To Our Stockholders:

It is a great pleasure to report that 2007 was another exciting year for our Integra. We continued to grow by introducing new products, enlarging our sales organizations, consummating strategic and synergistic transactions, and starting new businesses. We entered the orthobiologics market through the introduction of Integra Mozaik™ Osteoconductive Scaffold, the establishment of a sales organization, and the acquisition of IsoTis OrthoBiologics. Finally, we significantly expanded our horizons internationally, substantially increasing our European infrastructure.

With record revenues of $550 million, we delivered an excellent 31% growth in 2007. We have confidence in our plan for continued growth, strategic direction and sales leadership. 

Once devoted almost entirely to neurosurgery, Integra now has expanded into new markets of extremity reconstruction, orthobiologics and handheld instruments in the United States, and has a growing direct and distributor sales strategy in the rest of the world. At year-end, Integra continued to lead the neurosurgery market and was one of the top surgical instrument companies in the United States. We had also established ourselves in the fast growing extremity reconstruction and orthobiologics markets.  

2007 was a banner year for our company; we achieved a number of important milestones and below are some of our key highlights:

• Grew Revenue by 31% to $550 million;
• Increased Earnings Per Share, on an adjusted basis, by 15%
  
• Added the Integra OrthoBiologics distribution channel;
  
• Embarked on a direct selling strategy for handheld surgical instruments;
  
• Acquired five businesses for more than $100 million;
  
• Repurchased 2.2 million shares of stock;
  
• Launched nearly 30 new products including 3 new products in our Regenerative Product Line: Integra Mozaik™ Osteoconductive Scaffold, IntegraTM Flowable Wound Matrix and DuraGen XSTM Dural Regeneration Matrix;
  
• Grew our sales and marketing group by 20%;
  
• Doubled our direct European sales force;
  
• Grew our Research and Development group by nearly 40%; and
  
• Began production of collagen-based products in our Puerto Rican facility.

New Products. Our R&D investment is producing significant and important results. We launched nearly 30 new products in 2007, which we expect to help power our organic growth in the coming years. These products provide important benefits to the patient and surgeon and include: Integra Mozaik™ Osteoconductive Scaffold, a new orthobiologic product line; DuraGen XS™ Dural Regeneration Matrix and Integra™ Flowable Wound Matrix, extensions of existing collagen products; and numerous implant and medical surgical equipment products, including our AEON™ Shape Memory Implant, Advansys™ Mid and Hind Foot Plating Systems, and Uni-CP™ Compression Plate.

Transactions. We completed five strategic transactions in 2007, four in the Integra Medical Instruments Group and one in the NeuroSciences organization. Two of these acquisitions, LXU Healthcare and IsoTis, provided us with new distribution platforms. LXU Healthcare enabled our acute care selling organization to establish a direct sales channel in roughly half of the United States, through its leading specialty surgical products distribution organization. The LXU organization had an excellent sales force, calling on surgeons and key clinical decision makers, covering 18,000 operating rooms. This provided us with a unique entrée into specialty surgeons, allowing us to highlight Jarit's growing lines of surgical instrumentation directly to the end-user.

Our teams continue to excel at integrating our new acquisitions. Combining our new businesses has gone smoothly and we are already seeing significant gains from our acquisitions.

Integra NeuroSciences/OrthoBiologics. The combination of IsoTis products with the Integra Mozaik™ family of products created one of the most comprehensive product portfolios in the orthobiologics market, and it forms the basis for our new sales organization, Integra OrthoBiologics. IsoTis is the centerpiece of our Integra OrthoBiologics distribution channel, and its product lines include demineralized bone matrices marketed under the brands Dynagraft®, Orthoblast®, Accell® and Trel-X™. These products are used for bone repair and bone fusion in orthopedic procedures that include spine, trauma, reconstruction, and foot and ankle.

Integra OrthoBiologics combined IsoTis’ sale force with our direct spine sales team. This increased our market presence in orthopedics from 20 specialists to over 300 sales representatives selling our full range of orthobiologics products to surgeons focused on spine and large bone applications. Our IsoTis acquisition offers other benefits, including significant cost savings, the potential for increased sales, and the development of new products from the combination of our technologies.

