The following discussion of our financial condition and results of operations should be read in conjunction with our condensed consolidated financial statements and related notes thereto. This discussion contains forward-looking statements, including references to 2009 revenues and gross margins, increased product adoption, product improvements, expanded sales force and other forecasted items that involve risks and uncertainties such as our limited operating and sales history; the uncertainty of market acceptance of our product; dependence on obtaining and maintaining reimbursement; effectiveness and safety of our product over the long-term; our ability to obtain and maintain the necessary governmental clearances or approvals to market our product; our ability to develop and maintain proprietary aspects of our technology; our ability to manage our expansion; our limited history of manufacturing our product; our dependence on single source suppliers, third party manufacturers and co-marketers; intense competition in the medical device industry and in the contraception market; the inherent risk of exposure to product liability claims and product recalls and other factors referenced in this Form 10-Q. Our actual results could differ materially from those expressed or implied in these forward-looking statements as a result of various factors, including those discussed in our Annual Report on Form 10-K for the year ended December 31, 2008 filed with the Securities and Exchange Commission on March 13, 2009 and those included elsewhere in this Form 10-Q.

Overview

We develop, manufacture and market the EssureŽ permanent birth control system, an innovative and proprietary medical device for women that was approved for marketing in the United States in November 2002 by the U.S. Food and Drug Administration, or FDA. The Essure system uses a soft and flexible micro-insert that is delivered into a woman's fallopian tubes to provide permanent birth control by causing a benign tissue in-growth that blocks the fallopian tubes. A successfully placed Essuremicro-insert and the subsequent tissue growth prohibits the egg from traveling through the fallopian tubes and therefore prevents fertilization. The effectiveness rate of the Essuresystem is 99.80% after four years of follow-up.

On January 7, 2008, we acquired all of the outstanding shares of Conceptus SAS, which markets Essure directly in France and utilizes distributors to market Essure in other European markets. As a result of this transaction, Conceptus SAS became our wholly-owned subsidiary. We believe the acquisition of Conceptus SAS expands our presence in international markets and will increase our revenues as we will recognize sales at end user pricing as compared to the price at which we previously sold the Essureproduct directly to Conceptus SAS. Our consolidated financial statements include the financial results of Conceptus SAS beginning from the acquisition date of January 7, 2008. Consolidated net sales for the three months ended March 31, 2009 were $27.2 million of which 78% were generated in the United States. For financial information about geographic areas and for segment information with respect to net sales, refer to the information set forth in Note 14 to our condensed consolidated financial statements.

We were incorporated in the state of Delaware on September 18, 1992. We maintain three websites located at www.conceptus.com, www.essuremd.com and www.essure.com. We make available free of charge on or through our www.conceptus.com website, our annual report on Form 10-K, our quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act as soon as reasonably practicable after we electronically file or furnish such material to the Securities and Exchange Commission (SEC).

The Essure Procedure

The Essure procedure is typically performed in the office setting and is intended to be a less invasive and a less costly solution to tubal ligation, the leading form of permanent birth control in the United States and worldwide. Laparoscopic tubal ligation and tubal ligation by laparotomy typically involve abdominal incisions and/or punctures, general or regional anesthesia, four to ten days of normal recovery time and the risks associated with an incisional procedure. TheEssure procedure does not require cutting or penetrating the abdomen, which lowers the likelihood of post-operative pain due to the incisions/punctures, and it can be performed in an outpatient setting. Currently, the majority of the Essureprocedures are performed using conscious sedation, such as IV sedation with a local anesthesia. General anesthesia is not typically used unless required by hospital protocol, if requested by the patient, or based on the experience and comfort level of the physician. In the Pivotal trial of the Essuresystem, the average hysteroscopic procedure time was 13 minutes. A patient is typically discharged approximately 45 minutes after the Essure procedure. No overnight hospital stay is required. Furthermore, the Essuresystem is effective without drugs or hormones. There is a three-month waiting period after the procedure during which the woman must use another form of birth control while tissue in-growth occurs. At 90 days following the procedure, U.S. patients complete a confirmation test called a hysterosalpingogram, or HSG, which can determine whether the device was placed successfully and whether the fallopian tubes are occluded. Outside of the United States, patients are required to return for a pelvic X-ray at three months post-procedure with a subsequent HSG if device location on the initial radiographic image appears suspicious.

