Summary of ANGIOTECH PHARMACEUTICALS INC

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

ANGIOTECH PHARMACEUTICALS, INC.

For the three and nine months ended September 30, 2009

(All amounts following are expressed in U.S. dollars unless otherwise indicated.)

MANAGEMENT'S DISCUSSION & ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following management's discussion and analysis ("MD&A") for the three and nine months ended September 30, 2009, provides an update to the MD&A for the year ended December 31, 2008 and should be read in conjunction with our unaudited consolidated financial statements for the three and nine months ended September 30, 2009 and our audited consolidated financial statements for the year ended December 31, 2008, each of which has been prepared in accordance with U.S. generally accepted accounting principles ("U.S. GAAP"). The MD&A and unaudited consolidated financial statements for the three and nine months ended September 30, 2009 have been prepared in accordance with the applicable rules and regulations of the United States Securities and Exchange Commission ("SEC") for the presentation of interim financial information. Additional information relating to our Company, including our 2008 audited consolidated financial statements and our 2008 Annual Report on Form 10-K (as amended by our Amendment No. 1 on Form 10-K/A and our Amendment No. 2 on Form 10-K/A, collectively, the "10-K"), is available by accessing the SEDAR website at www.sedar.com or the SEC's EDGAR website at www.sec.gov/edgar.shtml.

Forward-Looking Statements and Cautionary Factors That May Affect Future Results

Statements contained in this Quarterly Report on Form 10-Q that are not based on historical fact, including without limitation statements containing the words "believes," "may," "plans," "will," "estimates," "continues," "anticipates," "intends," "expects" and similar expressions, constitute "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995 and constitute "forward-looking information" within the meaning of applicable Canadian securities laws. All such statements are made pursuant to the "safe harbor" provisions of applicable securities legislation. Forward-looking statements may involve, but are not limited to, comments with respect to our objectives and priorities for the remainder of 2009 and beyond, our strategies or future actions, our targets, expectations for our financial condition and the results of, or outlook for, our operations, research and development and product and drug development. Such forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause the actual results, events or developments to be materially different from any future results, events or developments expressed or implied by such forward-looking statements.

Many such known risks, uncertainties and other factors are taken into account as part of our assumptions underlying these forward-looking statements and include, among others, the following: general economic and business conditions in the United States, Canada and the other regions in which we operate; market demand; technological changes that could impact our existing products or our ability to develop and commercialize future products; competition; existing governmental regulations and changes in, or the failure to comply with, governmental regulations; availability of financial reimbursement coverage from governmental and third-party payers for products and related treatments; adverse results or unexpected delays in pre-clinical and clinical product development processes; adverse findings related to the safety and/or efficacy of our products or products sold by our partners; decisions, and the timing of decisions, made by health regulatory agencies regarding approval of our technology and products; the requirement for substantial funding to conduct research and development, to expand manufacturing and commercialization activities; and any other factors that may affect our performance.

In addition, our business is subject to certain operating risks that may cause any results expressed or implied by the forward-looking statements in this Quarterly Report on Form 10-Q to differ materially from our actual results. These operating risks include: our ability to attract and retain qualified personnel; our ability to successfully complete pre-clinical and clinical development of our products; changes in our business strategy or development plans; our failure to obtain patent protection for discoveries; loss of patent protection resulting from third-party challenges to our patents; commercialization limitations imposed by patents owned or controlled by third parties; our ability to obtain rights to technology from licensors; liability for patent claims and other claims asserted against us; our ability to obtain and enforce timely patent and other intellectual property protection for our technology and products; the ability to enter into, and to maintain, corporate alliances relating to the development and commercialization of our technology and products; market acceptance of our technology and products; our ability to successfully manufacture, market and sell our products; the availability of capital to finance our activities; our ability to restructure and to service our debt obligations; and any other factors referenced in our other filings with the applicable Canadian securities regulatory authorities or the SEC.

For a more thorough discussion of the risks associated with our business, see the section entitled "Risk Factors" in this Quarterly Report on Form 10-Q.

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Given these uncertainties, assumptions and risk factors, investors are cautioned not to place undue reliance on such forward-looking statements. Except as required by law, we disclaim any obligation to update any such factors or to publicly announce the result of any revisions to any of the forward-looking statements contained in this Quarterly Report on Form 10-Q to reflect future results, events or developments.

