BFRM Bioform Medical (MM)

We are not a party to any material pending or threatened litigation.

Risks Related to Our Business

We have a history of net losses, and we may not be able to achieve profitability even if we are able to generate significant revenues.

We have incurred net losses of $10.7 million, $11.4 million and $13.6 million for the fiscal years ended June 30, 2005, 2006 and 2007, respectively, and, as of September 30, 2007, we had an accumulated deficit of approximately $50.9 million. We have financed our operations primarily through private placements of equity securities and have devoted substantially all of our resources to research and development of our products and the commercialization of Radiesse and our other products. We expect our operating expenses to increase as we:

We cannot assure you that we will be able to achieve or sustain profitability even if we are able to generate significant revenues. Our failure to achieve and sustain profitability would negatively impact the market price of our common stock and require us to seek additional funding, if such funding is then available to us on terms acceptable to us or at all.

We have a limited operating history, and we expect our financial condition and operating results to fluctuate on a quarterly and annual basis in potentially unpredictable ways.

We were incorporated in 1999 and commenced operations in 2000. From 2001 to 2003, we received certain U.S. and international regulatory approvals for, and engaged in commercial sales of, Radiesse and Coaptite. We obtained FDA pre-market approval, or PMA, for our key commercial application of Radiesse, the correction of moderate to severe facial wrinkles and folds, in December 2006. Accordingly, we have a limited history of operations upon which you can evaluate our business. Our operating results may fluctuate significantly in the future as a result of a variety of factors, many of which are outside of our control. Factors relating to our business that may contribute to quarterly and annual fluctuations include the following factors:

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The success of our business also depends on consumer trends favoring medical aesthetic procedures, which could change quickly or gradually over time. We may be unable to reduce our expenditures in a timely manner to compensate for any unexpected shortfall in revenues. Accordingly, a significant shortfall in demand for our products could have an immediate and material adverse effect on our business, results of operations and financial condition. Due to the various factors mentioned above, and others, the results of any prior quarterly or annual periods, or guidance regarding expectations of future results, should not be relied upon as an indication of our future operating performance.

If Radiesse and our other products fail to compete effectively and gain greater market adoption, our business will suffer.

Radiesse currently is our primary product, and we expect it to remain so for the next several years. Radiesse competes against products that are more established and accepted within our target markets.

Our largest direct competitors in the key U.S. market include Allergan and Medicis, and there are many other companies that compete directly or indirectly with us or that are likely to compete with us in the near future, both in the United States and internationally. Many of these competitors have significantly greater financial resources, reputation and experience in the aesthetics market than we do, as well as broader aesthetic product offerings. Competing effectively will require us to distinguish our company and Radiesse from our competitors and their products, which will be dependent on factors such as:

Our other current products are, and contemplated future products, including Aethoxysklerol and BioGlue, will be, subject to similar competitive risks as Radiesse. If we are unable to effectively distinguish Radiesse, or any of our other current or future products, from those of our competitors, we are unlikely to gain significant market share and our prospects for growth would be harmed.

Our largest competitors enjoy sales and marketing advantages that could make it difficult for us to compete effectively and which could result in our future performance not meeting our expectations.

Our largest competitors enjoy sales and marketing advantages that could influence patients and physicians to choose their products over ours, regardless of relative safety and effectiveness of the products. For example, our largest competitors have implemented expensive national direct-to-consumer marketing campaigns to promote their dermal filler products. These campaigns may lead consumers to develop a strong brand preference for an alternate product even before their initial visit with a physician.

Competitors have, in the past, influenced physician practice through aggressive promotional campaigns that offer significant discounts to physicians who choose their products over competing products. Some competitors also have the ability to influence a physician’s practice by co-promoting, or bundling, the sale of two different but related products, such as a dermal filler and a botulinum toxin. Bundling of complementary products may permit these companies to enjoy efficiencies with respect to their marketing efforts, may permit unique discounting and cross-selling opportunities, and reinforce company and brand loyalty. If competitors’ sales and marketing programs and promotions are able to convince physicians to use and recommend their products over Radiesse, we may be unable to generate expected sales and our financial performance will suffer.

