INTRODUCTION

World Heart Corporation and its subsidiaries are collectively referred to as WorldHeart. The following Management Discussion and Analysis of Financial Condition and Results of Operations was prepared by management and discusses material changes in our financial condition and results of operations and cash flows for the years ended December 31, 2008, 2007 and 2006. Such discussion and comments on the liquidity and capital resources should be read in conjunction with the information contained in the accompanying audited consolidated financial statements prepared in accordance with U.S. GAAP. In this discussion, all amounts are in United States dollars (U.S. dollars) unless otherwise stated.

OVERVIEW

Our business is focused on the development and sale of ventricular assist devices ("VADs"), particularly our Levacor Rotary VAD (Levacor VAD or Levacor). VADs are mechanical assist devices that supplement the circulatory function of the heart by re-routing blood flow through a mechanical pump allowing for the restoration of normal blood circulation.

In the past, we derived most of our revenue from our Novacor LVAS and related peripheral equipment, which we sold, directly to medical clinics and hospitals in the United States, Europe and Canada and through a distributor in certain other countries. The legacy generation VAD, the Novacor LVAS, was commercially approved as a Bridge-to-Transplant device in the United States and Canada. In Europe, the Novacor LVAS had unrestricted approval for use as an alternative to transplantation, Bridge-to-Transplantation and to support patients who may be able to recover the use of their natural heart. In Japan, the device was commercially approved for use in cardiac patients at risk of imminent death from non-reversible left ventricular failure for which there was no alternative except heart transplantation.

In July 2005, we acquired the assets of MedQuest Products, Inc. (MedQuest) including a rotary VAD, now called the Levacor Rotary VAD. In conjunction with the acquisition, we raised approximately $22.7 million in gross financing proceeds from a private placement with Maverick Venture Management, LLC ("Maverick") and the exercise of certain warrants and also converted all of our remaining convertible debentures from an earlier financing. Pre-clinical testing of the Levacor VAD was accelerated after the acquisition, with successful initial human feasibility use in Europe in 2006.

In November 2006, we announced a restructuring plan, which included a reduction of commercial operations associated with the Novacor LVAS, and a refocusing of our resources on the development of the next generation product, particularly the Levacor Rotary VAD. After more than twenty years in

clinical use, the Novacor LVAS has reached the natural end of its life cycle and we have been focusing on the development of the Levacor Rotary VAD and on activities leading to the start of a US clinical trial with the Levacor Rotary VAD in the second half of 2009.

In July 2008, we completed a $30.0 million private placement transaction and recapitalization under the terms of the Recapitalization Agreement (the "Recapitalization Agreement") dated June 20, 2008 and amended on July 31, 2008, among the Corporation, our wholly owned subsidiary World Heart Inc. ("WHI"), Abiomed, Inc. ("Abiomed"), Venrock Partners V, L.P., Venrock Associates V, L.P. and Venrock Entrepreneurs Fund V, L.P. (collectively, "Venrock"), Special Situations Fund III QP, L.P., Special Situations Cayman Fund, L.P., Special Situations Private Equity Fund, L.P., Special Situations Life Sciences Fund, L.P. and Austin W. Marxe (collectively, "SSF") and New Leaf Ventures II, L.P. ("New Leaf"). Simultaneously with the closing of the recapitalization, Abiomed entered into a Termination and Release Letter Agreement with us and converted the full amount of principal and interest owed on the $5,000,000 8% Secured Convertible Promissory Note (the "Note") previously issued to Abiomed by us into 2,866,667 of our common shares (the "Conversion"), released the security interest in all of our assets that secured the Note, terminated the warrant Abiomed held to purchase 113,333 of our common shares, forgave other amounts we owed to Abiomed and terminated previously existing agreements, arrangements and understandings with us. The purchase price delivered by Venrock and SSF at the closing was offset by repayment of the principal and interest owed on the bridge loan facility (the "Bridge Loan") of $1,400,000 that Venrock and SSF had previously provided to us. As part of the recapitalization transaction, we issued warrants to purchase an aggregate of 83,333 common shares to our advisors, Pacific Growth Equities, LLC and Stifel, Nicolaus and Company (See Notes 9 and 10).

