Good day everyone and welcome to the Integra LifeSciences Q2 Financial Reporting Conference Call. As a reminder today’s call is being recorded. At this time I would like to turn the call over to Mr. Stuart Essig, President and Chief Executive Officer. Please go ahead sir.

Thank you. Good morning, everyone and thank you for joining us for the Integra LifeSciences second quarter 2008 earnings release conference call. I am Stuart Essig, President and Chief Executive Officer of Integra LifeSciences Holdings Corporation. Gerry Carlozzi, Chief Operating Officer and Jack Henneman, Chief Financial Officer, join me today. During this call, we will review our financial results for the second quarter of 2008, which we released last night and update our forward-looking guidance for the rest of the year. We will also take a few minutes later in the call to discuss the acquisition of Theken Company. At the conclusion of our prepared remarks we will take questions from members of the telephonic audience. Before we begin, Jack will make some remarks regarding the content of this conference call. Jack Henneman – Chief Financial Officer: This presentation is open to the general public and can be heard through telephone access or via a live webcast. A replay of the conference call will be accessible starting one hour after the conclusion of the live event. Access to the replay is available through August 26, 2008 by dialing 719-457-0820 access code 5425710, or through our webcast accessible on the Investor Relations page of our website. Today’s call is a proprietary presentation of Integra LifeSciences Holdings Corporation and is being recorded by Integra. No recording, reproduction, transcript, transmission or distribution of today’s presentation is permitted without Integra’s consent. Because the content of this call is time sensitive, the information provided is accurate only as of the date of this live broadcast, August 12, 2008 and unless otherwise posted or announced by Integra, the information in this call should not be relied upon beyond August 26, 2008, the last day that an archived replay of the call authorized by Integra will be…

Thank you, Jack. The business delivered another strong performance. Total revenues in the second quarter for 2008 increased by $22 million to $157 million or 17% increase over revenues of $135 million in the second quarter of 2007, this was in line with our expectations. Importantly, for the first half of 2008, our revenues came in right within the range that we projected nine months ago when we gave our guidance after the IsoTis acquisition. While organic growth calculated in the way we have done so historically was 7%, remember that we anticipated a difficult comparison in the first half of 2008. The reasons are unchanged from the prior quarter, underperformance in our ultrasonic aspirator business and the planned rationalization of certain of our medical surgical product lines. As we said last quarter, we anticipate an improvement in our core growth rates both in the medical and surgical products and overall in the second half of the year. Our neuro ortho implant revenues in the second quarter increased over the prior year period by 37%. Organic growth in this category exceeded 16%. Extremity reconstruction implants grew in excess of 35% this quarter with strong growth from both metal and collagen-based implants. Revenues from our Medical Surgical Equipment product line increased over the prior year period by 5%. Excluding acquisition, sales of products in the Medical Surgical Equipment category were slightly up over the prior year period. International sales were 27% of total sales this quarter, compared to 24% of revenue in the full year 2007. Foreign exchange had a favorable impact on revenues of $3.7 million. Over the past year, our company has changed rather significantly. Our goal is to build Integra into one of the top multi division medical device company. We continue to strive to do so in…

Thanks, Jack. Our management team continues to seek out external opportunities for growth and future acquisitions could affect our results going forward. However, the forward-looking guidance that we’re providing does not reflect the impact of acquisition or other strategic corporate transactions that have not yet closed. We have updated our 2008 annual revenue and adjusted earnings per share guidance to reflect first half actual results and the acquisition of the Theken Company, excluding special charges of the Theken acquisition is expected to be approximately $0.03 dilutive in the third quarter. Thereafter we’re not modeling any dilution from the transaction. Overall, our upwardly revise ranges for annual revenue and adjusted earnings per share guidance reflect the strength of our business in the first half of 2008 and the positive expected impact of Theken. While we will likely have quarterly fluctuations on our performance versus our expectations, we believe that our annual guidance remains the appropriate benchmark for our business. Longer term we intend to drive internal revenue growth consistent with our target of 10% to 12%. We’ve also adjusted our GAAP guidance to reflect the special charges that we anticipate occurring over the balance of the year. In the third quarter, we expect a non-cash after tax charge of approximately $23 million in connection with an in-process research and development charge related to the Theken acquisition and the accounting for the non-cash restricted stock unit grant pursuant to the renewal of my employment agreement in August. We no longer adjust earning per share for the affects of FAS 123R, for those of you who are still tracking the impact of FAS 123R, we expect the quarterly impact of share based compensation expense to be approximately $0.09 per diluted share for each quarter during 2008. As a management team we look forward to continuing to meet with our investors. Gerry Carlozzi will be presenting at the Canaccord conference tomorrow. Now, we’ll be happy to answer all of your questions. Operator, you may turn the call over to our participants.

Thank you. [Operator Instruction]. We’ll take our first question today from Tao Levy with Deutsche Bank.

Good morning.

Good morning Tao.

Just a few of clarification on my end, the Theken when you guys have to start paying some of the future payments, are you going to be recording sort of on a quarterly basis as we go through 2009, 2010, future payments on that, the 2.5 times?

No that’s not the way the transaction is accounted for like the one we’re doing. So, no we will pay the additional purchase price after the first year of results are reported and then those will simply go up on the balance sheet as additional goodwill and cash will be removed from our cash account.

Got you, okay. Will that Stuart you mentioned that it wasn’t going to be diluted thereafter, you’re not including those payments down the road?

