8-K

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 8-K

CURRENT REPORT
Pursuant to Section 13 or 15(d) of
The Securities Exchange Act of 1934

Date of Report (Date of earliest event reported): February 23, 2010

TRANS1 INC.

(Exact name of registrant as specified in its charter)

Delaware
(State or other jurisdiction of incorporation) 001-33744
(Commission File Number) 33-0909022
(IRS Employer Identification No.)

411 Landmark Drive
Wilmington, NC 28412-6303
(Address of principal executive offices)
(Zip Code)

(910) 332-1700
(Registrant’s telephone number, including area code)

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:

o Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425).

o Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

o Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

o Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

Item 2.02 Results of Operations and Financial Condition.

     On February 23, 2010, TranS1 Inc. (the “Company”) issued a press release to report its financial results for the quarter ended December 31, 2009. The release is furnished herewith as Exhibit 99.1 and incorporated herein by this reference.

     Also on February 23, 2010, following the issuance of the press release referred to above, the Company conducted a conference call to discuss its financial results for the quarter ended December 31, 2009. A copy of the transcript of the conference call is furnished herewith as Exhibit 99.2 and incorporated herein by this reference.

     The information in this Current Report on Form 8-K, including Exhibits 99.1 and 99.2, are being furnished pursuant to Item 2.02 and shall not be deemed “filed” for the purposes of Section 18 of the Securities Exchange Act of 1934, as amended, or otherwise subject to the liability of that section, nor shall they be deemed incorporated by reference in any filing under the Securities Act of 1933, as amended, except as shall be expressly set forth by specific reference in such a filing.

Item 5.02 Departure of Directors or Certain Officers; Election of Directors; Appointment of Certain Officers; Compensatory Arrangements of Certain Officers.

     Also on February 23, 2010, the Company issued a press release announcing the resignation of Michael Luetkemeyer from his position as Chief Financial Officer of the Company, effective as of March 31, 2010. Mr. Luetkemeyer is resigning to pursue other opportunities and not as a result of any disagreement with the Company on any matter relating to the Company’s operations, policies or practices.

     In connection with Mr. Luetkemeyer’s resignation, the Company and Mr. Luetkemeyer entered into a Separation Agreement on February 23, 2010, pursuant to which Mr. Luetkemeyer will serve as a consultant to the Company from April 1, 2010 through December 31, 2010, unless terminated earlier in accordance with the terms of the Separation Agreement. Mr. Luetkemeyer will continue to receive his current monthly salary through December 31, 2010. In addition, the Company will pay the premiums to continue Mr. Luetkemeyer’s current coverage under the Company’s group health plans until the end of the consulting period.

     The above summary does not purport to be complete and is qualified in its entirety by reference to the Separation Agreement, which is attached as Exhibit 10.1 to this Current Report and incorporated herein by this reference. A copy of the press release announcing Mr. Luetkemeyer’s resignation is also filed herewith as Exhibit 99.3 and incorporated herein by this reference.

Item 9.01 Financial Statements and Exhibits.

     (d) Exhibits.

Exhibit Number		Description
	10.1	Separation Agreement, dated February 23, 2010, between TranS1 Inc. and Michael Luetkemeyer.
	99.1	Press release, dated February 23, 2010.
	99.2	Conference call transcript, dated February 23, 2010.
	99.3	Press release, dated February 23, 2010.

Signatures

     Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

	TRANS1 INC.
February 25, 2010	By:	/s/ Kenneth Reali
		Kenneth Reali
		President and Chief Operating Officer

EXHIBIT INDEX

Exhibit Number		Description
	10.1	Separation Agreement, dated February 23, 2010, between TranS1 Inc. and Michael Luetkemeyer.
	99.1	Press release, dated February 23, 2010.
	99.2	Conference call transcript, dated February 23, 2010.
	99.3	Press release, dated February 23, 2010.

EX-10.1

Exhibit 10.1

SEPARATION AGREEMENT

     This Separation Agreement (this “Agreement”) is made and entered into by TRANS1 INC., a Delaware corporation (“Company”) and MICHAEL LUETKEMEYER (“Luetkemeyer”).

     WHEREAS, Luetkemeyer has been employed by the Company since April 15, 2007, and has served as its Chief Financial Officer.

     WHEREAS, the parties now wish to terminate Luetkemeyer’s regular full-time employment effective March 31, 2010 (the “Effective Date”). In order to assure an orderly transition, the Company is willing to provide Luetkemeyer with special compensation pay and benefits beyond what he is entitled to under his existing agreements with the Company or the Company’s policies in consideration for his continued service as an employee through the Effective Date, on a full-time basis, and to provide services as the Company may request from time to time with financial reporting and internal controls of the Company and generally as an advisor to management of the Company until December 31, 2010.

     WHEREAS, the parties also wish to mutually release all claims, known or unknown, that they may have against each other.

     NOW, THEREFORE, THE PARTIES AGREE AS FOLLOWS:

1. Voluntary Resignation. Luetkemeyer hereby resigns voluntarily from his employment with the Company, and relinquishes his current titles of Chief Financial Officer, as well as any other positions, titles, or directorships he may hold with the Company or any of its affiliated companies, effective on the Effective Date.

2. Accrued Salary, Vacation, and Expenses. The Company shall pay Luetkemeyer an amount equal to his current base salary at the rate of $20,833.33 per month through the Effective Date, and thereafter shall continue to pay Luetkemeyer at such current base salary amount, without accrual for vacation or the provision of benefits through December 31, 2010, all payable through the Company’s regular payroll, minus appropriate withholding and payroll deductions, so long as he continues to meet all requirements of his position through the Effective Date and he continues in compliance with the terms of this Agreement thereafter. All accrued vacation and other accrued paid time off shall be paid in full as of the Effective Date, as determined in the discretion of the Company. The Company shall pay the premiums to continue Luetkemeyer’s current coverage under the Company’s group health plans as it has done prior to the date hereof until the end of the Consulting Period, and thereafter, Luetkemeyer shall pay for his health coverage under COBRA; provided Luetkemeyer makes a timely election to continue such coverage beyond the end of the Consulting Period, pursuant to COBRA. The Company shall reimburse Luetkemeyer for all reasonable and necessary business expenses he has incurred through his date of resignation in accordance with Company policy provided Luetkemeyer promptly submits acceptable documentation.

3. Bonus Compensation.

     A. Annual. Luetkemeyer acknowledges that he has not earned and is not entitled to any cash or stock compensation pursuant to any bonus program the Company may have or any other agreement or understanding for incentive cash or stock compensation for 2010 and will not be

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eligible for any annual bonus or any portion thereof for 2010, but that while he is eligible to receive a 2009 bonus, he shall receive no bonus for 2009 in accordance with the terms of the 2009 bonus program. All payments hereunder, shall be, subject to usual and customary withholdings and deductions.

     B. Transition. Luetkemeyer shall take all action necessary or otherwise deemed appropriate by the Company to complete the following between the date hereof and March 31, 2010:

          (i) complete the audit of the Company’s financial statements and take all actions required to prepare the Company’s Exchange Act of 1934 filings for the year ended December 31, 2009 including the Company’s Annual Report on Form 10-K and working with the Company’s independent auditors to complete the 2009 audit; and

          (ii) work with his replacement to make for a smooth transition of financial officers.

4. Return of Company Property. Luetkemeyer shall gather up and return all property of the Company in his possession or control by March 31, 2010, excluding his cell phone and laptop computer and including but not limited to any keys or other office equipment, and the originals and copies of all paper or electronic files, records, or other documents.

5. Consulting Agreement. From the Effective Date, and continuing until December 31, 2010, on an on-call basis, or until terminated earlier in accordance with this Agreement, Luetkemeyer shall provide consulting services to the Company (“Consulting Period”). Luetkemeyer shall be reasonably available to provide consulting services as provided for herein as called upon from time to time by the Chief Executive Officer, or another member of management so expressly directed by the Chief Executive Officer, within his areas of expertise.

     A. Other Commitments. The Company acknowledges that Luetkemeyer may seek and accept employment and other opportunities elsewhere during the Consulting Period, from and after March 31, 2010, and subject to the limitations set forth in this Agreement. The Company will make every reasonable effort to accommodate Luetkemeyer’s other commitments in requesting Consulting Services under this Agreement.

     B. No Authority. During the Consulting Period, Luetkemeyer shall have no authority to act on behalf of the Company or to enter into any agreement or obligation without the express prior authorization of the Chief Executive Officer.

     C. No Offset for Other Income. The compensation provided under this Agreement during the Consulting Period shall not be offset by any income Luetkemeyer earns from any other source subject to the terms of Section 5.A above; provided , however, all compensation hereunder shall cease upon a breach of any term of this Agreement by Luetkemeyer.

