The following discussion and analysis should be read in conjunction with our Condensed Consolidated Financial Statements and the related notes included in this report and our audited consolidated financial statements and the related notes contained in our Annual Report on Form 10-K for the fiscal year ended June 30, 2008 (fiscal 2008), as filed with the Securities and Exchange Commission. As used herein, the terms "the Company," "we," "us" and "our" refer to Kensey Nash Corporation and its consolidated subsidiaries, collectively.

This discussion and analysis below contains forward-looking statements relating to future events or our future financial performance. These statements are only predictions and actual events or results may differ materially. In evaluating such statements, you should carefully consider the various factors identified in this report which could cause actual results to differ materially from those expressed in, or implied by, any forward-looking statements, including those set forth under the heading "CAUTIONARY NOTE REGARDING FORWARD LOOKING STATEMENTS"
at the end of this Item 2 in this Quarterly Report on Form 10-Q.

OVERVIEW

Kensey Nash Corporation is a medical device company known for innovative product development and unique technology in the fields of resorbable biomaterials and endovascular devices used in a wide variety of medical procedures. We provide an extensive range of products into multiple medical markets, primarily in the cardiovascular markets and the orthopaedic markets of sports medicine, spine and extremities. Most of the products are based on our significant expertise in the design, development, manufacturing and processing of resorbable biomaterials. We sell our products through strategic partners and do not sell direct to the end-user. We have also developed and commercialized a series of innovative endovascular products and completed the sale of these product lines to The Spectranetics Corporation (Spectranetics) in May 2008. Although we sold this portfolio of products to Spectranetics, we still participate directly in the future success of these products through a Manufacturing and Licensing Agreement and a Development and Regulatory Services Agreement, which were entered into in connection with the sale transaction (see below for additional discussion). Our revenues consist of two components: net sales, which includes biomaterials sales and endovascular sales, and royalty income.

Net Sales

Biomaterials Sales

As pioneers in the field of resorbable biomaterials, we have developed significant expertise in the design, development, manufacture and processing of resorbable biomaterials for medical applications. Our biomaterials products, specifically polymer and collagen based products, are components of, in most cases, finished goods sold by numerous other companies pursuant to contractual arrangements. We sell our biomaterials products to over 30 companies that sell them into the end-user marketplace. Our largest biomaterials customers include St. Jude Medical, to which we supply Angio-Seal™ Vascular Closure Device (Angio-Seal device) components; Arthrex, Inc., to which we supply a broad range of sports medicine and trauma products; and Orthovita, Inc., to which we supply products for use in repair of the spine and orthopaedic trauma injuries. We also supply biomaterials products and development expertise to other orthopaedic companies, including Medtronic, Inc., Zimmer, Inc., Biomet Sports Medicine, Inc., Johnson & Johnson, Inc. and its subsidiaries, Stryker Corporation and BioMimetic Therapeutics, Inc. We plan to continue to expand relationships with these and other companies targeting new markets, including general, pelvic and urological surgery.

Although a majority of our biomaterials sales are currently concentrated among a few strategic customers, the number of customers has been increasing over the last several years. The relationships with these customers and partners are generally long-term and contractual in nature, with contracts specifying development and regulatory responsibilities, the specifications of the product to be supplied, and pricing. We often work with customers and potential customers at very early stages of feasibility and provide significant input into co-development types of programs. Once a product is approved for sale, we generally provide our customers fully packaged and sterilized products ready for their further distribution or, as in the case with Angio-Seal components, provide a bioresorbable product that is ready to be incorporated into a finished device. Our products often represent a key strategic source for these customers and partners. In many cases, our proprietary technology is incorporated into the product and cannot be replicated by other companies.

