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SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-K
(Mark One)
X ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
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SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED]
For fiscal year ended March 31, 1995
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OR
____ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from __________ to ____________.
Commission File Number : 1-9585
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ABIOMED, INC.
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(Exact name of registrant as specified in its charter)
Delaware 04-2743260
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
33 Cherry Hill Drive, Danvers, Massachusetts 01923
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (508)777-5410
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Securities registered pursuant to Section 12(b) of the Act:
None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $.01 par value
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 ___
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Indicate by check mark if disclosure of delinquent files pursuant to Rule 405 of
Regulation S-K is not contained herein, and will not be contained, to the best
of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to the
Form 10-K [X].
The aggregate market value of the registrant's Common Stock, $.01 par value,
held by non-affiliates of the registrant as of June 16, 1995 was $38,638,300
based on the closing price of $8 5/8 on that date on the Nasdaq National
Market.* As of June 16, 1995, 4,885,821 shares of the registrant's Common Stock,
$.01 par value, were outstanding, and 2,040,000 shares of the registrant's Class
A Common Stock, $.01 par value were outstanding.
____________________
*No established public trading market exists for the registrant's Class A
Common Stock, $.01 par value.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant's Proxy Statement involving the election of
directors, which is expected to be filed within 120 days after the end of the
registrant's fiscal year, are incorporated by reference in Part III (Items 10,
11 and 12) of this Report.
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PART I
ITEM 1. BUSINESS
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ABIOMED, Inc. and Subsidiaries ("ABIOMED" or the "Company") develops,
manufactures and markets medical and dental devices and is a leader in the
research and development of cardiac assist systems. The Company currently
has three separate operating subsidiaries: ABIOMED R&D, Inc., ABIOMED
Cardiovascular, Inc., and ABIODENT(R), Inc. Since commencing operations in
1981, the central focus of the Company has been innovative and technical
research and development with an emphasis on cardiac assist technology. In
the Company's last two fiscal years, the majority of the Company's revenues
were derived from the commercialization of the first cardiovascular product
developed by the Company.
ABIOMED R&D, Inc. (the "Research Division") is dedicated to scientific
research and engineering development of solutions to a variety of medical
needs. The Research Division has expertise in electro-mechanical systems,
cardiac physiology and blood-material interactions, fluid mechanics and
hemodynamics, electronics (hardware and software), plastics processing and
optical physics. Initial research and product development in the Research
Division is currently primarily funded by research grants and contracts
from U.S. Government agencies. The Company selectively funds research and
development through internal investment, particularly in the later stages
of product development and testing.
The core activities of the Research Division are in the areas of permanent
and temporary cardiac assist. A primary technology under development by the
Research Division is a battery-operated implantable total artificial heart.
Other cardiac assist technologies at various stages of research and
development include an intra-aortic cardiac support catheter (the
"SupraCor(TM)"), a pediatric ventricular assist pump, a heart booster, and
a magnetically suspended centrifugal pump. The Research Division is also
active in the development of certain non-cardiac assist devices when it
believes it can solve important medical problems. Examples of these
activities include: a pediatric body lead analyzer, a vascular laser
welder, and a quick response cell cytometer.
ABIOMED Cardiovascular, Inc. and ABIODENT, Inc. manufacture, market and
support products based on technology initially developed by the R&D group
now comprising ABIOMED, R&D, Inc. The primary cardiovascular product is a
bi-ventricular cardiac assist device, the BVS-5000(R) (the "BVS"). This
sophisticated but easy to use Class III device is employed by cardiac
surgeons to save the lives of a segment of those patients whose hearts need
a temporary period of support to rest and recover after heart surgery. The
BVS provides full assist as an external temporary artificial heart. The BVS
takes over, on a temporary basis, the complete pumping function of one or
both ventricles of the heart until the natural heart recovers its normal
function. In November 1992, the BVS received FDA approval for domestic
marketing, the first ever for such a ventricular assist device in the U.S.
In the past two fiscal years, a majority of the Company's revenues and
greater than
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90% of product revenues were generated by sales of the BVS product line.
The Company's dental product (the "PerioTemp(R)") is a device for
screening of early periodontal disease through the measurement of small
temperature differences around the pockets where teeth meet the gums.
ABIOMED, Inc. is a Delaware corporation. The Company's principal offices
are located at 33 Cherry Hill Drive, Danvers, Massachusetts 01923, and its
principal telephone number is (508) 777-5410. Unless otherwise indicated,
as used in this Report, the term "Company" or "ABIOMED" refer to ABIOMED,
Inc., and its wholly owned subsidiaries: ABIOMED R&D, Inc., ABIOMED
Cardiovascular, Inc., ABIODENT, Inc., Abiomed Research and Development,
Inc. (the general partner of Abiomed Limited Partnership), and ABD Holding
Company, Inc.
ABIOMED and ABIODENT and the corresponding logos are registered service
marks of the Company. Angioflex, PerioTemp, BVS and BVS 5000 are registered
trademarks of the Company. SupraCor is a trademark of the Company.
CARDIAC ASSIST - TEMPORARY AND PERMANENT DEVICE MARKETS
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Heart disease is one of the leading chronic health problems affecting the
U.S. population. According to U.S. government sources, there are more than
21 million people in the U.S. who have heart disease. In 1992, heart
disease was the leading cause of death in the U.S., killing an estimated
720,000 people. Demographic studies indicate that the U.S. population is
aging. As the prevalence of heart disease increases with age, the Company
believes that the number of people afflicted with heart disease will
continue to increase for the foreseeable future, and heart disease will
remain the single greatest life-threatening malady.
Heart patients can be divided into those who have congenital defects
(generally young children and infants), those that develop mechanical
defects (such as faulty valves), and those in whom the pumping function of
the heart is impaired.
Most patients suffering from heart disease, other than obvious surgical
cases such as congenital malformations, are initially treated
pharmacologically. Cardiac drugs are a major segment of the drug industry.
Typically, surgical intervention and mechanical devices are considered when
drugs are ineffective or when the nature of the disease is such that it
cannot be effectively treated by currently available drugs.
The origin of disturbances and restrictions to the normal pumping function
of the heart can be either electrical or mechanical in nature. Electrical,
or rhythm, disturbances that threaten life or impair the quality of life
have been treated effectively with devices such as pacemakers and
implantable defibrillators. Mechanical disturbances of the heart are the
primary field of focus for ABIOMED. Mechanical problems with the heart
represent a transient or permanent inability of the heart muscle to
contract and pump blood. In many cases, such weakening of the heart muscle
and tissue, when not treatable with drugs, can be alleviated
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by cardiac assist devices which mechanically augment or replace the heart
function. ABIOMED is a technology leader in this field.
The Company believes that patients requiring mechanical assist do not form
a monolithic block but are segmented into many categories with different
requirements and constraints. Major categories include post-cardiotomy
shock, cardiac arrest (both resuscitation and post-arrest cardiac support),
post-infarction shock, congestive heart failure (Class IV and some Class
III patients), refractory unstable angina, complicated AMI, post-
atherectomy low flow syndrome, supported angioplasty, surgical support,
and bridge-to-transplantation. The Company believes that no single device
can effectively handle all of these patient populations. The Company has,
therefore, undertaken the development of a family of devices that spans the
broad spectrum of patients in need of mechanical cardiac assist.
Mechanical assist devices are classified as "temporary" or "permanent"
according to the clinical intent:
When the intent is to remove the device after a period of support time
which may be hours, days, months, or even years, they are temporary
devices. Temporary devices available today include roller and centrifugal
pumps ("CPs") for heart-lung bypass, intra-aortic balloon pumps ("IABP"),
and emerging ventricular assist devices such as the Company's BVS bi-
ventricular cardiac support system and certain left ventricular assist
devices ("LVAD's") approved currently as bridge-to-transplant devices. The
Company's BVS received FDA approval in November 1992 and remains the only
device approved by the FDA for treatment of post-cardiotomy shock. The aim
of the BVS is to provide an ailing heart with sufficient circulatory
support so that the heart can rest and recover its strength and normal
function within a short period of time, typically less than 2 weeks.
When the intent is to provide support through the end of life, they are
permanent devices. Today, there are no devices approved by the FDA for
permanent mechanical heart assistance as an alternative to heart
transplantation. Patients facing imminent death due to irreversible heart
damage, whether bridged with a temporary device or not, need a human heart
transplant. During the first half of 1995, on any given day there were
typically a little over 3,000 patient registrations on the United Network
of Organ Sharing (UNOS) National Waiting List in need of a donor heart.
Several published government sources estimate that the number of U.S.
patients who require some form of permanent cardiac assist exceed 30,000
per year, with some estimates as high as 70,000. This demand well exceeds
supply, which on an annual basis has reached an estimated 2,000 available
donor hearts. Because of a limited supply of available donor hearts, most
end-stage congestive heart patients face imminent death.
In the future, implantable LVADs, currently in clinical trials, may be
available for permanent mechanical support of a segment of the patient
population: those who only require support to the left side of the heart.
Implantable total artificial hearts, such as is currently undergoing pre-
clinical evaluation by ABIOMED, may be available for patients who require
complete permanent support to both the left and the right sides of the
heart. In the more
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distant future, the severe immunological hurdles that exist today may be
overcome and the feasibility to replace human parts with animal organs may
be demonstrated for heart replacement as well. Because the number of human
donor hearts potentially available for transplantation is unaffected by
bridging and, therefore, will remain considerably below the number of
patients requiring heart transplants or permanent mechanical alternatives
(such as LVADs and artificial hearts), and because the Company believes
that gene therapy and animal xenografting are decades away, if at all, the
Company believes that there is a considerable market for an implantable,
battery-driven total artificial heart as a cost-effective alternative to
heart transplantation. Under a 7-year 2-phase contract with the National
Institutes of Health (NIH) awarded in 1993, the Company is developing such
a total artificial heart.
The above discussion regarding permanent mechanical support focuses on end-
stage patients facing imminent death. However, the Company believes that
there is another larger market segment for mechanical assist devices that
can permanently improve the "quality of life" of patients who are not in
danger of imminent death. A 1993 report in the Journal of American College
& Cardiology indicated that 3,000,000 people in the U.S. suffer from
congestive heart failure. Of these people, approximately 200,000 die each
year and 400,000 are added to the pool of people suffering from congestive
heart failure. Congestive heart failure is a failure of the heart to pump
enough blood at normal filling pressures to adequately meet the energy
requirements of the body. The Company believes that a significant portion
of these patients are addressable by permanent cardiac assist devices that
provide support but do not replace the function of the natural heart.
These patients are often distinct from those who need heart transplants
(human or artificial) or LVAD's because the associated risks with those
devices and procedures are too high when life is not at stake. This has
been recognized by advocates of technology alternatives, such as
cardiomyoplasty, for patients who do not face imminent death but whose
quality of life is very limited (usually confined to a bed-to-chair type of
existence) due to very debilitating heart failure. The Company does not
believe that there is an effective drug, procedure or device available to
help these patients and has initiated research efforts into the development
of a "heart booster" device for this patient category.
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Temporary Cardiac Assist Product Lines
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The Company has developed, markets and sells the BVS-5000 bi-ventricular
support system and related accessories. Other temporary cardiac assist
products in various stages of development by the Company include: the
SupraCor (currently in clinical trials), a pediatric pump, and a
magnetically suspended centrifugal pump.
The BVS-5000 Bi-Ventricular Temporary Artificial Heart System. The BVS
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is a cardiac assist device designed to provide a patient's ailing hearts
with full mechanical assist as an external temporary artificial heart so
that the natural heart can rest, stabilize and recover its normal function.
The BVS received FDA pre-market approval ("PMA") in November 1992 allowing
the Company to begin marketing the product in the U.S. This approval
represented the first time that the FDA had approved a cardiac assist
device through the rigorous PMA process. The BVS remains as the only device
approved by the FDA for post-operative patients in post-cardiotomy shock.
Since approval of the BVS, other devices have been recommended or approved
by the FDA for bridge-to-transplantation but these other devices do not
address the same market segment as the BVS.
The BVS is targeted for use in any hospital performing open-chest cardiac
surgery (more than 900 hospitals in the United States) and is intended for
short term use primarily in patients requiring mechanical support after
open-chest cardiac surgery. The system consists of one or two disposable
bedside blood pumps connected to a patient's heart. Depending on the
patient's needs, these blood pumps provide support for the left, right or
both sides of a patient's heart. Like the natural heart, each pump contains
two chambers: an artificial atrium, which fills directly from the natural
heart, and an artificial ventricle, which pumps blood back to the body. The
BVS blood pump reduces the risk of damaging blood cells by filling
passively and continuously by gravity rather than by suction. The BVS
blood-contacting pumps are single-use disposable products.
The BVS blood pumps are driven and controlled by a microprocessor-based
console. The console features a simple, easy-to-use, touch-activated
control panel. The BVS incorporates a patented closed-loop system that
automatically adjusts the pumping rate, like the natural heart. The BVS
does not require a specially trained technician to constantly monitor or
adjust pumping parameters, which reduces operating costs.
The Company designed, developed and manufactures the BVS blood pumps, the
BVS console and related accessories. The Company designed and manufactures
its own pumping chambers and trileaflet valves for the BVS blood pumps from
its proprietary Angioflex(R) material. In developing the BVS system for
temporary use only, the Company believes that it has been able to avoid
some of the complexities and high-cost components that would have been
needed had the system been originally designed for permanent use.
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The BVS is intended to provide temporary heart support to an ailing heart
to allow it the time to rest, stabilize and recover its normal function.
Stabilization and recovery of the heart with the BVS typically occur in a
period of less than two weeks. The longest period that a patient has been
on BVS support to date is slightly more than 60 days. Although patients
whose hearts fail to recover under BVS support may become candidates for
transplantation, this is not the intended or approved use of the BVS.
As of March 31, 1995, the completion of the Company's second full fiscal
year since FDA approval of the BVS, the BVS had been purchased by over 100
medical centers in the U.S. Typically, U.S. medical centers initially
purchase one or two BVS consoles, two to four BVS blood pumps, and related
accessories. Subsequent purchases are dependent upon the rate of BVS usage.
