April 17, 2006
Mail Stop 6010
R. Scott Huennekens
Chief Executive Officer
Volcano Corporation
2870 Kilgore Road
Rancho Cordova, CA 95670
Re: Volcano Corporation
Registration Statement on Form S-1
Filed March 24, 2006
File No. 333-132678
Dear Mr. Huennekens:
We have reviewed your filing and have the following
comments.
Where indicated, we think you should revise your document in
response
to these comments. If you disagree, we will consider your
explanation as to why our comment is inapplicable or a revision is
unnecessary. Please be as detailed as necessary in your
explanation.
In some of our comments, we may ask you to provide us with
information so we may better understand your disclosure. After
reviewing this information, we may raise additional comments.
Please understand that the purpose of our review process is
to
assist you in your compliance with the applicable disclosure
requirements and to enhance the overall disclosure in your filing.
We look forward to working with you in these respects. We welcome
any questions you may have about our comments or any other aspect
of
our review. Feel free to call us at the telephone numbers listed
at
the end of this letter.
Form S-1
1. Please confirm that any preliminary prospectus you circulate
will
include all non-Rule 430A information. This includes the price
range
and related information based on a bona fide estimate of the
public
offering price within that range, and other information that was
left
blank throughout the document. Also, note that we may have
additional comments after you file this information.
Summary, page 1
2. Your disclosure on page 2 states that based on clinical studies
86% of heart attacks and 88% of strokes may be caused by
vulnerable
plaque. We note the disclosure on page 12, however, which seems
to
indicate that a causal connection between vulnerable plaque and
coronary events has not been established and is only a possibility
at
this point. Please clarify the extent to which clinical studies
have
shown that vulnerable plaque is a contributing factor in the cause
of
coronary events.
3. Please revise your document as needed to explain technical
terms.
For example, define "lumen" and "percutaneous interventional
procedures," and clarify the meaning of your "vfusion offering"
when
these terms are first used in the summary.
4. Please disclose when you expect commercialization of your s5i
and
s5ge consoles to begin.
5. Please revise your disclosure in the summary to balance your
disclosure that you had worldwide revenues of $91.5 million in
2005
with the fact that since inception you have not been profitable,
and
disclose the amount of your net losses.
6. Please provide supplemental support for the industry data
attributed to the American Heart Association. Provide independent
support for the industry data cited here and in the Business
section.
Risk Factors, page 10
We manufacture our IVUS catheters..., page 14
7. Expand your disclosure to address the reasons why the equipment
you use for the manufacture of the scanners located on your phased
array catheters is no longer produced or supported by a third
party.
Please describe in further detail why you have engaged a third
party
to develop an automated assembly system to replace this equipment.
If the equipment has become obsolete, please disclose.
Since we have no definitive agreement with Paieon..., page 15
8. Please expand this risk factor to address the fact that during
the
fourth quarter of 2005 you recorded write-downs for the excess and
obsolete IVUS IVG inventory, impairment of IVUS IVG diagnostic
equipment and accruals related to future non-cancelable IVUS IVG
inventory purchase commitments.
To market and sell our products internationally..., page 16
9. Quantify the portion of revenues derived from each named
distributor.
10. Disclose the termination date of the distribution agreement
with
Fukuda Denshi.
If our products, or malfunction of our products, cause or
contribute
to death..., page 25
11. Please expand your disclosure to further describe what actions
you have taken in response to the 19 malfunctions involving the
separation of catheter tips during procedures. Explain briefly
what
adjustments, if any, you made to address the malfunction of your
products. Disclose any material consequences to patients or
persons
using your products resulting from the malfunctions.
We depend on one distributor to hold the shonins related to our FM
products imported into Japan..., page 26
12. Briefly describe what it means to "hold the shonins." Also
disclose the percentage of revenues attributable to sales in
Japan.
13. We note your belief that although your distribution agreement
with Goodman expired in 1999 you believe that an "agreement"
exists.
