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  As Of               Filer                 Filing     As/For/On Docs:Pgs              Issuer               Agent

 1/11/07  Xtent Inc                         S-1/A                  7:212                                    Merrill Corp/New/- FA

Document/Exhibit                   Description                      Pages   Size 

 1: S-1/A       Pre-Effective Amendment to Registration Statement   HTML  1,154K 
                          (General Form)                                         
 2: EX-1.1      Underwriting Agreement                              HTML    131K 
 3: EX-3.1      Articles of Incorporation/Organization or By-Laws   HTML     67K 
 4: EX-5.1      Opinion re: Legality                                HTML      8K 
 5: EX-10.3     Material Contract                                   HTML     69K 
 6: EX-10.4     Material Contract                                   HTML     62K 
 7: EX-23.1     Consent of Experts or Counsel                       HTML      7K 

As filed with the Securities and Exchange Commission on January 11, 2007

Registration No. 333-136371

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

AMENDMENT NO. 5
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933

XTENT, INC.
(Exact name of Registrant as specified in its charter)

125 Constitution Drive
Menlo Park, California 94025-1118
(650) 475-9400
(Address, including zip code and telephone number, including area code, of Registrant's principal executive offices)

Gregory D. Casciaro
President, Chief Executive Officer and Director
XTENT, Inc.
125 Constitution Drive
Menlo Park, California 94025-1118
(650) 475-9400
(Name, address, including zip code and telephone number, including area code, of agent for service)

Copies to:

        Approximate date of commencement of proposed sale to the public: As soon as practicable after the effective date of this Registration Statement.

        If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box. o

        If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. o

        If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. o

        If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. o

CALCULATION OF REGISTRATION FEE

(1)

In accordance with Rule 457(o) under the Securities Act of 1933, the number of shares being registered and the proposed maximum offering price per share are not included in this table.

(2)

Estimated solely for the purpose of computing the amount of the registration fee pursuant to Rule 457(o) under the Securities Act of 1933.

        The Registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until the Registration Statement shall become effective on such date as the Commission, acting pursuant to said Section 8(a), may determine.

The information in this prospectus is not complete and may be changed. We may not sell these securities until the Securities and Exchange Commission declares our registration statement effective. This prospectus is not an offer to sell these securities and it is not soliciting an offer to buy these securities in any state where the offer or sale is not permitted.

Subject to completion, dated January 11, 2007

4,700,000 Shares

XTENT, INC.

Common Stock

$             per share

•

XTENT, Inc. is offering 4,700,000 shares of common stock.

•

We anticipate that the initial public offering price will be between $16.00 and $18.00
per share.

•

This is our initial public offering and no public market currently exists for our shares.

•

Proposed trading symbol:
NASDAQ Global Market — XTNT.

This investment involves risk. See "Risk Factors" beginning on page 9.

The underwriters have a 30-day option to purchase up to 705,000 additional shares of common stock from us to cover over-allotments, if any.

Neither the Securities and Exchange Commission nor any state securities commission has approved of anyone's investment in these securities or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.

The date of this prospectus is                           , 2007.

   
TABLE OF CONTENTS

You should rely only on the information contained in this prospectus and any free writing prospectus that we authorize to be delivered to you. We have not, and the underwriters have not, authorized any other person to provide you with different information. Neither this prospectus nor any related free writing prospectus is an offer to sell, nor are they seeking an offer to buy, these securities in any state where the offer or solicitation is not permitted. The information in this prospectus is complete and accurate as of the date on the front cover of this prospectus, but the information may have changed since that date.

   
SUMMARY

The items in the following summary are described in more detail later in this prospectus. This summary does not contain all the information you should consider before investing in our common stock. You should carefully read the more detailed information set out in this prospectus, especially the risks of investing in our common stock that we discuss under the "Risk Factors" section, as well as the financial statements and the related notes to those statements included elsewhere in this prospectus. References in this prospectus to "we," "us," "our," "company" and "XTENT" refer to XTENT, Inc. unless the context requires otherwise.

Overview

We are a development stage medical device company focused on developing and commercializing our innovative customizable drug eluting stent systems for the treatment of coronary artery disease, or CAD. Our drug eluting stent systems are designed to enable physicians to customize both length and diameter of the stent at the site of the diseased section of the artery, or lesion, which we refer to as in-situ customization. Our stent systems are designed to treat longer lesions than currently available drug eluting stents and multiple lesions with the use of a single device. Our stent systems, the Custom NX 36 and the Custom NX 60, incorporate a modular cobalt chromium stent design as well as a proprietary delivery system. In addition, our stents have a drug coating that is made up of Biolimus A9, an anti-inflammatory drug, and PolyLactic Acid, a biodegradable polymer, which in combination are intended to reduce the incidence of restenosis, or renarrowing of the previously treated artery over time. We believe our technology, if approved by regulatory authorities, will enable us to compete in the approximately $5.3 billion worldwide drug eluting stent market.

We are developing 36mm and 60mm stent systems based on our proprietary technology platform. Our stent design is modular in that it consists of multiple 6mm segments in which the ends of each segment interleave with the ends of the adjacent segments, or are interdigitated. This interdigitated, modular stent design allows the physician to customize the stent length and deploy the necessary stent segments in the artery in-situ. Our delivery system incorporates a protective sheath and a proprietary mechanism to control the number of stent segments deployed. Our first two stent systems in development are the Custom NX 36 and the Custom NX 60. We believe that these two systems will enable physicians to provide a therapeutic solution for the majority of CAD patients treated with currently marketed drug eluting stents. Our Custom NX 36 is customizable in length and designed to treat single or multiple lesions. Our Custom NX 60 is designed to give physicians a suitable length stent to treat one long lesion or multiple smaller lesions with the use of one device, reducing the need for multiple catheter exchanges and related device costs. We believe that the ability to customize our stent and potentially treat multiple lesions and long lesions with one device may improve procedural efficacy and efficiency and lower costs.

Status of Regulatory Approval

Our Custom NX DES Systems are combination devices that include a stent and drug coating, for which we must receive regulatory approval as a medical device before we can market our systems. We are conducting clinical trials to evaluate our Custom NX 36 and Custom NX 60 stent and stent delivery systems. In May 2006, the eight month clinical data from our CUSTOM I clinical trial was presented at the 2006 Paris Course on Revascularization conference and in October 2006, six month clinical data from our CUSTOM II clinical trial for 40 patients was presented at the 2006 Transcatheter Cardiovascular Therapeutics conference. We believe the data from these clinical trials provided preliminary evidence of safety and efficacy and supports further development of our in-situ customization approach. We completed enrollment of our CUSTOM II and initiated our CUSTOM III clinical trials, which are designed to further evaluate the safety and efficacy of in-situ customization with our stent systems, particularly in long lesions and multiple lesions. Assuming the results from

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these trials are favorable, we believe that the data from our CUSTOM I, II and III clinical trials will be sufficient to support our submission to our designated Notified Body in the European Union for CE Mark. We expect to submit our application for CE Mark in late 2007. We will need premarket approval, or PMA, from the U.S. Food and Drug Administration, or FDA, before we can market our products in the United States, which we expect will require data from large clinical trials of up to 2,500 patients. To initiate these clinical trials, we must first obtain clearance of an investigational device exemption, or IDE, from the FDA. We anticipate applying for our IDE in the first half of 2007 based on the results from our CUSTOM I, II and III clinical trials. We expect to submit a PMA application to the FDA in 2009. We expect to be able to commercialize our products, at the earliest, in the European Union in the second half of 2008 and in the United States in the first half of 2010.

We license our drug coating from Occam International, B.V., or Occam, a wholly-owned subsidiary of Biosensors International Group, Ltd., which together with Occam and each of their affiliated companies, are referred to as Biosensors in this prospectus. Regulatory approvals of our products are dependent upon Biosensors obtaining a favorable opinion from the relevant drug authority on its drug master file, or DMF, in the European Union and approval from the FDA in the United States.

Market Opportunity

Coronary artery disease, or CAD, is the most common form of cardiovascular disease and the number one cause of death in the United States and Europe. CAD is primarily caused by the accumulation of fat-laden cells, also known as plaque, in the arteries leading to the heart. Over time, the accumulation of plaque in an artery, known as a lesion, narrows the diameter of its lumen, or inner channel, and may significantly reduce or stop blood flow. A reduction in blood flow to the heart can cause chest pain, a heart attack or potentially death. CAD accounts for over 650,000 deaths annually, and according to the American Heart Association, affects over 13 million Americans. Risk factors for CAD include old age, smoking, diabetes, obesity, sedentary lifestyle and an individual's genetic history.

Evolution of Treatments for Coronary Artery Disease

A number of surgical procedures and interventional therapies have been developed over the past four decades to treat CAD, each with the goal of quickly and safely restoring blood flow. The treatment of CAD has experienced significant innovation and has evolved from invasive coronary artery bypass graft surgery to percutaneous coronary interventions, or PCIs, such as balloon angioplasty and coronary stenting. The most recent PCI innovation was the development of drug eluting stents. Currently marketed drug eluting stents are conventional bare metal stents that are coated with a drug that is designed to reduce restenosis. The development of drug eluting stents has resulted in a rapid shift in physician treatment of CAD and drug eluting stents are used in approximately 89% of the stent procedures in the United States. In 2005, according to Millennium Research Group, a third-party consultant compensated by us for the use and analysis of their market data, drug eluting stents were used in 1.5 million of the 2.2 million coronary stent procedures performed worldwide.

Some recent clinical data, however, indicates higher rates of blood clot formation, or thrombosis, which could lead to heart attacks or death, in patients who received drug eluting stents when compared to patients who received bare metal stents. As a result of this clinical data, the use of bare metal stents has reportedly increased, and the use of drug eluting stents has correspondingly decreased, at certain hospitals in the United States and elsewhere. In response, the FDA evaluated this clinical data during a public meeting of its Circulatory System Devices Advisory Panel on December 7 and 8, 2006. The FDA has not issued final conclusions or recommendations from this meeting.

2

The Panel made the following statements in response to the FDA's questions:

•

The Panel agreed that drug eluting stents are associated with a clinically important numerical excess of late-stent thromboses compared to bare metal stents.



•

The Panel concluded that drug eluting stents were not associated with an increased risk of death or heart attacks compared to bare metal stents despite an apparent increase in late-stent thrombosis rates.



•

The Panel requested longer-term follow-up and an increased number of patients in future drug eluting stent clinical trials.



•

The Panel reached consensus that the drug eluting stent safety concerns do not outweigh their benefits compared to bare metal stents when used within the limits of the currently approved FDA indications.



•

The Panel discussed different options for modifying the labeling of drug eluting stents.

The Panel's opinion is advisory and the FDA has not issued final conclusions or recommendations from this meeting. We cannot assure you that any long-term data produced in response to the Panel's request will support its current conclusions and the FDA may determine to alter or change its determination regarding the safety and efficacy of drug eluting stents. Any adverse determination by the FDA regarding the safety and efficacy of drug eluting stents would have a significant adverse impact on our business.

Evolution of Delivery Methods for Percutaneous Coronary Interventions

In addition to the advancements in therapies, the methods of their delivery have also improved over time. These improvements have made PCI procedures easier to perform for physicians and have reduced the amount of time for a single procedure.

The most recent innovation in the delivery of therapies was the development of rapid exchange delivery systems, which allow the procedure to be performed by a single operator. Rapid exchange systems are used in the majority of PCI procedures today. According to Millennium Research Group, in 2005, 70% of the drug eluting stents used in the United States were delivered with a rapid exchange system. Despite improving procedural efficiency, rapid exchange systems still require time consuming catheter exchanges when multiple devices are needed for a single procedure.

Limitations of Current Percutaneous Coronary Intervention Therapies

Although significant advances have been made with drug eluting stents, we believe the designs of current stents and methods of delivery limit effectiveness for patients and efficiency of the physicians treating CAD and can result in increased costs for healthcare providers. Current commercially available stent systems include stents with fixed-lengths of up to 33mm, and require a separate device for each stent used. Fixed-length stent systems require physicians to estimate the size and shape of the artery's lumen, and then use their judgment to select the proper length and diameter stent for the lesion. The characteristics of existing technology lead to the following limitations:

•

Inability to customize treatment options in-situ;



•

Multiple catheter exchanges required to treat one or multiple lesions;



•

Overlapping of stents to cover long lesions;

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•

Inaccurate placement of stents;



•

Alteration of the artery anatomy; and



•

Required physician planning and inventories.

We believe that while current stent systems can provide effective therapy for patients, there is a significant opportunity for improvement in efficacy, efficiency and cost due to the limitations described above.

The XTENT Solution

Our customizable drug eluting stent systems are designed to enable the treatment of single lesions, long lesions and multiple lesions of varying lengths and diameters, in one or more arteries with a single device. We believe our Custom NX DES Systems' ability to customize therapy without the need to exchange catheters may enable physicians to treat patients more effectively and efficiently. We believe that the potential benefits provided by our technology include the following:

•

In-Situ Customization. Our Custom NX DES Systems are designed to allow physicians to determine the appropriate length of stent for the patient while inside the artery at the site of the lesion, or in-situ.



•

Treatment of Multiple Lesions With a Single Device. Our Custom NX DES Systems are comprised of multiple segments that are interdigitated. The physician can distribute the stent segments across multiple lesions in a customized manner in increments of 6mm.



•

Treatment of Long Lesions Without Multiple Overlapping Stents. Our Custom NX 60 is designed to be able to effectively treat longer sections of diseased artery as compared with current fixed-length alternatives. Physicians can place up to 60mm of stent to treat a single long lesion.



•

Improved Stent Placement Accuracy. We believe the ability to customize the length of the stent while in the patient's artery may reduce the incidence of geographic miss and the resulting problems of thrombosis and the need for reinterventions.



•

Increased Stent Flexibility and Deliverability. Our stents incorporate a modular design consisting of multiple individual segments, which we believe provides increased stent flexibility. We believe our stent's increased flexibility may allow an artery to better maintain its natural shape and curvature as well as move and flex with the contractions of the heart.



•

Biodegradable Polymer as Our Drug Carrier. Our drug coating is biodegradable, leaving behind a thin permanent primer. Our primer has been commonly used for approximately 30 years on cardiac defibrillators, pacemakers, neurostimulators, catheters, needles and other medical device components. As a result, we believe our primer has an insignificant physiological response when used in the body. We believe the biodegradability of our drug coating may reduce the potential for late-stent thrombosis, or the occurrence of thrombosis 30 or more days after the procedure, that may be associated with durable polymers.

4

Our Strategy

Our goal is to become the world leader in the development and commercialization of drug eluting stent systems that will significantly improve the treatment of arterial disease. To achieve this goal, we are pursuing the following business strategies:

•

Demonstrate the clinical safety and efficacy and gain regulatory approval of our Custom NX DES Systems;



•

Commercialize and drive adoption of our Custom NX DES Systems;



•

Build awareness and support among leading physicians;



•

Leverage our technology platform into other indications;



•

Expand and strengthen our intellectual property position; and



•

Provide the highest quality products for our customers.

Risks Associated With Our Business

Our business is subject to numerous risks, as discussed more fully in the section entitled "Risk Factors" following this prospectus summary. We have a limited operating history and may be unable to accurately predict our future performance. We do not have any approved products for sale in any jurisdiction and as a result, have not generated revenue to date. As of September 30, 2006, we had an accumulated deficit of $46.9 million and we may never achieve profitability.

We may be unable, for many reasons, including those that are beyond our control, to implement our current business strategy. We rely on a third-party, Biosensors, over whom we have little or no control for the supply of the drug coating we use on our stents and for submitting regulatory documentation to regulatory authorities for the use of this drug coating on stents. In order to demonstrate the safety and efficacy of our products we will likely need to conduct expensive clinical trials involving large patient populations comparing our stents to other currently established drug eluting stents. There can be no assurance that the results of these clinical trials will demonstrate the safety and efficacy of our stent systems. Our success also depends on our ability to effectively design, develop, maintain and prosecute adequate intellectual property coverage, obtain regulatory approvals for, and commercialize, our products. We will depend on the adoption of our products by physicians to generate revenue from the sales of our stent systems. We will compete with large multinational competitors who already have their own drug eluting stents on the market and who have more experience and resources in manufacturing, sales and marketing and research and development than we do.

Corporate Information

We were incorporated in Delaware in June 2002. Our offices are located at 125 Constitution Drive, Menlo Park, California 94025-1118, and our telephone number is (650) 475-9400. Our website is located at www.xtentinc.com. The information found on, or accessible through, our website is not a part of this prospectus.

XTENT® is a registered trademark of our company in the United States, the European Union and Australia. Applications for our XTENT™ trademark are pending in Canada and Japan. CUSTOM NX® is a registered trademark of our company in Australia, the European Union and Japan. Applications for our CUSTOM NX™ trademark are pending in the United States and Canada. We have also applied to register NX™ as a trademark in the United States and the European Union and our XTENT logo as a trademark in the United States.

All other trademarks, tradenames and service marks appearing in this prospectus are the property of their respective owners.

5

The Offering

The number of shares of common stock that will be outstanding after this offering is based on 18,096,308 shares outstanding as of December 31, 2006, and excludes:

•

1,876,429 shares of common stock issuable upon exercise of all outstanding options under our 2002 Stock Plan at a weighted-average exercise price of $3.11 per share;



•

17,344 shares of common stock issuable upon exercise of all outstanding stand-alone options at a weighted-average exercise price of $0.34 per share;



•

132,113 shares of common stock reserved for future grant or issuance under our 2002 Stock Plan;



•

900,000 shares of common stock reserved for future grant or issuance under our 2006 Equity Incentive Plan and our 2006 Employee Stock Purchase Plan; and



•

automatic annual increases in the number of shares of common stock reserved for issuance under our 2006 Equity Incentive Plan and 2006 Employee Stock Purchase Plan.

Except as otherwise noted, all information in this prospectus assumes:

•

a 1-for-2 reverse split of the shares of our common stock and convertible preferred stock on or before the closing of this offering;



•

no exercise of the underwriters' over-allotment option;



•

the conversion of all outstanding shares of our convertible preferred stock into 14,744,196 shares of our common stock upon the closing of this offering; and



•

the filing of our amended and restated certificate of incorporation, which will occur immediately prior to the completion of this offering.

6

  Summary Financial Data

The following table presents summary historical and unaudited pro forma as adjusted financial data. We derived the summary statements of operations data for the years ended December 31, 2003, 2004 and 2005 from our audited financial statements that are included elsewhere in this prospectus. We derived the summary statements of operations data for the period from June 13, 2002 (Inception) to December 31, 2002 from our audited financial statements that do not appear in this prospectus. We derived the summary statements of operations data for the cumulative period from June 13, 2002 (Inception) to September 30, 2006 and the nine months ended September 30, 2005 and September 30, 2006 and the balance sheet data as of September 30, 2006 from our unaudited financial statements that are included elsewhere in this prospectus. We have prepared this unaudited information on the same basis as the audited financial statements and have included all adjustments, consisting only of normal recurring adjustments, that we consider necessary for a fair statement of our financial position and operating results for such period. Our historic results are not necessarily indicative of the results that may be expected in the future. You should read this data together with our financial statements and related notes included elsewhere in this prospectus and the information under "Selected Financial Data" and "Management's Discussion and Analysis of Financial Condition and Results of Operations."

