##### Table of Contents





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 March 31, 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.

85,121,983 Common Shares, no par value, as of May 5, 2009









---

##### Table of Contents

ANGIOTECH PHARMACEUTICALS, INC.

QUARTERLY REPORT ON FORM 10-Q

For
the Three Months Ended March 31, 2009

TABLE OF CONTENTS



|           |  |                                                                                                      |  |     
|---------- |  | ---------------------------------------------------------------------------------------------------- |  | ----
|           |  |                                                                                                      |  | Page
|           |  | PART IFINANCIAL INFORMATION                                                                         |  |     
|           |  |                                                                                                     
|Item 1     |  | Financial Statements:                                                                                |  |     
|           |  |                                                                                                     
|           |  | Consolidated Balance Sheets as of March 31, 2009 (unaudited) and December 31, 2008                   |  | 1   
|           |  |                                                                                                     
|           |  | Consolidated Statements of Operations for the Three Months Ended March 31, 2009 and 2008
(unaudited) |  | 2   
|           |  |                                                                                                     
|           |  | Consolidated Statements of Stockholders Equity (Deficit) as of March 31, 2009 and 2008
(unaudited)  |  | 3   
|           |  |                                                                                                     
|           |  | Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2009 and 2008
(unaudited) |  | 4   
|           |  |                                                                                                     
|           |  | Notes to Unaudited Consolidated Financial Statements                                                 |  | 5   
|           |  |                                                                                                     
|Item 2     |  | Managements Discussion and Analysis of Financial Condition and Results of Operations                |  | 27  
|           |  |                                                                                                     
|Item 3     |  | Quantitative and Qualitative Disclosures about Market Risk                                           |  | 46  
|           |  |                                                                                                     
|Item 4     |  | Controls and Procedures                                                                              |  | 47  
|           |  |                                                                                                     
|           |  | PART IIOTHER INFORMATION                                                                            |  |     
|           |  |                                                                                                     
|Item 1     |  | Legal Proceedings                                                                                    |  | 48  
|           |  |                                                                                                     
|Item 1A    |  | Risk Factors                                                                                         |  | 49  
|           |  |                                                                                                     
|Item 2     |  | Unregistered Sales of Equity Securities and Use of Proceeds                                          |  | 66  
|           |  |                                                                                                     
|Item 3     |  | Defaults Upon Senior Securities                                                                      |  | 66  
|           |  |                                                                                                     
|Item 4     |  | Submission of Matters to a Vote of Security Holders                                                  |  | 66  
|           |  |                                                                                                     
|Item 5     |  | Other Information                                                                                    |  | 66  
|           |  |                                                                                                     
|Item 6     |  | Exhibits                                                                                             |  | 66  
|           | 
|SIGNATURES |  | 67                                                                                                  



---

##### 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)



|                                                        |  |               |          |   |                  |   |          |  
|------------------------------------------------------- |  | ------------- | -------- | - | ---------------- | - | -------- | -
|                                                        |  | March 31,2009 |          |   | December 31,2008 |  
|ASSETS                                                  |  |               |          |   |                  |   |          |  
|Current assets                                          |  |               |          |   |                  |   |          |  
|                                                        |  |              
|Cash and cash equivalents [note 5]                      |  | $             | 64,523   |   |                  | $ | 38,952   |  
|Short-term investments [note 6]                         |  |               | 1,695    |   |                  |   | 848      |  
|Accounts receivable                                     |  |               | 28,270   |   |                  |   | 25,524   |  
|Inventories [note 7]                                    |  |               | 39,530   |   |                  |   | 38,594   |  
|Deferred income taxes, current portion                  |  |               | 3,834    |   |                  |   | 3,820    |  
|Prepaid expenses and other current assets               |  |               | 3,842    |   |                  |   | 5,234    |  
|                                                        |  |               |          |   |                  |   |          |  
|Total current assets                                    |  |               | 141,694  |   |                  |   | 112,972  |  
|                                                        |  |               |          |   |                  |   |          |  
|Long-term investments                                   |  |               | 1,561    |   |                  |   | 1,561    |  
|Assets held for sale                                    |  |               | 8,422    |   |                  |   | 8,422    |  
|Property, plant and equipment [note 8]                  |  |               | 47,860   |   |                  |   | 49,108   |  
|Intangible assets [note 9]                              |  |               | 187,224  |   |                  |   | 195,477  |  
|Deferred financing costs [note 11]                      |  |               | 13,692   |   |                  |   | 11,363   |  
|Other assets                                            |  |               | 708      |   |                  |   | 6,294    |  
|                                                        |  |               |          |   |                  |   |          |  
|Total assets                                            |  | $             | 401,161  |   |                  | $ | 385,197  |  
|                                                        |  |               |          |   |                  |   |          |  
|LIABILITIES AND STOCKHOLDERS DEFICIT                   |  |               |          |   |                  |   |          |  
|                                                        |  |              
|Current liabilities                                     |  |               |          |   |                  |   |          |  
|Accounts payable and accrued liabilities [note 10]      |  | $             | 48,055   |   |                  | $ | 46,620   |  
|Income taxes payable                                    |  |               | 7,011    |   |                  |   | 8,071    |  
|Interest payable on long-term debt                      |  |               | 11,091   |   |                  |   | 6,514    |  
|Deferred revenue, current portion                       |  |               | 210      |   |                  |   | 210      |  
|                                                        |  |               |          |   |                  |   |          |  
|Total current liabilities                               |  |               | 66,367   |   |                  |   | 61,415   |  
|                                                        |  |               |          |   |                  |   |          |  
|                                                        |  |              
|Deferred revenue                                        |  |               | 947      |   |                  |   | 999      |  
|Deferred leasehold inducement                           |  |               | 3,127    |   |                  |   | 2,780    |  
|Deferred income taxes                                   |  |               | 38,955   |   |                  |   | 40,577   |  
|Other tax liabilities                                   |  |               | 3,160    |   |                  |   | 3,145    |  
|Long-term debt [note 11]                                |  |               | 575,000  |   |                  |   | 575,000  |  
|Other liabilities                                       |  |               | 953      |   |                  |   | 1,154    |  
|                                                        |  |               |          |   |                  |   |          |  
|Total non-current liabilities                           |  |               | 622,142  |   |                  |   | 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:                   |  |               |          |   |                  |   |          |  
|March 31, 2009  85,121,983                             |  |               |          |   |                  |   |          |  
|December 31, 2008  85,121,983                          |  |               | 472,739  |   |                  |   | 472,739  |  
|Additional paid-in capital                              |  |               | 32,493   |   |                  |   | 32,107   |  
|Accumulated deficit                                     |  |               | (831,229 | ) |                  |   | (843,673 | )
|Accumulated other comprehensive income                  |  |               | 38,649   |   |                  |   | 38,954   |  
|                                                        |  |               |          |   |                  |   |          |  
|Total stockholders deficit                             |  |               | (287,348 | ) |                  |   | (299,873 | )
|                                                        |  |               |          |   |                  |   |          |  
|Total liabilities and stockholders deficit             |  | $             | 401,161  |   |                  | $ | 385,197  |  
|                                                        |  |               |          |   |                  |   |          |  

See accompanying notes to the consolidated financial statements



1



---

##### 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 EndedMarch 31, |        
|                                                                            |  | 2009                        |         |   | 2008 |  
|REVENUE                                                                     |  |                             |         |   |      |   |         |  
|Royalty revenue                                                             |  | $                           | 17,111  |   |      | $ | 28,929  |  
|Product sales, net                                                          |  |                             | 46,136  |   |      |   | 47,727  |  
|License fees                                                                |  |                             | 25,053  |   |      |   | 53      |  
|                                                                            |  |                             |         |   |      |   |         |  
|                                                                            |  |                             | 88,300  |   |      |   | 76,709  |  
|                                                                            |  |                             |         |   |      |   |         |  
|EXPENSES                                                                    |  |                             |         |   |      |   |         |  
|License and royalty fees                                                    |  |                             | 2,905   |   |      |   | 4,371   |  
|Cost of products sold                                                       |  |                             | 23,966  |   |      |   | 25,849  |  
|Research and development                                                    |  |                             | 6,097   |   |      |   | 16,305  |  
|Selling, general and administration                                         |  |                             | 19,572  |   |      |   | 27,843  |  
|Depreciation and amortization                                               |  |                             | 8,265   |   |      |   | 8,477   |  
|In-process research and development                                         |  |                             |        |   |      |   | 2,500   |  
|                                                                            |  |                             |         |   |      |   |         |  
|                                                                            |  |                             | 60,805  |   |      |   | 85,345  |  
|                                                                            |  |                             |         |   |      |   |         |  
|                                                                            |  |                            
|Operating income (loss)                                                     |  |                             | 27,495  |   |      |   | (8,636  | )
|                                                                            |  |                             |         |   |      |   |         |  
|                                                                            |  |                            
|Other income (expenses):                                                    |  |                             |         |   |      |   |         |  
|Foreign exchange gain                                                       |  |                             | 732     |   |      |   | 423     |  
|Investment and other (expense) income                                       |  |                             | (15     | ) |      |   | 756     |  
|Interest expense on long-term debt                                          |  |                             | (10,044 | ) |      |   | (12,120 | )
|                                                                            |  |                             |         |   |      |   |         |  
|Total other expenses                                                        |  |                             | (9,327  | ) |      |   | (10,941 | )
|                                                                            |  |                             |         |   |      |   |         |  
|                                                                            |  |                            
|Income (loss) before income taxes                                           |  |                             | 18,168  |   |      |   | (19,577 | )
|Income tax expense (recovery)                                               |  |                             | 5,724   |   |      |   | (3,814  | )
|                                                                            |  |                             |         |   |      |   |         |  
|Net income (loss)                                                           |  | $                           | 12,444  |   |      | $ | (15,763 | )
|                                                                            |  |                             |         |   |      |   |         |  
|Basic net income (loss) per common share:                                   |  | $                           | 0.15    |   |      | $ | (0.19   | )
|Diluted net income (loss) per common share:                                 |  | $                           | 0.14    |   |      | $ | (0.19   | )
|                                                                            |  |                             |         |   |      |   |         |  
|                                                                            |  |                            
|Basic weighted average number of common shares outstanding (in thousands)   |  |                             | 85,121  |   |      |   | 85,106  |  
|Diluted weighted average number of common shares outstanding (in thousands) |  |                             | 87,414  |   |      |   | 85,106  |  
|                                                                            |  |                             |         |   |      |   |         |  

See accompanying notes to the consolidated financial statements



2



---

##### 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  |  
|                                                                         |        |               |        |                   |         |             |         |        |                               |        |          |               |        |   |                    |           |  |   |         |   |  |   |          |  
|                                                                         |        |               |        |                   |         |            
|                                                                         |        | 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 | )
|                                                                         |        |               |        |                   |         |             |         |        |                               |        |          |               |        |   |                    |           |  |   |         |   |  |   |          |  

See accompanying notes to the consolidated financial statements



3



---

##### Table of Contents

Angiotech Pharmaceuticals, Inc.

CONSOLIDATED STATEMENTS OF CASH FLOWS

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

(Unaudited)



|                                                                              |  |                             |        |   |      |   |         |  
|----------------------------------------------------------------------------- |  | --------------------------- | ------ | - | ---- | - | ------- | -
|                                                                              |  | Three Months EndedMarch 31, |       
|                                                                              |  | 2009                        |        |   | 2008 |  
|OPERATING ACTIVITIES                                                          |  |                             |        |   |      |   |         |  
|Net income (loss)                                                             |  | $                           | 12,444 |   |      | $ | (15,763 | )
|Adjustments to reconcile net loss to cash provided by operating activities:   |  |                             |        |   |      |   |         |  
|Depreciation and amortization                                                 |  |                             | 9,108  |   |      |   | 9,474   |  
|Unrealized foreign exchange gain                                              |  |                             | (146   | ) |      |   | (12     | )
|Deferred leasehold inducements                                                |  |                             | (59    | ) |      |   | (59     | )
|Deferred income taxes                                                         |  |                             | (1,583 | ) |      |   | (5,680  | )
|Stock-based compensation expense                                              |  |                             | 386    |   |      |   | 817     |  
|Deferred revenue                                                              |  |                             | (53    | ) |      |   | (53     | )
|Non-cash interest expense                                                     |  |                             | 618    |   |      |   | 558     |  
|In-process research and development                                           |  |                             |       |   |      |   | 2,500   |  
|Other                                                                         |  |                             | 44     |   |      |   |        |  
|Net change in non-cash working capital items relating to operations [note 18] |  |                             | 9,231  |   |      |   | (8,224  | )
|                                                                              |  |                             |        |   |      |   |         |  
|Cash provided by (used in) operating activities                               |  |                             | 29,990 |   |      | $ | (16,442 | )
|                                                                              |  |                             |        |   |      |   |         |  
|                                                                              |  |                            
|INVESTING ACTIVITIES                                                          |  |                             |        |   |      |   |         |  
|Purchase of property, plant and equipment                                     |  |                             | (743   | ) |      |   | (3,397  | )
|In-process research and development                                           |  |                             |       |   |      |   | (2,500  | )
|Other                                                                         |  |                             | 239    |   |      |   | 69      |  
|                                                                              |  |                             |        |   |      |   |         |  
|Cash used in investing activities                                             |  |                             | (504   | ) |      | $ | (5,828  | )
|                                                                              |  |                             |        |   |      |   |         |  
|                                                                              |  |                            
|FINANCING ACTIVITIES                                                          |  |                             |        |   |      |   |         |  
|Deferred financing charges and costs                                          |  |                             | (4,190 | ) |      |   |        |  
|Proceeds from stock options exercised                                         |  |                             |       |   |      |   | 121     |  
|                                                                              |  |                             |        |   |      |   |         |  
|Cash (used in) provided by financing activities                               |  |                             | (4,190 | ) |      | $ | 121     |  
|                                                                              |  |                             |        |   |      |   |         |  
|Effect of exchange rate changes on cash and cash equivalents                  |  |                             | 275    |   |      |   | 615     |  
|Net increase (decrease) in cash and cash equivalents                          |  |                             | 25,571 |   |      |   | (21,534 | )
|Cash and cash equivalents, beginning of period                                |  |                             | 38,952 |   |      |   | 91,326  |  
|                                                                              |  |                             |        |   |      |   |         |  
|Cash and cash equivalents, end of period                                      |  | $                           | 64,523 |   |      | $ | 69,792  |  
|                                                                              |  |                             |        |   |      |   |         |  

See accompanying notes to the consolidated financial statements



4



---

##### 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
|-- | ---------------------

We prepared these unaudited
interim consolidated financial statements 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 our Annual Report on Form 10-K, as amended by our 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 March 31, 2009 and for all
periods presented, have been made. The results of operations for the three months ended March 31, 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.



|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, as amended by our Form 10-K/A, filed with the SEC.

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, determining stock-based compensation
expense and reviewing long-lived assets for impairment. Actual results may differ materially from these estimates.

a) 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
three months ended March 31, 2009, we reported a balance of cash and cash equivalents (cash resources) of $64.5 million, which represented a net increase in cash resources of $25.5 million as compared to December 31, 2008.
During the three months ended March 31, 2009, operating activities provided $30.0 million and we used $0.5 million to fund capital expenditures (mainly property, plant and equipment purchases) and $4.2 million for financing activities. Our cash
resources are used to support clinical studies, research and development initiatives, sales and marketing initiatives, working capital 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 departments.
| | - |  | ------------------------------------------------------------------------------------------------------------------------



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



5



---

##### Table of Contents

| |  |  | 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.
| | - |  | ------------------------------------------------------



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



| |  |  | Completed 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 in 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 the our Pharmaceutical Technologies segment improved by $13.2 million for the three months ended
March 31, 2009 as compared to the same period in 2008, primarily as a result of license fee income from Baxter of $25.0 million for an Amended and Restated Distribution and License Agreement. This increase was offset by $12.3 million 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. Under the royalty agreements 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 2009 and subsequent years.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Revenue from the Medical Products segment for the three months ended March 31, 2009 was $46.1 million compared to $47.7 million in the same period in 2008. The
current economic environment and increasingly difficult credit markets and liquidity environment may have an impact on our customers and therefore on our product sales in 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, with the expectation of strong growth during 2009. It is possible that the expected growth in revenue in 2009 for these newer product lines may not be achieved and revenues for other products may decline.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Our gross margins for product sales were 48% for the three months ended March 31, 2009 compared to 46% for the three months ended March 31, 2008. These
improvements are due primarily to improved product mix and sales of higher margin products, the impact of higher sales volumes on the absorption of fixed overhead and labour costs and the transfer of manufacturing to lower cost regions. During 2009,
we may have further changes in the mix or volume of products to be purchased by our customers. In addition, the new manufacturing facilities will be completing their initial full cycles of production. There can be no assurance that these gross
margin improvements will continue in the remainder of 2009 or thereafter.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | 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 expect that some limited future costs 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(c), on March 2, 2009 we announced we had obtained a financing commitment from Wells Fargo. The financing includes a delayed draw secured
term loan facility of up to $10 million and a secured revolving credit facility, with a borrowing base comprised of certain of our finished goods inventory and accounts receivable, providing up to an additional $22.5 million, subject to certain
terms and conditions. As of March 31, 2009, there were no borrowings outstanding under either of the term loan facility or the revolving credit facility. The term loan and the secured credit facility include certain covenants and restrictions
with respect to our operations and require us to maintain certain levels of EBITDA and interest coverage ratios, among other terms and conditions. These covenants may limit our ability to borrow under the secured term loan and revolving credit
facility or may require repayment. While we expect to be able to maintain the EBITDA and interest coverage covenants during 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 term loan and the revolving credit facility.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



6



---

##### Table of Contents

| |  |  | Our future interest payments related to our existing long-term debt continues to be significant. During the three months ended March 31, 2009, we incurred
interest expense of $10.0 million on the outstanding long-term debt obligations, as compared to $12.1 million for the same period in 2008. Additional interest expense will be incurred if the term loan or the revolving credit facility described above
are utilized. The Senior Floating Rate Notes due 2013 (Floating Rate Notes) reset quarterly to an interest rate of 3-month LIBOR plus 3.75% and bear an interest rate of 5.02% at March 31, 2009 compared to 6.83% at March 31,
2008. Volatility in the LIBOR rates and interest rates 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 rate will continue throughout fiscal 2009. Changes
in the LIBOR rate will affect interest costs.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | The Company is significantly leveraged and has 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 favourable 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.

b) Recently adopted accounting policies

In December 2007, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards (SFAS) No. 141 (Revised 2007), Business Combinations, or SFAS No. 141(R). SFAS
No. 141(R) will change the accounting for business combinations. Under SFAS No. 141(R), an acquiring entity will be required to recognize all the assets acquired and liabilities assumed in a transaction at the acquisition-date fair value
with limited exceptions. SFAS No. 141(R) will change the accounting treatment and disclosure for certain specific items in a business combination. SFAS No. 141(R) 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. We have adopted this standard but the impact on accounting for business combinations will be dependent upon future acquisitions.

On April 1, 2009, the FASB issued FASB Staff Position (FSP) FAS No. 141(R)-1, Accounting for Assets Acquired and
Liabilities Assumed in a Business Combination That Arise from Contingencies, to amend and clarify the initial recognition and measurement, subsequent measurement and accounting, and related disclosures arising from contingencies in a business
combination under SFAS No. 141(R). FSP FAS No. 141(R)-1 applies to all assets acquired and liabilities assumed in a business combination that arise from contingencies that would be within the scope of FAS No. 5 if not acquired or assumed
in a business combination, except for assets or liabilities arising from contingencies that are subject to specific guidance in FAS 141(R). We have adopted this standard but the impact on accounting for business combinations will be dependent upon
future acquisitions.

In December 2007, the FASB issued SFAS No. 160, Noncontrolling Interests in Consolidated Financial
StatementsAn Amendment of ARB No. 51, or SFAS No. 160. SFAS No. 160 establishes new accounting and reporting standards for the noncontrolling interest in a subsidiary and for the deconsolidation of a subsidiary. SFAS
No. 160 is effective for fiscal years beginning on or after December 15, 2008. Adopting this standard did not have a material impact on our consolidated balance sheets, results of operations or cash flows.

In November 2007, the Emerging Issues Task Force issued EITF Issue 07-01, Accounting for Collaborative Arrangements or EITF Issue 07-01. EITF Issue 07-01
requires collaborators to present the results of activities for which they act as the principal on a gross basis and report any payments received from (made to) other collaborators based on other applicable GAAP or, in the absence of other
applicable GAAP, based on analogy to authoritative accounting literature or a reasonable, rational, and consistently applied accounting policy election. Further, EITF Issue 07-01 clarified that the determination of whether transactions within a
collaborative arrangement are part of a vendor-customer (or analogous) relationship subject to Issue 01-9, Accounting for Consideration Given by a Vendor to a Customer. EITF Issue 07-01 is effective for fiscal years beginning December 15, 2008.
Adoption of this standard has not had a material impact on our consolidated balance sheets, results of operations or cash flows.

In March
2008, the FASB issued SFAS No. 161, Disclosures about Derivative Instruments and Hedging Activities or SFAS No. 161. SFAS No. 161 amends and expands the disclosure requirements of SFAS No. 133, Accounting for Derivative
Instruments and Hedging Activities. It requires qualitative disclosures about objectives and strategies for using derivatives, quantitative disclosures about fair value amounts of gains and losses on derivative instruments, and disclosures about
credit-risk-related contingent features in derivative agreements. This statement is effective for financial statements issued for fiscal years beginning after November 15, 2008. Adopting this standard did not have a material impact on our
consolidated balance sheets, results of operations or cash flows.

In April 2008, the FASB issued FSP FAS No. 142-3, Determination of the
Useful Life of Intangible Assets, or FSP FAS No. 142-3. FSP FAS No. 142-3 amends the factors that should be considered in developing renewal or extension assumptions used to



7



---

##### Table of Contents

determine the useful life of a recognized intangible asset under SFAS No. 142, Goodwill and Other Intangible Assets. The intent of the position is to
improve the consistency between the useful life of a recognized intangible asset under SFAS No. 142 and the period of expected cash flows used to measure the fair value of the intangible asset. FSP FAS 142-3 is effective for fiscal years
beginning after December 15, 2008. Adoption of this standard has not had a material impact on our consolidated balance sheets, results of operations or cash flows.

In September 2008, the FASB issued FSP 133-1 and FASB Interpretation Number (FIN) 45-4, Disclosures about Credit Derivatives and Certain Guarantees: An Amendment of FASB Statement No. 133 and FASB Interpretation
No. 45; and Clarification of the Effective Date of FASB Statement No. 161. FSP 133-1 and FIN 45-4 amends disclosure requirements for sellers of credit derivatives and financial guarantees. It also clarifies the disclosure requirements of
SFAS No. 161 and is effective for quarterly periods beginning after November 15, 2008, and fiscal years that include those periods. Adoption of these standards has not had a material impact on our consolidated balance sheets, results of
operations or cash flows.

In December 2008, the FASB issued FSP SFAS No. 140-4 and FIN No. 46R-8, Disclosures by Public Entities
(Enterprises) about Transfers of Financial Assets and Interests in Variable Interest Entities. This statement increases the disclosure requirements regarding continuing involvement with financial assets that have been transferred, as well as the
companys involvement with variable interest entities. The FSP is effective for financial statements issued for interim periods ending after Dec. 15, 2008. Adoption of these standards has not had a material impact on our consolidated balance
sheets, results of operations or cash flows.

In June 2008, the EITF Issue 08-3, Accounting for Lessees for Maintenance Deposits under Lease
Arrangements, or EITF Issue 08-3 provides guidance for accounting for nonrefundable maintenance deposits. It also provides revenue recognition accounting guidance for the lessor. EITF Issue 08-3 is effective for fiscal years beginning after
December 15, 2008. Adopting this standard did not have a material impact on our consolidated balance sheets, results of operations or cash flows.

In June 2008, the EITF reached a consensus on EITF Issue 08-4, Transition Guidance for Conforming Changes to EITF Issue 98-5, Accounting for Convertible Securities with Beneficial Conversion Features or Contingently
Adjustable Conversion Ratios. Subsequent to the issuance of EITF Issue 98-5, certain portions of the guidance contained in EITF Issue 98-5 were nullified by EITF Issue 00-27, Application of EITF Issue 98-5, Accounting for Convertible Securities
with Beneficial Conversion Features or Contingently Adjustable Conversion Ratios. However, the portions of EITF Issue 98-5 that were nullified by EITF Issue 00-27 were not specifically identified in EITF Issue 98-5, nor were the illustrative
examples in EITF Issue 98-5 updated for the effects of EITF Issue 00-27. EITF Issue 08-4 specifically addresses the conforming changes to EITF Issue 98-5 and provides transition guidance for the conforming changes. Adoption of these standards has
not had a material impact on our consolidated balance sheets, results of operations or cash flows.

