AS FILED WITH THEAs filed with the Securities and Exchange Commission on April 2, 2007
Registration No. 333-
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
ON FEBRUARY 7, 2000 REGISTRATION NO. 333-93033 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSIONWASHINGTON, D.C. 20549
------------------------ AMENDMENT NO. 1 TOFORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------ABIOMED, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)(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)(State or other jurisdiction
of incorporation or organization)(I.R.S. Employer
Identification Number)------------------------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(Address, including zip code, and telephone number, including area code, of registrant’s principal executive offices)
Michael R. Minogue
Chief Executive Officer and President
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)
With a copy to:
Peter 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------------------------ APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as practicable after the effectiveRosenblum, Esq.Foley Hoag LLP
155 Seaport Boulevard
Boston, Massachusetts 02210
(617) 832-1000
Approximate date of commencement of proposed sale to the public:From time to time after this
Registration Statement.registration statement becomes effective.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.
/ /xIf 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 statement 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 ofthis Form is a registration statement pursuant to General Instruction I.D. or a post-effective amendment thereto that shall become effective upon filing with theprospectus is expected to be madeCommission pursuant to Rule434, please462(e) under the Securities Act, check the following box./ / ------------------------ THE REGISTRANT HEREBY AMENDS THIS¨If this Form is a post-effective amendment to a registration statement filed pursuant to General Instruction I.D. filed to register additional securities or additional classes of securities pursuant to Rule 413(b) under the Securities Act, check the following box. ¨
CALCULATION OF 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 OFFEE
Title of each class of
securities to be registeredAmount to
be registeredProposed maximum
offering price
per shareProposed maximum
aggregate
offering priceAmount of
registration
feecommon stock, $0.01 par value(1)
600,260 $13.60 (2) $8,163,536 $251
(1) Each share includes one right to purchase shares of our series A junior participating preferred stock pursuant to our rights agreement dated August 13, 1997.
(2) Calculated pursuant to Rule 457(c) under the Securities Act of 1933 based on the average of the high and low prices of the common stock as reported by the Nasdaq Global Market on March 28, 2007. 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)or until the registration statement shall become effective on such date as the Commission, acting pursuant to said Section 8(a),MAY DETERMINE. - -------------------------------------------------------------------------------- - --------------------------------------------------------------------------------may determine. The information in this prospectus is not complete and may be
changed without notice. ABIOMEDchanged. These securities may notsell these securitiesbe sold until the registration statement filed with the Securities and Exchange Commission is effective. This prospectus is not an offer to sell these securities, andABIOMEDit is not solicitingoffersan offer to buy these securities, in any state where the offer or saleof these securitiesis not permitted.Subject to completion, dated April 2, 2007
PROSPECTUS
(Not Complete) Issued February 7, 2000 1,500,000 SHARES [LOGO] COMMON STOCK ----------------ABIOMED, Inc.
is offering 1,500,000600,260 Shares of Common Stock
The shares of our common stock covered by this prospectus are being offered for sale by the selling stockholders identified in this prospectus on a
firmly underwrittendelayed or continuous basis.We will not receive any proceeds from the offering.
------------------------We will bear the costs related to the registration of the shares covered by this prospectus, other than selling commissions.The selling stockholders, or other pledgees, donees, transferees or other successors-in-interest of the selling stockholders, may offer and sell the shares from time to time in one or more transactions. Sales may be made on one or more exchanges, including the NASDAQ Global Market, in the over-the-counter market or in privately negotiated transactions at prevailing market prices or at negotiated prices. The selling stockholders may sell the shares through broker-dealers or agents, who may receive compensation in the form of commissions, discounts or concessions.
Our common stock
is listedtrades on theNasdaq NationalNASDAQ Global Market under the symbol"ABMD." On February 4, 2000, the“ABMD.” The last reported sale price oftheour common stock on theNasdaq NationalNASDAQ Global Market on March 30, 2007 was$55 1/8$13.66 per share.------------------------ 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.............................. $ $Investing in our common stock involves a high degree of risk. SeeRisk Factors beginning on page 3.
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.
Unless the context otherwise requires, all references to “ABIOMED,” “we,” “our,” “us” or “our company” in this prospectus refer to ABIOMED, Inc., a Delaware corporation, and
one stockholderits subsidiaries.The date 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 onthis prospectus is April,2000. BANC OF AMERICA SECURITIES LLC SALOMON SMITH BARNEY ---------------- , 2000INSIDE 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." 22007
PAGE --------Prospectus Summary.......................................... 4 Risk Factors................................................ 6 Use of Proceeds.............................................Page SUMMARY 1 RISK FACTORS 3 SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS 17 Dividend Policy.............................................USE OF PROCEEDS 17 Price Range of Common Stock................................. 17 Capitalization..............................................SELLING STOCKHOLDERS 18 Selected Consolidated Financial Data........................ 19 Management's Discussion and Analysis of Financial Condition and Results of Operations.................................PLAN OF DISTRIBUTION 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..................WHERE YOU CAN FIND MORE INFORMATION 21 INFORMATION INCORPORATED BY REFERENCE 22 LEGAL MATTERS 23 EXPERTS 23 ABIOMED, INC. AND SUBSIDIARIES CONSOLIDATED FINANCIAL STATEMENTS F-1 UNAUDITED PRO FORMA FINANCIAL INFORMATION F-27 FORWARD LOOKING STATEMENTS ThisYou should rely on the information contained in this prospectus,
includingin any applicable prospectus supplement and in the documents incorporated by reference in thisprospectus, includes forward-looking statements.prospectus. We havebasednot authorized any other person to provide you with different information. If anyone provides you with different or inconsistent information, you should not rely on it. We are not making an offer to sell theseforward-looking statementssecurities in any jurisdiction where their offer or sale is not permitted. You should assume that the information appearing in this prospectus is accurate only at the date onour current expectationsthe front cover of this prospectus, regardless of the time of delivery of this prospectus or of any sale of the securities. Our business, financial condition, results of operations andprojections about future events. Ourprospects may have changed since the date indicated on the front cover of this prospectus.This prospectus contains summaries of certain provisions contained in some of the documents described herein, and reference is made to the actual
results could differ materially fromdocuments filed with the United States Securities and Exchange Commission, or SEC, for complete information. Copies of some of the documents referred to herein have been filed or will be filed or incorporated by reference as exhibits to the registration statement of which this prospectus is a part, and you may obtain copies of thosediscusseddocuments as described below under “Where You Can Find More Information.”ABIOMED and ABIOCOR are trademarks of ABIOMED, Inc., and are registered in the U.S.A. and certain foreign countries. BVS is a trademark of ABIOMED, Inc. and is registered in the U.S.A. AB5000 is a trademark of ABIOMED, Inc. IMPELLA and RECOVER are trademarks of Abiomed Europe GmbH, a subsidiary of ABIOMED, Inc., and are registered in the U.S.A. and certain foreign countries. This prospectus may also include trademarks of companies other than ABIOMED.
This summary is a brief discussion of material information contained in, or
impliedincorporated bythese forward-looking statements. Forward-looking statements are identifiedreference into, this prospectus as further described below under “Where You Can Find More Information” and “Information Incorporated bywords 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 areReference.” This summary does notnecessarily limited to, those relating to: - our plans to commence initial clinical trialscontain all of theAbioCor Implantable Replacement Heartinformation that you should consider before investing in our common stock being offered bythe 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 inthis prospectus. Weareurge you to read carefully this entire prospectus, the documents incorporated by reference into this prospectus and all applicable prospectus supplements relating to our common stock before making an investment decision.About This Prospectus
This prospectus is part of a “shelf” registration statement that we filed with the SEC. Under this registration statement, the selling stockholders may from time to time offer up to 600,260 shares of our common stock owned by them, at prices and on terms to be determined at or prior to the time of sale. We will not
obligated to updatereceive any proceeds from the sale of these shares of common stock by the selling stockholders.Upon receipt of notice from the selling stockholders, we will file any amendment 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. 3PROSPECTUS 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.prospectus supplement that may be required in connection with any sale by a selling stockholder. You should carefully read this prospectus and each applicable prospectus supplement, if any, together with the additional information described under the headings “Where You Can Find More Information” and “Information Incorporated by Reference.” If there is any inconsistency between the information in this prospectus and a prospectus supplement, you should rely on the information in that prospectus supplement.About ABIOMED,
INC. ABIOMED isInc.We are a leading
developer, manufacturer and marketerprovider of medical devices that provide circulatory support to acute heart failure patients across the continuum of care in heart recovery. Our products are designed tosafelyenable the heart to rest, heal andeffectively assistrecover by improving blood flow and/orreplaceperforming the pumping function of thefailingheart.BasedOur products can be used in a broad range of clinical settings, including by heart surgeons for patients in profound shock and by interventional cardiologists for patients who are pre-shock in the cardiac catheterization lab, or cath lab. We are focused ontechnology that has been developedincreasing awareness of heart recovery alternatives andrefined over a periodestablishing recovery as the standard ofapproximately three decades, we have been developing and are preparing to enter human clinical trialscare forthe 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 allpatients with failing but potentially recoverable hearts. Since 2004, our new executive team has focused our efforts on expanding our product portfolio, and we currently have eight disposable products that have either been approved or cleared by the FDA or have received CE mark approval, as well as several additional products in development.We currently manufacture and sell the AB5000 Circulatory Support System and the BVS 5000 Biventricular Support System for circulatory support of acute heart failure patients in profound shock, including patients suffering from cardiogenic shock after a heart attack or heart surgery, and patients with myocarditis, or a virus in the heart. These devices, which are
also engagedused inresearch and development relating to other devices to supportthe surgery suite, can assume the pumping function of theheart. Heart disease isheart, allowing thenumber one causepatient’s heart to rest, heal and potentially recover. The AB5000 has several clinical advantages over the BVS 5000, including a higher pulsatile blood flow ofdeathup to six liters per minute, the ability to provide a longer duration of support and the facilitation of patient mobility within the hospital. These advantages enable us to offer our heart recovery solution to a broader range of patients, including patients who have had an acute myocardial infarction or are suffering from myocarditis.In addition to our products for the surgery suite, we offer other circulatory assist devices that can be used in cath labs, where interventional cardiologists treat a larger percentage of heart attack patients and also perform angioplasty and high-risk angioplasty procedures. Our devices designed primarily for pre-shock patients in the
U.S. In 1996, approximately 20 million peoplecath lab are our Impella 2.5 and Impella 5.0 catheters, which are percutaneous micro heart pumps, providing up to 2.5 and 5.0 liters of blood flow per minute, respectively. These catheters can be quickly inserted through the femoral artery over a guide wire to reach the left ventricle of the heart. Our Impella devices have CE mark approval and have been used to treat more than 850 patients in Europe. These devices are not yet approved for commercial sale in theU.S. were afflicted with heart disease, resulting in over 700,000 deaths. While a number of therapies existUnited States.Our other product for the
treatmentcath lab is our recently introduced percutaneous intra-aortic balloon, or IAB. An IAB is typically used as an initial line ofpatients 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 effectivetherapyavailable. 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 heartfor patients withpotentially reversiblediminished heartfailure. In 1992, the BVS became the first heart assist device capable of providing full circulatoryfunction. To supportto 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 BVSour IAB, we developed our iPulse combination console, which isthe most widely used FDA-approved temporary heart assist device. To date it has been usedalso designed to supportover 3,500 patients at over 500 medical centers worldwide. We are pursuing several strategies to continue the growth of theour AB5000 and BVSproduct 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,5000 systems, as well as otherfuture 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 believeproducts weare the only companymay offer in theworld with expertisefuture. The iPulse console has CE mark approval in Europe, but is not yet approved for commercial sale in thefull 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. 4THE 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................ ABMDThe common stock to be outstanding after 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, ---------------------------------------------------- -------------------- 1995 1996 1997 1998 1999 1998 1999 -------- -------- -------- -------- -------- -------- --------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 ------------------------ ACTUAL AS ADJUSTED ---------- -----------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 97,465The 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."United States.We are a Delaware
corporation.corporation and commenced operations in 1981. Our principal executive offices are located at 22 Cherry Hill Drive, Danvers, Massachusetts01923. Our01923, and our telephone number is (978)777-5410777-5410. Our web address is www.abiomed.com. We make available free of charge through the Investors section of our website all reports that we file with the Securities and Exchange Commission. We do not incorporate the information on ourfax number is (978) 777-8411. 5website into this prospectus, and you should not consider it part of this prospectus. 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.An investment in our common stock involves a high degree of risk. Before making an investment decision, you should carefully consider these risks as well as the other information we include or incorporate by reference in this prospectus, including our consolidated financial statements and the related notes. The risks and uncertainties we have described are not the only ones we face. Additional risks and uncertainties of which we are unaware or that we currently deem immaterial may also adversely affect our business. If any of these risks materializes, the trading price of our common stock could fall and you might lose all or part of your investment.
This section includes or refers to forward-looking statements. You should read the explanation of the qualifications and limitations on such forward-looking statements discussed elsewhere in this prospectus.
Risks Related to Our Business
We
are currently devotinghave not operated at a profit and do not expect to be profitable in the foreseeable future.We have had net losses in each of the past three fiscal years. We plan to make large expenditures in fiscal 2008 and subsequent fiscal years for, among other things, the expansion of our
principalglobal distribution network and ongoing product development, which we expect will result in losses in future periods. These expenditures include costs associated with hiring additional personnel, performing clinical trials, continuing our research and development relating to our products under development, seeking regulatory approvals and,regulatory efforts,if we receive these approvals, commencing commercial manufacturing and marketing. The amount of these expenditures is difficult to forecast accurately, and cost overruns may occur. We also expect that we will need to make significantfinancial resources,expenditures tothe development of the AbioCor, an implantable replacement heart system. An implantable replacement heart is a complex medical devicebegin to market andhas never been successfully developed or marketed by any company. The development ofmanufacture in commercial quantities our Impella products, our IAB, the AbioCor and any other new productsincluding our AbioBooster and AbioVest heart assist products, presents enormous challenges in a variety of areas, many or all offor which we mayhave difficultyreceive regulatory approvals or clearances inovercoming, including blood compatible surfaces, blood compatible flow,the future.If we fail to obtain and maintain necessary governmental approvals for our products and indications, we may be unable to market and sell our products in certain jurisdictions.
Medical devices such as ours are extensively regulated by the FDA in the United States and by other federal, state, local and foreign authorities. Governmental regulations relate to the testing, development, manufacturing,
techniques, pumping mechanisms, physiological control, energy transfer, anatomical fitlabeling, design, sale, promotion, distribution, importing, exporting andsurgical techniques. For many years,shipping of our products. In the United States, before weand other parties have been attemptingcan market a new medical device, or a new use of, or claim for, or significant modification to,developan existing product, we must generally first receive either aheart replacement device, but, to date, nonepremarket approval, or PMA, or 510(k) clearance from the FDA. Both of theseefforts has been successful.processes can be expensive and lengthy and entail significant expenses. The FDA’s 510(k) clearance process usually takes from three to 12 months, but it can last longer. The process of obtaining premarket approval is much more costly and uncertain than the 510(k) clearance process. It generally takes from one to three years, or even longer, from the time the PMA application is submitted to the FDA. We cannotbe sureassure you thatweany regulatory clearances or approvals, either foreign or domestic, will besuccessful in our development efforts, and in the event thatgranted on a timely basis, if at all. If we are unable tocommercialize 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 AbioCorobtain regulatory approvals orany 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 marketclearances foran 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 makeuse of ourproducts; - 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 7our 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 otherproducts 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. The FDA may also limit the claims that we can make about our products.For example, we plan to pursue premarket approval for each of our Impella 2.5 and Impella 5.0, and we are seeking 510(k) clearance of our Impella 2.5. In addition, we have submitted for premarket approval of our iPulse console.
We cannot assure you that we will receive any of these approvals or clearances. For example, in response to our 510(k) submission for the Impella 2.5 for short duration use (up to six hours), the FDA recently responded with a letter indicating that the FDA believes that the technological characteristics of the Impella 2.5 raise new questions of safety and effectiveness that are not addressed by the predicate devices we identified in our 510(k) submission. The FDA stated it is unaware of a predicate device raising the same questions and
asked us to identify a predicate device that does so. We intend to respond to the FDA’s letter by submitting additional data attempting to demonstrate that the device does not raise a new question of safety or effectiveness, and we believe we will be successful in answering the FDA’s concerns. We may also amend our 510(k) submission to identify additional predicate devices. If we succeed in addressing these concerns, we expect to receive additional questions and requests for information from the FDA as we pursue 510(k) clearance of the Impella 2.5. If the FDA deems any of our responses unsatisfactory, we will not receive 510(k) clearance. We cannot assure you that we will successfully address the FDA’s concerns or obtain 510(k) clearance for the Impella 2.5 on a timely basis, or at all. A device that raises a new question of safety or effectiveness is not eligible for the 510(k) clearance pathway and must undergo the PMA approval process. If we do not receive 510(k) clearance for our Impella 2.5 device, then based on our plan to continue with our PMA strategy, the commercial launch of the Impella 2.5 in the U.S. could take an additional 12 months or more. If we do not receive FDA approval or clearance for one or more of our products, we will be unable to market and sell those products in the U.S., which would have a material adverse effect on our operations and prospects.
We intend to market
the AbioCor andourothernew 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. The approval process mayApproval processes differ among those jurisdictions, and approval in the U.S. or any other single jurisdiction does not guarantee approval in any otherjurisdiction does not ensure approval in other jurisdictions.jurisdiction. Obtaining foreign approvals couldresult ininvolve significant delays, difficulties and costs for us and could require additional clinical trials.Our current and planned clinical trials may not begin on time, or at all, and may not be completed on schedule, or at all.
In order to obtain premarket approval and, in some cases, a 510(k) clearance, we may be required to conduct well-controlled clinical trials designed to test the safety and effectiveness of the product. In order to conduct clinical studies, we must generally receive an investigational device exemption, or IDE, for each device from the FDA. An IDE allows us to use an investigational device in a clinical trial to collect data on safety and effectiveness that will support an application for premarket approval or 510(k) clearance from FDA. We have received IDE approval and are currently conducting pilot clinical trials for each of our Impella 2.5 and Impella 5.0. In the Impella 2.5 pilot trial, the proposed indication for use is support during high-risk angioplasty for up to five days. In the Impella 5.0 pilot trial, the proposed indication for use includes post-cardiotomy patients who have been weaned from the heart-lung machine. We may conduct 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.clinical trials in the future to address additional indications for use.Conducting clinical trials is a long, expensive and uncertain process that is subject to delays and failure at any stage. Clinical trials can take months or years to complete. The commencement or completion of any of our clinical trials may be delayed or halted for numerous reasons, including:
the FDA may not approve a clinical trial protocol or a clinical trial, or may place a clinical trial on hold;
subjects may not enroll in clinical trials at the rate we expect and/or subjects are not followed-up at the rate we expect;
subjects may experience adverse side effects or events related or unrelated to our products;
third-party clinical investigators may not perform our clinical trials on our anticipated schedule or consistent with the clinical trial protocol and good clinical practices, or other third-party organizations may not perform data collection and analysis in a timely or accurate manner;
the interim results of any of our clinical trials may be inconclusive or negative;
regulatory inspections of our clinical trials or manufacturing facilities may require us to undertake corrective action or suspend or terminate our clinical trials if investigators find us not to be in compliance with regulatory requirements;
our manufacturing process may not produce finished products that conform to design and performance specifications; or
governmental regulations or administrative actions may change and impose new requirements.
The results of pre-clinical studies do not necessarily predict future clinical trial results, and predecessor clinical trial results may not be repeated in subsequent 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 or early clinical testing. In addition, the data obtained from clinical trials may be inadequate to support approval or clearance of a submission. The FDA
continuesmay disagree with our interpretation of the data from our clinical trials, or may find the clinical trial design, conduct or results inadequate to demonstrate the safety and effectiveness of the product candidate. The FDA may also require us to conduct additional pre-clinical studies or clinical trials, which could further delay approval of our products. If we are unable to receive FDA approval of an IDE to conduct clinical trials or the trials are halted by the FDA or others, or if we are unsuccessful in receiving FDA approval of a product candidate, we would not be able to sell or promote the product candidate in the U.S., which would seriously harm our business. Moreover, we face similar risks in each other jurisdiction in which we sell or propose to sell our products.If we make modifications to a product, whether in response to results of clinical testing or otherwise, we could be required to start our clinical trials over, which could cause serious delays that would adversely affect our results of operations. Even modest changes to certain components of our products could result in months or years of additional clinical trials.
If we do not effectively manage our growth, we may be unable to successfully develop, market and sell our products.