⁽¹⁾  See Note 2 of the notes to our financial statements for a description of the method used to compute basic and diluted net loss per share attributable to common stockholders and pro forma basic and diluted net loss per share.

7

⁽¹⁾  On a pro forma as adjusted basis to give effect to the conversion of all outstanding shares of redeemable convertible preferred stock into common stock upon the closing of this offering and to reflect the sale of 4,700,000 shares of our common stock in this offering at the assumed initial public offering price of $17.00 per share, the midpoint of the range on the front cover of this prospectus, after deducting the underwriting discounts and commissions and estimated offering expenses payable by us. A $1.00 increase or decrease in the assumed initial public offering price of $17.00 per share would increase or decrease, respectively, cash and cash equivalents, working capital, total assets and total stockholders equity by approximately $4.4 million, assuming that the number of shares offered by us, as set forth on the cover page of this prospectus, remains the same.

8

   
RISK FACTORS

Investing in our common stock involves a high degree of risk. You should carefully consider the following risk factors, as well as the other information in this prospectus, before deciding whether to invest in shares of our common stock. If any of the following risks actually occur, our business, financial condition and results of operations would suffer. In that case, the trading price of our common stock would likely decline and you might lose all or part of your investment in our common stock. The risks described below are not the only ones we face. Additional risks that we currently do not know about or that we currently believe to be immaterial may also impair our operations and business results.

   
Risks Related to Our Business

We are a development stage company with a history of losses, and we expect to incur net losses for the foreseeable future.

We have incurred net losses since our inception in June 2002. For the years ended December 31, 2003, 2004 and 2005, and for the nine months ended September 30, 2006, we had net losses of $4.0 million, $8.9 million, $14.0 million and $17.9 million, respectively. Through September 30, 2006, we had an accumulated deficit of $46.9 million. To date, we have financed our operations primarily through private placements of our equity securities and have devoted substantially all of our resources to research and development of our Custom NX DES Systems, which consist of the Custom NX 36 and the Custom NX 60. Since we have not received a CE Mark or approval from the U.S. Food and Drug Administration, or FDA, or any other regulatory authority for our products, we are unable to market our current products and have not generated any revenue since our inception. We expect our research and development expenses to increase significantly in connection with our clinical trials and other product development activities. If we receive CE Mark or FDA approval of our Custom NX DES Systems, we expect to incur significant sales and marketing expenses and manufacturing expenses as we commercialize our products. Additionally, following this offering, we expect that our general and administrative expenses will increase due to the additional operational and reporting costs associated with being a public company. As a result, we expect to continue to incur significant and increasing operating losses for the foreseeable future. These losses will continue to have an adverse effect on our stockholders equity.

We are wholly dependent on a third party for the development of the drug coating placed on our drug eluting stents and any delay or failure by such third party to successfully develop the drug coating or to submit an acceptable DMF to regulatory authorities could delay our clinical trials or prevent or delay commercialization of our Custom NX DES Systems.

In May 2004, we entered into a license agreement with Occam. Pursuant to the agreement, we obtained non-exclusive rights to use Occam's drug coating on our stent platform. The drug coating consists of Biolimus A9, an anti-inflammatory drug that is a derivative of rapamycin, and PolyLactic Acid, or PLA, a biodegradable polymer used to release the drug over time. The drug coating has not been approved for any use in the European Union, the United States or any other jurisdiction. In April 2005, Biosensors submitted its first module for the DMF with its designated Notified Body, an independent third party appointed by regulatory authorities to conduct the requisite conformity assessment, in conjunction with Biosensors' application for CE Mark of its BioMatrix drug eluting stent. Biosensors does not have any prior experience in developing or manufacturing drugs or obtaining regulatory approval for drugs or drugs used in combination with a medical device in any jurisdiction.

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In May 2006, Biosensors publicly disclosed that it had responded to all requests for additional information received from its designated Notified Body or the relevant drug authority; however, there can be no assurance that the Notified Body will accept Biosensors' DMF in its filed form, even with the inclusion of the additional requested data. We have not been involved with, or had access to, any of Biosensors' filings with its designated Notified Body or the relevant regulatory authorities in the European Union. There is a significant chance that the designated Notified Body, after continued deliberations, may request additional data or tests that could be time consuming for Biosensors to provide. The designated Notified Body who will be reviewing our CE Mark application will be given access to Biosensors' DMF in connection with our applications for CE Mark. Biosensors will have to obtain a favorable opinion from the relevant drug authority on its DMF before our designated Notified Body can provide us with CE Mark approval. In the United States, we do not know what filings Biosensors has made with the FDA in connection with their DMF for the drug coating. If Biosensors experiences delays or problems in developing a DMF that we need to reference in our application for CE Mark in the European Union or our PMA application in the United States, our currently planned clinical trials and the development of our products may be substantially delayed and we may be required to restart clinical programs with an alternative drug coating. In the event we experience these delays or need to restart clinical programs our regulatory and commercialization timelines will need to be extended and we may experience a significant decline in our stock price.

We currently do not have, and may never have, any products available for sale and our efforts to obtain product approvals and commercialize our products may not succeed or may result in delays for many reasons.

We are a development stage medical device company with a limited history of operations and we currently do not have any products available for sale or other sources of revenue. Our ability to generate revenue depends entirely upon the successful clinical development, regulatory approval and commercialization of our Custom NX DES Systems. Our products under development and any other products that we develop will require extensive additional clinical testing, regulatory approval and significant marketing efforts before they can be sold and generate any revenue. Our efforts to commercialize our products may not succeed for a number of reasons including:

•

our products may not demonstrate safety and efficacy in our clinical trials;



•

we are wholly dependent on the efforts undertaken by the supplier of the drug coating for our products, and may be significantly impacted by any regulatory delays or barriers that our supplier may encounter in submitting an adequate or acceptable drug master file, or DMF, for the drug coating to the regulatory authorities;



•

we may not be able to obtain regulatory approvals for our products, or the approved indications for our products may be narrower than we seek;



•

we may experience delays in our development program, including initiation and completion of our clinical trials;



•

any products that are approved may not be accepted in the marketplace by physicians and patients;



•

physicians may not receive adequate coverage and reimbursement for procedures using our products;



•

any rapid technological change may make our technology and products obsolete;

10

•

we may not be able to manufacture our Custom NX DES Systems in commercial quantities or at an acceptable cost;



•

we may not have adequate financial or other resources to complete the development and commercialization of our Custom NX DES Systems; and



•

we may be sued for infringement of intellectual property rights and could be enjoined from manufacturing or selling our products.

We cannot market our products in the European Union until we receive a CE Mark or in the United States until we receive premarket approval, or PMA. The earliest we expect to be able to commercialize our products in the European Union is in the second half of 2008, if at all, and in the United States is in the first half of 2010, if at all. If we are not successful in the initiation and completion of clinical trials for the development, approval and commercialization of our Custom NX DES Systems for the treatment of coronary artery disease, or CAD, we may never generate any revenue and may be forced to cease operations.

We have not received, and may never receive, FDA or other regulatory approvals to market our Custom NX DES Systems.

In addition to the submission of a DMF, that is acceptable to regulatory authorities, by the supplier for the drug coating that we use on our products, which we intend to reference in the regulatory applications for our products, we must obtain regulatory approval to market our drug eluting stents. Our Custom NX DES Systems are combination products, incorporating both a drug element and a medical device, and the combination device will be regulated as a Class III medical device in the United States. The drug coating for our stents will be reviewed by the FDA's Center for Drug Evaluation and Research, or CDER, and the device will be reviewed by the FDA's Center for Devices and Radiological Health, or CDRH, with the overall product approved by CDRH as a medical device. We believe that no separate approval for the drug independent of the device is required.

We do not currently have the necessary regulatory approvals to market our Custom NX DES Systems or any other products in the United States or in any foreign market, including the European Union. If we obtain the necessary regulatory approvals, we plan initially to launch our products in the European Union and later in the United States. Regulatory approval in the European Union for our products will require us to successfully obtain CE Mark from a designated Notified Body. The regulatory approval process in the United States for our products involves, among other things, successfully receiving authorization from the FDA to conduct clinical trials under an investigational device exemption, or IDE, completing pre-clinical and clinical trials, and compiling, submitting and obtaining PMA from the FDA. The PMA process requires us to demonstrate the safety and efficacy of our products to the FDA's satisfaction. This process is expensive and uncertain and requires detailed and comprehensive scientific and human clinical data. While the FDA review process generally takes one to three years after filing the PMA application, our PMA application review could take much longer and may never result in the FDA granting PMA. The FDA can delay, limit or deny approval of our PMA application for many reasons, including:

•

our stent systems may not be safe or effective or may not otherwise meet the FDA's requirements;



•

the data from our pre-clinical studies and clinical trials may be insufficient to support approval;

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•

the manufacturing process or facilities we or our suppliers use may not meet stringent regulatory requirements;



•

the information provided by the supplier of the drug coating in its DMF may be inadequate; and



•

changes in FDA approval policies or adoption of new regulations may require us to provide additional data.

We will also have to obtain similar, and in some cases more stringent, foreign regulatory approval in order to commercialize our products outside of the United States. Even if approved, our Custom NX DES Systems may not be approved for the indications that are necessary or desirable for successful commercialization. We may not obtain the necessary regulatory approvals to market our products in the European Union, United States or in other markets. Any delay in, or failure to receive or maintain, approval for our products could prevent us from generating revenue or achieving profitability.

Preliminary third-party data has raised concerns that drug eluting stents may cause an increase in late-stent thrombosis. In the event that regulatory authorities determine that such concerns are valid or otherwise require additional study and analysis, we may experience a delay in obtaining or we may be unable to obtain regulatory clearances for our products and, even if approved, the market acceptance of our products may be significantly impaired.

On September 14, 2006, the FDA issued a Statement on Coronary Drug-Eluting Stents, which discusses recent clinical data presented at the March 2006 American College of Cardiology Scientific Sessions in Atlanta, Georgia and the September 2006 European Society of Cardiology Annual Meeting/World Congress of Cardiology Meeting in Barcelona, Spain. This data suggested a small but significant increase in the rate of death and myocardial infarction, or heart attack, potentially due to late-stent thrombosis, in patients treated with drug eluting stents at 18 months to three years after stent implantation. The FDA stated that, while these studies have raised important questions regarding the safety and efficacy of drug eluting stents, it is not possible to fully characterize the mechanisms, risks and incidence rates of late-stent thrombosis following implantation of drug eluting stents based on currently available data. The FDA convened a public meeting of its Circulatory System Devices Advisory Panel on December 7 and 8, 2006 with the intention of obtaining additional information on the risks, timing and incidence rates of late-stent thrombosis. The Panel made the following statements in response to the FDA's questions:

•

The Panel was in general agreement that drug eluting stents, when used in accordance to their FDA approved labeled indications, are associated with a clinically important numerical excess of late-stent thromboses (after one year post-implantation) compared to bare metal stents; however, the magnitude of this excess is uncertain and additional data is needed.



•

Based on the analyses presented by the two manufactures of currently marketed drug eluting stents in the United States, the Panel concluded that drug eluting stents were not associated with an increased risk of death or heart attacks compared to bare metal stents despite an apparent increase in late-stent thrombosis rates after one year following implantation of the devices.



•

The Panel requested longer-term follow-up and an increased number of patients in future drug eluting stent clinical trials.

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•

The Panel reached consensus that the drug eluting stent safety concerns do not outweigh their benefits compared to bare metal stents when used within the limits of the currently approved FDA indications.



•

The Panel discussed different options for modifying the labeling of drug eluting stents, and was in consensus that labels should include a reference to the current PCI Practice Guidelines for the duration of antiplatelet therapy following the implantation of a drug eluting stent.

The Panel's opinion is advisory and the FDA has not issued final conclusions or recommendations from this meeting. We cannot assure you that any long-term data produced in response to the Panel's request will support its current conclusions and the FDA may determine to alter or change its determination regarding the safety and efficacy of drug eluting stents. Any adverse determination by the FDA regarding the safety and efficacy of drug eluting stents would have a significant adverse impact on our business.

If Occam fails to supply us with sufficient quantities of our drug coating, or fails to test samples of our products accurately or in a timely manner, development and commercialization of our Custom NX DES Systems may be prevented or delayed as a result.

We obtain our entire supply of the drug coating for our stents from Biosensors and we are unaware of any alternative source for this drug coating. We do not have the right to use alternate suppliers for the drug coating that we obtain from Occam. In addition, there is no other source for the drug coating and we are contractually restricted from commercializing any of our products that incorporate a rapamycin drug or any derivative thereof or obtaining Biolimus A9 from any other source and we have not in-licensed an alternative drug for use in the event we are unable to obtain a sufficient supply of Biolimus A9. Currently, Biosensors relies on a sole-source, Nippon Kayaku, a third-party Japanese pharmaceutical company, to manufacture and supply them with Biolimus A9, which Biosensors mixes with the PLA. We have no relationship with, control over, or contact with this pharmaceutical company and cannot contract directly with it to obtain Biolimus A9 if we are unable to obtain Biolimus A9 from Biosensors. In addition, the pharmaceutical company is subject to significant legal and regulatory requirements with regard to the production of Biolimus A9, including onerous current Good Manufacturing Practices regulations, or GMP, which are strictly enforced by the FDA, and the Ministry of Health, Labor, and Welfare in Japan and any failure on the part of the pharmaceutical company to comply with these requirements may interrupt Biosensors' supply of Biolimus A9 and ultimately, our supply of the drug coating. Biosensors has also entered into, and may continue to enter into, agreements to supply the drug coating to other licensees. Our clinical trials and the development and commercialization of our Custom NX DES Systems could be prevented or delayed if:

•

the supplier of our drug coating is unable or refuses to meet our demand;



•

our license agreement with Occam terminates for any reason, including insolvency or our failure to obtain CE Mark or commercialize our products before May 2008; or



•

the supplier of our drug coating does not meet regulatory quality requirements and other specifications.

To date, our drug coating requirements have been limited to small quantities that we need to conduct our development and pre-clinical and clinical trials. If we obtain market approval for our products, we anticipate that we will require substantially larger quantities of the drug coating. Occam may not provide us with sufficient quantities of the drug coating and such supply may not meet our quality

13

requirements or other specifications. In the event we do not receive adequate supply of the drug coating, we will likely be unable to locate an alternative supplier of the drug coating, or any alternative drug, in a timely manner or on commercially reasonable terms, if at all. Any additional new source for Biolimus A9, the PLA or the drug coating will require the consent of Occam and prior FDA approval, which will require significant time and effort to obtain and there can be no assurance that we will obtain such regulatory approval. The inability to obtain sufficient quantities of the drug coating or any delay in obtaining such supply could delay our clinical trials or affect the commercialization of our Custom NX DES Systems, which could have a significant adverse affect on our future operations. In addition, Occam has indicated to us that it intends to control the process of certain testing related to the drug coating and its application to our products. This may result in our inability to commercially release a lot prior to receiving the test results. Any inaccuracy or delay in receiving the test results could negatively affect our ability to commercialize our products.

We do not have long-term data regarding the safety and efficacy of our Custom NX DES Systems. Any long-term data that is generated may not be consistent with our limited short-term data, which could affect the regulatory approval of our products or the rate at which our products are adopted.

An important factor in our clinical trials, upon which the safety and efficacy of our Custom NX DES Systems may be measured, is the rate of restenosis, or the renarrowing of the treated artery over time, and the rate of reintervention, or retreatment following the procedures using the Custom NX DES Systems. We believe that physicians and regulators will compare the rates of long-term restenosis and reintervention for our Custom NX DES Systems against other drug eluting or bare metal stent procedures and other alternative procedures.

If, in our planned large-scale comparative pivotal clinical trial, we fail to demonstrate restenosis and reintervention rates, as well as other clinical trial end-points and performance, comparable to other drug eluting and bare metal stents that have been approved by the FDA, our ability to successfully market Custom NX DES Systems may be significantly limited. If the long-term rates of restenosis and reintervention do not meet regulators' or physicians' expectations, our Custom NX DES Systems may not receive regulatory approval or, if approved, may not become widely adopted and physicians may recommend that patients receive alternative drug eluting stents, such as the Cypher stent and the Taxus Express2 stent, the two drug eluting stents currently marketed in the United States. Another important factor upon which the safety and efficacy of our Custom NX DES Systems will be measured is the incidence of late-stent thrombosis following procedures using our drug eluting stents. Recent clinical data suggests a small but significant increase in the rate of death and heart attack, possibly due to late-stent thrombosis. The FDA convened a public meeting of its Circulatory System Devices Advisory Panel on December 7 and 8, 2006 with the intention of obtaining additional information on the risks, timing and incidence rates of late-stent thrombosis. See "Risk Factors—Preliminary third-party data has raised concerns that drug eluting stents may cause an increase in late-stent thrombosis."

We cannot assure you that our long-term data, once obtained, will be different than that suggested in the recent studies regarding late-stent thrombosis.

Additionally, other efficacy factors may influence a physician's decision over what stents to deploy. Our Custom NX DES Systems' stent segments may separate at the time of deployment in the artery or over time. Any such separation may lead to restenosis occurring between the segments or other adverse events. Another significant factor that physicians and regulators will consider is acute safety data on complications that occur with the use of our products. Two of the patients in our CUSTOM I clinical trial experienced elevated enzyme levels following the procedure, which are technically considered to be heart attacks. In addition, one of the patients in our CUSTOM II clinical trial died as a result of a major adverse cardiac event, or MACE, which is currently under investigation and could be

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determined to be related to the procedure involving the use of our Custom NX 60. If the results obtained from our clinical trials indicate that our products are not as safe or effective as other treatment options or as current short-term data would suggest, our products may not be approved, adoption of our products may suffer and our business would be harmed.

If our pre-clinical studies or clinical trials do not meet safety or efficacy endpoints, or if we experience significant delays in completing these studies or trials, our ability to commercialize our Custom NX DES Systems or other products and our financial position will be impaired.

Before marketing and selling our Custom NX DES Systems or any other products, we must successfully complete pre-clinical studies and clinical trials that demonstrate that our products are safe and effective. We currently have a very limited amount of clinical data regarding the safety and efficacy of our Custom NX DES Systems, and no data beyond eight months including no data on the incidence of late-stent thrombosis. The results from our limited short-term clinical experience for our Custom NX DES Systems do no necessarily predict long-term clinical benefit and may not be replicated in subsequent clinical trials. Furthermore, all of our existing data has been produced in studies that involve relatively small patient groups, and the data may not be reproduced in wider patient populations. We plan to conduct additional large-scale clinical trials to determine whether our products are safe and effective and to support our applications for regulatory approval in the European Union and the United States. We expect that one or more of these additional clinical studies will be a comparative study comparing the safety and efficacy of our stents to the Cypher stent or the Taxus Express2 stent, the two drug eluting stents marketed in the United States, and that these studies will involve large patient populations of approximately 2,500 patients.

