<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-Q
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
- --- EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1996
OR
- --- TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the Transition Period from ___________ to ___________
COMMISSION FILE NUMBER 0-27540
ENDOVASCULAR TECHNOLOGIES, INC.
(Exact Name of Registrant as Specified in its Charter)
DELAWARE 94-3096794
(State of Incorporation) (I.R.S. Employer Identification No.)
1360 O'BRIEN DRIVE
MENLO PARK, CALIFORNIA 94025
415-325-1600
(Address, Zip Code and Telephone Number of Principal Executive Offices)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
YES X NO
------- -------
The number of shares outstanding of each of the issuer's classes of common
stock as of August 8, 1996 was: 8,339,171
This document contains 21 pages and the Exhibit Index is on Page 20
Page 1 of 20
<PAGE> 2
ENDOVASCULAR TECHNOLOGIES, INC.
(A DEVELOPMENT STAGE COMPANY)
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PART I. FINANCIAL INFORMATION PAGE
- ------- --------------------- ----
<S> <C> <C>
Item 1. Financial Statements
Condensed Balance Sheets as of December 31, 1995 and
June 30, 1996 3
Condensed Statements of Operations for the Three and
Six Month Periods Ended June 30, 1995 and June 31, 1996 4
Condensed Statements of Cash Flows for the Six Months
Ended June 30, 1995 and June 30, 1996 5
Notes to Condensed Financial Statements 6
Risk Factors 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 14
PART II. OTHER INFORMATION
- -------- -----------------
Item 6. Exhibits and Reports on Form 8-K 17
Signatures 18
Exhibit Index 19
Exhibit 11 Computation of Net Loss Per Share 20
</TABLE>
Page 2 of 20
<PAGE> 3
ENDOVASCULAR TECHNOLOGIES, INC.
(A DEVELOPMENT STAGE COMPANY)
CONDENSED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31, June 30,
1995 1996
------------ ------------
<S> <C> <C>
ASSETS
Current Assets
Cash and cash equivalents $ 2,203,937 $ 3,039,493
Available for sale securities 7,944,782 16,886,690
Interest receivable 154,768 318,820
Accounts receivable -- 242,500
Prepaids and other 434,082 529,247
Notes receivable from employees 112,750 112,750
------------ ------------
Total current assets 10,850,319 21,129,500
------------ ------------
Property and equipment, net 819,921 1,635,386
Available for sale securities, non-current -- 5,144,119
Other assets 57,156 75,861
------------ ------------
Total assets $ 11,727,396 $ 27,984,866
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Current portion of obligations under
capital lease $ 15,131 $ --
Accounts payable 146,388 388,781
Accrued and other liabilities 1,304,383 1,651,199
------------ ------------
Total current liabilities 1,465,902 2,039,980
------------ ------------
Stockholders' Equity
Convertible preferred stock, $0.00001 par
value: 40,000,000 shares authorized;
5,118,265 issued and outstanding at
December 31, 1995; 5,000,000 authorized
at June 30, 1996 51 --
Common stock, $0.00001 par value:
Authorized: 35,000,000 and 30,000,000
shares at December 31, 1995 and
June 30, 1996, respectively; issued and
outstanding: 1,160,869 and 8,314,399,
respectively 12 83
Additional paid-in capital 34,375,515 56,026,389
Unrealized loss on securities -- (89,275)
Deferred compensation (109,242) (95,588)
Deficit accumulated during the
development stage (24,004,842) (29,896,723)
------------ ------------
Total stockholders' equity 10,261,494 25,944,886
Total liabilities and stockholders'
equity $ 11,727,396 $ 27,984,866
============ ============
</TABLE>
See accompanying notes to financial statements
Page 3 of 20
<PAGE> 4
ENDOVASCULAR TECHNOLOGIES, INC.
(A DEVELOPMENT STAGE COMPANY)
CONDENSED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
July 1, 1989 Three Months Ended June 30, Six Months Ended June 30,
(Inception), to --------------------------- --------------------------
June 30, 1996 1995 1996 1995 1996
--------------- ------------ -------------- ---------- -----------
<S> <C> <C> <C> <C> <C>
Net product sales $ 355,500 $ -- $ 252,500 $ -- $ 355,500
Cost of goods sold 432,087 -- 315,047 -- 432,087
------------ ----------- ----------- ---------- -----------
Gross margin (deficit) (76,587) -- (62,547) -- (76,587)
------------ ----------- ----------- ---------- -----------
Operating costs and expenses
Research and development 27,369,764 1,645,187 2,828,651 3,660,123 5,287,303
General and administrative 4,692,751 254,380 696,824 535,286 1,128,393
------------ ----------- ----------- ---------- -----------
Total operating costs
and expenses 32,062,515 1,899,567 3,525,475 4,195,409 6,415,696
------------ ----------- ----------- ----------- -----------
Loss from operations (32,139,102) (1,899,567) (3,588,022) (4,195,409) (6,492,283)
Interest income 2,242,379 224,836 362,085 459,308 600,402
------------ ----------- ----------- ----------- -----------
Net loss $(29,896,723) $(1,674,731) $(3,225,937) $(3,736,101) $(5,891,881)
============ =========== ============ =========== ===========
Net loss per common and
equivalent share $ (0.27) $ (0.38) $ (0.60) $ (0.73)
=========== =========== =========== ===========
Shares used in computing
net loss per share 6,253,813 8,465,573 6,254,646 8,052,827
</TABLE>
See accompanying notes to financial statements
Page 4 of 20
<PAGE> 5
ENDOVASCULAR TECHNOLOGIES, INC.