The BVS blood pumps and certain accessories contact blood when used and,
therefore, are disposed of by the medical center after use on a single
patient. The BVS is capable of supporting the left, right or both sides of
the heart. In the Company's clinical experience, which the Company
estimates to exceed 1,000 patients, approximately 60% of the patients
required support to both sides of the heart, and therefore the use of two
disposable BVS blood pumps.
Company analysis of mortality figures in published references indicate that
in the U.S. alone there are over 12,000 patients each year who expire peri-
operatively, the BVS's targeted market. Due to the aging U.S. population
and the increasing number of patients requiring repeat coronary by-pass and
valve replacement operations, the Company believes that there is a growing
patient population that could benefit from the use of the BVS.
The SupraCor Intra-Arterial Cardiac Support System. The SupraCor(TM)
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Intra-Arterial Cardiac Support System (the "SupraCor"), previously named
the ICS-8000(TM), is an advanced intra-aortic balloon-based catheter
designed to operate in the ascending aorta of the patient's heart. The
device is intended for rapid support of patients who require an increased
blood supply to the heart.
Inserted percutaneously, or surgically via the femoral artery, the SupraCor
is designed to help increase coronary blood flow and to reduce the workload
of the heart. The SupraCor is currently undergoing initial clinical trials
under an approved FDA investigational device exemption ("IDE") for two
different indications for use.
The Company's current clinical focus involves a pilot study aimed at
demonstrating the safety and feasibility of the SupraCor to resuscitate
patients who suffer cardiac arrest. The Company believes that following a
new clinical method developed by the Company's clinical collaborators, the
SupraCor will be able to help resuscitate cardiac arrest patients who fail
to respond to CPR, maximum life support techniques and drug treatment
(conventional cardiac life support). The Company believes that after
patient resuscitation, the SupraCor's unique proprietary characteristics
will help to temporarily stabilize their hearts to provide time for these
patients to undergo corrective life-saving interventional
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procedures. The pilot study is intended to demonstrate the efficacy and
safety of the SupraCor only for the first phase: resuscitation of patients
who suffer from cardiac arrest. If this pilot study is successful, the
Company must apply to the FDA for expansion of the clinical trials to move
into the second phase: assessment of safety and efficacy of the SupraCor
for both resuscitation and post-resuscitation cardiac support of these
patients.
Based upon published information, the Company believes that there are more
than 350,000 out of hospital cardiac arrests in the U.S. each year, and 97%
of these patients do not survive to hospital discharge. Of these, the
Company believes there are currently more than 100,000 patients in the U.S.
per year that are potentially addressable by the SupraCor.
The second indicated use is for patients who cannot be weaned from
cardiopulmonary by-pass or who deteriorate post operatively and need rapid
support. Clinical trials for the second indication are in a very early
stage in selected centers in the USA and Europe.
The SupraCor catheter is being developed for medical use in any hospital
with cardiac catheterization capabilities, which include over 1,400
hospitals in the United States. The Company expects that the SupraCor may
be most effective in preventing or limiting damage to the heart when used
as a temporary support device, or bridge, to corrective therapies, such as
angioplasty, atherectomy, ablation therapy or bypass surgery.
Permanent Cardiac Assist Products.
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The Company's primary efforts in the development of permanent cardiac
assist products are the Total Artificial Heart (which has been in
development by the Company for a number of years) and a booster heart
device (on which the Company has only recently initiated research).
The Total Artificial Heart (TAH) is a battery-powered implantable
artificial heart under development by the Company to address the needs of
patients with irreversibly failing hearts who require permanent mechanical
circulatory support. The TAH is intended to be a permanent device that
replaces a failing human heart, providing the complete left and right side
pumping functions of the heart. The TAH is intended to be fully implantable
without any externalized ports. Such ports, if present, increase the risks
of complicated infections. The TAH technology could also be adapted to
function as a left or right ventricular assist device. However, the Company
believes that the largest segment of the patient population in imminent
danger of death and therefore requiring permanent support will need a total
artificial heart (TAH) as an alternative to transplantation.
The Company is one of three scientific teams in the United States that has
a contract with the National Heart Lung and Blood Institute (the "NHLBI")
(awarded in the second quarter of fiscal 1993) to develop a battery-powered
implantable total artificial heart. This contract follows a $5.6 million
NHLBI TAH contract that had been previously awarded to the Company for the
initial research and development. The new contract is a two-phase seven-
year contract for $13.5 million. The first phase, which commenced September
30, 1993,
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provides for the payment of approximately $4.9 million to the Company. The
goal of this first phase is to refine and finalize the design and
demonstrate feasibility through initial bench and animal testing. Animal
testing and product evaluation are conducted by the Texas Heart Institute
under a sub-contract from the Company. Contingent upon the successful
completion of this phase, as determined by the NHLBI, the contract provides
for a continuation second phase (4 years starting on October 1, 1996) for
the balance of approximately $8.6 million to bring the device to the
clinical phase as a permanent device. The Company is conducting pre-
clinical trials with prototype devices, and as of March 31, 1995, the
Company had $2.7 million of funding remaining on the first phase of this
contract. The NHLBI has indicated that only two of the three scientific
teams will qualify for funding for the second phase. In addition, the
Company's TAH development contract, as with all of the Company's U.S.
government contracts, is terminable at the convenience of the government.
See "Research and Development".
The booster heart device is targeted to those patients suffering from
congestive heart failure resulting in a significant deterioration of their
quality of life, but who are not at risk of imminent death. The Company's
early-stage research and development efforts on this device are focused on
cardiac assist technology that avoids the inherent risks of contact with
blood while providing a significant level of mechanical assistance to the
heart to restore these patients to an acceptable and active quality of
life. The Company is currently seeking government funding to support the
development of this device. Receipt of such funding should enable the
Company to proceed with its research and development efforts. If the
funding is not forthcoming, the Company may seek to obtain financing
through a strategic alliance or other financing method.
Marketing and Sales - Cardiac Assist. The Company, through its wholly-
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owned subsidiary ABIOMED Cardiovascular, Inc., sells its BVS product line
through a direct sales and support staff in the U.S. and through a network
of distributors in selected countries outside the U.S.
In the United States, the Company has established its own direct sales
force covering the entire United States. As of June 1, 1995, the Company's
sales, clinical support and marketing staff for the BVS included 19
employees, with nine employees engaged full-time in direct sales. The
direct sales effort is augmented, particularly with respect to reorders of
blood pumps, by a six member clinical services group that is directly
responsible for BVS customer training and product usage support.
In addition, the Company has established a distribution network for the BVS
in much of western Europe and certain other foreign countries. This
distribution network is comprised of local distributors that have
experience in the marketing, distribution and servicing of other
cardiovascular devices. Employees of these distributors have undergone
product and technical training relating to the BVS. Although the majority
of international sales are denominated in U.S. dollar, certain foreign
sales may be subject to risk from currency fluctuations, import or export
controls and other risks associated with foreign sales.
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PERIODONTAL DISEASE RISK ASSESSMENT
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The Company's dental subsidiary, ABIODENT, is involved in the early
detection and assessment of risk of periodontal disease. Periodontal
disease is an infection caused by the presence of bacteria or other
microorganisms in the pockets of the gums which result in inflammation of
the gums and, in its most advanced form, the decay of gum tissue, bone
deterioration and the loss of teeth. According to published reports, over
three quarters of all adults have periodontal disease, with approximately
one third of adults 65 years and older having advanced cases of the
disease. Less serious, periodontal disease is a leading cause of halitosis
(a.k.a. bad breath). Early detection and diagnosis of this disease allows
for appropriate treatment.
The conventional technique of diagnosing periodontal disease is the use of
a dentist's standard probe to observe signs of the disease such as
periodontal pocket depth and bleeding. However, this technique is
relatively subjective, and dentists often are unable to detect periodontal
disease early enough to implement measures to prevent gum disease or tooth
loss. Accordingly, the Company believes that there is a significant market
for a device capable of objective risk assessments of the early stages of
periodontal disease during routine dental examinations and capable of
educating patients about their periodontal health.
Periodontal Screening System
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PerioTemp Periodontal Screening System. The PerioTemp(R) periodontal
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screening system (the "PerioTemp") is a tool for use by dentists,
periodontists and other dental specialists to instantly detect sites of gum
inflammation. It also allows the clinician to simultaneously record gum
pocket depth information.
The PerioTemp has been cleared by the FDA for marketing under Section
510(k). Gum temperature has been shown, as documented by published sources,
to be a reliable indicator of the presence of inflammation, a precursor of
periodontal disease. The PerioTemp measures small temperature differences
around each tooth.
The PerioTemp patented technology, developed in part through funding from
the National Institute of Dental Research, consists of a book-sized
console, containing a microprocessor that is connected to a probe, shaped
much like a dentist's probe, with a low-cost disposable heat-sensing tip.
The device is used in a manner which is consistent with traditional probing
but includes an instantaneous display and record of temperature deviations
from normal inside the pockets between teeth and the surrounding gum. The
Company believes that the instantaneous evaluation is important to both the
dental specialist and the patient.
Marketing and Sales - Periodontal Screening. The Company, through
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ABIODENT, markets the PerioTemp for use in connection with complementary
products of others used in preventive and diagnostic dental programs. In
the last year, through an effort that remains modest, the Company found
peer-to-peer selling to be an effective means of selling the
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device. Dentists who use the PerioTemp share their experience with their
peers through independent seminars and help the Company sell the device.
These seminars emphasize the device's clinical effectiveness and its
utility in early screening of disease to prevent consequences of the
disease. The Company's efforts also aim at illustrating to dentists the
economic benefits to the practice and the health benefits to the patients
of purchasing the product, since it helps them identify more patients for
earlier treatment. As of June 1, 1995, ABIODENT had one full-time sales
representative. In an effort to accelerate the growth of this business, the
Company is seeking arrangements with third parties that have stronger
presence in the dental market. There can be no assurance that the Company
will be able to enter into any such arrangement.
OTHER PRODUCT DEVELOPMENT AND RESEARCH ACTIVITIES
-------------------------------------------------
In addition to engineering personnel at ABIOMED Cardiovascular and ABIODENT
who support existing product lines, the Company, through its wholly-owned
subsidiary ABIOMED R&D, Inc., maintains a research and development group
(the "R&D group") to develop new medical devices to address medical needs
that the Company believes are not otherwise being adequately addressed. The
R&D group conducts its research using core technology expertise in areas
such as electro-mechanical systems, cardiac physiology and blood-material
interactions, fluid mechanics and hemodynamics, electronics (hardware and
software), plastics processing and optical physics. The R&D group's primary
emphasis is on cardiac assist. It has followed a general policy of funding
new projects with contracts or grants from third parties such as NIH. Once
a project reaches a development stage, the Company considers internal
funding or seeks external business partners for further development and
commercialization of the product. In addition to the products under
development as discussed above, the following is a brief description of
certain other products currently under development by this group.
The R&D group has developed a total Body Lead Analyzer to assess the body's
------------------
lead content in adults using x-ray fluorescence technology and is working
on a pediatric version of the device under a grant from the National
Institute of Child Health and Development. The Company has received FDA
clearance under Section 510(k) to market its adult version of the body lead
analyzer. The Company has sold 3 systems to date which are in clinical use
in prominent U.S. medical centers but, at this time, does not actively
market the adult version of the device. The Company believes that the
market for the pediatric version of this device, which the Company has been
developing with government funding, is more attractive.
The R&D group has developed a prototype Vascular Laser Welder for small
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diameter vascular repair. This laser welder was developed under a grant
from the NHLBI. The device is designed to substantially reduce the time
required for rejoining small vessels. The prototype is currently being
evaluated in an in-vivo model to determine both its short term weld
strength and the long term patency of the vessel repairs. The Company is
working with certain U.S. hospitals in evaluating the potential application
of this product to several markets.
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The R&D group has developed a Magnetically Suspended Centrifugal Pump. The
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pump, developed under grant from the NHLBI, eliminates mechanical drive-
support components, such as rotor bearings and seals, and thereby reduces
the risk of thrombus (a form of blood clot) formation and embolization
(migration of the thrombus). This device has proven effective in laboratory
studies and the Company is evaluating the potential application of this
product to several markets, including as a supplement to its cardiac assist
product lines.
The R&D group has received a grant from NIH for the development of a
Pediatric Pump. The Pediatric Pump is an extension of the Company's BVS
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technology intended to provide infant hearts with temporary mechanical
assistance after surgery. The Pediatric Pump is in laboratory development
and scheduled for pre-clinical studies in 1996. The Company considers this
product as a natural adjunct to its BVS system, which will give surgeons
the ability to temporarily support the hearts of children and infants.
The R&D group is developing an optical Cell Cytometer for rapid analysis of
--------------
blood cells (initially platelets) under a grant from the NHLBI. Abnormal
cellular parameters can reflect many clinical disorders. Based on
laboratory results, the Company believes that its Cell Cytometer technology
has the potential to exhibit a faster response and be easier and less
expensive to use than traditional hospital laboratory methods. Development
of this device is in its early stages and the Company is continuing
evaluate its product potential.
The Company intends to continue research of promising products and, if it
deems it appropriate, to seek strategic partners to accelerate the further
development and/or market introduction of promising products.
MANUFACTURING
-------------
The Company manufactures the BVS console, BVS blood pumps and related
accessories. The manufacture of the BVS consoles consists primarily of
assembly, testing and quality control. The Company purchases the majority
of the parts and peripheral components used in the BVS consoles. Many of
the parts are off-the-shelf items available from more than one supply
source. The Company manufactures certain of its blood contacting components
for the BVS, including valves and bladders, from its proprietary blood-
contacting polymers. From time to time, the Company has been advised by
certain of its vendors that the vendor is planning to terminate sales to
customers that manufacture life-supporting medical devices, such as the
Company's cardiovascular products, in an effort to reduce potential product
liability exposure. While the Company believes that alternative sources of
raw materials are available, and that the vendors typically provide
sufficient lead time for the Company to find alternative sources of supply,
any supply interruption could have a material adverse effect on the
Company's ability to manufacture its cardiovascular products.