Please revise to clarify the type of agreement you believe exists
and
whether you believe, and the basis for such belief, it has any
legally binding effect.
Management`s Discussion and Analysis, page 43
14. Please revise to provide a context for your statements that
you
are the "only company" that offers phased array catheters, and
that
following your anticipated commercial launch of your Revolution
rotational IVUS catheter, you will be the "only company" that
offers
both phased array and rotational catheters. For example, clarify
whether you are the only company worldwide to offer these
catheters
or if your statement is limited to a geographical area.
Results of Operations, page 45
15. We note your disclosure on page 77 that you signed a supply
and
distribution agreement with GE in March 2006 for the purchase of
your
s5i and s5ge consoles. Revise your Management`s Discussion and
Analysis to discuss the nature and terms of the agreement with GE
and
how you expect it to impact your sales to non-Japanese customers.
Business, page 58
16. Please tell us whether Millennium Research Group:
* makes its industry reports publicly available,
* received compensation from you for preparation of the
statistics,
* prepared the statistics for use in the registration statement,
or
* has consented to your use of its statistics in your document.
17. Please provide us with the peer reviewed articles and
published
medical literature from Massachusetts General Hospital and Harvard
Medical School.
Vulnerable Plaque, page 64
18. We note your disclosure that vulnerable plaque "is responsible
for" the majority of heart attacks and strokes. Your disclosure
on
page 58, however, states that clinical studies show that this type
of
plaque "may be" the cause of a large percentage of heart attacks.
Similarly, your disclosure on page 12 seems to indicate that
despite
a "possible" connection shown in post-mortem studies, hypothetical
models and statistical analyses, clinical studies have yet to show
that vulnerable plaque is a contributing factor in the cause of
coronary events. If the causal connection between vulnerable
plaque
and coronary events is uncertain, please clarify this here and
throughout your prospectus.
Our IVUS Products, page 68
19. Please expand your disclosure to clarify the meaning of your
statement that you are working with Paieon to develop IVUS and
angiographic image "co-registration functionality" for your IVUS
consoles.
Our FM Products, page 70
20. Tell us the objective standard by which you measured your
Smartwire pressure guidewires in the internal testing you
conducted
and the basis for your conclusion that they are the "best handling
pressure guidewires on the market."
Clinical Program, page 72
21. Please provide independent support for the statements that
certain of your clinical studies are the "world`s first."
Carotid Artery Plaque Virtual Histology Evaluation (CAPITAL), page
74
22. Please revise your disclosure to describe in greater detail
the
current addressable patient population treatable though the
endovascular techniques described in this section.
Supply and Distribution Agreement with GE, page 77
23. We note from your disclosure in the prospectus and from
exhibit
10.28 that you have entered into a supply and distribution
agreement
with GE, pursuant to which GE may sell your products in Iran and
Syria. Iran and Syria are identified as state sponsors of
terrorism
by the State Department, and are subject to economic sanctions
administered by the Treasury Department`s Office of Foreign Assets
Control and the Commerce Department`s Bureau of Industry and
Security. Please describe for us your current, historical, and
anticipated direct or indirect business activities in or contacts
with Iran and Syria, whether pursuant to the agreement with GE or
pursuant to other direct or indirect arrangements.
24. Please discuss in reasonable detail the materiality of the
business activities or contacts identified in response to the
foregoing comment, and whether these activities or contacts
constitute a material investment risk for your security holders.
You
should address materiality in quantitative terms, including the
dollar amounts of any associated assets and liabilities, and the
dollar amount of revenues derived from direct or indirect business
activities in or contacts with Iran and Syria. Please also
address
materiality in terms of qualitative factors that a reasonable
investor would deem important in making an investment decision,
including the potential impact of corporate activities upon a
company`s reputation and share value. In this regard, we note
that
Arizona and Louisiana have adopted legislation requiring their
state
retirement systems to prepare reports regarding state pension fund
assets invested in, and/or permitting divestment of state pension
fund assets from, companies that do business with countries
identified as state sponsors of terrorism. Your materiality
analysis
should address the potential impact of the investor sentiment
evidenced by these actions directed toward companies operating in
Iran and Syria.