     D. Trade Secrets and Unfair Competition. Luetkemeyer acknowledges that he has been entrusted with access to the Company’s most valuable trade secrets and proprietary data, including but not limited to detailed knowledge concerning the Company’s current and planned products and services, clinical trials, know-how, design and manufacturing techniques, research and development, business plans, marketing and sales programs, financial records, prices and costs, personnel files, potential mergers and acquisitions, and the identities, needs, and preferences of the Company’s customers, prospects, vendors, and partners. Upon any violation of this provision, the

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Consulting Period and all further compensation or reimbursement of the group health benefits shall immediately cease.

     E. Independent Contractor. During the period between April 1, 2010 and December 31, 2010, with respect to any services provided by Luetkemeyer for the Company, it is the express intention of the Company and Luetkemeyer that Luetkemeyer shall perform such services as an independent contractor to the Company. During the Consulting Period nothing in this Agreement shall in any way be construed to make Luetkemeyer an agent, employee or representative of the Company. Without limiting the generality of the foregoing, Luetkemeyer is not authorized to bind the Company to any liability or obligation or to represent that Luetkemeyer has any such authority. Luetkemeyer agrees to furnish (or reimburse the Company for) all tools and materials necessary to accomplish this Agreement and shall incur all expenses associated with performance of such services.

     F. Stock Options. The Company shall permit the continued vesting of the 225,000 incentive stock options granted to Luetkemeyer on or about May 16, 2007, and the 20,000 nonqualified stock options granted to Luetkemeyer on or about April 2, 2008, such that all such stock options granted to Luetkemeyer shall become exercisable in accordance with the terms of the Company’s stock option plan and the applicable stock option agreements through March 31, 2010. Based on Luetkemeyer’s termination of employment on the Effective Date, Luetkemeyer hereby acknowledges that all such stock options not then vested shall expire. Luetkemeyer’s services to the Company under this Agreement after March 31, 2010 shall not constitute “continuous service” for purposes of the Company’s stock option plans and Luetkemeyer’s stock option agreements and all stock options which have become vested stock options on the Effective Date shall continue to be exercisable in accordance with their terms.

6. Mutual Release of All Claims. Luetkemeyer and the Company agree that this Agreement constitutes a full and final settlement of any and all claims they may have against each other, known or unknown, as of the date they execute this Agreement. Concurrently with the execution of this Agreement, the parties shall also execute the Mutual Release attached as Exhibit A in accordance with its terms, and this Agreement shall not take effect until the Mutual Release has taken effect.

7. Confidentiality of Agreement. Luetkemeyer and the Company shall keep the terms of this Agreement confidential, except that Luetkemeyer may disclose it to his spouse and both parties may make necessary disclosures to their accountants and attorneys, provided the recipient of any such disclosure maintains confidentiality. The parties may also make such disclosures as are required by law, or by a subpoena or court order, provided that the party receiving such subpoena or order will promptly notify the other party of such receipt.

8. Confidentiality. Luetkemeyer acknowledges and agrees that he remains subject to all obligations imposed by the Employee Proprietary Information Agreement he signed in connection with his employment dated April 15, 2007, and all other policies and agreements concerning the confidentiality of the Company’s trade secrets and proprietary data, and ownership of patents, copyrights, trademarks, inventions, and discoveries. Luetkemeyer acknowledges that these obligations shall survive the Consulting Period and are not impaired or limited by the terms of this Agreement.

9. No Solicitation. For a period of one year following the last day of the Consulting Period, Luetkemeyer shall not directly or indirectly solicit or induce, or attempt to solicit or induce, any

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employee or consultant of the Company to terminate their employment or cease rendering services to the Company.

10. Non-Disparagement. Luetkemeyer shall refrain from making any false or disparaging remarks about the Company and its officers, employees, products, and services. The Company will direct management of the Company to refrain from making any false or disparaging remarks about Luetkemeyer or his character, abilities and work performance. If asked about the circumstances surrounding Luetkemeyer’s separation from employment, the parties may state that Luetkemeyer left the Company by mutual agreement on amicable terms. In response to inquiries about Luetkemeyer from prospective employers, the Company shall confirm only his titles, dates of employment, final compensation and benefits, and the fact that he resigned by mutual agreement.

11. Non-Admission. Neither Luetkemeyer nor the Company admits any wrongdoing or liability. If this Agreement is not executed or does not become effective for any reason, it shall be null and void.

12. Amendment. This Agreement can be modified or amended only in a subsequent written document signed by both Luetkemeyer and the Company. A waiver of any breach of this Agreement shall not constitute a waiver of any future breach.

13. Withholding. All payments to Luetkemeyer under this Agreement through the Effective Date, shall be subject to appropriate withholding and payroll deductions as required by applicable law or Company policy and thereafter all payments will continue to be subject to appropriate withholding.

14. Severability. If any provision of this Agreement is found to be invalid, all other provisions shall remain in effect.

15. Arbitration and Equitable Relief. Any dispute arising out of or relating to this Agreement shall be settled by final and binding arbitration to be held in Wilmington, North Carolina, in accordance with the National Rules for the Resolution of Employment Disputes then in effect of the American Arbitration Association. The arbitrator may grant injunctions and all other forms of relief available in a court of law. Payment of the fees and expenses of the Arbitrator(s) shall be allocated as provided by applicable law. The parties shall be entitled to reasonable discovery. The decision of the arbitrator shall be final and binding on the parties, except to the extent that review in court is allowed by law. Judgment may be entered on the arbitrator’s decision in any court having jurisdiction. Luetkemeyer and the Company understand that they are voluntarily waiving the right to trial by jury.

16. Successors. The Company shall require any successor or assignee, whether direct or indirect, by purchase, merger, consolidation or otherwise, to all or substantially all the business or assets of the Company, to assume the Company’s obligations under this Agreement.

17. Entire Agreement. This Agreement and the documents it preserves or incorporates shall constitute the entire agreement between the parties, and supersede all other agreements, whether oral, written, or implied, regarding the subject matter hereof.

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18. Counterparts. This Agreement may be executed in one or more counterparts, and the signature pages may be transmitted by facsimile, each of which shall be deemed an original and all of which together shall be considered one and the same agreement.

19. Voluntary Agreement. Luetkemeyer has entered into this Agreement freely and voluntarily, after having been advised to seek advice of legal counsel and having had adequate opportunity to do so.

     IN WITNESS WHEREOF, each of the parties hereto has duly executed this Agreement as of the 23rd day of February, 2010.

/s/Michael Luetkemeyer
Michael Luetkemeyer
TRANS1 INC., a Delaware corporation
By:	/s/ Richard Randall
	Richard Randall,
	Chief Executive Officer

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EXHIBIT A

MUTUAL RELEASE

     This Mutual Release (“Release”) is made and entered into by MICHAEL LUETKEMEYER (“Luetkemeyer”) and TRANS1 INC., a Delaware corporation (“Company”).

     In consideration of the promises set forth in the Separation and Consulting Agreement between Luetkemeyer and the Company of the same date as this Agreement (“Separation Agreement”) and for other valuable consideration, Luetkemeyer and the Company agree as follows:

1. Mutual Release and Waiver of Claims

(a)

Except as provided in Section 1(b), Luetkemeyer, for himself and on behalf of his spouse, dependents, heirs, executors, administrators, legal representatives, successors, and assigns (collectively referred to in this Release as “Luetkemeyer”), hereby unconditionally and forever releases, discharges, and waives any and all claims of any nature whatsoever, whether legal, equitable or otherwise, known or unknown, that Luetkemeyer may have against the Company, its subsidiaries and affiliates, and their employees, officers, directors, shareholders, insurers, representatives, agents, successors, assigns, and third party administrators, including but not limited to TriNet HR Corporation and their affiliates, officers, agents, administrators, servants, employees, attorneys, successors, parent, subsidiaries, assigns and affiliates, arising prior to the date he signs this Agreement, including but not limited to claims relating to his hiring, compensation, benefits, assignments, or termination, or arising under any state or federal equal employment law such as Title VII of the Civil Rights Act of 1964, as amended; the Civil Rights Act of 1991; the Age Discrimination in Employment Act of 1967, as amended (as further described in Section 2 below); the Older Workers Benefit Protection Act, the Americans with Disabilities Act; claims under the Employee Retirement Income Security Act of 1974, as amended; the California Fair Employment and Housing Act; or any other federal, state or local laws or regulations regarding employment discrimination or termination of employment. This Release also includes claims for wrongful discharge; fraud or fraudulent inducement; breach of contract, both express and implied; breach of the covenant of good faith and fair dealing, both express and implied; negligent or intentional infliction of emotional distress; negligent or intentional misrepresentation; negligent or intentional interference with contract or prospective economic advantage; and defamation under any statute, rule, regulation or under the common law.

