AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON FEBRUARY 7,25, 2000
REGISTRATION NO. 333-93033
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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AMENDMENT NO. 12
TO
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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ABIOMED, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 04-2743260
(STATE OR OTHER JURISDICTION OF INCORPORATION (I.R.S. EMPLOYER IDENTIFICATION NO.)
OR ORGANIZATION)
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22 CHERRY HILL DRIVE
DANVERS, MASSACHUSETTS 01923
(978) 777-5410
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
------------------------
DR. DAVID M. LEDERMAN
PRESIDENT AND CHIEF EXECUTIVE OFFICER
ABIOMED, INC.
22 CHERRY HILL DRIVE
DANVERS, MASSACHUSETTS 01923
(978) 777-5410
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
------------------------
COPIES TO:
PETER M. ROSENBLUM, ESQ. WILLIAM T. WHELAN, ESQ.
FOLEY, HOAG & ELIOT LLP MINTZ, LEVIN, COHN, FERRIS, GLOVSKY AND POPEO, P.C.
ONE POST OFFICE SQUARE ONE FINANCIAL CENTER
BOSTON, MASSACHUSETTS 02109 BOSTON, MASSACHUSETTS 02111
(617) 832-1000 (617) 542-6000
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the effective date of this Registration Statement.
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. / /
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box. / /
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration number of the earlier effective
registration statement for the same offering. / /
- -------------- .
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
- -------------- .
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /
------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
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The information in this prospectus is not complete and may be changed without
notice. ABIOMED may not sell these securities until the registration statement
filed with the
Securities and Exchange Commission is effective. This prospectus is not an offer
to sell these securities, and ABIOMED is not soliciting offers to buy these
securities, in any state
where the offer or sale of these securities is not permitted.
PROSPECTUS (Not Complete)
Issued February 7, 2000
1,500,000 SHARES
[LOGO]
COMMON STOCK
----------------
ABIOMED, Inc. is offering 1,500,000 shares of common stock in a firmly
underwritten offering.
------------------------
The common stock is listed on the Nasdaq National Market under the symbol
"ABMD." On February 4, 2000, the last reported sale pricePart I of the common stock on
the Nasdaq National Market was $55 1/8 per share.
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INVESTING IN THE COMMON STOCK INVOLVES A HIGH DEGREE OF RISK. SEE "RISK
FACTORS" BEGINNING ON PAGE 6.
---------------------
Per Share Total
--------- -----
Offering Price............................................ $ $
Discounts and Commissions to Underwriters................. $ $
Offering Proceeds to ABIOMED.............................. $ $
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if this
prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.
ABIOMED and one stockholder of ABIOMED have granted the underwriters a
30-day option to purchase up to an additional 225,000 shares of common stock to
cover any over-allotments. Banc of America Securities LLC expects to deliver the
shares of common stock to investors on , 2000.
BANC OF AMERICA SECURITIES LLC SALOMON SMITH BARNEY
----------------
, 2000
INSIDE FRONT COVER ART DESCRIPTIONS
ABIOCOR-TM- IMPLANTABLE REPLACEMENT HEART
[Illustration of certain components of the AbioCor system positioned on
photograph of woman appears here.]
Illustration of implantable and patient-worn components of the AbioCor
Implantable Replacement Heart.
[Photograph of AbioCor next to diseased human heart appears here.]
Photograph of a clinically configured AbioCor and diseased human heart to
illustrate approximate sizes.
[Photograph of implantable components of the AbioCor appears here.]
Photograph of implantable AbioCor components.
THE ABIOCOR IS IN A PRE-CLINICAL STAGE OF DEVELOPMENT AND IS NOT APPROVED
FOR SALE OR CLINICAL USE IN ANY COUNTRY. REGULATORY APPROVAL AND
COMMERCIALIZATION ARE SUBJECT TO NUMEROUS UNCERTAINTIES AND RISKS. SEE "RISK
FACTORS."
2
TABLE OF CONTENTS
PAGE
--------
Prospectus Summary.......................................... 4
Risk Factors................................................ 6
Use of Proceeds............................................. 17
Dividend Policy............................................. 17
Price Range of Common Stock................................. 17
Capitalization.............................................. 18
Selected Consolidated Financial Data........................ 19
Management's Discussion and Analysis of Financial Condition
and Results of Operations................................. 20
Business.................................................... 27
Management.................................................. 52
Principal Stockholders...................................... 56
Description of Capital Stock................................ 57
Underwriting................................................ 60
Legal Matters............................................... 62
Experts..................................................... 62
Where You Can Find More Information......................... 62
Index to Consolidated Financial Statements.................. F-1
FORWARD LOOKING STATEMENTS
This prospectus, including the documents incorporated by reference in this
prospectus, includes forward-looking statements. We have based these
forward-looking statements on our current expectations and projections about
future events. Our actual results could differ materially from those discussed
in, or implied by, these forward-looking statements. Forward-looking statements
are identified by words such as "believe," "anticipate," "expect," "intend,"
"plan," "will," "may" and other similar expressions. In addition, any statements
that refer to expectations, projections or other characterizations of future
events or circumstances are forward-looking statements. Forward-looking
statements in these documents include, but are not necessarily limited to, those
relating to:
- our plans to commence initial clinical trials of the AbioCor Implantable
Replacement Heart by the end of the year 2000;
- our intention to expand the market for our BVS-5000 product;
- our ability to obtain and maintain regulatory approval of our products in
the U.S. and internationally;
- the other competing therapies that may in the future be available to heart
failure patients;
- our plans to develop and market new products; and
- our ability to carry out our strategy.
Factors that could cause actual results or conditions to differ from those
anticipated by these and other forward-looking statements include those more
fully described in the "Risk Factors" section and elsewhere in this prospectus.
We are not obligated to update or revise these forward-looking statements to
reflect new events or circumstances.
------------------------
YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED IN THIS PROSPECTUS. WE
HAVE NOT AUTHORIZED ANYONE TO PROVIDE YOU WITH DIFFERENT INFORMATION. WE ARE NOT
MAKING AN OFFER TO SELL THESE SECURITIES IN ANY JURISDICTION WHERE THE OFFER OR
SALE IS NOT PERMITTED. YOU SHOULD ASSUME THAT THE INFORMATION APPEARING IN THIS
PROSPECTUS IS ACCURATE AS OF THE DATE ON THE FRONT COVER OF THIS PROSPECTUS
ONLY. OUR BUSINESS, FINANCIAL CONDITION, RESULTS OF OPERATIONS AND PROSPECTS MAY
HAVE CHANGED SINCE THAT DATE.
3
PROSPECTUS SUMMARY
THIS SUMMARY HIGHLIGHTS INFORMATION CONTAINED ELSEWHERE IN THIS PROSPECTUS.
YOU SHOULD READ THE ENTIRE PROSPECTUS CAREFULLY, INCLUDING THE "RISK FACTORS"
SECTION AND OUR FINANCIAL STATEMENTS AND THE RELATED NOTES CONTAINED HEREIN.
UNLESS OTHERWISE INDICATED, THE INFORMATION IN THIS PROSPECTUS ASSUMES THAT THE
UNDERWRITERS WILL NOT EXERCISE THEIR OVER-ALLOTMENT OPTION.
ABIOMED, INC.
ABIOMED is a leading developer, manufacturer and marketer of medical
products designed to safely and effectively assist or replace the pumping
function of the failing heart. Based on technology thatRegistration Statement has been developed and
refined over a period of approximately three decades, we have been developing
and are preparing to enter human clinical trials for the AbioCor Implantable
Replacement Heart, a battery-powered totally implantable replacement heart
system, which we believe will be the first such device for end-stage heart
failure patients. We currently manufacture and sell the BVS-5000, a temporary
heart assist device, for the treatment of all patients with failing but
potentially recoverable hearts. We are also engaged in research and development
relating to other devices to support the pumping function of the heart.
Heart disease is the number one cause of death in the U.S. In 1996,
approximately 20 million people in the U.S. were afflicted with heart disease,
resulting in over 700,000 deaths. While a number of therapies exist for the
treatment of patients in early stages of heart disease, limited therapies exist
today for most patients with severe heart failure.
The AbioCor is intended as a replacement device that will replace a
patient's diseased heart and take over its blood pumping function. It is
designed for use by patients with irreparably damaged hearts who are at risk of
imminent death due to heart disease, but whose other vital organs remain viable.
We believe the AbioCor will provide a much-needed treatment option for
approximately 125,000 patients per year in the U.S. for whom there is currently
no effective therapy available. The AbioCor has reached an advanced stage of
pre-clinical testing, including substantial laboratory and animal testing. We
have selected surgical teams from five leading U.S. medical centers to perform
initial human clinical trials. To date, we have invested more than $40 million
in the development of the AbioCor and, subject to completing final testing and
securing regulatory approvals, we expect to commence clinical trials for the
AbioCor for certain patient populations by the end of the year 2000. We
anticipate that we will sell AbioCor systems, if and when approved by applicable
U.S. and international regulatory authorities, for approximately $75,000 to
$100,000 each, subject to the establishment of reimbursement levels by
third-party payors.
The BVS is a "bridge-to-recovery" device that can temporarily assume the
full pumping function of the heart for patients with potentially reversible
heart failure. In 1992, the BVS became the first heart assist device capable of
providing full circulatory support to be approved by the the U.S. Food and Drug
Administration, known as the FDA. Since fiscal 1995, the BVS has been a
profitable product line. The BVS is the most widely used FDA-approved temporary
heart assist device. To date it has been used to support over 3,500 patients at
over 500 medical centers worldwide. We are pursuing several strategies to
continue the growth of the BVS product line, including implementing new market
strategies, developing new products and seeking to expand the indications for
which the BVS may be used. We believe our experience in developing,
manufacturing and selling the BVS will provide us with a competitive advantage
in commercializing the AbioCor, as well as other future products.
Our focused research and development related to the AbioCor and the BVS has
provided us with the proprietary technology, know-how and experience to develop
additional products. We believe we are the only company in the world with
expertise in the full range of technology to support the pumping function of the
heart. We seek to be first to market with high-quality, easy-to-use and cost-
effective technologies for heart failure patients who currently lack adequate
therapies.
4
THE OFFERING
Common stock offered by ABIOMED.............. 1,500,000 shares
Common stock outstanding after the 10,210,091 shares
offering...................................
Use of Proceeds.............................. For funding of clinical trials for the
AbioCor, continued research and development,
expansion of manufacturing capabilities,
international sales and marketing and other
general corporate purposes, including
possible acquisitions. See "Use of Proceeds."
Nasdaq National Market Symbol................ ABMD
The common stock to be outstanding afterintentionally omitted because
this offering is based on 8,710,091
shares of common stock outstanding as of February 1, 2000 and excludes 1,308,986
shares of common stock reserved for issuance upon the exercise of outstanding
stock options at a weighted average exercise price of $11.82 per share. See
"Capitalization" and Note 7 to Consolidated Financial Statements.
SUMMARY CONSOLIDATED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
You should read the following summary consolidated financial data in
conjunction with our financial statements and accompanying notes and with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" included elsewhere in this prospectus.
NINE MONTHS ENDED
FISCAL YEAR ENDED MARCH 31, DECEMBER 31,
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1995 1996 1997 1998 1999 1998 1999
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STATEMENT OF OPERATIONS DATA:
Total revenues...................................... $ 8,729 $11,601 $15,023 $22,446 $22,090 $15,897 $16,463
Total costs and expenses............................ 9,176 11,463 14,282 24,647 29,994 22,173 24,455
Income (loss) from operations....................... (447) 138 741 (2,201) (7,904) (6,276) (7,992)
Income (loss) from continuing operations............ 2 666 1,276 (995) (6,712) (5,331) (7,384)
Loss from discontinued operations................... (354) (175) (541) (1,513) -- -- --
Net income (loss)................................... $ (352) $ 491 $ 735 $(2,508) $(6,712) $(5,331) $(7,384)
======= ======= ======= ======= ======= ======= =======
Income (loss) from continuing operations per diluted
share............................................. $ 0.00 $ 0.10 $ 0.18 $ (0.12) $ (0.78) $ (0.62) $ (0.85)
Loss from discontinued operations per diluted
share............................................. (0.05) (0.03) (0.08) (0.19) -- -- --
------- ------- ------- ------- ------- ------- -------
Net income (loss) per diluted share................. $ (0.05) $ 0.07 $ 0.10 $ (0.31) $ (0.78) $ (0.62) $ (0.85)
======= ======= ======= ======= ======= ======= =======
Weighted average diluted shares outstanding......... 6,512 6,995 7,162 8,074 8,619 8,611 8,661
======= ======= ======= ======= ======= ======= =======
AS OF DECEMBER 31, 1999
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ACTUAL AS ADJUSTED
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BALANCE SHEET DATA:
Cash, cash equivalents and marketable securities............ $12,711 $ 89,937
Working capital............................................. 16,383 93,609
Total assets................................................ 28,019 105,245
Long-term liabilities....................................... 512 512
Stockholders' equity........................................ 20,239 97,465
The balance sheet data as of December 31, 1999 is adjusted to reflect our
sale of 1,500,000 shares of common stock under this prospectus at an assumed
public offering price of $55.125 per share and the application of the net
proceeds, after deducting the estimated fees of the underwriters and estimated
offering expenses payable by ABIOMED. See "Use of Proceeds" and
"Capitalization."
We are a Delaware corporation. Our principal offices are located at 22
Cherry Hill Drive, Danvers, Massachusetts 01923. Our telephone number is
(978) 777-5410 and our fax number is (978) 777-8411.
5
RISK FACTORS
THIS OFFERING AND AN INVESTMENT IN OUR COMMON STOCK INVOLVE A HIGH DEGREE OF
RISK. YOU SHOULD CONSIDER EACH OF THE RISKS AND UNCERTAINTIES DESCRIBED IN THIS
SECTION AND ALL OF THE OTHER INFORMATION IN THIS PROSPECTUS BEFORE DECIDING TO
INVEST IN OUR COMMON STOCK. OUR BUSINESS, FINANCIAL CONDITION AND RESULTS OF
OPERATIONS COULD BE SEVERELY HARMED BY ANY OF THE FOLLOWING RISKS. THE TRADING
PRICE OF OUR COMMON STOCK COULD DECLINE IF ANY OF THESE RISKS AND UNCERTAINTIES
DEVELOP INTO ACTUAL EVENTS. YOU MAY LOSE ALL OR PART OF THE MONEY YOU PAID TO
BUY OUR COMMON STOCK.
OUR FUTURE SUCCESS IS HEAVILY DEPENDENT ON DEVELOPMENT OF THE ABIOCOR. OUR
DEVELOPMENT EFFORTS MAY NOT BE SUCCESSFUL.
We are currently devoting our principal research and development and
regulatory efforts, and significant financial resources, to the development of
the AbioCor, an implantable replacement heart system. An implantable replacement
heart is a complex medical device and has never been successfully developed or
marketed byAmendment No. 2 does not effect any company. The development of the AbioCor and other new products,
including our AbioBooster and AbioVest heart assist products, presents enormous
challenges in a variety of areas, many or all of which we may have difficulty in
overcoming, including blood compatible surfaces, blood compatible flow,
manufacturing techniques, pumping mechanisms, physiological control, energy
transfer, anatomical fit and surgical techniques. For many years, we and other
parties have been attempting to develop a heart replacement device, but, to
date, none of these efforts has been successful. We cannot be sure that we will
be successful in our development efforts, and in the event that we are unable to
commercialize the AbioCor, our business and financial condition would be
adversely affected.
THE MARKETS FOR THE ABIOCOR AND OUR OTHER PRODUCTS UNDER DEVELOPMENT ARE
UNPROVEN.
Even if the AbioCor or any other of our products are successfully developed
and approved by the FDA and corresponding foreign regulatory authorities, they
may not enjoy commercial acceptance or success, which would adversely affect our
business and results of operations. Several factors could limit our success,
including:
- our need to create a market for an implantable replacement heart, and
possible limited market acceptance among physicians, medical centers,
patients and third party payors;
- the need for surgeons to develop or be trained in new surgical techniques
to use our product effectively;
- limitations on the number of patients who may have access to physicians
and medical centers with adequate training, equipment and personnel to
make use of our products;
- limitations inherent in first generation devices, and the potential
failure to develop successive improvements, including increases in service
life, which would reduce the addressable market for the AbioCor;
- the lifestyle limitations that patients will have to accept, including
traveling with external batteries at all times and potentially avoiding
activities such as air travel or diving that involve significant pressure
changes;
- the timing and amount of reimbursement for these products, if any, by
third party payors;
- the introduction by other companies of new treatments, products and
technologies which compete with our products, and may reduce their market
acceptance, or make them obsolete;
6
- the reluctance, due to ethical considerations, of physicians, patients and
society as a whole to accept medical devices that replace the heart; and
- the reluctance of physicians, patients and society as a whole to accept
the finite life and risk of mechanical failure of devices that replace the
heart.
The commercial success of the AbioCor and other heart assist products will
require acceptance by cardiovascular surgeons and interventional and heart
failure cardiologists, a limited number of whom significantly influence medical
device selection and purchasing decisions. We may achieve our business
objectives only if the AbioCor and our other products are accepted and
recommended by leading physicians, which is likely to be based on a
determination by these physicians that our products are safe, cost-effective and
represent acceptable methods of treatment. Although we have developed
relationships with leading cardiac surgeons and cardiologists, we cannot assure
that these existing relationships and arrangements can be maintained or that new
relationships will be established in support of the AbioCor and our other
products. If cardiovascular surgeons and cardiologists do not consider our
products to be adequate for the treatment of our target cardiac patient
population or if a sufficient number of physicians recommend and use competing
products, it would seriously harm our business.
PRE-CLINICAL AND CLINICAL TESTING OF OUR NEW PRODUCTS WILL INVOLVE
UNCERTAINTIES AND RISKS WHICH COULD DELAY OR PREVENT NEW PRODUCT INTRODUCTIONS,
REQUIRE US TO INCUR SUBSTANTIAL ADDITIONAL COSTS OR RESULT IN OUR FAILURE TO
BRING OUR PRODUCTS TO MARKET.
Prior to commencing clinical trials of the AbioCor and our other products
under development, we must perform pre-clinical tests which consist of
demonstrating performance, durability and reliability through laboratory and
animal studies. We could encounter significant delays or other setbacks in
pre-clinical testing. Prior to obtaining regulatory approvals in the U.S. and
other countries for the clinical testing in humans of the AbioCor and other
products, we must demonstrate in pre-clinical testing that each product is safe
and has the potential to be effective in humans for the intended duration of
use. We are now conducting pre-clinical testing of the AbioCor. This testing may
not be predictive of results that will be obtained in clinical trials. A number
of companies in the medical industry have suffered delays, cost overruns and
project terminations despite achieving promising results in pre-clinical
testing. In the event that we suffer setbacks in the pre-clinical or clinical
testing of the AbioCor or other heart assist products, these products may be
delayed, require further funding, and possibly may not be brought to market.
If we cannot demonstrate through clinical testing on humans that the AbioCor
or other new products are safe and effective, we will not be able to obtain
regulatory approvals in the U.S. or other countries for the commercial sale of
these products. Delays, budget overruns, and project terminations are not
uncommon even after promising pre-clinical and clinical trials of medical
products. We intend to conduct clinical testing for the AbioCor and other heart
assist products with critically ill patients, and these patients may die or
suffer other adverse medical results for reasons which may or may not be related
to the product being tested. Those outcomes could seriously delay the completion
of clinical testing, as could the unavailability of suitable patients for
clinical trials, both of which are outside our control. We cannot assure that
the rate of patient enrollment in our clinical trials will be consistent with
our expectations or be sufficient to allow us to complete our clinical trials
for the AbioCor or our other products under development in a timely manner, if
at all. Delays could defer the marketing and commercial sale of our products,
require further funding, and possibly result in failure to bring the products to
market.
Development and testing of design changes to the AbioCor and other products
under development is often extensive, expensive and time consuming. Some of the
tests for our products may require months or years to perform, and we could be
required to begin these tests again if we modify one of
7
our products to correct a problem identified in testing. Even modest changes to
certain components of our products can take months or years to complete and
test. If results of pre-clinical or clinical testing of the AbioCor or other
products under development indicate that design changes are required, such
changes could cause serious delays that would adversely affect our results of
operations.
IF WE FAIL TO OBTAIN APPROVAL FROM THE FDA AND FROM FOREIGN REGULATORY
AUTHORITIES, WE CANNOT MARKET AND SELL THE ABIOCOR OR OTHER NEW HEART ASSIST
PRODUCTS IN THE U.S. AND IN OTHER COUNTRIES.
Obtaining required regulatory approvals may take several years to complete
and consume substantial capital resources. We cannot assure that the FDA or any
other regulatory authority will act quickly or favorably on our requests for
product approval, or that the FDA or any other regulatory authority will not
require us to provide additional data that we do not currently anticipate in
order to obtain product approvals. We cannot apply for FDA approval to market
the AbioCor and our other products under development until the product
successfully completes its pre-clinical and clinical trials. Several factors
could prevent successful completion or cause significant delays of these trials,
including an inability to enroll the required number of patients or failure to
demonstrate adequately that the product is safe and effective for use in humans.
If safety problems develop, the FDA could stop our trials before completion. In
addition, we are planning to conduct phased clinical trials for the AbioCor
tailored to specific patient populations with different life expectancies. If we
are successful in obtaining FDA approvals for the AbioCor based on this phased
approach, the initial approvals are likely to include conditions or limitations
to particular indications that would limit the available market for these
products. If we are not able to obtain regulatory approvals for use of the
AbioCor or our other products under development, or if the patient populations
for which they are approved are not sufficiently broad, the commercial success
of these products could be limited.
We intend to market the AbioCor and our other new products in international
markets, including the European Union and Japan. We must obtain separate
regulatory approvals in order to market our products in other jurisdictions.Prospectus. The approval process may differ among those jurisdictions and approval in the U.S.
or in any other jurisdiction does not ensure approval in other jurisdictions.
Obtaining foreign approvals could result in significant delays, difficulties and
costs for us, and require additional trials and additional expense.
IF WE OBTAIN REGULATORY APPROVAL OF OUR NEW PRODUCTS, THE PRODUCTS WILL BE
SUBJECT TO CONTINUING REVIEW AND EXTENSIVE REGULATORY REQUIREMENTS, WHICH COULD
AFFECT THE MANUFACTURING AND MARKETING OF OUR PRODUCTS.
The FDA continues to review products even after they have received initial
approval. If and when the FDA approves the AbioCor or our other products under
development, the manufacture and marketing of these products will be subject to
continuing regulation, including compliance with current Quality Systems
Regulations and Good Manufacturing Practices, known as QSR/GMP, adverse event
reporting requirements and prohibitions on promoting a product for unapproved
uses.
We will also be required to obtain additional approvals in the event we
significantly modify the design of an approved product or the product's labeling
or manufacturing process. Modifications of this type are common with new
products, and we anticipate that the current first generation of the AbioCor
will undergo a number of changes, refinements and improvements over time. For
example, the current configuration of the AbioCor's thoracic unit, or
"replacement heart," is sized for patients with relatively large chest cavities,
and we anticipate that we will need to obtain regulatory approval of thoracic
units of other sizes. If we are not able to obtain regulatory approval of
modifications to our current and future products, the commercial success of
these products would be limited.
We and our third-party suppliers of product components are also subject to
inspection and market surveillance by the FDA for QSR/GMP and other
requirements. Enforcement actions resulting from
8
failure to comply with government requirements could result in fines,
suspensions of approvals, recalls of products, operating restrictions and
criminal prosecutions, and affect the manufacture and marketing of our products.
The FDA could withdraw a previously approved product from the market upon
receipt of newly discovered information, including a failure to comply with
regulatory requirements, the occurrence of unanticipated problems with products
following approval, or other reasons, which could adversely affect our operating
results.
THE COST OF DEVELOPING AND MANUFACTURING THE ABIOCOR AND OUR OTHER PLANNED
NEW PRODUCTS IS SUBSTANTIAL FOR A COMPANY OF OUR SIZE AND WILL EXERT A STRAIN ON
OUR AVAILABLE RESOURCES.
In recent years we have significantly increased our research and development
expenditures for the AbioCor, and we expect that this trend will continue in the
future. We will also need to make significant expenditures to begin to
manufacture and market the AbioCor and our other planned new products in
commercial quantities for sale in the U.S. and other countries, if and when we
obtain regulatory approval to do so. We cannot be sure that our estimates of
capital expenditures for the AbioCor and the development of our other new
products will be accurate. We could have significant cost overruns, which could
reduce our ability to commercialize our products. Any delay or inability to
commercialize our products under development could adversely affect our business
prospects and results of operations.
WE DO NOT OPERATE AT A PROFIT AND DO NOT EXPECT TO BE PROFITABLE FOR SOME
TIME.
We had a net loss of $7.4 million for the nine months ended December 31,
1999 and a net loss of $6.7 million in fiscal 1999. We are committed to making
large expenditures for the AbioCor and, to a lesser extent, other new products,
in fiscal 2000 and subsequent fiscal years, which may result in losses in future
periods. These expenditures include costs associated with performing
pre-clinical and clinical trials for the AbioCor, continuing our research and
development relating to the AbioCor and other new products, seeking regulatory
approvals for the AbioCor and, if we receive these approvals, commencing
commercial manufacturing and marketing of the AbioCor. The amount of these
expenditures is difficult to forecast accurately, and cost overruns may occur.
We plan to fund a portion of these expenditures from our limited existing
financial resources, revenues from BVS sales, which are variable and uncertain,
and development contracts, which may be terminated at any time by the
government. We anticipate that we will also need to fund a substantial portion
of these expenditures from other sources, such as the proceeds of this offering
or other equity and debt financing. We cannot be sure that we will have the
necessary funds to develop and commercialize our new products, or that
additional funds will be available on commercially acceptable terms, if at all.
In the event that we are unable to obtain the necessary funding to develop and
commercialize our products, our business may be adversely affected.
OUR OPERATING RESULTS MAY FLUCTUATE UNPREDICTABLY.
Our annual and quarterly operating results have fluctuated historically and
we expect these fluctuations to continue. Among the factors that may cause our
operating results to fluctuate are:
- costs we incur in developing and testing the AbioCor and other new
products or product enhancements;
- the timing of regulatory actions, such as product approvals or recalls;
- costs we incur in anticipation of future sales, such as inventory
purchases, expansion of manufacturing facilities, or establishment of
international sales offices;
- the timing of customer orders and deliveries, particularly of BVS
consoles, which are priced significantly higher than the single-use BVS
blood pumps;
9
- competitive changes, such as price changes or new product introductions
that we or our competitors may make;
- the timing of government appropriations related to our research contracts
and grants; and
- economic conditions in the health care industry and the state of cost
containment efforts, including reimbursement policies.
We believe that period-to-period comparisons of our historical and future
results will not necessarily be meaningful, and that investors should not rely
on them as an indication of future performance. To the extent we experience the
factors described above, our future operating results may not meet the
expectations of securities analysts or investors from time to time, which may
cause the market price of our common stock to decline.
THE BVS PRODUCT LINE, OUR PRINCIPAL PRODUCT AND CURRENT PRIMARY SOURCE OF
REVENUES, IS VULNERABLE TO COMPETITIVE PRESSURES, DISRUPTIONS IN SALES,
CONTINUING REVIEW AND EXTENSIVE REGULATORY REQUIREMENTS.
All of our product revenues to date have come from sales of the BVS line of
products. We believe that we will continue to be dependent on our BVS product
line for at least the next several years, unless and until we are able to
successfully develop, obtain regulatory approval for and sell new products. In
the event that a competitor were to introduce new treatments, products and
technologies which compete with our products, add new features to their existing
products or reduce their prices to make their products more financially
attractive to customers, our revenue from our BVS products could decline. For
example, in the event of the expansion of technologies which allow heart
surgical procedures to be performed without stopping the heart, a reduction in
the market for the BVS could potentially result. Further, the BVS is subject to
stringent and continuing FDA and other regulatory requirements, including
compliance with QSR/GMP, adverse event reporting, prohibitions on promoting the
BVS for unapproved uses, and continued inspection and market surveillance by the
FDA. If BVS products are recalled or otherwise withdrawn from the market, our
revenues would likely decline, which would hurt our business. In addition,
variations in the quantity and timing of sales of BVS consoles have a
disproportionate effect on our revenues, because the price of the console is
substantially greater than the price of our disposable blood pumps. If we cannot
maintain and increase our revenues from our BVS product line, our overall
business and financial condition could be adversely affected.
Revenues from our BVS product line in the nine months ended December 31,
1999 increased by 4% from the comparable period in the preceding year, and in
fiscal 1999 our BVS revenues increased by 5% from revenues in fiscal 1998. To
maintain or increase revenues from sales of our BVS products, we may be required
to adopt new sales and marketing strategies, some of which may require expending
additional capital resources. The new strategies we may adopt include:
- promoting increased use of the BVS by existing customers in order to
increase disposable blood pump sales to those customers;
- selling the BVS to smaller hospitals and medical centers in the U.S.;
- regularly introducing enhancements to the BVS;
- expanding sales of our BVS product line in international markets, some of
which require separate regulatory approvals; and
- seeking new categories of patients to support with the device.
In the event that we are unsuccessful in carrying out these new strategies,
our revenues may decline.
10
WE MAY NOT BE SUCCESSFUL IN EXPANDING OUR SALES ACTIVITIES INTO
INTERNATIONAL MARKETS.
