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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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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 MARCH 31, 1997
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 0-28266
HEARTPORT, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 94-3222307
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
200 CHESAPEAKE DRIVE
REDWOOD CITY, CALIFORNIA 94063
(Address of principal executive offices)
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(415) 306-7900
(Registrant's telephone number, including area code)
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Indicate by check /X/ whether the registrant (1) has filed all reports
required to be filed by Sections 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
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As of March 31, 1997 there were 24,589,452 shares of the Registrant's
Common Stock outstanding.
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HEARTPORT, INC.
FORM 10-Q
INDEX
PART I. FINANCIAL INFORMATION PAGE
Item 1. Financial Statements
Condensed Consolidated Balance Sheets at March 31, 1997
and December 31, 1996.......................................... 3
Condensed Consolidated Statements of Operations for the
three months ended March 31, 1997 and March 31, 1996............ 4
Condensed Consolidated Statements of Cash Flows for the
three months ended March 31, 1997 and March 31, 1996............ 5
Notes to Condensed Consolidated Financial Statements.............. 6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations................................... 8
PART II. OTHER INFORMATION
Item 5. Other Information............................................ 21
Item 6. Exhibits and Reports on Form 8-K.............................. 21
SIGNATURES............................................................. 22
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Heartport, Port-Access, and EndoCPB are trademarks of the Company.
Port-Access Partnership is a servicemark of the Company.
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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
HEARTPORT, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except per share amounts)
MARCH 31, DECEMBER 31,
1997 1996 (1)
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(UNAUDITED)
ASSETS
Current assets:
Cash and cash equivalents......................... $ 22,370 $ 33,445
Short-term investments............................ 51,584 56,407
Accounts receivable............................... 2,603 550
Inventories....................................... 2,911 2,107
Prepaid expenses and other........................ 1,414 1,717
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Total current assets................................ 80,882 94,226
Property and equipment, net......................... 7,330 6,395
Deposits, intangibles and other assets, net......... 1,222 1,231
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Total assets........................................ $ 89,434 $ 101,852
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LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable.................................. $ 2,845 $ 4,570
Accrued compensation and related benefits......... 2,719 1,433
Current portion of long-term debt................. 662 662
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Total current liabilities........................... 6,226 6,665
Noncurrent liabilities:
Long-term debt, less current portion.............. 1,171 1,334
Other long-term liabilities....................... 305 383
Deferred royalty income........................... 3,000 3,000
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Total noncurrent liabilities....................... 4,476 4,717
Stockholders' equity:
Convertible preferred stock....................... -- --
Common stock, $0.001 par value.................... 24 24
Additional paid-in capital........................ 142,228 142,018
Notes receivable from stockholders................ (973) (973)
Accumulated deficit............................... (62,547) (50,599)
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Total stockholders' equity.......................... 78,732 90,470
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Total liabilities and stockholders' equity.......... $ 89,434 $ 101,852
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(1) DERIVED FROM THE AUDITED FINANCIAL STATEMENTS FOR THE YEAR
ENDED DECEMBER 31, 1996.
SEE ACCOMPANYING NOTES.
3
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HEARTPORT, INC
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
(in thousands, except per share amounts)
THREE MONTHS ENDED
MARCH 31,
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1997 1996
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Net sales............................................ $ 3,216 $ --
Cost of goods sold................................... 2,721 --
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Gross profit......................................... 495 --
Operating expenses:
Research and development........................... 4,332 3,403
Selling, general and administrative................ 9,219 777
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Total operating expenses............................. 13,551 4,180
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Loss from operations................................. (13,056) (4,180)
Interest income...................................... 1,189 158
Interest expense..................................... (81) (106)
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Net loss............................................. $ (11,948) $ (4,128)
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Net loss per share................................... $ (0.49) $ (0.21)
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Shares used in calculation of net loss per share..... 24,498 19,783
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SEE ACCOMPANYING NOTES.
4
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HEARTPORT, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(in thousands)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
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1997 1996
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<S> <C> <C>
Operating activities:
Net loss................................................................ $ (11,948) $ (4,128)
Adjustments to reconcile net loss to net cash used in operating
activities:
Depreciation and amortization....................................... 547 134
Forgiveness of note receivable...................................... -- 50
Changes in operating assets and liabilities:
Accounts receivable............................................... (2,053) --
Inventories....................................................... (804) --
Prepaid expenses and other........................................ 303 (316)
Accounts payable and accrued expenses............................. (518) 999
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Net cash used in operating activities................................... (14,473) (3,261)
Investing activities:
Purchase of short-term investments...................................... (16,596) (1,000)
Sales and maturities of short-term investments.......................... 21,419 998
Purchase of property and equipment...................................... (1,481) (949)
(Increase)decrease in deposits, intangibles and other assets............ 8 (22)
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Net cash provided by (used in) investing activities..................... 3,350 (973)
Financing activities:
Proceeds from issuances of common stock................................. 210 23
Proceeds from payment of stockholders' notes receivable................. -- 22
Proceeds from long-term borrowings...................................... -- 351
Repayment of long-term borrowings....................................... (162) (104)
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Net cash provided by financing activities............................... 48 292
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Net decrease in cash and cash equivalents............................... (11,075) (3,942)
Cash and cash equivalents at beginning of period........................ 33,445 7,412
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Cash and cash equivalents at end of period.............................. $ 22,370 $ 3,470
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</TABLE>
SEE ACCOMPANYING NOTES
5
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HEARTPORT, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Note 1. Basis of Presentation
The accompanying unaudited condensed consolidated financial statements
have been prepared in accordance with generally accepted accounting
principles for interim financial statements and in accordance with the
instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they
do not include all of the financial information and footnotes required by
generally accepted accounting principles for complete financial statements.
In the opinion of management, all adjustments (consisting of normal recurring
adjustments) considered necessary for a fair presentation have been included.
The operating results of the interim periods presented are not
necessarily indicative of the results for the year ending December 31, 1997
or for any other interim period. The accompanying condensed consolidated
financial statements should be read in conjunction with the audited financial
statements and notes thereto for the year ended December 31, 1996 included in
the Company's Annual Report on Form 10-K filed with the Securities and
Exchange Commission.
