Artes Medical Announces Plan for Nasdaq Listing Compliance and Agenda for Its Annual...

Artes Medical Announces Plan for Nasdaq Listing Compliance and Agenda for Its Annual Meeting

SAN DIEGO--(Business Wire)--
The Board of Directors of Artes Medical, Inc. (Nasdaq:ARTE), a
medical aesthetics company, issued the following information to the
Company's stockholders:

Dear Stockholders of Artes Medical:

We are writing to (i) inform you regarding the actions the Company
is requesting its stockholders to consider and approve at the annual
meeting of stockholders to be held on October 30, 2008 (the "Annual
Meeting"), (ii) discuss and respond to a non-management preliminary
proxy statement filed by an individual stockholder, H. Michael Shack,
who collectively with the other stockholders listed in his filing own
less than 1% of the Company's outstanding voting stock and to explain
why the matters set forth in his filing are not eligible to be voted
upon at the Annual Meeting and (iii) discuss the lawsuit the Company
recently filed against two of its former officers and directors for,
among other things, breach of their contractual obligations to the
Company. We also discuss our plan to comply with Nasdaq's continued
listing requirements.

We remain firmly committed to promoting the Company's success and
increasing the value of the Company to its stockholders. Our immediate
goals are to (i) raise funds to support the Company's operations and
product acquisition plans, (ii) accelerate the growth and acceptance
of the Company's products among physicians and patients, (iii) expand
the Company's current product portfolio to include additional new and
innovative medical aesthetic products that can be cost-effectively
marketed and sold through its national sales team and (iv) further
leverage the Company's already established commercial infrastructure.

As discussed in more detail below, we do not believe the current
market value of the Company's stock reflects the true intrinsic value
of the Company. We remain open and willing to consider any legitimate
proposal for strategic alternatives that will maximize value for our
stockholders, including potential alternatives involving a change of
control or the sale of the Company. However, we believe the
non-management preliminary proxy statement, apart from being legally
deficient and contrary to the corporate safeguards previously approved
by the Company's stockholders, has been organized by two former
officers and directors of the Company, Stefan Lemperle and Gottfried
Lemperle (collectively, the "Lemperles"), in an attempt to establish
their control over the Company without paying the Company's
stockholders an adequate and fair acquisition price or a control
premium.

Nevertheless, we remain open to any proposal involving a strategic
alternative that would maximize value for our stockholders, including
a potential change of control transaction, and we encourage Shack (and
the Lemperles) to consider this course of action if they wish to
obtain control over the direction of the Company.

The Company's Annual Meeting

The Annual Meeting will be held on October 30, 2008 at 10:00 a.m.
(Pacific Time) at the San Diego Marriott Del Mar, located at 11966 El
Camino Real, San Diego, California 92130. At the Annual Meeting, the
Company will be asking the Company's stockholders to consider and
approve the following proposals:

(1) To elect Christopher J. Reinhard and John R. Costantino as
Class II directors to the Company's Board of Directors to hold office
until the 2011 annual meeting of stockholders and until their
successors are duly elected and qualified; and

(2) To approve the sale of the Company's securities in one or more
financing transactions to support the Company's operations and
business plan.

Election of Directors. At the Annual Meeting, the Company will ask
its stockholders to elect Christopher J. Reinhard and John R.
Costantino as Class II directors to serve for three (3) year terms
until the annual meeting of stockholders in 2011 and until their
successors are duly elected and qualified.

Mr. Reinhard has been the Company's Executive Chairman since
June 2004. He was asked to join the Company by several of the
Company's stockholders at a time when the Company was a private six
employee company with no products approved by the FDA for marketing or
sale and no manufacturing operations. Since December 2004,
Mr. Reinhard has also served as Chairman of the Board and CEO of
Cardium Therapeutics, Inc., a publicly-traded medical technology
company. Prior to that (from July 2002 to December 2004), Mr. Reinhard
served as Chief Executive Officer of Collateral Therapeutics, Inc.,
another publicly-traded biotechnology company. Mr. Reinhard worked for
Collateral Therapeutics in a variety of roles (including Chief
Financial Officer and President) from June 1995 to July 2002, when
Collateral Therapeutics, Inc. was acquired by Schering AG.
Mr. Reinhard holds a B.S. in finance and an M.B.A. from Babson
College.