Well, when you look out the year, so FAS forward and assume we pay out a certain number then that additional interest expense on the cash that was paid to Theken and investors would then hit the P&L. but, the profitability of the business we would more than expect to offset the additional interest expense. There will be no additional intangible amortization due to the second or the third payment, it all goes into a non-amortizable goodwill.

Got you, okay that’s helpful. And also, do you mind walking, if you had the organic growth you guys did really well again in the Neuro and orthopedic implants segment. What’s the dollar number that I should be using in terms of several acquired dollars?

We’ll search for the answer to the question but let me try to answer it qualitatively. We had about a 16% internal growth in the implants business and Jack is showing me $10 million of acquired growth in that category. So, you can subtract that from the total reported to get the organic number. And then the medSurge business was essentially flat and when you take the two together you end up with about a 7% organic growth rate based on the way we have traditionally presented it to investors. Now, if you look at expectations for the quarter, in our forward-looking guidance of 157 to I think it was 61 or 62 implicit in that forward guidance was about 7% to 10% organic growth. So, we were at the light end of organic growth calculation. That being said, remember, we tried to run the company for multiple target and this quarter and many quarters we’ve been trying to drive gross margin, operating profit, revenue growth, and a number of other statistics. And this quarter we were very successful on gross margin beating our own expectation by 1 percentage points. We were very successful on operating profit, finally getting back into the 16% operating profit range, which was frankly our objective for the year. And then, quite a little light on the organic growth calculation, that was on the one hand plan full. W have been selectively going through a number of our MedSurge product lines, in particular instrument lines and rationalizing them and if they are not providing the appropriate return on our investment i.e., delivering the bottom line, we are deemphasizing them or discontinuing them. And then, the part that was not plan full is we continue to see some softness in our ultrasonic aspirator line and it’s really in my own view, our own fault, to some extent the quality of the integration internationally of the Costa business to some extent, delays in launching some of the new products in ultrasonic aspiration and to some extent cannibalization of our selector line by the costa.

Anything that on competition, sorry about that, sir?

Well, it’s pretty interesting, we have one publicly traded competitor and they’ve not shown better numbers than us. We talked to our sales people and they say we are not losing business but I guess we are not provoking enough business. I expected to turn around and I don’t expect a rapid turnaround. But over the next 12 months I expect that to turnaround and we’ve seen that business go up and down. So, I would say one knock on us, we are not delivering an ultrasonic aspiration growth but on the other hand quite deliberate in terms of trying to rationalize our instrument product line.

And I just have two additional ones. Does the 7% or 10%, is that still in affect and going forward? How we should think about it?

No, long-term, remember what we tried to do. We give you quarterly and annual guidance. So, the thing you should hang your hat on and the thing we are trying to achieve is the annual revenue guidance and then we’ve adjusted it for our expected impact of the Theken acquisition. Now, because numbers of our analysts like to calculate the internal growth of our business is one of the ways to evaluate our performance, we give this year and prior year acquired revenue information. That being said, it’s not the exclusive or critical measure for us. It’s one of the measures that we are particularly focused on long-term. So, our long-term expectation and when I say long-term, I’m talking about three year guidance or three year separate guidance for three year objective of 10% to 12% of differently double digit growth without the acquisition, if you look at the last 10 years, we’ve put up well in excess of those numbers. And then, over and above that the impact of the acquisitions, but focus exclusively on the internal growth, I think it’s missing indeed the impact of the growth that we see and the things that we buy and the synergy of putting all of the different pieces together. So, if you look at the back half of the year all you need to do is take our revenue guidance for Q3 and Q4, compare it to the prior year and you’ll come up with a implicit organic growth rate. The implicit organic growth rate for 2008 has been and will continue to be 10%.

Okay. That’s helpful.

I made the point of trying to get across that we delivered on what we said for the first half of the year hitting the number exactly in the middle of our initial guidance range that we introduced nine months ago after the IsoTis acquisition.

Okay. And then, just lastly on the Theken acquisition, strategically how should we think about the opportunities, in our first question, tremendous instead of being the leverage to different, orthobiologics that you have, Mozaik and then now the implant. But, you had mentioned that you are going to keep the sales forces separate but is there going to be some crossover of what each of the distribution sales forces can sell so and also orthobiologics folks leverage their relationships with their spine surgeon, neurosurgeons and bring in some of the Theken and also vice versa?

Critical point, in the orthopedics business, you are only as good as your sales people. And we value the distributor network that we acquired, when we acquired IsoTis and we value the distributor network that we acquired when we bought Theken. So, our plan is to invest in those two separate distributor networks and take what is a relatively small orthobiologics business, as you know we acquired something with about $40 million of revenues and what is a relatively small spine business, as you know, we acquired plus or minus $35 million of revenues and tried to drive those in a separate but synergistic way. I’ll give you for example a couple of points. First of all, if you look at the orthobiologics business we already introduced a range of immunized bone matrix products as well as a version of the Mozaik product line and are selling that through our extremity sales force. So, we are able to take the acquisition of IsoTis, and drive it through a completely new distribution channel. Separately, a number of the Theken dealers are IsoTis dealers already. Now no one is Integra orthobiologics dealers. So, the odd in this will be to not force synergies but to allow people take advantage of the synergy. And what we wouldn’t want to do is try to for example drive IsoTis through the Theken dealing network and in some way alienate those dealers or make themselves up they wouldn’t want to sell and vice-versa. But to the extent that one dealer sees some synergy in approaching IsoTis then that’s a neat opportunity for upside. So, what I would say is its all about revenue growth and not about cost savings we already squeezed the cost of IsoTis like we promised we would do. And now it’s a bowled out revenue growth.