Note 2. Net Loss Per Share
Net loss per share for the three months ended March 31, 1997 is computed
using the weighted average number of common shares outstanding. Common
equivalent shares from stock options and warrants are excluded from the
computation as their effect is antidilutive.
Net loss per share for the three months ended March 31, 1996 is computed
using the weighted average number of common shares outstanding. Common
equivalent shares from stock options and warrants are excluded from the
computation as their effect is antidilutive, except that, pursuant to the
Securities and Exchange Commission Staff Accounting Bulletins, common and
common equivalent shares issued during the twelve-month period prior to the
Company's April 1996 initial public offering at prices substantially below
the initial public offering price have been included in the calculation as if
they were outstanding (using the treasury stock method at the initial public
offering price for stock options and warrants). Net loss per share for the
three months ended March 31, 1996 also includes the effect of convertible
preferred shares from their respective dates of issuance.
In February 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 128, "Earnings per Share,"
(SFAS 128), which the Company will be required to adopt on December 31, 1997.
Under the requirements of SFAS 128, the dilutive effect of stock options is
excluded from the calculation of primary earnings per share. SFAS 128 will
not impact the Company's calculations of historical net loss per share for
the three months ended March 31, 1997 and March 31,1996 since the impact of
stock options on these calculations is antidilutive.
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Note 3. Subsequent Event
In April and May, 1997, the Company issued $86.25 million of convertible
subordinated notes. The notes are due in 2004, bear interest at 7.25%, and
are convertible at the option of the holder into the Company's common stock
at a price of $28.958 per share. Net proceeds to the Company from the
issuance of these notes were approximately $83.4 million.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS.
This Management's Discussion and Analysis of Financial Condition and
Results of Operations as of March 31, 1997 and for the three months ended
March 31, 1997 and March 31, 1996 should be read in conjunction with the
Management's Discussion and Analysis of Financial Condition and Results of
Operations included in the Company's 1996 Annual Report on Form 10-K, as
amended, filed with the Securities and Exchange Commission.
OVERVIEW
Since its inception in May, 1991, the Company has been engaged in the
research and development of Port-Access-TM- minimally invasive
cardiac surgery systems and related technology. In December, 1996, the
Company commercially introduced its Port-Access systems and is now engaged in
extensive physician training and selling activities. Through its "Port-Access
Partnership-SM-" program, the Company has adopted a sales model in
which the Company trains a center's surgical team, supplies patient and
referring physician educational materials, supports local market media
efforts and furnishes proprietary reusable devices for Port-Access procedures
in exchange for a purchase order for Port-Access disposable products
necessary to perform Port-Access cardiac surgery. To date, substantially all
of the Company's product sales have been in connection with initial purchase
orders for disposable products from centers participating in the Port-Access
Partnership program.
The Company has hired a significant number of employees to conduct and
support its research and development and product commercialization
activities. At March 31, 1997 and December 31, 1996, the Company had 332 and
275 employees, respectively. The Company anticipates that its work force will
continue to grow rapidly in the next several years to support product
development, clinical affairs and training, manufacturing, and sales and
marketing.
The Company only recently began to generate revenue from the sale of
products, and it has been unprofitable since inception. For the period from
inception to March 31, 1997, the Company has incurred cumulative net losses
of approximately $62.5 million. For at least the next 18 months, the Company
expects to continue to incur significant losses, and expects to incur losses
in 1997 in excess of those incurred in 1996.
The foregoing and the discussion appearing elsewhere in this
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" contain 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 - Early Stage of Utilization; No Assurance of Safety and Efficacy,"
"- No Assurance of Market Acceptance," " - Risks Associated with New Surgical
Procedure; Extensive Training Requirements," " -Fluctuations in Operating
Results," and " - Limited Manufacturing Experience; Dependence on Key
Suppliers."
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RESULTS OF OPERATIONS
NET SALES. Net sales of $3.2 million in the three months ended March
31, 1997, consist of sales of the Company's disposable devices in its
EndoCPB-TM-, Port-Access CABG and Port-Access MVR systems. The
Company recognizes revenue upon product shipment. The Company commenced
product sales in December, 1996.
COST OF GOODS SOLD. Cost of goods sold of $2.7 million in the three
months ended March 31, 1997, consists primarily of material, labor and
overhead costs associated with manufacturing the Company's disposable and
reusable devices in its EndoCPB, Port-Access CABG and Port-Access MVR systems
sold.
Because cost of goods sold includes the cost of the Company's reusable
devices, for which the Company receives no corresponding revenue under the
Company's Port-Access Partnership sales model, the Company's gross margin
will vary significantly based upon the mix of reusable and disposable devices
shipped. During periods where net sales to new centers in the Port-Access
Partnership program constitute a significant percentage of total net sales,
and as a result, reusable devices shipped by the Company account for a
significant percentage of total devices shipped, the Company's gross margin
will be adversely impacted. As repeat sales of disposable devices to
previously trained centers increase, the Company expects margins to improve.
In addition, if the Company is able to improve its yield and manufacturing
efficiencies in the production of its devices, the Company believes its gross
margins will also improve.
RESEARCH AND DEVELOPMENT EXPENSES. Research and development expenses
have consisted primarily of personnel costs, consulting fees and other costs
in support of product development, clinical trials, and regulatory
submissions, as well as costs incurred in producing products for research and
development activities and clinical trials, and the cost of prosecuting
United States and foreign patent applications relating to the Company's
technology. In addition, prior to commercialization of the Company's
products, costs incurred in physician training were included in the Company's
research and development expenses. Research and development expenses
increased to $4.3 million in the three months ended March 31, 1997 from $3.4
million in the three months ended March 31, 1996. This increase was
primarily attributable to an increase in research and development staffing.
The Company anticipates that it will continue to devote substantial resources
to research and development. However, the Company anticipates that research
and development expenses will not change significantly in 1997 as start-up
costs for manufacturing and physician training incurred during the Company's
development phase will not recur in 1997.