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Competition in the aesthetics market is characterized by frequent product introductions, and products not yet available could result in significant additional competition.

Our current and future competitors will introduce new products or new formulations of existing products that will result in near-term and long-term increased competition. While there are a number of competing dermal fillers in the United States, there are many others available internationally. Some of the dermal fillers available domestically and internationally claim to have benefits that may be perceived as equivalent or better than other leading dermal fillers, including Radiesse, based upon such factors as durability, cost, comfort, scope of approved marketing claims or ease of treatment. If dermal fillers are perceived to offer benefits that are equivalent to or better than Radiesse, demand for, and revenue derived from, Radiesse could be harmed. The frequent introduction of dermal fillers may create market confusion that may make it more difficult to differentiate the benefits of Radiesse over competing products. In addition, the entry of multiple products and new competitors may lead some of our competitors to elect pricing strategies that could adversely impact pricing in the filler marketplace generally.

The failure of Radiesse to meet physicians’ or patients’ expectations could reduce demand for

Radiesse and negatively impact our financial performance.

Most procedures performed using Radiesse are elective procedures, the cost of which must be borne by the patient and are not reimbursable through government or private health insurance. The decision to undergo a Radiesse procedure is thus driven by patient demand for an aesthetics procedure, and patients often play a central role in the selection of the dermal filler to be used.

Our future success depends upon patients having a positive experience with Radiesse. We believe that patients who have a positive experience with Radiesse may be more likely to return for additional treatments and refer new patients, which we believe would increase physician demand for Radiesse. However, results obtained from a Radiesse procedure will vary depending on the experience and technique of the treating physician, the volume of dermal filler injected, the patient’s expectations of the results that will be achieved and the duration of the results. Patients may be dissatisfied with their Radiesse treatment experience if immediate or long-term results do not match their expectations, if they find the procedure too painful, or if they find that the temporary side-effects of treatment such as swelling and bruising outweigh the benefit received. Additionally, we believe that patient demand for Radiesse is, in many cases, influenced by price. Treatment with a single syringe of Radiesse may cost a patient more than treatment with a single syringe of many other dermal fillers. If a Radiesse treatment produces results that do not meet physicians’ and patients’ expectations, or if physicians and patients generally believe it is too expensive for the results obtained, our reputation, repeat sales, word of mouth referral opportunities and future sales could suffer.

Negative perception regarding Radiesse, even if unfounded, may inhibit adoption.

There are many dermal filler products and alternate treatments from which to choose for facial aesthetic applications. Practitioners must believe that Radiesse presents an attractive alternative before they will recommend it to their patients. The rate of physician adoption of Radiesse may be adversely affected by negative perception of the product, even if such perception is unfounded. Practitioners may be influenced by the negative comments of another practitioner, which may lead them not to adopt the product.

Moreover, because we cannot control how practitioners use Radiesse, there is a risk that practitioners or patients could develop negative perceptions regarding Radiesse on the basis of treatments for which Radiesse is not suitable and has not received regulatory approval. For instance, there have been published reports of lumpiness associated with the use of Radiesse injected into the lips, a type of treatment for which Radiesse has not been approved. Competitors have in the past promoted their dermal filler products by criticizing Radiesse, and we expect that means of competition to continue into the future. If practitioners believe that Radiesse is unsafe, ineffective, unsatisfactory, too expensive, difficult to use or inappropriate for certain applications, they may not adopt it, which could result in our future sales not meeting our expectations.

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If the recent expansion of our sales organization in the United States and in Europe is not as successful as we expect, our revenue may be lower than expected.

Our ability to achieve significant growth in revenues depends, in large part, on our success in recruiting, training and retaining experienced and productive direct sales personnel. During the first quarter of fiscal 2008, we substantially increased the size and scope of our sales organization to support commercialization of Radiesse in the United States and in Europe, expanding from 56 to 80 our U.S. sales representatives and from 15 to 23 our European sales representatives. If new sales representatives take longer than expected to reach anticipated productivity, or if they fail to meet our expectations at all, we may not achieve our revenue goals. We anticipate a corresponding and proportionate increase in sales and marketing expense that will be attributable to this expansion.