We are seeking to expand our international sales of the BVS and prepare for
commercialization of the AbioCor by recruiting direct sales and support teams
for selected countries in Europe and pursuing regulatory approval of the BVS in
Japan. To date we have limited experience in selling the BVS internationally. In
fiscal 1999, approximately 3%, and in the nine months ended December 31, 1999,
approximately 4%, of our revenues from the BVS product line were derived from
international sales. Our international operations will be subject to a number of
risks, which may vary from the risks we experience in the U.S., including:
- the need to obtain regulatory approvals in foreign countries before our
products may be sold or used;
- longer sales cycles;
- dependence on local distributors;
- limited protection of intellectual property rights;
- difficulty in collecting accounts receivable;
- fluctuations in the values of foreign currencies; and
- political and economic instability.
If we are unable to effectively expand our sales activities in international
markets, our results of operations could be negatively impacted.
WE DEPEND ON THIRD PARTY REIMBURSEMENT TO OUR CUSTOMERS FOR MARKET
ACCEPTANCE OF OUR PRODUCTS. IF THIRD PARTY PAYORS FAIL TO PROVIDE APPROPRIATE
LEVELS OF REIMBURSEMENT FOR PURCHASE AND USE OF OUR PRODUCTS, OUR PROFITABILITY
WOULD BE ADVERSELY AFFECTED.
Sales of medical products largely depend on the reimbursement of patients'
medical expenses by government health care programs and private health insurers.
The cost of our BVS system is substantial, and we anticipate that the cost of
implanting the AbioCor in a patient will also be substantial. Without the
financial support of the government or third party insurers, the market for our
products will be limited. Medical products and devices incorporating new
technologies are closely examined by governments and private insurers to
determine whether the products and devices will be covered by reimbursement, and
if so, the level of reimbursement which may apply. We cannot be sure that third
party payors will reimburse sales of our products now under development, or
enable us to sell them at profitable prices. We also cannot be sure that third
party payors will continue the current level of reimbursement to physicians and
medical centers for use of the BVS. Any reduction in the amount of this
reimbursement could harm our business.
The federal government and private insurers have considered ways to change,
and have changed, the manner in which health care services are provided and paid
for in the U.S. In the future, it is possible that the government may institute
price controls and further limits on Medicare and Medicaid spending. These
controls and limits could affect the payments we collect from sales of our
products. Internationally, medical reimbursement systems vary significantly,
with some medical centers having fixed budgets, regardless of levels of patient
treatment, and other countries requiring application for, and approval of,
government or third party reimbursement. Even if we succeed in bringing our new
products to market, uncertainties regarding future health care policy,
legislation and regulation, as well as private market practices, could affect
our ability to sell our products in commercially acceptable quantities at
profitable prices.
Prior to approving coverage for new medical devices, most third party payors
require evidence that the product has received FDA approval, is not
experimental, and is medically necessary for the specific
11
patient. Increasingly, third party payors require evidence that the devices
being used are cost-effective. The AbioCor and our other products under
development may not meet these or future criteria, which could hurt our ability
to market and sell these products.
IF WE FAIL TO ACHIEVE AND MAINTAIN THE HIGH MANUFACTURING STANDARDS THAT OUR
PRODUCTS REQUIRE OR IF WE ARE UNABLE TO DEVELOP ADDITIONAL MANUFACTURING
CAPACITY, WE WILL NOT BE SUCCESSFUL.
Our products require precise, high quality manufacturing. Our failure to
achieve and maintain these high manufacturing standards, including the incidence
of manufacturing errors, design defects or component failures, could result in
patient injury or death, product recalls or withdrawals, delays or failures in
product testing or delivery, cost overruns or other problems that could
seriously hurt our business. We have from time to time voluntarily recalled
certain products. In particular, in fiscal 1997 we initiated a voluntary recall
of BVS blood pumps when one of our outside suppliers manufactured a limited
number of defective components. This recall disrupted our ability to fill orders
from certain customers for a period of approximately eight months. Despite our
very high manufacturing standards, we cannot completely eliminate the risk of
errors, defects or failures. In addition, we are planning to move into a new
manufacturing facility in 2000, and this move could disrupt manufacturing of our
products. We cannot be certain that the products manufactured in the new
facility will be manufactured at the same cost and quality as the BVS and
AbioCor are currently being manufactured. In addition, we cannot be certain that
we will be able to obtain ISO 9001 certification of our new facility or approval
by regulatory authorities. If we are not able to manufacture the BVS in
accordance with necessary quality standards, our business and results of
operations may be negatively affected.
The AbioCor involves even greater manufacturing complexities than our
current product line. The AbioCor must be significantly more durable and meet
different standards, which may be more difficult to achieve, than those which
apply to our current product, the BVS. If we are unable to manufacture the
AbioCor or other future products on a timely basis at acceptable quality and
cost and in commercial quantities, or if we experience unanticipated
technological problems or delays in production, our business will suffer.
The manufacture of our products is and will continue to be complex and
costly, requiring a number of separate processes and components. Achieving
precision and quality control requires skill and diligence by our personnel.
Further, to be successful, we believe we will need to increase our manufacturing
capacity. We may experience difficulties in scaling up manufacturing of our new
products, including problems related to product yields, quality control and
assurance, component and service availability, adequacy of control policies and
procedures, and lack of skilled personnel. If we cannot hire, train and retain
enough experienced and capable scientific and technical workers, we may not be
able to manufacture sufficient quantities of our current or future products at
an acceptable cost and on time, which could limit market acceptance of our
products or otherwise damage our business.
IF OUR SUPPLIERS CANNOT PROVIDE THE COMPONENTS WE REQUIRE, OUR ABILITY TO
MANUFACTURE OUR PRODUCTS COULD BE HARMED.
We rely on third party suppliers to provide us with certain components used
in the BVS, the AbioCor, and our other products under development. Relying on
third party suppliers makes us vulnerable to component part failures and to
interruptions in supply, either of which could impair our ability to conduct
clinical tests or to ship our products to our customers on a timely basis. Using
third party vendors makes it difficult and sometimes impossible for us to test
fully certain components, such as components on circuit boards, maintain quality
control, manage inventory and production schedules and control production costs.
Vendor lead times to supply us with ordered components vary significantly and
can exceed six months or more. Both now and as we expand our manufacturing
capacity, we cannot be sure that our suppliers will furnish us with required
components when we need
12
them. These factors could make it more difficult for us to effectively and
efficiently manufacture our products, and could adversely impact our results of
operations.
Some suppliers may be the only source for a particular component, which
makes us vulnerable to cost increases and supply interruptions. Vendors may
decide to limit or eliminate sales of certain products to the medical industry
due to product liability or other concerns, and we might not be able to find a
suitable replacement for those products. Manufacturers of our product components
may be required to comply with FDA or other regulatory manufacturing regulations
and to satisfy regulatory inspections in connection with the manufacture of the
components. If we cannot obtain a necessary component, we may need to find, test
and obtain regulatory approval for a replacement component, produce the
component ourselves or redesign the related product, which would cause
significant delay and could increase our manufacturing costs. Any of these
events could adversely impact our results of operations.
INTENSE COMPETITION COULD HARM OUR FINANCIAL PERFORMANCE.
Intense competition, rapid technological change and evolving industry
requirements and standards in the heart assist markets could decrease demand for
our products or make them obsolete. Some of the companies, universities and
research organizations developing competing products have greater resources and
experience than we have. Our competitors could commence and complete clinical
testing of their products, obtain regulatory approvals and begin
commercial-scale manufacturing of their products faster than we are able to for
our products. They could develop superior products or products of similar
quality at the same or lower prices. In addition, our customers often have
limited budgets. Consequently, our products compete against a broad range of
medical devices and therapies for these limited funds. We cannot be sure that we
will be able to compete effectively and successfully in the markets in which we
participate.
WE OWN PATENTS, TRADEMARKS, TRADE SECRETS, COPYRIGHTS AND OTHER INTELLECTUAL
PROPERTY AND KNOW-HOW THAT WE BELIEVE GIVES US A COMPETITIVE ADVANTAGE. IF WE
CANNOT PROTECT OUR INTELLECTUAL PROPERTY, COMPETITION COULD FORCE US TO LOWER
OUR PRICES, WHICH COULD HURT OUR PROFITABILITY.
Our intellectual property rights are and will continue to be a critical
component of our success. A substantial portion of our intellectual property
rights relating to the AbioCor and BVS is in the form of trade secrets, rather
than patents. In order to preserve certain proprietary information as trade
secrets, we are required to restrict disclosure of information intended to
constitute trade secrets to third parties. We protect our trade secrets and
proprietary knowledge in part through confidentiality agreements with employees,
consultants and other parties. Certain of our consultants and third parties with
whom we have business relationships may also provide services to other parties
in the medical device industry, including companies, universities and research
organizations that are developing competing products. In addition, some of our
former employees may seek employment with, and become employed by, our
competitors. We cannot assure that confidentiality agreements with our
employees, consultants and third parties will not be breached, that we will have
adequate remedies for any such breach, or that our trade secrets will not become
known to or be independently developed by our competitors. The loss of trade
secret protection for technologies or know-how relating to the AbioCor or the
BVS could adversely affect our business prospects.
Our business position will also depend in part on our ability to defend our
existing and future patents and rights and conduct our business activities free
of infringement claims by third parties. We intend to seek additional patents,
but our pending and future patent applications may not be approved, may not give
us a competitive advantage, and could be challenged by others. Patent
proceedings in the U.S. and in other countries may be expensive and time
consuming. In addition, patents issued by foreign countries may afford less
protection than is available under U.S. patent law, and may not adequately
protect our proprietary information. Our competitors may independently develop
13
proprietary technologies and processes which are the same as or substantially
equivalent to ours, or design around our patents.
Companies in the medical device industry typically obtain patents and
frequently engage in substantial intellectual property litigation. Our products
and technologies could infringe on the rights of others. If a third party
successfully asserts a claim for infringement against us, we may be liable for
substantial damages, unable to sell products using that technology, or would
have to seek a license or redesign the related product. These alternatives may
be uneconomical or impossible. Patent litigation could be costly, result in
product development delays, and divert the efforts and attention of management
from our business.
We have been defending a lawsuit that relates to a portion of the energy
transmission technology used in the AbioCor. World Heart Corporation and Ottawa
Heart Institute Research Corporation filed suit against us in Delaware in
January 1998, seeking damages and injunctive relief because they contend that a
component of the AbioCor infringes their intellectual property rights. On
February 4, 2000, the trial of this suit concluded with the jury unanimously
finding in our favor on all claims presented to it. The plaintiffs have stated
that they intend to seek a new trial. If a new trial is granted and if we are
not successful in the new trial, we may be required to use or develop alternate
energy transmission technology, seek a license from a third party, or modify the
design of the AbioCor. We may not be able to develop a reasonable alternative
design on a timely, cost effective basis and we may not be able to obtain a
license at reasonable cost or on a timely basis. In either case, our failure to
win the lawsuit could hurt our ability to develop or market the AbioCor, which
would adversely affect our business prospects.
IF WE CANNOT ATTRACT AND RETAIN THE MANAGEMENT, SALES AND OTHER PERSONNEL WE
NEED, WE WILL NOT BE SUCCESSFUL.
We depend heavily on the contributions of the principal members of our
technical, sales and support, regulatory and clinical, operating and
administrative management and staff, many of whom would be difficult to replace.
Competition for skilled and experienced management, scientific personnel and
sales personnel in the medical devices industry is intense. If we lose the
services of any of the principal members of our management and staff, or if we
are unable to attract and retain qualified personnel in the future, especially
scientific and sales personnel, our business could be adversely affected.
We expect to grow rapidly if the AbioCor and our other products under
development advance through the approval process. The expansion of personnel and
facilities will strain our management and our financial and other resources. If
we cannot manage this growth successfully, our business will likely suffer.
PRODUCT LIABILITY CLAIMS COULD DAMAGE OUR REPUTATION AND HURT OUR FINANCIAL
RESULTS.
The clinical use of medical products, even after regulatory approval, pose
an inherent risk of product liability. We maintain limited product liability
insurance coverage, subject to deductibles and exclusions. We cannot be sure
that product liability insurance will be available in the future or will be
available on acceptable terms or at reasonable costs, or that such insurance
will provide us with adequate coverage against potential liabilities. Claims
against us, regardless of their merit or potential outcome, may also hurt our
ability to obtain physician endorsement of our products or expand our business.
Many patients using the BVS do not survive. There are many factors beyond
our control that could result in patient death, including the condition of the
patient prior to use of the product, the skill and reliability of physicians and
hospital personnel using and monitoring the product, and product
14
maintenance by customers. However, the failure of the BVS or other life support
products we distribute for clinical test or sale could give rise to product
liability claims and negative publicity.
The risk of product liability claims could increase as we introduce new
products like the AbioCor that are intended to support a patient until the end
of life. The AbioCor will have a finite life and could cause unintended
complications to other organs and may not be able to successfully support all
patients. Its malfunction could give rise to product liability claims whether or
not it has extended or improved the quality of the patient's life. We cannot be
sure that we can obtain liability insurance to cover the BVS, the AbioCor or
other new products at a reasonable cost, if at all. If we have to pay product
liability claims in excess of our insurance coverage, our financial condition
will be adversely affected.
WE HAVE DEPENDED ON GOVERNMENT CONTRACTS TO SUPPORT A SIGNIFICANT PORTION OF
OUR BASIC RESEARCH AND DEVELOPMENT. THIS FUNDING MAY NOT CONTINUE.
We generally rely on external funding for a significant portion of our basic
product research and development. The primary source of this external funding is
government research contracts and grants. We have obtained this type of funding
for the initial development of most of our current products and products under
development. In particular, the National Heart, Lung and Blood Institute, or
NHLBI, awarded us a four-year, $8.5 million extension to our AbioCor development
contract in September 1996, and a five-year, $4.3 million contract for the
development of the AbioBooster in September 1995. As of December 31, 1999, we
had recognized all of the revenue under the AbioCor development contract and all
but $0.8 million of the revenue under the AbioBooster contract. We have not
determined whether we will seek additional government funding for the AbioCor or
the AbioBooster, or new government funding for our other products under
development. We cannot assure that any such funding will be available, if we
decide to seek it.
Funding for all our government research and development contracts is subject
to government appropriation, and all of these contracts contain provisions which
make them terminable at the convenience of the government. The government could
terminate or reduce or delay the funding for any of our contracts at any time.
In the event that we are not successful in obtaining any new government
contracts or further extensions to existing research and development contracts,
our financial results could be adversely affected.
OUR RIGHTS DISTRIBUTION, CERTIFICATE OF INCORPORATION AND DELAWARE LAW COULD
MAKE IT MORE DIFFICULT FOR A THIRD PARTY TO ACQUIRE US AND MAY PREVENT OUR
STOCKHOLDERS FROM REALIZING A PREMIUM ON OUR STOCK.
Our rights distribution and provisions of our certificate of incorporation
and of the Delaware General Corporation Law may make it more difficult for a
third party to acquire us, even if doing so would allow our stockholders to
receive a premium over the prevailing market price of our stock. Our rights
distribution and those provisions of our certificate of incorporation and
Delaware law are intended to encourage potential acquirors to negotiate with us
and allow our Board of Directors the opportunity to consider alternative
proposals in the interest of maximizing stockholder value. However, such
provisions may also discourage acquisition proposals or delay or prevent a
change in control, which could negatively affect our stock price.
THE MARKET VALUE OF OUR COMMON STOCK COULD VARY SIGNIFICANTLY, BASED ON
MARKET PERCEPTIONS OF THE STATUS OF OUR DEVELOPMENT EFFORTS.
The perception of securities analysts regarding our product development
efforts could significantly affect our stock price. As a result, the market
price of our common stock could change substantially when we or our competitors
make product announcements, particularly announcements relating to the
15
AbioCor or competing products. Many factors affecting our stock price are
industry related and beyond our control.
IF WE MAKE ACQUISITIONS, WE COULD ENCOUNTER DIFFICULTIES THAT HARM OUR
BUSINESS.
We may acquire companies, products or technologies that we believe to be
complementary to our business. If we do so, we may have difficulty integrating
the acquired personnel, operations, products or technologies. These difficulties
may disrupt our ongoing business, distract our management and employees and
increase our expenses, which could hurt our business.
FUTURE SALES OF OUR COMMON STOCK COULD ADVERSELY AFFECT OUR STOCK PRICE.
Future sales of substantial amounts of our common stock in the public
market, including the shares covered by this prospectus, or the perception that
these sales could occur, could adversely affect the market price of our common
stock. As of February 1, 2000, we had outstanding 8,710,091 shares of common
stock, plus 1,308,986 shares of common stock reserved for issuance upon exercise
of outstanding options. All of the outstanding shares of our common stock are
freely saleable except shares held by our affiliates, which are subject to
certain limitations on sales.
OUR MANAGEMENT WILL HAVE BROAD DISCRETION AS TO THE USE OF PROCEEDS OF THIS
OFFERING.
Our management will have broad discretion as to how the net proceeds of this
offering will be used. Investors will be relying on the judgment of management
regarding the application of the proceeds of this offering. The results and
effectiveness of the application of the proceeds are uncertain.
16
USE OF PROCEEDS
We estimate that the net proceeds to us from the sale of the 1,500,000
shares of common stock we are offering with this prospectus will be
approximately $77.2 million, assuming a public offering price of $55.125 per
share and after deduction of the estimated underwriting discounts and
commissions and estimated offering expenses paid by us. See "Underwriting."
We expect to use the net proceeds from this offering for funding of clinical
trials for the AbioCor, continued research and development, expansion of our
manufacturing capabilities, international sales and marketing and other general
corporate purposes, including possible strategic acquisitions of businesses,
products or technologies complementary to our business. We do not have any
commitments to make any such acquisitions and have not allocated a specific
amount of the net proceeds for this purpose. Pending such uses, we plan to
invest the net proceeds of the offering in short-term, interest-bearing
investment-grade securities.
DIVIDEND POLICY
We have never declared or paid cash dividends on our capital stock and do
not plan to pay any cash dividends in the foreseeable future. Our current policy
is to retain all of our earnings to finance future growth.
PRICE RANGE OF COMMON STOCK
Our common stock is traded on the Nasdaq National Market under the symbol
"ABMD." The following table sets forth, for the periods indicated, the high and
low sales prices per share of common stock, as reported by the Nasdaq National
Market.
High Low
Fiscal Year Ended March 31, 1998 ---------- ----------
First Quarter........................................... $16 $ 9 1/2
Second Quarter.......................................... 19 13 1/2
Third Quarter........................................... 23 1/2 15 1/2
Fourth Quarter.......................................... 17 5/8 12 7/8
Fiscal Year Ended March 31, 1999
First Quarter........................................... $17 1/2 $13 3/16
Second Quarter.......................................... 15 1/2 8 1/4
Third Quarter........................................... 11 3/8 7
Fourth Quarter.......................................... 13 3/8 8 1/4
Fiscal Year Ended March 31, 2000
First Quarter........................................... $18 $11 7/8
Second Quarter.......................................... 16 3/4 13
Third Quarter........................................... 59 3/8 15 1/4
Fourth Quarter (through February 4, 2000)............... 65 33 7/8
The last reported sale price of the common stock on the Nasdaq National
Market on February 4, 2000 was $55.125 per share. As of February 1, 2000, there
were approximately 396 holders of record of our common stock, including multiple
beneficial holders at depositories, banks and brokers listed as a single holder
in the "street" name of each respective depository, bank or broker.
17
CAPITALIZATION
The following table sets forth our capitalization as of December 31, 1999,
on an actual basis, and on an as adjusted basis to reflect the receipt of the
estimated net proceeds from the sale of 1,500,000 shares of common stock being
offered under this prospectus at an assumed public offering price of $55.125 per
share, after deducting estimated fees of the underwriters and estimated offering
expenses that we will pay.
The number of shares issued and outstanding shown in the table below
excludes 1,317,254 shares of common stock reserved for issuance upon the
exercise of stock options outstanding as of December 31, 1999 at a weighted
average exercise price of $11.82 per share. See Note 7 to Consolidated Financial
Statements.
AS OF DECEMBER 31, 1999
------------------------
ACTUAL AS ADJUSTED
---------- -----------
(IN THOUSANDS)
Long-term liabilities....................................... $ 512 $ 512
Stockholders' equity:
Class B Preferred Stock, $.01 par value, 1,000,000 shares
authorized; no shares issued and outstanding............ -- --
Common Stock, $.01 par value, 25,000,000 shares
authorized; 8,703,873 shares issued and outstanding and
10,203,873 shares issued and outstanding as adjusted.... 87 102
Additional paid-in capital................................ 58,771 135,982
Accumulated deficit....................................... (38,619) (38,619)
-------- --------
Total stockholders' equity.............................. 20,239 97,465
-------- --------
Total capitalization.................................. $ 20,751 $ 97,977
======== ========
18
SELECTED CONSOLIDATED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
We derived the consolidated statements of operations data for the fiscal
years ended March 31, 1997, 1998 and 1999, and the consolidated balance sheet
data as of March 31, 1998 and 1999, from the audited financial statements in
this prospectus. Those financial statements were audited by Arthur Andersen LLP,
independent public accountants. We derived the consolidated statement of
operations data for the fiscal years ended March 31, 1995 and 1996, and the
consolidated balance sheet data as of March 31, 1995, 1996 and 1997 from audited
financial statements that are not included in this prospectus. We derived the
consolidated statement of operations data for the nine months ended
December 31, 1998 and 1999, and the consolidated balance sheet data as of
December 31, 1999 from unaudited financial statements included in this
prospectus. These unaudited financial statements have been prepared on the same
basis as the audited financial statements and, in our opinion, include all
adjustments and reclassifications (consisting only of normal recurring
adjustments and reclassifications) necessary to present fairly the financial
condition and results of operations for the periods presented. The results for
the nine months ended December 31, 1999 are not necessarily indicative of the
results that may be expected for the full year. You should read this data in
conjunction with the financial statements and accompanying notes and with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" appearing elsewhere in this prospectus.
NINE MONTHS
ENDED
FISCAL YEAR ENDED MARCH 31, DECEMBER 31,
---------------------------------------------------- -------------------
1995 1996 1997 1998 1999 1998 1999
-------- -------- -------- -------- -------- -------- --------
STATEMENT OF OPERATIONS DATA:
Revenues:
Products................................... $6,392 $8,483 $10,872 $17,261 $18,079 $12,363 $12,810
Contracts.................................. 2,337 3,118 4,151 5,185 4,011 3,534 3,653
------ ------ ------- ------- ------- ------- -------
Total revenues......................... 8,729 11,601 15,023 22,446 22,090 15,897 16,463
------ ------ ------- ------- ------- ------- -------
Costs and expenses:
Cost of product revenues................... 2,881 3,234 4,427 6,502 6,772 4,701 4,083
Research and development................... 2,464 3,178 3,773 9,091 13,450 10,632 11,438
Selling, general and administrative........ 3,831 5,051 6,082 9,054 9,772 6,840 8,934
------ ------ ------- ------- ------- ------- -------
Total costs and expenses............... 9,176 11,463 14,282 24,647 29,994 22,173 24,455
------ ------ ------- ------- ------- ------- -------
Income (loss) from operations................ (447) 138 741 (2,201) (7,904) (6,276) (7,992)
Interest and other income, net............... 449 528 535 1,206 1,192 945 608
------ ------ ------- ------- ------- ------- -------
Income (loss) from continuing operations..... $ 2 $ 666 $ 1,276 $ (995) $(6,712) $(5,331) $(7,384)
Loss from discontinued operations............ (354) (175) (541) (1,513) -- -- --
------ ------ ------- ------- ------- ------- -------
Net income (loss)............................ $ (352) $ 491 $ 735 $(2,508) $(6,712) $(5,331) $(7,384)
====== ====== ======= ======= ======= ======= =======
Income (loss) from continuing operations per
diluted share.............................. $ 0.00 $ 0.10 $ 0.18 $ (0.12) $ (0.78) $ (0.62) $ (0.85)
Loss from discontinued operations per
diluted share.............................. (0.05) (0.03) (0.08) (0.19) -- -- --
------ ------ ------- ------- ------- ------- -------
Net income (loss) per diluted share.......... $(0.05) $ 0.07 $ 0.10 $ (0.31) $ (0.78) $ (0.62) $ (0.85)
====== ====== ======= ======= ======= ======= =======
Weighted average diluted shares
outstanding................................ 6,512 6,995 7,162 8,074 8,619 8,611 8,661
====== ====== ======= ======= ======= ======= =======
AS OF MARCH 31, AS OF DECEMBER 31,
---------------------------------------------------- -------------------
1995 1996 1997 1998 1999 1999
-------- -------- -------- -------- -------- -------------------
BALANCE SHEET DATA:
Cash, cash equivalents and marketable
securities................................. $ 4,491 $10,647 $ 9,361 $26,398 $18,181 $12,711
Working capital.............................. 6,341 12,745 12,858 29,284 22,144 16,383
Long-term investments........................ 6,533 -- -- -- -- --
Total assets................................. 14,631 16,066 18,373 38,755 32,982 28,019
Long-term liabilities........................ -- -- -- 64 205 512
Stockholders' equity......................... 13,305 13,945 15,225 33,018 27,072 20,239
For an explanation of the determination of the number of shares outstanding
and per share data, see Note 1(h) to Consolidated Financial Statements. We did
not declare or pay any cash dividends on our common stock during any of the
periods presented.
19
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
ALL STATEMENTS, TREND ANALYSIS AND OTHER INFORMATION CONTAINED IN THE
FOLLOWING DISCUSSION RELATIVE TO MARKETS FOR OUR PRODUCTS AND TRENDS IN SALES,
GROSS PROFIT AND ANTICIPATED EXPENSE LEVELS, AS WELL AS OTHER STATEMENTS,
INCLUDING WORDS SUCH AS "MAY," "ANTICIPATE," "BELIEVE," "PLAN," "ESTIMATE,"
"EXPECT," AND "INTEND" AND OTHER SIMILAR EXPRESSIONS CONSTITUTE FORWARD-LOOKING
STATEMENTS. THESE FORWARD-LOOKING STATEMENTS ARE SUBJECT TO BUSINESS AND
ECONOMIC RISKS AND UNCERTAINTIES, AND OUR ACTUAL RESULTS OF OPERATIONS MAY
DIFFER MATERIALLY FROM THOSE CONTAINED IN THE FORWARD-LOOKING STATEMENTS.
FACTORS THAT COULD CAUSE OR CONTRIBUTE TO SUCH DIFFERENCES INCLUDE, BUT ARE NOT
LIMITED TO, THOSE DISCUSSED IN "RISK FACTORS" AS WELL AS OTHER RISKS AND
UNCERTAINTIES REFERENCED IN THIS PROSPECTUS.
OVERVIEW
We are a leading developer, manufacturer and marketer of medical products
designed to safely and effectively assist or replace the pumping function of the
failing heart. We have been developing the AbioCor, a totally implantable,
battery-powered, replacement heart which we believe will be the first such
device for end-stage heart failure patients. We currently manufacture and sell
the BVS, a temporary heart assist device which is the only device approved by
the FDA as a bridge-to-recovery device for temporary treatment of all patients
with failing but potentially recoverable hearts. Our operating results reflect
the dual activities of commercial operations and investments in the research and
development of new technologies.
The BVS is a temporary heart assist device designed to assume the full
pumping function of a patient's failing heart while allowing the heart to rest,
heal and recover its function. The BVS consists of a pneumatic drive and control
console, single-use external blood pumps and cannulae. All of our product
revenues are currently derived from the BVS product line. BVS revenues are split
between sales to new customers and reorders from existing customers. Following
commercial introduction of the BVS in the U.S., our focus was on obtaining
market share beginning with the largest medical centers. As of December 31,
1999, more than 450 medical centers in the U.S. had purchased the BVS, including
over 70% of all major medical centers that perform more than 500 heart surgeries
annually. While continuing to seek additional new customers for the BVS, we have
shifted our focus to emphasize increasing usage and product reorders by existing
customers. Product reorders currently represent approximately half of BVS
product revenues. During fiscal 1999 and the nine months ended December 31,
1999, no single customer represented more than 5% of product revenues.
Research and development is a significant portion of our operations. Our
research and development efforts are focused on the development of new products,
primarily related to heart assist and heart replacement, and the continued
enhancement of the BVS and related technologies. Government contracts and grants
have supported a portion of our research and development expenses in recent
years. Our government-sponsored research and development contracts and grants
generally provide for payment on a cost-plus-fixed-fee basis. We account for
revenue under these contracts and grants as work is performed, provided the
government has appropriated sufficient funds for the work. Revenues from
contract research and development have fluctuated over the last three years and
are dependent upon the availability of government contracts and grants to
support our research and development efforts, the annual amount of funds that
have been appropriated by the government, and the amount of work performed by
us. At any time, the government can terminate, reduce or delay the funding for
any of our contracts. In addition, we may not be successful in obtaining any new
government contracts or further extensions to existing contracts.
In fiscal 1998, we began using our own resources to fund the further
development of the AbioCor in amounts significantly in excess of the funding
provided under the $8.5 million, four-year, AbioCor development contract awarded
to us from the NHLBI in 1996. We estimate that the development of
20
the AbioCor, including conducting pre-clinical and clinical trials and obtaining
regulatory approvals, will require us to provide substantial additional funding.
In fiscal 1999, we incurred $9.7 million in total research and development
spending directed at the AbioCor, including $7.7 million, or $0.89 per share, in
excess of the amount appropriated under our AbioCor development contract.
Excluding these research and development expenses, our income from continuing
operations for fiscal 1999 would have been approximately $1.0 million or $0.11
per share.