SELLING, GENERAL AND ADMINISTATIVE EXPENSES. Selling, general and
administrative expenses consist primarily of costs for administrative, sales
and marketing personnel, as well as legal, accounting and other professional
fees. Since commercialization of the Company's products, physician training
costs have also been included in the Company's selling, general and
administrative expenses. Selling, general and administrative expenses
increased to $9.2 million in the three months ended March 31, 1997 from
$777,000 in the three months ended March 31, 1996. This increase was
primarily due to the hiring of additional sales, marketing and administrative
personnel, physician training costs, expenses necessary to support the
Company's product launch and ongoing sales activities, and expenses necessary
to manage and support the Company's increased scale of operations. The
Company believes that its selling, general and administrative expenses will
continue to increase substantially as it expands its physician training
activities, builds its sales force, marketing staff and administrative staff,
and incurs other costs in connection with commercialization of its products
and the support of its growing operations.
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INTEREST INCOME. Interest income primarily represents interest earned
by the Company on its cash and short-term investments. Interest income
increased to $1.2 million in the three months ended March 31, 1997 from
$158,000 in the three months ended March 31, 1996. The increase was
primarily due to the Company's higher average investment balances resulting
from cash received in the Company's initial public offering in 1996.
INTEREST EXPENSE. Interest expense represents interest on long-term
debt. Interest expense decreased to $81,000 in the three months ended March
31, 1997 from $106,000 in the three months ended March 31, 1996. The
decrease from 1996 to 1997 was primarily attributable to the conversion of a
note payable to St. Jude Medical, Inc. into deferred royalty income.
LIQUIDITY AND CAPITAL RESOURCES
From inception through March 31, 1997, the Company funded its operations
and investments in property and equipment primarily through the private sale
of preferred stock, totaling approximately $25.1 million, and through an
initial public offering of common stock in April, 1996, totaling
approximately $110.8 million. At March 31,1997, the Company had
approximately $74.0 million in cash, cash equivalents, and short-term
investments and approximately $74.7 million in working capital. The Company
also has a $15.0 million credit facility with a commercial bank. No amount
was outstanding under this facility at March 31, 1997. In April and May,
1997, the Company raised approximately $83.4 million through a private
placement of convertible subordinated notes to qualified institutional
investors.
Net cash used in operating activities was approximately $14.5 million
and $3.3 million in the three months ended March 31, 1997 and March 31, 1996,
respectively. For such periods, net cash used in operating activities
resulted primarily from increasing net losses. For the three months ended
March 31, 1997, net cash used in operating activities also resulted from
increases in accounts receivable and inventories which reflect the Company's
increasing product sales. Net cash provided by investing activities was
approximately $3.4 million and net cash used in investing activities was
approximately $973,000 for the three months ended March 31, 1997 and March
31, 1996, respectively. The net cash provided by or used in investing
activities was primarily attributable to purchases and maturities of
short-term investments and purchases of property and equipment.
Capital expenditures for equipment and leasehold improvements to support
the Company's expanded operations were approximately $1.5 million and
$949,000 in the three months ended March 31, 1997 and March 31, 1996,
respectively. The Company expects that its capital expenditures will
continue to grow as the Company's employee base and manufacturing operations
expand. In addition, the Company presently plans to spend approximately $11.0
million in 1997 for capital expenditures related to training facility
improvements and the expansion of its manufacturing capacity and facilities.
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RISK FACTORS
The Company operates in a rapidly changing environment that involves a
number of risks, some of which are beyond the Company's control. The
following discussion highlights some of these risks. These risks could affect
the Company's actual future results and could cause them to differ materially
from any forward-looking statements made by the Company. These risks should
be read in conjunction with the "Risk Factors" section included in the
Company's 1996 Annual Report on Form 10-K, as amended, filed with the
Securities and Exchange Commission.
EARLY STAGE OF UTILIZATION; NO ASSURANCE OF SAFETY AND EFFICACY.
The Company's EndoCPB System, Port-Access CABG System, and Port-Access MVR
System and related devices are at an early stage of clinical utilization, and
there can be no assurance as to their clinical safety and efficacy. As of
April 25, 1997, clinicians have completed only 295 Port-Access CABG
procedures and only 237 Port-Access MVR procedures using Heartport's systems
and devices. Port-Access minimally invasive cardiac surgery has many of the
risks of conventional open-chest heart surgery, including bleeding from the
wound or internal organs, irregular heartbeat, formation of blood clots and
related complications, infection, heart attack, heart failure, stroke, and
death. Port-Access minimally invasive cardiac surgery also has additional
risks compared to conventional open-chest surgery, including tearing or
splitting of major blood vessels, damage to blood vessels in the groin, and
groin pain. Although there can be no assurance in this regard, the Company
believes, based on the limited clinical experience to date, that mortality
and morbidity rates associated with Port-Access surgical procedures are
comparable to mortality and morbidity rates experienced with conventional
open-chest procedures. If, with further experience, any of the Company's
systems do not prove to be safe and effective or if the Company is otherwise
unable to commercialize them successfully, the Company's business, financial
condition, and results of operations will be materially adversely affected
and the Company's business could cease.
NO ASSURANCE OF MARKET ACCEPTANCE. There can be no assurance that the
Company's EndoCPB and Port-Access systems will gain any significant degree of
market acceptance among physicians, patients, and health care payors, even if
necessary regulatory and reimbursement clearances and approvals are obtained.
The Company believes that physicians' acceptance and health care payors'
reimbursement of Port-Access procedures will be essential for market
acceptance of its systems, and there can be no assurance that any such
recommendations or approvals will be obtained. Physicians will not recommend
Port-Access procedures unless they conclude, based on clinical data and other
factors, that Port-Access procedures are an attractive alternative to other
treatments for cardiovascular disease. Most patients with cardiovascular
disease first consult with a cardiologist, who may treat the patient with
pharmaceuticals or non-surgical interventions such as percutaneous
transluminal coronary angioplasty ("PTCA") and intravascular stents, or may
refer the patient to a cardiac surgeon for conventional open-chest surgery.