On August 21, 2008, we announced that we were embarking on a phased consolidation into a primary facility at our current location in Salt Lake City, Utah. Our focus is on the development, clinical trial and subsequent commercialization of the advanced rotary Levacor VAD as the first-generation Novacor LVAS reaches the natural end of its product life cycle. On August 22, 2008, we completed the first phase of our consolidation plan and eliminated five positions at our Oakland facility, including the position of Vice President of Manufacturing. On February 4, 2009, as part of our consolidation plan, we announced that we had appointed Salt Lake City based Mr. John Alexander Martin as our President and Chief Executive Officer. Mr. Jal S. Jassawalla, our former President and CEO, will continue to be based in Oakland, along with certain key employees in areas such as Research and Development, Clinical Affairs and Regulatory Affairs and will continue to serve the Corporation as Executive Vice President and Chief Technology Officer. Included in the consolidation plan is the appointment of a Chief Financial Officer to be based in Salt Lake City, the elimination of some positions in Oakland and the relocation of certain positions to Salt Lake City by approximately the fourth quarter of 2009.

Research and development by our competitors is proceeding on several rotary flow devices. Certain of these devices have received the CE mark in Europe and are advancing through clinical trials in the United States and Europe, and one device has just received U.S. marketing approval. We believe that our Levacor VAD is the most advanced fourth-generation rotary device under development.

Although the patient population for Destination Therapy, the implanting of a VAD to provide support for a patient not currently eligible for a heart transplant, continues to be largely untreated by cardiac assist devices, and the adoption rates have been slower than anticipated, we believe that the Destination Therapy market will evolve more rapidly when newer devices are evaluated clinically and as experience with next-generation VADs increases.

RESULTS OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 2008 COMPARED WITH THE YEAR ENDED DECEMBER 31, 2007

In thousands (000's)

                                                              Year Ended
                                                             December 31,
                                                           2008        2007
        Revenue                                          $   1,732   $   2,576
        Cost of goods sold                                    (992 )    (3,369 )

        Gross profit                                           740        (793 )

        Operating expenses
          Selling, general and administrative                4,752       6,337
          Research and development                           9,048       9,924
          Clinical and marketing support-non-cash            6,479       1,756
          Restructuring costs                                  131           -
          Amortization of intangibles                          191         191

               Total operating expenses                     20,601      18,208

        Operating loss                                     (19,861 )   (19,001 )
        Other (expense) income
          Debt inducement expense                           (3,914 )         -
          Unrealized foreign exchange gain (loss)               17         (38 )
          Investment and other income (loss)                   141         965
          Loss on disposal of property and equipment           (41 )        (5 )
          Interest expense                                  (1,659 )      (485 )

        Net loss applicable to common shareholders       $ (25,317 ) $ (18,564 )

Revenue. Historically, sales of Novacor LVAS implant kits and related peripheral equipment and services accounted for the majority of our revenue. In the current year, we generated a significant amount of revenue from sales of SPUS (Segmented Poly Urethane Solution), a solution used in the Novacor LVAS. The solution was sold to a medical device manufacturer for use in their products. The Corporation does not expect significant sales of SPUS to occur in the future. We primarily sell our products directly, except for a few countries where we sell through distributors.

The composition of revenue in thousands ($000's), except for units, is as follows:

                                                   Year Ended December 31,
                                           2008                               2007
                             Amount     % of Total     Units    Amount     % of Total     Units
 Novacor product revenues:
 Implant kits                $   318             19 %       5   $ 1,109             43 %      16
 Peripherals and other           629             36 %             1,137             44 %

                                 947             55 %             2,246             87 %
 SPUS revenues                   785             45 %               330             13 %

 Total revenue               $ 1,732            100 %           $ 2,576            100 %

Net revenue for the year ended December 31, 2008, decreased by $844,000, or 33%, compared with 2007. Implant kit revenue in 2008 decreased by $791,000, or 71%, compared with 2007. In 2008

the average price per kit was $64,000 compared with $69,000 in 2007. The overall revenue decrease is attributable to our November 2006 decision to reduce our commercial efforts on the Novacor and focus our resources on the development of our Levacor Rotary VAD. In 2007 and 2008, we made the Novacor LVAS available to medical centers only until our inventory was depleted, which occurred in mid-2008. We continue to support our Novacor patients but have discontinued the manufacture or sale of any additional Novacor Implant Kits.