The Company has a pilot production facility for the PerioTemp console and a
semi-automated disposable tip production facility which can be expanded to
produce larger quantities. Console production consists primarily of
assembly, testing and quality control.
-13-
<PAGE>
Parts for the console and materials for the disposable tip are readily
available from several supply sources.
RESEARCH AND DEVELOPMENT
------------------------
During fiscal years ended March 31, 1993, 1994 and 1995, the Company
expended $2,097,000, $2,430,000 and $2,465,000, respectively, on product
research and development. Of these amounts, $1,283,000, $1,516,000 and
$1,718,000, respectively, was expended on externally funded research and
early-stage product development, and $814,000, $914,000 and $747,000,
respectively, was invested in Company sponsored product development. The
internal investment in research and development funded functional and
manufacturing enhancements to the Company's BVS, SupraCor and PerioTemp,
clinical trials relating to the SupraCor product and support of the FDA
regulatory process for these products. Virtually all of the externally
funded research and development was derived from contracts and grants with
various government agencies. At March 31, 1995, the Company was working on
various contracts and grants with an aggregate remaining value, exclusive
of the $8.6 million Phase II of the Total Artificial Heart contract, of
approximately $3.5 million. The Company has submitted proposals for funding
on several additional projects, including funding for further development
of the Pediatric Pump of which $540,000 was approved by NHLBI in June
1995. All such government contracts contain provisions making them
terminable at the convenience of the government. The Company retains rights
for itself to market the products developed under these government
contracts and grants.
Recent FY96 budget resolutions proposed by the House and Senate Committees
include cuts in funding for the National Institutes of Health (NIH), of
which NHLBI is a part. The House budget resolution encourages a 5%
reduction in NIH-supported research funding. The Senate resolution is
silent on the magnitude of such a proposed cut. These are in contrast with
the Administration's proposal to increase NIH funding by 4.1% in FY96. It
is not clear whether any of these proposed cuts will be implemented, or if
they are, whether they will materially adversely affect the level of
funding of the Company's externally-funded research and development
activities.
COMPETITION
-----------
Competition in the medical and dental device industries is intense. A
number of companies have already developed, or are expected to develop,
devices which will compete with the Company's products. Certain of these
companies have significantly greater manufacturing, marketing and financial
resources than the Company.
Cardiac Support. A number of companies have already developed, or are
---------------
expected to develop, permanent or temporary cardiac assist devices which
will compete with the Company's cardiac assist devices. The Company
believes that it will compete with these devices on the basis of efficacy,
ease of use, quality, versatility and total cost of operation.
-14-
<PAGE>
Although the BVS is the only FDA approved device or system for treatment of
post-cardiotomy shock, the BVS directly and indirectly competes with a
number of devices, including centrifugal and other continuous flow pumps
and some implantable systems designed for use as a bridge to
transplantation or as permanently implantable devices. Centrifugal pumps
("CPs") have low-cost disposables, but the Company believes that the use of
these systems is more labor intensive and less clinically effective than
the BVS. CPs usually require constant monitoring by skilled technicians,
which significantly adds to the cost of operation. Moreover, the Company
believes that centrifugal pumps are not currently approved for post-
operative circulatory support by the FDA. The BVS may also compete with
systems that were originally designed to be permanent devices but were not
FDA approved for permanent use and were adapted for temporary use and with
systems approved for temporary "bridge-to-transplantation" support that may
be able to help support patients trying to recover from post-cardiotomy
shock patients. The Company believes that such devices are more expensive
to use and operate than the BVS, that not all such devices provide support
to both sides of an ailing heart, that no such devices are approved by the
FDA for the treatment of post-cardiotomy shock, and that such devices, if
used, were designed or adapted to assist in transplantation rather than for
recovery and that available donor hearts needed by such devices may not be
available due to limited supply.
IABPs may compete with the SupraCor in certain patient categories. SupraCor
clinical trials are intended to further assess the clinical risks and
efficacy of the SupraCor beyond the pre-clinical and preliminary clinical
tests. At least one other medical device company has conducted clinical
trials of a minimally invasive continuous flow ventricular assist system in
several United States and European medical centers. This device is targeted
at some segments of the cardiopulmonary support market.
Periodontal Screening. The Company believes that the PerioTemp
---------------------
represents the most practical device available today to provide a dentist
with an early and immediate indication of inflammation, which is a
precursor of periodontal disease, during a routine examination. A number of
companies have developed or are expected to develop devices which provide
dentists with techniques that are less operator sensitive than the use of
the standard dentist's probe to measure gum pocket depth. However, the
measurement of gum pocket depth provides information regarding the tissue
destruction which has already occurred and is not necessarily an indicator
of ongoing periodontal disease activity. The PerioTemp's temperature
analysis enhances the evaluation provided with pocket depth measurement by
providing an indication of the risk that periodontal problems will develop
before pocket depth changes occur. The PerioTemp will also compete with the
standard dentist's probe which, although less objective in diagnosing
periodontal disease, is less costly than the PerioTemp. Other companies are
developing or have developed biological (such as DNA and enzymes) assays
for disease detection. These assays currently do not provide instantaneous
feedback like the PerioTemp and are less practical and relatively more
expensive for use during a routine full mouth evaluation.
-15-
<PAGE>
REGULATION
----------
The medical and dental devices manufactured and marketed by the Company are
subject to regulation by the FDA and, in many instances, by foreign
governments. Under the Federal Food, Drug and Cosmetic Act, as amended (the
"FDA Act"), manufacturers of medical and dental devices must comply with
certain regulations governing the testing, manufacturing, packaging and
marketing of medical and dental devices. Certain of the Company's products
are also subject to the Radiation Control for Health and Safety Act,
administered by the FDA, which imposes performance standards and record
keeping, reporting, product testing and product labeling requirements for
devices using radiation, such as the Company's tissue welding laser and
total body lead analyzer.
Under the FDA Act, medical and dental devices are subject to different
levels of approval requirements, the most comprehensive of which requires
that a clinical evaluation program be conducted before a device receives
pre-market approval by the FDA for commercial distribution in the United
States.
Commercial sales of the Company's medical and dental devices must be
preceded by either FDA pre-market clearance pursuant to Section 510(k) of
the FDA Act or FDA approval of a Pre-market Approval Application.
The Section 510(k) notification filing must contain information that
establishes that the device is substantially equivalent to an existing
device that had been in use prior to May 28, 1976. The FDA must either
concur with the 510(k) submission, deny the 510(k) submission, or require
further information within 90 days of submission. The Company received FDA
marketing clearance under Section 510(k) for the PerioTemp.
When a company introduces a new product that is considered to be a
significant risk device or a life-sustaining device which is not
substantially equivalent to a device in use prior to May 28, 1976, two
steps of FDA approval are required before marketing in the United States
can begin. First, the FDA, with an independent protocol review and approval
by participating medical institutions, must approve the Company's
application for an Investigational Device Exemption or "IDE" permitting
clinical evaluation of the product on human subjects under controlled
experimental conditions. Second, the FDA must grant the Company's Pre-
market Approval Application. The FDA will grant pre-market approval if it
finds that the safety and efficacy of the product have been sufficiently
demonstrated through clinical evaluation of the product. The FDA may also
require additional patient follow-up as part of a post-market surveillance
program for an indefinite period of time.
In November 1992, the Company received FDA pre-market approval for sale of
the BVS for circulatory failure following open-chest surgery. The pre-
market approval for the BVS represented the first time that the FDA
approved a cardiac assist device through the pre-market approval process.
-16-
<PAGE>
The Company has an IDE for the SupraCor which permits the use of the system
in clinical trials at selected hospitals for a limited number of patients
meeting specified criteria. The IDE covers two indications for use. Due to
the nature of testing under these indications, patient selection is very
specific and restrictive. While clinical testing has been slower than
desired, the Company, its scientists and regulatory staff continue to work
closely with consulting physicians and the FDA to define clinical protocols
that permit satisfactory rates of patient enrollment and also meet
regulatory requirements. Under the protocol for a pilot study to assess the
capability of SupraCor to resuscitate cardiac arrest patients who do not
respond to maximum conventional resuscitation techniques, clinical trials
are being conducted at one center in the U.S.
No assurance can be given that the FDA or foreign regulatory agencies will
give the requisite approvals or clearances for any of the Company's medical
and dental devices under development on a timely basis, if at all.
Moreover, after permission is granted, these agencies can later withdraw
permission or require the Company to change the device or its manufacturing
process or labeling, to supply additional proof of its safety and
effectiveness or to recall, repair, replace or refund the cost of the
medical or dental device, if it is shown to be hazardous or defective. The
process of obtaining clearance to market products is costly and time-
consuming and can delay the marketing and sale of the Company's products.
As a manufacturer of medical and dental devices, the Company is also
subject to certain other FDA regulations, including post-market
surveillance of products and FDA inspection and review of manufacturing
processes and facilities.
Federal, state and foreign regulations regarding the manufacture, sale, use
and operation of medical and dental devices are subject to future change.
The Company cannot predict what impact, if any, such changes might have on
its business.
THIRD PARTY REIMBURSEMENT
-------------------------
The Company sells its primary product, the BVS, directly to medical centers
or physicians and, therefore, is not directly reliant on third party
reimbursement. However, the medical centers and physicians rely on such
reimbursement to justify the use of such devices. In the United States,
medical centers are generally reimbursed by patients, private-payer
insurance companies (including health maintenance organizations) and
government administered insurance programs such as Medicare or Medicaid.
Medical center and physician reimbursement are based on established
insurance rates and on patients' abilities to pay. Private payer rates of
reimbursement to medical centers and physicians for use of the BVS vary
depending upon the nature of the procedure and the agreements between the
private payer and the medical center and physician. Some of these private
payers follow guidelines established for government administered insurance
programs. Medicare and Medicaid reimbursement is established under
guidelines of the Health Care Finance Administration ("HCFA"). Generally,
HCFA limits the reimbursement that hospitals receive for treating certain
medical conditions by setting maximum fees that can be charged for Medicare
patients. Under this system, hospitals are paid a fixed amount for treating
each patient with
-17-
<PAGE>
a particular diagnosis. In October 1993, following the FDA pre-market
approval of the BVS, HCFA approved reimbursement to physicians and medical
centers for FDA approved application of the BVS. Effective January 1, 1994,
HCFA also approved new Common Procedural Terminology Codes (CPT's) and
Relative Value Units (RVU's) used by public and private payers to determine
payments for insertion and removal of ventricular assist devices. As a
result, physicians are able to receive supplemental reimbursement for their
services when they implant and remove the BVS. The Company is seeking
approval of a new Diagnosis Related Group (DRG) reassignment for the BVS.
Approval of a separate DRG for use of the BVS would likely increase the
amount medical centers are reimbursed when the BVS is utilized. As an
initial step in the DRG reassignment process, the Company petitioned HCFA
to create unique International Classification of Disease (ICD-9) codes to
allow HCFA to more easily capture cost information in connection with BVS
usage. These codes were recently approved by HCFA and will be effective
October 1, 1995. Once sufficient cost data is captured, the Company expects
that HCFA will make a decision regarding potential DRG reassignment.
Although the Company believes that the BVS helps saves lives and is more
cost effective than alternative devices, the Company believes that it is
important for future sales of its products that reimbursement schedules be
adjusted or established to accommodate new categories of patients requiring
greater levels of heart support.
The United States health care system has been undergoing a major review in
an effort to expand access to insurance coverage and to reduce costs. Many
of the proposals advanced in connection with that review, if adopted, are
expected to affect health care expenditures in the United States. Measures
to reduce health care expenses are also under way in several European
countries where the Company sells or plans to sell its products. The
Company cannot predict at this time the effect that changes, if any, in the
health care system in the United States or Europe will have on its business
and prospects.
PATENTS AND PROPRIETARY RIGHTS
------------------------------
Certain of the Company's products have been developed in part under Federal
government contracts pursuant to which the Company may be required to
manufacture a substantial portion of the product in the United States and
the government may obtain certain rights to use or disclose technical data
developed under those contracts. The Company retains the right to obtain
patents on any inventions developed under those contracts (subject to a
non-exclusive, non-transferable, royalty-free license to the government),
provided it follows certain prescribed procedures.
The Company relies upon the law of trade secrets, patent protection and
unpatented proprietary know-how to protect its technology. Due to the rapid
technological change that characterize the medical and dental device
industries, the Company believes that the improvement of existing products,
reliance upon trade secrets and unpatented proprietary know-how and the
development of new products are generally as important as patent protection
in establishing and maintaining a competitive advantage. Nevertheless, the
-18-
<PAGE>
Company has received patents and will continue to make efforts to obtain
patents, when available, in connection with its product development
program, although there can be no assurance that any patent obtained will
provide substantial protection or be of commercial benefit to the Company,
or that its validity will not be challenged. The Company has been issued or
allowed United States patents relating to certain of its products,
including the BVS, SupraCor and PerioTemp, and has applied for additional
patents relating to those and other products in the United States. The
Company's SupraCor clinical collaborators have patented a clinical method
that is being used by them with the SupraCor in the clinical trails of the
SupraCor to help resuscitate cardiac arrest patients who fail to respond to
conventional cardiac life support. The Company is currently reviewing the
validity and breadth of these patents. However, regardless of the outcome
of this investigation, because patent litigation can be expensive and time
consuming, the Company is in preliminary negotiations to obtain a license
to these patents. However, there be no assurance that the Company will be
able to enter into a license on favorable terms if at all. The Company is
also in the early stages of negotiation of certain rights to patents owned
by others which it deems important for certain product under development.
Some of the issued and filed United States patents are also pending in
certain other countries.