(A DEVELOPMENT STAGE COMPANY)
CONDENSED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
July 1, 1989
(Inception), to Six Months Ended June 30,
June 30, 1996 1995 1996
--------------- ------------ ------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $(29,896,723) $(3,736,101) $(5,891,881)
Adjustments to reconcile net loss to net cash
used in operating activities -
Depreciation and amortization 809,971 108,724 145,196
Amortization of deferred compensation 13,654 -- 13,654
Write-off of other assets 386,611 -- --
Stock issued for services and patents 21,440 -- --
Changes in current assets and liabilities -
Interest receivable (318,820) 22,758 (164,052)
Accounts receivable (242,500) -- (242,500)
Prepaids and other (529,247) 58,375 (95,165)
Note receivable from employees (112,750) 100,000 --
Other assets (77,361) -- (20,205)
Accounts payable 388,781 (22,899) 242,393
Accrued and other liabilities 1,651,199 (193,031) 346,816
------------ ----------- ------------
Total adjustments 1,990,978 73,927 226,137
------------ ----------- ------------
Net cash used in operating
activities (27,905,745) (3,662,174) (5,665,744)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of securities available
for sale (91,419,231) (17,098,832) (27,886,447)
Sale/maturity of securities available
for sale 69,299,147 20,550,398 13,711,145
Capitalized patent and organization costs (385,925) -- --
Purchases of property and equipment (2,389,808) (57,177) (959,161)
------------ ----------- ------------
Net cash provided by (used in)
investing activities (24,895,817) 3,394,389 (15,134,463)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from sale of convertible notes 850,000 -- --
Repayment of capital lease obligations (54,735) (12,078) (15,131)
Proceeds from exercise of stock options 484,039 1,711 56,206
Repurchase of common stock (6,865) (2,634) --
Proceeds from sale of preferred stock,
net of issuance costs 32,874,175 -- --
Proceeds from sale of common stock,
net of issuance costs 21,694,441 -- 21,594,688
------------ ----------- ------------
Net cash provided by (used in)
financing activities 55,841,055 (13,001) 21,635,763
------------ ----------- ------------
NET INCREASE IN CASH AND CASH EQUIVALENTS 3,039,493 (280,786) 835,556
CASH AND CASH EQUIVALENTS, beginning of period -- 2,154,817 2,203,937
CASH AND CASH EQUIVALENTS, end of period $ 3,039,493 $ 1,874,031 $ 3,039,493
============ =========== ============
SUPPLEMENTARY SCHEDULE OF NONCASH TRANSACTIONS:
Conversion of notes payable to
preferred stock $ 850,000 $ -- $ --
Purchase of equipment under capital
lease obligations 54,692 -- --
</TABLE>
See accompanying notes to financial statements
Page 5 of 20
<PAGE> 6
ENDOVASCULAR TECHNOLOGIES, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONDENSED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Interim Unaudited Financial Information
The accompanying unaudited condensed financial statements have been prepared in
accordance with generally accepted accounting principles for interim financial
information and have been prepared on substantially the same basis as the year
end audited financial statements. They do not include all of the information
and footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (consisting
of normal recurring accruals) considered necessary for a fair presentation have
been included. Operating results for the three month and six month periods ended
June 30, 1996 are not necessarily indicative of the results that may be expected
for the year ended December 31, 1996.
Cash and Cash Equivalents
Cash and cash equivalents are stated at cost which approximates market, and
consist of short-term, highly liquid investments with maturities of less than
three months.
Available for Sale Securities
Investments represent debt securities which are stated at fair value. The
difference between amortized cost (cost adjusted for amortization of premiums
and accretion of discounts which are recognized as adjustments to interest
income) and fair value representing unrealized holding gains or losses are
recorded as a separate component of stockholders' equity until realized.
Realized gains and losses on sales of all such securities, if any, are reported
in earnings and computed using the specific identification method. Securities
with maturity dates of one year or longer are classified as non-current on the
balance sheet.
Public Offering
On February 7, 1996, the Company completed an initial public offering of two
million shares of its Common Stock at a purchase price of $12.00 per share. Net
proceeds to the Company were $21.6 million, after deducting underwriting
discounts, commissions, and offering expenses.
Net Loss Per Share
Net loss per share is computed using the weighted average number of common
shares outstanding. Common equivalent shares from stock options are excluded
from the computation as their effect is anti-dilutive, except that, pursuant to
the Commission's Staff Accounting Bulletins, common and common equivalents
(stock options and preferred stock) issued during the 12-month period prior to
the initial public offering of the Company's common stock at prices below the
initial public offering price of $12.00 per share have been included in the
calculation as if they were outstanding for all periods presented (using the
treasury stock method for stock options).
Page 6 of 20
<PAGE> 7
2. RISK FACTORS
Early Stage of Clinical Trials; No Assurance of Safety and Efficacy
The Company's EGS systems for endovascular abdominal aortic aneurysm (AAA)
repair are at an early stage of clinical testing. There can be no assurance
that the Company's products will prove to be safe and effective in clinical
trials or will ultimately be cleared for marketing by United States or foreign
regulatory authorities. The Company does not expect to submit a PMA for any of
its EGS systems for at least the next two years, and there can be no assurance
that the Company will ever submit a PMA or that, if submitted, such PMA will be
approved by the FDA. If the Tube or Bifurcated EGS systems do not prove to be
safe and effective in clinical trials or if the Company is otherwise unable to
commercialize either system successfully, the Company's business, financial
condition and results of operations will be materially adversely effected and
cessation of the Company's business could occur.
In addition, the clinical trials may identify significant technical or other
obstacles to be overcome prior to obtaining necessary regulatory or
reimbursement approvals. For example, in 35 of 81 successful Tube EndoGraft
prosthesis implantations using a revised version of the original Tube EGS
system, blood flow outside of the implant ("Perigraft Flow") was observed
immediately following the procedure. Over time Perigraft Flow ceased in 17 of
these patients, but continued in the remaining 18 patients, or 22% of the 81
patients. The clinical significance of Perigraft Flow is unknown. There can be
no assurance that Perigraft Flow will not occur in future procedures using the
Company's EGS systems or that the existence of Perigraft Flow will not have a
material adverse effect on the safety and efficacy of the Tube or Bifurcated
EGS systems or any follow-on devices and thereby prevent the Company from
obtaining PMA approval from the FDA.
Attachment System Fractures; Suspension of Clinical Trials
In January 1995, the Company discovered fractures in the attachment system
component of the Tube EndoGraft prosthesis during routine follow-up tests.
Based on this discovery, the Company suspended its clinical trials worldwide.
As August 8, 1996, a total of 35 patients, representing approximately 38% of 91
patients with the Tube EndoGraft prosthesis in place for more than six weeks,
have experienced attachment system fractures. In six patients with fractures,
the Tube EndoGraft prosthesis was removed and the AAA was treated by open
surgery. Two patients with fractures have died for reasons unrelated to the
attachment system fractures. The remaining patients are closely monitored by
their physicians and the Company for fractures or the onset of adverse clinical
consequences. The Company expects additional fractures to occur in these
attachment systems. There can be no assurance that additional adverse clinical
consequences will not occur in the future, which could result in the suspension
of clinical trials or otherwise have a material adverse effect on the Company's
business, financial condition and results of operations.
Following suspension of clinical trials in January 1995, the Company determined
that the fractures were caused by metal fatigue resulting from higher than
anticipated forces acting on the attachment systems. As a result, the Company
has implemented a number of significant modifications to the attachment systems
and subjected the redesigned attachment systems to accelerated fatigue testing.
