Integra LifeSciences Holdings (IART) 2004年年度報告「NASDAQ」.pdf

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Integra LifeSciences Holdings (IART) 2004年年度報告「NASDAQ」.pdf

1、 Corporate Officers Outside Directors Stuart M.Essig President,Chief Executive Officer and Director Gerard S.Carlozzi Executive Vice President and Chief Operating Officer John B.Henneman,III Executive Vice President,Chief Administrative Officer and Secretary David B.Holtz Senior Vice President,Finan

2、ce and Treasurer Deborah A.Leonetti Senior Vice President,Global Marketing Donald R.Nociolo Senior Vice President,Operations Judith E.OGrady,R.N.,M.S.N.,R.A.C.Senior Vice President,Regulatory,Quality Assurance and Clinical Affairs Robert D.Paltridge Senior Vice President,Global Sales Richard E.Carus

3、o,PhD.(3)Chairman of the Board of Directors David C.Auth(1)Former Chief Executive Officer and Founder of Heart Technology,Inc.Keith Bradley,Ph.D.(1)(2)(3)Former Professor of International Management and Management Strategy at the Open University and Cass London Business Schools Neal Moszkowski(1)(2)

4、Co-Head,Soros Private Equity James M.Sullivan(2)(3)Executive Vice President Lodging,Marriott International,Inc.Anne M.VanLent(2)Executive Vice President and Chief Financial Officer,Barrier Therapeutics (1)Compensation Committee member(2)Audit Committee member(3)Nominating Committee member OUR VISION

5、:Integra is a market leading,innovative medical device company focused on helping the medical professional enhance the standard of care.OUR MISSION:Integra seeks to provide customers with clinically relevant,innovative and cost-effective products that improve the quality of life.Presidents Message T

6、o Our Stockholders:Your company had a great year.In 2004,we achieved record revenues while continuing to develop our extensive product offerings and global infrastructure.Our total revenues grew to$229.8 million,a 24%increase over 2003.Operating income was$24.8 million in 2004.Net income totaled$17.

7、2 million in 2004,and cash flows generated from operations in 2004 totaled$39.0 million.Many factors contributed to our performance this year,and establish the basis for future growth.Several of the most important include:Sales and Distribution.We have continued to expand our sales and distribution

8、channels.We market most of our products directly through three separate sales forces:Integra NeuroSciences(calling on neurosurgeons,intensivists and neuro nurses),Integra Reconstructive Surgery(calling on orthopedic foot and ankle surgeons,surgical podiatrists,burn units,and reconstructive surgeons)

9、and JARIT Surgical Instruments.Our global selling organization now has over 250 sales,marketing,and clinical people who provide unparalleled product support,customer service and clinical education.Integra LifeSciences is also benefiting from the national contract relationships that JARIT Surgical In

10、struments has established with Group Purchasing Organizations(GPOs)such as Broadlane,Consorta,HPG,MedAssets,Novation,and Premier.New Products.In 2004,we launched almost twenty new products,including our INTEGRA Matrix Wound Dressings,NeuraWrap Nerve Protector,DuraGen Plus Adhesion Barrier Matrix(CE

11、Only)and the Integra NPH Valve for normal pressure hydrocephalus.These and other new products bring important benefits to the patient and the surgeon.We expect them to power our organic growth in the coming years.Transactions.Acquisitions also contributed to our growth in 2004.Integra completed four

12、 acquisitions during the year.These include the Sparta Surgical disposable critical care devices and surgical instruments business which was integrated into Integra NeuroSupplies,R&B Instruments which became a part of JARIT,the Mayfield headrest business which is now sold by our Integra Neuroscience

13、s sales organization and Berchtold ME GmbH,a German manufacturer of electrosurgery devices.The Mayfield headrest business includes the MAYFIELD Cranial Stabilization and Positioning Systems and the BUDDE Halo Retractor System business.We acquired these product lines,which include skull clamps,headre

14、sts,reusable and disposable skull pins,blades,retractor systems and spinal implants,from Schaerer Mayfield USA,Inc.(formerly Ohio Medical Instrument Company)in May 2004.MAYFIELD systems are the market leader in the United States and have been used by neurosurgeons for over thirty years.In May 2004,w

15、e also acquired all of the capital stock of Berchtold Medizin-Elektronik GmbH,now named Integra ME GmbH,from Berchtold Holding GmbH.Integra ME manufactures and markets the ELEKTROTOM line of electrosurgery generators and the SONOTOM ultrasonic surgical aspirator,as well as a broad line of related ha

16、ndpieces,instruments and disposables used in many surgical procedures,iiincluding neurosurgery.Integra ME markets and sells its products to hospitals and physicians primarily through a network of distributors in markets outside the United States.In late 2004,we agreed to acquire the Newdeal group of

17、 companies,and we closed the acquisition on January 3,2005.Newdeal,based in Lyon,France,is a leading developer and manufacturer of specialty implants and instruments specifically designed for foot and ankle surgery.Newdeals products include a wide range of products for the forefoot,the mid-foot and

18、the hind foot,including the Bold Screw,Hallu-Fix plate system and the HINTEGRA total ankle prosthesis.Newdeals target physicians include orthopedic surgeons specializing in injuries of the foot,ankle and extremities,as well as surgical podiatrists,of which there are 3,200 and 2,400,respectively,in t

19、he United States.The current products address an approximately$500 million worldwide market.We are selling the Newdeal foot and ankle products through the Integra Reconstructive sales force in the United States,and are very excited about its prospects for the new year.2005 and Beyond.With more than$

20、150 million in cash and marketable securities and a diversified and experienced management team,Integra now has more resources than ever to execute on our strategy.We will continue to develop exciting new products,and we are actively seeking additional acquisitions in neurosurgery,related markets su

21、ch as the ear,nose and throat(ENT),instruments,spine,extremities,and reconstructive surgery.We are enthusiastic about Integras future.I want to recognize again the accomplishments of our 1,200 dedicated employees located around the world.Our employees realize our mission and make Integra LifeScience

22、s the company that it is today.I expect that additional acquisitions and internal product development will enable us to continue our successful track record of profitably bringing critical life-saving and innovative products that enhance the standard of care to the medical community and to patients

23、around the globe.Finally,thank you,our stockholders,for your continued support.Sincerely,Stuart Essig President and Chief Executive Officer UNITED STATESSECURITIES AND EXCHANGE COMMISSIONWASHINGTON,DC 20549FORM 10-KFOR ANNUAL AND TRANSITION REPORTS PURSUANT TO SECTION 13 OR 15(d)OFTHE SECURITIES EXC

24、HANGE ACT OF 1934(Mark One)XANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)OF THE SECURITIES EXCHANGE ACTOF 1934For the fiscal year ended December 31,2004 TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)OF THE SECURITIES EXCHANGEACT OF 1934For the transition period fromtoCOMMISSION FILE NO.0-26224INT

25、EGRA LIFESCIENCES HOLDINGS CORPORATION(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)DELAWARE51-0317849_(STATE OR OTHER JURISDICTION OF(I.R.S.EMPLOYERINCORPORATION OR ORGANIZATION)IDENTIFICATION NO.)311 ENTERPRISE DRIVEPLAINSBORO,NEW JERSEY08536_(ADDRESS OF PRINCIPAL(ZIP CODE)EXECUTIVE OFFICE

26、S)REGISTRANTS TELEPHONE NUMBER,INCLUDING AREA CODE:(609)275-0500SECURITIES REGISTERED PURSUANT TO SECTION 12(b)OF THE ACT:NONESECURITIES REGISTERED PURSUANT TO SECTION 12(g)OF THE ACT:COMMON STOCK,PAR VALUE$.01 PER SHAREIndicate by check mark whether the registrant:(1)has filed all reports required

27、to be filed by Section 13 or 15(d)of theSecurities Exchange Act of 1934 during the preceding 12 months(or for such shorter period that the registrant was requiredto file such reports),and(2)has been subject to such filing requirements for the past 90 days.Yes?No Indicate by check mark if disclosure

28、of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein,and will not be contained,to the best of registrants knowledge,in definitive proxy or information statements incorporatedby reference in Part III of this Form 10-K or any amendment to this Form 10-K.Indicate by check

29、 mark whether the registrant is an accelerated filer(as defined in Rule 12b-2 of the Act).Yes?No As of June 30,2004,the aggregate market value of the registrants common stock held by non-affiliates was approximately$632,254,000,based upon the closing sales price of the registrants common stock on NA

30、SDAQ on such date.For purposesof this calculation only,all directors,executive officers and holders of more than 10%of the registrants outstandingcommon stock as of such date were deemed to be“affiliates”of the registrant.The number of shares of the registrants Common Stock outstanding as of March 1

31、1,2005 was 29,311,367.DOCUMENTS INCORPORATED BY REFERENCECertain portions of the registrants definitive proxy statement relating to its scheduled May 17,2005 Annual Meetingof Stockholders are incorporated by reference in Part III of this report.1PART IITEM 1.BUSINESSThe terms“we,”“our,”“us,”“Company

32、”and“Integra”refer to Integra LifeSciences Holdings Corporation and itssubsidiaries unless the context suggests otherwise.Integra develops,manufactures and markets medical devices for use in neuro-trauma,neurosurgery,reconstructive surgeryand general surgery.Integra was founded in 1989 and over the

33、next decade developed technologies and products directedtoward tissue regeneration.In 1999,we entered the neurosurgery market through an acquisition and the launch of ourDuraGenDural Graft Matrix product for the repair of the dura mater.Since 1999,we have increased our revenues from$42.9 million to$

34、229.8 million,a compound annual growth rate of 40%,and we have broadened our product offeringsto include more than 15,000 products.We have achieved this growth in our overall business through the developmentand introduction of new products,the development of our distribution channels and acquisition

35、s.Our product lines include innovative tissue repair products that incorporate our proprietary absorbable implanttechnology,such as the DuraGenDural Graft Matrix,the DuraGen PlusTMDural Regeneration Matrix,the DuraGenPlusTMAdhesion Barrier Matrix,the NeuraGenTMNerve Guide,the NeuraWrapTMNerve Protec

36、tor,the INTEGRADermalRegeneration Template,and the INTEGRATMBilayer Matrix and INTEGRATMMatrix Wound Dressings.In addition,we offer a full range of medical devices that include monitoring and drainage systems,surgical instruments andfixation systems.Financial information about our geographical areas

37、 is set forth in our financial statements under Notes to ConsolidatedFinancial Statements,Note 14Segment and Geographic Information.STRATEGYOur goal is to become a global leader in the development,manufacturing and marketing of medical devices,implantsand biomaterials in the neurosurgery,reconstruct