RESEARCH AND DEVELOPMENT PARTNERSHIP
------------------------------------
Two of the Company's wholly-owned subsidiaries are the sole general partner
and special limited partner in Abiomed Limited Partnership (the
"Partnership") holding a combined interest of 10.9% of the Partnership. The
remaining 89.1% of the Partnership is owned by third party investor limited
partners. The Partnership provided the initial financing for the
development of BVS and SupraCor. In 1990, under prior agreements with the
Partnership, the Company and its subsidiaries purchased all technology,
know-how and other rights to BVS and SupraCor from the Partnership in
exchange for certain royalties on Company revenues from the sale of BVS and
SupraCor products. The agreements required the payments of certain minimum
royalty amounts. The Company paid the minimum royalty amounts to the
Partnership net of certain offsetting debt from the Partnership to the
Company on March 29, 1995. The payment consisted of 451,427 shares of the
Company's Common Stock, valued at the time at approximately $3,109,000. The
Company continues to owe the Partnership cash royalties on certain sales of
these products through August 3, 2000 at an effective rate of 4.9%, after
taking into account the Company's 10.9% partnership interest. In addition,
the Company's agreement with the Partnership provides for payment of
royalties in the amount of 50% of royalty or other license fees received by
the Company in connection with the sale or licensing of this technology. On
May 22, 1995, the Company offered to purchase each of the 135 outstanding
limited partner units in the Partnership at $10,000 cash per unit. The
total potential cost of this offer to the Company is $1,350,000. To the
extent that this offer is accepted, the Company's net 4.9% royalty rate to
the Partnership will be reduced.
-19-
<PAGE>
EMPLOYEES
---------
As of June 1, 1995, the Company had 70 full-time employees. None of the
Company's employees is represented by a union. The Company considers its
employee relations to be good.
Executive Officers of the Registrant
------------------------------------
The executive officers of the Company are as follows:
<TABLE>
<CAPTION>
NAME AGE TITLE
---- --- -----
<S> <C>
David M. Lederman.........51 Chairman of the Board of Directors,
Treasurer, President and Chief Executive Officer
Robert T.V. Kung..........51 Vice President, Head of ABIOMED R&D, Inc.,
Assistant Secretary
Bruce J. Shook............36 Vice President, Head of ABIOMED Cardiovascular,
Inc.
Param I. Singh............48 Vice President for Corporate Development
John F. Thero.............34 Vice President, Finance and Chief Financial Officer
</TABLE>
Dr. Lederman founded the Company in 1981 and has served as Chairman of the
Board and Chief Executive Officer since that time. Dr. Lederman also served
as President of the Company from 1981 through 1990, from 1991 through 1992
and from 1993 to the present. Prior to founding ABIOMED, he was a Principal
Research Scientist and subsequently Chairman of the Medical Research group
at the Everett Subsidiary of Avco Corporation. Dr. Lederman holds
Bachelor's degrees in Engineering Physics and Masters and Ph.D. degrees in
Aerospace Engineering from Cornell University. He has authored over 40
medical publications, is a member of numerous medical and scientific
professional organizations and is a frequent speaker in forums on cardiac
support systems and on the commercialization of government-funded
technology.
Dr. Kung has served as Vice President of Research and Development of the
Company since 1987. From 1982 to 1987, he served as Chief Scientist of the
Company. Prior to joining ABIOMED, he was a Principal Research Scientist at
Schafer Associates and at the Avco Everett Research Laboratory. He
developed non-linear optical techniques for laser applications and
investigated physical and chemical phenomena in re-entry physics. Dr. Kung
has been Principal Investigator for the Company's TAH program and has
conceived of and directed the development of the Company's surgical laser,
the welding laser, and the PerioTemp. Dr. Kung received a Ph.D. degree in
Physical Chemistry from Cornell University.
Mr. Shook became Vice President of Clinical Affairs for the Company in 1991
and Vice President in September 1992 when he was given the responsibility
of chief operating officer
-20-
<PAGE>
and Divisional President of the Company's cardiovascular subsidiary. He has
served with the Company in several marketing, clinical and regulatory
functions since 1987. Prior to joining the Company, Mr. Shook served in
various capacities with Cordis Corporation from 1984 to 1987, including
Research Engineer and Senior Clinical Engineer. Mr. Shook received a
Masters Degree in Engineering from Columbia University.
Dr. Singh has been a director of the Company since 1982. He served as
Executive Vice President of the Company from 1982 through 1990, took a
leave of absence from 1990 through 1993, during which time he provided
consulting services to the Company and others, and rejoined the Company as
Vice President for Corporate Development in August 1993. Dr. Singh received
a Ph.D. degree in Experimental Fluid Mechanics from the University of
Colorado.
Mr. Thero joined the Company in 1994 as Vice President, Finance and Chief
Financial Officer. Prior to joining ABIOMED, during the period 1992 to
1995, Mr. Thero was Chief Financial Officer and acting President for the
restructuring of two venture-backed companies. From 1987 to 1992, Mr. Thero
was employed, in various capacities including Chief Financial Officer, by
Aries Technology, Inc. From 1983 to 1987, Mr. Thero was employed by the
commercial audit division of Arthur Andersen & Co. during which time he
became a Certified Public Accountant (CPA). Mr. Thero received a B.A. in
Economics/Accounting from The College of the Holy Cross.
ITEM 2. PROPERTIES
------ ----------
The Company leases its headquarters and research and development and
production facilities in three separate buildings in an industrial office
park covering approximately 34,000 square feet. The addresses of these
leased spaces are 33 Cherry Hill Drive, 24 Cherry Hill Drive and 5 Cherry
Hill Drive, all in Danvers, Massachusetts and located approximately 22
miles north of Boston. The leases at the two primary facilities,
representing 32,000 of square feet, expire in April, 2000. All leases have
options to extend at market rates.
The Company's facilities include fabrication areas for medical and dental
device manufacture, and development facilities for laboratory and
durability testing of plastics and electronics.
ITEM 3. LEGAL PROCEEDINGS
------ -----------------
As of March 31, 1995, the Company was not a party to any material pending
legal proceedings other than routine litigation incidental to the Company's
business.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE TO SECURITY HOLDERS
------ ---------------------------------------------------
No matters were submitted to a vote of security holders during the fourth
quarter of the fiscal year ended March 31, 1995.
-21-
<PAGE>
PART II
-------
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
------ -------------------------------------------------------------
MATTERS
-------
Market Price
------------
The Company's Common Stock, $.01 par value, is traded on the Nasdaq
National Market under the symbol "ABMD". No public trading market exists
for the Company's Class A Common Stock, $.01 par value. The following table
sets forth the range of high and low sales prices on the Nasdaq National
Market for the Company's two most recent fiscal years:
Common Stock Price
<TABLE>
<CAPTION>
Fiscal Year Ended March 31, 1995 HIGH LOW
-------------------------------- ---- ---
<S> <C> <C>
Fourth Quarter (Jan 1, 1995 - March 31, 1995)..... 9-1/2 4-7/8
Third Quarter (Oct. 1, 1994 - Dec. 31, 1994)...... 7-1/2 4
Second Quarter (July 1, 1994 - Sept. 30, 1994).... 8 6
First Quarter (April 1, 1994 - June 30, 1994)..... 8-1/4 5-3/4
Fiscal Year Ended March 31, 1994 HIGH LOW
-------------------------------- ---- ---
Fourth Quarter (Jan 1, 1994 - March 31, 1994)..... 9 7
Third Quarter (Oct. 1, 1993 - Dec. 31, 1993)...... 10-1/2 7-1/2
Second Quarter (July 1, 1993 - Sept. 30, 1993).... 10-1/4 7-1/2
First Quarter (April 1, 1993 - June 30, 1993)..... 12 7
</TABLE>
Number of Stockholders
----------------------
As of June 1, 1995, there were approximately 497 holders of record of the
Company's Common Stock, and there were two holders of record of the
Company's Class A Common Stock.
Dividends
---------
The Company has never paid any cash dividends on its capital stock and does
not plan to pay any cash dividends in the foreseeable future. The current
policy of the Company's Board of Directors is to retain any future earnings
for use in the business of the Company.
-22-
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
------ -----------------------
SELECTED CONSOLIDATED FINANCIAL DATA
(In thousands, except per share data)
<TABLE>
<CAPTION>
Statements of Years Ended
Operations March 31
---------- ----------------------------------------------------------------
1991 1992 1993 1994 1995
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Revenues:
Product and services $ 731 $ 1,198 $ 1,709 $ 4,648 $ 6,893
Contracts 1,259 1,513 1,737 2,027 2,338
------- ------- ------- ------- -------
1,990 2,711 3,445 6,675 9,230
Costs and expenses:
Cost of products and services 1,538 2,603 2,043 2,211 3,289
Cost of contract research
and development 1,008 1,114 1,283 1,517 1,718
Internal research and development 1,577 1,680 814 914 747
Selling, marketing, general
and administrative 3,301 3,616 3,803 4,553 4,278
Purchase of technology, net 2,919 --- --- --- ---
------- ------- ------- ------- -------
10,343 9,013 7,942 9,195 10,032
Income (loss) before interest and
provision for income taxes (8,353) (6,302) (4,497) (2,519) (801)
------- ------- -------- ------- -------
Interest and other income 1,748 1,217 603 537 449
Provision for income taxes --- --- --- --- ---
------- ------- -------- ------- -------
Net income (loss) $(6,605) $(5,085) $(3,893) $(1,983) $ (352)
======== ======== ======== ======== ========
Net income (loss) per share $ (1.08) $ (0.79) $ (0.60) $ (0.31) $ (0.05)
======== ======== ======== ======== ========
Weighted average number of common
and common equivalent shares
outstanding 6,144 6,397 6,441 6,461 6,512
<CAPTION>
Balance Sheet Data: March 31
- ------------------ ------------------------------------------------------------------
1991 1992 1993 1994 1995
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Working capital $23,152 $18,801 $10,727 $ 6,043 $ 6,304
Long-term investments --- --- 4,307 7,219 6,533
Total assets 25,790 21,257 17,504 15,426 14,730
Long-term debt 3,724 3,805 3,820 3,773 ---
Stockholders' equity (1) 21,202 16,281 12,460 10,589 13,305
_________________________
</TABLE>
(1) No dividends on Common Stock were declared or paid during any of the periods
presented.
-23-
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
-----------------------------------------------------------------------
OF OPERATIONS
-------------
Summary
- -------
Historically, ABIOMED has emphasized long-term product research and development,
and Company revenues and expenses have primarily been attributable to this
research and development. This emphasis continued in fiscal 1995 and 1994, with
a variety of products being developed internally and under government contracts.
However, since fiscal 1994, the first full year marketing the BVS in the U.S.,
increasing sales of the BVS have made product and service revenues the largest
contributor to the Company's operating results. At the end of fiscal 1995, the
BVS console and blood pumps had been sold to over 100 medical centers in the
U.S., with sales of the number of disposable blood pumps increasing by more than
40% in the second half of fiscal 1995 as compared to the first half of the year
and by more than 25% in the fourth quarter of the year as compared to the third
quarter.
The BVS was approved by the Food and Drug Administration (FDA) for sale in
November 1992, and the Company launched the product domestically through its
direct sales and marketing organization in early calendar 1993. Since that
time, the Company has built a domestic sales, support and marketing team for the
BVS consisting of 19 people. The Company believes that this sales team and the
effectiveness of the BVS in saving lives are the primary reasons for increases
in product and services revenues in both fiscal 1995 and 1994.
The domestic sales effort was advanced by a successful ABIOMED campaign to
reverse the Health Care Financing Administration's ("HCFA") existing coverage
policy, which had previously denied Medicare reimbursement for cardiac assist
devices. This policy was changed in October 1993 to specifically state that the
ABIOMED BVS was a reimbursable cardiac assist device.
Increases in PerioTemp product revenues from the Company's dental subsidiary
also helped to improve the Company's consolidated performance during both fiscal
1995 and 1994.
Consolidated total revenues, excluding interest income, for fiscal 1995 rose to
a record $9,230,000 compared to $6,675,000 in fiscal 1994 and $3,445,000 in
fiscal 1993, representing increases of 38% and 94% for fiscal 1995 and 1994,
respectively. Net losses declined in both fiscal 1995 and 1994. Net losses in
fiscal 1995 were approximately $352,000 ($0.05 per share) compared to net losses
of $1,983,000 ($0.31 per share) and $3,893,000 ($0.60 per share) in fiscal 1994
and 1993, respectively. Net loss for the last six months of fiscal 1995 totaled
approximately $46,000, or less than $0.01 per share, and consisted of net losses
of approximately $16,000 and $30,000 for the fiscal quarters ended March 31,
1995 and December 31, 1994, respectively. Net losses were approximately $91,000
and $216,000 for the fiscal quarters ended September 30, 1994 and June 30, 1994,
respectively.
-24-
<PAGE>
Product and Service Revenues
- ----------------------------
Product and service revenues increased to $6,893,000 in fiscal 1995 from
$4,648,000 in fiscal 1994, and $1,709,000 in fiscal 1993 (Table 1). The 48%
increase in fiscal 1995 product and service revenues was primarily attributable
to growing U.S. unit sales of the BVS. The increase in fiscal 1994 was
primarily attributable to increased U.S. unit sales in the first full year after
FDA approval.
<TABLE>
<CAPTION>
Table 1: Total Product and Service Revenues
(thousands)
- ------------------------------------------------------------------
FY1993 FY1994 FY1995
- ------------------------------------------------------------------
<S> <C> <C> <C>
Product and Service
Revenues $1,709 $4,648 $6,893
</TABLE>
- ------------------------------------------------------------------
During fiscal 1995 and 1994, unit sales of the BVS console, the BVS blood pumps
and related accessories each increased over the prior year. In fiscal 1994, the
majority of product and service revenues were derived from sales of systems to
new customers. In fiscal 1995, sales were balanced between sales to new
customers and reorders from existing customers, with reorders of the disposable
products to the installed customer base growing faster than sales of systems to
new customers.
The increases in product and service revenues also reflect increases in
PerioTemp sales by the Company's dental subsidiary in each of the last two
fiscal years. However, PerioTemp product and service revenues continue to
represent less than ten percent of total product and service revenues.
The majority of the Company's product and service revenues in the two fiscal
years since FDA approval of the BVS have been to U.S. customers. International
sales represented 13% and 17% of total product and service revenues in fiscal
1995 and 1994, respectively.
