2005
`
`•iii,
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`•' __'•-~ ~
`
`Y
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`e e e e
`
`jasCular
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`SOLUTIONS
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`F
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`VS I M DT00030001
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`Page 1
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`IPR2020-00126/-127/-128/-129/-130/-132/-134/-135/-136/-137/-138
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`Medtronic Ex.1776
`Medtronic v. Teleflex
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`

`

`Vascular Solutions is a medical device company that focuses on delivering unique clinical solutions within
`interventional cardiology and interventional radiology. As a vertically integrated medical device company, we
`generate ideas and create new interventional medical devices, and then we deliver those products directly to
`the physician through our direct domestic sales force and international distribution network.
`
`Our focus on underserved clinical opportunities and rapid development has resulted in an expanding
`product portfolio. Eighty percent of Vascular Solutions' 2005 net sales came from new products introduced
`since 2003. Our current product lines include:
`
`D-Stat® Dry Hemostatic Bandage
`The D-Stat Dry is a powerful hemostatic bandage with a simple "open
`and apply" solution to active bleeding. The D-Stat Dry is used following
`catheterization procedures to solve topical bleeding following the removal
`of catheters and tubes. While competitive products rely on theories of
`charged particles and coagulum, D-Stat Dry provides the science and
`proven power of thrombin.
`
``
`
`L,
`
`-
`
`D-Stat® Radial Hemostat Band
`The D-Stat Radial hemostat band utilizes a compression band together with
`the active hemostatic material of our D-Stat Dry to control surface bleeding.
`The D-Stat Radial is designed to eliminate occlusive compression of the
`radial artery and prevent compression of the ulnar artery following radial
`artery catheterization procedures.
`
`Vari-Lase®Endovenous Laser Console and Procedure Kits
`The Vari-Lase endovenous laser products are designed as a complete vein
`care program for treatment of varicose veins. Endovenous laser therapy is
`a patient-friendly alternative to surgical vein-stripping for the treatment of
`varicose veins that can be performed in a physician's office in less than one hour.
`
`Pronto- Short Extraction Catheter
`The Pronto-Short extraction catheter is used to remove soft thrombus from
`dialysis grafts and fistulas, which are used in hemodialysis procedures and
`are implanted or created in a patient's forearm.
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`ProntoTM V3 Extraction Catheter
`The Pronto extraction catheter is used for the removal of soft
`thrombus from arteries. The newly designed V3 model includes a
`full-length wire braid and hydrophilic coating for ease of delivery
`and enhanced performance.
`
`D-Stat"' Flowable Hemostat
`
`The D-Stat Flowable hemostat utilizes the clinically proven procoagulant
`components of our original Duett product — collagen, thrombin and a
`buffered diluent — to provide a powerful stop to active bleeding. The thick
`yet flowable procoagulant controls bleeding by initiating the body's own
`clotting mechanisms.
`
`Langston— Dual Lumen Catheters
`The Langston dual lumen catheters are used for measurement of intra-arterial
`pressure gradients. The Langston catheters deliver simultaneous pressure
`measurements accurately and precisely through two independent lumens in a
`coaxial design. There are three Langston configurations Pigtail, Multipurpose A2
`for a variety of procedural needs.
`and Straight Selective
`
`ThrombiGel YM Foam Hemostat
`The ThrombiGel is a unique gelatin/thrombin foam hemostat that
`combines a gelatin sponge and thrombin into a single composite
`pad. The ThrombiGel is available in multiple sizes to meet
`physician preferences.
`
`Duets='" Pro Vascular Sealing Devices
`
`The Duett Pro sealing device is designed to rapidly and safely stop the bleeding and
`seal the arterial puncture site following percutaneous procedures such as angiography,
`angioplasty and stent placement. The Duett Pro is unique in its ability to quickly seal
`the entire puncture site with a one-size-fits-all device that leaves nothing inter-arterial.
`
`El
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`v ascular
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` OLUT IONS
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`On the day I am writing this report, our stock
`price closed at $6.59, a new 52-week low and a
`32% decrease from where it was one year ago.
`From this statistic alone, you might conclude
`that Vascular Solutions' business is shaky
`and that 2005 was not a successful year.