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:

•

Biosensors fails to submit in a timely fashion, if at all, its DMF for the drug coating with its designated Notified Body in the European Union or the FDA, or such filings fail to meet regulatory requirements;



•

the FDA or other regulatory authorities do not approve our clinical trial protocols or our clinical trials, or suspend or place a clinical trial on hold;



•

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



•

third-party clinical investigators do not conduct follow-up visits with patients or patients drop out of the clinical trial at rates we do not expect;



•

patients experience adverse events, which may or may not be related to our products;



•

patients die 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 products;



•

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



•

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

15

trials if investigators find us or our suppliers not in compliance with regulatory requirements;

•

changes in governmental regulations or administrative actions;



•

the interim results of our clinical trials are inconclusive or negative; or



•

our clinical trial designs, although approved, are inadequate to demonstrate safety and/or efficacy.

Before we can commence our planned pivotal clinical trial in the United States for our Custom NX DES Systems, an IDE application must be submitted and approved by the FDA, which we currently anticipate submitting in the first half of 2007. Product development, including pre-clinical studies and clinical testing, is a long, expensive and uncertain process and is subject to delays. It may take us several years to complete our testing, if we complete it at all, and a clinical trial may fail at any stage. Furthermore, data obtained from any clinical trial may be inadequate to support a PMA application or any foreign regulatory applications. Additionally, pre-clinical and clinical data can also be interpreted in different ways, which could delay, limit or prevent regulatory approval for our products.

Clinical trials necessary to support a PMA application will be expensive and will require the enrollment of large numbers of patients, and suitable patients may be difficult to identify and recruit.

Clinical trials necessary to support a PMA application for our Custom NX DES Systems will be expensive and will require the enrollment of large numbers of patients, and suitable patients may be difficult to identify and recruit. The clinical trials supporting the PMA applications for the Cypher stent and the Taxus Express2 stent, which are approved by the FDA and currently marketed, involved patient populations of approximately 1,000 and 1,300, respectively. We expect that we will provide the FDA with data on approximately 2,500 patients with 12-month follow-up to support our PMA application. The FDA may require us to submit data on a greater number of patients or a longer follow-up period. Patient enrollment in clinical trials and completion of patient follow-up 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 clinical trial 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 or follow-up to assess the safety and efficacy of our products, or they may be persuaded to participate in contemporaneous clinical trials of competitive products. In addition, patients participating in our clinical trials may die before completion of the trial or suffer adverse medical events unrelated to our products. Delays in patient enrollment or failure of patients to continue to participate in a clinical trial may cause an increase in costs and delays or result in the failure of the clinical trial.

Physicians may not widely adopt our Custom NX DES Systems unless they determine, based on experience, long-term clinical data and published peer reviewed journal articles, that the use of our Custom NX DES Systems provides a safe and effective alternative to other existing treatments for coronary artery disease.

Physicians tend to be slow to change their medical treatment practices because of perceived liability risks arising from the use of new products and the uncertainty of third-party coverages and reimbursement. We believe that physicians will not widely adopt our Custom NX DES Systems unless they determine, based on experience, long-term clinical data and published peer reviewed journal articles, that the use of our Custom NX DES Systems provides a safe and effective alternative to other existing treatments for coronary artery disease, including coronary artery bypass grafting, or CABG, balloon angioplasty, bare metal stents and other drug eluting stents, such as Johnson & Johnson's

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Cypher stent and Boston Scientific's Taxus Express2 stent. In particular, the use of bare metal stents has reportedly increased, and the use of drug eluting stents has reportedly decreased, at certain hospitals in the United States and elsewhere as a result of recent clinical data indicating a higher incidence rate of late stent thrombosis. We cannot predict the effect that this or other data questioning the safety of drug eluting stents will have on the drug eluting stent market.

We cannot provide any assurance that the data collected from our current and planned clinical trials will be sufficient to demonstrate that our Custom NX DES Systems are an attractive alternative to other drug eluting stent procedures. If we fail to demonstrate safety and efficacy that is at least comparable to other drug eluting or bare metal stents that have received regulatory approval and that are available on the market, our ability to successfully market our Custom NX DES Systems will be significantly limited. Even if the data collected from clinical studies or clinical experience indicate positive results, each physician's actual experience with our Custom NX DES Systems will vary. Clinical trials conducted with our Custom NX DES Systems have involved procedures performed by physicians who are technically proficient and are high-volume users of drug eluting stents. Consequently, both short- and long-term results reported in these clinical trials may be significantly more favorable than typical results of practicing physicians, which could negatively impact rates of adoptions of our products. We also believe that published peer-reviewed journal articles and recommendations and support by influential physicians regarding our Custom NX DES Systems will be important for market acceptance and adoption, and we cannot assure you that we will receive these recommendations and support, or that supportive articles will be published.

Problems with the stent to be used in the control group during our planned U.S. pivotal clinical trial could adversely affect its outcome.

We expect our pivotal clinical trial in the United States to compare the performance, including safety and efficacy, of our products against those of a currently marketed drug eluting stent. Our planned pivotal clinical trial could be significantly delayed or harmed if the stent we use for the control group experiences problems. We may use one of the two currently marketed drug eluting stents, the Cypher stent or the Taxus Express2 stent, as the control stent in our planned pivotal clinical trial. In July 2004, Boston Scientific announced the recall of approximately 85,000 Taxus Express2 stent systems and approximately 11,000 Taxus Express2 stent systems due to characteristics in the delivery catheters that had the potential to impede balloon deflation during a balloon angioplasty procedure. In August 2004, Boston Scientific announced that it would recall an additional 3,000 Taxus Express2 stents. If prior to or during the enrollment and treatment period for our planned pivotal clinical trial, there is a recall of the control stent or the control stent is removed from the market, our trial would likely be substantially delayed. The FDA could also require us to redesign the clinical trial based on an alternative control stent. Any significant delay or redesign could impair our ability to commercialize our Custom NX DES Systems.

Our products are based on a new technology, and we have only limited experience in regulatory affairs, which may affect our ability or the time required to obtain necessary regulatory approvals, if at all.

Drug eluting stents were introduced in the United States in 2003. To date, the FDA has approved only the Taxus Express2 and the Cypher drug eluting stents for commercial sale. Because drug eluting stents are relatively new and long-term success measures have not been completely validated, regulatory agencies, including the FDA, may take significantly more time in evaluating product approval applications for those types of products. For example, there are currently several methods of measuring restenosis and we do not know which of these metrics, or combination of these metrics, will be considered appropriate by the FDA for evaluating the clinical efficacy of stents. Treatments may exhibit a favorable measure using one of these metrics and an unfavorable measure using another

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metric. Any change in the accepted metrics may result in reconfiguration of, and delays in, our clinical trials. Furthermore, the result of recent studies suggesting a correlation between drug eluting stents and incidents of late-stent thrombosis may further delay and complicate the regulatory pathway for our products. Additionally, we have only limited experience in filing and prosecuting the applications necessary to gain regulatory approvals, and our clinical, regulatory and quality assurance personnel is currently composed of only 14 employees. As a result, we may experience a long regulatory process in connection with obtaining regulatory approvals for our products.

If the third parties on which we rely to conduct our clinical trials and to assist us with pre-clinical development do not perform as contractually required or expected, we may not be able to obtain regulatory approval for or commercialize our products.

We do not have the ability to independently conduct clinical trials for our products, and we must rely on third parties, such as contract research organizations, medical institutions, clinical investigators and contract laboratories to conduct our clinical trials. In addition, we rely on third parties to assist with the pre-clinical development of our products. If these third parties do not successfully carry out their contractual duties or regulatory obligations or meet expected deadlines, if these third parties need to be replaced, or if the quality or accuracy of the data they obtain is compromised due to the failure to adhere to our clinical protocols or regulatory requirements or for other reasons, our pre-clinical development activities or clinical trials may be extended, delayed, suspended or terminated, and we may not be able to obtain regulatory approval for or successfully commercialize our products on a timely basis, if at all. Furthermore, our third-party clinical trial investigators may be delayed in conducting our clinical trials for reasons outside of their control.

Even if our products are approved by regulatory authorities, if we or our suppliers fail to comply with ongoing regulatory requirements, or if we experience unanticipated problems with our products, these products could be subject to restrictions or withdrawal from the market.

Any product for which we obtain marketing approval, along with the manufacturing processes, post-approval clinical data and promotional activities for such product, will be subject to continual review and periodic inspections by the FDA and other regulatory bodies. In particular we and our suppliers are required to comply with the Quality System Regulation, or QSR, for the manufacture of our Custom NX DES Systems and GMP for the manufacture of our drug coating and other regulations, which cover the methods and documentation of the design, testing, production, control, quality assurance, labeling, packaging, storage and shipping of any product for which we obtain marketing approval. The FDA enforces the GMP and QSR through unannounced inspections. We and our third-party manufacturers and suppliers have not yet been inspected by the FDA and will have to successfully complete such inspections before we receive regulatory approvals for our products. Failure by us or one of our suppliers, including the supplier of our drug coating, to comply with statutes and regulations administered by the FDA and other regulatory bodies, or failure to take adequate response to any observations, could result in, among other things, any of the following enforcement actions:

•

warning letters or untitled letters;



•

fines and civil penalties;



•

unanticipated expenditures;



•

delays in approving, or refusal to approve, our products;



•

withdrawal or suspension of approval by the FDA or other regulatory bodies;

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•

product recall or seizure;



•

orders for physician notification or device repair, replacement or refund;



•

interruption of production;



•

operating restrictions;



•

injunctions; and



•

criminal prosecution.

If any of these actions were to occur it would harm our reputation and cause our product sales and profitability to suffer. Furthermore, our key component suppliers may not currently be or may not continue to be in compliance with applicable regulatory requirements.

Even if regulatory approval of a product is granted, the approval may be subject to limitations on the indicated uses for which the product may be marketed. If the FDA determines that our promotional materials, training or other activities constitutes promotion of an unapproved use, it could request that we cease or modify our training or promotional materials or subject us to regulatory enforcement actions. It is also possible that other federal, state or foreign enforcement authorities might take action if they consider our training or other promotional materials to constitute promotion of an unapproved use, which could result in significant fines or penalties under other statutory authorities, such as laws prohibiting false claims for reimbursement.

Moreover, any modification to a device that has received FDA approval that could significantly affect its safety or effectiveness, or that would constitute a major change in its intended use, design or manufacture, requires a new approval from the FDA. If the FDA disagrees with any determination by us that new approval is not required, we may be required to cease marketing or to recall the modified product until we obtain approval. In addition, we could also be subject to significant regulatory fines or penalties.

In addition, we may be required to conduct costly post-market testing and surveillance to monitor the safety or efficacy of our products, and we will be required to report adverse events and malfunctions related to our products. Later discovery of previously unknown problems with our products, including unanticipated adverse events or adverse events of unanticipated severity or frequency, manufacturing problems, or failure to comply with regulatory requirements such as QSR or GMP, may result in restrictions on such products or manufacturing processes, withdrawal of the products from the market, voluntary or mandatory recalls, fines, suspension of regulatory approvals, product seizures, injunctions or the imposition of civil or criminal penalties. For example, Boston Scientific has initiated significant recalls of its stent products due to manufacturing and other quality issues associated with the products.

Further, healthcare laws and regulations may change significantly in the future. Any new healthcare laws or regulations may adversely affect our business. A review of our business by courts or regulatory authorities may result in a determination that could adversely affect our operations. Also, the healthcare regulatory environment may change in a way that restricts our operations.

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Failure to obtain regulatory approval in foreign jurisdictions will prevent us from marketing our products abroad.

We intend to market our products in international markets. In order to market our products in the European Union and many other foreign jurisdictions, we must obtain separate regulatory approvals. The approval procedure varies among countries and can involve additional testing, and the time required to obtain approval may differ from that required to obtain FDA approval. The foreign regulatory approval process may include all of the risks associated with obtaining FDA approval in addition to other risks. We may not obtain foreign regulatory approvals on a timely basis, if at all. Approval by the FDA does not ensure approval by regulatory authorities in other countries, and approval by one foreign regulatory authority does not ensure approval by regulatory authorities in other foreign countries or by the FDA. We may not be able to file for regulatory approvals and may not receive necessary approvals to commercialize our products in any market.

   
Risks Related to Our Intellectual Property

Third parties hold a large number of patents related to stents and we do not have rights to many of these patents.

Intellectual property rights, including in particular patent rights, play a critical role in the stent and stent delivery systems in the medical device industry, and therefore in our business. We face significant risks relating to patents, both as to our own patent position as well as to patents held by third parties. If any third-party intellectual property claim against us is successful, we could be prevented from commercializing our Custom NX DES Systems or other products.

There are numerous U.S. and foreign issued patents and pending patent applications owned by third parties with patent claims in areas that are the focus of our product development efforts. We are aware of patents owned by third parties, to which we do not have licenses, that relate to, among other things:

•

use of rapamycin or its analogs to treat restenosis;



•

stent structures and materials;



•

catheters used to deliver stents; and



•

stent manufacturing and coating processes.

Cordis, a subsidiary of Johnson & Johnson, is the owner of a number of patents and patent applications directed to the use and delivery of rapamycin or its analogs as a stand-alone therapy or as part of a drug eluting stent for the treatment of restenosis as well as stents incorporating such materials. These include, without limitation, the "Morris" family of patents, the "Wright" family of patents and the "Falotico" family of patents.

Boston Scientific holds rights to the "Grainger" family of patents directed to methods of inhibiting smooth muscle cell proliferation, or growth, using certain compounds and to the "Kunz" family of patents directed to methods for maintaining vessel luminal area with a stent that includes a cytostatic, or cell division inhibiting, agent.

Various patents owned by third parties are directed to stent structures and materials. These patents include a group of "Lau" patents that were owned by Guidant Corporation, a newly acquired subsidiary of Boston Scientific whose stent technology we believe has been acquired by Abbott

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Vascular subject to certain rights retained by Boston Scientific, which are directed to flexible stent structures. The "Boneau" family of patents, owned by Medtronic, are directed to stents comprising multiple closed-loop elements. The "Fariabi" family of patents, owned by Guidant, are directed to stents comprising cobalt-chromium alloys. The "Israel" and "Pinchasik" families of patents, owned by Medinol, are directed to stents with meandering strut patterns. A patent owned by Wall is directed to a radially collapsible mesh sleeve.

Other third-party patents are directed to stent delivery catheter technology. There are also a number of patents that were held by Guidant Corporation directed to rapid exchange catheters for angioplasty and stent delivery. These include, without limitation, the "Yock" and "Horzewski" families of patents, directed to rapid exchange angioplasty catheters, and the "Lau" family of patents directed to rapid exchange stent catheters. Boston Scientific owns other patents directed to rapid exchange angioplasty catheters, including, the "Bonzel" family of patents. Medtronic owns certain patents directed to guidewire handling technology in stent delivery catheters, including certain patents issued to Crittenden and Kramer. A patent issued to Fischell is directed to a sheathed stent delivery catheter. Guidant Corporation also held a patent issued to Cox, directed to a stent delivery catheter having an adjustable-length balloon. Certain patents owned by Boston Scientific or its subsidiaries are also directed to stent delivery catheters having adjustable-length balloons. Certain patents owned by third parties relate to methods for coating stents. For example, the "Hossainy" family of patents that were held by Guidant Corporation are directed to methods of coating stents with a primer layer and a reservoir layer.

The patents described above could be found to cover our technology and may materially and adversely affect our business. In addition, these patents are given only as examples and there may be other patents in addition to those described above that may materially and adversely affect our business. Moreover, because patent applications can take many years to issue, there may be currently pending applications, unknown to us, which may later result in issued patents that pose a material risk to us.

Many of our competitors are much larger than we are, with significant resources and incentives to initiate litigation against us.

Based on the prolific litigation that has occurred in the stent industry and the fact that we may pose a competitive threat to some large and well-capitalized companies that own or control patents relating to stents and their use, manufacture and delivery, we believe that it is possible that one or more third parties will assert a patent infringement claim against the manufacture, use or sale of our Custom NX DES Systems based on one or more of these patents. It is also possible that a lawsuit asserting patent infringement and related claims will be filed against us and it is possible that a lawsuit may have already been filed against us of which we are not aware. A number of these patents are owned by very large and well-capitalized companies that are active participants in the stent market. As the number of competitors in the drug eluting stent market grows, the possibility of inadvertent patent infringement by us or a patent infringement claim against us increases.

These companies have maintained their position in the market by, among other things, establishing intellectual property rights relating to their products and enforcing these rights aggressively against their competitors and new entrants into the market. All of the major companies in the stent and related markets, including Boston Scientific, Johnson & Johnson and Medtronic, have been repeatedly involved in patent litigation relating to stents since at least 1997. The stent and related markets have experienced rapid technological change and obsolescence in the past, and our competitors have strong incentives to stop or delay the introduction of new products and technologies. We may pose a competitive threat to many of the companies in the stent and related markets. Accordingly, many of

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these companies will have a strong incentive to take steps, through patent litigation or otherwise, to prevent us from commercializing our products.

Any lawsuit, whether initiated by us to enforce our intellectual property rights or by a third party against us alleging infringement, may cause us to expend significant financial and other resources, and may divert our attention from our business.

In any infringement lawsuit, a third party could seek to enjoin, or prevent, us from commercializing our Custom NX DES Systems or any future products, may seek damages from us and any such lawsuit would likely be expensive for us to defend against. Our involvement in intellectual property litigation could result in significant expense. Some of our competitors, such as Boston Scientific, Johnson & Johnson, Abbott Vascular and Medtronic, have considerable resources available to them and a strong economic incentive to undertake substantial efforts to stop or delay us from bringing our Custom NX DES Systems to market and achieving market acceptance. We, on the other hand, are a development stage company with comparatively few resources available to us to engage in costly and protracted litigation. A court may determine that patents held by third parties are valid and infringed by us and we may be required to:

•

pay damages, including up to treble damages and the other party's attorneys' fees, which may be substantial;



•

cease the development, manufacture, use and sale of products that infringe the patent rights of others, including our Custom NX DES Systems, through a court-imposed sanction called an injunction;



•

expend significant resources to redesign our technology so that it does not infringe others' patent rights, or to develop or acquire non-infringing intellectual property, which may not be possible;



•

discontinue manufacturing or other processes incorporating infringing technology; or



•

obtain licenses to the infringed intellectual property, which may not be available to us on acceptable terms, or at all.

Any development or acquisition of non-infringing products or technology or licenses could require the expenditure of substantial time and other resources and could have a material adverse effect on our business and financial results. If we are required to, but cannot, obtain a license to valid patent rights held by a third party, we would likely be prevented from commercializing the relevant product. We believe that it is unlikely that we would be able to obtain a license to any necessary patent rights controlled by companies against which we would compete directly. If we need to redesign products to avoid third-party patents, we may suffer significant regulatory delays associated with conducting additional studies or submitting technical, manufacturing or other information related to the redesigned product and, ultimately, in obtaining regulatory approval.