In June 2008, the FASB ratified EITF
Issue 07-5, Determining Whether an Instrument (or an Embedded Feature) is Indexed to an Entitys Own Stock. EITF Issue 07-5 provides that an entity should use a two step approach to evaluate whether an equity-linked financial instrument (or
embedded feature) is indexed to its own stock, including evaluating the instruments contingent exercise and settlement provisions. It also clarifies the impact of foreign currency denominated strike prices and market-based employee stock
option valuation instruments on the evaluation. EITF Issue 07-5 is effective for fiscal years beginning after December 15, 2008. Adoption of these standards has not had a material impact on our consolidated balance sheets, results of operations
or cash flows.

In September 2008, the FASB ratified EITF Issue 08-5, Issuers Accounting for Liabilities Measured at Fair Value With a
Third-Party Credit Enhancement. EITF Issue 08-5 provides guidance for measuring liabilities issued with an attached third-party credit enhancement (such as a guarantee). It clarifies that the issuer of a liability with a third-party credit
enhancement should not include the effect of the credit enhancement in the fair value measurement of the liability. EITF Issue 08-5 is effective for the first reporting period beginning after December 15, 2008. Adoption of these standards has
not had a material impact on our consolidated balance sheets, results of operations or cash flows.

In November 2008, the EITF Issue 08-6,
Equity method Investment Accounting Considerations, or EITF Issue 08-6 addresses a number of matters associated with the impact of SFAS No. 141(R) and SFAS No. 160 on the accounting for equity method investments including initial
recognition and measurement and subsequent measurement issues. EITF Issue 08-6 is effective, on a prospective basis, for fiscal years beginning after December 15, 2008 and interim periods within those fiscal years. Adopting this standard did
not have a material impact on our consolidated balance sheets, results of operations or cash flows.

In November 2008, the EITF Issue 08-07,
Accounting for Defensive Intangible Assets, or EITF Issue 08-7 provides guidance for accounting for defensive intangible assets subsequent to their acquisition in accordance with SFAS No. 141R and SFAS No. 157 including the estimated
useful life that should be assigned to such assets. EITF Issue 08-7 is effective for intangible assets acquired on or after the beginning of the first annual reporting period beginning on or after December 15, 2008. We have adopted this
standard and the impact on accounting for defensive intangible assets will be dependent upon future acquisitions.



8



---

##### Table of Contents

On January 12, 2009, the FASB issued FSP EITF No. 99-20-1, Amendments to the Impairment Guidance of
EITF Issue 99-20. The FSP eliminates the requirement that a holders best estimate of cash flows be based upon those that a market participant would use. Instead, the FSP requires that an other-than-temporary impairment be
recognized through earnings when it is probable that there has been an adverse change in the holders estimated cash flows from the cash flows previously projected. The Staff Position is effective for the first interim period or fiscal year
ending after December 15, 2008, and each interim and annual period thereafter. Retroactive application to a prior interim period is not permitted. Adoption of these standards has not had a material impact on our consolidated balance sheets,
results of operations or cash flows.



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

In April 2009,
the FASB issued FSP FAS No. 107-1 and APB 28-1, Interim Disclosures about Fair Value of Financial Instruments, or FSP FAS 107-1. FSP FAS 107-1 amends the disclosure requirements of 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. FSP FAS 107 requires public companies to disclosure the fair value of its financial instruments whenever it issues summarized financial information
for interim reporting periods. FSP FAS No. 107-1 is effective for interim periods beginning after June 15, 2009. We have not yet completed our evaluation of FSP FAS No. 107-1.

In April 2009, the FASB issued FSP FAS No. 115-2 and FAS No. 124-2, Recognition and Presentation of Other-than-Temporary Impairments, or FSP FAS No.
115-2. FSP FAS No. 115-2 amends the impairment guidance for certain debt securities and will require an investor to assess the likelihood of selling the security prior to recovering the cost basis. If the investor is able to meet the criteria to
assert 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. FSP FAS 115-2 is effective for interim periods beginning after June 15, 2009.
We have not yet completed our evaluation of FSP FAS 115-2.

In April 2009, the FASB issued FSP FAS No. 157-4, Determining Fair Value When
the Volume and Level of Activity for Asset or Liability have significantly Decreased and Identifying Transactions that are Not Orderly, or FSP FAS No. 157-4. FSP FAS No. 157-4 amends FAS No. 157, Fair Value Measurements, to provide 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. FSP FAS No. 157-4 provides additional
guidance on how fair value measurements might be determined in an active market. FSP FAS No. 157-4 is effective for interim periods beginning after June 15, 2009 and shall be applied prospectively. We are still assessing the impact of this
pronouncement.



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

For
certain of our financial assets, and liabilities, including cash and cash equivalents, accounts receivable, accounts payable and accrued liabilities, and interest payable, the carrying amounts approximate fair value due to their short-term nature.
The fair value of the short-term investments approximates $1.6 million as at March 31, 2009 (December 31, 2008 - $0.8 million). The total fair value of the long-term debt approximates $283.8 million (December 31, 2008 - $224.2 million) and has
a carrying value of $575.0 million as at March 31, 2009 and as at December 31, 2008.

The fair values of the short-term
investments and long-term debt is based on quoted market prices at March 31, 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 5.02%. We do not use derivatives to hedge against interest rate risks.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | 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. 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 March 31, 2009, accounts receivable is net of an allowance for
uncollectible accounts of $258,000 (December 31, 2008  $270,000).
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



9



---

##### Table of Contents

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

Cash and cash
equivalents includes the following:



|                 |  |               |        |                  |   |       
|---------------- |  | ------------- | ------ | ---------------- | - | ------
|                 |  | March 31,2009 |        | December 31,2008
|U.S. dollars     |  | $             | 54,973 |                  | $ | 21,866
|Canadian dollars |  |               | 2,191  |                  |   | 3,942 
|Swiss franc      |  |               | 2,196  |                  |   | 3,053 
|Euro             |  |               | 2,753  |                  |   | 5,263 
|Danish krone     |  |               | 824    |                  |   | 2,022 
|Other            |  |               | 1,586  |                  |   | 2,806 
|                 |  |               |        |                  |   |       
|                 |  | $             | 64,523 |                  | $ | 38,952
|                 |  |               |        |                  |   |       



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



|                                     |  |      |     |                       |   |                |  |   |      
|------------------------------------ |  | ---- | --- | --------------------- | - | -------------- |  | - | -----
|March 31, 2009                       |  | Cost |     | Gross UnrealizedGains |   | Carrying value
|Short-term investments:              |  |      |     |                       |   |                |  |   |      
|Available-for-sale equity securities |  | $    | 848 |                       | $ | 847            |  | $ | 1,695
|                                     |  |      |     |                       |   |                |  |   |      
|                                     |  |      |    
|December 31, 2008                    |  | Cost |     | Gross UnrealizedGains |   | Carrying value
|Short-term investments:              |  |      |     |                       |   |                |  |   |      
|Available-for-sale equity securities |  | $    | 848 |                       | $ |               |  | $ | 848  
|                                     |  |      |     |                       |   |                |  |   |      



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



|                |  |               |        |                  |   |       
|--------------- |  | ------------- | ------ | ---------------- | - | ------
|                |  | March 31,2009 |        | December 31,2008
|Raw materials   |  | $             | 9,434  |                  | $ | 10,357
|Work in process |  |               | 14,740 |                  |   | 12,232
|Finished goods  |  |               | 15,356 |                  |   | 16,005
|                |  |               |        |                  |   |       
|                |  | $             | 39,530 |                  | $ | 38,594
|                |  |               |        |                  |   |       



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



|                               |  |      |        |                         |   |               |  |   |       
|------------------------------ |  | ---- | ------ | ----------------------- | - | ------------- |  | - | ------
|March 31, 2009                 |  | Cost |        | AccumulatedDepreciation |   | Net bookvalue
|Land                           |  | $    | 4,741  |                         | $ |              |  | $ | 4,741 
|Buildings                      |  |      | 14,047 |                         |   | 1,330         |  |   | 12,717
|Leasehold improvements         |  |      | 18,060 |                         |   | 5,381         |  |   | 12,679
|Manufacturing equipment        |  |      | 19,206 |                         |   | 6,814         |  |   | 12,392
|Research equipment             |  |      | 7,282  |                         |   | 4,607         |  |   | 2,675 
|Office furniture and equipment |  |      | 4,256  |                         |   | 3,163         |  |   | 1,093 
|Computer equipment             |  |      | 8,402  |                         |   | 6,839         |  |   | 1,563 
|                               |  |      |        |                         |   |               |  |   |       
|                               |  | $    | 75,994 |                         | $ | 28,134        |  | $ | 47,860
|                               |  |      |        |                         |   |               |  |   |       



10



---

##### Table of Contents

|                               |  |      |        |                         |   |               |  |   |       
|------------------------------ |  | ---- | ------ | ----------------------- | - | ------------- |  | - | ------
|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
months ended March 31, 2009 amounted to $1.8 million (March 31, 2008 - $1.9 million).



|9. | INTANGIBLE ASSETS
|-- | -----------------



|                         |  |      |         |                         |   |               |  |   |        
|------------------------ |  | ---- | ------- | ----------------------- | - | ------------- |  | - | -------
|March 31, 2009           |  | Cost |         | Accumulatedamortization |   | Net bookvalue
|Acquired technologies    |  | $    | 128,061 |                         | $ | 55,400        |  | $ | 72,661 
|Customer relationships   |  |      | 110,037 |                         |   | 34,661        |  |   | 75,376 
|In-licensed technologies |  |      | 55,606  |                         |   | 25,765        |  |   | 29,841 
|Trade names and other    |  |      | 14,234  |                         |   | 4,888         |  |   | 9,346  
|                         |  |      |         |                         |   |               |  |   |        
|                         |  | $    | 307,938 |                         | $ | 120,714       |  | $ | 187,224
|                         |  |      |         |                         |   |               |  |   |        
|                         |  |      |        
|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
|                         |  |      |         |                         |   |               |  |   |        

Amortization expense for the three months ended March 31, 2009 amounted to $7.4 million (March
31, 2008 - $8.0 million).



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



|                                 |  |                |        |                   |   |       
|-------------------------------- |  | -------------- | ------ | ----------------- | - | ------
|                                 |  | March 31, 2009 |        | December 31, 2008
|Trade accounts payable           |  | $              | 7,913  |                   | $ | 4,700 
|Accrued license and royalty fees |  |                | 6,596  |                   |   | 4,196 
|Employee-related accruals        |  |                | 14,118 |                   |   | 17,382
|Accrued professional fees        |  |                | 6,729  |                   |   | 9,888 
|Accrued contract research        |  |                | 2,440  |                   |   | 2,121 
|Other accrued liabilities        |  |                | 10,259 |                   |   | 8,333 
|                                 |  |                |        |                   |   |       
|                                 |  | $              | 48,055 |                   | $ | 46,620
|                                 |  |                |        |                   |   |       



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



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



|                                                     |  |                |         |                   |   |        
|---------------------------------------------------- |  | -------------- | ------- | ----------------- | - | -------
|                                                     |  | March 31, 2009 |         | December 31, 2008
|Senior Floating Rate Notes                           |  | $              | 325,000 |                   | $ | 325,000
|7.75% Senior Subordinated Notes                      |  |                | 250,000 |                   |   | 250,000
|Term Loan and Revolving Credit Facility (Note 11(c)) |  |                |        |                   |   |       
|                                                     |  |                |         |                   |   |        
|                                                     |  | $              | 575,000 |                   | $ | 575,000
|                                                     |  |                |         |                   |   |        



11



---

##### Table of Contents

| | (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.



|                                                      |  |      |        |                         |   |               |  |   |       
|----------------------------------------------------- |  | ---- | ------ | ----------------------- | - | ------------- |  | - | ------
|March 31, 2009                                        |  | Cost |        | AccumulatedAmortization |   | Net BookValue
|Debt issuance costs relating to:                      |  |      |        |                         |   |               |  |   |       
|Senior Floating Rate Notes                            |  | $    | 8,000  |                         | $ | 2,645         |  | $ | 5,355 
|7.75% Senior Subordinated Notes                       |  |      | 8,718  |                         |   | 3,269         |  |   | 5,449 
|Term Loan and Revolving Credit Facility (Note 11 (c)) |  |      | 2,947  |                         |   | 59            |  |   | 2,888 
|                                                      |  |      |        |                         |   |               |  |   |       
|                                                      |  | $    | 19,665 |                         | $ | 5,973         |  | $ | 13,692
|                                                      |  |      |        |                         |   |               |  |   |       
|                                                      |  |      |       
|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) | Term Loan and Revolving Credit Facility
| | --- | ---------------------------------------

On
March 2, 2009, we announced that we had completed a financing transaction with Wells Fargo Foothill LLC. The financing includes a delayed draw secured term loan facility of up to $10 million and a secured revolving credit facility, with a
borrowing base comprised 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. As of March 31, 2009, there were no
borrowings outstanding under either the term loan facility or the revolving credit facility.

At any time, the amount of financing available
under the revolving credit facility may be significantly less than $22.5 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 term
loan and revolving credit facility bear interest ranging from LIBOR + 3.25% to LIBOR +3.75%, with a minimum Base LIBOR Rate of 2.25%. As the minimum Base LIBOR Rate under the term loan and revolving credit facility is 2.25% and the LIBOR rate was
1.19% on March 31, 2009, a 0.5% increase or decrease in the LIBOR rate as of March 31, 2009 would have no impact on interest payable under the credit facilities.

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



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

For the three months ended
March 31, 2009 we recorded an income tax expense of $5.7 million compared to an income tax recovery of $3.8 million for the three months ended March 31, 2008. The income tax expense for the three months ended March 31, 2009 is
primarily due to the recognition of prepaid taxes in connection with the intellectual property subject to the licensing transaction with Baxter, a net earnings from operations and the amortization of identifiable intangible assets.

The effective tax rate for the three months ended March 31, 2009 was 31.5% compared to an effective tax rate of 19.5% for the same period in 2008.
The effective tax rate for the current period is higher than the statutory Canadian tax rate of 30.0% and is primarily due to the net effect of higher tax rates on earnings in foreign jurisdictions and valuation allowances on net operating losses.



12



---

##### Table of Contents

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

During the three months ended
March 31, 2009, we issued nil (March 31, 2008  48,000) 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,
Board of 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 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 grandfathered from the 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 2 to 4 years. Any one person is permitted, subject to the approval of the Board of Directors, to receive options and tandem
SARs to acquire up to 5% of our issued and outstanding common shares.

A summary of CDN 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 |                                  | $ |     
|                                                   |  |                      |   |  |                                         |       |                                                  |      |                                  |   |      
|Exercisable and expected to vest at March 31, 2008 |  | 6,272,728            |   |  | $                                       | 16.60 |                                                  | 2.75 |                                  | $ |     
|                                                   |  |                      |   |  |                                         |       |                                                  |      |                                  |   |      
|                                                   |  |                      |   | 
|                                                   |  | 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   
|                                                   |  |                      |   |  |                                         |       |                                                  |      |                                  |   |      

These options expire at various dates from June 5, 2009 to March 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 |                                   | $ | 
|                                                   |  |                      |  |                                          |       |                                                  |      |                                   |   |  



13



---

##### 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 
|                                                   |  |                      |  |                                          |      |                                                  |      |                                   |   |    

These options expire at various dates from January 26, 2010 to March 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 upon
exercise. 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 |                                   | $ | 
|                                                    |  |                      |   |  |                                          |       |                                                  |      |                                   |   |  
|                                                    |  |                      |   | 
|                                                    |  | 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 |                                   | $ | 
|                                                    |  |                      |   |  |                                          |       |                                                  |      |                                   |   |  

These options expire on March 8, 2016.

(b) Stock-based compensation expense

We recorded stock-based compensation expense of $386,000 for the three months ended March 31, 2009 ($817,000 for the three months ended March 31, 2008) relating to awards granted under our stock option plan, modified or settled
subsequent to October 1, 2002. 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 three months ended March 31, 2009:



|                            |  |                                 
|--------------------------- |  | --------------------------------
|                            |  | Three months endedMarch 31, 2009
|Dividend Yield              |  | Nil                             
|Expected Volatility         |  | 1.105  1.155                   
|Weighted Average Volatility |  | 1.132                           
|Risk-free Interest Rate     |  | 1.46%  1.47%                   
|Expected Term (Years)       |  | 3                               



14



---

##### Table of Contents

The weighted average fair value of stock options granted in the three months ended March 31, 2009
are presented below:



|              |  |                                  |     
|------------- |  | -------------------------------- | ----
|              |  | Three months endedMarch 31, 2009
|CDN$ options  |  | $                                | 0.26
|U.S.$ options |  | $                                | 0.18

There were no stock options granted in the three months ended March 31, 2008.

A summary of the status of nonvested options as of March 31, 2009 and changes during the three months ended March 31, 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
|                               |  |                      |   |  |                                                |     
|                               |  |                     
|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
|                               |  |                      |   |  |                                                |     
|                               |  |                     
|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
|                               |  |                      |   |  |                                                |     

As of March 31, 2009, there was $2.1 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 2.5 years.

As
of March 31, 2009, there was $1.0 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 3.0 years on a straight-line
basis as a charge to income. The total fair value of options vested during the three months ended March 31, 2009 was $564,000 (March 31, 2008  $360,000).

During the three months ended March 31, 2009 and 2008, the following activity occurred:



|                                                 |  |                             |     |      |   |      
|------------------------------------------------ |  | --------------------------- | --- | ---- | - | -----
|                                                 |  | Three months endedMarch 31,
|(in thousands)                                   |  | 2009                        |     | 2008
|Total intrinsic value of stock options exercised |  |                             |     |      |   |      
|CDN dollar options                               |  | $                           | n/a |      | $ | 33   
|U.S. dollar options                              |  |                             | n/a |      |   | n/a  
|                                                 |  |                            
|Total fair value of stock awards vested          |  | $                           | 851 |      | $ | 1,070

Cash received from stock option exercises for the three months ended March 31, 2008 was
$121,000. There were no stock option exercises for the three months ended March 31, 2009.



15



---

##### 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 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 development milestones.
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 March 31, 2009, we have accrued royalty fees of $5.5 million payable to NIH under this agreement related to royalties on sales in the third and fourth quarters of 2008.

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 March 31, 2009, we have paid $0.7 million towards the successful completion of the U.S. clinical trial enrollment for the Bio-Seal lung
biopsy track plug.

Rex Medical LP (Rex Medical)

In March 2008, we entered into an agreement with Rex Medical to manufacture and distribute the
OptionTMVena Cava Filter. Under terms of this agreement, we may be required to make contingent payments of up to $7.5 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.

(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. 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 Sahajanand (finding our patent novel, inventive, and sufficiently disclosed). The Court of Appeal however requested
amendment of claim 12 before rendering their decision on infringement. This amendment is due to the court on the extended due date of May 19, 2009. A date for the courts decision on infringement has not yet been set. The decision of the
Court of Appeal is appealable to the Supreme Court of the Netherlands.
| | ---- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



16



---

##### Table of Contents

| | iv) | On March 23, 2006, RoundTable Healthcare Partners, LP as Seller Representative, we as Buyer, and LaSalle Bank as Escrow Agent, executed an Escrow Agreement under which we deposited
$20 million with LaSalle. On April 4, 2007, LaSalle Bank 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 U.S. District Court 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 (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 have submitted a Motion for Summary Judgment to the court
based upon the Markman decision. No hearing date has yet been set by the court.
| | -- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | 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 EP0774964 (which is licensed from the Massachusetts Institute of Technology) the patent was revoked after a hearing held July 17, 2007. An appeal was filed
on October 2, 2007. An oral hearing was to be held at the EPO on March 19, 2009, but was cancelled when the Massachusetts Institute of Technology filed a request for withdrawal of the patent. On March 16, 2009, the EPO issued a notice
terminating the proceedings and revoking the patent.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | In EP0784490, an oral hearing has been scheduled for October 1, 2009.
| | - |  | ---------------------------------------------------------------------



| |  |  | 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.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | 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 and briefs are being exchanged.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | 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.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | 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.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | 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.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | In EP1429664, an oral hearing has been scheduled for May 27, 2009.
| | - |  | ------------------------------------------------------------------



| |  |  | In EP1159974, briefs are being exchanged.
| | - |  | -----------------------------------------



| |  |  | In EP0991359, our response to the opposition is to be filed prior to the extended deadline of May 15, 2009.
| | - |  | -----------------------------------------------------------------------------------------------------------



| |  |  | In EP0876165, an oral hearing has been scheduled for June 24, 2009.
| | - |  | -------------------------------------------------------------------



| | vii) | On July 7, 2008, we entered into a note purchase agreement with Ares Management (Ares) and New Leaf Venture Partners (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 addition, during the year ended December 31, 2008, we made a tender offer for our Senior Floating Rate
Notes and Senior Subordinated Notes for an aggregate purchase price of $165 million including accrued and unpaid interest and certain premiums. On September 23, 2008, we announced the termination of the tender offer for the outstanding Senior
Floating Rate Notes and outstanding Senior Subordinated Notes, and the transaction was abandoned. If we agree to an alternative transaction, as defined in the note purchase agreement with Ares and New Leaf, within 12 months of termination of the
note purchase agreement, we may be required to pay Ares and New Leaf $10 million plus reimburse Ares and New Leaf for transaction-related expenses of up to an additional $4 million upon our agreement to such alternative transaction. 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.
| | ---- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



17



---

##### Table of Contents

|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 Pharmaceuticals 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.

The following tables represent reportable segment information for the three months ended March 31, 2009 and 2008:



|                                                       |  |                             |        |   |      |   |         |  
|------------------------------------------------------ |  | --------------------------- | ------ | - | ---- | - | ------- | -
|                                                       |  | Three months endedMarch 31, |       
|                                                       |  | 2009                        |        |   | 2008 |  
|Revenue                                                |  |                             |        |   |      |   |         |  
|Pharmaceutical Technologies                            |  | $                           | 42,164 |   |      | $ | 28,982  |  
|Medical Products                                       |  |                             | 46,136 |   |      |   | 47,727  |  
|                                                       |  |                             |        |   |      |   |         |  
|Total revenue                                          |  |                             | 88,300 |   |      |   | 76,709  |  
|                                                       |  |                             |        |   |      |   |         |  
|Licence and royalty fees  Pharmaceutical Technologies |  |                             | 2,905  |   |      |   | 4,371   |  
|Cost of products sold  Medical Products               |  |                             | 23,966 |   |      |   | 25,849  |  
|                                                       |  |                             |        |   |      |   |         |  
|Gross margin                                           |  |                             |        |   |      |   |         |  
|Pharmaceutical Technologies                            |  |                             | 39,259 |   |      |   | 24,611  |  
|Medical Products                                       |  |                             | 22,170 |   |      |   | 21,878  |  
|                                                       |  |                             |        |   |      |   |         |  
|Total gross margin                                     |  |                             | 61,429 |   |      |   | 46,489  |  
|                                                       |  |                             |        |   |      |   |         |  
|Research and development                               |  |                             | 6,097  |   |      |   | 16,305  |  
|Selling, general and administration                    |  |                             | 19,572 |   |      |   | 27,843  |  
|Depreciation and amortization                          |  |                             | 8,265  |   |      |   | 8,477   |  
|In-process research and development                    |  |                             |       |   |      |   | 2,500   |  
|                                                       |  |                             |        |   |      |   |         |  
|Operating income (loss)                                |  |                             | 27,495 |   |      |   | (8,636  | )
|Other expenses                                         |  |                             | (9,327 | ) |      |   | (10,941 | )
|                                                       |  |                             |        |   |      |   |         |  
|Income (loss) before income taxes                      |  |                             | 18,168 |   |      | $ | (19,577 | )
|                                                       |  |                             |        |   |      |   |         |  

During the three months ended March 31, 2009, revenue from two licensees represented
approximately 47% of total revenue. During the three months ended March 31, 2008, revenue from one licensee represented approximately 35% of total revenue.

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 March 31, 2009 and December 31, 2008:



|                            |  |               |         |                  |   |        
|--------------------------- |  | ------------- | ------- | ---------------- | - | -------
|                            |  | March 31,2009 |         | December 31,2008
|Total assets                |  |               |         |                  |   |        
|Pharmaceutical Technologies |  | $             | 91,900  |                  | $ | 67,506 
|Medical Products            |  |               | 309,261 |                  |   | 317,691
|                            |  |               |         |                  |   |        
|Total assets                |  | $             | 401,161 |                  | $ | 385,197
|                            |  |               |         |                  |   |        



18



---

##### Table of Contents

The following table represents capital expenditures for each reportable segment at March 31, 2008
and 2007:



|                            |  |               |     |               |   |      
|--------------------------- |  | ------------- | --- | ------------- | - | -----
|                            |  | March 31,2009 |     | March 31,2008
|Capital expenditures        |  |               |     |               |   |      
|Pharmaceutical Technologies |  | $             | 39  |               | $ | 535  
|Medical Products            |  |               | 754 |               |   | 3,524
|                            |  |               |     |               |   |      
|Total capital expenditures  |  | $             | 793 |               | $ | 4,059
|                            |  |               |     |               |   |      



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

During the three months
ended March 31, 2009, we recorded charges of $0.3 million related to various relocation activities at our Puerto Rico location associated with capacity rationalization and consolidation in the Medical Products segment. For the three months
ended March 31, 2008, we recorded charges of $1.7 million consisting of $0.7 million for various relocation activities at our Syracuse and Puerto Rico locations and $1.0 million related to employee severance benefits at our Syracuse plant
location. Only expenses related to the Syracuse and Puerto Rico locations are recorded as restructuring charges.