We believe that the Essure system is a better alternative to tubal ligation for physicians, hospitals and payers. The Essure system is a less invasive permanent birth control option for physicians to offer to their patients; hospitals are able to utilize their facilities more cost effectively with the Essureprocedure compared with tubal ligation; and payers are able to experience cost reductions resulting from the elimination of overhead and procedural costs related to anesthesia and post-operative hospital stays associated with tubal ligations. In addition, we believe the Essure procedure is superior to other non-tubal ligation permanent contraception alternatives because, unlike other device designs, the Essure procedure does not involve the use of radio frequency (RF) energy, which subjects the patient to risks of thermal injury, bowel injury and dilutional hyponatremia. Published reports estimate that approximately 700,000 tubal ligation procedures are performed each year in the United States. We intend to capture the majority share of this market and establish the Essureprocedure as the gold standard for permanent birth control. We also believe the Essuresystem is a solution for women whose family is complete but are using temporary methods of birth control. In addition, payers may also benefit from the reduction of unplanned pregnancies associated with non-permanent birth control methods used by patients who have chosen to avoid the drawbacks of traditional permanent birth control methods but who may otherwise elect to use the Essure system.

Effectiveness of the Essure System

In July 2005, we received approval from the FDA to extend effectiveness data on the Essure product labeling. The Premarket Approval, or PMA, supplement filed in late January 2005 supports an extension of the effectiveness rate of the Essure system to 99.80% after four years and 99.74% after five years, from the previously approved 99.80% at three years. The five-year effectiveness was demonstrated in a small portion of clinical trial subjects who had completed five year follow up at the time of the FDA submission. Five year follow up of all patients in clinical trials is currently complete. A PMA supplement to update the product labeling incorporating the results of the follow-up data will be submitted to the FDA.

In September 2005, we received approval from the FDA to terminate our post-approval study with physicians who were newly trained in performing the Essure procedure due to the positive placement data obtained. The purpose of the post-approval study, required by the FDA as a condition of the November 2002 approval of the Essure system, was to determine the rate of successful bilateral placements of the Essure micro-inserts at first attempt with a large number of newly trained physicians who were not part of the previous clinical studies. Although treatment of the total number of patients required by the FDA had not been completed, the data obtained to date provided us with the opportunity to request that the FDA permit an early termination of the study. Because of the FDA ruling, the PMA Supplement submitted in March 2005 has been re-classified as a Final Report. The results of the post-approval study demonstrated an improvement in placement rates from those obtained in the pivotal study. In November 2005, we filed a PMA supplement with the FDA in order to obtain approval to modify the Essure Physician and Patient labeling to reflect a 94.6% first procedure bilateral placement rate based on results of the post-approval study. In October 2006, we received such approval from the FDA. In March 2006, we filed a PMA supplement with the FDA in order to obtain approval for a modified delivery system and micro-insert, and new valved introducer. We received such approval from the FDA in June 2007. A post-approval study has been conducted to investigate the bilateral placement rate at first attempt for the modified delivery system and micro-insert. In March 2009, we received approval from the FDA to terminate our post-approval study with physicians who were newly trained in performing the Essure procedure due to the positive placement data obtained. A PMA supplement to update the product labeling incorporating the results of the post-approval study will be submitted to the FDA.

Physician Penetration

We require physicians to be preceptored for between 3 and 5 cases by a certified trainer before being able to perform the procedure independently. We continue to see an increase in the number of physicians becoming trained or who are in the process of training to perform the Essureprocedure. The level of sales for the Essuresystem, particularly in this early period of adoption, is highly dependent on the number of physicians trained to perform the procedure. However, we understand that a strong base of trained physicians does not necessarily correlate to an increase in revenue proportionately. Furthermore, there are no revenues associated with the training activities. We do not charge a fee for the activity and no commitment arises for the physician from the preceptorship. Physician training is provided upfront and we have no obligation subsequent to the initial training. Training costs have not been significant from inception to-date.