Additionally, as we expand our sales organization, the size of the territories assigned to sales representatives may be reduced, as occurred in the case of our recent sales force expansion in the United States. Reduced territory sizes may lead sales representatives to believe that they are losing potential compensation associated with larger territories or that their sales goals are more difficult to achieve, which in turn may result in productive and experienced sales employees seeking alternate employment.

Our failure to retain our sales representatives could have a material adverse effect on our sales, causing our revenue to be lower than expected and harming our results of operations.

To successfully market and sell Radiesse internationally, we must address additional risks associated with operations in foreign countries.

International sales accounted for 17% of our revenue in the first quarter of fiscal 2007 and 13% of our revenue in the first fiscal quarter of 2008. We believe that a significant portion of our business will continue to come from international sales through increased penetration in countries where we currently sell Radiesse, combined with expansion into new international markets. In several countries in Europe, we have a direct sales organization. We principally rely on third party distributors to sell our products outside of Europe. Our success internationally is subject to a number of risks, including:

Our other current products are, and contemplated future products will be, subject to similar international risks as Radiesse. If we are unable to effectively manage the risks associated with international operations, we may be unable to effectively sell Radiesse outside of the United States, causing our revenue to be lower than expected and harming our results of operations.

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We depend on single manufacturer relationships for supply of our CaHA particles. Any disruption of these relationships could affect our ability to supply product and could harm our business.

We currently depend on a single contract manufacturer, Tulsa Dental Specialties, for the small CaHA particles used in Radiesse and a single contract manufacturer, CAM Implants, for the larger CaHA particles used in Coaptite, our CaHA bulking agent for the treatment of female stress urinary incontinence. Our agreement with Tulsa Dental Specialties runs through May 2010 and then renews for an additional two-year term, unless terminated pursuant to its terms. Our agreement with CAM Implants runs through November 2008 and renews each year for a further year unless terminated pursuant to its terms. Neither agreement is terminable at will by either party. Each of these manufacturers operates out of a single location. Our reliance on these manufacturers subjects us to several unpredictable risks, the occurrence of any of which could lead to a disruption of our operations, including:

Efforts that we may undertake to negotiate terms of supply in the future or to reduce our reliance on these manufacturers could harm our relationships with them. Obtaining alternate manufacturers would be an expensive and lengthy process and would require additional regulatory approvals, which may not be obtained. We could experience production delays related to the evaluation and testing of CaHA particles from alternate manufacturers and obtaining corresponding regulatory qualifications. Any interruption in the supply of CaHA or our inability to obtain CaHA from alternate sources at acceptable prices, in a timely manner, could impair our ability to meet the demand of our customers, which would have an adverse effect on our business.

We depend on Boston Scientific to market and sell Coaptite, and if Boston Scientific is not successful or reduces its efforts to sell Coaptite, our revenues will be harmed.

We currently depend on Boston Scientific to sell Coaptite, the sales of which constituted less than 10% of our revenues for fiscal 2007 and the first three months of fiscal 2008. Boston Scientific is a very large corporation. While we believe our relationship with Boston Scientific is in good standing, Coaptite represents an immaterial amount of Boston Scientific’s overall revenue and Boston Scientific may in the future determine that resources currently directed to selling Coaptite should be redirected to higher priority projects or they may lack motivation to grow sales of Coaptite. If this were to occur, our expectations of future Coaptite revenues would be harmed.

If we are unable to commercialize Aethoxysklerol, which is an investigational sclerotherapy drug currently in a Phase III clinical trial, our expectation of future growth would be harmed.

An important part of our strategy includes the successful introduction to the U.S. market of Aethoxysklerol, an injectable sclerosing drug for the treatment of varicose veins. We have acquired the exclusive U.S. distribution rights to Aethoxysklerol from its German manufacturer, Kreussler. Although Aethoxysklerol has been used internationally for decades, it is not currently approved for sale in the United States. We cannot sell Aethoxysklerol in the United States before a new drug application, or NDA, is submitted to and approved by the FDA. The development and regulatory approval of a new drug is subject to a number of risks and is never certain. In order to support the NDA submission, the manufacturer of Aethoxysklerol has enrolled patients in a Phase III clinical trial for the use of Aethoxysklerol in treating spider and reticular veins. This clinical trial is subject to a number of risks, including:

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The current clinical trial is being conducted based on a design that Kreussler believes will be acceptable to the FDA based on its communication with the FDA and a special protocol assessment, or SPA.