(b)

Notwithstanding the foregoing, Luetkemeyer does not release, discharge or waive: (i) any rights to receive any benefits provided under the provisions of any Company-maintained qualified retirement plan in which Luetkemeyer participates, (ii) any conversion or COBRA rights under a Company-sponsored group term life insurance plan in which Luetkemeyer participates, (iii) Luetkemeyer’s right to indemnification from the Company to the fullest extent permitted under Delaware General Corporation Law, (iv) Luetkemeyer’s right to enforce the terms of the Separation and Consulting Agreement and this Release; and (v) any future rights Luetkemeyer may have as a stockholder.

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(c) The Company, for itself and its subsidiaries and affiliates, and their respective officers, directors, employees, agents, successors, and assigns (collectively referred to in this Release as “Company”) hereby unconditionally and forever releases, discharges, and waives any and all claims of any nature whatsoever, whether legal, equitable or otherwise, known or unknown, that the Company may have against Luetkemeyer or his spouse, dependents, heirs, executors, administrators, legal representatives, successors, and assigns, including but not limited to claims relating to Luetkemeyer’s employment with the Company or arising under state or federal law, arising prior to the date the Company signs this Agreement.

2. Limit of Release

The parties understand that they are waiving all claims encompassed by this Release, known or unknown, arising prior to the date they sign this Agreement.

3. Proceedings

Luetkemeyer and the Company represent that they have not filed any charges, claims, or proceedings of any kind against the other any court or state or local, state or federal agency. To the fullest extent allowed by law, Luetkemeyer and the Company agree not to participate in any such proceeding and waive any right to recover against the other in any such proceeding instituted by any other person or entity.

4. Severability Clause

In the event any provision or part of this Release is found to be invalid or unenforceable, all other provisions shall remain in effect.

5. Non-Admissions

The parties expressly deny any and all liability or wrongdoing and agree that nothing in this Release shall be deemed to represent any concession or admission of such liability or wrongdoing or any waiver of any defense.

6. Amendment

This Release can be amended or modified only in a subsequent written document signed by Luetkemeyer and the Company. A waiver of any breach shall not constitute a waiver of any future breach.

7. Controlling Law

This Release shall be governed by the laws of the State of North Carolina, without regard to conflicts of law principles.

8. Counterparts

This Release may be executed in one or more counterparts, each of which shall be deemed an original and all of which together shall be considered one and the same agreement.

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9. Entire Agreement

This Release, the Separation Agreement, and the agreements it incorporates shall constitute the complete agreement of the parties concerning the subject matter, and shall supersede all other agreements or understandings whether oral, written, or implied.

          IN WITNESS WHEREOF, Luetkemeyer and the Company have executed this Release this 23rd day of February, 2010.

LUETKEMEYER ACKNOWLEDGES THAT HE HAS READ THIS RELEASE AND THAT HE FULLY KNOWS, UNDERSTANDS, AND APPRECIATES ITS CONTENTS, THAT HE HAS HAD AT LEAST 21 CALENDAR DAYS TO CONSIDER THIS RELEASE, THAT THIS RELEASE MAY BE REVOKED WITHIN 7 CALENDAR DAYS AFTER ITS EXECUTION, AND THAT HE HEREBY EXECUTES THE SAME AND MAKES THIS RELEASE AND THE RELEASES PROVIDED FOR HEREIN VOLUNTARILY AND OF HIS OWN FREE WILL.
/s/ Michael Luetkemeyer
Michael Luetkemeyer
TRANMS1 INC., a Delaware corporation
By:	/s/ Richard Randall
	Richard Randall,
	Chief Executive Officer

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EX-99.1

Exhibit 99.1

TranS1 Inc. Reports Operating Results for the Fourth Quarter of 2009

Highlights:

Fourth quarter revenues were $6.3 million

674 TranS1 procedures performed globally in the quarter

Gross margin was 79.9% for the quarter

GAAP loss per share was $0.28 for the quarter

Non-GAAP loss per share was $0.25 for the quarter

WILMINGTON, NC — (GLOBE NEWSWIRE)—February 23, 2010—TranS1 Inc. (NASDAQ:TSON), a medical device company focused on designing, developing and marketing products that implement its proprietary minimally invasive surgical approach to treat degenerative disc disease and instability affecting the lower lumbar region of the spine, today announced its financial results for the fourth quarter ended December 31 2009.

Revenues were $6.3 million in the fourth quarter of 2009, representing a 15% decrease over revenues of $7.4 million in the fourth quarter of 2008. Gross margin was 79.9% in the fourth quarter of 2009 as compared to 84.6% in the fourth quarter of 2008.

Operating expenses were $10.7 million in the fourth quarter of 2009 compared to $11.1 million in the fourth quarter of 2008. The decrease in operating expenses is primarily attributable to a decrease in sales and marketing costs as a result of the decreased commissions due to lower sales, partially offset by increased spending for research and development.

Net loss was $5.7 million and $4.5 million for the quarters ended December 31 2009 and 2008, respectively. GAAP net loss per common share was $0.28 in the fourth quarter of 2009 compared to a net loss per share of $0.22 in the fourth quarter of 2008.

For the quarters ended December 31 2009 and 2008, on a non-GAAP basis adjusting for non-cash stock compensation expense, net loss per common share was $0.25 and $0.20, respectively.

Cash, cash-equivalents and investments were $55.3 million as of December 31 2009.

“Our results this quarter, and for much of 2009, were impacted by concerns in the marketplace surrounding reimbursement for our AxiaLIF procedure. We are using the experience we gained in 2009 to better educate and support our current and prospective surgeon users as they navigate the current reimbursement landscape,” said Rick Randall,

CEO of TranS1. “We are approaching 2010 with a leaner, more experienced sales force armed with a broader product offering to expand our clinical indications within the lumbar spine”.

Conference Call

TranS1 will host a conference call today at 4:30 pm ET to discuss its fourth quarter financial results. To listen to the conference call on your telephone, please dial (877) 881-2183 for domestic callers and (970) 315-0453 for international callers approximately ten minutes prior to the start time. The call will be concurrently webcast. To access the live audio broadcast or the archived recording, use the following link at http://ir.trans1.com/events.cfm.

Non-GAAP Measures

Management uses certain non-GAAP financial measures such as non-GAAP net loss and net loss per share, which exclude stock based compensation. This non-GAAP presentation is given in part to enhance the understanding of the company’s historical financial performance and comparability between periods. The company believes that the non-GAAP presentation to exclude stock-based compensation is relevant and useful information that will be widely used by investors and analysts. Accordingly, the company is disclosing this information to permit additional analysis of the company’s performance. These non-GAAP measures are not in accordance with, or an alternative for, GAAP, and may be different from non-GAAP measures used by other companies. Investors should consider these non-GAAP measures in addition to, and not as a substitute for, financial performance measures in accordance with GAAP. A reconciliation of the GAAP financial measures to the comparable non-GAAP financial measure is included below.

About TranS1 Inc.

TranS1 is a medical device company focused on designing, developing and marketing products that implement its proprietary minimally invasive surgical approach to treat degenerative disc disease and instability affecting the lower lumbar region of the spine. TranS1 currently markets the AxiaLIF family of products for single and multilevel lumbar fusion and the Vectre and Avatar posterior fixation systems for lumbar fixation supplemental to AxiaLIF fusion. TranS1 was founded in May 2000 and is headquartered in Wilmington, North Carolina. For more information, visit www.trans1.com.

Forward-Looking Statements

This press release includes forward-looking statements, the accuracy of which is necessarily subject to risks and uncertainties. These risks and uncertainties include, among other things, risks associated with the adoption of a new technology by spine surgeons, product development efforts, regulatory requirements, maintenance and prosecution of adequate intellectual property protection and other economic and competitive factors. These forward looking statements are based on the company’s expectations as of the date of this press release and the company undertakes no obligation

to update information provided in this press release. For a discussion of risks and uncertainties associated with TranS1’s business, please review the company’s filings with the Securities and Exchange Commission, including its Annual Report on Form 10-K for the year ended December 31, 2008.

CONTACT:
Investors:
TranS1 Inc.
Michael Luetkemeyer, 910-332-1700
Chief Financial Officer

or

Westwicke Partners
Mark Klausner, 443-213-0501
mark.klausner@westwicke.com

Source: TranS1 Inc.