Mr. Costantino has been a director of Artes Medical since
June 2006. Beginning in January 2006, Mr. Costantino has also served
as Managing General Partner of NGN Capital LLC, a venture capital
advisory firm focusing on the healthcare and biotechnology industries.
In addition, Mr. Costantino has served as Vice President of Walden
Capital Partners since 1994, and has been a Managing Director at
Walden Partners Ltd., a merchant bank providing consulting and
investing services, since 1992. Mr. Costantino also serves on the
Board of Directors of GE Funds, GE Investment Funds, Inc., GE
Institutional Funds and GE LifeStyle Funds, all management investment
companies. Mr. Costantino holds a B.S. from Fordham University, a J.D.
from Fordham Law School, and is a Certified Public Accountant.

Financing Proposal. As discussed in its public filings, the
Company intends to raise additional funds to support its operations
and business plan. The Company recently received a notice from The
Nasdaq Stock Market ("Nasdaq") indicating that its stockholders'
equity at June 30, 2008 was less than the $10 million in stockholders'
equity required for continued listing on The Nasdaq Global Market. The
Company intends to submit a plan to Nasdaq on September 3, 2008
addressing how it plans to achieve and sustain compliance with
Nasdaq's continued listing requirements. A central part of this plan
is to complete one or more financing transactions as soon as practical
to raise funds to increase the Company's stockholders' equity to
levels required to maintain its Nasdaq listing. Nasdaq, however,
requires the Company to obtain approval from its stockholders for any
financing or series of related financings in which the Company issues
20% or more of its outstanding common stock.

At the Annual Meeting, the Company intends to seek authorization
from its stockholders to approve the sale of its securities in one or
more financings (the "Financing Proposal"). We, the Board of
Directors, will be responsible for determining the actual terms and
conditions of the financing(s), provided, that the financing(s) must
fit within the bounds approved by the stockholders at the Annual
Meeting. Obtaining stockholder approval of the Financing Proposal will
facilitate our efforts to raise funds on a timely basis to support the
Company's continued listing on Nasdaq and allow the Company to
implement its business plan.

Non-Management Proposals

On August 11, 2008, H. Michael Shack, who collectively with the
other stockholders named in his filing own less than 1% of the
Company's outstanding voting stock, filed a preliminary proxy
statement stating that, at the Company's Annual Meeting, he intends to
submit proposals to: (i) amend the Company's Bylaws to fill vacancies
on the Company's Board of Directors resulting from the removal of
directors, (ii) remove "for cause" three (3) of the Company's current
directors and (iii) elect five (5) of his nominees to the Board. As
outlined in a recent lawsuit filed in San Diego Superior Court and
discussed below, the Company is informed and believes that the Shack
filing was instigated and is supported by the Lemperles in violation
of, among other things, their contractual obligations to the Company.

The Shack Proposals are Legally Deficient. The Shack proposals are
deficient in that he did not provide the Company with notice of the
proposals as required by Article II, Section 2.1 of the Company's
Bylaws. Further, the Company believes, and has received a written
opinion from Abrams & Laster LLP, the Company's special Delaware
counsel, that the Shack proposals do not comply with the substantive
and procedural requirements of Article II, Section 2.1 of the
Company's Bylaws and Section 141(k) of the Delaware General
Corporation Law.

Further, we do not believe that the Shack proposals are in the
best interests of the Company's stockholders, and for the reasons
stated above, the Company does not intend to have the Shack proposals
brought before the Annual Meeting. In short, the Shack proposals seek
to circumvent the orderly process required in the Company's
stockholder-approved Bylaws and Certificate of Incorporation, and we
urge you to discard any proxy card that you may receive regarding the
Shack proposals.

Nevertheless, we remain open to any proposal involving a strategic
alternative that would maximize value for our stockholders, including
a potential change of control transaction, and we encourage Shack (and
the Lemperles) to consider this course of action if they wish to
obtain control over the direction of the Company.