This Quarterly Report on Form 10-Q contains forward-looking information that constitutes "financial outlooks" within the meaning of applicable Canadian securities laws. We have provided this information to give shareholders general guidance on management's current expectations of certain factors affecting our business, including our future financial results. Given the uncertainties, assumptions and risk factors associated with this type of information, including those described above, investors are cautioned that the information may not be appropriate for other purposes.

Business Overview

We are a specialty pharmaceutical and medical device company that discovers, develops and markets innovative technologies primarily focused on acute and surgical applications. We generate our revenue through our sales of medical products and components, as well as from royalties derived from sales by our partners of products utilizing certain of our proprietary technologies. For the first nine months of 2009, we recorded $142.0 million in direct sales of our various medical products and components and $74.1 million in royalties and license fees.

Our research and development efforts focus on understanding and characterizing biological conditions that often occur concurrent with medical device implantation, surgery or acute trauma, including scar formation and inflammation, cell proliferation, bleeding and coagulation, infection and tumor tissue overgrowth. Our strategy is to utilize our various technologies in the areas of drugs, drug delivery, surface modification, biomaterials and medical devices to create and commercialize novel, proprietary medical products that reduce surgical procedure side effects, improve surgical outcomes, shorten hospital stays, or are easier or safer for a physician to use.

We develop our products using a proprietary and systematic discovery approach. We use our drug screening capabilities to identify new uses for known pharmaceutical compounds. We look for compounds that address the underlying biological causes of conditions that can occur with medical device implantation, surgery or acute trauma. Once appropriate drugs have been identified, we work to formulate the drug, or a combination of drugs, with our portfolio of drug, drug delivery and surface modification technologies and biomaterials to develop a novel surgical implant or medical device. We have patent protected, or have filed patent applications for, certain of our technology and many of our products and potential product candidates.

We currently operate in two segments: Pharmaceutical Technologies and Medical Products.

Pharmaceutical Technologies

Our Pharmaceutical Technologies segment focuses primarily on establishing product development and marketing collaborations with major medical device, pharmaceutical or biomaterials companies and to date has derived the majority of its revenue from royalties due from partners that develop, market and sell products incorporating our technologies. Currently, our principal revenues in this segment are from royalties derived from sales by Boston Scientific Corporation ("BSC") of TAXUS ® coronary stent systems incorporating the drug paclitaxel. TAXUS stents have been evaluated by the industry's most extensive randomized, controlled clinical trial program, with patient follow-up out to five years in some cases. BSC's controlled clinical trial results have been supplemented by data on more than 35,000 patients enrolled in post-approval registries. To date, over 4.6 million TAXUS stents have been implanted globally.

Medical Products

Our Medical Products segment manufactures and markets a wide range of single-use specialty medical products, primarily medical device products and medical device components. These products are sold directly to end users or other third-party medical device manufacturers. This segment contains two specialized direct sales and distribution organizations as well as significant manufacturing capabilities. Many of our medical products are made using our proprietary manufacturing processes or are protected by our intellectual property.

Proprietary Medical Products. Certain of our product lines, which we refer to as our Proprietary Medical Products, are marketed and sold by our two direct sales groups. We believe certain of these product lines contain technology advantages that have the potential for more substantial revenue growth as compared to our overall product portfolio. Our key commercial Proprietary Medical Products include: (i) our Quill™ SRS wound closure product line, which is marketed and sold by our Surgical Products Sales Group; and (ii) our: Option™ Inferior Vena Cava Filter ("Option IVC Filter"); HemoStream™ dialysis catheter; SKATER™ line of drainage catheters; BioPince™ full core biopsy device; EnSnare™ retrieval device; and V+Pad™ hemostatic pad, which are marketed and sold by our Interventional Products Sales Group.

Base Medical Products. Certain of our product lines, which we refer to as our Base Medical Products, represent more mature finished goods product lines in the ophthalmology, biopsy and general surgery areas, and medical device components manufactured by us and sold to other third-party medical device manufacturers who assemble those components into finished medical devices. Sales of these

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Base Medical Products are supported by a small group of direct sales personnel, as well as a network of independent sales representatives and medical product distributors. These sales tend to exhibit greater volatility or slower growth when compared to sales of our Proprietary Medical Products. This is particularly the case with our sales of components to third-party medical device manufacturers, which may be impacted by customer concentration and the business issues that certain of our large customers may face, as well as to a more limited extent by economic and credit market conditions.

