 |                   | $ | 46,620
|                                 |  |                    |        |                   |   |       



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|11. | LONG-TERM DEBT
|--- | --------------



| | (a) | Issued and Outstanding Long-Term Debt
| | --- | -------------------------------------



|                                                  |  |                    |         |                   |   |        
|------------------------------------------------- |  | ------------------ | ------- | ----------------- | - | -------
|                                                  |  | September 30, 2009 |         | December 31, 2008
|Senior Floating Rate Notes due December 1, 2013   |  | $                  | 325,000 |                   | $ | 325,000
|7.75% Senior Subordinated Notes due April 1, 2014 |  |                    | 250,000 |                   |   | 250,000
|Revolving Credit Facility (note 11(c))            |  |                    |        |                   |   |       
|                                                  |  |                    |         |                   |   |        
|                                                  |  | $                  | 575,000 |                   | $ | 575,000
|                                                  |  |                    |         |                   |   |        



| | b) | Deferred Financing Costs
| | -- | ------------------------

Deferred financing costs are capitalized and amortized on a straight-line basis, which approximates the effective interest rate method, to interest expense over the life of the debt instruments.



|                                        |  |      |        |                         |   |               |  |   |       
|--------------------------------------- |  | ---- | ------ | ----------------------- | - | ------------- |  | - | ------
|September 30, 2009                      |  | Cost |        | Accumulatedamortization |   | Net bookvalue
|Debt issuance costs relating to:        |  |      |        |                         |   |               |  |   |       
|Senior Floating Rate Notes              |  | $    | 8,000  |                         | $ | 3,219         |  | $ | 4,781 
|7.75% Senior Subordinated Notes         |  |      | 8,718  |                         |   | 3,812         |  |   | 4,906 
|Revolving Credit Facility (Note 11 (c)) |  |      | 2,486  |                         |   | 398           |  |   | 2,088 
|Other                                   |  |      | 218    |                         |   |              |  |   | 218   
|                                        |  |      |        |                         |   |               |  |   |       
|                                        |  | $    | 19,422 |                         | $ | 7,429         |  | $ | 11,993
|                                        |  |      |        |                         |   |               |  |   |       
|                                        |  |      |       
|December 31, 2008                       |  | Cost |        | Accumulatedamortization |   | Net bookvalue
|Debt issuance costs relating to:        |  |      |        |                         |   |               |  |   |       
|Senior Floating Rate Notes              |  | $    | 8,000  |                         | $ | 2,358         |  | $ | 5,642 
|7.75% Senior Subordinated Notes         |  |      | 8,718  |                         |   | 2,997         |  |   | 5,721 
|                                        |  |      |        |                         |   |               |  |   |       
|                                        |  | $    | 16,718 |                         | $ | 5,355         |  | $ | 11,363
|                                        |  |      |        |                         |   |               |  |   |       



| | c) | Revolving Credit Facility
| | -- | -------------------------

On May 29, 2009, we entered into an amendment to our senior secured term loan and revolving credit facility with Wells Fargo that we had previously entered into in February 2009. This financing originally included a delayed draw
secured term loan facility of up to $10.0 million and a secured revolving credit facility, with a borrowing base derived from the value of certain of our finished goods inventory and accounts receivable, providing up to an additional $22.5 million
in available credit, subject to certain terms and conditions. The amendment included, among other things, early termination of the term loan facility, which was originally scheduled to terminate on August 31, 2009. The amendment also expanded
the definition of Permitted Investments and eliminated a $2.5 million availability block, increasing the total available credit under the revolving credit facility to $25.0 million (subject to a borrowing base formula derived from the
value of certain of our finished goods inventory and accounts receivable). As of September 30, 2009, the amount of financing available under the revolving credit facility was approximately $13.0 million and there were no borrowings outstanding
under the revolving credit facility.

In connection with the early termination of the term loan facility, we expensed the
unamortized balance of debt issuance costs associated with the secured term loan, resulting in a write-down of deferred financing costs of $0.6 million during the nine months ended September 30, 2009.



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At any time, the amount of financing available under the revolving credit facility, which is
secured by certain of our inventory and accounts receivable assets, may be significantly less than $25.0 million and is expected to fluctuate from month to month with changes in levels of finished goods inventory and accounts receivable. Any
borrowings outstanding under the revolving credit facility bear interest ranging from LIBOR plus 3.25% to LIBOR plus 3.75%, with a minimum Base LIBOR Rate of 2.25%. As the minimum Base LIBOR Rate under the revolving credit facility is 2.25% and the
LIBOR was 0.25% on September 30, 2009, a 0.50% increase or decrease in the LIBOR as of September 30, 2009 would have no impact on interest payable under the credit facility.

The revolving credit facility includes certain covenants and restrictions with respect to our operations and requires us to maintain certain
levels of Adjusted EBITDA and interest coverage ratios, among other terms and conditions. Repayment of any amounts drawn under the revolving credit facility can be made at certain points in time with ultimate maturity being February 27, 2013.
Prepayments made under the revolving credit facility in certain circumstances, cannot be re-borrowed by us. The purpose of this facility is to provide additional liquidity and capital resources for working capital and general corporate purposes.



|12. | INCOME TAXES
|--- | ------------

For the
three and nine months ended September 30, 2009 we recorded an income tax expense of $2.1 million and $7.6 million, respectively, compared to income tax recoveries of $4.5 million and $10.3 million for the three and nine months ended
September 30, 2008, respectively. The income tax expense for the nine months ended September 30, 2009 also includes a $6.1 million write off of deferred tax charges relating to taxes paid in prior years in connection with an inter-company
transfer of the CoSeal intellectual property underlying the transaction with Baxter.

The effective tax rate for the current
period differs from the statutory Canadian tax rate of 30.0% and is primarily due to valuation allowances on net operating losses and the net effect of lower tax rates on earnings in foreign jurisdictions.



|13. | SHARE CAPITAL
|--- | -------------

During the
three and nine months ended September 30, 2009, we issued 10,000 and 14,742 (nil and 48,000 for the three and nine months ended September 30, 2008) common shares upon exercises of stock options. We issue new shares to satisfy stock option
exercises

a) Stock Options

Angiotech Pharmaceuticals, Inc.

In June 2006, the shareholders approved
the adoption of the 2006 Stock Incentive Plan (2006 Plan) which superseded our previous stock option plans. The 2006 Plan incorporated all of the options granted under our previous stock option plans and, in total, provides for the
issuance of non-transferable stock-based awards to purchase up to 13,937,756 common shares to employees, officers, directors, and persons providing ongoing management or consulting services. The 2006 Plan provides for, but does not require, the
granting of tandem stock appreciation rights that at the option of the holder may be exercised instead of the underlying option. When the tandem stock appreciation right is exercised, the underlying option is cancelled. The tandem stock appreciation
rights are settled in equity and the optionee receives common shares with a fair market value equal to the excess of the fair value of the shares subject to the option at the time of exercise (or the portion thereof so exercised) over the aggregate
option price of the shares set forth in the option agreement. The exercise of tandem stock appreciation rights is treated as the exercise of the underlying option. The exercise price of the options is fixed by the Companys Board of Directors,
but will generally be at least equal to the market price of the common shares at the date of grant, and for options issued under the 2006 Plan and our 2004 Stock Incentive Plan (2004 Plan), the term may not exceed five years. For options
granted under stock option plans prior to the 2004 Plan, the term did not exceed 10 years. Options granted are also subject to certain vesting provisions. Options generally vest monthly after being granted over varying terms from two to four years.
Any one person is permitted, subject to the approval of the Companys Board of Directors, to receive options and tandem SARs to acquire up to 5% of our issued and outstanding common shares.

A summary of Canadian dollar stock option transactions is as follows:



|                                 |  |                      |   |  |                                         |       |                                                  |      |                                  |   |    
|-------------------------------- |  | -------------------- | - |  | --------------------------------------- | ----- | ------------------------------------------------ | ---- | -------------------------------- | - | ---
|                                 |  | No. ofoptionedshares |   |  | Weighted averageexercise price(in CDN$) |       | Weighted averageremainingcontractualterm (years) |      | Aggregateintrinsicvalue(in CDN$)
|Outstanding at December 31, 2007 |  | 7,675,944            |   |  | $                                       | 15.55 |                                                  | 3.16 |                                  | $ | 177
|Exercised                        |  | (48,000              | ) |  |                                         | 2.50  |                                                  |      |                                  |   |    
|Forfeited                        |  | (127,000             | ) |  |                                         | 15.74 |                                                  |      |                                  |   |    
|                                 |  |                      |   |  |                                         |       |                                                  |      |                                  |   |    
|Outstanding at March 31, 2008    |  | 7,500,944            |   |  |                                         | 15.63 |                                                  | 2.93 |                                  |   |   
|                                 |  |                      |   |  |                                         |       |                                                  |      |                                  |   |    



15



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##### Table of Contents

|                                                       |  |                      |   |  |                                         |       |                                                  |      |                                  |   |      
|------------------------------------------------------ |  | -------------------- | - |  | --------------------------------------- | ----- | ------------------------------------------------ | ---- | -------------------------------- | - | -----
|                                                       |  | No. ofoptionedshares |   |  | Weighted averageexercise price(in CDN$) |       | Weighted averageremainingcontractualterm (years) |      | Aggregateintrinsicvalue(in CDN$)
|Exercisable and expected to vest at March 31, 2008     |  | 6,272,728            |   |  |                                         | 16.60 |                                                  | 2.75 |                                  |   |     
|                                                       |  |                      |   |  |                                         |       |                                                  |      |                                  |   |      
|Forfeited                                              |  | (118,913             | ) |  |                                         | 16.51 |                                                  |      |                                  |   |      
|                                                       |  |                      |   |  |                                         |       |                                                  |      |                                  |   |      
|Outstanding at June 30, 2008                           |  | 7,382,031            |   |  |                                         | 15.61 |                                                  | 2.69 |                                  |   | 32   
|                                                       |  |                      |   |  |                                         |       |                                                  |      |                                  |   |      
|Exercisable and expected to vest at June 30, 2008      |  | 6,321,522            |   |  | $                                       | 16.49 |                                                  | 2.50 |                                  |   | 32   
|                                                       |  |                      |   |  |                                         |       |                                                  |      |                                  |   |      
|Forfeited                                              |  | (578,888             | ) |  |                                         | 18.38 |                                                  |      |                                  |   |      
|                                                       |  |                      |   |  |                                         |       |                                                  |      |                                  |   |      
|Outstanding at September 30, 2008                      |  | 6,803,143            |   |  |                                         | 14.78 |                                                  | 2.47 |                                  |   |     
|                                                       |  |                      |   |  |                                         |       |                                                  |      |                                  |   |      
|Exercisable and expected to vest at September 30, 2008 |  | 5,883,287            |   |  | $                                       | 15.87 |                                                  | 2.25 |                                  | $ |     
|                                                       |  |                      |   |  |                                         |       |                                                  |      |                                  |   |      
|                                                       |  |                      |   | 
|                                                       |  | No. ofoptionedshares |   |  | Weighted averageexercise price(in CDN$) |       | Weighted averageremainingcontractualterm (years) |      | Aggregateintrinsicvalue(in CDN$)
|Outstanding at December 31, 2008                       |  | 7,644,632            |   |  | $                                       | 12.82 |                                                  | 2.67 |                                  | $ | 196  
|Granted                                                |  | 1,434,000            |   |  |                                         | 0.38  |                                                  |      |                                  |   |      
|Forfeited                                              |  | (728,732             | ) |  |                                         | 22.80 |                                                  |      |                                  |   |      
|                                                       |  |                      |   |  |                                         |       |                                                  |      |                                  |   |      
|Outstanding at March 31, 2009                          |  | 8,349,900            |   |  |                                         | 9.81  |                                                  | 3.07 |                                  |   | 1,059
|                                                       |  |                      |   |  |                                         |       |                                                  |      |                                  |   |      
|Exercisable and expected to vest at March 31, 2009     |  | 7,242,730            |   |  |                                         | 9.81  |                                                  | 2.52 |                                  |   | 50   
|                                                       |  |                      |   |  |                                         |       |                                                  |      |                                  |   |      
|Granted                                                |  | 10,000               |   |  |                                         | 2.31  |                                                  |      |                                  |   |      
|Forfeited                                              |  | (2,719,931           | ) |  |                                         | 17.86 |                                                  |      |                                  |   |      
|                                                       |  |                      |   |  |                                         |       |                                                  |      |                                  |   |      
|Outstanding at June 30, 2009                           |  | 5,639,969            |   |  |                                         | 5.91  |                                                  | 3.39 |                                  |   | 4,734
|                                                       |  |                      |   |  |                                         |       |                                                  |      |                                  |   |      
|Exercisable and expected to vest at June 30, 2009      |  | 4,099,332            |   |  |                                         | 5.91  |                                                  | 2.27 |                                  | $ | 499  
|                                                       |  |                      |   |  |                                         |       |                                                  |      |                                  |   |      
|Exercised                                              |  | (10,000              | ) |  |                                         | 0.21  |                                                  |      |                                  |   |      
|Forfeited                                              |  | (260                 | ) |  |                                         | 24.25 |                                                  |      |                                  |   |      
|                                                       |  |                      |   |  |                                         |       |                                                  |      |                                  |   |      
|Outstanding at September 30, 2009                      |  | 5,629,709            |   |  |                                         | 5.92  |                                                  | 3.14 |                                  |   | 4,355
|                                                       |  |                      |   |  |                                         |       |                                                  |      |                                  |   |      
|Exercisable at September 30, 2009                      |  | 2,996,242            |   |  |                                         | 9.98  |                                                  | 2.31 |                                  |   | 715  
|                                                       |  |                      |   |  |                                         |       |                                                  |      |                                  |   |      
|Exercisable and expected to vest at September 30, 2009 |  | 5,115,442            |   |  | $                                       | 7.06  |                                                  | 2.91 |                                  | $ | 715  
|                                                       |  |                      |   |  |                                         |       |                                                  |      |                                  |   |      

These options expire at various dates from November 30, 2009 to June 9,
2014.

A summary of U.S. dollar stock option transactions is as follows:



|                                                       |  |                      |   |  |                                          |       |                                                  |      |                                   |   |  
|------------------------------------------------------ |  | -------------------- | - |  | ---------------------------------------- | ----- | ------------------------------------------------ | ---- | --------------------------------- | - | -
|                                                       |  | No. ofoptionedshares |   |  | Weighted averageexercise price(in U.S.$) |       | Weighted averageremainingcontractualterm (years) |      | Aggregateintrinsicvalue(in U.S.$)
|Outstanding at December 31, 2007                       |  | 1,051,218            |   |  | $                                        | 9.39  |                                                  | 3.73 |                                   | $ | 
|Forfeited                                              |  | (240,000             | ) |  |                                          | 11.35 |                                                  |      |                                   |   |  
|                                                       |  |                      |   |  |                                          |       |                                                  |      |                                   |   |  
|Outstanding at March 31, 2008                          |  | 811,218              |   |  |                                          | 8.81  |                                                  | 3.62 |                                   |   | 
|                                                       |  |                      |   |  |                                          |       |                                                  |      |                                   |   |  
|Exercisable and expected to vest at March 31, 2008     |  | 272,315              |   |  |                                          | 10.62 |                                                  | 2.71 |                                   |   | 
|                                                       |  |                      |   |  |                                          |       |                                                  |      |                                   |   |  
|Forfeited                                              |  | (50,094              | ) |  |                                          | 8.36  |                                                  |      |                                   |   |  
|                                                       |  |                      |   |  |                                          |       |                                                  |      |                                   |   |  
|Outstanding at June 30, 2008                           |  | 761,124              |   |  |                                          | 8.84  |                                                  | 3.37 |                                   |   | 
|                                                       |  |                      |   |  |                                          |       |                                                  |      |                                   |   |  
|Exercisable and expected to vest at June 30, 2008      |  | 314,860              |   |  | $                                        | 10.40 |                                                  | 2.46 |                                   |   | 
|                                                       |  |                      |   |  |                                          |       |                                                  |      |                                   |   |  
|Forfeited                                              |  | (109,198             | ) |  |                                          | 11.05 |                                                  |      |                                   |   |  
|                                                       |  |                      |   |  |                                          |       |                                                  |      |                                   |   |  
|Outstanding at September 30, 2008                      |  | 651,926              |   |  |                                          | 8.47  |                                                  | 3.19 |                                   |   | 
|                                                       |  |                      |   |  |                                          |       |                                                  |      |                                   |   |  
|Exercisable and expected to vest at September 30, 2008 |  | 293,929              |   |  | $                                        | 9.52  |                                                  | 2.21 |                                   | $ | 
|                                                       |  |                      |   |  |                                          |       |                                                  |      |                                   |   |  



16



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##### Table of Contents

|                                                       |  |                      |   |  |                                          |      |                                                  |      |                                   |   |      
|------------------------------------------------------ |  | -------------------- | - |  | ---------------------------------------- | ---- | ------------------------------------------------ | ---- | --------------------------------- | - | -----
|                                                       |  | No. ofoptionedshares |   |  | Weighted averageexercise price(in U.S.$) |      | Weighted averageremainingcontractualterm (years) |      | Aggregateintrinsicvalue(in U.S.$)
|Outstanding at December 31, 2008                       |  | 1,790,968            |   |  | $                                        | 3.19 |                                                  | 4.19 |                                   | $ | 64   
|Granted                                                |  | 1,228,500            |   |  |                                          | 0.27 |                                                  |      |                                   |   |      
|                                                       |  |                      |   |  |                                          |      |                                                  |      |                                   |   |      
|Outstanding at March 31, 2009                          |  | 3,019,468            |   |  |                                          | 2.01 |                                                  | 4.35 |                                   |   | 715  
|                                                       |  |                      |   |  |                                          |      |                                                  |      |                                   |   |      
|Exercisable and expected to vest at March 31, 2009     |  | 2,147,662            |   |  |                                          | 2.01 |                                                  | 3.14 |                                   |   | 38   
|                                                       |  |                      |   |  |                                          |      |                                                  |      |                                   |   |      
|Granted                                                |  | 15,000               |   |  |                                          | 2.06 |                                                  |      |                                   |   |      
|Exercised                                              |  | (5,625               | ) |  |                                          | 0.26 |                                                  |      |                                   |   |      
|Forfeited                                              |  | (172,383             | ) |  |                                          | 7.56 |                                                  |      |                                   |   |      
|                                                       |  |                      |   |  |                                          |      |                                                  |      |                                   |   |      
|Outstanding at June 30, 2009                           |  | 2,856,460            |   |  |                                          | 1.67 |                                                  | 4.16 |                                   |   | 3,355
|                                                       |  |                      |   |  |                                          |      |                                                  |      |                                   |   |      
|Exercisable and expected to vest at June 30, 2009      |  | 1,877,814            |   |  | $                                        | 1.67 |                                                  | 2.89 |                                   | $ | 369  
|                                                       |  |                      |   |  |                                          |      |                                                  |      |                                   |   |      
|Forfeited                                              |  | (12,711              | ) |  |                                          | 0.27 |                                                  |      |                                   |   |      
|                                                       |  |                      |   |  |                                          |      |                                                  |      |                                   |   |      
|Outstanding at September 30, 2009                      |  | 2,843,749            |   |  |                                          | 1.66 |                                                  | 3.94 |                                   |   | 3,394
|                                                       |  |                      |   |  |                                          |      |                                                  |      |                                   |   |      
|Exercisable at September 30, 2009                      |  | 750,674              |   |  |                                          | 3.76 |                                                  | 3.35 |                                   |   | 573  
|                                                       |  |                      |   |  |                                          |      |                                                  |      |                                   |   |      
|Exercisable and expected to vest at September 30, 2009 |  | 2,446,065            |   |  | $                                        | 2.44 |                                                  | 3.72 |                                   | $ | 573  
|                                                       |  |                      |   |  |                                          |      |                                                  |      |                                   |   |      

These options expire at various dates from January 26, 2010 to June 9, 2014.

American Medical Instruments Holdings, Inc. (AMI)

On March 9, 2006, AMI granted 304 stock options under AMIs 2003 Stock Option Plan (the AMI Stock Option Plan), each of
which is exercisable for approximately 3,852 of our common shares. All outstanding options and warrants granted prior to the March 9, 2006 grant were settled and cancelled upon the acquisition of AMI. No further options to acquire common shares
can be issued pursuant to the AMI Stock Option Plan. Approximately 1,171,092 of our common shares were reserved in March 2006 to accommodate future exercises of the AMI options.



|                                                       |  |                      |   |  |                                          |       |                                                  |      |                                   |   |  
|------------------------------------------------------ |  | -------------------- | - |  | ---------------------------------------- | ----- | ------------------------------------------------ | ---- | --------------------------------- | - | -
|                                                       |  | No. ofoptionedshares |   |  | Weighted averageexercise price(in U.S.$) |       | Weighted averageremainingcontractualterm (years) |      | Aggregateintrinsicvalue(in U.S.$)
|Outstanding at December 31, 2007 and March 31, 2008    |  | 443,012              |   |  | $                                        | 15.44 |                                                  | 7.94 |                                   | $ | 
|                                                       |  |                      |   |  |                                          |       |                                                  |      |                                   |   |  
|Exercisable at March 31, 2008                          |  | 55,378               |   |  |                                          | 15.44 |                                                  | 7.94 |                                   |   | 
|                                                       |  |                      |   |  |                                          |       |                                                  |      |                                   |   |  
|Forfeited                                              |  | (31,781              | ) |  |                                          | 15.44 |                                                  |      |                                   |   |  
|                                                       |  |                      |   |  |                                          |       |                                                  |      |                                   |   |  
|Outstanding at June 30, 2008                           |  | 411,231              |   |  |                                          | 15.44 |                                                  | 7.69 |                                   |   | 
|                                                       |  |                      |   |  |                                          |       |                                                  |      |                                   |   |  
|Exercisable and expected to vest June 30, 2008         |  | 53,938               |   |  |                                          | 15.44 |                                                  | 7.69 |                                   | $ | 
|                                                       |  |                      |   |  |                                          |       |                                                  |      |                                   |   |  
|Forfeited                                              |  | (13,002              | ) |  |                                          | 15.44 |                                                  |      |                                   |   |  
|                                                       |  |                      |   |  |                                          |       |                                                  |      |                                   |   |  
|Outstanding at September 30, 2008                      |  | 398,229              |   |  |                                          | 15.44 |                                                  | 7.44 |                                   |   | 
|                                                       |  |                      |   |  |                                          |       |                                                  |      |                                   |   |  
|Exercisable and expected to vest at September 30, 2008 |  | 51,044               |   |  | $                                        | 15.44 |                                                  | 7.44 |                                   | $ | 
|                                                       |  |                      |   |  |                                          |       |                                                  |      |                                   |   |  



|                                                   |  |                      |   |  |                                          |       |                                                  |      |                                   |   |  
|-------------------------------------------------- |  | -------------------- | - |  | ---------------------------------------- | ----- | ------------------------------------------------ | ---- | --------------------------------- | - | -
|                                                   |  | No. ofoptionedshares |   |  | Weighted averageexercise price(in U.S.$) |       | Weighted averageremainingcontractualterm (years) |      | Aggregateintrinsicvalue(in U.S.$)
|Outstanding at December 31, 2008                   |  | 363,077              |   |  | $                                        | 15.44 |                                                  | 7.19 |                                   | $ | 
|Forfeited                                          |  | (14,927              | ) |  |                                          | 15.44 |                                                  |      |                                   |   |  
|                                                   |  |                      |   |  |                                          |       |                                                  |      |                                   |   |  
|Outstanding at March 31, 2009                      |  | 348,150              |   |  |                                          | 15.44 |                                                  | 6.94 |                                   |   | 
|                                                   |  |                      |   |  |                                          |       |                                                  |      |                                   |   |  
|Exercisable and expected to vest at March 31, 2009 |  | 297,459              |   |  |                                          | 15.44 |                                                  | 6.94 |                                   |   | 
|                                                   |  |                      |   |  |                                          |       |                                                  |      |                                   |   |  
|Forfeited                                          |  | (30,335              | ) |  |                                          | 15.44 |                                                  |      |                                   |   |  
|                                                   |  |                      |   |  |                                          |       |                                                  |      |                                   |   |  
|Outstanding at June 30, 2009                       |  | 317,815              |   |  |                                          | 15.44 |                                                  | 6.69 |                                   |   | 
|                                                   |  |                      |   |  |                                          |       |                                                  |      |                                   |   |  
|Exercisable and expected to vest at June 30, 2009  |  | 271,541              |   |  |                                          | 15.44 |                                                  | 6.69 |                                   |   | 
|                                                   |  |                      |   |  |                                          |       |                                                  |      |                                   |   |  



17



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##### Table of Contents

|                                                       |  |                      |   |  |                                          |       |                                                  |      |                                   |   |  
|------------------------------------------------------ |  | -------------------- | - |  | ---------------------------------------- | ----- | ------------------------------------------------ | ---- | --------------------------------- | - | -
|                                                       |  | No. ofoptionedshares |   |  | Weighted averageexercise price(in U.S.$) |       | Weighted averageremainingcontractualterm (years) |      | Aggregateintrinsicvalue(in U.S.$)
|Forfeited                                              |  | (17,335              | ) |  |                                          | 15.44 |                                                  |      |                                   |   |  
|                                                       |  |                      |   |  |                                          |       |                                                  |      |                                   |   |  
|Outstanding at September 30, 2009                      |  | 300,480              |   |  |                                          | 15.44 |                                                  | 6.44 |                                   |   | 
|                                                       |  |                      |   |  |                                          |       |                                                  |      |                                   |   |  
|Exercisable at September 30, 2009                      |  | 112,694              |   |  |                                          | 15.44 |                                                  | 6.44 |                                   |   | 
|                                                       |  |                      |   |  |                                          |       |                                                  |      |                                   |   |  
|Exercisable and expected to vest at September 30, 2009 |  | 264,799              |   |  | $                                        | 15.44 |                                                  | 6.44 |                                   | $ | 
|                                                       |  |                      |   |  |                                          |       |                                                  |      |                                   |   |  

These options expire on March 8, 2016.

(b) Stock-based compensation expense

We recorded stock-based compensation expense of $0.4 million and $1.2 million respectively for the three and nine months ended September 30, 2009 ($0.6 million and $2.0 million, respectively for the
three and nine months ended September 30, 2008) relating to awards granted under our stock option plan, modified or settled.

There were no stock options granted for the three months ended September 30, 2009 or in the three and nine months ended September 30, 2008. The estimated fair value of the stock options granted is amortized to expense on a
straight-line basis over the vesting period and was estimated on the date of the grant using the Black-Scholes option pricing model with the following weighted average assumptions for grants for the nine months ended September 30, 2009:



|                            |  |                                    
|--------------------------- |  | -----------------------------------
|                            |  | Nine months endedSeptember 30, 2009
|Dividend Yield              |  | Nil                                
|Expected Volatility         |  | 110.5%  128.1%                    
|Weighted Average Volatility |  | 118.5%                             
|Risk-free Interest Rate     |  | 1.46%  2.07%                      
|Expected Term (Years)       |  | 3                                  

The weighted average fair values of stock options granted in the nine months ended
September 30, 2009 are presented below:



|              |  |                                     |     
|------------- |  | ----------------------------------- | ----
|              |  | Nine months endedSeptember 30, 2009
|CDN$ options  |  | $                                   | 0.32
|U.S.$ options |  | $                                   | 0.19

A summary of the status of nonvested options as of September 30, 2009 and changes
during the three and nine months ended September 30, 2009, is presented below:



|                                |  |                      |   |  |                                               |      
|------------------------------- |  | -------------------- | - |  | --------------------------------------------- | -----
|Nonvested CDN$ options          |  | No. ofoptionedshares |   |  | Weighted averagegrant-datefair value(in CDN$)
|Nonvested at December 31, 2008  |  | 1,968,003            |   |  | $                                             | 1.24 
|Vested                          |  | (182,833             | ) |  |                                               | 2.11 
|Granted                         |  | 1,434,000            |   |  |                                               | 0.26 
|                                |  |                      |   |  |                                               |      
|Nonvested at March 31, 2009     |  | 3,219,170            |   |  |                                               | 0.68 
|                                |  |                      |   |  |                                               |      
|Vested                          |  | (54,931              | ) |  |                                               | 1.99 
|Forfeited                       |  | (267,030             | ) |  |                                               | 10.70
|Granted                         |  | 10,000               |   |  |                                               | 1.71 
|                                |  |                      |   |  |                                               |      
|Nonvested at June 30, 2009      |  | 2,907,209            |   |  | $                                             | 0.62 
|                                |  |                      |   |  |                                               |      
|Vested                          |  | (243,742             | ) |  |                                               | 1.12 
|                                |  |                      |   |  |                                               |      
|Nonvested at September 30, 2009 |  | 2,663,467            |   |  | $                                             | 0.57 
|                                |  |                      |   |  |                                               |      



18



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##### Table of Contents

|                                                     |  |                      |   |  |                                                |     
|---------------------------------------------------- |  | -------------------- | - |  | ---------------------------------------------- | ----
|Nonvested U.S. $ options                             |  | No. ofoptionedshares |   |  | Weighted averagegrant-datefair value(in U.S.$)
|Nonvested at December 31, 2008                       |  | 1,420,490            |   |  | $                                              | 0.60
|Vested                                               |  | (115,184             | ) |  |                                                | 0.93
|Granted                                              |  | 1,228,500            |   |  |                                                | 0.18
|                                                     |  |                      |   |  |                                                |     
|Nonvested at March 31, 2009                          |  | 2,533,806            |   |  |                                                | 0.31
|                                                     |  |                      |   |  |                                                |     
|Vested                                               |  | (107,185             | ) |  |                                                | 0.90
|Forfeited                                            |  | (172,383             | ) |  |                                                | 5.22
|Granted                                              |  | 15,000               |   |  |                                                | 1.50
|                                                     |  |                      |   |  |                                                |     
|Nonvested at June 30, 2009                           |  | 2,269,238            |   |  |                                                | 0.37
|                                                     |  |                      |   |  |                                                |     
|Vested                                               |  | (171,787             | ) |  |                                                | 0.61
|Forfeited                                            |  | (4,376               | ) |  |                                                | 0.18
|                                                     |  |                      |   |  |                                                |     
|Nonvested at September 30, 2009                      |  | 2,093,075            |   |  | $                                              | 0.35
|                                                     |  |                      |   |  |                                                |     
|                                                     |  |                     
|Nonvested AMI options                                |  | No. ofoptionedshares |   |  | Weighted averagegrant-datefair value(in U.S.$)
|Nonvested at December 31, 2008                       |  | 313,478              |   |  | $                                              | 6.51
|Vested                                               |  | (86,675              | ) |  |                                                | 6.51
|Forfeited                                            |  | (10,112              | ) |  |                                                | 6.51
|                                                     |  |                      |   |  |                                                |     
|Nonvested at March 31, 2009                          |  | 216,691              |   |  |                                                | 6.51
|                                                     |  |                      |   |  |                                                |     
|Forfeited                                            |  | (28,890              | ) |  |                                                | 6.51
|                                                     |  |                      |   |  |                                                |     
|Nonvested at June 30, 2009 and at September 30, 2009 |  | 187,801              |   |  |                                                | 6.51
|                                                     |  |                      |   |  |                                                |     

As of September 30, 2009, there was $1.5 million of total unrecognized
compensation cost related to nonvested stock options granted under the 2006 Plan. These costs are expected to be recognized over a weighted average of 1.97 years.