The Claims Made in Shack's Preliminary Proxy Statement are
Inaccurate. Apart from being legally deficient, most, if not all, of
the assertions made in Shack's preliminary proxy statement are
inaccurate. A discussion of the Company's results and future plans is
set forth below, as well as an explanation of the lawsuit recently
filed by the Company against the Lemperles and the facts surrounding
their instigation and support of the Shack proposals, including the
Lemperles' relationships with Shack's director nominees.

The Lemperle Lawsuit

On August 29, 2008, the Company filed suit in San Diego Superior
Court against Stefan Lemperle and Gottfried Lemperle for, among other
things, breach of contract, fraudulent inducement and intentional and
negligent interference with prospective economic advantage relating to
their attempts to interfere with the Company's management and
operations. The lawsuit seeks both compensatory and punitive damages,
as well as injunctive relief.

In sum, the lawsuit alleges that the Lemperles were separated from
the Company in 2006, and were provided substantial severance packages
in exchange for their complete disassociation from the Company, and
their agreement to refrain from interfering with the Company's
business. Stefan Lemperle's separation agreement specifically
prohibits him from encouraging stockholders to challenge management or
decisions of the Company's Board of Directors through November 2009 or
from otherwise interfering with the Company's affairs. However, the
Company believes that neither Stefan nor Gottfried Lemperle intended
to comply with the terms of their separation agreements, and that
despite their contractual obligations to the Company, the Lemperles
conspired to undermine the Company's management and to take control of
the Company -- as evidenced by Shack's proposals seeking to replace a
majority of the Company's current directors with individuals
hand-picked by the Lemperles (the "Lemperle Nominees"). For example,
Terry Knapp and Charles A. Schliebs, both Lemperle Nominees, were
recommended to be directors on the Company's Board by Stefan Lemperle
in June 2006. Similarly, Barry Vogel and Robert Binkele (both Lemperle
Nominees) have close ties with and were introduced to the Company by
Stefan Lemperle and a former officer of the Company, respectively.
Further, the lawsuit alleges that and the Company believes that the
Lemperles shared confidential or proprietary information about the
Company, and that they communicated this confidential or proprietary
information to other stockholders of the Company, including Shack
and/or the Lemperle Nominees in violation of the terms of their
separation and confidentiality agreements with the Company.

Business Discussion

As stated in our recent Annual Report, 2007 was a year of
accomplishment and challenge for the Company. The Company launched its
flagship product, ArteFill(R), into the United States aesthetics
market, making it the first and only FDA-approved non-resorbable
dermal filler for the treatment of smile lines. The Company also
established a nationwide network of more than 1,200 dermatologists,
plastic surgeons and cosmetic surgeons who have received training in
the proper use of ArteFill so that it has become available to a
growing number of patients throughout the United States.

On the other hand, the overall level of ArteFill product sales for
2007 did not measure up to our expectations and the product's inherent
potential. We have taken a hard look at the Company's initial launch
strategy and have initiated changes in the way we market ArteFill in
order to capitalize more fully on ArteFill's competitive advantages.

Commercial Experience. Our market research tells us that patients
are searching for a safe, effective and long-lasting solution to
wrinkle correction. Even as the industry continues to build around the
use of temporary dermal filler products, the high patient attrition
rate among temporary dermal filler patients due to "credit card
fatigue" and "injection fatigue" is real and not going away anytime
soon. Our market research further shows that today's women lead busy
and active lives, and many want a safe and truly effective
long-lasting wrinkle solution. We believe that ArteFill is uniquely
positioned to address this opportunity.

We are receiving positive feedback from physicians and patients
who have experienced ArteFill since launch in February 2007.
Physicians continue to report strong results relating to smile line
correction and patient satisfaction, with no serious adverse events
reported. With over 10,000 patients now treated since ArteFill's
launch, we have established an excellent safety and efficacy record
that is further supported by a 5-year safety and efficacy study
published in the peer-reviewed journal Dermatologic Surgery.

Physician Development Initiatives. Since market launch, the
Company has trained more than 1,200 dermatologists, plastic surgeons,
and cosmetic surgeons on the use of ArteFill, and it is the Company's
goal to have 1,800 physicians trained by year-end 2008. We continue to
focus on those physicians experienced in the field of aesthetic
medicine. We are convinced that we need to continue to build this
important base of physician acceptance so that, as our sales effort
and consumer initiatives begin to converge, we can translate this into
stockholder value.