Cardiologists may not recommend Port-Access procedures until such time, if
any, as Port-Access procedures can be successfully demonstrated to be as safe
and cost-effective as other accepted treatments. In addition, cardiac
surgeons may elect not to recommend Port-Access procedures until such time,
if any, as the efficacy of the Company's Port-Access procedures can be
successfully demonstrated as compared to conventional, open-chest surgery
methods, which have become widely adopted by cardiac surgeons since the
initial use of such surgery in the mid-1950s. Even if the clinical efficacy
of Port-Access procedures is established, cardiologists, cardiac surgeons,
and other physicians may elect not to recommend the procedures for any number
of other reasons. Failure of the Company's products to achieve significant
market acceptance would have a material adverse effect on the Company's
business, financial condition, and results of operations.
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RISKS ASSOCIATED WITH NEW SURGICAL PROCEDURE; EXTENSIVE TRAINING
REQUIREMENTS. Use of the Company's EndoCPB System, Port-Access CABG System,
and Port-Access MVR System to date has shown that, as with any novel surgical
procedure, there is a significant learning process involved for surgeons and
other members of the cardiac surgery team to become proficient. In addition,
certain patients requiring heart surgery cannot be treated with the present
Port-Access systems, depending upon their anatomy, what kind of condition
they have and how severe it is. These patients may include people with severe
peripheral vascular disease (arteriosclerosis), a poorly functioning aortic
valve, an enlarged heart, or certain types of chest scarring. Broad use of
the Company's systems will require extensive training of numerous physicians,
and the time required to begin and complete such training could adversely
affect market acceptance. Although the Company has begun physician training
at its Utah facility and a facility in Sweden, there can be no assurance that
the Company will be able to rapidly train physicians in numbers sufficient to
generate adequate demand for the Company's products and systems. Any delay in
training would have a material adverse effect on the demand for the Company's
products and systems and, therefore, a material adverse effect on its
business, financial condition, and results of operations.
FLUCTUATIONS IN OPERATING RESULTS. Results of operations may vary
significantly from quarter to quarter depending upon numerous factors,
including the following: demand for the Company's products; the number of
cardiac surgery teams trained in the use of the Company's systems; the number
of hospitals that begin using the Company's products; the ability of the
Company to manufacture, test and deliver its products in commercial volumes;
health care reform and reimbursement policies; delays associated with the FDA
and other regulatory approval processes; changes in pricing policies by the
Company or its competitors; the number, timing, and significance of product
enhancements and new product announcements by the Company and its
competitors; the ability of the Company to develop, introduce, and market new
and enhanced versions of the Company's products on a timely basis; customer
order deferrals in anticipation of enhancements or new products offered by
the Company or its competitors; product quality problems; personnel changes;
and the level of international sales. In addition, the Company has begun to
develop both a domestic and an international direct sales force. The timing
of such development and the rate at which new sales people become productive
could also cause material fluctuations in the Company's quarterly operating
results.
Operating results have been and will continue to be difficult to
forecast. Future revenue, if any, is also difficult to forecast because the
market for minimally invasive cardiac surgery systems is rapidly evolving,
and due to the inherent risks associated with new medical device technology.
Accordingly, the Company believes that period-to-period comparisons of its
operating results are not necessarily meaningful and should not be relied
upon as indications of future performance. Failure by the Company, for any
reason, to achieve additional regulatory approvals and to generate and
increase revenue from sales of its products would have a material adverse
effect on the Company's business, operating results, and financial condition.
Due to the foregoing factors, it is likely that in some future quarter the
Company's operating results will be below the expectations of public market
analysts and investors. In such event, the price of the Company's Common
Stock would likely be materially adversely affected. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
LIMITED MANUFACTURING EXPERIENCE; DEPENDENCE ON KEY SUPPLIERS. To meet
anticipated demand, the Company must increase the rate by which it
manufactures its products. To date, the Company's manufacturing activities
have consisted primarily of manufacturing limited quantities of products for
use in laboratory testing, clinical trials, and initial low-volume commercial
sales. The manufacture of the Company's products is complex, involving a
number of separate processes and components. The Company does not have
experience in manufacturing its products in commercial quantities. Although
the Company is scaling up its capability to produce products in volume for
commercial sales, there can be no assurance that it will be
12
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able to successfully scale-up its production to meet commercial demand for
its products in a timely manner. In addition, the Company believes that cost
reductions in its manufacturing operations will be required for it to
commercialize its systems on a profitable basis. Certain manufacturing
processes are labor-intensive, and achieving significant cost reductions will
depend, in part, upon reducing the time required to complete these processes.
Medical device 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, lack of qualified personnel, compliance
with FDA regulations, and the need for further FDA approval of new
manufacturing processes and facilities. To date, the Company has experienced
variable yields in scaling up manufacturing of certain of its product
components, and there can be no assurance that such variability will not
continue or will not adversely impact the Company's ability to meet demand
for its products. The Company has considered 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 production or to new
production processes when such efforts are undertaken, and that such a
transition would not materially and adversely affect the Company's business,
financial condition, and results of operations. While the Company has
received ISO 9001 certification, to date, the FDA has not inspected the
Company's compliance with Good Manufacturing Practices ("GMP") requirements,
which include testing, control, and documentation requirements, although the
Company expects such inspections to be made in the near future. There can be
no assurance that FDA GMP requirements will be met.
The Company uses or relies on a number of components and services used
in its devices that are provided by sole source suppliers. While the Company
is in the process of identifying alternative sources for certain of such
components and services, 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 based on forecasted product
orders, and purchases subassemblies and components prior to receipt of
purchase orders from customers. Lead times for materials and components
ordered by the Company vary significantly, and depend on factors such as the
business practices of the specific supplier, contract terms, and general
demand for a component at a given time. Certain components used in the
Company's products have long lead times. As a result, there is a risk of
excess or inadequate inventory if orders do not match forecasts.
