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As filed with the Securities and Exchange Commission on December 10, 2004

Registration No. 333-119174

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

AMENDMENT NO. 3

TO

FORM S-1

REGISTRATION STATEMENT

UNDER

THE SECURITIES ACT OF 1933

Conor Medsystems, Inc.

(Exact Name of Registrant as Specified in Its Charter)

1003 Hamilton Court

Menlo Park, CA 94025

(650) 614-4100

(Address, Including Zip Code, and Telephone Number, Including Area Code, of Registrant’s Principal Executive Offices)

Frank Litvack, M.D.

Chairman and Chief Executive Officer

Conor Medsystems, Inc.

1003 Hamilton Court, Menlo Park, CA 94025, (650) 614-4100

(Name, Address, Including Zip Code, and Telephone Number, Including Area Code, of Agent For Service)

Copies to:

Approximate Date of Commencement of Proposed Sale to the Public:    As soon as practicable after the effective date of this Registration Statement.

If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act, check the following box.  ¨

If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  ¨

If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement number for the same offering.  ¨

If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration number of the earlier effective registration statement for the same offering.  ¨

If delivery of the Prospectus is expected to be made pursuant to Rule 434, check the following box.  ¨

The Registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment that specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933, as amended, or until the Registration Statement shall become effective on such date as the Commission, acting pursuant to said Section 8(a), may determine.

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The information in this prospectus is not complete and may be changed. We may not sell these securities until the registration statement filed with the Securities and Exchange Commission is effective. This prospectus is not an offer to sell these securities and it is not soliciting an offer to buy these securities in any state where the offer or sale is not permitted.

SUBJECT TO COMPLETION, DATED DECEMBER 10, 2004

PROSPECTUS

5,000,000 Shares

Common Stock

$             per share

We are selling 5,000,000 shares of our common stock. We and the selling stockholder named in this prospectus have granted the underwriters an option to purchase up to 750,000 additional shares of common stock to cover over-allotments. We will not receive any proceeds from the sale of shares by the selling stockholder.

This is the initial public offering of our common stock. We currently expect the initial public offering price to be between $11.00 and $13.00 per share. We have applied to have our common stock approved for quotation on the Nasdaq National Market under the symbol “CONR.”

Investing in our common stock involves risks. See “ Risk Factors” beginning on page 8.

Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.

The underwriters expect to deliver the shares to purchasers on or about                     , 2004.

Citigroup

A.G. Edwards

                    , 2004

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Through and including                     , 2005 (25 days after the date of this prospectus), all dealers that buy, sell or trade our common stock, whether or not participating in this offering, may be required to deliver a prospectus. This is in addition to the dealers’ obligation to deliver a prospectus when acting as underwriters and with respect to their unsold allotments or subscriptions.

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SUMMARY

After you read the following summary, you should read and consider carefully the more detailed information and financial statements and related notes that we include in this prospectus. If you invest in our common stock, you are assuming a high degree of risk. See “Risk Factors.”

Corporate Overview

We develop innovative controlled vascular drug delivery technologies. We have initially focused on the development of drug eluting stents to treat coronary artery disease, a market that we believe will grow to over $6 billion by 2008. Stents are tubular mesh devices consisting of interconnected metal struts that are inserted inside an artery to act as scaffolding, propping open a narrowed blood vessel. Our stents have been specifically designed for vascular drug delivery, in contrast to currently available drug eluting stents, which are conventional bare metal stents coated with a drug and polymer. A polymer is a substance used to adhere a drug to the surface of a stent and to modulate its release. Our stents incorporate hundreds of small holes, each acting as a reservoir into which we can load a drug-polymer composition. Through our proprietary design, we can better control drug release kinetics, or the rate of drug release over time. Our clinical efforts are currently focused on the development and commercialization of our COSTAR stent, which is a cobalt chromium paclitaxel eluting stent, for the treatment of restenosis, or the re-narrowing of the inner channel of the artery following balloon angioplasty. Balloon angioplasty is a procedure in which an interventional cardiologist uses a catheter to maneuver a balloon to the site of a blocked artery, where the balloon is inflated to create a larger channel for blood flow. While we believe that our stent technology can support a wide range of drugs, our initial clinical efforts have focused on the use of paclitaxel, an anti-proliferative drug. To date, we have conducted clinical trials involving approximately 745 patients using our drug eluting stents, including more than 200 patients with our COSTAR stent. Currently, we have no products available for commercial sale, and, to date, we have not generated any revenue from the sale of products.

We believe that our drug eluting stents offer significant advantages over conventional surface-coated stents. Our stent design enables a wide range of drug release kinetics and also provides greater directional control over the release of the drug, which we believe allows for more targeted treatment within the artery and more efficient use of the therapeutic agent. A highly distinguishing characteristic of our stent is its use of “ductile hinges,” which are designed to ensure that the drug-polymer composition inlayed into the reservoirs is not extruded, fractured or otherwise disrupted during stent expansion. As a result, we are able to use a wider range of polymers and drugs, including water-soluble compounds, as compared to conventional surface-coated stents.

In May 2004, we announced the four-month follow-up data from our PISCES clinical trial, which was designed to evaluate the safety and performance of paclitaxel delivered at different release kinetics and doses using our stainless steel stent for the treatment of restenosis. The initial results from our PISCES trial indicate, for what we believe to be the first time, that drug release kinetics have an effect on treatment outcomes. The two formulations that demonstrated the most favorable clinical outcomes are the focus of our subsequent EuroSTAR and COSTAR I trials, which are designed to evaluate our COSTAR stent for the treatment of restenosis. In September 2004, we announced four-month follow-up data for one of the four formulation groups from the COSTAR I trial. In the first quarter of 2005, we expect to submit an application to a designated Notified Body in the European Community, which is one of the steps we must undertake prior to marketing our COSTAR stent in the European Community. We expect to submit an investigational device exemption application to the FDA in 2005 for our planned U.S. pivotal clinical trial, COSTAR II, evaluating our COSTAR stent compared to a conventional drug eluting stent. We have not yet received any government regulatory approvals necessary to commercialize our COSTAR stent. If our clinical trials proceed on schedule and the outcomes of these clinical trials are favorable, we anticipate receiving regulatory approval for our COSTAR stent in the European

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Community in late 2005 and in the United States in 2007. We could be delayed by adverse clinical results or regulatory complications, and we may never receive marketing approval.

We have entered into agreements with Biotronik AG, Interventional Technologies, Pvt., Ltd., or IVT, and affiliates of St. Jude Medical, Inc. to distribute our COSTAR stent outside of the United States. We intend to launch our COSTAR stent in India in the first half of 2005 pursuant to our distribution agreement with IVT. No regulatory approval is currently required to market our COSTAR stent in India. We expect to pursue commercialization in the United States with our own sales force.

Industry Background

Treatments for Coronary Artery Disease

Coronary artery disease is a progressive, pathological condition that leads to the obstruction of the blood vessels providing blood flow to the heart muscle. Treatments for patients with life-threatening coronary artery disease have advanced dramatically over the last 20 years, from highly invasive, open-chest bypass surgery to minimally invasive balloon angioplasty procedures. We estimate that more than 500,000 balloon angioplasty procedures are performed each year in the United States, with more than one million balloon angioplasties performed each year worldwide. While less invasive and expensive than open-chest bypass surgery, the ultimate clinical effectiveness of balloon angioplasty has been hampered by restenosis.

Evolution of Stents to Address Restenosis

Bare metal stents became widely used in the mid-1990s in combination with balloon angioplasty and quickly became used in the majority of angioplasty procedures. The use of bare metal stents partially addresses restenosis. However, we estimate that restenosis still occurs in approximately 10% to 35% of bare metal stent implantation procedures within six months of treatment, which typically necessitates repeat angioplasty, restenting or bypass surgery. To address this problem, drug eluting stents were developed. We believe that drug eluting stents represent the most advanced and sophisticated treatment currently available to address restenosis. According to published studies, currently marketed drug eluting stents have been shown in clinical trials to reduce the rate of restenosis to less than 10%.

We estimate that the bare metal stent industry accounted for approximately $2.3 billion in product sales in 2001, prior to the introduction of drug eluting stents. We estimate that bare metal stents were used in the majority of the more than one million angioplasty procedures performed worldwide in 2002. The first two marketed drug eluting stents, Johnson & Johnson’s CYPHER^™ stent and Boston Scientific Corporation’s TAXUS^™ Express^2™ stent, only recently gained regulatory approval. Market adoption of drug eluting stents has been rapid, and we believe that drug eluting stents will capture approximately 90% of the stent market within three years. We believe that the drug eluting stent industry will grow to over $6 billion by 2008. In addition to premium pricing of drug eluting stents, we expect that market growth in the drug eluting stent industry will also be driven by growth in the number of angioplasty procedures.

Our Solution

We believe that our stents possess the following key advantages compared to conventional surface-coated drug eluting stents:

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Our Strategy

Our goal is to become a leading innovator in the emerging field of vascular drug delivery through medical devices. Key elements of our strategy include:

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Risk Factors

We are subject to numerous business risks, including those described below and other risks described under “Risk Factors.”

Risks Related to Financial Condition

As of September 30, 2004, we had a deficit accumulated during the development stage of $34.4 million. We have incurred net losses in each year since our inception in 1999, including net losses of $11.0 million for the year ended December 31, 2003 and $15.8 million for the nine months ended September 30, 2004. We expect to continue to incur significant and increasing operating losses for the next several years. We anticipate that in the near term our ability to generate revenues will depend solely on the successful development, regulatory approval and commercialization of our COSTAR stent.