`
`But that is simply not the case.
`
`In 2005 we increased our net sales by 46% and
`set a new quarterly sales record each successive
`quarter. We turned the corner from a net loss
`to a net profit before accounting for expenses
`incurred in our new thrombin qualification
`investment. We launched three new products and
`set the stage for continued substantial growth each
`quarter for as long as we can see. I don't want to
`dismiss the stock market's message, because there
`certainly are areas we can improve in 2006 such as
`predicting our quarterly sales growth and meeting
`our projected new product launch dates. But our
`declining stock price doesn't mean that Vascular
`Solutions is moving backward. To the contrary,
`we've seen the anomaly of an improving business
`and a decreasing stock price before — most notably
`in 2003 when the stock market lost faith in our
`mission just as we started our rejuvenation.
`
`As a review, Vascular Solutions' mission is
`to grow a profitable medical device business
`focused on delivering clinically unique solutions
`to interventional physicians. While the large
`companies in our vascular device market
`concentrate on billion-dollar opportunities like
`drug eluding stents, Vascular Solutions focuses
`on the smaller opportunities that are often
`completely ignored. These opportunities are far
`more numerous and quicker to develop than the
`larger opportunities. Using our internal R&D
`team and our clinically-based direct sales force, we
`
`can rapidly bring these new devices to the market
`and then deliver the sales and clinical results.
`
`In 2005 our D-Star Dry hemostatic bandage
`continued to be Vascular Solutions' top selling
`product, with $13,804,000 in net sales, a 56%
`increase over 2004. We launched the D-Stat Dry
`bandage in September 2003 as a simple solution
`to topical bleeding following catheterization
`procedures. Through our proprietary blood
`clotting agent, the D-Stat Dry bandage has
`demonstrated its clinical superiority to competitive
`patches and has established a solid market share.
`While we expect growth of the original Dry
`product to taper off in 2006, we expect the new
`product line extensions in the Dry product group,
`including the gelatin foam-based ThrombiGel
`hemostat, to provide new impetus to sales growth.
`
`The second driver of our sales growth in 2005
`was our Pronto extraction catheter which is
`used to extract soft thrombus from within blood
`vessels. Pronto net sales totaled $6,357,000
`in 2005, a 108% increase over 2004, During
`2005, the results of the DEAR-MI clinical
`study of the Pronto catheter were presented at a
`major medical meeting, and in 2006 we expect
`those results will be published in a major peer-
`reviewed journal. At the very end of 2005,
`we launched the new V3 version of the Pronto
`extraction catheter, which our customers have
`already accepted as a substantial improvement in
`catheter design that we think will drive Pronto
`sales to the next level. We also have several new
`versions of the Pronto catheter in development
`for 2006 that we expect will make the Pronto
`our fastest growing product line this year.
`
`Our third major product line for 2005 was the
`Vari-Lase endovenous laser therapy for treating
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`varicose veins. Net sales of the Vari-Lase and
`accessory products in 2005 were $5,009,000,
`an 88% increase over 2004. The endovenous
`laser procedure, as a simple one-hour outpatient
`procedure, is becoming established as the
`therapy of choice for treating varicose veins,
`Vascular Solutions' clinical based sales force
`has gained market share from our competitors
`throughout 2005, which we expect will continue
`throughout 2006. While this performance
`has caused one of our competitors to turn to
`litigation in an attempt to block our growth,
`the courts decisions to dale haven't provided
`them much support, and we believe our
`Vari-Lase sales growth will continue unabated.
`
`Our other products include the Langston catheter,
`which we launched in 2004 and grew by 681%
`in 2005 to $1,036,000 in net sales. Our D-Stat
`Flowable hemostat product also continues to be
`a substantial revenue generator, with net sales
`increasing by 45% in 2005 to $2,083,000. With
`respect to our original Duett and Diagnostic Duett
`products, in 2005 we continued our "harvesting"
`of these products with net sales of $3,954,000,
`which we expect will continue to decline in 2006.