Great, thanks a lot.

And we will take our next question from Amit Bala with Citi.

Hi, Amit.

Hi, good morning. I wanted to continue on the lines on the MedSurge business and get a performance update, Jarit you said last quarter you were expecting a substantial increase in the growth rate in the back half of the year so, could you give us an update there have a couple other follow ups?

Yeah, so, if you recall one of our opportunities last year was the acquisition of LXU and that opportunity comes with both upside and restructuring. The upside is we ended up post acquisition with approximately 50 direct sales people or half the country covered with direct sales people. Those folks are all now selling Jarit, those folks are all selling the Luxtec lighting system where on the other hand we have discontinued significant number of the product lines that Luxtec LXU carried on behalf of what was essentially a much smaller company. So, we have literally and I’m going to guess as a number discontinued probably 50 different distributed product lines that the LXU company carried and because they were getting small distributor margins and we are not a distributor and now we’ve gone through the process of training the sales people of LXU to sell both the Jarit products and the LUX lighting products. So, the point is that this direct sales force is now responsible for a much broader set of products but they are all self manufactured as opposed to distributed. In terms of a revenue for Jarit we don’t break out the specific numbers, but I’ll say that Jarit was up, it was up single digit -- high single digits from prior year and we expect in the back half of the year it will be up at least single digit if not double digits for Q3 and Q4, so it is indeed delivering on what it was expected to do. I’ll give an example of one that’s down and that would be our spinal specialties product line, which we now essentially integrated into physician industries, but the impact of the integration was due again delete and remove on the order of 40 to 100 unprofitable customers that we simply either offered a physician industry’s product tool or discontinued selling tool.

Okay. Thank you, just two other quick follow ups, can you quantify in dollars the products that you’ve rationalized out of MedSurge and then cash flow from operations, it was negative in the quarter, help us with the target for the full year on cash flow follow up?

Okay. For discontinued products I really don’t have the statistics I can give you, so I don’t really have a follow up for that, in terms of cash flow, cash flow in Q1 was actually pretty spectacular and if you recall I believe it was well north of $20 million, well above our expectations. Cash flow in Q2 was well below the expectations that I would make a point, we paid well over $20 million dollars of cash taxes in Q2 either as payments for the contingent interest, a part of the convertible bond or pre-payments for our expected tax rate going forward. So, most of the chewing up of cash in Q2, reflects either a one time event which was settling up the convertible bond or pre-payment of taxes that we will then not have to have flows of cash flow out for in Q3 in particular. And if it’s not obvious, our tax rate has bounced around. Alright, why has our tax-rate bounced around? We went from being a company using NOLs about two years ago to using them up in 2007 to estimating what our tax rate will be for 2008. And when you are dealing with government, it is better to pay and then go get your money back, then not pay and get fined. And so, we’ve made substantial pre-payments in taxes, in anticipation of a higher tax rate. Indeed if you look at the second quarter, we had a very perverse happen. We made IsoTis profitable. And one of the interesting things that have made IsoTis show a profit at the first time in its recent history was it actually lowered our GAAP tax rate. Hence the 35% for the year compared to the Q1 of 37.5%. So, I’m hoping by the time we are done with 2008 and into 2009 we’ll stop seeing our estimated tax rate bounce around with settling at a reasonable number which right now we think is 35%. And the cash taxes we’ll start to approximate the GAAP taxes. Back half of the year we expect to spend about $10 million a quarter on cash taxes and if you look at the first half of the year, if you average out what we’ve been doing is much more in line to a 35% cash tax rate.

So, what’s the full year target for a cash open operations?

I don’t have a specific number, you have to back into it.

Okay, thanks I’ll turn back.

And we’ll take our next question today from Taylor Harris with JP Morgan.

Thanks a lot. Just a follow-up on some of the production rationalizations you are doing in the MedSurge reporting category. Did that accelerate at all in the second quarter or do you think you had a steady state that either stays the same or improves from here?

We are modeling in the back half of the year and improvement in the performance of the MedSurge business as a whole which implies an improvement in the organic growth rate. Now we are mot modeling it based on wishful thinking, we are modeling it based on anniversary, certain performance and it’s not just the rationalization, it’s the performance of the ultrasonic aspirator business. I’ll say the answer differently because I’m not sure that was a satisfying response. We have identified and acted upon all of the restructuring activities that we anticipate in the MedSurge business and now it just needs to play itself out over the coming quarters. There is not going to be new things that we’re discontinuing in Q3 and Q4, much of this activity was done several quarters ago and you are now seeing the results of it.

Okay, great. And then on the IsoTis business, you settled in here at around $10 million a quarter, which I think is a little better than you had thought you would do it at the time of the deal. What are you seeing I guess beneath the surface in the IsoTis acquired business and in terms of potential for growth as we look out into 2009 and beyond?