SIGNIFICANT COMPETITION; RAPID TECHNOLOGICAL CHANGE. The Company
expects that the market for minimally invasive cardiac surgery, which is
currently in the early stages of development, will be intensely competitive.
Competitors are likely to include a variety of different companies that
currently specialize in devices for conventional cardiac surgery, as well as
those that specialize in non-cardiac minimally invasive surgery. The Company
believes that a number of large companies, including the Ethicon Endosurgery
division of Johnson & Johnson, United States Surgical Corporation, Medtronic,
Inc., Baxter International, Genzyme Corporation, Guidant Corporation and
others with significantly greater financial, manufacturing, marketing,
distribution, and technical resources and experience than the Company, may be
focusing on the development of minimally invasive cardiac surgery technology.
In addition, new companies have been and will continue to be formed to pursue
opportunities in this market. Several companies have announced interest in
and development of products for the minimally invasive cardiac surgery field.
For example, there are companies pursuing minimally invasive cardiac surgery
on a beating heart, which, if successful, could materially adversely affect
the Company's ability to establish a market for its technology.
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Cardiovascular diseases that can be treated with the Company's
Port-Access systems can also be treated by pharmaceuticals or other medical
devices and procedures including PTCA, intravascular stents, atherectomy
catheters, and lasers. Many of these alternative treatments are widely
accepted in the medical community and have a long history of use. In
addition, technological advances with other therapies for heart disease, such
as drugs or future innovations in cardiac surgery techniques, could make such
other therapies more effective or lower in cost than the Company's
Port-Access procedures and could render the Company's technology obsolete.
There can be no assurance that physicians will use Port-Access procedures to
replace or supplement established treatments, such as conventional open-chest
heart surgery, PTCA, or intravascular stents, or that the Company's
Port-Access systems will be competitive with current or future technologies.
Such competition could have a material adverse effect on the Company's
business, financial condition, and results of operations.
The Company's current products and any future products developed by the
Company that gain regulatory clearance or 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 approval processes, train physicians
in the use of its products, gain reimbursement acceptance, and supply
commercial quantities of the product to the market are expected to be
important competitive factors. The Company has in the past experienced delays
in completing the development and introduction of new products, product
variations and product features, and there can be no assurance that such
delays will not continue or recur in the future. Such delays could result in
a loss of market acceptance and market share. There can be no assurance that
the Company will be able to compete successfully against current and future
competitors. Failure to do so would have a material adverse effect upon the
Company's business, financial condition, and results of operations.
SUBSTANTIAL FUTURE LOSSES AND FUTURE CAPITAL REQUIREMENTS. Since its
inception in May, 1991, the Company has been engaged in the research and
development of minimally invasive cardiac surgery systems and related
technology. In December, 1996, the Company commercially introduced its
Port-Access systems and is now engaged in extensive physician training and
selling activities. Through its "Port-Access Partnership" program, the
Company has adopted a sales model in which the Company trains a center's
surgical team, supplies patient and referring physician educational
materials, supports local market media efforts and furnishes proprietary
reusable devices for Port-Access procedures in exchange for a purchase order
for Port-Access disposable products necessary to perform Port-Access cardiac
surgery. To date, substantially all of the Company's product sales have been
in connection with initial purchase orders for disposable products from
centers participating in the Port-Access Partnership program.
The Company only recently began to generate revenue from the sale of
products and has been unprofitable since inception. For the period from
inception to March 31, 1997, the Company has incurred cumulative net losses
of approximately $62.5 million. For at least the next 18 months, the Company
expects to continue to incur significant losses and expects to incur losses
in 1997 in excess of those incurred in 1996. There can be no assurance that
the Company will achieve or sustain profitability in the future. Failure to
achieve significant commercial revenues or profitability would have a
material adverse effect on the Company's business, financial condition, and
results of operations.
The Company believes that it may require additional debt and/or equity
financing. The Company's future liquidity and capital requirements will
depend upon numerous factors, including but not limited to the following: the
extent to which the Company's products gain market acceptance; the timing and
costs of future product introductions; the extent of the Company's ongoing
research and development programs; the costs of training physicians to
14
<PAGE>
become proficient in the use of the Company's products and procedures; the
costs of expanding manufacturing capacity; the costs of developing marketing
and distribution capabilities; the progress and scope of clinical trials
required for any future products; the timing and costs of filing future
regulatory submissions; the timing and costs required to receive both
domestic and international governmental approvals for any future products;
and the costs of protecting and defending its intellectual property. Issuance
of additional equity or convertible debt securities could result in dilution
to stockholders. There can be no assurance that additional 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;
RISKS OF FUTURE LITIGATION. The Company believes that its competitive
position will be dependent in significant part on its ability to protect its
intellectual property. The Company's policy is to seek to protect its
proprietary position by, among other methods, filing United States and
foreign patent applications related to its technology, inventions, and
improvements that are important to the development of its business. As of
April 11, 1997, the Company owns 25 issued United States patents. In
addition, as of April 11, 1997, the Company has filed 91 patent applications
in the U.S., 39 of which have also been filed in Canada, Europe, and Asia.
There can be no assurance that the Company's issued United States patents, or
any patents that may be issued in the future, will effectively protect the
Company's technology or provide a competitive advantage. There can be no
assurance that any of the Company's patents or patent applications will not
be challenged, invalidated, or circumvented in the future. In addition, there
can be no assurance that competitors, many of which have substantially more
resources than the Company and have made substantial investments in competing
technologies, will not seek to apply for and 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 internationally.
The Company also relies upon trade secrets, technical know-how, and
continuing technological innovation to develop and maintain its competitive
position. The Company typically requires its employees, consultants, and
advisors to execute confidentiality and assignment of inventions agreements
in connection with their employment, consulting, or advisory relationships
with the Company. 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. Publication of discoveries in the
scientific or patent literature tends to lag behind actual discoveries and
the filing of related patent applications. Patents issued and patent
applications filed relating to medical devices are numerous and there can be
no assurance that current and potential competitors and other third parties
have not filed or in the future will not file applications for, or have not
received or in the future will not receive, patents or obtain additional
proprietary rights relating to products or processes used or proposed to be
used by the Company. The Company is aware of patents issued to third parties
that contain subject matter related to the Company's technology. Based, in
part, on advice of its patent counsel, the Company believes that the
technologies employed by the Company in its devices and systems do not
infringe the claims of any such patents. There can be no assurance, however,
that third parties will not seek to assert that the Company's devices and
systems infringe their patents or seek to expand their patent claims to cover
aspects of the Company's technology.