38、ive surgery and general surgery markets.Key elements of our strategyinclude the following:Expand our presence in hospitals and other health care facilities.Through acquisitions and internal growth,we havebecome a leading provider of products used in the diagnosis,monitoring and treatment of chronic

39、diseases and acuteinjuries and have become a leading provider of surgical instruments.We focus on cranial,spinal,peripheral nervoussystem and small bone and joint injuries,as well as the repair and reconstruction of soft tissue,such as dermis.We believethat additional growth potential exists through

40、 the following:expanding our product portfolio and market reach through additional acquisitions;increasing the penetration of our existing products into closely related markets,such as the ear,nose,throat(ENT),maxillofacial,extremities and spine markets;continuing the development and promotion of in

41、novative new products,such as our Dura Gen dural repair and anti-adhesion products,the NeuraGenTMNerve Guide,the NeuraWrapTMNerve Protector,the NeuroSensorCerebralBlood Flow Monitoring System and the LICOXBrain Tissue Oxygen Monitoring System;and expanding our sales force and product offerings focus

42、ed on orthopedic foot and ankle,podiatric and reconstructivesurgeons.Additional Strategic Acquisitions.Since 1999 we have completed more than twenty acquisitions focused primarily onour neurosurgical product lines,reconstructive surgery,surgical instrumentation and orthopedic surgery.We regularlyeva

43、luate potential acquisition candidates in this market and in other specialty medical technology markets characterizedby high margins,fragmented competition and focused target customers.2Continue To Develop New And Innovative Medical Products.We have built a leading proprietary absorbable implantfran

44、chise through our development of the INTEGRADermal Regeneration Template,the INTEGRATMBilayerMatrix and INTEGRATMMatrix Wound Dressings,the DuraGenDural Graft Matrix,the DuraGen PlusTMDuralRegeneration Matrix,the DuraGen PlusTMAdhesion Barrier Matrix,the NeuraGenTMNerve Guide,the NeuraWrapTMNerve Pr

45、otector,Biomendand BiomendExtend Absorbable Collagen Membranes and biomaterials for the orthopedicimplant market.We currently are developing a variety of innovative neurosurgical and other medical products and areseeking expanded applications for our existing products.PRODUCT GROUPS,MARKETING AND SA

46、LESOur business is organized into product groups and distribution channels.Our product groups include MonitoringProducts,Implants,Instruments and Private Label Products.Our distribution channels include two direct salesorganizations(Integra NeuroSciences and Integra Reconstructive Surgery),one distr

47、ibutor network managed by a directsales organization(JARIT)and strategic alliances.We sell the products from our four product groups through our variousdistribution channels,as follows:PRODUCT GROUPSMonitoringImplantsInstrumentsPrivate LabelIntegraNeuroSciencesXXXIntegraReconstructiveXXJARITXAllianc

48、esXThe following table summarizes the most important products in each of our product groups,which we discuss in moredetail in the text following the table:PRODUCT LINESAPPLICATIONSMONITORING PRODUCTSCaminoand VentrixIntracranial Pressure(ICP)Continuous monitoring of intracranial pressure,Monitoring

49、Systems and NeuroSensorCerebral temperature and cerebral blood flow following injury or Blood Flow and ICP Systemneurosurgical proceduresLICOXOxygen Monitoring SystemsContinuous monitoring of intracranial oxygen following injury or neurosurgical proceduresIntegra Systems of Cranial Access and CSF Dr

50、ainageAccess to the cranial cavity and drainage of excess cerebrospinal fluid from the brainIntegra Epilepsy Monitoring ElectrodesSpecialty electrodes for the intraoperative monitoring of epileptic seizuresEEG,EP and EMG electrodes,disposables The diagnosis and monitoring of neurological,ENT and and

51、 other suppliespulmonary disordersDISTRIBUTION3PRODUCT LINESAPPLICATIONSIMPLANTSDuraGenDural Graft and DuraGen PlusTMOnlay collagen matrix to repair dura materDural Regeneration MatricesDuraGen PlusTMAdhesion Barrier Matrix(1)Onlay collagen matrix to provide an adhesion barrier following spinal and

52、cranial surgery and for restoration of the dura materEnDuraTMNo-React(2)Dural SubstituteBovine pericardium suturable product for repair of dura materNeuraGenTMNerve Guide and NeuraWrapTMRepair and protection of peripheral nervesNerve ProtectorHydrocephalus shunts,including the new Specifically desig

53、ned for the management of Integra NPHTMValvehydrocephalus,a chronic condition involving excess cerebrospinal fluid in the brainINTEGRADermal Regeneration Template,Regenerate dermis,repair skin defects and wound INTEGRATMBilayer Matrix Wound Dressing,dressings INTEGRATMMatrix Wound DressingNewdeal pr

54、oducts,including the BoldScrew,Full line of specialty implants and instruments specifically UniclipCompression Staple,Hallu-Fixdesigned for foot and ankle surgeryplate system and the HINTEGRAtotal ankle prosthesis(1)SundtTMand other carotid shuntsFor shunting blood during carotid endarterectomyINSTR

55、UMENTSSelectorIntegra Ultrasonic Aspirator;Electronic surgical systems that use ultrasonic energy to DissectronUltrasonic Aspirator(1)selectively dissect and ablate tissueJARIT Surgical InstrumentsGeneral and specialty instruments for open and endoscopic surgeryMAYFIELD(3)Cranial Stabilization and P

56、ositioning Intraoperative cranial stabilization and retraction Systems and the BUDDEHalo Retractor Systeminstruments for use during neurosurgical proceduresElektrotomelectrosurgery generators(1)Electrosurgery system used to cut and coagulate selected tissueRugglesTMNeurosurgical and Spinal Instrumen

57、ts Specialized surgical instruments for use in cranial and/or and R&B RedmondTMSpinal Instrumentsspinal surgeryPadgett InstrumentsInstruments used in reconstructive and plastic surgery4PRODUCT LINESAPPLICATIONSINSTRUMENTS(continued)Padgett Dermatomes and MeshersDevices for harvesting and conditionin

58、g skin graftsSpinal SpecialtiesCustom spinal,epidural,discogram and nerve block kits and products for chronic pain managementPRIVATE LABEL PRODUCTSAbsorbable Collagen Sponge and other matrices Fracture management/enabling spinal fusion for use with bone morphogenetic protein(rhBMP-2)(manufactured fo

59、r Wyeth BioPharma;Medtronic Sofamor Danek)BioMendand BioMendExtend Absorbable Used in guided tissue regeneration in periodontal surgery Collagen Membranes,CollaCote,CollaTapeand to control bleeding in dental surgery(manufactured and CollaPlugAbsorbable Wound Dressingsfor Zimmer)VitaCuffPercutaneous

60、Infection Control Device and Provide protection against infection arising from long-BioPatch(4)Antimicrobial Wound Dressingterm catheters and in wounds(manufactured for various medical device companies)(1)Not available for sale in the United States(2)No-React is a registered trademark of Shelhigh,In

61、c.(3)Mayfield is a registered trademark of SM USA,Inc.,a wholly owned subsidiary of Schaerer Mayfield USA,Inc.(4)BioPatch is a registered trademark of Johnson&JohnsonMonitoring ProductsThe Monitoring Of Brain Parameters.Neurosurgeons use intracranial monitors to diagnose and treat cases of severehea

62、d trauma and other diseases.There are approximately 500,000 cases of head trauma each year in the United States,and the market for monitoring and intervention is estimated to approximate$110 million.We sell the Caminoand Ventrixlines of intracranial pressure and temperature monitoring systems and th

63、e LICOXBrain Tissue Oxygen Monitoring System.Currently more than 3,000 of our intracranial monitors are installed and inuse worldwide.The Caminoand Ventrixsystems measure the intracranial pressure and temperature in the brain andventricles,and the LICOXsystem allows for continuous qualitative region

64、al monitoring of dissolved oxygen incerebral tissues.We expect to introduce the NeuroSensorCerebral Blood Flow Monitoring System in the first half of 2005.This monitoringsystem measures both intracranial pressure and cerebral blood flow using a single combined probe and an electronicmonitor for data

65、 display.Cerebral blood flow is considered to be an important parameter for monitoring cerebral auto-regulation and,when combined with the measurement of intracranial pressure,is expected to facilitate improvedpatient care and clinical management with applications in neuro-trauma,cerebrovascular dis

66、ease and post-operativeneurosurgical treatment.Core technologies underlying the brain parameter monitoring product line include the design and manufacture of thedisposable catheters used in the monitoring systems,pressure transducer technology,optical detection/fiber optictransmission technology,sen

67、sor characterization and calibration technology and monitor design.5Cranial Access And External Drainage.Neurosurgeons use cranial access kits and external drainage systems to gainaccess to the cranial cavity and to drain excess cerebrospinal fluid from the ventricles of the brain into an external c

68、ontainer.We manufacture and market a broad line of cranial access kits and ventricular and lumbar external drainage systemsunder the Integra CSF Drainage and Cranial Access Systems brand names.Epilepsy Electrodes and Neurological Supplies.Neurosurgeons use electrodes for the intraoperative monitorin

69、g ofepileptic seizures to determine if surgical options can be used in the treatment of epilepsy.Seizures vary from amomentary disruption of the senses to short periods of unconsciousness or convulsions.Seizures are caused by the suddenchange in how the cells of the brain send electrical signals to

70、each other.The neurosurgeon uses the electrodes in conjunctionwith an electroencephalography video monitor to determine if a patient is a viable candidate for surgery,whichinvolves the removal of the damaged portion of brain tissue.The worldwide market for intraoperative epilepsyelectrodes is estima

71、ted to be$10 million.We sell these products in the United States through our Integra NeuroSciencessales force.We distribute a wide variety of disposables and supplies,including surface electrodes,needle electrodes,recordingtransducers and stimulators,and respiratory sensors,that are used in the diag

72、nosis and monitoring of neurological disorders.These products are designed to monitor and perform tests of the nervous system and brain,including electromyography(EMG),evoked potential(EP)and electroencephalography(EEG)tests,and to evaluate sleep disorders.We sell these products under the Integra Su

73、ppliesTMname primarily through catalogs and telemarketing to more than6,000 neurologists,hospitals,sleep clinics and other physicians.Neurologists are the referring physicians for Integrasexisting neurosurgeon customers and participate in the decision to use our line of epilepsy monitoring electrode

74、s.ImplantsRepair Of The Dura Mater.The dura mater is the thick membrane that contains the cerebrospinal fluid within the brainand the spine.The dura mater often must be penetrated during brain surgery and is often damaged during spinal surgery.In either case,surgeons may close or repair the dura mat

