INTRODUCTION

World Heart Corporation and its subsidiaries are collectively referred to as "WorldHeart" or the "Company." The following Management Discussion and Analysis of Financial Condition and Results of Operations (MD&A) discusses material changes in our financial condition and results of operations and cash flows for the three and nine months ended September 30, 2009 and September 30, 2008. Such discussion and comments on the liquidity and capital resources should be read in conjunction with the information contained in our audited consolidated financial statements for the year ended December 31, 2008, prepared in accordance with U.S. GAAP, included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2008.

The discussion and comments contained hereunder include both historical information and forward-looking information. The forward-looking information, which generally is information stated to be anticipated, expected, or projected by management, involves known and unknown risks, uncertainties and other factors that may cause the actual results and performance to be materially different from any future results and performance expressed or implied by such forward-looking information. Potential risks and uncertainties include, without limitation: our need for additional significant financing in the future; costs and delays associated with research and development, manufacturing, pre-clinical testing and clinical trials for our products and next-generation product candidates, such as the Levacor Rotary VAD; our ability to manufacture, sell and market our products; decisions, and the timing of decisions, made by health regulatory agencies regarding approval of our products; competition from other products and therapies for heart failure; continued slower than anticipated destination therapy adoption rate for VADs; limitations on third-party reimbursements; our ability to obtain and enforce in a timely manner patent and other intellectual property protection for our technology and products; our ability to avoid, either by product design, licensing arrangement or otherwise, infringement of third parties' intellectual property; our ability to enter into corporate alliances or other strategic relationships relating to the development and commercialization of our technology and products; loss of commercial market share to competitors due to our financial condition; our ability to remain listed on the NASDAQ Capital Market; as well as other risks and uncertainties set forth under the heading "Risk Factors" in our Annual Report on Form 10-K, for the fiscal year ended December 31, 2008.

OVERVIEW

Our business is focused on the development and sale of ventricular assist devices ("VADs"), particularly our Levacor Rotary VAD (the "Levacor VAD" or the "Levacor"). VADs are mechanical assist devices that supplement the circulatory function of the heart by re-routing blood flow through a mechanical pump allowing for the restoration of normal blood circulation. In August 2009, the Company received a conditional Investigational Device Exception from the U.S. Food and Drug Administration ("FDA") for the Levacor at ten U.S. centers and expects to initiate the clinical trial in the fourth quarter of 2009. Clinical study enrollment will involve approximately 205 subjects with an opportunity to demonstrate statistical significance through a planned interim analysis of approximately 155 subjects. The follow-up period for subjects in the Bridge-to-Transplant ("BTT") clinical trial is six months with the end points of the BTT study being heart transplant or six month survival. We expect to initiate a CE Mark clinical trial in Europe with Levacor by the end of 2010 and plan to initiate a destination therapy clinical study in the U.S. with Levacor by the first half of 2011.

In addition, we, in conjunction with a consortium consisting of the University of Pittsburgh, Children's Hospital of Pittsburgh, Carnegie Mellon and Launchpoint Technologies, LLC, have been developing a small, magnetically levitated, axial rotary pediatric VAD ("PediaFlow™"). The PediaFlow is intended for use in newborns and infants and has been primarily funded by the National Institutes of Health ("NIH"). The technology embodied in the PediaFlow is also intended to form the basis for a small, minimally invasive VAD ("MiVAD"). The MiVAD is aimed at providing partial circulatory support in early-stage heart failure patients. We expect to be in the clinic with the MiVAD in 2013.

In the past, we derived most of our revenue from our Novacor LVAS and related peripheral equipment, which we sold directly to medical clinics and hospitals in the United States, Europe and Canada and through a distributor in certain other countries. In November 2006, we announced a restructuring plan, which included a reduction of commercial operations associated with the Novacor LVAS, and a refocusing of our resources on the development of next generation products, particularly the Levacor VAD.

