Regional Anesthesia (RA) sales of the company’s flagship ON-Q product lines increased by 9% for first quarter of 2009, to $24.7 million compared to $22.6 million with first quarter of 2008. Sales of Acute Care products, which include RA sales and AcryMed Incorporated (AcryMed) revenues, increased 10% for the first quarter of 2009 to $25.5 million compared to $23.2 million for the first quarter of 2008.

The company’s loss before income taxes for the first quarter of 2009 was $2.7 million. The $2.7 million loss is primarily attributable to a $1.5 million loss contingency that the company accrued in connection with ongoing litigation, which is recorded as part of certain litigation and insurance charges, and $1.0 million in legal costs to vigorously defend its intellectual property rights. This compares to a loss before income taxes for the first quarter of 2008 of $1.3 million. The company was cash flow positive for the first quarter of 2009. Cash, cash equivalents and investments increased by $1.8 million during the quarter, excluding a $5.3 million cash note payment received from InfuSystem Holdings, Inc. shortly after quarter-end. At March 31, 2009, I-Flow had more than $50 million in cash, cash equivalents and short-term investments, stockholders’ equity of $115.7 million, and was essentially debt-free.

“We grew our RA business at a healthy pace while dealing with the continued negative impact of the economic downturn on hospital admissions and the resulting diminished volume of surgical procedures. We delivered this solid performance by finding better ways to serve customers and by focusing on our core message–that the use of ON-Q to relieve post-surgical pain results in a significant reduction in narcotics intake and significantly better pain relief than narcotics alone. This proposition resonates with our target audience and is supported by more than 80 published or presented clinical studies and the successful use of our ON-Q products in millions of surgical procedures over the past few years,” said Donald M. Earhart, Chairman and Chief Executive Officer.

“Many of these clinical studies have also shown that the use of ON-Q is associated with shorter hospital stays and may lower the cost per discharge, which is increasingly important as hospitals struggle to be profitable or even to survive in an economic slowdown that is having unprecedented impact. Moreover, our clinical results also highlight a series of benefits that are especially valuable with last year’s implementation of the rule for Centers for Medicare and Medicaid (CMS) reimbursement related to hospital-acquired conditions (HAC) or ‘never events.’ As our first quarter revenue growth shows, these repeatedly positive clinical study findings and evidence-based medicine results create a compelling case for ON-Q being essential because its use results in consistently improving patient outcomes, reducing costs and increasing hospital efficiency,” Earhart said.

AcryMed, a developer of innovative infection control and wound healing products, contributed revenue of around $0.8 million for the first quarter of 2009 compared to $0.6 million for the period from its acquisition by I-Flow on February 15, 2008 through March 31, 2008. “AcryMed’s products for the acute care market complement our ON-Q line, contributing to I-Flow’s planned transformation into an integrated Acute Care products company that develops and markets proprietary disposable medical devices that improve patient outcomes. AcryMed enhances our long-term growth opportunity by expanding the portfolio of products for I-Flow to sell through our established distribution channels, and increasing the number of relevant call points for our sales people among physicians, surgeons, hospital administrators and case managers within a hospital. In this quarter we invested heavily in the continued research and development of the core technologies at AcryMed. We will continue to do so for the balance of 2009 as we explore new revenue opportunities from licensing AcryMed products and technologies to third parties as well as from distributing directly new products which may or may not be marketed to our current customers,” Earhart added.

The company announced recently that the United States Patent and Trademark Office has concluded its reexamination of I-Flow’s U.S. Patent No. 5,284,481 (the “481 patent”) and has issued a Notice of Intent to confirm its patentability. This patent covers intellectual property for the infusion apparatus used in the company’s flagship ON-Q Pain Relief System® and is also used as the basis for other I-Flow brands and product lines. “We are extremely pleased with the Patent Office’s decision and, with the best interest of our customers and stakeholders in mind, we will continue to forcefully defend all of our patents,” Earhart commented.

2009 Guidance

Earhart concluded, “Bearing in mind that today’s volatile market conditions make forecasting even more of a challenge than usual, we continue to expect I-Flow to be profitable in 2009, excluding any special charges, and cash flow positive on growth in total revenue of around five to seven percent, including growth in RA of around five to ten percent.”

AcryMed revenues were $0.8 million for this year’s first quarter compared to $0.6 million for the first quarter of 2008 subsequent to AcryMed’s acquisition by I-Flow on February 15, 2008.

IV Infusion Therapy revenue for the first quarter of 2009 increased 4% to $5.4 million compared to $5.2 million for the first quarter of 2008.

Gross profit was 76% of total revenues for the first quarter of 2009 versus 75% for the first quarter of 2008.

SG&A expenses of $23.3 million for the first quarter of 2009 was equal to the same period in the prior year, reflecting effective control over operating costs and despite the patent defense costs of $1.0 million in the first quarter of 2009. Product development expenses for the first quarter of 2009 increased to $2.2 million compared to $0.9 million for the first quarter of 2008, reflecting the acquisition of AcryMed and internal growth.

Loss before income taxes for the first quarter of 2009 was $2.7 million, compared to a loss before income taxes of $1.3 million for the first quarter of 2008. The $2.7 million loss amount included $1.5 million of loss contingency that the company accrued in connection with ongoing litigation, which is recorded as part of certain litigation and insurance charges, and $1.0 million in legal costs to vigorously defend its intellectual property rights.

The net loss of $3.6 million for the first quarter of 2009 included income tax expense of $899,000 compared to an income tax benefit of $755,000, which was recorded as part of the net loss of $0.5 million for the same period in the prior year. The increase in income tax expense for the first quarter of 2009 was primarily due to the impact from an increase in valuation allowance for deferred tax assets with uncertain future benefit.

At March 31, 2009, I-Flow reported net working capital of around $72.8 million, including cash, cash equivalents and short-term investments of $50.2 million, stockholders’ equity of $115.7 million, and was essentially debt-free.