75、er with a graft.The graft may consist of tissue taken from elsewherein the patients body,or it may be one of the dural substitute products currently on the market,which are made of collagen,synthetic materials,processed human cadaver or bovine pericardium.The DuraGenDural Graft and DuraGen PlusTMDur

76、al Regeneration Matrices are absorbable collagen products indicated for the repair of the dura mater surroundingthe brain and spine.The worldwide market for dural repair,including cranial and spinal applications,is estimated tobe$120 million.The DuraGen PlusTMAdhesion Barrier Matrix is an absorbable

77、 collagen product,which is CE marked in the EuropeanUnion as a barrier against adhesions following spinal and cranial surgery and for restoration of the dura mater.We estimatethat the total worldwide market for treatment of spinal adhesions exceeds$300 million.The DuraGen PlusTMAdhesionBarrier Matri

78、x is not approved for sale in the United States.We believe that the DuraGenDural Graft and DuraGen PlusTMDural Regeneration Matrices,as well as the DuraGenPlusTMAdhesion Barrier Matrix,address the shortcomings of other methods for repairing the dura mater.Clinical trialshave shown our DuraGenand Dur

79、aGen PlusTMproducts to be an effective means for closing the dura mater withoutthe need for suturing,which allows the neurosurgeon to conclude the operation more efficiently.In addition,becausethe human body ultimately absorbs the DuraGenand DuraGen PlusTMMatrices and replaces them with new naturalt

80、issues,the patient avoids some of the risks associated with a permanent implant inside the cranium or spinal cavity.EnDuraTMNo-ReactDural Substitute is a bovine pericardium suturable product for the repair of the dura mater.It istreated with the proprietary No-Reactprocess,which reduces the bodys in

81、flammatory response to the implant,prolongs the products durability and eliminates the need for rinsing prior to implantation.Through the EnDuraproduct,we address the approximately 15%of dural repair procedures that,due to pressure existing at the dural breachlocation,require a suturable graft.6Skin

82、 Replacement and Engineered Wound Dressings.Our skin replacement products address the market need createdby severe burns,reconstructive surgery,trauma and chronic wounds.The INTEGRADermal Regeneration Template is designed to enable the human body to regenerate functional dermaltissue.The Food and Dr

83、ug Administration(FDA)initially approved the product under a Premarket Approval application(PMA)for the post-excisional treatment of life-threatening deep or full-thickness dermal injury where sufficientautograft is not available at the time of excision or is not desirable due to the physiological c

84、ondition of the patient.In 2002,we received FDA approval to market our skin replacement products for use in certain procedures in which cadaverskin or an autograft would typically be used.The FDA approved a PMA supplement to permit the marketing of theINTEGRADermal Regeneration Template for the repa

85、ir of scar contractures in patients who have already recoveredfrom their initial wound.The FDA also granted a Section 510(k)clearance for the sale of a related product,INTEGRATMBilayer Matrix Wound Dressing,for the dressing of wounds,including chronic wounds.We estimate that the worldwidemarket now

86、addressable by our skin replacement products exceeds$1.0 billion.Between 1999 and 2003,the ETHICON division of Johnson&Johnson was the exclusive seller of the INTEGRADermalRegeneration Template and the INTEGRATMBilayer Matrix Wound Dressing worldwide,except in Japan whereCentury Medical,Inc.has righ

87、ts to distribute the INTEGRADermal Regeneration Template.Effective December 31,2003,we terminated our agreement with ETHICON and again assumed the sales and marketing responsibility for bothproducts.We now distribute the INTEGRADermal Regeneration Template and the INTEGRATMBilayer Matrix WoundDressi

88、ng through our Reconstructive surgery sales organization in the United States and parts of Western Europe andthrough a network of distributors elsewhere.In 2004,we received FDA approval and introduced the INTEGRADermal Regeneration Template Terminally Sterilized(IDRT-TS).We also introduced the INTEG

89、RA Matrix Wound Dressing.IDRT-TS is a terminally sterilized versionof the INTEGRADermal Regeneration Template.Although functionally the same as the INTEGRADermalRegeneration Template,IDRT-TS does not require refrigeration and is not stored in alcohol,which simplifies considerablythe preparation and

90、handling of the INTEGRA product in the operating room.The INTEGRA Matrix WoundDressing is a single layer version of our advanced wound care product line,which is indicated for the management ofpartial and full-thickness soft tissue wounds.Repair And Protection Of Peripheral Nerves.Peripheral nerves

91、may become severed or damaged through traumaticaccidents or surgical injuries,often resulting in the permanent loss of motor and sensory function.Although severedperipheral nerves regenerate spontaneously,they do not establish functional connections unless the nerve stumps aresurgically reconnected.

92、We estimate the worldwide market for the repair of severed and damaged peripheral nerves tobe$110 million.The NeuraGen Nerve Guide and the NeuraWrap Nerve Protector are absorbable collagen implants for the repairand protection of severed and injured peripheral nerves.The NeuraGen product,used in the

93、 repair of severedperipheral nerves,is a collagen tube designed to provide an environment for the regenerating nerve and to provide aconduit through which regenerating nerves can bridge the gap caused by the injury.The NeuraGen Nerve Guide offersa rapid method for rejoining severed peripheral nerves

94、.The NeuraWrap product,designed for the treatment of injured,compressed or scarred nerves,provides a protective environment for nerve healing,serving as an interface between damagednerves and surrounding tissue.Hydrocephalus Management.Hydrocephalus is an incurable condition resulting from an imbala

95、nce between the amountof cerebrospinal fluid produced by the brain and the rate at which the body absorbs cerebrospinal fluid.This conditioncauses the ventricles of the brain to enlarge and the pressure inside the head to increase.Hydrocephalus often is presentat birth,but may also result from other

96、 causes,including head trauma,spina bifida,intraventricular hemorrhage,intracranial tumors and cysts.Hydrocephalus is most commonly treated by inserting a shunt into the ventricular systemof the brain to divert the flow of cerebrospinal fluid out of the brain and using a pressure valve to maintain a

97、 normallevel of cerebrospinal fluid within the ventricles.7According to the Hydrocephalus Association,hydrocephalus affects approximately one in 500 children born in the UnitedStates.We estimate that greater than 50%of total cerebrospinal fluid shunt sales address birth-related hydrocephalus,while t

98、he remainder address surgical procedures involving excess cerebrospinal fluid due to head trauma and adult onsetnormal pressure hydrocephalus.Based on industry sources,we believe that the total United States market forhydrocephalus management,including monitoring,shunting and drainage,is approximate

99、ly$150 million.Of that amount,it is estimated that a little more than half consists of sales of monitoring products,and the balance consists of sales ofshunts and drains for the management of hydrocephalus.In recent years,neurosurgeons have increased their use of programmable valves,which allow the

100、neurosurgeon to adjustthe pressure settings of the shunt while it is implanted in the patient.Shunts that do not incorporate programmable valvetechnology must be removed from the patient for subsequent pressure adjustments,a process that requires an additionalsurgical procedure.We do not market hydr

101、ocephalus management shunts with programmable valves and believe thatthe increasing use of programmable valves has negatively affected,and may continue to negatively affect,the sales ofour shunt products.In 2004,we introduced the NPHTMLow Flow Hydrocephalus Valve that regulates the flow of cerebrosp

102、inal fluid outof the brain,rather than the pressure created by cerebrospinal fluid inside the head.Designed specifically to meet theneeds of patients with normal pressure hydrocephalus(NPH),the NPHTMValve controls cerebrospinal fluid flow at alower rate than Integras other flow-control valves.Normal

103、 pressure hydrocephalus is a syndrome that occurs in bothadults who have previously experienced birth-related hydrocephalus and those who have not.It is characterized by dementia,gait disturbance and urinary incontinence in patients that are typically over 65 years of age.As many as 10%of all patien

104、tswith symptoms of dementia have NPH.While the symptoms associated with NPH can intensify over time if thecondition is left untreated,the dementia associated with NPH can be reversed if treated properly.While shunting is thepreferred treatment method for patients diagnosed with NPH,only approximatel

105、y 5%of those with NPH are currentlytreated with a surgically implanted shunt.Based on these current treatment statistics,we estimate that the market opportunityfor shunt systems designed to treat NPH is approximately$35 million.Certain reports estimate that approximately 20%of total cerebrospinal fl

106、uid shunt sales address normal pressure hydrocephalus.Based on the NPH population as a whole,the potential market opportunity exceeds$500 million.Small Bone And Joint Fixation Devices and Instruments.Our line of Newdeal foot and ankle surgery devices addressthe reconstructive and fracture repair por

107、tion of the orthopedic market.The Newdeal line of implants include a widerange of products for the forefoot,the mid-foot and the hind foot,including the BoldScrew,the UniclipCompressionStaple,the Hallu-Fixplate system and the HINTEGRAtotal ankle prosthesis.These implants and the instrumentsused to i

108、mplant them are specifically designed for foot and ankle surgery.We estimate that the current Newdealproducts address an approximately$500 million worldwide market.Hemodynamic Shunts.Our SundtTMand other carotid shunts are used to divert blood to vital organs,such as the brain,during surgical proced

109、ures involving blood vessels.InstrumentsNeurosurgical Systems For Tissue Ablation.More than 145,000 primary and metastatic brain tumors are diagnosedannually in the United States alone.Our SelectorIntegra Ultrasonic Aspirator,DissectronUltrasonic SurgicalAspirator and SonotomUltrasonic Surgical Aspi

110、rator systems address surgeonsneeds for the surgical fragmentationand removal of malignant and non-malignant tumors and other tissue on a worldwide basis.The SelectorIntegra Ultrasonic Aspirator,DissectronUltrasonic Surgical Aspirator and SonotomUltrasonic SurgicalAspirator systems use very high fre

111、quency sound waves to ablate cancer tumors and allow the surgeon to remove thedamaged tumor tissue by aspiration.Unlike other surgical techniques,ultrasonic surgery selectively dissects andfragments soft tissue leaving fibrous tissues such as nerves and blood vessels intact.Ultrasonic aspiration fac

112、ilitates theremoval of unwanted tissue adjacent or attached to vital structures.The Selectorproduct is indicated for use in8general,gynecological,urological,plastic and reconstructive,orthopedic,thoracic and thorascopic surgery procedures.We offer the Dissectronand Sonotomproducts only outside the U

113、nited States.The Elektrotom,offered only outside the United States,is an electrosurgery system used to cut and coagulate selectedtissue,automatically regulating and adapting the power required for the target tissue.The system is available with bothmonopolar and bipolar handpieces and accessories.Cra

114、nial Stabilization And Brain Retraction Systems.The MAYFIELDHeadrest System is a market leader in cranialstabilization equipment.We work closely with surgeons and other health care providers throughout the world todevelop unique cranial stabilization products.JARITSurgical Instruments.For more than