`
`In 2005 we also continued our development
`work on qualifying a new source of the bovine
`thrombin component for our existing and
`new hemostatic products. At the very end of
`2005 we took delivery and accepted the three
`qualification lots of our new thrombin from our
`new manufacturing partner, which was a major
`manufacturing milestone in this project. We
`remain on course to qualify and bring this new
`thrombin source through the regulatory process
`by the second quarter of 2007. To fill our interim
`requirements, we have purchased sufficient
`thrombin from our former source to last us into
`
`2008 according to our current sales forecasts.
`The obvious benefit from qualifying our new
`thrombin is long-term cost control, but the more
`substantial long-term benefit is to participate in
`the over $200 million U.S. thrombin market,
`which we expect could occur as early as 2008.
`
`Looking into 2006, we believe that we will
`continue to set new quarterly sales records each
`quarter throughout the year. For the entire 2006
`we expect to reach between $41 million and $43
`million in net sales. New product launches should
`once again provide substantial upside, with the
`Twin-Pass and Skyway catheters leading five new
`product launches planned for the year. Looking
`even further out, we believe that we can continue
`to increase our sales by at least 25% each year
`until we reach our next long term milestone
`—which is $100 million in annual sales. After
`that target is reached, we expect to have our
`new thrombin-based surgical products launched
`and other larger opportunities in interventional
`medicine developed to take us to the next level.
`
`Finally, if we simply continue with the
`progress we made in 2005, I expect that the
`current disconnect between our progress and
`our stock price will be corrected in 2006.
`
`As always, we thank you for your continued
`Support of our business.
`
`Very truly, yours,
`
`Howard Root
`
`Chief Executive Officer
`February 6, 2006
`
`vascular
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`Statements of Operations Data
`(in thousands)
`
`Year Ended December 31,
`
`2005
`
`2004
`
`2003
`
`2002
`
`2001
`
`$32,786
`
`$22,414
`
`$11,862
`
`$12,154
`
`$12,128
`
`$15,657
`
`69.9%
`
`$19,233
`
`($3,576)
`
`$7,234
`
`61.0%
`
`$7,115
`
`58.5%
`
`$7,121
`
`58.7%
`
`$17,012
`
`$22,601
`
`$21,032
`
`($9,778)
`
`($15,486)
`
`($13,911)
`
`($3,508)
`
`($9,628)
`
`($14,979)
`
`($12,250)
`
`December 31,
`
`2005
`
`$4,282
`
`2004
`
`$7,184
`
`$10,887
`
`$11,833
`
`$ 0
`
`$14,107
`
`14,642
`
`$ 0
`
`$13,690
`
`14,351
`
`Net sales
`
`Gross profit
`
`Gross profit %
`
`$23,400
`
`71.4%
`
`Total operating expenses
`
`$24,124
`
`Operating loss
`
`Net loss
`
`($724)
`
`($561)
`
`Balance Sheet Data
`(in thousands)
`
`Cash and cash equivalents
`
`Working capital
`
`Long-term debt
`
`Shareholder's equity
`
`Total shares outstanding
`
`Quarterly Net Sales
`(in thousands)
`
`$6,706
`
`$5,974
`
`$5,275
`
`$4,459
`
`$3,420
`$2,726 .-A`
`
`$8,574 $8,859
`►
`$8,079 .
`$7,274 A
`
`II
`
`Q3
`
`Q4
`
`Q1
`
`Q2
`
`Q3
`
`Q4
`
`Q1
`
`Q2
`
`Q3
`
`Q4
`
`2003
`
`2004
`
`2005
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`VS I M DT00030006
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`

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`UNITED STATES SECURITIES AND EXCHANGE COMMISSION
`WASHINGTON, D.C. 20549
`
`(Mark One)
`[ X ]
`
`ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
`SECURITIES EXCHANGE ACT OF 1934
`
`FORM 10-K
`
`[
`
`]
`
`For the fiscal year ended December 31, 2005
`OR
`TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
`THE SECURITIES EXCHANGE ACT OF 1934
`For the transition period from
`to
`
`Commission file number: 0-27605
`
`VASCULAR SOLUTIONS, INC.
`(Exact name of registrant as specified in its charter)
`
`Minnesota
`(State or other jurisdiction of incorporation or organization)
`
`41-1859679
`(IRS Employer Identification No.)