Implant kits recognized as revenue in the year ended December 31, 2008 were five, compared with 16 in the year ended December 31, 2007. WorldHeart recognized revenue from five implant kits sold in the United States in 2008, compared with 12 implant kits in 2007. In Europe, Canada and the rest of the world, WorldHeart did not have any implant kit revenue in 2008, compared with revenue from four implant kits in 2007. The 2008 revenue decrease was the result of a decrease in the number of kits sold.

Peripherals and other revenues, including Novacor LVAS hardware and peripheral sales, services and other revenue for the year ended December 31, 2008, were $629,000, a decrease of 45%, compared with peripherals and other revenue of $1,137,000 recorded in the year ended December 31, 2007.

Revenues generated from sales of SPUS increased to $785,000 during the year ended December 31, 2008 or 138% compared to revenues of $330,000 during the year ended December 31, 2007.The revenue increase is attributed to the announced August, 2008 restructuring and planned relocation of our manufacturing activities to Salt Lake City as our sole customer of SPUS procured product in excess of requirements in the event that the relocation impacted our ability to supply product.

Cost of goods sold. For the year ended December 31, 2008, cost of goods sold was $992,197 resulting in a gross profit of $739,946 or 43% of revenues. Cost of goods sold during 2008 included charges of $218,000 for additional write-downs of Novacor inventory. At December 31, 2008 all remaining Novacor inventory was fully reserved and net inventory on the balance sheet was zero. For the year ended December 31, 2007, the cost of goods sold was 131% of revenue. Cost of goods sold during 2007 included a write-down of excess Novacor inventories over forecasted demand in the amount of $1,426,000.

Selling, general and administrative. Selling, general and administrative expenses consist primarily of payroll and related expenses for executives, sales, marketing, accounting and administrative personnel. Selling expenses primarily relate to enrollment of new centers in the anticipated Levacor clinical trials, field support of existing Novacor patients and marketing/trade show costs. Our other administrative expenses include professional fees, communication expenses, insurance premiums, public reporting costs and general corporate expenses.

The composition of selling, general and administrative expenses in thousands ($000's) is as follows:

                                                     Year Ended
                                                    December 31,
                                                   2008      2007
                   Selling                        $   979   $ 1,122
                   General and administrative       3,773     5,215

                            Total                 $ 4,752   $ 6,337

Selling expenses for the year ended December 31, 2008 decreased $143,000 or 13% compared with the same period in 2007. The decrease is attributable to our November 2006 restructuring, which eliminated most of our sales force by the second quarter of 2007, as well as reduced personnel costs in Europe. For the years ended December 31, 2008 and 2007, we recorded $26,000 and $3,000 of stock

based compensation, respectively, as selling expenses. Selling expenses are expected to increase in 2009 as we begin to market and distribute our next generation Levacor product.

General and administrative expenses for the year ended December 31, 2008 decreased $1,442,000 or 28% versus the same period in 2007. The decrease is attributable to non-recurring charges of $61,000 incurred in 2007 for site restoration of one of the two Oakland headquarters buildings previously occupied under a lease which expired in April 2007, cost savings of approximately $30,000 realized from consolidation of our Oakland facilities in late 2007, and non-recurring legal fees of $180,000 incurred in 2007 related to the Abiomed Note. In addition, general corporate legal fees decreased $207,000 as our former corporate counsel resigned in mid-2008 due to the cash constraints experienced prior to our recapitalization in July 2008. Additional savings were recognized through reduced personnel costs associated with the phased-in restructuring announced in August which commenced in September 2008 and overall curtailed spending attributable to our cash position during the first half of 2008. For the years ended December 31, 2008 and 2007 we recorded $193,000 and $358,000 of stock based compensation, respectively, as general and administrative expenses. General and administrative expenses are expected to remain at current levels in 2009.

Research and development. Research and development expenses consist principally of salaries and related expenses for research personnel, prototype manufacturing, testing, clinical trial, material purchases and regulatory affairs incurred at our Oakland and Salt Lake City facilities.