115、30 years,JARIT has marketed a wide variety of high quality,reusablesurgical instruments to virtually all surgical disciplines.With more than 5,000 instrument patterns and a 98%order fillrate,the JARIT brand has a strong reputation for high-quality surgical instruments and customer service.Neurosurgi

116、cal And Spinal Instrumentation.We provide neurosurgeons and spine surgeons with a full line of specialtyhand-held spinal and neurosurgical instruments.We sell instruments under the R&B RedmondTMname primarily forspinal procedures(including neuro-spine)and instruments under the RugglesTMbrand name pr

117、imarily for cranialsurgery.Plastic and Reconstructive Instruments.We market a wide variety of high quality,reusable surgical instruments underthe Padgett InstrumentsTMbrand to plastic and reconstructive surgeons,burn surgeons,ENT surgeons,hospitals,surgery centers and other physicians.Dermatomes and

118、 Meshers.We sell a range of manual,air-and electric-powered dermatomes and related disposablesfor harvesting skin grafts.In 2003,we launched our new Padgett Dermatome-S,which is lighter,more ergonomic andmore powerful than the other dermatomes in our line.Our variable skin mesher is designed to expa

119、nd skin grafts priorto implantation to provide for greater coverage.Spinal Specialties.Spinal Specialties products include the OsteoJectTMBone Cement Delivery System and theACCU-DISCTMPressure Monitoring System.Physicians use these products in a variety of spinal,orthopedic and painmanagement proced

120、ures.The OsteoJect product allows precise delivery of bone cement to a surgical site under activefluoroscopy by a surgeon whose hands remain outside the fluoroscopy field.The ACCU-DISC,which is used tointerpret discography results,offers the accurate delivery of fluids to the body and the ability to

121、 monitor the fluids indiscography interpretation.Private Label ProductsOrthopedic Biomaterials.Since 1994,we have supplied Wyeth BioPharma with Absorbable Collagen Sponges foruse in developing bone regeneration implants,including use with Wyeth BioPharmas recombinant human bonemorphogenetic protein-

122、2(rhBMP-2),which Wyeth BioPharma is developing for clinical evaluation in several areas ofbone repair and augmentation,including orthopedic,oral and maxillofacial surgery applications.We sell AbsorbableCollagen Sponges for spinal applications through a related collaboration with Medtronic Sofamor Da

123、nek in North America.The FDA has approved Medtronic Sofamor Daneks InFUSETMBone Graft used with the LT-CAGETMLumbar TaperedFusion Device and the INTER FIX and INTER FIX Threaded Fusion Devices for use in spinal fusion procedures.TheInFUSE Bone Graft uses rhBMP-2 applied to our Absorbable Collagen Sp

124、onge in place of a painful secondaryprocedure to harvest small pieces of bone from the patients own hip(autograft).When used with the LT-CAGETMLumbarTapered Fusion Device and the INTER FIX and INTER FIX Threaded Fusion Devices,the InFUSETMBone Graft isindicated to treat certain types of spinal degen

125、erative disc disease,a common cause of low back pain.InFUSE receiveda new PMA Approval from the FDA in 2004 for the treatment of open,acute tibial shaft fractures.9Guided Tissue Regeneration In Periodontal Surgery.Our BioMendAbsorbable Collagen Membrane is used for guidedtissue regeneration in perio

126、dontal surgery.The BioMendmembrane is inserted between the gum and the tooth aftersurgical treatment of periodontal disease,preventing the gum tissue from interfering with the regeneration of theperiodontal ligament that holds the tooth in place.The body absorbs the BioMendproduct after approximatel

127、y fourto seven weeks,avoiding the requirement for additional surgical procedures to remove a non-absorbable membrane.The BioMendExtend product has the same indication for use as the BioMendproduct,except that it absorbs inapproximately 16 weeks.The BioMendand BioMendExtend Absorbable Collagen Membra

128、nes are sold through ZimmerHoldings,Inc.Other Private Label Products.Our current private label products also include the VitaCuffcatheter access infectioncontrol device,the BioPatchanti-microbial wound dressing and a wide range of absorbable collagen products forhemostasis.Distribution ChannelsWe se

129、ll our products through various direct sales forces and a variety of other distribution channels.Our direct salesforces include the following:Integra NeuroSciences.Integra NeuroSciencesdirect marketing effort in the United States and Europe currentlyinvolves more than 130 professionals,including dir

130、ect salespeople(called neurospecialists in the United States),salesmanagement,and clinical educators who educate and train both our salespeople and customers in the use of ourproducts.Our Integra NeuroSciencesTMsales force sells our monitoring products(including Camino,LICOX,Ventrixand Neurosensor m

131、onitoring lines,cranial access kits,external ventricular and lumbar monitoring and drainage productsand epilepsy electrodes),our neurosurgical operating room products(including the DuraGen,DuraGen PlusTM,EnDuraTMand NeuraGenTMproducts,the NPHTMLow Flow Hydrocephalus Valve and the Selector Integra Ul

132、trasonicAspirator)and the Ruggles line of neurosurgical instruments.These salespeople call primarily on neurosurgeons andintensive care units that are capable of managing neuro-trauma cases.We believe that we effectively address this focusedgroup of hospital-based practitioners through our direct In

133、tegra NeuroSciencesTMsales and marketing infrastructure inthe United States and in parts of Europe and our distribution network elsewhere.Reconstructive Surgery.Our reconstructive surgery sales and marketing organization in the United States and Europeconsists of approximately 50 professionals,inclu

134、ding direct salespeople,sales management,clinical educators and marketingmanagers.This sales and marketing organization sells the Newdeal line of orthopedic implants,devices and instruments,the INTEGRADermal Regeneration Template,the INTEGRATMBilayer Matrix Wound Dressing,the NeuraGenTMNerve Guide,t

135、he NeuraWrapTMNerve Protector,Padgett dermatomes and meshers,and a wide variety of high qualitysurgical instruments and implants to orthopedic surgeons,podiatric surgeons,trauma and reconstructive surgeons,burnsurgeons,hospitals,surgery centers and other physicians.JARIT Surgical InstrumentsOur JARI

136、T organization sells its products to more than 5,200 hospitals and surgery centersworldwide.In the United States,JARIT employs a 20-person sales management force that works with over 100distributor sales representatives.The JARIT organization sells the JARIT line of general and specialty instruments

137、 foropen and endoscopic surgery and a line of specialty instruments for spinal and neurosurgery.Private Label.We market our private label products through strategic partners or original equipment manufacturercustomers.Our private label products address large,diverse markets,and we believe that we ca

138、n develop and promotethese products more cost-effectively through leveraging the product development and distribution systems of ourstrategic partners than through developing the products ourselves or selling them through our own direct salesinfrastructure.We have partnered with market leaders,such

139、as Johnson&Johnson,Medtronic,Wyeth and Zimmer,forthe development and marketing efforts related to many of these products.We have established a reputation as a value-added and dependable development and manufacturing partner.Many ofour current private label products are built on our expertise in abso

140、rbable collagen products.In addition,we have expertise10in the development,manufacture and supply of a variety of absorbable materials and can provide experienced personnelto support product quality and regulatory review efforts.RESEARCH AND DEVELOPMENT STRATEGYOur research and development programs

141、focus on developing new products based on our materials and collagenengineering technologies and our expertise in fiber optics,ultrasonic technology and surgical fixation.We spent$14.1million,$12.8 million and$11.5 million in 2004,2003 and 2002,respectively,on research and development activities.The

142、 2004 amount includes a$1.4 million milestone payment relating to the completion of certain developmentactivities for an advanced neuromonitoring system and a$0.5 licensing fee paid for the development of a dataacquisition system to support the integration of our advanced monitoring products.The 200

143、3 and 2002 amountsinclude$400,000 and$2.3 million,respectively,of acquired in-process research and development charges recorded inconnection with acquisitions.In addition to internal research and development activities,we may continue to use ourcapital resources to acquire businesses that include re

144、search and development programs,which could result in additionalin-process research and development charges in the future.We also receive contract development revenues andgovernment grant funding which support a portion of our research and development activities.Research and developmentactivities fu

145、nded by contract development and government grant revenues amounted to$4.5 million and$3.5 millionin 2003 and 2002,respectively.We have either acquired or secured the proprietary rights to several important technological and scientific platforms,including collagen matrix,intracranial monitoring,ultr

146、asonic tissue ablation and implantable fixation technologies.Thesetechnologies provide support for our critical applications in neurosurgery and tissue regeneration with additionalopportunities for generating near-term and long-term revenues from medical applications.We have been able toidentify and

147、 bring together critical platform technology components from which we work to develop products for bothtissue regeneration and neurosurgical applications.These efforts have led to the successful development of newproducts,such as the NeuraGenTMNerve Guide,the NeuraWrapTMNerve Protector,the DuraGen P

148、lusTMDuralRegeneration Matrix,the DuraGen PlusTMAdhesion Barrier Matrix(CE Approved),the INTEGRADermal RegenerationTemplate TS and the INTEGRATMMatrix Wound Dressing.We regularly review our research and development programs to ensure that they remain consistent with and supportiveof our growth strat

149、egies.GOVERNMENT REGULATIONAs a manufacturer of medical devices,we are subject to extensive regulation by the FDA and,in some jurisdictions,by state and foreign governmental authorities.These regulations govern the introduction of new medical devices,theobservance of certain standards with respect t

150、o the design,manufacture,testing,labeling and promotion of the devices,the maintenance of certain records,the ability to track devices,the reporting of potential product defects,the export ofdevices and other matters.We believe that we are in substantial compliance with these governmental regulation

151、s.From time to time,we have recalled certain of our products.We have recalled defective components or devicessupplied by other vendors,kits assembled by us that included incorrect combinations of products and defective devicesmanufactured by us.None of these recalls resulted in a material direct exp

152、ense to us or a long-term disruption of animportant customer or supplier relationship.However,a future voluntary or involuntary recall of one of our major products,particularly if it involved a potential or actual risk to patients,could have an adverse financial impact on us as a resultboth of direc

153、t expenses and disrupted customer relationships.The FDA requires,as a condition of marketing a medical device in the United States,that we secure a Premarket Notificationclearance pursuant to Section 510(k)of the Federal Food,Drug and Cosmetic Act,an approved PMA application or asupplemental PMA app

154、lication.Alternatively,we may seek United States market clearance through a ProductDevelopment Protocol approved by the FDA.Establishing and completing a Product Development Protocol,orobtaining a PMA application or supplemental PMA application,can take up to several years and can involve preclinica

155、l11studies and clinical testing.To perform clinical testing in the United States on an unapproved product,we are also requiredto obtain an Investigational Device Exemption from the FDA.In addition to requiring clearance for new products,FDArules may require a filing and FDA approval,usually through