TranS1 Inc.
Statements of Operations
(in thousands, except per share amounts)
(Unaudited)

	Three Months Ended Dec. 31,						Twelve Months Ended Dec. 31,
	2009			2008			2009			2008
Revenue	$	6,279		$	7,354		$	29,807		$	25,304
Cost of revenue		1,264			1,129			5,687			4,315
Gross profit		5,015			6,225			24,120			20,989
Operating expenses:
Research and development		1,392			839			6,439			4,081
Sales and marketing		7,878			8,696			34,098			29,375
General and administrative		1,471			1,554			7,184			7,116
Total operating expenses		10,741			11,089			47,721			40,572
Operating loss		(5,726	)		(4,864	)		(23,601	)		(19,583	)
Interest income		23			331			405			2,548
Net loss	$	(5,703	)	$	(4,533	)	$	(23,196	)	$	(17,035	)
Net loss per common share — basic and diluted	$	(0.28	)	$	(0.22	)	$	(1.13	)	$	(0.84	)
Weighted average common shares outstanding — basic and diluted		20,641			20,534			20,604			20,289
Stock-based compensation is included in operating expenses in the following categories:
Cost of revenue	$	19		$	21		$	74		$	66
Research and development		45			18			186			412
Sales and marketing		338			154			1,481			1,474
General and administrative		198			189			1,058			1,027
	$	600		$	382		$	2,799		$	2,979

Reconciliation of Quarterly Results
(in thousands, except per share amounts)
(Unaudited)

	2009			2008
GAAP net loss	$	(5,703	)	$	(4,533	)
Stock based compensation		600			382
Non-GAAP net loss	$	(5,103	)	$	(4,151	)
Shares used in computing GAAP and non-GAAP loss per share		20,641			20,534
Non-GAAP loss per share	$	(0.25	)	$	(0.20	)

Reconciliation of Year-To-Date Results
(in thousands, except per share amounts)
(Unaudited)

	2009			2008
GAAP net loss	$	(23,196	)	$	(17,035	)
Stock based compensation		2,799			2,979
Non-GAAP net loss	$	(20,397	)	$	(14,056	)
Shares used in computing GAAP and non-GAAP loss per share		20,604			20,289
Non-GAAP loss per share	$	(0.99	)	$	(0.69	)

TranS1 Inc.
Balance Sheets
(in thousands)
(Unaudited)

	December 31,			December 31,
	2009			2008
Assets
Current assets:
Cash and cash equivalents	$	29,298		$	42,051
Short-term investments		25,953			35,215
Accounts receivable, net		3,926			4,812
Inventory		7,325			6,369
Prepaid expenses and other assets		676			632
Total current assets		67,178			89,079
Property and equipment, net		1,813			1,412
Total assets	$	68,991		$	90,491
Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable	$	2,442		$	2,896
Accrued expenses		1,269			2,009
Total current liabilities		3,711			4,905
Stockholders’ equity
Common stock		2			2
Additional paid-in capital		136,402			133,507
Accumulated other comprehensive income		(5	)		—
Accumulated deficit		(71,119	)		(47,923	)
Total stockholders’ equity		65,280			85,586
Total liabilities and stockholders’ equity	$	68,991		$	90,491

TranS1 Inc.
Statements of Cash Flows
(in thousands)
(Unaudited)

	Twelve Months Ended Dec. 31,
	2009			2008
Cash flows from operating activities:
Net loss	$	(23,196	)	$	(17,035	)
Adjustments to reconcile net loss to net cash used in operating activities
Depreciation		909			804
Stock-based compensation		2,799			2,979
Allowance for excess and obsolete inventory		505			400
Provision for bad debts		80			101
Changes in operating assets and liabilities:
(Increase) decrease in accounts receivable		806			(1,688	)
(Increase) decrease in inventory		(1,461	)		(2,744	)
(Increase) decrease in prepaid expenses		(44	)		(35	)
Increase (decrease) in accounts payable		(454	)		1,265
Increase (decrease) in accrued expenses		(740	)		223
Net cash used in operating activities		(20,796	)		(15,730	)
Cash flows from investing activities:
Purchase of property and equipment		(1,310	)		(1,128	)
Purchases of investments		(50,872	)		(55,761	)
Sales and maturities of short-term investments		60,134			49,791
Net cash provided by (used in) investing activities		7,952			(7,098	)
Cash flows from financing activities:
Proceeds from issuance of common stock		91			203
Net cash provided by (used in) financing activities		91			203
Net decrease in cash and cash equivalents		(12,753	)		(22,625	)
Cash and cash equivalents, beginning of period		42,051			64,676
Cash and cash equivalents, end of period	$	29,298		$	42,051

EX-99.2

Exhibit 99.2

Q4 2009 Earnings Call — TranS1, Inc. [TSON] 02/23/2010 16:30 (ET)

Operator: Good day, ladies and gentlemen and welcome to the TranS1 Incorporated Fourth Quarter 2009 Earnings Release Conference Call. At this time, all participants are in a listen-only mode. Later we will conduct a question-and-answer session and instructions will follow at that time. [Operator Instructions] As a reminder, this conference call is being recorded.

I would now like to introduce your host for today’s conference, Mr. Mark Klausner.

Mark R. Klausner, Managing Partner, Westwicke Partners, LLC

Thanks, operator. Joining us on today’s call are TranS1’s Chief Executive Officer, Rick Randall; President and Chief Operating Officer, Ken Reali; and Chief Financial Officer, Mike Luetkemeyer. Before we begin, I would like to caution listeners that certain information discussed by management during this conference call will include forward-looking statements covered under the Safe Harbor Provisions of the Private Securities Litigation Reform Act of 1995.

Actual results could differ materially from those stated or implied by our forward-looking statements, due to risks and uncertainties associated with the company’s business. The company undertakes no obligation to update information provided on this call. For a discussion of risks and uncertainties associated with TranS1 business, I encourage you to review the company’s filings with the Securities and Exchange Commission, including its annual report on Form 10-K for the year ended December 31, 2008.

With that, it’s my pleasure to turn the call over to TranS1’s CEO, Rick Randall.

Rick Randall, President and Chief Executive Officer

Thanks, Mark. Good afternoon and thank you for joining us today to discuss TranS1’s fourth quarter and full-year 2009 results. On today’s call, I will discuss the key highlights of the quarter along with some recent developments and Mike will provide you with the details of our financial results. I then would like to share with you some additional perspective on the key developments in our business after which Ken, Mike and I will take your questions.

Worldwide, 674 TranS1 procedures were performed and we generated 6.3 million in revenue during the fourth quarter. Before I talk about some of our recent operational accomplishments, I would like to detail some recent actions that we have undertaken to focus the business in light of the current environment and also discuss our announcement today that Mike has decided to step down as CFO.

Mike recently informed us that effective March 31 he will be leaving the company to pursue other opportunities. We have a search underway for a new CFO and currently expect to have someone in place by the end of the second quarter. Mike has agreed to serve in a consulting capacity until we have found a full time replacement and will make himself available to assist the new CFO during the transition as needed.

Also as part of our 2010 strategic planning process, we have made a number of decisions to focus our investment while maintaining our ability to grow the business. First, as we have discussed in the past, we have continually adapted the size of our sales force to best address our current market opportunity.

In light of the current environment, we have reduced the number of direct reps in the field to 45. In this process, we have embraced our most successful reps by giving them more territory to grow while ensuring that all territories are appropriately covered. Our overriding goal is to make each of our reps profitable as quickly as possible. The sales management structure remains unchanged.

Additionally, we have re-prioritized our R&D efforts. Due to an uncertain regulatory pathway, we have decided to put the PNR project on hold in the U.S. While we remain focused on R&D, we are pursuing products that have a shorter pathway to regulatory clearance and commercialization. This decision has allowed us to downsize our regulatory management and staff.

Before I turn the call over to Mike, I’d like to highlight some recent operational developments, which I will detail after Mike discusses our financial performance. Reimbursement continues to be a challenge for the business although we are making progress at the local level, as our reimbursement personnel become better at educating our surgeons and their office staff on the proper use of available codes to match up against the patients they are treating and the treatment they are providing.

We have recently been informed of two additional peer review papers that have been accepted for publication, which will build upon the strong clinical evidence behind our procedure. We continue to have early success in the complex spine market and recently held a very successful Association of Pre-Sacral Spine Surgeons, or APSS, meeting focused on deformity surgeons.

On the product front, we have commenced the limited market release of both the Avatar Pedicle Screw System along with our next generation Vectre facet screw system and early cases have gone well. Also we recently received 510(k) clearance for the AxiaLIF 2L plus, our next generation 2-Level product. This product is also in limited market release and going well.