While our products are in clinical trials, and prior to commercialization, we believe our activities in the United States related to the submission of data to the FDA could fall within the scope of the statutory infringement exemption that covers activities related to developing information for submission to the FDA. However, the FDA exemptions would not cover our stent manufacturing or other activities in the United States that support overseas clinical trials or commercial sales if those activities are not also reasonably related to developing information for submission to the FDA. Currently available drug eluting stents are manufactured outside of the United States, which may

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insulate manufacturers from adverse rulings on U.S. patent infringement claims. In an adverse ruling, a court may order an injunction requiring a company to stop its U.S. domestic manufacturing operations. We currently do not have any plans to manufacture our stents outside of the United States and any finding of patent infringement against us in the United States could result in our being enjoined from manufacturing our products in the United States and could affect our ability to sell our products in the European Union. In any event, the fact that no third party has asserted a patent infringement claim against us to date should not be taken as an indication, or provide any level of comfort, that a patent infringement claim will not be asserted against us prior to or upon commercialization.

In addition, some of our agreements, including our agreement with Occam for the supply of the drug coating, our agreement with SurModics for the supply of the lubricious coating on our catheter and our agreement with Millimed for the license of patents related to segmented stent designs require us to indemnify the other party in certain circumstances where our products have been found to infringe a patent or other proprietary rights of others. An indemnification claim against us may require us to pay substantial sums to our licensor or supplier, including its attorneys' fees.

If we are unable to obtain and maintain intellectual property protection covering our products, others may be able to make, use or sell our products, which would adversely affect our revenue.

Our ability to protect our products from unauthorized or infringing use by third parties depends substantially on our ability to obtain and maintain valid and enforceable patents. We have pending patent applications in the United States and abroad but currently do not have any issued patents covering the technology that we intend to commercialize. Due to evolving legal standards relating to the patentability, validity and enforceability of patents covering medical devices and pharmaceutical inventions and the scope of claims made under these patents, our ability to obtain and enforce patents is uncertain and involves complex legal and factual questions. Accordingly, 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, patents may not issue from any pending or future patent applications owned by or licensed to us, and moreover, patents that have issued to us or may issue in the future may not be valid or enforceable. Further, even if valid and enforceable, our patents may not be sufficiently broad to prevent others from marketing products like ours, despite our patent rights.

The validity of our patent claims depends, in part, on whether prior art references exist that describe or render 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 or 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 United States Patent and Trademark Office, or USPTO, 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 the 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 relating to, our stent technologies. In the event that a third party has also filed a U.S. patent application covering our stents or a similar invention, we may have to participate in an adversarial proceeding, known as an interference, declared by the USPTO 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 position in the United States. The laws of some foreign jurisdictions do not protect intellectual property rights to the same extent as in the United States, and many companies have encountered

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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 may initiate litigation to enforce our patent rights, which may prompt our adversaries in such litigation to challenge the validity, scope or enforceability of our patents. If a court decides that our patents are not valid, not enforceable or of a limited scope, we will not have the right to stop others from using our inventions.

We also rely on trade secret protection to protect our interests in proprietary know-how and for processes for which patents are difficult to obtain or enforce. We may not be able to protect our trade secrets adequately. In addition, we rely on non-disclosure and confidentiality agreements with employees, consultants and other parties to protect, in part, trade secrets and other proprietary technology. These agreements may be breached and we may not have adequate remedies for any breach. Moreover, others may independently develop equivalent proprietary information, and third parties may otherwise gain access to our trade secrets and proprietary knowledge. 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.

We are aware that another medical business that holds patents to certain stent designs has used the name XTENT for limited purposes in the past. If it turns out that the other business has superior trademark rights in the name, and if the other business were to challenge our use of the XTENT name, we would then need to convince a court that there is no likelihood of consumer confusion. If we were unsuccessful in court, then we could be held liable for trademark infringement and we might then have to change our name as well as pay monetary damages. If we were forced to change our name, we may suffer from a loss of brand recognition, we may be required to retrieve product and interrupt supply, and may have to devote substantial resources advertising and marketing our products under a new brand name.

   
Risks Related to Commercialization

The medical device industry is highly competitive and subject to rapid technological change. If our competitors are better able to develop and market products that are safer, more effective, less costly or otherwise more attractive than any products that we may develop, our commercial opportunity will be reduced or eliminated.

The medical device industry is highly competitive and subject to rapid and profound technological change. Our success depends, in part, upon our ability to maintain a competitive position in the development of technologies and products for use in the treatment of CAD.

We face competition from established pharmaceutical and biotechnology companies, as well as from academic institutions, government agencies and private and public research institutions in the United States and abroad. Most of the companies developing or marketing competing products are publicly traded or divisions of publicly-traded companies, and these companies enjoy several competitive advantages, including:

•

greater financial and human resources for product development, sales and marketing, and patent litigation;



•

significantly greater name recognition;



•

established relations with healthcare professionals, customers and third-party payors;

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•

additional lines of products, and the ability to offer rebates or bundle products to offer higher discounts or incentives to gain a competitive advantage;



•

established distribution networks; and



•

greater experience in conducting research and development, manufacturing, clinical trials, obtaining regulatory approval for products and marketing approved products.

For example, Johnson & Johnson and Boston Scientific, two companies with far greater financial and marketing resources than we possess, have both developed, and are actively marketing, drug eluting stents that have been approved by the FDA. We may be unable to demonstrate that our Custom NX DES Systems offer any advantages over Johnson & Johnson's Cypher stent or Boston Scientific's Taxus Express2 stent. Many other large companies, including Medtronic and Abbott Laboratories, among others, are reportedly developing drug eluting stents. Smaller or early-stage companies may also prove to be significant competitors, particularly through collaborative arrangements with, or mergers with or acquisitions by, large and established companies or through the development of novel products and technologies.

The industry in which we operate has undergone, and is expected to continue to undergo, rapid and significant technological change, and we expect competition to intensify as technical advances are made. Our competitors may develop and patent processes or products earlier than us, obtain regulatory approvals for competing products more rapidly than us, and develop more effective or less expensive products or technologies that render our technology or products obsolete or non-competitive. For example, we are aware of companies that are developing various other less-invasive technologies for treating CAD, which could make our stent platform obsolete. We also compete with our competitors in recruiting and retaining qualified scientific and management personnel, establishing clinical trial sites and patient registration for clinical trials, as well as in acquiring technologies and technology licenses complementary to our programs or advantageous to our business. If our competitors are more successful than us in these matters, our business may be harmed.

If we are unable to establish sales and marketing capabilities or enter into and maintain arrangements with third parties to sell and market our Custom NX DES Systems, our business may be harmed.

We do not have a sales organization and have no experience as a company in the sales, marketing and distribution of stent systems or other medical devices. To be successful in commercializing our products we must either develop a sales and marketing infrastructure or enter into distribution arrangements with others to market and sell our products. We have not yet hired any European sales people or entered into any third-party distribution agreements other than with Biosensors for certain Pacific Rim countries.

After establishing our European sales channels, if our Custom NX DES Systems are approved for commercial sale in the United States, we currently plan to establish our own direct U.S. sales force. If we develop our own marketing and sales capabilities, our sales force will be competing with the experienced and well-funded marketing and sales operations of our more established competitors. Developing a sales force is expensive and time consuming and could delay or limit the success of any product launch. We may not be able to develop this capacity on a timely basis or at all. If we are unable to establish sales and marketing capabilities, we will need to contract with third parties to market and sell our products in the United States. To the extent that we enter into arrangements with third parties to perform sales, marketing and distribution services in the United States or internationally, our product revenue could be lower than if we directly marketed and sold our products, or any other stent system or related device that we may develop. Furthermore, to the extent

25

that we enter into co-promotion or other marketing and sales arrangements with other companies, any revenue received will depend on the skills and efforts of others, and we do not know whether these efforts will be successful. Some of our future distributors may market their own products or distribute other companies' products that compete with ours, and they may have an incentive not to devote sufficient efforts to marketing our products. If we are unable to establish and maintain adequate sales, marketing and distribution capabilities, independently or with others, we may not be able to generate product revenue and may not become profitable.

We have limited device manufacturing and drug coating capabilities and manufacturing personnel, and if our device manufacturing and drug coating facilities or our suppliers are unable to provide an adequate supply of products, our growth could be limited and our business could be harmed.

We currently have limited resources, facilities and experience to commercially manufacture the device component of our products and apply the drug coating to the stents. In order to produce our Custom NX DES Systems in the quantities that we anticipate will be required to meet anticipated market demand, we will need to increase, or scale-up, the production process by a significant factor over our current level of production. There are technical challenges to scaling-up manufacturing capacity and developing commercial-scale manufacturing facilities that will require the investment of substantial additional funds and hiring and retaining additional management and technical personnel who have the necessary manufacturing experience. We may not successfully complete any required scale-up in a timely manner or at all. If we are unable to do so, we may not be able to produce products in sufficient quantities to meet the requirements for the launch of the product or to meet future demand, if at all. During a routine audit, we discovered that our new device configuration required revised sterilization procedures, which are currently being validated. This discovery has caused a three to five month delay in our CUSTOM III clinical trial. In the event that we encounter similar challenges in the future, we may experience interruptions in the supply of our devices and as a result may be unable to meet demand. If we develop and obtain regulatory approval for our products and are unable to manufacture a sufficient supply of our products, our revenue, business and financial prospects would be adversely affected. In addition, if the scaled-up production process is not efficient or produces stents that do not meet quality and other standards, our future gross margins may decline.

We currently assemble our Custom NX DES Systems and apply the drug coating at our facilities in Menlo Park, California. The lease on our current facility expires in May 2007, and the size of our current facility is insufficient to support manufacturing on a commercial scale. Prior to the commercial launch of our product we will need to locate additional space, which will have to be inspected and approved by the FDA, and will likely require additional certifications by the State California Department of Health Services, or CDHS, and International Standardisation Organization, or ISO. We cannot assure you that additional manufacturing space will be available on commercially reasonable terms, if at all, or that we will be able to obtain the appropriate approvals from the FDA, CDHS or ISO within the time necessary for us to commence commercial manufacturing if at all. If there were a disruption to our existing manufacturing facility, we would have no other means of manufacturing our products until we were able to restore the manufacturing capability at our facility or develop alternative manufacturing facilities and obtaining regulatory approval for these facilities. Because our Menlo Park facilities are located in a seismic zone, we face the risk that an earthquake may damage our facilities and disrupt our operations. Finally, based on a verbal agreement with Occam, we currently apply the drug coating to our stents in our Menlo Park facilities. Our license agreement with Occam does not expressly permit us to apply the drug coating to our stents except under certain limited conditions and we do not have any other written agreement that would allow this to continue to occur. If we are unable to produce sufficient quantities of our products for use in our current and planned clinical trials, if we obtain regulatory approval of our products and are unable to produce sufficient quantities of our products to support our planned commercial activities or if our

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manufacturing process yields substandard products, our development and commercialization efforts would be delayed.

Our manufacturing facilities and the manufacturing facilities of our suppliers must comply with strictly enforced regulatory requirements. If we fail to achieve regulatory approval for these manufacturing facilities, our business and our results of operations would be harmed.

Completion of our clinical trials and commercialization of our products require access to, or the development of, manufacturing facilities that comply with QSR and GMP. We may establish a manufacturing facility outside of the United States and can provide no assurance that our manufacturing facility would meet applicable foreign regulatory requirements or standards at acceptable cost, on a timely basis, or at all. In addition, the FDA must approve facilities that manufacture our products for domestic commercial purposes, as well as the manufacturing processes and specifications for the product. Biosensors and suppliers of components of, and products used to manufacture, our products must also comply with FDA and foreign regulatory requirements, which often require significant time, money and record-keeping and quality assurance efforts and subject us and our suppliers to potential regulatory inspections and stoppages. We, Biosensors, or our other suppliers may not satisfy these regulatory requirements. If we or our suppliers do not achieve required regulatory approval for our manufacturing operations, our commercialization efforts could be delayed, which would harm our business and our results of operations.

We depend on single-source suppliers for some of the components in our Custom NX DES Systems. The loss of these suppliers could delay our clinical trials or prevent or delay commercialization of our Custom NX DES Systems.

Although we have identified several vendors for the components of our products, some of our components are currently provided by only one vendor, or a single-source supplier. In addition to our reliance on Occam as the only source for the supply of our drug coating, we also depend on SurModics, which provides the slippery coating on our sheath. We do not have long-term contracts with our third-party suppliers of components used in the manufacture of our stent delivery catheters or the cobalt chromium tubing and laser-precision cutting process required to produce the stent segments included in our device. In addition, we do not have long-term contracts with our third-party suppliers of some of the equipment and components that are used in our manufacturing process and we do not carry a significant inventory of most components used in our products. Establishing additional or replacement suppliers for these components, and obtaining any additional regulatory approvals that may result from adding or replacing suppliers, will take a substantial amount of time. We may also have difficulty obtaining similar components from other suppliers that are acceptable to the FDA or foreign regulatory authorities. Furthermore, since some of these suppliers are located outside of the United States, we are subject to foreign export laws and U.S. import and customs regulations, which complicate and could delay shipments to us. Some of our suppliers are also our competitors and may be reluctant to supply components to us on favorable terms, if at all.

If we have to switch to replacement suppliers, we will face additional regulatory delays and the manufacture and delivery of our Custom NX DES Systems would be interrupted for an extended period of time, which would delay completion of our clinical trials or commercialization of our products. In addition, we will be required to obtain prior regulatory approval from the FDA or foreign regulatory authorities to use different suppliers or components that may not be as safe or as effective. As a result, regulatory approval of our products may not be received on a timely basis or at all.

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If we do not achieve our projected development goals in the time frames we announce and expect, the commercialization of our products may be delayed and, as a result, our stock price may decline.

From time to time, we may estimate and publicly announce the anticipated timing of the accomplishment of various clinical, regulatory and other product development goals, which we sometimes refer to as milestones. These milestones could include our submission for CE Mark in the European Union, the submission to the FDA of an IDE application to commence our pivotal clinical trial for our Custom NX DES Systems, the enrollment of patients in our clinical trials, the release of data from our clinical trials and other clinical and regulatory events. The actual timing of these milestones could vary dramatically compared to our estimates, in some cases for reasons beyond our control. We cannot assure you that we will meet our projected milestones and if we do not meet these milestones as publicly announced, the commercialization of our products may be delayed and, as a result, our stock price may decline.

We may not be successful in our efforts to expand our portfolio of products and develop additional technologies.

A key element of our strategy is to discover, develop and commercialize a portfolio of new products in addition to our Custom NX DES Systems. We are seeking to do so through our internal research programs and intend to explore strategic collaborations for the development of new products utilizing our stent technology. Research programs to identify new disease targets, products and delivery techniques require substantial technical, financial and human resources, whether or not any products are ultimately identified. We may determine that one or more of our pre-clinical programs do not have sufficient potential to warrant the allocation of resources, such as the potential development of our stent technology for the treatment of peripheral artery disease, or PAD. Our research programs may initially show promise in identifying potential products, yet fail to yield products for clinical development for many reasons, including the following:

•

the research methodology used may not be successful in identifying potential products;



•

competitors may develop alternatives that render our products obsolete;



•

our products may not be deployed safely or effectively;



•

products may on further study be shown to have harmful side effects or other characteristics that indicate they are unlikely to be effective;



•

our clinical trials may not be successful; and



•

we may not receive regulatory approval.

We depend on our officers, and if we are not able to retain them or recruit additional qualified personnel, our business will suffer.

We are highly dependent on our President and Chief Executive Officer, Gregory D. Casciaro and our other officers. Due to the specialized knowledge each of our officers possesses with respect to interventional cardiology and our operations, the loss of service of any of our officers could delay or prevent the successful completion of our clinical trials and the commercialization of our Custom NX DES Systems. Each of our officers may terminate their employment without notice and without cause or good reason. We carry key person life insurance on Mr. Casciaro but not on our other officers.

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Upon receiving regulatory approval for our products, we expect to rapidly expand our operations and grow our research and development, product development and administrative operations. Our growth will require hiring a significant number of qualified clinical, scientific, commercial and administrative personnel. Accordingly, recruiting and retaining such personnel in the future will be critical to our success. There is intense competition from other companies and research and academic institutions for qualified personnel in the areas of our activities. Our offices are located in the San Francisco Bay Area, where competition for personnel with healthcare industry skills is intense. If we fail to identify, attract, retain and motivate these highly skilled personnel, we may be unable to continue our development and commercialization activities.

We will need substantial additional funding and may be unable to raise capital when needed, which would force us to delay, reduce or eliminate our product development programs or commercialization efforts.

We will need to raise substantial additional capital to:

•

fund our operations and clinical trials;



•

continue our research and development;



•

scale-up our manufacturing operations;



•

defend, in litigation or otherwise, any claims that we infringe third-party patent or other intellectual property rights;



•

commercialize our products, if any such products receive regulatory approval for commercial sale; and



•

acquire or in-license companies, products or intellectual property.

We believe that the net proceeds from this offering, together with our existing cash and cash equivalent balances and interest we earn on these balances, will be sufficient to meet our anticipated cash requirements for at least the next 18 months. However, our future funding requirements will depend on many factors, including:

•

the scope, rate of progress and cost of our clinical trials and other research and development activities;



•

the cost of filing and prosecuting patent applications and defending and enforcing our patent and other intellectual property rights;



•

the cost of defending, in litigation or otherwise, any claims that we infringe third-party patent or other intellectual property rights;



•

the terms and timing of any collaborative, licensing and other arrangements that we may establish;



•

the cost and timing of regulatory approvals;



•

the cost and timing of establishing sales, marketing and distribution capabilities;

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•

the cost of establishing clinical and commercial supplies of our products and any products that we may develop;



•

the effect of competing technological and market developments;



•

licensing technologies for future development; and



•

the extent to which we acquire or invest in businesses, products and technologies, although we currently have no commitments or agreements relating to any of these types of transactions.

If we raise additional funds by issuing equity securities, our stockholders may experience dilution. Debt financing, if available, may involve restrictive covenants. Any debt financing or additional equity that we raise may contain terms that are not favorable to us or our stockholders. If we raise additional funds through collaboration and licensing arrangements with third parties, it may be necessary to relinquish some rights to our technologies or our products, or grant licenses on terms that are not favorable to us. If we are unable to raise adequate funds, we may have to liquidate some or all of our assets or delay, reduce the scope of or eliminate some or all of our development programs.

If adequate funds are not available, we may have to delay development or commercialization of our products or license to third parties the rights to commercialize products or technologies that we would otherwise seek to commercialize. We also may have to reduce marketing, customer supports or other resources devoted to our products. Any of these factors could harm our financial condition.

If we are unable to manage our expected growth, we may not be able to commercialize our products, including our Custom NX DES Systems.

If we obtain CE Mark and FDA approval for our products, we intend to continue to rapidly expand our operations and grow our research and development, product development and administrative operations and invest substantially in our manufacturing facilities. This expansion has and is expected to continue to place a significant strain on our management and operational and financial resources. In particular, the commencement of our planned pivotal clinical trial in the United States will consume a significant portion of management's time and our financial resources. To manage any expected growth and to commercialize our Custom NX DES Systems, we will be required to improve existing, and implement new, operational and financial systems, procedures and controls and expand, train and manage our growing employee base. Our current and planned personnel, systems, procedures and controls may not be adequate to support our anticipated growth. If we are unable to manage our growth effectively, our business could be harmed.

   
Risks Related to Our Industry

If we fail to obtain an adequate level of reimbursement for our products from third-party payors, there may be no commercially viable markets for our products or the markets may be much smaller than expected.