156、a PMA application supplement or a 510(k)PremarketNotification clearance,prior to marketing products that are modifications of existing products or new indications forexisting products.The FDA Medical Device User Fee and Modernization Act of 2002(MDUFMA)imposes user feespayable to FDA for submission

157、of Premarket Notifications,PMA applications,Product Development Protocols,certainsupplemental PMA applications and other types of FDA submissions.The regulatory process of obtaining productapprovals/clearances can be onerous and costly.We may not receive the necessary regulatory approvals,including

158、approval for product improvements and new products,on a timely basis,if at all.Delays in receipt of,or failure to receive,regulatory approvals could have a material adverseeffect on our business.Moreover,after clearance is given,if the product is shown to be hazardous or defective,the FDAand foreign

159、 regulatory agencies have the power to withdraw the clearance or require us to change the device,itsmanufacturing process or its labeling,to supply additional proof of its safety and effectiveness or to recall,repair,replaceor refund the cost of the medical device.In addition,federal,state and forei

160、gn regulations regarding the manufactureand sale of medical devices are subject to future changes.We cannot predict what impact,if any,these changes mighthave.These changes,however,could have a material impact on our business.We have received or acquired more than 245 Premarket Notification 510(k)cl

161、earances,five approved PMA applicationsand 57 supplemental PMA applications.We expect to file new applications during the next year to cover new productsand variations on existing products.We are also required to register with the FDA as a device manufacturer.As such,we are subject to periodic inspe

162、ctionby the FDA for compliance with the FDAs Quality Systems Regulations.These regulations require that we manufactureour products and maintain our documents in a prescribed manner with respect to design,manufacturing,testing and controlactivities.Further,we are required to comply with various FDA r

163、equirements for labeling and promotion.The MedicalDevice Reporting regulations require that we provide information to the FDA whenever there is evidence to reasonablysuggest that one of our devices may have caused or contributed to a death or serious injury or,if a malfunction wereto recur,could cau

164、se or contribute to a death or serious injury.In addition,the FDA prohibits us from promoting a medicaldevice before marketing clearance has been received or promoting an approved device for unapproved indications.UnderFDA regulations,we are required to submit reports of certain voluntary recalls an

165、d corrections to FDA.If the FDA believesthat a company is not in compliance with applicable regulations,it can institute proceedings to detain or seize products,issue a warning letter,issue a recall order,impose operating restrictions,enjoin future violations and assess civilpenalties against that c

166、ompany,its officers or its employees and can recommend criminal prosecution to the Departmentof Justice.These actions could have a material impact on our business.Other regulatory agencies may have similar powers.Medical Device Regulations also are in effect in many of the countries outside the Unit

167、ed States in which we do business.These laws range from comprehensive device approval and quality system requirements for some or all of our medicaldevice products to simpler requests for product data or certifications.The number and scope of these requirements areincreasing.In June 1998,the Europea

168、n Union Medical Device Directive became effective,and all medical devices mustmeet the Medical Device Directive standards and receive CE Mark certification.CE Mark certification requires acomprehensive Quality System program and submission of data on a product to the Notified Body in Europe.The Medi

169、calDevice Directive,ISO 9000 series and ISO 13485 are recognized international quality standards that are designed toensure that we develop and manufacture quality medical devices.A recognized Notified Body(an organizationdesignated by the national governments of the European Union member states to

170、make independent judgments aboutwhether or not a product complies with the protection requirements established by each CE marking directive)auditsour facilities annually to verify our compliance with these standards.In 2004,each of our certified facilities was audited,and we have maintained our cert

171、ification to these standards.In addition,we are required to notify the FDA if we export specified medical devices manufactured in the United Statesthat have not been approved by the FDA for distribution in the United States.We are also required to maintain certain12records relating to exports and ma

172、ke the records available to the FDA for inspection,if required.We currently exportmedical devices manufactured in the United States that have not been approved by the FDA.OTHER UNITED STATES REGULATORY REQUIREMENTSIn addition to the regulatory framework for product approvals,we are and may be subjec

173、t to regulation under federaland state laws,including requirements regarding occupational health and safety;laboratory practices;the maintenanceof personal health information;sales and marketing practices,including product discounting practices;and the use,handlingand disposal of toxic or hazardous

174、substances.We may also be subject to other present and possible future local,state,federal and foreign regulations.Our research,development and manufacturing processes involve the controlled use of certain hazardous materials.Weare subject to federal,state and local laws and regulations governing th

175、e use,manufacture,storage,handling and disposalof these materials and certain waste products.Although we believe that our safety procedures for handling anddisposing of these materials comply with the standards prescribed by the controlling laws and regulations,the risk ofaccidental contamination or

176、 injury from these materials cannot be eliminated.In the event of this type of an accident,we could be held liable for any damages that result and any liability could exceed our resources.Although we believethat we are in compliance in all material respects with applicable environmental laws and reg

177、ulations,we could incursignificant costs to comply with environmental laws and regulations in the future,and our operations,business or assetscould be materially adversely affected by current or future environmental laws or regulations.PATENTS AND INTELLECTUAL PROPERTYWe seek patent protection of ou

178、r key technology,products and product improvements both in the United States and inselected foreign countries.When determined appropriate,we have enforced and plan to continue to enforce and defendour patent rights.In general,however,we do not rely on our patent estate to provide us with any signifi

179、cant competitiveadvantages as it relates to our existing product lines.We rely upon trade secrets and continuing technological innovationsto develop and maintain our competitive position.In an effort to protect our trade secrets,we have a policy of requiringour employees,consultants and advisors to

180、execute proprietary information and invention assignment agreements uponcommencement of employment or consulting relationships with us.These agreements provide that all confidentialinformation developed or made known to the individual during the course of their relationship with us must be keptconfi

181、dential,except in specified circumstances.ACCU-DISC,BioMend,Bold,BUDDE,CALCANEA,Camino,CollaCote,CollaPlug,CollaStat,CollaTape,Dissectron,DuraGen,DuraGen Plus,Elektrotom,EquiFlow,Hallu-Fix,Helistat,Helitene,Heyer-Schulte,HINTEGRA,INTEGRA,INTEGRA Bilayer Matrix Wound Dressing,INTEGRADermalRegeneratio

182、n Template,Integra NeuroSciences,Integra NeuroSupplies,Integra Supplies,JARIT,LICOX,LPV,Moni-Torr,NeuraGen,NeuraWrap,Neurosensor,Orbis-Sigma,Osteoject,Padgett Instruments,Inc,Pudenz,Redmond,Ruggles,Selector,Sonotom,Spetzler,Spin,Spinal Specialties,Sundt,Uniclip,Ventrix,VitaCuffare some of the tradem

183、arks of Integra and its subsidiaries.All other brand names,trademarks and service marksappearing in this report are the property of their respective holders.COMPETITIONOur largest competitors in the neurosurgery markets are the Medtronic Neurotechnologies division of Medtronic,Inc.,the Codman divisi

184、on of Johnson&Johnson,the Aesculap division of B.Braun and the Valleylab division of TycoInternational Ltd.In addition,many of our neurosurgery product lines compete with smaller specialized companies orlarger companies that do not otherwise focus on neurosurgery.Our largest competitors in reconstru

185、ctive surgery are Smith and Nephew plc,LifeCell Corporation,Organogenesis Inc.,Wright Medical Group,Inc.,the DePuy division of Johnson&Johnson and Synthes,Inc.13We believe that we are the second largest re-usable surgical instrument company in the United States.The largest re-usable instrument compa

186、ny is V.Mueller,a division of Cardinal Healthcare.In addition,the Codman division of Johnson&Johnson and many smaller instrument companies compete with both re-usable and disposable specialty instruments.We rely on the depth and breadth of our sales and marketing organization to maintain our competi

187、tive position in surgicalinstruments.Our private label products face diverse and broad competition,depending on the market addressed by the product.Finally,in certain cases our products compete primarily against medical practices that treat a condition without usinga medical device,rather than any p

188、articular product(such as autograft tissue as a substitute for the INTEGRADermalRegeneration Template,our duraplasty products,the NeuraGen Nerve Guide and NeuraWrap Nerve Protector).Depending on the product line,we compete on the basis of our productsfeatures,strength of our sales force or marketing

189、partner,sophistication of our technology and cost effectiveness of our solution to the customers medical requirements.EMPLOYEESAt December 31,2004,we had approximately 922 full-time employees and 214 temporary employees engaged inproduction and production support(including warehouse,engineering and

190、facilities personnel),quality assurance/qualitycontrol,research and development,regulatory and clinical affairs,sales,marketing,administration and finance.Exceptfor certain employees at our facilities in Belgium,France and Germany,none of our current employees are subject toa collective bargaining a

191、greement.Many of our employees,including those holding senior positions in our regulatory,operations,research and development,and sales and marketing departments,were recruited from large pharmaceutical or medical technology companies.Oursales representatives and regional sales managers attend in-de

192、pth product training meetings throughout the year,andour clinical development team consists of medical professionals who specialize in specific therapeutic areas that ourproducts serve.We believe that our clinical development team differentiates us from our competition,as their knowledgeand experien

193、ce as medical professionals allows them to more effectively educate and train both our sales force and thecustomers who use our products.This team is especially valuable in communicating the clinical benefits of newproducts.AVAILABLE INFORMATIONWe are subject to the informational requirements of the

194、 Securities Exchange Act of 1934,as amended,which we referto as the“Exchange Act”.In accordance with the Exchange Act,we file annual,quarterly and special reports,proxystatements and other information with the Securities and Exchange Commission.You may view our financial information,including the in

195、formation contained in this report,and other reports we file with the Securities and ExchangeCommission,on the Internet,without charge as soon as reasonably practicable after we file them with the Securitiesand Exchange Commission,in the“SEC Filings”page of the Investor Relations section of our webs

196、ite at www.Integra-LS.com.You may also obtain a copy of any of these reports,without charge,from our investor relationsdepartment,311 Enterprise Drive,Plainsboro,NJ 08536.Alternatively,you may view or obtain reports filed with theSecurities and Exchange Commission at the SEC Public Reference Room at

197、 450 Fifth Street,N.W.in Washington,D.C.20549,or at the SECs Internet site at www.sec.gov.Please call the Securities and Exchange Commission at 1-800-SEC-0330 for further information on the operation of the public reference facilities.SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTSWe have made sta

198、tements in this report,including statements under“Managements Discussion and Analysis ofFinancial Condition and Results of Operations”and“Business,”that constitute forward-looking statements within themeaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act

199、 of 1934.Theseforward-looking statements are subject to a number of risks,uncertainties and assumptions about us including,amongother things:14 general economic and business conditions,both nationally and in our international markets;our expectations and estimates concerning future financial perform