The sale of Angio-Seal components to St. Jude Medical and sales of biomaterials orthopaedic products, including products with applications in sports medicine and the spine, continue to be our primary source of revenue. The table below shows the trends in our Angio-Seal component and orthopaedic product sales for the nine months ended March 31, 2009 and March 31, 2008, by presenting such sales as a percentage of our total biomaterials sales:

                                   Nine months          % of           Nine months          % of           % Change Prior
                                      ended         Biomaterials          ended         Biomaterials         Period to
Net Sales of                         3/31/09           Sales             3/31/08           Sales           Current Period
Orthopaedic Products               $ 22,808,142               59 %     $ 21,051,365               61 %                  8 %
Angio-Seal Components                13,766,063               36 %       11,470,919               34 %                 20 %
Other Products                        2,142,967                5 %        1,685,749                5 %                 27 %

Total Net Sales - Biomaterials     $ 38,717,172              100 %     $ 34,208,033              100 %                 13 %

Our orthopaedic product sales increased 8% in the nine months of fiscal 2009 over the comparable prior fiscal year nine month period. This was due to an increase in sales of our current product lines, specifically in our sports medicine product portfolio, in part due to an increase in our customer base, and sales from our new product lines for our current customers. We expect sales of our orthopaedic products to increase in fiscal 2009 as compared to fiscal 2008 primarily due to strong sports medicine sales to Arthrex and new product launches with current customers, such as the new VITOSSTM Bioactive FOAM product line with Orthovita.

Our net sales in the orthopaedic portion of our business are dependent on several factors, including (1) the success of our current partners in the orthopaedic markets of sports medicine, spine and extremities, (2) the continued acceptance of biomaterials-based products in these markets, as well as expanded future acceptance of such products, and (3) our ability to offer new products and technologies and to attract new partners in these markets. Due to these dependencies, and/or other factors, sales to our orthopaedic customers can vary significantly from quarter to quarter.

We manufacture two of the key resorbable components of the Angio-Seal device for St. Jude Medical, 100% of their supply requirements for the collagen plug and at least 30% of their requirements for the polymer anchors, under a supply contract that expires in December 2010. Sales to St. Jude Medical are highly dependent on ordering patterns of components used in the manufacturing of the Angio-Seal device by St. Jude Medical and can vary significantly from quarter to quarter. This variation in ordering patterns is evidenced by our component sales growth of 20% in the nine months ended March 31, 2009 over the comparable prior fiscal year nine month period, compared to St. Jude's end-user sales growth rate of 2% during the same comparable nine month period. We expect sales of Angio-Seal components to increase in fiscal 2009 as compared to fiscal 2008 due to an anticipated increase in St. Jude end-user unit sales for the comparable period, as well as due to St. Jude Medical's ordering patterns of Angio-Seal components.

Endovascular Sales

Over the last several years, we have devoted significant resources to developing and bringing proprietary endovascular products to market in the U.S. and Europe. These products are focused in the emerging market segments of thrombus (blood clot) management and chronic total occlusions (CTOs) (a complete vessel blockage occurring in both coronary and peripheral vessels) and are sold primarily to interventional cardiologists, but may also be used by interventional radiologists and vascular surgeons. Sales of endovascular products decreased to 6% of total net sales in the nine months ended March 31, 2009 from 12% in the comparable prior fiscal year nine month period, primarily due to the reduced transfer price to our partner Spectranetics, compared to the direct to market price reflected in the prior fiscal year figures, as our overall net unit sales to Spectranetics increased compared to our end-user unit sales for the same period of the prior fiscal year.

In May 2008, we completed the sale of our Endovascular business to Spectranetics. This transaction included the sale of the ThromCat®, QuickCat™ and Safe-Cross® product lines in consideration for a $10.0 million cash payment at closing, with an opportunity for up to an additional $8.0 million in research and development milestone payments, a $6.0 million cumulative sales milestone payment and additional royalty payments based on future sales of the ThromCat and Safe-Cross products after the transition of manufacturing of the products from us to Spectranetics.

Our Endovascular Relationship with Spectranetics

In connection with the sale of our Endovascular business to Spectranetics in May 2008, we entered into a Manufacturing and Licensing Agreement and a Development and Regulatory Services Agreement, under which we will continue to participate in bringing current and next generation endovascular products to the market.