Our failure to receive adequate reimbursement or pricing approvals in the United States or internationally would negatively impact market acceptance of our products in the markets in which those approvals are sought. The efficacy, safety, performance and cost-effectiveness of our products under development and of any competing products are some of the factors that will determine the availability of coverage and level of reimbursement. In the United States, a preliminary threshold for coverage and payment of medical devices and drugs generally includes approvals or clearances from the FDA. In addition, there is significant uncertainty concerning third-party coverage and

30

reimbursement of newly approved medical products and drugs. Future legislation, regulation or coverage and reimbursement policies of third-party payors may adversely affect the demand for our products currently under development and limit our ability to profitably sell our products. Third-party payors continually attempt to contain or reduce healthcare costs by challenging the prices charged for healthcare products and services, resulting in a downward pressure of reimbursement rates generally. Under recent regulatory changes to the methodology for calculating payments for current inpatient procedures in certain hospitals, Medicare payment rates for surgical and cardiac procedures have been decreased, including approximately 10% to 14% reductions for those procedures using drug eluting stents. The reductions are to be transitioned over the next three years, beginning in fiscal year 2007. The Centers for Medicare and Medicaid Services, or CMS, responsible for administering the Medicare program, also indicated it will begin to move forward with developing revised reimbursement codes that better reflect the severity of the patient's condition in the hospital inpatient prospective payment system for fiscal year 2008. If coverage and reimbursement for our products is unavailable, insufficient or limited in scope or amount, or if pricing is set at unsatisfactory levels, market acceptance of our products would be impaired and our future revenues, if any, would be adversely affected.

Legislative or regulatory reform of the healthcare system may affect our ability to sell our products profitably.

In the United States and in certain foreign jurisdictions, there have been a number of legislative and regulatory proposals to change the regulatory and healthcare systems in ways that could impact our ability to sell our products profitably, if at all. In the United States in recent years, new legislation has been proposed at the federal and state levels that would effect major changes in the healthcare system. In addition, new regulations and interpretations of existing healthcare statutes and regulations are frequently adopted. Post-payment reviews of claims also are conducted. For example, in 2005 the Office of Inspector General of the U.S. Department of Health and Human Services, or OIG audited certain sample claims paid by Medicare contracts for in-patient and out-patient claims involving arterial stent implantation to determine whether Medicare payments for these services were appropriate. The OIG found that 20 of 72 reviewed claims did not meet Medicare reimbursement requirements. Findings of ongoing or widespread inappropriate billing of arterial stents could lead to increased scrutiny in this area, which in turn, could affect our ability to raise capital, obtain additional collaborators and market our products. We also expect to experience pricing pressures in connection with the future sale of our products due to the trend toward managed health care, the increasing influence of health maintenance organizations and additional legislative proposals. Our results of operations could be adversely affected by these and other future healthcare reforms.

We face the risk of product liability claims and may not be able to obtain insurance.

Our business exposes us to the risk of product liability claims that is inherent in the testing, manufacturing and marketing of medical devices. We may be subject to product liability claims if our stents cause, or merely appear to have caused, an injury. Claims may be made by patients, consumers, healthcare providers, third-party strategic collaborators or others selling our products. Although we have product liability and clinical trial liability insurance that we believe is appropriate, this insurance is subject to deductibles and coverage limitations. Our current product liability insurance may not continue to be available to us on acceptable terms, if at all, and, if available, the coverages may not be adequate to protect us against any future product liability claims. In addition, if any of our products are approved for marketing, we may seek additional insurance coverage. If we are unable to obtain insurance at acceptable cost or on acceptable terms with adequate coverage or otherwise protect against potential product liability claims, we will be exposed to significant liabilities, which may harm our business. A product liability claim, recall or other claim with respect to uninsured liabilities or for amounts in excess of insured liabilities could have a material adverse effect on our business, financial condition and results of operations.

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We may be subject to claims against us even if the apparent injury is due to the actions of others. For example, we rely on the expertise of physicians, nurses and other associated medical personnel to perform the medical procedure and related processes to implant our coronary stents into patients. If these medical personnel are not properly trained or are negligent, the therapeutic effect of our stents may be diminished or the patient may suffer critical injury, which may subject us to liability. In addition, an injury that is caused by the activities of our suppliers, such as those who provide us with cobalt chromium tubing for our stents, those that laser cut our stents or the supplier of our drug coating, may be the basis for a claim against us.

These liabilities could prevent or interfere with our product commercialization efforts. Defending a suit, regardless of merit, could be costly, could divert management's attention from our business and might result in adverse publicity, which could result in the withdrawal of, or inability to recruit, clinical trial patient participants or result in reduced acceptance of our products in the market.

   
Risks Related to Our Operations

Our operations involve hazardous materials, and we must comply with environmental laws and regulations, which can be expensive.

We are subject to a variety of federal, state and local regulations relating to the use, handling, storage, disposal, and human exposure to hazardous and toxic materials. We could incur costs, fines, and civil and criminal sanctions, third-party property damage or personal injury claims, or could be required to incur substantial investigation or remediation costs, if we were to violate or become liable under environmental laws. We do not have insurance for environmental liabilities and liability under environmental laws can be joint and several and without regard to comparative fault. Environmental laws could become more stringent over time, imposing greater compliance costs and increasing risks and penalties associated with violations, which could harm our business. Compliance with current or future environmental and safety laws and regulations could restrict our ability to expand our facilities, impair our research, development or production efforts, or require us to incur other significant expenses. There can be no assurance that violations of environmental laws or regulations will not occur in the future as a result of the inability to obtain permits, human error, accident, equipment failure or other causes. For example, we had a chemical spill at our Menlo Park facility in February 2006, and although we believe that we took all appropriate actions to respond to the accident and that there is no remaining liability, we can provide no assurance that these actions were sufficient to prevent future chemical spills.

Because we have operated as a private company, we have no experience complying with public company obligations, including recently enacted changes in securities laws and regulations. Compliance with these requirements will increase our costs and require additional management resources, and we still may fail to comply.

We have operated as a private company, and we have not been subject to many of the requirements applicable to public companies. Recently enacted and proposed changes in the laws and regulations affecting public companies, including the provisions of the Sarbanes-Oxley Act of 2002 and rules related to corporate governance and other matters subsequently adopted by the SEC and NASDAQ Global Market, will result in increased administrative costs to us and increased legal and accounting fees. The impact of these events and heightened corporate governance standards could also make it more difficult for us to attract and retain qualified persons to serve on our board of directors, our board committees or as executive officers.

As directed by Section 404 of the Sarbanes-Oxley Act of 2002, the SEC adopted rules requiring public companies to include a report of management on the company's internal control over financial

32

reporting in their annual reports on Form 10-K. In addition, the independent registered public accounting firm auditing a company's financial statements must attest to and report on management's assessment of the effectiveness of a company's internal control over financial reporting. We may be unable to comply with these requirements by the applicable deadlines beginning with our Form 10-K for the period ending December 31, 2007. Both we and our independent registered public accounting firm will be testing our internal controls over financial reporting in connection with Section 404 requirements and could, as part of that documentation and testing, identify material weaknesses, significant deficiencies or other areas requiring further attention or improvement.

We are recording compensation expense that may result in an increase in our net losses for a given period.

Deferred stock-based compensation represents the difference between the deemed fair value of common stock at the time of a stock option grant and the option exercise price. Deferred stock-based compensation is amortized over the vesting period of the option or issuance. At December 31, 2005, deferred stock-based compensation related to option grants totaled approximately $1.0 million. Effective January 1, 2006, we adopted Statement of Financial Accounting Standards No. 123(R), Share-Based Payment and during the nine months ended September 30, 2006, we granted options to employees with a grant date fair value of $9.5 million, which is being expensed over the four-year vesting period of the options on a straight-line basis. We also record non-cash compensation expense for equity stock-based instruments issued to non-employees. Non-cash compensation expense associated with future equity compensation awards may result in an increase in our net loss, and adversely affect our reported results of operations.

Changes in, or interpretations of, accounting rules and regulations, such as expensing of stock options, could result in unfavorable accounting charges or require us to change our compensation policies.

The Financial Accounting Standards Board has adopted a new accounting pronouncement requiring the recording of expense for the fair value of stock options granted to employees. The impact of the adoption of SFAS No. 123(R) on the nine months ended September 30, 2006 was $792,000. We rely heavily on stock options to motivate current employees and to attract new employees. As a result of the requirement to expense stock options, we may choose to reduce our reliance on stock options as a motivational tool. If we reduce our use of stock options, it may be more difficult for us to attract and retain qualified employees. However, if we do not reduce our reliance on stock options, our reported net losses may increase, which may have an adverse effect on our reported results of operations.

   
Risks Related to this Offering

Our common stock has not been publicly traded, and we expect that the price of our common stock will fluctuate substantially.

Before this offering, there has been no public market for our common stock. An active public trading market may not develop after completion of this offering or, if developed, may not be sustained. The price of the common stock sold in this offering will not necessarily reflect the market price of our common stock after this offering. The market price for our common stock after this offering will be affected by a number of factors, including:

•

the results of our clinical trials;



•

the timing of our regulatory approvals;



•

announcements related to litigation;

33

•

statements made by Biosensors relating to regulation or supply of the drug coating;



•

the announcement of new products or service enhancements by us or our competitors;



•

quarterly variations in our or our competitors' results of operations;



•

changes in earnings estimates, investors' perceptions, recommendations by securities analysts or our failure to achieve analysts' earning estimates;



•

developments in our industry, including changes in third-party reimbursement; and



•

general market conditions and other factors unrelated to our operating performance or the operating performance of our competitors.

These factors may materially and adversely affect the market price of our common stock.

New investors in our common stock will experience immediate and substantial dilution after this offering.

The initial public offering price is substantially higher than the book value per share of our common stock. If you purchase common stock in this offering, you will incur immediate dilution of $12.47 in net tangible book value per share of common stock, based on an assumed initial public offering price of $17.00 per share, the midpoint of the range on the front cover of this prospectus. In addition, the number of shares available for issuance under our stock option and employee stock purchase plans will automatically increase annually without further stockholder approval. Investors will incur additional dilution upon the exercise of stock options. See "Dilution."

A sale of a substantial number of shares of our common stock may cause the price of our common stock to decline.

If our stockholders sell substantial amounts of our common stock in the public market after this offering, including shares issued upon the exercise of options, the market price of our common stock could decline. There will be approximately 18,096,308 shares of common stock eligible for sale beginning 180 days after the date of this prospectus upon the expiration of lock-up arrangements between our stockholders and underwriters. These sales also might make it more difficult for us to sell equity or equity-related securities in the future at a time and price that we deem reasonable or appropriate. See "Shares Eligible for Future Sale."

Our directors, officers and principal stockholders have significant voting power and may take actions that may not be in the best interests of our other stockholders.

After this offering, our officers, directors and principal stockholders each holding more than 5% of our common stock collectively will control approximately 68.1% of our outstanding common stock. As a result, these stockholders, if they act together, will be able to control the management and affairs of our company and most matters requiring stockholder approval, including the election of directors and approval of significant corporate transactions. This concentration of ownership may have the effect of delaying or preventing a change in control and might adversely affect the market price of our common stock. This concentration of ownership may not be in the best interests of our other stockholders.

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We have broad discretion in the use of proceeds of this offering for working capital and general corporate purposes.

The net proceeds of this offering will be allocated to clinical trials, research and development expenses, sales and marketing operations, expansion of our manufacturing capacity, potential litigation, and working capital and general corporate purposes, as well as potential acquisitions of complementary businesses, products or technologies. Within those categories, we have not determined the specific allocation of the net proceeds of this offering. Our management will have broad discretion over the use and investment of the net proceeds of this offering within those categories, and, accordingly investors in this offering will need to rely upon the judgment of our management with respect to the use of proceeds, with only limited information concerning management's specific intentions.

Volatility in the stock price of other companies may contribute to volatility in our stock price.

The NASDAQ Global Market, particularly in recent years, has experienced significant volatility with respect to medical technology, pharmaceutical, biotechnology and other life science company stocks. The volatility of medical technology, pharmaceutical, biotechnology and other life science company stocks often does not relate to the operating performance of the companies represented by the stock. Further, there has been particular volatility in the market price of securities of early stage and development stage life science companies. These broad market and industry factors may seriously harm the market price of our common stock, regardless of our operating performance. In the past, following periods of volatility in the market price of a company's securities, securities class action litigation has often been instituted. A securities class action suit against us could result in substantial costs, potential liabilities and the diversion of management's attention and resources.

Anti-takeover provisions in our amended and restated certificate of incorporation and amended and restated bylaws, and Delaware law, contain provisions that could discourage a takeover.

Anti-takeover provisions of our amended and restated certificate of incorporation and amended and restated bylaws and Delaware law may have the effect of deterring or delaying attempts by our stockholders to remove or replace management, engage in proxy contests and effect changes in control. The provisions of our charter documents include:

•

a classified board so that only one of the three classes of directors on our board of directors is elected each year;



•

elimination of cumulative voting in the election of directors;



•

procedures for advance notification of stockholder nominations and proposals;



•

the ability of our board of directors to amend our bylaws without stockholder approval;



•

a supermajority stockholder vote requirement for amending certain provisions of our amended and restated certificate of incorporation and our amended and restated bylaws; and



•

the ability of our board of directors to issue up to 10,000,000 shares of preferred stock without stockholder approval upon the terms and conditions and with the rights, privileges and preferences as our board of directors may determine.

In addition, as a Delaware corporation, we are subject to Delaware law, including Section 203 of the Delaware General Corporation Law. In general, Section 203 prohibits a Delaware corporation from

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engaging in any business combination with any interested stockholder for a period of three years following the date that the stockholder became an interested stockholder unless certain specific requirements are met as set forth in Section 203. These provisions, alone or together, could have the effect of deterring or delaying changes in incumbent management, proxy contests or changes in control. See "Description of Capital Stock."

We have not paid dividends in the past and do not expect to pay dividends in the future, and any return on investment may be limited to the value of our stock.

We have never paid cash dividends on our common stock and do not anticipate paying cash dividends on our common stock in the foreseeable future. The payment of dividends on our common stock will depend on our earnings, financial condition and other business and economic factors affecting us at such time as our board of directors may consider relevant. If we do not pay dividends, our stock may be less valuable because a return on your investment will only occur if our stock price appreciates.

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INFORMATION REGARDING FORWARD-LOOKING STATEMENTS

This prospectus contains forward-looking statements that involve risks and uncertainties, principally in the sections entitled "Summary," "Risk Factors," "Management's Discussion and Analysis of Financial Condition and Results of Operations," "Use of Proceeds" and "Business." All statements other than statements of historical fact contained in this prospectus, including statements regarding future events, our future financial performance, business strategy and plans and objectives of management for future operations, are forward-looking statements. We have attempted to identify forward-looking statements by terminology including "anticipates," "believes," "can," "continue," "could," "estimates," "expects," "intends," "may," "plans," "potential," "predicts," "should" or "will" or the negative of these terms or other comparable terminology. Although we do not make forward-looking statements unless we believe we have a reasonable basis for doing so, we cannot guarantee their accuracy. These statements are only predictions and involve known and unknown risks, uncertainties and other factors, including the risks outlined under "Risk Factors" or elsewhere in this prospectus, which may cause our or our industry's actual results, levels of activity, performance or achievements to be materially different from any future results, levels of activity, performance or achievements expressed or implied by these forward-looking statements. Moreover, we operate in a very competitive and rapidly changing environment. New risks emerge from time to time and it is not possible for us to predict all risk factors, nor can we address the impact of all factors on our business or the extent to which any factor, or combination of factors, may cause our actual results to differ materially from those contained in any forward-looking statements.

You should not place undue reliance on any forward-looking statement, each of which applies only as of the date of this prospectus. Before you invest in our common stock, you should be aware that the occurrence of the events described in the section entitled "Risk Factors" and elsewhere in this prospectus could negatively affect our business, operating results, financial condition and stock price. Except as required by law, we undertake no obligation to update or revise publicly any of the forward-looking statements after the date of this prospectus to conform our statements to actual results or changed expectations.

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USE OF PROCEEDS

Assuming a public offering price of $17.00, the midpoint of the range on the front cover of this prospectus, we estimate the net proceeds to us from the sale of 4,700,000 shares of common stock that we are selling in this offering will be approximately $72.2 million, after deducting the underwriting discounts and commissions and estimated offering expenses payable by us. A $1.00 increase or decrease in the assumed public offering price of $17.00 per share would increase or decrease, respectively, the net proceeds to us by approximately $4.4 million, assuming that the number of shares offered by us, as set forth on the cover page of this prospectus, remains the same and after deducting the underwriting discounts and commissions. If the underwriters' over-allotment option is exercised in full, we estimate we will receive net proceeds for the total offering of approximately $83.3 million.

Of the net proceeds from this offering, we expect to use approximately:

•

$30.0 million for clinical trials;



•

$20.0 million for research and development activities; and



•

$20.0 million for building our commercial infrastructure, including sales and marketing and manufacturing capacity expansion.

We intend to use the remainder of the net proceeds from this offering for working capital and general corporate purposes. The amounts actually spent for these purposes may vary significantly and will depend on a number of factors, including our operating costs, capital expenditures and other factors described under "Risk Factors." While we have no present understandings, commitments or agreements to enter into any potential acquisitions, we may also use a portion of the net proceeds for the acquisition of, or investment in, technologies or products that complement our business. Accordingly, management will retain broad discretion as to the allocation of the net proceeds of this offering.

Pending the uses described above, we will invest the net proceeds of this offering in short-term, interest-bearing, investment-grade securities. We cannot predict whether the proceeds will yield a favorable return.

   
DIVIDEND POLICY

We have never declared or paid cash dividends on our capital stock and do not anticipate declaring or paying cash dividends in the foreseeable future. Payments of future dividends, if any, will be at the discretion of our board of directors after taking into account various factors, including our financial condition, operating results, current and anticipated cash needs, plans for expansion and other factors that our board of directors may deem relevant.

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CAPITALIZATION

You should read this capitalization table together with the sections of this prospectus entitled "Management's Discussion and Analysis of Financial Condition and Results of Operations" and with the financial statements and related notes to those statements included elsewhere in this prospectus.

The following table sets forth our capitalization as of September 30, 2006:

•

on an actual basis; and



•

on a pro forma as adjusted basis to reflect the conversion of all our outstanding shares of convertible preferred stock into shares of common stock upon the closing of this offering, and the receipt of the estimated net proceeds from the sale of 4,700,000 shares of common stock offered by us at an assumed initial public offering price of $17.00 per share, the midpoint of the range on the front cover of this prospectus, after deducting underwriting discounts and commissions and estimated offering expenses.

⁽¹⁾  A $1.00 increase or decrease in the assumed public offering price of $17.00 per share would increase or decrease, respectively, the amount of additional paid-in capital, total stockholders equity and total capitalization by approximately $4.4 million, assuming that the number of shares offered by us, as set forth on the cover page of this prospectus, remains the same and after deducting the underwriting discounts and commissions.