200、ance,financing plans and the impact ofcompetition;anticipated trends in our business;existing and future regulations affecting our business;our ability to obtain additional debt and equity financing to fund capital expenditures and working capitalrequirements and acquisitions;physicianswillingness t

201、o adopt our recently launched and planned products and our ability to secure regulatoryapproval for products in development;our ability to protect our intellectual property,including trade secrets;our ability to complete acquisitions,integrate operations post-acquisition and maintain relationships w

202、ithcustomers of acquired entities;work stoppages at our facilities;and other risk factors described in the section entitled“Factors That May Affect Our Future Performance”in this report.You can identify these forward-looking statements by forward-looking words such as believe,may,could,will,estimate

203、,continue,anticipate,intend,seek,plan,expect,should,would and similar expressions in this report.We undertake no obligation to publicly update or revise any forward-looking statements,whether as a result of newinformation,future events or otherwise.In light of these risks and uncertainties,the forwa

204、rd-looking events andcircumstances discussed in this report may not occur and actual results could differ materially from those anticipatedor implied in the forward-looking statements.FACTORS THAT MAY AFFECT OUR FUTURE PERFORMANCEOur Operating Results May Fluctuate.Our operating results,including co

205、mponents of operating results,such as gross margin on product sales,may fluctuatefrom time to time,which could affect our stock price.Our operating results have fluctuated in the past and can be expectedto fluctuate from time to time in the future.Some of the factors that may cause these fluctuation

206、s include:the impact of acquisitions;the timing of significant customer orders;market acceptance of our existing products,as well as products in development;the timing of regulatory approvals;the timing of payments received and the recognition of those payments as revenue under collaborative arrange

207、mentsand other alliances;changes in the rate of exchange between the U.S.dollar,the euro and the British pound;expenses incurred and business lost in connection with product field corrections or recalls;our ability to manufacture our products efficiently;and the timing of our research and developmen

208、t expenditures.Non-Cash Compensation Charges May Affect Our Future Earnings.In December 2004,the Financial Accounting Standards Board issued Statement No.123(revised 2004),“Share-BasedPayment,”which is a revision of Statement No.123,“Accounting for Stock-Based Compensation.”Statement 123(R)replaces

209、APB Opinion No.25,“Accounting for Stock Issued to Employees”.Statement 123(R)requires all share-basedpayments to employees,including grants of employee stock options,to be recognized in the financial statements basedon their fair value.Statement 123(R)must be adopted no later than July 1,2005,and we

210、 expect to adopt Statement 123(R)on July 1,2005.For purposes of disclosing pro forma financial results in our financial statements as if compensation cost for our stock15option plans had been determined based on the fair value at the grant consistent with the provisions of Statement No.123,we histor

211、ically estimated the fair value of stock options granted prior to October 1,2004 using the Black-Scholesvaluation model.However,we estimated the pro forma additional compensation expense related to all options grantedon or after October 1,2004 using a binomial distribution model.Management believes

212、that the binomial distributionmodel is preferable to the Black-Scholes model because the binomial distribution model is a more flexible model thatconsiders the impact of non-transferability,vesting and forfeiture provisions in the valuation of employee stock options.Because Statement 123(R)prohibits

213、 pro forma footnote disclosure as an alternative to financial statement recognition,management is currently evaluating the potential impact that Statement 123(R)will have on our future results of operations.Previous estimates of option values using the Black-Scholes method may not be indicative of r

214、esults from applying thebinomial distribution model for valuing future option grants.The Industry And Market Segments in Which We Operate Are Highly Competitive,And We May Be Unable toCompete Effectively with Other Companies.In general,the medical technology industry is characterized by intense comp

215、etition.We compete with established medicaltechnology and pharmaceutical companies.Competition also comes from early stage companies that have alternativetechnological solutions for our primary clinical targets,as well as universities,research institutions and other non-profitentities.Many of our co

216、mpetitors have access to greater financial,technical,research and development,marketing,manufacturing,sales,distribution services and other resources than we do.Our competitors may be more effective atimplementing their technologies to develop commercial products.Our competitive position will depend

217、 on our ability to achieve market acceptance for our products,develop newproducts,implement production and marketing plans,secure regulatory approval for products under development andobtain patent protection.We may need to develop new applications for our products to remain competitive.Technologica

218、ladvances by one or more of our current or future competitors could render our present or future products obsolete oruneconomical.Our future success will depend upon our ability to compete effectively against current technology as wellas to respond effectively to technological advances.Competitive p

219、ressures could adversely affect our profitability.Forexample,two of our largest competitors have recently introduced an onlay dural graft matrix,and other companies maybe preparing to introduce similar products.The introduction of such products could reduce the sales,growth in salesand profitability

220、 of our duraplasty products,including our DuraGen,DuraGen PlusTMand EnDuraTMproduct lines,whichare among our largest and fastest growing products.Our largest competitors in the neurosurgery markets are the Medtronic Neurotechnologies division of Medtronic,Inc.,the Codman division of Johnson&Johnson,

221、the Aesculap division of B.Braun and the Valleylab division of TycoInternational Ltd.In addition,many of our product lines compete with smaller specialized companies or largercompanies that do not otherwise focus on neurosurgery.Our reconstructive surgery business is small compared to itsprincipal c

222、ompetitors,which include major medical device and wound care companies such as Smith and Nephew plc,LifeCell Corporation and Organogenesis Inc.,as well as companies focused on foot and ankle surgeons including WrightMedical Group,Inc.,the DePuy division of Johnson&Johnson and Synthes,Inc.Our private

223、 label products face diverseand broad competition,depending on the market addressed by the product.Finally,in certain cases our productscompete primarily against medical practices that treat a condition without using a device,rather than any particular product,such as autograft tissue as an alternat

224、ive for the INTEGRADermal Regeneration Template,our duraplasty productsand the NeuraGenTMNerve Guide.Our Current Strategy Involves Growth Through Acquisitions,Which Requires Us To Incur Substantial CostsAnd Potential Liabilities For Which We May Never Realize The Anticipated Benefits.In addition to

225、internal growth,our current strategy involves growth through acquisitions.Since 1999,we have acquired20 businesses or product lines at a total cost of approximately$213 million.We may be unable to continue to implement our growth strategy,and our strategy ultimately may be unsuccessful.Asignificant

226、portion of our growth in revenues has resulted from,and is expected to continue to result from,the16acquisition of businesses complementary to our own.We engage in evaluations of potential acquisitions and are in variousstages of discussion regarding possible acquisitions,certain of which,if consumm

227、ated,could be significant to us.Anypotential acquisitions may result in material transaction expenses,increased interest and amortization expense,increaseddepreciation expense and increased operating expense,any of which could have a material adverse effect on ouroperating results.As we grow by acqu

228、isitions,we must integrate and manage the new businesses to realize economiesof scale and control costs.In addition,acquisitions involve other risks,including diversion of management resourcesotherwise available for ongoing development of our business and risks associated with entering new markets w

229、ith whichour marketing and sales force has limited experience or where experienced distribution alliances are not available.Ourfuture profitability will depend in part upon our ability to develop further our resources to adapt to these new productsor business areas and to identify and enter into sat

230、isfactory distribution networks.We may not be able to identify suitableacquisition candidates in the future,obtain acceptable financing or consummate any future acquisitions.If we cannotintegrate acquired operations,manage the cost of providing our products or price our products appropriately,our pr

231、ofitabilitycould suffer.In addition,as a result of our acquisitions of other healthcare businesses,we may be subject to the risk ofunanticipated business uncertainties,regulatory matters or legal liabilities relating to those acquired businesses for whichthe sellers of the acquired businesses may no

232、t indemnify us.Future acquisitions may also result in potentially dilutiveissuances of securities.To Market Our Products under Development We Will First Need To Obtain Regulatory Approval.Further,IfWe Fail To Comply With The Extensive Governmental Regulations That Affect Our Business,We Could Be Sub

233、jectTo Penalties And Could Be Precluded From Marketing Our Products.Our research and development activities and the manufacturing,labeling,distribution and marketing of our existing andfuture products are subject to regulation by numerous governmental agencies in the United States and in other count

234、ries.The Food and Drug Administration(FDA)and comparable agencies in other countries impose mandatory proceduresand standards for the conduct of clinical trials and the production and marketing of products for diagnostic and humantherapeutic use.Our products under development are subject to FDA appr

235、oval or clearance prior to marketing for commercial use.Theprocess of obtaining necessary FDA approvals or clearances can take years and is expensive and full of uncertainties.Our inability to obtain required regulatory approval on a timely or acceptable basis could harm our business.Further,approva

236、l or clearance may place substantial restrictions on the indications for which the product may be marketed orto whom it may be marketed.Further studies,including clinical trials and FDA approvals,may be required to gain approvalfor the use of a product for clinical indications other than those for w

237、hich the product was initially approved or clearedor for significant changes to the product.In addition,for products with an approved PMA,the FDA requires annual reportsand may require post-approval surveillance programs to monitor the productssafety and effectiveness.Results of post-approval progra

238、ms may limit or expand the further marketing of the product.Another risk of application to the FDA relates to the regulatory classification of new products or proposed new usesfor existing products.In the filing of each application,we make a legal judgment about the appropriate form and contentof th

239、e application.If the FDA disagrees with our judgment in any particular case and,for example,requires us to filea PMA application rather than allowing us to market for approved uses while we seek broader approvals or requiresextensive additional clinical data,the time and expense required to obtain t

240、he required approval might be significantlyincreased or approval might not be granted.Approved products are subject to continuing FDA requirements relating to quality control and quality assurance,maintenance of records,reporting of adverse events and product recalls,documentation,and labeling and p

241、romotionof medical devices.The FDA and foreign regulatory authorities require that our products be manufactured according to rigorous standards.These regulatory requirements may significantly increase our production or purchasing costs and may even prevent usfrom making or obtaining our products in

242、amounts sufficient to meet market demand.If we or a third-party manufacturerchange our approved manufacturing process,the FDA may require a new approval before that process may be used.17Failure to develop our manufacturing capability may mean that even if we develop promising new products,we maynot

243、 be able to produce them profitably,as a result of delays and additional capital investment costs.Manufacturing facilities,both international and domestic,are also subject to inspections by or under the authority of the FDA.In addition,failureto comply with applicable regulatory requirements could s

244、ubject us to enforcement action,including product seizures,recalls,withdrawal of clearances or approvals,restrictions on or injunctions against marketing our product or productsbased on our technology,and civil and criminal penalties.We are also subject to the regulatory requirements of countries ou