I would now like to turn the call over to Mike to review our financial results. Mike?

Mike Luetkemeyer, Chief Financial Officer

Thanks, Rick, and good afternoon everyone. In the fourth quarter of 2009, we generated revenue of $6.3 million. As we previously announced, this was lower than our fourth quarter guidance of 6.7 to $7.2 million, it was also down sequentially by $600,000 from the $6.9 million generated in the third quarter of 2009 and down $1.1 million from $7.4 million generated in the fourth quarter of 2008. For the total year 2009, we generated revenue of $29.8 million. This represents an increase of 18% over the $25.3 million of revenue generated in 2008.

For the fourth quarter of 2009, we generated 95% of our revenue, or $5.9 million, in the United States. In the comparable period in 2008, we generated 97%, or $7.1 million, of our revenue in the United States. For the total year 2009, we generated 94% of our revenue or $28 million in the United States. In fiscal 2008, we generated 92% or $23.3 million of our revenue in the United States. The primary factor

driving the increase in revenue in the United States was an increase in the number of 2-Level procedures performed during the first full year of commercialization.

During the fourth quarter of 2009, 550 procedures were performed in the United States utilizing TranS1 products. This represents a decrease of 101 procedures from the 651 procedures performed in the fourth quarter of 2008 and a sequential decrease of 56 procedures from the 606 procedures performed in the third quarter of 2009. For the total year 2009, 2,578 procedures were performed in the United States utilizing TranS1 products. This represents an increase of 298 procedures from the 2,280 procedures performed during 2008.

Our average selling price in the United States for the fourth quarter of 2009 excluding stand-alone sales of our percutaneous facet screw system was $10,300. This represents a decrease of $300 from the comparable quarter of last year and a decrease of $100 from the third quarter of 2009, as a result of the changing product mix. For the total year 2009, our average selling price in the United States including – excluding stand-alone sales of our percutaneous facet screw system was $10,500. This represents an increase of $650 over 2008.

The increase in average selling price for the full year is primarily driven by the adoption of our 2-Level procedure. For the fourth quarter of 2009, 151 of the 550 AxiaLIF procedures performed in the United States, or about 27%, were AxiaLIF 360° procedures and a 115 or about 21% were AxiaLIF 2-Level procedures.

For the total year 2009, 780 of the 2578 AxiaLIF procedures performed in the United States or about 30% were AxiaLIF 360° procedures and 596 or about 23% were AxiaLIF 2-Level procedures. For the fourth quarter of 2009, we generated revenue of $254,000 from the stand-alone sales of our percutaneous facet screw system compared with $224,000 for the fourth quarter of 2008.

For the total year 2009, we generated revenue of $953,000 from the stand-alone sales of our percutaneous facet screw system compared with 868,000 for 2008. Gross margin was 79.9% in the fourth quarter of 2009 compared with 84.6% in the fourth quarter of 2008. Gross margin for the total year 2009 was 80.9% compared with 82.9% for all of 2008.

The decrease in gross margin for the fourth quarter was driven by the under-absorption of manufacturing overhead, as we reduced inventory purchases in response to lower business volume. The decrease in gross margin for the year was primarily driven by specific inventory reserves for excess inventory and the under-absorption of manufacturing overhead mentioned above.

Turning to expenses, total operating expenses for the fourth quarter of 2009 were $10.7 million, a decrease of $348,000 from 11.1 million for the fourth quarter of 2008. The decrease in operating expenses for the quarter were primarily the result of lower sales and marketing cost of $818, 000, primarily as a result of lower commissions on lower revenue and lower training and travel expenses. This was partially offset by higher project-related costs in research and development. Total operating expenses for the year 2009 were $47.7 million, an increase of $7.1 million from 40.6 million in 2008.

The increase in operating expenses for the year were primarily the result of higher sales and marketing costs of $4.7 million, primarily due to the expansion of our direct sales force and reimbursement support staff, increased commissions as a result of increased sales and higher surgeon consulting and promotional costs related to our APSS programs. Additionally, project-related research and development costs increased by $2.4 million.

Other and interest income, which primarily consist of interest income was $23,000 in the fourth quarter of 2009. This compares to $331,000 in the fourth quarter of 2008. For all of 2009, other and interest income was $405,000 compared with $2.5 million in 2008. The significant decrease in both the fourth quarter and total year other and interest income was primarily the result of historically low interest rates, the conservative and very liquid nature of our investment portfolio and lower investment balances as our business continues to be a net cash user.

Our GAAP net loss for the fourth quarter was $5.7 million or $0.28 per share. On a non-GAAP basis, adjusting for non-cash stock compensation charges of $600,000 in the quarter, our net loss was $5.1 million or $0.25 per share. This compares to our previously issued guidance for the fourth quarter on a GAAP basis of a loss of 0.34 to $0.36 per share and on a non-GAAP basis of a loss of 0.31 to $0.33 per share.

Our GAAP net loss for the year 2009 was $23.2 million or $1.13 per share. And on a non-GAAP basis adjusting for non-cash stock compensation of $2.8 million for the year, our net loss was $20.4 million or $0.99 per share. This compares to our previously issued guidance for the year on a GAAP basis of a loss of $1.19 to $1.21 per share and on a non-GAAP basis of a loss of $1.05 to $1.07 per share.

At the end of the year, we had $55.3 million in cash, cash equivalents and short-term investments with no debt. Our operating cash burn for the fourth quarter defined as cash used in operating activities and investment in fixed assets was $6 million and our operating cash burn for the year 2009 was $22.1 million.

With regard to guidance for 2010, we’ve decided that until the business stabilizes and becomes more predictable, we will refrain from providing annual guidance. With respect to the first quarter of 2010, directionally we expect the business to be flat to down 10% compared with the fourth quarter of 2009.

Before I turn the call back to Rick, I want to take a minute to thank Rick for the opportunity to have been part of the TranS1 team. I’ve thoroughly enjoyed working with Rick and the entire TranS1 team and I want to wish all of my colleagues at TranS1 the best as they continue to build the leading spine company.

Rick, back to you.

Rick Randall, President and Chief Executive Officer

Thanks, Mike. Before we open the call up for questions, I’d like to add some color on our operations and recent developments. Turning first to reimbursement, as we continue to incorporate feedback from payers and from the field, we’re becoming more proactive in managing reimbursement. We have

developed specific initiatives that our field sales force and reimbursement team are undertaking to educate surgeons on the most appropriate coding for our procedure and if necessary assisting with pre-authorization denials or non-coverage decisions as they arise.

We continue to see good success on appeal and the small victories are important as each positive coverage decision makes it easier to seek your payment for the next case. Additionally, we now have two peer reviewed clinical papers that have been accepted for publication, the first of which is scheduled to be published in neurosurgery focused in March.

We expect that these papers will continue to build upon our strong base of clinical evidence and will be helpful as we continue to work through reimbursement at both the local and national level.

Separately, we continue to observe increasing interest in utilizing our procedure in complex multilevel spine cases like scoliosis and adult deformity, where our product is unique, clinical benefits and reimbursement is favorable. We view recent adoption and rising interest among thought leaders in complex spine as encouraging incremental evidence of the company’s unique approach and effective technology.

We have educated our sales force on this unmet clinical need and continue to direct them to increase their focus on the surgeons who perform these multilevel procedures. To this end, in mid-January, we hosted our first deformity-focused Association of Pre-Sacral Spine Surgeons or APSS Meeting in New York City. We had 75 total surgeons in attendance, including 10 faculty members of which 55 were deformity surgeons and 25 were members of the Scoliosis Research Society or SRS.

Approximately 50 of the surgeons attending had never previously completed an AxiaLIF procedure. The focus of the day was how to achieve the best lumbosacral fixation in deformity cases and how the unique design of our implant provides significant biomechanical advantages relative to the other fusion procedures for lower levels of the spine.

We did significant model-based training at the APSS. And as a follow-up, we’ve been providing focused training for surgeons in attendance who have recently held cadaver labs in New York and St. Louis.

On the sales front, we had a successful national sales meeting in January, despite a difficult 2009; we had a number of reps who had a strong year. We focused on identifying the best practices employed by our most successful reps and use the national salesmen to educate our refocus sales force on specific practices that they will incorporate into their territories in the coming year.

We also had a number of surgeons on hand to report on their clinical experience in a variety of indications, including 2-Level and deformity. We had one of our most successful 2-Level surgeons report the one-year clinical results on his first 19 2-Level cases in which he demonstrated excellent symptom relief and fusion results at each level treated.