There can be no assurance, however, that the accelerated fatigue testing
accurately simulates the actual forces present in the human body. In addition,
there can be no assurance that fractures will not occur in the modified
attachment systems, which may not be apparent for a substantial period of time,
or that the Company will not experience additional problems with the modified
attachment systems. Any future attachment system fractures that might occur
could result in another suspension or termination of clinical trials, which
would have a material adverse effect on the Company's business, financial
condition and results of operations.
Limited Operating History; History of Losses; Substantial Additional Losses;
Fluctuations in Operating Results
The Company has a limited history of operations. Since its inception in June
1989, the Company has been primarily engaged in research and development of the
Tube and Bifurcated EGS systems. The Company has experienced significant
operating losses since inception, and as of June 30, 1996, the Company's
accumulated deficit was approximately $30 million. The Company will incur
substantial additional losses until it can achieve significant commercial sales
of its EGS systems which are dependent on a number of factors, including
receipt of marketing approval. There can be no assurance that the Tube or
Bifurcated EGS systems or any other products of the Company will be approved,
can be successfully commercialized or that the Company will achieve significant
revenues from either international or domestic sales of such products. In
addition, there can be no assurance that the Company will achieve or sustain
profitability in the future. Failure to achieve significant revenues or
profitability would have a material adverse effect on the Company's business,
financial condition and results of operations. Moreover, results of operations
have varied and are expected to fluctuate significantly from quarter to quarter
depending upon numerous factors, including the results of clinical trials, the
introduction and market acceptance of products
Page 7 of 20
<PAGE> 8
by the Company or competitors, the results of regulatory and reimbursement
actions, the timing of orders by distributors, the expenditures incurred in the
research and development of new products, competitive pricing and the expansion
of manufacturing capacity. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
Government Regulation; Significant Time Before Submission of any PMA
The Company's EGS systems are subject to extensive regulation by the FDA and
most foreign governments. The Company does not anticipate filing a PMA for the
Tube or Bifurcated EGS systems until at least 1998 and does not anticipate
receiving approval for at least one or two years after a PMA is accepted for
filing, if at all. There can be no assurance as to when, or if, the Company
will complete clinical trials of any of its EGS systems or that data from such
trials, if completed, will be adequate to support approval of a PMA. See
"--Early Stage of Clinical Trials; No Assurance of Safety and Efficacy" and
"--Attachment System Fractures; Suspension of Clinical Trials." Furthermore,
there can be no assurance that the Company will be able to obtain PMA approval
on a timely basis, or at all, and delays in the receipt of or failure to
receive such approvals would have a material adverse effect on the Company's
business, financial condition and results of operations and could result in
cessation of the Company's business.
Sales of EGS systems outside of the United States are subject to regulatory
requirements that vary widely from country to country. The time required to
obtain approval for sale in foreign countries may be longer or shorter than
that required for FDA approval, and the requirements may differ. In addition,
there may be foreign regulatory barriers other than premarket approval, and the
FDA must approve exports of devices that require a PMA but are not yet approved
domestically. Countries in which the Company intends to market EGS systems may
adopt regulations in the future that could prevent the Company from marketing
its EGS systems in those countries. In addition, the Company may be required to
spend significant amounts of capital in order to respond to requests for
additional information by the FDA or foreign regulatory bodies or may otherwise
be required to spend significant amounts of capital in order to obtain FDA and
foreign regulatory approvals. Any such events could substantially delay or
preclude the Company from marketing its EGS systems in the United States or
foreign countries. In May of 1996, the Company received marketing approval in
Australia and is pursuing a controlled product release to a limited number of
medical centers in that country.
Any devices manufactured or distributed by the Company pursuant to FDA
clearances or approvals are subject to pervasive and continuing regulation by
the FDA and certain state agencies. Foreign and domestic regulatory approvals,
if granted, may include significant limitations on the indicated uses for which
the product may be marketed. In addition, the FDA and certain foreign
regulatory authorities impose numerous other requirements with which medical
device manufacturers must comply. Product approvals could be withdrawn for
failure to comply with regulatory standards or the occurrence of unforeseen
problems following initial marketing. The Company will also be required to
adhere to applicable FDA regulations setting forth current Good Manufacturing
Practices ("GMP") requirements, which include testing, control and
documentation requirements. Ongoing compliance with GMP and other applicable
regulatory requirements are monitored through periodic inspections by state and
federal agencies, including the FDA, and by comparable agencies in other
countries. Changes in existing regulations or adoption of new regulations or
policies could prevent the Company from obtaining, or affect the timing of,
future regulatory approvals or clearances.
Substantial Dependence on Limited Product Line
The Company anticipates that for the foreseeable future it will be
substantially dependent on the successful development and commercialization of
endovascular products for AAA repair. Failure of the Company to successfully
develop and commercialize these products would have a material adverse effect
on the Company's business, financial condition and results of operations.
No Assurance of Market Acceptance
There can be no assurance that the Tube or Bifurcated EGS systems will gain any
significant degree of market acceptance among physicians, patients or health
care payors, even if necessary regulatory and reimbursement approvals are
obtained. The Company believes that recommendations by physicians and health
care payors will be essential for market acceptance of the EGS systems, and
there can be no assurance that any such recommendations will be obtained.
Physicians will not recommend the Tube or Bifurcated EGS systems unless they
conclude, based on clinical data and other factors, that the Tube and
Bifurcated EGS systems represent an acceptable alternative to open AAA surgical
repair. In particular, physicians may elect not to recommend the Tube or
Bifurcated EGS procedure until such time, if ever, as successful resolution of
the attachment fractures is established and the clinical significance of
unresolved Perigraft Flow is better understood. Widespread use of the Company's
EGS systems would require the training of numerous physicians, and the time
required to
Page 8 of 20
<PAGE> 9
complete such training could result in a delay or dampening of market
acceptance. Even if the safety and efficacy of the Company's EGS systems is
established, physicians may elect not to use them for a number of reasons
including unfavorable reimbursement from health care payors. Failure of the
Company's products to achieve any significant market acceptance would have a
material adverse effect on the Company's business, financial condition and
results of operations.
Need for Substantial Additional Capital
The Company's development efforts have consumed substantial capital to date.