15
<PAGE>
The medical device industry in general, and the industry segment that
includes products for the treatment of cardiovascular disease in particular,
has been characterized by substantial competition and litigation regarding
patent and other intellectual property rights. Any such claims, whether with
or without merit, could be time-consuming and expensive to respond to and
could divert the Company's technical and management personnel. The Company
may be involved in litigation to defend against claims of infringement by
other patent holders, to enforce patents issued to the Company, or to protect
trade secrets of the Company. If any relevant claims of third-party patents
are upheld as valid and enforceable in any litigation or administrative
proceeding, the Company could be prevented from practicing the subject matter
claimed in such patents, or would be required to obtain licenses from the
patent owners of each such patent, or to redesign its products or processes
to avoid infringement. There can be no assurance that such licenses would be
available or, if available, would be available on terms acceptable to the
Company or that the Company would be successful in any attempt to redesign
its products or processes to avoid infringement. Accordingly, an adverse
determination in a judicial or administrative proceeding or failure to obtain
necessary licenses could prevent the Company from manufacturing and selling
its products, which would have a material adverse effect on the Company's
business, financial condition, and results of operations. The Company intends
to vigorously protect and defend its intellectual property. Costly and
time-consuming litigation brought by the Company may be necessary to enforce
patents issued to the Company, to protect trade secrets or know-how owned by
the Company, or to determine the enforceability, scope, and validity of the
proprietary rights of others. There can be no assurance that such litigation,
if commenced by the Company, would be successful.
MANAGEMENT OF EXPANDING OPERATIONS; ACQUISITIONS. The Company has
recently experienced rapid expansion of its operations, which has placed, and
is expected to continue to place, significant demands on the Company's
administrative, operational and financial personnel, and systems. In this
respect, the Company hired 127 new employees in the second half of 1996 and
expects to continue hiring substantial numbers of additional personnel in
1997. In order to compete effectively against current and future competitors,
the Company believes that it must continue to expand its operations,
particularly in the areas of research and development, clinical affairs,
manufacturing, and sales and marketing. If the Company were to experience
significant growth in the future, such growth would likely result in new and
increased responsibilities for management personnel and place significant
strain upon the Company's management, operating, and financial systems and
resources. To accommodate such growth and compete effectively, the Company
must continue to implement and improve information systems, procedures, and
controls, and to expand, train, motivate, and manage its work force. The
Company has recently installed an integrated financial, manufacturing, and
inventory information system. There can be no assurance that such system will
be adequate to meet the Company's requirements. Although the Company has
recently hired several new members of management, all of the foregoing
demands will require additional management personnel as well. The Company's
future success will depend to a significant extent on the ability of its
current and future management personnel to operate effectively, both
independently and as a group. There can be no assurance that the Company's
personnel, systems, procedures, and controls will be adequate to support the
Company's future operations. Any failure to implement and improve the
Company's operational, financial, and management systems or to expand, train,
motivate, or manage employees could 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."
The Company may make acquisitions of complementary businesses, products
and technology in the future, and regularly evaluates such opportunities.
Product and technology acquisitions entail numerous risks, including
difficulties in the assimilation of acquired operations and products,
diversion of management's attention to other business concerns, amortization of
16
<PAGE>
acquired intangible assets, and potential loss of key employees of acquired
companies. The Company's management has had limited experience in
assimilating acquired organizations and products into the Company's
operations. No assurance can be given as to the ability of the Company to
integrate successfully any operations, personnel or products that might be
acquired in the future, and the failure of the Company to do so could have a
material adverse effect on the Company's results of operations.
RELIANCE ON STRATEGIC RELATIONSHIPS. The Company intends to pursue
strategic relationships with corporations and research institutions with
respect to the research, development, regulatory approval, and marketing of
certain of its potential products and procedures. The Company's future
success may depend, in part, on its relationships with third parties,
including, for example, the Company's relationship with St. Jude Medical,
Inc., their strategic interest in the potential products or procedures under
development and, eventually, their success in marketing such products or
procedures or willingness to purchase any such products. The Company
anticipates that these third parties may have the unilateral right to
terminate any such relationship without significant penalty. There can be no
assurance that the Company will be successful in establishing or maintaining
any such strategic relationships in the future or that any such relationships
will be successful.
RISK OF PRODUCT LIABILITY. The Company faces an inherent and
significant business risk of exposure to product liability claims in the
event that the use of its products results in personal injury or death and
there can be no assurance that the Company will not experience any material
product liability losses in the future. Also, in the event that any of the
Company's products prove to be defective, the Company may be required to
recall or redesign such products. The Company maintains limited insurance
against certain product liability claims, but there can be no assurance that
such coverage will continue to be available on terms acceptable to the
Company or that such coverage will be adequate for any liabilities actually
incurred. A successful claim brought against the Company in excess of
available insurance coverage, or any claim or product recall that results in
significant adverse publicity against the Company, may have a material
adverse effect on the Company's business, financial condition, and results of
operations.
LIMITED SALES, MARKETING, AND DITRIBUTION EXPERIENCE. The Company
currently has a limited sales and marketing organization in the United States
and Europe and believes that it must expand its direct sales force to
effectively market its products. Establishment of a sales force capable of
effectively commercializing the Company's EndoCPB and Port-Access systems
will require substantial efforts and require significant management and
financial resources. There can be no assurance that the Company will be able
to establish such a sales capability on a timely basis, if at all.