Risks Related to Intellectual Property

There are numerous U.S. and foreign issued patents and pending patent applications owned by third parties with patent claims in areas that are the focus of our product development efforts. We are aware of patents owned by third parties, to which we do not have licenses, that relate to, among other things:

For example, Boston Scientific Corporation owns a series of patents that cover the use of paclitaxel to treat restenosis generally and also to treat restenosis via a stent. In addition, Angiotech Pharmaceuticals, Inc. is the owner or licensee of, and has licensed to Boston Scientific and Cook Incorporated, a number of patents that also cover the use of paclitaxel coated stents to treat angiogenesis and restenosis. Boston Scientific, Guidant Corporation and other third parties also own other patents that may have a material adverse affect on us. We believe that it is highly likely that one or more third parties will assert a patent infringement claim against the manufacture, use or sale of our COSTAR stent based on one or more of these patents. Investors should assume that a lawsuit alleging that we have infringed or are infringing one or more patents controlled by a third party has been filed by a third party at or prior to the time of this offering. In the event a court determines that we infringe any valid claim in a patent held by a third party, we may, among other things:

We believe that it is unlikely that we would be able to obtain a license to any necessary patent rights controlled by companies, like Boston Scientific, against which we would compete directly.

Corporate Information

We were incorporated in 1999 in Delaware. Our principal executive offices are located at 1003 Hamilton Court, Menlo Park, California 94025, and our telephone number is (650) 614-4100. Our website address is http://www.conormed.com. The information contained in, or that can be accessed through, our website is not part of this prospectus. Unless the context indicates otherwise, as used in this prospectus, the terms “Conor Medsystems,” “we,” “us” and “our” refer to Conor Medsystems, Inc., a Delaware corporation, and its subsidiaries. We use Conor Medsystems^™, Conor^™, COSTAR^™ and the Conor Medsystems logo as trademarks in the United States and other countries. All other trademarks and tradenames mentioned in this prospectus are the property of their respective owners.

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The Offering

The number of shares of common stock to be outstanding immediately after this offering as shown above is based on 25,688,068 shares of common stock outstanding as of September 30, 2004. This number excludes:

Except as otherwise indicated, all information in this prospectus assumes:

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Summary Consolidated Financial Data

The following table summarizes our consolidated financial data. The consolidated statements of operations data for the years ended December 31, 2001, 2002 and 2003 are derived from our consolidated audited financial statements included elsewhere in this prospectus. The consolidated statements of operations data for the period from October 25, 1999 (inception) to December 31, 2000 have been derived from our consolidated audited financial statements not included in this prospectus. The consolidated statements of operations data for the nine months ended September 30, 2003 and 2004 and the period from October 25, 1999 (inception) through September 30, 2004 and the balance sheet data as of September 30, 2004 are derived from our consolidated unaudited financial statements which are included elsewhere in this prospectus. You should read this data together with our consolidated financial statements and related notes included elsewhere in this prospectus and the information under “Selected Consolidated Financial Data” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”

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The following table presents summary consolidated balance sheet data:

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RISK FACTORS

Investing in our common stock involves a high degree of risk. You should carefully consider the following risk factors and all other information contained in this prospectus before purchasing our common stock. If any of the following risks occur, our business, financial condition or results of operations could be materially and adversely affected. In these circumstances, the market price of our common stock could decline, and you may lose some or all of your investment.

Risks Related to Our Intellectual Property

Intellectual property rights, including in particular patent rights, play a critical role in the drug eluting stent sector of the medical device industry, and therefore in our business. We face significant risks relating to patents, both as to our own patent position as well as to patents held by third parties. These risks are summarized below. We describe in greater detail our patent position, and patents held by third parties that could impact our business, under the caption “Business—Patents and Proprietary Rights.” You should consider carefully the matters discussed under that caption and in the risk factors below in considering an investment in our common stock.

We believe that it is highly likely that one or more third parties will assert a patent infringement claim against us. If any such claim is successful, we could be enjoined, or prevented, from commercializing our COSTAR stent or other product candidates, and you should assume that a lawsuit asserting such a claim has been or will be filed against us.

There are numerous U.S. and foreign issued patents and pending patent applications owned by third parties with patent claims in areas that are the focus of our product development efforts. We are aware of patents owned by third parties, to which we do not have licenses, that relate to, among other things:

Based on the prolific litigation that has occurred in the stent industry and the fact that we may pose a competitive threat to some large and well-capitalized companies who own or control patents relating to stents and their use, manufacture and delivery, we believe that it is highly likely that one or more third parties will assert a patent infringement claim against the manufacture, use or sale of our COSTAR stent based on one or more of these patents. It is not unlikely that a lawsuit asserting patent infringement and related claims will be filed against us prior to the completion of this offering, and it is possible that a lawsuit may have already been filed against us of which we are not aware. Any lawsuit could seek to enjoin, or prevent, us from commercializing our COSTAR stent and may seek damages from us, and would likely be expensive for us to defend against. In particular, it has been reported that Boston Scientific plans to initiate litigation asserting patent infringement claims against us prior to commercialization of our COSTAR stent in the United States. We cannot predict when this lawsuit will be filed, and investors should assume that a lawsuit alleging that we have infringed or are infringing one or more patents controlled by Boston Scientific has been filed by Boston Scientific at or prior to the time of this offering. Although we have not otherwise received any definitive communications from third parties indicating that they intend to pursue patent infringement claims against us, we have received letters from third parties who have intellectual property rights in, or who have been actively involved in litigation or oppositions relating to, coronary stents, asserting that they may have rights to patents that are relevant to our operations or our stent platform and requesting the initiation of discussions. A court may determine that these patents are valid and infringed by us. A number of these patents are owned by very large and well-capitalized companies that are active participants in the stent market, such as Boston Scientific Corporation and Guidant Corporation. Several of these third party patents have been or are being asserted in litigation against purported infringers, demonstrating

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a willingness by the patent owners to litigate their claims. For a description of patents that we consider to pose a material litigation risk to us, see the discussion under the caption “Business—Patents and Proprietary Rights—Third-Party Patent Rights.” There may be patents in addition to those described under that caption that relate to aspects of our technology and that may materially and adversely affect our business. Moreover, because patent applications can take many years to issue, there may be currently pending applications, unknown to us, which may later result in issued patents that pose a material risk to us.

The stent and related markets have experienced rapid technological change and obsolescence in the past, and our competitors have strong incentives to stop or delay the introduction of new products and technologies. Some of the companies in these markets, such as Boston Scientific and Guidant Corporation, have been able to capture significant market share by introducing new technologies. These companies have maintained their position in the market by, among other things, establishing intellectual property rights relating to their products and enforcing these rights aggressively against their competitors and potential new entrants into the market. All of the major companies in the stent and related markets, including Boston Scientific Corporation, Johnson & Johnson, Guidant Corporation and Medtronic, have been repeatedly involved in patent litigation relating to stents since at least 1997. Recently filed patent litigation includes litigation between Boston Scientific and Johnson & Johnson relating to Boston Scientific’s drug eluting and bare metal stents and Johnson & Johnson’s drug eluting stent, as well as patent litigation by Advanced Cardiovascular Systems, a subsidiary of Guidant, against Boston Scientific relating to stent structure. Each company is claiming that the other company infringes its intellectual property. We may pose a competitive threat to many of the companies in the stent and related markets. Accordingly, many of these companies, especially Boston Scientific and others against which we would compete directly, will have a strong incentive to take steps, through patent litigation or otherwise, to prevent us from commercializing our COSTAR stent.

For example, Boston Scientific owns a series of patents, known as the “Kunz” patents, which cover the use of paclitaxel to treat restenosis generally and also to treat restenosis via a stent. Boston Scientific is currently asserting two of the Kunz patents in a patent infringement lawsuit in the Federal District Court in Delaware against Johnson & Johnson and Cordis Corporation, a subsidiary of Johnson & Johnson.

In addition, Angiotech Pharmaceuticals, Inc. is the owner of a number of patents, sometimes referred to as the “Hunter” patents, and has licensed from the U.S. government a number of other patents, sometimes referred to as the “Kinsella” patents, that also cover the use of paclitaxel coated stents to treat angiogenesis and restenosis. We understand that, in a 1997 license agreement, Angiotech granted co-exclusive sublicenses to Boston Scientific and Cook Inc. under these patents. On September 24, 2004, Angiotech announced that Cook elected to exit the coronary vascular field and focus on the development of paclitaxel-eluting peripheral vascular and gastrointestinal stents. Angiotech also announced that Cook returned all of its rights in the coronary vascular field under the 1997 license agreement to Angiotech. On November 23, 2004, Boston Scientific announced that they had become the only license holder of these rights in the coronary vascular field of use and had obtained the right to sublicense these rights. Angiotech announced that Cook will maintain its rights in the Angiotech patents in the field of paclitaxel-eluting peripheral vascular and gastrointestinal stents.

Boston Scientific owns other patents that may have a material adverse affect on us. These include a stent structure patent with claims covering an expanded stent with a plurality of cavities which are micro-holes or micro-slits that extend from the outer surface through the inner surface and which act as reservoirs for a substance.

In addition, Guidant owns a number of patents that could have a material adverse effect on us. These include the “Yock” family of patents that are directed to rapid exchange catheters, the “Lau” family of patents which claim rapid exchange catheters for stent delivery, another “Lau” family of patents directed to stent structures and the “Castro” patents, which are directed to a manufacturing process involving the application of a material to a stent.

While our products are in clinical trials, and prior to commercialization, we believe our activities in the United States related to the submission of data to the FDA fall within the scope of the exemptions that cover

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activities related to developing information for submission to the FDA and fall under general investigational use or similar laws in other countries. However, the U.S. exemptions would not cover our stent manufacturing or other activities in the United States that support overseas clinical trials if those activities are not also reasonably related to developing information for submission to the FDA. In any event, the fact that no third party has asserted a patent infringement claim against us to date should not be taken as an indication, or a level of comfort, that a patent infringement claim will not be asserted against us prior to or upon commercialization.