Our future revenue and operating results will depend on our ability to manage the anticipated growth of our business. Since 2004, we have experienced significant growth in the scope of our operations and the number of our employees, including the addition of our operations in Germany and France. This growth has placed significant demands on our management, as well as our financial and operations resources. In order to achieve our business objectives, we will need to continue to grow. However, continued growth presents numerous challenges, including:
developing our global sales and marketing infrastructure and capabilities;
expanding manufacturing capacity and increasing production;
expansion of foreign regulatory compliance capabilities;
implementing appropriate operational and financial systems and controls;
identifying, attracting and retaining qualified personnel, particularly experienced clinical staff; and
training, managing and supervising our personnel worldwide.
Any failure to manage our growth effectively could impede our ability to successfully develop, market and sell our products, which could seriously harm our business.
The markets for most of our products and products under development are unproven, and we may be unable to successfully commercialize our products.
Our products and products under development may not enjoy commercial acceptance or success, which would adversely affect our business and results of operations. We need to create markets for our Impella micro heart pumps, AB5000, IAB, iPulse console, AbioCor, AbioCor II and other new products, including achieving market acceptance among physicians, medical centers, patients and third-party payers. In particular, we need to gain acceptance of our Impella products among interventional cardiologists, who have not previously been users of our other devices. The obstacles we will face in trying to create successful commercial markets for our products include:
limitations inherent in first-generation devices, and the potential failure to develop successive improvements, including increases in service life;
the introduction by other companies of new treatments, products and technologies that compete with our products;
the timing and amount of reimbursement for these products, if any, by third-party payers;
the potential reluctance of clinicians to obtain adequate training to use our products;
the lifestyle limitations that patients will have to accept for our AbioCor and AbioCor II products; and
the potential reluctance of physicians, patients and society as a whole to accept medical devices that replace or assist the heart or the finite life and risk of mechanical failure inherent in such devices.
The commercial success of our products will require acceptance by surgeons and interventional cardiologists, a limited number of whom have significant influence over medical device selection and purchasing decisions.
We may achieve our business objectives only if our products are accepted and recommended by leading cardiovascular surgeons and interventional cardiologists, whose decisions are likely to be based on a determination by these clinicians that our products are safe and cost-effective and represent acceptable methods of treatment. Although we have developed relationships with leading cardiac surgeons, the commercial success of our Impella products, IAB and iPulse console will require that we also develop relationships with leading interventional cardiologists in cath labs, where we do not yet have a significant presence. We cannot assure you that we can maintain our existing relationships and arrangements or that we can establish new relationships in support of our products. If cardiovascular surgeons and interventional cardiologists do not consider our products to be adequate for the treatment of our target cardiac patient population or if a sufficient number of these clinicians recommend and use competing products, it would seriously harm our business.
The training required for clinicians to use our products could reduce the market acceptance of our products and reduce our revenue.
Clinicians must be trained to use our products proficiently. It is critical to the success of our sales efforts that we ensure that there are a sufficient number of clinicians familiar with, trained on and proficient in the use of our products. Convincing clinicians to dedicate the time and energy necessary to obtain adequate training in the use of our products is challenging, and we may not be successful in these efforts. If clinicians are not properly trained, they may misuse or ineffectively use our products. Any improper use of our products may result in unsatisfactory outcomes, patient injury, negative publicity or lawsuits against us, any of which could harm our reputation and product sales. Furthermore, our inability to educate and train clinicians to use our products may lead to inadequate demand for our products.
Our products are subject to extensive regulatory requirements, including continuing regulatory review, which could affect the manufacturing and marketing of our products.
The FDA and other regulatory agencies continue to review products even after they have received initial approval. If and when the FDA or another regulatory agency clears or approves
the AbioCor orourotherproducts under development, the manufacture and marketing of these products will be subject to continuing regulation, including compliance withcurrent Quality Systems Regulations and Good Manufacturing Practices, known as QSR/GMP,the FDA’s adverse event reporting requirements,andprohibitions on promoting a product for unapproveduses. We will also be requireduses, and Quality System Regulation, or QSR, requirements, which obligate manufacturers, including third-party and contract manufacturers, toobtain additional approvalsadhere to stringent design, testing, control, documentation and other quality assurance procedures during the design and manufacture of a device.Any modification to an FDA-cleared device that could significantly affect its safety or effectiveness, or that would constitute a major change in its intended use, requires a new 510(k) clearance or PMA approval. The FDA requires each manufacturer to make this determination in the
event we significantly modifyfirst instance, but thedesign of an approved product or the product's labeling or manufacturing process.FDA may review any such decision. Modifications of this type are common with new products, and we anticipate that thecurrentfirst generation ofthe AbioCoreach of our products will undergo a number of changes, refinements and improvements over time. For example, the current configuration of theAbioCor'sAbioCor’s thoracic unit, or"replacement“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 othersizes.sizes, such as the AbioCor II. If the FDA requires us to seek clearance or approval for modification of a previously cleared product for which we have concluded that new clearances or approvals arenot ableunnecessary, we may be required to cease marketing or to recall the modified product until we obtain clearance or approval, and we may be subject to significant regulatoryapproval offines or penalties, which could have a material adverse effect on our financial results and competitive position. We also cannot assure you that we will be successful in obtaining clearances or approvals for our modifications,to our current and future products, the commercial success of these products would be limited.if required. We and our third-party suppliers of product components are also subject to inspection and market surveillance by the FDAfor QSR/GMPand otherrequirements.regulatory agencies for QSR and other requirements, the interpretation of which can change. Compliance with QSR and similar legal requirements can be difficult and expensive. Enforcement actions resulting from8failure to comply with government requirements could result in fines, suspensions of approvals or clearances, recalls or seizure of products, operating restrictions or shutdown, and criminal prosecutions, and could adversely affect the manufacture and marketing of our products. The FDA or another regulatory agency 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 FOREven after receiving regulatory clearance or approval, our products may be subject to product recalls, which may harm our reputation and divert our managerial and financial resources.
The FDA and similar governmental authorities in other countries have the authority to order mandatory recall of our products or order their removal from the market if the governmental entity finds that our products might cause adverse health consequences or death. A
COMPANY OF OUR SIZE AND WILL EXERT A STRAIN ON OUR AVAILABLE RESOURCES. In recent years wegovernment-mandated or voluntary recall by us could occur as a result of component failures, manufacturing errors or design defects, including labeling defects. We havesignificantly increasedin the past initiated voluntary recalls of some of ourresearch and development expenditures for the AbioCor,products, and weexpect that this trend will continuecould do so 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 developmentAny recall of ourother newproductswill be accurate. We couldmay harm our reputation with customers and divert managerial and financial resources.Our principal products and current primary source of revenues, the AB5000 and BVS 5000, are vulnerable to competitive pressures.
To date, we 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. Allderived most of our product revenuesto date have comefrom sales of the AB5000 and BVSline of products.5000. We believe that we will continue tobe dependentrely heavily onour BVS product linethese products for at least the next several yearsunless anduntil weare able to successfully develop,obtain U.S. regulatory approval for new products, including our Impella products andsell new products. IniPulse console. Moreover, we expect to rely increasingly on sales of theevent that a competitorAB5000, as sales of the BVS 5000 have been declining. If another company were to introduce new treatments, productsandor technologieswhichthat compete with our products, add new features totheirits existing products or reducetheirits prices to maketheirits products more financially attractive to customers,ourrevenue from our AB5000 and BVSproducts5000 could decline. For example, in the event of the expansion of technologieswhichthat allow heart surgical procedures to be performed without stopping the heart, a reduction in the market forthe BVSthese products couldpotentiallyresult.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 ofBVSour AB5000 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 disposable revenues from our AB5000 and BVSproduct line,5000, 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. 10WE 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 expanddevelop additional, high-quality manufacturing capacity, oursales activities in international markets,growth may be limited and ourresults of operationsbusiness could benegatively 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 11patient. 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 couldseriouslyhurt 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, toharmed.To be successful, we believe we will need to increase our manufacturing capacity. We do not have experience in manufacturing our Impella products in the commercial quantities that might be required if we
receive FDA approval of those products, nor do we have experience manufacturing our AB5000, IAB and AbioCor in large quantities. We may
experienceencounter difficulties in scaling up manufacturing of ournewproducts, 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 usedEach of our products is manufactured in
the BVS, the AbioCor,a single location, andour other products under development. Relying on third party suppliers makes us vulnerable to component part failures and to interruptionsany significant disruption insupply, either of whichproduction could impair our ability toconduct clinical testsdeliver our products.We manufacture our Impella micro heart pumps at our facility in Aachen, Germany, and we manufacture our other products at our facility in Danvers, Massachusetts. Events such as fire, flood, power loss or
to shipother disasters could prevent us from manufacturing our products in compliance with applicable FDA and other regulatory requirements, which could result in significant delays before we restore production or commence production at another site. These delays may result in lost sales. Our insurance may not be adequate to cover our losses resulting from disasters or other business interruptions. Any significant disruption in the manufacturing of our products could seriously harm our business and results of operations.Any failure to achieve and maintain the high manufacturing standards that our products require may seriously harm our business.
Our products require precise, high-quality manufacturing. Achieving precision and quality control requires skill and diligence by our personnel. 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. Despite our very high manufacturing standards, we cannot completely eliminate the risk of errors, defects or failures. If we are unable to manufacture the AB5000, BVS 5000, Impella products and our iPulse consoles in accordance with necessary quality standards, or if we are unable to procure additional high-quality manufacturing facilities, our business and results of operations may be negatively affected.
Our AbioCor products involve even greater manufacturing complexities than our current commercial products. Our AbioCor products must be significantly more durable and meet different standards, which may be more difficult to achieve, than those that apply to our current products. If we are unable to manufacture our AbioCor products or other future products on a timely basis at acceptable quality and cost, or if we experience unanticipated technological problems or delays in production, our business will suffer.
We depend on third-party reimbursement to our customers
on a timely basis. Using third party vendors makes it difficultfor market acceptance of our products. If third-party payers fail to provide appropriate levels of reimbursement for purchase andsometimes 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 12them. These factors could make it more difficult for us to effectively and efficiently manufactureuse of our products, our sales andcouldprofitability would be adverselyimpact our resultsaffected.Sales of
operations. Some suppliers may bemedical devices largely depend on theonly source for a particular component, which makes us vulnerable toreimbursement of patients’ medical expenses by government health care programs and private health insurers. The costincreases 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. Manufacturersof ourproduct components mayAB5000 systems, BVS 5000 systems, Impella micro heart pumps and iPulse consoles is substantial, and the cost of implanting the AbioCor in a patient will also berequired to comply with FDAsubstantial. Without the financial support of government reimbursement orother regulatory manufacturing regulations and to satisfy regulatory inspections in connection withthird-party insurers’ payments for patient care, themanufacture 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 demandmarket for our productsor make them obsolete. Somewill 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. With regard to the AbioCor, there is a Medicare noncoverage decision for artificial hearts that would prevent Medicare coverage of thecompanies, universitiesservices related to the implantation of that device, andresearch 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.that may deter coverage by private insurers. We cannot be sure that third-party payers will cover and/or adequately reimburse sales of our Impella products, iPulse console, AbioCor or other products under development, to enable us to sell them at profitable prices.In addition, third-party payers are increasingly requiring evidence that medical devices are cost-effective. If we are unable to meet the standards of a third-party payer, that payer may not reimburse the use of our products, which could reduce sales of our products to heath care providers who depend upon reimbursement for payment. We also cannot be sure that third-party payers will
be ablecontinue the current level of reimbursement tocompete effectivelyphysicians andsuccessfullymedical centers for use of our AB5000, BVS 5000, Impella products and iPulse consoles. Any reduction in themarketsamount of this reimbursement could harm our business.Changes in health care reimbursement systems in the United States and abroad could reduce our revenues and profitability.
The federal government has considered ways to change, and has changed, the manner 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 rightshealthcare services are provided andwill continue to be a critical component of our success. A substantial portion of our intellectual property rights relating to the AbioCor and BVS ispaid for in theformU.S. Occasionally, Congress passes laws that impact reimbursement for health care services, including reimbursement to hospitals and physicians. States may also enact legislation that impacts Medicaid payments to hospitals and physicians. In addition, the Centers for Medicare & Medicaid Services, the federal agency responsible for administering the Medicare program, establishes payment levels for hospitals and physicians on an annual basis, which can increase or decrease payment to such entities. Future legislative and regulatory initiatives could be introduced that adversely affect demand for our products and have a material adverse impact on our revenues. Our business and results oftrade secrets, rather than patents. In orderoperations could therefore be adversely affected by future healthcare reforms.Internationally, medical reimbursement systems vary significantly from country to
preserve certain proprietary information as trade secrets, we are required to restrict disclosurecountry, with some countries limiting medical centers’ spending through fixed budgets, regardless ofinformation intended to constitute trade secrets to third parties. We protect our trade secrets and proprietary knowledge in part through confidentiality agreements with employees, consultantslevels of patient treatment, and otherparties. Certaincountries requiring application for, and approval of, government or third-party reimbursement. Even if we succeed in bringing ourconsultantsnew products to market, uncertainties regarding future healthcare policy, legislation andthird 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 BVSregulation, as well as private market practices, couldadverselyaffectour business prospects. Our business position will also depend in part onour ability todefendsell ourexistingproducts in commercially acceptable quantities at profitable prices.We must comply with healthcare “fraud 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 13proprietary 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 basisabuse” laws, and wemay notcould face substantial penalties for non-compliance and beable 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,excluded from government healthcare programs, 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.financial condition and results of operations.Our business is regulated by laws pertaining to healthcare fraud and abuse, including:
the federal Anti-Kickback Statute, which prohibits persons from knowingly and willfully soliciting, offering, receiving or providing remuneration, directly or indirectly, in cash or in kind, in exchange for or to induce either the referral of an individual for, or the furnishing, recommending, or arranging for, a good or service for which payment may be made under a federal healthcare program such as Medicare and Medicaid; and
state law equivalents to the Anti-Kickback Statute, which may not be limited to government-reimbursed items.
We have various arrangements with customers that may implicate these laws. For example, some physicians who use our products also provide medical advisory and other consulting and personal services. Some of these physician arrangements may not meet Anti-Kickback Statute safe harbor requirements, which may result in increased scrutiny by government authorities having responsibility for enforcing these laws. Additionally, we do not maintain a formal compliance plan concerning interactions with healthcare professionals nor have we formally adopted the recommendations issued by the Office of Inspector General of the U.S. Department of Health and Human Services, or OIG. The OIG may interpret the absence of such formal plan negatively in the case of an enforcement action, which could result in a material adverse effect on our financial condition and results of operations.
If our operations are found to be in violation of any of these or similar laws or regulations, we or our officers may face significant civil and criminal penalties, damages, fines, imprisonment and exclusion from the Medicare and Medicaid programs. Any violations may lead to curtailment or restructuring of our operations, which could adversely affect our ability to operate our business and our financial results. The risk of our being found in violation of these laws is increased by the fact that many of these laws are open
to a variety of interpretations. Any action against us for violation of these laws, even if we successfully defend against it, could cause us to incur significant legal expenses, divert our management’s attention from the operation of our business and damage our reputation. If enforcement action were to occur, our reputation and our business and financial condition may be harmed, even if we were to prevail or settle the action. Similarly, if the physicians or other providers or entities with whom we do business are found not to comply with applicable laws, they may be subject to sanctions, which could also have a negative impact on our business.
If we cannot attract and retain the management, scientific, sales and other personnel we need, we will not be successful.
We depend heavily on the contributions of the principal members of our business, financial, technical, sales and support, regulatory and clinical, operating and administrative management and staff, many of whom would be difficult to replace. For example, many of the members of our clinical staff are registered nurses with experience in the surgery suite or cath lab, only a limited number of whom seek employment with a company like ours. Competition for skilled and experienced management, scientific,
personnelclinical 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.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 some components used in our existing products and products under development. For example, we outsource the manufacturing of all of our consoles, other than final assembly and testing. 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. Manufacturers of our product components may be required to comply with the FDA or other regulatory manufacturing regulations and to satisfy regulatory inspections in connection with the manufacture of the components. Any failure by a supplier to comply with applicable requirements could lead to a disruption in supply. 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 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 of our suppliers may be the only source for a particular component, which makes us vulnerable to significant cost increases. Sole-source vendors may decide to limit or eliminate sales of certain components 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. Our inventory may run out before we find alternative suppliers, and we might be forced to purchase substantial inventory, if available, to last until we qualify an alternate supplier. If we cannot obtain a necessary component, we may need to find, test and obtain regulatory approval or clearance 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.
We may not be successful in expanding our direct sales activities into international markets.
We are seeking to expand our international sales of the AB5000, BVS 5000 and Impella circulatory assist systems, as well as our iPulse console, by recruiting direct sales and support teams in Germany and France. 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;
the need to procure reimbursement for our products in each foreign market;
the generally lower level of reimbursement available in foreign markets relative to the U.S.;
longer sales cycles;
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 intend to expand our reliance on distributors in some international markets, and poor performance by a distributor could reduce our sales and harm our business.
We rely on distributors to market and sell our products in parts of Europe, Asia, South America and Australia. Many of these distributors have the exclusive right to distribute our products in their territory. We may hire distributors to market our products in additional international markets. Our success in these markets will depend almost entirely upon the efforts of our distributors, over whom we have little or no control. If a distributor does not market and sell our products aggressively, we could lose sales and impair our ability to compete in that market.
Our operating results may fluctuate unpredictably.
Historically, our annual and quarterly operating results have fluctuated widely, and we expect these fluctuations to
grow rapidly ifcontinue. Among the factors that may cause our operating results to fluctuate are:the timing of customer orders and deliveries, particularly for our consoles, which are substantially more expensive than our disposable products;
competitive changes, such as price changes or new product introductions that we or our competitors may make;
the timing of regulatory actions, such as product approvals or recalls;
costs we incur developing and testing our Impella micro heart pumps, IAB, iPulse console, AbioCor, AbioCor II and other new products or product enhancements;
costs we incur in anticipation of future sales, such as inventory purchases, expansion of manufacturing facilities, or establishment of international sales offices;
economic conditions in the health care industry; and
efforts by governments, insurance companies and others to contain health care costs, including changes to reimbursement policies.
We believe that period-to-period comparisons of our historical results are not necessarily meaningful, and investors should not rely on them as an indication of our 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.
We may be unable to obtain any benefit from our net operating loss carryforwards and research and experimentation credit carryforwards.
At March 31, 2006, we had federal and state net operating loss carryforwards of approximately $67.9 million and $24.1 million, respectively, which begin to expire in fiscal 2007. At March 31, 2006, we also had foreign net operating loss carryforwards of approximately $24.8 million that can be carried forward indefinitely. Additionally, at March 31, 2006, we had federal and state research and experimentation credit carryforwards of approximately $5.6 million and $3.8 million, respectively, which begin to expire in fiscal 2007. Ownership changes, as defined in Section 382 of the Internal Revenue Code, may have limited the amount of net operating loss carryforwards and research and experimentation credit carryforwards that we can use each year to offset future taxable income and taxes payable. Subsequent ownership changes could impose additional limitations. We have not done a complete analysis to determine whether changes in the composition of our stockholders, including as a result of our acquisition of Impella and this offering, have resulted or will result in an ownership change for purposes of Section 382. We cannot assure you that we will obtain any benefit from any of our net operating loss carryforwards and research and experimentation credit carryforwards.
Our future success depends in part on the development of new circulatory assist products, and our development efforts may not be successful.
We are currently devoting our major research and development and regulatory efforts, and significant financial resources, to the development of our Impella micro heart pumps, iPulse console, AbioCor, AbioCor II and product extensions of existing commercial products and new products. The development of new products and product extensions 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. We may be unable to overcome all of these challenges, which could adversely affect our results of operations and prospects.
We may not have sufficient funds to develop and commercialize our new products.
The development, manufacture and sale of any medical device in the United States and abroad is very expensive. 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. If we are unable to obtain the necessary funding to develop and commercialize our products, our business may be adversely affected.