In addition, we had two surgeons who treat deformity patients, who cited their experience in using the AxiaLIF procedure in complex spine cases and in particular the benefits of using our 2-Level procedure at the base of a long construct. We also spend a good deal of time on new product education. We

introduced our new Avatar Pedicle Screw System more broadly; additionally we introduced the Vectre, our next generation percutaneous facet screw system.

Turning to the product front, as we mentioned in January, we recently signed a distribution agreement with Life Spine to distribute their Avatar minimally invasive pedicle screw system. The product is FDA cleared, and currently being sold by Life Spine to its network of independent distributors. While we are enthusiastic about this technology, we are also taking a measured approach to introducing the device through our sales force.

Our limited market release has gone well so far and based on the continued feedback that we receive from our surgeons and sales people, we expect to launch the product more broadly in the second half of 2010. Additionally, we began the limited market release of our next generation Vectre facet screw system. The Vectre is easier and more efficient to use than our original percutaneous facet screw system, and also has some added tools that facilitate additional posterior fusion.

Finally, we recently received 510(k) clearance for the AxiaLIF 2L plus, our refined 2-Level device. The 2L plus is a two-piece modular design of our AxiaLIF 2-Level device that provides surgeons more control during the operation and allows them to dial in the amount of distraction between levels.

Additionally, the shape and dimensions of the devices have been modified to provide a more robust and stable implant construct. The AxiaLIF 2L plus is also a limited market release and we look forward to updating you on all of these products as we get additional feedback from the field.

With that, I would like to open the call up to take your questions.

QUESTION AND ANSWER SECTION

Operator: Thank you. [Operator Instructions] Our first question comes from Matt Miksic of Piper Jaffray.

Q – Matt Miksic

Hi, Rick, Mike.

A – Rick Randall

Hi, Matt.

Q – Matt Miksic

Thanks for taking the question. First, Mike, thanks for all your hard work and we wish you lot’s of luck in the future wherever you wind up?

A – Mike Luetkemeyer

Thanks, Matt.

Q – Matt Miksic

Sure, thing. Rick, one question on the sales force, if you could talk maybe a little bit about – is that – is this the level where you think you ought to be or I know it’s not an easy question to answer on a conference call, but is it possible we could see further contraction from here over the next couple of quarters or is that contingent on anything – any color there would be helpful? And then I have one follow-up.

A – Rick Randall

Sure, Matt. When we made this decision, we took a careful look at the users that we have in place in the United States, the reps who were most successful and experienced in selling the product. And Matt, as you know, we’ve had a distinct productivity curve associated with this technology, where it typically takes a new rep in a de novo territory quite some time, up to nine months to a year to really become productive.

Given the fact that we want to conserve our cash, most of the folks that we eliminated from the sales force were folks who had not gotten up that productivity curve. So with an eye toward productivity and then eye toward a geographical coverage, we came up with what we think is the right number, the 45 reps that are remaining in the field in addition to some of the independents that we currently have in the field and feel that this is the right size.

Now, I would never say never. And obviously if conditions were to worsen, which I don’t think is the case, we could have a further reduction. But we feel pretty comfortable with this group and actually look forward to, with success, expanding beyond this number as needed based on growth in certain markets.

Q – Matt Miksic

Okay. And then a follow-up just on, I guess, maybe this is a two-part question, the first is just any kind of update if you could maybe review for where is the results and safety profile of the procedure? Where are your numbers coming in now? What are you doing to sort of help improve the efficacy and safety of the procedure? Does occasionally come up as a question. I’d love to hear how...

A – Rick Randall

Yeah, I think we lost you, Matt, but I will address the question as I heard it. The safety profile remains, I think it’s the safest fusion procedure in the market. We have for several months now, maybe beyond months, we have stabilized at an overall complication rate of about slightly over 1%. Still the most egregious complication that we have is a bowel injury and that is stabilized at the roughly one half of 1% level.

I think in future calls, we have an active program aimed at developing tools that will, we believe, even lower that complication or hopefully eliminate the need for a diverting, temporary diverting colostomy, which is typically what happens to patients who have a bowel injury if it’s not detected at the time of the surgery.

We’re encouraged by some of the labs we performed with some new devices and I’m hoping in the next couple of calls you will hear more about that device. But actually, we’re getting more bullish on the potential for us to make a huge impact on reducing an already very low complication rate.

Operator: Matt, can you hear us?

A – Rick Randall

I think, we go to the next question.

Operator: Thank you. We will. We’ll move to the next question, Michael Matson of Wells Fargo.

Q – Michael Matson

Hi. Did you say whether or not there were any sales of the pedicle screw system in the fourth quarter or was that announced really too late in the quarter to have an impact?

A – Rick Randall

Right, Michael, we announced the pedicle screw partnership in January.

Q – Michael Matson

Oh, okay. And with that product, are the salespeople going to be really just trying to sell that as an add-on to the existing AxiaLIF procedures or are they going to be going after any other type of – I guess you don’t really have any interbody spacers right, so it can only really be used with your lumbar AxiaLIF procedures, right?

A – Rick Randall

Right, Michael. One of the obvious concerns we had in bringing on products like this is we don’t want to defocus our sales force from what makes us unique and novel and the most exciting product we have, which is AxiaLIF. So you’re right.

The focus is so many of our cases, especially now as we’ve broadened the indications of use for this technology well beyond the single L5-S1 degenerative disc patient, as we’ve broadened the indications so many of our patients are backed up with pedicle screws. Almost all of our 2L cases are backed up with pedicle screws. So it just made obvious sense for us that we could in many cases add-on that product and the revenue generated from the product. In the same case that we’re already committed to in attending and the reason for that case being is really the AxiaLIF procedure. So initially, our sales force will completely focus on adding the pedicle screw to the existing AxiaLIF.

Now, I feel comfortable in saying that there will be some surgeons where we have strong relationships, who like the product and they probably will utilize the product even beyond in cases that don’t include L5-S1, where they may be doing a TLIF or some other type of procedure and we could pick up some of that business. But that’s not going to be the focus of our efforts.

Q – Michael Matson

Okay. And would you consider any similar distribution agreements with other products, maybe, like a biologic or something like that, just try to get some additional revenue per case?

A – Rick Randall

Yes, those are in the works. We’re looking at everything that’s utilized in our case. We would like to own the case. We’d like to create no reason to have another vendor in that particular surgery and so we won’t stop with pedicle screws. There is more activity behind that. We’ll talk about that shortly.

Q – Michael Matson

Okay. And then can you give us the number of surgeons that you trained in active surgeons?

A – Rick Randall

I’ll hand that one to Mike.

A – Mike Luetkemeyer

Yeah, Mike, the active surgeon base was actually flat from Q3 to Q4, 382, didn’t change at all. And the new docs trained in the U.S., which is the metric that we track and report on, for the total year was 251, 43 in the fourth quarter.

Q – Michael Matson

Okay. And just, can you give us an update on where things stand with regard to kind of lobbying the specialty societies in getting a category I code, is there still a potential for that to happen or is there any potential for that to happen next year?

A – Rick Randall

I don’t want to say there’s no potential for that to happen, but I think we need to be very careful in what we do in that regard. Getting a category I code in this environment may not be the most appropriate strategy. We haven’t ruled it out yet, but it may not be the most appropriate strategy.

We are lobbying the various societies, because obviously as AxiaLIF continues to grow and more importantly as the indications continue to expand and it becomes a more valuable tool in a broader

array of lumbar surgical patients. We need to make all of those folks aware of the efficacy, the safety in the work that’s embossed with using AxiaLIF.

So that’s where we are really focusing our efforts on making sure all of our users truly understand all the codes available. The patients that they are now treating and how those patients — patients match up against the variety of codes that exist in for lumbar fusion, including the ALIF code or the miscellaneous code and — and in some cases the category III code. The category III code does not necessary perfectly fit all of these patients.

So that’s where our real effort is, we think that at the local level both with the surgeon, their coder, their office staff, and the local payer, we’ve got our best opportunity to manage effectively through this. And obviously, we won’t stop on getting universal coverage for this, but I think our efforts will be in more locally and then at the payer level, as opposed to any near-term strategy regarding CMS.

Q — Michael Matson

Okay, that’s all I have. Thank you.

Operator: Our next question comes from Doug Schenkel of Cowen and Company.

Q — Doug Schenkel

Hey, good afternoon, guys.

A — Rick Randall

Hi.

A — Mike Luetkemeyer

Hey, Doug.

Q — Doug Schenkel

I guess before throwing a couple of questions at you, Mike, I did want to first echo Matt’s earlier comments and I thank you for all your hard work and be sure to wish you the best in all of your future endeavors and I know we’ll be seeing you soon.