I’ll give you a couple of thoughts. First of all, there is three major components to the IsoTis business and each one is where I’m thinking about separately. IsoTis had great products but we’re struggling operationally mostly due to lack of cash but also because it was trying to do too many things at once. Indeed, when we acquired the US distribution was faltering revenues inside the United States were shrinking and indeed we anticipated a more substantial decrease in the first couple of quarter then we actually achieved. We reached out with both the existing IsoTis dealer managers that we have met with all the major dealer principals, we showed them a business plan to grow the domestic business and we integrated our Mozaik product line with the IsoTis product line. So, that now Integra orthobiologics carries both sets of products. That relationship building activity that focus and sense that the business was going to grow has turned around the domestic business so that in Q2 for the first quarter in recent memory it grew as opposed to shrunken. So, we’re still in a turnaround of the domestic business and we’re well on our way to growing it. Part two and part three are the international business of IsoTis and the OEM business. The international business of IsoTis was essentially unaffected by the acquisition, there were some synergy and us not needing the IsoTis international dealer now -- IsoTis international dealer management so they employed people and so we turned that business over to our European and international sales and marketing groups and we have lot more people to manage dealers. So, there is a very positive reaction to the international side of IsoTis because of our footprints that we have worldwide and the fact that we’re focused. Keep in mind in Europe, we’re very much perceived as an orthopedic company because of the acquisition of new deal and so IsoTis came very naturally to our European sales and marketing organization. Finally, there is an OEM business and the OEM has a various relationships with companies where we make immunized bone matrix that Theken essentially selling market under their name and we have dedicated team focused to growing the OEM business, we’ve been out now helping trained the sales forces for the OEM customers and again I think we’ve stabilize that business, I’m not sure its really started to grow yet. So, I continue to anticipate that business running at about $10 million a quarter and then as we get into 2009, it will start to grow as I hope all of those different pieces start to click in. Gerry is going to add something.

I think additional to the IsoTis base business that we acquired, I mean they also provide us a launching platform to really penetrate the market without Mozaik for orthobiologics, which has also provided additional growth opportunity at a faster phase that we would had otherwise. So, I think the combination of having comprehensive product line of the IsoTis products and then we continue to invest in new product launches, configurations of the product, we’re also being able to add configurations of Mozaik to the same distribution channel, which gives us much greater penetration and market coverage for that product to enhance our growth opportunities in the overall orthobiologics business. I think just having the ability to manage a total of orthobiologics business with a complete portfolio products will provide us stronger growth opportunities going forward.

You know, for lot of these companies that we acquire they tend to have good products but not have the footprint that we do. And, so there’s real hallo affect of being part of the Integra organization whether it be showing up at NAS and having 40 by 40 boos that supposed to 10 by 10 boos, whether it would be have 50 or 60 people after shows, whether it be leveraging our dealer management organization and customer service organization. We’re just the fact that we are providing some sense of stability, you know, you think about both IsoTis and Theken it was sort of inevitable that they would be acquired and that always adds uncertainty in your relationships with the dealers, there’s nothing better than it being done with and being able to stare the acquirer in the eye and say, are we working together or not? And I think we have a good track record of working with the sales people and distributors who we acquire and showing them, how to grow the business profitability. I think there’s been very positive reaction to both of the acquisitions in the dealer and customer organization.

Do you think maybe for both IsoTis or for IsoTis outside of putting Mozaik through the channel etcetera its that a double-digit grower in ’09?

Yes.

Okay. And, then last question on gross margin, Jack did you update the gross margin guidance for the year, I just missed that?

No, we did not update the gross margin guidance for the year; obviously this quarter was very strong on gross margin that was driven by very attractive mix primarily. We continue to expect 52% to 63% for the year, we’ve also said I think that MedSurge products that we hope to show improvement in the back half that’s something we’ve been seeing for a couple of quarters, try to describe the year going forward. But that won’t probably slightly alter the mix but no, we’ve not changed the guidance, I think you should stick with what you’ve got.

Okay, at 62 to 63 that’s not a ton of improvement over ’07 and it feels like you’ve been running above the 63% level at least in the second quarter. So, if there is something that’s making this a tough comparison this year in the back half of this year?

No. I think our view is 62% to 63%, the odds are reasonably high, we’ll be at the high end of the range. We want to keep the model where it is until it changes but I think the 62% to 63% should be a conservative estimate. I think the concern is if we are lucky and the business does what we expected it to do at the MedSurge business will pick up a little bit and we don’t want to hear criticisms that the gross margin went down a quarter or half a point when we are outperform organically on our MedSurge business. So, I think we are trying to be balanced because we can’t always predict exactly the implication of one set of revenue lines on the overall gross margin mix. Suffice it to say, adding Theken to the mix should also drive the gross margin up and depending upon how much Theken we get in for the quarter that will help the gross margin reasonably significantly.

Yes, got it. Okay, thank you.

And we’ll take our next question from Matt (inaudible) with Piper Jaffray.

Hi, Matt.

Hi, good morning. Thanks for taking the question. Just a clarification on your comment earlier about Jarit and the gross trends in the quarter in the back half of the year, is that speaking both for Jarit and Miltex or just Jarit?

Actually just Jarit, Miltex will be flat.

Okay. So, Miltex, flat also kind of in the second quarter?

My recollection was Miltex was flat quarter-over-quarter versus prior year roughly.

Okay. Roughly is helpful.

I’m trying to find it. So, I’ll try to get you an answer. Flat as a pancake, Matt.

Okay and any prospect for picking that up in the back half of is that the way we should think about it for the rest of the year?