As of September 30, 2009, there was $0.8 million of total unrecognized compensation cost related to the nonvested AMI stock options granted under the AMI Stock Option Plan. These costs are expected
to be recognized over 2.45 years on a straight-line basis as a charge to income. The total fair value of options vested during the three and nine months ended September 30, 2009 was $nil and $564,000, respectively ($nil and $360,000
respectively for the three and nine months ended September 30, 2008).

During the three and nine months ended
September 30, 2009 and 2008, the following activity occurred:



|                                                 |  |                                 |     |                                |   |      |  |      |       |  |   |      
|------------------------------------------------ |  | ------------------------------- | --- | ------------------------------ | - | ---- |  | ---- | ----- |  | - | -----
|                                                 |  | Three months endedSeptember 30, |     | Nine months endedSeptember 30,
|(in thousands)                                   |  | 2009                            |     | 2008                           |   | 2009 |  | 2008
|Total intrinsic value of stock options exercised |  |                                 |     |                                |   |      |  |      |       |  |   |      
|CDN dollar options                               |  | $                               | 17  |                                | $ | n/a  |  | $    | 17    |  | $ | 33   
|U.S. dollar options                              |  |                                 | n/a |                                |   | n/a  |  |      | 7     |  |   | n/a  
|                                                 |  |                                 |     |                               
|Total fair value of stock awards vested          |  | $                               | 356 |                                | $ | 448  |  | $    | 1,534 |  | $ | 3,025

Cash received from stock option exercises for the three and nine months ended
September 30, 2009 was $1,820 and $1,820 ($nil and $121,000 for the three and nine months ended September 30, 2008, respectively).



19



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##### Table of Contents

|14. | COMMITMENTS AND CONTINGENCIES
|--- | -----------------------------

(a) Commitments

We have entered into research and development collaboration agreements that involve joint
research efforts. Certain collaboration costs and any eventual profits will be shared as per terms provided for in the agreements. We may also be required to make milestone, royalty, and/or other research and development funding payments under
research and development collaboration and other agreements with third parties. These payments are contingent upon the achievement of specific development, regulatory and/or commercial milestones. We accrue for these payments when it is probable
that a liability has been incurred and the amount can be reasonably estimated. We do not accrue for these payments if the outcome of achieving these milestones is not determinable. Our significant contingent milestone, royalty and other research and
development commitments are as follows:

Quill Medical, Inc. (Quill)

In connection with the acquisition of Quill in June 2006, we may be required to make additional contingent payments of up to $150 million
upon the achievement of certain revenue growth and a development milestone. These payments are primarily contingent upon the achievement of significant incremental revenue growth over a five-year period from July 1, 2006, subject to certain
conditions.

National Institutes of Health (NIH)

In November 1997, we entered into an exclusive license agreement with the Public Health Service of the United States, through the NIH,
whereby we were granted an exclusive, worldwide license to certain technologies of the NIH relating to the use of paclitaxel. Pursuant to this license agreement, we agreed to pay NIH milestone payments upon achievement of certain clinical and
commercial development milestones and pay royalties on net TAXUS sales by BSC and ZILVER sales by Cook Medical Inc. At September 30, 2009, we have accrued royalty fees of $4.9 million payable to NIH under this agreement related to royalties on
sales in the third and fourth calendar quarters of 2008 and the first calendar quarter of 2009.

Biopsy Sciences LLC
(Biopsy Sciences)

In connection with the acquisition of certain assets from Biopsy Sciences in January 2007,
we may be required to make certain contingent payments of up to $2.7 million upon the achievement of certain clinical and regulatory milestones and up to $10.7 million for achieving certain commercialization milestones. As of September 30,
2009, we have paid $0.7 million towards the successful completion of the U.S. clinical trial enrollment for the Bio-Seal lung biopsy tract plug system.

Rex Medical LP (Rex Medical)

In March
2008, we entered into an agreement with Rex Medical to manufacture and distribute the OptionTMIVC Filter. For the quarter ended June 30, 2008, we made a payment of $2.5 million to Rex Medical to obtain the marketing rights for the Option IVC Filter. We recorded this payment as an in-process
and research development cost. For the quarter ended June 30, 2009, we made a milestone payment of $2.5 million upon achievement of the U.S. Food and Drug Administration (FDA) 510(k) clearance. We have capitalized this payment as an
intangible asset. Under terms of this agreement, we may be required to make further contingent payments of up to $5.0 million upon achievement of certain regulatory and commercialization milestones. In addition, we have committed to making
escalating royalty payments of 30% to 47.5% based on annual net sales of these products.

Haemacure Corporation
(Haemacure)

In June 2009, we entered into license, distribution, development and supply agreements for fibrin
and thrombin technologies with Haemacure. The collaboration provides us with access to technology for certain of our surgical product candidates which are currently in preclinical development. As part of this collaboration, we have agreed to provide
to Haemacure a senior secured bridge financing facility. The senior bridge loan will provide $2.5 million to Haemacure in multiple draw-downs throughout 2009. The loan will be senior to all of Haemacures existing and future indebtedness,
subject to certain exceptions, will bear interest at an annual rate of 10%, compounded quarterly, and will have a term of two years. We may, at our sole discretion, during a period of two years, advance up to an additional $1 million to Haemacure
from time to time, in multiple draw-downs, for a total loan amount of $3.5 million. The senior secured bridge loan also has certain equity conversion features and rights to board representation upon conversion. As of September 30, 2009, $1.8
million of the secured bridge financing facility has been drawn upon by Haemacure and a further $0.5 million of the loan, which had been accrued at September 30, 2009, was drawn upon subsequent to September 30, 2009. Of the total of $2.3
million paid and accrued, $1.6 million has been classified as other assets, $0.3 million has been classified as prepaid expenses and other current assets and $0.4 million has been amortized.



20



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##### Table of Contents

(b) Contingencies



| | i) | From time to time, we may be subject to claims and legal proceedings brought against us in the normal course of business. Such matters are subject to many
uncertainties. We believe that adequate provisions have been made in the accounts where required. However, we are not able to determine the outcome or estimate potential losses of the pending legal proceedings listed below, or other legal
proceedings, to which we may become subject in the normal course of business or estimate the amount or range of any possible loss we might incur if it does not prevail in the final, non-appealable determinations of such matters. We cannot provide
assurance that the legal proceedings listed here, or other legal proceedings not listed here, will not have a material adverse impact on our financial condition or results of operations.
| | -- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | ii) | BSC, a licensee, is often involved in legal proceedings (to which we are not a party) concerning challenges to its stent business. If a party opposing BSC is
successful, and if a court were to issue an injunction against BSC, royalty revenue would likely be significantly reduced. The ultimate outcome of any such proceedings is uncertain at this time.
| | --- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | iii) | On April 4, 2005, together with BSC, we commenced a legal action in the Netherlands against Sahajanand Medical Technologies Pvt. Ltd. (SMT) for patent
infringement. On May 3, 2006, the Dutch trial court ruled in our favor, finding that our EP (NL) 0 706 376 patent was valid, and that SMTs Infinnium stent infringed the patent. On March 13, 2008, a Dutch Court of Appeal held a
hearing to review the correctness of the trial courts decision. The Court of Appeal released their judgment on January 27, 2009, ruling against SMT (finding our patent novel, inventive, and sufficiently disclosed). The Court of Appeal
however requested amendment of claim 12 before rendering their decision on infringement. We have filed a response to the Court of Appeals decision, and have additionally filed a further Writ against SMT seeking to prevent SMT from, among other
things, using its CE mark for SMTs Infinnium stent. Any decision of the Court of Appeal is appealable to the Supreme Court of the Netherlands. On October 22, 2009 we and BSC settled this litigation with SMT on favorable terms. We
may at our option continue this matter before the Court of Appeal with respect to the requested amendment to claim 12.
| | ---- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | iv) | On March 23, 2006, RoundTable Healthcare Partners, LP (RoundTable) as Seller Representative, we as Buyer, and LaSalle Bank (LaSalle) as
Escrow Agent, executed an Escrow Agreement under which we deposited $20 million with LaSalle. On April 4, 2007, LaSalle received an Escrow Claim Notice issued by us, which directed LaSalle to remit the $20 million to us as Buyer. On or about
April 16, 2007, LaSalle received from RoundTable a Notice of Objection to our Escrow Claim Notice. On July 3, 2007, LaSalle filed an action in the Circuit Court of Cook County, Illinois, asking the court to resolve this dispute. After
various hearings and discussions, we executed a Joint Letter of Direction allowing the release of $6.5 million to RoundTable, thereby leaving the amount in dispute being approximately $13.5 million. On March 21, 2008, this action was moved to
the United States District Court for the Southern District of New York. We are now in the discovery phase of this litigation. On March 20, 2009, Roundtable filed a motion for partial summary judgment and a hearing was held on April 16,
2009. On April 8, 2009, we filed a motion to dismiss certain of the claims in the lawsuit as not yet ripe for resolution. A hearing on our motion was held on April 30, 2009. We do not know when a decision will be issued by the court on
either motion. The escrow amounts have been included in the acquisition cost related to the AMI acquisition and amounts held in escrow are not reflected as financial assets in the consolidated financial statements.
| | --- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | v) | In July 2004, Dr. Gregory Baran initiated legal action, alleging infringement by Medical Device Technologies Inc. (MDT) of two U.S. patents owned by
Dr. Baran. These patents allegedly cover MDTs BioPince automated biopsy device. On September 25, 2007, the judge issued her decision pursuant to the Markman hearing of December 2005. We submitted a Motion for Summary Judgment
to the court based upon the Markman decision and on September 30, 2009, the judge ruled in our favor, finding that the BioPince did not infringe a key claim of Dr. Barans patents. Dr. Baran has filed a Notice of Appeal with
respect to this decision
| | -- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | vi) | At the European Patent Office (EPO), various patents either owned or licensed by or to us are in opposition proceedings including the following:
| | --- | --------------------------------------------------------------------------------------------------------------------------------------------------

| |  |  | In EP0784490, an oral hearing took place on October 1, 2009, and the patent with amendments was maintained by the EPO.
| | - |  | ----------------------------------------------------------------------------------------------------------------------

| |  |  | In EP0809515 (which is licensed from (and to) BSC), the EPO held an oral hearing on January 30, 2008 and thereafter revoked this patent. An appeal
was filed on April 22, 2008. The parties have been summoned to attend an oral hearing on the appeal at the EPO on June 19, 2009. On February 26, 2009, BSC submitted a request to withdraw from the oral hearing. On June 25, 2009
the EPO issued a notice stating that the decision under appeal was set aside and the patent would be remitted to the patent examiner for further prosecution.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  |  | In EP0830110 (which is licensed from Edwards LifeSciences Corporation) an amended form of this patent was found valid after an oral hearing on
September 28, 2006; however, the opponent appealed the decision on December 21, 2006. An oral hearing took place on September 9, 2009, and the EPO cancelled the appeal proceedings and maintained the patent in the same form as allowed
by the Opposition Division.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



21



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##### Table of Contents

| |  |  | In EP0876166 the EPO held an oral hearing on September 24, 2008, and thereafter revoked this patent. We filed an appeal on January 19, 2009,
and then filed a request to withdraw the appeal on March 10, 2009. On April 2, 2009, the EPO withdrew the appeal and closed the proceedings with the patent revoked.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  |  | In EP0975340 (which is licensed from (and to) BSC), an oral hearing was held on December 4, 2008. The EPO issued an Interlocutory Decision on
December 23, 2008 stating the patent was found to have met the requirements of the convention. The opponent has appealed this decision. The opponent withdrew their appeal on June 23, 2009, and requested that the patent be maintained in
amended form. On June 23, 2009, the EPO withdrew the appeal and maintained the patent in amended form.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  |  | In EP1118325 (which is licensed from the NIH), an oral hearing was held on April 7, 2009, and the patent was upheld. The decision is appealable.
On August 18, 2009, the outcome of the oral hearing was made final by the EPO.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  |  | In EP1155689, briefs are being exchanged.
| | - |  | -----------------------------------------

| |  |  | In EP1407786 (which is licensed from (and to) BSC), the patent was revoked in a decision from the EPO on December 9, 2008. An appeal was filed on
January 30, 2009. An appeal was also filed on behalf of the opponent on April 8, 2009. On September 1, 2009, a request to withdraw appeal was filed. On October 1, 2009, the appeal proceedings were terminated and the decision to
revoke the patent was made final by the EPO.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  |  | In EP1429664, an oral hearing had been scheduled for May 27, 2009; however, the oral hearing was canceled by the EPO on May 14, 2009. The
proceedings will continue in writing. On September 14, 2009, the EPO terminated the appeal proceedings and maintained the patent.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  |  | In EP1159974, the EPO has scheduled oral proceedings for June 9, 2010.
| | - |  | ----------------------------------------------------------------------

| |  |  | In EP1159975, a Notice of Opposition was filed on June 5, 2009. Angiotechs response to the Opposition is due by November 21, 2009. In
EP0991359, our response to the opposition was due prior to the extended deadline of May 15, 2009 but we did not file a response. A notice of failure to respond to the opposition was issued by the EPO on July 7, 2009. On September 7,
2009, a response to the opposition was filed on our behalf.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  |  | In EP0876165, the EPO revoked the patent as an outcome of an oral hearing held on June 24, 2009. An appeal may be filed up to August 24,
2009. On August 20, 2009, a Notice of Appeal was filed on our behalf.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | vii) | On July 7, 2008, we entered into a note purchase agreement (the Note Purchase Agreement) with Ares and New Leaf under which Ares and New Leaf agreed to
purchase between $200 and $300 million, at our option, of convertible notes to be issued by the newly formed subsidiary. In connection with our entry into the Note Purchase Agreement, we commenced a tender offer for our Floating Rate Notes and
Subordinated Notes for an aggregate purchase price of $165 million including accrued and unpaid interest and certain premiums. On September 22, 2008 we announced that we would be unable to satisfy the conditions to closing in the Note Purchase
Agreement, and on September 23, 2008, we announced the termination of the tender offer and the transaction was abandoned. Ares and New Leaf subsequently terminated the Note Purchase Agreement on November 19, 2008. The Note Purchase
Agreement provided for a non-refundable fee, subject to certain conditions, of $3 million to Ares and New Leaf plus reimbursement of up to an additional $3 million for Ares and New Leafs transaction-related expenses. The Note Purchase
Agreement also provided that if we were to enter into an agreement related to an Alternate Transaction, as defined in the Note Purchase Agreement, within 12 months of termination of the Note Purchase Agreement, we would have been required to pay
Ares and New Leaf a non-refundable fee of $10 million plus reimburse Ares and New Leaf for transaction-related expenses of up to an additional $4 million (subject to certain conditions) upon our agreement to such Alternative Transaction. On
June 17, 2009 we entered into a Settlement Agreement and Mutual Release (the Settlement Agreement) with Ares and New Leaf that fully resolved any existing and potential claims under the Note Purchase Agreement in exchange for a
payment of $3 million to Ares and New Leaf. Prior to entering into the Settlement Agreement, we paid Ares and New Leaf $2 million in partial satisfactions of their claims under the Note Purchase Agreement. In connection with certain types of
Alternative Transactions, we may also be required under the terms of agreements with certain advisors to pay fees to such advisors, whether or not such advisors participate in such Alternative Transaction.
| | ---- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|15. | SEGMENTED INFORMATION
|--- | ---------------------

We
operate in two reportable segments: (i) Pharmaceutical Technologies and (ii) Medical Products. We report segmented information to the gross margin level. All other income and expenses are not allocated to segments as they are not
considered in evaluating the segments operating performance.

The Pharmaceutical Technologies segment includes royalty
revenue generated from out-licensing technology related to the drug-eluting stent and other technologies.

The Medical Products
segment includes revenues and gross margins of single use, specialty medical devices including suture needles, biopsy needles / devices, micro surgical ophthalmic knives, drainage catheters, self-anchoring sutures, other specialty devices,
biomaterials and other technologies.



22



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##### Table of Contents

The following tables represent reportable segment information for the three and nine months
ended September 30, 2009 and 2008:



|                                                       |  |                                 |        |   |                                |   |          |      |  |   |                      |   |  |   |          |  
|------------------------------------------------------ |  | ------------------------------- | ------ | - | ------------------------------ | - | -------- | ---- |  | - | -------------------- | - |  | - | -------- | -
|                                                       |  | Three months endedSeptember 30, |        |   | Nine months endedSeptember 30, |  
|                                                       |  | 2009                            |        |   | 2008Restated[note 1]           |   |          | 2009 |  |   | 2008Restated[note 1] |  
|Revenue                                                |  |                                 |        |   |                                |   |          |      |  |   |                      |   |  |   |          |  
|Pharmaceutical Technologies                            |  | $                               | 14,584 |   |                                | $ | 21,858   |      |  | $ | 74,141               |   |  | $ | 76,429   |  
|Medical Products                                       |  |                                 | 48,660 |   |                                |   | 46,502   |      |  |   | 141,976              |   |  |   | 144,761  |  
|                                                       |  |                                 |        |   |                                |   |          |      |  |   |                      |   |  |   |          |  
|Total revenue                                          |  |                                 | 63,244 |   |                                |   | 68,360   |      |  |   | 216,117              |   |  |   | 221,190  |  
|                                                       |  |                                 |        |   |                                |   |          |      |  |   |                      |   |  |   |          |  
|Licence and royalty fees  Pharmaceutical Technologies |  |                                 | 2,463  |   |                                |   | 3,452    |      |  |   | 7,937                |   |  |   | 11,484   |  
|Cost of products sold  Medical Products               |  |                                 | 25,958 |   |                                |   | 24,772   |      |  |   | 75,606               |   |  |   | 77,430   |  
|                                                       |  |                                 |        |   |                                |   |          |      |  |   |                      |   |  |   |          |  
|Gross margin                                           |  |                                 |        |   |                                |   |          |      |  |   |                      |   |  |   |          |  
|Pharmaceutical Technologies                            |  |                                 | 12,121 |   |                                |   | 18,406   |      |  |   | 66,204               |   |  |   | 64,945   |  
|Medical Products                                       |  |                                 | 22,702 |   |                                |   | 21,730   |      |  |   | 66,370               |   |  |   | 67,331   |  
|                                                       |  |                                 |        |   |                                |   |          |      |  |   |                      |   |  |   |          |  
|Total gross margin                                     |  |                                 | 34,823 |   |                                |   | 40,136   |      |  |   | 132,574              |   |  |   | 132,276  |  
|                                                       |  |                                 |        |   |                                |   |          |      |  |   |                      |   |  |   |          |  
|Research and development                               |  |                                 | 4,596  |   |                                |   | 10,658   |      |  |   | 17,526               |   |  |   | 45,468   |  
|Selling, general and administration                    |  |                                 | 17,924 |   |                                |   | 23,370   |      |  |   | 59,102               |   |  |   | 77,100   |  
|Depreciation and amortization                          |  |                                 | 8,285  |   |                                |   | 8,560    |      |  |   | 24,845               |   |  |   | 25,577   |  
|In-process research and development                    |  |                                 |       |   |                                |   |         |      |  |   |                     |   |  |   | 2,500    |  
|Write-down of goodwill                                 |  |                                 |       |   |                                |   | 599,400  |      |  |   |                     |   |  |   | 599,400  |  
|                                                       |  |                                 |        |   |                                |   |          |      |  |   |                      |   |  |   |          |  
|Operating income (loss)                                |  |                                 | 4,018  |   |                                |   | (601,852 | )    |  |   | 31,101               |   |  |   | (617,769 | )
|Other expenses                                         |  |                                 | (9,758 | ) |                                |   | (25,039  | )    |  |   | (30,767              | ) |  |   | (56,757  | )
|                                                       |  |                                 |        |   |                                |   |          |      |  |   |                      |   |  |   |          |  
|(Loss) income before income taxes                      |  | $                               | (5,740 | ) |                                | $ | (626,891 | )    |  | $ | 334                  |   |  | $ | (674,526 | )
|                                                       |  |                                 |        |   |                                |   |          |      |  |   |                      |   |  |   |          |  

During the three months ended September 30, 2009, revenue from one licensee
represented approximately 22% of total revenue, and during the nine months ended September 30, 2009, revenue from two licensees represented approximately 33% of total revenue. During the three and nine months ended September 30, 2008,
revenue from one licensee represented approximately 28% and 32% of total revenue, respectively.

We allocate our assets into
two reportable segments; however, as noted above, depreciation, income taxes and other expenses and income are not allocated to segment operating units. The following table represents total assets for each reportable segment at September 30,
2009 and December 31, 2008:



|                            |  |                   |         |                  |   |        
|--------------------------- |  | ----------------- | ------- | ---------------- | - | -------
|                            |  | September 30,2009 |         | December 31,2008
|Total assets                |  |                   |         |                  |   |        
|Pharmaceutical Technologies |  | $                 | 77,737  |                  | $ | 67,506 
|Medical Products            |  |                   | 299,396 |                  |   | 317,691
|                            |  |                   |         |                  |   |        
|Total assets                |  | $                 | 377,133 |                  | $ | 385,197
|                            |  |                   |         |                  |   |        

The following table represents capital expenditures for each reportable segment at
September 30, 2009 and 2008:



|                            |  |                                |       |                               |   |       |  |      |       |  |   |      
|--------------------------- |  | ------------------------------ | ----- | ----------------------------- | - | ----- |  | ---- | ----- |  | - | -----
|                            |  | Three months endedSeptember 30 |       | Nine months endedSeptember 30
|                            |  | 2009                           |       | 2008                          |   | 2009  |  | 2008
|Capital expenditures        |  |                                |       |                               |   |       |  |      |       |  |   |      
|Pharmaceutical Technologies |  | $                              | 579   |                               | $ | 273   |  | $    | 820   |  | $ | 1,033
|Medical Products            |  |                                | 1,322 |                               |   | 1,178 |  |      | 2,770 |  |   | 6,865
|                            |  |                                |       |                               |   |       |  |      |       |  |   |      
|Total capital expenditures  |  | $                              | 1,901 |                               | $ | 1,451 |  | $    | 3,590 |  | $ | 7,898



|16. | RESTRUCTURING CHARGES
|--- | ---------------------

During the three and nine months ended September 30, 2009, we recorded charges of $0.3 million and $0.8 million, respectively, related to various relocation activities at our Puerto Rico location associated with capacity
rationalization and consolidation in the Medical Products segment. For the three and nine months ended September 30, 2008, we recorded charges of $0.6 million and $2.1 million, respectively, related to various relocation activities at our
Syracuse, NY and Puerto Rico locations, and $0.2 million and $1.7 million, respectively, related to employee severance benefits at our Syracuse, NY plant location. The charges related to relocation activities are being recorded as incurred.



23



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##### Table of Contents

As at September 30, 2009, we have $0.8 million accrued (December 31, 2008  $4.1
million) for severance costs associated with our Syracuse location and we have terminated or transferred all of the employees from our Syracuse, NY location.

The expenses recorded in accordance with ASC No. 420, Exit or Disposal Obligations,which requires us to make significant estimates and assumptions. These estimates and assumptions will be
evaluated and adjusted as appropriate on at least a quarterly basis for changes in circumstances. It is possible that such estimates could change in the future resulting in additional adjustments, and the effect of any such adjustments could be
material.

Changes in the accrued liability for restructuring charges are as follows:



|                              |  |                    |        |  
|----------------------------- |  | ------------------ | ------ | -
|                              |  | Severance Benefits |       
|Balance at December 31, 2007  |  | $                  | 3,227  |  
|Severances charged            |  |                    | 1,664  |  
|Accretion expense             |  |                    | 156    |  
|Severances paid               |  |                    | (973   | )
|                              |  |                    |        |  
|Balance at December 31, 2008  |  | $                  | 4,074  |  
|Severances paid               |  |                    | (3,268 | )
|                              |  |                    |        |  
|Balance at September 30, 2008 |  | $                  | 806    |  
|                              |  |                    |        |  



|17. | NET LOSS PER SHARE
|--- | ------------------

Net
loss per share was calculated as follows:



|                                                                |  |                                 |        |   |                                |   |          |      |  |   |        |   |  |   |          |  
|--------------------------------------------------------------- |  | ------------------------------- | ------ | - | ------------------------------ | - | -------- | ---- |  | - | ------ | - |  | - | -------- | -
|                                                                |  | Three months endedSeptember 30, |        |   | Nine months endedSeptember 30, |  
|                                                                |  | 2009                            |        |   | 2008                           |   |          | 2009 |  |   | 2008   |  
|Numerator:                                                      |  |                                 |        |   |                                |   |          |      |  |   |        |   |  |   |          |  
|Net loss                                                        |  | $                               | (7,802 | ) |                                | $ | (622,378 | )    |  | $ | (7,235 | ) |  | $ | (664,212 | )
|                                                                |  |                                 |        |   |                                |   |          |      |  |   |        |   |  |   |          |  
|                                                                |  |                                 |        |  
|Denominator:                                                    |  |                                 |        |   |                                |   |          |      |  |   |        |   |  |   |          |  
|Basic and diluted weighted average common shares outstanding(1) |  |                                 | 85,136 |   |                                |   | 85,122   |      |  |   | 85,125 |   |  |   | 85,117   |  
|                                                                |  |                                 |        |   |                                |   |          |      |  |   |        |   |  |   |          |  
|                                                                |  |                                 |        |  
|Basic and diluted net loss per common share:                    |  | $                               | (0.09  | ) |                                | $ | (7.31    | )    |  | $ | (0.08  | ) |  | $ | (7.80    | )
|                                                                |  |                                 |        |   |                                |   |          |      |  |   |        |   |  |   |          |  



| | (1) | There is no dilutive effect on basic weighted average common shares outstanding for the three and nine months ended September 30, 2009 and the
three and nine months ended September 30, 2008 as we were in a loss position for each of those periods.
| | --- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



24



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##### Table of Contents

|18. | CHANGE IN NON-CASH WORKING CAPITAL ITEMS RELATING TO OPERATIONS AND SUPPLEMENTAL CASH FLOW INFORMATION
|--- | ------------------------------------------------------------------------------------------------------

The change in non-cash working capital items relating to operations was as follows:



|                                         |  |                                 |        |   |                                |   |        |      |  |   |        |   |  |   |        |  
|---------------------------------------- |  | ------------------------------- | ------ | - | ------------------------------ | - | ------ | ---- |  | - | ------ | - |  | - | ------ | -
|                                         |  | Three months endedSeptember 30, |        |   | Nine months endedSeptember 30, |  
|                                         |  | 2009                            |        |   | 2008                           |   |        | 2009 |  |   | 2008   |  
|Accounts receivable                      |  | $                               | (67    | ) |                                | $ | 214    |      |  | $ | (2,599 | ) |  | $ | (5,331 | )
|Inventories                              |  |                                 | 775    |   |                                |   | (3,758 | )    |  |   | 833    |   |  |   | (5,895 | )
|Prepaid expenses and other assets        |  |                                 | 194    |   |                                |   | (923   | )    |  |   | 6,551  |   |  |   | 1,618  |  
|Accounts payable and accrued liabilities |  |                                 | (5,260 | ) |                                |   | (6,823 | )    |  |   | (6,774 | ) |  |   | (3,517 | )
|Income taxes payable                     |  |                                 | (494   | ) |                                |   | 7,966  |      |  |   | (785   | ) |  |   | 4,493  |  
|Interest payable on long term debt       |  |                                 | 4,689  |   |                                |   | 4,878  |      |  |   | 4,283  |   |  |   | 4,136  |  
|                                         |  |                                 |        |   |                                |   |        |      |  |   |        |   |  |   |        |  
|                                         |  | $                               | (163   | ) |                                | $ | 1,545  |      |  | $ | 1,509  |   |  | $ | (4,496 | )
|                                         |  |                                 |        |   |                                |   |        |      |  |   |        |   |  |   |        |  

Supplemental disclosure:



|                  |  |                                 |       |                                |   |       |  |      |        |  |   |       
|----------------- |  | ------------------------------- | ----- | ------------------------------ | - | ----- |  | ---- | ------ |  | - | ------
|                  |  | Three months endedSeptember 30, |       | Nine months endedSeptember 30,
|                  |  | 2009                            |       | 2008                           |   | 2009  |  | 2008
|Income taxes paid |  | $                               | 2,068 |                                | $ | 1,080 |  | $    | 5,168  |  | $ | 2,640 
|Interest paid     |  |                                 | 3,739 |                                |   | 5,343 |  |      | 23,355 |  |   | 27,989



|19. | CONDENSED CONSOLIDATING GUARANTOR FINANCIAL INFORMATION
|--- | -------------------------------------------------------

The following presents the condensed consolidating guarantor financial information as of September 30, 2009 and December 31, 2008, and for the three and nine months ended September 30, 2009
and 2008 for our direct and indirect subsidiaries that serve as guarantors of the Senior Subordinated Notes and the Senior Floating Rate Notes, and for our subsidiaries that do not serve as guarantors. Non-guarantor subsidiaries include the Swiss
subsidiaries and a Canadian Trust that cannot guarantee our debt. All of our subsidiaries are 100% owned and all guarantees are full and unconditional, joint and several.