A — Mike Luetkemeyer

Thanks, Doug. I appreciate it.

Q — Doug Schenkel

So, Rick, I want to just may be start by building off of some of those last comments. You talked about going for level 1 — a level 1 reimbursement code and indicated that that may not necessarily be the most appropriate strategy. And I appreciate the reasons why and appreciate you guys providing a little bit more detail on why you think that may be the case.

With that being said, without a level 1 code, can you talk about over one year, two years, three years, what the revenue growth potential here is? I mean we’ve gone for obviously a couple of quarters where sequentially things have continued to get weaker, hopefully that starts to level off in the near-term, but ultimately to stop burning cash you’re going to have to get that topline up. I mean, is it possible without a level 1 code to get to the point where you’re not burning cash over the next, call it, four to eight quarters?

A — Rick Randall

Yes, Doug, I believe it is. And let me explain why we believe it is and why we are starting, early on, to see evidence that that could be the case. The category III code, and remember, Doug, when we started all this back in 2005, what we knew about the technology and where our surgeons took the technology early on was for these patients who had pretty much L5-S1 degenerative disc disease.

Back then, we had little to no evidence that we could actually decompress the exiting nerve roots and reduce or eliminate leg pain. So that — the thought at the time was if a patient has concomitant leg pain, we need to do a surgical decompression. If I’m going to do a surgical decompression, I’ve got a lot of other fusion surgeries I can use. So when you look at the category III code that we have, it’s very descriptive of that type of patient. Kind of a single-level low back pain only patient, maybe some tears in the annulus, and when you open up the code and dissect it that’s the patient that is — and the associated work that was contemplated.

Now, those patients are the patients we predominately treated from 2005 maybe all the way, and we still treat many of them today with our AxiaLIF 360. But what’s happened over the last two to three years is as the clinical evidence has continued to mount, we’ve learned that this is an excellent operation for low back pain and leg pain. It’s even a better operation for spondylolisthesis or instability, concomitant with leg pain and back pain. And now most recently we’re treating patients who have deformity and using it as a solid construct at the base and backing it up with pedicular fixation, we’re straightening the spine with pedicular fixation.

So both the type of patients we’re treating, the way the patients are being treated and the amount of work involved with utilizing this technology with other techniques to treat those patients very dramatically from that category III code. So proper coding is that you match up the way you treat the patient, the patient that you’re treating, how many surgeons are involved with the treatment, and you match that up against all available codes, including other miscellaneous code.

And so as time just moved forward and we have taken on many of these denials for payment and we fought through these denials for payment, we’ve learned something actually from the payers and that is that the right proper coding is to match all of those things appropriately. And they’ve given us some guidance and we’ve learned a lot from our payer meetings and we’ve gone back and learned from some other surgeons who continue to use this operation.

And now what we’re providing is a full education of all the codes and how the patients are contemplated and the operation is contemplated within those codes. And with that education, surgeons can more appropriately and accurately match the patient, the operation against the variety of codes. And so what happens is as our indications expand, we sell more 2-Level product, get involved with complex spine, get involved with spondylolisthesis or instability, and low back pain could concomitant with leg pain, it diminishes the impact of the category III code and gives us an opportunity as we saw in 2008 and early 2009 to continue to get back on a growth trajectory.

Now, we’ve got to execute to that. And so that’s the probably the best way I can explain it why we believe going forward with all of these — all the hard work and the education and having these reimbursement people in the field doing their job with the backroom coders, we can turn this around and grow the business. So it’s obviously a reimbursement strategy, but it’s also an expansion of clinical indication strategy combined with a product strategy.

What’s interesting, I cited our top performers. Our top performers last year and some of them increased sales dramatically in their territories. They had a couple things in common. They really handled reimbursement better and I think they sold the 2-Level product in more complex indications better than the bulk of our sales force.

So those are the best practices we recently focused on with our — at our National Sales Meeting and the metrics that we placed in managing our sales force going forward. Is that helpful?

Q — Doug Schenkel

Yeah, that’s helpful. And I mean I guess if I were to take the liberty of maybe lumping the two strategies into two categories and you can just tell me if this is incorrect, but essentially there’s thoroughly an approach to essentially use existing codes in a more educated and more appropriate way as you expand indications. And then the other part is to continue to be aggressive in getting authorization on a pair-by-pair basis, separate of arguing that you should be able to use existing category I codes because of extenuating indications, is that fair?

A — Rick Randall

If I would have said that we would have saved about 30 seconds.

Q — Doug Schenkel

No, no, no.

A — Rick Randall

That’s very fair.

Q — Doug Schenkel

So with that in mind, one of those is going after the pairs specifically. It sounds like you’ve had more success in certain regions than others. As you cut back on the sales force to rationalize for the challenges that you are working for right now, was there any thought given to the fact that there are regions where you’ve been more successful in proactively getting payers to come on board and maybe trying to build

the business more aggressively in those regions while maybe pulling back in the interim, I mean, some of the regions where you’ve been less successful?

A — Rick Randall

I think some of that is exactly what we did. When we made our adjustments, there were certain regions in the country, Pacific Northwest for instance comes to mind in particular, where we’ve had less success and we’ve had more reimbursement headwind than at probably any other area and there has been other regions of the country. And so, yeah, we did back off there. We still have a strategy there and we’re going to work that area hard, but we’ve really kept our core distribution assets focused in the areas where we’ve had less resistance and we seem to be managing through better with our surgeons, the payers, and the coders.

Q — Doug Schenkel

Okay. And then on the other part of the strategy, recognizing that for a lot of the indications you’re going after the category III code really doesn’t fit. The reality, the practical challenge that in some part you face is that there are some major payers that have deemed AxiaLIF as being experimental and investigational. I mean, can you overcome those classifications when — you even trying to use these codes that seem more appropriate for these indications, can you overcome those blanket classifications from some of the major payers?

A — Rick Randall

Yes and we have. We’ve done that more at the local level. We have payers who have a non-coverage decision and we’ve been able to, through the appeals process actually rework those cases and get them paid. And once you establish what patient is best suited to the technology and why it’s different from the category III code, maybe often using the miscellaneous code, which seems to be a good vehicle to do that, which is what we did in 2008. We’ve been able to, at the local level, established a pipeline with certain patients where we’re getting paid.

So I think we can continue to do that and obviously as the data continues to roll in and our — the number of our peer reviewed papers increase and we have a few more in the pipeline, we’ll be more aggressive at the — I don’t want to say national level, but it’s a larger level with the payers as well.

Q — Doug Schenkel

Okay. That’s helpful, just a couple of clean ups. Mike, guidance for Q1, did you say it’s down, you guys said flat to down 10%?

A — Mike Luetkemeyer

Yeah.

Q — Doug Schenkel

Sequentially or year-over-year?

A — Mike Luetkemeyer

Sequentially, we said flat to down 10%, sequentially, comparing Q4 ‘09 to Q1 2010.

Q — Doug Schenkel

Okay. And recognizing you are not giving full-year revenue guidance, any chance, you give us some indication about what your burn target is for the year?

A — Mike Luetkemeyer

Well, what I would tell you is that the — all else being equal, the actions that we have so far taken would tend to decrease the burn rate from what it was in 2009. As far as giving you a specific number, no, I’m not prepared to do that today.

Q — Doug Schenkel

Okay. I mean, if I look at your fourth quarter numbers, it is about, what is that three — you guys burn just under, I think, that’s $11 million. Any chance, you could, not burn, actually that’s your operating expense, is it right to assume that your operating spend, the other combination of R&D as sales and marketing and G&A should go down from there, given the changes that you’ve announced today?

A — Mike Luetkemeyer

Yes, on an annualized basis, they should go down.

Q — Doug Schenkel

They should go down. Okay.

A — Mike Luetkemeyer

Yeah.

Q — Doug Schenkel

And...

A — Mike Luetkemeyer

And the reason I say on an annualized basis is, you know, there are certain one-time charges that you take severance and other costs. So let me take a little while for that to wash through, but all else being equal, the operating expense line should decline based on the actions that we’ve taken.

Q — Doug Schenkel

Okay. Last question, if my model is correct, which I definitely could be off, but assuming I’m not and you can tell me otherwise, it looks like 2-Level procedures may have declined by 30 or maybe 29 sequentially, am I wrong or is that correct? And if I am correct, any reason why this might have occurred during the quarter?

A — Rick Randall

You are correct, 2-Level procedures actually declined from 138 in Q3 to 115 in Q4.

Q — Doug Schenkel

Okay.