It will grow in the back half sequentially. Traditionally, Miltex has much stronger back half than front half of the year. So, it will grow sequentially but then again the comparison versus prior year is relatively tough. So, 2008, tough year for Miltex, 2009, we expect to improve and keep in mind Miltex has a number of high margin acquisitions that we tucked in including precise precision and some other things going on that are help and drive profitability. And recall we brought Miltex not necessarily for driving high revenue growth. I think we said we expected it to be mid single digit revenue growth. But boy this Miltex delivered a bottom line and help us reinvest in the rest of the business. So, we are telling the Miltex people, we expect you guys to deliver a strong EBITDA and we want to take that EBITDA and certainly invest in acquisitions for Miltex but also invest in things like growing our spine sales organization, growing orthobiologics sales organization. It’s our objective Matt, to have a balanced business and very rationally take businesses that tend to be relatively low growers and redeploy their profits in the high growth parts of the business and we do that I think very pragmatically.

Okay.

But to answer your question, Miltex should be flat roughly year-over-year this year and then we’d expected to be mid single digits 2009.

Fair enough. And so, if you pick your sort of hand held instruments altogether as looking at them together is that sort of a mid to upper single digit grower in the sort of back half of the year. Is it mid single digit business for you?

I would say, again it’s probably a level of detail I don’t have handy but I know you are trying to do some thinking about it and I would say mid to high single digits for the two together recognizing that Jarit and Miltex are roughly the same size. And Jarit surprises us sometimes, the ability to take share, significant turmoil amongst Jarit’s competitors. I see Jarit with the potential as we go over the next 12 months to be back in the double digit growth range as we are done with our restructuring activity and have a much larger sales organization and almost everyone of our major competitors for Jarit in turmoil.

Okay, that’s helpful. And some of the other businesses in MedSurge, I’m wondering or maybe in your implant businesses as well but if you could talk about what kind of impact you’ve seen or if you are seeing any impact of slower procedure growth in general, surgical procedures in the quarter or is that not affecting your businesses?

I don’t believe we have the data to give you any useful insight into it, because our business is so diversified, we have so many SKUs. I tend to take responsibility for the under performance for example of the MedSurge having a lot more to do with the actions that we initiated then procedure growth there’s a certain amount of our business in the -- in particular, in the foot and ankle, which is elective but candidly it’s one of our best performing businesses. So, I don’t know that I could put my finger on procedure growth and say that’s impacting our business one way or the other.

Sure.

Same thing with the economy, we’ve tried to look for trends in the economy and say it’s hurting our business and I’m not sure we’ve really have any insight there to say yes or no, it’s kind of doing what we expected it to do the business.

Okay. so, if I think about this it sounds like some of the extremities procedures are maybe most vulnerable, if we think about discretionary versus non discretionary, but because here it’s I guess I don’t know how to think about maybe because you’re taking share in those businesses potentially it’s just not something that you’re seeing?

Gerry, you can try.

I think if you look at the extremity business in particular what we’re finding is more surgeons are doing some other procedures that we are actively involved with because we’re dealing mostly the genetic diseases, our patients a group poor quality of life they experience a lot of pain as a result of deterioration of the joints and so it’s not just an elective type procedure or cosmetic type procedure, it’s moreover reconstruction of the joints to improve the quality of life of the patient and what we’re finding is through as due products are introduced into the space, more surgeons are actively doing procedures that they would not have otherwise done. Historically, they would have done a fusion and are looking how to reconstruct the joint to get a better outcome for that patient. We’re also seeing increased market share capture as we expand our sales organization and get better coverage in the United States and outside the United States. I think it’s a combination of numbers of surgeons doing more of these procedures and they get more comfortable with the new surgical techniques and greater coverage in the marketplace allows us to get better penetration in market share capture.

Okay. So, if I could read that back to just to make sure I’m hearing you right, is it sounds like maybe market expansion and market share gains offset whatever might be happening systematically in the market in terms of procedure growth?

Yes. I’d agree with that.

Okay. Question on, I know you’re getting to the product line details to, but Radionic, I am just trying to figure out if that business is -- is it currently going sideway sequentially, is it growing, is there any fluctuations that are worth noting in that business?

Overall the Radionics business is, well it’s broken into two parts the ultrasonic aspirator business and then the image guided radiation therapy and fixation parts of the business and as we’ve pointed already the outside aspiration has been the culprit where the last couple of quarters in terms of underperformance in that business. Now in that, as I think I’ve outlined the rationale for it, the rest of the business is essentially on that one hand not a big contributor one way or the other, but has been growing because of the additional attention that we’ve given it and the fact that our neurosurgeon customers are users of these different product lines. So, net-net since we acquired Radionics both parts of the business have grown and we’d expect that to continue going forward.

?:

I don’t know that we are in kind of quantify it, but I can tell you that we have been systematically replacing consultants and the high priced temporary help which came on board more than a year ago at this point with permanent employees they’re both more productive and less expenses and that’s been going on nearly since I would say November and that process is I say 80% complete. We are as we go along making decisions about at a different investment and systems and that will entail consulting expenses we go along and so forth, but I’d say, thematically we’re making steady and systematic progress in both the expenses and the result particularly as a percentage of revenue, which is how we’ve been thinking about this remember that there’s a certain amount of structural knowledge in that expense and so far as the company continues to grow and we have to in the finance organization respond to that growth with more staff, more investment systems and so forth in the ordinary course, but I would say thematically we are making progress I would be very pleased with how the last few months have gone frankly and I expect that you’ll be able to hit our objectives and SG&A this year.

