Forward-Looking Statements
This report contains forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Such statements are based on current assumptions that involve risks and uncertainties that could cause actual outcomes and results to differ materially. For a description of such risks and uncertainties, which could cause the actual results, performance or achievements of the Company to be materially different from any anticipated results, performance or achievements, please see the risk factors included in our Annual Report on Form 10-K for the year ended December 31, 2008. Readers are urged to carefully review and consider the various disclosures made in this report and in our other reports filed with the SEC that advise interested parties of certain risks and factors that may affect our business. This analysis should be read in conjunction with our consolidated financial statements and related notes and Management's Discussion and Analysis of Financial Condition and Results of Operations included in our Form 10-K, filed on March 16, 2009. Spectranetics disclaims any intention or obligation to update or revise any financial projections or forward-looking statements due to new information or other events. Corporate Overview
We develop, manufacture, market and distribute single-use medical devices used in minimally invasive procedures within the cardiovascular system, many of which are used with our proprietary excimer laser system, the CVX-300®. Our single-use laser catheters contain up to 250 small diameter, flexible optical fibers that can access difficult to reach peripheral and coronary anatomy and produce evenly distributed laser energy at the tip of the catheter for more uniform ablation. We believe that our excimer laser system is the only laser system approved in the United States, Europe, Japan and Canada for use in multiple, minimally invasive cardiovascular procedures. Our Vascular Intervention disposable products include a range of peripheral and cardiac laser catheters for ablation of occluded arteries above and below the knee and within coronary arteries. We also market aspiration and thrombectomy catheters for the removal of thrombus and support catheters to facilitate crossing of coronary and peripheral arterial blockages. Our Lead Management disposable product line includes excimer laser sheaths and cardiac lead management accessories for the removal of pacemaker and defibrillator cardiac leads.
Although 85% of our revenue was derived in the United States for the six months ended June 30, 2009, we also have regulatory approval to market our products in two key international markets. In Europe, we have the required approvals to market the products that are approved in the United States. We have also received approval to market certain coronary atherectomy products and certain lead removal products in Japan, and are seeking additional approvals there for our other coronary, peripheral and lead removal products. Our distributor, DVx Japan, is assisting us in pursuing reimbursement approval in Japan. We do not expect significant revenue increases in Japan unless and until reimbursement approval is received from the Japanese Ministry of Health, Labor and Welfare. In May 2008, we completed the acquisition of the endovascular business of Kensey Nash Corporation (KNC). Pursuant to an Asset Purchase Agreement among us and KNC, we purchased from KNC all of the assets related to KNC's QuickCat™, ThromCat® and SafeCross®product lines for $10.7 million in cash, including acquisition costs of $0.7 million. The primary reason for the acquisition of these product lines was to leverage our existing sales organization while extending our product offering in the area of thrombus management. Under the terms of the Agreement, we agreed to pay KNC an additional $14 million based on product development, regulatory and sales milestones. Of the $14 million, up to $8 million is payable based on various product development and regulatory milestones associated with the acquired products, and $6 million is payable once cumulative sales of the acquired products reach $20 million. As of June 30, 2009, we have paid $2.5 million of the product development and regulatory milestones. The first milestone payment of $1.0 million, related to the development of a next-generation version of the SafeCross RF CTO system, was made in October 2008. The second milestone, related to obtaining CE mark approval for the next-generation ThromCat device, was achieved by KNC in June 2009, which triggered another $1.5 million payment to KNC at that date.

Item 2. Management's Discussion and Analysis of Results of Operations and Financial Condition (Cont'd)