DEPENDENCE ON KEY PERSONNEL. The Company's future business and
operating results depend in significant part upon the continued contributions
of its key technical and senior management personnel, many of whom would be
difficult to replace and certain of whom perform important functions for the
Company beyond those functions suggested by their respective job titles or
descriptions. 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 any key employee, the failure of any
key employee to perform in his or her current position, or the 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.
17
<PAGE>
NO ASSURANCE OF REGULATORY CLEARANCE OR APPROVAL; SIGNIFICANT DOMESTIC
AND INTERNATIONAL REGULATION. The Company's individual devices are subject
to regulatory clearances or approvals by the FDA. The Company believes that
most of its devices and systems will be subject to United States regulatory
clearance through the 510(k) premarket notification process rather than a
more extensive pre-market approval ("PMA") submission. Although the Company
has received 510(k) clearance from the FDA to market the EndoCPB System and
several proprietary Class II disposable surgical devices for its Port-Access
CABG and MVR surgery systems in the United States, securing FDA approvals and
clearances for additional Port-Access devices and other products under
development by the Company, including the Port-Access AVR procedure, will
require submission to the FDA of extensive technical information and may
require submission of extensive clinical data. There can be no assurance that
the FDA will act favorably or quickly on the Company's future 510(k) or other
submissions, and significant difficulties and costs may be encountered by the
Company in its efforts to obtain FDA clearance that could delay or preclude
the Company from marketing and selling additional products in the United
States. Furthermore, there can be no assurance that the FDA will not request
additional data, require that the Company conduct further clinical studies,
or require a more extensive PMA submission for future products developed by
the Company, causing the Company to incur substantial costs and delays. The
Company's business, financial condition, and results of operations are
critically dependent upon FDA clearance or approval of the Company's systems.
Failure to obtain additional clearances or approvals, or to obtain such
clearances or approvals on a timely basis, could have a material adverse
effect on the Company's business, financial condition, and results of
operations, and could result in postponement of the commercialization of the
Company's products or even cessation of the Company's business in the United
States.
Sales of medical devices outside of the United States are subject to
foreign 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 clearance or approval, and the
requirements may differ. In addition, if the FDA were to require a PMA
submission for any of the Company's future products, the Company would be
required to obtain FDA approval to export such devices and systems to
international markets prior to their approval by the FDA for
commercialization in the United States. Although the Company has received
approval to market the EndoCPB system and its Port-Access CABG and MVR
systems in Europe, commercialization of additional Port-Access devices and
other products under development by the Company will require additional
approvals and there can be no assurance that such approvals will be received
on a timely basis, if at all. Most other countries in which the Company
intends to operate either do not currently regulate medical systems or have
minimal regulatory requirements, although these countries may adopt more
extensive regulations in the future that could impact the Company's ability
to market its systems. In addition, significant costs and requests for
additional information may be encountered by the Company in its efforts to
obtain regulatory approvals. Any such events could substantially delay or
preclude the Company from marketing its systems internationally.
In addition, the FDA and certain foreign regulatory authorities impose
numerous other requirements with which medical device manufacturers must
comply. Product approvals can 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 GMP requirements, which include
testing, control, and documentation requirements. Ongoing compliance with GMP
and other applicable regulatory requirements is monitored through periodic
inspections by state and federal agencies, including the FDA, and by
comparable agencies in other countries. To date, the FDA has not inspected
the Company's compliance with GMP requirements, although the Company expects
such inspections to be made in the near future. Failure to comply with
applicable regulatory requirements can result in fines, injunctions, civil
penalties, recall or seizure of products,
18
<PAGE>
total or partial suspension of production, denial or withdrawal of premarket
clearance or premarket approval for devices, and criminal prosecution.
Furthermore, changes in existing regulations or adoption of new regulations
or policies could delay or even prevent the Company from obtaining future
regulatory approvals or clearances. For example, the FDA is currently
implementing major revisions to its GMP regulations that, among other things,
require design controls and maintenance of service records, and will likely
increase the cost of complying with GMP requirements. Such revisions could
have a material adverse effect on the Company's business, financial
condition, and results of operations.
LIMITATIONS ON THIRD-PARTY REIMBURSEMENT. The Company expects that
sales volumes and prices of the Company's products will be heavily dependent
on the availability of reimbursement from third-party payors and that
individuals seldom, if ever, will be willing or able to pay directly for the
costs associated with the use of the Company's products. The Company's
products are typically purchased by doctors, clinics, hospitals, and other
users, which bill various third-party payors, such as governmental programs
and private insurance plans, for the health care services provided to their
patients. Third-party payors carefully review and increasingly challenge the
prices charged for medical products and services. Reimbursement rates from
private companies vary depending on the procedure performed, the third-party
payor, the insurance plan, and other factors. Medicare reimburses hospitals a
prospectively determined fixed amount for the costs associated with an
in-patient hospitalization based on the patient's discharge diagnosis, and
reimburses physicians a prospectively determined fixed amount based on the
procedure performed, regardless of the actual costs incurred by the hospital
or physician in furnishing the care and unrelated to the specific devices
used in that procedure. Medicare and other third-party payors are
increasingly scrutinizing whether to cover new products and the level of
reimbursement for covered products.
In foreign markets, reimbursement is obtained from a variety of sources,
including governmental authorities, private health insurance plans, and labor
unions. In most foreign countries, there are also private insurance systems
that may offer payments for alternative therapies. Although not as prevalent
as in the United States, health maintenance organizations are emerging in
certain European countries. The Company may need to seek international
reimbursement approvals, although there can be no assurance that any such
approvals will be obtained in a timely manner or at all. Failure to receive
international reimbursement approvals could have an adverse effect on market
acceptance of the Company's products in the international markets in which
such approvals are sought.
The Company believes that reimbursement in the future will be subject to
increased restrictions such as those described above, both in the United
States and in foreign markets. The Company believes that the overall
escalating cost of medical products and services has led to and will continue
to lead to increased pressures on the health care industry, both foreign and
domestic, to reduce the cost of products and services, including products
offered by the Company. There can be no assurance as to either United States
or foreign markets that third-party reimbursement and coverage will be
available or adequate, that current reimbursement amounts will not be
decreased in the future or that future legislation, regulation, or
reimbursement policies of third-party payors will not otherwise adversely
affect the demand for the Company's products or its ability to sell its
products on a profitable basis, particularly if the Company's systems are
more expensive than competing cardiac surgery procedures. If third-party
payor coverage or reimbursement is unavailable or inadequate, the Company's
business, financial condition, and results of operations could be materially
adversely affected.