Yes. What I would add is the biggest impact in Q1 and Q2 for getting SG&A in line was all the cost reduction we’ve took out of IsoTis. So, Jack is right, but to some extent we’re investing in building out the organization so lower consulting, but more people, the biggest numbers come from substantial reduction in G&A in IsoTis.

Okay. Well thanks again for taking the questions.

And we’ll take our next question from Ameet Hasan with Oppenheimer.

Hi, Ameet, how are you?

I’m good. Good morning. Can you hear me, okay?

We can.

Okay. Just one question on MedSurge I promise, which is kind of just making sure maybe we can summarize all the questions that have been asked as I’m taking notes here I’m seeing that if there’s any weakness we could attribute it either to ultrasonic aspirations perhaps this final specialty product line being down. I’m wondering if you can just comment on whether there are any other product segments in MedSurge that were down this quarter that we need to know of?

I can’t think of anything in particular worth pointing out except the whole host of unnamed products from LXU that have been discontinued that we probably never talked about but are gone and I talked about those already.

But were those sold this quarter last year?

Yes, this is Jack, we closed that acquisition at the beginning of May, so there was approximately two months of revenue -- seven weeks or so of revenue from that acquisition in the second quarter of last year.

And it doesn’t go into your organic growth calculation, but it goes into our reported revenue so that’s maybe the distinction.

Silly question I suppose, but the discontinued products were sold in the second quarter of last year?

Correct and we’ve reported them in our reported revenues, but you would not have used them in your calculation of organic growth because we exclude anything that was acquired in the quarter if it’s not a full quarter, if you recall.

Okay, and then on Mozaik, in the press release you made some very strong comments on it having doubled, I’m wondering if we can get a little bit more granularity there -- may be just thinking about a quarter-over-quarter it sounded like last quarter even though it was strong, it may have been impacted a little bit by the IsoTis integration, it sounds like it was very strong this quarter where are we with that product line, the fact that it doubled seems great we just are trying to get a hand along what that really means in terms of doubling, where are we as far as kind of an annualized run rate or anything you can help us with?

Well, we’ve specifically avoided given out the data because it’s competitive as you might imagine there is a lot of people in this market competing and so we’ve tried not to break out the data, what I can tell you is the impact of the IsoTis and Mozaik integration in Q4 and Q1 is pretty much gone and we’ve seen a resumption of sequential quarterly growth and I expect next year that Mozaik will be a reasonably significant contributor but more than that I really don’t want to break out, it’s needless to say it’s an important part of business and a fast growing part of the business. I know that wasn’t very helpful but I don’t want to give you more information.

Okay, alright. So, and then the last one I think is it for me on Theken, I’m just wondering if you can give us a little bit more information on how you are planning to launch that product internationally, when you are planning to do so and what channels you are going to sell it through? Thanks.

Gerry, I will comment, just one point, Theken is not a product, Theken is a full range of products. I think it’s something like 15 different sets that take you up and down the spine. And one of the critical points of the Theken acquisition was a desire to buy a well rounded, fully integrated company that is selling most of the different parts of spine even having a project to develop an artificial desk. So, the right way to think of Theken as far as I’m concerned is as a platform and we can grow it in a variety of ways. Candidly, the most important thing we can do in the short term is help them grow domestically by adding additional sales, marketing and clinical support. They have been somewhat constraint simply by being a private company and funded with their own cash. And so, the key priorities in the short term are the US market. Gerry?

Yeah, I think we’ve sort of try to look at it from that point of view where in the short term focus on the US side of the business and provide the support that’s required so Randy taking to leaders team and develop that business to achieve a much stronger position in the US market. And as we look outside the US, currently there are no product sales outside the US. So, we are looking at opportunities in the various European countries that we have direct distribution or direct sales people and we have some distributor networks that displaying offering with provided very nice compliments to see where the biologics products that they currently sell for us as well as other orthopedic product lines they distribute. We haven’t solidified our plans on expansion outside the US at this stage, we just completed the acquisition couple of weeks ago. So, we are sort of working that through with our European management team and Randy and over the course of time certainly, probably not before the end of the year, we’ll be expanding outside the US. But as we look in the 2009, I’m sure we’ll have plans to look at how can we take advantage of the opportunities that lie outside the US and initiate to distribution strategies.

The critical point to remember is Integra in Europe is perceived as an orthopedic company. Next question please?

And we’ll take our next question from William Plovanic with Canaccord Adams.

Hi, Bill.

Good morning, Stuart, this is actually Anup for Bill. Just wanted, a couple of questions. first I realize that you are saying that organic growth is not a primary driver for the business or primary metric. But as you look forward, what are some of the areas where you are finding opportunities for organic growth via leveraging IsoTis acquisition or those types of things. Where do you think you are going get that extra organic growth from?

Well, let me go back to first principles which is our Neuro business, we expect growth over the indefinite planning rings so, three to five years at approximately 15% a year. We expect our instrument product lines to grow in the high single digits, we expect our extremities product lines to grow well in excess of 25% for the year. And we expect the new acquisitions IsoTis, Theken in particular to grow well in excess of 15% a year. So, if you add that all up the Theken, IsoTis, Neuro will on average drive the growth rate to at or above the 10% to 12% organic growth target that we’ve given. So, if you look at it by franchise, we expect to continue to drive that substantial growth and we are quite confident of our ability to do it, to get it to individual products is worth pointing out that DuraGen is back up and growing again, Integra skin, which is not a small franchise, it’s not going growing again. It’s growing very quickly, the new deal product lines in the United States in particular are growing very quickly that’s the extremity franchise. Mozaik and IsoTis together will drive outsized growth for the company. And keep in mind we are modeling Theken conservatively and we certainly have ambition as there is Randy to do a lot better than the 15% guidance that we are providing.