Whether we would, upon commercialization, infringe any patent claim will not be known with certainty unless and until a court interprets the patent claim in the context of litigation. If an infringement allegation is made against us, we may seek to invalidate the asserted patent claim and/or to allege non-infringement of the asserted patent claim. In order for us to invalidate a U.S. patent claim, we would need to rebut the presumption of validity afforded to issued patents in the United States with clear and convincing evidence of invalidity, which is a high burden of proof.

In the event that we are found to infringe any valid claim in a patent held by a third party, we may, among other things, be required to:

Any development or acquisition of non-infringing products or technology or licenses could require the expenditure of substantial time and other resources and could have a material adverse effect on our business and financial results. If we are required to, but cannot, obtain a license to valid patent rights held by a third party, we would likely be prevented from commercializing the relevant product. We believe that it is unlikely that we would be able to obtain a license to any necessary patent rights controlled by companies, like Boston Scientific, against which we would compete directly. This would include, for example, a license to the Kunz, Hunter or Kinsella patents. If we need to redesign products to avoid third-party patents, we may suffer significant regulatory delays associated with conducting additional studies or submitting technical, manufacturing or other information related to the redesigned product and, ultimately, in obtaining approval.

In addition, some of our agreements, including our agreement with Phytogen International LLC for the supply of paclitaxel, our distribution agreements with Biotronik AG and the St. Jude Medical affiliates and our supply agreements for laser-cut stents and catheters, require us to indemnify the other party in certain circumstances where our products have been found to infringe a patent or other proprietary rights of others. An indemnification claim against us may require us to pay substantial sums to our supplier, including its attorneys’ fees.

If we are unable to obtain and maintain intellectual property protection covering our products, others may be able to make, use or sell our products, which would adversely affect our market share, and, therefore, our revenues.

Our ability to protect our drug eluting stent technology from unauthorized or infringing use by third parties depends substantially on our ability to obtain and maintain valid and enforceable patents. Due to evolving legal standards relating to the patentability, validity and enforceability of patents covering medical devices and pharmaceutical inventions and the scope of claims made under these patents, our ability to obtain and enforce patents is uncertain and involves complex legal and factual questions. Accordingly, rights under any of our issued patents may not provide us with commercially meaningful protection for our drug eluting stents or afford us a commercial advantage against our competitors or their competitive products or processes. In addition,

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patents may not issue from any pending or future patent applications owned by or licensed to us, and moreover, patents that have issued to us or may issue in the future may not be valid or enforceable. Further, even if valid and enforceable, our patents may not be sufficiently broad to prevent others from marketing stents like ours, despite our patent rights.

The validity of our patent claims depends, in part, on whether prior art references described or rendered obvious our inventions as of the filing date of our patent applications. We may not have identified all prior art, such as U.S. and foreign patents or published applications or published scientific literature, that could adversely affect the validity of our issued patents or the patentability of our pending patent applications. For example, patent applications in the United States are maintained in confidence for up to 18 months after their filing. In some cases, however, patent applications remain confidential in the U.S. Patent and Trademark Office, which we refer to as the U.S. Patent Office, for the entire time prior to issuance as a U.S. patent. Patent applications filed in countries outside the United States are not typically published until at least 18 months from their first filing date. Similarly, publication of discoveries in the scientific or patent literature often lags behind actual discoveries. Therefore, we cannot be certain that we were the first to invent, or the first to file patent applications relating to, our stent technologies. In the event that a third party has also filed a U.S. patent application covering our stents or a similar invention, we may have to participate in an adversarial proceeding, known as an interference, declared by the U.S. Patent Office to determine priority of invention in the United States. It is possible that we may be unsuccessful in the interference, resulting in a loss of some portion or all of our U.S. position. The laws of some foreign jurisdictions do not protect intellectual property rights to the same extent as in the United States, and many companies have encountered significant difficulties in protecting and defending such rights in foreign jurisdictions. If we encounter such difficulties or we are otherwise precluded from effectively protecting our intellectual property rights in foreign jurisdictions, our business prospects could be substantially harmed.

We may initiate litigation to enforce our patent rights, which may prompt our adversaries in such litigation to challenge the validity, scope or enforceability of our patents. If a court decides that our patents are not valid, not enforceable or of a limited scope, we will not have the right to stop others from using our inventions.

We also rely on trade secret protection to protect our interests in proprietary know-how and for processes for which patents are difficult to obtain or enforce. We may not be able to protect our trade secrets adequately. In addition, we rely on non-disclosure and confidentiality agreements with employees, consultants and other parties to protect, in part, trade secrets and other proprietary technology. These agreements may be breached, and we may not have adequate remedies for any breach. Moreover, others may independently develop equivalent proprietary information, and third parties may otherwise gain access to our trade secrets and proprietary knowledge. Any disclosure of confidential data into the public domain or to third parties could allow our competitors to learn our trade secrets and use the information in competition against us.

We may incur substantial costs as a result of litigation or other proceedings relating to patent and other intellectual property rights.

There has been substantial litigation and other proceedings regarding patent and intellectual property rights in the medical device industry generally and the drug eluting stent industry in particular. We may be forced to defend claims of infringement brought by our competitors and others, and we may institute litigation against others who we believe are infringing our intellectual property rights. The outcome of patent litigation is subject to substantial uncertainties, especially in medical device-related patent cases that may, for example, turn on the interpretation of claim language by the court which may not be to our advantage, and also the testimony of experts as to technical facts upon which experts may reasonably disagree. Our involvement in intellectual property litigation could result in significant expense. Some of our competitors, such as Boston Scientific and Guidant, have considerable resources available to them and a strong economic incentive to undertake substantial efforts to stop or delay us from bringing our COSTAR stent to market and achieving market acceptance. We, on the other hand, are a development stage company with comparatively few resources available to us to engage in costly and protracted litigation. Moreover, regardless of the outcome, intellectual property litigation against or by

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us could significantly disrupt our development and commercialization efforts, divert our management’s attention and quickly consume our financial resources.

If third parties file patent applications or are issued patents claiming technology also claimed by us in pending applications, we may be required to participate in interference proceedings with the U.S. Patent Office or in other proceedings outside the United States, including oppositions, to determine priority of invention or patentability. Even if we are successful in these proceedings, we may incur substantial costs, and the time and attention of our management and scientific personnel will be diverted in pursuit of these proceedings.

Risks Related to Our Business

We will depend heavily on the success of our lead product candidate, our COSTAR stent, which is still in development. If we are unable to commercialize our COSTAR stent or experience significant delays in doing so, our ability to generate revenue will be significantly delayed and our business will be harmed.

We have invested all of our product development time and resources in our drug eluting stent technology, which we intend to commercialize initially in the form of our COSTAR stent. We anticipate that in the near term our ability to generate revenues will depend solely on the successful development, regulatory approval and commercialization of our COSTAR stent. If we are not successful in the completion of clinical trials for the development, approval and commercialization of our COSTAR stent, we may never generate any revenues and may be forced to cease operations. Although we are investigating the potential applicability of our stent technology to the treatment of an acute myocardial infarction, or AMI, we do not expect to seek regulatory approval of this product candidate for many years, if at all.

The commercial success of our COSTAR stent will depend upon successful completion of clinical trials, manufacturing commercial supplies, obtaining marketing approval, successfully launching the product and acceptance of the product by the medical community and third party payors as clinically useful, cost-effective and safe. If the data from our clinical trials is not satisfactory, we may not proceed with our planned filing of applications for regulatory approvals or we may be forced to delay the filings. Even if we file an application for approval with satisfactory clinical data, the FDA or foreign regulatory authorities may not accept our filing, or may request additional information, including data from additional clinical trials. The FDA or foreign regulatory authorities may also approve our COSTAR stent for very limited purposes with many restrictions on its use, may delay approval, or ultimately, may not grant marketing approval for our COSTAR stent. Even if we do receive FDA or foreign regulatory approval, we may be unable to gain market acceptance by the medical community and third party payors.

We do not have the necessary regulatory approvals to market our COSTAR stent or other product candidates, and we may never obtain regulatory approval.

We do not have the necessary regulatory approvals to market our COSTAR stent or any other product in the United States or in any foreign market. The regulatory approval process for our COSTAR stent involves, among other things, successfully completing clinical trials and obtaining FDA approval of a premarket approval application, or PMA, and obtaining equivalent foreign market approvals, including taking the steps necessary for our COSTAR stent to bear CE marking in the European Community. We cannot assure you that we will obtain the necessary regulatory approvals to market our COSTAR stent in the United States or abroad.

Our COSTAR stent is a combination product that will be regulated primarily as a class III medical device in the United States, which cannot be commercially distributed until the FDA approves our PMA. The premarket approval process can be expensive and uncertain, requires detailed and comprehensive scientific and other data, generally takes several years and may never result in the FDA granting premarket approval. We will also have to obtain similar, or in some cases more stringent, foreign marketing approval in order to commercialize our product candidates outside of the United States. If we do not obtain the requisite regulatory or marketing

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approvals, we will be unable to market our COSTAR stent and may never recover any of the substantial costs we have invested in the development of our COSTAR stent.

If our pre-clinical tests or clinical trials for our COSTAR stent or other product candidates do not meet safety or efficacy endpoints, or if we experience significant delays in these tests or trials, our ability to commercialize our COSTAR stent or other product candidates and our financial position will be impaired.

Before marketing our COSTAR stent or any other product candidate, we must successfully complete pre-clinical studies and clinical trials that demonstrate that the product is safe and effective. Product development, including pre-clinical studies and clinical testing, is a long, expensive and uncertain process and is subject to delays. It may take us several years to complete our testing, if at all, and a trial may fail at any stage. For example, we discovered that the dosage formulations for our SCEPTER trial were not ideal, and we decided not to complete the data analysis from this trial.