`
`6464 Sycamore Court
`Minneapolis, Minnesota 55369
`(Address of principal executive offices, including zip code)
`
`(763) 656-4300
`(Registrant's telephone number, including are code)
`
`Securities registered pursuant to Section 12(b) of the Act: None
`Securities registered pursuant to Section 12(g) of the Act:
`Common Stock, par value $.01 per share
`
`Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes [ ] No [X]
`
`Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes [ ] No [X]
`
`Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities
`Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports),
`and (2) has been subject to such filing requirements for the past 90 days. Yes [ X ] No [
`]
`
`Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not
`be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III
`of this Form 10-K or any amendment to this Form 10-K. [ X ]
`
`Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition
`of "accelerated filer and large accelerated filer" in Rule 12b-2 of the Exchange Act. (Check one):
`Accelerated filer [X]
`Large accelerated filer [ I
`
`Non-accelerated filer [ I
`
`Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes [ I No [X]
`
`The aggregate market value of voting and non-voting common equity held by non-affiliates computed by reference to the price at
`which the common equity was last sold on June 30, 2005 was $165,065,551.
`
`As of January 27, 2006, the number of shares outstanding of the registrant's common stock was 14,933,995
`
`DOCUMENTS INCORPORATED BY REFERENCE
`
`Portions of the Registrant's Proxy Statement for its 2006 Annual Meeting of Shareholders to be held on April 18, 2006 are
`incorporated by reference in Part III of this Annual Report on Form 10-K.
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`PAR'!'!
`
`ITEM 1, BUSINESS
`
`Overview
`
`Vascular Solutions, Inc. (we, us or Vascular) is a medical device company focused on bringing clinically
`advanced solutions to interventional cardiologists and interventional radiologists worldwide. We were
`incorporated in the state of Minnesota in December 1996, and we began operations in February 1997. Our
`current product line consists of the following medical devices:
`
`• D-Stat DryTM hemostatic bandage, a topical pad with a bandage used to control surface bleeding,
`• ProntoTM extraction catheter, a mechanical system for the removal of soft thrombus from arteries,
`• Vari-Lase® endovenous laser, a laser and procedure kit used for the treatment of varicose veins,
`• DuettTM sealing device, used to seal the puncture site following catheterization procedures,
`• D-Stat® Flowable hemostat, a thick, yet flowable, mixture used to control bleeding,
`• ThrombiGelTM hemostatic foam, a unique gelatin/thrombin foam hemostat,
`• LangstonTM dual lumen catheters, used to measure intravascular pressure gradients,
`• MAX-Support''M abdominal retraction belt, used to allow femoral access in obese patients, and
`• Acolysis® ultrasound (international only), a treatment for peripheral occlusive arterial disease.
`
`As a vertically-integrated medical device company, we generate ideas and create new interventional medical
`devices, and then deliver these products directly to the physician through our direct domestic sales force and
`our international distribution network.
`
`We currently have in development several additional products that leverage our existing infrastructure
`to bring additional solutions to the interventional cardiologist and interventional radiologist. Additional
`products that we expect to gain regulatory clearance and market launch before the end of 2006 in the United
`States include the following medical devices, each of which we believe addresses an annual market
`opportunity of between $1 million and $20 million:
`
`• SkywayTM exchange catheter, a specialty-purpose catheter designed for guidewire support and
`exchange in interventional cardiology procedures,
`• Twin-PassTM dual access catheter, specialty-purpose catheter designed for dual wire access in
`interventional cardiology procedures,
`• GuideLiner catheter, a specialty-purpose catheter designed to provide back-up support to the
`guide catheter in chronic total occlusion procedures,
`• Gopher catheter, a low profile metal catheter used principally in chronic total occlusion cases to
`provide improved passage for the balloon catheter and stent, and
`• Micro-Introducer Catheter, a series of catheters that combine both a diagnostic catheter and a
`micro-introducer kit into a single product that will be used principally by Interventional
`Radiologists.