RESULTS OF OPERATIONS
The following table shows our statement of operations data expressed as a
percentage of total revenues for the periods indicated:
FISCAL YEAR NINE MONTHS
ENDED MARCH 31, ENDED DECEMBER 31,
-------------------------------- --------------------
1997 1998 1999 1998 1999
-------- -------- -------- -------- --------
Revenues:
Products................................... 72.4% 76.9% 81.8% 77.8% 77.8%
Contracts.................................. 27.6 23.1 18.2 22.2 22.2
----- ----- ----- ----- -----
Total revenues........................... 100.0 100.0 100.0 100.0 100.0
----- ----- ----- ----- -----
Costs and expenses:
Cost of product revenues................... 29.5 29.0 30.7 29.6 24.8
Research and development................... 25.1 40.5 60.9 66.9 69.5
Selling, general and administrative........ 40.5 40.3 44.2 43.0 54.2
----- ----- ----- ----- -----
Total costs and expenses................. 95.1 109.8 135.8 139.5 148.5
----- ----- ----- ----- -----
Income (loss) from operations................ 4.9 (9.8) (35.8) (39.5) (48.5)
Interest and other income, net............... 3.6 5.4 5.4 6.0 3.6
----- ----- ----- ----- -----
Income (loss) from continuing operations..... 8.5% (4.4)% (30.4)% (33.5) (44.9)
Loss from discontinued operations............ (3.6) (6.7) -- -- --
----- ----- ----- ----- -----
Net income (loss)............................ 4.9% (11.2)% (30.4)% (33.5)% (44.9)%
===== ===== ===== ===== =====
NINE MONTHS ENDED DECEMBER 31, 1999 AND DECEMBER 31, 1998
PRODUCT REVENUES. Product revenues increased by $0.4 million, or 4%, to
$12.8 million in the nine months ended December 31, 1999 from $12.4 million in
the nine months ended December 31, 1998. The increase in product revenues was
primarily attributable to increased unit sales and increased average selling
prices of BVS disposable blood pumps sold to existing customers, and was
partially offset by a reduction in unit sales of BVS systems sold to new
customers. We believe that the increase in reorder sales of blood pumps and the
decline in sales of BVS systems to new customers was largely a result of a
decision made at the beginning of the current fiscal year to shift the focus of
certain of our sales representatives from sales to new customers to increased
support of existing customers in an effort to increase reorders of higher margin
BVS blood pumps. Reorder unit sales of BVS blood pumps increased by 12% during
the nine months ended December 31, 1999 as compared to the same period of the
prior year. Domestic sales accounted for 96% of total product revenue during
both the nine months ended December 31, 1999 and 1998.
CONTRACT REVENUES. Contract revenues increased by $0.2 million, or 3%, to
$3.7 million in the nine months ended December 31, 1999 from $3.5 million in the
nine months ended December 31, 1998. Approximately $1.8 million of the contract
revenues recognized in both periods were derived
21
from our AbioCor government contract. The remaining contract revenues recorded
were primarily derived from our AbioBooster government contract and other
government grants.
We account for contract revenues under our government contracts and grants
as work is performed, provided that the government has appropriated sufficient
funds for the work. Through December 31, 1999, the government had appropriated
all of the $8.5 million AbioCor contract amount, including the $1.8 million
appropriated and recognized as contract revenues during the quarter ended June
30, 1999. No amount remained to be recognized under the AbioCor government
contract as of December 31, 1999.
As of December 31, 1999, our total backlog of research and development
contracts and grants was $2.0 million, including $0.8 million for AbioBooster
research and development. All of these contracts and grants contain provisions
that make them terminable at the convenience of the government. ABIOMED retains
rights to all technological discoveries and products resulting from these
efforts.
COST OF PRODUCT REVENUES. Cost of product revenues as a percentage of
product revenues decreased to 32% in the nine months ended December 31, 1999
from 38% in the nine months ended December 31, 1998. The majority of this
decrease in cost of product revenues as a percentage of product revenues was
attributable to higher average selling prices for BVS blood pumps during the
nine months ended December 31, 1999 as compared to the same period of the prior
year and to an increase in the proportion of higher margin BVS blood pumps sold
relative to lower margin BVS console sales.
RESEARCH AND DEVELOPMENT EXPENSES. Research and development expenses
increased by $0.8 million, or 8%, to $11.4 million in the nine months ended
December 31, 1999, from $10.6 million in the nine months ended December 31,
1998. Research and development expenses were 70% of total revenues for the nine
months ended December 31, 1999 and 67% of total revenues for the same period of
the prior year. The increase in expenditures during the nine months ended
December 31, 1999 was due primarily to increased spending for the AbioCor, new
products and enhancements for the BVS product line and technologies under
government contracts and grants. Research and development expenses during the
nine months ended December 31, 1999 included $8.2 million of expenses incurred
in connection with our development activities for the AbioCor, compared to $7.5
million for the same period of the prior year.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses increased by $2.1 million, or 31%, to $8.9 million in
the nine months ended December 31, 1999, from $6.8 million in the nine months
ended December 31, 1998. Expenditures increased to 54% of total revenues from
43% of total revenues in the same period a year earlier. This increase was
primarily attributable to increased selling and marketing expenditures as a
result of our implementing new programs designed to improve sales of our
disposable blood pumps, and increased legal expenses.
INTEREST AND OTHER INCOME. Interest and other income consists primarily of
interest earned on our investment balances, net of interest and other expenses.
Interest and other income decreased by $0.3 million, or 36%, to $0.6 million in
the nine months ended December 31, 1999 from $0.9 million in the nine months
ended December 31, 1998. This decrease was primarily due to lower average funds
available for investment.
NET LOSS. Net loss for the nine months ended December 31, 1999 was
approximately $7.4 million, or $0.85 per diluted share. This compares to a net
loss of approximately $5.3 million, or $0.62 per diluted share, for the nine
months ended December 31, 1998. The losses for both nine-month periods are
primarily attributable to development and pre-clinical testing costs associated
with the AbioCor.
22
FISCAL YEARS ENDED MARCH 31, 1999 AND MARCH 31, 1998
PRODUCT REVENUES. Product revenues increased by $0.8 million, or 5%, to
$18.1 million in fiscal 1999 from $17.3 million in fiscal 1998. This increase in
product revenues in fiscal 1999 was primarily attributable to a $1.2 million, or
8%, increase in domestic product revenues. This was derived primarily from
increased average selling prices of BVS disposable blood pumps offset by a
decrease in international product revenues of $0.4 million. Sales of blood pumps
in fiscal 1998 included approximately $1.0 million of reorder pump revenues
shipped from backlog. We generally operate with only a limited backlog. Without
the effect of the shipment from backlog in 1998, our domestic product revenues
increased by $1.8 million, or 16%, in fiscal 1999. Domestic unit sales of BVS
blood pumps decreased in fiscal 1999 compared to fiscal 1998 without adjustment
for the effect of this backlog but increased if the effect of the backlog is
considered. Domestic product revenues included approximately $2.7 million from
sales-type leases in fiscal 1999 and $1.3 million in fiscal 1998. International
revenues represented 3% of product revenues in fiscal 1999 and 6% in fiscal
1998.
CONTRACT REVENUES. Contract revenues decreased by $1.2 million, or 23%, to
$4.0 million in fiscal 1999 from $5.2 million in fiscal 1998. This decrease in
contract revenues in fiscal 1999 was primarily attributable to the level of
government appropriation and work performed by us on Phase II of the AbioCor
government contract. We account for contract revenues under our government
contracts and grants as work is performed, provided that the government has
appropriated sufficient funds for the work. Through March 31, 1999, the
government had appropriated $6.7 million of the $8.5 million Phase II AbioCor
development contract amount. During fiscal 1999, our expenditures under the
AbioCor development contract exceeded the appropriated amount. As a result, in
fiscal 1999, we recognized as contract revenues all of the remaining
$1.8 million of the $6.7 million appropriated under the AbioCor development
contract and used $7.7 million of our own resources to fund AbioCor development.
COST OF PRODUCT REVENUES. Cost of product revenues as a percentage of
product revenues decreased to 37% in fiscal 1999 from 38% in fiscal 1998. The
changes in cost of product revenues as a percentage of product revenues were
primarily attributable to increased average selling prices and the mix of
products sold.
RESEARCH AND DEVELOPMENT EXPENSES. Research and development expenses
increased by $4.4 million, or 48%, to $13.5 million in fiscal 1999 from
$9.1 million in fiscal 1998. This increase is primarily the result of increased
expenditures for labor, materials, and professional services related to
development and testing of the AbioCor and enhancements to the BVS. We
anticipate that our research and development expenses will continue to be
significant and may increase as a result of our plans to further develop and
test the AbioCor, enhancements to the BVS and other potential new products.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses increased by $0.7 million, or 8%, to $9.8 million in
fiscal 1999 from $9.1 million in fiscal 1998. The increase primarily reflected
increased sales expenses, particularly increased personnel and sales
commissions, related to the increase in product revenues, as well as additional
administrative personnel and legal expenses.
INTEREST AND OTHER INCOME. Interest and other income remained consistent at
$1.2 million in both fiscal 1999 and fiscal 1998.
DISCONTINUED OPERATIONS. Discontinued operations consist of the net
revenues, costs and expenses of our dental subsidiary, ABIODENT. In fiscal 1998,
we made the decision to shift all of our focus to our core cardiovascular
business and to discontinue our dental business. The $1.5 million loss from
discontinued operations for the year ended March 31, 1998 represents a loss from
dental operations of $0.5 million, or $0.07 per diluted share, and an estimated
loss on the disposal of the business, its assets
23
and extinguishment of liabilities of $1.0 million, or $0.12 per diluted share.
In fiscal 1999, we incurred costs associated with the discontinuance of
operations of $0.4 million, and wrote off remaining net assets totaling
$0.3 million. As of March 31, 1999, a reserve of approximately $0.2 million
remains as a contingency against additional costs associated with the
discontinuation of the dental business.
NET LOSS. Net loss for fiscal 1999 was approximately $6.7 million, or $0.78
per diluted share. This compares to a net loss of approximately $2.5 million, or
$0.31 per diluted share, for fiscal 1998. The losses for both years are
primarily attributable to development and pre-clinical testing costs associated
with the AbioCor.
FISCAL YEARS ENDED MARCH 31, 1998 AND MARCH 31, 1997
PRODUCT REVENUES. Product revenues increased by $6.4 million, or 59%, to
$17.3 million in fiscal 1998 from $10.9 million in fiscal 1997. This increase in
product revenues in fiscal 1998 was primarily attributable to growing U.S. unit
sales of BVS single-use products, including increased blood pump reorders,
growing U.S. unit sales of BVS consoles and to increased average selling prices
of the BVS single-use products and BVS consoles. The majority of our product
revenues in fiscal 1998 and 1997 has been to U.S. customers. International
product revenues represented 6% of total product revenues in fiscal 1998 and 7%
in fiscal 1997.
CONTRACT REVENUES. Contract revenues increased by $1.0 million, or 25%, to
$5.2 million in fiscal 1998 from $4.2 million in fiscal 1997. This increase in
contract revenues in fiscal 1998 primarily reflected increased activity under
the AbioCor government contract. Through March 31, 1998, the government had
appropriated $4.9 million of the $8.5 million Phase II AbioCor contract amount.
During fiscal 1998, our expenditures under the AbioCor contract exceeded the
appropriated amount. As a result, in fiscal 1998, we recognized as contract
revenues all of the remaining $3.2 million of the $4.9 million appropriated
under the AbioCor contract and used $4.3 million of our own resources to fund
AbioCor development.
COST OF PRODUCT REVENUES. Cost of product revenues as a percentage of
product revenues decreased to 38% in fiscal 1998 from 41% in fiscal 1997. The
changes in cost of product revenues as a percentage of product revenues were
primarily attributable to the mix of products sold with a higher proportion of
product revenues derived from BVS blood pumps in fiscal 1998 as compared to
fiscal 1997. The higher fiscal 1997 cost of product revenues as a percentage of
product revenues also included costs related to the Company's voluntary recall
in fiscal 1997 of certain production lots of disposable BVS blood pumps.
RESEARCH AND DEVELOPMENT EXPENSES. Research and development expenses
increased by $5.3 million, or 141%, to $9.1 million in fiscal 1998 from
$3.8 million in fiscal 1997. This increase primarily reflected a higher level of
development activity related to the AbioCor.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses increased by $3.0 million, or 49%, to $9.1 million in
fiscal 1998 from $6.1 million in fiscal 1997. This increase primarily reflected
increased sales expenses, particularly increased personnel and sales
commissions, related to the increase in product revenues, as well as additional
administrative personnel and legal expenses.
INTEREST AND OTHER INCOME. Interest and other income increased by
$0.7 million, or 125%, to $1.2 million in fiscal 1998 from $0.5 million in
fiscal 1997. This increase primarily reflects the Company's higher average
investment balances.
NET LOSS. Net loss for fiscal 1998 was approximately $2.5 million, or $0.31
per diluted share. This compares to net income of approximately $0.7 million, or
$0.10 per diluted share, for fiscal 1997. The
24
loss for fiscal 1998 was primarily attributable to research and development
costs associated with the AbioCor.
LIQUIDITY AND CAPITAL RESOURCES
We have supported our operations primarily with net revenues from sales of
our BVS product line, government contracts and proceeds from our equity
financings. As of December 31, 1999, our cash, cash equivalents and marketable
securities total $12.7 million. We also have a $3 million line of credit from a
bank that expires on October 13, 2000, which bears interest at the bank's prime
rate (8.5% at December 31, 1999), and a term loan facility from the same bank,
which also bears interest at the bank's prime rate, that permits us to borrow up
to $1.2 million through March 31, 2000 for the acquisition of manufacturing
equipment and leasehold improvements. As of December 31, 1999, the entire line
of credit line was available and approximately $1.0 million was available under
the term loan facility.
During the nine months ended December 31, 1999, operating activities used
$5.4 million of cash. Net cash used by operating activities during this period
resulted primarily from a net loss of $7.4 million and increases in accounts
receivable and inventory of $0.4 million and $0.7 million, respectively. These
uses of cash were partially offset by increases in accounts payable and accrued
expenses of $1.4 million and non-cash charges for depreciation and amortization
of $1.7 million included in the net loss.
During fiscal 1999, operating activities used $7.4 million of cash. Net cash
used by operating activities in fiscal 1999 reflected a net loss of $6.7
million, including depreciation and amortization expense of $1.4 million, an
increase in accounts receivable of approximately $1.1 million, increases in
inventory, prepaid expenses and other current assets of approximately $0.6
million each, and a decrease in accounts payable of approximately $1.2 million.
These uses of cash were partially offset by an increase in accrued expenses of
approximately $1.9 million. The increase in accounts receivable was primarily
attributable to increased revenues and extended collection periods for certain
accounts. The increase in inventory reflects increased production levels and our
decision to increase inventory levels for certain products and component parts.
The decrease in accounts payable was primarily attributable to the timing of
purchases of direct material and capital equipment for manufacturing, research
and development. The increase in accrued expenses reflects timing of payments
and increased operating activity throughout ABIOMED, including increased size of
payroll and payroll related costs.
During the nine months ended December 31, 1999, investing activities
provided $0.4 million of cash. Approximately $1.2 million in cash provided from
the sale of short-term marketable securities, net of purchases of similar
securities, was partially offset by purchases of capital equipment and
expenditures for leasehold improvements of $0.8 million. We also acquired an
additional $0.2 million in capital equipment by entering into a capital lease
during this period. In fiscal 1999, we entered into an operating lease for
80,000 square feet of space in a building located within the same industrial
park as our current facilities. During the nine months ended December 31, 1999,
we entered into 36-month operating leases for an additional $0.7 million in
capital purchases of office furniture to be used in this new facility. Our
purpose for this new facility is to consolidate our operations and to expand our
manufacturing and research and development. We began occupying this facility in
fiscal 2000, and we expect to complete our phased move into this facility in
fiscal 2001. We anticipate that we will incur additional costs of approximately
$0.8 million for improvements to this new facility, including costs to construct
and qualify manufacturing clean rooms for our existing products and for our
products under development.
During fiscal 1999, investing activities provided $13.3 million of cash. Net
cash provided by investing activities included $14.8 million of sales of
short-term marketable securities, net of short-term
25
marketable securities purchased during the year, and $1.6 million of purchases
and improvements of property and equipment.
During the nine months ended December 31, 1999, financing activities
provided $0.8 million of cash, including $0.6 million from the exercise of stock
options and stock issued under the employee stock purchase plan and $0.2 million
from the issuance of bank term notes.
Income taxes incurred during each of the periods presented were not
material, and we continue to have significant net tax operating loss and tax
credit carryforwards.
We believe that the net proceeds of this offering, together with our
existing resources and our revenue from government contracts and product sales,
will be sufficient to fund our planned operations, including the planned
increases in our internally funded AbioCor and new BVS development and product
extension efforts, for the foreseeable future. However, we may require
significant additional funds in order to complete the development, conduct
clinical trials, and achieve regulatory approvals of the AbioCor and other
products under development over the next several years. We may also need
additional funds for possible future strategic acquisitions of businesses,
products or technologies complementary to our business. If additional funds are
required, we may raise such funds from time to time through public or private
sales of equity or from borrowings.
YEAR 2000 READINESS DISCLOSURE
As of the date of this filing, we have not incurred any significant business
disruptions as a result of year 2000 issues. However, while no such occurrence
has developed, year 2000 issues that may arise related to key suppliers and
service providers may not become apparent immediately. We have received
assurances of year 2000 compliance from key suppliers and have increased safety
stocks of materials inventory where a prolonged loss of materials deliveries
would have an adverse impact on our business, financial condition and results of
operations. We have also received assurances from key service providers such as
financial institutions, our payroll service provider and our retirement plan
administrator as to their year 2000 readiness. We can provide no assurance that
we will not be adversely affected by these suppliers and service providers due
to noncompliance in the future.
26
BUSINESS
OVERVIEW
ABIOMED is a leading developer, manufacturer and marketer of medical
products designed to safely and effectively assist or replace the pumping
function of the failing heart. Based on technology that has been developed and
refined over a period of approximately three decades, we have been developing
and are preparing to enter human clinical trials for the AbioCor Implantable
Replacement Heart, a battery-powered totally implantable replacement heart
system, which we believe will be the first such device for end-stage heart
failure patients. We currently manufacture and sell the BVS-5000, a temporary
heart assist device, which is the only device approved by the U.S. Food and Drug
Administration, known as the FDA, for the temporary treatment of all patients
with failing but potentially recoverable hearts. We are also engaged in research
and development relating to other devices to support the pumping function of the
heart.
The AbioCor is intended as a replacement device that will replace a
patient's diseased heart and take over its blood pumping function. It is
designed for use by patients with irreparably damaged hearts who are at risk of
imminent death due to heart disease, but whose other vital organs remain viable.
We believe the AbioCor will provide a much-needed treatment option for
approximately 125,000 patients per year in the U.S. for whom there is currently
no effective therapy available. The AbioCor has reached an advanced stage of
pre-clinical testing, including substantial laboratory and animal testing. We
have selected surgical teams from five leading U.S. medical centers to perform
initial human clinical trials. Subject to completing final testing and securing
regulatory approvals, we expect to commence clinical trials for the AbioCor for
certain patient populations by the end of the year 2000. We anticipate that we
will sell AbioCor systems, if and when approved by applicable U.S. and
international regulatory authorities, for approximately $75,000 to $100,000
each, subject to the establishment of reimbursement levels by third-party
payors.
We are committed to the clinical introduction of the AbioCor and, to date,
we have invested more than $40 million in its development, including over
$20 million in funding from the National Heart, Lung and Blood Institute. In
1997, we decided that the design of the AbioCor demonstrated sufficient
functionality and operational performance, through laboratory and animal
studies, to warrant accelerated development efforts to bring the product to
market.
The BVS is a "bridge-to-recovery" device that can temporarily assume the
full pumping function of the heart for patients with potentially reversible
heart failure. In 1992, the BVS became the first heart assist device capable of
providing full circulatory support to be approved by the FDA. The BVS is the
most widely used FDA-approved temporary heart assist device, and to date has
been used to support over 3,500 patients at over 500 medical centers worldwide.
The BVS, which consists of a console and single-use external blood pumps, has
been a profitable product line since fiscal 1995. We are pursuing several
strategies to continue the growth of the BVS product line, including
implementing new market strategies, developing new products and seeking to
expand the indications for which the BVS may be used. We believe our experience
in developing, manufacturing and selling the BVS will provide us with a
competitive advantage in commercializing the AbioCor, as well as other future
products.
Our focused research and development related to the AbioCor and the BVS has
provided us with the proprietary technology, know-how and experience to develop
additional products. We believe we are the only company in the world with
expertise in the full range of technology to support the pumping function of the
heart. We believe that there are many opportunities to apply our expertise to
address the needs of heart failure patients. We seek to be first to market with
high-quality, easy-to-use and cost-effective technologies for heart failure
patients who currently lack adequate therapies.
27
INDUSTRY OVERVIEW
THE HUMAN HEART
The following diagram illustrates the general structure of the human heart:
[Diagram of the human heart appears here, depicting the left and right atria
and the left and right ventricles, and the valves of the heart.]
The human heart is the central pump for the body's circulatory system. The
heart has four chambers: the left and the right atria and the left and the right
ventricles. The two atria serve as the inflow chambers of the heart, collecting
blood for delivery to the ventricles. The ventricles are the pumping chambers of
the heart, pumping blood to the lungs and the rest of the body.
The right ventricle of the heart pumps oxygen-depleted blood returning from
the body to the lungs where it is re-oxygenated. The left ventricle receives
oxygen-rich blood returning from the lungs and pumps it back to the rest of the
body. The chambers of the heart are formed of muscle tissue known as myocardium.
The coronary arteries, a specialized network of blood vessels within the heart,
provide oxygen and other nutrients to the heart itself.
The human heart has four valves that help ensure that blood flows in the
proper direction into and out of the ventricles as they are repeatedly filled
and then discharged with the pumping of blood. The
28
timing and rate at which the heart beats, referred to as its rhythm, is
controlled by electrical impulses in the conduction system of the heart.
HEART DISEASE
Heart disease is the number one cause of death in the U.S., responsible for
more deaths than all forms of cancer combined. In 1996, approximately
20 million people in the U.S. were afflicted with heart disease, resulting in
over 700,000 deaths. Illnesses and deaths from heart disease create an immense
burden to many individuals and their families. Patients frequently experience
extended suffering, and the economic cost is substantial. While a number of
therapies exist for the treatment of patients in early stages of heart disease,
limited therapies exist today for most patients with severe heart failure.
The majority of deaths from heart disease can be attributed to coronary
heart disease, or CHD, and congestive heart failure, or CHF. Other types of
heart disease include rhythm disorders and diseases of the valves.
CHD is a disease of the coronary arteries which affects blood flow to the
heart. CHD can lead to a heart attack, technically known as an acute myocardial
infarction, caused by insufficient blood flow to the heart and oxygen
deprivation, resulting in permanent damage to the heart muscle and, in many
cases, death. When CHD leads to a severe heart attack, some patients experience
cardiac arrest, which is an acute stoppage of the heart, and sudden death. For
other patients, medical personnel typically have a period of hours in which to
intervene effectively. Once stabilized by early intervention, a significant
number of these patients experience progressive deterioration of heart function,
eventually leading to death over a period of days or weeks.
CHF is a condition in which the patient's heart cannot provide adequate
blood and oxygen flow to meet the needs of the body. CHF develops over time
primarily due to excess demand on the heart muscle, and may be caused by a
variety of factors, including high blood pressure, problems with the valves of
the heart, CHD, infections of the heart muscle or the valves and heart problems
present at birth. A progressive deterioration of heart function generally
accompanies CHF as the heart becomes swollen and less effective at pumping
blood. For most patients with CHF, medical interventions take place over periods
of months or years.
Medical conditions associated with both CHD and CHF can lead to cardiac
arrest. Cardiac arrest is often a result of abnormalities in the heart's
electrical conduction system. These abnormalities, known as rhythm disorders,
can lead to complications, ranging from unsynchronized contractions and
irregular heartbeats to cardiac arrest. Patients who experience cardiac arrest
and die are referred to as sudden deaths. Most cardiac arrests that occur
outside the hospital result in sudden death. Patients experiencing cardiac
arrest generally require initial medical intervention, such as cardiopulmonary
resuscitation, commonly known as CPR, and advanced life support, within minutes.
In general, heart failure is progressive. While approximately half of all
heart failure patients experience sudden death as a result of cardiac arrest,
the remaining patients who die from heart failure typically do so in hospitals
or long-term care facilities.
PREVALENCE AND MORTALITY
The number of patients both suffering and dying from heart disease has been
rising on an annual basis. In 1996 there were approximately 12 million people
with CHD and 4.6 million people with CHF in the U.S., with at least the same
incidence outside the U.S.
Heart disease resulted in over 700,000 deaths in 1996 in the U.S.
Approximately half of all deaths from heart disease were sudden deaths. Of the
deaths that did not occur suddenly, approximately 230,000 were associated with
CHD and 25,000 with CHF. Current therapies to support these patients are
inadequate because they cannot stop the progression of the disease. We believe
that a significant
29
number of such CHD and CHF patients could benefit from the AbioCor Implantable
Replacement Heart.
During 1997 in the U.S., the cost associated with CHD patients was
approximately $100 billion and the cost associated with CHF patients was
approximately $21 billion. Patients who suffer from heart disease often receive
medical treatment for a number of years prior to their deaths. Many late-stage
heart failure patients are confined to hospital beds, at a cost that is often
greater than $2,000 per day.
THERAPIES FOR HEART DISEASE
Patients with early- or mid-stage heart disease typically receive treatments
such as drug therapies, cardiological interventions, including closed chest
procedures and rhythm management therapies, or surgical corrections, such as
coronary bypass surgery and valve replacement. For patients with mid-stage and
particularly end-stage heart disease, however, these treatments are typically
inadequate. Patients with severe heart disease frequently are in need of heart
replacement. Because the supply of available donor hearts is limited, with only
approximately 2,000 per year available in the U.S., mechanical treatments have
been and continue to be developed to extend and improve the lives of these
patients.
MECHANICAL HEART TREATMENTS
Mechanical heart treatments can be divided into two groups of devices:
destination therapies, including heart replacement and permanent heart assist,
and temporary heart assist. The following table summarizes the principal
mechanical heart treatments that are currently in various stages of
commercialization or development.
INTENDED
PRIMARY PATIENT DURATION OF
POPULATIONS SUPPORT CLINICAL STATUS
----------------------- ----------- -----------------------
DESTINATION THERAPY
- -----------------------
HEART REPLACEMENT
Replacement of End-stage CHD and CHF For life In pre-clinical testing
Ventricular Function patients
PERMANENT HEART ASSIST
Quality of Life Mid-stage CHF patients For life Various stages--none
Support not at risk of imminent approved
death
Ventricular Assist End-stage CHF patients For life In clinical
whose diseased hearts trials--none approved
can benefit from a
ventricular assist
device
TEMPORARY HEART ASSIST
- ------------------------------------------------
BRIDGE-TO-RECOVERY
Surgical Origination Patients with Days/Weeks In market
complications in
connection with heart
surgery
Cardiology Referrals Patients experiencing Days/Weeks In market
viral infections of the
heart, or certain heart
attacks
BRIDGE-TO-TRANSPLANT End-stage heart failure Months In market
patients who are
candidates for a donor
heart
30
INTENDED
PRIMARY PATIENT DURATION OF
POPULATIONS SUPPORT CLINICAL STATUS
----------------------- ----------- -----------------------
STAGING Patients being Days/Weeks Limited market
evaluated for use pending
longer-term device development of
support and patients in destination
need of heart support therapies
while other therapies
are applied
DESTINATION THERAPY. Devices intended to remain in patients for their
remaining lives are classified as destination therapies. Destination therapy
devices consist of replacement hearts and permanent assist devices, including
quality-of-life support devices that provide partial support to the heart.
Heart Replacement. The goal of heart replacement, whether with a donor
heart or a mechanical device, is to replace the failing human heart with a
viable alternative. Patients with irreparably damaged hearts who are facing
imminent death due to CHD or severe CHF are potential candidates for heart
replacement provided that their other vital organs remain viable. The supply of
human donor hearts is currently inadequate to meet the needs of these patients
and no mechanical treatment is yet approved for these patients.
In the U.S., we believe that approximately 125,000 patients per year might
benefit from an implantable replacement heart with an approximately equal number
of patients outside the U.S. who might also benefit from an implantable
replacement heart. Patients who are likely candidates for an implantable
replacement heart are end-stage CHD and CHF patients. In the U.S. in 1996,
approximately 470,000 people died of CHD and approximately 44,000 people died of
CHF. Because approximately half of these CHD and CHF patients suffered sudden
death, which frequently occurs out of the hospital and before medical care can
be received, the primary potentially addressable market for a replacement heart
in the U.S. consists of approximately 250,000 patients per year. Some of these
patients may have other conditions likely to lead to death within a relatively
short period of time, or may be of an age at which major surgery is deemed
inadvisable, making them unsuitable candidates for a replacement heart.
Excluding such patients, we believe that approximately 125,000 CHD and CHF
patients per year could benefit from a replacement heart in the U.S. Currently,
no life-sustaining treatment is available for these patients except for a
limited supply of qualified donor hearts for transplantation, consisting of
approximately 2,000 hearts per year in the U.S. In addition, many recipients of
heart transplants eventually reject the donor heart and have no other currently
available long-term treatment options.
In addition to the scarcity of donor hearts, there are various other
limitations associated with human heart transplantation. These limitations
include incompatibility between recipient patients and their donor hearts and
the need for patients to take immuno-suppressant drugs for the remaining term of
their lives. Immuno-suppressant drugs are expensive and can increase the
patient's exposure to illness. Patients may also require costly care and
experience extended periods of illness with impaired quality of life while
waiting for a suitable donor heart. As the health of a patient typically
deteriorates over a number of hours, days or weeks, many patients will die while
waiting for a suitable donor heart. In addition, patients who are awaiting a
donor heart generally require extensive tests and hospital time, which result in
substantial expense.