The results of pre-clinical or clinical studies do not necessarily predict future clinical trial results, and acceptable results in early studies might not be seen in later studies. For example, the four-month follow-up data from our PISCES study may not be sustained in later follow-up of patients in the trial, and we may discover unanticipated side effects. Any pre-clinical or clinical test may fail to produce results satisfactory to the FDA or foreign regulatory authorities. Pre-clinical and clinical data can be interpreted in different ways, which could delay, limit or prevent regulatory approval.

We intend to design the protocol of our planned pivotal U.S. clinical trial for our COSTAR stent based in part on prior clinical trials that used different stents. The results of these prior clinical trials may not be indicative of the clinical results we would obtain for our U.S. pivotal clinical trial.

We intend to commercialize our drug eluting stent technology in the form of our COSTAR stent, which is a cobalt chromium, paclitaxel eluting stent. We have only limited clinical data on our COSTAR stent, which we derived from the COSTAR I study. Our other prior clinical trials used either a bare metal stainless steel stent or a stainless steel, paclitaxel eluting stent. In addition to using a different metal than used in our COSTAR stent, the stainless steel stent had slightly different dimensions than our COSTAR stent. We intend to design the protocol, including the dosage formulations, for our planned U.S. pivotal clinical trial based on the results of these prior clinical trials. This trial is being designed in large part based on the results of our PISCES study, which used a stainless steel, paclitaxel eluting form of our stent technology, as well as on the results of our COSTAR I study. Currently, we have only four-month follow-up data from these studies.

The results of these prior trials may not be indicative of the behavior of, and therefore the clinical results we will obtain with, our COSTAR stent. If results at least as favorable as the four-month results in our PISCES and COSTAR I studies are not observed in subsequent clinical trials, our development efforts will be delayed or halted and our business may be harmed.

The clinical results we have reported to date are after four-month follow-up, and may not be indicative of future clinical results.

The clinical results we have reported to date are limited to four-month follow-up data from our PISCES study and our COSTAR I study. The pivotal trial we are conducting for marketing approval in the European Community, EuroSTAR, will report six-month follow-up data, and our planned U.S. pivotal clinical trial, COSTAR II, will require at least eight-month follow-up data. The four-month results from our PISCES and COSTAR I studies may not be indicative of the clinical results obtained when we examine the patients at a later date. While the stainless steel, paclitaxel eluting stent has shown favorable results after four months in our PISCES study, it is possible that the results are not durable, and that the long-term results we obtain with our COSTAR stent may not show similar effectiveness.

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Our current and planned clinical trials may not begin on time, or at all, and may not be completed on schedule, or at all.

The commencement or completion of any of our clinical trials may be delayed or halted for numerous reasons, including, but not limited to, the following:

Before we can commence our planned U.S. pivotal clinical trial for our COSTAR stent, an investigational device exemption, or IDE, application must be approved by the FDA. Although we currently anticipate submitting an IDE application to the FDA in 2005, the timing of our IDE submission or the FDA’s approval may be delayed for a number of reasons. For example, in animal studies, we observed evidence of small cracks in the previous design of our COSTAR stent. Accordingly, we modified the design of our COSTAR stent in mid-2004, which we believe eliminated the potential for the small cracks we observed in the animal studies. We anticipate our IDE submission will be based, in part, on data from trials conducted with the previous stent design. The FDA may require us to conduct additional studies with the modified stent, which could delay the timing of our IDE submission and/or FDA approval to commence the trial. The FDA may also require us to conduct additional studies of our COSTAR stent since a significant percentage of the patients evaluated in our clinical trials to date were treated with our paclitaxel eluting stainless steel stent. Additionally, the FDA may require us to conduct additional studies of our COSTAR stent at the paclitaxel dose to be used in our planned U.S. pivotal clinical trial. Discussions with the FDA regarding other aspects of our planned clinical trial may also delay the submission of our IDE application or the FDA’s approval of the application.

Clinical trials may require the enrollment of large numbers of patients, and suitable patients may be difficult to identify and recruit. For example, the FDA may require that we enroll 2,000 or more patients for our U.S. pivotal clinical trial for our COSTAR stent. Patient enrollment in clinical trials and completion of patient follow-up in clinical trials depend on many factors, including the size of the patient population, the nature of the trial protocol, the proximity of patients to clinical sites and the eligibility criteria for the study and patient compliance. For example, patients may be discouraged from enrolling in our clinical trials if the trial protocol requires them to undergo extensive post-treatment procedures to assess the safety and effectiveness of our COSTAR stent, or they may be persuaded to participate in contemporaneous trials of competitive products. In addition, patients participating in our clinical trials may die before completion of the trial or suffer adverse medical effects unrelated to our COSTAR stent. Delays in patient enrollment or failure of patients to continue to participate in a study may cause an increase in costs and delays or result in the failure of the trial.

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Our development costs will increase if we have material delays in our clinical trials or if we need to perform more or larger clinical trials than planned. Adverse events during a clinical trial could cause us to repeat a trial, terminate a trial or cancel the entire program.

Problems with the stent to be used in the control group could adversely affect our planned U.S. pivotal clinical trial for our COSTAR stent.

Our planned U.S. pivotal clinical trial of our COSTAR stent could be significantly delayed or harmed if we experience problems with the stent to be used in the control group for this trial. We plan to use one of the two currently marketed drug eluting stents, Johnson & Johnson’s CYPHER^™ stent and Boston Scientific’s TAXUS^™ Express^2™ stent, as the control stent in our planned U.S. pivotal clinical trial. In July 2004, Boston Scientific announced the recall of approximately 85,000 TAXUS^™ Express^2™ stent systems and approximately 11,000 Express^2™ stent systems due to characteristics in the delivery catheters that have the potential to impede balloon deflation during a coronary angioplasty procedure. In August 2004, Boston Scientific announced that it would recall an additional 3,000 TAXUS^™ Express^2™ stents. If prior to or during the enrollment and treatment period for our planned U.S. pivotal clinical trial, there is a recall of the control stent or the control stent is removed from the market, our trial would likely be substantially delayed. The FDA could also require us to redesign the trial based on an alternative control stent. Any significant delay or redesign would significantly delay and potentially impair our ability to commercialize our COSTAR stent.

We may not be successful in our efforts to expand our portfolio of products and develop additional drug delivery technologies.

A key element of our strategy is to discover, develop and commercialize a portfolio of new products in addition to our COSTAR stent. We are seeking to do so through our internal research programs and intend to explore strategic collaborations for the development of new products utilizing our stent technology. Research programs to identify new disease targets, product candidates and delivery techniques require substantial technical, financial and human resources, whether or not any product candidates are ultimately identified. Our research programs may initially show promise in identifying potential product candidates, yet fail to yield product candidates for clinical development for many reasons, including the following:

Our strategy also includes exploring the use of compounds and drugs other than paclitaxel for the treatment of restenosis and other indications. We may not be able obtain any necessary licenses to promising compounds or drugs on reasonable terms, if at all. In addition, our strategy includes substantial reliance on strategic collaborations with others to develop new products. If these collaborators do not prioritize and commit substantial resources to these collaborations, or if we are unable to secure successful collaborations on acceptable business terms, we may be unable to discover suitable potential product candidates or develop additional delivery technologies and our business prospects will suffer.

Pre-clinical development is a long, expensive and uncertain process, and we may terminate one or more of our pre-clinical development programs.

We may determine that certain pre-clinical product candidates or programs do not have sufficient potential to warrant the allocation of resources, such as the potential development of our stent technology for the treatment of AMI. Accordingly, we may elect to terminate our programs for such product candidates. If we terminate a pre-

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clinical program in which we have invested significant resources, our prospects will suffer, as we will have expended resources on a program that will not provide a return on our investment and will have missed the opportunity to have allocated those resources to potentially more productive uses.

We depend on single source suppliers for our COSTAR stent components, manufacturing components, and the active drug used in our COSTAR stent. The loss of these suppliers could delay our clinical trials or prevent or delay commercialization of our COSTAR stent.

We rely on third parties to supply us with the critical components and the active drug, paclitaxel, used in our COSTAR stent. Phytogen International LLC is our sole supplier of paclitaxel. Our agreement with Phytogen restricts our ability to commercialize products that incorporate paclitaxel we purchase from third parties, and there is a limited number of alternative suppliers that are capable of manufacturing paclitaxel and are willing, or legally able, to do so. In addition, the agreement permits Phytogen to manufacture and supply paclitaxel to others. If Phytogen is unable or refuses to meet our demand for paclitaxel, if Phytogen terminates its agreement with us or if Phytogen’s supplies do not meet quality and other specifications, the development and commercialization of our COSTAR stent could be prevented or delayed. To date, our paclitaxel requirements have consisted of quantities that we need to conduct our pre-clinical and clinical trials. If we obtain market approval for our COSTAR stent, we anticipate that we will require substantially larger quantities of paclitaxel. Phytogen may not provide us with sufficient quantities of paclitaxel that meet quality and other specifications, and we may not be able to locate an alternative supplier of paclitaxel in a timely manner or on commercially reasonable terms, if at all.

We do not have long-term contracts with our third party suppliers of stent delivery catheters or the cobalt chromium tubing and laser-precision cutting process required to produce our COSTAR stent. In addition, we do not have long-term contracts with our third party suppliers of some of the equipment and components that are used in our manufacturing process. Except for the suppliers of our laser-cut stents and stent delivery catheters, none of our suppliers have agreed to maintain a guaranteed level of production capacity. Furthermore, suppliers that have guaranteed a level of production capacity may still be unable to satisfy our supply needs. Establishing additional or replacement suppliers for these components may take a substantial amount of time. We may also have difficulty obtaining similar components from other suppliers that are acceptable to the FDA or foreign regulatory authorities. Furthermore, since some of these suppliers are located outside of the United States, we are subject to foreign export laws and U.S. import and customs regulations, which complicate and could delay shipments to us. Some of the manufacturers of stent components are also our competitors and may be reluctant to supply components to us on favorable terms, if at all.