Manufacturing and Licensing Agreement - Under the terms of the Manufacturing and Licensing Agreement we will manufacture the ThromCat and Safe-Cross products for Spectranetics for an initial three-year period. After the three-year initial manufacturing period for the ThromCat and Safe-Cross products, the parties have the ability to negotiate an extension to the Manufacturing and Licensing Agreement; otherwise, the manufacturing will transfer to Spectranetics. The terms of this Agreement also provided that we would manufacture the QuickCat product for a minimum of six months, after which manufacturing may transition to Spectranetics. Spectranetics has extended the Company's initial six month manufacturing period for the QuickCat product through September 30, 2009. All products are sold to Spectranetics under this agreement at pre-defined transfer prices and are classified as product sales in the period shipped. At such time as the manufacturing transfers to Spectranetics, we will begin to earn a royalty on end-user sales of every ThromCat and Safe-Cross unit sold by Spectranetics. Spectranetics will have no obligation to make royalty payments to us related to future end-user sales of the QuickCat product. Royalty percentages vary and are dependent on the cause of the transfer of manufacturing. Royalties received will be presented within the Royalty income line of our Condensed Consolidated Statements of Income in the period earned.

We will continue to recognize endovascular product sales revenue as we ship products to Spectranetics for the duration of the Manufacturing and Licensing Agreement. These sales will, however, be at a reduced transfer price compared with the direct to market price reflected in our historic sales figures.

Development and Regulatory Services Agreement - Under the Development and Regulatory Services Agreement, we will continue to perform defined development activities in pursuit of various approvals for next generation endovascular products. All costs related to these activities will be expensed as incurred within the Research and development expenses line of our Condensed Consolidated Statements of Income. The agreement also calls for the equal sharing of certain human clinical trial costs in pursuit of next generation or expanded indication for the ThromCat devices. Upon receipt of Food and Drug Administration (FDA) approval, European CE Mark approval or achievement of related goals for the new versions of the products, we will receive pre-defined milestone payments of up to an aggregate amount equal to $8.0 million, over an anticipated four-year period. These milestones will be recorded as revenue and recognized over the period of the agreement (including through the date of receipt of the latest expected regulatory approvals and/or completion of product development activities). The term of this agreement is anticipated to be approximately four years. In October 2008, we announced the accomplishment of the first milestone under this agreement, the development of the next generation Safe-Cross System, which resulted in a $1.0 million payment to us in October 2008. During the nine months ended March 31, 2009, we recognized $192,000 in revenue for this first milestone and expect to recognize an additional $58,000 in revenue during the remainder of fiscal 2009. We currently anticipate the achievement of one additional milestone in the fourth quarter of fiscal 2009.

Spectranetics is exclusively responsible for worldwide sales and marketing of the entire endovascular product line.

See "Item 1A. Risk Factors - Our strategic endovascular relationship could be negatively impacted by adverse results of the FDA and U.S. Immigration and Customs Enforcement (ICE) investigation of Spectranetics" contained in our annual report on Form 10-K for the fiscal year ended June 30, 2008 and in Part II Item 1A of this Form 10-Q.

Royalty Income

We also derive a significant portion of our revenue and profitability from royalty income from proprietary products that we have developed or co-developed.

Angio-SealTM Royalty Income. Our Company was the inventor and original developer of the Angio-Seal™, a vascular closure device that reduces recovery time and enhances patient comfort following both diagnostic and therapeutic cardiovascular catheterizations. St. Jude Medical has the exclusive worldwide rights for the development, manufacturing and sales and marketing of the Angio-Seal device, pursuant to an agreement which provides us with an approximate 6% royalty on all end-user product sales. The Angio-Seal device is currently the leading product in sales volume in the vascular closure device market, generating over $360 million in revenue for St. Jude Medical during our fiscal 2008. We anticipate that sales of the Angio-Seal device by St. Jude Medical will continue a modest growth pattern, based on forecasted continued procedure growth, St. Jude Medical's continued expansion in international markets and marketing new generations of the product, including most recently, the introduction of the EvolutionTM Device. Royalty income earned from St. Jude Medical was $15.9 million in the nine months ended March 31, 2009, compared to $15.7 million for the same period of fiscal 2008, a 1% increase. Royalty income earned from St. Jude Medical during the nine months ended March 31, 2009 was negatively impacted by approximately $300,000 due to foreign currency exchange as compared to foreign currency exchange of the comparable prior year period.