We believe that a mechanical replacement heart would increase the number of
lives saved by mitigating the consequences of the scarcity of available donor
hearts. In addition, a significant portion of heart transplant patients must
endure a long waiting period before a suitable donor heart is identified, if at
all. The development of an implantable mechanical heart could help alleviate
this long and difficult wait.
31
Permanent Heart Assist. Permanent assist devices are being developed to
supplement the function of the diseased heart or to stop or slow the progression
of the disease, while leaving the diseased heart in place. These devices
contrast with replacement hearts, which are intended to replace a severely and
irreversibly damaged heart. No permanent heart assist device is yet approved by
the FDA, but a number of companies are developing permanent heart assist
devices, some of which are in clinical trials. Permanent assist devices under
development can be grouped into two categories: those that pump blood directly,
known as ventricular assist devices or VADs, and less invasive devices that are
intended to provide patients with an improved quality of life. The less
invasive, quality-of-life devices include those that wrap around the heart,
either to help the heart pump blood or to inhibit deterioration of the heart by
preventing its further enlargement, and those that attempt to synchronize the
actions of the heart ventricles with electrical impulses. We believe that all
types of permanent heart assist devices potentially may be used to treat certain
CHF patients who are near death as well as those patients who are not at
imminent risk of death but whose daily activities are significantly restricted
due to their weakened hearts.
VADs, the more invasive of the two categories, may prove the most
appropriate permanent heart assist devices for certain end-stage CHF patients.
Implantable VADs are intended primarily for patients with severe left
ventricular failure. We believe that VADs are being primarily developed for CHF
patients and that VADs would not be appropriate for long-term support of the
majority of heart failure patients, such as those with massive heart damage,
severe rhythm disorders, blood clots in the ventricles, severe lung disease,
ventricular rupture, chronic right ventricle failure or heart transplant
rejection.
Heart wrap devices as well as electrical stimulation devices may prove more
appropriate than VADs for the larger number of patients with early and mid-stage
CHF because they are expected to be less invasive and pose fewer risks. These
devices can be referred to as "quality-of-life support devices." We estimate
that approximately 200,000 patients per year who are suffering from CHF but who
are not at imminent risk of death might benefit from quality-of-life support
devices.
TEMPORARY HEART ASSIST. Candidates for temporary heart assist devices
include patients with severe but potentially reversible heart failure and
patients whose hearts need help pumping blood while they await transplantation
or other therapies. Temporary heart assist devices typically consist of a
specialized pump that is attached to a patient's heart and driven by a console
or external battery pack. Such devices are intended to be removed from a
patient's body once the patient's heart has had the opportunity to recover its
normal function or the heart is replaced. Temporary heart assist devices can be
grouped into three categories:
Bridge-to-Recovery. Bridge-to-recovery devices are used to support the
recovery of patients with reversibly failing hearts. These devices are most
frequently used to support patients whose hearts do not fully restart following
open heart surgery, and who cannot be weaned off the heart-lung machine. Of the
patients who experience such complications, approximately 12,000 die each year
despite available therapies. Bridge-to-recovery devices temporarily assume the
pumping function of the heart, while allowing the heart to rest, heal and
recover its normal function. These devices can also be used for patients who
have not undergone surgery but whose lives are threatened by viral infections
that attack the heart muscle. In addition, bridge-to-recovery devices may prove
beneficial to certain patients who have suffered from a recent heart attack.
Bridge-to-Transplant. Bridge-to-transplant devices are used to support
patients who have experienced heart disease and are awaiting heart
transplantation. We believe that the market for this category of device may be
limited by the availability of qualified donor hearts.
Staging. Staging devices are used to support patients before or during
application of other therapies and to support patients with failing hearts being
transported to other facilities. At present, for reasons of specialized care,
patients are transported between medical centers with the assistance of
32
such devices under practice of medicine guidelines. In the future, staging
devices may be used to support heart failure patients prior to implantation of a
permanent heart assist device or a heart replacement. These devices could help
stabilize the patient and provide the medical team with time to better assess
the patient's condition before selecting an appropriate therapy. In addition,
while bridge-to-recovery devices are approved and used today to assist heart
transplant patients when rejection occurs, in the future staging devices may be
used with transplant patients who have rejected their donor heart and need life
support before receiving a mechanical heart replacement.
ABIOMED OVERVIEW
ABIOMED is a leading developer, manufacturer and marketer of medical
products designed to safely and effectively assist or replace the pumping
function of the failing heart. Based on technology that has been developed and
refined over a period of approximately three decades, we have been developing
and are preparing to enter human clinical trials for the AbioCor Implantable
Replacement Heart, a battery-powered totally implantable replacement heart
system, which we believe will be the first such device for end-stage heart
failure patients. We currently manufacture and sell the BVS-5000, a temporary
heart assist device. The BVS is the only device approved by the FDA through its
pre-market approval process for the temporary treatment of all patients with
failing but potentially recoverable hearts and the most widely used FDA-approved
temporary heart assist device. We are also engaged in research and development
relating to other devices to support the pumping function of the heart.
ABIOMED'S STRATEGY
Our goal is to be a leading worldwide provider of medical products that
address the needs of a wide range of patients suffering from heart failure and
other heart disorders. Our principal emphasis is on the heart assist and heart
replacement markets. The following are key elements of our strategy:
PERFORM CLINICAL TRIALS AND OBTAIN REGULATORY APPROVAL FOR THE ABIOCOR. We
are planning to conduct phased human clinical trials for the AbioCor tailored to
patient populations with different life expectancies, beginning with patients
with the most severe medical needs and at risk of imminent death. We believe
that the nature of the AbioCor and the patient populations that we plan to
address initially will allow us to pursue an expedited regulatory review. We are
currently performing reliability tests and animal tests of the AbioCor, and we
have begun to submit materials to regulatory authorities in support of our plans
for clinical trials. Subject to successful completion of final testing and
securing regulatory approvals, we anticipate that by the end of 2000 the AbioCor
will become the first totally implantable replacement heart to commence human
clinical trials.
COMMERCIALIZE FIRST TOTALLY IMPLANTABLE REPLACEMENT HEART. We are
developing the AbioCor with the goal of providing a treatment option for
thousands of patients with irreparable heart damage whose lives cannot be saved
with existing medical technology. Our goal is to introduce the AbioCor as soon
as possible and to use our clinical experience to regularly improve the product
and expand the categories of patients who might benefit from this new
technology. We believe that, as the technology matures, permanent heart
replacement, and not heart assist devices, will be the preferred therapy for
long-term support of the majority of end-stage heart failure patients, who
currently have no long-term treatment available if they do not receive one of
the limited number of qualified donor hearts available for transplantation. We
believe the AbioCor has the potential to provide a cost-effective means of
extending the lives of many of these patients and providing them with an
improved quality of life.
LEVERAGE OUR EXPERIENCE AND INFRASTRUCTURE TO COMMERCIALIZE THE ABIOCOR. In
developing, manufacturing and marketing the BVS, we have accumulated significant
experience and established an infrastructure that we intend to utilize in
obtaining the necessary regulatory approvals and to support the
commercialization of the AbioCor. We have experience working with regulatory
authorities and leading medical centers and physicians throughout the world to
perform clinical trials and obtain
33
regulatory approvals. We have over 10 years of manufacturing experience, and we
have obtained ISO 9001 certification for our BVS manufacturing facility. Our
sales, clinical support, marketing and field service teams consist of 37
full-time employees, who currently work with over 500 customers worldwide. We
believe that our experience and infrastructure position us well to commercialize
the AbioCor, as well as other future products and product enhancements.
EXPAND MARKETS AND PENETRATION FOR EXISTING BVS PRODUCT LINE. The BVS was
the first temporary heart assist device capable of assuming the full pumping
function of the heart to be approved by the FDA. The BVS is the most widely used
FDA-approved temporary heart assist device. We are pursuing several strategies
to continue the growth of the BVS product line, including implementing new
market strategies, developing new BVS products and seeking to expand the
indications for which the BVS may be used. While we continue our efforts to add
new customers, we have increased our marketing focus on expanding BVS usage by
existing customers and increasing customer reorders of disposable blood pumps.
We are also seeking to expand our international presence and are recruiting
direct sales and support teams for selected countries in Europe while pursuing
regulatory approval in Japan through a third-party distributor. We are currently
developing a number of new devices for the BVS product line, which we expect to
introduce over the next several years. Since initial FDA approval, the BVS has
twice received approvals for expanded indications for its use, and we are
continuing to evaluate additional potential uses of the device to save patients'
lives.
DEVELOP OR ACQUIRE COMPLEMENTARY PRODUCTS. We believe that we are well
positioned to develop new products that are complementary to the AbioCor and
BVS. We employ over 100 engineers, physicians, scientists and technicians who
are experienced in the development of new products and have a broad range of
expertise. We have also developed substantial proprietary technology and
know-how as a pioneer in heart assist and heart replacement technology and have
been granted a number of patents. This technology and know-how spans a broad
range of topics, including expertise in the safe and effective pumping of blood.
We believe there is no other company in the world with as much expertise in the
full range of technology to support the pumping function of the heart. We also
plan to evaluate opportunities to acquire complementary products from third
parties, and to license or sell technologies that we are not commercializing. We
intend to acquire or develop high quality products which address markets which
are complementary to those being targeted by the AbioCor and BVS, products which
are best of class and, where possible, products which can be first to market for
particular patient needs.
PREPAREDNESS FOR INITIAL HUMAN CLINICAL TRIALS
Development of the technological foundation for the AbioCor has been a
significant focus of ABIOMED since we were founded in 1981. Development and
testing of the core technology for the AbioCor was underway prior to our
founding. Beginning in 1997, we substantially increased our research and
development activities for the AbioCor with the goal of accelerating its
development in order to enter clinical trials as early as possible. We decided
to significantly increase our investment in the AbioCor after determining that
the AbioCor prototypes then produced had shown sufficient functionality through
laboratory and animal tests to warrant an accelerated product development
effort. The increased spending has been used to build a pilot-scale
manufacturing facility, to develop the product from a research-based prototype
status to a manufacturable clinical design, to increase system safety and
efficacy by making engineering improvements and refinements, to increase
operational performance, durability and reliability, to substantially expand
laboratory and animal testing of the system, and to begin training of surgical
and clinical support teams in selected medical centers for the initial clinical
trials. In addition, in late 1996 we began to increase our interaction with
regulatory authorities by presenting to them different portions of our
developmental status and testing plans. To accomplish these tasks, we have
significantly increased the team of engineers, scientists, physicians and
technicians working full time on the AbioCor program to more than 75 full-time
employees.
34
Our goal is to initiate human clinical trials of the first generation of
clinical AbioCor systems by the end of the year 2000. Subject to regulatory
approval, we plan to begin initial clinical trials with patients who, despite
all available therapies, have extremely high probability of death in the near
term due to acute heart failure. Examples of such patients include heart
transplant recipients who are rejecting their donor hearts, surgical patients
placed on bi-ventricular cardiac assist but whose hearts fail to recover, and
hospitalized patients who are facing imminent death following massive heart
attacks. We believe that by initially selecting those patients who have no other
treatment alternative, we will have the opportunity to obtain regulatory
approval to conduct clinical trials based upon the successful completion of
ongoing and planned laboratory and animal tests. As we gain clinical experience
with the most seriously ill patients and demonstrate clinical efficacy and
safety, we expect to enhance the performance range, durability and reliability
of AbioCor systems and plan to seek regulatory approval for subsequent
generations of the AbioCor for use in increasingly broad patient populations.
This regulatory plan is consistent with our experience with the BVS system. Our
BVS product, which has now supported thousands of patients, was originally
approved by the FDA for post-cardiotomy support on the basis of data from less
than half of the approximately 75 patients who were enrolled in the clinical
trials and who were suffering life-threatening conditions for which no
alternative treatment existed. Our plan for AbioCor clinical trials draws upon
our experience with the BVS.
STEPS TO INITIAL CLINICAL TRIALS. Prior to the commencement of initial
clinical trials for the AbioCor, we must successfully complete the following
tasks:
MANUFACTURING QUANTITIES OF CLINICAL-CONFIGURED SYSTEMS FOR PRE-CLINICAL
TESTING AND FOR CLINICAL TRIALS. Since our pilot AbioCor manufacturing facility
became operational in 1997, we have produced more than 100 AbioCor systems and
many more individual critical components such as valves and pumping membranes,
which have been used for performance evaluation, developmental activities,
laboratory reliability testing, and animal implantation tests. We are currently
manufacturing more than 50 systems in the configuration intended for use in
pre-clinical tests and, subject to regulatory approvals, initial clinical
trials. While we plan to continue to produce sufficient quantities of AbioCor
systems in our existing facilities to meet our needs for the year 2000,
including those needed for initial clinical trials, we are currently building
new expanded facilities in anticipation of increased demand.
ADDITIONAL PRE-CLINICAL AND ANIMAL TESTS TO DEMONSTRATE DEVICE PREPAREDNESS
FOR CLINICAL TRIALS. We have performed component and limited system-level
testing of the AbioCor to evaluate operational performance and durability.
During 1998, we began formal pre-clinical durability and reliability growth
testing of the AbioCor system, consistent with protocols that we believe will be
required by regulatory authorities for approval to conduct initial clinical
trials. We have also conducted and have continued extensive accelerated testing
of the valves and flexing membranes that are critical components of the AbioCor
ventricles. Additional tests that remain include completing laboratory
performance tests similar to those already conducted using larger numbers of
clinical-configured systems for increasing duration.
We have conducted approximately 100 animal tests at various stages of
development of the AbioCor technology. Approximately half of these were research
studies of various configurations and at various stages of development. In the
past two years we have implanted AbioCor systems in approximately 40 calves. The
most recent series of implants included 11 routine tests of the full system as a
trial run at one medical center in preparation for similar implantations that we
believe will need to be repeated for the same duration but under more formal
test protocols consistent with regulatory requirements. The results of these
studies in calves have shown that all implanted components are well tolerated
and the AbioCor is capable of effectively replacing the heart of a calf.
Following AbioCor heart replacement, the calves typically grow normally and
perform normal physical functions, including treadmill exercises. Vital
physiological parameters typically return to normal pre-operative levels within
one week after the implantation.
35
READINESS TRAINING OF THE SELECTED INITIAL MEDICAL CENTERS TO DEMONSTRATE
TEAM PREPAREDNESS. In preparation for initial clinical trials, we have selected
five U.S. medical centers as initial test sites. Surgical teams from two of
these centers have already substantially demonstrated readiness, a third is
currently undergoing training, and we plan to schedule the training of the
remaining two once the third center is substantially trained. We have also
received significant interest from international centers that wish to begin
clinical trials. We are in discussions with a number of international centers
for this purpose, and one center has begun implantation of the AbioCor in
animals.
SUBMISSION OF APPLICATIONS TO THE APPROPRIATE REGULATORY AUTHORITIES. At
the end of 1996, we commenced our regulatory interaction process for the AbioCor
under the pre-IDE process. We have presented to the FDA key elements of our
proposed initial clinical plan, laboratory test protocols, process protocols and
materials compatibility evaluation. We expect that this information will become
part of the IDE submittal. In addition, we expect that we may be able to use
much of the data developed for our IDE application in our corresponding
international applications.
ABIOMED PRODUCTS AND PRODUCTS UNDER DEVELOPMENT
Our current principal products and products under development are the
AbioCor, a heart replacement device, the BVS, a temporary heart assist device,
and the AbioBooster and AbioVest, which are both permanent heart assist devices.
THE ABIOCOR IMPLANTABLE REPLACEMENT HEART
The AbioCor is a battery-powered totally implantable replacement heart
system, which we expect will be the first such device to begin human clinical
trials. The AbioCor is referred to as totally implantable because it has been
designed to operate alternately on internal battery power or portable external
battery power, in both cases without wires or any other material penetrating the
patient's skin. The AbioCor is referred to as a replacement heart because it has
been designed for implantation in the space vacated by the removal of a
patient's diseased ventricles, where it will take over the full pumping function
of the heart. The AbioCor is intended for use as destination therapy by patients
with irreparably damaged hearts who are at risk of imminent death due to CHD or
severe CHF but whose other vital organs remain viable. We believe that
approximately 125,000 CHD and CHF patients per year could benefit from a
replacement heart in the U.S., and an approximately equal number of patients
could benefit from a replacement heart each year outside of the U.S.
In 1988, we began to receive funding for AbioCor development from the
National Heart, Lung and Blood Institute, known as the NHLBI, to support our
development, testing and validation of the AbioCor. We have maintained this
support by achieving various designated milestones. To date, the NHLBI has
provided over $20 million of the more than $40 million that we have invested to
date for the development of the AbioCor.
36
DESIGN OF THE ABIOCOR. The following diagram illustrates the principal
components of the AbioCor.
[Diagram of the AbioCor system in a patient appears here, depicting
replacement heart, rechargeable internal battery, controller, wireless energy
transfer system and external battery pack.]
The AbioCor system consists of the following principal components:
- A thoracic unit, or "replacement heart," which includes two artificial
ventricles with their associated valves and a hydraulic pumping system.
The unit weighs approximately two pounds and provides complete blood
circulation to the lungs and the rest of the body. The ventricles and
their associated valves contain seamless surfaces made of our proprietary
blood-contacting material, Angioflex, and specialized geometries which
result in flow patterns designed to reduce the risk of blood cell damage
and blood clots. Our current configuration of the thoracic unit is sized
for patients with relatively large chest cavities. If our testing of this
configuration is successful, we plan to develop thoracic units of
different sizes to fit other patients.
37
- A rechargeable implantable battery, which allows the AbioCor to operate
without any external power supply for limited periods of time. The battery
technology in the AbioCor is lithium-based and designed by a third party
that has expertise in batteries for medical devices. We have developed a
recharging circuit that we believe is considerably more reliable than the
recharging circuit employed in most consumer electronics today.
- A microprocessor-based implantable electronic device that controls and
monitors the thoracic unit and provides radio communication with an
external monitor affording patients and caregivers the opportunity for
real-time information on its operating status.
- An across-the-skin, or transcutaneous, energy transmission system, which
eliminates the need for wires penetrating the patient's skin and the
inherent associated risks of infection. It transfers the power to operate
the AbioCor system and to recharge the implantable battery without
tethering the patient to an external drive console.
- An external rechargeable battery pack and monitor designed to be worn by
the patient. These components supply primary power to the system, allow
patient mobility, provide system diagnostic information, and recharge the
implanted back-up battery as needed. We anticipate that in the first
clinical trials of the AbioCor, the patient may remain under sustained
medical supervision and a portable monitoring device will be used in place
of the patient-worn external battery pack and monitor.
Our AbioCor design is intended both to extend life and to provide patients
with a good and productive quality of life. Among the quality-of-life features
of AbioCor design are quiet heart valves, elimination of all post-surgical
penetration of the skin, elimination of the need for the patient to be tethered
to a large external drive console, and expected minimal need for
anti-coagulation treatments and immuno-suppression therapies. The AbioCor system
is designed for both low maintenance and low patient involvement.
We have also created tools and methods intended to make the AbioCor system
as easy to implant as possible. These tools include quick-connectors for
relatively easy attachment of the AbioCor to the human anatomy and a virtual
surgery software tool to allow for the simulated implant of the AbioCor into a
three-dimensional software model of the anatomy of a particular patient prior to
opening that patient's chest.
EVOLUTION OF HEART REPLACEMENT TECHNOLOGY. The development of the AbioCor
has included extensive work in the areas of blood compatible surfaces, blood
compatible flow, fabrication techniques for seamless blood pumps and valves,
advanced pumping mechanisms, physiological control, energy transfer, anatomical
fit and surgical techniques. As such, the AbioCor incorporates technology
designed to address the clinical limitations experienced by earlier mechanical
replacement hearts. One earlier attempt was the Jarvik-7 heart from
Symbion, Inc., which was implanted in a small number of patients beginning in
1982. Although much was learned from these pioneering efforts, the technology
available at that time would not support a totally implanted system. The Symbion
heart required a tube penetrating the skin and a large external console that
severely restricted patient mobility. When initially used in patients, there
were complications relating to infection, stroke and anatomical fit.
In recent years, CardioWest Technologies, Inc. introduced an improved
version of the Symbion heart into clinical trials as a bridge-to-transplant
device. In the most recently published results, 91 patients had received this
mechanical replacement heart worldwide. The majority of these patients have been
successfully supported on this device until transplant. The longest implant
duration was approximately six months, with an average bridge duration of
approximately one month. While the CardioWest device is limited to
bridge-to-transplant trials in a hospital setting because it tethers the
patients to a large external console, it does provide further evidence that a
mechanical heart can be successfully used to replace the human heart in order to
extend life.
38
We believe that advances in medical knowledge and technology have permitted
us to design the AbioCor to avoid some of the problems that caused earlier
replacement hearts to fail. In addition, the miniaturization of electronics and
advances in the reliability of electronic systems allow for device controls to
be fully implanted today, which eliminates the need for tethering patients to
large external control devices. Computer-aided design and virtual surgery tools
have allowed us to adapt the design of the AbioCor for human fit and evaluate
that fit prior to implantation.
PREPARATION FOR CLINICAL TRIALS. In preparation for initial AbioCor
clinical trials, we selected the following leading U.S. medical centers as test
sites for initial clinical trials:
- Brigham and Women's Hospital and the Massachusetts General Hospital,
Boston
- Hahnemann University Hospital, Philadelphia
- Jewish Heart Hospital, Louisville
- Texas Heart Institute, Houston
- UCLA Medical Center, Los Angeles
We have worked with each of these centers for many years in connection with the
BVS and believe that each of the centers is well positioned to contribute to the
AbioCor clinical trials. We are also in discussions with selected centers
outside the U.S. that have expressed interest in participating in international
clinical trials.
Our goal is to initiate clinical trials of the AbioCor by the end of the
year 2000. To achieve this goal, the AbioCor system and its components continue
to be tested through a variety of laboratory and animal tests. We are investing
significant resources to demonstrate the performance, durability and reliability
levels necessary to conduct initial clinical trials. A significant portion of
AbioCor testing that we believe is required for initial clinical trials has been
completed. However, certain of these tests must be repeated under formal
protocols prior to seeking approval to enter clinical trials. In addition, we
continue to consult with regulatory authorities, leading medical centers and
physicians to define protocols and patient populations for these trials.
COMPETITIVE POSITION. We believe that the investment we have made in
AbioCor development, including building manufacturing facilities, extensive
device testing and regulatory preparations, positions us well to be first to
enter clinical trials for, as well as to commercialize, a totally implantable
heart replacement device. No such device is clinically or commercially available
today. We believe that our closest competitor with an advanced design of a heart
replacement device is Pennsylvania State University, which has licensed its
technology for commercialization to a recently formed company. Pennsylvania
State University was the only applicant other than ABIOMED to qualify for the
last round of funding from the NHLBI, which was awarded in 1996. To qualify for
such funding, both ABIOMED and Pennsylvania State University demonstrated to the
satisfaction of NHLBI that the basic design of its system functioned adequately
in laboratory and animal models.
We will not be able to evaluate fully the competitiveness of the AbioCor
with other replacement hearts unless and until each of the products is
commercially available. However, we believe that the AbioCor will compete based
on clinical outcomes, the quality of life it provides, cost effectiveness,
clinical support and customer relationships. For example, we may compete
favorably on the basis of cost because we manufacture the valves for the AbioCor
at a cost which we believe is considerably below the cost of purchasing the
valves from third parties, and because we manufacture all of the
blood-contacting surfaces and valves out of our proprietary blood-contacting
material, Angioflex. In addition, we believe our design will result in the need
for less frequent invasive maintenance than other approaches, resulting in an
improved quality of life. We also believe that our experience in regulatory
affairs, manufacturing, and the marketing of devices to cardiac surgeons will
aid us competitively.
39
We believe there are significant differences that distinguish an implantable
replacement heart from a VAD, and that a need exists for both types of devices.
We believe that devices being developed for destination therapy must be
implantable rather than external to the body in order to address patients'
quality-of-life needs. Implantable VADs, referred to as left ventricular assist
devices or LVADs, are being developed to attach to a patient's diseased heart
and provide pumping support to the left ventricle only. By contrast, the AbioCor
will replace the diseased ventricles of the heart and take over the pumping
functions of both ventricles. Patients for whom we believe a replacement heart
would be preferable to a VAD include those with massive heart damage, severe
rhythm disorders, blood clots in the ventricles, severe lung disease,
ventricular rupture, chronic right ventricle failure or heart transplant
rejection. We also believe that cardiac surgeons will adopt replacement hearts
as the preferred technology over LVADs once the reliability of both devices is
clinically demonstrated for multiple-year durations.
COST EFFECTIVENESS. We believe there is a significant need for
cost-effective therapies for heart disease. In the U.S., approximately
$100 billion was associated with CHD patients and approximately $21 billion was
associated with CHF patients in 1997. A significant proportion of these costs
was attributed to hospital support. Patients who suffer from heart disease often
receive medical treatment, either in a hospital or at home, for a number of
years prior to their deaths. As the lives of these patients are often restricted
as a result of their conditions and treatment, they often suffer from a reduced
quality of life, including shortness of breath and inability to work. Prior to
death, many heart failure patients are confined to bed and require monitoring
and other expensive forms of support. Approximately 35% of patients who have CHF
are hospitalized one or more times per year. The average length of stay for each
hospitalization for a CHF patient is seven to nine days, with cost that often
exceeds $2,000 per day.
We are developing the AbioCor with the intent to offer a cost-effective
treatment for end-stage heart failure patients. In addition, the AbioCor has the
potential to allow patients an opportunity to return to productive lives. This
would allow the medical system to save money by discharging the patient from the
hospital and allowing the person to become productive and lead a reasonably
normal life.
If the reliability of the AbioCor is clinically demonstrated for
multiple-year durations, it has the potential to be considerably less expensive
than heart transplantation over a five year period. One reason for this reduced
cost is that recipients of a mechanical replacement heart are not expected to
need immuno-suppression drugs. The blood and tissue contacting portions of the
AbioCor are constructed of inert and biocompatible materials, which typically do
not stimulate a patient's immune system. Other cost savings could result because
the patient can receive a replacement heart sooner and does not require
extensive tests for donor heart compatibility. While recipients of the AbioCor
will likely need to purchase new batteries periodically, we anticipate that the
annual cost of battery purchases will be significantly less than the cost of
immuno-suppression drugs for donor heart recipients.
40
The following table summarizes the approximate average costs incurred by a
heart transplant patient over a five-year period, based on data compiled in
1995:
AVERAGE 5-YEAR PER-PATIENT COST OF HEART TRANSPLANTATION
TRANSPLANT
WITHOUT TRANSPLANT AFTER
COST TYPE BRIDGE DEVICE BRIDGE DEVICE
- --------- ------------- ----------------
Drugs....................................................... $150,000 $150,000
Hospital, Professional and Laboratory Testing Fees.......... 97,000 242,000
Surgical Operation.......................................... 18,000 41,000
Organ Retrieval and Device Cost............................. 20,000 50,000
-------- --------
TOTAL................................................... $285,000 $483,000
The average cost of a heart transplant over a period of five years is
approximately $285,000 without the use of a bridge-to-transplant device and is
approximately $483,000 if a bridge-to-transplant device is used. Included in
these costs is approximately $150,000 for immuno-suppression drugs and
anti-rejection management. These amounts also include hospital, professional and
laboratory testing costs of approximately $97,000 for heart transplantation
without a bridge-to-transplant device and approximately $242,000 with such a
device. These costs reflect extended hospital stays and testing of heart
transplant patients required both before and after surgery while waiting for a
suitable donor heart and recovering from the transplant surgery. We believe that
the costs listed above may have increased in recent years due to increases in
the pricing of bridge-to-transplant devices and changes to the type of devices
used. We also believe that the costs listed above would be reduced if concerns
related to recipient compatibility and availability of donor heart supply are
mitigated with a mechanical replacement heart.
While developing the AbioCor, we introduced the BVS, a temporary
heart-assist device, which is currently being sold in the U.S. and international
markets. Certain key elements of the technology developed for the AbioCor, such
as Angioflex and our tri-leaflet heart valves, have been clinically tested in
the BVS and are currently in commercial use. In addition, the BVS has enabled us
to develop significant experience in areas such as research and development,
manufacturing, regulatory compliance, sales and marketing, and clinical support.
We believe our experience with the BVS in these areas will provide us with a
competitive advantage in commercializing the AbioCor.
THE BVS-5000 TEMPORARY HEART ASSIST DEVICE
The BVS was the first heart assist device capable of assuming the full
pumping function of the heart to be approved by the FDA, and is the most widely
used heart assist device today, with over 3,500 patients supported to date. It
is a bridge-to-recovery device designed to provide a patient's failing heart
with full circulatory assistance while allowing the heart to rest, heal and
recover its function. The BVS can support the left, right or both ventricles of
the heart. The average age of patients supported with the BVS is 52, however the
BVS has been used to support patients as young as 9 and as old as 85.
The BVS is the only device that the FDA has approved for the temporary
treatment of all categories of patients with failing but potentially recoverable
hearts. The BVS is most frequently used in patients whose hearts fail to recover
function immediately following heart surgery. The FDA approved the BVS through
its rigorous pre-market approval process for use with these post-surgical
patients in November 1992. In 1996, the FDA approved use of the BVS for all
other categories of post-surgical patients with potentially reversible heart
failure. In 1997, the FDA approved use of the BVS with patients who had not just
undergone surgery, such as patients referred by a cardiologist as a result of
viral infections of the heart or certain heart attacks, expanding its use to the
temporary treatment of all patients with potentially reversible heart failure.
41
The following diagram illustrates the principal components of the BVS.
[Diagram of BVS attached to a patient appears here, depicting drive and
control console, external blood pumps and cannulae.]