`
`Interventional Cardiology and Interventional Radiology Industry Background
`
`Over 60 million Americans have one or more types of cardiovascular disease—diseases of the heart and
`blood vessels. Cardiovascular disease is the number one cause of death in the United States and is replacing
`infectious disease as the world's pre-eminent health risk. Advances in medicine have enabled physicians to
`perform an increasing number of diagnostic and therapeutic treatments of cardiovascular disease using
`minimally invasive methods, such as catheters placed inside the arteries, instead of highly invasive open
`surgery. Cardiologists and radiologists use diagnostic procedures, such as angiography, to confirm, and
`interventional procedures, such as angioplasty and stenting, to treat diseases of the coronary and peripheral
`arteries. Based on industry statistics, we estimate that cardiologists and radiologists performed over nine
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`million diagnostic and interventional catheterization procedures worldwide in 2005. Often times, these
`procedures are performed to remove blood clots or plaque which have been generated and deposited inside
`the patient's artery and are an impediment to normal blood flow. The number of catheterization procedures
`performed is expected to grow by more than 5% each year for the next three years as the incidence of
`cardiovascular disease continues to increase. The overall interventional medical device market in 2005
`exceeded $5 billion worldwide.
`
`Each procedure using a catheter requires a puncture in an artery, usually the femoral artery in the groin
`area and sometimes the radial artery in the wrist of the patient to gain access for the catheter. The catheter
`then is deployed through an introducer sheath and into the vessel to be diagnosed or treated. Upon
`completion of the procedure and removal of the catheter, the physician must seal this puncture in the artery
`and the tissue tract that leads from the skin surface to the artery to stop bleeding. The traditional method for
`sealing the puncture site has been a manual process whereby a healthcare professional applies direct pressure
`to the puncture site, sometimes using a sand bag or a large C-clamp, for 20 minutes to an hour in order to
`form a blood clot. The healthcare professional then monitors the patient, who must remain immobile in order
`to prevent dislodging of the clot, for an additional four to 48 hours.
`
`Patients subjected to manual compression generally experience significant pain and discomfort during
`compression of the puncture site and during the period in which they are required to be immobile. Many
`patients report that this pain is the most uncomfortable aspect of the catheterization procedure. In addition,
`patients can develop a substantial coagulated mass of blood, or hemotoma, around the puncture site, limiting
`patient mobility for up to six weeks following the procedure. Finally, the need for healthcare personnel to
`provide compression and the use of hospital beds during the recovery period results in substantial costs to the
`institution, which, under virtually all current healthcare payment systems, are not separately reimbursed.
`
`Until 1996, manual compression was used following virtually all catheterization procedures. In late
`1995, the first vascular sealing device which did not rely on compression was introduced in the United States.
`In addition to our Duett sealing device, five other invasive sealing devices have received approval from the
`Federal Drug Administration (FDA) and are currently being marketed around the world. In the aggregate,
`over $400 million of the four FDA-approved invasive sealing devices were sold worldwide in 2005,
`compared to less than $20 million in 1996. In addition to invasive (below the skin surface) sealing devices,
`starting in 2000, non-invasive "patches" had begun to be used as an assist to manual compression following
`catheterizations. Non-invasive patches are used by physicians who (principally due to cost, complexity or
`risk of complications) do not wish to use invasive sealing devices, and for those patients who are contra-
`indicated for an invasive sealing device. Based on the number of catheterization procedures performed
`annually by cardiologists and radiologists, industry sources report that the total market opportunity for
`vascular sealing devices (invasive and non-invasive) is more than $1 billion annually.
`
`D-Stat Dry Product Line
`
`In September 2003 we received regulatory clearance and commenced sales of our D-Stat Dry
`hemostatic bandage in the United States and international markets. The D-Stat Dry hemostatic bandage is a
`version of our proprietary blood clotting substance that is lyophilized (freeze-dried) into a gauze pad and
`combined with an adhesive bandage for application. The D-Stat Dry is used as an assistant for manual
`compression to manage bleeding after catheterization procedures. We believe that the market for a
`hemostatic pad in this indication has grown substantially since the first competitive patch was introduced in
`2000, with a market size greater than $50 million in 2005.
`
`We believe that the D-Stat Dry has many potential uses beyond this initial application, and to date, we
`have developed four variations of our D-Slat Dry -- the D-Slat 2Dry, the D-Slat Clamp Accessory, the D-Slat
`Radial and Thrombix 3x3 trauma bandage. The D-Stat 2Dry is a convenient 2-bandage version of the D-Stat
`Dry used in the dialysis market. The D-Stat Clamp Accessory utilizes our D-Stat Dry pad and is configured
`for attachment to standard compression devices.