In July 2008, we completed a $30.0 million private placement transaction and recapitalization under the terms of the Recapitalization Agreement (the "Recapitalization Agreement") dated June 20, 2008 and amended on July 31, 2008, among WorldHeart, our wholly owned subsidiary World Heart Inc. ("WHI"), Abiomed, Inc. ("Abiomed"), Venrock Partners V, L.P., Venrock Associates V, L.P. and Venrock Entrepreneurs Fund V, L.P. (collectively, "Venrock"), Special Situations Fund III QP, L.P., Special Situations Cayman Fund, L.P., Special Situations Private Equity Fund, L.P., Special Situations Life Sciences Fund,

L.P. and Austin W. Marxe (collectively, "SSF") and New Leaf Ventures II, L.P. ("New Leaf"). Simultaneously with the closing of the recapitalization, Abiomed entered into a Termination and Release Letter Agreement with us and converted the full amount of principal and interest owed on the $5,000,000, 8% Secured Convertible Promissory Note (the "Note") previously issued to Abiomed by us and WHI into 2,866,667 of our common shares, released the security interest in all of our assets and those of WHI that secured the Note, terminated the warrant Abiomed held to purchase 113,333 of our common shares, forgave other amounts we owed to Abiomed and terminated previously existing agreements, arrangements and understandings with us. The purchase price delivered by Venrock and SSF at the closing was offset by repayment of the principal and interest owed on the bridge loan facility of $1,400,000 that Venrock and SSF had previously provided to us. As part of the recapitalization transaction, we issued warrants to purchase an aggregate of 83,333 common shares to our advisors, Pacific Growth Equities, LLC and Stifel, Nicolaus and Company.

On August 21, 2008, we announced that we were embarking on a phased consolidation into a primary facility at our current location in Salt Lake City, Utah. As part of our consolidation plan, on February 4, 2009, we announced that we had appointed Mr. John Alexander Martin as our President and Chief Executive Officer and on August 10, 2009, we announced that we had appointed Mr. Morgan R. Brown as our Executive Vice President and Chief Financial Officer, with both positions based in Salt Lake City, Utah. Mr. Jal S. Jassawalla, our former President and CEO, currently our Executive Vice President and Chief Technology Officer, continues to be based in Oakland, California, along with certain key employees in areas such as Research and Development, Clinical Affairs and Regulatory Affairs.

Research and development by our competitors is proceeding on several rotary flow devices. Certain of these devices have received the CE mark in Europe and are advancing through clinical trials in the United States and Europe, and one device received U.S. marketing approval for the Bridge-to-Transplant indication in 2008. We believe that our Levacor VAD has significant clinical durability and ease of use benefits as compared to our competitors.

RESULTS OF OPERATIONS FOR THE THREE AND NINE MONTH PERIODS ENDED SEPTEMBER
30, 2009 COMPARED WITH THE THREE AND NINE MONTH PERIODS ENDED SEPTEMBER 30, 2008

(United States Dollars and shares in thousands except per share amounts)



                                       Three Months Ended September 30,          Nine Months Ended September 30,
(Unaudited)                               2009                  2008                 2009                2008
Revenue                                             -     $             192                   5    $          1,363
Cost of goods sold                                 25                   204                  78                 890

Gross profit                                      (25 )                 (12 )               (73 )               474

Operating expenses
Selling, general and
administrative                                  1,315                 1,036               4,234               3,441
Research and development                        2,557                 2,226               7,269               6,651
Clinical and marketing support                      -                     -                   -               6,479
Restructuring costs                                98                     -                 349                   -
Amortization of intangibles                        12                    48                 108                 144
Total operating expenses                        3,982                 3,310              11,960              16,715

Operating loss                                 (4,007 )              (3,322 )           (12,033 )           (16,241 )

Other income (expense)                             (9 )              (3,840 )                (1 )            (5,448 )

Net loss applicable to common
shareholders                        $          (4,016 )   $          (7,162 )  $        (12,034 )  $        (21,689 )

Weighted average number of
common shares outstanding basic
and diluted                                    13,273                 8,963              13,260               3,296

Basic and diluted loss per
common share                        $           (0.30 )   $           (0.80 )  $          (0.91 )  $          (6.58 )

Revenue: In the past, sales of Novacor LVAS implant kits and related peripheral equipment and services accounted for the majority of our revenue. In addition, we generated revenue from sales of SPUS (Segmented Poly Urethane Solution) used by one other medical device manufacturer. We have historically sold our products directly, except for a few countries where we sold through distributors.