During 2007, we built a robust practice development program
designed to assist physicians in educating patients and treating them
with ArteFill. We will also be initiating follow-on patient incentive
programs operating in concert with physician-driven initiatives. We
have seen strong interest among physicians to participate in our
programs, which include other sales incentives, coupons and
specialized discount programs. In addition, since FDA approval,
ArteFill has been included in many leading dermatology and plastic
surgery medical conferences showcasing the benefits of the product's
safety, long-term efficacy and differences among various dermal filler
products.

Larger and More Experienced Direct Sales Force. Following our
market launch last year, it became clear that even as we rapidly added
physicians, the Company needed a larger and more experienced sales
force to provide a persistent presence at the physician level. As a
result, the Company has more than doubled the size of its sales force
while substantially increasing its consumer awareness programs. The
Company's sales team now includes 42 sales representatives, the
majority of whom have extensive prior experience selling other
competitive dermal fillers, medical device products and aesthetic
products directly into our target market physician base.

Direct-to-Consumer Marketing Efforts. The Company has also
accelerated its consumer outreach efforts, including national print
advertising campaigns in major women's beauty magazines, robust
Internet marketing programs and other consumer initiatives. Because of
these activities, we have seen visits to the Company's websites more
than double in first quarter 2008 compared to fourth quarter 2007. We
believe that this demonstrates an accelerating consumer interest in
ArteFill. Further, while the Company clearly must continue to focus on
physician-centric marketing initiatives and education,
direct-to-consumer marketing activities have become a way of life and
physicians now expect all dermal filler companies to stimulate
consumer interest through outreach programs.

Continuing Research and Safety Studies. As previously announced,
the Company's 1,000-patient long-term safety study was initiated in
late 2007. Patient interest has been extremely strong in this study,
and enrollment has been rapid. The Company produces a highly purified
and partially denatured collagen in its product, and we believe that
this purity substantially reduces the risk of allergic reactions to
the bovine gel component of ArteFill. The Company has initiated a skin
test removal study, and during the first quarter of 2008, almost 500
patients were skin tested to participate in this study. In total,
approximately 700 patients have now been recruited to participate in
the study. When completed, we believe that this will represent another
landmark study in the dermal filler field. We expect to have results
by early 2009 and, with supporting clinical data, the Company intends
to seek regulatory approval to eliminate the skin test requirement
which we believe will further accelerate the market acceptance of
ArteFill on a going forward basis.

Competitive Positioning. Over the past year, product offerings in
the dermal filler market have increased and we expect a steady flow of
non-differentiated hyaluronic acid-based and porcine-based temporary
dermal filler products to enter the market this year and next. As a
result, we anticipate continued price pressure in the temporary filler
space. From our perspective, virtually all of the current and planned
temporary dermal filler products offer efficacy ranging from as little
as three months to perhaps up to twelve months. As a result, we
believe that ArteFill will remain highly differentiated from these
competitor products as the first and only FDA-approved non-resorbable
injectable wrinkle filler, and we expect to retain the Company's
premium pricing and market positioning. We believe that there is no
other dermal filler product like ArteFill that (i) offers physicians
with a more significant revenue opportunity during a 30-minute
procedure, and (ii) provides patients with such long-lasting results.
These simple facts, coupled with our continuing effort and focus, are
what keep all of us at the Company excited.

Recent Developments

Since the end of 2007, we have initiated a number of actions to
improve the Company's operations and increase the Company's value to
its stockholders.

Record Second Quarter Results. The Company reported record
ArteFill revenues of $3.2 million for the quarter ended June 30, 2008,
an increase of $1.1 million or 52% over ArteFill revenues of
$2.1 million from the quarter ended June 30, 2007 and a 91% increase
in ArteFill revenues from the first quarter ended March 31, 2008. The
growth in ArteFill sales in the second quarter of 2008 reflects the
positive impact of the Company's expanded team of sales
representatives and its new consumer outreach programs.