Reimbursement of the Essure Procedure

Market acceptance of the Essure system depends in part upon the availability of reimbursement within prevailing healthcare payment systems. We believe that physician advocacy of our product will be required to continue to obtain reimbursement. As of March 31, 2009, we have received positive reimbursement decisions for the Essure procedure from most private insurers and from 46 of the 51 Medicaid programs in the United States. We continue to receive positive responses relating to reimbursement, which we believe will help increase the adoption of the Essure device by doctors and patients. We intend to continue our effort to educate payers of the cost-effectiveness of our product and to establish further programs to help physicians to navigate reimbursement issues. As with all healthcare plans, coverage will vary and is dependent upon the individual's specific benefit plan.

Effective January 1, 2009, the Centers for Medicare and Medicaid Service (CMS), the Medicare Physician Fee Schedule national average payment for hysteroscopic sterilization (CPT code) is $427 when performed in a hospital (facility) and $1,862 (non-facility) when performed in a physician's office. In addition, in the CMS Final Rule for the 2009 Outpatient Prospective Payment System, or OPPS, which assigns hospital outpatient reimbursement amounts, CPT 58565 maps to APC 202 which is assigned a Medicare National Average of $2,888, which under Medicare includes the cost of the implant. In 2009, the Medicare national average payment for hysteroscopic sterilization in the ambulatory surgery center is $1,535, which includes the cost of the implant. We believe these values are very favorable for the Essure procedure and will help in establishing increased utilization of the device amongst doctors.

Effective May 15, 2008, California's state fee-for-service Medicaid program announced coverage of the Essureprocedure for beneficiaries that are 21 years of age or older. Physicians may perform the Essure procedure in the physician's office, the ambulatory surgery center or the hospital outpatient department. Medi-Cal is to pay $2,282 as a global fee for an in-office procedure. We believe these values are very favorable for the Essure procedure and will continue be advantageous in establishing increased utilization for devices amongst doctors.

Reimbursement systems vary significantly by country and sometimes by region, and reimbursement approvals must be obtained on a country-by-country basis. Many international markets have government-managed healthcare systems that determine reimbursement for new devices and procedures. In most markets, there are private insurance systems as well as government-managed systems.

During the last several years, we received several positive responses from government and private agencies relating to reimbursement, which we believe will help us to speed up the acceptance of the Essure procedure by doctors and patients. In Europe, we are developing a strategic plan to obtain reimbursement in a number of European countries. In France, we obtained official reimbursement under certain conditions for the Essure device in February 2005 for the term of two years with the Haute Autorité de Santé, or HAS. This conditional approval required the procedure to be reserved for patients who had a potential laparoscopic risk. In addition, it required a follow up to demonstrate the safety of the Essuredevice, for which we conducted a multicenter study. As a result of these studies, the "Haute Autorité de Santé" lifted all the restrictions in October 2007, thereby putting the Essureprocedure on an equal footing with tubal ligations. Following this decision, the Essure procedure is covered in France for all women, regardless of medical status. In addition, the CEPS in France ruled in November 2007 that the reimbursement for the Essure device will remain at the then current levels of 663 Euros for the next five years.

Adoption of the Essure System

We believe the Essure system to be the gold standard in permanent birth control because of its unparalleled effectiveness, safety, and low cost. The Essuresystem is becoming increasingly well established among physicians and patients and is routinely taught to new physicians in residency programs. As a result, we believe that recommendations and endorsements by physicians that are essential for market acceptance of our product will continue to grow. Physicians are traditionally slow to adopt new products and treatment practices, partly because of perceived liability risks. Our biggest challenge is to accelerate the adoption process to make the Essure procedure the standard of care for permanent birth control. The following discussion summarizes our programs to increase adoption of the Essure procedure.

First, we will continue to drive office-based procedures. The Essure procedure can be easily performed in the office, which is the most comfortable and convenient setting for the patient and the place where the physician is most productive from economic and logistical perspectives. The physician's office is also the lowest cost site of service for the payer and the patient and the setting where utilization rates can grow the fastest.