VITOSSTM FOAM, VITOSSTM, and VITOSSTM Bioactive FOAM Royalty Income. Since 2003, we have partnered with Orthovita, Inc. to co-develop and commercialize a series of unique and proprietary bone void filler products, branded VITOSS FOAM, the first of which was launched in March 2004. We receive a fixed royalty on Orthovita's end-user sales of VITOSS FOAM products, which are targeted for use in the orthopaedic market. In addition, in August 2004 we entered into an agreement to acquire the proprietary rights of a third party inventor of the VITOSS technology for $2.6 million (the Assignment Agreement). Under the Assignment Agreement, we receive an additional royalty from Orthovita on the end-user sales of all Orthovita products containing the VITOSS technology up to a total royalty to be received of $4.0 million, with $1.4 million remaining to be received as of March 31, 2009. We believe the unique technology associated with the VITOSS FOAM products, the recent successful introduction of the new VITOSS Bioactive FOAM products, and the growing orthopaedic market will result in the Orthovita component of our Royalty income of our Condensed Consolidated Statements of Income becoming more significant over the remainder of the current fiscal year and beyond. Royalty income earned from Orthovita was $4.2 million in the nine months ended March 31, 2009, compared to $3.2 million for the same period of fiscal 2008, representing a 31% increase.

We have royalty generating relationships with other customers, none of which materially contributes to revenue at this time, but which we expect to provide increased revenue as the related products gain market acceptance and additional products are commercialized.

Stock-Based Compensation

The following table summarizes stock-based compensation expense under SFAS
No. 123(R) Share-Based Payment (SFAS 123(R)) within each operating expense
category of our Condensed Consolidated Statements of Income for the three months
ended March 31, 2009 and 2008:



                                                      Three Months Ended
                                                          March 31,
                                                       2009        2008
           Cost of products sold                    $  138,040   $  56,739
           Research and development                    292,495      58,257
           Selling, general and administrative         383,622     123,212

           Total stock-based compensation expense   $  814,157   $ 238,208

Stock-based compensation expense for the three months ended March 31, 2009 consists of (a) stock options granted to employees, non-employee members of our Board of Directors, executive officers and non-employee outside consultants,
(b) nonvested stock awards (i.e., restricted stock) granted to non-employee members of our Board of Directors, an executive officer, a non-employee outside consultant, and (c) cash-settled stock appreciation rights (SARs) granted to executive officers and other non-executive eligible employees of our Company. We cannot predict the market value of our Common Stock at the time of exercise for these grants, nor the magnitude of exercises at any particular time over the terms of these grants. Our SARs have been, and will continue to be, remeasured at each reporting period until all awards are settled. Fluctuations in the fair value of the liability award are recorded as increases or decreases in compensation cost, either immediately or over the remaining service period, depending on the vested status of the award.

Total stock-based compensation expense for the three months ended March 31, 2009 was impacted primarily by the amortized expense related to two years of equity grants, as well as, expense due to unfavorable adjustments in the fair value of our cash-settle SARs, which were remeasured based on, amongst other factors, our closing stock price on March 31, 2009. Equity compensation expense for the three months ended March 31, 2008 included amortized expense only for one year of equity grants, resulting from the fiscal 2008 acceleration of stock awards triggered by a "Change in Control," as well as, favorable mark-to-market adjustments on our outstanding cash-settled SARs. See Note 13 to the Condensed Consolidated Financial Statements included in this Form 10-Q for additional information concerning our stock-based compensation.

The following table summarizes our stock-based compensation expense by each fiscal year grant for the three and nine month periods ended March 31, 2009 and 2008.

                                                 Three Months Ended            Nine Months Ended
                                                     March 31,                     March 31,
                                                 2009         2008           2009            2008
SARs
Fiscal Year 2007 Grant                         $  77,717   $ (124,668 )   $  (549,732 )   $   747,635

STOCK OPTIONS
Fiscal Year 2005 Grant                         $      -    $       -      $        -      $     2,422
Fiscal Year 2006 Grant                                -            -               -          103,835
Fiscal Year 2007 Grant                                -            -               -            9,347
Fiscal Year 2008 Grant                           243,129      279,311         608,992         491,096
Fiscal Year 2009 Grant                           294,986           -          692,040              -