Elevess Distribution Agreement and Rapid Product Launch.
Consistent with its business strategy, in July 2008, the Company
announced a distribution agreement with Anika Therapeutics Inc.
covering its marketing and sale of Elevess(TM), a new FDA-approved
hyaluronic acid based dermal filler. In record time, the Company
initiated its Elevess product launch. Elevess is ideal for patients
seeking immediate, comfortable, temporary wrinkle correction lasting
six months or more. ArteFill is the only FDA-approved, non-resorbable
treatment of choice for patients desiring long-lasting results. In
addition to the use of Elevess as a stand alone product, both products
are complementary, in that they may be bundled for sequential use that
allows Elevess to be used as a temporary solution during the ArteFill
skin test waiting period, followed by an ArteFill long-lasting
treatment. Based on this, the Company has introduced marketing
programs that provide favorable economic incentives for both
physicians and patients who choose to purchase both ArteFill and
Elevess for use in their medical practices. With these products in its
portfolio, the Company is now uniquely positioned to deliver a full
spectrum of wrinkle treatments for the growing facial aesthetics
market.

Cost Reduction Plan. Earlier this year, the Company instituted a
plan to significantly reduce certain administrative and operating
costs in order to realign its overall cost structure to its current
revenue projections. We believe that the cuts made will help
streamline the business and reduce overall costs, resulting in a
stronger business model (focusing more sharply on growing and
developing the market for ArteFill) and increasing overall stockholder
value.

Strengthened Board and Management Team. In an effort to establish
a stronger Board and management team and to allow the Company to
adjust to the ever-changing economic and competitive landscapes, we
recently announced important changes to the Company's management team
and the reorganization of management responsibilities. We are very
pleased Michael Green has joined us as our Chief Financial Officer
("CFO"). Michael has extensive experience as a public company CFO,
experience in capital raising and product and company acquisitions,
was an auditor for Price Waterhouse for 13 years, and is a CPA.
Michael is a great addition to our team and we are looking forward to
his contributions as we move forward. We have also added two new
directors, Todd Davis and Douglas Abel. Todd has extensive healthcare
operating experience, having worked in business development and
general management at Elan Pharmaceuticals and in sales and marketing
at Abbott Laboratories. Douglas brings extensive experience to the
Company in the aesthetics and medical device fields. In addition, we
are actively engaged in a search for a qualified CEO to lead the
Company into the next phase of the commercialization of ArteFill. We
believe these changes will enhance value to the Company's stockholders
and support the Company's efforts to produce medical device products
that benefit both patients and physicians.

Stockholders' Rights Plan. We believe the current market value of
the Company's stock does not reflect the Company's intrinsic economic
value. As such, in May 2008, we adopted a stockholders' rights plan to
help protect the Company and its stockholders from coercive takeover
tactics. The adoption of the plan is intended to facilitate
negotiations with potential third party acquirers, more fully ensure a
fair and orderly process and guard against a takeover by a third party
on terms that would not be fair to or in the best interests of the
Company's stockholders by taking advantage of the Company's current,
inadequate stock price. A committee of independent directors of the
Board will assess whether the plan remains in the best interests of
the Company and its stockholders at least every three years and may,
at its discretion, make this assessment more frequently.

CHRP Financing. In February 2008, the Company completed a
financing arrangement with Cowen Healthcare Royalty Partners, L.P.
("CHRP") in which it raised $21.5 million. The Company used the
proceeds from this financing to expand its dedicated U.S. sales force
and consumer outreach programs, as well as to repay its existing debt.
As part of the financing, the Company granted CHRP a royalty interest
in sales of its products, as well as a secured promissory note. The
Company also issued CHRP two warrants, one to purchase 1,300,000
shares at $5.00 per share and another to purchase 375,000 shares at
$3.13 per share. These warrant shares, if fully exercised, represent
significantly less than 10% of the Company's outstanding
capitalization. As a result, the Company used its tangible and
intangible assets to secure $21.5 million through this financing
arrangement, and minimized the potential dilutive effect to its
stockholders.