Okay. And then the next question would be in terms of your distribution. Has there been any significant change over the last quarter in any of the either direct or distributor networks?

Not really, no. We put a lot of things into place at the end of the last year. But no, we are pretty much just executing and there is not a big change in really anything we are doing structurally from Q1 to Q2 other than, obviously both on Theken now.

All right, thank you very much. And, I’ll see you at the conference.

Thanks.

We’ll take our next question from Jayson Bedford with Raymond James.

Hi, good morning guys. I just have a couple of questions. Just, on the SGA line you showed some nice leverage there, is there anything left to integrate or is there any other big projects that could provide additional leverage?

There’s still plenty going on and plenty opportunity to take cost out of sales marketing in G&A, I think as you go into back half of the year, you’ll see the percentage increase, sorry, you’ll see the percentage go down. But, that will be principally driven by revenues going up. So, we’re not expecting reductions in the absolute value of SG&A, but rather SG&A should not grow in proportion with the revenue growth that we’re expecting in the back half of the year. So, I hope that answered the question.

That’s fair. Just, switching over, I know was kind of beating us to death here but just on organic growth, your third quarter guidance implies by my math a high single digit organic growth rate and I’m just given the easier cup I thought it would have been a little higher. So, either one you’re being conservative here or there’s something new in the business, and I am just wondering if you could comment on that? Thanks.

I think our revenue guidance, our revenues there’s nothing new that we’re pointing to, we basically were pointing toward approximately 10% organic growth year-over-year. And, we haven’t changed anything really on our forward-looking guidance this quarter other than rolling in the impact of first half of the year. So, no.

Okay. And, then just international opportunity for Theken. does the products have CE mark?

Some of the products has CE mark currently few of the products do not, some of the newer ones, but that sort of more of a product registration issue and just following through on the regulatory requirements to get them registered for CE distribution. So that’s why I said earlier I mean as we look at our plan to expanded internationally will take over the next few months to identify, which products are the right products to bring into the international market outside the US. And, also looking at timing in terms of when is the right time to introduce the new product into the European market, right now is not a good time because you’re in the summer month and it’s a slow period for the European market. And, as we get into the fourth quarter, we try not to get people be distracted with launching and trying to set up new product devaluations. So, usually we try to look at everything from January forward into the year, as far as launching point for international market to get a much better training program and focus in place to have a successful launch. You know one point, which I’m sure is obvious to you, but I’ll make in any events, Integra is a regulatory approval machine, well for a small company the question is, CE mark is a big challenge, Integra has got something on the order of 25 to 30 PMA and PMA supplements well over 500, 5, 10-k products. We’ve probably got and I think I’m not exaggerating thousands of products CE marked and we have a full European regulatory and quality team that does their own work both on doing FDA approvals and CE markets. So, it is not a challenge at all to work with Randy to get his products CE marked, it’s really just a question of priority and where do we want to spend the time to get the best bang to the buck.

Sure, that’s fair. Just lastly, inventory levels crept up in the quarter, obviously its having a big impact on the cash flow, I’m just wondering, what is the take to get the inventory levels down?

Couple of points. First, not a big impacts on the cash flow its about $5 million and I would also point out to some extent its foreign exchange because a fair amount of the products are European and we mark them up because of the increase in foreign exchange rates. So, that being said no pat on the back for anybody in Integra on inventory control and it will still be a focus, as we going through back half of the year to get the numbers down absolutely, or in another words on an absolute basis. We have a number of programs in place including trying to do a better job with forecasting, trying to put goals and objectives in place for each of the manufacturing site. And the truth is if you look at the increase from Q1 to Q2, I wish I could blame it on one place to the other but its lots of little things and we have done a good job in the last 12 months again they are where we wanted to be and we’ll give the same focus as we go into the next 6 to 12 months again inventory, its not lost on us and that is an important part of managing our business keep in mind to some extent days pick up as we get more and more into orthopedics world. So, when we bring Theken and that’s going to increase the numbers of days of inventory, we have outstanding. But, we clearly know in other parts of the business is just a need on our part to manage better. But, do not read Q2 as cash going into inventory it is virtually all prepaid and tax related and inventory represents only $5 million change quarter-to-quarter including the impact of Forex, which means some of it is not even cash.

Okay, fair enough. Thanks, guys.

And we’ll take our next question from Bruce Jackson with RBC Capital Markets.

Hi, Bruce.

Hi, Stuart. Just going back to the products line rationalization that took place, I think we’ve covered that topic pretty well. Do you have any plans in the future to market additional product line rationalization?

Well, given the enthusiastic response we have gotten from investors, I ought to say no but, we are running a business and the point is we are going to drive in the medium term cash flow and earnings. And that means sometimes having to do the tough things that’s not that popular in any short term period. It’s the right thing to do, it’s given the appropriate focus to our sales and marketing organization. It’s driving the gross margin, you saw it in the quarter. The fact that we are focusing our sales people and selling the implants is clearly going to help drive gross margin. That being said, no, I think the bulk of the pain is behind us in terms of new decisions to integrate or discontinue businesses. And indeed, it’s not just discontinuing businesses but discontinue particular product lines. And so, I think the answer is most of the decisions are behind us now.