The BVS system consists of the following components:
- A computer-controlled pneumatic drive and control console, which
automatically adjusts the pumping rate, similar to the natural heart;
- Single-use external blood pumps, which provide pumping of blood for the
left, right or both sides of a patient's heart and are designed to emulate
the function of the natural heart; and
- Cannulae, which are specially designed tubes used to connect the blood
pumps to a patient's heart.
The integration of the cannulae, blood pumps and console creates an "external
heart" system with the ability to reduce the load on the heart, provide
pulsatile blood flow to vital organs and allow the heart muscles time to rest
and recover. The BVS is designed to be easy to use and does not require a
specially trained technician constantly to monitor or adjust the pumping
parameters.
The goal of the BVS is to facilitate the recovery of patients' hearts as
quickly as possible. Patients who recover under BVS support typically stabilize
in a period of less than one week. It generally takes three to five days for the
heart muscle to recover its biological energy in a post-cardiotomy patient, and
the partial healing of tissue damage frequently associated with post-cardiotomy
shock occurs over several days in cases in which the heart is not irreversibly
damaged. The BVS, although it is a VAD,
42
serves a different function than bridge-to-transplant devices, which are
intended for long-term use by patients awaiting a heart transplant.
The BVS is most frequently used to support patients who have undergone
open-heart surgery, when the heart cannot be successfully restarted and weaned
off the heart-lung machine used in surgery. The BVS can assume the full pumping
function of the heart for these patients while reducing certain risks associated
with extended support on the heart-lung machine, including bleeding, strokes and
blood cell damage. The traditional therapy for these patients has been the
combined use of drugs and intra-aortic balloon pumps. Intra-aortic balloon pumps
are capable of providing only a small enhancement to the pumping function of a
failing heart. Despite the availability of such therapy, approximately 12,000 of
these patients die each year, approximately half of whom are over the age of 75.
The health of many of the patients who die in this manner deteriorates over a
period of weeks with the patient either dying after incurring significant
expense, or running the risk of permanent damage to their other organs due to
inadequate blood flow.
Other categories of patients who can be supported by the BVS include those
suffering from viral myocarditis, a viral infection of the heart. For these
patients, the BVS assumes the full pumping function of the heart, allowing the
patient's immune system to defend against the virus. Other uses of the BVS
include supporting patients following failed heart transplants and supporting
the right ventricle of a patient's heart in conjunction with the implantation of
a device to assist the left ventricle. The BVS is typically used when the
patient's chances for survival are small. We are also exploring other potential
applications of the BVS, including its use in certain patients who have suffered
from a recent heart attack and its use as a staging device to support heart
failure patients prior to a permanent heart assist device or heart replacement.
Any hospital performing open-chest heart surgery may use the BVS. There are
approximately 900 of these hospitals in the U.S. and more than 1,000 such
hospitals outside the U.S. Since FDA approval of the BVS, we have primarily
focused on sales of the BVS to the largest heart surgery medical centers in the
U.S. As of December 31, 1999, more than 450 medical centers in the U.S. had
purchased the BVS, including over 70% of the major U.S. centers that perform
more than 500 heart surgeries annually. In marketing the BVS, we are focusing on
selling additional consoles and disposable blood pumps to existing customers
with significant but less emphasis on adding new customers. Over half of current
BVS revenues are derived from sales of BVS single-use blood pumps to existing
customers after those customers have used the BVS to support patients. Our U.S.
list prices for the BVS system are $64,500 for a BVS console and $12,400 for a
BVS single-use blood pump and cannulae set. We are currently seeking to expand
our international sales of the BVS and are recruiting direct sales and support
teams for selected countries in Europe, while working with a third-party
distributor to pursue regulatory approval in Japan.
Since the BVS received FDA approval, we have made various improvements to
the BVS system, primarily to make it easier to use. We continue to enhance the
BVS product line and are developing improved blood pumps, cannulae and consoles.
We believe that some of these improvements may permit use of the BVS for
additional patient conditions.
THE ABIOBOOSTER AND THE ABIOVEST
The AbioBooster is intended as either a temporary or a permanent
heart-assist device that will wrap around the heart without direct blood contact
and actively help squeeze the heart. We are designing the AbioBooster as a
quality-of-life device for use in patients with CHF who are not at imminent risk
of death, but whose daily activities are generally restricted due to their
weakened hearts. The AbioBooster consists of a flexible artificial plastic
"muscle" that can be wrapped around the heart to assist its contraction, thereby
increasing blood flow in order to restore quality of life to the patient.
43
The AbioBooster is in research and development, with prototype designs being
evaluated and tested in our laboratories and in animals.
The AbioVest, which is in an early stage of research, is intended as a
permanent implantable device to wrap around the hearts of certain patients with
CHF without creating the inherent risks of contacting the patient's flowing
blood. The intent of the AbioVest design is to help the heart passively by
preventing progressive heart enlargement.
OTHER PRODUCTS AND TECHNOLOGIES UNDER DEVELOPMENT
We are using the technology and know-how that we have generated in
developing the AbioCor and the BVS to research and develop additional potential
cardiovascular products and related technologies. These new products and
technologies are in various stages of research and development, and include a
variety of specialized implantable and external rotary pumps. We are also
developing devices for use in minimally invasive surgery applications such as
tissue welding and vascular welding for the repair of small arteries. In
addition, research and development activities under our product development
programs incorporate certain technologies that have potential as separate
spin-off products. Examples include new implantable heart valves, implantable
energy transmission systems, implantable monitoring systems for remote
transmission and archival of physiological data, diagnostic software for virtual
surgery, advanced implantable instrumentation and electronics, and external
monitoring systems.
MEDICAL AND ETHICAL ADVISORY BOARDS
We maintain independent advisory boards for medical and ethical issues,
which we consult on a periodic basis. These advisory boards provide guidance to
help us develop products that address patient needs and are acceptable to
society. Our medical advisory board currently consists of ten physicians,
primarily leading cardiac surgeons and cardiologists, who are independent of
ABIOMED and are in addition to the physicians being trained at the selected
initial clinical sites for the AbioCor. Together, these physicians have a broad
range of experience in fields relevant to our products and products under
development.
We consult with leading experts in the field of medical ethics, and we are
in the process of establishing an independent advisory board for ethical issues.
We anticipate that our ethics advisory board will consist of five members
representing different backgrounds and interests. We expect that this board will
be an advocate for patients' interests and will assist us with a number of
matters in connection with clinical trials of the AbioCor. For example, we
anticipate that the board will participate in the evaluation of patients for
inclusion in the initial clinical trials and advise us regarding the bioethical
aspects of our regulatory protocols and public disclosures. The board is also
expected to interact with the internal review boards of medical centers in
conjunction with initial clinical trials and assist us in the review of clinical
trial data. We expect that our ethical advisory board will operate under
principles and procedures that conform to FDA and European Union requirements.
We believe that these advisory boards, together with our own internal
resources and the support of leading medical centers and physicians and other
third parties with which we collaborate, will continue to assist us in advancing
our current products and introducing new products that satisfy patient needs.
RESEARCH AND PRODUCT DEVELOPMENT
As of February 1, 2000, our research and development staff consisted of 106
professional and technical personnel, including 13 with PhDs or MD/PhDs and 35
engineers, many with advanced degrees, covering disciplines such as electronics,
software, reliability testing, fluid mechanics, physics and physiology. Our
research and development efforts are focused on the development of new products,
primarily related to mechanical heart assist and heart replacement, and the
continued enhancement of the BVS and related technologies. Our research and
development personnel are also
44
involved in establishing protocols and monitoring test data submissions to the
FDA and corresponding foreign regulatory agencies to obtain the necessary
clearances and approvals for our products. We are using sophisticated tools,
such as three-dimensional computer-aided design systems, and procedures in an
effort to permit smooth transition of new products from research to product
development to manufacturing. We have substantial expertise in
electro-mechanical systems, cardiac physiology and experimental surgery,
blood-material interactions, fluid mechanics and hemodynamics, internal and
external electronic hardware, software, plastics processing, lasers, and optical
physics. We have applied this expertise to address challenges associated with
the safe and effective pumping of blood.
In 1997, we decided that the design of the AbioCor demonstrated sufficient
functionality and operational performance through laboratory and animal studies
to warrant accelerated product development efforts to bring the product to
clinical use. We expended $13.4 million on research and development during the
fiscal year ended March 31, 1999, $9.1 million during the fiscal year ended
March 31, 1998 and $3.8 million during the fiscal year ended March 31, 1997.
These amounts included $9.7 million in fiscal 1999, $8.5 million in fiscal 1998
and $1.6 million in fiscal 1997 for AbioCor development. Government contracts
and grants funded a substantial portion of these expenses, however we have used
our own resources to fund research and development expenses not covered by
government contracts and grants. Since our inception, U.S. government agencies,
particularly the NHLBI, have provided significant support to our product
development efforts. The most significant current funding comes from the NHLBI,
which supports our development of the AbioCor and AbioBooster. In May 1999, the
U.S. government appropriated the final $1.8 million under our current
$8.5 million AbioCor development contract. As of December 31, 1999, the backlog
of all government contracts and grants was $2.0 million, including $0.8 million
related to the AbioBooster. All of our government contracts and grants contain
provisions making them terminable for the convenience of the government and are
subject to government appropriations. We cannot assure that the government will
not terminate, reduce or delay the funding for any of our contracts. In
addition, we cannot assure that we will be successful in obtaining any new
government contracts or further extensions to existing contracts.
SALES, CLINICAL SUPPORT, MARKETING AND FIELD SERVICE
We believe that the sales, clinical support, marketing and field service
teams that we have established for the BVS product line and the relationships
that we have developed with existing customers will be instrumental not only in
continuing to expand BVS usage and sales, but also in launching new products
such as the AbioCor.
We sell the BVS in the U.S. through direct sales and clinical support teams.
As of February 1, 2000, our worldwide BVS sales, clinical support, marketing and
field service teams included 37 full-time employees. Our sales force focuses on
BVS sales to new customers, upgrades of existing customers, and increasingly,
expansion of usage by existing customers. Our clinical support group focuses on
training and educating new and existing customers in order to improve clinical
outcomes and increase BVS blood pump usage. We believe that the efforts of our
clinical support group contribute significantly to the number of lives saved by
physicians using the BVS as well as usage and reorders of BVS single-use blood
pumps. We are increasingly focusing our sales and customer support efforts on
increasing BVS usage by existing customers with significant but less emphasis on
adding new customers. Over half of current BVS revenues are derived from sales
of BVS single-use blood pumps to existing customers. We believe that our sales
and support teams and the reputation and relationships they have helped us
develop with our customers will be key assets for the introduction of potential
future products such as the AbioCor, BVS product extensions and other products
under development.
Building on our experience in the U.S., we are working to expand our
international sales efforts, both for the BVS and in preparation for the
AbioCor. We are working to accomplish this through
45
distributors, including a collaborative arrangement for distribution in Japan,
and by selling directly in selected European markets.
MANUFACTURING
We have over 10 years of experience in the manufacture of the BVS console,
BVS blood pumps, certain cannulae and related accessories. As of February 1,
2000, our manufacturing staff consisted of 31 people and our quality assurance
staff consisted of 16 people. The manufacture of our BVS blood pumps and
consoles includes assembly, testing and quality control. We manufacture key
blood-contacting components for the BVS blood pumps, including valves and
bladders, from our proprietary Angioflex polymer. We purchase a majority of the
raw materials, parts and peripheral components used in the BVS consoles. We both
purchase and manufacture cannulae depending on the size and design of the
cannulae. Prior to 1999, we purchased all of the cannulae which were used with
the BVS. In 1999, we developed the know-how to manufacture our own cannulae
using materials purchased from others. Our BVS manufacturing facility is
ISO-9001 certified and operates under the FDA's current Quality Systems
Regulations and Good Manufacturing Practices, known as QSR/GMP.
The manufacture of the AbioCor is based on processes that are similar to
many of the processes used with the BVS. Prior to 1997, we manufactured AbioCor
units one at a time in our research and development facility. In 1997, we
constructed a pilot manufacturing facility, which became fully operational in
1998 and has produced all of the more than 100 AbioCor systems manufactured and
tested since that time.
In October 1999, we commenced construction of new and larger manufacturing
facilities for both the AbioCor and the BVS. These new facilities are located in
the same approximately 80,000 square foot space that our research and
development, sales and marketing and general and administrative group began
occupying in 1999 and is in the same industrial park as our current
manufacturing facilities. We are scheduled to occupy the new manufacturing areas
in 2000, at which time the majority of our operations will be consolidated in
one building. We believe that our current manufacturing facilities will permit
us to produce sufficient quantities of AbioCor and BVS products until the new
facilities are available, including sufficient quantities of the AbioCor for
clinical trials.
PROPRIETARY RIGHTS, PATENTS AND KNOW-HOW
We have developed significant know-how and proprietary technology, upon
which our business depends. To protect our know-how and proprietary technology,
we rely on trade secret laws, patents, copyrights, trademarks, and
confidentiality agreements and contracts. However, these methods afford only
limited protection. Others may independently develop substantially equivalent
proprietary information, gain access to our trade secrets or disclose such
technology without our approval.
A substantial portion of our intellectual property rights relating to the
AbioCor and the BVS is in the form of trade secrets, rather than patents. We
protect our trade secrets and proprietary knowledge in part through
confidentiality agreements with employees, consultants and other parties. We
cannot assure that our trade secrets will not become known to or be
independently developed by our competitors.
Of our 24 U.S. patents as of February 1, 2000, 4 relate to the AbioCor and 2
relate to the BVS. Of our 21 pending U.S. patent applications as of December 1,
1999, 11 relate to the AbioCor and 1 relates to the BVS. We also own a number of
corresponding patents and patent applications in a limited number of foreign
countries. Our patents may not provide us with competitive advantages. They may
also be challenged by third parties. Our pending or future patent applications
may not be approved. The patents of others may render our patents obsolete or
otherwise have an adverse effect on our ability to conduct business. Because
foreign patents may afford less protection than U.S. patents, they may not
adequately protect our proprietary information.
46
The medical device industry is characterized by a large number of patents
and by frequent and substantial intellectual property litigation. Our products
and technologies could infringe on the proprietary rights of third parties. If
third parties successfully assert infringement or other claims against us, we
may not be able to sell our products. In addition, patent or intellectual
property disputes or litigation may be costly, result in product development
delays, or divert the efforts and attention of our management and technical
personnel. If any such disputes or litigation arise, we may seek to enter into a
royalty or licensing arrangement. However, such an arrangement may not be
available on commercially acceptable terms, if at all. We may decide, in the
alternative, to litigate the claims or to design around the patented or
otherwise proprietary technology.
Some of our products have been developed in part under government contracts
that require us to manufacture a substantial portion of the products in the U.S.
The government may obtain certain rights to use or disclose technical data
developed under those contracts. We retain the right to obtain patents on any
inventions developed under those contracts (subject to a non-exclusive,
non-transferable, royalty-free license to the government), provided we follow
prescribed procedures.
COMPETITION
Competition in the heart assist and heart replacement markets is intense and
subject to rapid technological change and evolving industry requirements and
standards. Many of the companies developing or marketing heart assist products
have substantially greater financial, product development, sales and marketing
resources and experience than ABIOMED. These competitors may develop superior
products or products of similar quality at the same or lower prices. Moreover,
improvements in current or new technologies may make them technically equivalent
or superior to our products in addition to providing cost or other advantages.
Other advances in medical technology, biotechnology and pharmaceuticals may
reduce the size of the potential markets for our products or render those
products obsolete.
No totally implantable replacement heart is commercially or clinically
available today. We are aware of other heart replacement device development
efforts in the U.S., Canada, Europe and Japan. We believe that our closest
competitor with respect to having an advanced design of a heart replacement
device is Pennsylvania State University, which has licensed its technology for
commercialization to a recently formed company. We believe that if and when both
the AbioCor and the Pennsylvania State University replacement heart are
commercially available, the AbioCor will compete based on the quality-of-life it
provides, cost effectiveness, clinical support and customer relationships.
In addition to the developers of implantable replacement hearts, there are a
number of companies, including Thermo Cardiosystems, Inc., Novacor, a division
of Baxter International, Inc., and Arrow International, Inc. which are
developing permanent heart assist products, including implantable LVADs and
miniaturized rotary ventricular assist devices, that may address markets that
overlap with certain segments of the markets targeted by AbioCor. AbioCor may
compete with those devices for some patient groups, notably patients with severe
CHF due to predominant left ventricular heart failure. Thermo
Cardiosystems, Inc. has commenced clinical trials under an IDE for PMA approval
of LVADs for permanent heart assist. We believe that the AbioCor, LVADs and
other VADs, if developed and proven effective for destination therapy, will
generally be used to address the needs of different patient populations, with an
overlap for certain segments of the heart failure population. We believe that
there is a need for both implantable LVADs and implantable replacement hearts as
destination therapies, and that when both technologies demonstrate the required
durability, surgeons will favor replacement hearts.
In addition to devices being developed for patients in need of heart
replacement, several companies and institutions are investigating
xenotransplantation, the transplantation of a heart from
47
another species, as a potential therapy. Most notably, some developers are
investigating the use of genetically engineered pig hearts as an alternative
source of donor hearts. This technology is still in its formative stage and
subject to a number of significant scientific challenges, including controlling
elevated immunologic reactions leading to heightened rejection problems between
cross-species grafting and concerns for cross-species disease transmission to
the recipient and the public at large. We believe that this technology will not
achieve practical application for decades, if ever.
The BVS is a device that can assume the full pumping function of the heart.
The FDA has approved the BVS as a bridge-to-recovery device for the treatment of
all patients with potentially reversible heart failure. In May 1998, Thoratec
Laboratories Corporation received FDA approval to market their device for
postcardiotomy recovery of the natural heart, which is one of the primary
patient categories addressed by the BVS. The Thoratec device was originally
approved for bridge-to-transplant and bridge-to-transplant continues to be the
primary use of the device. We are not aware of any other company that has
applied for FDA approval of a device that is directly competitive with the BVS.
Approval by the FDA of products that compete directly with the BVS could
increase competitive pricing and other pressures. We believe that we can compete
with such products based on cost, clinical utility and customer relations.
Our customers frequently have limited budgets. As a result, our products
compete against a broad range of medical devices and other therapies for these
limited funds. Our success will depend in large part upon our ability to enhance
our existing products, to develop new products to meet regulatory and customer
requirements, and to achieve market acceptance. We believe that important
competitive factors with respect to the development and commercialization of our
products include the relative speed with which we can develop products,
establish clinical utility, complete clinical trials and regulatory approval
processes, obtain reimbursement, and supply commercial quantities of the product
to the market.
THIRD-PARTY REIMBURSEMENT
We sell our BVS product and intend to sell most of our potential products
under development to medical institutions. Medical institutions and their
physicians typically seek reimbursement for the use of these products from
third-party payors, including Medicare, Medicaid, and private health insurers
and managed care organizations. As a result, market acceptance of our current
and proposed products may depend in large part on the extent to which
reimbursement is available to medical institutions and physicians for use of our
products.
Coverage and the level of payment provided by U.S. and foreign third-party
payors varies according to a number of factors, including the medical procedure,
payor, location, outcome and cost. In the U.S., many private health care
insurance carriers follow the recommendations of the Health Care Financing
Administration, or HCFA, which establishes guidelines for the coverage of
procedures, services and medical equipment and the payment of health care
providers treating Medicare patients. Internationally, healthcare reimbursement
systems vary significantly. In certain countries, medical center budgets are
fixed regardless of levels of patient treatment. In other countries, such as
Japan, reimbursement from government or third party payors must be applied for
and approved. As of the date of this prospectus, the amount that Medicare
generally pays a medical institution for in-patient care of Medicare patients is
based on a number of considerations, including a patient's diagnosis regardless
of the services that are provided. Physicians however bill separately for the
procedures that they perform. Medicare does not currently reimburse medical
institutions for the incremental cost of using the BVS. Certain private health
insurers and managed care providers provide incremental reimbursement to both
the medical institutions and their physicians.
48
No reimbursement levels have been established for our products under
development, including the AbioCor. Prior to approving coverage for new medical
devices, most third-party payors require evidence that the product has received
FDA approval, European Union approval, or clearance for marketing, is safe and
effective and not experimental or investigational, and is medically necessary
and appropriate for the specific patient for whom the product is being used.
Increasing numbers of third-party payors require evidence that the procedures in
which the products are used, as well as the products themselves, are
cost-effective. Heart transplantation currently qualifies for reimbursement as
does bridge-to-transplant treatment with implantable VADs. Comparatively, we
believe that when the AbioCor product reaches maturity, it should cost less over
a five-year period than heart transplantation today and provide more ventricular
support than VADs. We believe that these factors should benefit the AbioCor when
we begin to seek reimbursement for it from third-party payors. However, we
cannot assure that the AbioCor or our other products under development will meet
the criteria for coverage and reimbursement or that third-party payors will
reimburse physicians and medical institutions at levels sufficient to encourage
the widespread use of the products. Because the AbioCor is an implantable
product designed to assist patients outside of the hospital environment, the
reimbursement standards or level of reimbursement support for the AbioCor may
differ from medical devices used solely within hospitals to assist patients.
GOVERNMENT REGULATION
Clinical trials, manufacture and sale of our products and products under
development, including the BVS, AbioCor, AbioBooster and AbioVest are, or will
be, subject to regulation by the FDA and corresponding state and foreign
regulatory agencies. Noncompliance with applicable regulatory requirements can
result in, among other things, fines, injunctions, civil penalties, recall or
seizure of products, total or partial suspension of production, refusal of the
government to grant marketing approval for devices, withdrawal of marketing
approvals, and criminal prosecution. The FDA also has the authority to request
repair, replacement or refund of the cost of any device manufactured or
distributed by ABIOMED.
U.S. CLINICAL USE REGULATIONS. The BVS is classified as a Class III medical
device under FDA rules, as will be the AbioCor, the AbioBooster and AbioVest. In
the U.S., medical devices are classified into one of three classes (i.e.,
Class I, II or III) based on the controls deemed necessary by the FDA to
reasonably ensure their safety and effectiveness. Class III medical devices are
subject to the most rigorous regulation. Class III devices, which are typically
life-sustaining, life-supporting or implantable devices, or new devices that
have been found not to be substantially equivalent to legally marketed devices,
must generally receive pre-market approval, or PMA, by the FDA to ensure their
safety and effectiveness. Class III devices are also subject to some of the
requirements applicable to Class I and Class II devices, including general
controls, such as labeling, pre-market notification, performance standards,
post-market surveillance, patient registries and adherence to QSR/GMP
requirements, which include testing, control and documentation requirements.
A PMA application must be filed if a proposed device is a Class III device
for which the FDA has required PMAs. A PMA application must be supported by
valid scientific evidence, which typically includes extensive information
including relevant bench tests, laboratory and animal studies and clinical trial
data to demonstrate the safety and effectiveness of the device. The PMA
application also must contain a complete description of the device and its
components, a detailed description of the methods, facilities and controls used
to manufacture the device, and the proposed labeling, advertising literature and
training materials. By regulation, the FDA has 180 days to review the PMA
application, and during that time an advisory committee may evaluate the
application and provide recommendations to the FDA. Advisory committee reviews
often occur over a significantly protracted period, and a number of devices for
which FDA approval has been sought have never been cleared for marketing. In
addition,
49
modifications to a device that is the subject of an approved PMA, or to its
labeling or manufacturing process, may require the submission of PMA supplements
or new PMAs and approval by the FDA.
If clinical trials of a device are required in order to obtain FDA approval
and the device presents a "significant risk," the sponsor of the trial will have
to file an IDE application prior to commencing clinical trials. The IDE
application must be supported by data, which typically includes the results of
animal testing performed in conformance with Good Laboratory Practices and
formal laboratory testing and documentation in accordance with appropriate
design controls and scientific justification. If the FDA approves the IDE
application, and the institutional review boards or IRBs at the institutions at
which the clinical trials will be performed approve the clinical protocol and
related materials, clinical trials may begin at a specific number of
investigational sites with a specific number of patients, as approved by the
FDA. Sponsors of clinical trials are permitted to charge for investigational
devices distributed in the course of the study provided that compensation does
not exceed recovery of the costs of manufacture, research, development and
handling. An IDE supplement must be submitted to and approved by the FDA before
a sponsor or investigator may make a change to the investigational plan that may
affect its scientific soundness or the rights, safety or welfare of human
subjects.
In November 1992, the FDA approved our PMA for the BVS. In 1996 and 1997,
the FDA approved the use of the BVS for additional indications, expanding its
use to the treatment of all patients with potentially reversible heart failure.
In May 1998, we received notice from the FDA that the BVS had successfully
concluded a required post-market surveillance study. The primarysole
purpose of this post-market surveillance study was to provide a warning system to alert the
health care community to any potential problems with a device within a
reasonable time of the initial marketing of the device. Post-market surveillance
provides clinical monitoring of the experiences with a device once itAmendment No. 2 is
distributed in the general population under actual conditions of use.
The AbioCor will be classified as a Class III device and therefore is
subject to the IDE and PMA processes and QSR/GMP requirements. We have submitted
information pertinent to the IDE for the AbioCor under the FDA's pre-IDE
process. The pre-IDE process encourages discussion between ABIOMED and the FDA
regarding the content of the regulatory submission throughout the process of
developing and testing the device and provides ABIOMED early guidance on
pre-clinical and clinical testing required for regulatory approvals.
We anticipate seeking initial approval of the AbioCor for a limited category
of indications and patients, and subsequent approval for additional indications
and patient populations. After the initial PMA is approved, we will need to file supplemental PMAs for the additional indications. If we obtain approval of the
AbioCor in this manner, the FDA may initially impose conditions on use of the
AbioCor. Nevertheless, we believe that this phased approach will permit us to
obtain initial marketing approval for the AbioCor more quickly than if we were
to seek a single, broader approval.
U.S. MANUFACTURING AND SALES REGULATION. Any devices, including the BVS,
which we manufacture or distribute pursuant to FDA clearances or approvals, are
subject to pervasiveExhibits 1.1 and continuing regulation by the FDA and other regulatory
authorities. Manufacturers of medical devices for marketing in the U.S. are
required to adhere to QSR/GMP requirements and must also comply with Medical
Devices Reporting, or MDR, which requires that a firm report to the FDA any
incident in which its product may have caused or contributed to a death or
serious injury, or in which its product malfunctioned and, if the malfunction
were to recur, it would be likely to cause or contribute to a death or serious
injury. Labeling and promotional activities are subject to scrutiny by the FDA
and, in certain circumstances, by the Federal Trade Commission. Current FDA
enforcement policy prohibits the marketing of approved medical devices for
unapproved uses. We are subject to routine inspection by the FDA and other
regulatory authorities for compliance with QSR/GMP and MDR requirements, as well
as other applicable regulations.
50
INTERNATIONAL REGULATION. We are also subject to regulation in each of the
foreign countries in which we sell our products. Many of the regulations
applicable to our products in these counties are similar to those of the FDA. We
have obtained the requisite foreign regulatory approvals for sale of the BVS in
many foreign countries, including most of Western Europe. We believe that
foreign regulations relating to the manufacture and sale of medical devices are
becoming more stringent. The European Union adopted regulations requiring that
medical devices such as the BVS comply with the Medical Devices Directive, which
includes ISO-9001 and CE certification. In 1998, we received ISO-9001 and CE
certification for the BVS. Many manufacturers of medical devices, including
ABIOMED, have often relied on foreign markets for the initial commercial
introduction of their products. However, an evolving foreign regulatory
environment could make it more difficult, costly and time consuming for us to
pursue this strategy for new products. Implantable devices such as the AbioCor
must comply with the Active Implantable Medical Devices Directive. We are
working toward ISO-9001 and CE certification of the AbioCor. Any delay in
obtaining these certifications for the AbioCor or other products under
development on a timely basis could delay commercial sales of the products in
the European Union.
EMPLOYEES
As of February 1, 2000, we had 212 full-time employees, including:
- 106 in research and development;
- 37 in sales, clinical support, marketing and field service; and
- 47 in manufacturing and quality assurance.
Our remaining employees work in a variety of areas, including information
technology, human resources, accounting, facilities, corporate development and
management. We have entered into contractual agreements with all of our
employees, which include confidentiality and non-competition commitments by each
employee. None of our employees is represented by a union. We consider our
employee relations to be good.
PROPERTIES
We lease our headquarters, research and development and production
facilities in two separate buildings in an industrial office park. The addresses
of these leased spaces are 22 Cherry Hill Drive and 33 Cherry Hill Drive in
Danvers, Massachusetts. These facilities are located approximately 22 miles
north of Boston.
Our primary facility consists of approximately 80,000 square feet of space
under an operating lease that expires in 2010. During 1999 we moved our research
and development, sales and marketing and general and administrative departments
into this facility, and it now serves as our headquarters. A significant portion
of this leased space is under construction for an expanded manufacturing area
for the AbioCor and BVS. The lease contains provisions to allow termination by
us, subject to a defined termination fee, in 2005 and contains options to extend
beyond 2010 at market rates.
In addition, we lease facilities of 22,000 square feet, expiring in
February 2000, and 19,000 square feet, expiring in June 2001, in the same
industrial park as our primary facility. The 19,000 square foot facility
contains our AbioCor and BVS manufacturing areas. It is our intention to move
these manufacturing areas in 2000 to our new larger facilities that are
currently under construction and consolidate all of our operations in one
building. We could experience manufacturing interruptions or delays if our new
facilities are not available and qualified before expiration of the lease in
June 2001.
51
LEGAL PROCEEDINGS
World Heart Corporation and the Ottawa Heart Institute Research Corporation
filed suit against us in the U.S. District Court for the District of Delaware on
January 20, 1998, seeking damages and injunctive relief because they contend
that a component of the AbioCor infringes their intellectual property rights. On
February 4, 2000, the trial of this suit concluded with the jury unanimously
finding in our favor on all claims presented to it.