Second, we expect to spend approximately $13 million in 2009 on further building patient awareness. We believe that once patients are made aware of the benefits of the Essure procedure, they will no longer look to other methods of birth control currently available. In 2009, we intend to broaden our consumer-awareness campaign to include 15% of the U.S. population. All of our awareness initiatives are also aimed at enabling us to compete for a larger share of the 7.5 million U.S. families who have completed their families but rely on temporary forms of birth control with lower efficacy.

Third, we will continue to expand our business in targeted international markets. We established a direct sales presence in the United Kingdom in December 2008 and in early 2009, we received approval for the Essureprocedure from the Brazilian National Health Service. We also plan to hire additional distributors during the year. Surgical tubal ligation is the primary form of permanent birth control worldwide, and thus we believe that the Essure system addresses a global clinical need.

Last, with the prospect of new competition in this large market, we are committed to continuing to improve the Essure device. In 2009, we plan to make an FDA submission for marketing approval of our fourth-generation Essuredevice, which is designed to further reduce the already rapid procedure time and improve the precision of device deployment. We are also working on our fifth-generation Essuredevice, which will be designed to once again set a new standard in hysteroscopic sterilization.

We have experienced significant operating losses since inception and, as of March 31, 2009, had an accumulated deficit of $246.6 million. Although we were profitable in the third and fourth quarters of 2008, we experienced a net loss in the first quarter of 2009 and there is a risk that we may not sustain profitability. We will continue to expend substantial resources in the selling and marketing of the Essure system in the United States and abroad. We will be in a net loss position unless sufficient revenues can be generated to offset expenses.

       Results of Operations - Three Months Ended March 31, 2009 and 2008

                       (in thousands, except percentages)



                                                    Three Months Ended March 31,
                                                                                           2009-
                                                                                            2008
                                          2009               2008 (As Adjusted) (1)          %
                                   Amount       % (a)          Amount          % (a)       Change
Net sales                         $  27,151        100 %   $       21,127          100 %        29 %
Gross profit                         21,395         79 %           15,682           74 %        36 %
Research and development
expenses                              1,407          5 %            1,931            9 %       -27 %
Selling, general and
administrative expenses              22,570         83 %           20,102           95 %        12 %
Net loss                             (4,335 )      -16 %           (7,309 )        -35 %       -41 %

(a) Expressed as a percentage of total net sales.

Net Sales

Net sales were $27.2 million for the three months ended March 31, 2009 as compared to $21.1 million for the three months ended March 31, 2008, representing an increase of approximately $6.1 million or 29%. The increase is the result of continued commercialization and marketing of theEssure system worldwide and reflects the increasing numbers of physicians entering and completing training in the use of the procedure.

International sales comprised 22% of our total net sales in the three months ended March 31, 2009. International sales increased 26% compared to the three months ended March 31, 2008. The net sales increase also reflects a domestic revenue increase of 29% in the three months ended March 31, 2009 as compared to the similar period in 2008.

Net sales by geographic region, based on shipping location of our customer, are as follows (in thousands, except percentages):

                              Three Months Ended March 31,
                                2009               2008
Net sales (in thousands)   $        27,151    $        21,127

United States of America                78 %               78 %
France                                  15 %               14 %
Rest of Europe                           7 %                8 %
Other                                  < 1 %              < 1 %

No customer accounted for more than 10% of total revenue for the three months ended March 31, 2009 and 2008. No customer had a balance in excess of 10% of our net accounts receivable at March 31, 2009.

We expect our net sales for 2009 to be in the range of approximately $125.0 million to $135.0 million, which would represent 23% to 32% growth from net sales in 2008 as we continue to increase the number of physicians performing the Essure procedure. We will also continue our programs aimed at raising patient awareness of the Essure procedure, such as radio, print and television advertising. We believe our revenue growth in 2009 and beyond will be significantly influenced by how successful we are in achieving our patient awareness objectives and physicians entering and completing training. However, as we have noted elsewhere in this Form 10-Q and risk factors from our Form 10-K, our expected revenue growth involves many risk factors, some of which are not entirely within our control, such as market acceptance of the Essure system and third party reimbursement for the device.