The information in the table above excludes, as of September 30, 2006:

•

1,821,539 shares of common stock issuable upon exercise of all outstanding options under our 2002 Stock Plan at a weighted-average exercise price of $2.79 per share;



•

17,344 shares of common stock issuable upon exercise of all outstanding stand-alone options at a weighted-average exercise price of $0.34 per share;



•

196,113 shares of common stock reserved for future grant or issuance under our 2002 Stock Plan;



•

900,000 shares of common stock reserved for future grant or issuance under our 2006 Equity Incentive Plan and our 2006 Employee Stock Purchase Plan; and



•

automatic annual increases in the number of shares of common stock reserved for issuance under our 2006 Equity Incentive Plan and 2006 Employee Stock Purchase Plan.

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DILUTION

If you invest in our common stock, your interest will be diluted immediately to the extent of the difference between the initial public offering price per share of our common stock and the pro forma as adjusted net tangible book value per share of our common stock immediately after completion of this offering.

As of September 30, 2006, we had a net tangible book value of $(44.5) million, or $(13.30) per share of common stock, not taking into account the conversion of our outstanding convertible preferred stock. Net tangible book value per share is equal to our total tangible assets (total assets less intangible assets) less total liabilities, divided by the number of outstanding shares of our common stock. Our pro forma net tangible book value as of September 30, 2006 was approximately $31.1 million, or $1.72 per share of common stock. Our pro forma net tangible book value and pro forma net tangible book value per share give effect to the conversion of all outstanding shares of our convertible preferred stock into common stock.

Dilution in pro forma net tangible book value per share represents the difference between the amount per share paid by investors in this offering and pro forma as adjusted net tangible book value per share of our common stock immediately after the completion of this offering. After giving effect to

•

the conversion of all of our convertible preferred stock; and



•

the sale of 4,700,000 shares of common stock offered by us at an assumed initial public offering price of $17.00 per share, the midpoint of the range on the front cover of this prospectus, after deducting underwriting discounts and commissions and estimated offering expenses payable by us,

our pro forma as adjusted net tangible book value as of September 30, 2006 was approximately $103.3 million, or approximately $4.53 per share of common stock. This represents an immediate increase in pro forma net tangible book value of $2.81 per share to our common stockholders and an immediate dilution of $12.47 per share to new investors in this offering. The following table illustrates this per share dilution:

If the underwriters exercise their over-allotment option to purchase up to 705,000 additional shares in this offering, our pro forma as adjusted net tangible book value per share as of September 30, 2006 for the total offering will be $4.87, representing an immediate increase in pro forma net tangible book value per share attributable to this offering of $3.15 to our existing investors and an immediate dilution per share to new investors in this offering of $12.13.

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Assuming the exercise in full of the 1,838,883 outstanding options, pro forma net tangible book value before this offering at September 30, 2006 would be $1.82 per share, representing an immediate increase of $0.10 per share to our existing stockholders, and, after giving effect to the sale of shares of common stock in this offering, there would be an immediate dilution of $12.60 per share to new investors in this offering.

The following table sets forth, on a pro forma as adjusted basis, as of September 30, 2006, the differences between the number of shares of common stock purchased from us, the total consideration paid, and the average price per share paid by existing stockholders and new investors purchasing shares of our common stock in this offering, before deducting underwriting discounts and commissions and estimated expenses payable by us at an assumed initial public offering price of $17.00 per share, the midpoint of the range on the front cover of this prospectus.

A $1.00 increase or decrease in the assumed public offering price of $17.00 per share would increase or decrease, respectively, total consideration paid by new investors and total consideration paid by all stockholders by approximately $4.4 million, assuming that the number of shares offered by us, as set forth on the cover page of this prospectus, remains the same and after deducting the underwriting discounts and commissions.

If the underwriters exercise their over-allotment option in full to purchase 705,000 shares of our common stock, our existing stockholders would own 77.0% and our new investors would own 23.0% of the total number of shares of our common stock outstanding after this offering.

Assuming all outstanding options are fully exercised, and the underwriters exercise their over-allotment option, the shares purchased by the new investors would constitute 21.3% of all shares purchased from us, and the total consideration paid by new investors would constitute 53.0% of the total consideration paid for all shares purchased from us. In addition, the weighted-average price per share paid by existing stockholders would be $4.09.

In the preceding tables, the shares of common stock outstanding exclude, as of September 30, 2006:

•

1,821,539 shares of common stock issuable upon exercise of all outstanding options under our 2002 Stock Plan at a weighted-average exercise price of $2.79 per share;



•

17,344 shares of common stock issuable upon exercise of all outstanding stand-alone options at a weighted-average exercise price of $0.34 per share;



•

196,113 shares of common stock reserved for future grant or issuance under our 2002 Stock Plan;



•

900,000 shares of common stock reserved for future grant or issuance under our 2006 Equity Incentive Plan and our 2006 Employee Stock Purchase Plan; and



•

automatic annual increases in the number of shares of common stock reserved for issuance under our 2006 Equity Incentive Plan and 2006 Employee Stock Purchase Plan.

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SELECTED FINANCIAL DATA

We derived the selected statements of operations data for the years ended December 31, 2003, 2004 and 2005 and balance sheet data as of December 31, 2004 and 2005 from our audited financial statements that are included elsewhere in this prospectus. We derived the selected statements of operations data for the period from June 13, 2002 (Inception) to December 31, 2002 and the balance sheet data as of December 31, 2002 and 2003 from our audited financial statements that do not appear in this prospectus. We derived the statements of operations data for the cumulative period from June 13, 2002 (Inception) to September 30, 2006 and the nine months ended September 30, 2005 and September 30, 2006 and the balance sheet data as of September 30, 2006 from our unaudited financial statements that are included elsewhere in this prospectus. We have prepared this unaudited information on the same basis as the audited financial statements and have included all adjustments, consisting only of normal recurring adjustments, that we consider necessary for a fair statement of our financial position and operating results for such period. Our historic results are not necessarily indicative of the results that may be expected in the future. You should read this data together with our financial statements and related notes included elsewhere in this prospectus and the information under "Management's Discussion and Analysis of Financial Condition and Results of Operations."

⁽¹⁾  See Note 2 of the notes to our financial statements for a description of the method used to compute basic and diluted net loss per share attributable to common stockholders and pro forma basic and diluted net loss per share.

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MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion of our financial condition and results of operations should be read in conjunction with our financial statements and the related notes to those statements included elsewhere in this prospectus. In addition to historical financial information, the following discussion and analysis contains forward-looking statements that involve risks, uncertainties and assumptions. Our actual results and timing of selected events may differ materially from those anticipated in these forward-looking statements as a result of many factors, including those discussed under "Risk Factors" and elsewhere in this prospectus.

Overview

We are a development stage medical device company focused on developing and commercializing our proprietary Custom NX DES Systems to treat coronary artery disease, or CAD. Since inception we have devoted substantially all of our resources to start-up activities, raising capital and research and development, including product design, testing, manufacturing and clinical trials. We have focused our development efforts on creating our Custom NX DES Systems, which allow a physician to deploy single or multiple stents of customizable length with a single device. We have not yet received any government regulatory approvals necessary to commercialize any of our products.

We are conducting clinical trials to evaluate our Custom NX 36 and Custom NX 60 stent and stent delivery systems. In May 2006, the eight month clinical data from our CUSTOM I clinical trial was presented at the 2006 Paris Course on Revascularization conference and in October 2006, six month clinical data from our CUSTOM II clinical trial for 40 patients was presented at the 2006 Transcatheter Cardiovascular Therapeutics conference. We believe the data from these clinical trials provided preliminary evidence of safety and efficacy and supports further development of our in-situ customization approach. We completed enrollment of our CUSTOM II and initiated our CUSTOM III clinical trials, which are designed to further evaluate the safety and efficacy of in-situ customization with our stents, particularly in long lesions and multiple lesions. Assuming the results from these trials are favorable, we believe that the data from our CUSTOM I, II and III clinical trials will be sufficient to support our submission to our designated Notified Body in the European Union for CE Mark. We expect to submit our application for CE Mark in late 2007. We will need premarket approval, or PMA, from the U.S. Food and Drug Administration, or FDA, before we can market our products in the United States, which we expect will require data from large clinical trials of up to 2,500 patients. To initiate these clinical trials, we must first obtain clearance of an investigational device exemption, or IDE, from the FDA. We anticipate applying for our IDE in the first half of 2007 based on the results from our CUSTOM I, II and III clinical trials.

In anticipation of approval of our products, we plan to increase our manufacturing capacity and personnel to enable us to produce commercial quantities of our products. We anticipate that it will take time to increase our capacity and, as a result, expansion will be initiated prior to the anticipated approval of our products. Prior to obtaining regulatory approval, we may also begin to hire sales and marketing personnel. Following CE Mark approval in the European Union, we intend to commercialize our Custom NX DES Systems in key markets in both Europe and Asia Pacific. We expect to rely on third-party distributors, with our sales and clinical support, in select markets in Europe, all of Asia Pacific and the rest of the world. Following FDA approval, we expect to market our products in the United States through a direct sales force.

To date, we have not generated any revenue from our development activities and will not be able to generate revenue until one of our products is approved, if ever. We have incurred net losses in each

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year since our inception in June 2002. Through September 30, 2006, we had an accumulated deficit of $46.9 million. We expect our losses to continue to increase as we expand our clinical trial activities and initiate commercialization activities. Since inception we have financed our operations primarily through private placements of equity securities. In May and June 2006, we raised aggregate net cash proceeds of approximately $30.0 million in a private placement of shares of our Series D convertible preferred stock.

In May 2004, we entered into a license agreement with Occam. Pursuant to the agreement, we obtained worldwide non-exclusive rights to use Occam's drug coating on our products, and agreed to pay specified minimum royalties and royalties based on net sales of our products.

Financial Operations

Revenue

To date, we have not generated any revenue from the sale of our stent systems. We do not expect to generate revenue until 2008 at the earliest, subject to obtaining CE Mark.

Research and Development

Our research and development expenses consist primarily of product development, pre-clinical trials, clinical trials and regulatory expenses as well as the cost of manufacturing products for clinical trials. Research and development expenses include employee compensation including stock-based compensation, supplies and materials, consulting expenses, travel and facilities. We also incur significant expenses to operate our clinical trials including trial design, clinical site reimbursement, data management and travel expenses. From our inception through September 30, 2006, we incurred $38.0 million in research and development expenses.

General and Administrative

General and administrative expenses consist primarily of compensation for executive, finance, marketing and administrative personnel including stock-based compensation. Other significant expenses include professional fees for accounting and legal services associated with our efforts to obtain and maintain protection for intellectual property related to our Custom NX DES Systems. From our inception through September 30, 2006, we incurred $10.3 million in general and administrative expenses.

Results of Operations

Comparison of Nine Months Ended September 30, 2005 and 2006

Revenue.    We did not generate any revenue during the nine months ended September 30, 2005 or 2006.

Research and Development.    Research and development expenses were $9.0 million for the nine months ended September 30, 2005, compared to $13.4 million for the nine months ended September 30, 2006. The increase of $4.4 million was primarily due to higher compensation expenses of $1.3 million for additional employees hired in our research and development department, $2.4 million for prototype parts, supplies, and outside services related to product development for our Custom NX DES systems, $326,000 due to increased spending on clinical research studies and $353,000 due to increased depreciation on equipment and facilities expenses. We expect our research and development expenses to increase significantly as we continue the development of our Custom NX DES Systems and conduct additional clinical trials.

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General and Administrative.    General and administrative expenses were $1.6 million for the nine months ended September 30, 2005, compared to $5.3 million for the nine months ended September 30, 2006. The increase of $3.7 million was primarily due to higher compensation expenses of $1.5 million for additional employees hired in marketing and administration, $532,000 due to increased spending for consulting, trade shows and marketing materials, and $1.2 million due to increased legal and professional expenses. We expect our general and administrative expenses to increase significantly due to the costs associated with operating as a publicly traded company and the costs associated with the commercialization of our products.

Interest Income.    Interest income was $255,000 for the nine months ended September 30, 2005, compared to $801,000 for the nine months ended September 30, 2006. The increase of $546,000 was due primarily to higher cash balances for the first nine months of 2006 as well as a modest increase in interest rates.

Beneficial Conversion Feature

In January 2006, we completed the issuance and sale of 4,684,892 shares of Series C convertible preferred stock at $5.42 per share, which price was determined by our board of directors pursuant to negotiations with the investors in that round of financing. In June 2006, we completed the issuance and sale of 3,370,758 shares of Series D convertible preferred stock at $8.90 per share, which price was determined by our board of directors pursuant to negotiations with a new investor and existing investors in that round of financing. In connection with our preparation of the financial statements necessary for this offering, we have reassessed the fair value of our common stock for financial accounting purposes in light of the expected completion of this offering. Based on this reassessment, we determined the fair value of our common stock in January 2006 to be $8.56 per share, in May 2006 to be $11.08 per share and in June 2006 to be $11.70 per share. When we issue equity securities that are convertible into common stock at a discount from the common fair value at the commitment date, the difference between the fair value of the common stock and the conversion price multiplied by the number of shares issuable upon conversion is recognized as a beneficial conversion feature. The beneficial conversion feature is presented as a deemed dividend to the related security holders with an offsetting amount to additional paid in capital and will be amortized over the period from the issue date to the first conversion date. Since the equity securities are immediately convertible into common stock by the holder at any time, we recorded and immediately amortized a beneficial conversion charge, or deemed dividend, of approximately $5.7 million in connection with our Series C convertible preferred stock financing in January 2006, and approximately $7.4 million in connection with our Series D convertible preferred stock financing in May and June 2006.

Comparison of the Years Ended December 31, 2004 and 2005

Revenue.    We did not generate any revenue during the years ended December 31, 2004 or 2005.

Research and Development.    Research and development expenses were $7.1 million for 2004, compared to $12.1 million for 2005. The increase of $5.0 million was primarily due to a $2.6 million increase in spending on animal studies, consulting and materials. The remaining $2.4 million of increase was primarily due to higher compensation expenses for additional employees hired in our research and development department to accelerate the development of our Custom NX DES Systems.

General and Administrative.    General and administrative expenses were $1.9 million for 2004, compared to $2.2 million for 2005. The increase of $331,000 was primarily due to higher spending for travel to support our clinical trials and due to increased legal expenses.

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Interest Income.    Interest income was $110,000 for 2004, compared to $324,000 for 2005. The increase of $214,000 was primarily due to higher cash balances from the first closing of our Series C convertible preferred stock financing as well as modest increases in interest rates.

Income Taxes.    Due to uncertainty surrounding the realization of deferred tax assets through future taxable income, we have provided a full valuation allowance and no benefit has been recognized for our net operating loss and other deferred tax assets.

As of December 31, 2005, we had net operating loss carry-forwards of approximately $20.5 million available to reduce future taxable income, if any, for federal and California state income tax purposes. The federal income tax net operating loss carry-forward begins expiring in 2023, and the California state income tax net operating loss carry-forward begins expiring in 2014. As of December 31, 2005, we had research and development credit carry-forwards of approximately $967,000 and $1.0 million available to reduce future taxable income, if any, for federal and California state income tax purposes, respectively. The federal income tax credit carry-forwards begin expiring in 2023, and the state income tax credits carry-forward indefinitely.

Section 382 of the Internal Revenue Code generally imposes an annual limitation on the amount of net operating loss carryforwards that may be used to offset taxable income when a corporation has undergone significant changes in its stock ownership. We have internally reviewed the applicability of the annual limitations imposed by Section 382 caused by previous changes in our stock ownership and believe such limitations should not be significant. Future ownership changes, including changes resulting from or affected by this offering, may adversely affect our ability to use our remaining net operating loss carryforwards. If our ability to use net operating loss carryforwards is limited, we may be subject to tax on our income earlier than we would otherwise be had we been able to fully utilize our net operating loss carryforwards.

Comparison of the Years Ended December 31, 2003 and 2004

Revenue.    We did not generate any revenue during the years ended December 31, 2003 or 2004.

Research and Development.    Research and development expenses were $3.4 million for 2003, compared to $7.1 million for 2004. The increase of $3.8 million was primarily due to higher compensation expenses as we hired additional employees for our research and development department which resulted in $2.1 million of additional spending. In addition, spending for animal studies, a licensing agreement, consulting and materials increased by $1.2 million to support design and development work for our Custom NX DES Systems. Also, we relocated to a larger facility which contributed $310,000 to the overall increase in research and development expenses.

General and Administrative.    General and administrative expenses were $760,000 for 2003, compared to $1.9 million for 2004. The increase of $1.1 million was primarily due to an increase in compensation expenses of $757,000 related to hiring additional senior managers. Also, spending for legal, supplies and travel increased by $274,000.

Interest Income.    Interest income was $138,000 for 2003, compared to $110,000 for 2004. The decrease of $28,000 was due to lower cash balances throughout 2004 as compared to 2003.

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Liquidity and Capital Resources

Sources of Liquidity

We are in the development stage and have incurred losses since our inception in June 2002. As of September 30, 2006 we had an accumulated deficit of $46.9 million. We have funded our operations from the private placements of our convertible preferred stock resulting in aggregate net proceeds of $75.6 million through September 30, 2006.

As of September 30, 2006, we did not have any outstanding or available debt financing arrangements, we had working capital of $28.1 million, and our primary source of liquidity was $30.3 million in cash and cash equivalents.

Cash Flows

Cash Flows from Operating Activities.    Net cash used in operating activities was $3.7 million in 2003, $8.2 million in 2004, $13.0 million in 2005 and $14.9 million for the nine months ended September 30, 2006. The net cash used in 2003 and 2004 primarily reflects expenditures related to the development of our products. The net cash used in 2005 and 2006 primarily reflects expenditures related to product development and clinical trials. These expenditures were offset in part by depreciation, non-cash stock-based compensation and non-cash changes in operating assets and liabilities.

Cash Flows from Investing Activities.    Net cash used in investing activities was $556,000 in 2003, $1.0 million in 2004, $1.1 million in 2005 and $943,000 for the nine months ended September 30, 2006. Cash used in investing activities is primarily related to purchases of property and equipment.

Cash Flows from Financing Activities.    Net cash provided by financing activities was $15.2 million in 2003, $15.9 million in 2005 and $39.6 million for the nine months ended September 30, 2006. Net cash used in financing activities was $5,000 in 2004. Net cash provided by financing activities in 2003, 2005 and for the nine months ended September 30, 2006 was primarily attributable to our issuance of convertible preferred stock.

Operating Capital and Capital Expenditure Requirements

To date, we have not commercialized any products. We do not anticipate generating any revenue unless and until we successfully obtain CE Mark or FDA marketing approval for, and begin selling, our Custom NX DES Systems. We anticipate that we will continue to incur substantial net losses for the next several years as we develop our products, conduct and complete clinical trials, pursue additional applications for our technology platform, expand our clinical development team and corporate infrastructure, and prepare for the potential commercial launch of our products.