25



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##### Table of Contents

Condensed Consolidating Balance Sheet

As at September 30, 2009

USD (in 000s)



|                                                     |  |                                             |          |   |                        |   |          |                            |  |   |                          |   |  |                   |            |   |  |   |          |  
|---------------------------------------------------- |  | ------------------------------------------- | -------- | - | ---------------------- | - | -------- | -------------------------- |  | - | ------------------------ | - |  | ----------------- | ---------- | - |  | - | -------- | -
|                                                     |  | Parent CompanyAngiotechPharmaceuticals,Inc. |          |   | GuarantorsSubsidiaries |   |          | Non GuarantorsSubsidiaries |  |   | ConsolidatingAdjustments |   |  | ConsolidatedTotal |           
|ASSETS                                               |  |                                             |          |   |                        |   |          |                            |  |   |                          |   |  |                   |            |   |  |   |          |  
|                                                     |  |                                             |          |   |                       
|Current assets                                       |  |                                             |          |   |                        |   |          |                            |  |   |                          |   |  |                   |            |   |  |   |          |  
|Cash and cash equivalents                            |  | $                                           | 28,422   |   |                        | $ | 12,713   |                            |  | $ | 10,323                   |   |  | $                 |           |   |  | $ | 51,458   |  
|Short term investments                               |  |                                             | 2,298    |   |                        |   |         |                            |  |   |                         |   |  |                   |           |   |  |   | 2,298    |  
|Accounts receivable                                  |  |                                             | 393,368  |   |                        |   | 50,691   |                            |  |   | 240,414                  |   |  |                   | (655,599   | ) |  |   | 28,874   |  
|Inventories                                          |  |                                             |         |   |                        |   | 30,831   |                            |  |   | 8,135                    |   |  |                   | (1,012     | ) |  |   | 37,954   |  
|Deferred income taxes, current portion               |  |                                             |         |   |                        |   | 3,090    |                            |  |   |                         |   |  |                   |           |   |  |   | 3,090    |  
|Prepaid expenses and other current assets            |  |                                             | 1,248    |   |                        |   | 2,513    |                            |  |   | 311                      |   |  |                   |           |   |  |   | 4,072    |  
|                                                     |  |                                             |          |   |                        |   |          |                            |  |   |                          |   |  |                   |            |   |  |   |          |  
|Total Current Assets                                 |  |                                             | 425,336  |   |                        |   | 99,838   |                            |  |   | 259,183                  |   |  |                   | (656,611   | ) |  |   | 127,746  |  
|                                                     |  |                                             |          |   |                        |   |          |                            |  |   |                          |   |  |                   |            |   |  |   |          |  
|                                                     |  |                                             |          |   |                       
|Long term investments                                |  |                                             | 825      |   |                        |   |         |                            |  |   | 736                      |   |  |                   |           |   |  |   | 1,561    |  
|Investment in subsidiaries                           |  |                                             | 24,933   |   |                        |   | 273,052  |                            |  |   |                         |   |  |                   | (297,985   | ) |  |   |         |  
|Assets held for sale                                 |  |                                             | 5,291    |   |                        |   | 3,100    |                            |  |   |                         |   |  |                   |           |   |  |   | 8,391    |  
|Property, plant and equipment                        |  |                                             | 8,398    |   |                        |   | 30,884   |                            |  |   | 7,621                    |   |  |                   |           |   |  |   | 46,903   |  
|Intangible assets                                    |  |                                             | 13,129   |   |                        |   | 143,258  |                            |  |   | 20,196                   |   |  |                   | (136       | ) |  |   | 176,447  |  
|Goodwill                                             |  |                                             |         |   |                        |   |         |                            |  |   |                         |   |  |                   |           |   |  |   |         |  
|Deferred income taxes                                |  |                                             |         |   |                        |   | 1,835    |                            |  |   |                         |   |  |                   |           |   |  |   | 1,835    |  
|Deferred financing costs                             |  |                                             | 9,903    |   |                        |   | 2,090    |                            |  |   |                         |   |  |                   |           |   |  |   | 11,993   |  
|Other assets                                         |  |                                             | 1,654    |   |                        |   | 480      |                            |  |   | 123                      |   |  |                   |           |   |  |   | 2,257    |  
|                                                     |  |                                             |          |   |                        |   |          |                            |  |   |                          |   |  |                   |            |   |  |   |          |  
|Total Assets                                         |  |                                             | 489,469  |   |                        |   | 554,537  |                            |  |   | 287,859                  |   |  |                   | (954,732   | ) |  |   | 377,133  |  
|                                                     |  |                                             |          |   |                        |   |          |                            |  |   |                          |   |  |                   |            |   |  |   |          |  
|                                                    
|LIABILITIES AND SHAREHOLDERS (DEFICIT) EQUITY       | 
|                                                     |  |                                             |          |   |                       
|Current liabilities                                  |  |                                             |          |   |                        |   |          |                            |  |   |                          |   |  |                   |            |   |  |   |          |  
|                                                     |  |                                             |          |   |                       
|Accounts payable and accrued liabilities             |  |                                             | 226,015  |   |                        |   | 403,455  |                            |  |   | 55,951                   |   |  |                   | (646,489   | ) |  |   | 38,932   |  
|Income taxes payable                                 |  |                                             | (1,778   | ) |                        |   | 6,817    |                            |  |   | 2,222                    |   |  |                   |           |   |  |   | 7,261    |  
|Interest payable on long-term debt                   |  |                                             | 10,797   |   |                        |   |         |                            |  |   |                         |   |  |                   |           |   |  |   | 10,797   |  
|Deferred revenue, current portion                    |  |                                             |         |   |                        |   |         |                            |  |   | 210                      |   |  |                   |           |   |  |   | 210      |  
|                                                     |  |                                             |          |   |                        |   |          |                            |  |   |                          |   |  |                   |            |   |  |   |          |  
|Total Current Liabilities                            |  |                                             | 235,034  |   |                        |   | 410,272  |                            |  |   | 58,383                   |   |  |                   | (646,489   | ) |  |   | 57,200   |  
|                                                     |  |                                             |          |   |                        |   |          |                            |  |   |                          |   |  |                   |            |   |  |   |          |  
|                                                     |  |                                             |          |   |                       
|Deferred revenue                                     |  |                                             |         |   |                        |   |         |                            |  |   | 842                      |   |  |                   |           |   |  |   | 842      |  
|Deferred leasehold inducement                        |  |                                             | 2,571    |   |                        |   | 397      |                            |  |   |                         |   |  |                   |           |   |  |   | 2,968    |  
|Deferred income taxes                                |  |                                             | (1,683   | ) |                        |   | 41,755   |                            |  |   | 547                      |   |  |                   | (32        | ) |  |   | 40,587   |  
|Other tax liabilities                                |  |                                             | 1,944    |   |                        |   | 857      |                            |  |   | 344                      |   |  |                   |           |   |  |   | 3,145    |  
|Long-term debt                                       |  |                                             | 575,000  |   |                        |   |         |                            |  |   |                         |   |  |                   |           |   |  |   | 575,000  |  
|Other liabilities                                    |  |                                             |         |   |                        |   |         |                            |  |   | 686                      |   |  |                   |           |   |  |   | 686      |  
|                                                     |  |                                             |          |   |                        |   |          |                            |  |   |                          |   |  |                   |            |   |  |   |          |  
|Total Non-current Liabilities                        |  |                                             | 577,832  |   |                        |   | 43,009   |                            |  |   | 2,419                    |   |  |                   | (32        | ) |  |   | 623,228  |  
|                                                     |  |                                             |          |   |                        |   |          |                            |  |   |                          |   |  |                   |            |   |  |   |          |  
|                                                     |  |                                             |          |   |                       
|Shareholders (Deficit) Equity                       |  |                                             |          |   |                        |   |          |                            |  |   |                          |   |  |                   |            |   |  |   |          |  
|                                                     |  |                                             |          |   |                       
|Share capital                                        |  |                                             | 472,742  |   |                        |   | 917,189  |                            |  |   | 262,209                  |   |  |                   | (1,179,398 | ) |  |   | 472,742  |  
|Additional paid in capital                           |  |                                             | 33,279   |   |                        |   | 91,406   |                            |  |   | 18,058                   |   |  |                   | (109,465   | ) |  |   | 33,278   |  
|Accumulated deficit                                  |  |                                             | (850,908 | ) |                        |   | (907,508 | )                          |  |   | (71,388                  | ) |  |                   | 978,896    |   |  |   | (850,908 | )
|Accumulated other comprehensive income               |  |                                             | 21,490   |   |                        |   | 169      |                            |  |   | 18,178                   |   |  |                   | 1,756      |   |  |   | 41,593   |  
|                                                     |  |                                             |          |   |                        |   |          |                            |  |   |                          |   |  |                   |            |   |  |   |          |  
|Total Shareholders (Deficit) Equity                 |  |                                             | (323,397 | ) |                        |   | 101,256  |                            |  |   | 227,057                  |   |  |                   | (308,211   | ) |  |   | (303,295 | )
|                                                     |  |                                             |          |   |                        |   |          |                            |  |   |                          |   |  |                   |            |   |  |   |          |  
|Total Liabilities and Shareholders (Deficit) Equity |  | $                                           | 489,469  |   |                        | $ | 554,537  |                            |  | $ | 287,859                  |   |  | $                 | (954,732   | ) |  | $ | 377,133  |  
|                                                     |  |                                             |          |   |                        |   |          |                            |  |   |                          |   |  |                   |            |   |  |   |          |  



26



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##### Table of Contents

Condensed Consolidating Balance Sheet

As at December 31, 2008

USD (in 000s)



|                                                     |  |                                             |          |   |                        |   |          |                            |  |   |                          |   |  |                   |            |   |  |   |          |  
|---------------------------------------------------- |  | ------------------------------------------- | -------- | - | ---------------------- | - | -------- | -------------------------- |  | - | ------------------------ | - |  | ----------------- | ---------- | - |  | - | -------- | -
|                                                     |  | Parent CompanyAngiotechPharmaceuticals,Inc. |          |   | GuarantorsSubsidiaries |   |          | Non GuarantorsSubsidiaries |  |   | ConsolidatingAdjustments |   |  | ConsolidatedTotal |           
|ASSETS                                               |  |                                             |          |   |                        |   |          |                            |  |   |                          |   |  |                   |            |   |  |   |          |  
|                                                     |  |                                             |          |   |                       
|Current assets                                       |  |                                             |          |   |                        |   |          |                            |  |   |                          |   |  |                   |            |   |  |   |          |  
|Cash and cash equivalents                            |  | $                                           | 10,180   |   |                        | $ | 6,572    |                            |  | $ | 22,200                   |   |  | $                 |           |   |  | $ | 38,952   |  
|Short term investments                               |  |                                             | 848      |   |                        |   |         |                            |  |   |                         |   |  |                   |           |   |  |   | 848      |  
|Accounts receivable                                  |  |                                             | 397,846  |   |                        |   | 73,663   |                            |  |   | 258,349                  |   |  |                   | (704,334   | ) |  |   | 25,524   |  
|Inventories                                          |  |                                             |         |   |                        |   | 31,939   |                            |  |   | 7,824                    |   |  |                   | (1,169     | ) |  |   | 38,594   |  
|Deferred income taxes, current portion               |  |                                             |         |   |                        |   | 3,820    |                            |  |   |                         |   |  |                   |           |   |  |   | 3,820    |  
|Prepaid expenses and other current assets            |  |                                             | 1,674    |   |                        |   | 3,074    |                            |  |   | 486                      |   |  |                   |           |   |  |   | 5,234    |  
|                                                     |  |                                             |          |   |                        |   |          |                            |  |   |                          |   |  |                   |            |   |  |   |          |  
|Total Current Assets                                 |  |                                             | 410,548  |   |                        |   | 119,068  |                            |  |   | 288,859                  |   |  |                   | (705,503   | ) |  |   | 112,972  |  
|                                                     |  |                                             |          |   |                        |   |          |                            |  |   |                          |   |  |                   |            |   |  |   |          |  
|                                                     |  |                                             |          |   |                       
|Long term investments                                |  |                                             | 825      |   |                        |   |         |                            |  |   | 736                      |   |  |                   |           |   |  |   | 1,561    |  
|Investment in subsidiaries                           |  |                                             | 44,324   |   |                        |   | 292,438  |                            |  |   | 0                        |   |  |                   | (336,762   | ) |  |   | 0        |  
|Assets held for sale                                 |  |                                             | 5,322    |   |                        |   | 3,100    |                            |  |   |                         |   |  |                   |            |   |  |   | 8,422    |  
|Property, plant and equipment                        |  |                                             | 9,194    |   |                        |   | 30,326   |                            |  |   | 9,588                    |   |  |                   |           |   |  |   | 49,108   |  
|Intangible assets                                    |  |                                             | 15,112   |   |                        |   | 158,097  |                            |  |   | 22,268                   |   |  |                   |           |   |  |   | 195,477  |  
|Goodwill                                             |  |                                             |         |   |                        |   |         |                            |  |   |                         |   |  |                   |           |   |  |   |         |  
|Deferred financing costs                             |  |                                             | 11,363   |   |                        |   |         |                            |  |   |                         |   |  |                   |           |   |  |   | 11,363   |  
|Deferred income taxes                                |  |                                             |         |   |                        |   |         |                            |  |   |                         |   |  |                   |           |   |  |   |         |  
|Other assets                                         |  |                                             | 271      |   |                        |   | 5,911    |                            |  |   | 112                      |   |  |                   |           |   |  |   | 6,294    |  
|                                                     |  |                                             |          |   |                        |   |          |                            |  |   |                          |   |  |                   |            |   |  |   |          |  
|Total Assets                                         |  | $                                           | 496,959  |   |                        | $ | 608,940  |                            |  | $ | 321,563                  |   |  | ($                | 1,042,265  | ) |  | $ | 385,197  |  
|                                                     |  |                                             |          |   |                        |   |          |                            |  |   |                          |   |  |                   |            |   |  |   |          |  
|                                                    
|LIABILITIES AND SHAREHOLDERS (DEFICIT) EQUITY       | 
|                                                     |  |                                             |          |   |                       
|Current liabilities                                  |  |                                             |          |   |                        |   |          |                            |  |   |                          |   |  |                   |            |   |  |   |          |  
|                                                     |  |                                             |          |   |                       
|Accounts payable and accrued liabilities             |  |                                             | 232,391  |   |                        |   | 418,529  |                            |  |   | 100,057                  |   |  |                   | (704,357   | ) |  |   | 46,620   |  
|Income taxes payable                                 |  |                                             | (1,260   | ) |                        |   | 6,974    |                            |  |   | 2,357                    |   |  |                   |           |   |  |   | 8,071    |  
|Interest payable on long-term debt                   |  |                                             | 6,514    |   |                        |   |         |                            |  |   |                         |   |  |                   |           |   |  |   | 6,514    |  
|Deferred revenue, current portion                    |  |                                             |         |   |                        |   |         |                            |  |   | 210                      |   |  |                   |           |   |  |   | 210      |  
|                                                     |  |                                             |          |   |                        |   |          |                            |  |   |                          |   |  |                   |            |   |  |   |          |  
|Total Current Liabilities                            |  |                                             | 237,645  |   |                        |   | 425,503  |                            |  |   | 102,624                  |   |  |                   | (704,357   | ) |  |   | 61,415   |  
|                                                     |  |                                             |          |   |                        |   |          |                            |  |   |                          |   |  |                   |            |   |  |   |          |  
|                                                     |  |                                             |          |   |                       
|Deferred revenue                                     |  |                                             |         |   |                        |   |         |                            |  |   | 999                      |   |  |                   |           |   |  |   | 999      |  
|Deferred leasehold inducement                        |  |                                             | 2,768    |   |                        |   | 12       |                            |  |   |                         |   |  |                   |           |   |  |   | 2,780    |  
|Deferred income taxes                                |  |                                             | (1,959   | ) |                        |   | 42,010   |                            |  |   | 526                      |   |  |                   |           |   |  |   | 40,577   |  
|Other tax liabilities                                |  |                                             | 2,292    |   |                        |   | 585      |                            |  |   | 268                      |   |  |                   |           |   |  |   | 3,145    |  
|Long-term debt                                       |  |                                             | 575,000  |   |                        |   |         |                            |  |   |                         |   |  |                   |           |   |  |   | 575,000  |  
|Other liabilities                                    |  |                                             |         |   |                        |   | 272      |                            |  |   | 882                      |   |  |                   |           |   |  |   | 1,154    |  
|                                                     |  |                                             |          |   |                        |   |          |                            |  |   |                          |   |  |                   |            |   |  |   |          |  
|Total Non-current Liabilities                        |  |                                             | 578,101  |   |                        |   | 42,879   |                            |  |   | 2,675                    |   |  |                   |           |   |  |   | 623,655  |  
|                                                     |  |                                             |          |   |                        |   |          |                            |  |   |                          |   |  |                   |            |   |  |   |          |  
|                                                     |  |                                             |          |   |                       
|Shareholders (Deficit) Equity                       |  |                                             |          |   |                        |   |          |                            |  |   |                          |   |  |                   |            |   |  |   |          |  
|                                                     |  |                                             |          |   |                       
|Share capital                                        |  |                                             | 472,739  |   |                        |   | 917,189  |                            |  |   | 262,209                  |   |  |                   | (1,179,398 | ) |  |   | 472,739  |  
|Additional paid in capital                           |  |                                             | 32,108   |   |                        |   | 91,405   |                            |  |   | 18,059                   |   |  |                   | (109,465   | ) |  |   | 32,107   |  
|Accumulated deficit                                  |  |                                             | (843,674 | ) |                        |   | (866,180 | )                          |  |   | (83,019                  | ) |  |                   | 949,199    |   |  |   | (843,674 | )
|Accumulated other comprehensive income               |  |                                             | 20,040   |   |                        |   | (1,856   | )                          |  |   | 19,014                   |   |  |                   | 1,756      |   |  |   | 38,954   |  
|                                                     |  |                                             |          |   |                        |   |          |                            |  |   |                          |   |  |                   |            |   |  |   |          |  
|Total Shareholders (Deficit) Equity                 |  |                                             | (318,787 | ) |                        |   | 140,558  |                            |  |   | 216,264                  |   |  |                   | (337,908   | ) |  |   | (299,874 | )
|                                                     |  |                                             |          |   |                        |   |          |                            |  |   |                          |   |  |                   |            |   |  |   |          |  
|Total Liabilities and Shareholders (Deficit) Equity |  | $                                           | 496,959  |   |                        | $ | 608,940  |                            |  | $ | 321,563                  |   |  | $                 | (1,042,265 | ) |  | $ | 385,197  |  
|                                                     |  |                                             |          |   |                        |   |          |                            |  |   |                          |   |  |                   |            |   |  |   |          |  



27



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##### Table of Contents

Condensed Consolidating Statement of Operations

Three months ended September 30, 2009

USD (in 000s)



|                                    |  |                                             |         |   |                        |   |         |                            |  |   |                          |   |  |                   |        |   |  |   |        |  
|----------------------------------- |  | ------------------------------------------- | ------- | - | ---------------------- | - | ------- | -------------------------- |  | - | ------------------------ | - |  | ----------------- | ------ | - |  | - | ------ | -
|                                    |  | Parent CompanyAngiotechPharmaceuticals,Inc. |         |   | GuarantorsSubsidiaries |   |         | Non GuarantorsSubsidiaries |  |   | ConsolidatingAdjustments |   |  | ConsolidatedTotal |       
|REVENUE                             |  |                                             |         |   |                        |   |         |                            |  |   |                          |   |  |                   |        |   |  |   |        |  
|Royalty revenue                     |  | $                                           | 13,833  |   |                        | $ | 698     |                            |  | $ |                         |   |  | $                 |       |   |  | $ | 14,531 |  
|Product sales, net                  |  |                                             |        |   |                        |   | 39,482  |                            |  |   | 13,347                   |   |  |                   | (4,169 | ) |  |   | 48,660 |  
|License fees                        |  |                                             |        |   |                        |   | 40      |                            |  |   | 13                       |   |  |                   |       |   |  |   | 53     |  
|                                    |  |                                             |         |   |                        |   |         |                            |  |   |                          |   |  |                   |        |   |  |   |        |  
|                                    |  |                                             | 13,833  |   |                        |   | 40,220  |                            |  |   | 13,360                   |   |  |                   | (4,169 | ) |  |   | 63,244 |  
|                                    |  |                                             |         |   |                        |   |         |                            |  |   |                          |   |  |                   |        |   |  |   |        |  
|                                    |  |                                             |         |   |                       
|EXPENSES                            |  |                                             |         |   |                        |   |         |                            |  |   |                          |   |  |                   |        |   |  |   |        |  
|License and royalty fees            |  |                                             | 2,463   |   |                        |   |        |                            |  |   |                         |   |  |                   |       |   |  |   | 2,463  |  
|Cost of products sold               |  |                                             | 6       |   |                        |   | 20,411  |                            |  |   | 9,950                    |   |  |                   | (4,409 | ) |  |   | 25,958 |  
|Research & development              |  |                                             | 2,472   |   |                        |   | 2,049   |                            |  |   | 75                       |   |  |                   |       |   |  |   | 4,596  |  
|Intercompany R&D charges            |  |                                             | 1,134   |   |                        |   | (1,134  | )                          |  |   |                         |   |  |                   |       |   |  |   |       |  
|Selling, general and administration |  |                                             | 4,059   |   |                        |   | 11,850  |                            |  |   | 2,015                    |   |  |                   |       |   |  |   | 17,924 |  
|Depreciation and amortization       |  |                                             | 1,123   |   |                        |   | 4,208   |                            |  |   | 2,954                    |   |  |                   |       |   |  |   | 8,285  |  
|                                    |  |                                             |         |   |                        |   |         |                            |  |   |                          |   |  |                   |        |   |  |   |        |  
|                                    |  |                                             | 11,257  |   |                        |   | 37,384  |                            |  |   | 14,994                   |   |  |                   | (4,409 | ) |  |   | 59,226 |  
|                                    |  |                                             |         |   |                        |   |         |                            |  |   |                          |   |  |                   |        |   |  |   |        |  
|Operating income (loss)             |  |                                             | 2,576   |   |                        |   | 2,836   |                            |  |   | (1,634                   | ) |  |                   | 240    |   |  |   | 4,018  |  
|                                    |  |                                             |         |   |                        |   |         |                            |  |   |                          |   |  |                   |        |   |  |   |        |  
|                                    |  |                                             |         |   |                       
|Other income (expense)              |  |                                             |         |   |                        |   |         |                            |  |   |                          |   |  |                   |        |   |  |   |        |  
|Foreign exchange gain (loss)        |  |                                             | 19,895  |   |                        |   | 11      |                            |  |   | (20,442                  | ) |  |                   | 18     |   |  |   | (518   | )
|Investment and other income         |  |                                             | 12      |   |                        |   | 34      |                            |  |   |                         |   |  |                   |       |   |  |   | 46     |  
|Interest expense on long-term       |  |                                             | (8,987  | ) |                        |   | (152    | )                          |  |   | (147                     | ) |  |                   |       |   |  |   | (9,286 | )
|Management fees                     |  |                                             |        |   |                        |   |        |                            |  |   |                         |   |  |                   |       |   |  |   |       |  
|Dividend income                     |  |                                             |        |   |                        |   |        |                            |  |   |                         |   |  |                   |       |   |  |   |       |  
|                                    |  |                                             |         |   |                        |   |         |                            |  |   |                          |   |  |                   |        |   |  |   |        |  
|Total other expenses                |  |                                             | 10,920  |   |                        |   | (107    | )                          |  |   | (20,589                  | ) |  |                   | 18     |   |  |   | (9,758 | )
|                                    |  |                                             |         |   |                        |   |         |                            |  |   |                          |   |  |                   |        |   |  |   |        |  
|                                    |  |                                             |         |   |                       
|Income (loss) before income taxes   |  |                                             | 13,496  |   |                        |   | 2,729   |                            |  |   | (22,223                  | ) |  |                   | 258    |   |  |   | (5,740 | )
|Income tax (recovery) expense       |  |                                             | 139     |   |                        |   | 858     |                            |  |   | 1,065                    |   |  |                   |       |   |  |   | 2,062  |  
|                                    |  |                                             |         |   |                        |   |         |                            |  |   |                          |   |  |                   |        |   |  |   |        |  
|                                    |  |                                             |         |   |                       
|Income (loss) from operations       |  |                                             | 13,357  |   |                        |   | 1,871   |                            |  |   | (23,288                  | ) |  |                   | 258    |   |  |   | (7,802 | )
|Equity in subsidiaries              |  |                                             | (21,159 | ) |                        |   | (19,908 | )                          |  |   |                         |   |  |                   | 41,067 |   |  |   | 0      |  
|                                    |  |                                             |         |   |                        |   |         |                            |  |   |                          |   |  |                   |        |   |  |   |        |  
|Net income (loss)                   |  | $                                           | (7,802  | ) |                        | $ | (18,037 | )                          |  | $ | (23,288                  | ) |  | $                 | 41,325 |   |  | $ | (7,802 | )
|                                    |  |                                             |         |   |                        |   |         |                            |  |   |                          |   |  |                   |        |   |  |   |        |  