Significant Recent Developments

Option Inferior Vena Cava Filter. In June 2009, we announced that the United States Food and Drug Administration ("FDA") had granted 510(k) clearance for the Option IVC Filter, for use in both permanent and retrievable indications and in August 2009, we announced the commercial launch of the Option IVC Filter in the United States.

IVC filters are implanted in patients that are at high risk for developing pulmonary embolism, which can be a life threatening condition. IVC filters are implanted in the inferior vena cava and are designed to catch clot material to prevent it from reaching the lungs, while allowing blood to continue to flow normally. Patients at high risk for pulmonary embolism are typically patients undergoing a significant surgical procedure, trauma patients or patients that have experienced a previous embolic event. IVC filters have been shown in several studies to significantly reduce the risk of pulmonary embolism and related mortality in certain high risk patient populations. In certain cases, once the risk of an embolic event has passed, the IVC filter will be removed in a subsequent surgical procedure. In 2008, there were approximately 220,000 IVC filters implanted in the United States.

We believe the Option IVC Filter may have a number of potential competitive benefits, which include: a unique filter design that may reduce the potential for filter migration after implantation, thereby making the product safer for patients; insertion potential through either the femoral or jugular route, which may make the product easier for a physician to use; and the use of non-thrombogenic material, which may reduce the risk of blood clots occurring in the filter. We also believe the unique design of the Option IVC Filter may allow physicians to remove or retrieve the device from patients more easily, or after longer periods of time have passed as compared to existing competitive IVC filters.

The Option IVC Filter was approved based upon the results of a United States multi-center prospective clinical trial. The purpose of the clinical trial was to evaluate the device's safety and efficacy in preventing pulmonary emboli and to assess the ability to retrieve the device from the body up to 175 days following implantation. The results, representing a total of 100 patients, were presented at the 2009 Society of Interventional Radiology conference in San Diego, CA on March 9, 2009. Successful filter implantation was achieved in 100% of the subjects and the retrieval success rate in the study was 92.3%. Clinical success, which was achieved in 88% of subjects, was defined as placement of the filter without subsequent pulmonary embolism, significant filter migration or embolization, symptomatic caval thrombosis or other complications requiring filter removal or invasive intervention.

The Option IVC Filter was licensed in March 2008 from our partner Rex Medical L.P. ("Rex Medical"). We are obligated to pay royalties and milestone payments to Rex Medical derived from our sales of the Option IVC Filter. We made a milestone payment of $2.5 million to Rex Medical upon 510(k) clearance of the Option IVC Filter during the second quarter of 2009 and recorded the payment as an intangible asset.

Quill SRS. In August 2009 we announced the launch of a series of proprietary Quill SRS products designed for wound closure procedures in laparoscopic, or minimally invasive, gynecology procedures, including hysterectomies and myomectomies.

In 2008, there were approximately 750,000 hysterectomies performed in the United States of which approximately 130,000 were performed laparoscopically. In addition, there were approximately 72,000 myomectomies performed in the United States to remove uterine fibroid tumors. Our proprietary Quill SRS technology may offer significant advantages in wound closure in certain laparoscopic surgical procedures, whether performed manually by surgeons or through robotic assistance. We believe the primary advantage of Quill SRS in laparoscopic procedures is the ability to use Quill SRS to close a wound without having to tie knots. The exercise of tying knots can be particularly challenging and time-consuming when surgeons operate in a smaller surgical field, as is the case for most laparoscopic surgical procedures. A second potential advantage of Quill SRS in these procedures is minimizing or eliminating the need for a third hand to maintain tension on the suture in order to deal with tissue recoil, as may be required with a traditional suturing technique. A third potential advantage of Quill SRS in these procedures is the ability of Quill SRS to maintain the tension along the length of the wound, which may provide hemostatic benefits and thereby eliminate or minimize the need for standard hemostatic sutures. Patients may also benefit as a result of these potential advantages through reduced surgical times, and therefore reduced time under anesthesia, and health care facilities and payors may also benefit from the potential to reduce operating room time needed, or the total cost of material needed, to complete such surgical procedures.