As at March 31, 2009,
a liability of $2.5 million (December 31, 2008  $4.1 million) was accrued related to the severance cost associated with our Syracuse location and we have terminated or transferred all of the employees from our Syracuse location.

The charges related to relocation activities are being recorded as incurred.

The expenses recorded in accordance with SFAS 146, Accounting for Costs Associated with Exit or Disposal Activities require 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, December 31, 2007 |  | $                  | 3,227  |  
|Severances charged         |  |                    | 1,664  |  
|Accretion expense          |  |                    | 156    |  
|Severances paid            |  |                    | (973   | )
|                           |  |                    |        |  
|Balance, December 31, 2008 |  | $                  | 4,074  |  
|Severances paid            |  |                    | (1,594 | )
|                           |  |                    |        |  
|Balance, March 31, 2009    |  | $                  | 2,480  |  
|                           |  |                    |        |  



|17. | NET INCOME (LOSS) PER SHARE
|--- | ---------------------------

Net income (loss) per
share was calculated as follows:



|                                                   |  |                             |        |      |   |         |  
|-------------------------------------------------- |  | --------------------------- | ------ | ---- | - | ------- | -
|                                                   |  | Three months endedMarch 31, |       
|                                                   |  | 2009                        |        | 2008 |  
|Numerator:                                         |  |                             |        |      |   |         |  
|Net income (loss)                                  |  | $                           | 12,444 |      | $ | (15,763 | )
|                                                   |  |                             |        |      |   |         |  
|                                                   |  |                            
|Denominator:                                       |  |                             |        |      |   |         |  
|Basic weighted average common shares outstanding   |  |                             | 85,121 |      |   | 85,106  |  
|Dilutive effect of stock options                   |  |                             | 2,293  |      |   |        |  
|                                                   |  |                             |        |      |   |         |  
|Diluted weighted average common shares outstanding |  |                             | 87,414 |      |   | 85,106  |  
|                                                   |  |                            
|Basic net income (loss) per common share:          |  | $                           | 0.15   |      | $ | (0.19   | )
|Diluted net income (loss) per common share:        |  | $                           | 0.14   |      | $ | (0.19   | )
|                                                   |  |                             |        |      |   |         |  



19



---

##### 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 endedMarch 31, |       
|                                         | 2009 |                             |        | 2008 | 
|Accounts receivable                      |      | $                           | (2,999 | )    |  | $ | (4,376 | )
|Inventories                              |      |                             | (1,031 | )    |  |   | 773    |  
|Prepaid expenses and other assets        |      |                             | 6,952  |      |  |   | 1,530  |  
|Accounts payable and accrued liabilities |      |                             | 2,792  |      |  |   | (909   | )
|Income taxes payable                     |      |                             | (1,060 | )    |  |   | 175    |  
|Interest payable on long term debt       |      |                             | 4,577  |      |  |   | (5,417 | )
|                                         |      |                             |        |      |  |   |        |  
|                                         |      | $                           | 9,231  |      |  | $ | (8,224 | )
|                                         |      |                             |        |      |  |   |        |  

Supplemental disclosure:



|                                                          |      |                             |       |  |   |    
|--------------------------------------------------------- | ---- | --------------------------- | ----- |  | - | ---
|                                                          |      | Three months endedMarch 31,
|                                                          | 2009 |                             | 2008 
|Income taxes paid                                         |      | $                           | 1,410 |  | $ | 931
|Deferred financing charges and costs accrued but not paid |      |                             | 1,337 |  |   |   



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

The following presents the condensed consolidating guarantor financial information as of March 31, 2009 and December 31, 2008, and for the three months ended March 31, 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.



20



---

##### Table of Contents

Condensed Consolidating Balance Sheet

As at March 31, 2009

USD (in 000s)



|                                                     |  |                                             |          |   |                        |   |          |                            |  |   |                          |   |  |                   |            |   |  |   |          |  
|---------------------------------------------------- |  | ------------------------------------------- | -------- | - | ---------------------- | - | -------- | -------------------------- |  | - | ------------------------ | - |  | ----------------- | ---------- | - |  | - | -------- | -
|                                                     |  | Parent CompanyAngiotechPharmaceuticals,Inc. |          |   | GuarantorsSubsidiaries |   |          | Non GuarantorsSubsidiaries |  |   | ConsolidatingAdjustments |   |  | ConsolidatedTotal |           
|ASSETS                                               |  |                                             |          |   |                        |   |          |                            |  |   |                          |   |  |                   |            |   |  |   |          |  
|                                                     |  |                                             |          |   |                       
|Current assets                                       |  |                                             |          |   |                        |   |          |                            |  |   |                          |   |  |                   |            |   |  |   |          |  
|Cash and cash equivalents                            |  | $                                           | 41,311   |   |                        | $ | 13,702   |                            |  | $ | 9,510                    |   |  | $                 |           |   |  | $ | 64,523   |  
|Short term investments                               |  |                                             | 1,695    |   |                        |   |         |                            |  |   |                         |   |  |                   |           |   |  |   | 1,695    |  
|Accounts receivable                                  |  |                                             | 396,416  |   |                        |   | 73,099   |                            |  |   | 256,540                  |   |  |                   | (697,785   | ) |  |   | 28,270   |  
|Inventories                                          |  |                                             |         |   |                        |   | 32,684   |                            |  |   | 8,335                    |   |  |                   | (1,489     | ) |  |   | 39,530   |  
|Deferred income taxes, current portion               |  |                                             |         |   |                        |   | 3,834    |                            |  |   |                         |   |  |                   |           |   |  |   | 3,834    |  
|Prepaid expenses and other current assets            |  |                                             | 1,309    |   |                        |   | 2,153    |                            |  |   | 380                      |   |  |                   |           |   |  |   | 3,842    |  
|                                                     |  |                                             |          |   |                        |   |          |                            |  |   |                          |   |  |                   |            |   |  |   |          |  
|Total Current Assets                                 |  |                                             | 440,731  |   |                        |   | 125,472  |                            |  |   | 274,765                  |   |  |                   | (699,274   | ) |  |   | 141,694  |  
|                                                     |  |                                             |          |   |                        |   |          |                            |  |   |                          |   |  |                   |            |   |  |   |          |  
|                                                     |  |                                             |          |   |                       
|Long term investments                                |  |                                             | 825      |   |                        |   |         |                            |  |   | 736                      |   |  |                   |           |   |  |   | 1,561    |  
|Investment in subsidiaries                           |  |                                             | 72,682   |   |                        |   | 285,666  |                            |  |   |                         |   |  |                   | (358,348   | ) |  |   |         |  
|Assets held for sale                                 |  |                                             | 5,322    |   |                        |   | 3,100    |                            |  |   |                         |   |  |                   |           |   |  |   | 8,422    |  
|Property, plant and equipment                        |  |                                             | 8,700    |   |                        |   | 29,965   |                            |  |   | 9,195                    |   |  |                   |           |   |  |   | 47,860   |  
|Intangible assets                                    |  |                                             | 14,408   |   |                        |   | 150,740  |                            |  |   | 22,076                   |   |  |                   |           |   |  |   | 187,224  |  
|Goodwill                                             |  |                                             |         |   |                        |   |         |                            |  |   |                         |   |  |                   |           |   |  |   |         |  
|Deferred financing costs                             |  |                                             | 10,803   |   |                        |   | 2,889    |                            |  |   |                         |   |  |                   |           |   |  |   | 13,692   |  
|Other assets                                         |  |                                             | 81       |   |                        |   | 522      |                            |  |   | 105                      |   |  |                   |           |   |  |   | 708      |  
|                                                     |  |                                             |          |   |                        |   |          |                            |  |   |                          |   |  |                   |            |   |  |   |          |  
|Total Assets                                         |  | $                                           | 553,552  |   |                        | $ | 598,354  |                            |  | $ | 306,877                  |   |  | $                 | (1,057,622 | ) |  | $ | 401,161  |  
|                                                     |  |                                             |          |   |                        |   |          |                            |  |   |                          |   |  |                   |            |   |  |   |          |  
|                                                    
|LIABILITIES AND SHAREHOLDERS (DEFICIT) EQUITY       | 
|                                                     |  |                                             |          |   |                       
|Current liabilities                                  |  |                                             |          |   |                        |   |          |                            |  |   |                          |   |  |                   |            |   |  |   |          |  
|                                                     |  |                                             |          |   |                       
|Accounts payable and accrued liabilities             |  | $                                           | 255,299  |   |                        | $ | 424,973  |                            |  | $ | 65,582                   |   |  | $                 | (697,798   | ) |  | $ | 48,055   |  
|Income taxes payable                                 |  |                                             | (1,513   | ) |                        |   | 6,913    |                            |  |   | 1,611                    |   |  |                   |           |   |  |   | 7,011    |  
|Interest payable on long-term debt                   |  |                                             | 11,091   |   |                        |   |         |                            |  |   |                         |   |  |                   |           |   |  |   | 11,091   |  
|Deferred revenue, current portion                    |  |                                             |         |   |                        |   |         |                            |  |   | 210                      |   |  |                   |           |   |  |   | 210      |  
|                                                     |  |                                             |          |   |                        |   |          |                            |  |   |                          |   |  |                   |            |   |  |   |          |  
|Total Current Liabilities                            |  |                                             | 264,877  |   |                        |   | 431,886  |                            |  |   | 67,403                   |   |  |                   | (697,798   | ) |  |   | 66,367   |  
|                                                     |  |                                             |          |   |                        |   |          |                            |  |   |                          |   |  |                   |            |   |  |   |          |  
|                                                     |  |                                             |          |   |                       
|Deferred revenue                                     |  |                                             |         |   |                        |   |         |                            |  |   | 947                      |   |  |                   |           |   |  |   | 947      |  
|Deferred leasehold inducement                        |  |                                             | 2,703    |   |                        |   | 424      |                            |  |   |                         |   |  |                   |           |   |  |   | 3,127    |  
|Deferred income taxes                                |  |                                             | (1,683   | ) |                        |   | 40,130   |                            |  |   | 508                      |   |  |                   |           |   |  |   | 38,955   |  
|Other tax liabilities                                |  |                                             | 2,299    |   |                        |   | 596      |                            |  |   | 265                      |   |  |                   |           |   |  |   | 3,160    |  
|Long-term debt                                       |  |                                             | 575,000  |   |                        |   |         |                            |  |   |                         |   |  |                   |           |   |  |   | 575,000  |  
|Other liabilities                                    |  |                                             |         |   |                        |   | 184      |                            |  |   | 769                      |   |  |                   |           |   |  |   | 953      |  
|                                                     |  |                                             |          |   |                        |   |          |                            |  |   |                          |   |  |                   |            |   |  |   |          |  
|Total Non-current Liabilities                        |  |                                             | 578,319  |   |                        |   | 41,334   |                            |  |   | 2,489                    |   |  |                   |           |   |  |   | 622,142  |  
|                                                     |  |                                             |          |   |                        |   |          |                            |  |   |                          |   |  |                   |            |   |  |   |          |  
|                                                    
|Shareholders (Deficit) Equity                       | 
|                                                     |  |                                             |          |   |                       
|Share capital                                        |  |                                             | 472,739  |   |                        |   | 917,189  |                            |  |   | 262,209                  |   |  |                   | (1,179,398 | ) |  |   | 472,739  |  
|Additional paid in capital                           |  |                                             | 32,493   |   |                        |   | 91,406   |                            |  |   | 18,059                   |   |  |                   | (109,465   | ) |  |   | 32,493   |  
|Accumulated deficit                                  |  |                                             | (815,764 | ) |                        |   | (881,096 | )                          |  |   | (61,652                  | ) |  |                   | 927,283    |   |  |   | (831,229 | )
|Accumulated other comprehensive income               |  |                                             | 20,888   |   |                        |   | (2,364   | )                          |  |   | 18,369                   |   |  |                   | 1,756      |   |  |   | 38,649   |  
|                                                     |  |                                             |          |   |                        |   |          |                            |  |   |                          |   |  |                   |            |   |  |   |          |  
|Total Shareholders (Deficit) Equity                 |  |                                             | (289,644 | ) |                        |   | 125,135  |                            |  |   | 236,986                  |   |  |                   | (359,824   | ) |  |   | (287,348 | )
|                                                     |  |                                             |          |   |                        |   |          |                            |  |   |                          |   |  |                   |            |   |  |   |          |  
|Total Liabilities and Shareholders (Deficit) Equity |  | $                                           | 553,552  |   |                        | $ | 598,354  |                            |  | $ | 306,877                  |   |  | $                 | (1,057,622 | ) |  | $ | 401,161  |  
|                                                     |  |                                             |          |   |                        |   |          |                            |  |   |                          |   |  |                   |            |   |  |   |          |  



21



---

##### 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                           |  |                                             | 60,204   |   |                        |   | 292,438  |                            |  |   |                         |   |  |                   | (352,642   | ) |  |   |         |  
|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                                         |  | $                                           | 512,839  |   |                        | $ | 608,940  |                            |  | $ | 321,563                  |   |  | $                 | (1,058,145 | ) |  | $ | 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                                  |  |                                             | (827,794 | ) |                        |   | (866,180 | )                          |  |   | (83,019                  | ) |  |                   | 933,319    |   |  |   | (843,674 | )
|Accumulated other comprehensive income               |  |                                             | 20,040   |   |                        |   | (1,856   | )                          |  |   | 19,014                   |   |  |                   | 1,756      |   |  |   | 38,954   |  
|                                                     |  |                                             |          |   |                        |   |          |                            |  |   |                          |   |  |                   |            |   |  |   |          |  
|Total Shareholders (Deficit) Equity                 |  |                                             | (302,907 | ) |                        |   | 140,558  |                            |  |   | 216,264                  |   |  |                   | (353,788   | ) |  |   | (299,874 | )
|                                                     |  |                                             |          |   |                        |   |          |                            |  |   |                          |   |  |                   |            |   |  |   |          |  
|Total Liabilities and Shareholders (Deficit) Equity |  | $                                           | 512,839  |   |                        | $ | 608,940  |                            |  | $ | 321,563                  |   |  | $                 | (1,058,145 | ) |  | $ | 385,197  |  
|                                                     |  |                                             |          |   |                        |   |          |                            |  |   |                          |   |  |                   |            |   |  |   |          |  



22



---

##### Table of Contents

Condensed Consolidating Statement of Operations

Three months ended March 31, 2009

USD (in 000s)



|                                    |  |                                             |        |   |                        |   |        |                            |  |   |                          |   |  |                   |         |   |  |   |         |  
|----------------------------------- |  | ------------------------------------------- | ------ | - | ---------------------- | - | ------ | -------------------------- |  | - | ------------------------ | - |  | ----------------- | ------- | - |  | - | ------- | -
|                                    |  | Parent CompanyAngiotechPharmaceuticals,Inc. |        |   | GuarantorsSubsidiaries |   |        | Non GuarantorsSubsidiaries |  |   | ConsolidatingAdjustments |   |  | ConsolidatedTotal |        
|REVENUE                             |  |                                             |        |   |                        |   |        |                            |  |   |                          |   |  |                   |         |   |  |   |         |  
|Royalty revenue                     |  | $                                           | 14,904 |   |                        | $ | 1,069  |                            |  | $ | 1,138                    |   |  | $                 |        |   |  | $ | 17,111  |  
|Product sales, net                  |  |                                             |       |   |                        |   | 36,805 |                            |  |   | 14,163                   |   |  |                   | (4,832  | ) |  |   | 46,136  |  
|License fees                        |  |                                             |       |   |                        |   | 28     |                            |  |   | 25,025                   |   |  |                   |        |   |  |   | 25,053  |  
|                                    |  |                                             |        |   |                        |   |        |                            |  |   |                          |   |  |                   |         |   |  |   |         |  
|                                    |  |                                             | 14,904 |   |                        |   | 37,902 |                            |  |   | 40,326                   |   |  |                   | (4,832  | ) |  |   | 88,300  |  
|                                    |  |                                             |        |   |                        |   |        |                            |  |   |                          |   |  |                   |         |   |  |   |         |  
|                                    |  |                                             |        |   |                       
|EXPENSES                            |  |                                             |        |   |                        |   |        |                            |  |   |                          |   |  |                   |         |   |  |   |         |  
|License and royalty fees            |  |                                             | 2,905  |   |                        |   |       |                            |  |   |                         |   |  |                   |        |   |  |   | 2,905   |  
|Cost of products sold               |  |                                             | 55     |   |                        |   | 19,107 |                            |  |   | 9,315                    |   |  |                   | (4,511  | ) |  |   | 23,966  |  
|Research & development              |  |                                             | 4,014  |   |                        |   | 2,016  |                            |  |   | 67                       |   |  |                   |        |   |  |   | 6,097   |  
|Selling, general and administration |  |                                             | 3,971  |   |                        |   | 13,178 |                            |  |   | 2,423                    |   |  |                   |        |   |  |   | 19,572  |  
|Depreciation and amortization       |  |                                             | 1,194  |   |                        |   | 4,118  |                            |  |   | 2,953                    |   |  |                   |        |   |  |   | 8,265   |  
|                                    |  |                                             |        |   |                        |   |        |                            |  |   |                          |   |  |                   |         |   |  |   |         |  
|                                    |  |                                             | 12,139 |   |                        |   | 38,419 |                            |  |   | 14,758                   |   |  |                   | (4,511  | ) |  |   | 60,805  |  
|                                    |  |                                             |        |   |                        |   |        |                            |  |   |                          |   |  |                   |         |   |  |   |         |  
|Operating income (loss)             |  |                                             | 2,765  |   |                        |   | (516   | )                          |  |   | 25,567                   |   |  |                   | (321    | ) |  |   | 27,495  |  
|                                    |  |                                             |        |   |                        |   |        |                            |  |   |                          |   |  |                   |         |   |  |   |         |  
|                                    |  |                                             |        |   |                       
|Other income (expense)              |  |                                             |        |   |                        |   |        |                            |  |   |                          |   |  |                   |         |   |  |   |         |  
|Foreign exchange gain (loss)        |  |                                             | 6,791  |   |                        |   | (2,026 | )                          |  |   | (4,022                   | ) |  |                   | (11     | ) |  |   | 732     |  
|Investment and other income         |  |                                             | (23    | ) |                        |   | (2     | )                          |  |   | 10                       |   |  |                   |        |   |  |   | (15     | )
|Interest expense on long-term debt  |  |                                             | (9,985 | ) |                        |   | 267    |                            |  |   | (326                     | ) |  |                   |        |   |  |   | (10,044 | )
|Dividend income                     |  |                                             |       |   |                        |   | 2,000  |                            |  |   |                         |   |  |                   | (2,000  | ) |  |   |        |  
|                                    |  |                                             |        |   |                        |   |        |                            |  |   |                          |   |  |                   |         |   |  |   |         |  
|Total other expenses                |  |                                             | (3,217 | ) |                        |   | 239    |                            |  |   | (4,338                   | ) |  |                   | (2,011  | ) |  |   | (9,327  | )
|                                    |  |                                             |        |   |                        |   |        |                            |  |   |                          |   |  |                   |         |   |  |   |         |  
|                                    |  |                                             |        |   |                       
|Income (loss) before income taxes   |  |                                             | (452   | ) |                        |   | (277   | )                          |  |   | 21,229                   |   |  |                   | (2,332  | ) |  |   | 18,168  |  
|Income tax (recovery) expense       |  |                                             | (5     | ) |                        |   | 4,244  |                            |  |   | 1,486                    |   |  |                   |        |   |  |   | 5,724   |  
|                                    |  |                                             |        |   |                        |   |        |                            |  |   |                          |   |  |                   |         |   |  |   |         |  
|                                    |  |                                             |        |   |                       
|Income (loss) from operations       |  |                                             | (447   | ) |                        |   | (4,521 | )                          |  |   | 19,744                   |   |  |                   | (2,332  | ) |  |   | 12,444  |  
|Equity in subsidiaries              |  |                                             | 16,849 |   |                        |   | (5,155 | )                          |  |   |                         |   |  |                   | (11,694 | ) |  |   |        |  
|                                    |  |                                             |        |   |                        |   |        |                            |  |   |                          |   |  |                   |         |   |  |   |         |  
|Net income (loss)                   |  | $                                           | 16,402 |   |                        | $ | (9,676 | )                          |  | $ | 19,744                   |   |  | $                 | (14,026 | ) |  | $ | 12,444  |  
|                                    |  |                                             |        |   |                        |   |        |                            |  |   |                          |   |  |                   |         |   |  |   |         |  



23



---

##### Table of Contents

Condensed Consolidating Income Statement

Three months ended March 31, 2008



|                                                                |  |                                             |         |   |                       |   |         |                           |  |   |                          |   |  |                    |         |   |  |   |         |  
|--------------------------------------------------------------- |  | ------------------------------------------- | ------- | - | --------------------- | - | ------- | ------------------------- |  | - | ------------------------ | - |  | ------------------ | ------- | - |  | - | ------- | -
|                                                                |  | Parent CompanyAngiotechPharmaceuticals,Inc. |         |   | GuarantorSubsidiaries |   |         | Non-GuarantorSubsidiaries |  |   | ConsolidatingAdjustments |   |  | ConsolidatedTotals |        
|REVENUE                                                         |  |                                             |         |   |                       |   |         |                           |  |   |                          |   |  |                    |         |   |  |   |         |  
|Royalty revenue                                                 |  | $                                           | 27,202  |   |                       | $ | 524     |                           |  | $ | 1,203                    |   |  | $                  |        |   |  | $ | 28,929  |  
|Product sales, net                                              |  |                                             |        |   |                       |   | 31,887  |                           |  |   | 16,992                   |   |  |                    | (1,152  | ) |  |   | 47,727  |  
|License fees                                                    |  |                                             |        |   |                       |   | (21     | )                         |  |   | 74                       |   |  |                    |        |   |  |   | 53      |  
|                                                                |  |                                             |         |   |                       |   |         |                           |  |   |                          |   |  |                    |         |   |  |   |         |  
|                                                                |  | $                                           | 27,202  |   |                       | $ | 32,390  |                           |  | $ | 18,269                   |   |  | $                  | (1,152  | ) |  | $ | 76,709  |  
|                                                                |  |                                             |         |   |                       |   |         |                           |  |   |                          |   |  |                    |         |   |  |   |         |  
|EXPENSES                                                        |  |                                             |         |   |                       |   |         |                           |  |   |                          |   |  |                    |         |   |  |   |         |  
|License and royalty fees                                        |  | $                                           | 4,368   |   |                       | $ | 3       |                           |  | $ |                         |   |  | $                  |        |   |  | $ | 4,371   |  
|Cost of products sold                                           |  |                                             |        |   |                       |   | 16,327  |                           |  |   | 10,104                   |   |  |                    | (582    | ) |  |   | 25,849  |  
|Research and development                                        |  |                                             | 9,656   |   |                       |   | 6,362   |                           |  |   | 287                      |   |  |                    |        |   |  |   | 16,305  |  
|Intercompany R&D charges                                        |  |                                             | 1,432   |   |                       |   | (1,952  | )                         |  |   | 419                      |   |  |                    | 101     |   |  |   |        |  
|Selling, general and administration                             |  |                                             | 7,106   |   |                       |   | 15,554  |                           |  |   | 5,183                    |   |  |                    |        |   |  |   | 27,843  |  
|Depreciation and amortization                                   |  |                                             | 1,162   |   |                       |   | 6,012   |                           |  |   | 1,167                    |   |  |                    | 136     |   |  |   | 8,477   |  
|In-process research and development                             |  |                                             |        |   |                       |   | 2,500   |                           |  |   |                         |   |  |                    |        |   |  |   | 2,500   |  
|                                                                |  |                                             |         |   |                       |   |         |                           |  |   |                          |   |  |                    |         |   |  |   |         |  
|                                                                |  | $                                           | 23,724  |   |                       | $ | 44,806  |                           |  | $ | 17,160                   |   |  | $                  | (345    | ) |  | $ | 85,345  |  
|                                                                |  |                                             |         |   |                       |   |         |                           |  |   |                          |   |  |                    |         |   |  |   |         |  
|Operating income                                                |  |                                             | 3,478   |   |                       |   | (12,416 | )                         |  |   | 1,109                    |   |  |                    | (807    | ) |  |   | (8,636  | )
|                                                                |  |                                             |         |   |                       |   |         |                           |  |   |                          |   |  |                    |         |   |  |   |         |  
|Other income (expenses):                                        |  |                                             |         |   |                       |   |         |                           |  |   |                          |   |  |                    |         |   |  |   |         |  
|Foreign exchange gain (loss)                                    |  | $                                           | (54     | ) |                       | $ | 4,824   |                           |  | $ | (4,296                   | ) |  | $                  | (51     | ) |  | $ | 423     |  
|Investment and other income                                     |  |                                             | 351     |   |                       |   | 62      |                           |  |   | 340                      |   |  |                    | 3       |   |  |   | 756     |  
|Interest income (expense)                                       |  |                                             | 119     |   |                       |   | (18,226 | )                         |  |   | 5,990                    |   |  |                    | (3      | ) |  |   | (12,120 | )
|Dividend income                                                 |  |                                             | 20,000  |   |                       |   |        |                           |  |   |                         |   |  |                    | (20,000 | ) |  |   |        |  
|Management fees                                                 |  |                                             | (617    | ) |                       |   | 572     |                           |  |   | (56                      | ) |  |                    | 101     |   |  |   |        |  
|                                                                |  |                                             |         |   |                       |   |         |                           |  |   |                          |   |  |                    |         |   |  |   |         |  
|Total other income (expenses)                                   |  | $                                           | 19,799  |   |                       | $ | (12,768 | )                         |  | $ | 1,978                    |   |  | $                  | (19,950 | ) |  | $ | (10,941 | )
|                                                                |  |                                             |         |   |                       |   |         |                           |  |   |                          |   |  |                    |         |   |  |   |         |  
|Income (loss) from continuing operations before income taxes    |  | $                                           | 23,277  |   |                       | $ | (25,184 | )                         |  | $ | 3,087                    |   |  | $                  | (20,757 | ) |  | $ | (19,577 | )
|Income tax expense (recovery)                                   |  |                                             | 212     |   |                       |   | (5,958  | )                         |  |   | 1,932                    |   |  |                    |        |   |  |   | (3,814  | )
|                                                                |  |                                             |         |   |                       |   |         |                           |  |   |                          |   |  |                    |         |   |  |   |         |  
|Income (loss) from continuing operations                        |  |                                             | 23,065  |   |                       |   | (19,226 | )                         |  |   | 1,155                    |   |  |                    | (20,757 | ) |  |   | (15,763 | )
|                                                                |  |                                             |         |   |                       |   |         |                           |  |   |                          |   |  |                    |         |   |  |   |         |  
|Subsidiaries income (loss)                                      |  | $                                           | (37,014 | ) |                       | $ | (10,096 | )                         |  | $ |                         |   |  | $                  | 47,110  |   |  | $ |        |  
|Income (loss) from discontinued operations, net of income taxes |  |                                             |        |   |                       |   |        |                           |  |   |                         |   |  |                    |        |   |  |   |        |  
|                                                                |  |                                             |         |   |                       |   |         |                           |  |   |                          |   |  |                    |         |   |  |   |         |  
|Net (loss) income                                               |  | $                                           | (13,949 | ) |                       | $ | (29,322 | )                         |  | $ | 1,155                    |   |  | $                  | 26,353  |   |  | $ | (15,763 | )
|                                                                |  |                                             |         |   |                       |   |         |                           |  |   |                          |   |  |                    |         |   |  |   |         |  