28



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##### Table of Contents

Condensed Consolidating Statement of Operations

Nine months ended September 30, 2009

USD (in 000s)



|                                              |  |                                             |         |   |                        |   |         |                            |  |   |                          |   |  |                   |         |   |  |   |         |  
|--------------------------------------------- |  | ------------------------------------------- | ------- | - | ---------------------- | - | ------- | -------------------------- |  | - | ------------------------ | - |  | ----------------- | ------- | - |  | - | ------- | -
|                                              |  | Parent CompanyAngiotechPharmaceuticals,Inc. |         |   | GuarantorsSubsidiaries |   |         | Non GuarantorsSubsidiaries |  |   | ConsolidatingAdjustments |   |  | ConsolidatedTotal |        
|REVENUE                                       |  |                                             |         |   |                        |   |         |                            |  |   |                          |   |  |                   |         |   |  |   |         |  
|Royalty revenue                               |  | $                                           | 44,822  |   |                        | $ | 2,678   |                            |  | $ | 1,138                    |   |  | $                 |        |   |  | $ | 48,638  |  
|Product sales, net                            |  |                                             |        |   |                        |   | 113,386 |                            |  |   | 42,601                   |   |  |                   | (14,011 | ) |  |   | 141,976 |  
|License fees                                  |  |                                             |        |   |                        |   | 107     |                            |  |   | 25,396                   |   |  |                   |        |   |  |   | 25,503  |  
|                                              |  |                                             |         |   |                        |   |         |                            |  |   |                          |   |  |                   |         |   |  |   |         |  
|                                              |  |                                             | 44,822  |   |                        |   | 116,171 |                            |  |   | 69,135                   |   |  |                   | (14,011 | ) |  |   | 216,117 |  
|                                              |  |                                             |         |   |                        |   |         |                            |  |   |                          |   |  |                   |         |   |  |   |         |  
|                                              |  |                                             |         |   |                       
|EXPENSES                                      |  |                                             |         |   |                        |   |         |                            |  |   |                          |   |  |                   |         |   |  |   |         |  
|License and royalty fees                      |  |                                             | 7,926   |   |                        |   |        |                            |  |   | 11                       |   |  |                   |        |   |  |   | 7,937   |  
|Cost of products sold                         |  |                                             | 77      |   |                        |   | 60,865  |                            |  |   | 28,827                   |   |  |                   | (14,163 | ) |  |   | 75,606  |  
|Research & development                        |  |                                             | 10,981  |   |                        |   | 6,312   |                            |  |   | 233                      |   |  |                   |        |   |  |   | 17,526  |  
|Intercompany R&D charges                      |  |                                             | 1,630   |   |                        |   | (1,630  | )                          |  |   |                         |   |  |                   |        |   |  |   |        |  
|Selling, general and administration           |  |                                             | 12,783  |   |                        |   | 38,462  |                            |  |   | 7,857                    |   |  |                   |        |   |  |   | 59,102  |  
|Depreciation and amortization                 |  |                                             | 3,479   |   |                        |   | 12,492  |                            |  |   | 8,874                    |   |  |                   |        |   |  |   | 24,845  |  
|                                              |  |                                             |         |   |                        |   |         |                            |  |   |                          |   |  |                   |         |   |  |   |         |  
|                                              |  |                                             | 36,876  |   |                        |   | 116,501 |                            |  |   | 45,802                   |   |  |                   | (14,163 | ) |  |   | 185,016 |  
|                                              |  |                                             |         |   |                        |   |         |                            |  |   |                          |   |  |                   |         |   |  |   |         |  
|Operating income (loss)                       |  |                                             | 7,946   |   |                        |   | (330    | )                          |  |   | 23,333                   |   |  |                   | 152     |   |  |   | 31,101  |  
|                                              |  |                                             |         |   |                        |   |         |                            |  |   |                          |   |  |                   |         |   |  |   |         |  
|                                              |  |                                             |         |   |                       
|Other income (expense)                        |  |                                             |         |   |                        |   |         |                            |  |   |                          |   |  |                   |         |   |  |   |         |  
|Foreign exchange gain (loss)                  |  |                                             | 7,407   |   |                        |   | (1,934  | )                          |  |   | (6,715                   | ) |  |                   | 15      |   |  |   | (1,227  | )
|Investment and other income                   |  |                                             | 7       |   |                        |   | 60      |                            |  |   | 7                        |   |  |                   |        |   |  |   | 74      |  
|Interest expense on long-term debt            |  |                                             | (28,315 | ) |                        |   | (27     | )                          |  |   | (629                     | ) |  |                   |        |   |  |   | (28,971 | )
|Write-down and other deferred financing costs |  |                                             |        |   |                        |   | (643    | )                          |  |   |                          |   |  |                   |         |   |  |   | (643    | )
|Management fees                               |  |                                             | (47     | ) |                        |   | 47      |                            |  |   |                         |   |  |                   |        |   |  |   |        |  
|Dividend income                               |  |                                             |        |   |                        |   | 3,000   |                            |  |   |                         |   |  |                   | (3,000  | ) |  |   |        |  
|                                              |  |                                             |         |   |                        |   |         |                            |  |   |                          |   |  |                   |         |   |  |   |         |  
|Total other expenses                          |  |                                             | (20,948 | ) |                        |   | 503     |                            |  |   | (7,337                   | ) |  |                   | (2,985  | ) |  |   | (30,767 | )
|                                              |  |                                             |         |   |                        |   |         |                            |  |   |                          |   |  |                   |         |   |  |   |         |  
|                                              |  |                                             |         |   |                       
|Income (loss) before income taxes             |  |                                             | (13,002 | ) |                        |   | 173     |                            |  |   | 15,996                   |   |  |                   | (2,833  | ) |  |   | 334     |  
|Income tax (recovery) expense                 |  |                                             | (229    | ) |                        |   | 3,385   |                            |  |   | 4,413                    |   |  |                   |        |   |  |   | 7,569   |  
|                                              |  |                                             |         |   |                        |   |         |                            |  |   |                          |   |  |                   |         |   |  |   |         |  
|                                              |  |                                             |         |   |                       
|Income (loss) from operations                 |  |                                             | (12,773 | ) |                        |   | (3,212  | )                          |  |   | 11,583                   |   |  |                   | (2,833  | ) |  |   | (7,235  | )
|Equity in subsidiaries                        |  |                                             | 5,538   |   |                        |   | (5,238  | )                          |  |   |                         |   |  |                   | (300    | ) |  |   |        |  
|                                              |  |                                             |         |   |                        |   |         |                            |  |   |                          |   |  |                   |         |   |  |   |         |  
|Net income (loss)                             |  | $                                           | (7,235  | ) |                        | $ | (8,450  | )                          |  | $ | 11,583                   |   |  | $                 | (3,133  | ) |  | $ | (7,235  | )
|                                              |  |                                             |         |   |                        |   |         |                            |  |   |                          |   |  |                   |         |   |  |   |         |  



29



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##### Table of Contents

Condensed Consolidating Statement of Operations

Three months ended September 30, 2008

USD (in 000s)



|                                                    |  |                                             |          |   |                        |   |          |                            |  |   |                          |   |  |                   |         |   |  |   |          |  
|--------------------------------------------------- |  | ------------------------------------------- | -------- | - | ---------------------- | - | -------- | -------------------------- |  | - | ------------------------ | - |  | ----------------- | ------- | - |  | - | -------- | -
|                                                    |  | Parent CompanyAngiotechPharmaceuticals,Inc. |          |   | GuarantorsSubsidiaries |   |          | Non GuarantorsSubsidiaries |  |   | ConsolidatingAdjustments |   |  | ConsolidatedTotal |        
|                                                    |  | (Restated) [note 1]                         |         
|REVENUE                                             |  |                                             |          |   |                        |   |          |                            |  |   |                          |   |  |                   |         |   |  |   |          |  
|Royalty revenue                                     |  | $                                           | 19,594   |   |                        | $ | 434      |                            |  | $ | 1,377                    |   |  | $                 |        |   |  | $ | 21,405   |  
|Product sales, net                                  |  |                                             |         |   |                        |   | 36,433   |                            |  |   | 22,333                   |   |  |                   | (12,264 | ) |  |   | 46,502   |  
|License fees                                        |  |                                             |         |   |                        |   | (25      | )                          |  |   | 478                      |   |  |                   |        |   |  |   | 453      |  
|                                                    |  |                                             |          |   |                        |   |          |                            |  |   |                          |   |  |                   |         |   |  |   |          |  
|                                                    |  |                                             | 19,594   |   |                        |   | 36,842   |                            |  |   | 24,188                   |   |  |                   | (12,264 | ) |  |   | 68,360   |  
|                                                    |  |                                             |          |   |                        |   |          |                            |  |   |                          |   |  |                   |         |   |  |   |          |  
|                                                    |  |                                             |          |   |                       
|EXPENSES                                            |  |                                             |          |   |                        |   |          |                            |  |   |                          |   |  |                   |         |   |  |   |          |  
|License and royalty fees                            |  |                                             | 3,452    |   |                        |   |         |                            |  |   |                         |   |  |                   |        |   |  |   | 3,452    |  
|Cost of products sold                               |  |                                             |         |   |                        |   | 18,187   |                            |  |   | 15,471                   |   |  |                   | (8,886  | ) |  |   | 24,772   |  
|Research & development                              |  |                                             | 5,943    |   |                        |   | 4,397    |                            |  |   | 318                      |   |  |                   |        |   |  |   | 10,658   |  
|Intercompany R&D charges                            |  |                                             | 1,445    |   |                        |   | (1,524   | )                          |  |   | 37                       |   |  |                   | 42      |   |  |   |         |  
|Selling, general and administration                 |  |                                             | 5,690    |   |                        |   | 13,268   |                            |  |   | 4,412                    |   |  |                   |        |   |  |   | 23,370   |  
|Depreciation and amortization                       |  |                                             | 1,213    |   |                        |   | 6,208    |                            |  |   | 1,139                    |   |  |                   |        |   |  |   | 8,560    |  
|In-process research and development                 |  |                                             |         |   |                        |   |         |                            |  |   |                         |   |  |                   |        |   |  |   |         |  
|Writedown of goodwill                               |  |                                             |         |   |                        |   | 505,084  |                            |  |   | 94,316                   |   |  |                   |        |   |  |   | 599,400  |  
|                                                    |  |                                             |          |   |                        |   |          |                            |  |   |                          |   |  |                   |         |   |  |   |          |  
|                                                    |  |                                             | 17,743   |   |                        |   | 545,620  |                            |  |   | 115,693                  |   |  |                   | (8,844  | ) |  |   | 670,212  |  
|                                                    |  |                                             |          |   |                        |   |          |                            |  |   |                          |   |  |                   |         |   |  |   |          |  
|Operating loss                                      |  |                                             | 1,851    |   |                        |   | (508,778 | )                          |  |   | (91,505                  | ) |  |                   | (3,420  | ) |  |   | (601,852 | )
|                                                    |  |                                             |          |   |                        |   |          |                            |  |   |                          |   |  |                   |         |   |  |   |          |  
|                                                    |  |                                             |          |   |                       
|Other income (expense)                              |  |                                             |          |   |                        |   |          |                            |  |   |                          |   |  |                   |         |   |  |   |          |  
|Foreign exchange gain (loss)                        |  |                                             | (1,299   | ) |                        |   | (2,876   | )                          |  |   | 5,177                    |   |  |                   | 7       |   |  |   | 1,009    |  
|Investment and other income (expense)               |  |                                             | 91       |   |                        |   | 14       |                            |  |   | 83                       |   |  |                   |        |   |  |   | 188      |  
|Interest expense on long-term debt                  |  |                                             | (10,790  | ) |                        |   | 340      |                            |  |   | (340                     | ) |  |                   |        |   |  |   | (10,790  | )
|Writedown/loss on redemption of investments         |  |                                             | (1,901   | ) |                        |   |         |                            |  |   |                         |   |  |                   |        |   |  |   | (1,901   | )
|Writedown and other deferred financing costs        |  |                                             | (13,531  | ) |                        |   |         |                            |  |   | (13                      | ) |  |                   |        |   |  |   | (13,544  | )
|Management fees                                     |  |                                             | (671     | ) |                        |   | 633      |                            |  |   | (4                       | ) |  |                   | 42      |   |  |   |         |  
|                                                    |  |                                             |          |   |                        |   |          |                            |  |   |                          |   |  |                   |         |   |  |   |          |  
|Total other expenses                                |  |                                             | (28,101  | ) |                        |   | (1,889   | )                          |  |   | 4,903                    |   |  |                   | 49      |   |  |   | (25,038  | )
|                                                    |  |                                             |          |   |                        |   |          |                            |  |   |                          |   |  |                   |         |   |  |   |          |  
|                                                    |  |                                             |          |   |                       
|Loss from continuing operations before income taxes |  |                                             | (26,250  | ) |                        |   | (510,668 | )                          |  |   | (86,602                  | ) |  |                   | (3,371  | ) |  |   | (626,891 | )
|Income tax expense (recovery)                       |  |                                             | (967     | ) |                        |   | (6,147   | )                          |  |   | 2,633                    |   |  |                   | (32     | ) |  |   | (4,513   | )
|                                                    |  |                                             |          |   |                        |   |          |                            |  |   |                          |   |  |                   |         |   |  |   |          |  
|                                                    |  |                                             |          |   |                       
|Loss from continuing operations                     |  |                                             | (25,283  | ) |                        |   | (504,521 | )                          |  |   | (89,235                  | ) |  |                   | (3,339  | ) |  |   | (622,378 | )
|Equity in subsidiaries                              |  |                                             | (597,095 | ) |                        |   | 5,290    |                            |  |   |                         |   |  |                   | 591,805 |   |  |   |         |  
|                                                    |  |                                             |          |   |                        |   |          |                            |  |   |                          |   |  |                   |         |   |  |   |          |  
|Net income (loss)                                   |  | $                                           | (622,378 | ) |                        | $ | (499,231 | )                          |  | $ | (89,235                  | ) |  | $                 | 588,466 |   |  | $ | (622,378 | )
|                                                    |  |                                             |          |   |                        |   |          |                            |  |   |                          |   |  |                   |         |   |  |   |          |  



30



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##### Table of Contents

Condensed Consolidating Statement of Operations

Nine months ended September 30, 2008

USD (in 000s)



|                                                    |  |                                             |          |   |                        |   |          |                            |  |   |                          |   |  |                   |         |   |  |   |          |  
|--------------------------------------------------- |  | ------------------------------------------- | -------- | - | ---------------------- | - | -------- | -------------------------- |  | - | ------------------------ | - |  | ----------------- | ------- | - |  | - | -------- | -
|                                                    |  | Parent CompanyAngiotechPharmaceuticals,Inc. |          |   | GuarantorsSubsidiaries |   |          | Non GuarantorsSubsidiaries |  |   | ConsolidatingAdjustments |   |  | ConsolidatedTotal |        
|                                                    |  | (Restated) [note 1]                         |         
|REVENUE                                             |  |                                             |          |   |                        |   |          |                            |  |   |                          |   |  |                   |         |   |  |   |          |  
|Royalty revenue                                     |  | $                                           | 70,376   |   |                        | $ | 1,785    |                            |  | $ | 3,710                    |   |  | $                 |        |   |  | $ | 75,871   |  
|Product sales, net                                  |  |                                             |         |   |                        |   | 102,573  |                            |  |   | 57,751                   |   |  |                   | (15,563 | ) |  |   | 144,761  |  
|License fees                                        |  |                                             |         |   |                        |   | (70      | )                          |  |   | 628                      |   |  |                   |        |   |  |   | 558      |  
|                                                    |  |                                             |          |   |                        |   |          |                            |  |   |                          |   |  |                   |         |   |  |   |          |  
|                                                    |  |                                             | 70,376   |   |                        |   | 104,288  |                            |  |   | 62,089                   |   |  |                   | (15,563 | ) |  |   | 221,190  |  
|                                                    |  |                                             |          |   |                        |   |          |                            |  |   |                          |   |  |                   |         |   |  |   |          |  
|                                                    |  |                                             |          |   |                       
|EXPENSES                                            |  |                                             |          |   |                        |   |          |                            |  |   |                          |   |  |                   |         |   |  |   |          |  
|License and royalty fees                            |  |                                             | 11,476   |   |                        |   | 8        |                            |  |   |                         |   |  |                   |        |   |  |   | 11,484   |  
|Cost of products sold                               |  |                                             |         |   |                        |   | 50,810   |                            |  |   | 37,692                   |   |  |                   | (11,072 | ) |  |   | 77,430   |  
|Research & development                              |  |                                             | 27,443   |   |                        |   | 17,056   |                            |  |   | 969                      |   |  |                   |        |   |  |   | 45,468   |  
|Intercompany R&D charges                            |  |                                             | 4,861    |   |                        |   | (5,884   | )                          |  |   | 750                      |   |  |                   | 273     |   |  |   |         |  
|Selling, general and administration                 |  |                                             | 19,217   |   |                        |   | 44,249   |                            |  |   | 13,634                   |   |  |                   |        |   |  |   | 77,100   |  
|Depreciation and amortization                       |  |                                             | 3,596    |   |                        |   | 18,506   |                            |  |   | 3,475                    |   |  |                   |        |   |  |   | 25,577   |  
|In-process research and development                 |  |                                             |         |   |                        |   | 2,500    |                            |  |   |                         |   |  |                   |        |   |  |   | 2,500    |  
|Writedown of goodwill                               |  |                                             |         |   |                        |   | 505,084  |                            |  |   | 94,316                   |   |  |                   |        |   |  |   | 599,400  |  
|                                                    |  |                                             |          |   |                        |   |          |                            |  |   |                          |   |  |                   |         |   |  |   |          |  
|                                                    |  |                                             | 66,593   |   |                        |   | 632,329  |                            |  |   | 150,836                  |   |  |                   | (10,799 | ) |  |   | 838,959  |  
|                                                    |  |                                             |          |   |                        |   |          |                            |  |   |                          |   |  |                   |         |   |  |   |          |  
|Operating income (loss)                             |  |                                             | 3,783    |   |                        |   | (528,042 | )                          |  |   | (88,747                  | ) |  |                   | (4,764  | ) |  |   | (617,769 | )
|                                                    |  |                                             |          |   |                        |   |          |                            |  |   |                          |   |  |                   |         |   |  |   |          |  
|                                                    |  |                                             |          |   |                       
|Other income (expense)                              |  |                                             |          |   |                        |   |          |                            |  |   |                          |   |  |                   |         |   |  |   |          |  
|Foreign exchange gain (loss)                        |  |                                             | (1,149   | ) |                        |   | 884      |                            |  |   | 1,835                    |   |  |                   |        |   |  |   | 1,570    |  
|Investment and other income (expense)               |  |                                             | 965      |   |                        |   | 87       |                            |  |   | 579                      |   |  |                   |        |   |  |   | 1,631    |  
|Interest expense on long-term debt                  |  |                                             | (21,612  | ) |                        |   | (20,630  | )                          |  |   | 8,390                    |   |  |                   |        |   |  |   | (33,852  | )
|Writedown/loss on redemption of investments         |  |                                             | (12,557  | ) |                        |   |         |                            |  |   | (4                       | ) |  |                   |        |   |  |   | (12,561  | )
|Writedown and other deferred financing charges      |  |                                             | (13,531  | ) |                        |   |         |                            |  |   | (13                      | ) |  |                   |        |   |  |   | (13,544  | )
|Management fees                                     |  |                                             | (2,202   | ) |                        |   | 2,039    |                            |  |   | (109                     | ) |  |                   | 272     |   |  |   |         |  
|Dividend income                                     |  |                                             | 20,000   |   |                        |   |         |                            |  |   |                         |   |  |                   | (20,000 | ) |  |   |         |  
|                                                    |  |                                             |          |   |                        |   |          |                            |  |   |                          |   |  |                   |         |   |  |   |          |  
|Total other expenses                                |  |                                             | (30,086  | ) |                        |   | (17,620  | )                          |  |   | 10,678                   |   |  |                   | (19,728 | ) |  |   | (56,757  | )
|                                                    |  |                                             |          |   |                        |   |          |                            |  |   |                          |   |  |                   |         |   |  |   |          |  
|                                                    |  |                                             |          |   |                       
|Loss from continuing operations before income taxes |  |                                             | (26,303  | ) |                        |   | (545,662 | )                          |  |   | (78,069                  | ) |  |                   | (24,492 | ) |  |   | (674,526 | )
|Income tax expense (recovery)                       |  |                                             | (806     | ) |                        |   | (11,369  | )                          |  |   | 1,925                    |   |  |                   | (64     | ) |  |   | (10,314  | )
|                                                    |  |                                             |          |   |                        |   |          |                            |  |   |                          |   |  |                   |         |   |  |   |          |  
|                                                    |  |                                             |          |   |                       
|Loss from continuing operations                     |  |                                             | (25,497  | ) |                        |   | (534,293 | )                          |  |   | (79,994                  | ) |  |                   | (24,428 | ) |  |   | (664,212 | )
|Equity in subsidiaries                              |  |                                             | (638,715 | ) |                        |   | 2,477    |                            |  |   |                         |   |  |                   | 636,238 |   |  |   |         |  
|                                                    |  |                                             |          |   |                        |   |          |                            |  |   |                          |   |  |                   |         |   |  |   |          |  
|Net income (loss)                                   |  | $                                           | (664,212 | ) |                        | $ | (531,816 | )                          |  | $ | (79,994                  | ) |  | $                 | 611,810 |   |  | $ | (664,212 | )
|                                                    |  |                                             |          |   |                        |   |          |                            |  |   |                          |   |  |                   |         |   |  |   |          |  



31



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Condensed Consolidating Statement of Cash Flows

Three months ended September 30, 2009

USD (in 000s)



|                                                             |  |                                             |         |   |                        |   |        |                            |  |   |                          |   |                   |   |   |  |   |        |  
|------------------------------------------------------------ |  | ------------------------------------------- | ------- | - | ---------------------- | - | ------ | -------------------------- |  | - | ------------------------ | - | ----------------- | - | - |  | - | ------ | -
|                                                             |  | Parent CompanyAngiotechPharmaceuticals,Inc. |         |   | GuarantorsSubsidiaries |   |        | Non GuarantorsSubsidiaries |  |   | ConsolidatingAdjustments |   | ConsolidatedTotal |  
|OPERATING ACTIVITIES:                                        |  |                                             |         |   |                        |   |        |                            |  |   |                          |   |                   |   |   |  |   |        |  
|Cash used in operating activities                            |  | $                                           | (22,834 | ) |                        | $ | 6,558  |                            |  | $ | 19,229                   |   |                   | $ |  |  | $ | 2,953  |  
|                                                             |  |                                             |         |   |                        |   |        |                            |  |   |                          |   |                   |   |   |  |   |        |  
|                                                             |  |                                             |         |   |                       
|INVESTING ACTIVITIES:                                        |  |                                             |         |   |                        |   |        |                            |  |   |                          |   |                   |   |   |  |   |        |  
|Purchase of property, plant and equipment                    |  |                                             | (575    | ) |                        |   | (1,324 | )                          |  |   | (2                       | ) |                   |   |  |  |   | (1,901 | )
|                                                             |  |                                             |         |   |                        |   |        |                            |  |   |                          |   |                   |   |   |  |   |        |  
|Cash used in investing activities                            |  |                                             | (575    | ) |                        |   | (1,324 | )                          |  |   | (2                       | ) |                   |   |  |  |   | (1,901 | )
|                                                             |  |                                             |         |   |                        |   |        |                            |  |   |                          |   |                   |   |   |  |   |        |  
|                                                             |  |                                             |         |   |                       
|FINANCING ACTIVITIES:                                        |  |                                             |         |   |                        |   |        |                            |  |   |                          |   |                   |   |   |  |   |        |  
|Deferred financing charges and costs                         |  |                                             | (218    | ) |                        |   |       |                            |  |   |                         |   |                   |   |  |  |   | (218   | )
|Intercompany notes payable/receivable                        |  |                                             | 20,037  |   |                        |   | (258   | )                          |  |   | (19,779                  | ) |                   |   |  |  |   |       |  
|Proceeds from stock options exercised                        |  |                                             | 2       |   |                        |   |       |                            |  |   |                         |   |                   |   |  |  |   | 2      |  
|                                                             |  |                                             |         |   |                        |   |        |                            |  |   |                          |   |                   |   |   |  |   |        |  
|Cash provided by (used in) financing activities              |  |                                             | 19,821  |   |                        |   | (258   | )                          |  |   | (19,779                  | ) |                   |   |  |  |   | (216   | )
|                                                             |  |                                             |         |   |                        |   |        |                            |  |   |                          |   |                   |   |   |  |   |        |  
|                                                             |  |                                             |         |   |                       
|Effect of exchange rate changes on cash and cash equivalents |  |                                             |        |   |                        |   | 7      |                            |  |   | (43                      | ) |                   |   |  |  |   | (36    | )
|Net (decrease) increase in cash and cash equivalents         |  |                                             | (3,588  | ) |                        |   | 4,983  |                            |  |   | (595                     | ) |                   |   |  |  |   | 800    |  
|Cash and cash equivalents, beginning of period               |  |                                             | 32,010  |   |                        |   | 7,730  |                            |  |   | 10,918                   |   |                   |   |  |  |   | 50,658 |  
|                                                             |  |                                             |         |   |                        |   |        |                            |  |   |                          |   |                   |   |   |  |   |        |  
|Cash and cash equivalents, end of period                     |  | $                                           | 28,422  |   |                        | $ | 12,713 |                            |  | $ | 10,323                   |   |                   | $ |  |  | $ | 51,458 |  
|                                                             |  |                                             |         |   |                        |   |        |                            |  |   |                          |   |                   |   |   |  |   |        |  



32



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##### Table of Contents

Condensed Consolidating Statement of Cash Flows

Nine months ended September 30, 2009

USD (in 000s)



|                                                             |  |                                             |         |   |                        |   |        |                            |  |   |                          |   |                   |   |   |  |   |        |  
|------------------------------------------------------------ |  | ------------------------------------------- | ------- | - | ---------------------- | - | ------ | -------------------------- |  | - | ------------------------ | - | ----------------- | - | - |  | - | ------ | -
|                                                             |  | Parent CompanyAngiotechPharmaceuticals,Inc. |         |   | GuarantorsSubsidiaries |   |        | Non GuarantorsSubsidiaries |  |   | ConsolidatingAdjustments |   | ConsolidatedTotal |  
|OPERATING ACTIVITIES:                                        |  |                                             |         |   |                        |   |        |                            |  |   |                          |   |                   |   |   |  |   |        |  
|Cash (used in) provided by operating activities              |  | $                                           | (10,998 | ) |                        | $ | 6,751  |                            |  | $ | 27,071                   |   |                   | $ |  |  | $ | 22,824 |  
|                                                             |  |                                             |         |   |                        |   |        |                            |  |   |                          |   |                   |   |   |  |   |        |  
|                                                             |  |                                             |         |   |                       
|INVESTING ACTIVITIES:                                        |  |                                             |         |   |                        |   |        |                            |  |   |                          |   |                   |   |   |  |   |        |  
|Purchase of property, plant and equipment                    |  |                                             | (815    | ) |                        |   | (2,723 | )                          |  |   | (52                      | ) |                   |   |  |  |   | (3,590 | )
|Purchase of intangible assets                                |  |                                             |        |   |                        |   | (2,500 | )                          |  |   |                         |   |                   |   |  |  |   | (2,500 | )
|Loans advanced                                               |  |                                             | (1,200  | ) |                        |   |       |                            |  |   |                         |   |                   |   |  |  |   | (1,200 | )
|Other                                                        |  |                                             | 12      |   |                        |   | 334    |                            |  |   | (94                      | ) |                   |   |  |  |   | 252    |  
|                                                             |  |                                             |         |   |                        |   |        |                            |  |   |                          |   |                   |   |   |  |   |        |  
|Cash used in investing activities                            |  |                                             | (2,003  | ) |                        |   | (4,889 | )                          |  |   | (146                     | ) |                   |   |  |  |   | (7,038 | )
|                                                             |  |                                             |         |   |                        |   |        |                            |  |   |                          |   |                   |   |   |  |   |        |  
|                                                             |  |                                             |         |   |                       
|FINANCING ACTIVITIES:                                        |  |                                             |         |   |                        |   |        |                            |  |   |                          |   |                   |   |   |  |   |        |  
|Deferred financing charges and costs                         |  |                                             | (1,584  | ) |                        |   | (1,610 | )                          |  |   |                         |   |                   |   |  |  |   | (3,194 | )
|Dividends received / (paid)                                  |  |                                             |        |   |                        |   | 3,000  |                            |  |   | (3,000                   | ) |                   |   |  |  |   |       |  
|Intercompany notes payable/receivable                        |  |                                             | 32,824  |   |                        |   | 2,898  |                            |  |   | (35,722                  | ) |                   |   |  |  |   |       |  
|Proceeds from stock options exercised                        |  |                                             | 2       |   |                        |   |       |                            |  |   |                         |   |                   |   |  |  |   | 2      |  
|                                                             |  |                                             |         |   |                        |   |        |                            |  |   |                          |   |                   |   |   |  |   |        |  
|Cash provided by (used in) financing activities              |  |                                             | 31,242  |   |                        |   | 4,288  |                            |  |   | (38,722                  | ) |                   |   |  |  |   | (3,192 | )
|                                                             |  |                                             |         |   |                        |   |        |                            |  |   |                          |   |                   |   |   |  |   |        |  
|                                                             |  |                                             |         |   |                       
|Effect of exchange rate changes on cash and cash equivalents |  |                                             |        |   |                        |   | (8     | )                          |  |   | (80                      | ) |                   |   |  |  |   | (88    | )
|Net increase (decrease) in cash and cash equivalents         |  |                                             | 18,241  |   |                        |   | 6,142  |                            |  |   | (11,877                  | ) |                   |   |  |  |   | 12,506 |  
|Cash and cash equivalents, beginning of period               |  |                                             | 10,181  |   |                        |   | 6,571  |                            |  |   | 22,200                   |   |                   |   |  |  |   | 38,952 |  
|                                                             |  |                                             |         |   |                        |   |        |                            |  |   |                          |   |                   |   |   |  |   |        |  
|Cash and cash equivalents, end of period                     |  | $                                           | 28,422  |   |                        | $ | 12,713 |                            |  | $ | 10,323                   |   |                   | $ |  |  | $ | 51,458 |  
|                                                             |  |                                             |         |   |                        |   |        |                            |  |   |                          |   |                   |   |   |  |   |        |  



33



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##### Table of Contents

Condensed Consolidating Statement of Cash Flows

Three months ended September 30, 2008

USD (in 000s)



|                                                             |  |                                             |        |   |                        |   |        |                            |  |   |                          |   |                   |   |   |  |   |        |  
|------------------------------------------------------------ |  | ------------------------------------------- | ------ | - | ---------------------- | - | ------ | -------------------------- |  | - | ------------------------ | - | ----------------- | - | - |  | - | ------ | -
|                                                             |  | Parent CompanyAngiotechPharmaceuticals,Inc. |        |   | GuarantorsSubsidiaries |   |        | Non GuarantorsSubsidiaries |  |   | ConsolidatingAdjustments |   | ConsolidatedTotal |  
|OPERATING ACTIVITIES:                                        |  |                                             |        |   |                        |   |        |                            |  |   |                          |   |                   |   |   |  |   |        |  
|Cash (used in) provided by operating activities              |  | $                                           | (8,119 | ) |                        | $ | 964    |                            |  | $ | 5,556                    |   |                   | $ |  |  | $ | (1,599 | )
|                                                             |  |                                             |        |   |                        |   |        |                            |  |   |                          |   |                   |   |   |  |   |        |  
|                                                             |  |                                             |        |   |                       
|INVESTING ACTIVITIES:                                        |  |                                             |        |   |                        |   |        |                            |  |   |                          |   |                   |   |   |  |   |        |  
|Proceeds from short-term investments                         |  |                                             | 605    |   |                        |   |       |                            |  |   |                         |   |                   |   |  |  |   | 605    |  
|Purchase of property, plant and equipment                    |  |                                             | (86    | ) |                        |   | (1,235 | )                          |  |   | (77                      | ) |                   |   |  |  |   | (1,398 | )
|Other                                                        |  |                                             | 236    |   |                        |   | (93    | )                          |  |   |                         |   |                   |   |  |  |   | 143    |  
|                                                             |  |                                             |        |   |                        |   |        |                            |  |   |                          |   |                   |   |   |  |   |        |  
|Cash (used in) provided by investing activities              |  |                                             | 755    |   |                        |   | (1,328 | )                          |  |   | (77                      | ) |                   |   |  |  |   | (650   | )
|                                                             |  |                                             |        |   |                        |   |        |                            |  |   |                          |   |                   |   |   |  |   |        |  
|                                                             |  |                                             |        |   |                       
|FINANCING ACTIVITIES:                                        |  |                                             |        |   |                        |   |        |                            |  |   |                          |   |                   |   |   |  |   |        |  
|Deferred financing costs on long-term obligations            |  |                                             | (2,170 | ) |                        |   |       |                            |  |   |                         |   |                   |   |  |  |   | (2,170 | )
|Intercompany notes payable/receivable                        |  |                                             | 1,165  |   |                        |   |       |                            |  |   | (1,165                   | ) |                   |   |  |  |   |       |  
|                                                             |  |                                             |        |   |                        |   |        |                            |  |   |                          |   |                   |   |   |  |   |        |  
|Cash (used in) provided by financing activities              |  |                                             | (1,005 | ) |                        |   |       |                            |  |   | (1,165                   | ) |                   |   |  |  |   | (2,170 | )
|                                                             |  |                                             |        |   |                        |   |        |                            |  |   |                          |   |                   |   |   |  |   |        |  
|                                                             |  |                                             |        |   |                       
|Effect of exchange rate changes on cash and cash equivalents |  |                                             |       |   |                        |   | (19    | )                          |  |   | (1,526                   | ) |                   |   |  |  |   | (1,545 | )
|Net increase (decrease) in cash and cash equivalents         |  |                                             | (8,369 | ) |                        |   | (383   | )                          |  |   | 2,788                    |   |                   |   |  |  |   | (5,964 | )
|Cash and cash equivalents, beginning of period               |  |                                             | 32,256 |   |                        |   | 3,376  |                            |  |   | 27,283                   |   |                   |   |  |  |   | 62,915 |  
|                                                             |  |                                             |        |   |                        |   |        |                            |  |   |                          |   |                   |   |   |  |   |        |  
|Cash and cash equivalents, end of period                     |  | $                                           | 23,887 |   |                        | $ | 2,993  |                            |  | $ | 30,071                   |   |                   | $ |  |  | $ | 56,951 |  
|                                                             |  |                                             |        |   |                        |   |        |                            |  |   |                          |   |                   |   |   |  |   |        |  