Research and development expenses for the year ended December 31, 2008 decreased by $876,000 or 9%, compared with the year ended December 31, 2007. The decrease is primarily attributable to non-recurring charges of $404,000 incurred in 2007 for site restoration of one of the two Oakland headquarters buildings previously occupied under a lease which expired in April, 2007, cost savings of approximately $351,000 realized from consolidation of our Oakland facilities in late 2007, significantly large costs incurred in late 2007 for development and prototype build of the Levacor Rotary VAD, and curtailed spending due to the cash constraints experienced in the first half of 2008. This was offset in part by a non-recurring charge of $230,000 related to the R&D purchased technology from LaunchPoint in the third quarter of 2008 (See Note 16) and the impact of a full year's rent on the additional Salt Lake City space leased October 1, 2007. For the years ended December 31, 2008 and 2007, we recorded $103,000 and $169,000 of stock based compensation, respectively, as research and development expenses. Development work and other related expenses on our next-generation Levacor Rotary VAD are expected to increase in 2009 as we ramp up the development of the Levacor Rotary VAD and prepare for our clinical trials, at the same time focusing some of our resources towards development of the PediaFlow.

Clinical and marketing support. On December 11, 2007, we issued a 5-year warrant to Abiomed to purchase up to 113,333 of our common shares, exercisable at $0.30 per share as compensation for clinical and marketing support services. Upon issuance, approximately 20% of the warrant was immediately exercisable and the remaining 80% become exercisable in January 2008. In December 2007 and January 2008 we recorded a non-cash clinical marketing and support services expense of $1.8 million and $6.5 million related to the fair value of the warrant issued. There was no such charge recorded in 2006. (See Note 9).

Restructuring costs. In December 2008, we accounted for our restructuring expense in accordance with SFAS No. 146, "Accounting for Costs Associated with Exit or Disposal Activities" ("SFAS 146"). SFAS 146 specifies that a liability for a cost associated with an exit or disposal activity be recognized when the liability is incurred, except for a liability where employees are required to render service until they are terminated in order to receive termination benefits and will be retained to render service beyond the minimum retention period. A liability for such one-time termination benefits shall be measured initially at the communication date based on the fair value of the liability as of the termination date and recognized ratably over the future service period. In 2008, we recorded

restructuring expense of $131,000 which was primarily attributable to one-time termination benefits relating to workforce reduction. $66,000 of the $131,000 is fully paid and consists mostly of severance and retention payments to employees whose positions have been eliminated as part of the phased consolidation. The balance of $65,000 represents accrued restructuring costs for employees whose positions will be eliminated over time. The total accrual for this one-time termination benefit is $165,000, spread over their service periods through approximately the fourth quarter in 2009. There was no such charge in 2007. (See Note 13).

Amortization of intangibles. For the years ended December 31, 2008 and December 31, 2007, amortization of intangibles was $191,000 for both periods. Amortization expense is related to the $766,000 value assigned to the MedQuest workforce acquired in July 2005 and is being amortized over a four-year period.

Debt Inducement Expense. During the year ended 2008, we recorded a non-cash expense of $3.9 million associated with the beneficial conversion rights of the induced conversion of the Abiomed Note and termination of previously existing agreements and warrants. There was no such charge recorded for the year ended 2007.

Foreign exchange. During the year ended December 31, 2008, a foreign exchange gain of approximately $18,000 was recorded compared to a foreign exchange loss of approximately $38,000 for the year ended December 31, 2007. The change in foreign exchange in 2008, compared with the previous year, related primarily to fluctuations in the relative value of the U.S. dollar compared with the Euro and the Canadian dollar. We expect continued fluctuations of foreign exchange gains and losses in 2009.

Investment and other income. Investment and other income were $142,000 and $965,000 for 2008 and 2007, respectively. For 2008, investment income of $152,000 resulted from interest earned on our invested cash and $7,000 resulted from utilities deposit refunds. This was offset by $17,000 of early payment discounts granted our customers. For 2007, investment income from interest earned on invested cash was $350,000 and other income was $615,000 which consisted primarily of $425,000 in deferred revenue taken into income and $190,000 from a reduction of a reserve. Although average daily balances of invested cash were greater in 2008, earnings were lower due to the significant decline in interest rates in 2008. We anticipate our investment income may decrease in 2009 resulting from a decrease in average daily cash balances as cash is used for operations, combined with declining interest rates in this weak and uncertain global economy.

Loss on disposal of assets. During the years ended December 31, 2008 and 2007, losses of $41,000 and $121,000 on dispositions and write-downs of assets were recorded, respectively.