24



---

##### Table of Contents

Condensed Consolidating Statement of Cash Flows

Three months ended March 31, 2009

USD (in 000s)



|                                                             |  |                                             |        |   |                        |   |        |                            |  |   |                          |   |                   |   |   |  |   |        |  
|------------------------------------------------------------ |  | ------------------------------------------- | ------ | - | ---------------------- | - | ------ | -------------------------- |  | - | ------------------------ | - | ----------------- | - | - |  | - | ------ | -
|                                                             |  | Parent CompanyAngiotechPharmaceuticals,Inc. |        |   | GuarantorsSubsidiaries |   |        | Non GuarantorsSubsidiaries |  |   | ConsolidatingAdjustments |   | ConsolidatedTotal |  
|OPERATING ACTIVITIES:                                        |  |                                             |        |   |                        |   |        |                            |  |   |                          |   |                   |   |   |  |   |        |  
|Cash provided by operating activities                        |  | $                                           | 40,325 |   |                        | $ | 4,884  |                            |  | $ | (15,219                  | ) |                   | $ |  |  | $ | 29,990 |  
|                                                             |  |                                             |        |   |                        |   |        |                            |  |   |                          |   |                   |   |   |  |   |        |  
|                                                             |  |                                             |        |   |                       
|INVESTING ACTIVITIES:                                        |  |                                             |        |   |                        |   |        |                            |  |   |                          |   |                   |   |   |  |   |        |  
|Purchase of property, plant and equipment                    |  |                                             | (39    | ) |                        |   | (684   | )                          |  |   | (20                      | ) |                   |   |  |  |   | (743   | )
|Other                                                        |  |                                             |       |   |                        |   | 334    |                            |  |   | (95                      | ) |                   |   |  |  |   | 239    |  
|                                                             |  |                                             |        |   |                        |   |        |                            |  |   |                          |   |                   |   |   |  |   |        |  
|Cash used in investing activities                            |  |                                             | (39    | ) |                        |   | (350   | )                          |  |   | (115                     | ) |                   |   |  |  |   | (504   | )
|                                                             |  |                                             |        |   |                        |   |        |                            |  |   |                          |   |                   |   |   |  |   |        |  
|                                                             |  |                                             |        |   |                       
|FINANCING ACTIVITIES:                                        |  |                                             |        |   |                        |   |        |                            |  |   |                          |   |                   |   |   |  |   |        |  
|Deferred financing charges and costs                         |  |                                             | (2,580 | ) |                        |   | (1,610 | )                          |  |   |                         |   |                   |   |  |  |   | (4,190 | )
|Dividends received / (paid)                                  |  |                                             |       |   |                        |   | 2,000  |                            |  |   | (2,000                   | ) |                   |   |  |  |   |       |  
|Intercompany notes payable/receivable                        |  |                                             | (6,576 | ) |                        |   | 2,205  |                            |  |   | 4,371                    |   |                   |   |  |  |   |       |  
|                                                             |  |                                             |        |   |                        |   |        |                            |  |   |                          |   |                   |   |   |  |   |        |  
|Cash (used in) provided by financing activities              |  |                                             | (9,156 | ) |                        |   | 2,595  |                            |  |   | 2,371                    |   |                   |   |  |  |   | (4,190 | )
|                                                             |  |                                             |        |   |                        |   |        |                            |  |   |                          |   |                   |   |   |  |   |        |  
|                                                             |  |                                             |        |   |                       
|Effect of exchange rate changes on cash and cash equivalents |  |                                             |       |   |                        |   | 2      |                            |  |   | 273                      |   |                   |   |  |  |   | 275    |  
|Net increase (decrease) in cash and cash equivalents         |  |                                             | 31,130 |   |                        |   | 7,131  |                            |  |   | (12,690                  | ) |                   |   |  |  |   | 25,571 |  
|Cash and cash equivalents, beginning of year                 |  |                                             | 10,181 |   |                        |   | 6,571  |                            |  |   | 22,200                   |   |                   |   |  |  |   | 38,952 |  
|                                                             |  |                                             |        |   |                        |   |        |                            |  |   |                          |   |                   |   |   |  |   |        |  
|Cash and cash equivalents, end of year                       |  | $                                           | 41,311 |   |                        | $ | 13,702 |                            |  | $ | 9,510                    |   |                   | $ |  |  | $ | 64,523 |  
|                                                             |  |                                             |        |   |                        |   |        |                            |  |   |                          |   |                   |   |   |  |   |        |  



25



---

##### Table of Contents

Condensed Consolidating Statement of Cash Flows

Three months ended March 31, 2008



|                                                               |  |                                             |        |   |                       |   |         |                           |  |   |                          |   |  |                    |         |   |  |   |         |  
|-------------------------------------------------------------- |  | ------------------------------------------- | ------ | - | --------------------- | - | ------- | ------------------------- |  | - | ------------------------ | - |  | ------------------ | ------- | - |  | - | ------- | -
|                                                               |  | Parent CompanyAngiotechPharmaceuticals,Inc. |        |   | GuarantorSubsidiaries |   |         | Non-GuarantorSubsidiaries |  |   | ConsolidatingAdjustments |   |  | ConsolidatedTotals |        
|OPERATING ACTIVITIES:                                          |  |                                             |        |   |                       |   |         |                           |  |   |                          |   |  |                    |         |   |  |   |         |  
|Cash provided by (used in) operating activities                |  | $                                           | 3,876  |   |                       | $ | (8,771  | )                         |  | $ | 8,453                    |   |  | $                  | (20,000 | ) |  | $ | (16,442 | )
|                                                               |  |                                             |        |   |                       |   |         |                           |  |   |                          |   |  |                    |         |   |  |   |         |  
|                                                               |  |                                             |        |   |                      
|INVESTING ACTIVITIES:                                          |  |                                             |        |   |                       |   |         |                           |  |   |                          |   |  |                    |         |   |  |   |         |  
|Purchase of property, plant and equipment                      |  | $                                           | (658   | ) |                       | $ | (2,378  | )                         |  | $ | (361                     | ) |  | $                  |        |   |  | $ | (3,397  | )
|In-process research and development                            |  |                                             | (2,500 | ) |                       |   |        |                           |  |   |                         |   |  |                    |        |   |  |   | (2,500  | )
|Other assets                                                   |  |                                             | (878   | ) |                       |   | 762     |                           |  |   | 185                      |   |  |                    |        |   |  |   | 69      |  
|                                                               |  |                                             |        |   |                       |   |         |                           |  |   |                          |   |  |                    |         |   |  |   |         |  
|Cash (used in) provided by investing activities                |  | $                                           | (4,036 | ) |                       | $ | (1,616  | )                         |  | $ | (176                     | ) |  | $                  |        |   |  | $ | (5,828  | )
|                                                               |  |                                             |        |   |                       |   |         |                           |  |   |                          |   |  |                    |         |   |  |   |         |  
|                                                               |  |                                             |        |   |                      
|FINANCING ACTIVITIES:                                          |  |                                             |        |   |                       |   |         |                           |  |   |                          |   |  |                    |         |   |  |   |         |  
|Share capital issued                                           |  | $                                           |       |   |                       | $ |        |                           |  | $ |                         |   |  | $                  |        |   |  | $ |        |  
|Dividends paid                                                 |  |                                             |       |   |                       |   |        |                           |  |   | (20,000                  | ) |  |                    | 20,000  |   |  |   |        |  
|Notes receivable / payable                                     |  |                                             | (1,693 | ) |                       |   | (677    | )                         |  |   | 2,370                    |   |  |                    |        |   |  |   |        |  
|Proceeds from stock options exercised and share capital issued |  |                                             | 121    |   |                       |   |        |                           |  |   |                         |   |  |                    |        |   |  |   | 121     |  
|                                                               |  |                                             |        |   |                       |   |         |                           |  |   |                          |   |  |                    |         |   |  |   |         |  
|Cash (used in) provided by financing activities                |  | $                                           | (1,572 | ) |                       | $ | (677    | )                         |  | $ | (17,630                  | ) |  | $                  | 20,000  |   |  | $ | 121     |  
|                                                               |  |                                             |        |   |                       |   |         |                           |  |   |                          |   |  |                    |         |   |  |   |         |  
|Effect of exchange rate changes on cash                        |  |                                             |       |   |                       |   | 20      |                           |  |   | 595                      |   |  |                    |        |   |  |   | 615     |  
|Net increase (decrease) in cash and cash equivalents           |  |                                             | (1,722 | ) |                       |   | (11,044 | )                         |  |   | (8,758                   | ) |  |                    |        |   |  |   | (21,534 | )
|Cash and cash equivalents, beginning of year                   |  |                                             | 23,790 |   |                       |   | 20,334  |                           |  |   | 47,202                   |   |  |                    |        |   |  |   | 91,326  |  
|                                                               |  |                                             |        |   |                       |   |         |                           |  |   |                          |   |  |                    |         |   |  |   |         |  
|Cash and cash equivalents, end of year                         |  | $                                           | 22,058 |   |                       | $ | 9,290   |                           |  | $ | 38,444                   |   |  | $                  |        |   |  | $ | 69,792  |  
|                                                               |  |                                             |        |   |                       |   |         |                           |  |   |                          |   |  |                    |         |   |  |   |         |  



26



---

##### Table of Contents

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

ANGIOTECH PHARMACEUTICALS, INC.

For the three months ended March 31, 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), dated March 31, 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 months ended March 31, 2009 and our audited consolidated financial statements for the year ended December 31, 2008, both of which have been prepared in accordance with U.S. generally accepted accounting principles
(U.S. GAAP). Additionally, the MD&A and unaudited consolidated financial statements for the three months ended March 31, 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 Form 10-K/A, the 10-K), are available by accessing the SEDAR website at www.sedar.com or the the SECs IDEA website at idea.sec.gov.

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 U.S. 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, both nationally and in the 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.



27



---

##### Table of Contents

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.

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 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 three months ended March 31, 2009, we recorded $46.1 million in direct sales of our various medical products and
components and $42.2 million in royalties and license fees received from our partners.

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.

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. Our Medical Products segment may apply certain of our proprietary technologies to its products to create
novel, next-generation medical products to market directly to end users or medical products distributors.

Proprietary Medical Products.Certain of our productlines, which constitute our Proprietary Medical Products, are marketed and sold by our two direct sales groups. We believe these product lines contain
technology advantages that may provide for more substantial revenue growth potential as compared to our overall product portfolio. Our significant currently marketed 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 HemoStream dialysis catheter, our Skater
line of drainage catheters, our BioPince full core biopsy device, our EnSnare retrieval device and our V+Pad hemostatic pad which are marketed and sold by our Interventional Products Sales Group. Our Proprietary Medical Products continued to demonstrate higher revenue growth as compared to our
overall product portfolio, consistent with recent prior quarters. Revenue growth for these products in the first quarter of 2009 was approximately 28% as compared to the first quarter of 2008 and 10% as compared to the fourth quarter of 2008.
Excluding the impact of foreign currency changes between the respective periods, the revenue growth figures indicated above would have been 35% and 10% respectively.

Base Medical Products. Certain of our product lines, which constitute our Base Medical Products, represent more mature finished goods product lines in the general surgery and ophthalmology areas or
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 our 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. Sales of our Base Medical Products tend to exhibit greater volatility or slower relative growth, particularly 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. Sales of our Base
Medical Products declined by approximately 12% in the first quarter of 2009 as compared to the first quarter of 2008, and declined by approximately 3% as compared to the fourth quarter of 2008. Excluding the impact of foreign currency changes
between the respective periods, revenue would have declined by 7% and 3% as compared to the first quarter of 2008 and the fourth quarter of 2008, respectively.

The decline in our Base Medical Products sales as compared to the first quarter of 2008 is due primarily to lower sales of medical device components to other third party medical device manufacturers, particularly sales of surgical needles
to one of our largest customers, and to a more limited extent due to negative currency impact relating to sales of certain of our Base Medical Product lines outside of the United States. 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 impacted our level of Base Medical Product sales during the first quarter of 2009 as compared to the first quarter of 2008. We currently expect that certain of
our customers may increase their order levels later in 2009; however, there can be no assurance that we will record sales of surgical needles to these customers at levels observed in prior periods.

Significant Recent Developments

License Agreement with Baxter
International Inc.In March 2009 we announced that we had entered into an Amended and Restated Distribution and License Agreement with our partner Baxter International Inc. (Baxter). As consideration for the



28



---

##### Table of Contents

Amended and Restated Distribution and License Agreement, we received an up-front payment of $25.0 million. We initially entered into a Distribution and
License Agreement with Baxter in 2003 relating to certain intellectual property for our COSEAL® surgical sealant. The Distribution and License Agreement entitled Baxter to market and sell
COSEAL worldwide (excluding Japan), from which we have derived royalty revenue from Baxter. The Distribution and License Agreement also gave Baxter an option for distribution rights in Japan. As a result of this amendment, Baxter will obtain
worldwide rights to COSEAL and certain additional fields of use for COSEAL, and expanded worldwide rights to COSEAL derivatives. Baxter will owe us no further royalty or milestone obligations relating to the existing formulation of COSEAL or any
future products under the terms of the Amended and Restated Distribution and License Agreement.

New Senior Secured Term Loan and Credit Facilities.In March 2009, we announced that we had obtained a new senior secured term loan and revolving credit facility. Wells Fargo Foothill, LLC is the sole arranger, administrative agent and lender for both the term loan and revolving credit
facility. This financing includes a delayed draw secured term loan facility of up to $10 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. Any borrowings outstanding under the term loan and revolving credit facility bear interest ranging from LIBOR + 3.25% to LIBOR
+3.75%, with a minimum base LIBOR rate of 2.25%. The term loan and the revolving credit facility include certain covenants and restrictions with respect to our operations, require us to maintain certain levels of Adjusted EBITDA (as defined in the
credit agreement governing the term loan and revolving credit facility) and interest coverage ratios, among other terms and conditions, and are secured by certain of the assets of our Canadian and U.S. subsidiaries. The purpose of this financing is
to provide additional liquidity and capital resources for working capital and general corporate purposes. We believe this financing will provide enhanced liquidity in the near term and provide us more flexibility and time to explore other
longer-term options for our overall capital structure and working capital needs. As of March 31, 2009, we have not drawn on any portion of the term loan facility or the revolving credit facility.

New TAXUS Regulatory Submissions, Clinical Data.In February 2009, we announced that our partner BSC
had submitted the final modules for pre-market approval (PMA) for both its TAXUS Liberté® Atom Paclitaxel-Eluting Coronary Stent System and its TAXUS Liberté
Long Paclitaxel-Eluting Coronary Stent System to the U.S. Food and Drug Administration (the FDA). If approved, the TAXUS Liberté Atom Stent will become BSCs second 2.25 millimeter diameter drug-eluting stent
(DES) available in the United States. It will then likely succeed the TAXUS Express Atom Stent, which is Boston Scientifics first approved small stent and the only DES currently approved by the FDA to treat small blood
vessels. The TAXUS Liberté Long Stent is designed to be the first 38 millimeter drug-eluting stent available in the United States and will further expand this leading DES portfolio. These PMA submissions include clinical data from the global,
multi-center TAXUS ATLAS Small Vessel (SV) and Long Lesion (LL) studies, designed to compare the performance of the TAXUS Liberté Atom and TAXUS Liberté Long Stents with BSCs first-generation TAXUS Express
Stent. While the second-generation TAXUS Liberté Stent uses identical drug dose, polymer and release kinetics as the TAXUS Express Stent, it features thinner struts and a uniform architecture specifically designed for drug delivery. One-year
results from the TAXUS ATLAS SV and LL studies were published in the December 2008 issue of the Journal of American College of Cardiology. The studies both met their primary endpoint of noninferior, nine-month, in-segment diameter stenosis
(narrowing of a blood vessel) versus the TAXUS Express Stent control group. They reported a significant reduction in small vessel in-stent restenosis (re-narrowing of a blood vessel) and major adverse coronary events in patients treated with the
TAXUS Liberté Atom Stent, and a significantly reduced rate of myocardial infarction (heart attack) in patients with long lesions treated with the TAXUS Liberté Long Stent.

TAXUS Liberté Approval in Japan.In January 2009, we announced that BSC had received approval from the Japanese Ministry of Health, Labor and Welfare to market the TAXUS Liberté in Japan.
BSC plans to launch the product in Japan once reimbursement approval is granted. TAXUS Liberté is the only second-generation drug-eluting stent approved for use in Japan. The TAXUS Liberté stent will replace the TAXUS Express2 stent,
marketed in Japan since May 2007.

Financial and Strategic Alternatives Process.Over the last two 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. During 2008, our management and Board of Directors decided to explore and pursue various restructuring and cost reduction actions, as well as various financial and strategic transactions that could potentially reduce or eliminate our
existing debt obligations and improve our working capital position. Our management and Board of Directors continue to believe a transaction of significant size and scope may be necessary to meaningfully address liquidity concerns and the working
capital needs of our business. On November 21, 2008, we announced that we had engaged The Blackstone Group to assist us in evaluating various alternatives for our business and capital structure, including, but not limited to, securing interim
senior secured financing for working capital and liquidity purposes, evaluating various restructuring alternatives to pursue with the holders of our Senior Floating Rate Notes due 2013 (the Floating Rate Notes) and our 7.75% Senior
Subordinated Notes due 2014 (the Subordinated Notes), and assisting us in evaluating proposals or potential proposals from selected parties regarding various financial or strategic alternatives. We accomplished the first phase of the
business and capital restructuring with the entry into the secured term loan and revolving credit facility discussed above and we continue to explore various financial and strategic restructuring alternatives.



29



---

##### Table of Contents

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:

TAXUS Element Platinum Chromium Paclitaxel-Eluting Coronary Stent System. The TAXUS Element
paclitaxel-eluting coronary stent system, which is under evaluation in clinical trials being conducted by BSC, 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.

The TAXUS Element stent system is being evaluated in BSCs TAXUS PERSEUS clinical program, which was commenced in July 2007. The PERSEUS clinical
program is expected to collectively enroll approximately 1,500 patients at 100 U.S. and international centers. The PERSEUS clinical program will evaluate the safety and efficacy of the TAXUS Element stent in two studies. The first study, TAXUS
PERSEUS Workhorse, 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 millimeters. The primary endpoint
of the workhorse study is target lesion failure at 12 months, and its secondary endpoint is in-segment percent diameter stenosis at nine months. The second study is the TAXUS PERSEUS Small Vessel study which 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 millimeters. 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.

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.

ZILVER PTX Paclitaxel-Eluting Peripheral Vascular Stent System. The ZILVER PTX paclitaxel-eluting
peripheral vascular stent, which is under evaluation in clinical trials being conducted by our partner Cook Medical Inc. (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. Cook is a co-exclusive licensee, together with BSC, of our proprietary paclitaxel technology to reduce restenosis following stent placement in peripheral artery disease
(PAD). The ZILVER PTX paclitaxel-eluting peripheral stent is designed to reduce restenosis following placement of a stent in PAD patients.

The
ZILVER PTX 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 paclitaxel-eluting 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.



30



---

##### Table of Contents

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 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 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 July 2007, Cook announced that the first U.S. patients in a randomized pivotal human clinical trial of ZILVER PTX 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 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 peripheral artery disease 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 device. Those data have been used for submission in Europe for CE Mark approval to market the device there, with additional regulatory submissions pending in additional markets.

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. Angiotech is the worldwide manufacturer and distributor of the Bio-Seal Lung Biopsy Tract Plug System, which has already 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 study has been submitted to the FDA. The FDA has responded to our submission
with additional questions about the study. We have responded to the FDA, and upon further review by the FDA we may either receive 510(k) clearance to market Bio-Seal in the United States or be required to respond to additional questions or conduct
additional clinical studies for this product candidate. Upon receiving such further information from the FDA, we will determine the timing of product launch or any further development work necessary to achieve approval should we choose to continue
the development of this product candidate.

Option Vena Cava Filter. The Option Vena Cava Filter, which we licensed in March 2008 from
our partner Rex Medical L.P. (Rex Medical), is under evaluation in a pivotal human clinical trial. We believe this vena cava filter may have a number of potential benefits, which include unique filter apex and retention anchors,
insertion potential through either the femoral or jugular route, and through non-thrombogenic material. The purpose of the U.S. multi-center prospective clinical trial is to evaluate the devices safety and efficacy in preventing pulmonary
emboli, and to assess the ability to retrieve the device from



31



---

##### Table of Contents

the body up to 175 days following implantation. Interim results of the pivotal trial were presented at the AIM/Veith Meeting in New York in November 2008.
The complete results, representing a total of 100 patients, were presented at the 2009 Society of Interventional Radiology in San Diego, CA on March 9, 2009. Succesful filter implantation was achieved in 100% of the subjects and the filter was
successfully retrieved in 92.3% of subjects. 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 clinical data from this trial has been submitted by Rex Medical to the FDA. The FDA has responded to the submission with additional questions about the study,
and Rex Medical has submitted its response. Upon receipt of the FDAs response to this submission, we and Rex Medical will determine the timing of product launch or any further development work necessary to achieve approval, should we choose to
continue the development of this product candidate.

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. 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. On September 22, 2008, as part of certain cost reduction initiatives, we announced a potential amendment of, and reduction in, cash outlays related to our collaboration with
Athersys. The final terms of such amendment to our collaboration with Athersys may have an impact on our expected future expenditures for research and development of MultiStem, and the extent of our future financial and commercial commitments and
rights relating to this product candidate.