245、tside of the United States where we do business.Forexample,Japan is in the process of reforming its medical device regulations.A recent amendment to JapansPharmaceutical Affairs Law goes into effect on April 1,2005.New regulations and requirements will exist for obtainingapproval of medical devices,

246、including new requirements governing the conduct of clinical trials,the manufacturingof products and the distribution of products in Japan.Significant resources also may be needed to comply with the extensiveauditing of all manufacturing facilities of our company and our vendors by the Ministry of H

247、ealth,Labor and Welfarein Japan to comply with the amendment to the Pharmaceutical Affairs Law.These new regulations may affect our abilityto obtain approvals of new products as well as maintain the certain businesses in Japan.Sales in Japan accounted forapproximately$3.1 million of our revenues in

248、2004.Certain Of Our Products Contain Materials Derived From Animal Sources And May Become Subject ToAdditional Regulation.Certain of our products,including the DuraGenDural Graft Matrix,DuraGen PlusTMDural Regeneration Matrix andDuraGen PlusTMAdhesion Barrier Matrix products,the NeuraGenTMNerve Guid

249、e,the NeuraWrapTMNerve Protector,the INTEGRADermal Regeneration Template,the INTEGRATMBilayer Matrix and INTEGRATMMatrix WoundDressing,the Helistat/HeliteneAbsorbable Collagen Hemostatic Agents,our Absorbable Collagen Sponges,theCollaCote,CollaTapeand CollaPlugAbsorbable Wound Dressings and the BioM

250、endand BioMendExtendAbsorbable Collagen Membranes,contain material derived from bovine tissue.Products that contain materials derivedfrom animal sources,including food as well as pharmaceuticals and medical devices,are increasingly subject toscrutiny in the press and by regulatory authorities.Regula

251、tory authorities are concerned about the potential for thetransmission of disease from animals to humans via those materials.This public scrutiny has been particularly acutein Japan and Western Europe with respect to products derived from cattle,because of concern that materials infectedwith the age

252、nt that causes bovine spongiform encephalopathy,otherwise known as BSE or mad cow disease,may,ifingested or implanted,cause a variant of the human Creutzfeldt-Jakob Disease,an ultimately fatal disease with no knowncure.Recent cases of BSE in cattle discovered in Canada and the United States have inc

253、reased awareness of the issuein North America.We take great care to provide that our products are safe and free of agents that can cause disease.In particular,the collagenused in the manufacture of our products is derived only from the deep flexor tendon of cattle from the United Statesthat are less

254、 than 24 months old.The World Health Organization classifies different types of cattle tissue for relativerisk of BSE transmission.Deep flexor tendon,the sole source of our collagen,is in the lowest risk category for BSEtransmission(the same category as milk,for example),and is therefore considered

255、to have a negligible risk of containingthe agent that causes BSE(an improperly folded protein known as a prion).Nevertheless,products that containmaterials derived from animals,including our products,may become subject to additional regulation,or even bebanned in certain countries,because of concern

256、 over the potential for prion transmission.Significant new regulation,or a ban of our products,could have a material adverse effect on our current business or our ability to expand our business.In addition,we have been notified that Japan has issued new regulations regarding medical devices that con

257、tain tissueof animal origin.Among other regulations,Japan may require that the tendon used in the manufacture of medical devicessold in Japan originate in a country that has never had a case of BSE.Currently,we purchase our tendon from the UnitedStates and have qualified a source of tendon from New

258、Zealand,a country which has never had a case of BSE.If wecannot continue to qualify a source of tendon from New Zealand or another country that has never had a case of BSE,we will not be permitted to sell our collagen hemostatic agents and products for oral surgery in Japan.We do not currentlysell o

259、ur dural or skin repair products in Japan.18Lack Of Market Acceptance For Our Products Or Market Preference For Technologies That Compete With OurProducts Could Reduce Our Revenues And Profitability.We cannot be certain that our current products or any other products that we may develop or market wi

260、ll achieve or maintainmarket acceptance.Certain of the medical indications that can be treated by our devices can also be treated by othermedical devices or by medical practices that do not include a device.The medical community widely accepts manyalternative treatments,and certain of these other tr

261、eatments have a long history of use.For example,the use of autografttissue is a well-established means for repairing the dermis,and it competes for acceptance in the market with theINTEGRADermal Regeneration Template.We cannot be certain that our devices and procedures will be able to replace those

262、established treatments or that eitherphysicians or the medical community in general will accept and utilize our devices or any other medical products thatwe may develop.For example,we cannot be certain that the medical community will accept the NeuraGenTMNerveGuide over conventional microsurgical te

263、chniques for connecting severed peripheral nerves.In addition,our future success depends,in part,on our ability to develop additional products.Even if we determine thata product candidate has medical benefits,the cost of commercializing that product candidate may be too high to justifydevelopment.Co

264、mpetitors may develop products that are more effective,cost less or are ready for commercialintroduction before our products.For example,our sales of shunt products could decline if neurosurgeons increase theiruse of programmable valves and we fail to introduce a competitive product,or our sales of

265、certain catheters may be adverselyaffected by the recent introduction by other companies of catheters that contain anti-microbial agents intended to reducethe incidence of infection after implantation.If we are unable to develop additional commercially viable products,ourfuture prospects could be ad

266、versely affected.Market acceptance of our products depends on many factors,including our ability to convince prospective collaboratorsand customers that our technology is an attractive alternative to other technologies,to manufacture products in sufficientquantities and at acceptable costs,and to su

267、pply and service sufficient quantities of our products directly or through ourdistribution alliances.In addition,limited funding available for product and technology acquisitions by our customers,as well as internal obstacles to customer approvals of purchases of our products,could harm acceptance o

268、f our products.The industry is subject to rapid and continuous change arising from,among other things,consolidation and technologicalimprovements.One or more of these factors may vary unpredictably,which could materially adversely affect ourcompetitive position.We may not be able to adjust our conte

269、mplated plan of development to meet changing market demands.Our Intellectual Property Rights May Not Provide Meaningful Commercial Protection For Our Products,Which Could Enable Third Parties To Use Our Technology Or Very Similar Technology And Could Reduce OurAbility To Compete In The Market.Our ab

270、ility to compete effectively depends in part,on our ability to maintain the proprietary nature of our technologiesand manufacturing processes,which includes the ability to obtain,protect and enforce patents on our technology andto protect our trade secrets.We own or have licensed patents that cover

271、aspects of certain of our product lines.However,you should not rely on our patents to provide us with any significant competitive advantage.Others may challenge ourpatents and,as a result,our patents could be narrowed,invalidated or rendered unenforceable.Competitors maydevelop products similar to o

272、urs that our patents do not cover.In addition,our current and future patent applicationsmay not result in the issuance of patents in the United States or foreign countries.Further,there is a substantialbacklog of patent applications at the U.S.Patent and Trademark Office,and the approval or rejectio

273、n of patentapplications usually takes from 18 to 24 months.Our Competitive Position Depends,In Part,Upon Unpatented Trade Secrets Which We May Be Unable To Protect.Our competitive position also depends upon unpatented trade secrets.Trade secrets are difficult to protect.We cannotassure you that othe

274、rs will not independently develop substantially equivalent proprietary information and techniques19or otherwise gain access to our trade secrets,that our trade secrets will not be disclosed or that we can effectively protectour rights to unpatented trade secrets.In an effort to protect our trade sec

275、rets,we require our employees,consultants and advisors to execute proprietaryinformation and invention assignment agreements upon commencement of employment or consulting relationships withus.These agreements provide that,except in specified circumstances,all confidential information developed or ma

276、deknown to the individual during the course of their relationship with us must be kept confidential.We cannot assure you,however,that these agreements will provide meaningful protection for our trade secrets or other proprietary informationin the event of the unauthorized use or disclosure of confid

277、ential information.Our Success Will Depend Partly On Our Ability To Operate Without Infringing Or Misappropriating TheProprietary Rights Of Others.We may be sued for infringing the intellectual property rights of others.In addition,we may find it necessary,if threatened,to initiate a lawsuit seeking

278、 a declaration from a court that we do not infringe the proprietary rights of others or thattheir rights are invalid or unenforceable.If we do not prevail in any litigation,in addition to any damages we might haveto pay,we would be required to stop the infringing activity or obtain a license for the

279、 proprietary rights involved.Anyrequired license may be unavailable to us on acceptable terms,or at all.In addition,some licenses may be nonexclusiveand allow our competitors to access the same technology we license.If we fail to obtain a required license or are unableto design our product so as not

280、 to infringe on the proprietary rights of others,we may be unable to sell some of our products,which could have a material adverse effect on our revenues and profitability.It May Be Difficult To Replace Some Of Our Suppliers.Outside vendors,some of whom are sole-source suppliers,provide key componen

281、ts and raw materials used in themanufacture of our products.Although we believe that alternative sources for many of these components and raw materialsare available,any supply interruption in a limited or sole source component or raw material could harm our ability tomanufacture our products until a

282、 new source of supply is identified and qualified.In addition,an uncorrected defect orsuppliers variation in a component or raw material,either unknown to us or incompatible with our manufacturing process,could harm our ability to manufacture products.We may not be able to find a sufficient alternat

283、ive supplier in areasonable time period,or on commercially reasonable terms,if at all,and our ability to produce and supply our productscould be impaired.We believe that these factors are most likely to affect the following products that we manufacture:our collagen-based products,such as INTEGRADerm

284、al Regeneration Template,DuraGenDural Graft Matrixand DuraGen PlusTMDural Regeneration products,and our Absorbable Collagen Sponges;our products made from silicone,such as our neurosurgical shunts and drainage systems and hemodynamic shunts;and products which use many different electronic parts from

285、 numerous suppliers,such as our Camino,VentrixandNeuroSensorTMlines of intracranial monitors and catheters.If we were suddenly unable to purchase products from one or more of these companies,we could need a significantperiod of time to qualify a replacement,and the production of any affected product

286、s could be disrupted.While it is ourpolicy to maintain sufficient inventory of components so that our production will not be significantly disrupted even ifa particular component or material is not available for a period of time,we remain at risk that we will not be able toqualify new components or

287、materials quickly enough to prevent a disruption if one or more of our suppliers ceasesproduction of important components or materials.If Any Of Our Manufacturing Facilities Were Damaged And/Or Our Manufacturing Or Business ProcessesInterrupted,We Could Experience Lost Revenues And Our Business Coul

288、d Be Seriously Harmed.We manufacture our products in a limited number of facilities.Damage to our manufacturing,development or researchfacilities due to fire,natural disaster,power loss,communications failure,unauthorized entry or other events could cause20us to cease development and manufacturing o

289、f some or all of our products.In particular,our San Diego,California facilitythat manufactures our Caminoand Ventrixproduct line is as susceptible to earthquake damage,wildfire damage andpower losses from electrical shortages as are other businesses in the Southern California area.Our silicone manuf

290、acturingplant in Anasco,Puerto Rico is vulnerable to hurricane damage.Although we maintain property damage and businessinterruption insurance coverage on these facilities,we may not be able to renew or obtain such insurance in the futureon acceptable terms with adequate coverage or at reasonable cos

291、ts.In addition,we are implementing in several stages over several years an enterprise business system for use in all of ourfacilities.This system will replace several systems on which we now rely.We have outsourced our product distributionfunction in the United States and are also planning to outsou

292、rce our European product distribution function.A delayor other problem with the system or in our implementation schedule for either of these initiatives could have a materialadverse effect on our operations.We May Be Involved In Lawsuits To Protect Or Enforce Our Intellectual Property Rights,Which M

293、ay Be Expensive.To protect or enforce our intellectual property rights,we may have to initiate legal proceedings,such as infringementsuits or interference proceedings,against third parties.Intellectual property litigation is costly,and,even if we prevail,the cost of that litigation could affect our

294、profitability.In addition,litigation is time consuming and could divertmanagement attention and resources away from our business.We may also provoke these third parties to assert claimsagainst us.We Are Exposed To A Variety Of Risks Relating To Our International Sales And Operations,IncludingFluctua

295、tions In Exchange Rates,Local Economic Conditions And Delays In Collection Of Accounts Receivable.We generate significant revenues outside the United States in euros,British pounds and in U.S.dollar-denominatedtransactions conducted with customers who generate revenue in currencies other than the U.