World Heart Corporation is currently developing an LVAD, using technology
developed by the Ottawa Heart Institute Research Corporation. The complaint
seeks damages and injunctive relief for alleged breaches of contract,
misappropriation of trade secrets, conversion of trade secrets and patent
infringement by ABIOMED. The plaintiffs' claims and allegations relate to a
transcutaneous energy transmission device being developed by the Ottawa Heart
Institute Research Corporation in connection with its LVAD under development.
Between 1992 and 1995, we evaluated prototypes of the Ottawa Heart Institute
Research Corporation's transcutaneous energy transmission device for possible
use in connection with the AbioCor and determined that it did not meet our
needs. The plaintiffs allege that we subsequently utilized aspects of their
proprietary technology in developing our own transcutaneous energy transmission
device.
Trial of the case to a federal court jury began on January 24, 2000.
Plaintiffs dropped their patent infringement claim prior to trial, and decided
during trial not to press the claim for conversion. On February 4, 2000, in
answer to a series of special questions posed by the trial judge, the jury found
for ABIOMED on all of plaintiffs' remaining claims. The plaintiffs have stated
that they intend to file a motion for a new trial, and if they do, we intend to
oppose the motion. Whatever the outcome of the new trial motion may be,
plaintiffs will ultimately have the right to file an appeal to a federal appeals
court from any judgment adverse to their interests.
Although ABIOMED believes that all of the plaintiffs' claims and allegations
are without merit and that plaintiffs are not entitled to a new trial, it is
possible that the trial court or an appeals court might grant a new trial, and,
if so, that our defense might not prevail. If we do not ultimately prevail, we
might be required to use or develop alternative transcutaneous or
non-transcutaneous technology, to seek a license to use certain technology, or
to modify the design of our transcutaneous energy transmission device. Although
alternative technologies may be used to provide energy to the AbioCor, such
alternative technologies, though functional, may lack features of our current
design. As a result, if we do not prevail, our development of the AbioCor may be
adversely affected and our business may be harmed.
On May 7, 1999, we filed a motion requesting leave of court to assert a
counterclaim alleging that World Heart Corporation and Ottawa Heart Institute
Research Institute misappropriated our trade secrets. The court has deferred
action on that motion.
52
MANAGEMENT
EXECUTIVE OFFICERS, KEY EMPLOYEES AND DIRECTORS
EXECUTIVE OFFICERS AND KEY EMPLOYEES
NAME AGE POSITION
- ---- -------- -----------------------------------------------------
David M. Lederman, Ph.D*............... 55 Chairman of the Board of Directors, President and
Chief Executive Officer
Robert T.V. Kung, Ph.D*................ 55 Senior Vice President and Chief Scientific Officer
Anthony W. Bailey*..................... 44 Vice President--Engineering and Director of AbioCor
Program
William J. Bolt........................ 47 Vice President--Cardiac Assist Products
John E. Hart........................... 43 Vice President--Marketing
Douglas McNair, MD, Ph.D............... 46 Vice President--Clinical Affairs
David Nikka............................ 45 Vice President--Human Resources
Janice T. Piasecki..................... 45 Vice President--Regulatory Affairs
Eugene D. Rabe*........................ 44 Senior Vice President--Global Sales and Services
John F. Thero*......................... 39 Senior Vice President--Finance, Treasurer and Chief
Financial Officer
Michael Verga.......................... 37 Chief Intellectual Property Counsel
OUTSIDE DIRECTORS
NAME AGE
- ---- --------
W. Gerald Austen, M.D.................. 70
Paul B. Fireman........................ 55
John F. O'Brien........................ 56
Desmond H. O'Connell, Jr............... 63
Henri A. Termeer....................... 53
- ------------------------
* Executive Officer
DR. DAVID M. LEDERMAN founded ABIOMED in 1981, and has served as Chairman of
the Board and Chief Executive Officer since that time. He is also President of
ABIOMED. Prior to founding ABIOMED, he was Chairman of the Medical Research
Group at the Everett Subsidiary of Avco Corporation which he joined in 1972.
Dr. Lederman has made many important contributions in the field of cardiac
assist and heart replacement technology, has authored over 40 medical
publications, and originated the design and development of ABIOMED's artificial
heart blood pumps and their valves. Dr. Lederman is a member of numerous medical
and scientific professional organizations and has been a frequent speaker in
forums on cardiac support systems and on the financing and commercialization of
advanced medical technology. Dr. Lederman received a Ph.D. degree in Aerospace
Engineering from Cornell University.
DR. ROBERT T.V. KUNG has served ABIOMED since 1982 and has been Senior Vice
President and Chief Scientific Officer since 1995. He was Vice President of
Research and Development from 1987 to 1995 and Chief Scientist from 1982 to
1987. Prior to joining ABIOMED, Dr. Kung was a Principal Research Scientist at
Schafer Associates from 1978 to 1982 and at the Avco Everett Research Laboratory
from 1972 to 1978. He developed non-linear optical techniques for laser
applications and investigated physical and chemical phenomena in re-entry
physics. Dr. Kung has been Principal Investigator for ABIOMED's National
Institute of Health-funded AbioCor and AbioBooster programs and has conceived of
and directed the development of ABIOMED's laser-based minimally invasive
technologies. Dr. Kung received a Ph.D. degree in Physical Chemistry from
Cornell University.
53
MR. ANTHONY W. BAILEY has served ABIOMED since 1997, and is currently Vice
President, Engineering and Director of the AbioCor Program. From 1987 to 1997,
Mr. Bailey was Vice President and General Manager for Pace Medical, Inc. and
from 1982 to 1987, was Manager of Design and Development at Shiley
Infusaid, Inc. Prior to that, Mr. Bailey served in various engineering functions
with manufacturers of implantable pacemakers, data acquisition and control
systems and medical monitoring equipment. Mr. Bailey received his Bachelor's
degree from the University of Lowell.
MR. WILLIAM J. BOLT has served ABIOMED since 1982 and, has been Vice
President, Cardiac Assist Products since 1998. He is currently responsible for
BVS-product line operations including manufacturing, quality assurance,
engineering support and new product development not related to the AbioCor. From
1994 to 1998 he was President of ABIOMED's dental subsidiary, ABIODENT. From
1982 to 1994, he served in various roles, from Vice President of Operations to
Vice President of Engineering, where he was the engineer in-charge of the
development of the BVS-5000 and other systems. Mr. Bolt received his Bachelor's
degree in Electrical Engineering and an MBA from Northeastern University.
MR. JOHN E. HART has served ABIOMED since 1999 as Vice President, Marketing.
Prior to joining ABIOMED, he was Senior Director, Marketing for the Vascular
Therapies Division of U.S. Surgical Corporation/Tyco Healthcare Group from 1997
to 1999, Senior Manager, Cardiology Marketing Programs for the Cordis division
of Johnson & Johnson, from 1996 to 1997, and Marketing/New Business Development
Director for the Professional Healthcare Sector of Kimberly-Clark from 1992 to
1996. Mr. Hart has worked with C.R. Bard in various global marketing management
positions and in sales and manufacturing with the Ethicon division of Johnson &
Johnson. Mr. Hart received a Bachelor's degree from Trenton State College and an
MBA from New Hampshire College.
DR. DOUGLAS MCNAIR has served ABIOMED since 1998 as Vice President, Clinical
Affairs. Prior to joining ABIOMED, he was Group Vice President for Regulatory
and Government Affairs at Cerner Corporation from 1986 to 1998. Previously,
Dr. McNair was a faculty member of the Departments of Medicine and Pathology at
Baylor College of Medicine and served under Drs. Michael DeBakey and Antonio
Gotto as Co-Director of the Design and Analysis unit of the NIH National
Research and Demonstration Center on Atherosclerosis at Baylor. He has been an
IRB member, a Principal Investigator for various in-vitro testing and medical
device products, and has directed clinical trials for Cerner and other medical
device firms. Since 1992, he has served as a lecturer and member of the Board of
Trustees for the Midwest Bioethics Center. Dr. McNair has an M.D. and a Ph.D.
degree in Biomedical Engineering from the University of Minnesota.
MR. DAVID NIKKA has served ABIOMED since 1997 as Vice President, Human
Resources. Prior to joining ABIOMED, he was Vice President, Human Resources from
1991 to 1997 for Genzyme Genetics, Director of Human Resources from 1989 to 1991
for Genzyme Corporation and Director of Human Resources for Integrated Genetics
from 1987 to 1989. He is past Chairperson of both the Biotechnology Industry
Organization and the Massachusetts Biotechnology Council Human Resources
Committees. Mr. Nikka received his Bachelor's degree from Boston University.
MS. JANICE T. PIASECKI has served ABIOMED since 1991 and has been Vice
President, Regulatory Affairs since 1994. From 1991 to 1994, she served as
Manager of Clinical Research and Regulatory Affairs. In her role, she has worked
extensively on our domestic and international regulatory submissions, including
the PMA submission process for the BVS that led to FDA approvals. Prior to
joining ABIOMED, she held positions of Investigator for the United States Food
and Drug Administration, and Manager of Regulatory Affairs for C.R. Bard.
Ms. Piasecki received her Bachelor's degree in Biology and Chemistry from Boston
College.
MR. EUGENE D. RABE has served ABIOMED since 1993 and has been Senior Vice
President, Global Sales and Services since 1999. Mr. Rabe assumed responsibility
for international sales in 1996, and was Vice President of Sales from 1993 to
1999. Prior to joining ABIOMED, Mr. Rabe was Vice President,
54
Sales and Marketing for Endosonics Corporation. Mr. Rabe was employed as a Sales
Manager for St. Jude Medical, Inc. He has been involved in the management of
sales and marketing of cardiovascular/ cardiological devices for over twelve
years. Mr. Rabe received a Bachelor's degree from St. Cloud State University and
an MBA from the University of California.
MR. JOHN F. THERO has served ABIOMED since 1994 and is currently Senior Vice
President of Finance, Treasurer and Chief Financial Officer. From 1994 to 1999
he was Vice President of Finance, Treasurer and Chief Financial Officer. Prior
to joining ABIOMED, Mr. Thero was Chief Financial Officer and acting President
for the restructuring of two venture-backed companies from 1992 to 1995. From
1987 to 1992, he was employed in various capacities including Chief Financial
Officer, by Aries Technology, Inc. From 1983 to 1987, he was employed by the
commercial audit division of Arthur Andersen LLP during which time he became a
Certified Public Accountant. Mr. Thero received a Bachelor's degree in
Economics/Accounting from The College of the Holy Cross.
MR. MICHAEL VERGA has served ABIOMED since August 1999 as Chief Intellectual
Property Counsel. Prior to joining ABIOMED, he was a patent attorney for the law
firm of Wolf, Greenfield & Sacks, P.C. Mr. Verga has eight years of experience
in domestic and foreign patent prosecution with particular experience in the
medical device, software, electronics, computer architecture, electromagnetics
and semiconductor disciplines. Mr. Verga has also worked as a software and
systems engineer, and engineering manager in the avionics and flight simulation
industry. He is a member of the Massachusetts Bar and is registered to practice
before the U.S. Patent and Trademark Office. Mr. Verga received his Bachelor's
degree in Engineering from Hofstra University, a Master's degree in Electrical
Engineering from University of Houston and a Juris Doctor from American
University.
DR. W. GERALD AUSTEN, M.D. has served as a Director of ABIOMED since 1985.
From 1974 to the present, Dr. Austen has been the Edward D. Churchill Professor
of Surgery at Harvard Medical School. Dr. Austen became President of the
Massachusetts General Physicians Organization in 1994 and since 1999 has served
as Chairman of the Board. From 1969 to 1997 Dr. Austen was Chief of the Surgical
Services at Massachusetts General Hospital. Dr. Austen is the former President
of the American College of Surgeons, the American Association for Thoracic
Surgery, the American Surgical Association and the Massachusetts and American
Heart Associations. Dr. Austen is a member of the Institute of Medicine of the
National Academy of Sciences, a Fellow of the American Academy of Arts and
Sciences and a life member of the corporation of the Massachusetts Institute of
Technology.
MR. PAUL B. FIREMAN has served as a Director of ABIOMED since 1987. Mr.
Fireman has served as Chief Executive Officer and as a Director of Reebok
International Ltd., which he founded, from 1979 to the present. He has served as
Reebok's Chairman of the Board of Directors from 1985 to the present. He has
also served as Reebok's President from 1989 to the present, after initially
serving as President from 1979 to 1987. Mr. Fireman has also served as the
Chairman of the Entrepreneurial Advisory Board of Babson College since 1995.
MR. JOHN F. O'BRIEN has served as a Director of ABIOMED since 1989. Since
August 1989 he has been the President and Chief Executive Officer and a Director
of First Allmerica Financial Life Insurance Company (formerly State Mutual Life
Assurance Company of America). Since January 1995 he has been President, Chief
Executive Officer and a Director of Allmerica Financial Corporation.
Mr. O'Brien is also President, Chief Executive Officer and a Director of
Allmerica Property & Casualty Companies, Inc.; Chairman of the Board, President
and Chief Executive Officer of Citizens Corporation; and a Trustee and Chairman
of the Board of Allmerica Securities Trust, Allmerica Investment Trust and
Allmerica Funds. From 1972 until 1989, Mr. O'Brien was employed by Fidelity
Investments in various capacities, including Group Managing Director of FMR
Corp. Mr. O'Brien is also a Director of Cabot Corporation and TJX
Companies, Inc. and a Trustee of the Worcester Art Museum.
55
MR. DESMOND H. O'CONNELL, JR. has served as a Director of ABIOMED since
1995. He is currently the President, Chief Executive Officer and a Director of
Serologicals Corporation. He is currently an independent management consultant.
From December 1992 until December 1993, he served as the Chairman, Management
Committee of Pharmakon Research International, Inc. During 1991, he briefly
served as Chairman of the Board and Chief Executive Officer of Osteotech, Inc.
Mr. O'Connell was with the BOC Group, PLC in senior management positions from
1980 to 1990, and was a member of the Board of Directors of BOC Group, PLC from
1983 to 1990. From April 1990 until September 1990, Mr. O'Connell was President
and Chief Executive Officer of BOC Health Care. From 1986 to April 1990, he was
Group Managing Director of BOC Group, PLC. Prior to joining BOC, Mr. O'Connell
held various positions at Baxter Laboratories, Inc. including Chief Executive of
the Therapeutic and Diagnostic Division and Vice President, Corporate
Development. Mr. O'Connell had been a Director of Chryslais International
Corporation from 1991 through May, 1999.
MR. HENRI A. TERMEER has served as a Director of ABIOMED since 1987.
Mr. Termeer has served as President and a Director of Genzyme Corporation, since
1983, as its Chief Executive Officer since 1985, and as its Chairman of the
Board since 1988. Mr. Termeer is also Chairman of the Board of Genzyme
Transgenics Corporation. He is also a Director of AutoImmune, Inc., GelTex
Pharmaceuticals, Inc. and Diacrin, Inc. In addition, Mr. Termeer serves as a
Trustee of Hambrecht & Quist Healthcare Investors and Hambrecht & Quist Life
Sciences Investors.
56
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information as of February 1, 2000
with respect to the beneficial ownership of our common stock by each of our
directors, each of our executive officers, all of our directors and executive
officers as a group, and each person we know to be the beneficial owner of five
percent or more of our common stock. This information is based upon information
received from or on behalf of the individuals named therein.
We determined ownership in accordance with rules of the Securities and
Exchange Commission. Beneficial ownership includes voting power and/or
investment power with respect to the securities held by the named individuals.
Shares of common stock subject to options currently exercisable or exercisable
within 60 days of February 1, 2000, are deemed outstanding for purposes of
computing the percentage beneficially owned by the person holding the options
but are not deemed outstanding for purposes of computing the percentage
beneficially owned by any other person. Except as otherwise noted, the persons
or entities named have sole voting and investment power with respect to all
shares shown as beneficially owned by them.
NUMBER OF
SHARES PERCENT PERCENT
BENEFICIALLY BEFORE AFTER
NAME OWNED OFFERING OFFERING
- ---- ------------ -------- --------
David M. Lederman........................................... 1,271,200 14.6% 12.5%
c/o ABIOMED, Inc.
22 Cherry Hill Drive
Danvers, MA 01923
Genzyme Corporation......................................... 1,153,846 13.2% 11.3%
One Kendall Square
Cambridge, MA 02139
W. Gerald Austen............................................ 31,600 * *
Paul B. Fireman............................................. 231,426 2.7% 2.3%
John F. O'Brien............................................. 83,792 1.0% *
Desmond H. O'Connell, Jr.................................... 30,292 * *
Henri A. Termeer............................................ 1,185,446 13.6% 11.6%
Anthony W. Bailey........................................... 10,132 * *
Robert T.V. Kung............................................ 232,625 2.6% 2.3%
Eugene D. Rabe.............................................. 51,625 * *
John F. Thero............................................... 47,986 * *
All Current Executive Officers and Directors as a group (10 3,176,124 35.2% 30.2%
persons)..................................................
- ------------------------
* Less than 1%.
The shares listed above as being beneficially owned by Dr. Lederman include
675,923 shares held by Dr. Lederman's wife, as to which Dr. Lederman disclaims
beneficial ownership. Dr. Lederman has granted the underwriters an option to
purchase 100,000 shares of common stock as part of the underwriters'
over-allotment option. If the option is exercised in full, after this offering,
Dr. Lederman will beneficially own 1,171,200 shares of common stock, or 11.5% of
the shares outstanding. The shares listed above as being beneficially owned by
Mr. Termeer include 1,153,846 shares held by Genzyme Corporation as to which
Mr. Termeer disclaims beneficial ownership. Mr. Termeer is the Chief Executive
Officer of Genzyme Corporation. The shares listed above as being beneficially
owned by Dr. Kung include 55,400 shares held by Dr. Kung's wife and 16,600
shares held in trust for the benefit of certain relatives of Dr. Kung, as to
which Dr. Kung disclaims beneficial ownership.
The preceding table also includes the following shares subject to options
exercisable within 60 days of February 1, 2000: Dr. Austen--22,500;
Mr. Fireman--22,500; Mr. O'Brien--22,500; Mr. O'Connell--10,000;
Mr. Termeer--22,500; Mr. Bailey--10,000; Dr. Kung--110,625; Mr. Rabe--51,625;
and Mr. Thero--47,250.
57
DESCRIPTION OF CAPITAL STOCK
As of February 1, 2000, ABIOMED's authorized capital stock consisted of
25,000,000 shares of common stock and 1,000,000 shares of Class B preferred
stock, $.01 par value.
COMMON STOCK
As of February 1, 2000, there were 8,710,091 shares of common stock
outstanding. Approximately 396 stockholders held these shares of record,
including multiple beneficial holders at depositories, banks, and brokers listed
as a single holder in the street name of each respective depository, bank, or
broker. There will be 10,210,091 shares of common stock outstanding after giving
effect to the sale of the shares of common stock offered under this prospectus
by ABIOMED.
The holders of common stock have one vote per share on all matters on which
stockholders may vote. They are entitled to receive any dividends legally
declared by the Board of Directors. If ABIOMED is liquidated or dissolved, the
holders of the common stock are entitled to receive all assets available for
distribution to the stockholders, subject to any rights of the holders of
preferred stock. The common stock has no preemptive or other subscription
rights, and there are no conversion rights or redemption or sinking fund
provisions with respect to such shares. The holders of common stock do not have
cumulative voting rights in the election of directors. All of the shares of
common stock are, and the shares to be sold in the offering will be, fully paid
and nonassessable.
PREFERRED STOCK
ABIOMED has no preferred stock outstanding. The Board of Directors may,
without stockholder approval, issue the preferred stock in one or more series
and fix the dividend rights and rate, conversion rights, voting rights, rights
and terms of redemption, liquidation preferences, sinking fund terms, and other
rights of any series of preferred stock, the number of shares constituting any
such series and its designation. If the Board of Directors issues preferred
stock, the issuance may have the effect of delaying or preventing a change in
control of ABIOMED. If the Board of Directors issues preferred stock with voting
and conversion rights, the voting power and rights of the holders of common
stock could be adversely affected. We currently have no plans to issue any of
the preferred stock. The Board of Directors has designated 25,000 shares of the
preferred stock as the "Series A Junior Participating Preferred Stock" in
connection with the rights described below.
ANTI-TAKEOVER EFFECT OF PROVISIONS OF THE CERTIFICATE OF INCORPORATION AND
BY-LAWS, RIGHTS DISTRIBUTION AND DELAWARE LAW
CERTIFICATE OF INCORPORATION AND BY-LAWS
The Certificate of Incorporation includes several provisions, in addition to
the preferred stock, that may discourage an unfriendly tender offer, proxy
contest, merger, or other change in control. These provisions are intended to
enhance the likelihood of continuity and stability in the composition of the
Board of Directors and in the policies formulated by the Board of Directors.
These provisions are also intended to discourage certain types of transactions
that may involve an actual or threatened change of control of ABIOMED. These
provisions are also designed to reduce our vulnerability to unsolicited
acquisition proposals and to discourage certain tactics that may be used in
proxy fights. However, these provisions could have the effect of discouraging
others from making tender offers. Consequently, they also may inhibit market
price fluctuations of the common stock which could result from actual or rumored
takeover attempts. Such factors also may have the effect of preventing changes
in the management of ABIOMED.
Our certificate of incorporation contains provisions that:
- classify our Board of Directors into three classes;
58
- eliminate the ability of stockholders to enlarge the Board of Directors;
- provide that Board vacancies shall first be filled by the remaining
directors, and in the absence of any directors, by the stockholders;
- provide that directors may only be removed "for cause" and only by the
class or classes of stock which elected them; and
- require an 80% affirmative vote of all votes entitled to be cast to amend
the preceding provisions.
The existence of a classified board is designed to provide continuity and
stability to our management and to render certain hostile takeovers more
difficult. The classification of directors has the effect of making it more
difficult to change the composition of the Board of Directors. It may therefore
make it more difficult for a third party to acquire control of ABIOMED by
delaying, deferring or preventing a change of control that a stockholder might
consider would result in a premium for its stock. At least two stockholder
meetings, instead of one, are required to effect a change in the control of the
Board.
Our by-laws provide that advance written notice of any stockholder
nomination for director must be provided not less than 45 nor more than 60 days
prior to the anticipated date of the annual meeting for election of directors.
Our certificate of incorporation explicitly directs the Board of Directors
to take into account all relevant factors in exercising its business judgment in
determining what is in the best interests of ABIOMED and its stockholders in
evaluating certain tender offers and business combination proposals. Relevant
factors include:
- the Board's estimate of the future value of ABIOMED;
- the resources and future prospects of the other party; and
- the possible social, legal, environmental and economic effects on ABIOMED,
our employees, customers, suppliers and creditors and the communities in
which our facilities are located.
Our certificate of incorporation and by-laws also provide that all
stockholder action must be effected at a duly called meeting and not by written
consent.
The authority of the Board of Directors to issue authorized but unissued
shares of common stock might be considered as having the effect of discouraging
an attempt by another person or entity to effect a takeover or otherwise gain
control of ABIOMED, since the issuance of additional shares of common stock
would dilute the voting power of the common stock then outstanding.
RIGHTS DISTRIBUTION
On August 13, 1997, the Board of Directors declared a dividend of one
preferred share purchase right for each outstanding share of common stock on
August 28, 1997 to the stockholders of record on that date. Each right entitles
the registered holder to purchase from us one one-thousandth of a share of
Series A Junior Participating Preferred Stock, par value $0.01 per share, of
ABIOMED, at a price of $90.00 per one one-thousandth of a share, subject to
adjustment.
The rights are evidenced by the common stock certificates with a copy of the
Summary of Rights attached to them until the earlier of the tenth day following
a public announcement that a person or group has acquired 15% or more of the
outstanding common stock and the tenth business day following the commencement
or announcement of a tender offer or exchange offer which would result in a
person or group owning 15% or more of the common stock. As soon as possible
after the earlier of either of the above occurrences, the rights will become
exercisable, separate certificates evidencing the rights will be mailed to
stockholders of record on the date of such occurrence and the separate
59
rights certificates alone will evidence the rights. The rights will expire on
August 13, 2007, if not redeemed earlier.
If any person acquires more than 15% of the outstanding common stock, each
holder of a right, other than rights owned by such person which will be voided,
will have the right to receive shares of common stock having twice the market
value of the exercise price of the right. If, after a person acquires 15% or
more of the outstanding common stock, we are acquired in a merger or other
business combination transaction or 50% or more of our consolidated assets or
earning power are sold, each holder of a right will have the right to receive
shares of common stock of the acquiring company which at the time of such
transaction will have twice the market value of the exercise price of the right.
Any time after a person acquires more than 15% of the outstanding common
stock and before the acquisition by any person or group of a majority of the
outstanding common stock, the Board of Directors may exchange the rights (other
than rights owned by such person or group which have become void), in whole or
in part, at an exchange ratio of one share of common stock per right, subject to
adjustment. The Board of Directors may redeem the rights, in whole, but not in
part, at any time before a person acquires 15% or more of the outstanding common
stock. The redemption price shall be $0.001 per right. The Board of Directors,
in its own discretion, may determine the time of effectiveness and the terms of
the redemption. The right to exercise any rights will terminate when they are
redeemed. The only right of the holders of the rights after redemption will be
to receive the redemption price.
The Board of Directors may amend the terms of the rights without the
approval of the holders of the rights. However, after a person acquires 15% or
more of the outstanding common stock, the Board of Directors may not adversely
affect the interests of the holders of the rights.
DELAWARE TAKEOVER STATUTE
As a Delaware corporation, we are subject to the General Corporation Law of
the State of Delaware, including Section 203, an anti-takeover law enacted in
1988. In general, Section 203 restricts the ability of a public Delaware
corporation from engaging in a "business combination" with an "interested
stockholder" for a period of three years after the date of the transaction in
which the person became an interested stockholder. An interested stockholder
includes any person or entity who in the last three years obtained 15% or more
of any class or series of stock entitled to vote generally in the election of
directors. However, if the Board of Directors or two-thirds of the outstanding
shares of each class of stock approved the transaction, the person is not deemed
to be an interested stockholder. Because we have not opted out of the provisions
of this law, it applies to us. As a result, potential acquirors may be
discouraged from attempting to acquire us. This may have the effect of depriving
our stockholders of acquisition opportunities to sell or otherwise dispose our
stock at above-market prices typical of such acquisitions.
TRANSFER AGENT AND REGISTRAR
The Transfer Agent and Registrar for the common stock is Boston EquiServe
LP.
60
UNDERWRITING
We are offering the shares of common stock described in this prospectus
through a number of underwriters. Banc of America Securities LLC and Salomon
Smith Barney Inc. are the representatives of the underwriters. We have entered
into a firm commitment underwriting agreement with the representatives. Subject
to the terms and conditions of the underwriting agreement, we have agreed to
sell to each of the underwriters, and the underwriters have each agreed to
purchase, the number of shares of common stock listed next to its name in the
following table.
NUMBER
UNDERWRITER OF SHARES
- ----------- ---------
Banc of America Securities LLC..............................
Salomon Smith Barney Inc....................................
---------
Total..................................................... 1,500,000
=========
The underwriters initially will offer shares to the public at the price
specified on the cover page of this prospectus. The underwriters may allow to
some dealers a concession of not more than $ per share. The underwriters
also may allow, and any dealers may reallow, a concession of not more than $
per share to some other dealers. If all the shares are not sold at the public
offering price, the underwriters may change the offering price and the other
selling terms. The common stock is offered subject to a number of conditions,
including:
- receipt and acceptance of our common stock by the underwriters; and
- the right to reject orders in whole or in part.
The underwriters have an option to buy up to 125,000 additional shares of
common stock from ABIOMED and an option to buy up to 100,000 additional shares
of common stock from Dr. David M. Lederman. These additional shares would cover
sales of shares by the underwriters which exceed the number of shares specified
in the table above, and will be sold first by Dr. Lederman and then by ABIOMED
in the event that the option is not exercised in full. The underwriters have
30 days to exercise this option. If the underwriters exercise this option, they
will each purchase additional shares approximately in proportion to the amounts
specified in the table above. ABIOMED will pay the expenses, other than the
underwriting discounts and commissions paid by Dr. Lederman, associated with the
exercise of the over-allotment option.
The following table shows the per share and total underwriting discounts and
commissions to be paid to the underwriters and the estimated offering expenses
to be paid by ABIOMED and
61
Dr. Lederman. These amounts are shown assuming no exercise and full exercise of
the underwriters' option to purchase additional shares.
PAID BY ABIOMED
---------------------------
NO EXERCISE FULL EXERCISE
----------- -------------
Per share............................................ $ $
Total................................................ $ $
PAID BY DR. LEDERMAN
---------------------------
NO EXERCISE FULL EXERCISE
----------- -------------
Per share............................................ -- $
Total................................................ -- $
ABIOMED, each of its executive officers and directors, and certain of their
family members and trusts who own securities of ABIOMED, and Genzyme
Corporation, which holds 1,153,846 shares of common stock, have entered into
lock-up agreements with the underwriters. Under those agreements, ABIOMED and
those holders of stock and options may not dispose of or hedge any ABIOMED
common stock or securities convertible into or exchangeable for shares of
ABIOMED common stock. These restrictions will be in effect for a period of
90 days after the date of this prospectus. At any time and without notice, Banc
of America Securities LLC may, in its sole discretion, release all or some of
the securities from these lock-up agreements.
ABIOMED and Dr. Lederman will indemnify the underwriters against
liabilities, including liabilities under the Securities Act. If ABIOMED and
Dr. Lederman are unable to provide this indemnification, it will contribute to
payments the underwriters may be required to make in respect of those
liabilities.
In connection with this offering, the underwriters may purchase and sell
shares of common stock in the open market. These transactions may include:
- short sales;
- stabilizing transactions; and
- purchases to cover positions created by short sales.