Completed or Suspended Clinical Programs

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 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 but have not yet commercially launched the product.

TAXUS Liberté paclitaxel-eluting coronary stent system. The TAXUS Liberté paclitaxel-eluting coronary stent system is
BSCs second generation coronary stent system platform that incorporates our research, technology and intellectual property related to the use of paclitaxel to prevent restenosis. The TAXUS Liberté stent system has been designed to
further enhance coronary stent deliverability and blood vessel conformability, particularly in challenging coronary lesions. On October 10, 2008, we announced that BSC had received approval from the FDA to market and sell the TAXUS
Liberté stent system in the United States and consequently, BSC commenced marketing and selling the TAXUS Liberté stent system during the fourth quarter of 2008. Prior to the fourth quarter of 2008, BSC had only commenced sales of the
TAXUS Liberté in countries outside of the United States.



32



---

##### Table of Contents

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 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,
and 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. Terms
of certain of these acquisitions may require us to make milestone or contingent payments upon achievement of certain product development and commercialization objectives. During the three months ended March 31, 2009, we did not complete any
significant acquisitions.

Quill Medical, Inc. (Quill). On June 26, 2006, we completed the acquisition of 100% of the equity of
Quill for $40 million cash consideration, potential future milestone payments and potential future contingent payments dependent upon the achievement of significant incremental revenue growth of products incorporating the Quill technology over an
approximately five-year period from the date of the acquisition. Through this transaction, we acquired the rights, in all possible fields of use, to develop and market applications of Quills proprietary self-anchoring wound closure technology.
Unlike conventional sutures which are smooth, the Quill products have tiny teeth-like barbs or cogs along the surface. This self-anchoring wound closure technology may be used to close certain wounds or surgical incisions without the
need for suture knots. Eliminating knot-tying can save surgical time, may reduce the risk of infection, and may reduce wound leakage. The launch of the Quill SRS self-anchoring suture product line for various wound closure and soft tissue
approximation indications in January 2007 triggered a development milestone payment of $10 million that was paid to the former shareholders of Quill in August 2007. This milestone payment is creditable against any future contingent payments that we
may be required to make relating to revenue growth of Quill SRS products.

Collaboration, License and Sales and Distribution Agreements

In connection with our 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 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 future sales of commercial products, if any, resulting from the collaborations. During the three months
ended March 31, 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 related to our COSEAL technology
described above.

The Amended and Restated License and Distribution Agreement with Baxter is attached as an exhibit to this Quarterly Report on Form 10-Q.
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.



33



---

##### Table of Contents

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 we record royalty revenue and the time the associated sales were recorded by BSC.



|(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. We recognize non-refundable milestone payments 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.

Income tax expense

Income taxes are accounted for under 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. 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 enacted tax rates and laws.

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 Statement of Financial Accounting Standards (SFAS) 123(R) Share-Based Payment, a revision to SFAS 123, Accounting for Stock-Based Compensation. SFAS 123(R) requires us to



34



---

##### Table of Contents

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 March 31, 2009, we held one equity security which was classified as available-for-sale, and accordingly, was recorded at fair market 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 available. 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.

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. 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 months ended
March 31, 2009 as there have been no further indicators of impairment since December 31, 2008.

Results of Operations

Overview



|                                               |  |                             |        |   |      |    |         |  
|---------------------------------------------- |  | --------------------------- | ------ | - | ---- | -- | ------- | -
|                                               |  | Three months endedMarch 31, |       
|(in thousands of U.S.$, except per share data) |  | 2009                        |        |   | 2008 |   
|Revenues                                       |  |                             |        |   |      |    |         |  
|Pharmaceutical Technologies                    |  | $                           | 42,164 |   |      | $  | 28,982  |  
|Medical Products                               |  |                             | 46,136 |   |      |    | 47,727  |  
|                                               |  |                             |        |   |      |    |         |  
|Total revenues                                 |  |                             | 88,300 |   |      |    | 76,709  |  
|                                               |  |                            
|Operating income (loss)                        |  |                             | 27,495 |   |      |    | (8,636  | )
|                                               |  |                            
|Other expense                                  |  |                             | (9,327 | ) |      |    | (10,941 | )
|                                               |  |                             |        |   |      |    |         |  
|Income (loss) before income taxes              |  |                             | 18,168 |   |      |    | (19,577 | )
|                                               |  |                            
|Income tax expense (recovery)                  |  |                             | 5,724  |   |      |    | (3,814  | )
|                                               |  |                             |        |   |      |    |         |  
|Net income (loss)                              |  | $                           | 12,444 |   |      | ($ | 15,763  | )
|                                               |  |                             |        |   |      |    |         |  
|                                               |  |                            
|Basic net income (loss) per common share       |  |                             | 0.15   |   |      |    | (0.19   | )
|Diluted net income (loss) per common share     |  |                             | 0.14   |   |      |    | (0.19   | )
|                                               |  |                             |        |   |      |    |         |  



35



---

##### Table of Contents

For the three months ended March 31, 2009, we recorded a net income of $12.4 million ($0.15 basic net income per
common share), compared to a net loss of $15.8 million ($0.19 basic net loss per common share) for the three months ended March 31, 2008.

The
increase in net income of $28.5 million is due to several factors, including the receipt of $25.0 million in proceeds as a result of the transaction with Baxter described above, a $10.2 million decrease in research and development costs due
primarily to the completion or termination of various of our human clinical trial activities and from cost reduction initiatives implemented during 2008, a decrease in general and administrative costs primarily as a result of cost reduction
initiatives implemented during the second half of 2008 and a lower interest rate incurred on our Floating Rate Notes. These factors were partially offset by a reduction of $12.3 million in royalty revenue derived from BSCs sales of
paclitaxel-eluting coronary stent systems and an income tax expense of $5.5 million in the first quarter of 2009 compared to an income tax recovery of $3.8 million in the same period of 2008. In addition, during the first quarter of 2009 we recorded
non-recurring charges of $0.3 million for reorganization activities and personnel reductions relating to the closure of our Syracuse, NY manufacturing facility compared to $1.9 million for similar charges in the first quarter of 2008.

Revenues



|                                            |  |                             |        |      |   |       
|------------------------------------------- |  | --------------------------- | ------ | ---- | - | ------
|                                            |  | Three months endedMarch 31,
|(in thousands of U.S.$)                     |  | 2009                        |        | 2008
|Pharmaceutical Technologies:                |  |                             |        |      |   |       
|Royalty revenue  paclitaxel-eluting stents |  | $                           | 14,904 |      | $ | 27,203
|Royalty revenue  other                     |  |                             | 2,207  |      |   | 1,726 
|License fees                                |  |                             | 25,053 |      |   | 53    
|                                            |  |                             |        |      |   |       
|                                            |  | $                           | 42,164 |      | $ | 28,982
|                                            |  |                             |        |      |   |       
|Medical Products:                           |  |                             |        |      |   |       
|Product sales                               |  |                             | 46,136 |      |   | 47,727
|                                            |  |                             |        |      |   |       
|Total revenues                              |  | $                           | 88,300 |      | $ | 76,709
|                                            |  |                             |        |      |   |       

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.

Royalty revenue derived from sales of paclitaxel-eluting coronary stent systems by BSC for the three month period ended March 31, 2009 decreased by 45% as compared to the same period in 2008. The decrease in
royalty revenues was a result of lower sales of paclitaxel-eluting stents by BSC. Royalty revenue for the quarter ended March 31, 2009 was based on BSCs net sales for the period October 1, 2008 to December 31, 2008 of $239
million, of which $104 million was in the U.S., compared to net sales of $363 million, of which $200 million was in the U.S., for the same quarter in the prior year. The average gross royalty rate earned in the three month period ended
March 31, 2009 on BSCs net sales was 6.4% for sales in the U.S. and 6.1% for sales in other countries, compared to an average rate of 7.4% for sales in the U.S. and 7.7% for sales in other countries for the same period in the prior year.

The average gross royalty rate for the U.S. declined in the current period as a result of our tiered royalty rate structure for sales in the U.S. The
average gross royalty rate for countries other than the U.S. declined due to an additional payment received during the prior period relating to royalties that were owed from prior periods in 2007 that were not paid until the first quarter of 2008.
For the three months ended March 31, 2009, License fees increased by $25 million as compared to the same period during 2008 as we received $25.0 million from Baxter as consideration for an Amended and Restated Distribution and License
Agreement.

We expect revenues in our Pharmaceutical Technologies segment will decrease in the remainder of 2009 as compared to 2008, primarily as a result
of new competitors entering into the drug-eluting coronary stent market in the United States in the second half of 2008 and the elimination of ongoing royalty payments from Baxter as a result of our entry into the Amended and Restated Distribution
and License Agreement. Our royalties derived from sales by BSC of TAXUS declined from $50.8 million in the first half of 2008 to $33.3 million in the second half of 2008.



36



---

##### Table of Contents

Medical Products

Our
Medical Products segment manufactures and markets a range of single use, specialty medical devices. The Medical Products segment also manufactures finished medical devices and medical device components for third party medical device manufacturers
and marketers.

Revenue from our Medical Products segment for the three months ended March 31, 2009 was $46.1 million compared to $47.7 million for
the same period of 2008. The decrease was primarily related to lower sales of medical device components to certain third party customers that have postponed orders or implemented inventory reduction programs in response to changing economic and
credit market conditions. This decrease was partially offset by higher sales of certain of our Surgical and Interventional product lines, including our Quill SRS product line.

We expect that revenue in our Medical Products segment may increase during the remainder of 2009 as compared to 2008, reflecting the anticipated potential for growth of certain existing and newly launched product
lines, including our Quill SRS product line. This expected growth may be offset should our sales of medical devices and device components to third-party customers continue at lower than expected levels, reflecting the potential continuing impact of
the difficult economic environment and increasingly difficult credit market and liquidity environment on the customer base for this part of our Medical Products segment.

Expenditures



|                                    |  |                             |        |      |   |       
|----------------------------------- |  | --------------------------- | ------ | ---- | - | ------
|                                    |  | Three months endedMarch 31,
|(in thousands of U.S.$)             |  | 2009                        |        | 2008
|License and royalty fees            |  | $                           | 2,905  |      | $ | 4,371 
|Cost of products sold               |  |                             | 23,966 |      |   | 25,849
|Research and development            |  |                             | 6,097  |      |   | 16,305
|Selling, general and administrative |  |                             | 19,572 |      |   | 27,843
|Depreciation and amortization       |  |                             | 8,265  |      |   | 8,477 
|In-process research and development |  |                             |       |      |   | 2,500 
|                                    |  |                             |        |      |   |       
|                                    |  | $                           | 60,805 |      | $ | 85,345
|                                    |  |                             |        |      |   |       

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 months ended March 31, 2009 when compared to the same period in the prior year reflects the decrease in our royalty revenue. We expect license and royalty fee expense to continue to be a significant cost in 2009,
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 device, 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 decreased by $1.8
million to $24.0 million for the three months ended March 31, 2009 compared to $25.8 million for the same period of the prior year, primarily relating to the lower levels of aggregate Medical Products segment sales as described above. Gross
margins for our Medical Products segment sales were 48.1% for the three months ended March 31, 2009 compared to 45.8% for the same period in 2008. Gross margins in 2009 compared to 2008 were positively impacted by a relative increase in sales
of higher margin product lines, the continued launch of certain new, higher margin product lines for which there were no material sales in the comparable prior year period and cost efficiencies relating to the closure of our manufacturing facility
in Syracuse, NY.

We expect that cost of products sold will continue to be significant and that gross margins may continue to improve in 2009, primarily as
a result of improved sales mix, including potential increases in sales of selected product lines that provide higher relative contribution margins, the impact on fixed overhead of anticipated increases in product sales volumes and efficiencies
gained as a result of the completion of the consolidation of our Syracuse, NY operations including the transfer of some production to our lower cost manufacturing facility in Puerto Rico. These improvements may be offset by the impact of certain
sales and pricing initiatives for selected product lines designed to improve sales volume, market share and overall operating cash flow derived from our fixed assets.



37



---

##### Table of Contents

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.

(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 $6.1 million for the three months ended March 31, 2009 as compared to $16.3 million for the same period in 2008. The decrease was primarily due to the suspension of enrollment in our Vascular Wrap clinical trial and
the reduction or elimination of staffing within our clinical and research departments and reduction in other direct costs in the second half of 2008 relating to certain other research programs and activities. The decrease in costs associated with
the Vascular Wrap trial accounted for approximately $3.9 million of the decrease in research and development expenditures for the first quarter of 2009 as compared to the same period in 2008. Other clinical project expenditures decreased
approximately $2.1 million in the first quarter of 2009 as compared to the same period in 2008 with general discovery and pre-clinical research expenditures decreasing by approximately $3.6 million in the first quarter of 2009 as compared to the
same period in 2008.

We currently expect our research and development expenditures may continue to decrease through 2009 as compared to 2008 reflecting
the suspension of enrollment in our Vascular Wrap clinical trial and the reduction or elimination of staffing and other direct costs in the second half of 2008 relating to certain other research programs and activities. Even after these expected
declines, we anticipate we will continue to incur significant research and development expenditures in 2009.

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 $19.6 million for the three months ended March 31, 2009 as compared to $27.8 million for the same period in
2008. The lower expenditures were primarily due to reduced salaries, benefits and travel costs, reduced severance and other charges related to the closure and consolidation of our Syracuse, NY manufacturing facility and reductions in selected
accounting and tax consulting fees related to public company compliance. Other operating costs decreased by $1.6 million, primarily due to certain personnel and other cost reduction initiatives undertaken in our general and administrative areas
during the second half of 2008.

We expect that selling, general and administrative expenses may be lower in 2009 than in 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 for the three months ended March 31, 2009,
compared to $8.5 million for the same period of 2008, and is comprised of amortization of licensed technologies and identifiable intangible assets purchased through business combinations of $7.4 million and $7.6 million, respectively, and
depreciation of property, plant and equipment of $0.9 million and $0.9 million, respectively.



38



---

##### Table of Contents

We expect depreciation and amortization expense in 2009 to be comparable to 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 the three month period ended March 31, 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 Vena Cava Filter.

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

Other Income (Expense)



|                                   |  |                             |         |   |      |    |         |  
|---------------------------------- |  | --------------------------- | ------- | - | ---- | -- | ------- | -
|                                   |  | Three months endedMarch 31, |        
|(in thousands of U.S.$)            |  | 2009                        |         |   | 2008 |   
|Foreign exchange gain              |  | $                           | 732     |   |      | $  | 423     |  
|Investment and other income (loss) |  |                             | (15     | ) |      |    | 756     |  
|Interest expense on long term-debt |  |                             | (10,044 | ) |      |    | (12,120 | )
|                                   |  |                             |         |   |      |    |         |  
|                                   |  | ($                          | 9,327   | ) |      | ($ | 10,941  | )
|                                   |  |                             |         |   |      |    |         |  

Net foreign exchange gains 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, cash equivalents and short-term investments 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 months ended March 31, 2009 decreased by $0.8 million to a nominal amount when compared to the same period in 2008, primarily due to lower interest income in 2009 due primarily to lower cash balances available to invest.

During the three months ended March 31, 2009, we incurred interest expense of $10.0 million on our outstanding long-term debt obligations, as
compared to $12.1 million for the same period in 2008. The decrease of $2.1 million has resulted from a decline in the interest rate applicable on our Floating Rate Notes due to a decline in the LIBOR rates. The interest rate decline resulted in an
average interest rate of 5.65% on our Floating Rate Notes for the three months ended March 31, 2009 as compared to 8.19% for the three months ended March 31, 2008. Interest expense also includes $0.6 million for amortization of deferred
financing costs for each period presented.

Income Tax

For the three months ended March 31, 2009, we recorded an income tax expense of $5.7 million compared to an income tax recovery of $3.8 million for the three months ended March 31, 2008. The income tax expense for the first
quarter of 2009 is primarily due to the recognition of prepaid taxes in connection with the intellectual property underlying the transaction with Baxter, net earnings from operations and the amortization of identifiable intangible assets.

The effective tax rate for the three months ended March 31, 2009 was 31.5% compared to an effective tax rate of 19.5% for the same period in 2008. The
effective tax rate for the current period is higher than the statutory Canadian tax rate of 30.0% and is primarily due to the net effect of higher tax rates on earnings in foreign jurisdictions and valuation allowances on net operating losses.



39



---

##### Table of Contents

Liquidity and Capital Resources

At March 31, 2009, we had working capital of $71.5 million and cash resources of $64.5 million, consisting of cash and cash equivalents. In aggregate, our working capital increased by $23.8 million as compared to
December 31, 2008, primarily relating to the $25.0 million in cash received pursuant to the transaction with Baxter as described above.

In addition
to our working capital of $71.5 million, on March 2, 2009, we announced we had completed a financing transaction with Wells Fargo Foothill LLC. The financing includes a delayed draw secured term loan facility of up to $10 million and a secured
revolving credit facility, with a borrowing base comprised 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. As of
March 31, 2009 there were no borrowings outstanding under either of the term loan facility or the revolving credit facility.

Our cash resources and
any borrowings available under the term loan and 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 may be significantly less than $22.5 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 term loan and revolving
credit facility bear interest ranging from LIBOR + 3.25% to LIBOR +3.75%, with a minimum Base LIBOR Rate of 2.25%. As the minimum Base LIBOR Rate under the term loan and revolving credit facility is 2.25% and the LIBOR rate was 1.19% on
March 31, 2009, a 0.5% increase or decrease in the LIBOR rate as of March 31, 2009 would have no impact on interest payable under the credit facilities. The term loan and revolving credit facility include certain covenants and restrictions
with respect to our operations and require us to maintain certain levels of Adjusted EBITDA and interest coverage ratios, among other terms and conditions. Repayment of any amounts drawn under the term loan and the revolving credit facility can be
made at certain points in time with ultimate maturity being February 27, 2013. Amounts repaid under the secured term loan, and prepayments made under the revolving credit facility in certain circumstances, cannot be re-borrowed by us. The
purpose of this financing is to provide additional liquidity and capital resources for working capital and general corporate purposes.

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 2009.

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 favourable for 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 market conditions may have a material impact on our ability to complete any of the activities as described on favourable terms, if at all.



40



---

##### Table of Contents

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



|                                                     |  |                             |        |   |      |   |         |  
|---------------------------------------------------- |  | --------------------------- | ------ | - | ---- | - | ------- | -
|                                                     |  | Three months endedMarch 31, |       
|(in thousands of U.S.$)                              |  | 2009                        |        |   | 2008 |  
|Cash and cash equivalents, beginning of period       |  | $                           | 38,952 |   |      | $ | 91,326  |  
|                                                     |  |                            
|Net income (loss) excluding non-cash items           |  |                             | 20,759 |   |      |   | (8,218  | )
|Working capital requirements                         |  |                             | 9,231  |   |      |   | (8,224  | )
|                                                     |  |                             |        |   |      |   |         |  
|Cash provided by (used in) operating activities      |  |                             | 29,990 |   |      |   | (16,442 | )
|Cash used in investing activities                    |  |                             | (504   | ) |      |   | (5,828  | )
|Cash (used in) provided by financing activities      |  |                             | (4,190 | ) |      |   | 121     |  
|Effect of exchange rate changes on cash              |  |                             | 275    |   |      |   | 615     |  
|                                                     |  |                             |        |   |      |   |         |  
|Net increase (decrease) in cash and cash equivalents |  |                             | 25,571 |   |      |   | (21,534 | )
|                                                     |  |                             |        |   |      |   |         |  
|Cash and cash equivalents, end of period             |  | $                           | 64,523 |   |      | $ | 69,792  |  
|                                                     |  |                             |        |   |      |   |         |  

Cash Flows from Operating Activities

Cash provided by operating activities for the quarter ended March 31, 2009 was $30.0 million compared to cash used in operating activities of $16.4 million for the comparative period in 2008. Net income for the
current quarter, excluding non-cash items, resulted in cash inflows of $20.8 million compared to cash outflows of $8.2 million for the first quarter of 2008. The increase in cash provided by operating activities was due primarily the one-time cash
payment of $25.0 million received from Baxter in the first quarter of 2009 as well as reduced research and development and selling, general and administrative costs in the first quarter of 2009, offset by increased income tax expense. Working
capital requirements resulted in cash inflows of $9.2 million for the first quarter of 2009 compared to cash outflows of $8.2 million for the first quarter of 2008. The increase in cash inflows related to working capital for the first quarter of
2009 as compared to the first quarter of 2008 primarily resulted from an interest payment on the Senior Subordinated Notes we made on March 31, 2008 which was not made until April 1 in 2009 and from the impact of non-cash tax expense.

Cash Flows from Investing Activities

Net cash used in
investing activities for the quarter ended March 31, 2009 was $0.5 million compared to net cash used of $5.8 million for the same quarter in 2008. For the quarter ended March 31, 2009, the net cash used in investing activities was
primarily for capital expenditures of $0.7 million. For the quarter ended March 31, 2008, the net cash used in investing activities was primarily for capital expenditures of $3.4 million, of which $1.5 million was for lab equipment and the
expansion of our R&D facilities, and $1.8 million was for manufacturing equipment, mainly for the expansion of our Puerto Rico manufacturing facility. During the quarter ended March 31, 2008, we also invested $2.5 million in IPR&D for
an initial licence payment to Rex Medical.

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 March 31, 2009, we were not holding
any short-term marketable securities.

At March 31, 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.



41



---

##### Table of Contents

|                        |  |               |       |                  |   |      
|----------------------- |  | ------------- | ----- | ---------------- | - | -----
|(in thousands of U.S.$) |  | March 31,2009 |       | December 31,2008
|Canadian dollars        |  | $             | 2,191 |                  | $ | 3,942
|Swiss franc             |  |               | 2,196 |                  |   | 3,053
|Euro                    |  |               | 2,753 |                  |   | 5,263
|Danish krone            |  |               | 824   |                  |   | 2,022
|Other                   |  |               | 1,586 |                  |   | 2,806
|                        |  |               |       |                  |   |      

Cash Flows from Financing Activities

Net cash used in financing activities for the quarter ended March 31, 2009 was $4.2 million primarily for certain payments related to the postponed transaction with Ares and New Leaf announced in the second half
of 2008 as well as expenditures related to the credit facility announced on March 2, 2009 (see Liquidity and Capital Resources above and note 11(c) to unaudited interim consolidated financial statements for three months ended
March 31, 2009). Net cash provided by financing activities for the quarter ended March 31, 2008 was $0.1 million for proceeds from the exercise of stock options.

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 March 31,
2009, the interest rate on these notes was 5.02%. 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. As of April 1, 2009, 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. As of March 31,
2009, we are in material compliance with all covenants and are not in breach of any provision of the indentures governing the Subordinated Notes and Floating Rate Notes that would cause an event of default to occur.

In addition, the terms of our senior secured credit facility that we announced on March 2, 2009, include customary financial covenants, including maintaining
certain levels of 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 their business, make
distributions and make advances, loans or investments. As of March 31, 2009, we are in material compliance with all covenants and are not in breach of any of the provisions governing the credit facility that would cause an event of default to
occur.

Contractual Obligations

During the three
months ended March 31, 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.



42



---

##### Table of Contents

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 March 31, 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 December 2007, the Financial
Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards (SFAS) No. 141 (Revised 2007), Business Combinations, or SFAS No. 141(R). SFAS No. 141(R) will change the accounting for
business combinations. Under SFAS No. 141(R), an acquiring entity will be required to recognize all the assets acquired and liabilities assumed in a transaction at the acquisition-date fair value with limited exceptions. SFAS No. 141(R)
will change the accounting treatment and disclosure for certain specific items in a business combination. SFAS No. 141(R) 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. We have adopted this standard but the impact on accounting for business combinations will be dependent upon future acquisitions.

On April 1, 2009, the FASB issued FASB Staff Position (FSP) FAS No. 141(R)-1, Accounting for Assets Acquired and Liabilities Assumed in a Business
Combination That Arise from Contingencies, to amend and clarify the initial recognition and measurement, subsequent measurement and accounting, and related disclosures arising from contingencies in a business combination under SFAS No. 141(R).
FSP FAS No. 141(R)-1 applies to all assets acquired and liabilities assumed in a business combination that arise from contingencies that would be within the scope of FAS No. 5 if not acquired or assumed in a business combination, except for
assets or liabilities arising from contingencies that are subject to specific guidance in FAS 141(R). We have adopted this standard but the impact on accounting for business combinations will be dependent upon future acquisitions.

In December 2007, the FASB issued SFAS No. 160, Noncontrolling Interests in Consolidated Financial StatementsAn Amendment of ARB No. 51, or SFAS
No. 160. SFAS No. 160 establishes new accounting and reporting standards for the noncontrolling interest in a subsidiary and for the deconsolidation of a subsidiary. SFAS No. 160 is effective for fiscal years beginning on or after
December 15, 2008. Adopting this standard did not have a material impact on our consolidated balance sheets, results of operations or cash flows.