34



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##### Table of Contents

Condensed Consolidating Statement of Cash Flows

Nine months ended September 30, 2008

USD (in 000s)



|                                                             |  |                                             |         |   |                        |   |         |                            |  |   |                          |   |  |                   |         |   |  |   |         |  
|------------------------------------------------------------ |  | ------------------------------------------- | ------- | - | ---------------------- | - | ------- | -------------------------- |  | - | ------------------------ | - |  | ----------------- | ------- | - |  | - | ------- | -
|                                                             |  | Parent CompanyAngiotechPharmaceuticals,Inc. |         |   | GuarantorsSubsidiaries |   |         | Non GuarantorsSubsidiaries |  |   | ConsolidatingAdjustments |   |  | ConsolidatedTotal |        
|OPERATING ACTIVITIES:                                        |  |                                             |         |   |                        |   |         |                            |  |   |                          |   |  |                   |         |   |  |   |         |  
|Cash (used in) provided by operating activities              |  | $                                           | (16,221 | ) |                        | $ | (10,617 | )                          |  | $ | 26,810                   |   |  | $                 | (20,000 | ) |  | $ | (20,028 | )
|                                                             |  |                                             |         |   |                        |   |         |                            |  |   |                          |   |  |                   |         |   |  |   |         |  
|                                                             |  |                                             |         |   |                       
|INVESTING ACTIVITIES:                                        |  |                                             |         |   |                        |   |         |                            |  |   |                          |   |  |                   |         |   |  |   |         |  
|Proceeds from short-term investments                         |  |                                             | 605     |   |                        |   |        |                            |  |   |                         |   |  |                   |        |   |  |   | 605     |  
|Purchase of property, plant and equipment                    |  |                                             | (1,005  | ) |                        |   | (5,238  | )                          |  |   | (940                     | ) |  |                   |        |   |  |   | (7,183  | )
|Purchase of intangible assets                                |  |                                             |        |   |                        |   | (1,000  | )                          |  |   |                         |   |  |                   |        |   |  |   | (1,000  | )
|In-process research and development                          |  |                                             | (2,500  | ) |                        |   |        |                            |  |   |                         |   |  |                   |        |   |  |   | (2,500  | )
|Other                                                        |  |                                             | (489    | ) |                        |   | 884     |                            |  |   | 52                       |   |  |                   |        |   |  |   | 447     |  
|                                                             |  |                                             |         |   |                        |   |         |                            |  |   |                          |   |  |                   |         |   |  |   |         |  
|Cash (used in) provided by investing activities              |  |                                             | (3,389  | ) |                        |   | (5,354  | )                          |  |   | (888                     | ) |  |                   |        |   |  |   | (9,631  | )
|                                                             |  |                                             |         |   |                        |   |         |                            |  |   |                          |   |  |                   |         |   |  |   |         |  
|                                                             |  |                                             |         |   |                       
|FINANCING ACTIVITIES:                                        |  |                                             |         |   |                        |   |         |                            |  |   |                          |   |  |                   |         |   |  |   |         |  
|Deferred financing costs on long-term obligations            |  |                                             | (3,777  | ) |                        |   |        |                            |  |   | (14                      | ) |  |                   |        |   |  |   | (3,791  | )
|Dividends paid                                               |  |                                             |        |   |                        |   |        |                            |  |   | (20,000                  | ) |  |                   | 20,000  |   |  |   |        |  
|Proceeds from stock options exercised                        |  |                                             | 121     |   |                        |   |        |                            |  |   |                         |   |  |                   |        |   |  |   | 121     |  
|Intercompany notes payable/receivable                        |  |                                             | 23,363  |   |                        |   | (1,352  | )                          |  |   | (22,011                  | ) |  |                   |        |   |  |   |        |  
|                                                             |  |                                             |         |   |                        |   |         |                            |  |   |                          |   |  |                   |         |   |  |   |         |  
|Cash (used in) provided by financing activities              |  |                                             | 19,707  |   |                        |   | (1,352  | )                          |  |   | (42,025                  | ) |  |                   | 20,000  |   |  |   | (3,670  | )
|                                                             |  |                                             |         |   |                        |   |         |                            |  |   |                          |   |  |                   |         |   |  |   |         |  
|                                                             |  |                                             |         |   |                       
|Effect of exchange rate changes on cash and cash equivalents |  |                                             |        |   |                        |   | (18     | )                          |  |   | (1,028                   | ) |  |                   |        |   |  |   | (1,046  | )
|Net increase (decrease) in cash and cash equivalents         |  |                                             | 97      |   |                        |   | (17,341 | )                          |  |   | (17,131                  | ) |  |                   |        |   |  |   | (34,375 | )
|Cash and cash equivalents, beginning of period               |  |                                             | 23,790  |   |                        |   | 20,334  |                            |  |   | 47,202                   |   |  |                   |        |   |  |   | 91,326  |  
|                                                             |  |                                             |         |   |                        |   |         |                            |  |   |                          |   |  |                   |         |   |  |   |         |  
|Cash and cash equivalents, end of period                     |  | $                                           | 23,887  |   |                        | $ | 2,993   |                            |  | $ | 30,071                   |   |  | $                 |        |   |  | $ | 56,951  |  
|                                                             |  |                                             |         |   |                        |   |         |                            |  |   |                          |   |  |                   |         |   |  |   |         |  



35



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##### Table of Contents

|Item 2. | Managements Discussion and Analysis of Financial Condition and Results of Operations
|------- | -------------------------------------------------------------------------------------

ANGIOTECH PHARMACEUTICALS, INC.

For the three and nine months
ended September 30, 2009

(All amounts following are expressed in U.S. dollars unless otherwise indicated.)

MANAGEMENTS DISCUSSION & ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following managements discussion and analysis (MD&A) for the three and nine months ended September 30, 2009, provides an
update to the MD&A for the year ended December 31, 2008 and should be read in conjunction with our unaudited consolidated financial statements for the three and nine months ended September 30, 2009 and our audited consolidated
financial statements for the year ended December 31, 2008, each of which has been prepared in accordance with U.S. generally accepted accounting principles (U.S. GAAP). The MD&A and unaudited consolidated financial statements
for the three and nine months ended September 30, 2009 have been prepared in accordance with the applicable rules and regulations of the United States Securities and Exchange Commission (SEC) for the presentation of interim
financial information. Additional information relating to our Company, including our 2008 audited consolidated financial statements and our 2008 Annual Report on Form 10-K (as amended by our Amendment No. 1 on Form 10-K/A and our Amendment
No. 2 on Form 10-K/A, collectively, the 10-K), is available by accessing the SEDAR website at www.sedar.com or the SECs EDGAR website at www.sec.gov/edgar.shtml.

Forward-Looking Statements and Cautionary Factors That May Affect Future Results

Statements contained in this Quarterly Report on Form 10-Q that are not based on historical fact, including without limitation statements containing the words believes, may, plans, will,
estimates, continues, anticipates, intends, expects and similar expressions, constitute forward-looking statements within the meaning of the Private Securities Litigation Reform
Act of 1995 and constitute forward-looking information within the meaning of applicable Canadian securities laws. All such statements are made pursuant to the safe harbor provisions of applicable securities legislation.
Forward-looking statements may involve, but are not limited to, comments with respect to our objectives and priorities for the remainder of 2009 and beyond, our strategies or future actions, our targets, expectations for our financial condition and
the results of, or outlook for, our operations, research and development and product and drug development. Such forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause the actual results, events or
developments to be materially different from any future results, events or developments expressed or implied by such forward-looking statements.

Many such known risks, uncertainties and other factors are taken into account as part of our assumptions underlying these forward-looking statements and include, among others, the following: general economic and business conditions in the
United States, Canada and the other regions in which we operate; market demand; technological changes that could impact our existing products or our ability to develop and commercialize future products; competition; existing governmental regulations
and changes in, or the failure to comply with, governmental regulations; availability of financial reimbursement coverage from governmental and third-party payers for products and related treatments; adverse results or unexpected delays in
pre-clinical and clinical product development processes; adverse findings related to the safety and/or efficacy of our products or products sold by our partners; decisions, and the timing of decisions, made by health regulatory agencies regarding
approval of our technology and products; the requirement for substantial funding to conduct research and development, to expand manufacturing and commercialization activities; and any other factors that may affect our performance.

In addition, our business is subject to certain operating risks that may cause any results expressed or implied by the forward-looking statements in this
Quarterly Report on Form 10-Q to differ materially from our actual results. These operating risks include: our ability to attract and retain qualified personnel; our ability to successfully complete pre-clinical and clinical development of our
products; changes in our business strategy or development plans; our failure to obtain patent protection for discoveries; loss of patent protection resulting from third-party challenges to our patents; commercialization limitations imposed by
patents owned or controlled by third parties; our ability to obtain rights to technology from licensors; liability for patent claims and other claims asserted against us; our ability to obtain and enforce timely patent and other intellectual
property protection for our technology and products; the ability to enter into, and to maintain, corporate alliances relating to the development and commercialization of our technology and products; market acceptance of our technology and products;
our ability to successfully manufacture, market and sell our products; the availability of capital to finance our activities; our ability to restructure and to service our debt obligations; and any other factors referenced in our other filings with
the applicable Canadian securities regulatory authorities or the SEC.

For a more thorough discussion of the risks associated with our
business, see the section entitled Risk Factors in this Quarterly Report on Form 10-Q.



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Given these uncertainties, assumptions and risk factors, investors are cautioned not to place undue reliance
on such forward-looking statements. Except as required by law, we disclaim any obligation to update any such factors or to publicly announce the result of any revisions to any of the forward-looking statements contained in this Quarterly Report on
Form 10-Q to reflect future results, events or developments.

This Quarterly Report on Form 10-Q contains forward-looking information that
constitutes financial outlooks within the meaning of applicable Canadian securities laws. We have provided this information to give shareholders general guidance on managements current expectations of certain factors affecting
our business, including our future financial results. Given the uncertainties, assumptions and risk factors associated with this type of information, including those described above, investors are cautioned that the information may not be
appropriate for other purposes.

Business Overview

We are a specialty pharmaceutical and medical device company that discovers, develops and markets innovative technologies primarily focused on acute and surgical applications. We generate our revenue
through our sales of medical products and components, as well as from royalties derived from sales by our partners of products utilizing certain of our proprietary technologies. For the first nine months of 2009, we recorded $142.0 million in direct
sales of our various medical products and components and $74.1 million in royalties and license fees.

Our research and development efforts
focus on understanding and characterizing biological conditions that often occur concurrent with medical device implantation, surgery or acute trauma, including scar formation and inflammation, cell proliferation, bleeding and coagulation, infection
and tumor tissue overgrowth. Our strategy is to utilize our various technologies in the areas of drugs, drug delivery, surface modification, biomaterials and medical devices to create and commercialize novel, proprietary medical products that reduce
surgical procedure side effects, improve surgical outcomes, shorten hospital stays, or are easier or safer for a physician to use.

We develop
our products using a proprietary and systematic discovery approach. We use our drug screening capabilities to identify new uses for known pharmaceutical compounds. We look for compounds that address the underlying biological causes of conditions
that can occur with medical device implantation, surgery or acute trauma. Once appropriate drugs have been identified, we work to formulate the drug, or a combination of drugs, with our portfolio of drug, drug delivery and surface modification
technologies and biomaterials to develop a novel surgical implant or medical device. We have patent protected, or have filed patent applications for, certain of our technology and many of our products and potential product candidates.

We currently operate in two segments: Pharmaceutical Technologies and Medical Products.

Pharmaceutical Technologies

Our Pharmaceutical Technologies
segment focuses primarily on establishing product development and marketing collaborations with major medical device, pharmaceutical or biomaterials companies and to date has derived the majority of its revenue from royalties due from partners that
develop, market and sell products incorporating our technologies. Currently, our principal revenues in this segment are from royalties derived from sales by Boston Scientific Corporation (BSC) of TAXUS® coronary stent systems incorporating the drug paclitaxel. TAXUS stents have been evaluated by the industrys
most extensive randomized, controlled clinical trial program, with patient follow-up out to five years in some cases. BSCs controlled clinical trial results have been supplemented by data on more than 35,000 patients enrolled in post-approval
registries. To date, over 4.6 million TAXUS stents have been implanted globally.

Medical Products

Our Medical Products segment manufactures and markets a wide range of single-use specialty medical products, primarily medical device products and medical
device components. These products are sold directly to end users or other third-party medical device manufacturers. This segment contains two specialized direct sales and distribution organizations as well as significant manufacturing capabilities.
Many of our medical products are made using our proprietary manufacturing processes or are protected by our intellectual property.

Proprietary Medical Products.Certain of our product lines, which we refer to as our Proprietary Medical Products, are marketed and sold by our two direct sales groups. We believe certain of these product lines contain
technology advantages that have the potential for more substantial revenue growth as compared to our overall product portfolio. Our key commercial Proprietary Medical Products include: (i) our Quill SRS wound closure product line, which
is marketed and sold by our Surgical Products Sales Group; and (ii) our: Option Inferior Vena Cava Filter (Option IVC Filter); HemoStream dialysis catheter; SKATER line of drainage catheters; BioPince full
core biopsy device; EnSnare retrieval device; and V+Pad hemostatic pad, which are marketed and sold by our Interventional Products Sales Group.

Base Medical Products. Certain of our product lines, which we refer to as our Base Medical Products, represent more mature finished goods product lines in the ophthalmology, biopsy and
general surgery areas, and medical device components manufactured by us and sold to other third-party medical device manufacturers who assemble those components into finished medical devices. Sales of these



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Base Medical Products are supported by a small group of direct sales personnel, as well as a network of independent sales representatives and medical product distributors. These sales tend to
exhibit greater volatility or slower growth when compared to sales of our Proprietary Medical Products. This is particularly the case with our sales of components to third-party medical device manufacturers, which may be impacted by customer
concentration and the business issues that certain of our large customers may face, as well as to a more limited extent by economic and credit market conditions.

Significant Recent Developments

Option Inferior Vena Cava Filter. In
June 2009, we announced that the United States Food and Drug Administration (FDA) had granted 510(k) clearance for the Option IVC Filter, for use in both permanent and retrievable indications and in August 2009, we announced the
commercial launch of the Option IVC Filter in the United States.

IVC filters are implanted in patients that are at high risk for developing
pulmonary embolism, which can be a life threatening condition. IVC filters are implanted in the inferior vena cava and are designed to catch clot material to prevent it from reaching the lungs, while allowing blood to continue to flow normally.
Patients at high risk for pulmonary embolism are typically patients undergoing a significant surgical procedure, trauma patients or patients that have experienced a previous embolic event. IVC filters have been shown in several studies to
significantly reduce the risk of pulmonary embolism and related mortality in certain high risk patient populations. In certain cases, once the risk of an embolic event has passed, the IVC filter will be removed in a subsequent surgical procedure. In
2008, there were approximately 220,000 IVC filters implanted in the United States.

We believe the Option IVC Filter may have a number of
potential competitive benefits, which include: a unique filter design that may reduce the potential for filter migration after implantation, thereby making the product safer for patients; insertion potential through either the femoral or jugular
route, which may make the product easier for a physician to use; and the use of non-thrombogenic material, which may reduce the risk of blood clots occurring in the filter. We also believe the unique design of the Option IVC Filter may allow
physicians to remove or retrieve the device from patients more easily, or after longer periods of time have passed as compared to existing competitive IVC filters.

The Option IVC Filter was approved based upon the results of a United States multi-center prospective clinical trial. The purpose of the clinical trial was to evaluate the devices safety and
efficacy in preventing pulmonary emboli and to assess the ability to retrieve the device from the body up to 175 days following implantation. The results, representing a total of 100 patients, were presented at the 2009 Society of Interventional
Radiology conference in San Diego, CA on March 9, 2009. Successful filter implantation was achieved in 100% of the subjects and the retrieval success rate in the study was 92.3%. Clinical success, which was achieved in 88% of subjects, was
defined as placement of the filter without subsequent pulmonary embolism, significant filter migration or embolization, symptomatic caval thrombosis or other complications requiring filter removal or invasive intervention.

The Option IVC Filter was licensed in March 2008 from our partner Rex Medical L.P. (Rex Medical). We are obligated to pay royalties and
milestone payments to Rex Medical derived from our sales of the Option IVC Filter. We made a milestone payment of $2.5 million to Rex Medical upon 510(k) clearance of the Option IVC Filter during the second quarter of 2009 and recorded the payment
as an intangible asset.

Quill SRS.In August 2009 we announced the launch of a series of proprietary Quill SRS products
designed for wound closure procedures in laparoscopic, or minimally invasive, gynecology procedures, including hysterectomies and myomectomies.

In 2008, there were approximately 750,000 hysterectomies performed in the United States of which approximately 130,000 were performed laparoscopically. In addition, there were approximately 72,000 myomectomies performed in the United States
to remove uterine fibroid tumors. Our proprietary Quill SRS technology may offer significant advantages in wound closure in certain laparoscopic surgical procedures, whether performed manually by surgeons or through robotic assistance. We believe
the primary advantage of Quill SRS in laparoscopic procedures is the ability to use Quill SRS to close a wound without having to tie knots. The exercise of tying knots can be particularly challenging and time-consuming when surgeons operate in a
smaller surgical field, as is the case for most laparoscopic surgical procedures. A second potential advantage of Quill SRS in these procedures is minimizing or eliminating the need for a third hand to maintain tension on the suture in order to deal
with tissue recoil, as may be required with a traditional suturing technique. A third potential advantage of Quill SRS in these procedures is the ability of Quill SRS to maintain the tension along the length of the wound, which may provide
hemostatic benefits and thereby eliminate or minimize the need for standard hemostatic sutures. Patients may also benefit as a result of these potential advantages through reduced surgical times, and therefore reduced time under anesthesia, and
health care facilities and payors may also benefit from the potential to reduce operating room time needed, or the total cost of material needed, to complete such surgical procedures.

Our new Quill SRS products for laparoscopic gynecology procedures are available in our polydioxanone (PDO) suture material in size -0- with 7 cm by 7 cm and 14 cm by 14 cm lengths, and include our newly
designed 36 mm needles. The use of Quill SRS in laparoscopic gynecological surgery was first reported by James Greenberg, MD, and Jon Einarsson, MD, MPH, of the Centre for Women's Surgery at Brigham & Women's/Faulkner Hospitals and Harvard
Medical School Boston, Massachusetts in the Journal of



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Minimally Invasive Gynecology, in November 2008. The results of this small feasibility study looked at the application of Quill SRS in myomectomy and total laparoscopic hysterectomy vaginal cuff
closures. This publication was then followed by up by a podium presentation at the American Association of Gynecologic Laparoscopists (AAGL) annual meeting in the fall of 2008 confirming that there were no post operative issues or complications from
the use of Quill SRS in these procedures in a patient series that had grown to 150 patients reviewed to that date.

ZILVER® PTX® - CE Mark Approval.In August 2009, we announced that our partner Cook Medical Inc. (Cook), had reported CE Mark approval and commercial launch of
the ZILVER PTX paclitaxel-eluting peripheral vascular stent in Europe. The ZILVER PTX stent, which is under evaluation in clinical trials being conducted by Cook, is a specialized stent product incorporating our proprietary paclitaxel technology and
is designed for placement in diseased arteries in the limbs to restore blood flow. We license Cook the rights to use paclitaxel with peripheral stents and certain other non-coronary medical devices. Subject to the terms of our license agreement with
Cook, we are entitled to receive royalty payments upon the commercial sale of paclitaxel-eluting peripheral vascular stent products, including the ZILVER PTX stent.

Bio-Seal. In October 2009 we announced that we had received correspondence from the FDA regarding our 510(k) submission for Bio-Seal lung biopsy tract plug system, stating that
Bio-Seal is a class III device that requires Pre-Market Approval (PMA) for FDA marketing clearance in the United States. As a result, we are reviewing our options with respect to this product candidate, including possibly appealing this
FDA decision, and are discussing the possible preparation of a PMA submission with our partner, Biopsy Sciences, LLC. Should we elect to continue to pursue development or regulatory approvals for this product candidate that require us to incur
material expense, we will provide further updates in our public disclosure. We have not incurred material expense to date with respect to activities regarding this product candidate.

Financial and Strategic Alternatives Process

Over the last two and a half years, revenue
in our Pharmaceutical Technologies segment has declined significantly, primarily due to lower royalties derived from sales by BSC of TAXUS coronary stent systems. This decline in royalty revenue has negatively and materially impacted our liquidity
and results of operations. As a result of this and other factors impacting our business and the capital markets, our management and Board of Directors believe a transaction or transactions of significant size and scope may be necessary to
meaningfully address liquidity concerns and the working capital needs of our business. Our evaluation of various financial and strategic alternatives continued through the third quarter of 2009. As part of this continuing process, we secured interim
senior secured financing for working capital and liquidity purposes in the first quarter of 2009 by way of a credit facility, we amended our credit facility in the second quarter of 2009, and as discussed below, we filed a shelf registration
statement on Form S-3 in the United States and a corresponding preliminary short form base shelf prospectus in British Columbia and Ontario, in the third quarter of 2009.

Filing of Shelf Registration Statement on Form S-3.On July 23, 2009, we announced that we had filed a shelf registration statement on Form S-3 with the United States Securities and
Exchange Commission and a corresponding preliminary short form base shelf prospectus with the securities commissions of British Columbia and Ontario (collectively, the Offering Documents). The Offering Documents, when made final and / or
declared effective, will allow us to make offerings of Common shares, Class I Preference shares, debt securities, warrants or units for initial aggregate proceeds of up to $250.0 million during the next 25 months to potential purchasers in the
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Ongoing Clinical Programs

The following discussion describes our product candidates, or certain of our partners product candidates, that are being evaluated in ongoing human clinical trials and their stage of development:

Partner Clinical Programs

Independent TAXUS Clinical Data.In May 2009 we announced that BSC had disclosed the publication of an article in the Journal of the American College of Cardiology (JACC) reviewing data on
more than 19,000 patients from the Swedish national registry who were evaluated for restenosis, or the re-narrowing of arteries, after percutaneous coronary intervention (PCI). The Swedish Coronary Angiography and Angioplasty Registry
holds data on all patients undergoing PCI in Sweden. The objective of this independent study was to evaluate restenosis rates of drug-eluting stents (DESs) in patients with and without diabetes in a real-world setting. The article
reported that patients who received a TAXUS Liberté paclitaxel-eluting stent had numerically lower incidences of repeat procedures to treat restenosis at two years as compared to patients treated with 'olimus-based DESs, including
Johnson & Johnson, Inc.s Cypher® stent and Medtronic Inc.s Endeavor® stent.

In
the patients with diabetes, the TAXUS Liberté demonstrated a statistically significant lower restenosis rate compared to the Endeavor, which had more than two times the risk of repeat procedures. The JACC article reported that both the TAXUS
Liberté stent and BSCs first-generation paclitaxel-eluting stent, the TAXUS Express, were the only stents in the study showing no increased risk of restenosis for patients with diabetes as compared to those without diabetes. Data for
both the Cypher and Endeavor stents indicated significant increased risk of restenosis in patients with diabetes. In addition, the study showed that the TAXUS Liberté had an approximately 23 percent lower restenosis rate at two years compared
to the prior-generation TAXUS Express.

The Swedish registry study included four DES brands: TAXUS Liberté, TAXUS Express, Cypher and
Endeavor. In total, the registry included 35,478 DES implants during 22,962 procedures in 19,004 patients, with 1,807 restenoses reported over a mean 29-month follow-up period. For the entire study population, the repeat revascularization rate per
stent was 3.5 percent after one year and 4.9 percent after two years. Overall, the adjusted risk of restenosis was 1.23 times higher in patients with diabetes than in patients without diabetes. In patients with diabetes, restenosis was higher in the
non-TAXUS stents. The sirolimus-eluting Cypher and the zotorolimus-eluting Endeavor had higher restenosis rates in patients with diabetes compared with those in patients without diabetes (1.25 times and 1.77 times, respectively).

TAXUS Element Paclitaxel-Eluting Coronary Stent System. The platinum chromium TAXUS Element pacitaxel-eluting
coronary stent system is currently being evaluated by BSC in a clinical program, which commenced in July 2007 and is designed for submission to the FDA in an application for approval to market and sell the TAXUS Element stent system in the United
States. The platinum chromium TAXUS Element paclitaxel-eluting coronary stent system is the third-generation BSC coronary stent platform that incorporates our research, technology and intellectual property related to the use of paclitaxel. The TAXUS
Element stent features BSCs proprietary platinum chromium alloy, which is designed to enable thinner stent struts, increased flexibility and a lower stent profile while improving radial strength, recoil and radiopacity. In addition, the TAXUS
Element stent platform incorporates new balloon technology intended to improve upon BSCs market-leading Maverick® balloon catheter technology.

This clinical program is expected to collectively enroll approximately 1,500 patients at 100 U.S. and
international centers and will evaluate the safety and efficacy of the TAXUS Element stent in two studies. The first study will evaluate the safety and efficacy of the TAXUS Element stent compared to the TAXUS Express2 stent. This study will
evaluate 1,264 patients with workhorse lesions from 2.75 to 4.0 mm. The primary endpoint of this study is to target lesion failure at 12 months, and its secondary endpoint is in-segment percent diameter stenosis at nine months. The
second study will compare the TAXUS Element stent to a historic control (TAXUS V de novo bare-metal Express Coronary Stent System). This study will include 224 patients with lesions from 2.25 to 2.75 mm. The primary endpoint of the small vessel
study is in-stent late loss at nine months, and its secondary endpoint is target lesion failure at 12 months. Study success is dependent on both endpoints.

In May 2009, we announced that our partner BSC had launched TAXUS Element in select markets worldwide.

TAXUS PETAL Bifurcation Paclitaxel-Eluting Coronary Stent System. The TAXUS PETAL bifurcation paclitaxel-eluting coronary stent system, which is under evaluation in clinical trials being conducted by BSC, represents a novel BSC
coronary stent product candidate that incorporates our research, technology and intellectual property related to the use of paclitaxel. Conventional coronary stents were designed to treat tubular arteries, and are considered less than optimal for
the y-shaped anatomy of a bifurcated area of the coronary arteries. The TAXUS PETAL is a specialized coronary stent designed to treat both the main branch and the side branch of a bifurcation by incorporating an innovative side structure (the PETAL
strut) in the middle of the stent that opens into a side branch.

In July 2007 BSC initiated the TAXUS PETAL I First Human Use trial, which is
expected to enroll a total of 45 patients in New Zealand, France and Germany. The trial is a non-randomized study with an initial assessment of acute performance and safety (including rates of death, myocardial infarction and target vessel
revascularization) at 30 days and six months, with continued annual follow-up to occur for five years. Upon successful completion of this study, BSC has indicated that it intends to begin a pivotal trial which if successful would provide a basis for
U.S. and international approvals for the commercialization of the TAXUS PETAL stent.



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ZILVER PTX Paclitaxel-Eluting Peripheral Vascular Stent System. As discussed above, in August 2009,
we announced that our partner Cook, had reported CE Mark approval and commercial launch of the ZILVER PTX stent in Europe.

It is estimated
that approximately 27 million people suffer from peripheral artery disease, or PAD, in Europe and North America. Of patients with PAD, approximately only one quarter indicate any substantive symptoms. The silent nature of this
condition can result in a number of patients being diagnosed only when their condition has progressed to the severe stage. In patients with severe PAD whose condition is not improving with risk-factor modification, exercise programs or
pharmacological therapy, invasive surgical procedures may be necessary. These procedures may include angioplasty, stenting or surgery. To date, stent procedures for PAD in the limbs have been limited due to high observed rates of restenosis or other
failure of the procedure requiring a subsequent surgical procedure, as well as risk of stent fracture with existing products, as these stents are exposed and not protected by the patients anatomy as with coronary stents.