Contract Revenues
- -----------------
The Company's research and development subsidiary completed fiscal 1995 with
$2,338,000 in contract revenues, compared with contract revenues of $2,027,000
in fiscal 1994 and $1,737,000 in fiscal 1993, representing increases of 15% and
17% for fiscal 1995 and 1994, respectively (Table 2). These revenues are based
upon cost reimbursement and, therefore, reflect the level of the Company's
research and development activity in each year.
-25-
<PAGE>
The Company was awarded its largest contract ever, in September 1993, by the
National Heart, Lung and Blood Institute (NHLBI) for the continued development
of a total artificial heart. This is a two-phase seven year contract for $13.5
million. The first phase, which represents approximately $4.9 million,
commenced September 30, 1993 and runs through September 30, 1996, of which $2.7
million remained at March 31, 1995. Contingent upon successful completion of
this phase, as determined by NHLBI, the contract provides for a second phase
continuation for the remaining contract balance of approximately $8.6 million.
The NHLBI has indicated that only two of the three scientific teams will qualify
for funding for the second phase.
At March 31, 1995, the Company was working on a number of contracts and grants
representing a total backlog, excluding the second phase of the TAH contract, of
approximately $3.5 million. The Company has submitted proposals for funding on
several additional projects, including funding for further development of the
Pediatric Pump of which $550,000 was approved by NHLBI in May 1995. All such
government contracts contain provisions making them terminable at the
convenience of the government.
Recent FY96 budget resolutions proposed by the House and Senate Committees
include cuts in funding for the National Institutes of Health (NIH) of which
NHLBI is a part. The House budget resolution encourages a 5% reduction in NIH-
supported research funding. The Senate resolution is silent on the magnitude of
such a proposed cut. These are in contrast with the Administration's proposal
to increase NIH funding by 4.1% in FY96. It is not clear whether any of these
proposed cuts will be implemented, or if they are, that they will affect the
level of funding of the Company's externally-funded research and development
activities.
<TABLE>
<CAPTION>
Table 2: Total R&D Contract Revenue
(thousands)
- -------------------------------------------------------------
FY1993 FY1994 FY1995
- -------------------------------------------------------------
<S> <C> <C> <C>
Contract
Revenues $1,737 $2,027 $2,338
</TABLE>
- -------------------------------------------------------------
Costs and Expenses
- ------------------
Costs and expenses for fiscal 1995 totaled $10,032,000 compared to $9,195,000
and $7,942,000 in fiscal 1994 and 1993, respectively, representing increases of
9% and 16% for fiscal 1995 and 1994, respectively. These increases in fiscal
1995 primarily reflect increased costs related to product sales. Table 3 sets
forth the costs and expenses for the last three fiscal years.
-26-
<PAGE>
<TABLE>
<CAPTION>
Table 3: Costs and Expenses
(thousands)
- -----------------------------------------------------------------
FY1993 FY1994 FY1995
- -----------------------------------------------------------------
<S> <C> <C> <C>
Cost of Product and
Service Revenues $2,043 $2,211 $3,289
Cost of Contract R&D $1,283 $1,517 $1,718
Internal R&D $ 814 $ 914 $ 747
------ ------ ------
Total R&D $2,097 $2,430 $2,465
Selling, General &
Administrative $3,803 $4,553 $4,278
</TABLE>
- -----------------------------------------------------------------
The 49% increase in the cost of product and service revenues in fiscal 1995 over
fiscal 1994 primarily reflects the increase in product and service revenues.
The 8% increase in the cost of product and service revenues in fiscal 1994 over
fiscal 1993 primarily reflects the increase in product and service revenues
partially offset by higher margins. Cost of product and service revenues
represented approximately 48% of product and service revenues in both fiscal
1995 and 1994 compared to over 100% of product and service revenues in fiscal
1993. The increase in sales margins in fiscal 1994 compared to fiscal 1993 was
primarily attributable to both increased selling prices and decreased unit
costs. The increased selling prices were primarily attributable to the increase
in sales in the U.S. where the Company sells the BVS directly through its
domestic sales force, as compared to foreign sales, where the Company sells the
BVS through its network of distributors. Decreased units costs for both the BVS
console and the BVS blood pumps resulted from decreases in direct manufacturing
costs and more effective absorption of fixed overhead expenses with higher
manufacturing volume. The Company believes that increased manufacturing volumes
and productivity gains will continue to reduce BVS product costs. Royalties
due to Abiomed Limited Partnership, which could be as much as 4.9% of BVS
product revenues, will be added to the cost of product and service revenues in
fiscal 1995. As discussed below, the Company has made an offer to buy back the
limited partnership units which, to the extent accepted, would fix the amount of
royalty cost which otherwise is 4.9% through August 3, 2000.
Costs of research and development increased to $2,465,000 in fiscal 1995
compared to $2,430,000 and $2,097,000 in fiscal 1994 and 1993, respectively.
These increases reflect increased activity under research contracts and grants
which are billed on a cost-plus-fixed-fee basis. Costs of internal research
and development primarily relate to continued engineering
-27-
<PAGE>
support and improvement of existing products and to continued development of
internally developed products such as SupraCor.
Selling, general and administrative expenses (S,G&A) decreased to $4,278,000 in
fiscal 1995 from $4,553,000 in fiscal 1994. This decrease primarily reflects
decreased net costs derived from Abiomed Limited Partnership prior to the
Company's settlement of its Net Minimum Royalty Obligation with the Partnership
on March 29, 1995. The decrease in S,G&A costs also reflects the effect of
$106,000 of non-recurring costs incurred in fiscal 1994. S,G&A costs increased
to $4,553,000 in fiscal 1994 from $3,803,000 in fiscal 1993. This increase was
primarily due to a substantial investment in the initial development of the
Company's cardiovascular marketing, sales and service organization and to the
non-recurring costs discussed above. The fiscal 1994 increase in selling
expenses was partially offset by a decline in general and administrative
expenses.
Interest and Other Revenues and Expenses
- ----------------------------------------
Interest income, net of interest and other expenses, totaled approximately
$449,000, $537,000 and $604,000, for fiscal 1995, 1994 and 1993, respectively.
The decrease in interest income in fiscal 1995 compared to fiscal 1993 primarily
reflects lower investment balances for the majority of fiscal 1995. The
Company's balance of cash and marketable securities decreased throughout fiscal
1994 and decreased $1,339,000 in the first fiscal quarter of fiscal 1995 before
increasing $819,000, $270,000 and $989,000 in each of the following three
quarters of fiscal 1995, respectively, for a net fiscal 1995 increase of
$739,000.
Liquidity and Capital Resources
- -------------------------------
As of March 31, 1995, the Company's balance sheet included $11,025,000 in cash
and marketable securities, an increase of $739,000 over the Company's
$10,286,000 balance of cash and marketable securities at March 31, 1994. The
March 31, 1995 balance includes $614,000 in cash, $3,877,000 invested in
marketable investments that at the time had maturities of less than one year
(short-term) and $6,533,000 invested in marketable securities with various
maturities of over one year (long-term), the latest of which was in October
1996. Net working capital at March 31, 1995, excluding the long-term
investments in marketable securities, was $6,304,000 compared to $6,043,000 at
March 31, 1994. The increase in cash and marketable securities for fiscal 1995
primarily reflects reduced inventories and improved collections of accounts
receivable. The increase in net working capital of $261,000 primarily reflects
maturities of long-term investments partially offset by the Company's net
operating loss. The Company also has a $3,000,000 line of credit from a bank
which expires in December 1995. There were no borrowings against this line of
credit in fiscal 1995. The line of credit, if used, bears interest at the
bank's prime rate.
During fiscal 1995, the Company in a non-cash transaction eliminated all of its
long-term debt through the exchange of the Company's Common Stock. In this
transaction, as discussed above, the Company fully satisfied its Net Minimum
Royalty Obligation to Abiomed Limited Partnership. Prior to this March 29, 1995
transaction, the Company reported an obligation to
-28-
<PAGE>
Abiomed Limited Partnership of approximately $3,490,000. The Company offset
approximately $380,000 of this debt with its reported 10.9% ownership interest
in the Partnership. The remaining $3,109,000 was satisfied through the issuance
of 451,427 shares of the Company's Common Stock.
In May 1995, the Company offered $10,000 in cash in exchange for each of the 135
limited partner units in Abiomed Limited Partnership, including each limited
partner's pro rata share of the 4.9% royalty due to the Partnership on sales of
BVS product and SupraCor product between April 1, 1995 and August 3, 2000. If
all of the limited partners accept this offer, the cost to the Company would
total $1,350,000 in lieu of the product royalty.
Although the Company does not currently have significant capital commitments
other than as described above, the Company believes that it will continue to
make significant investments over the next several years to support the
development and commercialization of its products. The Company believes that
its revenues and its existing resources should be sufficient to meet its needs
for the current fiscal year.
Health Care Reform
- ------------------
Private and government proposals for significant health care reform are expected
to continue to affect health care expenditures in the United States as well as
internationally where the Company sells or plans to sell its products. The
Company cannot assess at this time the potential impact that healthcare trends
may have on future operating results because of the uncertainties surrounding
any foreseeable changes.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
- ------ -------------------------------------------
The consolidated Financial Statements and Supplementary Data of the Company are
listed under Part IV, Item 14, in this Report.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
- ------ ------------------------------------------------- --------------
FINANCIAL DISCLOSURE
--------------------
There were no disagreements on accounting principles or practices or financial
statement disclosure between the Company and its accountants during the fiscal
year ended March 31, 1995.
-29-
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
- ------- --------------------------------------------------
The information required by this Item 10 is hereby incorporated by reference to
the text appearing under Part I, Item 1--Business under the caption "Executive
Officers of the Registrant" in this Report, and by reference to the Company's
definitive proxy statement to be filed by the Company within 120 days after the
close of its fiscal year.
ITEM 11. EXECUTIVE COMPENSATION
- ------- ----------------------
The information required by this Item 11 is hereby incorporated by reference to
the information under the heading "Executive Compensation" in the Company's
definitive proxy statement to be filed by the Company within 120 days after the
close of its fiscal year.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
- ------- --------------------------------------------------------------
The information required by this Item 12 is hereby incorporated by reference to
the information under the heading "Securities Beneficially Owned by Directors,
Officers and Principal Stockholders" in the Company's definitive proxy statement
to be filed by the Company within 120 days after the close of its fiscal year.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
- ------- ----------------------------------------------
The information required by this Item 13 is hereby incorporated by reference to
the information under the heading "Certain Transactions", if any, in the
Company's definitive proxy statement to be filed by the Company within 120 days
after the close of its fiscal year.
-30-
<PAGE>
PART IV
-------
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
- ------- ----------------------------------------------------------------
(A) (1) FINANCIAL STATEMENTS
--------------------
1. Report of Arthur Andersen LLP dated May 11, 1995. (See page F-1 hereof.)
2. Consolidated Balance Sheets as of March 31, 1994 and 1995 (See page F-2
hereof.)
3. Consolidated Statements of Operations for the years ended March 31,
1993, 1994, and 1995. (See page F-3 hereof.)
4. Consolidated Statements of Stockholders' Investment for the years ended
March 31, 1993, 1995 and 1995. (See page F-4 hereof.)
5. Consolidated Statements of Cash Flows for the years ended March 31,
1993, 1994, and 1995. (See page F-5 hereof.)
6. Notes to Consolidated Financial Statements. (See pages F-6 - F-15
hereof.)
(A) (2) FINANCIAL STATEMENT SCHEDULES
-----------------------------
Supplemental schedules are not provided because of the absence of
conditions under which they are required or because the required
information is given in the financial statements or notes thereto.
(A) (3) EXHIBITS
--------
(3) Articles of Incorporation and By-Laws.
(a) Certificate of Incorporation - filed as Exhibit 3.01 to
Registration Statement on Form S-1 (Registration No, 33-
14861) (the "1987 Registration Statement").*
(b) Restated By-Laws - filed as Exhibit 3(b) to the Company's
Annual Report on Form 10-K for the fiscal year ended March
31, 1991 (the "1991 Form 10-K").*
(4) Instruments defining the rights of Security Holders, including
Indentures.
(a) Specimen Certificate of Common Stock - filed as Exhibit 4.01
to the 1987 Registration Statement.*
-31-
<PAGE>
(10) Material Contracts.
(a) Cross-License Agreement between the Company and the Abiomed
Limited Partnership (the "Partnership") - filed as Exhibit 10.02 to
the 1987 Registration Statement.*
(b) Research and Development Agreement between the Company and the
Partnership - filed as Exhibit 10.03 to the 1987 Registration
Statement.*
(c) Option to Purchase Developed Technology between the Company
and the Partnership - filed as Exhibit 10.06 to the 1987
Registration Statement.*
(d) Bill of Sale and Technology Transfer and Intellectual Property
Agreement between the Company and the Partnership - filed as
Exhibit 10(b) to the 1991 Form 10-K.*
(e) Facility Leases dated September 30, 1993 for the premises at
33 Cherry Hill Drive - filed as Exhibit 10(e) to the 1994 Form 10-
K* -------
(f) Form of Indemnification Agreement for Directors and Officers -
filed as Exhibit 10.13 to the 1987 Registration Statement.*
(g) Abiomed Limited Partnership Amended and Restated Certificate
and Agreement of Limited Partnership (without schedule of
Partners)-filed as Exhibit 10.15 to the 1987 Registration
Statement.*
(h) 1992 Combination Stock Option Plan - filed as Exhibit 10(I) to
the 1993 Form 10-K * *
(i) 1988 Employee Stock Purchase Plan - filed as Exhibit 10(p) to
the 1988 Form 10-K.* * -------
(j) 1989 Non-Qualified Stock Option Plan for Non-Employee
Directors-corrected copy.