In
November 2007, the Emerging Issues Task Force issued EITF Issue 07-01, Accounting for Collaborative Arrangements or EITF Issue 07-01. EITF Issue 07-01 requires collaborators to present the results of activities for which they act as the principal on
a gross basis and report any payments received from (made to) other collaborators based on other applicable GAAP or, in the absence of other applicable GAAP, based on analogy to authoritative accounting literature or a reasonable, rational, and
consistently applied accounting policy election. Further, EITF Issue 07-01 clarified that the determination of whether transactions within a collaborative arrangement are part of a vendor-customer (or analogous) relationship subject to Issue 01-9,
Accounting for Consideration Given by a Vendor to a Customer. EITF Issue 07-01 is effective for fiscal years beginning December 15, 2008. Adoption of this standard has not had a material impact on our consolidated balance sheets, results of
operations or cash flows.

In March 2008, the FASB issued SFAS No. 161, Disclosures about Derivative Instruments and Hedging Activities or SFAS
No. 161. SFAS No. 161 amends and expands the disclosure requirements of SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities. It requires qualitative disclosures about objectives and strategies for using
derivatives, quantitative disclosures about fair value amounts of gains and losses on derivative instruments, and disclosures about credit-risk-related contingent features in derivative agreements. This statement is effective for financial
statements issued for fiscal years beginning after November 15, 2008. Adopting this standard did not have a material impact on our consolidated balance sheets, results of operations or cash flows.

In April 2008, the FASB issued FSP FAS No. 142-3, Determination of the Useful Life of Intangible Assets, or FSP FAS No. 142-3. FSP FAS No. 142-3 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 SFAS No. 142, Goodwill and Other Intangible Assets. The intent of the



43



---

##### Table of Contents

position is to improve the consistency between the useful life of a recognized intangible asset under SFAS No. 142 and the period of expected cash flows
used to measure the fair value of the intangible asset. FSP FAS 142-3 is effective for fiscal years beginning after December 15, 2008. Adoption of this standard has not had a material impact on our consolidated balance sheets, results of
operations or cash flows.

In December 2008, the FASB issued FSP SFAS No. 140-4 and FIN No. 46R-8, Disclosures by Public Entities (Enterprises)
about Transfers of Financial Assets and Interests in Variable Interest Entities. This statement increases the disclosure requirements regarding continuing involvement with financial assets that have been transferred, as well as the companys
involvement with variable interest entities. The FSP is effective for financial statements issued for interim periods ending after Dec. 15, 2008. Adoption of these standards has not had a material impact on our consolidated balance sheets, results
of operations or cash flows.

On January 12, 2009, the FASB issued FSP EITF No. 99-20-1, Amendments to the Impairment Guidance of EITF Issue 99-20.
The FSP eliminates the requirement that a holders best estimate of cash flows be based upon those that a market participant would use. Instead, the FSP requires that an other-than-temporary impairment be recognized through earnings
when it is probable that there has been an adverse change in the holders estimated cash flows from the cash flows previously projected. The Staff Position is effective for the first interim period or fiscal year ending after December 15,
2008, and each interim and annual period thereafter. Retroactive application to a prior interim period is not permitted. Adoption of these standards has not had a material impact on our consolidated balance sheets, results of operations or cash
flows.

In June 2008, the Emerging Issues Task Force issued (EITF) EITF Issue 08-3, Accounting for Lessees for Maintenance Deposits under Lease
Arrangements, or EITF Issue 08-3. EITF Issue 08-3 provides guidance for accounting for nonrefundable maintenance deposits. It also provides revenue recognition accounting guidance for the lessor. EITF Issue 08-3 is effective for fiscal years
beginning after December 15, 2008. Adopting this standard did not have a material impact on our consolidated balance sheets, results of operations or cash flows.

In June 2008, the EITF reached a consensus on EITF Issue 08-4, Transition Guidance for Conforming Changes to EITF Issue 98-5, Accounting for Convertible Securities with Beneficial Conversion Features or Contingently
Adjustable Conversion Ratios. Subsequent to the issuance of EITF Issue 98-5, certain portions of the guidance contained in EITF Issue 98-5 were nullified by EITF Issue 00-27, Application of EITF Issue 98-5, Accounting for Convertible Securities
with Beneficial Conversion Features or Contingently Adjustable Conversion Ratios. However, the portions of EITF Issue 98-5 that were nullified by EITF Issue 00-27 were not specifically identified in EITF Issue 98-5, nor were the illustrative
examples in EITF Issue 98-5 updated for the effects of EITF Issue 00-27. EITF Issue 08-4 specifically addresses the conforming changes to EITF Issue 98-5 and provides transition guidance for the conforming changes. Adoption of these standards has
not had a material impact on our consolidated balance sheets, results of operations or cash flows.

In September 2008, the FASB ratified EITF Issue 08-5,
Issuers Accounting for Liabilities Measured at Fair Value With a Third-Party Credit Enhancement. EITF Issue 08-5 provides guidance for measuring liabilities issued with an attached third-party credit enhancement (such as a guarantee). It
clarifies that the issuer of a liability with a third-party credit enhancement should not include the effect of the credit enhancement in the fair value measurement of the liability. EITF Issue 08-5 is effective for the first reporting period
beginning after December 15, 2008. Adoption of these standards has not had a material impact on our consolidated balance sheets, results of operations or cash flows.

In November 2008, the EITF Issue 08-6, Equity method Investment Accounting Considerations, or EITF Issue 08-6. EITF Issue 08-6 addresses a number of matters associated with the impact of SFAS No. 141(R) and SFAS
No. 160 on the accounting for equity method investments including initial recognition and measurement and subsequent measurement issues. EITF Issue 08-6 is effective, on a prospective basis, for fiscal years beginning after December 15,
2008 and interim periods within those fiscal years. Adopting this standard did not have a material impact on our consolidated balance sheets, results of operations or cash flows.

In November 2008, the EITF Issue 08-7, Accounting for Defensive Intangible Assets, or EITF 08-7. EITF Issue 08-7 provides guidance for accounting for defensive intangible assets subsequent to their acquisition in
accordance with SFAS No. 141R and SFAS No. 157 including the estimated useful life that should be assigned to such assets. EITF Issue 08-7 is effective for intangible assets acquired on or after the beginning of the first annual reporting
period beginning on or after December 15, 2008. We have adopted this standard and the impact on accounting for defensive intangible assets will be dependent upon future acquisitions.

In June 2008, the FASB ratified EITF Issue 07-5, Determining Whether an Instrument (or an Embedded Feature) is Indexed to an Entitys Own Stock. EITF Issue 07-5
provides that an entity should use a two step approach to evaluate whether an equity-linked financial instrument (or embedded feature) is indexed to its own stock, including evaluating the instruments contingent exercise and settlement
provisions. It also clarifies the impact of foreign currency denominated strike prices and market-based employee



44



---

##### Table of Contents

stock option valuation instruments on the evaluation. EITF Issue 07-5 is effective for fiscal years beginning after December 15, 2008. Adoption of these
standards has not had a material impact on our consolidated balance sheets, results of operations or cash flows.

Recent Accounting Pronouncements

In April 2009, the FASB issued FSP FAS No. 107-1 and APB 28-1, Interim Disclosures about Fair Value of Financial Instruments, or FSP FAS 107-1. FSP FAS
107-1 amends the disclosure requirements of 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. FSP FAS 107 requires public
companies to disclosure the fair value of its financial instruments whenever it issues summarized financial information for interim reporting periods. FSP FAS No. 107-1 is effective for interim periods beginning after June 15, 2009. We have not
yet completed our evaluation of FSP FAS No. 107-1.

In April 2009, the FASB issued FSP FAS No. 115-2 and FAS No. 124-2, Recognition and Presentation of
Other-than-Temporary Impairments, or FSP FAS No. 115-2. FSP FAS No. 115-2 amends the impairment guidance for certain debt securities and will require an investor to assess the likelihood of selling the security prior to recovering the cost basis. If
the investor is able to meet the criteria to assert 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. FSP FAS 115-2 is effective for interim
periods beginning after June 15, 2009. We have not yet completed our evaluation of FSP FAS 115-2.

In April 2009, the FASB issued FSP FAS No. 157-4,
Determining Fair Value When the Volume and Level of Activity for Asset or Liability have significantly Decreased and Identifying Transactions that are Not Orderly, or FSP FAS No. 157-4. FSP FAS No. 157-4 amends FAS No. 157, Fair Value Measurements,
to provide 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. FSP FAS No. 157-4
provides additional guidance on how fair value measurements might be determined in an active market. FSP FAS No. 157-4 is effective for interim periods beginning after June 15, 2009 and shall be applied prospectively. We are still assessing the
impact of this pronouncement.

Outstanding Share Data

As of March 31, 2009, there were 85,121,983 common shares issued and outstanding for a total of $472.7 million in share capital. At March 31, 2009, we had 8,349,900 CDN dollar stock options outstanding under the Angiotech
Pharmaceuticals, Inc. stock option plan (of which 7,242,730 were exercisable and expected to vest) at a weighted average exercise price of CDN$9.81. We also had 3,019,468 U.S. dollar stock options outstanding under this plan at March 31, 2009,
(of which 2,147,662 were exercisable and expected to vest) at a weighted average exercise price of US$2.01 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 March 31, 2009, there were 90 stock options outstanding in the AMI stock option plan (of which 13 were exercisable and expected to vest). 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.



45



---

##### Table of Contents

|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 March 31, 2009 we had cash and cash equivalents of $64.5 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 and the notes bear interest at a rate of approximately 5.0% (December 31, 2008  6.0%). Based upon our average
floating rate debt levels during the three months ended March 31, 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 March 31, 2009 and
March 31, 2008. 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 gains of $0.7
million and $0.4 million for the three months ended March 31, 2009 and March 31, 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 9% and 12% of our net revenue for the three months ended March 31, 2009 and March 31, 2008, respectively
were generated in other than the United States dollar, 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 March 31, 2009. Assuming a 10% strengthening of the U.S. dollar, our product
net revenue would have been negatively impacted by approximately $0.7 million on an annual basis.



46



---

##### Table of Contents

|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
March 31, 2009 that has materially affected, or is reasonably likely to materially affect, such internal control over financial reporting.



47



---

##### Table of Contents

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. 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 Sahajanand (finding the Angiotech patent novel, inventive, and sufficiently disclosed). The Court of Appeal however requested amendment of claim 12 before rendering their decision on infringement. This amendment
is due to the court on the extended due date of May 19, 2009. A date for the courts decision on infringement has not yet been set. The decision of the Court of Appeal is appealable to the Supreme Court of the Netherlands.

On March 23, 2006, RoundTable Healthcare Partners, LP as Seller Representative, we as Buyer, and LaSalle Bank as Escrow Agent, executed an Escrow Agreement under which
we deposited $20 million with LaSalle. On April 4, 2007, LaSalle Bank 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 U.S. District Court 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 (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 have submitted a Motion for Summary Judgment to the court based upon the judges Markman decision. No
hearing date has yet been set by the court.

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



| |  |  | In EP0774964 (which is licensed from the Massachusetts Institute of Technology) the patent was revoked after a hearing held July 17, 2007. An appeal was filed
on October 2, 2007. An oral hearing was to be held at the EPO on March 19, 2009, but was cancelled when the Massachusetts Institute of Technology filed a request for withdrawal of the patent. On March 16, 2009, the EPO issued a notice
terminating the proceedings and revoking the patent.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | In EP0784490,an oral hearing has been scheduled for October 1, 2009.
| | - |  | --------------------------------------------------------------------



| |  |  | 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.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | 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 and briefs are being exchanged.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | In EP0876166 the EPO held an oral hearing on September 24, 2008, and thereafter revoked this patent. Angiotech did not appeal the revocation.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | 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.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | 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.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | 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.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | In EP1429664, an oral hearing has been scheduled for May 27, 2009.
| | - |  | ------------------------------------------------------------------



| |  |  | In EP1159974, briefs are being exchanged.
| | - |  | -----------------------------------------



| |  |  | In EP0991359, our response to the opposition is to be filed prior to the extended deadline of May 15, 2009.
| | - |  | -----------------------------------------------------------------------------------------------------------



| |  |  | In EP0876165, an oral hearing has been scheduled for June 24, 2009
| | - |  | ------------------------------------------------------------------



48



---

##### Table of Contents

|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 were profitable for the quarter ended March 31, 2009 but not for the year ended December 31, 2008 and may not be able to maintain
profitability.

We began operations in 1992 and have incurred a loss from operations in each of the years of our existence except for fiscal years 2004
and 2006. We were profitable for the quarter ended March 31, 2009 and as of March 31, 2009, our accumulated deficit was $831 million. Our ability to maintain profitability depends 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 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, labour 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 sharp reduction 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. As described below, on March 2, 2009, we announced that we had entered into a senior secured credit facility to provide enhanced liquidity in the near term and to 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New Senior Secured Credit
Facilities 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 2009. 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 new 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.

Our
obligation to pay cash interest on our existing debt has had, and we expect will continue to have, an adverse effect on our liquidity.

We currently
have outstanding $325 million aggregate principal amount of Senior Floating Rate Notes due 2013 (the Floating Rate Notes) and $250 million aggregate principal amount of 7.75% Senior Subordinated Notes due 2014 (the
Subordinated Notes). We are obligated to make periodic cash interest payments on both the Floating Rate Notes and the Subordinated Notes. Using current interest rates, the annual combined cash interest cost of these notes is $30.9
million.



49



---

##### Table of Contents

As a result of the cash interest payments we are obligated to make on our outstanding notes, we have had significant
liquidity issues. If our cash flows are worse than expected, an inability to access additional sources of liquidity to fund our cash needs beyond 2009, or to refinance our outstanding notes, could further adversely affect our financial condition or
results of operations and our ability to make payments on our debt, and could force us to seek the protection of the bankruptcy laws.

During 2008,
we commenced certain cost reductions with the goal of achieving positive consolidated free cash flow (after the incurrence of net interest expense). These efforts may not be sufficient to achieve our goal. If further cost reductions beyond those
that are currently scheduled become necessary, our future prospects may be adversely impacted.

In September 2008 we announced that we were pursuing
various initiatives to reduce operating costs and focus our business efforts on our most promising near term product opportunities. We believe certain cost reduction measures, in addition to a potential financial or strategic transaction of
significant magnitude, are concurrently necessary to address potential liquidity issues likely to arise in the near term relating to our current balance sheet structure.

We have implemented, and we may continue to implement, operating cost reductions across all functions in the company, including in research and development and general and administrative functions, with more limited
reduction initiatives in sales and marketing. The cost reduction efforts are designed to reduce certain expenses while maintaining support for the sales our existing marketed product lines. Our remaining resources subsequent to these changes will be
focused primarily on our existing Medical Products business, and on selected new products that have recently launched or are expected to be launched in the near future, including Quill SRS, the HemoStream Chronic Dialysis Catheter and the
Bio-Seal Lung Biopsy System. Selected actions that have been taken, or that we expect to take, with respect to the reorganization include postponement of the scheduled launch of our 5-fluorouracil-eluting central venous catheter (5-FU CVC);
closure of our research and manufacturing facility in Rochester, New York; postponement of certain pre-clinical-stage research activities, pending the completion of partnering or other funding activities that would offset direct costs and personnel
costs associated with such programs; reduction of certain financial and personnel contributions relating to our joint venture with Genzyme Corporation; potential amendment of and reduction in cash outlays related to our collaboration with Athersys,
Inc.; rationalization or elimination of office and laboratory space in Vancouver, British Columbia, North Bend, Washington and Herndon, Virginia; rationalization of selected pending and issued intellectual property; elimination of certain expenses
and reductions in personnel in all general and administrative and in research and development departments; selective reduction in certain sales and marketing investments personnel and in medical affairs; and postponement of selected planned capital
expenditures.

Failure to achieve cost reductions through the above or other measures at the rate or levels we expect could adversely affect our ability to
achieve our previously stated goal of achieving positive consolidated free cash flow (after the incurrence of net interest expense). If we are required to make further reductions to our expense levels beyond those that are ongoing or currently
contemplated, our future business prospects may be adversely impacted.

We depend on BSC for a significant amount of our future revenues and
development of TAXUS.

Although the acquisition of our Medical Products segment has diversified our revenue, we anticipate that a significant amount
of our revenue for the next few years will be derived from and dependent upon royalty revenues from BSC. We do not have control over the sales and marketing efforts, stent pricing, production volumes, distribution or regulatory environment related
to BSCs paclitaxel-eluting coronary stent program. Our involvement is limited to the terms of our 1997 License Agreement (as amended) with BSC and Cook, which provides for the receipt of royalty revenue based on the net sales of TAXUS and
specifies the applicable royalty rates.

Royalty revenue from BSC for the three months ended March 31, 2009 decreased by 45% from the same period in
2008, which BSC has attributed to a decline in the number of angioplasty procedures in the United States and may decline further during the year ending December 31, 2009. If BSC is impaired in its ability to market and distribute TAXUS, whether
for this reason or due to a failure to comply with applicable regulatory requirements, discovery of a defect in the device, increased incidence of adverse events or identification of other safety issues, or previously-unknown problems with the
manufacturing operations for TAXUS (any of which could, under certain circumstances, result in a manufacturing injunction), our revenues could be further significantly reduced. BSCs failure to resolve these issues in a timely manner and to the
satisfaction of the FDA and other regulatory authorities, or the occurrence of similar problems in the future, could delay the launch of TAXUS Liberté in the United States and could have a significant impact on our royalty revenue from sales
of TAXUS.

Additionally, BSC may terminate our 1997 License Agreement under certain circumstances, including, if BSC is unable to acquire a supply of
paclitaxel at a commercially reasonable price, if BSC reasonably determines that the paclitaxel-eluting coronary stent is no longer commercially viable, or if our license agreement with the National Institutes of Health (NIH), certain
rights under which are sublicensed to BSC, terminates. During the three months ended March 31, 2009, revenue from BSC represented approximately 17% of our total revenue from continuing operations, compared to 35% in 2008.



50



---

##### Table of Contents

The amounts payable by BSC to us vary from 1% to 9% of net sales depending on various factors, including volume of sales
from time to time and patent protection laws in the country of sale. From these amounts, we must pay certain royalties to our licensors, including the NIH and the University of British Columbia (UBC), under license agreements. For the
three months ended March 31, 2009, the average gross royalty rate earned was 6.9% for sales in the United States and 6.1% for sales in other countries. For the three months ended March 31, 2008, the average gross royalty rate earned was
7.4% for sales in the United States and 7.6% for sales in other countries. There is no guarantee that royalty payments under our 1997 License Agreement will continue, and demand for BSCs paclitaxel-eluting coronary stent products could
continue to decline as a result of the factors stated above, as well as competition, technological change, reimbursement or other factors. Also, the royalty rate payable by BSC could decline if and when patent protection expires, or no longer exists
as defined by our 1997 License Agreement, in certain jurisdictions.

Boston Scientific may be enjoined from the selling, or otherwise become subject
to limitations applicable to its ability to sell, TAXUS in the United States.

Our royalty revenue derived from the sale of paclitaxel-eluting
coronary stents depends on BSCs ability to continue to sell its TAXUS Express 2 stent and to launch next generation paclitaxel-eluting stents, including the TAXUS Liberté stent, in the United States. Historically, stent manufacture and
sale is the subject of a substantial amount of U.S. patent litigation, and we anticipate that our licensees, including BSC and others, may be involved in material legal proceedings related to paclitaxel-eluting stents.

Many of the products we are depending on to grow our business are not yet ready for sale or have only recently been introduced for sale.

Many of the products we are depending on to drive future growth are not yet ready for sale or have only recently been introduced for sale. For example, our Option IVC
filter has not yet been approved for sale in the U.S, our 5-FU CVC has been approved for sale but has not yet been commercially launched, and our Quill SRS and HemoStream Chronic Dialysis Catheter products have only recently become available for
sale. If any of these or our other products are not approved for sale or do not achieve market acceptance, our ability to generate revenues will be adversely affected.

If our products are alleged to be harmful, we may not be able to sell them, we may be subject to product liability claims not covered by insurance and our reputation could be damaged.

The nature of our business exposes us to potential liability risks inherent in the testing, manufacturing and marketing of pharmaceutical products and medical devices.
Using our drug candidates or devices in clinical trials may expose us to product liability claims. These risks will expand with respect to drugs or devices, if any, that receive regulatory approval for commercial sale. In addition, some of the
products we manufacture and sell are designed to be implanted in the human body for varying periods of time. Even if a drug or device were approved for commercial use by an appropriate governmental agency, there can be no assurance that users will
not claim that effects other than those intended may have resulted from our products. Component failures, manufacturing flaws, quality system failures, design defects, inadequate disclosure of product-related risks or product-related information or
other safety issues with respect to these or other products we manufacture or sell could result in an unsafe condition or injury to, or death of, a patient. In addition, although many of our products are subject to review and approval by the FDA or
other regulatory agencies, under the current state of law, any approval of our products by such agencies will not prohibit products liability lawsuit from being brought against us in the event that our products are alleged to be defective, even if
such products have been used for their approved indications and appropriate labels have been included.

In the event that anyone alleges that any of our
products are harmful, we may experience reduced consumer demand for our products or our products may be recalled from the market. In addition, we may be forced to defend individual or class action lawsuits and, if unsuccessful, to pay a substantial
amount in damages. A recall of some of our products could result in exposure to additional product liability claims, lost sales and significant expense to perform the recall. The outcome of litigation, particularly class action lawsuits, is
difficult to assess or quantify. Plaintiffs in these types of lawsuits often seek recovery of very large or indeterminate amounts, including not only actual damages, but also punitive damages. The magnitude of the potential loss relating to these
types of lawsuits may remain unknown for substantial periods of time. In addition, the cost to defend against any future litigation may be significant.

We
do not have insurance covering our costs and losses as a result of any recall of products or devices incorporating our technologies whether such recall is instituted by a device manufacturer or us as required by a regulatory agency. Insurance to



51



---

##### Table of Contents

cover costs and losses associated with product recalls is expensive. If we seek insurance covering product recalls in the future it may not be available on
acceptable terms. Even if obtained, insurance may not fully protect us against potential liability or cover our losses. Some manufacturers that suffered such claims in the past have been forced to cease operations or declare bankruptcy.

We do have insurance covering product liability. However, our insurance may not fully protect us from potential product liability claims. If a product liability claim
or a series of claims is brought against us in excess of our insurance coverage, our business could suffer. Some manufacturers that suffered such claims in the past have been forced to cease operations or even to declare bankruptcy.

Our success depends on the successful commercialization of our technology.

The successful commercialization of our technology is crucial for our success. Successful product development in the pharmaceutical industry is highly uncertain and very few research and development projects produce a
commercial product. Medical devices, pharmaceutical applications and surgical implants utilizing our technology are in various stages of clinical and commercial development and face a variety of risks and uncertainties. Principally, these risks and
uncertainties include the following:



| |  | Future clinical trial results may show that some or all of our technology, or the technology of our strategic collaborators that incorporate our technology, is not
safe or effective.
|- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | Even if our technology is shown to be safe and effective, we and our strategic collaborators may face significant or unforeseen difficulties in manufacturing our
medical devices or the medical devices and surgical implants that use our technology. These difficulties may become apparent when we or our strategic collaborators manufacture the medical devices or surgical implants on a small scale for clinical
trials and regulatory approval or may only become apparent when scaling-up the manufacturing to commercial scale.
|- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | Even if our technology-based products are successfully developed, receive all necessary regulatory approvals and are commercially produced, there is no guarantee
that there will be market acceptance of them or that they will not cause unanticipated side effects in patients. For example, if drug-eluting stents are found to cause, or are perceived to be the cause of, blood clots in patients, then sales of our
drug-eluting stent products may be adversely affected. In addition, there is no guarantee that there will be market acceptance of our products. Our ability to achieve market acceptance for any of our products will depend on a number of factors,
including whether or not competitors may develop technologies which are superior to or less costly than our technology-based products, and whether governmental and private third-party payers provide adequate coverage and reimbursement for our
products, with the result that our technology-based products, even if they are successfully developed, manufactured and approved, may not generate significant revenues.
|- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

If we are unsuccessful in dealing with any of these risks, or if we are unable to successfully commercialize our technology for some other reason, it would likely seriously harm our ability to generate revenue.

We depend on our strategic collaborators for the development, regulatory approval, testing, manufacturing and the potential commercialization of our
products.

Historically, our strategy has been to enter 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 our product candidates. For instance, we collaborate with BSC and Cook to develop and market paclitaxel-eluting
coronary and peripheral stents. Strategic collaborators, both existing (particularly BSC) and those that we may collaborate with in the future, are or may be essential to the development of our technology and potential revenue and we have little
control over or access to information regarding our collaborators activities with respect to our products.