The composition of revenue in thousands ($000's) is as follows except for units:

                        Three Months Ended September 30,               Nine Months Ended September 30,
(Unaudited)               2009                    2008                   2009                    2008
                     $          Units          $        Units       $         Units           $        Units
Novacor Product
Revenues
Implant kits      $      -          Nil    $       -       Nil   $      -         Nil    $       318        5
Peripherals and
other                    -                       102                    5                        440
                         -                       102                    5                        758
SPUS Revenues            -                        90                    -                        605
Total Revenue     $      -                 $     192             $      5                $     1,363

Total revenue for the three months ended September 30, 2009 was nil reflecting a decrease of $192,000, or 100%, compared with the three months ended September 30, 2008. There were no Novacor LVAS implant kits sold during the three months ended September 30, 2009 and September 30, 2008. Novacor peripherals and other revenue was nil for the three months ended September 30, 2009, a decrease of $102,000, or 100%, compared with the quarter ended September 30, 2008. The overall revenue decrease is attributable to our November 2006 decision to reduce our commercial efforts with respect to the Novacor LVAS and focus our resources on the development of our Levacor VAD. In 2007 and 2008, we made the Novacor LVAS available to medical centers only until our inventory was depleted, which occurred in mid-2008. We continue to support our Novacor patients but have discontinued the manufacture and sale of additional Novacor implant kits. We do not anticipate any Novacor product revenues throughout the remainder of 2009. There was no SPUS revenue for the three months ended September 30, 2009 compared with $90,000 during the three months ended September 30, 2008. The decrease is a result of this revenue being associated with one customer with no purchase orders being placed in 2009. We anticipate that SPUS revenues will continue to be unpredictable as we are dependent on only one customer.

Total revenue for the nine months ended September 30, 2009 was $5,000, a decrease of $1,358,000, compared with $1,363,000 recorded in the same period in 2008. Novacor implant kit revenue was nil and $318,000, for the nine months ended September 30, 2009 and 2008, respectively. We sold five Novacor implant kits during the nine months ended September 30, 2008 compared to zero in the nine months ended September 30, 2009 which contributed to this significant decrease. Revenue generated from peripherals and others was $5,000 for the nine months ended September 30, 2009, compared to $758,000 for the same period in 2008, a decrease of $753,000, or 99%. The decrease is a result of our 2006 decision to no longer support commercial sales of Novacor LVAS. SPUS revenues were nil for the first nine months of 2009 compared with $605,000 for the same nine month period in 2008. This fluctuation in SPUS sales is a result of our dependence on only one customer. We do not anticipate any Novacor-related revenues throughout the remainder of 2009.

Cost of goods sold: For the three and nine months ended September 30, 2009, cost of goods sold consisted entirely of royalties payable under a minimum annual royalty agreement with Vertellus UK Limited. For the three and nine months ended September 30, 2008, cost of goods sold was 106% and 65%, respectively, of total revenue. Cost of goods sold during the three and nine months ended September 30, 2008 consisted of raw materials, labor, royalties and other costs related to the manufacture of our Novacor LVAS, as well as Novacor LVAS inventory write-downs of $99,000 and $355,000, respectively.

Selling, general and administrative: Selling, general and administrative expenses consist primarily of payroll and related expenses for executives, sales, marketing, accounting and administrative personnel. Selling expenses primarily relate to enrollment of new centers in the anticipated Levacor clinical trials, field support of existing Novacor LVAS patients and marketing/trade show costs. Our administrative expenses include professional fees, communication expenses, insurance premiums, public reporting costs and general corporate expenses.

The composition of selling, general and administrative expenses in thousands ($000's) is as follows:

                                 Three Months Ended September 30,           Nine Months Ended September 30,
(Unaudited)                         2009                  2008                 2009                 2008

Selling                       $             169     $             214    $            554     $            693
General and administrative                1,146                   822               3,680                2,748
Total                         $           1,315     $           1,036    $          4,234     $          3,441

Selling expenses for the three months ended September 30, 2009 decreased by $45,000, or 21%, compared with the same period in 2008. The decrease is attributable to the continued decline of Novacor LVAS support efforts. For the nine months ended September 30, 2009, selling expenses decreased $139,000, or 20%, compared with the nine months ended September 30, 2008. For the three and nine months ended September 30, 2009, we recorded $22,000 and $54,000, respectively, in stock-based compensation expense compared with $5,000 and $16,000, respectively, in the comparable 2008 periods. Selling expenses are expected to increase as we begin to supply our Levacor device for evaluation in clinical trials.