Short sales involve the sale by the underwriters of a greater number of
shares than they are required to purchase in this offering. Stabilizing
transactions consist of bids or purchases made for the purpose of preventing or
retarding a decline in the market price of the common stock while this offering
is in progress.
The underwriters may also impose a penalty bid. This means that if the
representatives purchase shares in the open market in stabilizing transactions
or to cover short sales, the representatives can require the underwriters that
sold those shares as part of this offering to repay the underwriting discount
received by them.
The underwriters may engage in activities that stabilize, maintain or
otherwise affect the price of the common stock, including:
- over-allotment;
- stabilization;
- syndicate covering transactions; and
- imposition of penalty bids.
62
As a result of these activities, the price of the common stock may be higher
than the price that otherwise might exist in the open market. If the
underwriters commence these activities, they may discontinue them at any time.
The underwriters may carry out these transactions on the Nasdaq National Market,
in the over-the-counter-market or otherwise.
In connection with this offering, some underwriters and any selling group
members who are qualified market makers on the Nasdaq National Market may engage
in passive market making transactions in the common stock on the Nasdaq National
Market in accordance with Rule 103 of Regulation M, during the business day
before the pricing of the offering, before the commencement of offers or sales
of the common stock. Passive market makers must comply with applicable volume
and price limitations and must be identified as a passive market maker. In
general, a passive market maker must display its bid at a price not in excess of
the highest independent bid for the security; if all independent bids are
lowered below the passive market maker's bid, however, the bid must then be
lowered when purchase limits are exceeded.
LEGAL MATTERS
Foley, Hoag & Eliot LLP, Boston, Massachusetts, will pass on the validity of
the common stock offered by this prospectus for us. A partner at that firm and
members of his immediate family own an aggregate of 4,000 shares of our common
stock. Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, P.C., Boston,
Massachusetts, will pass upon certain legal matters in connection with this
offering for the underwriters.
EXPERTS
The audited financial statements included and incorporated by reference in
this prospectus and elsewhere in the registration statement have been audited by
Arthur Andersen LLP, independent public accountants, as indicated in their
reports with respect thereto, and are included herein in reliance upon the
authority of said firm as experts in accounting and auditing.
WHERE YOU CAN FIND MORE INFORMATION
We file annual, quarterly and current reports, proxy statements and other
information with the SEC. You may read and copy any document we file at the
SEC's public reference room at 450 Fifth Street, NW, Washington, D.C., 20549,
and at the SEC's public reference rooms in Chicago, Illinois and New York, New
York. Please call the SEC at 1-800-SEC-0330 for further information concerning
the public reference rooms. Our SEC filings are also available to the public on
the SEC's website at HTTP://WWW.SEC.GOV.
We have filed with the SEC a registration statement on Form S-3 under the
Securities Act of 1933 with respect to the common stock offered in connection
with this prospectus. This prospectus does not contain all of the information
set forth in the registration statement. We have omitted certain parts of the
registration statement in accordance with the rules and regulations of the SEC.
For further information with respect to us and the common stock, you should
refer to the registration statement. Statements contained in this prospectus as
to the contents of any contract or other document are not necessarily complete
and, in each instance, you should refer to the copy of such contract or document
filed as an exhibit to or incorporated by reference in the registration
statement. Each statement as to the contents of such contract or document is
qualified in all respects by such reference. You may obtain copies of the
registration statement from the SEC's principal office in Washington, D.C. upon
payment of the fees prescribed by the SEC, or you may examine the registration
statement without charge at the offices of the SEC described above.
The SEC allows us to "incorporate by reference" the information we file with
them, which means that we can disclose important information to you by referring
you to those documents. The
63
information incorporated by reference is considered to be part of this
prospectus, and information that we file later with the SEC will automatically
update and supersede this information. We incorporate by reference the documents
listed below and any future filings we will make with the SEC under Sections
13(a), 13(c), 14 or 15(d) of the Securities Exchange Act of 1934.
(1) Annual Report on Form 10-K for the fiscal year ended March 31, 1999;
(2) Quarterly Report on Form 10-Q for the fiscal quarter ended June 30,
1999;
(3) Quarterly Report on Form 10-Q for the fiscal quarter ended
September 30, 1999;
(4) Quarterly Report on Form 10-Q for the fiscal quarter ended December 31,
1999;
(5) Proxy Statement used for our annual meeting of stockholders held on
August 11, 1999; and
(6) the description of our common stock and the rights we distributed to
stockholders in 1997 contained in our registration statements on
Form 8-A filed with the SEC on June 11, 1987 and August 25, 1997.
You may request a copy of these filings at no cost, by writing or
telephoning at the following address:
ABIOMED, Inc.
Investor Relations
22 Cherry Hill Drive
Danvers, Massachusetts 01923
(978) 777-5410
You should rely only on the information or representations provided in this
prospectus. We have authorized no one to provide you with different information.
We are not making an offer of these securities in any state where the offer is
not permitted. You should not assume that the information in this prospectus is
accurate as of any date other than the date on the front of the document.
64
ABIOMED, INC. AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
PAGE
--------
Report of Independent Public Accountants.................... F-2
Consolidated Balance Sheets as of March 31, 1998 and 1999
and December 31, 1999 (unaudited)......................... F-3
Consolidated Statements of Operations for the Fiscal Years
Ended March 31, 1997, 1998 and 1999 and for the Nine
Months Ended December 31, 1998 and 1999 (unaudited)....... F-4
Consolidated Statements of Stockholders' Equity for the
Fiscal Years Ended March 31, 1997, 1998 and 1999 and for
the Nine Months Ended December 31, 1999 (unaudited)....... F-5
Consolidated Statements of Cash Flows for the Fiscal Years
Ended March 31, 1997, 1998 and 1999 and for the Nine
Months Ended December 31, 1998 and 1999 (unaudited)....... F-6
Notes to Consolidated Financial Statements.................. F-7
F-1
ABIOMED, INC. AND SUBSIDIARIES
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To ABIOMED, Inc.:
We have audited the accompanying consolidated balance sheets of
ABIOMED, Inc. (a Delaware corporation) and subsidiaries as of March 31, 1998 and
1999, and the related consolidated statements of operations, stockholders'
equity and cash flows for each of the three years in the period ended March 31,
1999. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of ABIOMED, Inc. and
subsidiaries as of March 31, 1998 and 1999, and the results of their operations
and their cash flows for each of the three years in the period ended March 31,
1999, in conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Boston, Massachusetts
April 30, 1999
F-2
ABIOMED, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
MARCH 31,
--------------------------- DECEMBER 31,
1998 1999 1999
------------ ------------ ------------
(UNAUDITED)
ASSETS
Current Assets:
Cash and cash equivalents (Note 1).................... $ 2,683,151 $ 9,279,210 $ 5,006,089
Short-term marketable securities (Note 1)............. 23,714,641 8,902,031 7,705,207
Accounts receivable, net of allowance for doubtful
accounts of approximately $204,000 at March 31, 1998
and 1999 and $208,000 at December 31, 1999.......... 5,356,348 6,437,225 6,861,816
Inventories (Note 1).................................. 2,327,442 2,895,857 3,616,971
Prepaid expenses and other current assets............. 208,387 335,403 460,566
------------ ------------ ------------
Total current assets.............................. 34,289,969 27,849,726 23,650,649
------------ ------------ ------------
Property and Equipment, at cost (Notes 1 and 6):
Machinery and equipment............................... 4,100,905 5,443,930 5,849,970
Furniture and fixtures................................ 533,460 575,166 662,028
Leasehold improvements................................ 1,561,189 1,728,351 2,276,210
------------ ------------ ------------
6,195,554 7,747,447 8,788,208
Less--Accumulated depreciation and amortization....... 2,674,238 3,884,088 5,453,161
------------ ------------ ------------
3,521,316 3,863,359 3,335,047
------------ ------------ ------------
Other Assets, net (Note 8).............................. 943,839 1,268,536 1,033,126
------------ ------------ ------------
$ 38,755,124 $ 32,981,621 $ 28,018,822
============ ============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable...................................... $ 2,057,473 $ 874,648 $ 1,945,154
Accrued expenses (Note 10)............................ 2,948,604 4,830,620 5,189,995
Current portion of long-term liabilities (Notes 4 and
6).................................................. -- -- 132,596
------------ ------------ ------------
Total current liabilities......................... 5,006,077 5,705,268 7,267,745
------------ ------------ ------------
Long-Term Liabilities:
Other long-term liabilities........................... 63,604 204,816 186,136
Capital lease obligations, net of current portion
(Note 6)............................................ -- -- 146,544
Note payable to bank, net of current portion (Note 4) -- -- 178,960
------------ ------------ ------------
Total long-term liabilities....................... 63,604 204,816 511,640
------------ ------------ ------------
Liabilities of Discontinued Operations, net (Note 2).... 667,466 -- --
------------ ------------ ------------
Commitments and Contingencies (Notes 6 and 8)
Stockholders' Equity (Notes 3 and 7):
Class B Preferred Stock, $.01 par value--Authorized--
1,000,000 shares; issued and outstanding--none...... -- -- --
Common Stock, $.01 par value--Authorized--25,000,000
shares; issued and outstanding--8,567,015, 8,650,802
and 8,703,873 shares at March 31, 1998, March 31,
1999 and December 31, 1999, respectively............ 85,670 86,508 87,039
Additional paid-in capital............................ 57,454,983 58,219,906 58,771,418
Accumulated deficit................................... (24,522,676) (31,234,877) (38,619,020)
------------ ------------ ------------
Total stockholders' equity........................ 33,017,977 27,071,537 20,239,437
------------ ------------ ------------
$ 38,755,124 $ 32,981,621 $ 28,018,822
============ ============ ============
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL
STATEMENTS.
F-3
ABIOMED, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
NINE MONTHS ENDED
YEARS ENDED MARCH 31, DECEMBER 31,
--------------------------------------- -------------------------
1997 1998 1999 1998 1999
----------- ----------- ----------- ----------- -----------
(UNAUDITED)
Revenues (Note 1):
Products................................. $10,872,203 $17,260,577 $18,078,957 $12,362,820 $12,810,447
Contracts................................ 4,150,752 5,184,859 4,010,647 3,534,550 3,653,205
----------- ----------- ----------- ----------- -----------
15,022,955 22,445,436 22,089,604 15,897,370 16,463,652
----------- ----------- ----------- ----------- -----------
Costs and Expenses:
Cost of product revenues................. 4,427,189 6,502,256 6,772,132 4,700,749 4,082,785
Research and development (Note 1)........ 3,772,609 9,090,517 13,449,545 10,632,147 11,438,429
Selling, general and administrative...... 6,081,884 9,054,095 9,772,292 6,839,974 8,934,082
----------- ----------- ----------- ----------- -----------
14,281,682 24,646,868 29,993,969 22,172,870 24,455,296
----------- ----------- ----------- ----------- -----------
Income (Loss) From Operations.............. 741,273 (2,201,432) (7,904,365) (6,275,500) (7,991,644)
Interest and other income, net........... 535,104 1,206,317 1,192,164 944,707 607,501
----------- ----------- ----------- ----------- -----------
Income (Loss) From Continuing Operations... 1,276,377 (995,115) (6,712,201) (5,330,793) (7,384,143)
Loss From Discontinued Operations (Note
2)....................................... (541,113) (1,512,649) -- -- --
----------- ----------- ----------- ----------- -----------
Net Income (Loss).......................... $ 735,264 $(2,507,764) $(6,712,201) $(5,330,793) $(7,384,143)
=========== =========== =========== =========== ===========
Income (Loss) from Continuing Operations
per Share (Note 1):
Basic.................................... $ 0.18 $ (0.12) $ (0.78) $ (0.62) $ (0.85)
Diluted.................................. 0.18 (0.12) (0.78) (0.62) (0.85)
Loss from Discontinued Operations per Share
(Notes 1 and 2):
Basic.................................... (0.07) (0.19) -- -- --
Diluted.................................. (0.08) (0.19) -- -- --
----------- ----------- ----------- ----------- -----------
Net Income (Loss) per Share (Note 1):
Basic.................................... $ 0.11 $ (0.31) $ (0.78) $ (0.62) $ (0.85)
Diluted.................................. 0.10 (0.31) (0.78) (0.62) (0.85)
=========== =========== =========== =========== ===========
Weighted Average Shares Outstanding
(Note 1):
Basic.................................... 6,978,569 8,074,150 8,619,100 8,611,353 8,660,814
Diluted.................................. 7,162,347 8,074,150 8,619,100 8,611,353 8,660,814
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL
STATEMENTS.
F-4
ABIOMED, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
CLASS A
COMMON STOCK COMMON STOCK
--------------------- ---------------------- ADDITIONAL TOTAL
NUMBER $.01 NUMBER $.01 PAID-IN ACCUMULATED STOCKHOLDERS'
OF SHARES PAR VALUE OF SHARES PAR VALUE CAPITAL DEFICIT EQUITY
--------- --------- ---------- --------- ----------- ------------ -------------
Balance, March 31, 1996............. 5,518,054 $55,180 1,428,000 $14,280 $36,625,221 $(22,750,176) $13,944,505
Conversion of Class A Common Stock
to Common Stock................. 1,428,000 14,280 (1,428,000) (14,280) -- -- --
Stock options exercised........... 59,112 611 -- -- 533,142 -- 533,753
Stock issued to directors and
under employee stock purchase
plan............................ 3,116 11 -- -- 11,530 -- 11,541
Net income........................ -- -- -- -- -- 735,264 735,264
--------- ------- ---------- ------- ----------- ------------ -----------
Balance, March 31, 1997............. 7,008,282 70,082 -- -- 37,169,893 (22,014,912) 15,225,063
Sales of Common Stock, net........ 1,532,710 15,327 -- -- 20,054,077 -- 20,069,404
Stock options exercised........... 20,015 200 -- -- 151,180 -- 151,380
Stock issued to directors and
under employee stock purchase
plan............................ 6,008 61 -- -- 79,833 -- 79,894
Net loss.......................... -- -- -- -- -- (2,507,764) (2,507,764)
--------- ------- ---------- ------- ----------- ------------ -----------
Balance, March 31, 1998............. 8,567,015 85,670 -- -- 57,454,983 (24,522,676) 33,017,977
Stock options exercised........... 69,400 694 -- -- 635,447 -- 636,141
Stock issued to directors and
under employee stock purchase
plan............................ 14,387 144 -- -- 129,476 -- 129,620
Net loss.......................... -- -- -- -- -- (6,712,201) (6,712,201)
--------- ------- ---------- ------- ----------- ------------ -----------
Balance, March 31, 1999............. 8,650,802 86,508 -- -- 58,219,906 (31,234,877) 27,071,537
Stock options exercised
(unaudited)..................... 48,431 485 -- -- 502,258 -- 502,743
Stock issued to directors and
under employee stock purchase
plan (unaudited)................ 4,640 46 -- -- 49,254 -- 49,300
Net loss (unaudited).............. -- -- -- -- -- (7,384,143) (7,384,143)
--------- ------- ---------- ------- ----------- ------------ -----------
Balance, December 31, 1999
(unaudited)....................... 8,703,873 $87,039 -- -- $58,771,418 $(38,619,020) $20,239,437
========= ======= ========== ======= =========== ============ ===========
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL
STATEMENTS.
F-5
ABIOMED, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
NINE MONTHS ENDED
YEARS ENDED MARCH 31, DECEMBER 31,
------------------------------------------ --------------------------
1997 1998 1999 1998 1999
------------ ------------ ------------ ------------ -----------
(UNAUDITED)
Cash Flows from Operating Activities:
Net income (loss)....................... $ 735,264 $ (2,507,764) $ (6,712,201) $ (5,330,793) $(7,384,143)
Adjustments to reconcile net income
(loss) to net cash used in operating
activities:
Depreciation and amortization......... 424,225 876,939 1,385,988 1,171,885 1,718,078
Changes in assets and liabilities:
Accounts receivable, net............ (2,217,017) (805,313) (1,080,877) 45,862 (424,591)
Inventories......................... (39,362) (858,704) (568,415) (1,096,776) (721,114)
Prepaid expenses and other assets... (80,892) (266,941) (627,851) (116,999) (38,758)
Assets and liabilities of
discontinued operations, net...... (56,591) 1,155,934 (667,466) (197,123) --
Accounts payable.................... 511,081 768,449 (1,182,825) (891,316) 1,070,506
Accrued expenses.................... 514,611 1,013,650 1,882,016 801,633 359,375
Long-term liabilities............... -- (63,604) 141,212 48,951 (18,680)
------------ ------------ ------------ ------------ -----------
Net cash used in operating
activities...................... (208,681) (687,354) (7,430,419) (5,564,676) (5,439,327)
------------ ------------ ------------ ------------ -----------
Cash Flows from Investing Activities:
Proceeds from the sale of short-term
marketable securities................. 43,654,918 50,501,474 40,360,661 32,824,871 9,690,457
Purchases of short-term marketable
securities............................ (43,690,472) (66,471,451) (25,548,051) (25,722,293) (8,493,633)
Purchases of property and equipment..... (1,591,846) (2,540,168) (1,551,893) (1,418,669) (819,770)
------------ ------------ ------------ ------------ -----------
Net cash (used in) provided by
investing activities................ (1,627,400) (18,510,145) 13,260,717 5,683,909 377,054
------------ ------------ ------------ ------------ -----------
Cash Flows from Financing Activities:
Proceeds from sales of Common Stock,
net................................... -- 20,069,404 -- -- --
Proceeds from exercise of stock options
and stock issued under employee
purchase plan......................... 545,294 231,274 765,761 687,506 552,043
Proceeds from long-term debt............ -- -- -- -- 249,459
Repayment of long-term debt and capital
lease obligations..................... -- -- -- -- (12,350)
------------ ------------ ------------ ------------ -----------
Net cash provided by financing
activities.......................... 545,294 20,300,678 765,761 687,506 789,152
------------ ------------ ------------ ------------ -----------
Net (Decrease) Increase in Cash and Cash
Equivalents............................. (1,290,787) 1,103,179 6,596,059 806,739 (4,273,121)
Cash and Cash Equivalents, excluding
marketable securities, at beginning of
period.................................. 2,870,759 1,579,972 2,683,151 2,683,151 9,279,210
------------ ------------ ------------ ------------ -----------
Cash and Cash Equivalents, excluding
marketable securities, at end of
period.................................. $ 1,579,972 $ 2,683,151 $ 9,279,210 $ 3,489,890 $ 5,006,089
============ ============ ============ ============ ===========
Supplemental Disclosure of Non-cash
Financing Activities:
Capital lease obligation incurred for
property and equipment................ -- -- -- -- $ 220,991
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL
STATEMENTS.
F-6
ABIOMED, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS)
(1) SUMMARY OF OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES
ABIOMED, Inc. and subsidiaries (the "Company") is engaged in the
development, manufacture and marketing of medical products designed to safely
and effectively assist or replace the pumping function of the failing heart. The
Company markets and sells the BVS-5000 system, a bi-ventricular temporary
artificial heart and is developing the AbioCor-TM- Implantable Replacement
Heart. The accompanying consolidated financial statements reflect the
application of certain significant accounting policies described below.
(A) PRINCIPLES OF CONSOLIDATION
The accompanying consolidated financial statements include the accounts of
the Company and its wholly owned subsidiaries, and the accounts of its
majority-owned subsidiary Abiomed Limited Partnership. All significant
intercompany accounts and transactions have been eliminated in consolidation.
(B) USES OF ESTIMATES IN THE PREPARATION OF FINANCIAL STATEMENTS
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements, and the reported amounts of revenue and expenses during the
reporting period. Actual results could differ from those estimated or assumed.
(C) INTERIM FINANCIAL STATEMENTS
The accompanying consolidated financial statements include amounts from
interim periods ended December 31, 1998 and 1999 that are unaudited but, in the
opinion of management, include all adjustments (consisting only of normal,
recurring adjustments) necessary for a fair presentation of results for these
interim periods. The results of operations for the nine months ended
December 31, 1999 are not necessarily indicative of results to be expected for
the fiscal year ending March 31, 2000.
(D) PRODUCT REVENUES
The Company recognizes product revenues at the time products are shipped to
customers. Service revenues, which are not material, are recognized ratably over
the periods of the service contracts. In fiscal 1997, 1998, 1999 and the nine
months ended December 31, 1998 and 1999, all product revenues were derived from
sales of the BVS 5000 and 7%, 6%, 3%, 4% and 4%, respectively, of product
revenues were derived from customers located outside of the United States. No
customer accounted for greater than 10% of product revenues during fiscal 1997,
1998, 1999 or the nine months ended December 31, 1998 and 1999.
(E) CONTRACT REVENUES
Research and development is a significant portion of the Company's
operations. The Company's research and development efforts are focused on the
development of new products, primarily related to cardiac assist and heart
replacement, including the continued enhancement of the BVS and related
technologies. A portion of the Company's research and development expenses have
been supported by
F-7
ABIOMED, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS)
(1) SUMMARY OF OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
contracts and grants with various government agencies. The Company's
government-sponsored research and development contracts and grants generally
provide for payment on a cost-plus-fixed-fee basis. The Company recognizes
revenues under its government contracts and grants as work is performed,
provided that the government has appropriated sufficient funds for the work. The
Company retains rights to all technological discoveries and products resulting
from these efforts. Costs associated with these contracts and grants are
recorded in the accompanying consolidated statements of operations as part of
research and development expenses and totaled approximately $3,232,000,
$4,110,000, $2,957,000, $2,650,000 and $2,659,000 for fiscal 1997, 1998, 1999
and the nine months ended December 31, 1998 and 1999, respectively.
The Company, at its sole discretion, may elect to further develop
government-funded technologies or products by spending resources outside or
above the contract limits. In fiscal 1999 and during the nine months ended
December 31, 1999, the majority of the Company's research and development
expenditures were directed to development of the AbioCor Implantable Replacement
Heart. These expenditures included amounts funded under the Company's government
contract and amounts funded from the Company's own resources. Company funding of
such expenses is discretionary and not included in the contracts and grants
costs per above.
(F) INVENTORIES
Inventories are stated at the lower of cost (first-in, first-out) or market
and consist of the following:
MARCH 31,
----------------------- DECEMBER 31,
1998 1999 1999
---------- ---------- ------------
Raw materials............................ $1,320,600 $1,403,253 $1,390,933
Work-in-process.......................... 483,723 636,125 726,496
Finished goods........................... 523,119 856,479 1,499,542
---------- ---------- ----------
$2,327,442 $2,895,857 $3,616,971
========== ========== ==========
Finished goods and work-in-process inventories consist of direct material,
labor and overhead.
(G) DEPRECIATION AND AMORTIZATION
The Company provides for depreciation and amortization by charges to
operations in amounts that allocate the cost of depreciable assets over their
estimated useful lives as follows:
ESTIMATED
CLASSIFICATION METHOD USEFUL LIFE
- -------------- ------------- -------------
Machinery and equipment.......................... Straight-line 3- 5 Years
Furniture and fixtures........................... Straight-line 5-10 Years
Leasehold improvements........................... Straight-line Life of lease
Machinery and equipment includes $221,000 related to assets held under a capital
lease at December 31, 1999.
F-8
ABIOMED, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS)
(1) SUMMARY OF OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(H) NET INCOME (LOSS) PER SHARE
Basic net income (loss) per share is computed by dividing net income (loss)
by the weighted average number of common shares outstanding during the period.
Diluted net income (loss) per share is computed by dividing net income (loss) by
the weighted average number of dilutive common shares outstanding during the
period. Diluted weighted average shares reflect the dilutive effect, if any, of
common stock options based on the treasury stock method. No common stock options
are considered dilutive in periods, such as the fiscal years ended March 31,
1998 and 1999 and the nine months ended December 31, 1998 and 1999, in which a
loss is reported because all such common equivalent shares are antidilutive. The
number of shares that otherwise would have been dilutive for the fiscal years
ended March 31, 1998 and 1999 and the nine months ended December 31, 1998 and
1999 are 287,709, 95,426, 135,599 and 517,116, respectively.
(I) CASH AND CASH EQUIVALENTS
The Company classifies any marketable security with a maturity date of
90 days or less at the time of purchase as a cash equivalent.
(J) MARKETABLE SECURITIES
The Company classifies any security with a maturity of greater than 90 days
at the time of purchase as marketable securities and classifies marketable
securities with a maturity of greater than one year from the balance sheet date
as long-term investments.
Under SFAS No. 115, ACCOUNTING FOR CERTAIN INVESTMENTS IN DEBT AND EQUITY
SECURITIES, securities that the Company has the positive intent and ability to
hold to maturity are reported at amortized cost and classified as
held-to-maturity securities.
The Company has classified all marketable securities at March 31, 1998 and
1999 and December 31, 1999 as held-to-maturity securities. The amortized cost
and market value of marketable securities were approximately $23,715,000 and
$23,886,000 at March 31, 1998, $14,102,000 and $14,188,000 at March 31, 1999,
and $11,874,000 and $11,862,000 at December 31, 1999, respectively. At
March 31, 1999 and December 31, 1999, these short-term investments consisted
primarily of government grade securities.
(K) DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS
As of March 31, 1998 and 1999 and December 31, 1999, the Company's financial
instruments were comprised of cash and cash equivalents, marketable securities,
accounts receivable, accounts payable and capital lease obligations, the
carrying amounts of which approximated fair market value.
(L) COMPREHENSIVE INCOME
SFAS No. 130, REPORTING COMPREHENSIVE INCOME, requires disclosure of all
components of comprehensive income and loss on an annual and interim basis.
Comprehensive income and loss is defined as the change in equity of a business
enterprise during a period from transactions and other events and circumstances
from non-owner sources. There were no components of comprehensive income or loss
that require disclosure for the years ending March 31, 1997, 1998, and 1999 or
for the nine months ended December 31, 1998 and 1999.
F-9
ABIOMED, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS)
(1) SUMMARY OF OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(M) SEGMENT AND ENTERPRISE WIDE DISCLOSURES
SFAS No. 131, DISCLOSURES ABOUT SEGMENTS OF AN ENTERPRISE AND RELATED
INFORMATION, requires certain financial and supplementary information to be
disclosed on an annual and interim basis for each reportable segment of an
enterprise. The Company believes that it operates in one business segment: the
research, development, and sale of medical devices to assist or replace the
pumping function of the failing heart.
(N) RECLASSIFICATION OF PRIOR YEAR AMOUNTS
Certain prior year financial statement information has been reclassified to
be consistent with the current year presentation.
(O) RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998, the FASB issued SFAS No. 133, ACCOUNTING FOR DERIVATIVE
INSTRUMENTS AND HEDGING ACTIVITIES, as amended by SFAS No. 137, effective for
years beginning after June 15, 2000 but permitting early adoption as of the
beginning of any fiscal quarter after its issuance. The Company adopted the new
statement effective January 1, 1999. The new standard requires that all
companies record derivatives on the balance sheet as assets or liabilities,
measured at fair value. Gains or losses resulting from changes in the values of
those derivatives would be accounted for depending on the use of the derivative
and whether it qualifies for hedge accounting. The statement does not have an
effect on the Company's results of operations or financial position.
(2) DISCONTINUED OPERATIONS
In fiscal 1998, the Company made the decision to shift all of its focus to
the Company's core cardiovascular business and to sell, license or otherwise
dispose of its dental business. The Company reported a $1,513,000 loss, $0.19
per share, from discontinued operations for the year ended March 31, 1998. This
loss included a $967,000 provision for estimated losses to be incurred through
the date of final disposition, including the disposal of assets and
extinguishment of the liabilities of the business.
In fiscal 1999, the Company incurred costs associated with the
discontinuance of operations of $402,000, and wrote off all remaining assets
totaling $335,000. As of March 31, 1999 and December 31, 1999, reserves of
$230,000 and $203,000, respectively, remain as a contingency against additional
costs associated with the discontinuation of the dental business.
(3) CAPITAL STOCK
Each share of Common Stock has a voting right of one vote per share and
generally has the right to elect, as a class, at least 25% of the Company's
directors. During fiscal 1997, 1,428,000 shares of Class A Common Stock,
representing all of the remaining shares of Class A Common Stock, were converted
to Common Stock.
In July 1997, the Company completed a private placement of 1,242,710 shares
of its Common Stock to Genzyme Corporation and certain of the Company's
directors. Proceeds to the Company from the private placement, net of direct
expenses of approximately $145,000, totaled approximately $16,010,000.
F-10
ABIOMED, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS)
(3) CAPITAL STOCK (CONTINUED)
In November 1997, the Company completed an offering of 290,000 shares of its
Common Stock. Proceeds to the Company from the stock offering, net of direct
expenses of approximately $725,000, totaled approximately $4,060,000.
The Company has authorized 1,000,000 shares of Class B Preferred Stock, $.01
par value, of which the designation, rights and privileges can be set by the
Board of Directors. No shares of Class B Preferred Stock have been issued or are
outstanding.
In August 1997, the Company declared a dividend of one Preferred Share
Purchase Right (the "Right") for each outstanding share of Common Stock to its
stockholders of record at August 28, 1997. Each right entitles the registered
holder to purchase from the Company one one-thousandth of a share of Series A
Junior Participating Preferred Stock with a par value of $0.01 per share, at a
price of $90.00 per one one-thousandth of a share, subject to amendment. In
accordance with the terms set forth in the Rights Agreement, the Rights are not
exercisable until the occurrence of certain events, as defined. In addition, the
registered holders of the Rights will have no rights as a Common stockholder of
the Company until the Rights are exercised. The terms of the Rights may be
amended by the Board of Directors. The Rights expire on August 13, 2007.