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 and develop or otherwise acquire additional 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 AB5000, BVS 5000, Impella products, AbioCor, AbioCor II and other products under development
advanceis in the form of trade secrets, rather than patents. Unlike patents, trade secrets are only recognized under applicable law if they are kept secret by restricting their disclosure to third parties. We protect our trade secrets and proprietary knowledge in part through confidentiality agreements with employees, consultants and other parties. However, certain consultants and third parties with whom we have business relationships, and to whom in some cases we have disclosed trade secrets and other proprietary knowledge, may also provide services to other parties in theapproval process.medical device industry, including companies, universities and research organizations that are developing competing products. In addition, some of our former employees who were exposed to certain of our trade secrets and other proprietary knowledge in the course of their employment may seek employment with, and become employed by, our competitors. We cannot assure you that consultants, employees, andother third parties with whom we have entered into confidentiality agreements will not breach the terms of such agreements by improperly using or disclosing our trade secrets or other proprietary knowledge, 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
expansionloss ofpersonnel and facilities will straintrade secret protection for technologies or know-how relating to the AB5000, BVS 5000, Impella products, AbioCor or AbioCor II could adversely affect ourmanagementbusiness and ourfinancialprospects.Our business position also depends in part on our ability to maintain and defend our existing patents and obtain, maintain, and defend additional patents and other
resources. Ifintellectual property rights. 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, or, if issued, could be deemed invalid or unenforceable. Patent prosecution, related proceedings, and litigation in the U.S. and in other countries may be expensive, time consuming and ultimately unsuccessful. 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 proprietary technologies and processes that are the same as or substantially equivalent to ours, or design around our patents. Finally, the expiration of patents on which wecannot manage this growth successfully,rely for protection of key products could diminish our competitive advantage and adversely affect our businesswill likely suffer. PRODUCT LIABILITY CLAIMS COULD DAMAGE OUR REPUTATION AND HURT OUR FINANCIAL RESULTS.and our prospects.We may face claims of intellectual property infringement, which could result in significant expenses or the payment of damages or require us to stop selling our products.
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, be unable to sell products using that technology, or have to seek a license or redesign the related product. These alternatives may be uneconomical or impossible. Intellectual property litigation could be costly, result in product development delays and divert the efforts and attention of management from our business.
Product liability claims could damage our reputation and hurt our financial results.
The clinical use of medical products, even after regulatory approval,
poseposes an inherent risk of productliability.liability claims. 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. As we continue to introduce more products, we face an increased risk that a product liability claim will be brought against us.Many of our products are designed for patients
using the BVSwho suffer from late-stage or end-stage heart failure, and many of these patients do notsurvive.survive, even when supported by our products. 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 product14maintenance by customers. However, the failure of the BVS or other life supportproducts we distribute for clinicaltesttesting or sale could give rise to product liability claims and negative publicity.The risk of product liability claims
couldwill increase as weintroduce newsell more productslike the AbioCorthat are intended to support a patient until the end of life. The finite life of our products, as well as complications associated with their use, could give rise to product liability claims whether or not the products have extended or improved the quality of a patient’s life. For example, the AbioCor will have a finite life and could cause unintended complications to other organs and may not be able tosuccessfullysupport allpatients.patients successfully. Its malfunction could give rise to product liability claims whether or not it has extended or improved the quality of thepatient'spatient’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 portionOff-label use of our
basicproducts may result in injuries that lead to productresearch and development.liability suits, which could be costly to our business.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 mostuse of ourcurrentproducts outside the indications cleared for use, or “off-label use,” may increase the risk of injury to patients. Clinicians may use our products for off-label uses, as the FDA does not restrict or regulate a clinician’s choice of treatment within the practice of medicine. Off-label use of our products may increase the risk of product liability claims. Product liability claims are expensive to defend and could divert our management’s attention and result in substantial damage awards against us.If the FDA or another regulatory agency determines that we have promoted off-label use of our products,
under development. In particular,we may be subject to various penalties, including civil or criminal penalties.The FDA and other regulatory agencies actively enforce regulations prohibiting promotion of off-label uses and the
National Heart, Lungpromotion of products for which marketing clearance has not been obtained. If the FDA or another regulatory agency determines that our promotional materials or training constitutes promotion of an unapproved use, it could request that we modify our training or promotional materials or subject us to regulatory enforcement actions, including the issuance of a warning letter, injunction, seizure, civil fine andBlood Institute,criminal penalties. Although our policy is to refrain from statements that could be considered off-label promotion of our products, the FDA orNHLBI, awardedanother regulatory agency could disagree and conclude that we have engaged in off-label promotion.Quality problems can result in substantial costs and write-downs.
Government regulations require us to track materials used in the manufacture of our products, so that any problem identified in one product can be traced to other products that may have the same problem. An identified quality problem may require reworking or scrapping related inventory and recalling previous shipments. Because a
four-year, $8.5 million extensionmalfunction in our products can be life-threatening, we may be required to recall and replace, free of charge, products already in the marketplace. Any quality problem could cause us to incur significant expenses, lead to significant write-offs, injure our reputation and harm our business and financial results.Future milestone payments relating to our
AbioCor development contractacquisition of Impella could harm our financial position or result inSeptember 1996, and a five-year, $4.3dilution.We may be required to make additional contingent payments of up to $11.2 million
contract for the development of the AbioBooster in September 1995. As of December 31, 1999, we had recognized all of the revenueunder theAbioCor 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 anyterms of ourcontracts 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,acquisition of Impella, based on ourfinancial 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 15AbioCor or competing products. Many factors affecting ourfuture stock priceare industryperformance and milestones relatedand beyond our control. IF WE MAKE ACQUISITIONS, WE COULD ENCOUNTER DIFFICULTIES THAT HARM OUR BUSINESS. We may acquire companies, products or technologies that we believetobe complementary to our business.FDA approval of Impella’s products. If wedo 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 stockpay any milestone payment inthe 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 outstandingshares of our common stock,are freely saleable except shares held byouraffiliates, 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. 16USE OF PROCEEDS We estimate that the net proceeds to us from the sale of the 1,500,000 shares of common stockstockholders may experience dilution. If weare 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 tousethe 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 commitmentscash to make any suchacquisitions 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 onpayment, ourcapital 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 7/8The 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. 17CAPITALIZATION 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 ======== ========18SELECTED 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 auditedfinancialstatements 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 20,239For 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. 19MANAGEMENT'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 believeresources will bethe first such device for end-stage heart failure patients. We currently manufacturediminished andsell 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 20the 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 21from 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. 22FISCAL 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 23and 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 24loss 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 25marketable 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. 26BUSINESS 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. 27INDUSTRY 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 28timing 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 29number 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 heart30
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 appliedDESTINATION 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. 31Permanent 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 32such 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 33regulatory 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. 34Our 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. 35READINESS 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 thatwe may beableunable touse 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 anypursue othermaterial 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. 36DESIGN 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. 38We 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. 39We 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. 40The 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 $483,000The 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 areasactivities, such as research and development,manufacturing, regulatory compliance,the expansion of our salesand marketing, and clinical support. We believe our experience withforce or theBVS 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 capableacquisition ofassuming 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 heartsother new products.If we 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 heartcompete successfully against our existing orcertain heart attacks, expanding its use to the temporary treatment of all patients with potentially reversible heart failure. 41The 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, 42serves 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 otherpotentialapplications 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. 43The 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 undercompetitors, our productdevelopment 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 PhDssales orMD/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 44involved 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 45distributors, 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. 46The 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 litigationoperating results may becostly, 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 ourharmed.Competition from other companies offering circulatory care 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 marketsis intense and subject to rapid technological change and evolving industry requirements and standards.Many of theWe compete with companiesdeveloping or marketing heart assist productsthat have substantially greater or broader financial, product development, sales and marketing resources and experience thanABIOMED.we do. 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 47another 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 ourOur AB5000 and BVS
product5000 systems compete with a temporary cardiac assist device from Thoratec Corporation, which is approved for post-cardiotomy support. In addition, the AB5000 andintend to sell mostBVS 5000 compete with other blood pumps that are used in medical centers for a variety ofour potential products under development to medical institutions. Medical institutionsapplications, such as intra-aortic balloon pumps, including those offered by Datascope andtheir physicians typically seek reimbursementArrow International, and centrifugal pumps. Levitronix is conducting clinical trials in the U.S. forthe use of these products from third-party payors, including Medicare, Medicaid, and private health insurers and managed care organizations. Asaresult, market acceptance ofdevice that may compete with our current heart assist products in some applications. Levitronix has licensed this product to Thoratec Corporation for distribution in the U.S. The FDA recently approved a product designed by CardiacAssist, Inc. that may compete with our Impella products, andproposedJarvik Heart is conducting clinical trials for a new ventricular assist device that may compete with our AB5000 and Impella products. Approval by the FDA of products that compete directly with our products would increase competitive pricing and other pressures.Advances in medical technology, biotechnology and pharmaceuticals may
dependreduce the size of the potential markets for our products or render those products obsolete. We are aware of other heart replacement device research efforts inlarge part ontheextent to which reimbursement is available to medical institutionsU.S., Canada, Europe andphysiciansJapan. In October 2004, the FDA approved Syncardia Systems’ CardioWest Total Artificial Heart for use as a bridge to transplantation in cardiac transplant-eligible candidates at risk ofour products. Coverage and the level of payment provided by U.S. and foreign third-party payors varies according toimminent death from non-reversible biventricular failure. In addition, there are a number offactors,companies—includingthe medical procedure, payor, location, outcomeThoratec Corporation, World Heart Corporation, MicroMed Technology, Ventracor andcost. 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 servicesseveral early-stage companies—that areprovided. 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 insurersdeveloping permanent heart assist products, including implantable left ventricular assist devices andmanaged care providers provide incremental reimbursement to both the medical institutions and their physicians. 48No 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,miniaturized rotary ventricular assist devices.If we acquire other companies 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,businesses, webelieve 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, orwill be subject toregulation byrisks that could hurt our business.We may pursue acquisitions to obtain complementary businesses, products or technologies. Any such acquisition may not produce the
FDArevenues, earnings or business synergies that we anticipate, andcorresponding statean acquired business, product or technology might not perform as we expect. Our management could spend a significant amount of time, effort andforeign regulatory agencies. Noncompliance with applicable regulatory requirements can resultmoney inamong other things, fines, injunctions, civil penalties, recall or seizure of products, total or partial suspension of production, refusalidentifying, pursuing and completing the acquisition. If we complete an acquisition, we may encounter significant difficulties and incur substantial expenses in integrating the operations and personnel of thegovernmentacquired company into our operations while striving togrant marketing approval for devices, withdrawal of marketing approvals, and criminal prosecution. The FDA also haspreserve theauthority to request repair, replacement or refundgoodwill of thecostacquired company. In particular, we may lose the services ofany 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 somekey employees of therequirements applicableacquired company, and we may make changes in management that impair the acquired company’s relationships with employees and customers.Any of these outcomes could prevent us from realizing the anticipated benefits of an acquisition. To pay for an acquisition, we might use stock or cash. Alternatively, we might borrow money from a bank or other lender. If we use our stock, our stockholders would experience dilution of their ownership interests. If we use cash or debt financing, our financial liquidity would be reduced. We may be required to
Class Icapitalize a significant amount of intangibles, including goodwill, which may lead to significant amortization charges. In addition, we may incur significant, one-time write-offs andClass II devices, including general controls,amortization charges, such aslabeling, 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 effectivenessour $13.3 million write-off ofthe 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, 49modifications 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 primary 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 it 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 pervasive 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. 50INTERNATIONAL 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,in-process research and developmentand 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. 51LEGAL 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 useexpenses in connection with theAbioCorImpella acquisition. These amortization charges anddetermined that it didwrite-offs could decrease our future earnings or increase our future losses.Fluctuations in foreign currency exchange rates could result in declines in our reported sales and earnings.
Because some of our international sales are denominated in local currencies and not
meetin U.S. dollars, ourneeds.reported sales and earnings are subject to fluctuations in foreign currency exchange rates, primarily the Euro. Theplaintiffs allege that we subsequently utilized aspectsfunctional currency oftheir proprietary technology in developing our own transcutaneous energy transmission device. Trial ofAbiomed Europe is thecase 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. IfEuro. At present, we do notultimately prevail, we might be requiredhedge our exposure touse 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.foreign currency fluctuations. As a result,if we do not prevail, our development ofsales occurring in theAbioCorfuture that are denominated in foreign currencies may beadversely affectedtranslated into U.S. dollars at less favorable rates, resulting in reduced revenues andour 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. 52MANAGEMENT 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 CounselOUTSIDE 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. 53MR. 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 relatedearnings.Risks 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, 54Sales 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 fromOfferingThe
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. 55MR. 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. 56PRINCIPAL STOCKHOLDERS The following table sets forth certain information as of February 1, 2000 with respect to the beneficial ownershipmarket price of our common stockby eachis volatile.The market price of our
directors, eachcommon stock has fluctuated widely and may continue to do so. For example, from March 31, 2006 to March 31, 2007 the price of ourexecutive officers, allstock ranged from a high of $16.19 per share to a low of $12.07 per share. Many factors could cause the market price of ourdirectorscommon stock to rise andexecutive officersfall. Some of these factors are:variations in our quarterly results of operations;
the status of regulatory approvals for our products;
the introduction of new products by us or our competitors;
acquisitions or strategic alliances involving us or our competitors;
changes in accounting principles;
changes in health care policy or third-party reimbursement practices;
changes in estimates of our performance or recommendations by securities analysts;
the hiring or departure of key personnel;
future sales of shares of common stock in the public market; and
market conditions in the industry and the economy as a
group,whole.In addition, the stock market in general and
each person we knowthe market for shares of medical device companies in particular have experienced extreme price and volume fluctuations in recent years. These fluctuations are often unrelated tobethebeneficial owneroperating performance offive percent or moreparticular companies. These broad market fluctuations may adversely affect the market price of our common stock.This information is based upon information received fromWhen the market price of a company’s stock drops significantly, stockholders often institute securities class action litigation against that company. Any litigation against us could cause us to incur substantial costs, divert the time and attention of our management and other resources, oron behalfotherwise harm our business.The sale 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 100,000additional shares ofcommon 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 ofour common stock, or11.5%the exercise ofthe shares outstanding. The shares listed above as being beneficially owned by Mr. Termeer include 1,153,846 shares held by Genzyme Corporation ascurrently outstanding options and warrants towhich Mr. Termeer disclaims beneficial ownership. Mr. Termeer is the Chief Executive Officerpurchase our common stock, could dilute your ownership interest.We have issued a substantial number of
Genzyme Corporation. The shares listed above as being beneficially owned by Dr. Kung include 55,400 shares held by Dr. Kung's wifeoptions and16,600 shares held in trust for the benefit of certain relatives of Dr. Kung, aswarrants towhich 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. 57DESCRIPTION OF CAPITAL STOCK As of February 1, 2000, ABIOMED's authorized capital stock consisted of 25,000,000 shares ofacquire our common stock, and1,000,000 shareswe expect to continue to issue options to our employees and others. If all currently outstanding stock options and warrants were exercised, you would suffer dilution ofClass B preferredyour ownership interest. In addition, in connection with our acquisition of Impella CardioSystems AG in 2005, we may be obligated to make certain milestone payments. These payments may be made in stock,$.01 par value. COMMON STOCK Aswhich would also result in a dilution ofFebruary 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 theyour ownership interest.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 holdersmaterial amounts of common stock couldbe adversely affected. We currently have no plansencourage short sales by third parties and depress the price of our common stock. As a result, you may lose all or part of your investment.The downward pressure on our stock price caused by the sale of a significant number of shares of our common stock, or the perception that such sales could occur, pursuant to
issuethis offering or by any of our significant stockholders could cause our stock price to decline, thus allowing short sellers of our stock an opportunity to take advantage of any decrease in thepreferredvalue of our stock. TheBoardpresence ofDirectors has designated 25,000 shares of the preferred stock as the "Series A Junior Participating Preferred Stock"short sellers inconnection 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 reduceourvulnerability 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 thecommon stockwhich could result from actual or rumored takeover attempts. Such factors alsomayhavefurther depress theeffectprice ofpreventing changes in the management of ABIOMED.our common stock.Our rights distribution, 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,andin 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 thereforeDelaware law could make it more difficult for a third party to acquirecontrol of ABIOMED by delaying, deferring or preventing a change of control that a stockholder might consider would result inus and may prevent our stockholders from realizing a premiumfor itson our stock.At least two stockholder meetings, insteadOur rights distribution and provisions 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,ouremployees, customers, suppliers and creditors and the communities in which our facilities are located. Ourcertificate of incorporation andby-laws also provide that all stockholder action must be effected atof the Delaware General Corporation Law may make it more difficult for aduly called meetingthird 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 andnot by written consent. The authoritythose provisions oftheour certificate of incorporation and Delaware law are intended to encourage potential acquirers to negotiate with us and allow our Board of Directors the opportunity toissue authorized but unissued sharesconsider 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
might be considered as havingcould vary significantly, based on market perceptions of theeffectstatus ofdiscouraging an attempt by another person or entity to effectour development efforts.The perception of securities analysts regarding our product development efforts could significantly affect our stock price. As a
takeover or otherwise gain controlresult, the market price ofABIOMED, since the issuance of additional shares ofour common stockwould dilutehas and could in thevoting power of the commonfuture change substantially when we or our competitors make product announcements. Many factors affecting our stockthen 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 stockprice are industry related and beyond our control.We have not paid and do not expect to pay dividends, and any return on
August 28, 1997your investment will likely be limited to thestockholdersvalue ofrecordour common stock.We have never paid dividends 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 outstandingour common stock and do not anticipate paying dividends on our common stock in thetenthforeseeable future. The payment of dividends on our common stock will depend on our earnings, financial condition and other businessday followingand economic factors affecting us at such time as our board of directors may consider relevant. If we do not pay dividends, our common stock may be less valuable because a return on your investment will only occur if our stock price appreciates.SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
The Securities and Exchange Commission, or SEC, encourages companies to disclose forward-looking information so that investors can better understand a company’s future prospects and make informed investment decisions. This prospectus contains such “forward-looking statements” within the
commencement or announcement of a tender offer or exchange offer which would result in a person or group owning 15% or moremeaning of thecommon stock. As soon as possible after the earlierPrivate Securities Litigation Reform Act ofeither 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 59rights 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 acquirors1995. These statements may bediscouraged 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. 60UNDERWRITING We are offering the shares of common stock describedmade directly in this prospectus,throughand they may also be made anumberpart ofunderwriters. Banc of America Securities LLC and Salomon Smith Barney Inc. are the representatives of the underwriters. We have entered into a firm commitment underwriting agreementthis prospectus by reference to other documents filed with therepresentatives. Subject to theSEC, which is known as “incorporation by reference.”Words such as “may,” “anticipate,” “estimate,” “expects,” “projects,” “intends,” “plans,” “believes” and words and terms of similar substance used in connection with any discussion of future operating or financial performance identify forward-looking statements. All forward-looking statements are management’s present expectations of future events 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 sharesarenot sold at the public offering price, the underwriters may change the offering price and the other selling terms. The common stock is offeredsubject to a number ofconditions, including: - receiptassumptions, risks andacceptanceuncertainties that could cause actual results to differ materially from those described in the forward-looking statements. These risks include, but are not limited to, the risks and uncertainties set forth in “Risk Factors,” beginning on page 3 of this prospectus, as well as those set forth in our other SEC filings incorporated by reference herein.In light of these assumptions, risks and uncertainties, the results and events discussed in the forward-looking statements contained in this prospectus or in any document incorporated by reference might not occur. You are cautioned not to place undue reliance on the forward-looking statements, which speak only as of the date of this prospectus or the date of the document incorporated by reference in this prospectus. We do not undertake any obligation to update or alter any forward-looking statements, whether as a result of new information, future events or otherwise. All subsequent forward-looking statements attributable to us or to any person acting on our behalf are expressly qualified in their entirety by the cautionary statements contained or referred to in this section.
We will not receive any proceeds from the sale by the selling stockholders of the securities offered by this prospectus.
The selling stockholders acquired the shares covered by this prospectus from us in connection with our acquisition of Impella CardioSystems AG. The shares are subject to transfer restrictions set forth in a registration rights and stock restriction agreement dated May 10, 2005 between us and the selling stockholders. The following table provides information regarding the beneficial ownership of our common stock by the
underwriters;selling stockholders as of March 28, 2007 and-upon completion of therightsale of all the shares offered under this prospectus. However, this does not necessarily mean that any of the selling stockholders will sell any or all of the shares being registered. For purposes of this table, we have assumed that the selling stockholders will sell all of the shares being offered by this prospectus. The shares shown as beneficially owned by the selling stockholders that are not included in this offering have either been registered for resale or are otherwise available for sale outside of this offering. The shares toreject ordersbe beneficially owned after the offering inwholethe following table assume that none of these shares will be sold.For purposes of the following table, beneficial ownership is determined in accordance with rules promulgated by the SEC. Under the rules, shares of our common stock issuable under options that are currently exercisable or exercisable within 60 days after March 28, 2007, are deemed outstanding and are included in
part.the number of shares beneficially owned by a person or entity named in the table and are used to compute the percentage ownership of that person or entity. These shares are not, however, deemed outstanding for computing the percentage ownership of any other person or entity. Theunderwritersinclusion of shares listed as beneficially owned does not constitute an admission of beneficial ownership. We havean option to buy up to 125,000 additionalcalculated the percentage beneficially owned based upon 32,231,012 shares of common stock outstanding as of March 28, 2007.