Although the Company believes that the net proceeds from the Company's initial
public offering in February 1996 will be sufficient to meet its capital
requirements for at least the next twelve months, the Company will require
substantial additional financing. The Company's future liquidity and capital
requirements will depend upon numerous factors, including: the progress of
clinical trials; the timing and costs of filing future IDEs, PMAs and PMA
supplements; the timing and costs required to receive both domestic and
international governmental approvals; the extent to which the Company's products
gain market acceptance; the timing and costs of product introductions; the
extent of the Company's ongoing research and development programs; and the costs
of developing marketing and distribution capabilities, if regulatory approvals
are received. The Company will be required to seek substantial additional funds
through debt or equity financing. Issuance of additional equity securities could
result in substantial dilution to stockholders. There can be no assurance that
such financing will be available on terms acceptable to the Company, or at all.
The Company's inability to fund its capital requirements would have a material
adverse effect on the Company's business, financial condition and results of
operations. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations."
Uncertainty Regarding Patents and Protection of Proprietary Technology
The Company holds a number of issued United States and foreign patents and has
filed a number of United States and counterpart patent applications in other
countries. There can be no assurance that the Company's United States and
foreign issued patents or pending applications will offer any protection or that
they will not be challenged, invalidated or circumvented. In addition, there can
be no assurance that competitors will not obtain patents that will prevent,
limit or interfere with the Company's ability to make, use or sell its products
either in the United States or in international markets.
The Company typically enters into confidentiality and assignment agreements in
connection with employment, consulting or advisory relationships. There can be
no assurance, however, that these agreements will not be breached or that the
Company will have adequate remedies for any breach. Furthermore, no assurance
can be given that competitors will not independently develop substantially
equivalent proprietary information and techniques or otherwise gain access to
the Company's proprietary technology, or that the Company can meaningfully
protect its rights in unpatented proprietary technology.
Patent applications in the United States are maintained in secrecy until
patents issue, and patent applications in foreign countries are maintained in
secrecy for a period after filing. In addition, patents issued and patent
applications filed relating to medical devices are voluminous. Accordingly,
there can be no assurance that current and potential competitors or other third
parties have not or will not file applications for, or have not or will not
receive, patents and will not obtain additional proprietary rights relating to
materials or processes used or proposed to be used by the Company.
The Company has received letters from two medical device companies, Cook, Inc.
("Cook") and InnerDyne Medical, Inc. ("InnerDyne"). The Cook letter, dated
July 9, 1993, suggested potential infringement of a Cook-owned patent by future
commercial sale of the Company's attachment system component of the EndoGraft
prosthesis. The Company has reviewed the Cook matter and the Company believes
that no such infringement exists. The InnerDyne letter, dated November 2, 1994,
proposed that the Company discuss licensing an InnerDyne-owned patent that
InnerDyne believed to be pertinent to the Company's EVT Expandable Sheath. The
Company has reviewed the InnerDyne matter and the Company believes that it is
not necessary to enter into a licensing arrangement with InnerDyne. There can
be no assurance, however, that the Company's products do not infringe upon the
patent rights or other intellectual property rights of Cook, InnerDyne or other
companies, that the Company will not be required to seek licenses from these or
other companies or that these or other companies will not bring claims of
infringement against the Company. Although patent and intellectual property
disputes in the medical device industry have sometimes been settled through
licensing or similar arrangements, costs associated with such arrangements may
be substantial and could include ongoing royalties. There can be no assurance
that necessary licenses would be available to the Company on satisfactory terms
or at all. Furthermore, any litigation or administrative proceeding could result
in substantial costs to the Company and distraction of the Company's management,
even if the Company ultimately prevails in such litigation. An adverse ruling in
any litigation or administrative proceeding could have a material adverse effect
on the Company's business, financial condition and results of operations.
Page 9 of 20
<PAGE> 10
If any relevant claims of third-party patents are upheld as valid and
enforceable, the Company could be prevented from practicing the subject matter
claimed in such patents, or would be required to obtain licenses or to redesign
its products or processes to avoid infringement. There can be no assurance that
such licenses would be available at all or on terms acceptable to the Company or
that the Company could redesign its products or processes to avoid infringement.
Litigation may be necessary to defend against claims of infringement, to enforce
patents issued to the Company or to protect trade secrets and could result in
substantial cost to, and diversion of effort by, the Company.
Volatility of Stock Price
The market price for the Company's Common Stock has been subject to significant
fluctuations and may be volatile in the future. The Company believes that
factors such as announcements of developments related to the Company's business,
announcements of clinical results, regulatory approvals, technological
innovations or new products or enhancements by the Company or its competitors,
developments in the Company's relationships with its customers, partners,
distributors, and suppliers, changes in analysts' estimates, regulatory
developments, political and economic instability, fluctuations in results of
operations and general conditions in the Company's market or the markets served
by the Company's customers or the economy could cause the price of the Company's
Common Stock to fluctuate, perhaps substantially. The Company may be
particularly vulnerable to fluctuations in the market price of its Common Stock
given the substantial amount of time before it may achieve significant revenues
from commercial sales of its products. In addition, in recent years the stock
market in general, and the market for shares of small capitalization health care
stocks in particular, have experienced extreme price fluctuations, which have
often been unrelated to the operating performance of affected companies. Such
fluctuations could adversely affect the market price of the Company's Common
Stock. There can be no assurance that the market price of the Company's Common
Stock will not continue to experience significant fluctuations in the future,
including fluctuations that are unrelated to the Company's performance.
Dependence on Key Suppliers; Limited Manufacturing Experience
The Company uses or relies on sole source suppliers for certain components and
services used to manufacture its EGS systems. The Company utilizes materials
supplied by third parties, including raw material manufactured by Dow Chemical
Co. ("Dow Chemical") and DuPont, in its products. In recent years, in the wake
of litigation surrounding silicone breast implants, both Dow Chemical and DuPont
have ceased supplying chemical raw materials for use in implantable medical
devices, including DuPont raw material used to produce the graft material
utilized in the Company's EndoGraft prostheses. There can be no assurance that
use of such graft material by the Company will not be restricted or that the
Company will be able to obtain additional quantities of such graft material in
the future. Moreover, the continued use by the Company of graft material based
on chemical raw materials manufactured by DuPont could subject the Company to
additional liability exposure. The Company believes that the cessation of the
supply of components and materials for implantable medical devices may be
addressed through legislative action. There can be no assurance that such
legislative action will occur on a timely basis, if at all. The establishment of
additional or replacement suppliers for certain of these components of raw
materials cannot be accomplished quickly, particularly because of the time and
effort required to obtain FDA approval to use materials from alternative
suppliers. Although the Company routinely attempts to identify primary and
alternative vendors, the qualification of additional or replacement vendors for
certain components or services is a lengthy process. Any significant supply
interruption would have a material adverse effect on the Company's ability to
manufacture its products and, therefore, a material adverse effect on its
business, financial condition and results of operations.