If we have to switch to replacement suppliers, we may face additional regulatory delays and the manufacture and delivery of our COSTAR stent could be interrupted for an extended period of time, which may delay completion of our clinical trials or commercialization of our COSTAR stent. In addition, we will be required to obtain regulatory clearance from the FDA or foreign regulatory authorities to use different suppliers or components that may not be as safe or as effective. As a result, regulatory approval of our COSTAR stent may not be received on a timely basis or at all.

We have limited manufacturing capabilities and manufacturing personnel, and if our manufacturing facilities are unable to provide an adequate supply of products, our growth could be limited and our business could be harmed.

We currently manufacture our COSTAR stent at our facilities in Menlo Park, California, and we are currently establishing manufacturing capacity in Ireland to manufacture our COSTAR stent for sale outside of the United States. If there were a disruption to our existing manufacturing facility, we would have no other means of manufacturing our COSTAR stent until we were able to restore the manufacturing capability at our facility or develop alternative manufacturing facilities. If we were unable to produce sufficient quantities of our COSTAR stent for use in our current and planned clinical trials, or if our manufacturing process yields substandard stents, our development and commercialization efforts would be delayed.

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We currently have limited resources, facilities and experience to commercially manufacture our product candidates. In order to produce our COSTAR stent in the quantities that we anticipate will be required to meet anticipated market demand, we will need to increase, or “scale up,” the production process by a significant factor over the current level of production. There are technical challenges to scaling-up manufacturing capacity, and developing commercial-scale manufacturing facilities would require the investment of substantial additional funds and hiring and retaining additional management and technical personnel who have the necessary manufacturing experience. We may not successfully complete any required scale-up in a timely manner or at all. If we are unable to do so, we may not be able to produce our COSTAR stent in sufficient quantities to meet the requirements for the launch of the product or to meet future demand, if at all. If we develop and obtain regulatory approval for our COSTAR stent and are unable to manufacture a sufficient supply of our COSTAR stent, our revenues, business and financial prospects would be adversely affected. In addition, if the scaled-up production process is not efficient or produces stents that do not meet quality and other standards, our future gross margins may decline.

In addition, while we have validated our manufacturing process for consistency, we have experienced drug release kinetic variability within and between manufacturing lots, and we may experience similar issues in the future. Manufacturing lot variability may result in unfavorable clinical trial results.

Additionally, any damage to or destruction of our Menlo Park facilities or our equipment, prolonged power outage or contamination at our facility would significantly impair our ability to produce our COSTAR stents. For example, because our Menlo Park facilities are located in a seismic zone, we face the risk that an earthquake may damage our facilities and disrupt our operations.

Our manufacturing facilities and the manufacturing facilities of our suppliers must comply with applicable regulatory requirements. If we fail to achieve regulatory approval for these manufacturing facilities, our business and our results of operations would be harmed.

Completion of our clinical trials and commercialization of our product candidates require access to, or the development of, manufacturing facilities that meet applicable regulatory standards to manufacture a sufficient supply of our products. Although we are currently in the process of establishing a manufacturing facility in Ireland for products to be sold outside of the United States, our manufacturing facility may not meet applicable foreign regulatory requirements or standards at acceptable cost and on a timely basis. In addition, the FDA must approve facilities that manufacture our products for U.S. commercial purposes, as well as the manufacturing processes and specifications for the product. Suppliers of components of, and products used to manufacture, our products must also comply with FDA and foreign regulatory requirements, which often require significant time, money and record-keeping and quality assurance efforts and subject us and our suppliers to potential regulatory inspections and stoppages. Our suppliers may not satisfy these requirements. If we or our suppliers do not achieve required regulatory approval for our manufacturing operations, our commercialization efforts could be delayed, which would harm our business and our results of operations.

Quality issues in our manufacturing processes could delay our clinical development and commercialization efforts.

The production of our COSTAR stent must occur in a highly controlled, clean environment to minimize particles and other yield- and quality-limiting contaminants. In spite of stringent quality controls, weaknesses in process control or minute impurities in materials may cause a substantial percentage of defective products in a lot. If we are not able to maintain stringent quality controls, or if contamination problems arise, our clinical development and commercialization efforts could be delayed, which would harm our business and our results of operations.

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Our COSTAR stent may never achieve market acceptance even if we obtain regulatory approvals.

Even if we obtain regulatory approval, our COSTAR stent, or any other drug delivery device that we may develop, may not gain market acceptance among physicians, patients, health care payors and the medical community. The degree of market acceptance of any of our drug delivery devices that we may develop will depend on a number of factors, including:

If our COSTAR stent, or any other drug delivery device that we may develop, is approved but does not achieve an adequate level of acceptance by physicians, healthcare payors and patients, we may not generate product revenue and we may not become profitable.

If we fail to obtain an adequate level of reimbursement for our products by third party payors, there may be no commercially viable markets for our product candidates or the markets may be much smaller than expected.

The availability and levels of reimbursement by governmental and other third party payors affect the market for our product candidates. The efficacy, safety, performance and cost-effectiveness of our product candidates and of any competing products will determine the availability and level of reimbursement. Reimbursement and healthcare payment systems in international markets vary significantly by country, and include both government sponsored healthcare and private insurance. To obtain reimbursement or pricing approval in some countries, we may be required to produce clinical data, which may involve one or more clinical trials, that compares the cost-effectiveness of our products to other available therapies. We may not obtain international reimbursement or pricing approvals in a timely manner, if at all. Our failure to receive international reimbursement or pricing approvals would negatively impact market acceptance of our products in the international markets in which those approvals are sought. Although we intend to commercialize our COSTAR stent in India, India does not currently have a reimbursement infrastructure, and we do not anticipate that the commercialization of our COSTAR stent in India will provide us with any significant revenues.

We believe that future reimbursement may be subject to increased restrictions both in the United States and in international markets. Future legislation, regulation or reimbursement policies of third party payors may adversely affect the demand for our products currently under development and limit our ability to sell our product candidates on a profitable basis. In addition, third party payors continually attempt to contain or reduce the costs of healthcare by challenging the prices charged for healthcare products and services. If reimbursement for our products is unavailable or limited in scope or amount or if pricing is set at unsatisfactory levels, market acceptance of our products would be impaired and our future revenues, if any, would be adversely affected.

If we are unable to establish sales and marketing capabilities or enter into and maintain arrangements with third parties to sell and market our COSTAR stent, our business may be harmed.

We do not have a sales organization and have no experience as a company in the sales, marketing and distribution of drug eluting stents or other medical devices. To market and sell our COSTAR stent internationally, we have entered into distribution agreements with third parties and anticipate that we will have to enter into additional distribution arrangements. Our existing distribution agreements are generally short-term in duration, and we will have to pursue alternative distributors if the other parties to these distribution agreements terminate or elect not to renew their agreements with us. If our relationships with our distributors do not progress

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as anticipated, or if their sales and marketing strategies fail to generate sales of our products in the future, our business, financial condition and results of operations would be harmed.

If our COSTAR stent is approved for commercial sale in the United States, we currently plan to establish our own sales force to market it in the United States. If we develop our own marketing and sales capabilities, our sales force will be competing with the experienced and well-funded marketing and sales operations of our competitors. Developing a sales force is expensive and time consuming and could delay or limit the success of any product launch. We may not be able to develop this capacity on a timely basis or at all. If we are unable to establish sales and marketing capabilities, we will need to contract with third parties to market and sell our COSTAR stent in the United States. To the extent that we enter into arrangements with third parties to perform sales, marketing and distribution services in the United States, our product revenues could be lower than if we directly marketed and sold our COSTAR stent, or any other drug delivery device that we may develop. Furthermore, to the extent that we enter into co-promotion or other marketing and sales arrangements with other companies, any revenues received will depend on the skills and efforts of others, and we do not know whether these efforts will be successful. Some of our existing or future distributors may have products or product candidates that compete with ours, and they may have an incentive not to devote sufficient efforts to marketing our products. For example, Biotronik AG, with whom we have an agreement that primarily covers European distribution, is developing an absorbable magnesium alloy stent. If we are unable to establish and maintain adequate sales, marketing and distribution capabilities, independently or with others, we may not be able to generate product revenue and may not become profitable.

The medical device industry is highly competitive and subject to rapid technological change. If our competitors are better able to develop and market products that are safer and more effective than any products that we may develop, our commercial opportunity will be reduced or eliminated.

The medical device industry is highly competitive and subject to rapid and profound technological change. Our success depends, in part, upon our ability to maintain a competitive position in the development of technologies and products in the drug delivery field.

We face competition from established pharmaceutical and biotechnology companies, as well as from academic institutions, government agencies and private and public research institutions in the United States and abroad. Our principal competitors have significantly greater financial resources and expertise in research and development, manufacturing, pre-clinical testing, conducting clinical trials, obtaining regulatory approvals and marketing approved products than we do. For example, Johnson & Johnson and Boston Scientific, two companies with far greater financial and marketing resources than we possess, have both developed, and are actively marketing, drug eluting stents which have been approved by the FDA. We may be unable to demonstrate that our COSTAR stent offers any advantages over Johnson & Johnson’s CYPHER^™ stent or Boston Scientific’s TAXUS^™ Express^2™ stent. In addition, in August 2004, Boston Scientific announced that it had begun enrolling patients in a pivotal study to support commercialization of its new TAXUS^™ Liberte^™ coronary stent as a platform for its paclitaxel eluting coronary stent system. Boston Scientific has stated that the trial is designed to assess the safety and efficacy of a slow-release dose formulation for the treatment of coronary disease and that the TAXUS^™ Liberte^™ stent system is designed to further enhance deliverability and conformability, particularly in challenging lesions. Many other large companies, including Guidant Corporation, Medtronic Inc. and Abbott Laboratories, among others, are reportedly developing drug eluting stents. Smaller or early-stage companies may also prove to be significant competitors, particularly through collaborative arrangements with, or mergers with or acquisitions by, large and established companies or through the development of novel products and technologies.