Shares beneficially owned before offering Number of
shares to
be offeredShares to be beneficially owned after offering Outstanding Right to
acquireTotal Percent Outstanding Right to
acquireTotal Percent Oxford Bioscience Partners IV L.P. (1) 577,755 — 577,755 1.8 % 138,357 439,398 — 439,398 1.4 % Cooperatieve AAC LS U.A. (2) 791,497 — 791,497 2.5 % 118,442 673,055 — 673,055 2.1 % Medica II Investments (International) L.P. (3)(4) 483,726 — 483,726 1.3 % 93,823 389,903 — 389,903 1.0 % Giza GE Venture Fund III L.P. (5) 315,614 — 315,614 1.0 % 42,931 272,683 — 272,683 * Medica II Investments (Israel) L.P. (3)(4) 148,495 — 148,495 * 28,802 119,693 — 119,693 * Rolf Kaese (6) 54,252 — 54,252 * 19,214 35,038 — 35,038 * Thorsten Siess (7) 120,874 8,750 129,624 * 19,214 101,660 8,750 110,410 * Richard Geoffrion (8) 17,823 — 17,823 * 17,823 — — — — Arthur Pergament 91,895 — 91,895 * 16,580 75,315 — 75,315 * Medica II Investments (P.F.) (Israel) L.P. (3)(4) 72,120 — 72,120 * 13,988 58,132 — 58,132 * Martin Leon 69,649 — 69,649 * 12,875 56,774 — 56,774 * Paul Spence (9) 38,927 — 38,927 * 9,322 29,605 — 29,605 * Giza Alpinvest Venture Fund III L.P. (5) 66,677 — 66,677 * 9,069 57,608 — 57,608 * Mark Maguire (10) 8,661 — 8,661 * 8,661 — — — — Daniel Burkhoff 33,672 — 33,672 * 8,661 25,011 — 25,011 * Giza Venture Fund III L.P. (5) 54,335 — 54,335 * 7,391 46,944 — 46,944 * Donald Baim 4,330 — 4,330 * 4,330 — — — — Paul Teirstein 4,330 — 4,330 * 4,330 — — — — Peter Fitzgerald 4,330 — 4,330 * 4,330 — — — — Eberhard Grube 31,830 — 31,830 * 4,330 27,500 — 27,500 * Helmut Reul 26,728 — 26,728 * 3,636 23,092 — 23,092 * Gunter Rau 14,423 — 14,423 * 2,423 12,000 — 12,000 * Giza Executive Venture Fund III L.P. (5) 16,639 — 16,639 * 2,263 14,376 — 14,376 * Christoph Nix (11) 13,149 — 13,149 * 1,789 11,360 — 11,360 * Giza Gmulot Venture Fund III L.P. (5) 11,130 — 11,130 * 1,514 9,616 — 9,616 * Guido Derjung (11) 10,373 — 10,373 * 1,411 8,962 — 8,962 * Sebastian Schwandter (11) 10,640 — 10,640 * 1,411 9,229 — 9,229 * mRNA Fund II L.P. (1) 5,799 — 5,799 * 1,389 4,410 — 4,410 * Dirk Michels (11) 7,491 6,250 13,741 * 1,019 6,472 6,250 12,722 * Paolo Cremascoli 932 — 932 * 932 — —�� — — Total: 3,016,694 15,000 3,031,694 9.4 % 600,260 2,416,434 15,000 2,431,434 7.5 %
* Less than one percent.
(1) ORP Management IV L.P. is the general partner of Oxford Bioscience Partners IV L.P. and mRNA Fund II L.P. Jeffrey Barnes, the general partner of ORP Management IV L.P. was a member of the Board of Directors of Impella CardioSystems AG prior to our acquisition of Impella on May 10, 2005. Collectively, Oxford Bioscience Partners IV L.P. and mRNA Fund II L.P. beneficially own 1.8% of our outstanding shares prior to the offering.
(2) Martin van Osch, an employee of ABN AMRO Bank NV, which is an entity under common control with Cooperatieve AAC LS U.A., was a member of the Supervisory Board of Impella Cardiosystems AG prior to our acquisition of Impella on May 10, 2005.
(3) Collectively, Medica II Investments (International) L.P., Medica II Investments (Israel) L.P. and Medica II Investments (P.F.) (Israel) L.P. beneficially own 1.9% of our outstanding shares prior to the offering.
(4) Medica II Investments (International) L.P., Medica II Investments (Israel) L.P. and Medica II Investments (P.F.)(Israel) L.P. are controlled by Yuval Binur, who was a member of the Supervisory Board of Impella CardioSystems AG prior to our acquisition of Impella on May 10, 2005.
(5) Giza Alpinvest Venture Fund III L.P., Giza Executive Venture Fund III L.P., Giza GE Venture Fund III L.P., Giza Gmulot Venture Fund III L.P. and Giza Venture Fund III L.P. all have the same managing directors. Combined, these entities beneficially own approximately 1.4% of our outstanding shares prior to the offering.
(6) Served as a consultant to Impella CardioSystems AG prior to our acquisition of Impella on May 10, 2005.
(7) Served as Chief Technology Officer of Impella CardioSystems AG prior to our acquisition of Impella on May 10, 2005, continues to be employed by Abiomed Europe, and serves as Chief Technology Officer of Abiomed Europe.
(8) Served as Chairman of the Supervisory Board of Impella CardioSystems AG prior to our acquisition of Impella on May 10, 2005.
(9) Served as the Chief Executive Officer of Impella CardioSystems AG prior to our acquisition of Impella on May 10, 2005.
(10) Served as a consultant to Impella CardioSystems AG prior to our acquisition of Impella on May 10, 2005 and continues to provide consulting services to Abiomed Europe.
(11) Served as an employee of Impella CardioSystems AG prior to our acquisition of Impella on May 10, 2005 and continues to be employed by Abiomed Europe. We are registering the shares offered by this prospectus on behalf of the selling stockholders. All costs, expenses and fees connected with the registration of these shares will be borne by us. Any brokerage commissions and similar expenses connected with selling the shares will be borne by the selling stockholders. The selling stockholders may offer and sell the shares covered by this prospectus from
ABIOMEDtime to time in one or more transactions. The term “selling stockholder” includes pledgees, donees, transferees and other successors-in-interest who may acquire shares through a pledge, gift, partnership distribution or other non-sale-related transfer from the selling stockholders. The selling stockholders will act independently of us in making decisions with respect to the timing, manner and size of each sale, and they may sell shares on one or more exchanges, through the NASDAQ Global Market or other market, in the over-the-counter market or in privately negotiated transactions at prevailing market prices at the time of sale, at fixed prices, at varying prices determined at the time of the sale or at negotiated prices. These transactions include:ordinary brokerage transactions and transactions in which the broker solicits purchasers;
purchases by a broker-dealer as principal and resale by the broker-dealer for its own account pursuant to this prospectus;
exchange or over-the-counter distributions in accordance with the rules of the exchange or other market;
block trades in which the broker-dealer attempts to sell the shares as agent but may position and resell a portion of the block as principal to facilitate the transaction;
a combination of any such methods of sale; and
any other method permitted pursuant to applicable law.
In connection with distributions of the shares or otherwise, the selling stockholders may:
after the effectiveness of the registration statement that includes this prospectus, sell the shares short and redeliver the shares to close out short positions;
enter into option or other transactions with broker-dealers or other financial institutions which require the delivery to them of shares covered by this prospectus, which they may in turn resell; and
pledge shares to broker-dealers or other financial institutions, which, upon a default, they may in turn resell.
The selling stockholders may also sell any shares under Rule 144 rather than with this prospectus if the sale meets the requirements of that rule.
In effecting sales, the selling stockholders may engage broker-dealers or agents, who may in turn arrange for other broker-dealers to participate. Broker-dealers or agents may receive commissions, discounts or concessions from the selling stockholders and/or from the purchasers of shares for whom the broker-dealers may act as agents or to whom they sell as principal, or both. The compensation to a particular broker-dealer may be in excess of customary commissions. To our knowledge, there is currently no plan, arrangement or understanding between any selling stockholder and any broker-dealer or agent regarding the sale of any shares by the selling stockholders.
The selling stockholders, any broker-dealers or agents and any participating broker-dealers that act in connection with the sale of the shares covered by this prospectus may be “underwriters” under the Securities Act with respect to those shares and will be subject to the prospectus delivery requirements of that act. Any profit that the selling stockholders realize, and any compensation that any broker-dealer or agent may receive in connection with any sale, including any profit realized on resale of shares acquired as principal, may constitute underwriting discounts and commissions. If the selling stockholders are deemed to be underwriters, the selling stockholders may be subject to certain liabilities under statutes including, but not limited to, Sections 11, 12 and 17 of the Securities Act and Section 10(b) and Rule 10b-5 under the Exchange Act.
The securities laws of some states may require the selling stockholders to sell the shares in those states only through registered or licensed brokers or dealers. These laws may also require that we register or qualify the shares for sale in those states unless an
optionexemption from registration and qualification is available and the selling stockholders and we comply with that exemption. In addition, the anti-manipulation rules of Regulation M under the Securities Exchange Act of 1934 may apply tobuy up to 100,000 additional shares of common stock from Dr. David M. Lederman. These additional shares would coversales of shares in the market and to the activities of the selling stockholders and their affiliates. Regulation M may restrict the ability of any person engaged in the distribution of the shares to engage in market-making activities with respect to the shares. All of the foregoing may affect the marketability of the shares and the ability of any person to engage in market-making activities with respect to the shares.If a selling stockholder notifies us that he, she or it has entered into any material arrangement with a broker-dealer for the sale of shares through a block trade, special offering, exchange distribution, over-the-counter distribution or secondary distribution, or a purchase by
the underwriters which exceeda broker or dealer, we will file any necessary supplement to this prospectus to disclose:the number of shares
specifiedinvolved in thetable above, and will be sold first by Dr. Lederman and then by ABIOMED inarrangement;the
event thatterms of theoption is not exercised in full. Thearrangement, including the names of any underwriters,have 30 days to exercise this option. Ifdealers or agents who purchase shares, as required;the
underwriters exercise this option, they will each purchase additional shares approximately in proportionproposed selling price to theamounts specifiedpublic;any discount, commission or other underwriting compensation;
the place and time of delivery for the shares being sold;
any discount, commission or concession allowed, reallowed or paid to any dealers; and
any other material terms of the distribution of shares.
In addition, if a selling stockholder notifies us that a donee, pledgee, transferee or other successor-in-interest of the selling stockholder intends to sell more than 500 shares, we will file a supplement to this prospectus.
The selling stockholders will pay any underwriting discounts and commissions, any expenses incurred by the selling stockholders for brokerage, accounting, tax or legal services, and any other expenses incurred by the selling stockholders in disposing of the
table above. ABIOMEDshares. We will pay the expensesother thanwe have incurred in connection with preparing and filing theunderwriting discountsregistration statement andcommissions paid by Dr. Lederman, associated withthis prospectus. We estimate that these expenses will be approximately $30,000. The selling stockholders may indemnify any broker-dealer or agent that participates in transactions involving theexercisesale of theover-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 61Dr. 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 1,153,846sharesof 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 underwritersagainst liabilities, including liabilities under the Securities Act.If ABIOMEDPursuant to the registration rights and
Dr. Lederman are unablestock restriction agreement filed as an exhibit toprovidethisindemnification, itregistration statement, we and the selling stockholders willcontribute to payments the underwriters mayberequired 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 saleindemnified by theunderwriters of a greater number of shares than they are required to purchase in this offering. Stabilizing transactions consist of bidsother against certain liabilities, including certain liabilities under the Securities Act 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 thatif therepresentatives purchase shares in the open market in stabilizing transactions orindemnity is unavailable, will be entitled tocover 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. 62As 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 matterscontribution in connection withthis offering forthese liabilities.Our common stock trades on the
underwriters. EXPERTS The audited financial statements included and incorporated by reference in this prospectus and elsewhere inNASDAQ Global Market under theregistration 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.symbol “ABMD.”WHERE YOU CAN FIND MORE INFORMATION
We file annual reports, quarterly
andreports, current reports, proxy statements and other information with the SEC. You may read and copy anydocument we fileof our SEC filings at theSEC's public reference roomSEC’s Public Reference Room at450 Fifth100 F Street,NW,N.E., Washington, D.C., 20549, and at the SEC's public reference rooms in Chicago, Illinois and New York, New York. Please20549. You may call the SEC at 1-800-SEC-0330 for further informationconcerningabout thepublic reference rooms.Public Reference Room. Our SEC filings are also available to the public on theSEC'sSEC’s web site at www.sec.gov.Our principal internet address is www.abiomed.com. Information contained on our 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 doesis notcontain 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 orincorporated by referencein the registration statement. Each statement as to the contentsinto this prospectus and, therefore, is not part ofsuch contractthis prospectus ordocument 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.any accompanying prospectus supplement.INFORMATION INCORPORATED BY REFERENCE
The SEC allows us to
"incorporate“incorporate byreference" thereference” informationwe file with them, whichfrom some of our other SEC filings. This means that we can discloseimportantinformation to you by referring you to thosedocuments. The 63other filings, and the information incorporated by reference is considered to be part of this prospectus, andprospectus. In addition, some information that we filelaterwith the SEC after the date of this prospectus will automatically update, and in some cases supersede,this information. We incorporatethe information contained or otherwise incorporated by reference in this prospectus. The following documents, which we filed with the Securities and Exchange Commission, are incorporated by reference in this registration statement:
(a) Our annual report on Form 10-K for the fiscal year ended March 31, 2006 (as filed on June 14, 2006);
(b) Our quarterly report on Form 10-Q for the fiscal quarter ended June 30, 2006 (as filed on August 9, 2006);
(c) Our quarterly report on Form 10-Q for the fiscal quarter ended September 30, 2006 (as filed on November 8, 2006);
(d) Our quarterly report on Form 10-Q for the fiscal quarter ended December 31, 2006 (as filed on February 8, 2007);
(e) Our current report on Form 8-K/A dated May 10, 2005 (as filed on July 27, 2005);
(f) Our current report on Form 8-K dated May 25, 2006 (as filed on May 25, 2006);
(g) Our current report on Form 8-K dated May 30, 2006 (as filed on June 1, 2006);
(h) Our current report on Form 8-K dated June 27, 2006 (as filed on June 28, 2006);
(i) Our current report on Form 8-K dated September 5, 2006 (as filed on September 5, 2006);
(j) Our current report on Form 8-K dated September 5, 2006 (as filed on September 8, 2006);
(k) Our current report on Form 8-K dated November 9, 2006 (as filed on November 14, 2006);
(l) Our current report on Form 8-K dated November 10, 2006 (as filed on November 16, 2006);
(m) Our current report on Form 8-K dated December 7, 2006 (as filed on December 8, 2006);
(n) Our current report on Form 8-K dated December 20, 2006 (as filed on December 21, 2006);
(o) Our current report on Form 8-K dated January 30, 2007 (as filed on February 5, 2007);
(p) Our current report on Form 8-K dated March 21, 2007 (as filed on March 21, 2007);
(q) Our current report on Form 8-K dated March 21, 2007 (as filed on March 26, 2007);
(r) Our current report on Form 8-K dated March 27, 2007 (as filed on April 2, 2007);
(s) Portions of our proxy statement on Schedule 14A filed with the SEC on July 10, 2006 that have been incorporated by reference into our annual report on Form 10-K; and
(t) The description of our common stock contained in our registration statement on Form 8-A filed with the SEC under Section 12 of the Securities Exchange Act of 1934, including any amendment or report filed for the purpose of updating such description. Also incorporated by reference into this prospectus are all documents
listed below and any future filingsthat wewill makemay file with the SEC under Sections 13(a), 13(c), 14, or 15(d) of theSecuritiesExchange Act either (1) after the initial filing of1934. (1) Annual Reportthis prospectus and before the date the registration statement is declared effective and (2) after the date of this prospectus and before we stop offering the securities described in this prospectus. These documents include periodic reports, such as annual reports on Form 10-K,for the fiscal year ended March 31, 1999; (2) Quarterly Reportquarterly reports on Form 10-Q, and current reports on Form 8-K, as well as proxy statements. Pursuant to General Instruction B of Form 8-K, any information submitted under Item 2.02, Results of Operations and Financial Condition, or Item 7.01, Regulation FD Disclosure, of Form 8-K is not deemed to be “filed” for thefiscal quarter ended June 30, 1999; (3) Quarterly Report onpurpose of Section 18 of the Exchange Act, and we are not subject to the liabilities of Section 18 with respect to information submitted under Item 2.02 or Item 7.01 of Form10-Q8-K. We are not incorporating by reference any information submitted under Item 2.02 or Item 7.01 of Form 8-K into any filing under the Securities Act or the Exchange Act or into this prospectus. Any statement contained herein or in a document incorporated or deemed to be incorporated by reference herein shall be deemed to be modified or superseded for purposes of this prospectus to thefiscal 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 distributedextent that a statement contained herein or in any other subsequently filed document which also is or is deemed tostockholders in 1997 contained in our registration statements on Form 8-A filed with the SEC on June 11, 1987 and August 25, 1997.be incorporated by reference herein modifies or supersedes such statement.You may request
a copycopies of these filings, at no cost, by writing to ortelephoning at the following address: ABIOMED, Inc.calling our Investor Relations department at:ABIOMED, Inc.
22 Cherry Hill Drive
Danvers, Massachusetts 01923
Telephone: (978) 777-5410
You should rely onlyThis prospectus is part of a registration statement on Form S-3 that we filed with the SEC under the Securities Act. This prospectus does not contain all of the information
or representations providedcontained inthis prospectus. We have authorized no one to providethe registration statement. For further information about us and our securities, you should read the prospectus and the exhibits filed withdifferent information. We are not making an offerthe registration statement, as well as all prospectus supplements.The validity of
these securities in any state wheretheoffer is not permitted. You should not assume that the informationshares of common stock offered in this prospectus has been passed upon for us by Foley Hoag LLP, Boston, Massachusetts. A partner at Foley Hoag LLP isaccurate asour secretary, and he and other partners beneficially own, together with their immediate families, 10,000 shares ofany date other thanour common stock.The audited financial statements included in this Prospectus, management’s assessment of the
dateeffectiveness of internal control over financial reporting (which is included in Management’s Report on Internal Control over Financial Reporting) incorporated in this Prospectus by reference to the Annual Report on Form 10-K of ABIOMED, Inc. for the year ended March 31, 2006 and the audited historical financial statements included in Exhibit 99.2 of ABIOMED, Inc.’s Current Report on Form 8-K/A filed on July 27, 2005 have been so included or incorporated in reliance on thefrontreports of PricewaterhouseCoopers LLP, an independent registered public accounting firm, given on thedocument. 64authority of said firm as experts in auditing and accounting. ABIOMED, INC. AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTSConsolidated Financial Statements
PAGE --------Page Report of Independent Registered Public
Accountants....................Accounting FirmF-2 F-4 F-5 F-6 F-7 Notes to Consolidated Financial
Statements.................. F-7StatementsF-8 to F-26 F-1ABIOMED, INC. AND SUBSIDIARIES REPORT OF INDEPENDENT PUBLIC ACCOUNTANTSReport of Independent Registered Public Accounting Firm
To the Board of Directors and Stockholders of ABIOMED, Inc.:
We have
audited the accompanying consolidated balance sheetscompleted integrated audits of ABIOMED Inc.(a Delaware corporation)’s 2006 andsubsidiaries2005 consolidated financial statements and of its internal control over financial reporting as of March 31,19982006, and1999,an audit of its 2004 consolidated financial statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). Our opinions, based on our audits, are presented below.Consolidated financial statements and financial statement schedule
In our opinion, the consolidated financial statements listed in the accompanying index present fairly, in all material respects, the financial position of ABIOMED, Inc. and its subsidiaries at March 31, 2006 and 2005, and the
related consolidated statementsresults of their operationsstockholders' equityand their cash flows for each of the three years in the period ended March 31,1999.2006 in conformity with accounting principles generally accepted in the United States of America. In addition, in our opinion, the financial statement schedule listed in the index appearing under Item 15(a)(2) (not separately included herein) presents fairly, in all material respects, the information set forth therein when read in conjunction with the related consolidated financial statements. These financial statements and financial statement schedule are the responsibility of theCompany'sCompany’s management. Our responsibility is to express an opinion on these financial statements and financial statement schedule based on our audits. We conducted our audits of these statements in accordance withgenerally accepted auditing standards.the standards of the Public Company Accounting Oversight Board (United States). 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 of financial statements includes examining, on a test basis, evidence supporting the amounts and disclosures in the financialstatements. An audit also includesstatements, assessing the accounting principles used and significant estimates made by management,as well asand evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.InInternal control over financial reporting
Also, in our opinion, management’s assessment, included in Management’s Report on Internal Control over Financial Reporting appearing under Item 9A (not separately included herein), that the Company maintained effective internal control over financial
statements referred to above presentreporting as of March 31, 2006 based on criteria established inInternal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO), is fairly stated, in all material respects, based on those criteria. Furthermore, in our opinion, the Company maintained, in all material respects, effective internal control over financialposition of ABIOMED, Inc. and subsidiariesreporting as of March 31,19982006, based on criteria established inInternal Control—Integrated Framework issued by the COSO. The Company’s management is responsible for maintaining effective internal control over financial reporting and1999,for its assessment of the effectiveness of internal control over financial reporting. Our responsibility is to express opinions on management’s assessment and on the effectiveness of the Company’s internal control over financial reporting based on our audit. We conducted our audit of internal control over financial reporting in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. An audit of internal control over financial reporting includes obtaining an understanding of internal control over financial reporting, evaluating management’s assessment, testing and evaluating the design and operating effectiveness of internal control, and performing such other procedures as we consider necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinions.A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the
resultspreparation oftheir operations and their cash flowsfinancial statements foreach of the three yearsexternal purposes inthe period ended March 31, 1999, in conformityaccordance with generally accepted accounting principles.ARTHUR ANDERSENA company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonableassurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. As described in Management’s Report on Internal Control over Financial Reporting, management has excluded Impella Cardiosystems GmbH from its assessment of internal control over financial reporting as of March 31, 2006 because it was acquired by the Company in a purchase business combination during the year ended March 31, 2006. We have also excluded Impella Cardiosystems GmbH from our audit of internal control over financial reporting. Impella Cardiosystems GmbH is a wholly-owned subsidiary whose total consolidated assets and total consolidated revenues represent 6% and 6%, respectively, of the related consolidated financial statement amounts as of and for the year ended March 31, 2006.