General and administrative expenses for the three months ended September 30, 2009 increased $324,000 or 39% compared with the same period in 2008. The increase is primarily attributable to an increase in stock based compensation expense ($114,000), increased legal fees ($83,000), increased salaries from the addition of a new CEO and CFO ($125,000), and increased costs associated with filing of our annual meeting, proxy statement and other annual meeting related costs. For the nine months ended September 30, 2009, general and administrative expenses increased $932,000, or 34% compared with the nine months ended September 30, 2008. This increase is attributable to salaries, benefits, recruitment, consulting and legal fees associated with our phased consolidation plan, including hiring of our new CEO and CFO and the transition of our former CEO into another executive position ($580,000), an increase in the accrual for bonuses ($128,000), and increased stock based compensation expense ($220,000). For the three and nine months ended September 30, 2009, we recorded $146,000, and $349,000, respectively, in stock-based compensation expense associated with general and administrative employees compared with $32,000 and $128,000, respectively, recorded in the comparable 2008 periods. General and administrative expenses are expected to continue to increase as we add additional employees and activities to support the Levacor clinical trials.

Research and development: Research and development expenses consist principally of salaries and related expenses for research personnel, consulting, prototype manufacturing, testing, clinical trials, material purchases and regulatory affairs incurred at our Salt Lake City and Oakland facilities.

Research and development expenses for the three months ended September 30, 2009 increased $331,000, or 15%, compared with the three months ended September 30, 2008. The increase is primarily attributable to increased R&D efforts related to the Levacor build for clinical trials ($153,000) and increased stock based compensation expense ($122,000). Research and development expenses for the nine months ended September 30, 2009 increased by $618,000, or 9%, from the nine months ended September 30, 2008. The increase is primarily attributable to increased R&D efforts related to the Levacor build for clinical trials ($272,000), increased stock based compensation expense ($220,000), an increase in the accrual for bonuses ($180,000), increased Clinical Research Organization ("CRO") costs associated with our planned Levacor clinical study ($93,000) and increased consultant costs ($87,000). These increases were offset in part by decreased salaries resulting from our phased consolidation plan to our Salt Lake City, Utah facility announced in August, 2008. For the three and nine months ended September 30, 2009, we recorded $121,000, and $266,000, respectively, in stock-based compensation expense associated with research and development employees compared with $21,000 and $67,000, respectively, recorded in the comparable 2008 periods. Research and development expenses are expected to increase during the remainder of 2009 as we continue to develop our Levacor Rotary VAD and continue activities on pre-clinical testing and other product development.

Clinical and marketing support-non-cash: On December 11, 2007, we issued a 5-year warrant to Abiomed to purchase up to 113,333 of our common shares, exercisable at $0.30 per share, as compensation for clinical and marketing support services. Upon issuance, approximately 20% of the warrant was immediately exercisable and the remaining 80% became exercisable in January 2008. In the first quarter of 2008, we recorded non-cash expense of $6.5 million related to the fair value of the warrant. There were no such charges recorded for the three and nine months ended September 30, 2009. The warrant was terminated in July 2008 pursuant to the terms of the Recapitalization Agreement.

Debt inducement expense: In the three and nine months ended September 30, 2008, we recorded an expense of $3.9 million associated with the induced conversion of a secured convertible promissory note in the principal amount of $5.0 million that was held by Abiomed and termination of previously existing agreements and warrants. There was no such charge recorded for the three and nine months ended September 30, 2009.

Restructuring costs: Restructuring costs consist primarily of termination benefits of several employees and relocation benefits of our new CEO. The terms of the employment agreement of our new CEO, hired in the first quarter of 2009, contained a Relocation Benefits package to cover reimbursement for certain relocation-related expenses in an amount of up to $107,000, plus additional estimated tax gross-up payments of up to $48,000. As such, we have recorded an estimated restructuring charge of $150,000, inclusive of tax gross up payment during the nine months ended September 30, 2009. We do not expect to record additional relocation expenses for the CEO in the future. Additionally, we recorded $48,000 and $199,000, respectively, during the three and nine months ended September 30, 2009 for termination benefits for employees whose positions will be eliminated over time in connection with the relocation of our corporate office to Salt Lake City, Utah. There were no such charges recorded for the three and nine months ended September 30, 2008.