Okay. And then, looking at the gross margins going forward the main determinant of where we end up in that range is going to be the product mix between MedSurge and the implants. Is that right?

That’s always been the biggest impact is the mix, yes. Certainly our sites have objectives in terms of taking costs out, certainly we are trying to do things to operationally improve the gross margin but the biggest single influence around gross margin is the mix between in particular the collagen and metal implants and the instrument product lines of the other MedSurge product lines.

Okay. And then lastly, with the impact of the Theken acquisition, I think Jack said that, the R&D was going to go up a little bit. Is that your financial dollars or is there a percent of revenue?

Well, in our forward-looking guidance, we essentially left the gross margin at 62% to 63%. We left SG&A at 38% to 40% but we up the R&D to 5.5% from 5%. So, that’s really the only change in the model. Obviously, as the businesses roll in, it may drive gross margin up a bit and it will impact SG&A. But the only real change from our previous modeling guidance was 5.5% on R&D. And that’s all good, I mean, we’ve been wanting to spend more on R&D and we think they are good machine to do that for.

Alright, thank you.

Thanks, Bruce.

And we’ll take our next question from David Hug with Ford Equity Research.

Hi, David, how are you?

Yes, good morning. I think some of your voices collapse a lot of bit. So, excuse me if I’m asking questions that’s been answered before. Just wanted to go back and get a little more directional color on your gross margin and your SG&A?

Okay. So, SG&A, came in at about 40%, which was where we hoped it would come in. We hope over the next two quarters to bring it down a bit from the high end of our range of 38% to 40% to something lower than that. In terms of gross margin, we came in at 63%, which was above our previous guidance for the quarter and inline with the 62% to 63% forward-looking modeling guidance. And then R&D at 5%, we hope as we roll Theken into our numbers to increase the 5.5% and keep in mind while the R&D number for Integra seemed somewhat low, a good $100 million to $150 million of our revenues in particular the surgical instruments use zero R&D and so I think if you back out those numbers we are closer to 7% or 8% R&D for the products that use R&D, which puts us in line with many other companies that we are comparable to.

Okay, great. Thank you.

[Operator Instructions]. We’ll take a follow up question now from Taylor Harris with JP Morgan.

Hello Taylor.

Hi, Stuart. Just one of the follow up really quickly on some of the Neuro product lines -- would you mind to help us that on growth rate either in the quarter or just trends in the first half of the year for DuraGen Integra skin?

Again, we’re a little bit low as to get into too much detail what I would say is we gave some numbers on Integra skin and new deal together and we’ve said they were growing well in excess of 30%, it may even been 35. In terms of DuraGen we’ve back into the high single digits on DuraGen, which is good compared to where we were a year or two ago and then we said we’ve doubled Mozaik and I think I answered and then NeuroGen is again in the sort of lump into the others, but we’re still in the very high teens.

Got it. Okay, that helps, thank you very much.

And we’ll take our next question from Dave Parr with FIG.

Hi, Dave.

Good morning. Just one strategic one and congrats on the new employment deal when you’re looking, historically some of the things you guys have brought in-house, Neuro side now were into Spine where some of the multiples are -- a little higher, has anything change in terms of what things you guys are targeting to add to kind of the base Integra business now, would you consider using equity and any acquisitions as they get larger and is it really would Spine now be kind of your main focal point? Thanks.

Well. Couple of points. First thanks for saying that multiples are higher and we’ve about $200 million of orthopedic revenues at Integra, I hope you guys will drive our multiple higher. I think that people miss in the story that Integra is about half an orthopedic company and we still trade as a surgical supply company. So, indeed we did pay up for Theken, but in a very responsible way if you look at the upfront payment and then the upside it’s a good balance between on the one hand not over expending ourselves and on the other hand we are wording the Theken team for delivering on outsized revenue, if we’re lucky enough to payout the full purchase price that will have a really spectacular impact on our growth rate going forward an on the drop down to profitability. So, no I don’t intend to lead the company to go buy some big spine company and pay a huge multiple, not very interested in that, on the other hand investing in Theken and growing it in a responsible and organized way in profitable parts of the spine business, it’s very much the strategy. No, we’re not remaking the company into a spine company at all, on the other hand we’re following our traditional strategy of investing in niche markets where we can be a fast growing market leader and leverage our core tissue engineering technology like Mozaik, like now that tissue engineering technology required any acquisition of IsoTis. So, I view the Theken acquisition and I notice some funny as very much I stick to our knitting site acquisition in the same way IsoTis was and in the same way new deal was and I’m proud that we’ve built extremities franchise that now is earning order of $100 million of revenue essentially from scratch certain we had benefit of the new deal team, but virtually all of the growth that we’ve gotten there has been driven by our US and European extremities team, it (inaudible), it’s all organic and similarly I expect IsoTis and Theken to deliver on the same result. So, I think although from time to time we criticized because we have a tough organic growth, comparable leverage, we have too much SG&A in the given quarter on average we’ve been able to drive margins, we’ve been able to drive top line growth over the last ten years compound annual growth rate of 44% for the overall company.

Great, thanks a lot.

And it appears we have no further questions at this time, I’d like to turn the conference back over to Mr. Essig for any additional closing remarks.

Well, I certainly appreciate all of your interest in Integra and we look forward to reporting to you next quarter. Thank you.

Thank you that does conclude today’s conference, you may disconnect at this time.