PricewaterhouseCoopers LLP
Boston, Massachusetts
April 30, 1999 F-2June 12, 2006
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-3Consolidated Balance Sheets
(in thousands, except share data)
March 31, 2005 2006 ASSETS Current Assets:
Cash and cash equivalents
$ 7,618 $ 7,832 Short-term marketable securities
33,887 23,003 Accounts receivable, net of allowance for doubtful accounts of approximately $64 and $211 at March 31, 2005 and 2006, respectively
8,635 8,880 Inventories
3,877 4,868 Prepaid expenses and other current assets
1,207 1,860 Total current assets
55,224 46,443 Long-term Investments
2,112 — Property and Equipment, net of accumulated depreciation of $10,867 and $12,077 at March 31, 2005 and 2006, respectively
2,804 4,824 Intangible Assets, net
418 8,164 Goodwill
— 19,106 Other Assets
503 — Total Assets
$ 61,061 $ 78,537 LIABILITIESAND STOCKHOLDERS’ EQUITY Current Liabilities:
Accounts payable
$ 1,132 $ 3,070 Accrued expenses
3,623 5,185 Deferred revenue
127 484 Total current liabilities
4,882 8,739 Deferred Income Taxes
— 310 Total Liabilities
4,882 9,049 Commitments and Contingencies
— — Stockholders’ Equity:
Class B Preferred Stock, $.01 par value—
Authorized—1,000,000 shares; Issued and outstanding—No shares
Common Stock, $.01 par value—
Authorized—100,000,000 shares;
Issued—22,079,311 shares at March 31, 2005 and 26,474,270 at March 31, 2006
Outstanding—22,079,311 shares at March 31, 2005 and 26,468,091 at March 31, 2006
221 265 Additional paid-in capital
170,095 214,666 Deferred stock-based compensation
(278 ) (171 ) Accumulated deficit
(113,859 ) (143,308 ) Treasury stock, at cost; 6,179 shares at March 31, 2006
— (66 ) Accumulated other comprehensive loss
— (1,898 ) Total stockholders’ equity
56,179 69,488 Total Liabilities and Stockholders’ equity
$ 61,061 $ 78,537 The accompanying notes are an integral part of these consolidated financial statements.
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 8,660,814THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL STATEMENTS. F-4Consolidated Statements of Operations
(in thousands, except per share and share data)
Fiscal Years Ended March 31, 2004 2005 2006 Revenues:
Products
$ 25,070 $ 37,945 $ 43,322 Funded research and development
669 271 348 25,739 38,216 43,670 Costs and Expenses:
Cost of product revenues, (excluding amortization)
7,591 9,366 11,685 Research and development
14,150 13,350 16,739 Selling, general and administrative
14,037 18,566 30,923 Acquired in-process research and development
— — 13,306 Amortization of intangibles
213 187 1,308 35,991 41,469 73,961 Loss From Operations
(10,252 ) (3,253 ) (30,291 ) Other Income, net:
Investment income
634 801 1,194 Foreign exchange gain(loss)
156 91 (116 ) Other
16 19 120 806 911 1,198 Loss Before Provision for Income Taxes
(9,446 ) (2,342 ) (29,093 ) Provision for Income Taxes
— — 356 Net Loss
$ (9,446 ) $ (2,342 ) $ (29,449 ) Basic and Diluted Net Loss per Share:
$ (0.45 ) $ (0.11 ) $ (1.15 ) Weighted Average Shares Outstanding:
21,153,014 21,844,759 25,649,038 The accompanying notes are an integral part of these consolidated financial statements.
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-5Consolidated Statements of Stockholders’ Equity
(in thousands, except share data)
Common Stock Accumulated
Paid-in
CapitalDeferred
Stock-based
CompensationAccumulated
DeficitTreasury
StockAccumulated
Other
Comprehensive
IncomeTotal
Stockholders’
EquityComprehensive
Income
(Loss)Number
of SharesPar
ValueBalance, March 31, 2003
21,047,918 $ 210 $ 163,951 $ — $ (102,071 ) $ — $ — $ 62,090 Stock options exercised
295,272 3 1,452 — — — — 1,455 Stock issued under employee stock purchase plan
28,837 1 133 — — — — 134 Stock issued to directors
14,892 — 88 — — — — 88 Deferred compensation related to employee stock option grants
— — 72 (72 ) — — — — Amortization of deferred compensation
— — — 15 — — — 15 Net loss
— — — — (9,446 ) — — (9,446 ) Balance, March 31, 2004
21,386,919 214 165,696 (57 ) (111,517 ) — — 54,336 Stock options exercised
665,437 7 3,919 — — — — 3,926 Stock issued under employee stock purchase plan
21,287 — 161 — — — — 161 Stock issued to directors
5,668 — 60 — — — — 60 Deferred compensation related to employee stock option grants
— — 259 (259 ) — — — — Amortization of deferred compensation
— — — 38 — — — 38 Net loss
— — — — (2,342 ) — — (2,342 ) Balance, March 31, 2005
22,079,311 221 170,095 (278 ) (113,859 ) — — 56,179 Stock issued to acquire Impella CardioSystems AG
4,029,004 40 42,160 — — — — 42,200 Restricted stock
24,000 1 — 86 — — — 87 Stock options exercised
313,628 3 1,952 — — — — 1,955 Stock issued under employee stock purchase plan
23,970 — 204 — — — — 204 Stock issued to directors
4,357 — 56 — — — — 56 Amortization of deferred compensation
— — (9 ) 21 — — — 12 Stock compensation related to stock options
— — 208 — — — — 208 Treasury stock acquired from Business acquisition escrow at cost
(6,179 ) — — — — (66 ) — (66 ) Net loss
— — — — (29,449 ) — — (29,449 ) $ (29,449 ) Foreign currency translation
— — — — — — (1,898 ) (1,898 ) (1,898 ) Comprehensive loss
— — — — — — — — $ (31,347 ) Balance, March 31, 2006
26,468,091 $ 265 $ 214,666 $ (171 ) $ (143,308 ) $ (66 ) $ (1,898 ) $ 69,488 The accompanying notes are an integral part of these consolidated financial statements.
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................ -- -- -- -- $ 220,991THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL STATEMENTS. F-6Consolidated Statements of Cash Flows
(in thousands)
Fiscal Years Ended March 31, 2004 2005 2006 Cash Flows from Operating Activities:
Net loss:
$ (9,446 ) $ (2,342 ) $ (29,449 ) Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization
1,388 1,240 2,742 Bad debt expense (recovery)
35 (67 ) 193 Loss on abandonment of patents
55 49 — Write-downs of inventory
465 36 423 Increase in deferred taxes
— — 310 Stock-based compensation
103 98 371 Acquired in-process research and development
— — 13,306 Changes in assets and liabilities, net of acquisition:
Accounts receivable
(587 ) (2,563 ) 258 Inventories
(267 ) (1,202 ) (177 ) Prepaid expenses, other current assets and other assets
(347 ) (465 ) 173 Accounts payable
314 (238 ) 1,326 Accrued expenses
(887 ) 355 827 Deferred revenue
(864 ) (65 ) 358 Net cash used in operating activities
(10,038 ) (5,164 ) (9,339 ) Cash Flows from Investing Activities:
Proceeds from the maturity of short and long-term securities
10,197 42,169 42,016 Purchases of short and long-term securities
(38,968 ) (39,520 ) (29,021 ) Cost of acquisition, net of cash acquired
— — (2,573 ) Proceeds from disposal of equipment
12 — 11 Additions to patents
(41 ) (36 ) (133 ) Purchases of property and equipment
(429 ) (697 ) (2,931 ) Net cash (used in) provided by investing activities
(29,229 ) 1,916 7,369 Cash Flows from Financing Activities:
Proceeds from exercise of stock options and stock issued under employee stock purchase plan
1,589 4,087 2,159 Purchase of treasury stock
— — (66 ) Net cash provided by financing activities
1,589 4,087 2,093 Net (Decrease) Increase in Cash and Cash Equivalents
(37,678 ) 839 123 Exchange rate effect on cash
(59 ) (56 ) 91 Cash and Cash Equivalents, excluding marketable securities, at beginning of fiscal year
44,572 6,835 7,618 Cash and Cash Equivalents, excluding marketable securities, at end of fiscal year
$ 6,835 $ 7,618 $ 7,832 Supplemental Disclosures:
Income taxes paid, net of refunds
$ 33 $ 82 $ 59 Common shares issued for business acquisition
$ — $ — $ 42,200 The accompanying notes are an integral part of these consolidated financial statements
ABIOMED, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS) (1) SUMMARY OF OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIESNotes to Consolidated Financial Statements
(1) NATUREOF OPERATIONS ABIOMED, Inc. and
subsidiariesSubsidiaries (the"Company")Company) isengaged in the development, manufacturea leading developer, manufacturer andmarketingmarketer of medical products designed tosafely and effectivelyassist or replace the pumping function of the failing heart.The Company marketsABIOMED currently manufactures and sells theBVS-5000 system, a bi-ventricularAB5000™ Circulatory Support System and the BVS® 5000 Biventricular Support System for the temporaryartificial heartsupport of all patients with failing but potentially recoverable hearts. In Europe, ABIOMED offers the IMPELLA® RECOVER® minimally invasive cardiovascular support systems under CE Mark approval. The IMPELLA products are not currently available for sale in the United States. The Company’s AbioCor® Implantable Replacement Heart was the subject of an initial clinical trial under an Investigational Device Exemption from the United States Food and Drug Administration. The AbioCor has not been approved for commercial distribution, and isdevelopingnot available for use or sale outside of theAbioCor-TM- Implantable Replacement Heart.initial clinical trial.
(2) SIGNIFICANT ACCOUNTING POLICIES The accompanying consolidated financial statements reflect the application of certain significant accounting policies described below.
(A) PRINCIPLES OF CONSOLIDATION
(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.subsidiaries. All significant intercompany accounts and transactions have been eliminated in consolidation.(B) USES OF ESTIMATES IN THE PREPARATION OF FINANCIAL STATEMENTSOur financial statements include the financial results of Impella CardioSystems GmbH from its date of acquisition on May 10, 2005.In December 2005, the Company took action to consolidate its European operations by closing its ABIOMED B.V. facility located in The Netherlands and transferring the AB5000 and BVS 5000 sales and service operations to its Impella CardioSystems facility located in Aachen, Germany.
(b) Use of Estimates The preparation of financial statements in conformity with accounting principles generally accepted
accounting principlesin the United States of America 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. On an ongoing basis, we evaluate our estimates, including those related to revenue recognition, inventories, patents, impairment of intangible assets and goodwill, income taxes including the valuation allowance for deferred tax assets, valuation of long-lived assets and investments, contingencies and litigation. We base our estimates on historical experiences and on various other assumptions that are believed to be reasonable, the results of which form the basis for making judgments about the carrying values of assets and liabilities. Actual results could differ from those estimated or assumed.(C) INTERIM FINANCIAL STATEMENTS
(c) Revenue Recognition from Product Sales and Accounts Receivable SEC Staff Accounting Bulletin No. 104 (“SAB 104”) provides guidance on the recognition, presentation and disclosure of revenue in financial statements. SAB 104 establishes the SEC’s view that it is not appropriate to recognize revenue until all of the following criteria are met: (1) persuasive
ABIOMED, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements—(Continued)
evidence of an arrangement exists, (2) delivery has occurred or services have been rendered, (3) the seller’s price to the buyer is fixed or determinable, and (4) collectibility is reasonably assured. Further, SAB 104 requires that both title and the risks and rewards of ownership be transferred to the buyer before revenue can be recognized. In addition to SAB 104, we follow the guidance of EITF 00-21, Revenue Arrangements with Multiple Deliverables.
We derive our revenues primarily from product sales, including maintenance service agreements. The
accompanying consolidated financial statements include amountsgreat majority of our product revenues are derived frominterim periods ended December 31, 1998shipments of our AB5000 and1999 that are unaudited but, in the opinion of management, include all adjustments (consisting only of normal, recurring adjustments) necessaryBVS 5000 product lines to fulfill customer orders for afair presentationspecified number ofresultsconsoles and/or blood pumps forthese interim periods. The results of operations for the nine months ended December 31, 1999 are not necessarily indicative of resultsa specified price. We recognize revenues and record costs related tobe expected for the fiscal year ending March 31, 2000. (D) PRODUCT REVENUES The Company recognizessuch sales upon product shipment.Maintenance and service support contract revenues
at the time products are shipped to customers. Service revenues, which are not material,are recognized ratably over theperiodsterm of the servicecontracts. In fiscal 1997, 1998, 1999 andcontracts based upon thenine months ended December 31, 1998 and 1999, all product revenues were derived from saleselapsed term of theBVS 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-7ABIOMED, 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-sponsoredservice contract.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 governmentRevenues from these contracts and grants are recognized as work is performed, providedthatthe government has appropriated sufficient funds for the work.TheUnder contracts in which the Companyretains rightselects toall technological discoveriesspend significantly more on the development project during the term of the contract than the total contract amount, the Company prospectively recognizes revenue on such contracts ratably over the term of the contract as it incurs related research andproducts resulting from these efforts. Costs associateddevelopment costs, provided the government has appropriated sufficient funds for the work.
(d) Translation of Foreign Currencies All assets and liabilities of the company’s non-U.S. subsidiaries are translated at year-end exchange rates, and revenues and expenses are translated at average exchange rates for the year in accordance with
these contractsSFAS No. 52, Foreign Currency Translation. Resulting translation adjustments are reflected in the accumulated other comprehensive loss component of shareholders’ equity. Currency transaction gains andgrantslosses arerecordedincluded in the accompanying statement of income and are not material for the three years presented.
(e) Warranties The Company routinely accrues for estimated future warranty costs on its product sales at the time of sale. Our products are subject to rigorous regulation and quality standards. Warranty costs are included in cost of product revenues within the 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 andoperations.The following table summarizes 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 includedactivities in thecontracts and grants costs per above. (F) INVENTORIESwarranty reserve for the two fiscal years ended March 31, 2006 (in thousands),
2005 2006 Balance at the beginning of the year
$ 245 $ 231 Accrual for warranties
198 193 Warranty expense incurred for the year
(212 ) (257 ) Balance at the end of the year
$ 231 $ 167 ABIOMED, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements—(Continued)
(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 goodsfollowing (in thousands):
March 31, 2005 2006 Raw materials
$ 1,016 $ 1,764 Work-in-process
871 659 Finished goods
1,990 2,445 $ 3,877 $ 4,868 The Company regularly reviews inventory quantities on hand and
work-in-process inventories consist of direct material, laborwrites down to its net realizable value any inventory believed to be excess andoverhead. (G) DEPRECIATION AND AMORTIZATIONobsolete. If actual demand or market conditions are less favorable than projected demand, additional inventory write-downs may be required that could adversely impact financial results for the period in which the additional excess or obsolete inventory is identified.
(g) Property and Equipment The Company provides for depreciation on property and
amortizationequipment by charges to operations in amounts that allocate the cost of depreciable assets over their estimated useful lives on a straight-line basis as follows:
ESTIMATED CLASSIFICATION METHOD USEFUL LIFE - -------------- ------------- -------------Classification
Estimated
Useful Life
Machinery and
equipment.......................... Straight-line 3- 5equipment2 – 10 Years Furniture and
fixtures........................... Straight-line 5-10fixtures4 – 10 Years Leasehold
improvements........................... Straight-lineimprovementsLife of lease MachineryDepreciation expense related to property and equipment
includes $221,000was $1,230,000, $1,093,000 and $1,424,000 for the fiscal years ended March 31, 2004, 2005 and 2006, respectively.Property and equipment consisted of the following (in thousands):
March 31, 2005 2006 Machinery and equipment
$ 9,965 $ 12,017 Furniture and fixtures
1,291 1,348 Leasehold improvements
2,415 2,546 Construction in progress
— 991 Total cost
13,671 16,902 Less accumulated depreciation
10,867 12,078 $ 2,804 $ 4,824 During our fiscal year ended March 31, 2006, we capitalized to construction in progress approximately $0.9 million of costs primarily related to
assets held under a capital lease at December 31, 1999. F-8the licensing of SAP’s mySAP Business Suite for our U.S. operations. This cost primarily includes software licensing, equipment, consulting and internal labor costs incurred for this new ERP system implementation. 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 SHARENotes to Consolidated Financial Statements—(Continued)
(h) Intellectual Property The Company capitalizes as intellectual property costs incurred, excluding costs associated with Company personnel, relating to patenting its technology. Capitalized costs, the majority of which represent legal costs, reflect the cost of both awarded patents and patents pending. The Company amortizes the cost of these patents over the estimated useful life of the patents, generally up to seven years. If the Company elects to stop pursuing a particular patent application or determines that a patent application is not likely to be awarded for a particular patent or elects to discontinue payment of required maintenance fees for a particular patent, the Company at that time records as expense the net capitalized amount of such patent application or patent.
(i) Goodwill and Intangibles As a result of the acquisition of Impella, the Company’s balance sheet as of March 31, 2006 includes goodwill. We assess the realizability of the goodwill on our books annually at October 31st as well as whenever events or changes in circumstances indicate that the goodwill may be impaired as required by SFAS No. 142,Goodwill and Other Intangible Assests.. These events or circumstances generally include operating losses or a significant decline in earnings associated with the acquired business or asset. The Company’s ability to realize the value of the goodwill will depend on the future cash flows of the business. If we are not able to realize the value of the goodwill, we may be required to incur material charges relating to the impairment of those assets. We completed our first annual review of goodwill as of October 31, 2005 and have determined that no write-down for impairment is necessary.
Acquisition-related intangible assets include the costs of acquired product technology, patents, trademarks and other specifically identifiable intangible assets, and are being amortized using the straight-line method over their estimated useful lives of seven years. The Company has no intangible assets with indefinite lives. We review other intangible assets for impairment when indication of potential impairment exists, such as a significant reduction in cash flows associated with the assets.
(j) Net Loss per Share Basic net
income (loss)loss per share is computed by dividing netincome (loss)loss by theweighted averageweighted-average number of common shares outstanding during theperiod.fiscal year. Diluted netincome (loss)loss per share is computed by dividing netincome (loss)loss by theweighted averageweighted-average number of dilutive common shares outstanding during theperiod. Dilutedfiscal year. Dilutive shares outstanding are calculated by adding to the weightedaveragesharesreflect the dilutive effect, ifoutstanding anyofcommon stock equivalents from outstanding stock options and warrants based on the treasury stock method.No common stock options are considered dilutiveIn fiscal years when net income is reported, the calculation of diluted net income per share typically results inperiods,lower earnings per share than is calculated using the basic method. In fiscal years when a net loss is reported, such as the fiscal years ended March 31,19982004, 2005 and19992006, these potential shares from stock options and warrants are not included in thenine months ended December 31, 1998 and 1999,calculation because they would have an anti-dilutive effect, meaning the loss per share would be reduced. Therefore, inwhichfiscal years when a loss is reportedbecause all such common equivalentthe calculation of basic and dilutive loss per share results in the same value.ABIOMED, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements—(Continued)
The calculation of diluted weighted-average shares
are antidilutive. The number of shares that otherwise would have been dilutiveoutstanding for the fiscal years ended March 31,19982004, 2005 and19992006 excludes potential stock from unexercised stock options that have an exercise price below the average market price as shown below.