Amortization of intangibles: Amortization of acquired workforce for the three months ended September 30, 2009 and September 30, 2008 was $12,000 and $48,000, respectively. Amortization expense for the nine months ended September 30, 2009 and September 30, 2008 was $108,000 and $144,000 respectively. This intangible asset was being amortized on a straight-line basis over four years and became fully amortized in August 2009.

Foreign Exchange: Foreign exchange transactions resulted in losses of $13,000 and $20,000, respectively, for the three and nine months ended September 30, 2009. This compares with gains of $15,000 and $5,000, respectively, for the three and nine months ended September 30, 2008. Gains and losses relate primarily to fluctuations in the relative value of the U.S. dollar compared with the Euro and Canadian dollar. We anticipate continued fluctuations of foreign exchange gains and losses.

Investment and other income: Investment and other income for the three months ended September 30, 2009 was $5,000 compared to $103,000 during the three months ended September 30, 2008. Investment and other income for the nine months ended September 30, 2009 was $19,000, compared to $121,000 for the nine months ended September 30, 2008. Although average daily balances of invested cash were greater in the three and nine months ended September 30, 2009, compared to the corresponding periods of the prior years, the earnings were lower due to the significant decline in interest rates in 2009. We anticipate our investment income will decrease over the remainder of 2009 resulting from consumption of cash to fund operations.

Interest expense: For the nine months ended September 30, 2008, we recorded interest expense of $1,659,000, of which $1,414,000 related to the beneficial conversion feature of the $4.0 million convertible note issued to Abiomed on January 3, 2008, $236,000 was accrued interest calculated at 8% on the entire $5.0 million convertible note, $8,000 was interest on the a bridge loan facility of $1,400,000 that Venrock and SSF had previously provided to us and $1,000 related to other financing arrangements. The note and accumulated interest was converted into common shares as part of the Recapitalization Agreement. There were no similar charges for the three and nine months ended September 30, 2009 and only minor interest expense related to capital leases of $300 and $1,100, respectively, was incurred during the three and nine months ended September 30, 2009.

LIQUIDITY AND CAPITAL RESOURCES

Historically, we have funded losses from operations through the sale of equity and issuance of debt instruments. Combined with revenue and investment income, these funds have provided us with the resources to operate our business, sell and support our products, fund our research and development programs and clinical trials, apply for and obtain the necessary regulatory approvals and develop new technologies and products.

At September 30, 2009, we had cash and cash equivalents of $10.0 million, a decrease of $10.7 million from December 31, 2008. For the first nine months of 2009, cash used to fund operating activities was $10.6 million, consisting primarily of the net loss for the period of $12.0 million, offset by non-cash charges of $250,000 for depreciation and amortization and $669,000 for non-cash stock compensation expense. Working capital changes consisted of a $484,000 decrease in accounts receivable and prepaid expenses and a $184,000 increase in accounts payable and accrued compensation. This was offset by an increase in inventories of $135,000. For the first nine months of 2008, cash used to fund operating activities was $9.5 million, consisting primarily of the net loss for the period of $21.7 million and working capital increases of $248,000, offset by non-cash charges of $359,000 for depreciation and amortization, $212,000 in stock compensation, $1.5 million related to the beneficial conversion of our debt, $6.5 million in warrant expense, and $3.9 million in debt inducement expense.

Investing activities in 2009 requiring cash resources consisted of $372,000 in property and equipment additions primarily related to Levacor tooling and manufacturing equipment, compared to $45,000 during the same period in 2008.

Financing activities in 2009 included proceeds of $192,000 from the exercise of warrants and $2,000 from the sale of property and equipment offset by $5,000 of capital lease repayments. Financing activities in 2008 consisted of $30.0 million proceeds from our private placement transaction and recapitalization, $1.4 million in a bridge loan, and $4.0 million in convertible debentures, offset by $1.3 million in expenses related to the private placement and convertible debentures..

With the receipt of the proceeds from the July 2008 recapitalization and based on our current operating expenses and projected sales of our Levacor VAD when we begin our clinical trials, we believe we have sufficient cash to fund operations into the middle of 2010.

We are continuing to explore strategic and financing alternatives, including equity financing transactions and corporate collaborations. Equity financings could include, but are not limited to, private investments in public equity transactions, convertible debentures and strategic equity investment by interested companies. Corporate collaborations could include licensing of one or more of our products or co-funding of our products. We initiated a phased-in restructuring program in the third quarter of 2008 and continue to re-align our . . .