We believe that the net proceeds from this offering, together with our existing cash and cash equivalents, which include the proceeds from our May and June 2006 Series D convertible preferred stock financing, and interest income we earn on these balances, will be sufficient to meet our anticipated cash requirements for at least the next 18 months. If our available cash and cash equivalents and net proceeds from this offering are insufficient to satisfy our liquidity requirements, or if we develop additional products or pursue additional applications for our products, we may seek to sell additional equity or debt securities or obtain a credit facility. The sale of additional equity and debt securities may result in additional dilution to our stockholders. If we raise additional funds through the issuance of debt securities, these securities could have rights senior to those of our common stock and could contain covenants that would restrict our operations. We may require additional capital beyond our currently forecasted amounts. For example, we will need to raise

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additional funds in order to build our sales force and commercialize our products. Any such required additional capital may not be available on reasonable terms, if at all. If we are unable to obtain additional financing, we may be required to reduce the scope of, delay, or eliminate some or all of, our planned clinical trials, research, development and commercialization activities, which could materially harm our business.

We anticipate spending approximately $40.0 million to complete our CUSTOM III, IV and V clinical trials. In addition, we will spend additional funds for regulatory approvals and for activities to commercialize our Custom NX DES Systems, if approved. The development of any new applications of our custom length stent technology and new products will also require the expenditure of significant financial resources and take several years to complete. We expect to fund the development of potential products with the proceeds of this offering, together with our existing cash and cash equivalents balances and revenue from the sales of our Custom NX DES Systems, if approved.

Our forecasts for the period of time through which our financial resources will be adequate to support our operations and the costs to complete development of products are forward-looking statements and involve risks and uncertainties, and actual results could vary materially and negatively as a result of a number of factors, including the factors discussed in the "Risk Factors" section of this prospectus. We have based these estimates on assumptions that may prove to be wrong, and we could utilize our available capital resources sooner than we currently expect.

Because of the numerous risks and uncertainties associated with the development of medical devices, such as our Custom NX DES Systems, we are unable to estimate the exact amounts of capital outlays and operating expenditures necessary to complete ongoing clinical trials and successfully deliver a commercial product to market. Our future funding requirements will depend on many factors, including but not limited to:

•

the scope, rate of progress and cost of our clinical trials and other research and development activities;



•

the cost of filing and prosecuting patent applications and defending and enforcing our patent and other intellectual property rights;



•

the cost of defending, in litigation or otherwise, any claims that we infringe third-party patent or other intellectual property rights;



•

the terms and timing of any collaborative, licensing and other arrangements that we may establish;



•

the cost and timing of regulatory approvals;



•

the cost and timing of establishing sales, marketing and distribution capabilities;



•

the cost of establishing clinical and commercial supplies of our products and any products that we may develop;



•

the effect of competing technological and market developments;



•

licensing technologies for future development; and

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•

the extent to which we acquire or invest in businesses, products and technologies, although we currently have no commitments or agreements relating to any of these types of transactions.

Future capital requirements will also depend on the extent to which we acquire or invest in businesses, products and technologies, although we currently have no commitments or agreements relating to any of these types of transactions.

Contractual Obligations

The following table discloses aggregate information about our contractual obligations and the periods in which payments are due as of December 31, 2005:

The long-term commitments under operating leases shown above consist of payments related to our real estate lease in Menlo Park, California, which expires in May 2007.

The minimum royalty payments that are listed above consist of payments related to license agreements we have with Occam and SurModics. The total royalty payments for these licenses are based on our net revenues and therefore have no maximum. We also have contingent milestone payments that are payable to licensors upon the achievement of certain milestones. These payments could total up to $720,000 if all milestones are achieved.

Related Party Transactions

For a description of our related party transactions, see the "Related Party Transactions" section of this prospectus.

Off-Balance Sheet Arrangements

Since inception, we have not engaged in any off-balance sheet activities as defined in Regulation S-K Item 303(a)(4).

Critical Accounting Policies and Estimates

Our management's discussion and analysis of our financial condition and results of operations are based on our financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements as well as the reported revenue and expenses during the reporting periods. We evaluate our estimates and judgments on an ongoing basis. Actual results may differ materially from these estimates under different assumptions or conditions.

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While our significant accounting policies are more fully described in Note 2 to our financial statements included elsewhere in this prospectus, we believe that the following accounting policies and estimates are most critical to a full understanding and evaluation of our reported financial results.

Clinical Trial Accruals

We record accruals for estimated clinical trial expenses, comprised of payments for work performed by participating trial centers. These costs are a significant component of our research and development expenses. The costs of our clinical trials are contractually determined based on the nature of the services to be provided. We accrue expenses for clinical trials based on estimates of work performed under our clinical trial contracts. These estimates are based on information provided by participating clinical trial centers. If the information provided is incomplete or inaccurate, we may underestimate expenses at a given point in time. To date, our estimates have not differed significantly from actual costs.

Stock-Based Compensation

Beginning on January 1, 2006, we began accounting for stock options granted to employees under the provisions of the Financial Accounting Standards Board, or FASB, Statement No. 123 (revised 2004), Share-Based Payment, or SFAS 123(R), which require the recognition of the fair value of stock-based compensation. The fair value of stock options was estimated using a Black-Scholes option pricing model. This model requires the input of subjective assumptions in implementing SFAS 123(R), including expected stock price volatility, expected life and estimated forfeitures of each award. The fair value of equity-based awards is amortized over the vesting period of the award, and we have elected to use the straight-line method of amortization. Due to the limited amount of historical data available to us, particularly with respect to stock-price volatility, employee exercise patterns and forfeitures, actual results could differ from our assumptions.

Through December 31, 2005, we accounted for employee stock options using the intrinsic-value method in accordance with Accounting Principles Board, or APB, Opinion No. 25, Accounting for Stock Issued to Employees, or APB No. 25, Financial Accounting Standards Board, or FASB, Interpretation No. 44, Accounting for Certain Transactions Involving Stock Compensation, an interpretation of APB No. 25, and related interpretations. For periods prior to January 1, 2006, we have complied with the disclosure-only provisions of Statement of Financial Accounting Standards, or SFAS No. 123, Accounting for Stock-Based Compensation, as amended.

Under APB No. 25, we recognize stock-based compensation expense when we issue employee stock option grants at exercise prices that, for financial reporting purposes, are deemed to be below the estimated fair value of the underlying common stock on the date of grant. As disclosed more fully in the table below, we granted stock options with exercise prices ranging from $0.40 to $11.20 during the 21 months ended September 30, 2006. We did not obtain contemporaneous valuations by an unrelated valuation specialist that we could rely on during this period. Instead, we relied on our board of directors, which includes several venture capitalists who have considerable experience in the valuation of emerging companies and several members with extensive experience in the medical device industry. Given the absence of an active market for our common stock and uncertainty prior to the second quarter of 2006 as to whether we would pursue an initial public offering, our board of directors, with input from management, determined the estimated fair value of our common stock on the date of grant based on several factors, including:

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the grants involved illiquid securities in a private company;

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•

the options to acquire shares of our common stock were subject to vesting, generally vesting over a four-year period;



•

our performance and the status of our research and development efforts;



•

our stage of development and business strategy, including the status and timing of expected CE Mark clearance and our 510(k) submission with the FDA and the likelihood and timing of product launch;



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the composition and changes in the management team, including the need to recruit additional members;



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the likelihood of achieving a liquidity event for the shares of our common stock, such as an initial public offering or sale of our company, given market conditions; and



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the market prices of comparable publicly held medical device companies.

In connection with the preparation of our financial statements necessary for this offering, we have reassessed the estimated fair value of our common stock assuming the completion of this offering. In reassessing the fair value of our common stock, we reviewed our operating history and the estimated value added by events occurring as our company developed during the period noted above. At its meeting held in December 2004, our board of directors determined that the fair market value of our common stock was $0.40 per share and it granted stock options at that price based on a number of factors including: the absence of clinical trial results validating our products, the inherent risk based on our stage of development, the absence of regulatory clearance for our product or the drug coating that we combine with our products, competition, and the liquidation preferences of our preferred stock, which has significant rights, preferences and privileges over our common stock. Our reassessment focused on the period between January 1, 2005 and September 30, 2006.

In reassessing the fair value of our common stock, we also reviewed each of the factors described in the bullets above and the events between each date that we granted stock options. As a pre-revenue company, we believe that advances in the areas of product development, clinical study enrollment and the receipt of clinical data, and developments in our intellectual property portfolio are the primary determinants of value of the company and our stock. During the period from January 1, 2005 through September 30, 2006, we were engaged in continuous efforts to develop, design, test and evaluate our products. While meaningful progress was achieved during this time period, the development progressed consistently to the designs currently incorporated into our products. During this period, we conducted several pre-clinical animal studies and human clinical studies designated as CUSTOM I and CUSTOM II clinical studies. Patients were enrolled in these studies on an ongoing basis. The human clinical study results were unblinded, which enabled us to assess our clinical progress each month. During these clinical studies there were no significant safety issues related to the device and the early positive clinical results contributed to the gradual increase in the value of the stock. As of September 30, 2006, we had enrolled approximately half of the total number of patients required to obtain CE Mark, which indicates our continuous progress in working towards satisfying the requirements for our clinical trials. During the same time period, we submitted nineteen patent applications in the United States and nine foreign applications to further protect our intellectual property and add value to our company.

In reassessing the fair value of our common stock we did not rely on the valuation of our Series C convertible preferred stock sold in February 2005 and January 2006 or the valuation of our Series D convertible preferred stock sold in May and June 2006. We did not deem these issuances to be significant milestone events because, with the exception of one investor in the Series D convertible

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preferred stock financing, the investors in these financings were largely company insiders. As a result, these financings were not considered arms length transactions under applicable accounting rules. Following the reassessment of the fair value of our common stock, we determined that the price per share of the Series C convertible preferred stock sold in January 2006 and all of the Series D convertible preferred stock were issued at a price below the reassessed value. Accordingly, we recorded a beneficial conversion feature charge of approximately $13.1 million during the nine month period ended September 30, 2006.

The following table summarizes information for all stock options granted by us to our employees and directors during the 21 months ended September 30, 2006, including the exercise price and estimated fair value of our common stock based on the reassessment described above.

We established $12.32 as the estimated fair value of our common stock at July 31, 2006, which amount represents 90% of the midpoint of our estimated range for this offering. Our estimated range for this offering was determined based upon preliminary discussions with various investment bankers that occurred in July 2006. We confirmed that the estimated range for this offering had not changed as of September 2006. We applied a 10% discount to our estimated initial public offering price to reflect (i) the probability that the offering will be delayed or withdrawn or that the actual offering price will be reduced below our estimated initial filing range and (ii) the fact that the shares underlying the options will be subject to a 180 day lock-up after the date of our initial public offering. The fair value per share for our common stock has remained constant from July 2006 through September 2006 due to the negative publicity surrounding drug eluting stents from the potential for late stent thrombosis and the prospects these concerns have on extending our clinical timelines. These developments have been counterbalanced by the continued progress we have made in developing our products and in enrolling patients and receiving generally positive clinical results.

In accordance with the requirements of APB No. 25 through December 31, 2005, we have recorded deferred stock-based compensation expense for the difference between the exercise price of the stock options granted during the year ended December 31, 2005 and the reassessed fair market value of our common stock at the date of grant and we amortize that amount over the vesting period of the stock options and include it as a component of stock-based compensation.

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Effective January 1, 2006, we adopted SFAS 123(R) using the prospective transition method, which requires the measurement and recognition of compensation expense for all shared-based payment awards granted, modified and settled to our employees and directors after January 1, 2006. During the nine month period ended September 30, 2006, we granted stock options to employees to purchase 1,047,724 shares of common stock with a weighted-average grant date fair value of $9.11 per share under the Black-Scholes valuation model.

As of September 30, 2006, we had total unamortized employee stock-based expense of $9,454,763 arising from stock option grants to employees through September 30, 2006, which is expected to be amortized as follows:

While our financial statements through December 31, 2005 account for stock option grants pursuant to APB No. 25, in accordance with SFAS No. 123, we disclose in the footnotes to our financial statements the pro forma impact on our net loss had we accounted for stock option grants using the fair value method of accounting. This information is presented as if we had accounted for our employee stock options at fair value using the minimum value option-pricing model. Our use of the minimum value model was primarily due to our determination as to its appropriateness as well as its general acceptance as an option valuation technique for private companies.

Although it is reasonable to expect that the completion of our initial public offering may add value to the shares as a result of increased liquidity and marketability, the amount of additional value cannot be measured with precision or certainty. Determining the reassessed fair value of our common stock required our board of directors and management to make complex and subjective judgments, assumptions and estimates, which involved inherent uncertainty. Had our board of directors and management used different assumptions and estimates, the resulting fair value of our common stock and the resulting stock-based compensation expense could have been different.

Recent Accounting Pronouncements

In December 2004, the FASB issued SFAS 123(R), which is a revision of SFAS 123. This statement supercedes APB 25, and amends FASB Statement No. 95, Statement of Cash Flows. SFAS 123(R) requires all share-based payments, including stock options, to be recognized in the income statement based on their fair values. Pro forma disclosure is no longer an alternative. We have adopted SFAS 123(R) using the prospective transition method beginning on January 1, 2006. Under the prospective transition method, we will continue to account for stock options outstanding as of December 31, 2005 using the accounting principles originally applied to those options. For stock options and awards granted subsequent to December 31, 2005, we will calculate compensation expense based on the grant date fair value estimated in accordance with SFAS 123(R). We accounted for share-based payments awarded to employees through December 31, 2005 using APB 25's intrinsic value method. The adoption of SFAS 123(R)'s fair value method resulted in a non-cash charge of $791,930 for the nine months ended September 30, 2006.

In May 2005, the FASB issued Statement of Financial Accounting Standards No.154, Accounting Changes and Error Corrections—A Replacement of APB Opinion No. 20 and FASB Statement No. 3, or SFAS 154. SFAS 154 primarily requires retrospective application to prior periods' financial statements for the direct effects of changes in accounting principle, unless it is impracticable to determine either the period-specific effects or the cumulative effect of the change. SFAS 154 is effective

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for accounting changes and corrections of errors made in fiscal years beginning after December 15, 2005, and early adoption is permitted. We have evaluated the impact of the adoption of SFAS 154, and do not believe the impact will be material to our overall results of operations or financial position in 2006.

In September 2005, the Emerging Issues Task Force, or EITF, issued Statement 05-6, Determining the Amortization Period for Leasehold Improvements Purchased after Lease Inception or Acquired in a Business Combination, or EITF 05-6. EITF reached a consensus that leasehold improvements acquired in a business combination or that are placed in service significantly after, and not contemplated at or near the beginning of the lease term should be amortized over the shorter of the useful life of the assets or a term that includes required lease periods and renewal periods that are deemed to be reasonably assured at the date the leasehold improvements are purchased. EITF 05-6 applies to leasehold improvements that are purchased or acquired in reporting periods beginning after June 29, 2005. The adoption of the provisions of EITF 05-6 did not have a material impact on our financial position and results of operations.

In September 2006, the SEC issued Staff Accounting Bulletin No. 108, Considering the Effects of Prior Year Misstatements when Quantifying Current Year Misstatements, or SAB No. 108. SAB No. 108 requires analysis of misstatements using both an income statement, or 'rollover,' approach and a balance sheet, or 'iron curtain,' approach in assessing materiality and provides for a one-time cumulative effect transition adjustment. SAB No. 108 is effective commencing with our fiscal year 2007 annual financial statements. We are currently assessing the potential impact that the adoption of SAB No. 108 will have on our financial statements.

In September 2006, the FASB issued Statement of Financial Accounting Standards No. 157, Fair Value Measurements, or SFAS No. 157, which defines fair value, establishes a framework for measuring fair value under generally accepted accounting principles, and expands disclosures about fair value measurements. SFAS No. 157 does not require any new fair value measurements, but provides guidance on how to measure fair value by providing a fair value hierarchy used to classify the source of the information. SFAS No. 157 is effective commencing with our fiscal year 2009 annual financial statements. We are currently assessing the potential impact that the adoption of SFAS No. 157 will have on our financial statements.

In June 2006, the FASB issued FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxes: An Interpretation of FASB Statement No. 109, or FIN No. 48. FIN No. 48 clarifies the accounting for uncertainty in income taxes recognized in an enterprise's financial statements in accordance with SFAS No. 109, Accounting for Income Taxes, by defining the minimum recognition threshold a tax position is required to meet before being recognized in our financial statements. FIN No. 48 is effective commencing with our fiscal year 2007 annual financial statements. We are currently evaluating the effect that the adoption of FIN No. 48 will have on our financial position and results of operations.

Quantitative and Qualitative Disclosures About Market Risk

The primary objective of our investment activities is to preserve our capital for the purpose of funding operations while at the same time maximizing the income we receive from our investments without significantly increasing risk. To achieve these objectives, our investment policy allows us to maintain a portfolio of cash equivalents and investments in a variety of marketable securities, including commercial paper, money market fund and U.S. government securities. Our cash and cash equivalents as of September 30, 2006, included liquid money market accounts. Due to the short-term nature of our investments, we believe that there is no material exposure to interest rate risk.

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BUSINESS

Overview

We are a development stage medical device company focused on developing and commercializing our innovative customizable drug eluting stent systems for the treatment of coronary artery disease, or CAD. Our drug eluting stent systems are designed to enable physicians to customize both length and diameter of the stent at the site of the diseased section of the artery, or lesion, which we refer to as in-situ customization. Our stent systems are designed to treat longer lesions than currently available drug eluting stents and multiple lesions with the use of a single device. Our stent systems, the Custom NX 36 and the Custom NX 60, incorporate a modular cobalt chromium stent design as well as a proprietary delivery system. In addition, our stents have a drug coating that is made up of Biolimus A9, an anti-inflammatory drug, and PolyLactic Acid, a biodegradable polymer, which in combination are intended to reduce the incidence of restenosis, or renarrowing of the previously treated artery over time. We believe our technology, if approved by regulatory authorities, will enable us to compete in the approximately $5.3 billion worldwide drug eluting stent market.

We are developing 36mm and 60mm stent systems based on our proprietary technology platform. Our stent design is modular in that it consists of multiple 6mm segments in which the ends of each segment interleave with the ends of the adjacent segments, or are interdigitated. This interdigitated modular stent design allows the physician to customize the stent length and deploy the necessary stent segments in the artery in-situ. Our delivery system incorporates a protective sheath and a proprietary mechanism to control the number of stent segments deployed. Our first two stent systems in development are the Custom NX 36 and the Custom NX 60. We believe that these two systems will enable physicians to provide a therapeutic solution for the majority of CAD patients treated with currently marketed drug eluting stents. Our Custom NX 36 is customizable in length and designed to treat single or multiple lesions. Our Custom NX 60 is designed to give physicians a suitable length stent to treat one long lesion or multiple smaller lesions with the use of one device, reducing the need for multiple catheter exchanges and related device costs. We believe that the ability to customize our stent and potentially treat multiple lesions and long lesions with one catheter may improve procedural efficacy and efficiency and lower costs.