Although we believe, based on the SPA with the FDA, that positive data from Kreussler’s on-going Phase III clinical trial will be sufficient to establish the safety and effectiveness data required for FDA approval, the FDA may disagree. Any delays or unexpected results in the current trial, or need to conduct further trials, would delay U.S. introduction of the product and harm our expected future operations.

We are in an early stage of development of BioGlue for aesthetics applications, and we cannot provide assurance that we will be successful in our goal of commercializing the product candidate.

We have acquired exclusive U.S., Canadian and European distribution rights for aesthetics applications of BioGlue, a surgical adhesive Class III medical device, from CryoLife. Although the FDA cleared BioGlue in 2001 as an adjunct to sutures and staples for use in open surgical repair of large vessels, these clearances may not be used to promote aesthetic applications. We intend to seek FDA clearance for the use of BioGlue for aesthetic applications, but we are at an early stage in our development efforts. We only recently began to enroll patients in a feasibility study to evaluate the safety and effectiveness of BioGlue as a method for tissue fixation in patients undergoing browplasty, and enrollment is ongoing.

Even if we are able to obtain FDA clearance for tissue fixation in browplasty or any other application for which we might seek approval, the commercialization effort may be difficult. The use of a surgical adhesive in aesthetics applications will be novel, and would require physicians to migrate from existing and well-accepted surgical methods. If we are not successful at any stage of our efforts, clinical, regulatory or commercial, BioGlue will not develop into a meaningful component of our business.

We have increased the size of our company significantly, and difficulties managing our growth could adversely affect our business, operating results and financial condition.

We have experienced rapid growth in a relatively short period of time and expect to continue to experience similar growth in the future, as we continue to support Radiesse and other commercially available products and actively pursue product candidates. Our growth has placed, and will continue to place, a strain on our management team, finance department, information systems and other resources. To manage growth effectively, we must:

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We may not be able to effectively manage this expansion in any one or more of these areas, and any failure to do so could significantly harm our business. In addition, our management, personnel and facilities currently in place may not be adequate to support this future growth. Our rapid growth also makes it difficult for us to adequately predict the expenditures we will need to make in the future. If we do not make the necessary expenditures to accommodate our future growth, we may not be successful in executing our growth strategy, and our results of operations would suffer. Alternatively, necessary expenditures to continue our growth could exceed our current expectations, which would affect our ability to achieve and sustain profitability.

If we are unable to hire and retain key employees, our ability to manage and expand our business will be harmed.

Our success largely depends on the skills, experience and efforts of our officers and other key employees, including Steve Basta, our Chief Executive Officer, Derek Bertocci, our Chief Financial Officer, Dennis Condon, our President and Chief Business Officer, and Jeff Wells, our Senior Vice President, Product Development, along with our ability to retain these employees and to hire new employees to fill significant needs as we grow our business. We may not be able to attract or retain qualified management, sales, finance and technology personnel in the future due to intense competition for hiring experienced personnel. Additionally, any of our officers and other employees may terminate their employment at any time. The loss of any of our senior management team members could weaken our management expertise and harm our business.

Government regulations restricting the export of goods expose us to potential sanctions and penalties.

United States laws prohibit United States companies and foreign companies that sell U.S. origin items from engaging in commercial transactions with specified countries, individuals and organizations. We have learned that a distributor of Radiesse in the United Arab Emirates shipped our product to physicians in Syria, a prohibited country. We have also learned that our European subsidiary, which manages this distributor, was aware that some shipments might go to Syria, but was not aware that shipments to Syria without a specific export license violated U.S. law. Upon learning of this situation, we informed the distributor to cease all shipments to Syria and filed a voluntary self disclosure of this situation with the U.S. Department of Commerce. Persons who violate U.S. export control laws can be subject to monetary fines and other sanctions, including possible criminal penalties. We do not expect the fines or penalties imposed on us, if any, to be material, but we cannot assure you that the actual amount of the fines or penalties, if any, will not have an adverse effect on our financial condition or reputation.