Cook is a co-exclusive licensee, together with BSC, of our proprietary paclitaxel technology to reduce restenosis following stent placement in PAD. The
ZILVER PTX stent is designed to reduce restenosis following placement of a stent in PAD patients. The ZILVER PTX stent is currently undergoing multiple human clinical trials in the United States, Japan, the European Union and selected other
countries to assess product safety and efficacy.

In January 2007, Cook released nine-month data from its EU clinical study. The preliminary
data presented by Cook on the first 60 patients in the randomized trial, which is examining the safety of using Cooks ZILVER PTX stent to treat blockages, or lesions, of the superficial femoral artery (SFA) above the knee,
indicated that the ZILVER PTX stent showed an equal adverse event rate to conventional angioplasty for treating SFA lesions. The ZILVER PTX stent also displayed a zero-percent fracture rate for 41 lesions at six months and 18 lesions at one year.

In July 2007, Cook announced that the first U.S. patients in a randomized pivotal human clinical trial of the ZILVER PTX stent were treated
at Tri-City Medical Center in Oceanside, CA. The trial is designed to randomize patients to receive either the ZILVER PTX stent or balloon angioplasty. Data from this clinical trial is intended to be used to support submission to the FDA for
approval in the United States to market the device. In addition, data collected on Japanese and U.S. patients is expected to be combined for the final evaluation of the device and used for regulatory submissions in both markets for approval.

In June 2008, Cook reported positive interim results from the registry arm of a clinical study designed to measure the efficacy of the ZILVER
PTX stent in treating PAD patients, specifically in the treatment of blockages in the femoropopliteal artery. The results were reported by trial investigators at the 2008 SVS Vascular Annual Meeting, and revealed clinical improvement, excellent
durability and fracture resistance, high rates of event-free survival (EFS) and freedom from target lesion revascularization (TLR). Interim data was compiled at six and 12 months using 435 patients and 200 patients,
respectively. The corresponding EFS rates were 94% and 84%, and freedom from TLR was 96% and 88%. Evaluation of stent x-rays is ongoing, and currently suggests stent fractures in approximately one percent of cases at six months and less than two
percent of cases at 12 months. In addition, the ZILVER PTX stent exhibited no safety concerns and results were better than expected for Trans-Atlantic Inter-Society Consensus class C and D lesions, occlusions, in-stent restenosis and lesions greater
than seven centimeters. Follow-up to the registry arm of the study will continue through two years. In April 2009, Cook reported initial data on two-year follow up from this registry that showed that 82% of patients who were treated with the ZILVER
PTX stent were free from reintervention at two-year follow up. These most recent results were reported at the 31st International Symposium: Charing Cross Controversies Challenges Consensus.

In September 2008, Cook announced it had completed enrollment in its pivotal human clinical trial for the ZILVER PTX. The 420 patients enrolled in
Cooks randomized trial include PAD patients treated in Germany, the United States and Japan. On the same date, Cook announced that it had enrolled an additional 780 patients in the European Union, Canada and Korea in a clinical registry to
evaluate the safety of the ZILVER PTX stent. Those data were used to obtain CE Mark approval in Europe and launch the device there, with additional regulatory submissions pending in additional markets.

In April 2009 we announced that Cook had reported data that showed that 82 percent of patients who were treated with Cooks ZILVER PTX stent were free
from reintervention at two-year follow up. The ZILVER PTX Registry study, involving 792 patients globally, is assessing the safety and efficacy of the ZILVER PTX in treating peripheral artery disease. The most recent results were reported at the
31st International Symposium Charing Cross Controversies Challenges Consensus. Data was compiled at 12 and 24 months for 593 patients and 177 patients respectively. The registry, which enrolled a broad spectrum of patients, includes patients with
complex lesions (e.g., long lesions, total occlusions, in-stent restenosis). The corresponding event-free survival rates were 87 percent and 78 percent, respectively, and freedom from target lesion revascularization was 89 percent and 82 percent,
respectively. Clinical measures that included ankle-brachial index, Rutherford score, and walking distance and speed scores showed significant improvement at six and 12 months and were maintained through 24 months. Detailed evaluation of stent
x-rays demonstrated excellent stent integrity through 12 months, confirming previously published results showing 99 percent completely intact stents (less than 1 percent stent fracture rates observed) with a mean follow up of 2.4 years in the
challenging superior femoral artery and popliteal arteries, including behind the knee locations.



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Angiotech Clinical Programs

MultiStem® Stem Cell Therapy. The MultiStem stem cell therapy is under evaluation in clinical trials being conducted together with our partner Athersys, Inc.
(Athersys) for the treatment of acute myocardial infarction. MultiStem stem cells are proprietary adult stem cells derived from bone marrow that have demonstrated the ability in laboratory experiments to form a wide range of cell types.
MultiStem may work through several mechanisms, but a primary mechanism appears to be the production of multiple therapeutic molecules produced in response to inflammation and tissue damage. We and Athersys believe that MultiStem may represent a
unique off the shelf stem cell product candidate, based on its potential ability to be used without tissue matching or immunosupression, and its potential capacity for large scale production. We entered into an agreement with Athersys in
May 2006 to co-develop and commercialize MultiStem for use in the indications of acute myocardial infarction and peripheral vascular disease. On December 20, 2007, we and Athersys announced we had received authorization from the FDA to commence
a phase I human clinical trial to evaluate the safety of MultiStem in the treatment of acute myocardial infarction. As of August 2009, the overall enrollment for the phase I clinical trial was approximately fifty percent complete. Upon completion of
a phase I human clinical trial currently being conducted by Athersys, we may assume lead responsibility for further clinical development. We currently own marketing and commercialization rights with respect to this product candidate.

Completed or Suspended Clinical Programs

Bio-Seal Lung Biopsy Tract Plug System. Bio-Seal is a novel technology designed to prevent air leaks in patients having lung biopsies by plugging the biopsy track with an expanding hydrogel plug. On
contact with moist tissue, the hydrogel plug absorbs fluids and expands to fill the void created by the biopsy needle puncture. The plug is absorbed into the body after healing of the puncture site has occurred. We are the worldwide manufacturer and
distributor of the Bio-Seal Lung Biopsy Tract Plug System, which has received CE Mark approval and is currently marketed and sold in the European Union.

Bio-Seal has undergone a human clinical trial in the United States which was designed to assess the safety and efficacy of Bio-Seal, with the primary endpoint being reduction in rates of pneumothorax in
patients undergoing lung biopsy procedures. The study was designed to provide a basis for FDA clearance for the commercialization of Bio-Seal. The prospective, randomized, controlled clinical trial enrolled and randomized 339 patients at 15
different investigational sites. Inspiratory upright chest x-rays were performed at 30 to 60 minutes, 24 hours and 30 days after treatment. The trial enrolled its first patient in October 2005 and completed enrollment in June 2008. In March 2009, we
announced positive results from this clinical trial at the Society of Interventional Radiologists Annual Scientific Meeting in San Diego, CA. The trial demonstrated a statistically significant clinical benefit in the group receiving Bio-Seal. The
Bio-Seal treatment arm hit the primary end point of clinical success for rate of absence of pneumothorax at each time period as compared to traditional treatment. Based on the per-protocol population, the clinical success rate was 85% using Bio-Seal
and 69% in the control group. This difference was statistically significant (p=0.002). Although not powered for statistical analysis, positive trends were also observed for Bio-Seal subjects as compared to the control group in various secondary
endpoints, including fewer Bio-Seal subjects admitted to the hospital for pneumothoraces (9.4% vs. 13.6%), fewer chest tube placements in Bio-Seal patients (3.5% vs. 10.7%), and fewer additional chest x-rays required in Bio-Seal patients (0.6% vs.
5.3%).

Data from this clinical trial has been submitted to the FDA, with the objective of receiving 510(k) clearance to market Bio-Seal in the
United States. Subsequent to this submission, the FDA asked us various questions about the study and our submission and we have responded to all of the questions from the FDA received to date. In October 2009, we announced that we had received
correspondence from the FDA regarding our 510(k) submission for Bio-Seal, stating the FDAs view that Bio-Seal is a class III device that requires Pre-Market Approval (PMA) for FDA marketing clearance. As a result, we are reviewing
our options with respect to this product candidate, including possibly appealing this FDA decision, and we are discussing the possible preparation of a PMA submission with our partner, Biopsy Sciences, LLC. Should we elect to continue to pursue
development or regulatory approvals for this product candidate that require us to incur material expense, we will provide further updates in our public disclosure. We have not incurred material expense to date with respect to activities regarding
this product candidate.

5-FU-Eluting Central Venous Catheter. Central venous catheters (CVC) are usually inserted into
critically ill patients for extended periods of time to administer fluids, drugs, and nutrition, as well as facilitate frequent blood draws. Through our proprietary drug identification strategy, we have elected to evaluate 5-Fluorouracil
(5-FU), a drug previously approved by the FDA for treatment of various types of cancer, as a compound that may help to prevent certain types of infection in patients receiving a CVC. We recently completed a human clinical trial in the
United States designed to assess the safety and efficacy of our 5-FU-eluting CVC in preventing various types of catheter related infections. The study was a randomized, single-blind, 960-patient, 25-center study and was designed to evaluate whether
our 5-FU-eluting CVC prevents bacterial colonization at least as well as the market-leading anti-infective CVC. On July 10, 2007, we announced that we had completed enrollment of the study, and on October 9, 2007, we announced this study
had met its primary statistical endpoint of non-inferiority as compared to the market leading anti-infective CVC (a chlorhexidine / silver sulfadiazine (CH-SS) coated CVC) and indicated an excellent safety profile. In March 2008, we presented the
clinical trial data at the 28th International Symposium on Intensive Care and Emergency Medicine in Brussels, Belgium. Based on the clinical trial data, the investigators concluded that our 5-FU CVC met the primary endpoint of the study;
specifically that our 5-FU CVC product candidate was non-inferior in its ability to prevent bacterial colonization of the catheter tip when compared to catheters coated with CH-SS. There were no statistically significant differences in the rate of
adverse events related to the study devices, or in the rates of catheter-related bloodstream infections. Additionally, there was no evidence for acquired resistance to 5-FU in clinical



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isolates exposed to the drug for a second time. Based on the positive results achieved in the study, in December 2007 we filed a request for 510(k) clearance from the FDA to market and sell the
CVC in the United States and on April 17, 2008, we announced that we had received 510(k) clearance from the FDA to market our 5-FU CVC in the United States. We are currently developing potential launch plans for this product, as well as
evaluating certain product line extensions relating to this clinical program. Should sufficient liquidity and capital resources be available, we anticipate commencing commercialization of this technology during the first half of 2010.

Vascular Wrap. Our paclitaxel-eluting mesh surgical implant, or Vascular Wrap, is designed to treat complications, including graft stenosis or
restenosis that may occur in connection with vascular graft implants in hemodialysis patients or in patients that have peripheral artery disease. Vascular grafts are implanted in patients in order to bypass diseased blood vessels, or to provide
access to the vascular system of kidney failure patients in order to facilitate the process of hemodialysis. In many cases, these vascular grafts fail due to proliferation of cells or scar tissue into the graft (graft stenosis or restenosis), which
can negatively impact blood flow through the vascular graft.

In April 2008, we elected to suspend enrollment in our U.S. and EU human clinical
trials for our Vascular Wrap product candidate in patients undergoing surgery for hemodialysis access, pending a safety review to evaluate an imbalance of infections observed between the two study groups. As a result of these observations, we
elected to notify physicians to suspend further enrollment in the trials, pending a full review of the potential cause of the implant site infections. There are currently no plans to resume enrollment in these clinical trials, however, we are
continuing to monitor, evaluate and collect data with respect to the patients that were enrolled in the clinical trial. We are continuing to evaluate alternatives for this program, including potential collaborations, partnerships, divestitures or
future clinical development initiatives.

Acquisitions

As part of our business development efforts we have completed several significant acquisitions in the past. Terms of certain of these acquisitions may require us to make future milestone or contingent
payments upon achievement of certain product development and commercialization objectives. During the nine months ended September 30, 2009, we did not complete any acquisitions.

Collaboration, License and Sales and Distribution Agreements

In
connection with our commercial and research and development efforts, we have entered into various arrangements with corporate and academic collaborators, licensors, licensees and others for the research, development, clinical testing, regulatory
approval, manufacturing, marketing and commercialization of certain of our product candidates. Terms of the various license agreements may require us, or our collaborators, to make milestone payments upon achievement of certain product development
and commercialization objectives and pay royalties on sales of commercial products, if any, resulting from the collaborations. During the nine months ended September 30, 2009, we did not enter into any significant collaboration, license or
sales and distribution agreements other than the Amended and Restated Distribution and License Agreement with Baxter International, Inc. (Baxter) related to our COSEAL® technology described in and attached to our Quarterly Report on Form 10-Q for the three months ended March 31, 2009. We also entered into the license,
distribution, development and supply agreements with Haemacure in June 2009 for fibrin and thrombin technologies described in and attached to our Quarterly Report on Form 10-Q for the three and six months ended June 30, 2009.

Our other significant collaborations, licenses, sales and distribution agreements are listed in the exhibits index to the Form 10-K and may be found at the
locations specified therein.

Critical Accounting Policies and Estimates

Our consolidated financial statements are prepared in accordance with U.S. GAAP. These accounting principles require management to make estimates and assumptions that affect the reported amounts of
assets, liabilities, revenue and expenses. We believe that the estimates and assumptions upon which we rely are reasonable and are based upon information available to us at the time the estimates and assumptions were made. Actual results could
differ materially from our estimates.

We believe the following policies to be critical to understanding our financial condition, results of
operations, and expectations for the remainder of 2009 because these policies require management to make significant estimates, assumptions and judgments about matters that are inherently uncertain.

Revenue Recognition



|(i) | Royalty revenue
|--- | ---------------

We recognize
royalty revenue when we have fulfilled the terms in accordance with the contractual agreement, have no future obligations, the amount of the royalty fee is determinable and collection is reasonably assured. We record royalty revenue from BSC on a
cash basis due to our inability to accurately estimate the BSC royalty before we receive the reports and payments from BSC. This results in a one quarter lag between the time the sales were recorded by BSC and the time we record the associated
royalty revenue.



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|(ii) | Product sales
|---- | -------------

We recognize
revenue from product sales, including shipments to distributors, when the product is shipped from our facilities to the customer provided that we have not retained any significant risks of ownership or future obligations with respect to products
shipped. We recognize revenue from product sales net of provisions for future returns. These provisions are established in the same period as the related product sales are recorded and are based on estimates derived from our historical experience.

We consider revenue to be realized or realizable and earned when all of the following criteria are met: persuasive evidence of
a sales arrangement exists; delivery has occurred or services have been rendered; the price is fixed or determinable; and collectibility is reasonably assured. These criteria are generally met at the time of shipment when the risk of loss and title
passes to the customer or distributor.

We include amounts billed to customers for shipping and handling in revenue. The
corresponding costs for shipping and handling are included in cost of products sold.



|(iii) | License fees
|----- | ------------

License fees are
comprised of initial fees and milestone payments derived from collaborative and other licensing arrangements. Initial fees received or receivable, which do not require our ongoing involvement are recognized when the arrangements are executed, the
intellectual property has been provided to the customer, the license term commences, the fee is fixed or determinable and the collection is reasonably assured. Non-refundable milestone payments are recognized upon the achievement of specified
milestones when the milestone payment is substantive in nature, the achievement of the milestone was not reasonably assured at the inception of the agreement and we have no further significant involvement or obligation to perform under the
arrangement. Initial fees and non-refundable milestone payments received, which require our ongoing involvement, are deferred and amortized into income on a straight-line basis over the period of our ongoing involvement if no other objective form of
measurable performance exists which indicates another method of recognition is more appropriate.

Income tax expense

Income taxes are accounted for using the liability method. Deferred tax assets and liabilities are recognized for the differences between the financial
statement and income tax bases of assets and liabilities, and for operating losses and tax credit carry forwards. The carrying value of our net deferred tax assets assumes that we will be able to generate sufficient future taxable income in certain
tax jurisdictions to realize the value of these assets. Management evaluates the realizability of the deferred tax assets and assesses the need for any valuation allowance adjustment on a periodic basis. A valuation allowance is provided for the
portion of deferred tax assets that is more likely than not to be unrealized. Deferred tax assets and liabilities are measured using the tax rates and laws in effect at the time of assessment.

Significant estimates are required in determining our provision for income taxes including, but not limited to, accruals for tax contingencies and valuation
allowances for deferred income tax assets. Some of these estimates are based on interpretations of existing tax laws or regulations. Our effective tax rate may change from period to period based on the mix of income among the different foreign
jurisdictions in which we operate, changes in tax laws in these jurisdictions, and changes in the amount of valuation allowance recorded.

Stock-based compensation

We account for stock-based compensation in accordance with Accounting Standards Codification
(ASC) No. 718. ASC No. 718 requires us to recognize the grant date fair value of share-based compensation awards granted to employees over the requisite service period. We use the Black-Scholes option pricing model to calculate
stock option values, which requires certain assumptions including the future stock price volatility and expected time to exercise. Changes to any of these assumptions, or the use of a different option pricing model (such as the binomial model),
could produce a different fair value for stock-based compensation, which could have a material impact on our earnings.

Cash equivalents,
short and long-term investments

We invest our excess cash balances in short-term securities, principally investment grade commercial debt
and government agency notes. At September 30, 2009, we held one equity security which was classified as available-for-sale, and accordingly, was recorded at fair value.

As part of our strategic product development efforts, we also invest in, or receive as consideration, equity securities of certain companies with which we have license or collaboration agreements. The
equity securities of some of these companies are not publicly traded and so fair value is not readily determinable. These investments are recorded using the cost method of accounting and are tested for impairment by reference to anticipated
undiscounted cash flows expected to result from the investment, the results of operations and financial position of the investee, and other evidence supporting the net realizable value of the investment.



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Intangible assets

Our identifiable intangible assets are primarily comprised of technologies acquired through our business combinations. Intangible assets also include in-licensed proven medical technologies. We amortize
intangible assets on a straight-line basis over the estimated life of the technologies, which range from two to twelve years depending on the circumstances and the intended use of the technology. We determine the estimated useful lives for
intangible assets based on a number of factors such as legal, regulatory or contractual limitations; known technological advances; anticipated demand for our products; and the existence or absence of competition.

We review the carrying value of our intangible assets for impairment indicators at least annually and whenever there has been a significant change in any of
these factors listed above. A significant change in these factors may warrant a revision of the expected remaining useful life of the intangible asset, resulting in accelerated amortization or an impairment charge, which would impact earnings. If an
impairment indicator exists, we test the intangible asset for recoverability. For purposes of the recoverability test, we group our intangible assets with other assets and liabilities at the lowest level of identifiable cash flows if
the intangible asset does not generate cash flows independent of other assets and liabilities. If the carrying value of the intangible asset (asset group) exceeds the undiscounted cash flows expected to result from the use and eventual
disposition of the intangible asset (asset group), further analysis is performed to assess for impairment. To test for impairment, we calculate the fair value of our indefinite-lived intangible assets and compare the calculated fair values to
the respective carrying values. If the carrying value exceeds the fair value of the indefinite-lived intangible asset, the carrying value is written down to the fair value. In addition, we review our indefinite-lived intangible assets at
least annually for impairment and reassess their classification as indefinite-lived assets.

We generally calculate fair value of our
intangible assets as the present value of estimated future cash flows we expect to generate from the asset using a risk-adjusted discount rate. In determining our estimated future cash flows associated with our intangible assets,
we use estimates and assumptions about future revenue contributions, cost structures and remaining useful lives of the asset (asset group). The use of alternative assumptions, including estimated cash flows, discount rates, and
alternative estimated remaining useful lives could result in different calculations of impairment which would result in an adjustment to the our net income (loss) for the period.

We tested our intangible assets for impairment as at September 30, 2008 and determined that there was no impairment. Given the continued decline in our
market value in the fourth quarter of 2008 and the further negative indicators of the economy as a whole, we updated our impairment tests of intangible assets as at December 31, 2008 and determined that there was no impairment. No additional
impairment testing was conducted for the three and nine months ended September 30, 2009 as management believes that there have been no further indicators of impairment since December 31, 2008.

Results of Operations

Overview



|                                              |  |                                 |        |   |                                |   |          |      |  |   |         |   |  |   |          |  
|--------------------------------------------- |  | ------------------------------- | ------ | - | ------------------------------ | - | -------- | ---- |  | - | ------- | - |  | - | -------- | -
|                                              |  | Three months endedSeptember 30, |        |   | Nine months endedSeptember 30, |  
|(in thousands of U.S.$ except per share data) |  | 2009                            |        |   | 2008                           |   |          | 2009 |  |   | 2008    |  
|Revenues                                      |  |                                 |        |   |                                |   |          |      |  |   |         |   |  |   |          |  
|Pharmaceutical Technologies                   |  | $                               | 14,584 |   |                                | $ | 21,858   |      |  | $ | 74,141  |   |  | $ | 76,429   |  
|Medical Products                              |  |                                 | 48,660 |   |                                |   | 46,502   |      |  |   | 141,976 |   |  |   | 144,761  |  
|                                              |  |                                 |        |   |                                |   |          |      |  |   |         |   |  |   |          |  
|Total revenues                                |  |                                 | 63,244 |   |                                |   | 68,360   |      |  |   | 216,117 |   |  |   | 221,190  |  
|                                              |  |                                 |        |   |                                |   |          |      |  |   |         |   |  |   |          |  
|                                              |  |                                 |        |  
|Operating income (loss)                       |  |                                 | 4,018  |   |                                |   | (601,852 | )    |  |   | 31,101  |   |  |   | (617,769 | )
|                                              |  |                                 |        |  
|Other expenses                                |  |                                 | (9,758 | ) |                                |   | (25,039  | )    |  |   | (30,767 | ) |  |   | (56,757  | )
|                                              |  |                                 |        |   |                                |   |          |      |  |   |         |   |  |   |          |  
|(Loss) income before income taxes             |  |                                 | (5,740 | ) |                                |   | (626,891 | )    |  |   | 334     |   |  |   | (674,526 | )
|                                              |  |                                 |        |  
|Income tax expense (recovery)                 |  |                                 | 2,062  |   |                                |   | (4,513   | )    |  |   | 7,569   |   |  |   | (10,314  | )
|                                              |  |                                 |        |   |                                |   |          |      |  |   |         |   |  |   |          |  
|Net loss                                      |  | $                               | (7,802 | ) |                                | $ | (622,378 | )    |  | $ | (7,235  | ) |  | $ | (664,212 | )
|                                              |  |                                 |        |   |                                |   |          |      |  |   |         |   |  |   |          |  
|                                              |  |                                 |        |  
|Basic and diluted net loss per common share   |  | $                               | (0.09  | ) |                                | $ | (7.31    | )    |  | $ | (0.08   | ) |  | $ | (7.80    | )

For the three months ended September 30, 2009, we recorded a net loss of $7.8 million ($0.09
basic and diluted net loss per common share), compared to a net loss of $622.4 million ($7.31 basic and diluted net loss per common share) for the same period in 2008. Of the total decrease in the loss of $614.6 million, $599.4 million is related to
the write-down of goodwill that we recorded in the third quarter of 2008. The remaining decrease in net loss of $15.2 million is due to several factors, including: (i) a $6.1 million decrease in research and development costs, due primarily to
the completion or termination of various of our human clinical trial activities and to certain cost reduction initiatives implemented during 2008; (ii) a decrease in selling, general and administrative costs of $5.4 million, primarily resulting
from continued cost reduction initiatives commenced during the third quarter of 2008; (iii) a decrease in



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write-downs of various investments of $1.9 million; (iv) a decrease in deferred financing charges related to the write-down of certain transaction costs incurred in 2008 totaling $13.5
million; and (v) lower interest expense incurred on our Senior Floating Rate Notes due in 2013 (the Floating Rate Notes). These factors were partially offset by a reduction of $5.8 million in royalty revenue derived from BSCs
sales of paclitaxel-eluting coronary stent systems and an income tax expense of $2.1 million in the third quarter of 2009 compared to an income tax recovery of $4.5 million in the same period in 2008.

For the first nine months of 2009, we recorded a net loss of $7.2 million ($0.08 basic and diluted net loss per common share), compared to a net loss of
$664.2 million ($7.80 basic and diluted net loss per common share) for the same period in 2008. The decrease in net loss of $657.0 million is primarily due to the write-down of goodwill which was recorded in the third quarter of 2008. The remaining
decrease in net loss of $57.6 million is due to several factors, including: (i) a $28.0 million decrease in research and development costs; (ii) an $18.0 million decrease in selling, general and administrative expenses, (iii) a
decrease in write-downs of various investments of $12.6 million; (iv) a decrease in deferred financing charges related to the write-down of certain transaction costs incurred in 2008 totaling $13.5 million; (v) lower interest expense
incurred on the Floating Rate Notes, and (vi) a $25.0 million payment received from our partner Baxter in the first quarter of 2009. These factors were offset by a $25.6 million reduction in royalty revenue derived from BSCs sales of
paclitaxel-eluting coronary stent systems as compared to the same period in 2008, and an income tax expense of $7.6 million recorded in the first nine months of 2009 as compared to an income tax recovery of $10.3 million recorded in the same period
in 2008.

Revenues



|                                            |  |                                 |        |                                |   |        |  |      |         |  |   |        
|------------------------------------------- |  | ------------------------------- | ------ | ------------------------------ | - | ------ |  | ---- | ------- |  | - | -------
|                                            |  | Three months endedSeptember 30, |        | Nine months endedSeptember 30,
|(in thousands of U.S.$)                     |  | 2009                            |        | 2008                           |   | 2009   |  | 2008
|Pharmaceutical Technologies:                |  |                                 |        |                                |   |        |  |      |         |  |   |        
|Royalty revenue  paclitaxel-eluting stents |  | $                               | 13,833 |                                | $ | 19,594 |  | $    | 44,822  |  | $ | 70,376 
|Royalty revenue  other                     |  |                                 | 698    |                                |   | 1,811  |  |      | 3,816   |  |   | 5,495  
|License fees                                |  |                                 | 53     |                                |   | 453    |  |      | 25,503  |  |   | 558    
|                                            |  |                                 |        |                                |   |        |  |      |         |  |   |        
|                                            |  | $                               | 14,584 |                                | $ | 21,858 |  | $    | 74,141  |  |   | 76,429 
|                                            |  |                                 |        |                                |   |        |  |      |         |  |   |        
|Medical Products:                           |  |                                 |        |                                |   |        |  |      |         |  |   |        
|Product sales                               |  |                                 | 48,660 |                                |   | 46,502 |  |      | 141,976 |  |   | 144,761
|                                            |  |                                 |        |                                |   |        |  |      |         |  |   |        
|Total revenues                              |  | $                               | 63,244 |                                | $ | 68,360 |  | $    | 216,117 |  | $ | 221,190
|                                            |  |                                 |        |                                |   |        |  |      |         |  |   |        

We operate in two reportable segments:

Pharmaceutical Technologies

Our Pharmaceutical Technologies segment
includes royalty revenue generated from licensing our proprietary paclitaxel technology to various partners, as well as revenue derived from the licensing of certain of our biomaterials and other technologies. Currently, our principal revenues in
this segment are from royalties derived from sales by BSC of TAXUS coronary stent systems incorporating the drug paclitaxel. Royalty revenue derived from sales of TAXUS stent systems by BSC for the three month period ended September 30, 2009
decreased by 29% as compared to the same period in 2008. The decrease in royalty revenues was a result of lower sales of TAXUS stent systems by BSC, driven primarily by the entry of new competitors into the drug-eluting coronary stent market during
the second half of 2008. Royalty revenue for the quarter ended September 30, 2009 was based on BSCs net sales for the period April 1, 2009 to June 30, 2009 of $226 million, of which $96 million was in the United States, compared
to net sales of $298 million for the same quarter in 2008, of which $144 million was in the United States. The average gross royalty rate earned in the three month period ended September 30, 2009 on BSCs net sales was 6.2% for sales in
the United States and 6.1% for sales in other countries, compared to an average rate of 6.9% for sales in the United States and 6.3% for sales in other countries for the same period in 2008.

The average gross royalty rate relating to TAXUS sales in the United States declined during the three months ended September 30, 2009 as compared to the
same period of the prior year as a result of our tiered royalty rate structure, whereby we receive higher royalty rates on sales volume above certain contractually established baselines. The average gross royalty rate relating to TAXUS sales in
countries other than the United States during the three months ended September 30, 2009 was consistent as compared to the same period of the prior year.

Royalty revenue derived from sales of TAXUS stent systems by BSC for the nine months of 2009 decreased by 36% as compared to the same period in 2008. The decrease in royalty revenues was a result of lower
sales of TAXUS stent systems by BSC. Royalty revenue for the first nine months of 2009 was based on BSCs net sales for the period October 1, 2008 to June 30, 2009 of $717 million, of which $319 million was in the United States,
compared to net sales of $1.0 billion for the same period in 2008, of which $539 million was in the United States. The average gross royalty rate earned in the first nine months of 2009 on BSCs net sales was 6.4% for sales in the United States
and 6.1% for sales in other countries, compared to an average rate of 7.2% for sales in the United States and 6.6% for sales in other countries for the same period in 2008.



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The average gross royalty rate relating to TAXUS sales in the United States declined during the nine months
ended September 30, 2009 as compared to the same period in 2008 as a result of our tiered royalty rate structure, whereby we receive higher royalty rates on sales volume above certain contractually established baselines. The average gross
royalty rate relating to sales in countries other than the United States decreased in the current period primarily due to an additional royalty payment we received during the first quarter of 2008 relating to royalties on sales outside of the United
States that were owed from prior periods in 2007.