Year Ended March 31,
Potential Dilutive Shares
from Exercise of
Common Stock Options2004
222,593 2005
980,147 2006
577,845 The calculation of diluted weighted average shares outstanding excludes unissued shares of common stock associated with outstanding stock options that have exercise prices greater than the average market price. For the fiscal years ending March 31, 2004, 2005 and 2006, the
nine months ended December 31, 1998weighted average number of these potential shares totaled 1,908,347, 825,014 and1999 are 287,709, 95,426, 135,599 and 517,116,1,417,130 shares, respectively.(I) CASH AND CASH EQUIVALENTSThe calculation of diluted weighted average shares outstanding for these fiscal years also excludes warrants to purchase 400,000 share of common stock issued in connection with the acquisition of intellectual property (see Note 5).
(k) 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 SECURITIESAt March 31, 2005 and March 31, 2006, the Company had restricted cash of approximately $97,000 and $261,000, respectively, which are included in other assets at March 31, 2005 and prepaid expenses and other current assets at March 31, 2006, respectively. This cash represents security deposits held in the Company’s European banks for certain facility and auto leases.
(l) Marketable Securities and Long-term Investments The Company classifies any security with a maturity date of greater than 90 days at the time of purchase as marketable securities and classifies marketable securities with a maturity date of greater than one year from the balance sheet date as long-term
investments. Under SFASinvestments based upon the ability and intent of the Company. In accordance with Statement of Financial Accounting Standards (SFAS) No. 115,ACCOUNTING FOR CERTAIN INVESTMENTS IN DEBT AND EQUITY SECURITIES,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. At March 31, 2006 the held-to-maturity investment portfolio consisted primarily of government securities and corporate bonds with maturities of one year or less.The amortized cost, including interest receivable, and market value of held–to-maturity short-term marketable securities were approximately $29,669,000 and $29,570,000 at March 31, 2005, and $16,901,000 and $16,866,000 at March 31, 2006, respectively.
The Company has classified
all marketableits portion of the investment portfolio consisting of corporate asset-backed securities as available-for–sale securities. The cost of these securities approximates market value and was $4,218,000 at March 31,19982005 and1999 and December$6,102,000 at March 31,1999 as held-to-maturity securities.2006. Principal payments of these available-for-sale securities are typically made on an expected pre-determined basis rather than on the longer contractual maturity date.ABIOMED, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements—(Continued)
The amortized
costcosts, including interest receivable, and market value ofmarketable securitiesthe long-term investments were approximately$23,715,000$2,112,000 and$23,886,000$2,093,000 at March 31,1998, $14,102,000 and $14,188,0002005, respectively. The Company did not hold any long-term investments 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 INSTRUMENTS2006.
(m) Disclosures about Fair Value of Financial Instruments As of March 31,
19982005 and1999 and December 31, 1999,2006, theCompany'sCompany’s financial instruments were comprised of cash and cash equivalents, marketable securities, accounts receivable and accounts payable,and capital lease obligations,the carrying amounts of which approximated fair market value.(L) COMPREHENSIVE INCOME
(n) Comprehensive Income Comprehensive income is comprised of net income (loss) and other comprehensive (loss) income. Other comprehensive (loss) income includes certain changes in equity that are excluded from net income (loss), such as translation adjustments that are recorded as a result of translating the financial statements of our European subsidiary into U.S. currency.
(o) Accounting for Stock-Based Compensation The Company accounts for stock-based awards to employees using the intrinsic value method as prescribed by APB No. 25,Accounting for Stock Issued to Employees (“APB 25”), and related interpretations, including Interpretation 44,Accounting for Certain TransactionsInvolving Stock Compensation,for its plans. The Company has elected to follow the disclosure-only alternative requirements of SFAS No.
130, REPORTING COMPREHENSIVE INCOME,123,Accounting for Stock-Based Compensation (“SFAS 123”). Accordingly, no compensation expense is recorded for options issued to employees in fixed amounts and with fixed exercise prices at least equal to the fair market value of Common Stock at the date of grant.In the process of adopting SFAS No. 123R,Share Based Payment, the Company determined that the historical estimated forfeiture rates used in the SFAS 123 pro forma disclosure in the previously issued financial statements were higher than the Company’s actual historical forfeiture rates resulting in an understatement of the Company’s pro forma stock compensation expense. The Company has revised its pro forma disclosure for the years ended March 31, 2004, 2005 and 2006 to reflect estimated forfeiture rates that are consistent with the Company’s historical forfeiture rates. This revision resulted in an increase in pro forma expense and pro forma net loss in the amount of $1,124, $2,276, and $1,788 and an increase in net loss per share of $0.05, $0.11 and $0.07 for the years ended March 31, 2004, 2005 and 2006, respectively, which is reflected in the table below.
ABIOMED, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements—(Continued)
If compensation cost for the Company’s fiscal 2004, 2005 and 2006 grants issued under stock-based compensation plans, including costs related to grants in prior years had been determined based on SFAS 123, the Company’s pro forma net loss and pro forma loss per share for the years ended March 31, would have been as follows (in thousands, except per share data):
2004 2005 2006 Net loss, as reported
$ (9,446 ) $ (2,342 ) $ (29,449 ) Add: Stock-based employee compensation included in reported net loss
103 98 340 Deduct: Total stock-based employee compensation expense determined under fair value based method for all awards
2,814 5,145 6,307 Pro forma net loss
$ (12,157 ) $ (7,389 ) $ (35,416 ) Basic and diluted loss per share
As reported
$ (0.45 ) $ (0.11 ) $ (1.15 ) Pro forma
$ (0.57 ) $ (0.34 ) $ (1.38 ) The fair value per share of the options granted during fiscal years 2004, 2005 and 2006 was computed as $1.53, $3.94 and $4.11 per share, respectively,and was calculated using the Black-Scholes option-pricing model with the following assumptions.
2004 2005 2006 Risk-free interest rate
2.56% 3.87% 4.14% Expected dividend yield
— — — Expected option term in years
5.3 years 7.5 years 7.3 years Assumed stock price volatility
86% 84% 73% In addition to compensation expense related to stock option grants, the pro forma compensation expense shown in the table above includes compensation expense related to stock issued under the Company’s Employee Stock Purchase Plan of approximately $19,000, $28,000 and $74,000 for fiscal 2004, 2005 and 2006, respectively.
This 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 tax effect of the employee compensation expense has not been considered due to the Company’s reported net losses.
The Company will implement SFAS 123(R) starting April 1, 2006.
(p) Recent Accounting Pronouncements In November 2004, the Financial Accounting Standards Board (FASB) issued SFAS No. 151, Inventory Costs (FAS 151), which adopts wording from the International Accounting Standards Board’s (IASB) Standard No. 2, Inventories, in an effort to improve the comparability of international financial reporting. The statement is effective for the Company beginning in the first quarter of fiscal year 2007 and is not expected to have a material impact on the Company’s results of operations, financial position or cash flows.
ABIOMED, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements—(Continued)
In December 2004 the FASB issued a revised Statement of Financial Accounting Standard (SFAS) No. 123,Share-Based Payment (FAS 123(R)). FAS 123(R) requires
disclosurepublic entities to measure the cost ofall componentsemployee services received in exchange for an award ofcomprehensive incomeequity instruments based on the grant-date fair value of the award andloss onrecognize the cost over the period during which an employee is required to provide service in exchange for the award. The requirements of SFAS 123(R) are effective for annualand interim basis. Comprehensive income and loss is definedfiscal periods beginning after June 15, 2005. Through its fiscal year ended March 31, 2006, the Company has followed APB No.25 which does not require the recognition of compensation expense relating to the issuance of stock options so long as the quoted market price of the Company’s stock at the date of grant is less than or equal to the amount an employee must pay to acquire the stock. The original FAS 123 requires footnote disclosure only of pro forma net income as if a fair-value-based method had been used. The Company is transitioning on a “modified prospective” basis, and the adoption of SFAS 123(R) effective with the fiscal quarter ended June 30, 2006 is expected to have a material impact on the Company’s consolidated financial statements, although management is still evaluating the exact impact.
(q) Reclassification Certain amounts in prior year financial statements have been reclassified to conform with the current year presentation.
(3) ACQUISITION In May 2005, the Company acquired all of the shares of outstanding capital stock of Impella CardioSystems AG (“Impella”) in exchange for approximately $1.6 million in cash and 4,029,004 shares of ABIOMED common stock, of which 210,000 shares were to be held in escrow through November 2006 for potential indemnification claims by the Company pursuant to the terms of the purchase agreement. As of March 31, 2006, 6,179 of the 210,000 escrowed shares have been returned to the Company as a result of ABIOMED’s settlement of undisclosed pre-acquisition liabilities. Impella develops, manufactures and markets minimally invasive cardiovascular support systems for numerous patient indications within the fields of cardiology and cardiac surgery. Impella’s Recover System pumps are designed to provide left and right ventricle support for patients suffering from reduced cardiac output and can potentially aid in recovering the hearts of patients suffering from acute myocardial infarction (AMI or Heart Attack), including those who have gone into cardiac shock. Impella has CE marks for each of its commercially available devices and currently markets them throughout Europe. The Company intends to seek FDA approval to sell the Impella Recover System blood pumps in the United States as well as regulatory approval in other countries in order to address wider market opportunities for cardiac assist and recovery.
The aggregate purchase price was approximately $45.1 million, which consisted of $42.2 million of the Company’s common stock, $1.6 million of cash paid to certain former shareholders of Impella, and $1.3 million of transaction costs, consisting primarily of fees paid for financial advisory and legal services. We issued 4,029,004 shares of our common stock, the fair value of which was based upon a five-day average of the closing price two days before and two days after the terms of the acquisition were agreed to and publicly announced.
In addition, the agreement provides that ABIOMED may make additional contingent payments to Impella’s former shareholders based on the Company’s future stock price performance and additional milestone payments related to FDA approvals and unit sales of Impella products. In general, if our stock price is between $15 and $18 as of the 18-month anniversary of the closing date, based on the daily volume weighted average price per share for the 20 trading days prior to such date, we will issue additional consideration equal to the difference between $18 and such average stock price, multiplied by approximately 4,200,000 shares, subject to adjustment as described below. In addition, there are provisions
ABIOMED, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements—(Continued)
that will reduce this amount to the extent that the Impella stockholders have, prior to the 18-month date, sold any of the shares we issued to them at the closing. Based on the number of shares sold by the former Impella stockholders as of May 19, 2006, the 4.2 million shares used to calculate the payment has been reduced to approximately 3.8 million shares. For example:
if the average stock price on the 18-month date is $16, we will be obligated to pay additional consideration of approximately $7.6 million,
if the average stock price on the 18-month date is $17, we will be obligated to pay additional consideration of approximately $3.8 million, and
if the average stock price on the 18-month date is outside of the $15 to $18 range, we will not be obligated to pay any additional consideration.
This payment may be made, at our option subject to the terms of the agreement and any necessary approvals, by any combination of cash or stock, subject to the limitations described below.
In addition to the payments described above related to the average stock price on the 18-month date, we have also agreed, subject to certain exceptions based on future stock price performance that are set forth in the agreement, to make additional payments of up to $16.75 million based on the following milestones:
upon FDA approval of Impella’s 2.5 liter pump system, a payment of $5,583,333,
upon FDA approval of Impella’s 5.0 liter pump system, a payment of $5,583,333, and
upon the sale of 1,000 units of Impella’s products worldwide between the closing and December 31, 2007, a payment of $5,583,334.
These milestone payments may be made, at our option, by a combination of cash or stock, except that no more than an aggregate of $15 million of these milestone payments may be made in the form of stock. In addition, the agreement specifically provides that under no circumstances will we deliver or be obligated to deliver, a number of shares of our stock that would require that our stockholders would be or would have been required to approve this transaction under applicable NASDAQ rules or other securities laws. If any contingent payments are made, they will result in an increase in the carrying value of goodwill.
The foregoing notwithstanding, if the average market price per share of ABIOMED’s common stock, as determined in accordance with the purchase agreement, as of the date of any of the milestones is achieved is $22 or more, no additional contingent consideration will be required with respect to the milestones. If the average market price is between $18 and $22 on the date of the Company’s achievement of a milestone, the relevant milestone payment will be reduced ratably.
The acquisition of Impella was accounted for under the purchase method of accounting and the results of operations of Impella have been included in the consolidated results of the Company from the acquisition date. The purchase price of the acquisition was allocated to tangible and intangible assets and assumed liabilities based on their estimated fair values at the date of acquisition. The Company allocated approximately $9.5 million of the purchase price to intangible assets comprised of existing technology, patents, trademarks and other purchased intangibles. In addition, approximately $13.3 million of the purchase price was allocated to in-process research and development (Note 10). The excess purchase price of approximately $20.3 million after this allocation has been accounted for as goodwill. The change in
equitythe carrying amounts of goodwill and intangible assets from the date of the acquisition to March 31, 2006 are due primarily to our translating the non-U.S. currency denominated balances at the prevailing exchange rate on the balance sheet date.ABIOMED, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements—(Continued)
The following table presents the fair values of assets and liabilities recorded in connection with the Impella acquisition (in thousands).
Cash
$ 535 Accounts receivable
805 Inventories
1,335 Prepaid expenses and other current assets
514 Property and equipment
589 Intangible assets:
Patents (estimated useful life of 7 years)
6,179 Developed technology (estimated useful life of 7 years)
2,175 Distributor agreements (estimated useful life of 7 years)
800 Trademarks and tradenames (estimated useful life of 7 years)
314 Acquired in-process R&D Charge (“IPR&D”)
13,306 Total intangible assets
22,774 Goodwill
20,268 Accrued expenses and other current liabilities
(1,749 ) Total consideration paid
$ 45,071 Of the $22.8 million of acquired intangible assets, $13.3 million was allocated to IPR&D and was written off at the date of acquisition as a
business enterprise duringnon-cash acquisition charge to operations because the IPR&D had no alternative uses and had not reached technological feasibility. This non-cash acquisition charge is reflected in the accompanying statement of operations for the fiscal year ended March 31, 2006.The amount of the IPR&D charge was determined by identifying IPR&D activities that have reached the “substance” stage of development and for which no alternative future use exists. In addition, the fair value of existing technology for U.S. based sales is included in expensed IPR&D due to the additional risks and expense incurred by the combined entity in obtaining regulatory approval for U.S. based market sales.
Management determined the valuation of the IPR&D using a
periodnumber of factors. The value was based primarily on the discounted cash flow method. This valuation included consideration of (i) the stage of completion of each of the projects, (ii) the technological feasibility of each of the projects, (iii) whether the projects had an alternative future use, (iv) the estimated future residual cash flows that could be generated fromtransactionsthe various projects andother eventstechnologies over their respective projected economic lives, andcircumstances(v) whether additional product development costs or regulatory risks would be incurred to bring the technology to completion.The primary basis for determining the technological feasibility of these projects was whether the product has obtained approval from
non-owner sources. Therethe FDA for commercial sales in the U.S. As of the acquisition date, the IPR&D projects, as well as the existing technologies and products have not completed or obtained sufficient clinical data to support an application to the FDA seeking commercial approval.The economic benefit stream or annual cash flow generated for each of the IPR&D projects and existing technology product sales were determined based upon management’s estimate of future revenue and expected profitability of the various products and technologies involved. These projected cash flows were then discounted to their present values taking into account management’s estimate of future expenses that would be necessary to bring the projects to completion. The discount rates include a rate of return, which accounts for the time value of money, as well as risk factors that reflect the economic risk that the cash flows projected may not be realized. The cash flows were discounted at discount rates ranging from 23% to 25% per annum, depending on the project’s stage of completion and the type of complex functionality needed. This discounted cash flow methodology for the various projects included in the purchased IPR&D resulted in a total valuation of $13.3 million. Although work on the projects related to the IPR&D is anticipated to continue after the acquisition, the amount of the purchase price allocated to IPR&D was
ABIOMED, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements—(Continued)
written off because the projects underlying the IPR&D that was being developed were considered technologically feasible as of the acquisition date, however the assets utilized in these projects, excluding the patents, have no
componentsalternative future use.The following represents the pro forma results of
comprehensive income or lossthe ongoing operations for ABIOMED and Impella as though the acquisition of Impella had occurred at the beginning of the periods shown (in thousands, except per share data). The unaudited pro forma information, however, excludes the acquired in-process research and development charge of $13.3 million and is not necessarily indicative of the results thatrequire disclosurewould have resulted had the acquisition occurred at the beginning of the fiscal years presented, nor is it necessarily indicative of future results.
Fiscal Years Ended
March 31,
2005 2006 Revenue
$ 40,711 $ 43,836 Net loss
$ (14,076 ) $ (19,303 ) Net loss per common share (basic and diluted)
$ (0.54 ) $ (0.74 )
(4) INTANGIBLE ASSETSAND GOODWILL The carrying amount of goodwill was $19.1 million at March 31, 2006 as shown in the table below and was recorded in connection with the Company’s acquisition of Impella (Note 3) (in thousands).
Balance at May 10, 2005 (date of acquisition)
$ 20,129 Purchase price adjustments
131 Exchange rate impact
(1,154 ) Balance at March 31, 2006
$ 19,106 The Company’s intangible assets in the consolidated balance sheets are detailed as follows (in thousands):
March 31, 2005 March 31, 2006 Gross
Carrying
AmountAccumulated
AmortizationWeighted
Average
Amortization
PeriodGross
Carrying
AmountAccumulated
AmortizationWeighted
Average
Amortization
PeriodPatents
$ 1,053 $ 683 7 years $ 6,990 $ 1,564 7 years Trademarks and Tradenames
94 46 7 years 407 109 7 years Distribution Agreements
— — 754 99 7 years Acquired Technology
— — 2,054 269 7 years Total
$ 1,147 $ 729 $ 10,205 $ 2,041 Amortization expense for intangible assets totaled $158,000, $138,000 and $1,307,000 for the years ending March 31,
1997, 1998,2004, 2005 and1999 or2006, respectively. Assuming no future acquisitions, the estimated aggregate amortization expense for thenine months ended December 31, 1998 and 1999. F-9ABIOMED, 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 fornext five yearsbeginning 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 STOCKis approximately $6.7 million.
(5) CAPITAL STOCK Each share of
Common Stockcommon stock has a voting right of one vote per share and generally has the right to elect, as a class,at leasta minimum of 25% of theCompany'sCompany’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-10ABIOMED, 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$0.01 par value, of which the Board of Directors can set the designation, rights andprivileges can be set by the Board of Directors.privileges. No shares of Class B Preferred Stock have been issued or are outstanding.ABIOMED, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements—(Continued)
Fiscal Years Ended March 31, 2006 and 2005
In August 1997, the Company declared a dividend of one Preferred Share Purchase Right (the
"Right")Right) for each outstanding share ofCommon Stockcommon 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$45.00 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 aCommoncommon stockholder of the Company until the Rights are exercised. The Company’s Board of Directors may amend the terms of theRights may be amended by the Board of Directors.Rights. The Rights expire on August 13, 2007.(4) LINES OF CREDIT WITH A BANKIn September 2000, the Company issued common stock and warrants to acquire the exclusive rights to the Penn State Heart together with complete ownership of a company incorporated to commercialize the Penn State Heart called BeneCor Heart Systems, Inc. The
Company has an unsecured demand lineterms ofcredit agreement with a bank under which it can borrowthis transaction consisted of payment of 110,000 shares of the Company’s common stock, plus the issuance of warrants to purchase up to$3,000,000400,000 additional shares of the Company’s common stock at an exercise price of $0.01 per share. Exercise of thebank's prime rate (8.5%warrants is contingent on the achievement of certain clinical and regulatory milestones with the Penn State Heart by specified dates, the last of which is September 30, 2007. Warrants not vested and exercised by September 30, 2007 expire. The value of the common stock and warrants issued in connection with the transaction are included in stockholders’ equity atDecember 31, 1999). The Company is required to maintain a compensating balancevalues of$100,000 plus 5%$3,145,000 and $3,145,000, respectively, representing the fair value ofanythe stock and warrants based on the closing market price for the Company’s stock on the closing date for this transaction. These amountsoutstanding underwere fully expensed as in-process research and development on thearrangement. The linedate ofcredit expires in October 2000. There wereacquisition because the technology had noborrowings under the Company's linefuture alternate use. As ofcredit atMarch 31,19982006, approximately 400,000 warrants were outstanding and1999 and December 31, 1999. On October 14, 1999, the Company entered into an agreement with the bank whereby it will be ablenone were exercisable.See Note 3 to
draw up to $1.2 million in term loans through March 31, 2000these consolidated financial statements for the effect on the Company’s capital structure from the May 10, 2005 acquisition ofmanufacturing 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 TAXESImpella CardioSystems AG.