19
<PAGE>
POSSIBLE PRICE VOLATILITY OF COMMON STOCK. The market prices for
securities of medical device technology companies have been highly volatile.
The market price of the Company's Common Stock may be significantly affected
by factors such as actual or anticipated fluctuations in the Company's
operating results, announcements of technological innovations, new products
or new contracts by the Company or its competitors, developments with respect
to patents or proprietary rights, conditions and trends in the medical device
and other technology industries, adoption of new accounting standards
affecting the medical device industry, changes in financial estimates by
securities analysts, general market conditions, and other factors. In
addition, the stock market has experienced extreme price and volume
fluctuations that have particularly affected the market price for many high
technology companies and that have often been unrelated to the operating
performance of these companies. The Company's stock price has been, and is
likely to continue to be, highly volatile. The market price of the Company's
Common Stock has fluctuated substantially in recent periods, rising from
$21.00 at the Company's initial public offering on April 25, 1996 to a high
of $43.75 on May 15, 1996 and to a low of $18.375 on July 16, 1996. On April
14, 1997 the reported last sale price of the Company's Common Stock was
$25.00. These broad market fluctuations may adversely affect the market price
of the Common Stock, and there can be no assurance that the market price of
the Common Stock will not decline. In the past, following periods of
volatility in the market price of a particular company's securities,
securities class action litigation has often been brought against that
company. Such litigation, if brought against the Company, could result in
substantial costs and a diversion of management's attention and resources.
CONTROL BY PRINCIPAL STOCKHOLDERS, OFFICERS AND DIRECTORS. The present
directors, executive officers, and principal stockholders of the Company and
their affiliates beneficially own approximately 51.6% of the outstanding
Common Stock. As a result, these stockholders will be able to continue to
exert significant influence over all matters requiring stockholder approval,
including the election of directors and approval of significant corporate
transactions. Such concentration of ownership may have the effect of delaying
or preventing a change in control of the Company.
EFFECT OF CERTAIN CHARTER PROVISIONS; ANTITAKEOVER EFFECTS OF RIGHTS
PLAN, CERTIFICATE OF INCORPORATION, BYLAWS, AND DELAWARE LAW. The Company's
Board of Directors has the authority to issue up to 20,000,000 shares of
Preferred Stock and to determine the price, rights, preferences, privileges
and restrictions, including voting and conversion rights of such shares,
without any further vote or action by the Company's 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 could have the effect
of making it more difficult for a third party to acquire a majority of the
outstanding voting stock of the Company. Other than the Series A Preferred
Stock issuable under the stockholder rights plan, the Company has no current
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, the Company has adopted a stockholder rights plan that, in
conjunction with certain provisions of the Company's Certificate of
Incorporation and Bylaws and of Delaware law, could delay or make more
difficult a merger, tender offer, or proxy contest involving the Company.
20
<PAGE>
PART II. OTHER INFORMATION
ITEM 5. Not applicable.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) The exhibits listed on the accompanying Exhibit Index are filed
as a part hereof and are incorporated by reference.
(b) Reports on Form 8-K
No Reports on Form 8-K were filed during the quarter ended March 31,
1997.
21
<PAGE>
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.
Date: May 13, 1997 HEARTPORT, INC.
By: /s/ David B. Singer
----------------------------------
David B. Singer
Senior Vice President, Finance and
Chief Financial Officer
22
<PAGE>
HEARTPORT, INC.
FORM 10-Q
EXHIBIT INDEX
Exhibit
Number Exhibit Description Page
- ------- ------------------- ----
11.1 Computation of Net Loss Per Share................ 24
27.1 Financial Data Schedule.......................... 25
23
<PAGE>
Exhibit 11.1
HEARTPORT, INC.
STATEMENT RE: COMPUTATION OF PER SHARE LOSSES
(in thousands, except per share amounts)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
--------------------------
1997 1996
------------ -----------
Pro Forma
<S> <C> <C>
Net Loss $(11,948) $(4,128)
------------ ----------
------------ ----------
Weighted average common shares outstanding 24,498 5,983
Convertible preferred shares outstanding -- 9,238
Shares related to SAB No. 55, 64 and 83 -- 4,562
------------ ----------
Total weighted average common shares
outstanding 24,498 19,783
------------ ----------
------------ ----------
Net loss per share $ (0.49) $ (0.21)
------------ ----------
------------ ----------
</TABLE>
24
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONDENSED CONSOLIDATED BALANCE SHEETS AND CONDENSED CONSOLIDATED STATEMENTS OF
OPERATIONS FOUND ON PAGES 3 AND 4 OF THE COMPANY'S FORM 10-Q FOR THE
YEAR-TO-DATE, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> MAR-31-1997
<CASH> 22,370
<SECURITIES> 51,584
<RECEIVABLES> 2,603
<ALLOWANCES> 150
<INVENTORY> 2,911
<CURRENT-ASSETS> 80,882
<PP&E> 9,460
<DEPRECIATION> 2,130
<TOTAL-ASSETS> 89,434
<CURRENT-LIABILITIES> 6,226
<BONDS> 0
0
0
<COMMON> 24
<OTHER-SE> 78,708
<TOTAL-LIABILITY-AND-EQUITY> 89,434
<SALES> 3,216
<TOTAL-REVENUES> 3,216
<CGS> 2,721
<TOTAL-COSTS> 2,721
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 117
<INTEREST-EXPENSE> 81
<INCOME-PRETAX> (11,948)
<INCOME-TAX> 0
<INCOME-CONTINUING> (11,948)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (11,948)
<EPS-PRIMARY> (0.49)
<EPS-DILUTED> (0.49)
</TABLE>