For the nine months ended September 30, 2009, license fees increased by $24.9 million
as compared to the same period during 2008 due to the $25.0 million payment received from Baxter in the first quarter of 2009.

We expect
revenues in our Pharmaceutical Technologies segment may decrease for the remainder of 2009 as compared to revenues recorded in the same period in 2008 and the first nine months of 2009, primarily as a result of the continued competitive pressures in
the market for drug-eluting coronary stent systems and the related potential decline in royalty revenues we derive from sales by BSC of TAXUS, and the elimination of ongoing royalty payments from Baxter as a result of our entry into the Amended and
Restated Distribution and License Agreement, for which we received the $25.0 million payment as noted above. Our royalties derived from sales by BSC of TAXUS declined from $70.4 million in the first nine months of 2008 to $44.8 million in the first
nine months of 2009.

Medical Products

Revenue from our Medical Products segment for the three months ended September 30, 2009 was $48.7 million, compared to $46.5 million for the same period in 2008. The increase was primarily related to
higher sales of our Proprietary Medical Products during the period as compared to the same period of 2008, partly offset by lower sales of our Base Medical Products during the period as compared to the same period of 2008.

Sales of our Proprietary Medical Products were $14.7 million during the three months ended September 30, 2009, representing 30% of our total Medical
Products segment sales. Sales of our Proprietary Medical Products increased by approximately 33% in the three months ended September 30, 2009 as compared to the comparable period in 2008. The increase in sales of our Proprietary Medical
Products during the period was primarily the result of higher sales of certain of our product lines, most significantly our Quill SRS product line and our Option IVC Filter. Sales of our Proprietary Medical Products as compared to the same period of
2008 were also negatively impacted by foreign currency fluctuations. Excluding the impact of foreign currency changes, sales of our Proprietary Medical Products would have increased by 36% as compared to the comparable period of 2008.

Sales of our Base Medical Products were $34.0 million during the three months ended September 30, 2009, representing 70% of our total Medical Products
segment sales. Sales of our Base Medical Products declined by approximately 4% in the three months ended September 30, 2009 as compared to the comparable period in 2008. The decline in our Base Medical Products sales in the third quarter of
2009 as compared to the third quarter of 2008 was due primarily to lower sales of medical device components to other third-party medical device manufacturers, generally relating to certain customers that have postponed or cancelled orders, or
implemented inventory reduction programs in response to changing economic and credit market conditions, and more particularly relating to cancelled orders for surgical needles by one of our largest customers. Manufacturing of surgical needles, as of
November 2008, was fully transferred to our facility in Aguadilla, Puerto Rico from our facility in Syracuse, New York. We believe that the closure of our Syracuse production facility in November and the finalization of our move of surgical needle
production to Aguadilla, combined with the difficult economic and credit market environment, may have negatively impacted our Base Medical Product sales during the three months ended September 30, 2009 as compared to the comparable period in
2008. We currently expect that certain of our customers may increase their order levels later in 2009 or in 2010; however, there can be no assurance that we will record sales of surgical needles to these customers at levels observed in prior
periods. Sales of our Base Medical Products were also impacted to a lesser extent by foreign currency fluctuations. Excluding the impact of foreign currency changes, sales of our Base Medical Products would have declined by 3% as compared to the
comparable period of 2008.

Revenue from our Medical Products segment for the first nine months of 2009 was $142.0 million, a decrease of 2%
from the $144.8 million of revenue recorded for the comparable period in 2008. This decrease was due primarily to a 10% decline in sales of our Base Medical Products to $101.1 million from $111.9 million during the period, due to factors consistent
with the three month period as noted above, offset by a 25% increase in sales of our Proprietary Medical Products to $40.9 million from $32.8 million during the period, due to factors consistent with the three month period as noted above. Excluding
the impact of foreign currency changes, revenue from our Medical Products segment would have declined by 1% as compared to the comparable period of 2008.

Because we believe certain of our product lines, including our Quill SRS product line, HemoStream dialysis catheter and Option IVC Filter have a high potential for growth, we expect that revenue in our
Medical Products segment may continue to increase during the fourth quarter of 2009 as compared to 2008. This expected growth may be mitigated or offset by lower sales of our Base Medical Products, in particular if our sales of medical devices and
device components to third-party customers continue at lower than expected levels.



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Expenditures

The table below presents operating expenses during the respective periods:



|                                    |  |                                 |        |                                |   |         |  |      |         |  |   |        
|----------------------------------- |  | ------------------------------- | ------ | ------------------------------ | - | ------- |  | ---- | ------- |  | - | -------
|                                    |  | Three months endedSeptember 30, |        | Nine months endedSeptember 30,
|(in thousands of U.S.$)             |  | 2009                            |        | 2008                           |   | 2009    |  | 2008
|License and royalty fees            |  | $                               | 2,463  |                                | $ | 3,452   |  | $    | 7,937   |  | $ | 11,484 
|Cost of products sold               |  |                                 | 25,958 |                                |   | 24,772  |  |      | 75,606  |  |   | 77,430 
|Research and development            |  |                                 | 4,596  |                                |   | 10,658  |  |      | 17,526  |  |   | 45,468 
|Selling, general and administrative |  |                                 | 17,924 |                                |   | 23,370  |  |      | 59,102  |  |   | 77,100 
|Depreciation and amortization       |  |                                 | 8,285  |                                |   | 8,560   |  |      | 24,845  |  |   | 25,577 
|In-process research and development |  |                                 |       |                                |   |        |  |      |        |  |   | 2,500  
|Write-down of goodwill              |  |                                 |       |                                |   | 599,400 |  |      |        |  |   | 599,400
|                                    |  |                                 |        |                                |   |         |  |      |         |  |   |        
|                                    |  | $                               | 59,226 |                                | $ | 670,212 |  | $    | 185,016 |  | $ | 838,959
|                                    |  |                                 |        |                                |   |         |  |      |         |  |   |        

License and royalty fees on royalty revenue

License and royalty fee expenses include license and royalty payments due to certain of our licensors, primarily relating to paclitaxel-eluting coronary
stent system royalty revenue received from BSC. The decrease in this expense in the three and nine months ended September 30, 2009 as compared to the same periods in 2008 reflects the decrease in our royalty revenue. We expect license and
royalty fee expense to continue to be a significant cost in the fourth quarter of 2009 and into 2010, commensurate with the amount of royalty revenue we earn.

Cost of products sold

Cost of products sold is comprised of costs and expenses related to
the production of our various medical devices, device component and biomaterial products and technologies, including direct labor, raw materials, depreciation and certain fixed overhead costs related to our various manufacturing facilities and
operations.

Cost of products sold increased by $1.2 million to $26.0 million for the three months ended September 30, 2009 compared to
$24.8 million for the same period in 2008. Cost of products sold decreased by $1.8 million to $75.6 million for the nine months ended September 30, 2009 compared to $77.4 million for the same period in 2008. The increase in cost of products
sold for the three months ended September 30, 2009 and the decrease in cost of products sold for the nine months ended September 30, 2009 as compared to the same periods in 2008 were consistent with the fluctuations in the levels of
aggregate Medical Products segment sales observed in those same periods, from which the cost of products sold were derived as described above.

Gross margins for our Medical Products segment sales were 46.7% for the three months ended September 30, 2009 and September 30, 2008, and were 46.7% for the nine months ended September 30, 2009 compared to 46.5% for the same
period in 2008. Gross margins in the nine months ended September 30, 2009 compared to same period in 2008 were positively impacted by a relative increase in sales of higher margin product lines and the continued launch of certain new, higher
margin product lines for which there were no material sales in the comparable prior year period. These positive factors were offset by unforeseen production inefficiencies at our Aguadilla, Puerto Rico facility. Specifically, we have incurred costs
for labor, inventory, materials and overhead at our Aguadilla facility in anticipation of surgical needle order levels consistent with what was recorded during 2008. With the unexpected cancellation of orders by one of our largest customers at the
beginning of 2009, we took steps to eliminate excess costs in this facility that were no longer justified by the lower resulting production volumes. These excess costs were expensed in the second quarter of 2009 with no concurrent revenue recorded
as originally anticipated.

We expect that cost of products sold will continue to be significant and that gross margins may improve in the
fourth quarter of 2009, primarily as a result of improved sales mix, including potential increases in sales of selected product lines that provide higher relative contribution margins. In addition, gross margins may improve in the fourth quarter of
2009 and into 2010 if we are able to reduce manufacturing inefficiencies at our Aguadilla, Puerto Rico facility as described above or at our other manufacturing facilities.

Research and development

Our research and development expense is comprised of costs
incurred in performing research and development activities, including salaries and benefits, clinical trial and related clinical manufacturing costs, contract research costs, patent procurement costs, materials and supplies, and operating and
occupancy costs. Our research and development activities occur in two main areas:

(i) Discovery and pre-clinical research - Our
discovery and pre-clinical research efforts are divided into several distinct areas of activity, including screening and pre-clinical evaluation of pharmaceuticals and various biomaterials and drug delivery technologies, evaluation of mechanism of
action of pharmaceuticals, mechanical engineering and pursuing patent protection for our discoveries.



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(ii) Clinical research and development - Clinical research and development refers to internal and
external activities associated with clinical studies of product candidates in humans, and advancing clinical product candidates towards a goal of obtaining regulatory approval to manufacture and market these product candidates in various
geographies.

Research and development expenditures decreased significantly to $4.6 million and $17.5 million for the three and nine months
ended September 30, 2009 respectively, as compared to $10.7 million and $45.5 million for the same periods in 2008. The decreases were primarily due to the suspension of enrollment in our Vascular Wrap clinical trial, the reduction of staffing
within our clinical and research departments and reduction in other direct costs in the second half of 2008 relating to the postponement or elimination of other selected research programs and activities.

We expect our research and development expenditures may continue to be lower in the fourth quarter of 2009 as compared to 2008, reflecting the factors
described above. Even after these expected declines, we anticipate we will continue to incur significant research and development expenditures in the fourth quarter of 2009 and in future periods.

Selling, general and administrative expenses

Our selling, general and administrative expenses are comprised of direct selling and marketing costs related to the sale of our various medical products, including salaries, benefits and sales commissions, and our various management and
administrative support functions, including salaries, commissions, benefits and other operating and occupancy costs.

Selling, general and
administrative expenditures were $17.9 million and $59.1 million, respectively, for the three and nine months ended September 30, 2009 as compared to $23.4 million and $77.1 million, respectively for the same periods in 2008. The lower
expenditures during 2009 as compared to 2008 were primarily due to reduced severance costs and salaries and benefits as a result of the reduction in staff in selling, general and administrative departments completed in the first and third quarters
of 2008, reduced professional fees as well as reduced severance and other restructuring charges related to the closure and consolidation of our Syracuse, NY manufacturing facility completed in the fourth quarter of 2008.

We expect that selling, general and administrative expenses may continue to be lower in the fourth quarter of 2009 as compared to 2008 due to staff and other
expense reductions implemented primarily during the second half of 2008. Expenditures could materially increase or fluctuate depending on product sales levels, the timing of launch of certain new products and growth of new product sales, or as a
result of litigation or other legal expenses that may be incurred to support and defend our intellectual property portfolio or other aspects of our business.

Depreciation and amortization

Depreciation and amortization expense was $8.3 million and
$24.8 million, respectively, for the three and nine months ended September 30, 2009, compared to $8.6 million and $25.6 million, respectively for the same periods in 2008. Depreciation and amortization expense is comprised of amortization of
licensed technologies and identifiable intangible assets purchased through business combinations of $22.3 million and $22.6 million, respectively, for the nine months ended September 30, 2009 and 2008 and depreciation expense of property, plant
and equipment of $2.5 million and $3.0 million, respectively for the nine months ended September 30, 2009 and 2008.

We expect
depreciation and amortization expense in the fourth quarter of 2009 to be comparable to the same period in 2008.

In-process research and
development (IPR&D)

We record IPR&D expense relating to acquired or in-licensed technologies that are at an early
stage of development and have no alternative future use.

We had no IPR&D expense in either the three or nine month periods ended
September 30, 2009. In the three month period ended March 31, 2008, we recorded IPR&D expense of $2.5 million for an initial license payment made to Rex Medical to obtain the marketing rights for the Option IVC Filter. We had no
IPR&D expense in the three month period ended September 30, 2008.

We may incur further IPR&D expenditures in the event we
in-license or acquire additional early stage technologies.

Write-down of goodwill

In the third quarter of 2008, as a result of the significant and sustained decline in our public market capitalization and our announcement regarding the
terminated transaction with Ares Management (Ares) and New Leaf Ventures Partners (New Leaf), we performed an interim impairment test of goodwill and acquired intangible assets. Upon the conclusion of this testing, we
determined that the carrying amounts of goodwill associated with our Medical Products segment were impaired and we recorded an impairment charge of $599.4 million in the third quarter of 2008. The goodwill impairment charge was determined by
comparing the carrying value of goodwill assigned to our Medical Products reporting unit with the implied fair value of the goodwill. We utilized the income approach in determining the implied fair value of the goodwill, which requires estimates of
future operating results and cash flows discounted using estimated discount rates.



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As there was no remaining goodwill balance as of December 31, 2008, there were no further impairment
charges during the nine month period ended September 30, 2009.

Other Income (Expense)

The table below presents other income (expenses) during the respective periods:



|                                                |  |                                 |        |   |                                |   |         |      |  |   |         |   |  |   |         |  
|----------------------------------------------- |  | ------------------------------- | ------ | - | ------------------------------ | - | ------- | ---- |  | - | ------- | - |  | - | ------- | -
|                                                |  | Three months endedSeptember 30, |        |   | Nine months endedSeptember 30, |  
|(in thousands of U.S.$)                         |  | 2009                            |        |   | 2008                           |   |         | 2009 |  |   | 2008    |  
|Foreign exchange (loss) gain                    |  | $                               | (518   | ) |                                | $ | 1,009   |      |  | $ | (1,227  | ) |  | $ | 1,569   |  
|Investment and other income                     |  |                                 | 46     |   |                                |   | 187     |      |  |   | 74      |   |  |   | 1,630   |  
|Interest expense on long term-debt              |  |                                 | (9,286 | ) |                                |   | (10,790 | )    |  |   | (28,971 | ) |  |   | (33,851 | )
|Write-down / loss on investments                |  |                                 |       |   |                                |   | (1,901  | )    |  |   |        |   |  |   | (12,561 | )
|Write-down and other deferred financing charges |  |                                 |       |   |                                |   | (13,544 | )    |  |   | (643    | ) |  |   | (13,544 | )
|                                                |  |                                 |        |   |                                |   |         |      |  |   |         |   |  |   |         |  
|Total other expenses                            |  | $                               | (9,758 | ) |                                | $ | (25,039 | )    |  | $ | (30,767 | ) |  | $ | (56,757 | )
|                                                |  |                                 |        |   |                                |   |         |      |  |   |         |   |  |   |         |  

Net foreign exchange losses during the three and nine month periods ended September 30, 2009
were primarily the result of changes in the relationship of the U.S. dollar to other foreign currency exchange rates when translating our foreign currency denominated cash and cash equivalents to U.S. dollars for reporting purposes at period end. We
continue to hold foreign currency denominated cash and cash equivalents to meet our anticipated operating and capital expenditure needs in future periods in jurisdictions outside of the United States. We do not use derivatives to hedge against
exposures to foreign currency arising from our balance sheet financial instruments and therefore are exposed to future fluctuations in the U.S. dollar to foreign currency exchange rates.

Investment and other income for the three and nine months ended September 30, 2009 decreased by $0.1 million and $1.6 million respectively, when compared to the same periods in 2008, primarily as a
result of lower interest income received in 2009 due to lower cash balances available to invest.

During the three and nine months ended
September 30, 2009, we incurred interest expense of $9.3 million and $29.0 million, respectively, on our outstanding long-term debt obligations, as compared to $10.8 million and $33.9 million, respectively, for the same periods in 2008. The
decreases have resulted from a decline in the interest rate applicable on our Floating Rate Notes due to lower LIBOR rates. The interest rate decline resulted in an average interest rate of 4.3% on our Floating Rate Notes for the three months ended
September 30, 2009 as compared to 6.5% for the three months ended September 30, 2008. Interest expense also includes $0.7 million and $0.6 million for amortization of deferred financing costs for the three month periods ended
September 30, 2009 and 2008, respectively.

Write-down and other deferred financing charges for the nine months ended September 30,
2009 related to a charge of $0.6 million resulting from the write-off of the portion of the deferred financing charges related to our term loan facility with Wells Fargo Foothill LLC (Wells Fargo) that terminated on May 29, 2009.
Write-down and other deferred financing charges for the three and nine months ended September 30, 2008 were a result of recognized costs related to our exploration of proposed financing and strategic alternatives.

Income Tax

For the three and nine
months ended September 30, 2009, we recorded an income tax expense of $2.1 million and $7.6 million, respectively, compared to an income tax recovery of $4.5 million and $10.3 million for the three and nine months ended September 30, 2008,
respectively. The income tax expense for the nine months ended September 30, 2009 includes a $6.1 million write off of deferred tax charges relating to taxes paid in prior years in connection with an inter-company transfer of the
intellectual property underlying the transaction with Baxter.

The effective tax rate for the current period differs from the statutory
Canadian tax rate of 30.0%, primarily due to valuation allowances on net operating losses and the net effect of lower tax rates on earnings in foreign jurisdictions.



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Liquidity and Capital Resources

At September 30, 2009, we had working capital of $70.5 million and cash resources of $51.5 million, consisting of cash and cash equivalents. In aggregate, our working capital increased by $18.9
million as compared to December 31, 2008, primarily relating to the $25.0 million in cash received pursuant to the transaction with Baxter in the first quarter of 2009, offset by the net loss for the nine month period ended September 30,
2009.

We maintain a revolving credit facility with Wells Fargo. The total available credit under the revolving credit facility is $25.0
million (subject to a borrowing base formula based on certain of our and our subsidiaries finished goods inventory and accounts receivable). As of September 30, 2009, the amount of financing available under the revolving credit facility
was approximately $13.0 million and there were no borrowings outstanding under the revolving credit facility other than current month fees and expenses due and payable.

Our cash resources and any borrowings available under the revolving credit facility, in addition to cash generated from operations or cash available per commitments of certain of our creditors, are used
to support our continuing clinical studies, research and development initiatives, sales and marketing initiatives, working capital requirements, debt servicing requirements and for general corporate purposes. We may also use our cash resources to
fund acquisitions of, or investments in, businesses, products or technologies that expand, complement or are otherwise related to our business.

At any time, the amount of financing available under the revolving credit facility, which is secured by certain of our inventory and accounts receivable assets, may be significantly less than $25.0 million and is expected to fluctuate from
month to month with changes in levels of finished goods and accounts receivable. Any borrowings outstanding under the revolving credit facility bear interest ranging from LIBOR plus 3.25% to LIBOR plus 3.75%, with a minimum Base LIBOR Rate of 2.25%.
As the minimum Base LIBOR Rate under the revolving credit facility is 2.25% and the LIBOR rate was 0.25% on September 30, 2009, a 0.50% increase or decrease in the LIBOR rate as of September 30, 2009 would have no impact on interest
payable under the credit facility. The revolving credit facility includes certain covenants and restrictions with respect to our operations and requires us to maintain certain levels of Adjusted EBITDA and interest coverage ratios, among other terms
and conditions. Repayment of any amounts drawn under the revolving credit facility can be made at certain points in time with ultimate maturity being February 27, 2013. Prepayments made under the revolving credit facility in certain
circumstances cannot be re-borrowed by us. We maintain this facility to provide additional liquidity and capital resources for working capital and general corporate purposes in the near term and more flexibility and time to explore other longer-term
options for our overall capital structure and working capital needs.

On July 23, 2009, we announced that we filed the Offering Documents
with the securities commissions of British Columbia and Ontario and the SEC. The Offering Documents, when made final and / or declared effective, will allow us to make offerings of Common shares, Class I Preference shares, debt securities, warrants
or units for initial aggregate proceeds of up to $250.0 million during the next 25 months to potential purchasers in British Columbia, Ontario and the United States. We believe that having the ability to issue these securities gives us the
flexibility to raise capital quickly and effect other long-term changes to our capital structure that we may deem advisable in the future.

Due
to numerous factors that may impact our future cash position, working capital and liquidity as discussed below and the significant cash that will be necessary to continue to service our current level of debt obligations, there can be no assurance
that we will have adequate liquidity and capital resources to satisfy our financial obligations beyond 2010.

Our cash inflows and the amounts
of expenditures that will be necessary to execute our business plan are subject to numerous uncertainties, including but not limited to changes in drug-eluting coronary stent markets, including the impact of increased competition in such markets and
research relating to the efficacy of drug-eluting stents, the sales achieved in such markets by our partner BSC, the timing and success of product sales and marketing initiatives and new product launches, the timing and success of our research,
product development and clinical trial activities, the timing of completing certain operational initiatives including facility closures, our ability to effect reductions in certain aspects of our budgets in an efficient and timely manner, and
changes in interest rates. These and other uncertainties may adversely affect our liquidity and capital resources to a significant extent and may force us to further reduce our expenditures on research and development or on our various new product
and sales and marketing initiatives in order for us to continue to service our debt obligations. Such further reductions in our budgeted expenditures may have an adverse effect on our new product development and sales growth initiatives and reduce
our ability to achieve the revenue growth targets, product launch or new product development timelines in our current operating plan. There can also be no assurance that such reductions in expenditures will be adequate to provide sufficient cash
flow to continue to service our current level of debt obligations.

In particular, should our royalties received from BSC decline more
significantly than we expect in future periods as a result of competition in the drug-eluting stent market or due to negative research or publications relating to the efficacy of drug-eluting stents, our liquidity may continue to be adversely
affected, and we may be forced to explore alternative funding sources through debt, equity or other public or private securities offerings, or to pursue certain reorganization, restructuring or other strategic or financial alternatives. We may not
be able to complete any restructuring, reorganization or strategic activities on terms that would be favorable for our current lenders or our shareholders. Capital markets conditions deteriorated significantly during 2008 and early 2009, including a
significant and material decline in the level of corporate lending activity, combined with a significant increase in the cost of any such lending. Current and future market conditions may have a material effect on our ability to complete any of the
activities as described on favorable terms, if at all.



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As a result of uncertainty and volatility relating to the market and competitive environment for
drug-eluting stents and to address our liquidity needs, during 2008 we commenced the exploration of a broad range of strategic and financial alternatives (see Business Overview  Financial and Strategic Alternatives Process).

Cash Flow Highlights

The
table below presents cash flow highlights during the respective periods:



|                                                     |  |                                 |        |   |                                |   |        |      |  |   |        |   |  |   |         |  
|---------------------------------------------------- |  | ------------------------------- | ------ | - | ------------------------------ | - | ------ | ---- |  | - | ------ | - |  | - | ------- | -
|                                                     |  | Three months endedSeptember 30, |        |   | Nine months endedSeptember 30, |  
|(in thousands of U.S.$)                              |  | 2009                            |        |   | 2008                           |   |        | 2009 |  |   | 2008   |  
|Cash and cash equivalents, beginning of period       |  | $                               | 50,658 |   |                                | $ | 62,915 |      |  | $ | 38,952 |   |  | $ | 91,326  |  
|Cash provided by (used in) operating activities      |  |                                 | 2,953  |   |                                |   | (1,599 | )    |  |   | 22,824 |   |  |   | (20,028 | )
|Cash used in investing activities                    |  |                                 | (1,901 | ) |                                |   | (650   | )    |  |   | (7,038 | ) |  |   | (9,631  | )
|Cash used in financing activities                    |  |                                 | (216   | ) |                                |   | (2,170 | )    |  |   | (3,192 | ) |  |   | (3,670  | )
|Effect of exchange rate changes on cash              |  |                                 | (36    | ) |                                |   | (1,545 | )    |  |   | (88    | ) |  |   | (1,046  | )
|                                                     |  |                                 |        |   |                                |   |        |      |  |   |        |   |  |   |         |  
|Net (decrease) increase in cash and cash equivalents |  |                                 | 800    |   |                                |   | (5,964 | )    |  |   | 12,506 |   |  |   | (34,375 | )
|Cash and cash equivalents, end of period             |  | $                               | 51,458 |   |                                | $ | 56,951 |      |  | $ | 51,458 |   |  | $ | 56,951  |  
|                                                     |  |                                 |        |   |                                |   |        |      |  |   |        |   |  |   |         |  

Cash Flows from Operating Activities

Cash provided by operating activities for the three month period ended September 30, 2009 was $3.0 million, compared to cash used in operating
activities of $1.6 million for the same period in 2008. The increase in cash provided by operating activities of $4.6 million was due primarily to reduced research and development and selling, general and administrative costs, offset by a reduction
of royalty revenue and a $1.7 million reduction in working capital changes. Working capital changes during the three month period ended September 30, 2009 included net cash outflows from accounts payable and accrued liabilities of $5.3 million
due to payments made during the period and net cash inflows of $4.7 million from accrued interest payable due to the timing of interest payments on our 7.75% Senior Subordinated Notes due 2014 (the Subordinated Notes) and Floating Rate
Notes.

Cash provided by operating activities for the nine months ended September 30, 2009 was $22.8 million, compared to cash used in
operating activities of $20.0 million for the same period in 2008. The increase in cash provided by operating activities of $42.8 million was due primarily to the one-time cash payment of $25.0 million received from Baxter in the first quarter of
2009, a lower net loss for the reasons discussed above and a $6.0 million improvement in working capital changes. Working capital changes during the nine month period ended September 30, 2009 included net cash outflows from accounts receivable
of $2.6 million due to sales growth of Quill SRS as well as sales of the Option IVC Filter during the third quarter, net cash outflows from accounts payable and accrued liabilities of $6.8 million due to payments made during the period, net cash
outflows of $0.8 million for income taxes payable, net cash inflows of $6.5 million from prepaid expenses and other assets due to non-cash tax expense and net cash inflows of $4.3 million from accrued interest payable due to the timing of interest
payments on our Subordinated Notes and Floating Rate Notes.

Cash Flows from Investing Activities

Net cash used in investing activities for the three month period ended September 30, 2009 was $1.9 million compared to net cash used of $0.7 million for
the same quarter in 2008. For the three months ended September 30, 2009, the net cash used in investing activities was related to capital expenditures during the period, including $0.6 million related to the expansion of our Puerto Rico
manufacturing facility. For the three month period ended September 30, 2008, net cash used in investing activities was primarily for capital expenditures of $1.4 million primarily related to the expansion of our Puerto Rico manufacturing
facility offset by $0.6 million of proceeds on the sales of certain long-term investments.

Net cash used in investing activities for the
first nine months of 2009 was $7.0 million compared to net cash used of $9.6 million for the same period in 2008. For the first nine months of 2009, the net cash used in investing activities was primarily for capital expenditures of $3.6 million as
well as the payments made to Rex Medical and Haemacure Corporation of $2.5 million and $1.2 million, respectively during the second quarter of 2009. For the first nine months of 2008, the net cash used in investing activities was primarily for
capital expenditures of $7.2 million for lab equipment and the expansion of our R&D facilities and for manufacturing equipment, primarily related to the expansion of our Puerto Rico manufacturing facility. We also paid a $0.8 million licensing
milestone to a third-party upon our successful completion of the Bio-Seal clinical trial and invested $2.5 million in in-process research and development for an initial license payment to Rex Medical for the Option IVC Filter.



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Depending on the level of our cash portfolio, we invest our excess cash in short-term marketable securities,
principally investment grade commercial debt and government agency notes. Investments are made with the secondary objective of achieving the highest rate of return while meeting our primary objectives of liquidity and safety of principal. Our
investment policy limits investments to certain types of instruments issued by institutions with investment grade credit ratings and places restrictions on maturities and concentration by type and issuer. At September 30, 2009, we were not
holding any short-term marketable securities.

At September 30, 2009 and December 31, 2008, we retained the following cash and cash
equivalents denominated in foreign currencies in order to meet our anticipated foreign operating and capital expenditures in future periods.



|                        |  |                   |       |                  |   |      
|----------------------- |  | ----------------- | ----- | ---------------- | - | -----
|(in thousands of U.S.$) |  | September 30,2009 |       | December 31,2008
|Canadian dollars        |  | $                 | 1,701 |                  | $ | 3,942
|Swiss franc             |  |                   | 1,085 |                  |   | 3,053
|Euro                    |  |                   | 6,379 |                  |   | 5,263
|Danish krone            |  |                   | 1,065 |                  |   | 2,022
|Other                   |  |                   | 1,243 |                  |   | 2,806
|                        |  |                   |       |                  |   |      

Cash Flows from Financing Activities

Net cash used in financing activities for the three and nine months ended September 30, 2009 were $0.2 million and $3.2 million, respectively, and were
primarily for expenditures related to our senior secured credit facility (see Liquidity and Capital Resources above and note 11(c) to unaudited interim consolidated financial statements for three and nine months ended September 30,
2009). Net cash used in financing activities for the three and nine months ended September 30, 2008 were $2.2 million and $3.7 million, respectively, and were related to payments made as a result of the terminated transaction with Ares and New
Leaf.

Senior Floating Rate Notes

On December 11, 2006, we issued Floating Rate Notes in the aggregate principal amount of $325 million. The Floating Rate Notes bear interest at an annual rate of LIBOR plus 3.75%, which is reset quarterly. Interest is payable quarterly
in arrears on March 1, June 1, September 1, and December 1 of each year through to maturity. The Floating Rate Notes are unsecured senior obligations, are guaranteed by certain of our subsidiaries and rank equally in
right of payment to all of our existing and future senior indebtedness. At September 30, 2009, the interest rate on these notes was 4.10%. We may redeem all or a part of the notes at specified redemption prices.