(6) Income Taxes The Company accounts for income taxes in accordance with the provisions of SFAS No. 109,
ACCOUNTING FOR INCOME TAXES.Accounting for Income Taxes (“SFAS 109”). 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.Deferred tax assets and liabilities are recognized for the estimated future tax consequences attributable to tax benefit carryforwards and to differences between the financial statement amounts of assets and liabilities and their respective tax basis. Deferred tax assets and liabilities are measured using enacted tax rates. A valuation reserve is established if it is more likely than not that all or a portion of the deferred tax asset will not be realized. Accordingly, a valuation reserve has been established for the full amount of the deferred tax asset. Of the change this year in the valuation reserve, approximately $0.9 million relates to stock option compensation deductions. The tax benefit associated with the stock option compensation deductions will be credited to equity when realized. In addition, the valuation reserve changed by approximately $4.0 million as a result of acquisition accounting.
At March 31,
1999,2006, the Company hadavailable net operating lossfederal and state Net Operating Loss (NOL) carryforwards of approximately$28,908,000. The$67.9 million and $24.1 million, respectively, which begin to expire in fiscal 2007. At March 31, 2006, the Company also hadavailable,foreign NOL carryforwards of approximately $24.8 million that can be carried forward indefinitely. Additionally, at March 31,1999, approximately $1,171,000 of tax2006, the Company had federal and state research and experimentation credit carryforwards of approximately $5.6 million and $3.8 million, respectively, which begin toreduce future federal income taxes, if any. Theexpire in fiscal 2007. Section 382 of the Internal Revenue Code contains provisions that could place annual limitations on the use of these net operating loss andtaxcredit carryforwardsexpire through 2019.in the event of a change in ownership, as defined.ABIOMED, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements—(Continued)
Loss before income taxes is as follows for the years ended March 31 (in thousands):
2004 2005 2006 Loss before income taxes:
United States
$ (8,602 ) $ (1,761 ) $ (10,599 ) Foreign
(844 ) (581 ) (18,494 ) Income (loss) before income taxes
$ (9,446 ) $ (2,342 ) $ (29,093 ) Provision for income taxes:
Current:
Federal
$ 46 State
— Foreign
— Total current
$ 46 Deferred:
Federal
$ 264 State
46 Foreign
— Change in valuation allowance
— Total deferred
$ 310 Total tax provision
$ 356 There were no current or deferred tax provision for the fiscal years ended March 31, 2004 and 2005. Differences between the federal statutory income tax rate and the effective tax rates for the year ended March 31, 2006, are summarized as follows:
2006 Statutory income tax rate
34.0 % Increase (decrease) resulting from:
State taxes, net of federal tax benefit
— Decrease in valuation allowance
(42.0 ) Credits and expired NOL
2.5 Rate differential on foreign operations
4.7 Alternative minimum tax
(.2 ) Other, net
(.2 ) Effective tax rate
(1.2 %) For fiscal years 2004 and 2005 the effective tax rate of zero differs from the statutory rate of 34% primarily due to the inability of the Company to recognize deferred tax assets as a result of its net operating loss position.
ABIOMED, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements—(Continued)
The components of the Company’s net deferred taxes were as follows at March 31 (in thousands):
2005 2006 Assets
NOL carryforwards and tax credit carryforwards
$ 35,873 $ 32,700 Foreign NOL carryforwards
— 7,119 Nondeductible reserves and accruals
1,051 1,070 Deferred revenue
44 132 Depreciation
477 505 Amortizable intangibles other than goodwill
— 5,284 Other, net
872 1,079 Capitalized research and development
13,925 23,721 52,242 71,610 Liabilities
Identified intangibles
— (3,108 ) Indefinite lived intangible
— (310 ) — (3,418 ) Net deferred tax asset
52,242 68,192 Valuation allowance
(52,242 ) (68,502 ) Net deferred taxes
— $ (310 ) The change in the valuation allowance of $16.3 million is primarily due to the impact of the Impella acquisition and current year operating losses without current tax benefit.
In October 2004, the President signed into law the American Jobs Creation Act (“the Act”). The Act allows for a federal income tax deduction for a percentage of income earned from certain domestic production activities. The Company’s domestic, or U.S., production activities should qualify for the deduction. However, due to the Company’s current year federal income tax losses, no benefit from this deduction is allowed.
Management has determined that the Company is not likely to realize the income tax benefit of its net deferred tax assets. To the extent the Company generates income in future years, the tax provision will reflect the realization of such benefits, with the exception of benefits attributable to acquired deferred tax assets. The recognition of such amount in future years will be allocated to reduce the excess of the purchase price over the net assets acquired and other non-current intangible assets.
As a result of the adoption of SFAS No. 142,Goodwill and Other Intangible Assets (“SFAS No. 142”) and the current year acquisition of Impella, the Company has recorded a valuation allowance in excess of its net deferred tax assets to the extent the difference between the book and tax basis of indefinite lived intangible assets is not expected to reverse during the net operating loss carryforward period.
The net deferred tax liability of $310,000 at March 31, 2006 is a result of the difference in accounting for the Company’s goodwill, which is amortizable over 15 years for tax purposes but not amortized for book purposes, in accordance with SFAS 142. The net deferred tax liability cannot be offset against the Company’s deferred tax assets under U.S. generally accepted accounting principals since it relates to an indefinite-lived asset and is not anticipated to reverse in the same period.
ABIOMED, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements—(Continued)
(7) COMMITMENTSAND CONTINGENCIES The Company applies the disclosure provisions of FIN No. 45,Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Guarantees of Indebtedness of Others, and Interpretation of FASB Statements No. 5, 57 and 107 and Rescission of FASB Interpretation No. 34 (FIN No. 45) to its agreements that contain guarantee or indemnification clauses. These
carryforwardsdisclosure provisions expand those required by SFAS No. 5Accounting for Contingencies, by requiring that guarantors disclose certain types of guarantees, even if the likelihood of requiring the guarantor’s performance is remote. The following is a description of arrangements in which the Company is a guarantor.Product Warranties—The Company routinely accrues for estimated future warranty costs on its product sales at the time of sale. The AB5000 and BVS products are subject to
reviewrigorous regulation and quality standards. Operating results could be adversely effected if the actual cost of product failures exceeds the estimated warranty provision.Patent indemnifications—In many sales transactions, the Company indemnifies customers against possible claims of patent infringement caused by the
Internal Revenue Service and may be subject to limitation in any given year under certain conditions. F-11ABIOMED, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS) (5) INCOME TAXES (CONTINUED)Company’s products. Thefollowing table summarizesindemnifications contained within sales contracts usually do not include limits on theCompany'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.claims. The Company has
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 =========== ==========not given recognitionnever incurred any material costs toanydefend lawsuits or settle patent infringement claims related to sales transactions. Under the provisions ofthese 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-12ABIOMED, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS) (6) COMMITMENTS (a)FIN No. 45, intellectual property indemnifications require disclosure only.As of March 31,
1999,2006, the Company had entered into leases for its facilities,and certain equipment under variousincluding its primary operatinglease agreementsfacility in Danvers, Massachusetts, with terms through fiscal 2010. The Danvers lease may be extended, at the Company’s option, for two successive additional periods of five years each with monthly rent charges to be determined based on then current fair rental values. The Company’s lease for its Aachen location expires in August 2008 unless an option to extend for an additional four years is exercised by the Company. In December 2005 we closed our office facility in The Netherlands, recording a charge of approximately $58,000 for the remaining lease term. Total rent expense under these leases, included in the accompanying consolidated statements of operationswas approximately $324,000, $360,000, $350,000, $272,000approximated $821,000, $824,000 and$429,000$1,262,000 for the fiscal1997, 1998 and 1999 and the nine monthsyears endedDecember 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 ofMarch 31,19992004, 2005 andDecember 31, 1999,2006, 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
noncancellablesignificant non-cancelable operatingand capitalleases as of March 31,1999 and December 31, 19992006 are approximately asfollows:
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-13follows (in thousands):
Fiscal Year Ending March 31,
Operating
Leases
2007
1,703 2008
1,371 2009
1,035 2010
710 Total future minimum lease payments
$ 4,819 From time-to-time, the Company is involved in legal and administrative proceedings and claims of various types. While any litigation contains an element of uncertainty, management, in consultation with the Company’s general counsel, presently believes that the outcome of each such other proceedings or claims which are pending or known to be threatened, or all of them combined, is not expected to have a material adverse effect on the Company’s financial position, cash flow and results.
On May 15, 2006 Richard A. Nazarian, as Selling Stockholder Representative, filed a Demand for Arbitration (subsequently amended) with the Boston office of the American Arbitration Association,
ABIOMED, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS) (7) STOCK OPTION AND PURCHASE PLANS AllNotes to Consolidated Financial Statements—(Continued)
seeking 600,000 shares of unrestricted Abiomed stock for an alleged breach of our obligation to fund development of the Penn State Heart program and an alleged cancellation of the Penn State Heart development project. The Company intends to vigorously defend against the claims asserted.
(8) STOCK OPTIONAND PURCHASE PLANS With the exception of 6,848 outstanding options that were granted to certain employees during our fiscal year ended March 31, 2004, with an exercise price of $0.01 per share, all outstanding stock options
granted byof the Companyunder the below-described plansas of March 31, 2006 were grantedatwith an exercise price equal to the fair market valueof the stock aton the date of grant. For the options and restricted stock granted below fair market value, compensation expense is recognized ratably over the vesting period. Outstanding stock options, if not exercised, expire 10 years from the date of grant.The 1992 Combination Stock Option Plan (the
Combination Plan)“Combination Plan”), as amended, was adopted in September 1992 as a combination andrestatementamendment of theCompany'sCompany’s then outstandingincentive stock option planIncentive Stock Option Plan andnonqualified plan. Options granted and outstanding underNonqualified Plan. A total of 2,670,859 options were awarded from the Combination Planare 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 grantsduring its ten-year restatement term that ended on May 1, 2002. As ofoptions 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 endingMarch 31,19982006, 220,420 of these options remain outstanding, fully vested and1999, 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.eligible for future exercise.The
Company adopted the1998 Equity Incentive Plan, (theEquity“Equity IncentivePlan)Plan”), was adopted by the Company 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 theCompany'sCompany’s Board of Directors. A maximum of500,0001,000,000 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 grantedOptions outstanding under the Equity IncentivePlan. InPlan have vesting periods of 3 to 5 years from thenine months ended December 31, 1999,date of grant.The 2000 Stock Incentive Plan, (the “2000 Plan”), as amended, was adopted by the Company
grantedin August 2000. The 2000 Plan provides for grants of options topurchase 176,200key employees, directors, advisors and consultants to the Company or its subsidiaries as either incentive or nonqualified stock options as determined by the Company’s Board of Directors. Up to 4,900,000 shares of common stock may be awarded underthisthe 2000 Plan and 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. Options outstanding under the 2000 Plan generally vest 4 years from the date of grant.The Company has a nonqualified stock option plan
at an average exercise price of $14.51. With the exceptionfor non-employee directors (the “Directors’ Plan”). The Directors’ Plan, as amended, was adopted in July 1989 and provides for grants of options to purchase500sharesthat were cancelled duringof theperiod, allCompany’s common stock to non-employee Directors ofthese options werethe Company. Up to 400,000 shares of common stock may be awarded under the Directors’ Plan. Options outstandingasunder the Director’s Plan have vesting periods ofDecember 31, 1999 and none was exercisable under this plan as1 to 5 years from the date ofthat date. F-14grant. ABIOMED, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS) (7) STOCK OPTION AND PURCHASE PLANS (CONTINUED)Notes to Consolidated Financial Statements—(Continued)
The following table summarizes stock option activity under
theseall of the Company’s stock option 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-15ABIOMED, 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 and exercisable under
the Combination, Directors'all plans at March 31, 2006.
Number of
Options
Exercise
Price
Weighted
Avg. Exercise
Price
Per Share
Outstanding, March 31, 2003
3,100,292 $ 2.81 – $36.53 9.35 Granted
547,054 $ 0.01 – $ 8.99 5.30 Exercised
(295,272 ) $ 3.13 – $ 8.19 4.98 Canceled
(275,235 ) $ 0.01 – $34.06 9.47 Outstanding, March 31, 2004
3,076,839 $ 0.01 – $36.53 $ 9.05 Granted
1,487,400 $ 8.72 – $15.42 10.34 Exercised
(665,437 ) $ 0.01 – $13.19 5.90 Canceled
(281,296 ) $ 0.01 – $27.13 9.63 Outstanding, March 31, 2005
3,617,506 $ 0.01 – $36.53 $ 10.11 Granted
1,108,882 $ 8.36 – $13.13 9.42 Exercised
(317,985 ) $ 4.59 – $12.90 6.33 Canceled
(446,760 ) $ 0.01 – $30.00 11.09 Outstanding, March 31, 2006
3,961,643 $ 0.01 – $36.53 $ 10.11 Exercisable, March 31, 2006
1,637,702 $ 0.01 – $36.53 $ 11.10 Exercisable, March 31, 2005
1,423,805 $ 0.01 – $36.53 $ 10.99 Exercisable, March 31, 2004
1,627,765 $ 2.81 – $36.53 $ 8.94 Shares available for future issuance, March 31, 2006
2,247,385 The following table summarizes certain data for options outstanding and
Equity Incentive Plansexercisable under all plans atDecemberMarch 31,1999.2006.
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 =========
Options Outstanding Options Exercisable Range of
Exercise Prices
Outstanding
As of
March 31,
2006Weighted
Avg.Remaining
Contractual
LifeWeighted
Avg.Exercise
PriceExercisable
As of
March 31,
2006Weighted
Avg.Exercise
Price
$ 0.01 – $ 3.65
6,848 7.8 $ 0.01 5,069 $ 0.01 $ 3.66 – $ 7.31
1,003,820 4.7 6.31 734,105 6.44 $ 7.32 – $10.96
2,128,725 8.8 9.55 318,028 9.74 $10.97 – $14.61
285,500 8.0 12.18 81,250 12.32 $14.62 – $18.27
295,600 5.0 15.56 258,100 15.65 $18.28 – $21.92
119,400 4.6 18.77 119,400 18.77 $21.93 – $25.57
95,000 5.2 24.12 95,000 24.12 $25.58 – $29.22
19,000 3.9 27.17 19,000 27.17 $29.23 – $32.88
3,000 4.6 30.00 3,000 30.00 $32.89 – $36.53
4,750 4.5 36.06 4,750 36.06 Total
3,961,643 7.2 $ 10.11 1,637,702 $ 11.10 ABIOMED, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements—(Continued)
The Company has an Employee Stock Purchase Plan (the Purchase Plan), as amended. Under the Purchase Plan,
alleligible employees (including officers and directors)of the Companywho have completedsixthree months of employmentare eligiblewith the Company or its subsidiaries who elect to participate in the Purchase Plan instruct the Company to withhold a specified amount from each payroll period during a six-month payment period (the periods April 1 – September 30 and October 1 – March 31). On the last business day of each payment period, the amount withheld is used to purchasethe Company's Common Stockcommon stock at an exercise price equal to 85% of thefairlower of its marketvalueprice on the first business day or the last business day of theCommon Stock. The Company has reserved 100,000payment period. Up to 500,000 shares ofCommon Stock for issuancecommon stock may be issued under the Purchase Plan, of which74,292260,093 shares are available for future issuance as of March 31,1999.2006. During the fiscal years ended March 31,19982004, 2005 and19992006, 28,837, 21,287 andthe nine months ended December 31, 1999, 4,03923,970 shares12,387 shares and 4,640 shares,of common stock, respectively,of Common Stockwere sold pursuant to the PurchasePlan. SFAS No. 123, ACCOUNTING FOR STOCK-BASED COMPENSATION, requiresPlan.The Company has a consulting agreement with David M. Lederman, Ph.D., its former Chief Executive Officer and former Chairman of its Board of Directors. Under this consulting agreement, Dr. Lederman has agreed to serve as a senior advisor for four years, starting on April 2, 2005. Dr. Lederman’s existing non-qualified stock options that were awarded in the
measurementpast during his tenure as the Company’s CEO will remain unmodified and will continue to vest during the term of his service as a non-employee advisor. He will have the ability to exercise the options during this term. These options are considered variable options, the fair value ofstock options, stock purchase plans, or warrants granted to employees towhich will beincluded inexpensed over thestatement 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-16ABIOMED, 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 measureterm of thefair value of its employee stock options. The total fair valueconsulting agreement, subject to adjustment based on the market price of theoptions granted during fiscal 1997, 1998Company’s common stock at the close of each financial reporting period.
(9) RESEARCHAND DEVELOPMENT Research and
1999development is a significant portion of the Company’s operations. The Company’s research andduringdevelopment efforts are focused on thenine months ended December 31, 1998development of new products related to cardiac assist, recovery and1999 was computed as approximately $598,000, $501,000, $483,000, $362,000heart replacement and$1,816,000, respectively. Of these amounts approximately $257,000, $383,000, $504,000, $401,000to continually enhance and$646,000 would be chargedimprove our existing products. Research and development costs are expensed when incurred and include direct materials and labor, depreciation, contracted services and other costs associated with developing new products and significant enhancements tooperationsexisting products. Research and development expense for the fiscal years ended March 31,1997, 19982004, 2005 and19992006 were $14.2 million, 13.4 million andduring the nine months ended December 31, 1998 and 1999,$16.7 million, 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)(10) 401KPLAN (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-17ABIOMED, 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 TRUSTThe Company has
an employee deferred compensation profit-sharing plan (thea 401(k)Plan)Plan that covers all employees who are at least 20 years of age.The expense provision, which consist of amountsAmounts paid by the Company to match a portion ofemployees'employees’ contributions and discretionary amounts determined by theCompany'sCompany’s Board of Directors totaled approximately$72,000, $166,000, $239,000, $140,000$241,000, $240,000 and$222,000$232,000 for the fiscal years ended March 31,1997, 19982004, 2005 and19992006, respectively.
(11) ACCRUED EXPENSES Accrued expenses consisted of the following (in thousands):
March 31, 2005 2006 Salaries and benefits
$ 2,041 $ 3,432 Warranty
231 167 Professional, accounting and auditing fees
1,057 1,224 Other
294 362 $ 3,623 $ 5,185 ABIOMED, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements—(Continued)
(12) RESTRUCTURING In December 2005, the Company took action to consolidate its European operations by closing its ABIOMED B.V. facility located in The Netherlands and transferring the AB5000 and BVS 5000 sales and service operations to its Impella CardioSystems facility located in Aachen, Germany. The Company recorded a charge of $122,000 consisting of severance and unpaid rent obligations in connection with this consolidation of which $67,000 remains in accrued expenses at March 31, 2006 related to rent obligations that are expected to be paid during fiscal 2007.
(13) SEGMENTAND 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. Approximately 59% of the Company’s total consolidated assets are located within the United States as of March 31, 2006. Remaining assets are located in Europe. International sales accounted for 13%, 8% and 8% of total product revenue during the fiscal years ending March 31, 2006, 2005 and 2004.
UNAUDITED PRO FORMA FINANCIAL INFORMATION
On May 10, 2005, we acquired all of the shares of outstanding capital stock of Impella CardioSystems AG, a privately held company located in Aachen, Germany. Our acquisition of Impella was accounted for under the purchase method of accounting and the results of operations of Impella have been included in our consolidated results since the acquisition date. The aggregate purchase price was approximately $45.1 million, which consisted of shares of our common stock having an aggregate market value of $42.2 million (based on the average closing price of our common stock for five-day period beginning two days before the terms of the acquisition were agreed to and publicly announced), $1.6 million of cash paid to certain former shareholders of Impella, and $1.3 million of transaction costs, consisting primarily of fees paid for financial advisory and legal services.