We may acquire additional products or product candidates in the future and any costs associated with the acquisition or any difficulty integrating operations could reduce our revenues, increase our costs and harm our operating results.

We have acquired or in-licensed several of our current products and product candidates. In order to grow our business, we intend to acquire or in-license additional products and product candidates that we believe have significant commercial potential and that complement our existing products and products under development. Any growth through acquisitions or in-licensing will be dependent upon the continued availability of suitable acquisition or in-license product candidates at favorable prices and upon advantageous terms and conditions. Integrating any newly-acquired product or product candidate could be expensive and time-consuming. Other companies, many of which may have substantially greater resources and reputation, compete with us for the right to acquire and in-license products or product candidates. Any cash acquisition we pursue would diminish the resources available to us for other uses, and any stock acquisition would dilute our stockholders’ ownership. Our future product development efforts also could result in large and immediate write-offs, incurrence of debt and contingent liabilities or amortization of expenses related to intangible assets, any of which could increase our expenses and adversely affect our results of operations and financial condition.

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We could become involved in product liability suits, which could result in expensive and time consuming litigation, payment of substantial damages and an increase in our insurance rates.

Product liability litigation in the medical device industry is common, and from time to time, we may receive complaints or be named in lawsuits claiming that our products failed to provide the desired outcome or were in some manner associated with an adverse outcome for the patient. These claims could divert management’s attention from our core business, be expensive to defend and result in sizable damage awards against us. We maintain product liability insurance with liability coverage limits that we believe are adequate and customary for the nature of our business we and submit these claims to our insurance carrier. However, we may not have sufficient insurance coverage for all future claims, and we may not be able to obtain additional or expanded insurance in amounts or scope sufficient to provide us with adequate coverage against all potential liabilities. Any product liability claims brought against us, with or without merit, could increase our product liability insurance rates or prevent us from securing continuing coverage, could harm our reputation in the industry and reduce product sales. Product liability claims in excess of our insurance coverage would be paid out of cash reserves, harming our financial condition and reducing our operating results.

Risks Related to Regulatory Matters

If we fail to maintain necessary FDA approvals for Radiesse or if we fail to comply with applicable federal and state regulations, we could be subject to enforcement action and our commercial operations would be harmed.

We have obtained FDA PMA approvals and 510(k) clearances for Radiesse and for Coaptite for several indications. However, our approvals and clearances could be revoked if safety concerns arise. The FDA and state authorities have broad enforcement powers. Our failure to comply with applicable regulatory requirements could result in enforcement action by the FDA or state agencies, which may include any of the following actions:

Additionally, administration of Radiesse by healthcare professionals is subject to regulations that vary by state. For example, federal regulations allow Radiesse to be sold to, or on the order of, “licensed practitioners,” as determined on a state-by-state basis. As a result, in some states, non-physicians may legally administer Radiesse. However, a state could change its regulations at any time, disallowing sales to particular types of healthcare professionals. If we sell our products to practitioners who are not permitted by state regulation to perform the treatment, we could be subject to enforcement action.

If we want to expand our marketing claims, we will need to obtain additional FDA clearances or approvals, which may not be granted.

We are developing additional formulations of our CaHA technology. Before a new use of or claim for a product can be marketed in the United States, it must first receive FDA approval. The marketing of a product for an indication or application that has not received approval will be viewed as “off-label promotion” and could subject us to an FDA enforcement action, including the issuance of a warning letter and adverse publicity. In addition, any modifications that we may make to Radiesse’s formulation or manufacturing that would significantly affect its safety or effectiveness or that would constitute a major change in its intended use will require a new FDA approval. The FDA may require us to conduct clinical trials to support new indications or formulations, such trials may be time-consuming and expensive, and may produce results that do not result in approval of our FDA application. Delays in obtaining future

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approvals would adversely affect our ability to introduce new or enhanced products in a timely manner, which in turn would harm our revenue and potential future profitability. In the event that we do not obtain additional FDA approvals for future indications or uses, our ability to promote Radiesse in the United States and to grow our revenue could be limited.

If we or our third-party manufacturers fail to comply with the FDA’s Quality System Regulation, our business would suffer.