Manufacturing, page 80
25. We note your disclosure that certain regulatory authorities
have
inspected your current facility and have noted observations for
improvements and minor findings. Please expand this disclosure to
identify the particular authority or authorities that found
violations and describe the nature of the violations. Address the
materiality to your business of the possible actions by these
authorities against you in the event they find significant
shortcomings.
Management, page 88
26. Please expand your disclosure of Mr. Lussier`s background to
include his prior business experience from March 2001 to March
2002.
Related Party Transactions, page 98
27. Please confirm that your discussion also includes any
currently
proposed transactions or series of similar transactions to which
you
or any of your subsidiaries is to be a party.
Principal stockholders, page 100
28. Please identify the individuals who have voting and/or
investment
control for the entities in the table. This information can be
included in footnotes 2 and 3.
Financial Statements
Consolidated Statements of Operations, page F-4
29. We note that you have presented the total amount of stock-
based
compensation included in each income statement line item for the
periods presented in a footnote at the bottom of your consolidated
statements of operations. If you choose to present this
information
separately on the consolidated statements of operations, revise to
present the information in a parenthetical note to the appropriate
income statement line items. Revise your statements of operations
data on pages 8 and 40 and elsewhere in the filing as necessary.
Refer to the guidance in SAB Topic 14.F.
Notes to Consolidated Financial Statements
Note 1. Summary of Significant Accounting Policies
- -Property and Equipment, page F-10
30. Reference is made to your property and equipment footnote on
page
F-19. You state on page F-10 that property and equipment includes
certain medical diagnostic equipment that is located at the
customer
premises. Tell us, and revise to clarify for the reader, the
purpose
of the equipment at the customer premises (for example, for sales
demonstrations, performance evaluation period programs, etc.) and
the
amount of such at each balance sheet date.
- -Net Loss Per Share, page F-14
31. We note that you have issued warrants to purchase an aggregate
of
up to 3,400,339 shares of common stock at an exercise price of
$.01.
Paragraph 10 of SFAS 128 states shares issuable for little or no
cash
consideration upon the satisfaction of certain conditions should
be
considered outstanding common shares and included in the
computation
of basic earnings per share as of the date that all necessary
conditions have been satisfied. In essence, consideration for the
vested warrants has been received since the exercise price is de
minimus and it is likely the vested warrants will be exercised
with
an expected initial public offering price of somewhat greater than
the exercise price. Therefore, it would appear that the vested
warrants should be considered in your basic earnings per share
computation for those periods in which they were outstanding and
vested. Tell us how you have considered the vested stock warrants
issued for nominal or no consideration in your computation of
basic
earnings per share. Advise or revise your basic earnings per
share
and related earnings per share footnote to disclose that vested
warrants have been included in your computation of basic earnings
per
share and the reason for such inclusion.
- -Revenue Recognition, page F-12
32. We note that you enter into sales arrangements with customers
that contain multiple elements or deliverables that are accounted
for
by you under the guidance in EITF 00-21. Tell us and revise here
and
in critical accounting policies to discuss the nature and terms of
such arrangements.
33. We note that you account for all sales incentive costs
including
cash discounts, customer promotional allowances and volume rebates
as
a reduction of revenue in accordance with EITF 01-09. Tell us and
revise here and in critical accounting policies, to the extent
significant, to describe the type of sales incentives that are
offered to your customers and distributors.
Note 9. Stockholders` Deficit, page F-29
34. Provide the estimated IPO price or range when available. If
the
difference between the IPO price and the fair value used to value
stock, options or warrants granted during the 12 months prior to
the
date of the most recent balance sheet is significant please
provide
us with details of the significant factors contributing to the
difference. Please note that we will defer our final evaluation
of
stock compensation and other costs recognized until you provide
the
offering price. We may have further comments in this regard when
the
amendment containing that information is filed.