Our strategic collaborators may fail to
successfully develop or commercialize our technology to which they have rights for a number of reasons, including:



| |  | failure of a strategic collaborator to continue, or delays in, its funding, research, development and commercialization activities;
|- |  | -----------------------------------------------------------------------------------------------------------------------------------



| |  | the pursuit or development by a strategic collaborator of alternative technologies, either on its own or with others, including our competitors, as a means for
developing treatments for the diseases targeted by our programs;
|- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | the preclusion of a strategic collaborator from developing or commercializing any product, through, for example, litigation or other legal action; and
|- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------



52



---

##### Table of Contents

| |  | the failure of a strategic collaborator to make required milestone payments, meet contractual milestone obligations or exercise options which may result in our
terminating applicable licensing arrangements.
|- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

We have and we expect that we will continue to enter into licensing agreements with third
parties to give us access to technologies that we may use to develop products through our strategic collaboration and partnership arrangements. The technologies governed by these license agreements may be critical to our ability to maintain our
competitive advantage in our existing products and to develop future products. For example, through licenses with NIH and UBC, we have been granted access to technologies that have contributed to the development of the TAXUS paclitaxel-eluting
coronary stent.

Pursuant to terms of existing license agreements, licensors have the ability to terminate their respective licenses upon the occurrence of
certain specified circumstances. Events which may allow licensors to exercise these termination provisions include our bankruptcy, sub-licensing without the licensors consent, a transaction which results in a change of control of us, our
failure to use the required level of diligence efforts to develop, market and sell products based on the licensed technology, our failure to maintain adequate levels of insurance with respect to the licensed technologies or other acts or omissions
that may constitute a breach by us of our license agreement. In addition, any failure to continue to have access to these technologies may materially affect the benefits that we currently derive from the collaboration and partnership arrangements
and may negatively impact our results and operations.

If our process related to product development does not result in an approved and commercially
successful product, our business could be adversely affected.

We focus our research and development activities on areas in which we have particular
strengths. The outcome of any development program is highly uncertain, notwithstanding how promising a particular program may seem. Success in pre-clinical and early-stage clinical trials may not necessarily translate into success in large scale
clinical trials. Further, to be successful in clinical trials, increased investment will be necessary, which will adversely affect our short-term profitability.

In addition, we will need to obtain and maintain regulatory approval in order to market new products. Notwithstanding the outcome of clinical trials for new products, regulatory approval may not be achieved. The results of clinical trials
are susceptible to varying interpretations that may delay, limit or prevent approval or result in the need for post-marketing studies. In addition, changes in regulatory policy for product approval during the period of product development and review
by regulators of a new application may cause delays or rejection. Even if we receive regulatory approval, this approval may include limitations on the indications for which we can market the product. There is no guarantee that we will be able to
satisfy the applicable regulatory requirements, and we may suffer a significant variation from planned revenue as a result.

Our current and planned
clinical trials may not begin on time, or at all, and may not be completed on schedule, or at all.

The commencement or completion of any of our
clinical trials may be delayed or halted for numerous reasons, including, but not limited to, the following:



| |  | the FDA or other regulatory authorities do not approve a clinical trial protocol or a clinical trial, or place a clinical trial on hold;
|- |  | ----------------------------------------------------------------------------------------------------------------------------------------



| |  | the data and safety monitoring committee of a clinical trial recommends that a trial be placed on hold or suspended;
|- |  | --------------------------------------------------------------------------------------------------------------------



| |  | patients do not enroll in clinical trials at the rate we expect;
|- |  | ----------------------------------------------------------------



| |  | patients are not followed-up at the rate we expect;
|- |  | ---------------------------------------------------



| |  | patients experience adverse side effects or events related to our products;
|- |  | ---------------------------------------------------------------------------



| |  | patients die or suffer adverse medical effects during a clinical trial for a variety of reasons, including the advanced stage of their disease and medical problems,
which may or may not be related to our product candidates;
|- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | regulatory inspections of our clinical trials or manufacturing facilities, which may, among other things, require us to undertake corrective action or suspend or
terminate our clinical trials if investigators find us not to be in compliance with regulatory requirements;
|- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | the failure of our manufacturing process to produce finished products which conform to design and performance specifications;
|- |  | -----------------------------------------------------------------------------------------------------------------------------



| |  | changes in governmental regulations or administrative actions;
|- |  | --------------------------------------------------------------



| |  | the interim results of the clinical trial are inconclusive or negative;
|- |  | -----------------------------------------------------------------------



| |  | pre-clinical or clinical data is interpreted by third parties in different ways;
|- |  | --------------------------------------------------------------------------------



| |  | our clinical trial expenditures are constrained by our budgetary considerations; or
|- |  | -----------------------------------------------------------------------------------



| |  | our trial design, although approved, is inadequate to demonstrate safety and/or efficacy.
|- |  | -----------------------------------------------------------------------------------------



53



---

##### Table of Contents

Clinical trials may require the enrollment of large numbers of patients, and suitable patients may be difficult to
identify and recruit. Patient enrollment in clinical trials and completion of patient follow-up in clinical trials depend on many factors, including the size of the patient population, the nature of the trial protocol, the proximity of patients to
clinical sites and the eligibility criteria for the study and patient compliance. For example, patients may be discouraged from enrolling in our clinical trials if the trial protocol requires them to undergo extensive post-treatment procedures to
assess the safety and effectiveness of our products, or they may be persuaded to participate in contemporaneous trials of competitive products. Delays in patient enrollment or failure of patients to continue to participate in a study may cause an
increase in costs and delays or may result in the failure of the trial.

Our clinical trial costs will increase if we have material delays in our clinical
trials or if we need to perform more or larger clinical trials than planned. Adverse events during a clinical trial could cause us to repeat a trial, terminate a trial or cancel an entire program.

Pre-clinical development is a long, expensive and uncertain process, and we may terminate one or more of our pre-clinical development programs.

We may determine that certain pre-clinical product candidates or programs do not have sufficient potential to warrant the allocation of resources. Accordingly, we may
elect to terminate our programs for such product candidates. If we terminate a pre-clinical program in which we have invested significant resources, our prospects will suffer, as we will have expended resources on a program that will not provide a
return on our investment and we will have missed the opportunity to have allocated those resources to potentially more productive uses.

We may not
be able to protect our intellectual property or obtain necessary intellectual property rights from third parties, which could adversely affect our business.

Our success depends, in part, on ensuring that our intellectual property rights are covered by valid and enforceable patents or effectively maintained as trade secrets and our ability to detect violations of our intellectual property rights
and enforce such rights against others.

The validity of our patent claims depends, in part, on whether prior art references described or rendered obvious
our inventions as of the filing date of our patent applications. We may not have identified all prior art, such as U.S. and foreign patents, published applications or published scientific literature, that could adversely affect the validity of our
issued patents or the patentability of our pending patent applications. For example, patent applications in the United States are maintained in confidence for up to 18 months after their filing. In some cases, however, patent applications remain
confidential in the U.S. Patent and Trademark Office, which we refer to as the U.S. Patent Office, for the entire time prior to issuance as a U.S. patent. Patent applications filed in countries outside the United States are not typically published
until at least 18 months from their first filing date. Similarly, publication of discoveries in scientific or patent literature often lags behind actual discoveries. Therefore, we cannot be certain that we were the first to invent, or the first to
file patent applications related to, our technology. In the event that a third party has also filed a U.S. patent application covering a similar invention, we may have to participate in an adversarial proceeding, known as an interference, declared
by the U.S. Patent Office to determine priority of invention in the United States. It is possible that we may be unsuccessful in the interference, resulting in a loss of some portion or all of our U.S. patent positions. The laws in some foreign
jurisdictions do not protect intellectual property rights to the same extent as in the United States, and many companies have encountered significant difficulties in protecting and defending such rights in foreign jurisdictions. If we encounter such
difficulties or we are otherwise precluded from effectively protecting our intellectual property rights in foreign jurisdictions, our business prospects could be substantially harmed.

We frequently seek patents to protect our intellectual property. It should be recognized that we may not be able to obtain patent protection for key elements of our technology, as the patent positions of
pharmaceutical, biotechnology and medical device companies are uncertain and involve complex legal and factual questions for which important legal issues are largely unresolved. For example, no consistent policy has emerged regarding the scope of
health-related patent claims that are granted by the U.S. Patent Office or enforced by the U.S. federal courts. Rights under any of our issued patents may not provide us with commercially meaningful protection for our products or afford us a
commercial advantage against our competitors or their competitive products or processes. In addition, even if a patent is issued, the coverage claimed in a patent application may be significantly reduced in the patent as granted.

There can be no assurance that:



| |  | patent applications will result in the issuance of patents;
|- |  | -----------------------------------------------------------



| |  | additional proprietary products developed will be patentable;
|- |  | -------------------------------------------------------------



54



---

##### Table of Contents

| |  | licenses we have obtained from third parties that we use in connection with our technology will not be terminated;
|- |  | ------------------------------------------------------------------------------------------------------------------



| |  | patents issued will provide adequate protection or any competitive advantages;
|- |  | ------------------------------------------------------------------------------



| |  | patents will not be successfully challenged by any third parties; or
|- |  | --------------------------------------------------------------------



| |  | the patents of others will not impede our or our collaborators ability to commercialize our technology.
|- |  | --------------------------------------------------------------------------------------------------------

For example, the drug paclitaxel is itself not covered by composition of matter patents. Therefore, although we are developing an intellectual property portfolio around
the use of paclitaxel for intended commercial applications, others may be able to engage in off-label use of paclitaxel for the same indications, causing us to lose potential revenue. Furthermore, others may independently develop similar products or
technologies or, if patents are issued to us, design around any patented technology developed by us, which could affect our potential to generate revenues and harm our results of operations.

Patent protection for our technology may not be available based on prior art. The publication of discoveries in scientific or patent literature often lags behind actual
discoveries. As a consequence, there may be uncertainty as to whether we or a third party were the first creator of inventions covered by issued patents or pending patent applications or that we or a third party were the first to file patent
applications for such inventions. Moreover, we might have to participate in interference proceedings declared by the U.S. Patent Office, or other proceedings outside the United States, including oppositions, to determine priority of invention or
patentability, which could result in substantial cost to us even if the outcome were favourable. An unfavourable outcome in an interference or opposition proceeding could preclude us, our collaborators and our licensees from making, using or selling
products using the technology or require us to obtain license rights from prevailing third parties. We do not know whether any prevailing party would offer us a license on commercially acceptable terms, if at all. We may also be forced to pay
damages or royalties for our past use of such intellectual property rights, as well as royalties for any continued usage.

As part of our patent strategy,
we have filed a variety of patent applications internationally. Oppositions have been filed against various granted patents that we either own or license and which are related to certain of our technologies. See Legal Proceedings
elsewhere in this Report on Form 10-Q for a discussion of the proceedings related to certain of such oppositions.

Our future success and competitive
position depend in part on our ability to obtain and maintain certain proprietary intellectual property rights used in our approved products and principal product candidates. Any such success depends in part on effectively prosecuting claims against
others who we believe are infringing our rights and by effectively defending claims of intellectual property infringement brought by our competitors and others. The stent-related markets have experienced rapid technological change and obsolescence
in the recent past, and our competitors have strong incentives to attempt to stop or delay us from introducing new products and technologies. See We may incur substantial costs as a result of litigation or other proceedings relating to
patent and other intellectual property rights.

We do not know whether the patents that we have obtained or licensed, or may be able to obtain or
license in the future, would be held valid or enforceable by a court or whether a competitors technology or product would be found to infringe such patents. Further, we have no assurance that third parties will not properly or improperly
modify or terminate any license they have granted to us.

We have obtained licenses from third parties with respect to their intellectual property that we
use in connection with our technology. However, we may need to obtain additional licenses for the development of our current or future products. Licenses may not be available on satisfactory terms or at all. If available, these licenses may obligate
us to exercise diligence in bringing our technology to market and may obligate us to make minimum guarantee or milestone payments. This diligence and these milestone payments may be costly and could adversely affect our business. We may also be
obligated to make royalty payments on the sales, if any, of products resulting from licensed technology and may be responsible for the costs of filing and prosecuting patent applications. These costs could affect our results of operations and
decrease our earnings.

Certain of our key technologies include trade secrets and know-how that may not be protected by patents. There can be no assurance
that we will be able to protect our trade secrets. To help protect our rights, we undertake to require employees, consultants, advisors and collaborators to enter into confidentiality agreements. We cannot assure you that all employees, consultants,
advisors and collaborators have signed such agreements, or that these agreements will adequately protect our trade secrets, know-how or other proprietary information in the event of any unauthorized use or disclosure. Furthermore, we may not have
adequate remedies for any such breach. Any disclosure of confidential data into the public domain or to third parties could allow our competitors to learn our trade secrets and use the information in competition against us.

If certain single-source suppliers fail to deliver key product components in a timely manner, our manufacturing ability would be impaired and our product sales
could suffer.



55



---

##### Table of Contents

We depend on certain single-source suppliers that supply components used in the manufacture of certain of our products,
including our Quill SRS product. If we need alternative sources for key component parts for any reason, these component parts may not be immediately available to us. If alternative suppliers are not immediately available, we will have to identify
and qualify alternative suppliers, and production of these components may be delayed. We may not be able to find an adequate alternative supplier in a reasonable time period or on commercially acceptable terms, if at all. Shipments of affected
products have been limited or delayed as a result of such problems in the past, and similar problems could occur in the future. Our inability to obtain our key source supplies for the manufacture of our products may require us to delay shipments of
products, harm customer relationships or force us to curtail or cease operations.

If physicians do not recommend and endorse our products or
products that use our technology, or if our working relationships with physicians deteriorate, our products or products that use our technology may not be accepted in the marketplace, which could adversely affect our sales and royalty revenues.

In order for us to sell our products or continue to receive royalty revenues from the sale of products that use our technologies, physicians must
recommend and endorse them. We believe that recommendations and endorsements by physicians will be essential for market acceptance of our products, and we do not know whether we will obtain the necessary recommendations or endorsements from
physicians. Acceptance of our products or of products that use our technology depends on educating the medical community as to the distinctive characteristics, perceived benefits, safety, clinical efficacy and cost-effectiveness of these products
compared to products of competitors, and on training physicians in the proper application of these products. If we are not successful in obtaining the recommendations or endorsements of physicians for our products or our collaborators are not
successful in doing the same for their products that use our technology, our sales and royalty revenues may not increase or may decline.

In addition, if
we fail to maintain our working relationships with physicians, many of our products may not be developed and marketed in line with the needs and expectations of professionals who use and support our products. The research, development, marketing and
sales of many of our new and improved products is dependent upon our maintaining working relationships with physicians. We rely on these professionals to provide us with considerable knowledge and experience regarding our products and the marketing
of our products. Physicians assist us as researchers, marketing consultants, product consultants, inventors and as public speakers. If we are unable to maintain our strong relationships with these professionals and continue to receive their advice
and input, the development and marketing of our products could suffer, which could adversely affect the acceptance of our products in the marketplace and our sales.

If we are unable to license new technologies to utilize in the development of products, or our existing license agreements are terminated, our ability to maintain our competitive advantage in our existing
products and to develop future products may be adversely affected.

We have entered into, and we expect that we will continue to enter into,
licensing agreements with third parties to give us access to technologies that we may use to develop products through our strategic collaboration and partnership arrangements. The technologies governed by these license agreements may be critical to
our ability to maintain our competitive advantage in our existing products and to develop future products. For example, through licenses with the NIH and UBC, we have been granted access to technologies that have contributed to the developments of
the TAXUS Paclitaxel-Eluting Coronary Stent.

Pursuant to terms of our existing license agreements, licensors have the right under certain specified
circumstances to terminate their respective licenses. Events that may allow licensors to exercise these termination provisions include:



| |  | our bankruptcy;
|- |  | ---------------



| |  | sub-licensing without the licensors consent;
|- |  | ---------------------------------------------



| |  | a transaction which results in a change of control of us;
|- |  | ---------------------------------------------------------



| |  | our failure to use the required level of diligence to develop, market and sell products based on the licensed technology;
|- |  | -------------------------------------------------------------------------------------------------------------------------



| |  | our failure to maintain adequate levels of insurance with respect to the licensed technologies; or
|- |  | --------------------------------------------------------------------------------------------------



| |  | other acts or omissions that may constitute a breach by us of our license agreement.
|- |  | ------------------------------------------------------------------------------------

In addition, any failure to continue to have access to these technologies may materially adversely affect the benefits that we currently derive from our collaboration
and partnership arrangements and may adversely affect our results and operations.

Compulsory licensing and/or generic competition may affect our
business in certain countries.

In a number of countries, governmental authorities and other groups have suggested that companies which manufacture
medical products (i.e., pharmaceuticals and medical devices) should make products available at a low cost. In some cases, governmental



56



---

##### Table of Contents

authorities have held that where a pharmaceutical or medical device company does not do so, their patents might not be enforceable to prevent generic
competition. Alternatively, some governmental authorities could require that we grant compulsory licenses to allow competitors to manufacture and sell their own versions of our products, thereby reducing our sales or the sales of our licensee(s). In
all of these situations, the results of our operations in these countries could be adversely affected.

We may incur substantial costs as a result of
litigation or other proceedings relating to patent and other intellectual property rights.

In connection with maintaining the value of our various
intellectual property and exclusivity rights, we regularly evaluate the activities of others worldwide. Our success will depend, in part, on our ability to obtain patents, or licenses to patents, maintain trade secret protection and enforce our
rights against others. Should it become necessary to protect those rights, we intend to pursue all cost-efficient strategies, including, when appropriate, negotiation or litigation in any relevant jurisdiction. For a summary of certain of our
current legal proceedings, see Legal Proceedings elsewhere in this Quarterly Report on Form 10-Q.

We intend to pursue and to defend vigorously
any and all actions of third parties related to our material patents and pioneering technology. Any failure to obtain and protect intellectual property could adversely affect our business and our ability to operate could be hindered by the
proprietary rights of others.

Our involvement in intellectual property litigation could result in significant expense, adversely affecting the development
of product candidates or sales of the challenged product or intellectual property and diverting the efforts of our technical and management personnel, whether or not such litigation is resolved in our favor. Some of our competitors may be able to
sustain the costs of complex patent litigation more effectively than we can because they have substantially greater resources and intellectual property litigation may be used against us as a means of gaining a competitive advantage. Competing
parties frequently file multiple suits to leverage patent portfolios across product lines, technologies and geographies and to balance risk and exposure between the parties. Uncertainties resulting from the initiation and continuation of any
litigation could affect our ability to continue our operations. In the event of an adverse outcome as a defendant in any such litigation, we may, among other things, be required to:



| |  | pay substantial damages or back royalties;
|- |  | ------------------------------------------



| |  | cease the development, manufacture, use or sale of product candidates or products that infringe upon the intellectual property of others;
|- |  | -----------------------------------------------------------------------------------------------------------------------------------------



| |  | expend significant resources to design around a patent or to develop or acquire non-infringing intellectual property;
|- |  | ---------------------------------------------------------------------------------------------------------------------



| |  | discontinue processes incorporating infringing technology; or
|- |  | -------------------------------------------------------------



| |  | obtain licenses to the infringed intellectual property.
|- |  | -------------------------------------------------------

We cannot be assured that we will be successful in developing or acquiring non-infringing intellectual property or that necessary licenses will be available upon reasonable terms, if at all. Any such development, acquisition or license
could require the expenditure of substantial time and other resources and could adversely affect our business and financial results. If we cannot develop or acquire such intellectual property or obtain such licenses, we could encounter delays in any
introduction of products or could find that the development, manufacture or sale of products requiring such licenses could be prohibited.

If third parties
file patent applications, or are issued patents claiming technology also claimed by us in pending applications, we may be required to participate in interference proceedings with the U.S. Patent Office, or other proceedings outside the United
States, including oppositions, to determine priority of invention or patentability, which could result in substantial cost to us even if the eventual outcome were favourable.

Our ability to operate could be hindered by the proprietary rights of others.

A number of pharmaceutical,
biotechnology and medical device companies as well as research and academic institutions have developed technologies, filed patent applications or received patents on various technologies that may be related to our business. Some of these
technologies, applications or patents may conflict with or adversely affect our technologies or intellectual property rights, including those that we license from others. We are aware of other parties holding intellectual property rights that may
represent prior art or other potentially conflicting intellectual property, including stents coated with agents intended to reduce restenosis. Any conflicts with the intellectual property of others could limit the scope of the patents, if any, that
we may be able to obtain or result in the denial of our current or future patent applications altogether.

If patents that cover our activities are issued
to other persons or companies, we could be charged with infringement. In the event that other parties patents cover any portion of our activities, we may be forced to develop alternatives or negotiate a license for



57



---

##### Table of Contents

such technology. We do not know whether we would be successful in either developing alternative technologies or acquiring licenses upon reasonable terms, if
at all. Obtaining any such licenses could require the expenditure of substantial time and other resources and could harm our business and decrease our earnings. If we do not obtain such licenses, we could encounter delays in the introduction of our
products or could find that the development, manufacture or sale of products requiring such licenses is prohibited.

Technological advances and
evolving industry standards could reduce our future product sales, which could cause our revenues to grow more slowly or decline.

The markets for
our products are characterized by rapidly changing technology, changing customer needs, evolving industry standards and frequent new product introductions and enhancements. The emergence of new industry standards in related fields may adversely
affect the demand for our products. This could happen, for example, if new standards and technologies emerged that were incompatible with customer deployments of our applications. In addition, any compounds, products or processes that we develop may
become obsolete or uneconomical before we recover any of the expenses incurred in connection with their development. We cannot assure you that we will succeed in developing and marketing product enhancements or new products that respond to
technological change, new industry standards, changed customer requirements or competitive products on a timely and cost-effective basis. Additionally, even if we are able to develop new products and product enhancements, we cannot assure you that
they will achieve market acceptance.

We may be subject to damages resulting from claims that we or our employees have wrongfully used or disclosed
alleged trade secrets of their former employers.

Many of our employees were previously employed at universities or other biotechnology or
pharmaceutical companies, including our competitors or potential competitors. Although no such claims against us are currently pending, we may be subject to claims that these employees or we have inadvertently or otherwise used or disclosed trade
secrets or other proprietary information of their former employers. Litigation may be necessary to defend against these claims. Even if we are successful in defending against these claims, litigation could result in substantial costs and be a
distraction to management. If we fail in defending such claims, in addition to paying monetary damages, we may lose valuable intellectual property rights or personnel. A loss of key research personnel or their work product could hamper or prevent
our ability to commercialize certain product candidates, which could severely harm our business.

We may incur significant costs complying with
environmental laws and regulations.

Our research and development processes and manufacturing operations involve the use of hazardous materials. We
are subject to federal, state, provincial, local and other laws and regulations in the countries in which we operate or sell our products, which govern the use, manufacture, storage, handling and disposal of such materials and certain waste
products. The risk of accidental contamination or injury from these materials cannot be completely eliminated. In the event of an accident or the discovery of pre-existing contamination at one or more of our facilities, we could be held liable for
any damages that result and any such liability could exceed our resources. We may not be specifically insured with respect to this liability, and we do not know whether we will be required to incur significant costs to comply with environmental laws
and regulations in the future, or whether our operations, business or assets will be harmed by current or future environmental laws or regulations.

We face and will continue to face significant competition.

Competition from pharmaceutical companies, medical device companies,
biotechnology companies and academic and research institutions is intense and is expected to increase. Many of our competitors and potential competitors have substantially greater product development capabilities, experience conducting clinical
trials and financial, scientific, manufacturing, sales and marketing resources and experience than our company. Some of these competitors include JNJ, Guidant Corporation, Genzyme Corporation, Baxter, Abbott Laboratories, BSC, Medtronic, Inc.,
Wyeth, Inc., Novartis AG, C.R. Bard, the Allegiance division of Cardinal Health, Inc., Bausch & Lomb, and Covidien Ltd., among others. We also face competition from non-medical device companies, such as pharmaceutical companies, which may
offer non-surgical alternative therapies for disease states which are currently or intended to be treated using our products. Other companies may:



| |  | develop and obtain patent protection for products earlier than us;
|- |  | ------------------------------------------------------------------



| |  | design around patented technology developed by us;
|- |  | --------------------------------------------------



| |  | obtain regulatory approvals for such products more rapidly;
|- |  | -----------------------------------------------------------



| |  | have greater manufacturing capabilities and other resources;
|- |  | ------------------------------------------------------------



| |  | have larger or more experienced sales forces;
|- |  | ---------------------------------------------



| |  | develop more effective or less expensive products; or
|- |  | -----------------------------------------------------



58



---

##### Table of Contents

| |  | have greater success in obtaining adequate third-party payer coverage and reimbursement for their competing products.
|- |  | ---------------------------------------------------------------------------------------------------------------------

While we intend to expand our technological capabilities in order to remain competitive, there is a risk that:



| |  | research and development by others will render our technology or product candidates obsolete or non-competitive;
|- |  | ----------------------------------------------------------------------------------------------------------------



| |  | treatments or cures developed by others will be superior to any therapy developed by us; and
|- |  | --------------------------------------------------------------------------------------------



| |  | any therapy developed by us will not be preferred to any existing or newly-developed technologies.
|- |  | --------------------------------------------------------------------------------------------------

The commercial potential of our products and product candidates will be significantly limited if we are not able to obtain adequate levels of reimbursement or
market acceptance for them.