Our new Quill SRS products for laparoscopic gynecology procedures are available in our polydioxanone (PDO) suture material in size -0- with 7 cm by 7 cm and 14 cm by 14 cm lengths, and include our newly designed 36 mm needles. The use of Quill SRS in laparoscopic gynecological surgery was first reported by James Greenberg, MD, and Jon Einarsson, MD, MPH, of the Centre for Women's Surgery at Brigham & Women's/Faulkner Hospitals and Harvard Medical School Boston, Massachusetts in the Journal of

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Minimally Invasive Gynecology, in November 2008. The results of this small feasibility study looked at the application of Quill SRS in myomectomy and total laparoscopic hysterectomy vaginal cuff closures. This publication was then followed by up by a podium presentation at the American Association of Gynecologic Laparoscopists (AAGL) annual meeting in the fall of 2008 confirming that there were no post operative issues or complications from the use of Quill SRS in these procedures in a patient series that had grown to 150 patients reviewed to that date.

ZILVER® PTX® - CE Mark Approval. In August 2009, we announced that our partner Cook Medical Inc. ("Cook"), had reported CE Mark approval and commercial launch of the ZILVER PTX paclitaxel-eluting peripheral vascular stent in Europe. The ZILVER PTX stent, which is under evaluation in clinical trials being conducted by Cook, is a specialized stent product incorporating our proprietary paclitaxel technology and is designed for placement in diseased arteries in the limbs to restore blood flow. We license Cook the rights to use paclitaxel with peripheral stents and certain other non-coronary medical devices. Subject to the terms of our license agreement with Cook, we are entitled to receive royalty payments upon the commercial sale of paclitaxel-eluting peripheral vascular stent products, including the ZILVER PTX stent.

Bio-Seal™. In October 2009 we announced that we had received correspondence from the FDA regarding our 510(k) submission for Bio-Seal lung biopsy tract plug system, stating that Bio-Seal is a class III device that requires Pre-Market Approval ("PMA") for FDA marketing clearance in the United States. As a result, we are reviewing our options with respect to this product candidate, including possibly appealing this FDA decision, and are discussing the possible preparation of a PMA submission with our partner, Biopsy Sciences, LLC. Should we elect to continue to pursue development or regulatory approvals for this product candidate that require us to incur material expense, we will provide further updates in our public disclosure. We have not incurred material expense to date with respect to activities regarding this product candidate.

Financial and Strategic Alternatives Process

Over the last two and a half years, revenue in our Pharmaceutical Technologies segment has declined significantly, primarily due to lower royalties derived from sales by BSC of TAXUS coronary stent systems. This decline in royalty revenue has negatively and materially impacted our liquidity and results of operations. As a result of this and other factors impacting our business and the capital markets, our management and Board of Directors believe a transaction or transactions of significant size and scope may be necessary to meaningfully address liquidity concerns and the working capital needs of our business. Our evaluation of various financial and strategic alternatives continued through the third quarter of 2009. As part of this continuing process, we secured interim senior secured financing for working capital and liquidity purposes in the first quarter of 2009 by way of a credit facility, we amended our credit facility in the second quarter of 2009, and as discussed below, we filed a shelf registration statement on Form S-3 in the United States and a corresponding preliminary short form base shelf prospectus in British Columbia and Ontario, in the third quarter of 2009.

Filing of Shelf Registration Statement on Form S-3. On July 23, 2009, we announced that we had filed a shelf registration statement on Form S-3 with the United States Securities and Exchange Commission and a corresponding preliminary short form base shelf prospectus with the securities commissions of British Columbia and Ontario (collectively, the "Offering Documents"). The Offering Documents, when made final and / or declared effective, will allow us to make offerings of Common shares, Class I Preference shares, debt securities, warrants or units for initial aggregate proceeds of up to $250.0 million during the next 25 months to potential purchasers in the United States, British Columbia and Ontario.

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Ongoing Clinical Programs

The following discussion describes our product candidates, or certain of our partners' product candidates, that are being evaluated in ongoing human clinical trials and their stage of development:

Partner Clinical Programs

Independent TAXUS Clinical Data. In May 2009 we announced that BSC had disclosed the publication of an article in the Journal of the American College of Cardiology (JACC) reviewing data on more than 19,000 patients from the Swedish national registry who were evaluated for restenosis, or the re-narrowing of arteries, after percutaneous coronary intervention ("PCI"). The Swedish Coronary Angiography and Angioplasty Registry holds data on all patients undergoing PCI in Sweden. The objective of this independent study was to evaluate restenosis rates of drug-eluting stents ("DES's") in patients with and without diabetes in a real-world setting. The article reported that patients who received a TAXUS Liberté paclitaxel-eluting stent had numerically lower incidences of repeat procedures to treat restenosis at two years as compared to patients treated with 'olimus-based DES's, including Johnson & Johnson, Inc.'s Cypher® stent and Medtronic Inc.'s Endeavor ® stent.