Our pivotal DuraGen Plus® Adhesion Barrier Matrix clinical trial continued to make good progress. Assuming we meet our trial objectives, we anticipate a 2011 filing of the Premarket Approval application with the FDA.

Extremity Reconstruction. Our Integra Extremity Reconstruction selling organization continued to expand its field presence and introduce new products. We introduced several innovative new products including our AEON™ Shape Memory Implant, Advansys™ Mid and Hind Foot Plating Systems, and Uni-CP™ Compression Plate. We have a full complement of 75 sales professionals, including specialists who focus on the engineered tissue repair products. In the fourth quarter of 2007, we launched a flowable version of our Integra™ Wound Matrix, a groundbreaking technology for the treatment of tunneled wounds in diabetic foot and lower extremity ulcers. In the first quarter of 2008, we expanded the distribution of our orthobiologic products, launching Integra OS™ Osteoconductive Scaffold, Trel-X™ and Trel-XC™ Demineralized Bone Matrix products. We are excited about the synergy between the small bone and joint implants for the upper and lower extremities and the orthobiologics platform that we’ve assembled.

Integra Medical Instrument Group. We integrated the Jarit and newly acquired Luxtec/LXU surgical sales teams, establishing our direct selling organization, which has been renamed Integra Surgical. We now have a combined selling organization of approximately forty direct sales reps, covering over half of the United States, selling Jarit® instruments and Luxtec® surgical lighting. In other areas of the country, we will continue our strong historical relationships with Jarit and Luxtec dealers.

Sales and Distribution. Integra’s distribution channels continue to grow. Our global sales and marketing organization now has approximately five hundred sales, marketing, and clinical specialists, who provide unparalleled product support, customer service and education. Through acquisitions, we have enhanced our selling strategies for both surgical instruments and orthobiologics. We now market most of our domestic products directly through the following four separate sales organizations:

• Integra NeuroSciences (calling on neurosurgeons, intensivists and neurosurgical nurses);
• Integra Extremity Reconstruction (calling on orthopedic foot and ankle surgeons, surgical podiatrists, hand surgeons, burn units, and reconstructive surgeons);
• Integra Medical Instruments (a hybrid of distributor and direct sales representatives calling on central purchasing within the hospital, and independent distributors calling on medical, dental and veterinary offices); and
• Integra OrthoBiologics (a network of approximately 45 distributors selling Integra’s full range of DBM and synthetic bone graft substitutes).
  

International. We continued to expand the infrastructure in our European sales and marketing activities. As a result, we are seeing increased sales growth and operating efficiencies. Early this year, we took over the distribution of our neurosurgical products from our dealer in Switzerland and now sell direct in Canada and seven European countries, utilizing distributors in the rest of the world.

Cash flow, liquidity, and financing. We generated operating cash flows of $47 million in 2007 and raised $330 million in a convertible debt offering. We used that cash to invest in the expansion of our business, repurchase 2.2 million shares of our common stock, and acquire five new businesses. At the end of the year, we had nearly $60 million of cash on our balance sheet and no outstanding balance on our line of credit. During 2007, we also increased our credit facility to $300 million. With our borrowing ability 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, when appropriate.

2008 and Beyond. We will continue to develop and acquire innovative products that save lives and improve patient quality of life. 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 in order to add complementary products to our neurosurgery, extremity reconstruction, orthobiologics, and medical instrument sales channels. We also recognize the importance of our customers and will continue to deliver the highest levels of customer service in the industry.

Integra continues to stand for integrity - of our people, our products and our partners. I want to take this opportunity to thank our 2,500 dedicated employees around the world for their many important contributions and for their relentless efforts to make Integra LifeSciences the great company that it is today and the even better company it will be in the future.

Thank you, our stockholders, for your continued support.

Sincerely,
Stuart Essig
President and Chief Executive Officer