(k) NIH Contract for Total Artificial Heart - filed as Exhibit
10(s) to the 1988 Form 10-K.* -------
(l) Promissory Note and Security Agreement of the Abiomed Limited
Partnership - filed as Exhibit 10(r) to the 1989 Registration
-------
Statement.*
(m) Federal (NHLBI) Contract for Phased Readiness Testing of an
Implantable Total Artificial Heart (Filed as Exhibit 10 to the
Company's Quarterly Report on Form 10-Q for the period ended
September 30, 1993).*
-32-
<PAGE>
(n) Facility Lease dated September 30, 1993 as amended on November
19, 1993 for the premises at 24B Cherry Hill Drive - filed as
Exhibit 10(p) to the 1994 Form 10-K. *
-------
(11) Computation of Per Share Earnings - see Note 1(f), Notes to
Consolidated Financial Statements.
(22) Subsidiaries of the Registrant - filed as Exhibit 22 to the 1994
Form 10K. *
(24) Consent of Arthur Andersen LLP.
(27) Financial Data Schedule.
(B) REPORTS ON FORM 8-K
-------------------
The Company did not file any current reports on Form 8-K during the
quarter ended March 31, 1995.
____________
* In accordance with Rule 12b-32 under the Securities Exchange Act of
1934, as amended, reference is made to the documents previously filed with the
Securities and Exchange Commission, which documents are hereby incorporated by
reference.
** Compensatory plan or arrangement.
-33-
<PAGE>
SIGNATURES
----------
Pursuant to the requirements of Section 13 or 15(d) 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.
ABIOMED, Inc.
Dated: June 26, 1994 By: /s/ David M. Lederman
-------------------------
David M. Lederman, Chairman
of the Board, President
Principal Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the date indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ David M. Lederman Chairman of the Board, June 26, 1995
- -----------------------
David M. Lederman Chief Executive Officer
President and Director
/s/ John F. Thero Vice President Finance June 26, 1995
- --------------------
John F. Thero and Administration
Chief Financial Officer
Principal Accounting Officer
/s/ W. Gerald Austen Director June 26, 1995
- -----------------------
W. Gerald Austen
/s/ William G. Davis
- ----------------------- Director June 26, 1995
William G. Davis
- -------------------- Director June __, 1995
Paul Fireman
/s/ John F. O'Brien Director June 26, 1995
- -----------------------
John F. O'Brien
</TABLE>
-34-
<PAGE>
<TABLE>
<S> <C> <C>
/s/ Param I. Singh Director June 26, 1995
- ----------------------
Param I. Singh
/s/ Henri A. Termeer Director June 26, 1995
- -----------------------
Henri A. Termeer
</TABLE>
-35-
<PAGE>
ABIOMED, INC. AND SUBSIDIARIES
Consolidated Financial Statements
as of March 31, 1994 and 1995
Together with Auditors' Report
<PAGE>
INDEX
<TABLE>
<CAPTION>
PAGE
<S> <C>
Report of Independent Public Accountants F-1
Consolidated Balance Sheets as of March 31, 1994 and 1995 F-2
Consolidated Statements of Operations for the Years
Ended March 31, 1993, 1994 and 1995 F-3
Consolidated Statements of Stockholders' Investment
for the Years Ended March 31, 1993, 1994 and 1995 F-4
Consolidated Statements of Cash Flows for the Years
Ended March 31, 1993, 1994 and 1995 F-5
Notes to Consolidated Financial Statements F-6-F-15
</TABLE>
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To ABIOMED, Inc.:
We have audited the accompanying consolidated balance sheets of ABIOMED, Inc. (a
Delaware corporation) and subsidiaries as of March 31, 1994 and 1995, and the
related consolidated statements of operations, stockholders' investment and cash
flows for each of the three years in the period ended March 31, 1995. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of ABIOMED, Inc. and subsidiaries
as of March 31, 1994 and 1995, and the results of their operations and their
cash flows for each of the three years in the period ended March 31, 1995, in
conformity with generally accepted accounting principles.
/s/ Arthur Andersen LLP
Boston, Massachusetts
May 11, 1995
F-1
<PAGE>
ABIOMED, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
<TABLE>
<CAPTION>
--------MARCH 31,--------
ASSETS 1994 1995
<S> <C> <C>
Current Assets:
Cash and cash equivalents (Note 1) $ 480,058 $ 614,091
Short-term investments (Note 1) 2,586,852 3,876,943
Accounts receivable, net of allowance
for doubtful accounts of $84,000 at
March 31, 1995 1,702,216 1,775,734
Inventories (Note 1) 2,224,798 1,409,280
Prepaid expenses and other current assets 112,360 53,830
----------- -----------
Total current assets 7,106,284 7,729,878
----------- -----------
Investments (Note 1):
Long-term marketable securities 7,218,963 6,533,490
----------- -----------
Property and Equipment, at cost (Note 1):
Machinery and equipment 2,058,790 2,189,139
Furniture and fixtures 121,196 122,934
Leasehold improvements 279,181 279,181
----------- -----------
2,459,167 2,591,254
Less--Accumulated depreciation and
amortization 1,875,195 2,124,234
----------- -----------
583,972 467,020
----------- -----------
Other Assets (Note 7):
Purchased technology, net of
amortization of $246,743 and $350,998
at March 31, 1994 and 1995,
respectively 104,255 -
Investment in Abiomed Limited Partnership 412,107 -
----------- -----------
$15,425,581 $14,730,388
=========== ===========
<CAPTION>
--------MARCH 31,--------
Liabilities and Stockholders' Investment 1994 1995
<S> <C> <C>
Current Liabilities:
Accounts payable $ 264,174 $ 198,280
Accrued expenses (Note 9) 799,135 1,227,379
------------ ------------
Total current liabilities 1,063,309 1,425,659
------------ ------------
Due to Abiomed Limited Partnership, net (Note 7) 3,773,419 -
------------ ------------
Commitments (Note 5)
Stockholders' Investment (Notes 2, 6 and 7):
Class B Preferred Stock, $.01 par value-
Authorized--1,000,000 shares
Issued and outstanding--none - -
Common Stock, $.01 par value-
Authorized--10,000,000 shares
Issued and outstanding--4,432,686 shares and
4,885,852 shares at March 31, 1994 and 1995,
respectively 44,327 48,859
Class A Common Stock, $.01 par value-
Authorized--2,346,000 shares
Issued and outstanding--2,040,000 shares 20,400 20,400
Additional paid-in capital 33,413,242 36,476,770
Accumulated deficit (22,889,116) (23,241,300)
------------ ------------
Total stockholders' investment 10,588,853 13,304,729
------------ ------------
$ 15,425,581 $ 14,730,388
============ ============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-2
<PAGE>
ABIOMED, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
-----------YEARS ENDED MARCH 31,-----------
1993 1994 1995
<S> <C> <C> <C>
REVENUES (Note 1):
Products and services $ 1,708,685 $ 4,647,803 $ 6,892,931
Contracts 1,736,554 2,027,229 2,337,505
------------ ------------ ------------
3,445,239 6,675,032 9,230,436
------------ ------------ ------------
COSTS AND EXPENSES:
Cost of products and services 2,042,534 2,211,354 3,288,833
Cost of contract research and development 1,283,132 1,516,489 1,717,819
Internal research and development 813,793 913,767 746,700
Selling, general and administrative (Note 7) 3,802,738 4,552,909 4,278,392
------------ ------------ ------------
7,942,197 9,194,519 10,031,744
------------ ------------ ------------
NET LOSS FROM OPERATIONS (4,496,958) (2,519,487) (801,308)
Interest and other income 603,557 536,959 449,124
------------ ------------ ------------
NET LOSS $ (3,893,401) $ (1,982,528) $ (352,184)
============ ============ ============
NET LOSS PER COMMON SHARE (Note 1) $(0.60) $(0.31) $ (0.05)
====== ====== ========
WEIGHTED AVERAGE NUMBER OF COMMON AND COMMON
EQUIVALENT SHARES OUTSTANDING (Note 1) 6,440,828 6,461,234 6,511,777
========= ========= =========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-3
<PAGE>
ABIOMED, INC. AND SUBSIDIARIES
Consolidated Statements of Stockholders' Investment
(Notes 2, 6 and 7)
<TABLE>
<CAPTION>
CLASS A
COMMON STOCK COMMON STOCK ADDITIONAL TOTAL
NUMBER $.01 NUMBER $.01 PAID-IN ACCUMULATED STOCKHOLDERS'
OF SHARES PAR VALUE OF SHARES PAR VALUE CAPITAL DEFICIT INVESTMENT
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, March 31, 1992 4,389,197 $43,891 2,040,000 $ 20,400 $33,229,524 $(17,013,187) $16,280,628
Stock options exercised 16,350 164 - - 57,686 - 57,850
Stock issued under
employee stock purchase
plan 1,082 11 - - 10,726 - 10,737
Compensation expense
related to stock
options - - - - 4,000 - 4,000
Net loss - - - - - (3,893,401) (3,893,401)
--------- ------- ---------- ---------- ----------- ------------ -----------
Balance, March 31, 1993 4,406,629 44,066 2,040,000 20,400 33,301,936 (20,906,588) 12,459,814
Stock options exercised 24,181 242 - - 97,011 - 97,253
Stock issued under
employee stock purchase
plan 1,876 19 - - 14,295 - 14,314
Net loss - - - - - (1,982,528) (1,982,528)
--------- ------- ---------- ---------- ----------- ------------ -----------
Balance, March 31, 1994 4,432,686 44,327 2,040,000 20,400 33,413,242 (22,889,116) 10,588,853
Stock options exercised 1,100 11 - - 6,314 - 6,325
Stock issued under
employee stock purchase
plan 639 7 - - 3,873 - 3,880
Stock issued in exchange
for amount due to
Abiomed Limited
Partnership 451,427 4,514 - - 3,053,341 - 3,057,855
Net loss - - - - - (352,184) (352,184)
--------- ------- ---------- ---------- ----------- ------------ -----------
Balance, March 31, 1995 4,885,852 $48,859 2,040,000 $ 20,400 $36,476,770 $(23,241,300) $13,304,729
========= ======= ========== ========== =========== ============ ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-4
<PAGE>
ABIOMED, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
-------------YEARS ENDED MARCH 31,--------------
1993 1994 1995
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (3,893,401) $ (1,982,528) $ (352,184)
Adjustments to reconcile net loss to net cash
(used in) provided by operating activities-
Depreciation and amortization 291,924 339,439 353,293
Compensation expense related to stock options 4,000 - -
Noncash transactions related to Abiomed
Limited Partnership 69,761 (35,666) (251,883)
Changes in assets and liabilities-
Accounts receivable (225,521) (898,867) (73,518)
Inventories (693,080) (711,156) 815,518
Unbilled costs and fees on contracts 34,117 - -
Prepaid expenses and other current assets 26,421 37,204 58,530
Accounts payable 55,915 (212,817) (65,894)
Accrued expenses (2,855) 51,331 428,244
-------------- ------------- -------------
Net cash (used in) provided by operating activities (4,332,719) (3,413,060) 912,106
-------------- ------------- -------------
CASH FLOWS FROM INVESTING ACTIVITIES:
(Purchases) sales of short-term investments, net 4,927,441 6,199,561 (1,290,091)
(Purchases) sales of long-term investments, net (4,307,054) (2,911,909) 685,473
Purchases of property and equipment (258,473) (198,560) (132,087)
-------------- ------------- -------------
Net cash (used in) provided by investing activities 361,914 3,089,092 (736,705)
-------------- ------------- -------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Registration fees and costs in connection with
exchange of common stock for amounts due to
Abiomed Limited Partnership - - (51,573)
Proceeds from exercise of stock options
and stock purchase plan, net 68,587 111,567 10,205
Payment of royalties to Abiomed Limited Partnership (51,551) - -
Amounts due from (advanced to) Abiomed
Limited Partnership 2,587 (7,011) -
-------------- ------------- -------------
Net cash (used in) provided by financing activities 19,623 104,556 41,368
-------------- ------------- -------------
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS,
EXCLUDING INVESTMENTS (3,951,182) (219,412) 134,033
CASH AND CASH EQUIVALENTS, EXCLUDING INVESTMENTS,
AT BEGINNING OF YEAR 4,650,652 699,470 480,058
-------------- ------------- -------------
CASH AND CASH EQUIVALENTS, EXCLUDING INVESTMENTS,
AT END OF YEAR $ 699,470 $ 480,058 $ 614,091
============== ============= =============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-5
<PAGE>
ABIOMED, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
March 31, 1995
(Continued)
(1) Summary of Significant Accounting Policies
ABIOMED(R), Inc. (the Company) is engaged primarily in the research,
development and commercialization of medical devices, with a primary focus
on the development of cardiac support systems. The Company has received FDA
approval for certain products. In particular, in November 1992 the Company
received FDA approval for its BVS-5000(R) system, a bi-ventricular
temporary artificial heart, from which the majority of the Company's
present product and service revenues are derived. The accompanying
consolidated financial statements reflect the application of certain
significant accounting policies described below.
(a) Principles of Consolidation
The accompanying consolidated financial statements include the
accounts of the Company and its wholly owned subsidiaries, ABIOMED
Cardiovascular, Inc., ABD Holding Company, Inc., ABIOMED Research and
Development, Inc., ABIOMED R&D, Inc. and ABIODENT(R), Inc. All
significant intercompany accounts and transactions have been
eliminated in consolidation.
(b) Product and Service Revenues
The Company recognizes revenues on products and services at the time
the products are shipped to the customer and at the time the services
are provided. In fiscal 1993, 1994 and 1995, 39%, 17% and 13%,
respectively, of product and service revenues were to customers
located outside of the United States. During fiscal 1993, the latter
part of which the BVS-5000 received FDA approval, three customers
accounted for 38% of product and services sales. No customer accounted
for greater than 10% of product and service revenues during fiscal
1994 or 1995.
(c) Contract Accounting
The Company accounts for contracts by applying the percentage-of-
completion method. The percentage of completion under these contracts
is determined by relating the actual cost of work performed to date on
each contract to the contract's estimated final cost. For contracts
that extend over one year, revisions in cost and profit estimates
during the course of the contract work are reflected in the accounting
period during which the facts that require the revision become known.
In fiscal 1993, 1994 and 1995, all of the Company's research and
development contract revenues were generated from contracts and grants
with various government agencies. Each of these contracts and grants
provide for revenues on a cost-plus-fixed-fee basis. The Company
retains the rights to all technological discoveries and products
generated from these efforts.