The Company manufactures its products at its Menlo Park, California facility.
The Company believes that this facility has sufficient capacity to meet the
Company's anticipated manufacturing needs for at least the next 15 months. To
date, the Company's manufacturing activities have consisted primarily of
manufacturing limited quantities of products for use in clinical trials. The
manufacture of the Company's products is a complex and costly operation
involving a number of separate processes and components. Certain manufacturing
processes of the EGS systems are labor intensive and achieving significant cost
reductions will depend in part upon reducing the time required to complete
these processes. There can be no assurance that the Company will be able to
achieve cost reductions in the manufacture of its products. The Company does
not have experience in manufacturing its products in the commercial quantities
that might be required if the Company receives PMA approval. Manufacturers
often encounter difficulties in scaling up manufacturing of new products,
including problems involving product yields, quality control and assurance,
component and service availability, adequacy of control policies and procedures
and lack of qualified personnel. The Company has and will continue to consider
as appropriate the internal manufacture of components currently provided by
third parties, as well as the implementation of new production processes. There
can be no assurance that manufacturing yields or costs will not be adversely
affected by the transition to in-house
Page 12 of 12
<PAGE> 11
production or to new production processes when and if such efforts are
undertaken, and thereby materially and adversely affect the Company's business,
financial condition and results of operations.
Limitations on Third-Party Reimbursement
In the United States, the Company's products will be purchased primarily by
medical institutions which then bill various third-party payors, such as
Medicare, Medicaid and other government programs and private insurance plans,
for the health care services provided to their patients. Medicare traditionally
has considered items or services involving devices that have not been approved
or cleared for marketing by the FDA to be precluded from Medicare coverage.
However, under a new policy effective November 1, 1995, Medicare reimbursement
is potentially available for the Tube and Bifurcated EGS systems and related
services. There can be no assurance, however, that these devices and related
services will be covered when they are used in clinical trials and, if covered,
whether the payment amounts for their use will be considered to be adequate by
hospitals and physicians. If the devices are not covered or the payments are
considered to be inadequate, the Company may need to bear additional costs to
sponsor such trials, and such costs could have a material adverse effect on the
Company's business, financial condition and results of operations. Even if a
device has received approval or clearance for marketing by the FDA, there can be
no assurance that Medicare will cover the device and related services.
Furthermore, Medicare may place certain restrictions on the circumstances in
which coverage will be available. Limited or no coverage of the Company's
products would have a material adverse effect on the Company's business,
financial condition and results of operations.
Acute care hospitals are now generally reimbursed by Medicare for inpatient
operating costs under a prospective payment system ("PPS"). Under PPS, acute
care hospitals receive a prospectively determined payment amount for each
covered inpatient based upon the Diagnosis-Related Group ("DRG") to which the
patient is assigned, regardless of the actual cost of the services provided.
The Health Care Financing Administration ("HCFA") has not made any decision
concerning which DRG will be generally assigned to patients who undergo AAA
diagnosis and endovascular repair procedures in which the Company's products
are used, and there can be no assurance that the DRG to which such patients
will be assigned will result in Medicare payment levels that are considered by
hospitals to be adequate. Because the DRG system is also used by other
government and private payors, HCFA's decision concerning the DRG assignment
for these patients also may affect the amount of payment made by other payors.
Physician services are reimbursed by Medicare based on a physician fee schedule
which has not been determined for AAA diagnosis and endovascular repair
procedures in which the Company's products are used. There can be no assurance
that the physicians fee schedule for endovascular AAA procedures using the
Company's products will result in Medicare payment levels that physicians
consider to be adequate. In addition, Medicare payment levels are used by many
other third-party payors in addition to Medicare. Failure by hospitals and
physicians to receive what they consider to be adequate reimbursement for AAA
diagnosis and repair procedures in which the Company's products are used would
have a material adverse effect on the Company's business, financial condition
and results of operations. See "Business--Government Regulation."
Competition
The Company expects that significant competition in the endovascular graft
market will develop. There are many large companies with significantly greater
financial, manufacturing, marketing, distribution and technical resources and
experience than the Company focusing on the development of endovascular
technology. Many of these companies have vascular stents, as well as vascular
graft and catheter technologies that may be applicable to endovascular repair.
The Company may compete against a number of these companies including: Boston
Scientific Corporation which recently acquired MinTec; Medtronic which recently
acquired AneuRx; Pfizer Inc. which recently acquired Corvita Corporation.;
Johnson & Johnson; C.R. Bard, Inc.; and Cook, Inc. One or more of these or
other companies could design and develop products that compete directly with
the Company's products, in which case the Company would face intense
competition. There can be no assurance that one or more of these or other
companies will not develop technologies that are more effective or less costly
than the Company's products, or that would otherwise render the Company's
products and technology non-competitive or obsolete. Such competition could
have a material, adverse effect on the Company's business, financial condition
and results of operations. In addition, the Company's products could be
rendered obsolete as a result of future innovations in AAA surgical techniques,
which could have a material adverse effect on the Company's business, financial
condition and results of operations.
Any product developed by the Company that gains regulatory approval will have
to compete for market acceptance and market share. An important factor in such
competition may be the timing of market introduction of competitive products.
Accordingly, the relative speeds with which the Company can develop products,
complete clinical testing and regulatory
Page 11 of 20
<PAGE> 12
approval processes, gain reimbursement acceptance and supply commercial
quantities of the product to the market are expected to be important competitive
factors. In addition, the Company believes that the primary competitive factors
in the market for endovascular grafting products are safety, efficacy, ease of
delivery, reliability, innovation and price. The Company also believes that
physician relationships and customer support are important competitive factors.
There can be no assurance that the Company's competitive position will be
maintained or that the Company will be first to market endovascular products for
the treatment of AAA's in the United States.
Risk of Technological Obsolescence
The medical device industry is characterized by rapid and significant
technological change. There can be no assurance that third parties will not
succeed in developing or marketing technologies and products that are more
effective than those developed or marketed by the Company or that would render
the Company's technology and products obsolete or noncompetitive. Additionally,
new surgical procedures and medications could be developed that replace or
reduce the importance of current procedures that use the Company's products.
Accordingly, the Company's success will depend in part on its ability to respond
quickly to medical and technological changes through the development and
introduction of new products. Product development involves a high degree of risk
and there can be no assurance that the Company's new product development efforts
will result in any commercially successful products.