Note 14. Related Parties, page F-34
35. We note in July 2003 you entered into agreements with
Medtronic,
Inc. to provide a license to manufacture and market certain
products
incorporating your IVUS technology. You were paid $2.5 million in
exchange for a fully-paid, royalty-free, perpetual, irrevocable,
worldwide license of which you are recognizing the license fee
over
the term of the arrangement. We note that you were granted the
right
to terminate the distribution rights to Medtronic under certain
conditions and subject to a payment of $2 million. We further
note
that in January 2006 you terminated the distribution rights
granted
to Medtronic, and in lieu of payment of the termination fee, you
will
transfer an agreed amount of product to Medtronic. In this regard,
tell us and revise this note for the following:
* Identify the conditions that allowed you to terminate the
arrangement
* Identify the product you are selling using the license from
Medtronic
* Indicate the reason for terminating such arrangement
* Tell the reader how you will account for the termination in the
subsequent period.
Part II - Information Not Required in Prospectus
Item 17. Undertakings, page II-5
36. Please include the undertakings required by item 512(a)(5)(ii)
and 512(a)(6) of Regulation S-K. Refer to Rule 430C(d) and Rule
424(b)(3).
As appropriate, please amend your registration statement in
response to these comments. You may wish to provide us with
marked
copies of the amendment to expedite our review. Please furnish a
cover letter with your amendment that keys your responses to our
comments and provides any requested information. Detailed cover
letters greatly facilitate our review. Please understand that we
may
have additional comments after reviewing your amendment and
responses
to our comments.
We urge all persons who are responsible for the accuracy and
adequacy of the disclosure in the filing to be certain that the
filing includes all information required under the Securities Act
of
1933 and that they have provided all information investors require
for an informed investment decision. Since the company and its
management are in possession of all facts relating to a company`s
disclosure, they are responsible for the accuracy and adequacy of
the
disclosures they have made.
Notwithstanding our comments, in the event the company
requests
acceleration of the effective date of the pending registration
statement, it should furnish a letter, at the time of such
request,
acknowledging that:
? should the Commission or the staff, acting pursuant to
delegated
authority, declare the filing effective, it does not foreclose the
Commission from taking any action with respect to the filing;
? the action of the Commission or the staff, acting pursuant to
delegated authority, in declaring the filing effective, does not
relieve the company from its full responsibility for the adequacy
and
accuracy of the disclosure in the filing; and
? the company may not assert staff comments and the declaration
of
effectiveness as a defense in any proceeding initiated by the
Commission or any person under the federal securities laws of the
United States.
In addition, please be advised that the Division of
Enforcement
has access to all information you provide to the staff of the
Division of Corporation Finance in connection with our review of
your
filing or in response to our comments on your filing.
We will consider a written request for acceleration of the
effective date of the registration statement as confirmation of
the
fact that those requesting acceleration are aware of their
respective
responsibilities under the Securities Act of 1933 and the
Securities
Exchange Act of 1934 as they relate to the proposed public
offering
of the securities specified in the above registration statement.
We
will act on the request and, pursuant to delegated authority,
grant
acceleration of the effective date.
We direct your attention to Rules 460 and 461 regarding
requesting acceleration of a registration statement. Please allow
adequate time after the filing of any amendment for further review
before submitting a request for acceleration. Please provide this
request at least two business days in advance of the requested
effective date.
You may contact Thomas Dyer at (202) 551-3641 or Michele
Gohlke
at (202) 551-3327 if you have questions regarding comments on the
financial statements and related matters. Please contact Eduardo
Aleman at (202) 551-3646 or me at (202) 551-3800 with any other
questions.
Sincerely,
Peggy Fisher
Assistant Director
cc(via facsimile): Dale S. Freeman
R. Scott Huennekens
Volcano Corporation
April 17, 2006
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