Senior Subordinated Notes

On
March 23, 2006, we issued Subordinated Notes in the aggregate principal amount of $250.0 million. These Subordinated Notes bear interest at an annual rate of 7.75% payable semi-annually in arrears on April 1 and October 1 of each year
through to maturity. The Subordinated Notes are unsecured obligations. The Subordinated Notes and related note guarantees provided by us and certain of our subsidiaries are subordinated to our Floating Rate Notes described above, our existing and
future senior indebtedness. We may redeem all or a part of the notes at specified redemption prices.

Debt Covenants

The terms of the indentures governing our Floating Rate Notes and our Subordinated Notes include various covenants that impose restrictions on the operation
of our business and the business of our subsidiaries, including the incurrence of certain liens and other indebtedness.

In addition, our
senior secured credit facility, includes a number of customary financial covenants, including a requirement to maintain certain levels of adjusted earnings before interest, taxes, depreciation and amortization (Adjusted EBITDA) and
interest coverage ratios, as well as covenants that limit our ability to, among other things, incur indebtedness, create liens, merge or consolidate, sell or dispose of assets, change the nature of our business, make distributions or make advances,
loans or investments.

Contractual Obligations

During the three and nine months ended September 30, 2009, there were no significant changes in our payments due under contractual obligations, as disclosed in our Managements Discussion and
Analysis of Financial Condition and Results of Operations contained in the Form 10-K.



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Contingencies

We are party to various legal proceedings, including patent infringement litigation and other matters. See Part II, Item 1 and Note 14(b) Contingencies, in the Notes to the Consolidated
Financial Statements of Part I, Item 1 of this Quarterly Report on Form 10-Q for more information.

Off-Balance Sheet Arrangements

As of September 30, 2009, we do not have any off-balance sheet arrangements, as defined by applicable securities regulators in Canada
and the United States, that have, or are reasonably likely to have, a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital
resources that would be material to investors.

Recently Adopted Accounting Policies

In June 2009 the Financial Accounting Standards Board (FASB) issued ASC No. 105-10, Generally Accepted Accounting Principles. ASC
No. 105-10 identifies the sources of accounting principles and the framework for selecting the principles used in the preparation of U.S. Generally Accepted Accounting Principles (GAAP) financial statements for non-governmental
entities. The new ASC framework supersedes all existing literature by restructuring the hierarchy into two levels of U.S. GAAP from authoritative and non-authoritative sources. ASC No. 105-10 is effective for interim and annual periods ending
after September 15, 2009. Adoption of this standard had no impact on the Companys financial results, presentation or disclosure given that the substance of the literature remained unchanged. References to U.S. authoritative GAAP
recognized by the FASB in these interim unaudited consolidated financial statements reflect the FASB codification.

The Company currently
accounts for business combinations in accordance with ASC No. 805  Business Combinations based on Statement of Financial Accounting Standard (SFAS) No. 141 (R), Business Combinations. ASC No. 805
changes accounting for business combinations by requiring acquiring entities to recognize all assets acquired and liabilities assumed in a transaction at the acquisition-date fair value with limited exceptions. This includes a change in the
accounting treatment and disclosure of specific items in a business combination. ASC No. 805 applies prospectively to business combinations for which the acquisition date is on or after the beginning of the first annual reporting period
beginning on or after December 15, 2008. The impact on accounting for business combinations will depend on the occurrence of future acquisitions.

The Company accounts for assets and liabilities, which are assumed in a business combination and arise from contingencies, in accordance with the guidance specified under ASC No. 805  Business Combinationsbased on FASB
Staff Position (FSP) Financial Accounting Standard (FAS) No. 141 (R)-1  Accounting for Assets Acquired and Liabilities Assumed in a Business Combination that Arise from Contingencies.Consistent with the
prior standard, ASC No. 805 amends and clarifies the initial recognition and measurement, subsequent measurement and accounting, and related disclosures arising from contingencies in a business combination. The impact on accounting for business
combinations will depend on the occurrence of future acquisitions.

Effective July 1, 2009 ASC No. 808-10, Collaborative
Arrangements,replaced Emerging Issues Task Force (EITF) Issue 07-01, Accounting for Collaborative Arrangements.The standard requires collaborators to present the results of activities for which they act as the principal on a
gross basis. Any payments received from (made to) other collaborators should be recorded in accordance with other applicable GAAP or, in the absence of other applicable GAAP, guidance provided by authoritative accounting literature or a reasonable,
rational, and consistently applied accounting policy. Furthermore, the standard clarifies whether transactions under a collaborative arrangement are part of a vendor-customer (or analogous) relationship and addresses appropriate income statement
classification and disclosures related to these arrangements. ASC 808-10 is effective for fiscal years beginning December 15, 2008. This standard had no impact on the Companys financial results given that it relates to disclosure and
presentation only.

Effective July 1, 2009 ASC 275-10-50, Risks and Uncertainties Disclosure and ASC 350, Intangibles  Goodwill and
Other, replaced FSP FAS No. 142-3, Determination of the Useful Life of Intangible Assets. Consistent with the prior standards, ASC 275-10-50 amends the factors that should be considered in developing renewal or extension assumptions used
to determine the useful life of a recognized intangible asset under ASC No. 350. The intent of the position is to improve the consistency between the useful life of a recognized intangible asset under ASC No. 350 and the period of expected
cash flows used to measure the fair value of the intangible asset. ASC No. 275-10-50 and ASC No. 350 are effective for fiscal years beginning after December 15, 2008. Adoption of this standard had no material impact on our
consolidated balance sheets, results of operations or cash flows.

The Company has adopted ASC No. 350-30, Intangibles  Goodwill
and Other and ASC No. 805-20-20, Business Combinations Identifiable Assets and Liabilities and Any Noncontrolling interest.This standard considers how defensive intangible assets should be accounted for subsequent to their
acquisition, including the estimated useful life that should be assigned to such assets. ASC No. 350- 30 is effective for intangible assets acquired on or after the beginning of the first annual reporting period beginning on or after
December 15, 2008. The impact on accounting for defensive intangible assets will depend on future acquisitions.



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The Company has adopted ASC No. 825-10-65-1, Financial Instruments.This standard amends the
disclosure requirements of the former FAS No. 107, Disclosures about Fair Value of Financial Instruments, for interim reporting periods of publicly traded companies as well as in annual financial statements. ASC No. 825-10-65-1 is
effective for interim periods beginning after June 15, 2009. This standard had no impact on the companys financial results given that it relates to disclosure and presentation only.

The Company has adopted ASC No. 320-10-65-1, Investments  Debt and Equity Securities.This standard amends the impairment guidance for
certain debt securities and requires an investor to assess the likelihood of selling the security prior to recovering the cost base. If the investor is able to sufficiently demonstrate that it will not have to sell the security before recovery,
impairment charges related to non-credit losses would be reflected in other comprehensive income. The standard also expands and increases disclosure requirements related to debt and equity securities. ASC No. 320-10-65-1 is effective for
interim periods beginning after June 15, 2009. Adoption of this standard had no material impact on our consolidated balance sheets, results of operations or cash flows.

The Company has adopted ASC No. 820-10-65, Fair Value Measurements and Disclosures. This section provides additional guidance on fair value measurements in inactive markets. The new approach is
designed to address whether a market is inactive, and if so, whether a transaction in that market should be considered distressed. It also provides additional guidance on how fair value measurements might be determined in an active market. ASC No.
820-10-65 is effective for interim periods beginning after June 15, 2009 and shall be applied prospectively. Adoption of this standard had no material impact on our consolidated balance sheets, results of operations or cash flows.

In September 2009, the FASB issued Accounting Standards Update (ASU) No. 2009-06, Implementation Guidance on Accounting for Uncertainty in
Income Taxes and Disclosure Amendments for Nonpublic Entities.The update provides additional implementation guidance on accounting for uncertainty in income taxes and eliminates certain disclosures required for nonpublic entities. The guidance
is effective for periods ending after September 15, 2009 for all entities currently applying the recognition, measurement and disclosure provisions for uncertain tax positions under ASC No. 740. Adoption of ASU No. 2009-06 did not have a material
impact on our consolidated financial statements or disclosures.

Recent Accounting Pronouncements

In August 2009 the FASB issued an accounting standard update on measuring liabilities at fair value under ASC No. 820, Fair Value Measurements and
Disclosures.The update provides clarification on how to measure the fair value of a liability when a quoted price for an identical liability is not available in an active market. This includes a discussion of appropriate valuation techniques.
ASC No. 820 is effective for periods beginning after August 26, 2009. We are assessing the potential impact of ASC No. 820 on the valuation of the Companys liabilities.

In September 2009, the FASB issued ASU No. 2009-09, Accounting for Investments-Equity Method and Joint Ventures and Accounting for Equity-Based Payments to Non-Employees. This update represents a
correction to ASC No. 323-10-S99-4, Accounting by an Investor for Stock-Based Compensation Granted to Employees of an Equity Method Investee. Additionally, it adds observer comment Accounting Recognition for Certain Transactions Involving
Equity Instruments Granted to Other Than Employees to the Codification. We are still assessing the impact of the correction.

In October
2009 the FASB issued ASU No. 2009-13, Multiple-Deliverable Revenue Arrangements, under ASC No. 605. The new guidance provides a more flexible alternative to identify and allocate consideration among multiple elements in a bundled arrangement
when vendor-specific objective evidence or third-party evidence of selling price is not available. ASU No. 2009-13 also eliminates the residual method of allocation arrangement consideration and requires expanded qualitative and quantitative
disclosures. The guidance is effective prospectively for revenue arrangements entered into or materially modified in years beginning on of after June 15, 2010. We are assessing the potential impact that the adoption of ASU No. 2009-13 may have on
our consolidated balance sheets, results of operations and cash flows.

Outstanding Share Data

As of September 30, 2009, there were 85,136,725 common shares issued and outstanding for a total of $472.7 million in share capital. At
September 30, 2009, we had 5,629,709 CDN dollar stock options outstanding under the Angiotech Pharmaceuticals, Inc. stock option plans (of which 2,966,242 were exercisable) at a weighted average exercise price of CDN$9.98. We also had 2,843,749
U.S. dollar stock options outstanding under the plans at September 30, 2009, (of which 750,674 were exercisable) at a weighted average exercise price of US$3.76 per option. Each CDN dollar stock option and U.S. dollar stock option is
exercisable for one common share of Angiotech Pharmaceuticals, Inc.

As of September 30, 2009, there were 78 stock options outstanding in
the American Medical Instruments Holdings, Inc. (AMI) stock option plan (of which 29 were exercisable). Each AMI stock option is exercisable for approximately 3,852 common shares of Angiotech Pharmaceuticals, Inc. upon exercise at a
weighted average exercise price of US$15.44 per option.



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|Item 3. | Quantitative and Qualitative Disclosures about Market Risk
|------- | ----------------------------------------------------------

The primary objective of our investment activities is to preserve our capital to fund operations. We also seek to maximize income from our investments without assuming significant risk. To achieve our
objectives, we maintain a portfolio of cash equivalents and investments in a variety of securities of high credit quality. As of September 30, 2009 we had cash and cash equivalents of $51.5 million.

Interest Rate Risk

As the issuer of the
Floating Rate Notes, we are exposed to interest rate risk. The interest rate on the Floating Rate Notes is reset quarterly to 3-month LIBOR plus 3.75%. The aggregate principal amount of the Floating Rate Notes is $325 million as of September 30,
2009 and the notes bear interest at a rate of approximately 4.1% (December 31, 2008  6.0%). Based upon our average floating rate debt levels during the three months ended September 30, 2009, a 100 basis point increase in interest rates
would have impacted our interest expense by approximately $0.8 million for the three months ended September 30, 2009 and September 30, 2008, respectively. We do not use derivatives to hedge against interest rate risk.

Foreign Currency Risk

We operate
internationally and enter into transactions denominated in foreign currencies. As such, our financial results are subject to the variability that arises from exchange rate movements in relation to the U.S. dollar. Our foreign currency exposures are
primarily limited to the Canadian dollar, the Swiss franc, the Danish krone, the Euro and the U.K. pound sterling. We incurred net transaction losses of $0.5 million and $1.2 million for the three and nine months ended September 30, 2009,
respectively, and net transaction gains of $1.0 million and $1.6 million for the three and nine months ended September 30, 2008, respectively, primarily as a result of changes in the relationship of the U.S. to Canadian dollar and other foreign
currency exchange rates when translating our foreign currency-denominated cash and cash equivalents to U.S. dollars for reporting purposes at period end. We have not entered into any forward currency contracts or other financial derivatives to hedge
foreign exchange risk, and, therefore, we are subject to foreign currency transaction and translation gains and losses. We purchase goods and services in U.S. and Canadian dollars, Swiss francs, Danish krone, the Euro and U.K. pound sterling, and
earn a significant portion of our license and milestone revenues in U.S. dollars. Foreign exchange risk is managed primarily by satisfying foreign denominated expenditures with cash flows or assets denominated in the same currency.

Since we operate internationally and approximately 12% and 15% of our net revenue for the three months ended September 30, 2009 and September 30,
2008, respectively, were generated in other than the U.S. dollars, foreign currency exchange rate fluctuations could significantly impact our financial position, results of operations, cash flows and competitive position.

For purposes of specific risk analysis, we used a sensitivity analysis to measure the potential impact to our consolidated financial statements for a
hypothetical 10% strengthening of the U.S. dollar compared with the Canadian dollar, the Swiss franc, the Danish kroner, the Euro and the U.K. pound sterling for the three months ended September 30, 2009. Assuming a 10% strengthening of the
U.S. dollar, our product net revenue would have been negatively impacted by approximately $2.7 million on an annual basis.



|Item 4. | Controls and Procedures
|------- | -----------------------

Evaluation of
Disclosure Controls and Procedures.

Based upon an evaluation of the effectiveness of disclosure controls and procedures, our Chief
Executive Officer (CEO) and Chief Financial Officer (CFO) have concluded that as of the end of the period covered by this Quarterly Report on Form 10-Q our disclosure controls and procedures (as defined in
Rules 13a-15(e) or 15d-15(e) under the Exchange Act) were effective to provide reasonable assurance that information required to be disclosed in our Exchange Act reports is recorded, processed, summarized and reported within the time periods
specified by the rules and forms of the SEC and is accumulated and communicated to management, including the CEO and CFO, as appropriate to allow timely decisions regarding required disclosure.

Changes in Internal Control over Financial Reporting.

No change was made to our internal control over financial reporting during the three months ended September 30, 2009 that has materially affected, or is reasonably likely to materially affect, such
internal control over financial reporting.



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PART IIOTHER INFORMATION



|Item 1. | Legal Proceedings
|------- | -----------------

On April 4, 2005,
together with BSC, we commenced a legal action in the Netherlands against Sahajanand Medical Technologies Pvt. Ltd. (SMT) for patent infringement. On May 3, 2006, the Dutch trial court ruled in favor of Angiotech, finding that
Angiotechs EP (NL) 0 706 376 patent was valid, and that SMTs Infinnium stent infringed the patent. On March 13, 2008, a Dutch Court of Appeal held a hearing to review the correctness of the trial courts decision. The
Court of Appeal released their judgment on January 27, 2009, ruling against SMT (finding our patent novel, inventive, and sufficiently disclosed). The Court of Appeal however requested amendment of claim 12 before rendering their decision
on infringement. We have filed a response to the Court of Appeals decision, and have additionally filed a further Writ against SMT seeking to prevent SMT from, among other things, using its CE mark for SMTs Infinnium stent. . Any
decision of the Court of Appeal is appealable to the Supreme Court of the Netherlands. On October 22, 2009 we and BSC settled this litigation with SMT on favorable terms. We may at our option continue this matter before the Court of Appeal with
respect to the requested amendment to claim 12.

On March 23, 2006, RoundTable Healthcare Partners, LP (RoundTable) as
Seller Representative, we as Buyer, and LaSalle Bank (LaSalle) as Escrow Agent, executed an Escrow Agreement under which we deposited $20 million with LaSalle. On April 4, 2007, LaSalle received an Escrow Claim Notice issued by us,
which directed LaSalle to remit the $20 million to us as Buyer. On or about April 16, 2007, LaSalle received from RoundTable a Notice of Objection to our Escrow Claim Notice. On July 3, 2007, LaSalle filed an action in the Circuit Court of
Cook County, Illinois, asking the court to resolve this dispute. After various hearings and discussions, we executed a Joint Letter of Direction allowing the release of $6.5 million to RoundTable, thereby leaving the amount in dispute being
approximately $13.5 million. On March 21, 2008, this action was moved to the United States District Court for the Southern District of New York. We are now in the discovery phase of this litigation. On March 20, 2009, Roundtable filed a
motion for partial summary judgment and a hearing was held on April 16, 2009. On April 8, 2009, we filed a motion to dismiss certain of the claims in the lawsuit as not yet ripe for resolution. A hearing on our motion was held on
April 30, 2009. We do not know when a decision will be issued by the court on either motion.

In July 2004, Dr. Gregory Baran
initiated legal action, alleging infringement by Medical Device Technologies Inc. (MDT) of two U.S. patents owned by Dr. Baran. These patents allegedly cover MDTs BioPince automated biopsy device. On September 25,
2007, the judge issued her decision pursuant to the Markman hearing of December 2005. We submitted a Motion for Summary Judgment to the court based upon the judges Markman decision, and on September 30, 2009, the judge ruled in our favor,
finding that the BioPince did not infringe a key claim of Dr. Barans patents. Dr. Baran has filed a Notice of Appeal with respect to this decision.

At the European Patent Office (EPO), various patents either owned or licensed by or to us are in opposition proceedings including the following:

| |  |  | In EP0784490, an oral hearing took place on October 1, 2009 and the patent with amendments was maintained by the EPO.
| | - |  | ---------------------------------------------------------------------------------------------------------------------

| |  |  | In EP0809515 (which is licensed from (and to) BSC), the EPO held an oral hearing on January 30, 2008 and thereafter revoked this patent. An appeal
was filed on April 22, 2008. The parties have been summoned to attend an oral hearing on the appeal at the EPO on June 19, 2009. On February 26, 2009, BSC submitted a request to withdraw from the oral hearing. On June 25, 2009
the EPO issued a notice stating that the decision under appeal was set aside and the patent would be remitted to the patent examiner for further prosecution.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  |  | In EP0830110 (which is licensed from Edwards LifeSciences Corporation) an amended form of this patent was found valid after an oral hearing on
September 28, 2006; however, the opponent appealed the decision on December 21, 2006. An oral hearing took place on September 9, 2009 and the EPO cancelled the appeal proceedings and maintained the patent in the same form as allowed
by the Opposition Division.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  |  | In EP0876166 the EPO held an oral hearing on September 24, 2008, and thereafter revoked this patent. We filed an appeal on January 19, 2009,
and then filed a request to withdraw the appeal on March 10, 2009. On April 2, 2009, the EPO withdrew the appeal and closed the proceedings with the patent revoked.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  |  | In EP0975340 (which is licensed from (and to) BSC), an oral hearing was held on December 4, 2008. The EPO issued an Interlocutory Decision on
December 23, 2008 stating the patent was found to have met the requirements of the convention. The opponent has appealed this decision. The opponent withdrew their appeal on June 23, 2009, and requested that the patent be maintained in
amended form. On June 23, 2009, the EPO withdrew the appeal and maintained the patent in amended form.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  |  | In EP1118325 (which is licensed from the NIH), an oral hearing was held on April 7, 2009, and the patent was upheld. The decision is appealable.
On August 18, 2009, the outcome of the oral hearing was made final by the EPO.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  |  | In EP1155689, briefs are being exchanged.
| | - |  | -----------------------------------------

| |  |  | In EP1407786 (which is licensed from (and to) BSC), the patent was revoked in a decision from the EPO on December 9, 2008. An appeal was filed on
January 30, 2009. An appeal was also filed on behalf of the opponent on April 8, 2009. On September 1, 2009 a request to withdraw appeal was filed. On October 1, 2009, the appeal proceedings were terminated and the decision to
revoke the patent was made final by the EPO.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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| |  |  | In EP1429664, an oral hearing had been scheduled for May 27, 2009; however, the oral hearing was canceled by the EPO on May 14, 2009. The
proceedings will continue in writing. On September 14, 2009, the EPO terminated the appeal proceedings and maintained the patent.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  |  | In EP1159974, the EPO has scheduled oral proceedings for June 9, 2010.
| | - |  | ----------------------------------------------------------------------

| |  |  | In EP1159975, a Notice of Opposition was filed on June 5, 2009. Our response to the Opposition is due by November 21, 2009. In EP0991359, our
response to the opposition was due prior to the extended deadline of May 15, 2009 but we did not file a response. A notice of failure to respond to the opposition was issued by the EPO on July 7, 2009. On September 7, 2009, a response
to the opposition was filed on our behalf.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  |  | In EP0876165, the EPO revoked the patent as an outcome of an oral hearing held on June 24, 2009. An appeal may be filed up to August 24,
2009. On August 20, 2009, a Notice of Appeal was filed on our behalf.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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|Item 1A. | Risk Factors
|-------- | ------------

You should consider
carefully the following information about these risks, together with all of the other information contained within this document. Additional risks and uncertainties not currently known to us or that we currently deem immaterial may impair our
business operations. If any of the following risks actually occur, our business, results of operations and financial condition could be harmed.

Risks Related to Our Business

We have historically been unprofitable and may not be able to achieve and maintain
profitability

We began operations in 1992 and have incurred a loss from operations in a majority of the years in which we have been
operating. Our ability to become profitable and maintain profitability will depend on, among other things, the amounts of royalty revenue we receive from our corporate partners; our ability to restructure our existing indebtedness; our ability
to maintain and improve sales of our existing product lines; our ability to successfully market and sell certain new products and technologies; our ability to research, develop and successfully launch new products and technologies; our ability to
improve our gross profit margins through realization of lower research and development and general and administrative expenditures, lower manufacturing costs and efficiencies or improved product sales mix; our ability to effectively control our
various operating costs; and foreign currency fluctuations.

Our working capital and funding needs may vary significantly depending upon a
number of factors including, but not limited to, the level of royalty revenue we receive from corporate partners; our levels of sales and gross profit; costs associated with our manufacturing operations, including capital expenditures, labor and raw
materials costs, and our ability to realize manufacturing efficiencies from our various operations; fluctuations in certain working capital items, including inventory and accounts receivable, that may be necessary to support the growth of our
business or new product introductions; progress of our research and development programs and costs associated with completing clinical studies and the regulatory process; collaborative and license arrangements with third parties; the cost of filing,
prosecuting and enforcing our patent claims and other intellectual property rights; expenses associated with litigation; opportunities to in-license complementary technologies or potential acquisitions; potential milestone or other payments we may
make to licensors or corporate partners; and technological and market developments that impact our royalty revenue, sales levels or competitive position in the marketplace.

The decline in TAXUS royalty payments from BSC, the large amount of our outstanding indebtedness and the related cash interest payments due on such indebtedness, the current economic conditions affecting
our and our partners financial stability, as well as the capital expenditures required to develop the medical products segment of our business, among other factors, have magnified our working capital needs and funding shortages. Our revolving
credit facility and recently filed shelf registration statement (when declared effective by the SEC) provide us with the flexibility and time to explore longer-term options for our overall capital structure and working capital needs. See
Managements Discussion and Analysis of Financial Condition and Results of OperationsLiquidity and Capital Resources in this Quarterly Report on Form 10-Q. These longer-term options include one or more financial and strategic
alternatives, including a capital influx from one or more new investors and the restructuring of our outstanding indebtedness, but such efforts have not been successful to date due to our significant debt burden. Due to numerous factors that may
impact our future cash position, working capital and liquidity, as discussed below, and the significant cash that will be necessary to continue to service our current level of debt obligations, there can be no assurances that we will have adequate
liquidity and capital resources to satisfy our financial obligations beyond September 2010. If our cash flows are worse than expected, we may require additional funds in order to meet the funding requirements of our commercial operations for our
research and development programs, to satisfy certain contractual obligations, for other operating and capital requirements, for potential acquisitions or in-licensing of technologies, to satisfy milestone or other payment obligations due to
licensors or corporate partners, or to repay or refinance our indebtedness. Financing in addition to our credit facility may not be available, and even if available, may not be available on attractive or acceptable terms due to difficult credit
markets and other factors.

Future legislation or regulatory changes to, or consolidation in, the healthcare system may affect our
ability to sell our product profitably.

There have been, and we expect there will continue to be, a number of legislative and
regulatory proposals to change the healthcare system, and some could involve changes that could significantly affect our business. For example, the United States Senate Finance Committee recently approved a healthcare reform bill that would, if
enacted into law, impose an aggregate US$40 billion fee over a ten-year period on medical device manufacturers in the form of an annual tax on revenue based on market share. Efforts by governmental and third-party payers to reduce health care costs
or the announcement of legislative proposals or reforms to implement government controls could cause a reduction in sales or in the selling price of our products, which would seriously harm our business. Additionally, initiatives to reduce the cost
of healthcare have resulted in a consolidation trend in the healthcare industry, including



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hospitals. This in turn has resulted in greater pricing pressures and the exclusion of certain suppliers from certain market segments as consolidated groups such as group purchasing
organizations, independent delivery networks and large single accounts continue to consolidate purchasing decisions for some of our hospital customers. We expect that market demand, government regulation, and third-party reimbursement policies will
continue to change the worldwide healthcare industry, resulting in further business consolidations and alliances among our customers and competitors, which may reduce competition, exert further downward pressure on the prices of our products and may
adversely impact our business, financial condition or results of operations.



|Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds
|------- | -----------------------------------------------------------

None.



|Item 3. | Defaults Upon Senior Securities
|------- | -------------------------------

None.



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

None



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|Item 5. | Other Information
|------- | -----------------

RATIO OF EARNINGS TO FIXED CHARGES

The following table sets forth our ratios of earnings to fixed charges for the periods
indicated. In computing the ratios of earnings to fixed charges, earnings consist of income from continuing operations before income taxes plus fixed charges. Fixed charges include interest expense and amortization of capitalized expenses related to
indebtedness and the portion of lease rental expense representative of interest. We estimate the interest component of lease rental expense to be one-third of lease rental expense.



|                                                                                               |  |                                       |  |      |                                |      |  |                               |         |     |      |   |          |      |  |   |        |   |  |    
|---------------------------------------------------------------------------------------------- |  | ------------------------------------- |  | ---- | ------------------------------ | ---- |  | ----------------------------- | ------- | --- | ---- | - | -------- | ---- |  | - | ------ | - |  | ---
|                                                                                               |  | Year Ended December 31,(in
Thousands) |  |      | Three MonthsEndedSeptember 30, |      |  | Nine MonthsEndedSeptember 30,
|                                                                                               |  | 2004                                  |  | 2005 |                                | 2006 |  | 2007                          |         |     | 2008 |   |          | 2009 |  |   | 2009  
|Ratio of Earnings to Fixed Charges                                                             |  | 116.8                                 |  | 82.9 |                                | 1.6  |  |                               |        | (1) |      |   |         | (1)  |  |   | 0.4    |   |  | 1.0
|                                                                                               |  |                                       |  |      |                                |      | 
|Deficiency of Earnings Available to Cover Fixed Charges                                        |  |                                      |  |     |                                |     |  | $                             | (70,592 | )   |      | $ | (754,068 | )    |  | $ | (5,740 | ) |  |   
|                                                                                               |  |                                       |  |      |                                |      | 
|Ratio of Combined Fixed Charges and Preferred Share Dividends to Earnings                      |  | 116.8                                 |  | 82.9 |                                | 1.6  |  |                               |        | (1) |      |   |         | (1)  |  |   | 0.4    |   |  | 1.0
|                                                                                               |  |                                       |  |      |                                |      | 
|Deficiency of Earnings Available to Cover Combined Fixed Charges and Preferred Share Dividends |  |                                      |  |     |                                |     |  | $                             | (70,592 | )   |      | $ | (754,068 | )    |  | $ | (5,740 | ) |  |   



|(1) | Our earnings during this period were insufficient to cover fixed charges and, accordingly, ratios are not presented.
|--- | --------------------------------------------------------------------------------------------------------------------



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|Item 6. | Exhibits
|------- | --------

The following
Exhibits are filed as a part of this report:



|              |  |                                                                                                                                                      
|------------- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------
|ExhibitNumber |  | Description                                                                                                                                          
|10.1          |  | Form of Indemnification Agreement for US Officers                                                                                                    
|              | 
|10.2          |  | Form of Indemnification Agreement for Canadian Officers                                                                                              
|              | 
|10.3          |  | Form of Indemnification Agreement for Canadian Directors                                                                                             
|              | 
|10.4          |  | Form of Indemnification Agreement for US Directors                                                                                                   
|              | 
|31.1          |  | Certification of CEO Pursuant to Securities Exchange Act Rules 13a-14 and 15d-14 as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
|              | 
|31.2          |  | Certification of CFO Pursuant to Securities Exchange Act Rules 13a-14 and 15d-14 as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
|              | 
|32.1          |  | Certification of CEO and CFO Pursuant to 18 U.S.C. Section 1350 as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002                 





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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.



|                       |  |                                 |  |                                                          
|---------------------- |  | ------------------------------- |  | ---------------------------------------------------------
|                       |  | Angiotech Pharmaceuticals, Inc.
|                       |  |                                
|Date: November 9, 2009 |  | By:                             |  | /s/ K. Thomas Bailey                                     
|                       |  |                                 |  | K. Thomas Bailey                                         
|                       |  |                                 |  | (Principal Financial Officer and Duly Authorized Officer)



63