Status of Regulatory Approval

Our Custom NX DES Systems are combination devices that include a stent and drug coating, for which we must receive regulatory approval as a medical device before we can market the systems. We are conducting clinical trials to evaluate our Custom NX 36 and Custom NX 60 stent and stent delivery systems. In May 2006, the eight month clinical data from our CUSTOM I clinical trial was presented at the 2006 Paris Course on Revascularization conference and in October 2006, six month clinical data from our CUSTOM II clinical trial for 40 patients was presented at the 2006 Transcatheter Cardiovascular Therapeutics conference. We believe the data from these clinical trials provided preliminary evidence of safety and efficacy and supports further development of our in-situ customization approach. We completed enrollment of our CUSTOM II and initiated our CUSTOM III clinical trials, which are designed to further evaluate the safety and efficacy of in-situ customization with our stent systems, particularly in long lesions and multiple lesions. Assuming the results from these trials are favorable, we believe that the data from our CUSTOM I, II and III clinical trials will be sufficient to support our submission to our designated Notified Body in the European Union for CE Mark. We expect to submit our application for CE Mark in late 2007. We will need premarket approval, or PMA, from the U.S. Food and Drug Administration, or FDA, before we can market our products in the United States, which we expect will require data from large clinical trials of up to 2,500 patients. To initiate these clinical trials, we must first obtain clearance of an investigational device exemption, or IDE, from the FDA. We anticipate applying for our IDE in the first half of 2007

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based on the results from our CUSTOM I, II and III clinical trials. We expect to submit a PMA application to the FDA in 2009. We expect to be able to commercialize our products, at the earliest, in the European Union in the second half of 2008 and in the United States in the first half of 2010.

We license our drug coating from Occam International, B.V., or Occam, a wholly-owned subsidiary of Biosensors International Group, Ltd., which together with Occam and each of their affiliated companies, are referred to as Biosensors in this prospectus. Regulatory approvals of our products are dependent upon Biosensors obtaining a favorable opinion from the relevant drug authority on its drug master file, or DMF, in the European Union and approval from the FDA in the United States.

Market Opportunity

Coronary artery disease, or CAD, is the most common form of cardiovascular disease and the number one cause of death in the United States and Europe. CAD is primarily caused by the accumulation of fat-laden cells, also known as plaque, in the arteries leading to the heart. Over time, the accumulation of plaque in an artery, known as a lesion, narrows the diameter of its lumen, or inner channel, and may significantly reduce or stop blood flow. A reduction in blood flow to the heart can cause chest pain, a heart attack or potentially death. CAD accounts for over 650,000 deaths annually and, according to the American Heart Association, affects over 13 million Americans. Risk factors for CAD include old age, smoking, diabetes, obesity, sedentary lifestyle and an individual's genetic history.

Evolution of Treatments for Coronary Artery Disease

A number of surgical procedures and interventional therapies have been developed over the past four decades to treat CAD, each with the goal of quickly and safely restoring blood flow. This is accomplished by surgically rerouting the flow of blood around the lesion or using interventional techniques to reopen the artery. The treatment of CAD has experienced significant innovation and has evolved from invasive surgical approaches to minimally-invasive catheter-based therapies. This innovation has generally resulted in less severe procedure-related complications, as well as reduced costs due to shorter procedure and recovery times. We believe that physicians have rapidly adopted these new therapies because of these benefits.

Coronary Artery Bypass Graft Surgery.    In the 1960s, coronary artery bypass graft surgery, or CABG, was developed as a treatment for CAD. In this procedure, a healthy vein or artery is taken from another site in the patient's body. The patient's chest is surgically opened and the harvested artery is connected to the aorta and to the heart to provide a pathway for the blood flow around the site of the lesion. For many years, CABG has been considered the standard of care for treating CAD in patients at moderate to high risk of heart attack. However, CABG can be a highly-invasive procedure that is generally associated with long recovery times and hospital stays.

Balloon Angioplasty.    In the late 1970s, a significant advancement in the treatment of CAD was developed that provided physicians with a minimally-invasive therapy called percutaneous coronary intervention, or PCI. The initial innovation was balloon angioplasty, in which a physician inserts a flexible catheter with a balloon tip into the femoral artery at the groin and maneuvers the catheter through the vascular system into the coronary arteries. At the site of the lesion, the balloon is inflated, compressing the plaque and stretching the artery wall to create a larger channel to restore blood flow. We believe this therapy was rapidly adopted by physicians because it resulted in shorter hospital and recovery times as compared to CABG. However, while providing advantages over CABG, the long-term effectiveness of balloon angioplasty is limited by restenosis. Restenosis occurs due to two primary causes; the elastic recoil of the artery wall and the formation of scar tissue within the artery and typically requires a repeat of the PCI therapy or CABG. Clinical trials demonstrated that restenosis occurred in up to 57% of balloon angioplasty procedures within six months of treatment.

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Bare Metal Stents.    The next significant innovation in PCI was the development of stents in the 1990s. Stents are tubular metal devices consisting of interconnected struts that are inserted inside the narrowed artery and expanded to hold it open. During a procedure, a stent mounted on a balloon catheter is delivered to the lesion. The balloon is inflated to expand the stent and is then removed, leaving the stent behind. Bare metal stents lower the occurrence of restenosis by addressing the elastic recoil of the artery wall and quickly replaced the use of balloon angioplasty as the primary interventional therapy for CAD. However, bare metal stents do not address the second cause of restenosis, the formation of scar tissue. Clinical trials have demonstrated that restenosis occurs in up to 35% of bare metal stent procedures within eight months of treatment.

Drug Eluting Stents.    The most recent innovation in PCI was the development of drug eluting stents. Drug eluting stents were designed to address both causes of restenosis. Currently marketed drug eluting stents are conventional bare metal stents that are coated with a drug that is designed to reduce the formation of scar tissue in the artery. This advance has resulted in improved patient outcomes due to reduced restenosis. According to published third-party analysis of the data from a number of randomized controlled clinical trials for currently marketed drug eluting stents, the restenosis rate for drug eluting stents was approximately 10.5% as compared with approximately 31.7% for bare metal stents. As a result, following their introduction in Europe in 2002 and in the United States in 2003, drug eluting stents brought about a rapid shift in physician treatment of CAD and were used in 89% of the stent procedures in the United States in 2005. Drug eluting stents were used in approximately 1.5 million of the 2.2 million coronary stent procedures performed worldwide in 2005, and represented a $5.3 billion market according to Millennium Research Group. Existing approved drug eluting stents have demonstrated improved long-term clinical results and lower rates of restenosis in comparison to bare metal stents. However, some recent clinical data indicates higher rates of blood clot formation, or thrombosis, which could lead to heart attacks or death, in patients who received drug eluting stents when compared to patients who received bare metal stents. In response, the FDA evaluated this clinical data during a public meeting of its Circulatory System Devices Advisory Panel on December 7 and 8, 2006. The FDA has not issued final conclusions or recommendations from this meeting. As a result of this clinical data, the use of bare metal stents has reportedly increased, and the use of drug eluting stents has correspondingly decreased, at certain hospitals in the United States and elsewhere. In addition, drug eluting stents are significantly more expensive than bare metal stents, with average costs in the United States that are approximately 2.5 times the cost of a bare metal stent. Additionally, drug eluting stents currently available in the United States use polymer coatings that remain permanently on the stent, and we believe that long-term safety may be diminished because of this characteristic.

Evolution of Delivery Methods for Percutaneous Coronary Interventions

In addition to the advancements in PCI, the methods of their delivery have also improved over time. These improvements have made PCI procedures easier to perform and have reduced the amount of time for a single procedure. Similar to the rapid shift in the PCI therapies utilized with the introduction of each significant procedure innovation, physicians have quickly adopted these improved delivery methods.

Over-the-Wire.    Over-the-wire delivery systems represented the first significant innovation for PCI therapy delivery. The original fixed-wire balloon angioplasty devices incorporated the use of a wire attached to the balloon catheter. If a lesion had to be treated more than once or if there were multiple lesions, removal of the entire device was required and insertion of a new device and renavigation to the targeted lesion. The fixed-wire approach was time-consuming and could be technically challenging. In the over-the-wire systems, the guidewire is separate from the catheter. The guidewire is used to navigate through the patient's vascular system to and across the targeted lesion, and the catheter slides

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over the guidewire to the treatment site. The guidewire maintains access to the lesion site so that multiple therapeutic devices can be delivered quickly and safely. This innovation rapidly replaced the fixed-wire delivery method. Though this is an effective method to safely deliver PCI therapies, every device delivered requires an exchange of the catheter and a second operator to hold the guidewire in place, adding time and complexity to the procedure.

Rapid Exchange.    Rapid exchange delivery systems were developed to simplify the exchange of catheters by allowing a much shorter length of guidewire to be used in a procedure, thus allowing a single operator in a PCI procedure to manage both the catheter and the guidewire. The improved efficiencies from this innovation have led to the use of rapid exchange delivery systems in the majority of PCI procedures today. According to Millennium Research Group, 70% of the drug eluting stents used in the United States were delivered with a rapid exchange system in 2005. Rapid exchange systems enable quicker changes from one catheter to another, and a third-party study has shown their use results in reduced procedure times and lower radiation exposure from x-ray images taken during stent placement. Despite improving procedural efficiency compared to over-the-wire systems, rapid exchange systems still require time consuming catheter exchanges when multiple devices are needed for a single procedure.

Limitations of Current Percutaneous Coronary Intervention Therapies

Although significant advances have been made with drug eluting stents, we believe the designs of current stents and methods of delivery limit effectiveness for patients and efficiency of the physicians treating CAD, and can result in increased costs for healthcare providers. Current commercially available stent systems include stents with fixed-lengths of up to 33mm, and require a separate device for each stent used. This requires physicians to estimate the size and shape of the artery's lumen, and then use their judgment to select the proper length and diameter stent for the lesion. These characteristics of existing technology lead to the following limitations:

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Inability to Customize Treatment Options In-Situ.    The effectiveness of drug eluting stents has caused physicians to expand their use beyond the treatment of single or discrete lesions to the treatment of long lesions and multiple lesions. Using currently available technologies, these lesions can require multiple stents, increasing procedure complexity, time and cost. According to a Millennium Research Group survey conducted in May 2006, over 50% of the patients undergoing a PCI procedure had disease in more than one artery and an average of approximately 1.7 stents were used per stent procedure in the United States. Because the procedure is reimbursed at a fixed amount, we believe the cost of the additional stents is incurred by the hospital.



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Multiple Catheter Exchanges.    Currently available delivery systems require a catheter exchange for every additional balloon or stent used. In addition to the catheter exchanges required by the use of multiple stents, a procedure may require insertion and inflation of a balloon both before and after placement of each stent. Each catheter exchange increases procedure time, cost and exposure to radiation from additional x-ray imaging.



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Overlapping of Stents to Cover Long Lesions.    Treatment of longer lesions with current fixed-length stents requires placement of multiple overlapping stents. This can result in reduced therapeutic benefits, and two independent clinical trials have shown this practice is associated with an increased incidence of adverse cardiac events. We believe that the increase in treatment of longer lesions, combined with the length limitations of available stents, has increased the use of this technique, with approximately one in four procedures involving overlapping stents.

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Inaccurate Placement of Stents.    Inaccurate placement of stents, or geographic miss, results in portions of a lesion remaining exposed, increasing the likelihood of thrombosis and the need for reintervention. We believe that geographic miss occurs due to the difficulty of accurately pre-selecting the necessary stent length and diameter. We believe this is caused by the limitations of two dimensional x-ray images, as well as changes in the shape of the artery that can occur due to device delivery. In addition, we believe that physicians may select shorter stents to ensure deliverability and avoid covering healthy artery side-branches. In Johnson & Johnson's STLLR clinical trial, geographic miss was observed in 44.5% of procedures, resulting in higher rates of thrombosis and reinterventions.



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Alteration of the Artery Anatomy.    The shape of an artery can include a number of bends, and its movement can include a twisting motion with each contraction of the heart. Many current stents can be rigid and stiff along their entire length, in order to hold open diseased arteries, and can cause a change in the artery's anatomical shape and may inhibit its natural twisting movement. We believe altering the artery's natural anatomy and limiting its movement may adversely impact the long-term safety of the therapy. An independent clinical trial conducted by the Austrian Wiktor Stent Study Group and European Paragon Stent Investigators, showed that changes in artery shape which occurred following stent procedures were associated with major adverse cardiac events, or MACE.



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Required Physician Planning and Inventories.    Current drug eluting stent offerings are fixed-length and cannot be adjusted, but the size and shape of lesions can vary significantly. In order to choose the correct stent, physicians can spend considerable time attempting to estimate the size and characteristics of the lesion. Additionally, due to the variability of lesions, hospitals must keep a wide variety of stent sizes in inventory resulting in higher inventory management efforts and costs.

We believe that while current stent systems can provide effective therapy for patients, there is significant opportunity for improvement in efficacy, efficiency and cost due to the limitations described above.

The XTENT Solution

Our customizable drug eluting stent systems are designed to enable the treatment of single lesions, long lesions and multiple lesions of varying lengths and diameters, in one or more arteries with a single device. We believe our Custom NX DES Systems' ability to customize therapy without the need to exchange catheters may enable physicians to treat patients more effectively and efficiently. Our technology platform is designed to benefit all major constituents in the healthcare system by providing patients with better therapeutic outcomes, giving physicians a more effective and efficient clinical tool and potentially reducing costs for healthcare providers. We believe that the potential benefits provided by our technology include the following:

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In-Situ Customization.    Our Custom NX DES Systems are designed to allow physicians to determine the appropriate length of stent for the patient while inside the artery at the site of the lesion, or in-situ. This ability to customize stent length in-situ may help ensure coverage of the lesion and reduce the planning required prior to catheter insertion. Additionally, because our stents can be customized, we believe our six Custom NX stent configurations, comprised of three different diameters for each of our two lengths, may address the same lesions that could be treated with approximately 33 of the fixed-length stent configurations offered by our competitors.

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Treatment of Multiple Lesions With a Single Device.    Our stents are comprised of multiple segments that are interdigitated. With the insertion of a single device, the physician can choose to place up to 60mm of stent to treat a single long lesion or distribute the 6mm segments across multiple lesions in a customized manner. Our products may eliminate the need to use a separate post-deployment balloon because the balloon in our catheter can be shortened and reused during the procedure. We believe a single Custom NX 60 or Custom NX 36 can perform the same functions as multiple competing stents and balloon catheters. This may result in significant device cost savings, reduced catheter exchanges and shorter procedure times.



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Treatment of Long Lesions Without Multiple Overlapping Stents.    Our Custom NX 60 is designed to be able to effectively treat longer sections of diseased artery as compared with current fixed-length alternatives. Our Custom NX 60 can deliver up to 60mm of stent, while currently available drug eluting stents are typically 33mm or shorter. We believe our ability to cover a long lesion with a single stent may reduce the complications from overlapping stents. Two studies support our belief that overlapping stents increase the risk of complications. An analysis from the Real-World Eluting Stent Comparative Italian Retrospective Evaluation Study showed an increase in thrombosis with no increased incidence of heart attack in the stent overlap group and another independent retrospective study conducted by the Washington Hospital Center showed an increase in the incidence of heart attack and no increase in thrombosis in the stent overlap group.



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Improved Stent Placement Accuracy.    Our Custom NX DES Systems are designed to allow the physician to incrementally adjust the length and diameter of the stent deployed while the delivery catheter is positioned in the patient's diseased artery. Prior to stent deployment, the physician can view the x-ray image to confirm complete coverage of the disease and make any additional length adjustments. During deployment, stent diameter can be adjusted by controlling the pressure of the balloon inflation. We believe that this will enable a single stent deployed by our Custom NX DES Systems to treat a long lesion in an artery of varying diameters with one device. Current stent technologies are fixed-length and cannot be adjusted to address varying diameters with a single device. We believe the ability to customize the length of the stent while in the patient's artery may reduce the incidence of geographic miss and the resulting problems of thrombosis and reinterventions.



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Increased Stent Flexibility and Deliverability.    Our stents incorporate a modular design consisting of multiple small individual segments that are interdigitated, which we believe provides increased stent flexibility. We believe our stent's flexibility may allow an artery to better maintain its natural shape, as well as move and flex with contractions of the heart, which may improve long-term patient outcomes. Our stent's increased flexibility may be particularly well suited for long lesions where the issues of deliverability and anatomical conformity are more important. In addition, our stent is delivered to the lesion covered inside of a sheath, which helps protect it and its coating from being damaged as it is pushed through a patient's vascular system. Current delivery systems leave stents exposed, which can hinder delivery if stents catch on diseased tissue or on the artery wall and may also cause coatings on currently available stents to be scraped off during insertion.



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Biodegradable Polymer as Our Drug Carrier.    Our drug coating is biodegradable, leaving behind a thin permanent primer. Our primer has been commonly used for approximately 30 years on cardiac defibrillators, pacemakers and neurostimulators, all of which have been implanted in patients for periods of time at least as long as our stents are intended to be implanted, as well as catheters, needles and other medical device components. As a result,

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we believe our primer has insignificant physiological response when used in the body. We believe the biodegradability of the polymer used in our drug coating may reduce the potential for late-stent thrombosis, or the occurrence of thrombosis 30 or more days after the procedure, that may be associated with durable polymers.

The risks associated with using our products include the risks common to other drug eluting stents and stent delivery systems, including the risk of thrombosis. In addition, our products include the risk of movement of stent segments after deployment that may lead to restenosis and the risk of using a new drug and polymer coating formulation that has not been reviewed and approved by any regulatory authority for any use or used commercially with any drug eluting stent.

Our Strategy

Our goal is to become a world leader in the development and commercialization of drug eluting stent systems. To achieve this goal, we are pursuing the following business strategies:

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Demonstrate the Clinical Safety and Efficacy and Gain Regulatory Approval of Our Custom NX DES Systems.    We intend to demonstrate the clinical safety and efficacy of our Custom NX DES Systems through carefully structured clinical studies. Upon completion of these studies, we intend to develop and initiate a large U.S. pivotal clinical trial to scientifically establish the clinical benefits of our systems. We expect to use these large studies to support U.S. approvals and reimbursement where required. We also plan to complete the regulatory submissions required in order to sell our systems in the European Union, and other markets.



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Commercialize and Drive Adoption of Our Custom NX DES Systems.    Following regulatory approvals, we plan to rapidly commercialize our products worldwide. Our strategy involves initially commercializing our Custom NX DES Systems in key markets in Europe, Asia Pacific and South America once we obtain appropriate regulatory approvals. We expect to rely on third-party distributors, with our sales and clinical support, in select markets in Europe, Asia Pacific and the rest of the world. In the United States, we plan to build a direct sales organization that will work closely with interventional cardiologists to drive adoption. We intend to employ professional education specialists who will provide training and education for physicians and technicians. In order to meet commercial demand for our products, we will invest to expand our manufacturing capabilities to required levels.



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Build Awareness and Support Among Leading Physicians.    Our clinical development strategy is to closely collaborate with key opinion leaders in the field of interventional cardiology. We believe these key opinion leaders can be valuable advocates of our technology and be important in gaining widespread adoption once our systems are approved and commercialized. In addition, we intend to look to these physicians to generate and publish scientific data that further support the benefits of our customizable stent technology.



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Leverage Our Technology Platform into Other Indications.    We believe that our technology is applicable in other therapeutic areas outside of CAD. For example, we intend to pursue the use of our technology for the treatment of peripheral artery disease, or PAD.



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Expand and Strengthen Our Intellectual Property Position.    We plan to continue to expand our current intellectual property position. We believe that our current intellectual property position will allow us to effectively market our products for the treatment of CAD. We plan