296、S.dollar.For those foreigncustomers who purchase our products in U.S.dollars,currency fluctuations between the U.S.dollar and the currenciesin which those customers do business may have an impact on the demand for our products in foreign countries wherethe U.S.dollar has increased in value compared

297、to the local currency.Because we have operations based in Europe and we generate revenues and incur operating expenses in euros and Britishpounds,we experience currency exchange risk with respect to those foreign currency-denominated revenues andexpenses.In 2003 and 2004,the cost of products we manu

298、factured in our European facilities or purchased in foreigncurrencies exceeded our foreign currency-denominated revenues.We expect this imbalance to continue.Accordingly,a further weakening of the dollar against the euro and British pound could negatively affect future gross margins andoperating mar

299、gins.Currently,we do not use derivative financial instruments to manage operating foreign currency risk.As the volume ofour business transacted in foreign currencies increases,we will continue to assess the potential effects that changes inforeign currency exchange rates could have on our business.I

300、f we believe that this potential impact presents a significantrisk to our business,we may enter into derivative financial instruments to mitigate this risk.In general,we cannot predict the consolidated effects of exchange rate fluctuations upon our future operating resultsbecause of the number of cu

301、rrencies involved,the variability of currency exposure and the potential volatility ofcurrency exchange rates.Our sales to foreign markets also may be affected by local economic conditions,legal,regulatory or politicalconsiderations,the effectiveness of our sales representatives and distributors,loc

302、al competition and changes in localmedical practice.Relationships with customers and effective terms of sale frequently vary by country,often with longer-term receivables than are typical in the United States.21Changes In The Health Care Industry May Require Us To Decrease The Selling Price For Our

303、Products Or MayReduce The Size Of The Market For Our Products,Either Of Which Could Have A Negative Impact On OurFinancial Performance.Trends toward managed care,health care cost containment and other changes in government and private sectorinitiatives in the United States and other countries in whi

304、ch we do business are placing increased emphasis on the deliveryof more cost-effective medical therapies that could adversely affect the sale and/or the prices of our products.For example:major third-party payors of hospital services and hospital outpatient services,including Medicare,Medicaid andpr

305、ivate health care insurers,have substantially revised their payment methodologies,which has resulted in stricterstandards for reimbursement of hospital charges for certain medical procedures;Medicare,Medicaid and private health care insurer cutbacks could create downward price pressure on our produc

306、ts;numerous legislative proposals have been considered that would result in major reforms in the U.S.health caresystem that could have an adverse effect on our business;there has been a consolidation among health care facilities and purchasers of medical devices in the United Stateswho prefer to lim

307、it the number of suppliers from whom they purchase medical products,and these entities maydecide to stop purchasing our products or demand discounts on our prices;we are party to contracts with group purchasing organizations that require us to discount our prices for certain ofour products and limit

308、 our ability to raise prices for certain of our products,particularly surgical instruments;there is economic pressure to contain health care costs in international markets;there are proposed and existing laws,regulations and industry policies in domestic and international marketsregulating the sales

309、 and marketing practices and the pricing and profitability of companies in the health care industry;and there have been initiatives by third-party payors to challenge the prices charged for medical products that couldaffect our ability to sell products on a competitive basis.Both the pressures to re

310、duce prices for our products in response to these trends and the decrease in the size of the marketas a result of these trends could adversely affect our levels of revenues and profitability of sales.Regulatory Oversight Of The Medical Device Industry Might Affect The Manner In Which We May Sell Med

311、icalDevicesThere are laws and regulations that regulate the means by which companies in the health care industry may market theirproducts to health care professionals and may compete by discounting the prices of their products.Although weexercise care in structuring our sales and marketing practices

312、 and customer discount arrangements to comply with thoselaws and regulations,we cannot assure you that:government officials charged with responsibility for enforcing those laws will not assert that our sales and marketingpractices or customer discount arrangements are in violation of those laws or r

313、egulations;or government regulators or courts will interpret those laws or regulations in a manner consistent with ourinterpretation.In January 2004,ADVAMED,the principal U.S.trade association for the medical device industry,put in place a model“code of conduct”that sets forth standards by which its

314、 members should abide in the promotion of their products.Wehave in place policies and procedures for compliance that we believe are at least as stringent as those set forth in theADVAMED Code,and we provide routine training to our sales and marketing personnel on our policies regarding salesand mark

315、eting practices.Nevertheless,we believe that the sales and marketing practices of our industry will be subjectto increased scrutiny from government agencies.22Our Private Label Business Depends Significantly On Key Relationships With Third Parties,Which We May BeUnable To Establish And Maintain.Our

316、private label business depends in part on our entering into and maintaining collaborative or alliance agreementswith third parties concerning product marketing,as well as research and development programs.Our most importantalliance is our agreement with the Wyeth BioPharma division of Wyeth for the

317、development of collagen matrices to beused in conjunction with Wyeth BioPharmas recombinant bone protein,a protein that stimulates the growth of bonein humans.Termination of any of our alliances would require us to develop other means to distribute the affected productsand could adversely affect our

318、 expectations for the growth of private label products.We May Have Significant Product Liability Exposure And Our Insurance May Not Cover All Potential Claims.We are exposed to product liability and other claims in the event that our technologies or products are alleged to havecaused harm.We may not

319、 be able to obtain insurance for the potential liability on acceptable terms with adequate coverageor at reasonable costs.Any potential product liability claims could exceed the amount of our insurance coverage or maybe excluded from coverage under the terms of the policy.Our insurance may not be re

320、newed at a cost and level of coveragecomparable to that then in effect.We Are Subject To Other Regulatory Requirements Relating To Occupational Health And Safety And The UseOf Hazardous Substances Which May Impose Significant Compliance Costs On Us.We are subject to regulation under federal and stat

321、e laws regarding occupational health and safety,laboratory practicesand the use,handling and disposal of toxic or hazardous substances.Our research,development and manufacturingprocesses involve the controlled use of certain hazardous materials.Although we believe that our safety procedures forhandl

322、ing and disposing of those materials comply with the standards prescribed by the applicable laws and regulations,the risk of accidental contamination or injury from these materials cannot be eliminated.In the event of such an accident,we could be held liable for any damages that result and any relat

323、ed liability could exceed the limits or fall outside thecoverage of our insurance and could exceed our resources.We may not be able to maintain insurance on acceptable termsor at all.We may incur significant costs to comply with environmental laws and regulations in the future.We may alsobe subject

324、to other present and possible future local,state,federal and foreign regulations.The Loss Of Key Personnel Could Harm Our Business.We believe our success depends on the contributions of a number of our key personnel,including Stuart M.Essig,ourPresident and Chief Executive Officer.If we lose the ser

325、vices of key personnel,those losses could materially harm ourbusiness.We maintain key person life insurance on Mr.Essig.ITEM 2.PROPERTIESOur principal executive offices are located in Plainsboro,New Jersey.Principal manufacturing and research facilitiesare located in Plainsboro,New Jersey,Cincinnati

326、,Ohio,San Diego,California,Anasco,Puerto Rico,Andover,England,Biot,France,Lyon,France,Mielkendorf,Germany and Tuttlingen,Germany.Our primary distribution centers are locatedin Sparkes,Nevada,Hawthorne,New York,Andover,England,Biot,France,Vilvoorde,Belgium and Lyon,France.Inaddition,we lease several

327、smaller facilities to support additional administrative,assembly,and distribution operations.We lease all of our facilities other than our facilities in Andover,England,Biot,France and Tuttlingen,Germany,whichwe own.All of our manufacturing and distribution facilities are registered with the FDA.Our

328、 facilities are subject to FDA inspectionto assure compliance with Quality System Regulations.We believe that our manufacturing facilities are in substantialcompliance with Quality System Regulations,suitable for their intended purposes and have capacities adequate for currentand projected needs for

329、 existing products.Some capacity of the plants is being converted,with any needed modification,to meet the current and projected requirements of existing and future products.23ITEM 3.LEGAL PROCEEDINGSIn July 1996,we filed a patent infringement lawsuit in the United States District Court for the Sout

330、hern District of California(the“Trial Court”)against Merck KGaA,a German corporation,Scripps Research Institute,a California nonprofitcorporation,and David A.Cheresh,Ph.D.,a research scientist with Scripps,seeking damages and injunctive relief.Thecomplaint charged,among other things,that the defenda

331、nt Merck KGaA willfully and deliberately induced,andcontinues willfully and deliberately to induce,defendants Scripps Research Institute and Dr.Cheresh to infringecertain of our patents.These patents are part of a group of patents granted to The Burnham Institute and licensed byus that are based on

332、the interaction between a family of cell surface proteins called integrins and the arginine-glycine-aspartic acid(“RGD”)peptide sequence found in many extracellular matrix proteins.The defendants filed a countersuitasking for an award of defendantsreasonable attorney fees.In March 2000,a jury return

333、ed a unanimous verdict in our favor and awarded us$15.0 million in damages,finding thatMerck KGaA had willfully infringed and induced the infringement of our patents.The Trial Court dismissed Scrippsand Dr.Cheresh from the case.In October 2000,the Trial Court entered judgment in our favor and against Merck KGaA in the case.In entering thejudgment,the Trial Court also granted to us pre-judgment int

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