F-6
<PAGE>
ABIOMED, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
March 31, 1995
(Continued)
(1) Summary of Significant Accounting Policies (Continued)
(d) Inventories
Inventories include raw materials, work-in-process and finished goods,
are priced at the lower of cost (first-in, first-out) or market and
consist of the following:
<TABLE>
<CAPTION>
-------March 31,-------
1994 1995
<S> <C> <C>
Raw materials $ 413,908 $ 339,686
Work-in-process 612,132 412,956
Finished goods 1,198,758 656,638
---------- ----------
$2,224,798 $1,409,280
========== ==========
</TABLE>
Finished goods and work-in-process inventories consist of direct
material, labor and overhead.
(e) Depreciation and Amortization
The Company provides for depreciation and amortization by charges to
operations in amounts that allocate the cost of depreciable assets
over their estimated useful lives as follows:
<TABLE>
<CAPTION>
CLASSIFICATION METHOD ESTIMATED
USEFUL LIFE
<S> <C> <C>
Machinery and equipment Sum-of-the-year's digits/ 3- 5 Years
straight-line
Furniture and fixtures Sum-of-the-year's digits/ 5-10 Years
straight-line
Leasehold improvements Straight-line Life of lease
</TABLE>
(f) Net Loss per Common Share
Net loss per common share has been computed by dividing net loss by
the weighted average number of common shares outstanding during the
year. Other Common Stock equivalents outstanding, including stock
options and warrants, have not been considered in the computations, as
the effect of their inclusion would be antidilutive.
F-7
<PAGE>
ABIOMED, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
March 31, 1995
(Continued)
(1) Summary of Significant Accounting Policies (Continued)
(g) Cash and Cash Equivalents
The Company classifies any marketable security with an original
maturity date of 90 days or less at the time of acquisition to be a
cash equivalent.
(h) Investments
The Company classifies any security, including marketable securities,
with an original maturity of greater than 90 days as investments and
classifies investments with a maturity of greater than one year from
the balance sheet date as long-term investments.
Under Statement of Financial Accounting Standards (SFAS) No. 115,
Accounting for Certain Investments in Debt and Equity Securities, as
adopted by the Company on March 31, 1994, investments that the Company
has the positive intent and ability to hold to maturity are reported
at amortized cost and classified as held-to-maturity. The Company has
classified all investments at March 31, 1995 as held-to-maturity.
The amortized cost and estimated fair market values of the Company's
securities at March 31, 1995 are presented below.
<TABLE>
<CAPTION>
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED MARKET
COST GAINS GAINS VALUE
<S> <C> <C> <C> <C>
Short-term Investments:
Corporate debt securities
(average maturity of 3 months) $3,873,276 $ 39 $ (6,936) $3,866,379
==== ========= ==========
Interest Receivable 3,667
----------
Total Short-term Investments $3,876,943
==========
Long-term Investments:
Corporate debt securities
(average maturity of 1.2 years) $5,178,043 $ - $(112,718) $5,065,325
U.S. Government Agency Obligations
(average maturity of 1.2 years) 1,213,609 - (31,269) 1,182,340
---------- ---- --------- ----------
6,391,652 $ - $(143,987) $6,247,665
==== ========= ==========
Interest Receivable 141,838
----------
Total Long-term Investments $6,533,490
==========
</TABLE>
(i) Reclassifications
The accompanying consolidated financial statements as of March 31,
1994 contains certain accounts that have been reclassified to conform
with the current March 31, 1995 presentation.
F-8
<PAGE>
ABIOMED, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
March 31, 1995
(Continued)
(2) Capital Stock
Each share of Common Stock has a voting right of one vote per share and
generally has the right to elect, as a class, at least 25% of the Company's
directors. Each share of Common Stock is entitled to receive 5% more in
distributions per share than each share of the Class A Common Stock when
the Company declares a dividend (other than a stock dividend) or
liquidating distribution.
Each share of Class A Common Stock has a voting right of 10 votes per share
and may be converted at any time into one share of Common Stock at the
election of the holder. The Class A Common Stock automatically converts
into Common Stock upon the occurrence of certain events. In particular, all
Class A Common shares automatically convert to Common Stock and thereby
lose their preferential voting rights, if any such shares held by the
Company's founder are sold.
The Company has authorized 1,000,000 shares of Class B Preferred Stock,
$.01 par value, of which the designation, rights and privileges can be set
by the Board of Directors. No shares of Class B Preferred Stock have been
issued or are outstanding.
(3) Line of Credit with a Bank
The Company has an unsecured line of credit under which it can borrow up to
$3,000,000 from a bank at the bank's prime rate (9.00% at March 31, 1995).
The Company is required to maintain a compensating balance of $150,000 plus
5% of any amounts outstanding under the arrangement. This line expires in
December 1995. There were no borrowings under the Company's line of credit
at March 31, 1994 and 1995.
(4) Income Taxes
The Company accounts for income taxes in accordance with the provisions of
SFAS No. 109, Accounting for Income Taxes. The asset and liability approach
used under SFAS No. 109 requires a recognition of deferred tax assets and
liabilities for the expected future tax consequences of temporary
differences between the carrying amounts and the tax bases of other assets
and liabilities.
At March 31, 1995, the Company had available net operating loss
carryforwards of approximately $20,880,000. The Company also had available,
at March 31, 1995, approximately $550,000 of tax credits to reduce future
federal income taxes, if any. The net operating loss and tax credit
carryforwards expire through 2010. These carryforwards are subject to
review by the Internal Revenue Service and may be subject to limitation in
any given year under certain conditions.
F-9
<PAGE>
ABIOMED, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
March 31, 1995
(Continued)
(4) Income Taxes (Continued)
The Company has not given recognition to any of these tax benefits in the
accompanying consolidated financial statements due to the uncertainty
surrounding the timing of the realization of the tax benefits. The Company
has placed a valuation allowance of approximately $11,321,000 as of March
31, 1995 against its otherwise recognizable net deferred tax asset.
The deferred tax asset as of March 31, 1994 and 1995 consisted of the
following:
<TABLE>
<CAPTION>
1994 1995
<S> <C> <C>
Purchase of technology (Note 7) $ 2,036,000 $ 1,826,000
Net operating loss and tax credit
carryforwards 8,233,000 8,900,000
Other, net 386,000 595,000
------------ ------------
10,655,000 11,321,000
Less--Valuation allowance (10,655,000) (11,321,000)
------------ ------------
$ - $ -
============ ============
</TABLE>
(5) Commitments
The Company leases its facilities under various operating lease agreements
with terms through fiscal 2000. Total rent expense under these leases,
included in the accompanying consolidated statements of operations, was
approximately $296,000, $265,000 and $262,000 for fiscal 1993, 1994 and
1995, respectively. Future minimum lease payments under these agreements
are as follows:
<TABLE>
<CAPTION>
AMOUNT
<S> <C>
Years Ended March 31,
1996 $ 218,718
1997 196,182
1998 167,382
1999 138,582
2000 11,549
------------
$ 732,413
============
</TABLE>
F-10
<PAGE>
ABIOMED, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
March 31, 1995
(Continued)
(6) Stock Option Plans
All stock options granted by the Company under the below described plans
were granted at the fair value of the stock at the date of grant.
Outstanding stock options, if not exercised, expire 10 years from the date
of grant.
The 1992 Combination Stock Option Plan (the Combination Plan), approved by
the Company's stockholders in September 1992, combined and restated the
Company's then outstanding Incentive Stock Option Plan and Nonqualified
Plan. The options generally become exercisable ratably over five years. All
options granted under the Combination Plan during the three years ended
March 31, 1995 were to employees.
In addition, the Company has a nonqualified stock option plan for
nonemployee directors (the Directors' Plan). The Directors' Plan, as
adopted in July 1989 and amended, with shareholder approval, in August
1992, granted options to purchase 12,500 shares of the Company's Common
Stock to each of the Company's then elected outside directors and provides
for grants of options to purchase 12,500 shares of the Company's Common
Stock to any newly elected eligible director. Thereafter, each eligible
director will be granted a new option to purchase 12,500 shares of Common
Stock on July 1 of each successive fifth year. These options vest over a
five-year period at the rate of 2,500 shares per year, commencing on June
30 of the year following the date of grant.
F-11
<PAGE>
ABIOMED, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
March 31, 1995
(Continued)
(6) Stock Option Plans (Continued)
The following table summarizes stock option activity under these plans:
<TABLE>
<CAPTION>
--------COMBINATION PLAN-------- --------DIRECTORS' PLAN--------
NUMBER OF NUMBER OF
OPTIONS EXERCISE PRICE OPTIONS EXERCISE PRICE
<S> <C> <C> <C> <C>
Options outstanding, March 31, 1992 290,125 0.55- 13.50 32,500 7.00- 13.88
Options granted 165,600 6.25- 12.75 62,500 11.00
Options exercised (16,350) 0.55- 6.13 - -
Options canceled (27,690) 5.75- 13.50 - -
-------- --------------- ------- ---------------
Options outstanding, March 31, 1993 411,685 0.55- 13.50 95,000 7.00- 13.88
Options granted 213,200 7.25- 8.00 - -
Options exercised (24,181) 0.55- 5.75 - -
Options canceled (189,874) 5.75- 13.50 - -
-------- --------------- ------- ---------------
Options outstanding, March 31, 1994 410,830 0.55- 13.50 95,000 7.00- 13.88
Options granted 17,000 5.625- 6.50 - -
Options exercised (1,100) 5.75- 5.75 - -
Options canceled (31,500) 5.75- 13.50 - -
-------- --------------- ------- ---------------
Options outstanding, March 31, 1995 395,230 $ 0.55-$ 13.50 95,000 $ 7.00-$ 13.88
======== =============== ======= ===============
Options Exercisable, March 31, 1995 132,360 $ 0.55-$ 13.50 57,500 $ 7.00-$ 13.88
======== =============== ======= ===============
Shares available for future issuance,
March 31,1995 337,714 55,000
======== =======
</TABLE>
The Company has an Employee Stock Purchase Plan (the Purchase Plan). Under
the Purchase Plan, all employees (including officers and directors) of the
Company who have completed 18 months of employment are eligible to purchase
the Company's Common Stock at an exercise price equal to 85% of the fair
market value of the Common Stock. The Company has reserved 100,000 shares
of Common Stock for issuance under the Purchase Plan, of which 92,611
shares are available for future issuance as of March 31, 1995. During the
years ended March 31, 1994 and 1995, 1,876 shares and 639 shares,
respectively, of Common Stock were sold pursuant to the Purchase Plan.
F-12
<PAGE>
ABIOMED, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
March 31, 1995
(Continued)
(7) Abiomed Limited Partnership
(a) Background
Abiomed Limited Partnership (the Partnership) was established in 1985
and, under agreement with the Company, provided initial funding for
development of two of the Company's products. These two products (the
Products) are BVS 5000 and SupraCor(TM) (formerly ICS). The
Partnership consists of one hundred thirty-five limited partners, each
of whom is unrelated to the Company, a sole general partner, which is
the Company's wholly owned subsidiary, Abiomed Research and
Development, Inc., and a special limited partner, which is the
Company's wholly owned subsidiary, ABIOMED Cardiovascular, Inc.
(Cardiovascular). The limited partners combine to hold a 89.1%
interest in the Partnership. The Company holds a 10.9% interest
comprised of 1.0% by the general partner and 10.9% by the special
limited partner.
The Partnership entered into a research and development agreement (the
Agreement) with the Company whereby the Company performed certain
research and development activities for the Partnership. Under the
terms of the Agreement, the Company loaned to the Partnership
$3,080,647 for additional development of the Products through May 24,
1989. Interest on this loan accrued at a bank's prime rate plus 1%
through March 29, 1995 when, as discussed below, the full amount of
loan principal and interest was settled. Interest income of $331,000,
$347,000 and $403,000 for fiscal 1993, 1994 and 1995, respectively,
has been recorded as an offset against selling, general and
administrative expenses. This note receivable and related accrued
interest receivable are netted against the liability owed to the
Partnership from the technology purchase option discussed below.
(b) Exercise of Purchase Options
On August 3, 1990, Cardiovascular exercised its options to acquire all
of the Partnership's rights, title and interest in the Products and in
the technology developed under the Agreement. Under the purchase
options, Cardiovascular is obligated through August 3, 2000 to make
royalty payments to the Partnership of 5.5% of the revenues from the
Products, as defined, subject to limits of $16,006,000 and $33,807,000
in the aggregate for BVS and SupraCor, respectively, and subject to
minimum royalty payments for the period ended March 31, 1995 of
$2,853,390 and $6,413,010 for BVS and SupraCor, respectively (the
Minimum Royalty Amounts).
For financial reporting purposes, the exercise of the purchase option
in fiscal 1991 was recorded as a purchase of technology by the Company
from the Partnership. The value of the purchase price, $7,514,000 was
determined based on the discounted present value of the minimum
royalty payments to the Partnership. Of this amount, $7,163,000 was
charged to expense in 1991 and $351,000 was capitalized and amortized
as expense over the five year period ended March 31,
F-13
<PAGE>
ABIOMED, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
March 31, 1995
(Continued)
(7) Abiomed Limited Partnership (Continued)
(b) Exercise of Purchase Options (Continued)
1995. The capitalized amount was based on the value of the products
completed at that time. The discounted portion of the minimum royalty
payments has been accreted as interest expense over the five year
period ended March 31, 1994 resulting in expense of $411,000, $307,000
and $191,000 for fiscal 1993, 1994 and 1995, respectively. These
amounts are recorded as part of selling, general and administrative
expenses.
As further discussed below, on March 29, 1995, the Company paid the
Minimum Royalty Amounts to the Partnership through the issuance of the
Company's Common Stock, net of the royalty amounts remitted previously
to the Partnership which totaled approximately $102,000. The Company
continues to be obligated through August 3, 2000 to make royalty
payments to the Partnership of 5.5% of revenues from the Products made
after March 31, 1995 and on or before August 3, 2000, subject to the
limits discussed above, and the Company continues to hold a 10.9%
interest in all such Royalty Payments. Moreover, under the provisions
of the purchase options, although Cardiovascular does not anticipate
selling or licensing its rights to the technology of either Product,
Cardiovascular would be required to pay the Partnership a royalty of
50% of certain amounts Cardiovascular received if the technology were
to be sold or licensed in other than the ordinary course of business.