We simultaneously entered into a Manufacturing and License Agreement pursuant to which KNC will manufacture for us the endovascular products acquired by us under the Asset Purchase Agreement, and we will purchase such products exclusively from KNC for specified time periods ranging from six months to three years, which can be extended. During that time, we will pay transfer prices for the products based on KNC's cost to manufacture such products plus a percentage of the sales of the ThromCat and SafeCross products. Additionally, after KNC's manufacture of the ThromCat and SafeCross products is transferred to us, we will be obligated to pay KNC a share of revenues received from sales of such products. After KNC's manufacture of the QuickCat product has transferred to us, there will be no obligation to make additional payments to KNC related to future sales of the QuickCat product. Revenue from these products subsequent to the acquisition date are included in our reported Vascular Intervention disposable products revenue. Additionally, we and KNC also entered into a Development and Regulatory Services Agreement pursuant to which KNC will conduct work to develop, on our behalf, certain next-generation SafeCross and ThromCat products at KNC's expense. We will own all intellectual property resulting from this development work. If clinical studies are required to obtain regulatory approval from the FDA for those next-generation products, the costs will be shared equally by us and KNC. KNC additionally will be responsible, at its own expense, for regulatory filings with the FDA that are required to obtain approval from the FDA for the next-generation products.
On September 4, 2008, we were jointly served by the FDA and the Immigration and Customs Enforcement (ICE) with a search warrant issued by the United States District Court, District of Colorado. The search warrant requested information and correspondence relating to: (i) the promotion, use, testing, marketing and sales regarding certain of the company's products for the treatment of in-stent restenosis, payments made to medical personnel and an identified institution for this application, (ii) the promotion, use, testing, experimentation, delivery, marketing and sales of catheter guidewires and balloon catheters manufactured by certain third parties outside of the United States, (iii) two post-market studies completed during the period from 2002 to 2005 and payments to medical personnel in connection with those studies and (iv) compensation packages for certain of the company's personnel. We are cooperating with the appropriate authorities regarding this matter. See Part II, Item 1, "Legal Proceedings" and Note 12, "Commitments and Contingencies" for a discussion of this and other legal proceedings in which we are involved.
In December 2008, we received clearance from the FDA for the Quick-Cross® Extreme® product line, which represents an extension of our Quick-Cross support catheters. We launched this product line in December 2008. The FDA clearance followed the recent receipt of the CE Mark in Europe and approval to market these products in Canada. The Quick-Cross Extreme product line is intended for use to guide and support a guide wire during access of the vasculature, allow for wire exchanges and provide a conduit for the delivery of saline solutions or diagnostic contrast agents. The Quick-Cross Extreme is designed to facilitate the crossing of blockages in the legs and features a braided catheter and an angled tip. The braided catheter jacket improves strength and pushability while the angled tip allows for quicker access into branched anatomy. This was an upgrade to the previous Quick-Cross product line and is available for 0.035" guide wire compatibility in 65 cm, 90 cm, 135 cm, and 150 cm lengths. In December 2008, we also received clearance from the FDA to market our Cross-Pilot™ laser support catheter. We launched the product during the first quarter of 2009 within the United States, Europe and Canada. The Cross-Pilot is a laser support catheter for the 0.9 mm Turbo Elite laser ablation catheter. The Cross-Pilot was designed to provide additional support for reaching distal lesions. The braid reinforced catheter construction and hydrophilic coating allow for better pushability through distal vessels and the angled tip allows for quicker access to branched anatomy. The Cross-Pilot Laser Support Catheter is currently offered in 125 cm length and straight and angled tip configurations.
In May 2009, we announced initial data from the four-year, retrospective LExICon (Lead Extraction in Contemporary Settings) study. Released by the Heart Rhythm Journal in an online abstract, the study examined laser assisted lead removal of 2,405 leads in 1,449 patients at 13 centers between January 2004 and December 2007, using the SLS® II laser sheath. Resulting key data points included: (i) 97.7% clinical success rate, (ii) 96.5% complete lead removal success rate, (iii) 1.4% major adverse event rate-a 26% relative reduction (compared to a previous multi-center study evaluating the original SLS laser sheath), and (iv) 0.27% procedural mortality rate-more than a 50% relative reduction (compared to a previous multi-center study evaluating the original SLS laser sheath).

Item 2. Management's Discussion and Analysis of Results of Operations and Financial Condition (Cont'd)

Details from the study were presented at the Heart Rhythm Society (HRS) meeting in Boston in May 2009, where HRS introduced their updated guidelines related to extraction of pacemaker and defibrillator leads. These guidelines expanded the specific clinical circumstances where a lead extraction should be considered from 14 to 30.
In July 2009, we received clearance from the FDA to market the Turbo-Tandem™, a single-use, disposable device indicated for atherectomy of infrainguinal arteries. CE mark approval was also received in July for marketing within the European Union. The Turbo-Tandem System is comprised of two integrated devices, a 7 French laser guide catheter in combination with a 2.0 mm excimer laser ablation catheter. The Turbo-Tandem is designed to perform atherectomy and ablation of plaque in arterial lesions above the knee, primarily within the superficial femoral and popliteal arteries, restoring blood flow to the lower extremities. The angled ramp at the tip of the guide catheter allows the physician circumferential guidance and positioning of the laser catheter within the vessel, and push-button control greatly simplifies use of the Turbo-Tandem for repeated passes through the vessel. We expect to launch the Turbo-Tandem throughout the United States and Europe in the third quarter of 2009. Results of Operations
Financial Results by Geographical Segment Our two reporting segments consist of United States Medical, which includes the United States and Canada, and International Medical, which includes Europe, the Middle East, Asia Pacific, Latin America and Puerto Rico.

                       For the three months ended June 30,                  For the six months ended June 30,
(in thousands)             2009                       2008                     2009                      2008
Revenue
United States    $    24,514            84 %   $ 23,051        86 %   $    48,042          85 %   $ 44,309        88 %
International          4,518            16        3,647        14           8,293          15        6,220        12

Total revenue    $    29,032           100 %   $ 26,698       100 %   $    56,335         100 %   $ 50,529       100 %




                                                   For the three months ended June 30,                For the six months ended June 30,
(in thousands)                                       2009                       2008                   2009                      2008

Net (loss) income
United States                                 $           (2,746 )       $           (2,853 )    $          (5,977 )       $          (3,478 )
International                                                444                        213                    838                       432

Total net loss                                $           (2,302 )       $           (2,640 )    $          (5,139 )       $          (3,046 )

Item 2. Management's Discussion and Analysis of Results of Operations and Financial Condition (Cont'd)

Selected Consolidated Statements of Operations Data The following table presents Consolidated Statements of Operations data for the three months ended June 30, 2009 and June 30, 2008 based on the percentage of revenue for each line item, as well as the dollar and percentage change of each of the items.
Three Months Ended June 30, 2009 Compared with Three Months Ended June 30, 2008