Of the 4,029,004 shares of common stock we issued at the closing, 210,000 shares were placed in escrow for the
ninepurpose of partially securing amounts payable to us by the former shareholders of Impella under the indemnification provisions of the share purchase agreement entered into in connection with the acquisition. As of March 31, 2006, 6,179 of the 210,000 escrowed shares have been returned to us in settlement of losses associated with undisclosed pre-acquisition liabilities.The share purchase agreement further provides that we may be required to make additional payments to Impella’s former shareholders based on the future price performance of our common stock and the achievement of milestones related to FDA approvals and unit sales of Impella products. The actual amounts that may become payable could range from $0 to approximately $29 million. We may pay any such amounts using cash or a combination of cash and stock.
Impella develops, manufactures and markets minimally invasive cardiovascular support systems for numerous patient indications within the fields of cardiology and cardiac surgery. Impella’s Recover System pumps are designed to provide left and right ventricle support for patients suffering from acute myocardial infarction (AMI or Heart Attack) including those who have gone into cardiac shock. Impella has CE marks for each of its devices and currently markets them throughout Europe. We intend to seek FDA approval to sell the Impella Recover System blood pumps in the United States in order to address wider market opportunities for cardiac assist and recovery.
The following unaudited pro forma condensed combined statement of operations for the twelve months ended
DecemberMarch 31,19982006 gives effect to the acquisition of Impella as if it had occurred on April 1, 2005 (in thousands, except per share data). The unaudited pro forma condensed combined statement of operations for the twelve months ended March 31, 2006 is based on our historical consolidated results of operations for the twelve months ended March 31, 2006 and1999, respectively. (10) ACCRUED EXPENSES Accrued expenses consistImpella’s historical results from April 1, 2005 through the date of acquisition, May 10, 2005. The following combined condensed pro forma statement of operations and the accompanying notes should be read in conjunction with the consolidated financial statements and notes thereto included in our Annual Report on Form 10-K for the year ended March 31, 2006 that has been filed with the SEC and is incorporated by reference into this registration statement.The pro forma financial information is presented for illustrative purposes only and is not necessarily indicative of the
following:results of operations of the consolidated company that would have actually occurred had the acquisition of Impella been effected as of the date described above.UNAUDITED PRO FORMA CONDENSED COMBINED
STATEMENT OF OPERATIONS
For the Twelve Months Ended March 31, 2006
Abiomed, Inc
3/31/2006Impella
April 1, 2005-
May 10, 2005Pro forma
AdjustmentsPro forma as
adjustedRevenues:
Product revenues
43,322 160 43,482 Funded research and development
348 348 Total Revenues:
43,670 160 43,830 Costs and expenses:
Cost of product revenues (excluding amortization)
11,685 606 12,291 Research and development
16,739 329 17,068 Selling, general and administrative
30,923 2,215 33,138 Acquired in-process research and development
13,306 — 13,306 Amortization of intangibles
1,308 — 113 (A) 1,421 73,961 3,150 113 77,224 Loss from operations
(30,291 ) (2,990 ) (113 ) (33,394 ) Other income, net
Investment income
1,194 2 1,196 Foreign exchange gain (loss)
(116 ) 1 (115 ) Other
120 6 126 1,198 9 — 1,207 Loss before provision for income taxes
(29,093 ) (2,981 ) (113 ) (32,187 ) Provision for income taxes
356 — — 356 Net loss
(29,449 ) (2,981 ) (113 ) (32,543 ) Basic and Diluted loss per share
$ (1.15 ) $ (1.25 ) Weighted average shares outstanding
25,649 25,959 (B)
MARCH(A) The pro forma adjustment relates to amortization of intangible assets acquired as part of the acquisition. Total amortization for intangibles in the condensed combined statements of operations at March 31, DECEMBER2006 including Impella from May 10, 2005 was $1,307,000. A pro forma adjustment of $113,000 was recorded to reflect the additional amortization expense related to intangible assets acquired as part of the acquisition for the period April 1, 2005 to May 10, 2005.
(B) The pro forma basic and diluted net loss per common share are computed by dividing the net loss by the weighted average number of common shares outstanding. When a net loss is reported, basic and diluted loss per share results in the same value. The calculation of the basic and diluted weighted average number of common shares outstanding assumes that the 4,029,004 shares of our common stock issued in the acquisition of Impella occurred as of April 1, 2005. If the 4,029,004 shares were issued as of April 1, 2005 the weighted average shares for the year ended March 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 ========== ========== ==========2006 would have been 25,959.F-18INSIDE 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 - ------------------------------------------------------------ - ------------------------------------------------------------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 AgentItem 14. Other Expenses of Issuance and Registrant Fees.......................... 2,500* Accounting FeesDistribution.The following table provides the various expenses payable by us in connection with the issuance and distribution of the shares being registered. All amounts shown are estimates except the SEC registration fee.
Securities and Exchange Commission registration fee
$ 252 Printing and engraving expenses
5,000 Accounting fees and expenses
5,000 Legal fees and expenses
15,000 Miscellaneous
4,748 Total
$ 30,000
Item 15. Indemnification of Directors and Expenses................................ 50,000* Legal Fees and Expenses..................................... 225,000* Printing and Engraving...................................... 60,000* Miscellaneous............................................... 116,519* -------- TOTAL................................................... $500,000* ========Officers.- ------------------------ * Estimated ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS ABIOMED's certificateSection 145 of
incorporationthe Delaware General Corporation Law, as amended, provides that we may indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal or investigative (other than an action by or in thefullest extent permittedright of the corporation) byDelaware law, noreason of the fact that he is or was our director,of ABIOMED shall be personally liable to ABIOMEDofficer, employee orits stockholders for monetary damages for breach of fiduciary dutyagent or is or was serving at our request as a director,notwithstandingofficer, employee, agent of another corporation, partnership, joint venture, trust or other enterprise, against expenses (including attorneys’ fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by him in connection with such action, suit or proceeding if he acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the corporation, and, with respect to anyother provisioncriminal action or proceeding, had no reasonable cause to believe his conduct was unlawful. Section 145 further provides that we similarly may indemnify any such person serving in any such capacity who was or is a party or is threatened to be made a party to any threatened, pending or completed action or suit by or in the right oflaw. However,the corporation to procure adirectorjudgment in our favor, against expenses actually and reasonably incurred in connection with the defense or settlement of such action or suit if he acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the corporation and except that no indemnification shall be made in respect of any claim, issue or matter as to which such person shall have been adjudged to be liable to the corporation unless and only to the extentrequired by law (i) for any breachthat the Delaware Court of Chancery or such other court in which such action or suit was brought shall determine upon application that, despite the adjudication of liability but in view of all the circumstances of thedirector's duty of loyaltycase, such person is fairly and reasonably entitled toABIOMED or its stockholders, (ii)indemnity foracts 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 fromsuch expenses which thedirector derived an improper personal benefit. ABIOMEDCourt of Chancery or such other court shall deem proper.We have entered into indemnification agreements with each of
itsour directors andanticipatescertain of our officers and top management personnel and anticipate thatitwe will enter into similar agreements withanyfuturedirector.directors and officers. Generally, these agreements attempt to provide the maximum protection permitted by Delaware law with respect to indemnification. The indemnification agreements provide thatABIOMEDwe will pay certain amounts incurred bya directorour directors in connection with any civil or criminal action or proceeding, specifically including actions by or intheour nameof ABIOMED(derivative suits) where theindividual'sindividual’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'sattorney’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 totheour bestinterests of ABIOMED. ABIOMED has also entered into similar agreements with certain of its officers and top management personnel who are not also directors.interests. The indemnification agreements with our 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. Our by-laws provide similar indemnification for officers and directors.The effect of these provisions would be to permit
suchindemnificationby ABIOMEDfor liabilities arising under the Securities Act of 1933, as amended.Reference is hereby made toII - 1
Section
8102(b)(7) of theUnderwriting Agreement between ABIOMED,Delaware Corporation Law gives a Delaware corporation theunderwriters and Dr. David M. Lederman, filedpower to adopt a charter provision eliminating or limiting the personal liability of our directors to us or our stockholders for breach of fiduciary duty asExhibit 1.1directors, provided that such provision may not eliminate or limit the liability of directors for (i) any breach of the director’s duty of loyalty tothis registration statement,us or our stockholders, (ii) any acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law, (iii) any payment of a dividend or approval of a stock purchase that is illegal under Section 174 of the Delaware Corporation Law or (iv) any transaction from which the director derived an improper personal benefit. Article 10 of our certificate of incorporation eliminates the personal liability of our directors to us or our stockholders fora descriptionmonetary damages for breach ofindemnification arrangements between ABIOMED andfiduciary duty to theunderwriters. II-1ITEM 16. EXHIBITSfull extent permitted by Delaware law.
EXHIBIT NUMBER - ---------------------1.1 Form of Underwriting Agreement**** 3.1Item 16. Exhibits.
Exhibit
No.Description
4.1 Restated Certificate of Incorporation of ABIOMED, Inc.--Filed as(incorporated herein by reference to Exhibit 3.1 toRegistration Statement No. 333-36657* 3.2 Amended and Restated Bylaws of ABIOMED, Inc.--Filed as Exhibit 3.02 to the Company's Quarterly Reportour registration statement on Form10-Q for the period ended September 30, 1996* 3.3 Certificate of Designations of Series A Junior Participating Preferred Stock--Filed as Exhibit 3.3S-3, File No. 333-36657).4.2 Amendment 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 theour Restated Certificate of Incorporation to increase the authorized shares ofABIOMED, Inc.Common Stock from 25,000,000 to 100,000,000 (incorporated herein by reference to our current report on Form 8-K dated March 21, 2007 and filedas Exhibit 3.1 and in theon March 21, 2007).4.3 Certificate of Designations of Series A Junior Participating Preferred Stock filed as(incorporated herein by reference to Exhibit3.3)* 4.33.3 to our registration statement on Form S-3, File No. 333-36657).4.4 Amended and Restated By-Laws (incorporated herein by reference to Exhibit 3.2 of our annual report on Form 10-K for the year ended March 31, 2004). 4.5 Specimen Certificate of Common Stock (incorporated herein by reference to our registration statement on Form S-1, Registration No. 33-14861). 4.6 Rights Agreement between ABIOMED, Inc. and BankBoston, N.A.,with our transfer agent, as Rights Agent dated as of August 13, 1997,(includingincluding the Form ofRightRights Certificate attachedtheretoas ExhibitA)--Filed asA (incorporated herein by reference to Exhibit 4to ABIOMED, Inc.'s Current Reportof our current report on Form 8-K, filed August 25, 1997).4.7 Registration Rights and Stock Restriction Agreement dated August 13, 1997*as of May 10, 2005 by and among ABIOMED, Inc., Accelerated Technologies, Inc. as the stockholders’ representative and the stockholders of Impella CardioSystems AG (incorporated herein by reference to Exhibit 10.1 of our current report on Form 8-K filed on May 16, 2005).5.1 LegalOpinion of Foley Hoag & Eliot LLP****LLP.23.1 Consent of Arthur Andersen LLP**PricewaterhouseCoopers LLP.23.2 Consent of Foley Hoag & EliotLLP (included in Exhibit 5.1)****.24.1 Power of Attorney (contained on thesignaturepage of this registration statement)***page).
Item 17. Undertakings. The undersigned registrant hereby undertakes:
(a) (1) To file, during any period in which offers or sales are being made, a post-effective amendment to this registration statement:
(i) To include any prospectus required by Section 10(a)(3) of the Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after the effective date of the registration statement (or the most recent post-effective amendment thereof) which, individually or in the
II -
------------------------ *Not2aggregate, represent a fundamental change in the information set forth in the registration statement. Notwithstanding the foregoing, any increase or decrease in volume of securities offered (if the total dollar value of securities offered would not exceed that which was registered) and any deviation from the low or high end of the estimated maximum offering range may be reflected in the form of prospectus filed
herewith. In accordancewithRule 411 promulgatedthe Commission pursuant to Rule 424(b) if, in the aggregate, the changes in volume and price represent no more than a 20% change in the maximum aggregate offering price set forth in the “Calculation of Registration Fee” table in the effective registration statement; and(iii) To include any material information with respect to the plan of distribution not previously disclosed in the registration statement or any material change to such information in the registration statement; provided, however, that paragraphs (a)(1)(i), (a)(1)(ii) and (a)(1)(iii) do not apply if the information required to be included in a post-effective amendment by those paragraphs is contained in reports filed with or furnished to the Commission by the registrant pursuant to Section 13 or Section 15(d) of the Securities Exchange Act of 1934 that are incorporated by reference in the registration statement, or is contained in a form of prospectus filed pursuant to Rule 424(b) that is part of the registration statement.
(2) That, for the purpose of determining any liability under the Securities Act of 1933,
as amended, reference is madeeach such post-effective amendment shall be deemed to be a new registration statement relating to thedocuments previouslysecurities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof.(3) To remove from registration by means of a post-effective amendment any of the securities being registered which remain unsold at the termination of the offering.
(4) That, for the purpose of determining liability under the Securities Act of 1933 to any purchaser:
(i) If the registrant is relying on Rule 430B (230.430B of this chapter):
(A) Each prospectus filed
withby theCommission,registrant pursuant to Rule 424(b)(3) shall be deemed to be part of the registration statement as of the date the filed prospectus was deemed part of and included in the registration statement; and(B) Each prospectus required to be filed pursuant to Rule 424(b)(2), (b)(5), or (b)(7) as part of a registration statement in reliance on Rule 430B relating to an offering made pursuant to Rule 415(a)(1)(i), (vii), or (x) for the purpose of providing the information required by section 10(a) of the Securities Act of 1933 shall be deemed to be part of and included in the registration statement as of the earlier of the date such form of prospectus is first used after effectiveness or the date of the first contract of sale of securities in the offering described in the prospectus. As provided in Rule 430B, for liability purposes of the issuer and any person that is at that date an underwriter, such date shall be deemed to be a new effective date of the registration statement relating to the securities in the registration statement to which
arethat prospectus relates, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. Provided, however, that no statement made in a registration statement or prospectus that is part of the registration statement or made in a document incorporated or deemed incorporated by referenceherein. **Filed herewith. ***Previously filed. ****Tointo the registration statement or prospectus that is part of the registration statement will, as to a purchaser with a time of contract of sale prior to such effective date, supersede or modify any statement that was made in the registration statement or prospectus that was part of the registration statement or made in any such document immediately prior to such effective date; or(ii) If the registrant is subject to Rule 430C, each prospectus filed pursuant to Rule 424(b) as part of a registration statement relating to an offering, other than registration statements relying on Rule 430B or other than prospectuses filed in reliance on Rule 430A, shall be
fileddeemed to be part of and included in the registration statement as of the date it is first used after effectiveness. Provided, however, that no statement made in a registration statement or prospectus that is part of the registration statement or made in a document incorporated or deemed incorporated byamendment. ITEM 17. UNDERTAKINGSreference into the registration statement or prospectus that is part of the registration statement will, as to a purchaser with a time of contract of sale prior to such first use, supersede or modify any statement that was made in the registration statement or prospectus that was part of the registration statement or made in any such document immediately prior to such date of first use.II - 3
(b) The undersigned registrant hereby undertakes that, for purposes of determining any liability under the Securities Act of 1933, each filing of the
registrant'sregistrant’s annual report pursuant toSectionsection 13(a) or section 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 initialBONA FIDEbona fide offering thereof.(c) Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers and controlling persons of the registrant pursuant to the
foregoingprovisions described in Item 15, 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 theSecuritiesAct and is,II-2therefore, 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 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 SecuritiesAct 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,Danvers, Commonwealth of Massachusetts, onFebruary 7, 2000.April 2, 2007.
ABIOMED, INC. By: /s/ DAVID M. LEDERMAN ----------------------------------------- Dr. David M. Lederman President and/s/ Daniel J. Sutherby Daniel J. Sutherby Chief ExecutiveFinancial OfficerPOWER OF ATTORNEY
We, the undersigned officers and directors of ABIOMED, Inc., hereby severally constitute and appoint Michael R. Minogue and Daniel J. Sutherby, and each of them singly (with full power to each of them to act alone), our true and lawful attorneys-in-fact and agents, with full power of substitution and resubstitution in each of them for him or her and in his or her name, place and stead, and in any and all capacities, to sign any and all amendments (including post-effective amendments) to this Registration Statement (or any other Registration Statement for the same offering that is to be effective upon filing pursuant to Rule 462(b) under the Securities Act of 1933), and to file the same, with all exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing requisite or necessary to be done in and about the premises, as full to all intents and purposes as he or she might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents or any of them or their or his or her substitute or substitutes may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
registration statementRegistration Statement on Form S-3 has been signed below by the following persons in the capacities and on the dates indicated.
SIGNATURE TITLE DATE --------- ----- ----Signature
Title
Date
/s/ Michael R. Minogue
Michael R. Minogue
Chief Executive Officer, /s/ DAVID M. LEDERMANPresident and Director------------------------------------------- (Principal
(Principal ExecutiveFebruary 7, 2000 David M. LedermanOfficer)April 2, 2007 /s/ Daniel J. Sutherby
Daniel J. Sutherby
Chief Financial Officer * Vice President--Finance ------------------------------------------- and Treasurer(PrincipalFebruary 7, 2000 John F. TheroFinancialandOfficer, Principal Accounting Officer)* ------------------------------------------- Director February 7, 2000April 2, 2007 /s/ W. Gerald Austen
* -------------------------------------------W. Gerald Austen
Director February 7, 2000 Paul Fireman * -------------------------------------------April 2, 2007 /s/ Ronald W. Dollens
Ronald W. Dollens
Director February 7, 2000 John F. O'Brien * -------------------------------------------April 2, 2007 /s/ David Gottlieb
David Gottlieb
Director February 7, 2000April 2, 2007 /s/ Louis E. Lataif
Louis E. Lataif
Director April 2, 2007 II - 5
/s/ Desmond H.
O'Connell,O’Connell, Jr.* -------------------------------------------Desmond H. O’Connell, Jr.
Director February 7, 2000April 2, 2007 /s/ Dorothy E. Puhy
Dorothy E. Puhy
Director April 2, 2007 /s/ Henri A. Termeer
Henri A. Termeer
Director April 2, 2007
*By: /s/ DAVID M. LEDERMAN -------------------------------------- David M. Lederman ATTORNEY-IN-FACTII-4II - 6
EXHIBIT INDEX
EXHIBIT NUMBER - ---------------------1.1 Form of Underwriting Agreement**** 3.1Exhibit No. Description
4.1 Restated Certificate of Incorporation of ABIOMED, Inc.--Filed as(incorporated herein by reference to Exhibit 3.1 toRegistration Statement No. 333-36657* 3.2 Amended and Restated Bylaws of ABIOMED, Inc.--Filed as Exhibit 3.02 to the Company's Quarterly Reportour registration statement on Form10-Q for the period ended September 30, 1996* 3.3 Certificate of Designations of Series A Junior Participating Preferred Stock--Filed as Exhibit 3.3S-3, File No. 333-36657).4.2 Amendment 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 theour Restated Certificate of Incorporation to increase the authorized shares ofABIOMED, Inc.Common Stock from 25,000,000 to 100,000,000 (incorporated herein by reference to our current report on Form 8-K dated March 21, 2007 and filedas Exhibit 3.1 and in theon March 21, 2007).4.3 Certificate of Designations of Series A Junior Participating Preferred Stock filed as(incorporated herein by reference to Exhibit3.3)* 4.33.3 to our registration statement on Form S-3, File No. 333-36657).4.4 Amended and Restated By-Laws (incorporated herein by reference to Exhibit 3.2 of our annual report on Form 10-K for the year ended March 31, 2004). 4.5 Specimen Certificate of Common Stock (incorporated herein by reference to our registration statement on Form S-1, Registration No. 33-14861). 4.6 Rights Agreement between ABIOMED, Inc. and BankBoston, N.A.,with our transfer agent, as Rights Agent dated as of August 13, 1997,(includingincluding the Form ofRightRights Certificate attachedtheretoas ExhibitA)--Filed asA (incorporated herein by reference to Exhibit 4to ABIOMED, Inc.'s Current Reportof our current report on Form 8-K, filed August 25, 1997).4.7 Registration Rights and Stock Restriction Agreement dated August 13, 1997*as of May 10, 2005 by and among ABIOMED, Inc., Accelerated Technologies, Inc. as the stockholders’ representative and the stockholders of Impella CardioSystems AG (incorporated herein by reference to Exhibit 10.1 of our current report on Form 8-K filed on May 16, 2005).5.1 LegalOpinion of Foley Hoag & Eliot LLP****LLP.23.1 Consent of Arthur Andersen LLP**PricewaterhouseCoopers LLP.23.2 Consent of Foley Hoag & EliotLLP (included in Exhibit 5.1)****.24.1 Power of Attorney (contained on thesignaturepage of this registration statement)***page).- ------------------------ *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.