                                               $ 538,115   $  279,311     $ 1,301,032     $   606,700

NONVESTED STOCK AWARDS
Fiscal Year 2005 Grant                         $      -    $       -      $        -      $    36,328
Fiscal Year 2006 Grant                                -            -               -          160,873
Fiscal Year 2007 Grant                                -            -               -           34,568
Fiscal Year 2008 Grant                           105,339       83,565         272,597         111,415
Fiscal Year 2009 Grant                            92,986           -          116,042              -

                                               $ 198,325   $   83,565     $   388,639     $   343,184

Total Acceleration Charge of Stock-Based
Awards (a)                                     $      -    $       -      $        -      $ 2,974,033

Total Equity Comp Expense                      $ 814,157   $  238,208     $ 1,139,939     $ 4,671,552

(a) See "Acceleration of Stock-Based Awards" below.

Acceleration of Stock-Based Awards

As we publicly announced on September 26, 2007, there was a "Change in Control" as defined in our Fifth Amended and Restated Kensey Nash Corporation Employee Incentive Compensation Plan, as amended and then in effect (the Employee Plan). As a result, all outstanding unvested stock options, cash-settled stock appreciation rights (SARs) and nonvested stock held by executive officers, employees, directors and others under the Employee Plan automatically became vested (and, in the case of options and SARs, exercisable) in full. The accelerated vesting resulted in a non-cash charge of approximately $3.0 million primarily during the prior fiscal year quarter ended September 30, 2007. The acceleration removed all future equity compensation expense related to the then outstanding stock options and nonvested shares under the plan as of the date of acceleration. However, all remaining SARs, including the rights in which the vesting was accelerated, will continue to be marked to market on a quarterly basis, as required under generally accepted accounting principles in the U.S. (U.S. GAAP), and equity compensation expense will be incurred with respect to all new stock based awards granted after this event. See "Liquidity and Capital Resources- Stock Appreciation Rights (SARs) Buyback Program" below.

The charge represented a significant portion of our operating expenses in the nine months ended March 31, 2008 and, therefore, we have broken it out in the table below to show the amounts of the acceleration of stock-based compensation charges included within each operating expense category of our Condensed Consolidated Statements of Income for the nine months ended March 31, 2008.

The following table summarizes stock-based compensation expense under SFAS 123(R) in our Condensed Consolidated Financial Statements for the nine months ended March 31, 2009 and 2008:

                                         Total            Pre-acceleration      Acceleration of         Total
                                      Stock-Based           Stock-Based          Stock Awards        Stock-Based
                                     Compensation           Compensation            Charge           Compensation
                                   Nine Months Ended                         Nine Months Ended
                                    March 31, 2009                            March 31, 2008
Cost of products sold             $           345,759    $          294,670    $         251,732    $      546,402
Research and development                      365,739               636,255              834,682         1,470,937
Selling, general and
administrative                                428,441               766,596            1,887,619         2,654,215


Total stock-based compensation
expense                           $         1,139,939    $        1,697,521    $       2,974,033    $    4,671,554

Discontinuance of Embolic Protection Platform

As announced on July 10, 2007, we made a strategic decision to cease all activities related to our embolic protection platform, including the PROGUARD clinical trial, product manufacturing, sales and marketing, and research and development activities. As a result of this action, we recorded certain charges in our fourth quarter of fiscal 2007 totaling approximately $4.7 million. All of the remaining charges, related to severance and clinical trial closeout costs, were recorded in our first quarter of fiscal 2008 and totaled approximately $324,000. All charges related to the discontinuance are presented within our results of operations in fiscal 2008 and fiscal 2007. We do not anticipate any further charges related to this decision.

The following table is presented to show the amounts of the discontinuance of embolic protection charges included within each category of our Condensed Consolidated Statements of Income for the nine months ended March 31, 2008:

                                                           Discontinuance of
                                                           Embolic Protection
                                                                Charges
                                                           Nine months Ended
                                                             March 31, 2008
     Cost of products sold                                $            154,726
     Research and development                                           92,630
     Selling, general and administrative                                76,372

     Total discontinuance of embolic protection charges   $            323,728

CRITICAL ACCOUNTING POLICIES

Our "critical accounting policies" are those that require application of management's most difficult, subjective or complex judgments, often as a result of the need to make estimates about matters that are inherently uncertain and may change in future periods. We have identified the following as our critical accounting policies: revenue recognition, accounting for stock-based . . .