Risk of Federal Reform of Health Care
There are widespread efforts to control health care costs in the United States
on the federal, state and local levels. For example, the U.S. Congress is
currently considering various legislative proposals to reform the Medicare and
Medicaid programs. Current proposals call for reductions in the annual updates
for hospital PPS rates and physician reimbursement rates, reductions in the
amount of added payments made to teaching hospitals and hospitals that serve a
disproportionate share of low-income persons, increased incentives and
opportunities for Medicare beneficiaries to obtain their benefits through
managed care plans, and the establishment of a "block grant" program that would
give states greater discretion in designing and administering state Medicaid
programs. If enacted into law, any of these proposals could affect the amount
of Medicare and Medicaid payment that is made to hospitals and physicians and,
in turn, demand for the Company's products. Lower demand for the Company's
products resulting from federal healthcare reform could have a material adverse
effect on the Company's business, financial condition and results of
operations.
Lack of Sales and Marketing Experience; Planned Dependence on International
Distributors
The Company currently has a small sales and marketing function and has no
experience in marketing and selling its EGS systems. There can be no assurance
that the Company will be able to recruit and train adequate sales and marketing
personnel. The Company plans to rely on distributors for substantially all of
its international sales. Any foreign sales by the Company may be subject to
certain risks, including exchange rate fluctuations, international monetary
conditions, tariffs, import licenses, trade policies, domestic and foreign tax
policies and foreign medical regulations. The loss of major international
distributors could have a material adverse effect on the Company's business,
financial condition and results of operations.
Product Liability and Availability of Insurance
The clinical use and sale of the Company's products involve significant risk of
product liability claims. There can be no assurance that the coverage limits of
the Company's insurance policies will be adequate. Product liability insurance
is expensive and in the future may not be available to the Company on
acceptable terms or at all. There can be no assurance that a product liability
claim will not be brought against the Company either for injuries occurring in
the past or in the future, including, but not limited to, injuries due to
fractures in the attachment system of the Tube EndoGraft prosthesis. A
successful claim brought against the Company in excess of its insurance
coverage could have a material adverse effect on the Company's business,
financial condition and results of operations. See "--Attachment System
Fractures."
Dependence on Key Personnel
The Company's future business and operating results depend in significant part
upon the continued contributions of its key technical personnel and senior
management, many of whom would be difficult to replace. None of such persons is
subject to a noncompetition agreement. The Company's business and future
operating results also depend in significant part upon its ability to attract
and retain qualified management, manufacturing, technical, marketing and sales
and support personnel for its operations. Competition for such personnel is
intense, and there can be no assurance that the Company will be successful in
attracting or retaining such personnel. The loss of key employees, the failure
of any key employee to perform or the
Page 12 of 20
<PAGE> 13
Company's inability to attract and retain skilled employees, as needed, could
materially adversely affect the Company's business, financial condition and
results of operations.
Control by Officers, Directors and Principal Stockholders; Rights Held by
Corporate Partner
The Company's officers, directors and principal stockholders beneficially own
approximately 64% of the Company's Common Stock (assuming exercise of
immediately exercisable options held by such directors and officers). As a
result, such persons may have the ability effectively to control the Company and
direct its affairs and business. Such concentration of ownership may also have
the effect of delaying, deferring or preventing a change in control of the
Company. By mutual agreement between the Company and St. Jude Medical, Inc.
("St. Jude") in connection with a $12 million equity investment by St. Jude in
the Company, until August 15, 1996 unless earlier terminated (the "Standstill
Period"), the Company may not solicit, engage in discussions with or furnish
materials to any third party other than St. Jude regarding certain fundamental
corporate transactions, including those involving a merger, sale of the Company
or other change in control. During the Standstill Period, the Company must
negotiate in good faith with St. Jude if St. Jude submits a bona fide offer to
acquire the Company. If St. Jude submits a bona fide offer before the expiration
of the Standstill Period, then, during the following twelve months, the Company
must notify St. Jude if it negotiates with any third party to acquire the
Company and consider in good faith a bona fide offer from St. Jude. The rights
held by St. Jude will effectively preclude any such corporate transaction during
the Standstill Period unless St. Jude agrees to waive such rights.
Anti-takeover Effects of Certain Charter Provisions and Delaware Law
Under the Company's Certificate of Incorporation, the Board of Directors has
the power to authorize the issuance of up to 5,000,000 shares of Preferred
Stock and to determine the price, rights, preferences, privileges and
restrictions, including voting rights, of those shares without further vote or
action by the stockholders. The rights of the holders of Common Stock will be
subject to, and may be adversely affected by, the rights of the holders of any
Preferred Stock that may be issued in the future. The issuance of Preferred
Stock, while providing desirable flexibility in connection with possible
acquisitions and other corporate purposes, may have the effect of delaying,
deferring or preventing a change in control of the Company, may discourage bids
for the Common Stock at a premium over the market price of the Common Stock and
may adversely affect the market price of and the voting or other rights of the
holders of the Common Stock. The Company has no present plans to issue shares
of Preferred Stock. In addition, the Company's Certificate of Incorporation
provides for a classified Board of Directors such that approximately only
one-third of the members of the Board are elected at each annual meeting of
stockholders. Classified Boards may have the effect of delaying, deferring or
discouraging changes in control of the Company. Further, certain provisions of
the Company's Bylaws and of Delaware law could discourage, delay or prevent a
merger, tender offer or proxy contest involving the Company.
Absence of Dividends
The Company has never paid cash dividends and does not anticipate paying cash
dividends on the Common Stock in the foreseeable future.
Page 13 of 20
<PAGE> 14
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
This report on Form 10-Q contains forward-looking statements that involve risks
and uncertainties. The Company's actual results may differ materially from the
results discussed in the forward-looking statements. Factors that might cause
such a difference include, but are not limited to, those discussed in "Risk
Factors".
OVERVIEW
Since its inception in June 1989, the Company has been engaged in the research
and development of the Tube and Bifurcated EGS systems and related technology
for the endovascular repair of abdominal aortic aneurysms (AAA's). To date,
the Company has generated no significant revenues and has been unprofitable
since inception. For the period from incorporation to June 30, 1996, the
Company has an accumulated deficit of approximately $29.9 million. The Company
does not expect to generate significant revenues from sales of its products for
the foreseeable future and will continue to incur substantial losses for the
next several years. Furthermore, the Company expects its expenses in all
categories to increase as its clinical trials and other business activities
expand.
The research, manufacture, sale and distribution of medical devices such as the
EGS systems are subject to numerous regulations imposed by governmental
authorities, principally the FDA and corresponding state and foreign agencies.