Our competitors may:

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The industry in which we operate has undergone, and is expected to continue to undergo, rapid and significant technological change, and we expect competition to intensify as technical advances are made. Our competitors may develop and commercialize stents or other medical device or pharmaceutical products that are safer or more effective, have fewer side effects or are less expensive than any products that we may develop. For example, we are aware of companies that are developing various other less-invasive technologies for treating cardiovascular disease, which could make our stent platform obsolete. We also compete with our competitors in recruiting and retaining qualified scientific and management personnel, establishing clinical trial sites and patient registration for clinical trials, as well as in acquiring technologies and technology licenses complementary to our programs or advantageous to our business.

If the third parties on whom we rely to conduct our clinical trials and to assist us with pre-clinical development do not perform as contractually required or expected, we may not be able to obtain regulatory approval for or commercialize our product candidates.

We do not have the ability to independently conduct clinical trials for our product candidates, and we must rely on third parties, such as contract research organizations, medical institutions, clinical investigators and contract laboratories to conduct our clinical trials. In addition, we rely on third parties to assist with our pre-clinical development of product candidates. If these third parties do not successfully carry out their contractual duties or regulatory obligations or meet expected deadlines, if these third parties need to be replaced or if the quality or accuracy of the data they obtain is compromised due to the failure to adhere to our clinical protocols or regulatory requirements or for other reasons, our pre-clinical development activities or clinical trials may be extended, delayed, suspended or terminated, and we may not be able to obtain regulatory approval for or successfully commercialize our product candidates on a timely basis, if at all. Furthermore, our third party clinical trial investigators may be delayed in conducting our clinical trials for reasons outside of their control. For instance, one of our competitors is a major supplier of the intravascular ultrasound, or IVUS, catheters used in our clinical trials to measure percent volume obstruction, or the volume of the lumen, or the inner channel of the artery through which blood flows, in the stent occupied by restenotic tissue. If the supply of IVUS catheters to our clinical trial sites is interrupted, our clinical trials may be delayed or terminated.

Our product candidates are based on a new technology, and we have only limited experience in regulatory affairs, which may affect our ability or the time required to obtain necessary regulatory approvals, if at all.

Drug eluting stents were introduced in the U.S. marketplace in 2003. To date, the FDA has approved only Boston Scientific’s TAXUS^™ Express^2™ and Johnson & Johnson’s CYPHER^™ drug eluting stents for commercial sale. Because drug eluting stents are relatively new, regulatory agencies, including the FDA, may be slower in evaluating product candidates. For example, there are currently several measures of restenosis, including binary restenosis rate, in-stent late loss, in-segment late loss, percentage volume obstruction and percentage diameter loss. Treatments may exhibit a favorable measure using one of these metrics and an unfavorable measure using another metric. It has not been settled which of these metrics, or another metric, is the ideal measure for evaluating the clinical effectiveness of stents. It is possible that a change in the accepted metrics may result in reconfiguration and delays in our clinical trials or our COSTAR stent being considered not to be clinically effective.

Furthermore, unlike surface-coated stents, our product candidates are based on drug delivery polymer reservoirs. Because there are currently no approved products based on this technology, the regulatory requirements governing this type of product may be more rigorous or less clearly established than those for already approved surface-coated stents or other vascular drug delivery devices. In addition, our COSTAR stent has not been approved for use as a bare stent, and we do not expect to obtain FDA approval for this stent as a bare stent prior to filing our PMA with the FDA. We must provide the FDA and foreign regulatory authorities with pre-clinical and clinical data that demonstrate that our product candidates are safe and effective before they can be approved for commercial sale. We have only limited experience in filing and prosecuting the applications

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necessary to gain regulatory approvals, and our clinical staff is currently composed of only six employees. As a result, we may experience a longer regulatory process in connection with obtaining regulatory approvals for our product candidates.

Even if our products are approved by regulatory authorities, if we fail to comply with ongoing regulatory requirements, or if we experience unanticipated problems with our products, these products could be subject to restrictions or withdrawal from the market.

Any product for which we obtain marketing approval, along with the manufacturing processes, post-approval clinical data and promotional activities for such product, will be subject to continual review and periodic inspections by the FDA and other regulatory bodies. Even if regulatory approval of a product is granted, the approval may be subject to limitations on the indicated uses for which the product may be marketed or contain requirements for costly post-marketing testing and surveillance to monitor the safety or efficacy of the product. Later discovery of previously unknown problems with our products, including unanticipated adverse events or adverse events of unanticipated severity or frequency, manufacturer or manufacturing problems or failure to comply with regulatory requirements, may result in restrictions on such products or manufacturing processes, withdrawal of the products from the market, voluntary or mandatory recall, fines, suspension of regulatory approvals, product seizures, injunctions or the imposition of civil or criminal penalties.

Failure to obtain regulatory approval in foreign jurisdictions will prevent us from marketing our products abroad.

We intend to market our products in international markets. In order to market our products in the European Community and many other foreign jurisdictions, we must obtain separate regulatory approvals. The approval procedure varies among countries and can involve additional testing, and the time required to obtain approval may differ from that required to obtain FDA approval. The foreign regulatory approval process may include all of the risks associated with obtaining FDA approval in addition to other risks. We may not obtain foreign regulatory approvals on a timely basis, if at all. Approval by the FDA does not ensure approval by regulatory authorities in other countries, and approval by one foreign regulatory authority does not ensure approval by regulatory authorities in other foreign countries or by the FDA. We may not be able to file for regulatory approvals and may not receive necessary approvals to commercialize our products in any market.

We have incurred losses since inception and anticipate that we will incur continued losses for the foreseeable future.

We are a development stage company with a limited operating history. As of September 30, 2004, we had a deficit accumulated during the development stage of $34.4 million. We have incurred net losses in each year since our inception in 1999, including net losses of $11.0 million for the year ended December 31, 2003 and $15.8 million for the nine months ended September 30, 2004. We expect to continue to incur significant and increasing operating losses, in the aggregate and on a per share basis, for the next several years. These losses, among other things, have had and will continue to have an adverse effect on our stockholders’ equity, net current assets and working capital.

Because of the numerous risks and uncertainties associated with developing medical devices, we are unable to predict the extent of any future losses or when we will become profitable, if at all. Currently, we have no products available for commercial sale, and, to date, we have not generated any product revenue. We have financed our operations and internal growth primarily through private placements of equity securities and convertible promissory notes. We have devoted substantially all of our efforts to research and development, including clinical trials.

We expect our research and development expenses to increase in connection with the conduct of our clinical trials. We also expect to incur significant costs to construct our planned manufacturing facilities in Ireland. If we complete our initial public offering, we expect that our general and administrative and legal costs will increase

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due to the additional operational and regulatory burdens applicable to public companies. In addition, subject to regulatory approval of any of our product candidates, we expect to incur sales and marketing and increased manufacturing expenses.

We may need substantial additional funding and may be unable to raise capital when needed, which would force us to delay, reduce or eliminate our product development programs or commercialization efforts.

We may need to raise substantial additional capital to:

We believe that the net proceeds from this offering, together with our existing cash and cash equivalent balances and interest we earn on these balances, will be sufficient to meet our anticipated cash requirements through at least the first half of 2006. However, our future funding requirements will depend on many factors, including:

Until we can generate a sufficient amount of product revenue, if ever, we expect to finance future cash needs through public or private equity offerings, debt financings or corporate collaboration and licensing arrangements, as well as through interest income earned on cash balances.

If we raise additional funds by issuing equity securities, our stockholders may experience dilution. Debt financing, if available, may involve restrictive covenants. Any debt financing or additional equity that we raise may contain terms that are not favorable to us or our stockholders. If we raise additional funds through collaboration and licensing arrangements with third parties, it will be necessary to relinquish some rights to our technologies or our product candidates, or grant licenses on terms that are not favorable to us. If we are unable to raise adequate funds, we may have to liquidate some or all of our assets or delay, reduce the scope of or eliminate some or all of our development programs.

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We depend on our officers, and if we are not able to retain them or recruit additional qualified personnel, our business will suffer.

We are highly dependent on our Chairman and Chief Executive Officer, Dr. Frank Litvack, and our Chief Technology Officer, John F. Shanley, and our other officers. Due to the specialized knowledge each of our officers possesses with respect to interventional cardiology and our operations, the loss of service of any of our officers could delay or prevent the successful completion of our clinical trials and the commercialization of our COSTAR stent. Each of our officers may terminate their employment without notice and without cause or good reason. We do not carry key person life insurance on our officers.

In addition, our growth will require hiring a significant number of qualified scientific, commercial and administrative personnel. Accordingly, recruiting and retaining such personnel in the future will be critical to our success. There is intense competition from other companies and research and academic institutions for qualified personnel in the areas of our activities. Our offices are located in the San Francisco Bay Area, where competition for personnel with healthcare industry skills is intense. If we fail to identify, attract, retain and motivate these highly skilled personnel, we may be unable to continue our development and commercialization activities.

If we are unable to manage our expected growth, we may not be able to commercialize our product candidates, including our COSTAR stent.

We expect to rapidly expand our operations and grow our research and development, product development and administrative operations, including the establishment of a manufacturing facility in Ireland. This expansion has placed, and is expected to continue to place, a significant strain on our management and operational and financial resources. In particular, the commencement of our planned U.S. pivotal clinical trial will consume a significant portion of management’s time and our financial resources. To manage any further growth and to commercialize our COSTAR stent, we will be required to improve existing and implement new operational and financial systems, procedures and controls and expand, train and manage our growing employee base. Our current and planned personnel, systems, procedures and controls may not be adequate to support our anticipated growth. If we are unable to manage our growth effectively, our business could be harmed.