Interest expense. For the year ended December 31, 2008 interest expense was $1,659,000 compared with $485,000 for the year ended December 31, 2007. $1,466,000 in interest expense for the year ended 2008 was related to the fair value of the beneficial conversion feature of the $4.0 million second tranche of the Abiomed Note, eventually converted to common shares in July 2008, and $10,000 was interest expense related to the $1,400,000 bridge loan provided by Venrock and Special Situation Funds. Interest expense in 2007 of $485,000 consisted primarily of the fair value of the beneficial conversion feature of the $1 million Abiomed Note in 2007.

RESULTS OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 2007 COMPARED WITH THE
YEAR ENDED DECEMBER 31, 2006

(In thousands (000's)

                                                              Year Ended
                                                             December 31,
                                                           2007        2006
        Revenue                                          $   2,576   $   8,616
        Cost of goods sold                                  (3,369 )   (10,201 )

        Gross profit                                          (793 )    (1,585 )
        Operating expenses
          Selling, general and administrative                6,337       8,664
          Research and development                           9,924       9,002
          Clinical and marketing support-non-cash            1,756           -
          Restructuring costs                                    -         646
          Amortization of intangibles                          191         192

               Total operating expenses                     18,208      18,504

        Operating loss before the undernoted               (19,001 )   (20,089 )
        Other income (expense)
          Unrealized foreign exchange gain (loss)              (38 )        55
          Investment and other income (loss)                   965         192
          Loss on disposal of property and equipment            (5 )      (248 )
          Interest expense                                    (485 )         5

        Net loss applicable to common shareholders       $ (18,564 ) $ (20,085 )

Revenue. The sale of Novacor LVAS implant kits and related peripheral equipment and services accounted for substantially all of WorldHeart's revenues. WorldHeart primarily sells its products directly, except for a few countries where we sell through distributors.

The composition of revenue in thousands ($000's), except for units, is as follows:

                                                   Year Ended December 31,
                                           2007                               2006
                             Amount     % of Total     Units    Amount     % of Total     Units
 Novacor product revenues:
 Implant kits                $ 1,109             43 %      16   $ 5,148             60 %      74
 Peripherals and other         1,137             44 %             3,252             37 %

                               2,246             87 %             8,400             97 %
 SPUS revenues                   330             13 %               216              3 %

 Total revenue               $ 2,576            100 %           $ 8,616            100 %

Net revenue for the year ended December 31, 2007, decreased by $6.0 million, or 70%, compared with 2006. Implant kit revenue in 2007 decreased by $4.0 million, or 78%, compared with 2006. During 2007 and 2006, the average price per kit was approximately $69,000. In the fourth quarter of 2007, net revenue of $0.3 million was significantly below net revenue of $1.0 million in the fourth quarter of 2006. The overall reduction in revenue is due to the Corporation's decision in late 2006 to move towards the next generation of product, the Levacor Rotary VAD, and phase out the existing technology, Novacor.

Novacor peripherals and other revenues, including LVAS hardware and peripheral sales, services and other revenue for the year ended December 31, 2007, were $1.1 million, a decrease of 65%, compared with peripherals and other revenue of $3.3 million recorded in the year ended December 31, 2006.

SPUS revenues increased to $330,000 or 53% for the year ended December 31, 2007 compared to revenues of $216,000 for the year ended December 31, 2006.

Implant kits recognized as revenue in the year ended December 31, 2007, were 16, compared with 74 in the year ended December 31, 2006. WorldHeart recognized revenue on 12 implant kits in the United States in 2007, compared with 45 implant kits in 2006. In Europe, Canada and the rest-of-world, WorldHeart recognized revenue on four implant kits in 2007, compared with 29 in 2006.

At December 31, 2007, we had zero balance in deferred Novacor kit and peripherals revenue, as compared with $0.1 million in deferred revenue at December 31, 2006

Cost of goods sold. For the years ended December 31, 2007 and December 31, 2006, the cost of goods sold exceeded revenue (131% and 118% as a percentage of revenue, respectively). The cost of goods sold for the year ended December 31, 2007 and December 31, 2006, include write-offs totaling $1.4 million and $4.6 million, respectively, related to redundant Novacor inventories, slightly offset by a decrease in warranty provision of $0.1 million in 2007.

Selling, general and administrative. Selling, general and administrative expenses consist primarily of payroll and related expenses for executives, . . .