A — Rick Randall

And you know the 2-Level procedures starting last fourth quarter when we had full market launch of the 2-Level increased to 168 in Q1. They went up again to 175 in Q2, and then they started to decline when we hit the reimbursement headwind, they went down to 138 and then down to 115.

Now our reimbursement is the lion’s share of the issue, but we also had some product issues in the market that we think we have addressed with the 2-Level plus that’s now in limited market release. So we would hope that that trend would reverse itself as we put the 2-Level plus into full market release later in the year.

Q — Doug Schenkel

All right. I guess I got to ask another one as a follow-up then. Could you talk a little bit about the specific product issues in the field that have been addressed with the 2L plus?

A — Rick Randall

Yeah, I’m going to let, Ken, talk about the 2L plus. But just to go back historically, when we released the 2L product and we talked about this on a couple of calls, we saw a little more subsidence than we had seen — ever seen with the single-level product. And we also saw some cases where the L5-S1 rod backed out a little bit.

Now we were very concerned about that early on, because we just don’t have much room for error with this product that we wanted to be right and tight. As we work through it, we indicated the use of pedicle screws to backup the device as opposed to facet screws and the subsidence issue dramatically decreased. And then we found it with appropriate technique, we were able to manage the L5-S1 rod.

So over the entirety of 2009, we felt actually pretty good about the device, but we had already put in place and designed the next generation, which Ken is going to talk about. We however — and this is where I think we can have better execution — and we did have a number of sales reps who adjusted to the technique, had surgeons who worked through this and had great success with the 2L. And those reps converted more surgeons to the 2L.

And then we had others that I think got a little spooked by what happened and backed off. They were fearful that any 2L failure could affect their single-level product. And frankly, I think a lot of our focus at the sales force or at the sales meeting is to eliminate that disparity that we saw from region-to-region or rep-to-rep. And priority A is going to be to, even with the old product, to get those reps back on board converting surgeons to the 2L product because it’s a great operation and we’ve had great results.

Now having said that, we were a little fortuitous because right in the middle of our sales meeting we learned from the FDA that about a month in advance of what was expected, we got the clearance to market the 2L plus. So I’ll let Ken talk about the 2L plus and how that should even give our reps more confidence that the 2L is one way to prosperity in 2010.

A — Ken Reali

Hello, Doug, it’s Ken Reali. As Rick mentioned, the 2L plus was approved 510(k) cleared back in January, late January, and we started a limited market release. As Rick mentioned, this product was designed specifically to address some of the early concerns we saw with the 2L product, issues of subsidence, and patients of poor bone quality. We had a couple issues of separation where facet fixation was not completely appropriate.

The 2L plus is a two piece design like the 2L, but the difference is there is a locking pin that links the two implants together, the L4-L5 implant and the L5-S1 implant. That also has a distraction capability at both levels. So we feel the combination of the ability to modulate and distract at both levels with the locking pin, and also has a tapered design at L4-L5 for improved fixation into that bone, that vertebral body, will be a large improvement. Thus far in the limited market release, albeit it’s very early, the feedback has been very strong. And we look forward to continuing to track the limited market release carefully and we plan on a full market release later in 2010.

Q — Doug Schenkel

Okay. Well, thanks for that Ken, and Rick, and Mike, to all you guys, I really appreciate you taking all the questions.

A — Rick Randall

Thank you.

A — Mike Luetkemeyer

Thanks, Doug.

Operator: Your final question comes from Matt Miksic of Piper Jaffray.

Q — Roshni Sacks

Hi, this is Roshni for Matt. Matt’s traveling. Sorry for dropping off earlier. The follow-up that we wanted to ask is on adverse events, before the long-run cumulative rate had been around 0.5%, just wanted to see whether that’s stayed the same. Have you seen any change in that?

A — Rick Randall

No, Roshni, it’s pretty much stabilized. We measure it monthly. And our field sales force has monthly numbers. And so the 0.5% I think you are referring to the bowel injury is stabilized at that number and we talked about some initiatives we have to further reduce it that we’ll go into in a future call.

Q — Roshni Sacks

Okay. And then just one quick follow-up on deformity, I know that it’s still early, but could you give us a sense about how big deformity could be as a percentage of your total business over the next four to eight quarters?

A — Rick Randall

We haven’t really measured how big it could be. I would say that it’s the fastest growing — minimally invasive spine is the fastest growing subset of spine, and within that deformity I think is the fastest growing subset of minimally invasive spine. So we’re very excited about it. Obviously, there’s other approaches that are allowing more and more of patients who are older than 65 who have this condition to be operated on and operated on successfully. And they all need a stable construct at the base that will withstand the forces of the lever arm that’s created with the fusion. So it’s a large opportunity for us and we are just getting started so I’m not going to provide any numbers. But as we move forward, we’ll provide on future calls more detail as to the market size considering the utilization of our technology.

Q — Roshni Sacks

Okay. Just to push a little bit on that, do you think it could be — just sort of ballpark number — 10, 20? I guess some color, not necessarily quantifying, but just some qualitative color would be nice.

A — Rick Randall

Well, it’s a large market.

Q — Roshni Sacks

Right.

A — Rick Randall

And as you follow some of the other companies that are doing well in that market there’s some big numbers attached to it. There is another 40 to 50,000 patients out there that are of that ilk. So the available market you look at a 2-Level product at 10, $12,000 of revenue and you lay that over that size of an opportunity in this country alone, it can be fairly large. But it’s early on in the development of this technique for that application. So we haven’t even given out publicly numbers that we would anticipate in sales over the next two or three years.

Q — Roshni Sacks

Fair enough. Thank you for taking the questions.

A — Rick Randall

Thank you.

Q — Roshni Sacks

And sorry about Matt dropping off.

A — Rick Randall

No problem.

Operator: I’m not showing any further questions. Would you like to continue with any further remarks?

Rick Randall, President and Chief Executive Officer

No, I think we’re all set. It there are no other questions I’d like to close by thanking you, all of you for taking the time to join us on the call today. I want to express my appreciation to Mike for the three years of service that he’s given this company, the partnership that he’s given me, and the mentorship he’s provided to the people in the finance department here at the company. It’s meant a lot to all of us and we’ll miss Mike dearly.

I appreciate your interest in TranS1 and look forward to updating you on our continued progress in future calls. Thank you.

Operator: Ladies and gentlemen, thank you for your participation in today’s conference. This concludes the program, you may all disconnect. Everyone have a great evening.

EX-99.3

Exhibit 99.3

TranS1 Inc. Announces CFO Transition

WILMINGTON, NC — (GLOBE NEWSWIRE)—February 23, 2010—TranS1 Inc. (NASDAQ:TSON), a medical device company focused on designing, developing and marketing products that implement its proprietary minimally invasive surgical approach to treat degenerative disc disease and instability affecting the lower lumbar region of the spine, today announced that Michael Luetkemeyer, Chief Financial Officer will leave TranS1 on March 31, 2010 to pursue other opportunities. The company has begun a search for his replacement and Mr. Luetkemeyer will serve as a consultant to the company during the transition.

“We wish Mike the best of luck in the future,” said Rick Randall, CEO of TranS1. “He has been a valued business partner and an important part of the TranS1 team for the past three years, playing a significant role in executing our initial public offering, building the finance team and increasing our visibility in the investment community.”

About TranS1 Inc.

TranS1 is a medical device company focused on designing, developing and marketing products that implement its proprietary minimally invasive surgical approach to treat degenerative disc disease and instability affecting the lower lumbar region of the spine. TranS1 currently markets the AxiaLIF family of products for single and multilevel lumbar fusion and the Vectre and Avatar posterior fixation systems for lumbar fixation supplemental to AxiaLIF fusion. TranS1 was founded in May 2000 and is headquartered in Wilmington, North Carolina. For more information, visit www.trans1.com.

Forward-Looking Statements

This press release includes forward-looking statements, the accuracy of which is necessarily subject to risks and uncertainties. These risks and uncertainties include, among other things, risks associated with the adoption of a new technology by spine surgeons, product development efforts, regulatory requirements, maintenance and prosecution of adequate intellectual property protection and other economic and competitive factors. These forward looking statements are based on the company’s expectations as of the date of this press release and the company undertakes no obligation to update information provided in this press release. For a discussion of risks and uncertainties associated with TranS1’s business, please review the company’s filings with the Securities and Exchange Commission, including its Annual Report on Form 10-K for the year ended December 31, 2008.

CONTACT:
Investors:
TranS1 Inc.
Michael Luetkemeyer, 910-332-1700
Chief Financial Officer

or

Westwicke Partners
Mark Klausner, 443-213-0501
mark.klausner@westwicke.com

Source: TranS1 Inc.