Our ability to commercialize human therapeutic products and product candidates successfully will depend in part on the
extent to which coverage and reimbursement for such products and related treatments will be available from government health administration authorities, private health insurers and other third-party payers or supported by the market for these
products. There can be no assurance that third-party payers coverage and reimbursement will be available or sufficient for the products we might develop.

Third party payers are increasingly challenging the price of medical products and services and instituting cost containment measures to control or significantly influence the purchase of medical products and services. These cost containment
measures, if instituted in a manner affecting the coverage of or payment for our products, could have a material adverse effect on our ability to operate profitably. In some countries in the European Union and in the United States, significant
uncertainty exists as to the reimbursement status of newly-approved healthcare products, and we do not know whether adequate third-party coverage and reimbursement will be available for us to realize an appropriate return on our investment in
product development, which could seriously harm our business. In the United States, while reimbursement amounts previously approved appear to have provided a reasonable rate of return, there can be no assurance that our products will continue to be
reimbursed at current rates or that third-party payers will continue to consider our products cost-effective and provide coverage and reimbursement for our products, in whole or in part.

We cannot be certain that our products will gain commercial acceptance among physicians, patients and third party payers, even if necessary international and United States marketing approvals are maintained. We
believe that recommendations and endorsements by physicians will be essential for market acceptance of our products, and we do not know whether these recommendations or endorsements will be obtained. We also believe that surgeons will not use these
products unless they determine, based on clinical data and other factors, that the clinical benefits to patients and cost savings achieved through use of these products outweigh their cost. Acceptance among physicians may also depend upon the
ability to train surgeons and other potential users of our products and the willingness of such users to learn these relatively new techniques.

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.
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 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.

We must receive regulatory approval for each of our product candidates before they can be sold commercially in Canada, the United States or internationally, which can take significant time and be very costly.

The development, manufacture and sale of medical devices and human therapeutic products in Canada, the United States and internationally is
governed by a variety of statutes and regulations. These laws require, among other things:



| |  | regulatory approval of manufacturing facilities and practices;
|- |  | --------------------------------------------------------------



59



---

##### Table of Contents

| |  | adequate and well-controlled research and testing of products in pre-clinical and clinical trials;
|- |  | --------------------------------------------------------------------------------------------------



| |  | review and approval of submissions containing manufacturing, pre-clinical and clinical data in order to obtain marketing approval based on establishing the safety
and efficacy of the product for each use sought, including adherence to cGMPs during production and storage; and
|- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | control of marketing activities, including advertising and labelling.
|- |  | ---------------------------------------------------------------------

The product candidates currently under development by us or our collaborators will require significant research, development, pre-clinical and clinical testing, pre-market review and approval, and investment of
significant funds prior to their commercialization. In many instances, we are dependent on our collaborators for regulatory approval and compliance, and have little or no control over these matters. The process of completing clinical testing and
obtaining such approvals is likely to take many years and require the expenditure of substantial resources, and we do not know whether any clinical studies by us or our collaborators will be successful, that regulatory approvals will be received, or
that regulatory approvals will be obtained in a timely manner. Despite the time and resources expended by us, regulatory approval is never guaranteed. Even if regulatory approval is obtained, regulatory agencies may limit the approval to certain
diseases, conditions or categories of patients who can use them.

If any of our development programs are not successfully completed in a timely fashion,
required regulatory approvals are not obtained in a timely fashion, or products for which approvals are obtained are not commercially successful, it could seriously harm our business.

Our products and manufacturing facilities that have, or may receive, regulatory approval, are or will be subject to ongoing regulation. In addition, we have little or no control over the manufacturing facilities
of our collaborators in which certain of our products are manufactured.

Our products and manufacturing operations are subject to extensive
regulation in the United States by the FDA and by similar regulatory agencies abroad. Ongoing regulation includes compliance with an array of manufacturing and design controls and testing, quality control, storage and documentation procedures.
Regulatory agencies may also require expensive post-approval studies. Any adverse events associated with our products must also be reported to regulatory authorities. If deficiencies in our or our collaborators manufacturing and laboratory
facilities are discovered, or we or our collaborators fail to comply with applicable post-market regulatory requirements, a regulatory agency may close the facility or suspend manufacturing.

With respect to products manufactured by third-party contractors, we are, and we expect to continue to be, dependent on our collaborators for continuing regulatory
compliance and we may have little or no control over these matters. Our ability to control third-party compliance with FDA and other regulatory requirements will be limited to contractual remedies and rights of inspection. Our failure or the failure
of third-party manufacturers to comply with regulatory requirements applicable to our products may result in legal or regulatory action by those regulatory authorities. There can be no assurance that our or our collaborators manufacturing
processes will satisfy regulatory, cGMP or International Standards Organization (ISO) requirements.

In addition, there may be uncertainty as
to whether or not we or others who are involved in the manufacturing process will be able to make the transition to commercial production of some of our newly developed products. A failure to achieve regulatory approval for manufacturing facilities
or a failure to make the transition to commercial production for our products will adversely affect our prospects, business, financial condition and results of operations.

If we are unable to fully comply with federal and state fraud and abuse laws, we could face substantial penalties, which may adversely affect our business, financial condition and results of
operations.

We are subject to various laws pertaining to health care fraud and abuse, including the federal Anti-Kickback Statute, physician
self-referral laws, the federal False Claims Act, the federal Health Insurance Portability and Accountability Act of 1996, the federal False Statements Statute, and state law equivalents to these federal laws, which may not be limited to
government-reimbursed items and may not contain identical exceptions. Violations of these laws are punishable by criminal and civil sanctions, including, in some instances, civil and criminal penalties, damages, fines, exclusion from participation
in federal and state healthcare programs, including Medicare and Medicaid, and the curtailment or restructuring of operations. Any action against us for violation of these laws could have a significant impact on our business. In addition, we are
subject to the U.S. Foreign Corrupt Practices Act. We have a network of approximately 160 distributors. Any action against us for violation by us or our distributors of this act could have a significant impact on our business.

We may be unsuccessful in marketing, selling and distributing certain of our products.



60



---

##### Table of Contents

We distribute a number of our products worldwide. In order to achieve commercial success for our approved products, we
have previously expanded our sales and marketing force in the United States, Europe and other parts of the world. If our distribution personnel or methods are not sufficient to ensure we have supply to meet demand for our products or if there is a
quality control failure with our products, it could harm our prospects, business, financial condition and results of operations.

To the extent that we
enter into co-promotion or other marketing and sales arrangements with other companies, any revenues received will be dependent on the efforts of others, and we do not know whether these efforts will be successful. Failure to develop a direct sales
and marketing force or enter into appropriate arrangements with other companies to market and sell our products will reduce our ability to generate revenues.

We may encounter unanticipated costs or loss of business associated with terminating or relocating facilities and operations.

We
have consolidated our Syracuse, New York and Puerto Rico manufacturing facilities into two facilities in Puerto Rico. There is a risk that there may be further unanticipated costs associated with this consolidation.

Consolidation in the healthcare industry could have an adverse effect on our revenues and results of operations.

Many healthcare industry companies, including medical device companies, are consolidating to create new companies with greater market power. As the healthcare industry
consolidates, competition to provide goods and services to industry participants will become more intense. These industry participants may try to use their market power to negotiate price concessions or reductions for medical devices that
incorporate components produced by us. If we are forced to reduce our prices because of consolidation in the healthcare industry, our revenues would decrease and our consolidated earnings, financial condition or cash flows would suffer.

We may incur losses associated with foreign currency fluctuations.

We report our operating results and financial position in U.S. dollars in order to more accurately represent the currency of the economic environment in which we operate.

Our operations are in some instances conducted in currencies other than the U.S. dollar and fluctuations in the value of foreign currencies relative to the U.S. dollar could cause us to incur currency exchange losses.
In addition to the U.S. dollar, we currently conduct operations in Canadian dollars, Euros, Swiss francs, Danish kroner, and U.K. pounds sterling. Exchange rate fluctuations may reduce our future operating results and comprehensive income. For the
three months ended March 31, 2009, we reported $0.7 million of net foreign exchange gains due to foreign currency fluctuations compared to $0.4 million for the three months ended March 31, 2008.

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 kroner, Euros, and U.K. pounds 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.

Acquisition of companies or technologies may result in disruptions to our business.

As part of our business strategy, we may
acquire additional assets and businesses principally relating to or complementary to our current operations. Any acquisitions or mergers by us will be accompanied by the risks commonly encountered in acquisitions of companies. These risks include,
among other things, higher than anticipated acquisition costs and expenses, the difficulty and expense of integrating the operations and personnel of the companies and the loss of key employees and customers as a result of changes in management.

In addition, geographic distances may make integration of acquired businesses more difficult. We may not be successful in overcoming these risks or any
other problems encountered in connection with any acquisitions.

If significant acquisitions are made for cash consideration, we may be required to use a
substantial portion of our available cash, cash equivalents and short-term investments. Future acquisitions by us may cause large one-time expenses or create goodwill or other intangible assets that could result in significant asset impairment
charges in the future. Acquisition financing may not be available on acceptable terms, if at all.



61



---

##### Table of Contents

If we fail to hire and retain key management, scientific and technical personnel, we may be unable to successfully
implement our business plan.

We are highly dependent on our senior management and scientific and technical personnel. The competition for
qualified personnel in the healthcare field is intense, and we rely heavily on our ability to attract and retain qualified managerial, scientific and technical personnel. Our ability to manage growth effectively will require continued implementation
and improvement of our management systems and the ability to recruit and train new employees. We may not be able to successfully attract and retain skilled and experienced personnel, which could harm our ability to develop our product candidates and
generate revenues.

Risks Relating to our Indebtedness, Shares, and Organization and Structure

Our existing and future permitted debt could adversely affect our operations and we may need to restructure our existing debt to ensure that our cash flows are
adequate to service our debt.

As of March 31, 2009, we had outstanding $575 million of indebtedness, excluding accrued interest. Excluding
intercompany transactions, our subsidiaries that are not guarantors of the Floating Rate Notes or Subordinated Notes accounted for approximately $40.3 million or 46% of our total revenues for the three months ended March 31, 2009 ($18.3 million
or 24%, respectively, for the three months ended March 31, 2008), and approximately $306.9 million of our total assets and $69.9 million of our total liabilities as of March 31, 2009 ($321.6 million and $105.3 million, respectively for the
year ended December 31, 2008). The Floating Rate Notes and the Subordinated Notes are guaranteed by the same group of our subsidiaries.

The amount
and terms of our indebtedness and other financial obligations have adversely affected our operations. For example, it:



| |  | increases our vulnerability to general adverse economic and industry conditions;
|- |  | --------------------------------------------------------------------------------



| |  | limits our ability to obtain additional financing in the future for working capital, capital expenditures, acquisitions, general corporate purposes or other
purposes;
|- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | requires us to dedicate a substantial portion of our cash flow from operations to the payment of principal and interest on our indebtedness, thereby reducing the
funds available to us for operations and any future business opportunities, including acquisitions permitted by our Subordinated Notes and Floating Rate Notes;
|- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | limits our planning flexibility for, or ability to react to, changes in our business and the industry as discussed under Managements Discussion and
Analysis of Financial Condition and Results of Operations Business Overview  in this Quarterly Report on Form 10-Q; and
|- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | places us at a competitive disadvantage with competitors who may have less indebtedness and other obligations or greater access to financing.
|- |  | ---------------------------------------------------------------------------------------------------------------------------------------------

The Floating Rate Notes bear interest at rates that fluctuate with changes in certain prevailing benchmarks. If interest rates increase,
we may be unable to meet our debt service obligations under the Floating Rate Notes and Subordinated Notes and other indebtedness.

On March 2, 2009,
we announced that we had completed a financing transaction with Wells Fargo Foothill, LLC, consisting of a delayed draw term loan facility of up to $10 million and a new secured revolving credit facility providing up to an additional $22.5 million
in available credit. 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. Although this new credit facility provides
enhanced liquidity in the near term, if our cash flows are worse than expected, we may need to refinance or restructure all or a portion of our indebtedness on or before maturity. We cannot assure you that we will be able to repay or refinance any
of our debt on commercially reasonable terms or at all. If we are unable to refinance our debt or obtain new financing under these circumstances, we would have to consider other options, such as:



| |  | sales of certain assets to meet our debt service obligations;
|- |  | -------------------------------------------------------------



| |  | sales of equity; and
|- |  | --------------------



| |  | negotiations with our lenders and the holders of our Floating Rate Notes and our Subordinated Notes to restructure the applicable debt.
|- |  | ---------------------------------------------------------------------------------------------------------------------------------------

We may not be able to implement one or more of these alternatives on terms acceptable to us or at all. Our financing arrangements and
the indentures governing our Floating Rate Notes and Subordinated Notes may restrict, or market or business conditions may limit, our ability to do some of these things. Moreover, if we are unable to obtain sufficient financing when we need it or on
terms satisfactory to us, our development activities could have to be delayed, curtailed or eliminated and our financial results could be adversely affected.



62



---

##### Table of Contents

We and our subsidiaries are permitted to incur substantially more debt, which could further exacerbate the risks
associated with our leverage.

The terms of the indentures governing the Floating Rate Notes and Subordinated Notes expressly permit the incurrence
of additional amounts of debt for specified purposes. For example, on March 2, 2009, we announced that we had entered into a new revolving credit facility, and all borrowings under that facility rank senior to the Subordinated Notes and the
related guarantees, to the extent of the value of the assets securing such borrowings. Moreover, the indentures governing the Floating Rate Notes and Subordinated Notes do not impose any limitation on our incurrence of liabilities that are not
defined as Indebtedness under such indentures (such as trade payables). If new debt or other liabilities are added to our and our subsidiaries current levels of debt, the related risks that we and they now face could be
exacerbated.

If our cash flows prove inadequate to service our debt and provide for our other obligations, we may be required to refinance all or a
portion of our existing debt or future debt at terms unfavorable to us.

Our ability to make payments on and refinance our debt, including the
Floating Rate Notes, the Subordinated Notes and other financial obligations, and to fund our capital expenditures and acquisitions will depend on our ability to generate substantial operating cash flow. This will depend on our future performance,
which will be subject to prevailing economic conditions and to financial, business and other factors beyond our control. Although we have recently entered into a new senior secured credit facility, if our cash flows are worse than expected, and the
amounts we are able to draw on that facility prove inadequate to meet our debt service and other obligations in the future, we may be required to refinance all or a portion of our existing or future debt, including the Floating Rate Notes and
Subordinated Notes, on or before maturity, to sell assets or to obtain additional financing. We cannot assure you that we will be able to refinance any of our indebtedness, including the Floating Rate Notes and Subordinated Notes, sell any such
assets or obtain such additional financing on commercially reasonable terms or at all. Additionally, because the indentures governing the Floating Rate Notes and Subordinated Notes require that, upon the occurrence of a change of
control, as defined in the indentures, we must make an offer to repurchase the Floating Rate Notes and Subordinated Notes, respectively, at a price equal to 101% of the principal amount thereof, plus accrued and unpaid interest, if any, to the
date of repurchase. In the event that we were required to repurchase the Floating Rate Notes and Subordinated Notes pursuant to our offer, we would not have enough cash available to make such repurchase.

For additional risks related to the refinancing of our existing debt, see Our existing and future permitted debt could adversely affect our operations, and
we need to restructure our existing debt to ensure that our cash flows are adequate to service our debt.

The indentures governing the Floating
Rate Notes and Subordinated Notes contain covenants that may limit our ability to take advantage of certain business opportunities advantageous to us that may arise.

The indentures governing the Floating Rate Notes and Subordinated Notes contain certain covenants that, among other things, limit our ability and the ability of certain of our subsidiaries to:



| |  | incur, assume or guarantee additional indebtedness or issue preferred stock;
|- |  | ----------------------------------------------------------------------------



| |  | pay dividends or make other equity distributions to our shareholders;
|- |  | ---------------------------------------------------------------------



| |  | purchase or redeem our capital stock;
|- |  | -------------------------------------



| |  | make certain investments;
|- |  | -------------------------



| |  | create liens;
|- |  | -------------



| |  | sell or otherwise dispose of assets;
|- |  | ------------------------------------



| |  | engage in transactions with our affiliates; and
|- |  | -----------------------------------------------



| |  | merge or consolidate with another entity or transfer all or substantially all of our assets.
|- |  | --------------------------------------------------------------------------------------------

These restrictions could limit our ability to obtain future financing, make acquisitions or needed capital expenditures, withstand economic downturns in our business,
industry or the economy in general, conduct operations or otherwise take advantage of business opportunities that may arise.

Although the indentures for
the Floating Rate Notes and Subordinated Notes contain a fixed charge coverage test that limits our ability to incur indebtedness, this limitation is subject to a number of significant exceptions and qualifications. Moreover, the indentures do not
impose any limitation on our incurrence of liabilities that are not considered Indebtedness under the indentures (such as operating leases), nor do they impose any limitation on the amount of liabilities incurred by subsidiaries, if any,
that might be designated as Unrestricted Subsidiaries under the indentures. Despite current indebtedness levels, we and our subsidiaries may still be able to incur substantially more debt. This could further exacerbate the risks
associated with our leverage. Also, although the indentures limit our ability to make restricted payments, these restrictions are subject to significant exceptions and qualifications.



63



---

##### Table of Contents

The current global credit and financial market conditions may exacerbate certain risks affecting our business.

Sales of our products are dependent, in large part, on reimbursement from government health administration authorities, private health insurers,
distribution partners and other organizations. As a result of the current global credit and financial market conditions, these organizations may be unable to satisfy their reimbursement obligations or may delay payment. In addition, federal and
state health authorities may reduce Medicare and Medicaid reimbursements, and private insurers may increase their scrutiny of claims. A reduction in the availability or extent of reimbursement could negatively affect our product sales and revenue.

Due to the recent tightening of global credit, there may be a disruption or delay in the performance of our third-party contractors, suppliers or
collaborators. We rely on third parties for several important aspects of our business, including royalty revenue, portions of our product manufacturing, clinical development of future collaboration products, conduct of clinical trials and raw
materials. If such third parties are unable to satisfy their commitments to us, our business would be adversely affected.

Certain of our products are used
in elective medical procedures which are not covered by insurance. Adverse changes in the economy or other conditions or events have had and may continue to have an adverse effect on consumer spending and may reduce the demand for these procedures.
Any such changes, conditions or events could have an adverse effect on our sales and results of operations.

The NASDAQ and/or the Toronto Stock
Exchange may delist our common shares from quotation on its exchange, which could limit investors ability to make transactions in our common shares and subject us to additional trading restrictions.

The NASDAQ rules provide that the exchange can delist a companys shares for failing to maintain a share price above a dollar. Our common shares are currently
trading at less than a dollar on the NASDAQ. The NASDAQ has currently placed a moratorium on delistings for failing to maintain a share price above a dollar. We cannot assure you that the price of our common shares will rise above a dollar or that
our common shares will continue to be traded on the NASDAQ in the future.

The Toronto Stock Exchange may delist a companys shares if, in the opinion
of the Toronto Stock Exchange, the financial condition and/or the operating results of the company appear to be unsatisfactory or appear not to warrant continuation of the securities on the trading list. The Toronto Stock Exchange may consider a
number of factors when determining whether to delist a companys shares, including the companys ability to meet its obligations as they become due, working capital position, quick asset position, total assets, capitalization, cash flow,
earnings, annual revenues, public distribution of the listed shares, share price and trading activity. We cannot assure you that we will continue to meet the listing requirements of the Toronto Stock Exchange or that our common shares will continue
to be traded on the Toronto Stock Exchange in the future.

The threat of delisting and/or a delisting of our common shares could have material adverse
effects by, among other things:



| |  | reducing the liquidity and market price of our common shares;
|- |  | -------------------------------------------------------------



| |  | reducing the number of investors willing to hold or acquire our commons shares, thereby further restricting our ability to obtain equity financing;
|- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------



| |  | reducing the amount of news and analyst coverage of our company; and
|- |  | --------------------------------------------------------------------



| |  | reducing our ability to retain, attract and motivate our directors, officers and employees.
|- |  | -------------------------------------------------------------------------------------------

United States investors may not be able to obtain enforcement of civil liabilities against us.

We were formed under the laws of British Columbia, Canada. A substantial portion of our assets are located outside the United States. In addition, a majority of the
members of our board of directors and our officers are residents of countries other than the United States. As a result, it may be impossible for United States investors to affect service of process within the United States upon us or these persons
or to enforce against us or these persons any judgments in civil and commercial matters, including judgments under United States federal or state securities laws. In addition, a Canadian court may not permit United States investors to bring an
original action in Canada or to enforce in Canada a judgment of a state or federal court in the United States.



64



---

##### Table of Contents

Laws and provisions in our notice of articles, articles, shareholder rights plan and stock option plan could delay
or deter a change in control.

Our notice of articles and articles allow for the issuance of Class I preference shares. The board of directors may
set the rights and restrictions of any series of preference shares in its sole discretion without the approval of the holders of our common shares. The rights and restrictions of our preference shares may be superior to those of the common shares.
Accordingly, the issuance of preference shares also could have the effect of delaying or preventing a change of control of our company. There are at present, no preference shares outstanding.

In addition, under the Business Corporations Act (British Columbia) and our articles, some business combinations, including the sale, lease or other disposition
of all or substantially all of our undertaking, must be approved by at least three-quarters of the votes cast by our shareholders in aggregate or, in some cases, approved by at least three-quarters of the votes cast by holders of each class of
shares. In some cases, a business combination must be approved by a court. Shareholders may also have a right to dissent from the transaction, in which case, we would be required to pay dissenting shareholders the fair value of their common shares
provided they have followed the required procedures.

In addition, our shareholders adopted a shareholder rights plan which provides for substantial
dilution to an acquiror of 20% or more of our common shares, except in certain circumstances, including a) the acquiror makes a bid to all shareholders, which, among other things, is held open for at least 60 days and is accepted by independent
shareholders holding at least 50% of the outstanding common shares, or b) the bid is otherwise approved by our board of directors. The shareholder rights plan was amended and restated on October 30, 2008 and must be reconfirmed by the
shareholders every three years.

Furthermore, all of our executive officers have contractual rights under employment agreements that provide for 12 to
24 months severance pay in the event of a change of control of our company. Under our stock option plan, following a change of control, all outstanding stock options vest immediately. In the event that an offer is made to our shareholders
generally or to a class of our shareholders, that if accepted would result in the offeror becoming a control person (generally meaning a person holding 20% or more of a companys voting shares), our board of directors has the discretion under
our stock option plan to determine to accelerate the vesting and expiry date of all outstanding options.

Limitations on the ability to acquire and hold
our common shares may be imposed by the Competition Act (Canada). This legislation permits the Commissioner of Competition to review any acquisition of a significant interest in our company. This legislation grants the Commissioner jurisdiction to
challenge such an acquisition before the Competition Tribunal if the Commissioner believes that it would, or would be likely to, result in a substantial lessening or prevention of competition in any market in Canada. The Investment Canada Act
(Canada) subjects an acquisition of control of a company by a non-Canadian to government review if the value of our assets as calculated pursuant to the legislation exceeds a threshold amount which, for an investor from a World Trade Organization
member country, is CDN$312 million in 2009. A reviewable acquisition may not proceed unless the relevant minister is satisfied or is deemed to be satisfied that there is likely to be a net benefit to Canada from the transaction.

Each of these matters could delay or deter a change in control that would be attractive to, and provide liquidity for, shareholders, and could limit the price that
investors are willing to pay in the future for our common shares.



65



---

##### Table of Contents

|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.



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

None.



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

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



|               |  |                                                                                                                                                                                                                                     
|-------------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit Number |  | Description                                                                                                                                                                                                                         
|10.1           |  | Amended and Restated Distribution and License Agreement by and among Angiotech Pharmaceuticals (U.S.) Inc., Angiodevice International GmbH, Baxter Healthcare Corporation and Baxter Healthcare,
S.A, dated as of January 1, 2009 **
|               | 
|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                                                                                                



|** | portions of this exhibit have been omitted and filed separately with the Commission pursuant to a request for confidential treatment.
|-- | -------------------------------------------------------------------------------------------------------------------------------------



66



---

##### Table of Contents

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: May 8, 2009 |  | By:                             |  | /s/ K. Thomas Bailey                                                      
|                  |  |                                 |  | K. Thomas Bailey (Principal Financial Officer and Duly Authorized Officer)



67