Gross Profit

Cost of goods sold for the three months ended March 31, 2009 was $5.8 million as compared to $5.4 million for the three months ended March 31, 2008, this represents an increase of $0.4 million, or 6%. Gross margin for the three months ended March 31, 2009 was 79% as compared to 74% for the comparable period in 2008. The quarter-over-quarter increase in gross margin is related to lower manufacturing costs associated with higher unit volume and a domestic price increase implemented during the first quarter of 2009. Our gross profit margin will vary as our sales mix changes. Increases in sales of our devices through distributors in international markets will tend to decrease our overall gross profit margin.

Research and Development Expenses

Research and development expenses, which include expenditures related to product development, clinical research and regulatory affairs, were $1.4 million and $1.9 million for the three months ended March 31, 2009 and 2008, respectively, which represents a decrease of $0.5 million, or 27%. The primary reason for the decrease is due to decreased payroll and payroll related expenditures of $0.1 million, consulting and outside services of $0.3 million and clinical trials of $0.2 million, offset by an increase to project prototypes of $0.1 million.

Research and development expenses reflect clinical expenditures and product development, which are substantially related to the ongoing development and associated regulatory approvals of our technology. Our goal is to continue our product enhancements over the coming years, which are intended to result in improved ease of use and clinical performance. We expect to identify and hire additional research and development personnel in the future to staff our planned research and development activities, and we expect that these costs will increase as we seek to maintain our leading position in the market for permanent female birth control.

Selling, General and Administrative Expenses

Selling, general and administrative spending for the three months ended March 31, 2009 was $22.6 million as compared to $20.1 million for the three months ended March 31, 2008, which represents an increase of $2.5 million, or 12%. The increase is primarily due to the following: an increase of $1.0 million due to expansion of our U.S. field sales force and increased domestic advertising expenditures of $0.8 million primarily for our consumer-awareness campaign. This campaign involves television, radio and print media and is intended to drive patient awareness of the Essure procedure. In addition, fees related to consulting services, depreciation and expensed inventory increased by $1.0 million; offset by a decrease in stock compensation and training expenses of $0.3 million. We expect selling, general and administrative expenses to increase in the second quarter of 2009 as we expect to hire additional sales professionals and to continue our consumer-awareness campaign in targeted markets.

Total interest income and expenses and other expenses, net

Total interest income and expenses and other expenses, net for the three months ended March 31, 2009 was a net expense of $1.6 million as compared to a net expense of $1.0 million for the three months ended March 31, 2008, which represents an increase of $0.6 million or 68%. Interest income in the three months ended March 31, 2009 was lower by $0.5 million compared with the three months ended March 31, 2008. Interest income was negatively impacted due to lower interest rates on the Company's investment portfolio, which consists of auction rate securities and money market accounts that are currently earning lower interest rates compared to 2008.

In May 2008, the FASP issued FSP APB 14-1, Accounting for Convertible Debt Instruments That May Be Settled in Cash upon Conversion (Including Partial Cash Settlement), or FSP APB 14-1, which clarifies the accounting for convertible debt instruments that may be settled in cash upon conversion, including partial cash settlement. FSP APB 14-1 specifies that an issuer of such instruments should separately account for the liability and equity components of the instruments in a manner that reflect the issuer's non-convertible debt borrowing rate which interest costs are recognized in subsequent periods. FSP APB 14-1 is effective for fiscal years beginning after December 15, 2008, and retrospective application is required for all periods presented. We have adopted FSP APB 14-1 with our first quarter of fiscal 2009 which resulted in an increase of interest expense of $1.0 million and $0.9 million for each of the three months ended March 31, 2009 and 2008. See Note 9 - Convertible Senior Notes.

Provision for income taxes

In accordance with SFAS No. 109, Accounting for Income Taxes, the provision for income taxes is computed using the asset and liability method, under which deferred tax assets and liabilities are recognized for the expected future tax consequences of temporary differences between the financial reporting and tax bases of assets and liabilities, and for operating losses and tax credit carryforwards. Deferred tax assets and liabilities are measured using the . . .