In the patients with diabetes, the TAXUS Liberté demonstrated a statistically significant lower restenosis rate compared to the Endeavor, which had more than two times the risk of repeat procedures. The JACC article reported that both the TAXUS Liberté stent and BSC's first-generation paclitaxel-eluting stent, the TAXUS Express, were the only stents in the study showing no increased risk of restenosis for patients with diabetes as compared to those without diabetes. Data for both the Cypher and Endeavor stents indicated significant increased risk of restenosis in patients with diabetes. In addition, the study showed that the TAXUS Liberté had an approximately 23 percent lower restenosis rate at two years compared to the prior-generation TAXUS Express.

The Swedish registry study included four DES brands: TAXUS Liberté, TAXUS Express, Cypher and Endeavor. In total, the registry included 35,478 DES implants during 22,962 procedures in 19,004 patients, with 1,807 restenoses reported over a mean 29-month follow-up period. For the entire study population, the repeat revascularization rate per stent was 3.5 percent after one year and 4.9 percent after two years. Overall, the adjusted risk of restenosis was 1.23 times higher in patients with diabetes than in patients without diabetes. In patients with diabetes, restenosis was higher in the non-TAXUS stents. The sirolimus-eluting Cypher and the zotorolimus-eluting Endeavor had higher restenosis rates in patients with diabetes compared with those in patients without diabetes (1.25 times and 1.77 times, respectively).

TAXUS Element™ Paclitaxel-Eluting Coronary Stent System. The platinum chromium TAXUS Element pacitaxel-eluting coronary stent system is currently being evaluated by BSC in a clinical program, which commenced in July 2007 and is designed for submission to the FDA in an application for approval to market and sell the TAXUS Element stent system in the United States. The platinum chromium TAXUS Element paclitaxel-eluting coronary stent system is the third-generation BSC coronary stent platform that incorporates our research, technology and intellectual property related to the use of paclitaxel. The TAXUS Element stent features BSC's proprietary platinum chromium alloy, which is designed to enable thinner stent struts, increased flexibility and a lower stent profile while improving radial strength, recoil and radiopacity. In addition, the TAXUS Element stent platform incorporates new balloon technology intended to improve upon BSC's market-leading Maverick® balloon catheter technology.

This clinical program is expected to collectively enroll approximately 1,500 patients at 100 U.S. and international centers and will evaluate the safety and efficacy of the TAXUS Element stent in two studies. The first study will evaluate the safety and efficacy of the TAXUS Element stent compared to the TAXUS Express2 stent. This study will evaluate 1,264 patients with "workhorse" lesions from 2.75 to 4.0 mm. The primary endpoint of this study is to target lesion failure at 12 months, and its secondary endpoint is in-segment percent diameter stenosis at nine months. The second study will compare the TAXUS Element stent to a historic control (TAXUS V de novo bare-metal Express Coronary Stent System). This study will include 224 patients with lesions from 2.25 to 2.75 mm. The primary endpoint of the small vessel study is in-stent late loss at nine months, and its secondary endpoint is target lesion failure at 12 months. Study success is dependent on both endpoints.

In May 2009, we announced that our partner BSC had launched TAXUS Element in select markets worldwide.

TAXUS PETAL™ Bifurcation Paclitaxel-Eluting Coronary Stent System. The TAXUS PETAL bifurcation paclitaxel-eluting coronary stent system, which is under evaluation in clinical trials being conducted by BSC, represents a novel BSC coronary stent product candidate that incorporates our research, technology and intellectual property related to the use of paclitaxel. Conventional coronary stents were designed to treat tubular arteries, and are considered less than optimal for the y-shaped anatomy of a bifurcated area of the coronary arteries. The TAXUS PETAL is a specialized coronary stent designed to treat both the main branch and the side branch of a bifurcation by incorporating an innovative side structure (the PETAL strut) in the middle of the stent that opens into a side branch.

In July 2007 BSC initiated the TAXUS PETAL I First Human Use trial, which is expected to enroll a total of 45 patients in New Zealand, France and Germany. The trial is a non-randomized study with an initial assessment of acute performance and safety (including rates of death, myocardial infarction and . . .