Conclusion

In closing, we remain firmly committed to promoting the Company's
growth and overall progress. We, the Board of Directors, have taken
direct action to systematically understand the issues that face the
Company and have initiated positive and affirmative actions intended
to successfully advance ArteFill and Elevess in the market and to
enhance long-term stockholder value.

With our increased sales force, our balanced marketing and
promotional consumer initiatives, our increased practice development
activities and our clinical studies, we believe ArteFill has the
potential to establish a very important market niche in which patient
satisfaction supports our premium pricing and allows us to generate an
attractive revenue stream with a relatively modest niche market share.
Although we feel that our successes are not yet represented in the
Company's stock price, we firmly believe that the decisions we have
made will move the Company forward and are in the best interests of
the Company and its stockholders.

We do not believe that the assertions or the requested actions
contained in the Shack preliminary proxy statement are serious,
justified or necessary. Further, we believe that the Shack proposals
seek to circumvent the orderly process required in the Company's
stockholder-approved Bylaws and Certificate of Incorporation. We
remain open to any proposal involving a strategic alternative that
would maximize value for our stockholders, including a potential
change of control transaction, and we encourage Shack, the Lemperles
and others to consider this course of action if they wish to obtain
control over the direction of the Company.

We encourage you to participate in the Company's Annual Meeting
and vote your proxy in accordance with the recommendations of the
Company's Board of Directors and management. Thank you again for your
continued support of the Company.

-0-
*T

Most sincerely,

Christopher J. Reinhard
Executive Chairman of the Board of Directors
*T

Forward-Looking Statements

This press release contains forward-looking statements that are
based on the Company's current beliefs and assumptions and on
information currently available to its management and Board of
Directors. Forward-looking statements involve known and unknown risks,
uncertainties and other factors that may cause the Company's actual
results, performance or achievements to be materially different from
any future results, performance or achievements expressed or implied
by the forward-looking statements. As a result of these risks,
uncertainties and other factors, which include the Company's history
of net losses, its ability to timely raise additional funds to support
its operations and future product acquisition plans, its ability to
manage its operating expenses, its reliance on sales of ArteFill and
Elevess, its future receipt of FDA approval to extend the efficacy
period of ArteFill beyond six months and eliminate the skin test
requirement, and the risk that the Company's revenue projections may
prove incorrect because of unexpected difficulty in generating sales
and market acceptance of ArteFill and Elevess, readers are cautioned
not to place undue reliance on any forward-looking statements included
in this letter to stockholders. A more extensive set of risks and
uncertainties is set forth in the Company's SEC filings available at
www.sec.gov. These forward-looking statements represent beliefs and
assumptions only as of the date of this press release, and the Company
assumes no obligation to update these forward-looking statements
publicly, even if new information becomes available in the future.

Important Additional Information

On August 29, 2008, the Company filed a preliminary proxy
statement with the Securities and Exchange Commission (the "SEC") in
connection with the solicitation of proxies for its Annual Meeting.
The Company intends to mail a definitive proxy statement (the "Proxy
Statement") to its stockholders prior to the Annual Meeting. The Proxy
Statement will contain important information about the Company and the
Annual Meeting. The Company's stockholders are urged to read the Proxy
Statement carefully. Stockholders will be able to obtain copies of the
Proxy Statement and other documents filed by the Company with the SEC
in connection with the Annual Meeting at the SEC's website at
www.sec.gov or at the Investor Relations section of the Company's
website at www.artesmedical.com. The Company, its Board of Directors
and its management may be deemed participants in the solicitation of
proxies from stockholders in connection with the Annual Meeting.
Information regarding the stock holdings and other direct or indirect
interests of the Company's Board of Directors and management in the
proposals to be voted upon at the Annual Meeting are described in the
Proxy Statement. The contents of the websites referenced above are not
deemed to be incorporated by reference into the Proxy Statement.

Artes Medical(R) and ArteFill(R) are registered trademarks of
Artes Medical, Inc. All other trademarks referred to in this press
release are the property of their respective owners.

Manning, Selvage and Lee
Kelley Childrey, 323-866-6003 (Media)
kelley.childrey@mslpr.com
or
Artes Medical
Cheryl Monblatt Allen, 858-550-9999 (Investors)
callen@artesmedical.com

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