The regulatory process is lengthy, expensive and uncertain. The Company
believes that FDA approval of a PMA application is required before any EGS
system can be marketed in the United States. Securing FDA approvals and
clearances will require submission to the FDA of extensive clinical data and
technical information. Many foreign governments and the European Union also
have review processes for medical devices.
The Company commenced clinical trials of its original Tube EGS system in
February 1993 and its Bifurcated EGS system in September 1994. Following
suspension of all clinical trials in January 1995 due to attachment system
fractures and after receiving FDA clearance to reinitiate clinical trials, the
Company re-initiated Phase II clinical trials of the Tube EGS system in
November 1995 and re-initiated Phase I clinical trials of the Bifurcated EGS
system in December 1995. Since re-initiating clinical trials, a total of 58
procedures have been performed in the U.S. Phase II clinical trial of the Tube
EGS system and 18 procedures have been performed using the Tube EGS system as
of August 8, 1996. A total of 37 procedures have been performed under the
re-initiated Phase I clinical trial of the Bifurcated EGS system as of
August 8, 1996.
The Company completed the U.S. Phase I clinical trial of its Bifurcated EGS
system during the second quarter and in August received FDA approval to
initiate a Phase II clinical trial of the Bifurcated EGS system. The Phase I
study involved 24 patients treated at five U.S. and two international
investigative sites. Substantial additional clinical testing of the Tube and
Bifurcated EGS systems is required and the Company does not believe it will be
able to complete clinical trials of, obtain regulatory approval for and begin
commercial sales of its EGS systems in the United States before mid-1999, if
ever.
In June 1995, the Company became ISO9001/EN46001 certified and plans to seek a
CE mark to allow for marketing and distribution of its products in the European
Union. In May of 1996, the Company received marketing approval in Australia and
is pursuing a controlled product release to a limited number of medical centers
in that country. The Company anticipates that a substantial portion of its net
product sales over the next several years will be derived from international
sales through its distributor network. Any such international sales will be
subject to a number of risks, including exchange rate fluctuations,
international monetary conditions, tariffs, import licenses, trade policies,
domestic and foreign tax policies and foreign medical regulations.
There can be no assurance that the Company's research and development efforts
will be successfully completed. Given that clinical testing is at an early
stage, there can be no assurance the EGS systems will be shown to be safe and
effective. Accordingly, the Company is unable to predict the likelihood that
its products will be approved for marketing by the FDA or any foreign
government agency, and there can be no assurance that the Company will ever
achieve either significant revenues from sales of its EGS systems or ever
achieve profitable operations.
Results of operations will fluctuate significantly from quarter to quarter and
will depend upon, among other factors: actions relating to foreign and
domestic regulatory and reimbursement matters; the extent to which the
Company's products gain market acceptance; the rate at which the Company
establishes its international distributor network; the progress of clinical
trials; and introduction of competing products or alternative treatments for
AAA.
Page 14 of 20
<PAGE> 15
RESULTS OF OPERATIONS
Three and Six Month Periods Ended June 30, 1996 and June 30, 1995
In 1996, the Company began recognizing revenue on sales of its products used in
clinical trials. During the three month period ended June 30, 1996, the Company
recognized $252,500 in sales, 35% of which were international sales. During the
six month period ended June 30, 1996, the Company recognized $355,500 in sales,
26% of which were international sales. The international sales price to
distributors may increase if marketing approval is achieved, but currently is
approximately 55% of the U.S. price. For both the three month and six month
periods, sales from the Tube EGS system accounted for approximately 65% of total
sales, with the balance of product sales coming from the Bifurcated EGS system.
Negative gross margin for the three month period ended June 30, 1996 was
approximately $63,000, or 25% of product sales. Negative gross margin for the
six month period ended June 30, 1996 was approximately $77,000, or 22% of
product sales. The lower margins for the second quarter of 1996 were primarily
due to the increased percentage of international sales in the second quarter.
Cost of goods sold currently exceeds product sales due to the Company's early
stage of manufacturing. The Company expects the negative gross margin to
continue at least throughout 1996. Positive gross margin may be achieved if
manufacturing volume significantly increases in the future.
Research and development expenses include research, development, clinical and
regulatory expenses and certain manufacturing expenses. Research and
development for the three month period ended June 30, 1996 increased to
approximately $2,829,000 from approximately $1,645,000 for the comparable three
month period in 1995. The increase in spending was due primarily to an increase
in personnel, with the balance due to increases in materials and clinical costs
related to the re-initiation of clinical trials and increased costs due to the
recent facility expansion. These same factors primarily account for the
increase in the six month period ended June 30, 1996 to approximately $5,287,000
from approximately $3,660,000 for the comparable six month period in 1995. The
Company believes that research and development expenses will continue to
increase in the future due to clinical trial expenses and continuing research
and regulatory requirements.
General and administrative expenses increased to approximately $697,000 during
the three month period ended June 30, 1996 from approximately $254,000 in the
second quarter of 1995. The increase in spending was due primarily to an
increase in personnel, as well as to increases in expenses associated with
being a public company. For the six month period ended June 30, 1996, the
increase in general and administrative expenses to approximately $1,128,000
from approximately $535,000 for the first half of 1995 was primarily due to the
same factors. The Company anticipates continued increases in administrative
expenses due to the increased level of business activities.
The net loss of approximately $3,226,000 for the three months ended June 30,
1996 was greater than the loss of approximately $1,675,000 for the comparable
period in 1995 due primarily to the increase in research and development
spending. Similarly, for the six months ended June 30, 1996, the net loss of
approximately $5,892,000 has increased from approximately $3,736,000 reported
for the six month period ended June 30, 1995, primarily due to increases in
research and development spending.
The Company has not incurred any income tax expense since inception due to its
history of operating losses.
LIQUIDITY AND CAPITAL RESOURCES
In February 1996, the Company completed an initial public offering of two
million shares of Common Stock with net proceeds to the Company of
approximately $21.6 million after deducting the underwriters discount,
commissions and offering expenses. Cash, cash equivalents and available for
sale securities were approximately $25.1 million at June 30, 1996. Prior to
its initial public offering, the Company had financed its operations since
inception through private sales of capital stock and interest income on
proceeds from such financings.
Cash used to fund operating activities since inception was approximately $27.9
million through June 30, 1996. Cash used in operating activities for the six
months ended June 30, 1996 increased to approximately $5,666,000 from
approximately $3,662,000 for the comparable period in 1995, reflecting an
increased net loss principally related to increased research and development
expenditures.