If we do not achieve our projected development goals in the time frames we announce and expect, the commercialization of our product candidates may be delayed and, as a result, our stock price may decline.

From time to time, we estimate and publicly announce (including in this prospectus) the timing of the accomplishment of various clinical, regulatory and other product development goals, which we sometimes refer to as milestones. These milestones include the submission to the FDA of an IDE application to commence our U.S. pivotal clinical trial for our COSTAR stent, the enrollment of patients in our clinical trials, the release of data from our clinical trials and other clinical and regulatory events. These estimates are based on a variety of assumptions. The actual timing of these milestones can vary dramatically compared to our estimates, in some cases for reasons beyond our control. If we do not meet these milestones as publicly announced, the commercialization of our products may be delayed and, as a result, our stock price may decline.

Changes in foreign currency exchange rates may increase our expenses or reduce our revenues.

If we obtain regulatory approval, we intend to market our COSTAR stent in foreign markets by contracting with distributors. The related distribution agreements may provide for payments in a foreign currency. For example, our current distribution agreement with Biotronik AG provides for payments to us in euros. In addition, we are currently developing a manufacturing facility in Ireland, for which we expect to incur expenses, including construction expenses, rental payments and employees salaries, denominated in euros. Our contracts for conducting certain of our clinical trials in Europe are also denominated in euros. Accordingly, if the euro strengthens against the U.S. dollar, our expenses related to our foreign clinical trials and Ireland facilities will increase, and if the U.S. dollar strengthens against the euro, our payments from Biotronik, if any, will decrease.

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We may become exposed to fluctuations in other foreign currencies in the future, and our exposure to foreign currency exchange rates may adversely affect our results of operations.

Risks Related To Our Industry

Legislative or regulatory reform of the healthcare system may affect our ability to sell our products profitably.

In both the United States and certain foreign jurisdictions, there have been a number of legislative and regulatory proposals to change the regulatory and healthcare systems in ways that could impact our ability to sell our products profitably, if at all. In the United States in recent years, new legislation has been proposed at the federal and state levels that would effect major changes in the healthcare system. In addition, new regulations and interpretations of existing healthcare statutes and regulations are frequently adopted. For example, the Office of Inspector General of the U.S. Department of Health and Human Services, or OIG, has announced that during the 2005 fiscal year, it will review in-patient and out-patient claims involving arterial stent implantation to determine whether Medicare payments for these services were appropriate. A determination by the OIG that inappropriate billing of arterial stents to Medicare is widespread could lead to increased enforcement of Medicare requirements regarding their use. The potential for adoption of these proposals affects or will affect our ability to raise capital, obtain additional collaborators and market our products. We expect to experience pricing pressures in connection with the future sale of our products due to the trend toward managed health care, the increasing influence of health maintenance organizations and additional legislative proposals. Our results of operations could be adversely affected by future healthcare reforms.

We face the risk of product liability claims and may not be able to obtain insurance.

Our business exposes us to the risk of product liability claims that is inherent in the testing, manufacturing and marketing of medical devices. We may be subject to product liability claims if our stents cause, or merely appear to have caused, an injury. Claims may be made by consumers, healthcare providers, third party strategic collaborators or others selling our products. Although we have product liability and clinical trial liability insurance that we believe is appropriate, this insurance is subject to deductibles and coverage limitations. Our current product liability insurance may not continue to be available to us on acceptable terms, if at all, and, if available, the coverages may not be adequate to protect us against any future product liability claims. In addition, if any of our product candidates are approved for marketing, we may seek additional insurance coverage. If we are unable to obtain insurance at acceptable cost or on acceptable terms with adequate coverage or otherwise protect against potential product liability claims, we will be exposed to significant liabilities, which may harm our business. A product liability claim, recall or other claim with respect to uninsured liabilities or for amounts in excess of insured liabilities could have a material adverse effect on our business, financial condition and results of operations.

We may be subject to claims against us even if the apparent injury is due to the actions of others. For example, we rely on the expertise of physicians, nurses and other associated medical personnel to perform the medical procedure and related processes to implant our coronary stents into patients. If these medical personnel are not properly trained or are negligent, the therapeutic effect of our stents may be diminished or the patient may suffer critical injury, which may subject us to liability. In addition, an injury that is caused by the activities of our suppliers, such as those who provide us with cobalt chromium tubing for our stents, those that laser cut our stents or those that provide the drug and polymer incorporated into our stents, may be the basis for a claim against us.

These liabilities could prevent or interfere with our product commercialization efforts. Defending a suit, regardless of merit, could be costly, could divert management attention and might result in adverse publicity, which could result in the withdrawal of, or inability to recruit, clinical trial volunteers or result in reduced acceptance of our products in the market.

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Our operations involve hazardous materials, and we must comply with environmental laws and regulations, which can be expensive.

Our research and development activities involve the controlled use of hazardous chemicals. Our operations also produce hazardous waste products. We are subject to a variety of federal, state and local regulations relating to the use, handling, storage and disposal of these materials. We generally contract with third parties for the disposal of such substances. We cannot eliminate the risk of accidental contamination or injury from these materials. We may be required to incur substantial costs to comply with current or future environmental and safety regulations. If an accident or contamination occurred, we would likely incur significant costs associated with civil penalties or criminal fines and in complying with environmental laws and regulations. We do not have any insurance for liabilities arising from hazardous materials. Compliance with environmental laws and regulations is expensive, and current or future environmental regulation may impair our research, development or production efforts.

Risks Relating to this Offering

We have broad discretion in the use of the net proceeds from this offering and may not use them effectively.

We cannot specify with certainty the particular uses of the net proceeds we will receive from this offering. Our management will have broad discretion in the application of the net proceeds, including for any of the purposes described in “Use of Proceeds.” The failure by our management to apply these funds effectively could harm our business. Pending their use, we may invest the net proceeds from this offering in a manner that does not produce income or that loses value.

Anti-takeover defenses that we have in place could prevent or frustrate attempts to change our direction or management.

Provisions of our certificate of incorporation and bylaws and applicable provisions of Delaware law may make it more difficult for or prevent a third party from acquiring control of us without the approval of our board of directors. These provisions:

In addition, Section 203 of the Delaware General Corporation Law generally prohibits us from engaging in any business combination with certain persons who own 15% or more of our outstanding voting stock or any of our associates or affiliates who at any time in the past three years have owned 15% or more of our outstanding voting stock. These provisions may have the effect of entrenching our management team and may deprive you of the opportunity to sell your shares to potential acquirors at a premium over prevailing prices. This potential inability to obtain a control premium could reduce the price of our common stock.

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Our principal stockholders and management own a significant percentage of our stock and will be able to exercise significant influence over our affairs.

Our executive officers, current directors and holders of five percent or more of our common stock, as of September 30, 2004, beneficially owned approximately 67.7% of our common stock. We expect that upon the closing of this offering, that same group will continue to hold at least a majority of our outstanding common stock. Even after this offering, these stockholders will likely be able to determine the composition of our board of directors, retain the voting power to approve all matters requiring stockholder approval and continue to have significant influence over our operations. The interests of these stockholders may be different than the interests of other stockholders on these matters. This concentration of ownership could also have the effect of delaying or preventing a change in our control or otherwise discouraging a potential acquirer from attempting to obtain control of us, which in turn could reduce the price of our common stock.

If you purchase shares of common stock in this offering, you will suffer immediate and substantial dilution of your investment.

Purchasers of common stock in this offering will pay a price per share that substantially exceeds the per share book value of our tangible assets after subtracting our liabilities and the per share price paid by our existing stockholders and by persons who exercise currently outstanding options to acquire our common stock. Accordingly, assuming we sell 5,000,000 shares at an initial public offering price of $12.00 per share, you will experience immediate and substantial dilution of approximately $8.53 per share, representing the difference between our pro forma as adjusted net tangible book value per share as of September 30, 2004 after giving effect to this offering and the assumed initial public offering price. In addition, purchasers of common stock in this offering will have contributed approximately 41% of the aggregate price paid by all purchasers of our stock but will own only approximately 16% of our common stock outstanding after this offering. See “Dilution.”

An active trading market for our common stock may not develop.

Prior to this offering, there has been no public market for our common stock. Although we have applied to have our common stock quoted on the Nasdaq National Market, an active trading market for our shares may never develop or be sustained following this offering. Accordingly, you may not be able to sell your shares quickly or at the market price if trading in our stock is not active. The initial public offering price for our common stock will be determined through negotiations between the underwriters and us. The initial public offering price may vary from the market price of our common stock after this offering. Investors may not be able to sell their common stock at or above the initial public offering price.

If our stock price is volatile, purchasers of our common stock could incur substantial losses.

Our stock price is likely to be volatile. The stock market in general and the market for small healthcare companies in particular have experienced extreme volatility that has often been unrelated to the operating performance of particular companies. As a result of this volatility, investors may not be able to sell their common stock at or above the initial public offering price. The price for our common stock will be determined in the marketplace and may be influenced by many factors, including:

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A decline in the market price of our common stock could cause you to lose some or all of your investment and may adversely impact our ability to attract and retain employees and raise capital. In addition, stockholders may initiate securities class action lawsuits if the market price of our stock drops significantly, which may cause us to incur substantial costs and could divert the time and attention of our management.

If there are substantial sales of our common stock, our stock price could decline.