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`'the D-Stat Radial hemostat band is a specially-sized version of the D-Stat Dry that includes a
`compression band that allows it to be applied over the radial artery in the wrist. In approximately 5% of all
`catheterizations, the radial artery is used to gain arterial access in the wrist instead of the femoral artery in the
`groin. In these cases using the radial artery, the health care professional must control bleeding from the artery
`after the procedure. A variety of compression splints and tapes have been used for this purpose. The D-Stat
`Radial is the first device that contains an active blood clotting agent together with the compression collar for
`this purpose. We received regulatory clearance for the D-Stat Radial hemostat hand in September 2003, and
`made manufacturing improvements to the product before launching it in the United States in early 2004.
`
`At the end of the first quarter of 2004 we received regulatory clearance in the United States for the
`Thrombix 3x3 trauma bandage. The Thrombix bandage is designed for use in trauma indications, does not
`require mixing or special storage requirements and it can be quickly applied to even severely bleeding
`wounds. We continue our search for a potential corporate distribution partner. We also have conducted
`clinical evaluations at U.S. trauma centers and we have received feedback on several successful deployments,
`with no adverse events reported. We continue to believe that with the right partner, the Thrombix trauma
`bandage can be a substantial revenue generator for us in the trauma market and potentially in the military
`market, however until we find a suitable distribution partner the Thrombix bandage will not generate
`substantial revenues.
`
`During the second quarter of 2005 we received regulatory clearance in the United States for ThrombiGel
`hemostatic foam. ThrombiGel version contains a gelatin foam pad (replacing the gauze pad in the original
`D-Stat Dry) to provide a unique, premixed, sterile, gelatin/thrombin hemostat. ThrombiGel can be used in a
`variety of medical procedures for the control of bleeding.
`
`Pronto Extraction Catheter Product Line
`
`Our Pronto product consists of an extraction catheter with a proprietary distal tip and large extraction
`lumen that can be delivered into arteries to mechanically remove blood clots using simple vacuum suction.
`The Pronto extraction catheter was initially developed by Dr. Pedro Silva of Milan, Italy, who exclusively
`licensed the design to us in 2002. We received CE mark approval and commenced international sales of the
`Pronto in August 2003, and received FDA clearance in December 2003 and commenced sales in the United
`States in early 2004. In the fourth quarter of 2005 we launched the third generation design of the Pronto,
`called the Pronto V3. We believe this new version of the Pronto incorporates several improvements that
`physicians have requested, and we believe there will be a substantial boost to our Pronto sales in 2006. We
`believe that the market size for the removal of soft thrombus is greater than $100 million per year worldwide.
`
`In October 2005 we announced the results of the DEAR-MI (Dethrombosis to Enhance Acute
`Reperfusion in Myocardial Infarction) clinical study by Dr. Pedro Silva. The DEAR-MI clinical study was a
`randomized evaluation of the use of the Pronto extraction for the removal of thrombus from patients
`presenting with ST elevated acute myocardial infarction admitted within 12 hours of symptom onset. The
`primary endpoints of the DEAR-MI study were a comparison of myocardial reperfusion according to ST-
`segment resolution and myocardial blush grade. The results showed thrombus aspiration with the Pronto was
`determined to be an independent predictor of myocardial reperfusion as measured by both ST resolution and
`mean blush grade.
`
`We believe that the Pronto has many potential uses beyond this initial application, and to date, we have
`developed one additional variation of the Pronto called Pronto-Short. The Pronto-Short is designed for use in
`clotted dialysis grafts and was launched in August 2005. We estimate the Pronto-Short addresses a market
`opportunity of at least $10 million.
`
`Vari-Lase Endovenous Laser Product Line
`
`Our Vari-Lase endovenous laser products consist of a laser console, procedure kits and accessories used
`in the treatment of reflux of the great saphenous vein, commonly referred to as varicose veins. More than one
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`Page 10
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`

`

`million people in the United States seek treatment each year for varicose veins. Left untreated, varicose veins
`can result in serious clinical consequences, including limited mobility and venous stasis ulcers. Historically,
`an invasive surgical procedure known as vein stripping was the only treatment for severe varicose veins.