Page 15 of 20
<PAGE> 16
The Company's capital expenditures since incorporation totaled approximately
$2,390,000 through June 30, 1996. Cash used for purchases of property and
equipment in the six month period ended June 30, 1996 was approximately
$959,000, as compared to approximately $57,000 for the same period in 1995. The
increase was due primarily to a facilities expansion begun in the first quarter
of 1996.
The Company expects to continue to incur substantial expenses in support of
additional research and development activities, including costs of clinical
studies, manufacturing costs, the establishment of a sales and marketing
organization and ongoing administrative activities. The Company anticipates
that the proceeds of the initial public offering and interest thereon, together
with the pre-existing cash and cash equivalents and available for sale
securities, will be sufficient to fund its operations and planned new product
development, including increased working capital expenditures, through at least
the next 12 months.
The Company's cash requirements may vary materially from those now planned
because of results of research, development, and clinical testing, the
development of regulatory submissions and the FDA regulatory process, the
development of commercial-scale manufacturing capability, the development of
sales, distribution and marketing capabilities, and other factors. The Company
will be required to seek additional funds through debt or equity financing.
Issuance of additional equity securities could result in substantial dilution
to stockholders. There can be no assurance that such financing will be
available on terms acceptable to the Company, or at all. The Company's
inability to fund its capital requirements would have a material adverse effect
on the Company's business, financial condition and results of operations. The
Company may also enter into collaborative arrangements with corporate partners
that could provide the Company with additional funding.
Page 16 of 20
<PAGE> 17
PART II OTHER INFORMATION
- -------------------------
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a) Exhibits
See Exhibits incorporated by reference on Page 19
See Exhibit 11 on Page 20
b) Reports on form 8-K
There were no reports filed of Form 8-K during the quarterly period
ended June 30, 1996.
Page 17 of 20
<PAGE> 18
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
ENDOVASCULAR TECHNOLOGIES, INC.
(Registrant)
Date: August 9, 1996 /s/ W. James Fitzsimmons
-------------- ----------------------------------
W. James Fitzsimmons
President and
Chief Executive Officer
(Principal Executive Officer)
Date: August 9, 1996 /s/ G. Bradley Cole
-------------- ----------------------------------
G. Bradley Cole
Vice President, Finance and
Chief Financial Officer
(Principal Financial and Accounting Officer)
Page 18 of 20
<PAGE> 19
ENDOVASCULAR TECHNOLOGIES, INC.
(A DEVELOPMENT STAGE COMPANY)
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION PAGE NO.
- ----------- ----------- --------
<S> <C> <C>
*3.1 -- Form of Restated Certificate of Incorporation to be filed upon
the closing of the offering made pursuant to this Registration
Statement.
*3.2 -- Bylaws of the Company to be effective upon the closing of the
offering made pursuant to this Registration Statement.
*4.1 -- Reference is made to Exhibits 3.1 and 3.2.
*4.2 -- Specimen Common Stock certificate.
*4.3 -- Fourth Amended and Restated Investor Rights Agreement, dated
August 15, 1994, among the Company and the investors and the
founders named therein.
*10.1 -- Form of Indemnification Agreement.
*10.2 -- Series C Preferred Stock Purchase Agreement, dated July 16,
1993, as amended, among the Company and the investors named
therein.
*10.3 -- Series D Preferred Stock Purchase Agreement, dated August 15,
1994, as amended, among the Company and the investors named
therein.
*10.4 -- 1989 Stock Option Plan.
*10.5 -- 1995 Stock Option Plan.
*10.6 -- Employee Stock Purchase Plan.
*10.7 -- 1996 Incentive Compensation Plan.
*10.8 -- Employment agreement between the Company and W. James
Fitzsimmons.
*10.9 -- Employment agreement between the Company and Victor M. Bernhard.
*10.10 -- Note Secured by Second Deed of Trust and Note Secured by Stock
Pledge Agreement between the Company and W. James Fitzsimmons
dated September 22, 1992.
*10.11 -- Stock Pledge Agreements dated January 7, 1994, December 10, 1995
and December 13, 1995 between the Company and W. James
Fitzsimmons.
**10.12 -- Lease by and between Menlo Business Park and Patrician
Associates, Inc. and the Company, as amended by First Amendment to
Lease Agreement, dated February 26, 1996.
**10.13 -- Employment agreement between the Company and Ronald R. Giannotti.
11.0 -- Computation of Loss Per Share 20
27.0 -- Financial Data Schedule
* Incorporated by reference from an exhibit to the Company's
Registration Statement on Form S-1, as amended, (File No.
33-80557) declared effective by the Commission on February 6, 1996
** Incorporated by reference from an exhibit to the Company Annual
Report on Form 10-K filed with the Commission on March 29, 1996
</TABLE>
Page 19 of 20
<PAGE> 1
EXHIBIT 11
ENDOVASCULAR TECHNOLOGIES, INC.
(A DEVELOPMENT STAGE COMPANY)
COMPUTATION OF NET LOSS PER SHARE
<TABLE>
<CAPTION>
Three Months Ended June 30, Six Months Ended June 30,
---------------------------- ----------------------------
1995 1996 1995 1996
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Net Loss $(1,674,731) $(3,225,937) $(3,736,101) $(5,891,881)
Weighted average common shares outstanding 6,087,155 8,298,915 6,087,988 7,886,169
Common shares and options granted (using the
treasury stock method assuming an initial
public offering price of $12.00) between
December 15, 1994 and the Company's initial
public offering: included pursuant to
Securities and Exchange Commission Rules 166,658 166,658 166,658 166,658
----------- ----------- ----------- -----------
Weighted average common and equivalent shares 6,253,813 8,465,573 6,254,646 8,052,827
=========== =========== =========== ===========
</TABLE>
Page 20 of 20
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> JUN-30-1996
<CASH> 3,039,493
<SECURITIES> 16,886,690
<RECEIVABLES> 242,500
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 21,129,500
<PP&E> 2,302,902
<DEPRECIATION> (667,516)
<TOTAL-ASSETS> 27,984,866
<CURRENT-LIABILITIES> 2,039,980
<BONDS> 0
0
0
<COMMON> 83
<OTHER-SE> 25,944,803
<TOTAL-LIABILITY-AND-EQUITY> 27,984,866
<SALES> 355,500
<TOTAL-REVENUES> 355,500
<CGS> 432,087
<TOTAL-COSTS> 432,087
<OTHER-EXPENSES> 6,415,696
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (5,891,881)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (5,891,881)
<EPS-PRIMARY> (.73)
<EPS-DILUTED> (.73)
</TABLE>
