To Our Stockholders:

Integra experienced landmark change and growth in 2006.  Integra – once devoted almost entirely to neurosurgery – is now a global diversified medical technology company competing in a variety of large, growing and in some cases underserved markets.  We are an exciting company that has accomplished an enormous amount for our customers, patients, employees and stockholders in the last few years.  We look forward to doing even more in the years to come.

In 2006 we:

• Grew revenues by more than 50% to $419 million
• Increased earnings per share, on an adjusted basis, by nearly 30%
• Surpassed $1 billion in market capitalization
• Acquired four businesses for more than $220 million
• Expanded our extremity reconstruction product line to include upper extremities
• Initiated the pivotal United States clinical trial for our DuraGen Plus® Adhesion Barrier Matrix, the largest clinical study in Integra’s history
• Created a spine products sales channel
• Significantly expanded our presence in the markets in which we compete.

At the end of 2006, we led the neurosurgery market, we were one of the top surgical instrument companies in the United States, and had established ourselves in the fast growing extremity reconstruction market.

Our innovative products and our dedicated people continue to help save many lives and improve the quality of life for men, women and children around the world. Below are just a few examples of the tremendous progress we made in 2006:

Integra NeuroSciences.  We increased our lead in the neurosurgery market.  We grew our direct sales force in the United States to 148 specialists and managers who call on neurosurgeons, spine surgeons, intensivists, and neuro-nurses. The recent launch of the Integra Mozaik™ Osteoconductive Scaffold is only the latest regenerative technology implant to emerge from our pipeline.  Integra Mozaik™ Osteoconductive Scaffold is a bone void filler used in posterolateral lumbar and interbody fusions. In the neuro-intensive care unit, we launched the Mobius™ Multi Modality Monitoring System.  The Mobius™ system allows physicians to view, trend, and analyze simultaneously the various parameters that Integra’s advanced neuromonitoring products measure separately.

We furthered our commitment to launching innovative products that improve patients’ lives with the initiation of a 500 patient, 30 center, clinical trial to evaluate the safety and effectiveness of the DuraGen Plus® matrix product as an adhesion barrier in spine surgery procedures. Currently there is no spinal adhesion barrier product approved in the United States to prevent the pain associated with adhesion complications following spine surgery.  Following the successful completion of the clinical trial and FDA approval, we plan to launch the DuraGen Plus® product to meet this significant unmet medical need, which represents a global market opportunity in excess of $320 million.

We also launched a spine products sales force to take advantage of additional opportunities to sell our DuraGen® product line for the repair of the dura mater in spine procedures.  This new initiative in spine represents our first effort to sell to orthopedic spinal surgeons, who represent an untapped opportunity for the DuraGen Plus® matrix, Integra Mozaik™ Osteoconductive Scaffold and the other osteobiologic products that we have in our pipeline.  In addition to the obvious advantage of reaching a new target market, our goal is to put ourselves in a strong position to launch the DuraGen Plus® Adhesion Barrier Matrix when we receive FDA approval. 

In March, we acquired the assets of the Radionics Division of Tyco Healthcare Group LP, including the CUSA Excel™ ultrasonic surgical aspiration system, the CRW® stereotactic system, the XKnife™ stereotactic radiosurgery system, and the OmniSight® EXcel image guided surgery system.  With this acquisition, Integra became the market leader in ultrasonic surgical aspirator systems. 

With CUSA®, DuraGen®, Camino® and MAYFIELD®, we possess some of the most well recognized and respected brand names in the neurosurgical market and are the market leader in those market categories.  The products sold through the Integra NeuroSciences sales channel address a total market opportunity of over $1.5 billion.

Handheld Surgical Instruments:  With the acquisition of Miltex, Inc. in May, Integra became one of the top companies in the US handheld surgical instruments market and strengthened its position around the world.  Miltex is a great complement to our Jarit Surgical Instruments business.  Jarit’s primary call points are hospitals and surgery centers, while Miltex focuses on alternate site facilities such as physician and dental offices, ambulatory surgery care centers and veterinarian offices.

Our handheld surgical instruments sales channel now has more than 40 sales and marketing professionals who manage a large number of independent sales agents and distributors in the United States.  Customers recognize both Jarit and Miltex as providing great value and the industry’s highest levels of customer service.  Today, with the combination of Jarit and Miltex, our handheld surgical instrument products address a total market opportunity of nearly $1 billion.

Extremity Reconstruction:  Last year,we increased our direct sales force in the United States to 76 people calling on orthopedic extremity surgeons, podiatric surgeons, and plastic surgeons. Integra now has the largest direct sales force in the United States focusing on reconstructive surgery in the extremities.  In August, we acquired a complementary line of innovative orthopedic implants and surgical devices for small bone and joint procedures for the foot, ankle, hand, wrist and elbow through KMI. This acquisition expanded Integra’s presence into the upper extremities market.  Through acquisitions and internal product development, Integra provides a comprehensive line of extremity solutions including internal fixation, joint reconstruction, soft tissue regeneration, and peripheral nerve and tendon protection and repair for both the upper and lower extremities.  

We now sell products that address a total market opportunity of $760 million that is growing at 12% per year.  Our goal is to become the #1 player in this market as well.

International.  We reorganized our European management team and invested in our European infrastructure. We took these actions to better align Integra with the needs of our customers and to position the company for further international growth.  We expanded our sales force in those markets and now have 58 direct sales representatives covering the United Kingdom, France, Germany, the Benelux region and Switzerland.  Through our acquisition of Canada Microsurgical in July, we now have nine direct sales representatives covering every province in Canada.

Cash flow, liquidity, and financing.  We generated record operating cash flows of $72 million in 2006. We used that cash to build our business and to repurchase 1.8 million shares of our common stock. With a credit facility of $300 million (of which we had borrowed approximately $100 million at the end of 2006) and strong operating cash flows, we have the financial resources to continue to execute accretive, strategic acquisitions and to repurchase additional shares of our common stock in the open market.

2007 and Beyond.  Our goals for the future are to continue to develop and acquire innovative and exciting products that save lives and improve the quality of life of our patients.  Our basic strategy remains the same: to leverage our strong regenerative technology base across our sales channels. As we have in the past, we will actively seek acquisitions to add complementary products to our extremities reconstruction, neurosurgery, spine, and instrument sales channels.

I am very excited about our future.  I want to recognize the amazing achievements of our 1,750 dedicated employees around the world, who will make that future happen.  Our employees realize our mission and make Integra LifeSciences the company that it is today. We continue to invest in the development of these talented people so that they can continue to lead and contribute to the growth of a truly global and diverse medical technology company. 

Finally, I have two introductions and a welcome back. In May of 2006, Christian Schade joined Integra’s Board of Directors.  Chris has been the Senior Vice President, Finance and Administration, and Chief Financial Officer of Medarex, Inc. since 2000.  In March of 2007, Thomas J. Baltimore, Jr. joined Integra’s Board of Directors.  Tom is the Co-Founder and President of RLJ Development, LLC, a privately held real estate investment company.  I would also like to welcome Neal Moszkowski back to the Board of Directors.  Neal was a valuable member of Integra’s Board of Directors from 1999 through 2005 and rejoined the Board in August.  I am excited to have Chris, Tom and Neal join our Board of Directors.

Thank you, our stockholders, for your continued support.

Sincerely,
Stuart Essig
President and Chief Executive Officer