`While vein stripping is still performed on over 100,000 patients each year in the United States, since 2002 a
`non-surgical procedure using endovenous laser energy to treat and close the diseased vein has become the
`preferred alternative. Recent clinical data on endovenous laser therapy has demonstrated excellent clinical
`results and outstanding patient satisfaction. During the fourth quarter of 2004 the Center for Medicare and
`Medicaid Services (CMS) published the Medicare Physicians Fee Schedule which established favorable
`reimbursement rates for the endovenous laser procedure starting January 1, 2005. Private insurance also has
`continued its favorable trend with coverage decisions which have caused more physicians to add this
`procedure to their practice. We believe the current U.S. market size for treating varicose veins using
`endovenous therapy is greater than $80 million per year.
`
`The first product we launched in our Vari-Lase product line was our Vari-Lase procedure kit in July
`2003 in the United States. Our procedure kit is custarn-designed for the endovenous procedure, with features
`supporting ease-of-use and safety, and is compatible with the competitive laser consoles already in use for this
`procedure. In December 2003, we received FDA clearance for our laser console, which we have
`manufactured to our specifications by MedArt Corporation, a subsidiary of Asah Medico, a leading Denmark-
`based medical laser manufacturer. During 2004 we developed and commenced sales of our Auto-FillTM
`syringe and Vari-Lase procedure packs as accessory products to the Vari-Lase product line. The Auto-Fill
`syringe is an easy fluid delivery system for local anesthesia. The Vari-Lase Procedure Pack is a complete
`sterile pack of accessories designed for endovenous laser procedures. To complete our Vari-Lase product
`line, we sell micro-introducers and guide wires which are used as accessory items in the endovenous laser
`procedure as well as used in other interventional medical procedures.
`
`Duett Product Line
`
`The first product we brought to market, the Duett sealing device, is designed to provide a complete seal
`of the puncture site following catheterization procedures such as angiography, angioplasty and stenting. Our
`Duett sealing device combines an easy-to-use balloon catheter delivery mechanism with a biological
`procoagulant mixture, which we believe offers advantages over both manual compression and competitive
`vascular sealing devices. We began selling our Duett sealing device in Europe in February 1998 and in the
`United States in June 2000. Over 200,000 Duett sealing devices have been sold and deployed worldwide. In
`the fourth quarter of 2001 we introduced the Diagnostic Duett version of the Duett sealing device, which
`utilizes a lower dose of procoagulant for the less-challenging diagnostic subset of catheterization procedures.
`In mid-2002 we introduced the next generation "Pro" line of the Duett sealing device for improved ease-of-
`use. In 2003 we made the decision to reduce our focus on growing the Duett product line in order to focus on
`increasing sales of our new products.
`
`We believe our Duett sealing device (1) offers a complete seal of the puncture site with nothing left
`behind in the artery, (2) is an easy-to-use system and (3) minimizes patient discomfort and permits early
`ambulation. Our product uses a. balloon catheter, a device already familiar to cardiologists and radiologists,
`which is inserted through the introducer sheath that is already in the patient. The inflated balloon serves as a
`temporary mechanical seal, preventing the flow of blood from the artery. Our biological procoagulant, which
`is a proprietary mixture of collagen, thrombin and diluents, is then delivered to the puncture site, stimulating
`rapid clotting and creating a complete seal of both the arterial puncture and the tissue tract from the artery to
`the skin surface. The blood-clotting speed and strength of thrombin enables the use of the Duett sealing
`device even in the presence of powerful anti-clotting medications, such as ReoPro®, increasingly used in
`interventional catheterization procedures. With our Duett sealing device, nothing is left behind in the artery,
`so immediate reaccess of the site, if necessary, is possible, and the potential for infection is minimized.
`
`VS I M DT00030011
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`U-Stat Flowable Product Line
`
`The second product we developed and commercialized is the D-Stat Flowable hemostat, which we began
`selling worldwide in February 2002. The D-Stat Flowable hemostat is a blood clotting mat