If our existing stockholders sell a large number of shares of our common stock or the public market perceives that existing stockholders might sell shares of our common stock, the market price of our common stock could decline significantly. Based on shares outstanding on September 30, 2004, upon the closing of this offering, assuming no outstanding options are exercised prior to the closing of this offering, we will have approximately 31,194,200 shares of common stock outstanding, including 89,466 shares of common stock to be issued upon the exercise of outstanding warrants that will terminate if not exercised prior to the closing of this offering and 416,666 shares of common stock to be issued upon the automatic conversion of a $5.0 million convertible promissory note that we issued in November 2004, assuming an initial public offering price of $12.00 per share. All of the 5,000,000 shares offered under this prospectus will be freely tradable without restriction or further registration under the federal securities laws, unless purchased by our affiliates. The remaining 26,194,200 shares outstanding upon the closing of this offering will be available for sale pursuant to Rule 144 and 701 as follows:

The above does not take into consideration the effect of the lock-up agreements described under “Shares Eligible for Future Sale—Lock-up Agreements.”

Existing stockholders holding an aggregate of 22,850,282 shares of common stock, based on shares outstanding as of September 30, 2004, including 590,509 shares underlying outstanding warrants, have rights with respect to the registration of these shares of common stock with the Securities and Exchange Commission. See “Description of Capital Stock—Registration Rights.” If we register their shares of common stock following the expiration of the lock-up agreements, they can immediately sell those shares in the public market.

Promptly following this offering, we intend to register approximately 8,058,215 shares of common stock that are authorized for issuance under our stock option plans and employee stock purchase plan. As of

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September 30, 2004, 4,781,710 shares were subject to outstanding options, of which 1,151,912 shares were vested. Once we register these shares, they can be freely sold in the public market upon issuance, subject to the lock-up agreements referred to above and restrictions on our affiliates.

We do not intend to pay cash dividends on our common stock in the foreseeable future.

We have never declared or paid any cash dividends on our common stock or other securities, and we currently do not anticipate paying any cash dividends in the foreseeable future. Accordingly, our stockholders will not realize a return on their investment unless the trading price of our common stock appreciates. Our common stock may not appreciate in value after the offering and may not even maintain the price at which you purchased your shares.

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FORWARD-LOOKING STATEMENTS

This prospectus contains forward-looking statements that are based on our management’s beliefs and assumptions and on information currently available to our management. The forward-looking statements are contained principally in the sections entitled “Summary,” “Risk Factors,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “Business.” Forward-looking statements include, but are not limited to, statements about:

In some cases, you can identify forward-looking statements by terms such as “may,” “will,” “should,” “could,” “would,” “expects,” “plans,” “anticipates,” “believes,” “estimates,” “projects,” “predicts,” “potential” and similar expressions intended to identify forward-looking statements. These statements involve known and unknown risks, uncertainties and other factors which may cause our actual results, performance time frames or achievements to be materially different from any future results, performance, time frames or achievements expressed or implied by the forward-looking statements. We discuss many of these risks, uncertainties and other factors in this prospectus in greater detail under the heading “Risk Factors.” Given these risks, uncertainties and other factors, you should not place undue reliance on these forward-looking statements. Also, these forward-looking statements represent our estimates and assumptions only as of the date of this prospectus. You should read this prospectus and the documents that we have filed as exhibits to the registration statement, of which this prospectus is a part, completely and with the understanding that our actual future results may be materially different from what we expect. We hereby qualify all of our forward-looking statements by these cautionary statements.

Except as required by law, we assume no obligation to update these forward-looking statements publicly, or to update the reasons actual results could differ materially from those anticipated in these forward-looking statements, even if new information becomes available in the future.

NOTICE TO INVESTORS

You should rely only on the information contained in this prospectus. We have not authorized anyone to provide you with different or additional information. We are not making an offer of these securities in any state where an offer is not permitted. You should not assume that the information contained in this prospectus is accurate as of any date other than the date on the front of this prospectus, regardless of the time of delivery of this prospectus or any sale of our common stock.

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USE OF PROCEEDS

We estimate that we will receive approximately $54.1 million in net proceeds from this offering, or $60.1 million if the underwriters’ over-allotment option is exercised in full, based upon an assumed initial public offering price of $12.00 per share, after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us. If the underwriters’ over-allotment option is exercised in full, the selling stockholder will receive approximately $2.4 million in net proceeds at an assumed initial public offering price of $12.00 per share. We will not receive any portion of the net proceeds received by the selling stockholder.

We expect to use our net proceeds from this offering as follows:

The amounts we actually expend in these areas may vary significantly from our expectations and will depend on a number of factors, including operating costs, capital expenditures and any expenses related to defending claims of intellectual property infringement. Accordingly, management will retain broad discretion in the allocation of the net proceeds of this offering. A portion of the net proceeds may also be used to acquire or invest in complementary businesses, technologies, services or products. We have no current plans, agreements or commitments with respect to any such acquisition or investment, and we are not currently engaged in any negotiations with respect to any such transaction.

We believe that the net proceeds from this offering, together with our cash and cash equivalent balances and interest we earn on these balances, will be sufficient to meet our anticipated cash requirements through at least the first half of 2006. Pending such uses, the net proceeds of this offering will be invested in short-term, interest-bearing, investment-grade securities.

DIVIDEND POLICY

We have never declared or paid any cash dividends on our capital stock. We currently intend to retain any future earnings to finance the growth and development of our business and therefore do not anticipate paying any cash dividends in the foreseeable future. Any future determination to pay cash dividends will be at the discretion of our board of directors and will depend upon our financial condition, operating results, capital requirements, any contractual restrictions and such other factors as the board of directors deems relevant.

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CAPITALIZATION

The following table sets forth our capitalization as of September 30, 2004:

You should read this table together with our consolidated financial statements and related notes and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” appearing elsewhere in this prospectus.

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The number of shares of common stock shown above is based on 3,832,350 shares of common stock outstanding as of September 30, 2004. This number excludes, as of September 30, 2004:

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DILUTION

If you invest in our common stock in this offering, your ownership interest will be diluted to the extent of the difference between the initial public offering price per share and the pro forma net tangible book value per share after this offering. Our historical net tangible book value as of September 30, 2004 was a deficit of approximately $35.0 million, or approximately $(9.14) per share of common stock. Net tangible book value per share represents total tangible assets less total liabilities, divided by the number of shares of common stock outstanding. Our pro forma net tangible book value as of September 30, 2004 was approximately $52.3 million, or approximately $2.03 per share. Our pro forma net tangible book value per share gives effect to (a) our issuance in November 2004 of a $5.0 million convertible promissory note and the issuance of 416,666 shares of common stock upon the automatic conversion of that convertible promissory note, assuming an initial public offering price of $12.00 per share, and (b) the automatic conversion of all shares of our outstanding preferred stock into 21,444,684 shares of common stock upon the closing of this offering. Dilution in pro forma net tangible book value per share represents the difference between the amount per share paid by purchasers of shares of common stock in this offering and the pro forma as adjusted net tangible book value per share of common stock immediately after the closing of this offering.

After giving effect to the sale of the shares of common stock at an assumed initial public offering price of $12.00 per share, after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us, our pro forma net tangible book value as of September 30, 2004 would have been approximately $106.4 million, or $3.47 per share of common stock. This represents an immediate increase in pro forma net tangible book value of $1.44 per share to existing stockholders and an immediate dilution of $8.53 per share to new investors purchasing shares of common stock in this offering at the assumed initial offering price.

The following table illustrates this dilution on a per share basis:

If the underwriters exercise their over-allotment option to purchase 535,000 additional shares from us in this offering, our pro forma as adjusted net tangible book value per share as of September 30, 2004 will be $3.60, representing an immediate increase in pro forma net tangible book value of $1.57 per share to our existing stockholders and an immediate dilution of $8.40 per share to new investors in this offering.

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The following table summarizes as of September 30, 2004, on the pro forma basis described above, the number of shares of our common stock purchased from us, the total consideration paid to us and the average price per share paid to us by existing stockholders and to be paid by new investors purchasing shares of our common stock in this offering. The table assumes an initial public offering price of $12.00 per share, before deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us.

If the underwriters’ over-allotment option to purchase 535,000 additional shares from us in this offering is exercised in full, the following will occur (excluding any shares sold by the selling stockholder):

The above discussion and tables are based on 3,832,350 shares of common stock outstanding as of September 30, 2004. This number excludes, as of September 30, 2004:

Assuming the exercise in full of all of our outstanding options, the inclusion of 411,034 shares of restricted common stock issued upon the early exercise of stock options and our issuance of 590,509 shares of common stock upon exercise of outstanding warrants at September 30, 2004, pro forma net tangible book value before this offering at September 30, 2004 would be $1.88 per share, representing an immediate dilution of $0.15 per share to our existing stockholders and, after giving effect to the sale of 5,000,000 shares of common stock in this offering, there would be an immediate dilution of $8.89 per share to purchasers of our common stock in this offering.

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The following table summarizes, as of September 30, 2004, the number of shares of our common stock purchased from us, the total consideration paid to us and the average price per share paid to us by existing stockholders and to be paid by new investors purchasing shares of our common stock in this offering, on the pro forma basis described above, after giving further effect to:

The table assumes an initial public offering price of $12.00 per share, before deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us.

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SELECTED CONSOLIDATED FINANCIAL DATA

The consolidated statements of operations data for the years ended December 31, 2001, 2002 and 2003 and the consolidated balance sheet data as of December 31, 2002 and 2003 have been derived from our consolidated audited financial statements included elsewhere in this prospectus. The consolidated statements of operations data for the period from October 25, 1999 (inception) to December 31, 2000 and the consolidated balance sheet data as of December 31, 2000 and 2001 have been derived from our consolidated audited financial statements not included in this prospectus. The consolidated statements of operations data for the nine months ended September 30, 2003 and 2004 and the period from October 25, 1999 (inception) through September 30, 2004 and the consolidated balance sheet data as of September 30, 2004 are derived from our consolidated unaudited financial statements included elsewhere in this prospectus. Historical results are not necessarily indicative of future results. The following selected consolidated financial data should be read in conjunction with our consolidated financial statements and the notes to such statements and “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”