(4) LINES OF CREDIT WITH A BANK
The Company has an unsecured demand line of credit agreement with a bank
under which it can borrow up to $3,000,000 at the bank's prime rate (8.5% at
December 31, 1999). The Company is required to maintain a compensating balance
of $100,000 plus 5% of any amounts outstanding under the arrangement. The line
of credit expires in October 2000. There were no borrowings under the Company's
line of credit at March 31, 1998 and 1999 and December 31, 1999.
On October 14, 1999, the Company entered into an agreement with the bank
whereby it will be able to draw up to $1.2 million in term loans through
March 31, 2000 for the acquisition of manufacturing equipment and leasehold
improvements. These promissory notes are subject to various financing covenants,
secured by the acquired equipment and leasehold improvements and are to be
repaid in equal monthly installments through September 1, 2003. These notes will
bear interest at either the bank's prime rate or LIBOR rate, at the Company's
election. Through December 31, 1999, the Company has borrowed a total of
$249,000 under this loan facility at the bank's prime rate, of which $244,000
remains outstanding as of that date.
(5) INCOME TAXES
The Company accounts for income taxes in accordance with the provisions of
SFAS No. 109, ACCOUNTING FOR INCOME TAXES. The asset and liability approach used
under SFAS No. 109 requires recognition of deferred tax assets and liabilities
for the expected future tax consequences of temporary differences between the
carrying amounts and the tax basis of other assets and liabilities.
At March 31, 1999, the Company had available net operating loss
carryforwards of approximately $28,908,000. The Company also had available, at
March 31, 1999, approximately $1,171,000 of tax credit carryforwards to reduce
future federal income taxes, if any. The net operating loss and tax credit
carryforwards expire through 2019. These carryforwards are subject to review by
the Internal Revenue Service and may be subject to limitation in any given year
under certain conditions.
F-11
ABIOMED, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS)
(5) INCOME TAXES (CONTINUED)
The following table summarizes the Company's approximate net operating loss
(NOL) and credit carryforwards that are available as of March 31, 1999 to offset
future taxable income and income tax, respectively. The NOLs and carryforwards
are organized by the fiscal year in which they were generated.
TAX DATES OF
NOL CREDITS EXPIRATION
----------- ---------- ----------------------
Year Ended March 31,
1987............................... $ -- $ 52,000 3/31/02
1989............................... -- 144,000 3/31/04
1990............................... 532,000 -- 3/31/05
1991............................... 3,116,000 50,000 3/31/06
1992............................... 6,973,000 61,000 3/31/07
1993............................... 5,081,000 75,000 3/31/08
1994............................... 3,334,000 73,000 3/31/09
1995............................... 1,254,000 64,000 3/31/10
1996............................... -- 28,000 3/31/11
1997............................... -- 104,000 3/31/12
1998............................... 1,405,000 270,000 3/31/13
1999............................... 7,213,000 250,000 3/31/14--3/31/19
----------- ----------
$28,908,000 $1,171,000
=========== ==========
The Company has not given recognition to any of these future tax benefits in
the accompanying consolidated financial statements due to the uncertainty
surrounding the timing of the realization of the tax benefits. The Company has
placed a valuation allowance of approximately $15,515,000 as of March 31, 1999
against its otherwise recognizable net deferred tax asset.
The deferred tax asset consisted of the following:
MARCH 31,
---------------------------
1998 1999
------------ ------------
Net operating loss and tax credit carryforwards............. $ 9,374,000 $ 12,734,000
Purchase of technology (Note 8)............................. 1,068,000 815,000
Nondeductible reserves...................................... 241,000 366,000
Nondeductible accruals...................................... 879,000 1,192,000
Depreciation................................................ 169,000 169,000
Other, net.................................................. 533,000 239,000
------------ ------------
12,264,000 15,515,000
Less--Valuation allowance................................... (12,264,000) (15,515,000)
------------ ------------
$ -- $ --
============ ============
F-12
ABIOMED, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS)
(6) COMMITMENTS
(a) As of March 31, 1999, the Company had entered into leases for its
facilities and certain equipment under various operating lease agreements
with terms through fiscal 2010. Total rent expense under these leases,
included in the accompanying consolidated statements of operations, was
approximately $324,000, $360,000, $350,000, $272,000 and $429,000 for
fiscal 1997, 1998 and 1999 and the nine months ended December 31, 1998
and 1999, respectively.
(b) The Company maintains various insurance coverage. Most policies renew on
a fiscal year basis while certain policies have been secured for
three-year periods. Future insurance obligations under these insurance
policies over the remaining policy terms are approximately $303,000 and
$144,000 as of March 31, 1999 and December 31, 1999, respectively.
(c) As of December 31, 1999, the Company had entered into 36-month operating
leases totaling approximately $652,000 of office furniture to be used at
its new leased facility at 22 Cherry Hill Drive, Danvers, Massachusetts.
At the end of the initial terms, the Company can either; 1) renew the
leases for additional 12-month option periods at the then fair market
rental value, 2) purchase the furniture at its then fair market value,
but no greater than 25% of its original purchase cost or 3) return the
furniture to the lessor. Rental expense recorded for these leases during
the nine months ended December 31, 1999 was approximately $33,000.
As of December 31, 1999, the Company has also entered into a 36-month
capital lease for computer equipment and software for approximately
$221,000. These assets are to be used in research and development
activities and general operations. At the end of the initial term, the
Company can either; 1) renew the lease for an additional 6-month option
period at a reduced rental rate, 2) purchase the equipment at its then
fair market value, but no greater than 12.5% of its original purchase
cost, or 3) return the equipment to the lessor.
Future minimum lease payments under all noncancellable operating and
capital leases as of March 31, 1999 and December 31, 1999 are
approximately as follows:
AS OF AS OF
MARCH 31, 1999 DECEMBER 31, 1999
-------------- -------------------------
OPERATING OPERATING CAPITAL
YEARS ENDED MARCH 31, LEASES LEASES LEASES
- --------------------- -------------- -------------- --------
2000................................................. $ 690,000 $ 304,000 $ 21,000
2001................................................. 999,000 1,085,000 83,000
2002................................................. 872,000 992,000 83,000
2003................................................. 775,000 874,000 55,000
2004................................................. 733,000 747,000 --
Thereafter........................................... 2,250,000 1,654,000 --
---------- ---------- --------
Total future minimum lease payments $6,319,000 $5,656,000 242,000
========== ==========
Less - amount representing interest (28,000)
--------
Present value of future minimum lease payments 214,000
Less - current portion of lease obligation (68,000)
--------
Long-term portion of lease obligation $146,000
========
F-13
ABIOMED, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS)
(7) STOCK OPTION AND PURCHASE PLANS
All stock options granted by the Company under the below-described plans
were granted at the fair value of the stock at the date of grant. Outstanding
stock options, if not exercised, expire 10 years from the date of grant.
The 1992 Combination Stock Option Plan (the Combination Plan), as amended,
was adopted in September 1992 as a combination and restatement of the Company's
then outstanding incentive stock option plan and nonqualified plan. Options
granted and outstanding under the Combination Plan are primarily held by Company
employees and generally become exercisable ratably over five years.
In addition, the Company has a nonqualified stock option plan for
non-employee directors (the Directors' Plan). The Directors' Plan, as amended,
was adopted in July 1989 and provides for grants of options to purchase 12,500
shares of the Company's Common Stock to any newly elected eligible director and
grants of additional options to purchase 12,500 shares of Common Stock to
existing directors on July 1 of each successive fifth year. These options vest
over a five-year period at the rate of 2,500 shares per year, commencing on
June 30 of the year following the date of grant. Separate from the Directors'
Plan, non-employee directors of the Company receive as compensation an annual
retainer of 400 shares of Common Stock. The Company issued 2,000 shares of its
Common Stock for this purpose in the years ending March 31, 1998 and 1999, the
fair value of which has been recorded as an expense in the accompanying
consolidated statements of operations. No shares were granted to non-employee
directors as compensation during the nine months ended December 31, 1999.
The Company adopted the 1998 Equity Incentive Plan (the Equity Incentive
Plan) in August 1998. The Equity Incentive Plan provides for grants of options
to key employees, directors, advisors and consultants as either incentive stock
options or nonqualified stock options as determined by the Company's Board of
Directors. A maximum of 500,000 shares of common stock may be awarded under this
plan. Options granted under the Equity Incentive Plan are exercisable at such
times and subject to such terms as the Board of Directors may specify at the
time of each stock option grant. As of March 31, 1999, no stock options had been
granted under the Equity Incentive Plan. In the nine months ended December 31,
1999, the Company granted options to purchase 176,200 shares under this plan at
an average exercise price of $14.51. With the exception of options to purchase
500 shares that were cancelled during the period, all of these options were
outstanding as of December 31, 1999 and none was exercisable under this plan as
of that date.
F-14
ABIOMED, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS)
(7) STOCK OPTION AND PURCHASE PLANS (CONTINUED)
The following table summarizes stock option activity under these plans:
COMBINATION PLAN DIRECTORS' PLAN
------------------------------------ -----------------------------------
WEIGHTED WEIGHTED
NUMBER AVERAGE NUMBER AVERAGE
OF EXERCISE PRICE OF EXERCISE PRICE
OPTIONS PRICE PER SHARE OPTIONS PRICE PER SHARE
--------- ------------ --------- -------- ------------ ---------
Outstanding,
March 31, 1996.......... 578,165 $0.55-$13.50 $ 9.09 90,000 $7.00-$13.88 $10.81
Granted............... 234,235 11.00-13.50 12.53 -- -- --
Exercised............. (58,912) 0.55-13.50 8.65 -- -- --
Canceled.............. (55,613) 5.75-13.50 11.45 -- -- --
--------- -------
Outstanding,
March 31, 1997.......... 697,875 5.63-13.50 10.29 90,000 7.00-13.88 10.81
Granted............... 178,850 10.00-18.00 11.91 50,000 14.00 14.00
Exercised............. (20,015) 5.63-10.63 7.56 -- -- --
Canceled.............. (37,325) 5.63-13.25 10.69 -- -- --
--------- -------
Outstanding,
March 31, 1998.......... 819,385 5.63-18.00 10.71 140,000 7.00-14.00 11.95
Granted............... 337,250 9.25-14.50 11.87 -- -- --
Exercised............. (69,400) 5.63-13.50 9.17 -- -- --
Canceled.............. (129,850) 5.63-14.94 11.77 -- -- --
--------- -------
Outstanding,
March 31, 1999.......... 957,385 5.63-18.00 11.08 140,000 7.00-14.00 11.95
Granted............... 129,850 8.88-14.88 12.96 --
Exercised............. (48,431) 5.75-18.00 10.38 --
Canceled.............. (29,750) 8.00-17.00 11.56 (7,500) 13.88 13.88
--------- -------
Outstanding,
December 31, 1999....... 1,009,054 $5.63-$18.00 $11.35 132,500 $7.00-$14.00 $11.84
========= =======
Exercisable:
March 31, 1999........ 288,037 $5.63-$13.50 $ 9.62 95,000 $7.00-$13.88 $11.14
========= =======
December 31, 1999..... 357,777 $5.63-$13.50 $10.09 100,000 $7.00-$14.00 $11.21
========= =======
Shares available for
future issuance:
March 31, 1999........ 110,107 57,500
========= =======
December 31, 1999..... 10,007 65,000
========= =======
EQUITY INCENTIVE PLAN
------------------------------------
WEIGHTED
NUMBER AVERAGE
OF EXERCISE PRICE
OPTIONS PRICE PER SHARE
-------- ------------- ---------
Outstanding,
March 31, 1996.......... -- -- --
Granted............... -- -- --
Exercised............. -- -- --
Canceled.............. -- -- --
-------
Outstanding,
March 31, 1997.......... -- -- --
Granted............... -- -- --
Exercised............. -- -- --
Canceled.............. -- -- --
-------
Outstanding,
March 31, 1998.......... -- -- --
Granted............... -- -- --
Exercised............. -- -- --
Canceled.............. -- -- --
-------
Outstanding,
March 31, 1999.......... -- -- --
Granted............... 176,200 $13.38-$30.69 $14.51
Exercised............. -- -- --
Canceled.............. (500) 13.38 13.38
-------
Outstanding,
December 31, 1999....... 175,700 $13.38-$30.69 $14.51
=======
Exercisable:
March 31, 1999........ -- $ -- $ --
=======
December 31, 1999..... -- $ -- $ --
=======
Shares available for
future issuance:
March 31, 1999........ 500,000
=======
December 31, 1999..... 324,300
=======
F-15
ABIOMED, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS)
(7) STOCK OPTION AND PURCHASE PLANS (CONTINUED)
The following table summarizes certain data for options outstanding under
the Combination, Directors' and Equity Incentive Plans at December 31, 1999.
WEIGHTED
WEIGHTED AVERAGE
AVERAGE REMAINING
NUMBER RANGE OF EXERCISE CONTRACTUAL
OF SHARES EXERCISE PRICES PRICE LIFE (YEARS)
--------- --------------- -------- ------------
Options outstanding, end of period:............. 143,600 $5.63-$8.00 $ 7.41 3.61
747,629 $8.88-$12.75 $11.36 7.06
415,525 $13.25-$18.00 $13.71 8.47
10,500 $28.25-$30.69 $30.25 9.90
---------
1,317,254 $11.82 7.15
=========
Options exercisable, end of period:............. 138,850 $5.63-$8.00 $ 7.44 3.55
267,327 $8.88-$12.75 $11.20 5.27
51,600 $13.25-$18.00 $13.65 5.05
-- $28.25-$30.69 $ -- --
---------
457,777 $10.34 4.73
=========
The Company has an Employee Stock Purchase Plan (the Purchase Plan), as
amended. Under the Purchase Plan, all employees (including officers and
directors) of the Company who have completed six months of employment are
eligible to purchase the Company's Common Stock at an exercise price equal to
85% of the fair market value of the Common Stock. The Company has reserved
100,000 shares of Common Stock for issuance under the Purchase Plan, of which
74,292 shares are available for future issuance as of March 31, 1999. During the
fiscal years ended March 31, 1998 and 1999 and the nine months ended
December 31, 1999, 4,039 shares, 12,387 shares and 4,640 shares, respectively,
of Common Stock were sold pursuant to the Purchase Plan.
SFAS No. 123, ACCOUNTING FOR STOCK-BASED COMPENSATION, requires the
measurement of the fair value of stock options, stock purchase plans, or
warrants granted to employees to be included in the statement of operations or
disclosed in the notes to financial statements. The Company has determined that
it will continue to account for stock-based compensation for employees under APB
Opinion No. 25 and elect the disclosure-only alternative under SFAS No 123. The
Company has computed the pro forma disclosures required under SFAS No. 123 for
options granted in fiscal 1997, 1998 and 1999 and the nine month periods ended
December 31, 1998 and 1999 using the Black-Scholes option pricing model
prescribed by SFAS No. 123. The weighted average information and assumptions are
as follows:
NINE MONTHS ENDED
YEAR ENDED MARCH 31, DECEMBER 31,
------------------------- ------------------
1997 1998 1999 1998 1999
------- ------- ------- -------- --------
Risk-free interest rate.......................... 6.75% 5.50% 5.68% 5.68% 5.80%
Expected dividend yield.......................... -- -- -- -- --
Assumed life..................................... 5 years 5 years 5 years 5 years 5 years
Assumed volatility............................... 33% 33% 35% 35% 38%
F-16
ABIOMED, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS)
(7) STOCK OPTION AND PURCHASE PLANS (CONTINUED)
The Black-Scholes option-pricing model was developed for use in estimating
the fair value of traded options, which have no vesting restrictions and are
fully transferable. In addition, option-pricing models require the input of
highly subjective assumptions including expected stock price volatility. Because
the Company's employee stock options have characteristics significantly
different from those traded options, and because changes in the subjective input
assumptions can materially affect the fair value estimate, in management's
opinion, the existing models do not necessarily provide a reliable single
measure of the fair value of its employee stock options.
The total fair value of the options granted during fiscal 1997, 1998 and
1999 and during the nine months ended December 31, 1998 and 1999 was computed as
approximately $598,000, $501,000, $483,000, $362,000 and $1,816,000,
respectively. Of these amounts approximately $257,000, $383,000, $504,000,
$401,000 and $646,000 would be charged to operations for the years ended
March 31, 1997, 1998 and 1999 and during the nine months ended December 31, 1998
and 1999, respectively. The remaining amounts would be amortized over the
remaining vesting periods of the underlying options. Similarly, the total fair
value of stock sold under the Purchase Plan was computed as approximately
$3,000, $17,000, $31,000, $9,000 and $11,000 for fiscal 1997, 1998 and 1999 and
for the nine months ended December 31, 1998 and 1999, respectively. The
resulting pro forma compensation expense may not be representative of the amount
to be expected in future years as pro forma compensation expense may vary based
upon the number of options granted and shares purchased.
The pro forma net income (loss) and pro forma net income (loss) per common
share presented below have been computed assuming no tax benefit. The effect of
a tax benefit has not been considered since a substantial portion of the stock
options granted are incentive stock options and the Company does not anticipate
a future deduction associated with the exercise of these stock options.
The pro forma effect of SFAS No. 123 for the years ended March 31, 1997,
1998 and 1999 and the nine months ended December 31, 1998 and 1999 is as
follows:
BASIC NET INCOME DILUTED NET INCOME
NET INCOME (LOSS) (LOSS) PER SHARE (LOSS) PER SHARE
------------------------- ------------------- -------------------
AS PRO AS PRO
AS REPORTED PRO FORMA REPORTED FORMA REPORTED FORMA
----------- ----------- -------- -------- -------- --------
Years Ended March 31,
1997............................. $ 735,264 $ 475,264 $ 0.11 $ 0.07 $ 0.10 $ 0.07
1998............................. $(2,507,764) $(2,907,764) $(0.31) $(0.36) $(0.31) $(0.36)
1999............................. $(6,712,201) $(7,247,201) $(0.78) $(0.84) $(0.78) $(0.84)
Nine Months Ended December 31,
1998............................. $(5,330,793) $(5,731,481) $(0.62) $(0.67) $(0.62) $(0.67)
1999............................. $(7,384,143) $(8,030,294) $(0.85) $(0.93) $(0.85) $(0.93)
(8) ROYALTY OBLIGATION
Until August 3, 2000, the Company owes a royalty to certain third parties
equal in aggregate to approximately 2.1% of certain revenues derived from the
BVS-5000 and certain other technology. This royalty is subject to certain
maximum revenue amounts and to certain adjustments, as defined, in the event
that the Company sells the underlying technology. For the years ended March 31,
1997, 1998 and
F-17
ABIOMED, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS)
(8) ROYALTY OBLIGATION (CONTINUED)
1999 and the nine months ended December 31, 1998 and 1999, the amount of this
royalty, net of certain reimbursed expenses, was approximately $216,000,
$338,000, $341,000, $234,000 and $248,000, respectively. These amounts are
reflected as part of the cost of product revenues in the accompanying
consolidated statements of operations.
This royalty is paid to the third parties through Abiomed Limited
Partnership which, at present, is inactive except with respect to the
distribution of such royalties. In 1995, the Company paid $770,000 to reduce its
royalty obligation to 2.1%, as described above. This one-time payment
capitalized by the Company is being amortized on a straight-line basis over the
estimated useful life of the asset and, net of accumulated amortization, is
classified as a long-term other asset in the accompanying consolidated balance
sheets.
(9) EMPLOYEE DEFERRED COMPENSATION PROFIT-SHARING PLAN AND TRUST
The Company has an employee deferred compensation profit-sharing plan (the
401(k) Plan) that covers all employees who are at least 20 years of age. The
expense provision, which consist of amounts paid by the Company to match a
portion of employees' contributions and discretionary amounts determined by the
Company's Board of Directors, totaled approximately $72,000, $166,000, $239,000,
$140,000 and $222,000 for the fiscal years ended March 31, 1997, 1998 and 1999
and for the nine months ended December 31, 1998 and 1999, respectively.
(10) ACCRUED EXPENSES
Accrued expenses consist of the following:
MARCH 31, DECEMBER 31,
----------------------- ------------
1998 1999 1999
---------- ---------- ------------
Salaries and benefits.................................... $1,460,222 $2,606,089 $2,567,346
Contract services........................................ 321,512 336,960 590,157
Warranty................................................. 173,362 181,145 303,248
Sales taxes.............................................. 157,277 55,903 238,144
Professional fees........................................ 126,377 137,212 371,718
Deferred revenue......................................... 245,924 434,660 321,711
Customer advances........................................ 85,284 65,095 69,687
Other.................................................... 378,646 1,013,556 727,984
---------- ---------- ----------
$2,948,604 $4,830,620 $5,189,995
========== ========== ==========
F-18
INSIDE BACK COVER ART DESCRIPTIONS
BVS-5000-REGISTERED TRADEMARK- BI-VENTRICULAR ASSIST SYSTEM
[Photograph of BVS console and two blood pumps appears here.]
Photograph of BVS-5000 pneumatic console with two single-use BVS blood
pumps mounted on bedside stand. The BVS provides a patient's failing heart
with full circulatory assistance, while allowing the heart to rest, heal and
recover its function.
ABIOMED, the ABIOMED logo and BVS are our registered trademarks. Angioflex,
AbioBooster, AbioCor and AbioVest are our trademarks. This prospectus also
includes trademarks of companies other than ABIOMED.
- ------------------------------------------------------------
- ------------------------------------------------------------
1,500,000 Shares
[LOGO]
-------------------
Prospectus
, 2000
-------------------
BANC OF AMERICA SECURITIES LLC
SALOMON SMITH BARNEY
- ------------------------------------------------------------
- ------------------------------------------------------------5.1.
II-1
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
SEC Registration Fee........................................ $ 20,294
NASD Filing Fee............................................. 8,187
Nasdaq National Market Listing Fee.......................... 17,500
Transfer Agent and Registrant Fees.......................... 2,500*
Accounting Fees and Expenses................................ 50,000*
Legal Fees and Expenses..................................... 225,000*
Printing and Engraving...................................... 60,000*
Miscellaneous............................................... 116,519*
--------
TOTAL................................................... $500,000*
========
- ------------------------
* Estimated
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS
ABIOMED's certificate of incorporation provides that, to the fullest extent
permitted by Delaware law, no director of ABIOMED shall be personally liable to
ABIOMED or its stockholders for monetary damages for breach of fiduciary duty as
a director, notwithstanding any other provision of law. However, a director
shall be liable to the extent required by law (i) for any breach of the
director's duty of loyalty to ABIOMED or its stockholders, (ii) for acts or
omissions not in good faith or which involve intentional misconduct or a knowing
violation of law, (iii) in respect of certain unlawful dividend payments or
stock redemptions or repurchases, or (iv) for any transaction from which the
director derived an improper personal benefit.
ABIOMED entered into indemnification agreements with each of its directors
and anticipates that it will enter into similar agreements with any future
director. Generally, these agreements attempt to provide the maximum protection
permitted by Delaware law with respect to indemnification. The indemnification
agreements provide that ABIOMED will pay certain amounts incurred by a director
in connection with any civil or criminal action or proceeding, specifically
including actions by or in the name of ABIOMED (derivative suits) where the
individual's involvement is by reason of the fact that he is or was a director
or officer. For directors, such amounts include, to the maximum extent permitted
by law, attorney's fees, judgments, civil or criminal fines, settlement amounts
and other expenses customarily incurred in connection with legal proceedings.
Under the indemnification agreements, a director will not receive
indemnification if the director is found not to have acted in good faith and in
a manner he reasonably believed to be in or not opposed to the best interests of
ABIOMED. ABIOMED has also entered into similar agreements with certain of its
officers and top management personnel who are not also directors. The
indemnification agreements with officers are slightly more restrictive.
Generally, the indemnification agreements attempt to provide the maximum
protection permitted by Delaware law with respect to indemnification of
directors and officers.
The effect of these provisions would be to permit such indemnification by
ABIOMED for liabilities arising under the Securities Act of 1933, as amended.
Reference is hereby made to Section 8 of the Underwriting Agreement between
ABIOMED, the underwriters and Dr. David M. Lederman, filed as Exhibit 1.1 to
this registration statement, for a description of indemnification arrangements
between ABIOMED and the underwriters.
II-1II-2
ITEM 16. EXHIBITS
EXHIBIT
NUMBER
- ---------------------
1.1 Form of Underwriting Agreement****
3.1 Restated Certificate of Incorporation of ABIOMED,
Inc.--Filed as Exhibit 3.1 to Registration Statement No.
333-36657*
3.2 Amended and Restated Bylaws of ABIOMED, Inc.--Filed as
Exhibit 3.02 to the Company's Quarterly Report on Form 10-Q
for the period ended September 30, 1996*
3.3 Certificate of Designations of Series A Junior Participating
Preferred Stock--Filed as Exhibit 3.3 to Registration
Statement No. 333-36657*
4.1 Specimen Certificate of Common Stock--Filed as Exhibit 4.1
to Registration Statement No. 33-14861 on Form S-1*
4.2 Description of Capital Stock (contained in the Restated
Certificate of Incorporation of ABIOMED, Inc. filed as
Exhibit 3.1 and in the Certificate of Designations of Series
A Junior Participating Preferred Stock filed as Exhibit
3.3)*
4.3 Rights Agreement between ABIOMED, Inc. and BankBoston, N.A.,
as Rights Agent dated as of August 13, 1997 (including Form
of Right Certificate attached thereto as Exhibit A)--Filed
as Exhibit 4 to ABIOMED, Inc.'s Current Report on Form 8-K,
dated August 13, 1997*
5.1 Legal Opinion of Foley, Hoag & Eliot LLP****
23.1 Consent of Arthur Andersen LLP***
23.2 Consent of Foley, Hoag & Eliot LLP (included in Exhibit
5.1)****
24.1 Power of Attorney (contained on the signature page of this
registration statement)***
- ------------------------
*Not filed herewith. In accordance with Rule 411 promulgated pursuant to the
Securities Act of 1933, as amended, reference is made to the documents
previously filed with the Commission, which are incorporated by reference
herein.
**Filed herewith.
***Previously filed.
****To be filed by amendment.
ITEM 17. UNDERTAKINGS
The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
registrant's annual report pursuant to Section 13(a) or 15(d) of the Securities
Exchange Act of 1934 that is incorporated by reference in the registration
statement shall be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities at that time
shall be deemed to be the initial BONA FIDE offering thereof.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Securities Act
and is, II-2
therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the registrant of expenses
incurred or paid by a director, officer or controlling
II-3
person of the registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Securities
Act and will be governed by the final adjudication of such issue.
The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act, the
information omitted from the form of prospectus filed as part of this
registration statement in reliance upon Rule 430A and contained in a form of
prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or
497(h) under the Securities Act shall be deemed to be part of this
registration statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities Act, each
post-effective amendment that contains a form of prospectus shall be deemed
to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to
be the initial bona fide offering thereof.
II-3II-4
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-3 and has duly caused this registration
statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Boston, Commonwealth of Massachusetts, on
February 7,25, 2000.
ABIOMED, INC.
By: /s/ DAVID M. LEDERMAN
-----------------------------------------
Dr. David M. Lederman
President and Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities and on the dates indicated.
SIGNATURE TITLE DATE
--------- ----- ----
Chief Executive Officer,
/s/ DAVID M. LEDERMAN President and Director
------------------------------------------- (Principal Executive February 7,25, 2000
David M. Lederman Officer)
Chief Financial Officer,
* Vice President--Finance
------------------------------------------- and Treasurer (Principal February 7,25, 2000
John F. Thero Financial and Accounting
Officer)
*
------------------------------------------- Director February 7,25, 2000
W. Gerald Austen
*
------------------------------------------- Director February 7,25, 2000
Paul Fireman
*
------------------------------------------- Director February 7,25, 2000
John F. O'Brien
*
------------------------------------------- Director February 7,25, 2000
Desmond H. O'Connell, Jr.
*
------------------------------------------- Director February 7,25, 2000
Henri A. Termeer
*By: /s/ DAVID M. LEDERMAN
--------------------------------------
David M. Lederman
ATTORNEY-IN-FACT
II-4
EXHIBIT INDEX
EXHIBIT
NUMBER
- ---------------------
1.1 Form of Underwriting Agreement****
3.1 Restated Certificate of Incorporation of ABIOMED,
Inc.--Filed as Exhibit 3.1 to Registration Statement No.
333-36657*
3.2 Amended and Restated Bylaws of ABIOMED, Inc.--Filed as
Exhibit 3.02 to the Company's Quarterly Report on Form 10-Q
for the period ended September 30, 1996*
3.3 Certificate of Designations of Series A Junior Participating
Preferred Stock--Filed as Exhibit 3.3 to Registration
Statement No. 333-36657*
4.1 Specimen Certificate of Common Stock--Filed as Exhibit 4.1
to Registration Statement No. 33-14861 on Form S-1*
4.2 Description of Capital Stock (contained in the Restated
Certificate of Incorporation of ABIOMED, Inc. filed as
Exhibit 3.1 and in the Certificate of Designations of Series
A Junior Participating Preferred Stock filed as Exhibit
3.3)*
4.3 Rights Agreement between ABIOMED, Inc. and BankBoston, N.A.,
as Rights Agent dated as of August 13, 1997 (including Form
of Right Certificate attached thereto as Exhibit A)--Filed
as Exhibit 4 to ABIOMED, Inc.'s Current Report on Form 8-K,
dated August 13, 1997*
5.1 Legal Opinion of Foley, Hoag & Eliot LLP****
23.1 Consent of Arthur Andersen LLP***
23.2 Consent of Foley, Hoag & Eliot LLP (included in Exhibit
5.1)****
24.1 Power of Attorney (contained on the signature page of this
registration statement)***
- ------------------------
*Not filed herewith. In accordance with Rule 411 promulgated pursuant to the
Securities Act of 1933, as amended, reference is made to the documents
previously filed with the Commission, which are incorporated by reference
herein.
**Filed herewith.
***Previously filed.
****To be filed by amendment.