Prior to payment on March 29, 1995, these cumulative minimum royalties
were offset against the notes receivable and accrued interest due from
the Partnership and against certain advance payments made by the
Company on behalf of the Partnership. The net of these amounts was
historically reported as a liability in the Company's accompanying
consolidated balance sheets. The net liability at the time of payment
on March 29, 1995, including the full amount of minimum royalties
through March 31, 1995, was $3,489,818 (the Net Minimum Royalty
Obligation).
(c) Satisfaction of Net Minimum Royalty
On March 29, 1995, the Company issued 451,427 shares of Common Stock
to the Partnership in satisfaction of the limited partners' 89.1%
interest in the $3,489,818 Net Minimum Royalty Obligation. The Company
and the Partnership agreed to waive payment by the Company of the
Company's 10.9% interest in the Net Minimum Royalty Obligation. In
accordance with the terms of the Agreement, the Common Stock issued to
the Partnership was valued based on the average closing price of the
Common Stock for the ten trading days immediately preceding the date
of issuance. The Company has registered these shares for resale by the
Partnership and is assisting the Partnership in its efforts to
distribute the shares to the limited partners. In connection with this
issuance of shares and related Registration Statement, the Company
incurred costs of approximately $51,573, which were netted against
paid-in capital.
F-14
<PAGE>
ABIOMED, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
March 31, 1995
(Continued)
(8) Employee Deferred Compensation Profit-sharing Plan and Trust
The Company has an Employee Deferred Compensation Profit-sharing Plan and
Trust (the 401(k) Plan) that covers all employees over 20 years of age who
have completed at least six months of service with the Company.
Contributions by the Company are determined by the Company's Board of
Directors and totaled approximately $40,000, $31,000 and $36,000 for the
fiscal years ended March 31, 1993, 1994 and 1995, respectively.
(9) Accrued Expenses
Accrued expenses consist of the following:
<TABLE>
<CAPTION>
--------MARCH 31,---------
1994 1995
<S> <C> <C>
Salaries and benefits $ 432,230 $ 447,669
Legal and audit 78,000 91,670
Customer advances - 281,528
Sales taxes 10,461 60,178
Other 278,444 346,334
----------- -----------
$ 799,135 $ 1,227,379
=========== ===========
</TABLE>
(10) Supplemental Disclosure of Noncash Investing and Financing Activity
The accompanying consolidated financial statements include the following
noncash investing and financing activity in the year ended March 31, 1995:
<TABLE>
<S> <C>
Due to Abiomed Limited Partnership $ 3,489,818
Investment in Abiomed Limited Partnership (380,390)
Common Stock Issued to Abiomed Limited Partnership (3,109,428)
===========
</TABLE>
F-15
<PAGE>
EXHIBIT 10(j)
ABIOMED, INC.
1989 NON-QUALIFIED STOCK OPTION PLAN
FOR NON-EMPLOYEE DIRECTORS
As Amended July 2, 1990 and August 17, 1992
1. Purpose. The purpose of this 1989 Non-Qualified Stock Option Plan for
-------
Non-Employee Directors is to attract and retain the services of experienced and
knowledgeable independent directors of the Corporation for the benefit of the
Corporation and its stockholders and to provide additional incentives for such
independent directors to continue to work for the best interests of the
Corporation and its stockholders through continuing ownership of its common
stock.
2. Definitions. As used herein, each of the following terms has the
-----------
indicated meaning:
"Corporation" means ABIOMED, Inc.
"Fair Market Value" means the last sale price of the Shares as reported on
the American Stock Exchange or such other national securities exchange or the
National Association of Securities Dealers Automated Quotation System ("NASDAQ")
on which the Shares may be traded on the date of the granting of the Option or
if that day is not a business day on the last business date preceding the date
of grant.
"Option" means the contractual right to purchase Shares upon the specific
terms set forth in this Plan.
"Option Exercise Period" means the period commencing on the date of grant of
an Option pursuant to this Plan and ending ten years from the date of grant.
"Plan" means this ABIOMED, Inc. 1989 Non-Qualified Stock Option Plan for
Non-Employee Directors.
"Shares" means the Common Stock, $.01 par value, of the Corporation.
3. Stock Subject to the Plan. The aggregate number of Shares that may be
-------------------------
issued and sold under the Plan shall be 150,000 shares. The Shares to be issued
upon exercise of Options granted under this Plan shall be made available, at the
discretion of the Board of Directors, from (i) treasury Shares and/or Shares
reacquired by the Corporation for such purposes, including Shares purchased in
the open market, (ii) authorized but unissued Shares, and (iii) Shares
previously reserved for issuance upon exercise of Options which have expired or
been terminated. If any Option granted under this Plan shall expire or
terminate for any reason without having been exercised in full, the unpurchased
Shares covered thereby shall become available for grant under additional Options
under the Plan so long as it shall remain in effect.
4. Administration of the Plan. The Plan shall be administered by the Board
--------------------------
of Directors of the Corporation (the "Board"). The Board shall, subject to the
provisions of the Plan, grant options under the Plan and shall have the power to
construe the Plan, to determine all questions as to eligibility, and to adopt
and amend such rules and regulations for the administration of the Plan as it
may deem desirable. The Board may delegate any and all of its authority
hereunder to one or more Committees of the Board.
<PAGE>
5. Eligibility; Grant of Options. Options will be granted only to directors
-----------------------------
of the Corporation who are not otherwise employees of the Corporation and who do
not own or are not affiliated with any person who owns, directly or indirectly,
shares of the Corporation's stock having more than five percent of the vote of
the Corporation's outstanding voting stock ("Eligible Directors"). Each
Eligible Director shall be granted an option to acquire 12,500 Shares commencing
(i) with respect to each Newly Elected Director on the date he or she is elected
to the Board and (ii) with respect to all other Eligible Directors August 17,
1992. Thereafter each Eligible Director shall be granted a new option for
12,500 Shares on July 1 of each successive fifth year following the grant of his
or her initial 12,500 Share Option.
6. Terms of Options and Limitations Thereon.
----------------------------------------
(a) Option Agreement. Each Option granted under this Plan shall be
----------------
evidenced by an option agreement between the Corporation and the Option holder
and shall be upon such terms and conditions not inconsistent with this Plan as
the Board may determine. Each Option shall explicitly state that it is not
intended to be an "incentive stock option" as that term is defined in Section
422A of the Internal Revenue Code.
(b) Price. The price at which any Shares may be purchased pursuant to
-----
the exercise of an Option shall be the Fair Market Value of the Shares on the
date of grant, but in no event shall the price be less than the par value of the
Shares.
(c) Exercise of Options. Subject to Paragraph 7 of this Plan, each
-------------------
Option granted under this Plan may be exercised in full at one time or in part
from time to time only during the Option Exercise Period by the giving of
written notice, signed by the person or persons exercising the Option, to the
Corporation stating the numbers of Shares with respect to which the Option is
being exercised, accompanied by full payment for such Shares pursuant to section
7(b) hereof; provided however, (i) if a person to whom an Option has been
granted is permanently disabled or dies during the Option Exercise Period, the
portion of such Option then exercisable, as provided in Paragraph 7(a) shall be
exercisable by him or her or by the executors, administrators, legatees or
distributees of his or her estate during the 12 months following his or her or
death or permanent disability and, (ii) if a person to whom an Option has been
granted ceases to be an Eligible Director of the Corporation for any cause other
than death or permanent disability, the portion of Option then exercisable shall
be exercisable during the one year period following the date such person ceased
to be a non-employee director, but, in any event, only to the extent vested
pursuant to Paragraph 7(a) hereof.
(d) Non-Assignability. No Option or right or interest in an Option shall
-----------------
be assignable or transferable by the holder except by will or the laws of
descent and distribution and during the lifetime of the holder shall be
exercisable only by him or her.
7. Vesting; Payment.
----------------
(a) Subject to the right of the Corporation to accelerate the date on
which all or any portion of the Option becomes exercisable and to the provisions
of subsection (b) below, each Option holder's right to exercise any Option
granted hereunder shall vest in five equal cumulative installments of twenty
(20%) percent of the number of shares subject to the Option each, commencing on
the June 30 following the date of grant with an additional twenty (20%) percent
vesting each successive June 30 thereafter. Notwithstanding any provision of
this Agreement to the contrary, in no event may the Option be exercised after
ten years from the date of this Agreement (the "Expiration Date").
<PAGE>
(b) If one of the events referred to in clauses (i) and (ii) of Paragraph
6(c) occurs, the Option shall be exercisable during the specified period
following said permanent disability or death only as to the number of Shares as
to which it was exercisable immediately prior to said permanent disability or
death.
(c) The purchase price of Shares upon exercise of an Option shall be paid
by the Option holder in full upon exercise and may be paid (i) in cash, (ii) by
delivery of Shares having a Fair Market Value on the date of exercise equal to
the purchase price, or (iii) any combination of cash and Shares, as the Board
may determine.
(d) No Shares shall be issued or transferred upon exercise of any Option
under this Plan unless and until all legal requirements applicable to the
issuance or transfer of such shares and such other requirements as are
consistent with the Plan have been complied with to the satisfaction of the
Board, including without limitation those described in Paragraph 10 hereof.
8. Stock Adjustments.
-----------------
(a) If the Corporation is a party to any merger or consolidation, any
purchase or acquisition of property or stock, or any separation, reorganization
or liquidation, the Board (or, if the Corporation is not the surviving
corporation, the Board of Directors of the surviving corporation) shall have the
power to make arrangements, which shall be binding upon the holders of unexpired
Options, for the substitution of new options for, or the assumption by another
corporation of, any unexpired Options then outstanding hereunder.
(b) If by reason of recapitalization, reclassification, stock split-up,
combination of shares, separation (including a spin-off) or dividend on the
Stock payable in Shares, the outstanding Shares of the Corporation are increased
or decreased or changed into or exchanged for a different number or kind of
shares or other securities of the Corporation, the Board shall conclusively
determine the appropriate adjustment in the exercise prices of outstanding
Options and in the number and kind of shares as to which outstanding Options
shall be exercisable.
(c) In the event of a transaction of the type described in Paragraphs (a)
and (b) above, the total number of Shares on which Options may be granted under
this Plan shall be appropriately adjusted by the Board.
9. No Rights Other Than Those Expressly Created. No person affiliated with
--------------------------------------------
the Corporation or other person shall have any claim or right to be granted an
Option hereunder. Neither this Plan nor any action taken hereunder shall be
construed as (i) giving any Option holder any right to continue to be affiliated
with the Corporation, (ii) giving any Option holder any equity or interest of
any kind in any assets of the Corporation, or (iii) creating a trust of any kind
or a fiduciary relationship of any kind between the Corporation and any such
person. No Option holder shall have any of the rights of a stockholder with
respect to Shares covered by an Option until such time as the Option has been
exercised and Shares have been issued to such person.
10. Miscellaneous.
-------------
(a) Withholding of Taxes. Pursuant to applicable federal, state, local
--------------------
or foreign laws, the Corporation may be required to collect income or other
taxes upon the grant of an Option to, or exercise of an Option by, a holder.
The Corporation may require, as a condition to the exercise of an Option, that
the recipient pay the Corporation, at such time as the Board determines, the
amount of any taxes which the Board may determine is required to be withheld.
<PAGE>
(b) Securities Law Compliance. Upon exercise of an Option, the holder
-------------------------
shall be required to make such representations and furnish such information as
may, in the opinion of counsel for the Corporation, be appropriate to permit the
Corporation to issue or transfer the Shares in compliance with the provisions of
applicable federal or state securities laws. The Corporation, in its
discretion, may postpone the issuance and delivery of Shares upon any exercise
of an Option until completion of such registration or other qualification of
such Shares under any federal or state laws, or stock exchange listing, as the
Corporation may consider appropriate. The Corporation is not obligated to
register or qualify the Shares under federal or state securities laws and may
refuse to issue such Shares if neither registration nor exemption therefrom is
practical. The Board may require that prior to the issuance or transfer of any
Shares upon exercise of an Option, the recipient enter into a written agreement
to comply with any restrictions on subsequent disposition that the Board or the
Corporation deems necessary or advisable under any applicable federal and state
securities laws. Certificates representing the Shares issued hereunder may be
legended to reflect such restrictions.
(c) Indemnity. The Board shall not be liable for any act, omission,
---------
interpretation, construction or determination made in good faith in connection
with its responsibilities with respect to the Plan, and the Corporation hereby
agrees to indemnify the members of the Board, in respect of any claim, loss,
damage, or expense (including counsel fees) arising from any such act, omission,
interpretation, construction or determination to the full extent permitted by
law.
11. Effective Date; Amendment; Termination.
--------------------------------------
(a) The effective date of this Plan is September 6, 1989. The effective
date of any amendment of this Plan shall be the date such amendment is adopted
by the Board of Directors, subject to stockholder approval if required under
subsection (b).
(b) The Board, or any Committee who has been delegated the authority to
do so, may at any time, and from time to time, amend, suspend or terminate this
Plan in whole or in part. Provided however, that so long as there is a
requirement under Rule 16b-3 under the Securities Exchange Act of 1934, as
amended, for stockholder approval of a Plan and certain amendments thereto, any
such amendment which (i) materially increases the number of Shares which may be
subject to Options granted under the Plan, (ii) materially increases the
benefits accruing to participants in the Plan, or (iii) materially modifies the
requirement for eligibility to participate in the Plan, shall be subject to
stockholder approval, to the extent so required under said Rule; and provided
further that the Plan may not be modified more often than once every six months
to materially modify (i) the requirements for eligibility under the Plan, (ii)
the timing of the grants of Options under the Plan, (iii) the number of Shares
subject to Options to be granted under the Plan, or (iv) the formula for
determining the fair market value, other than to comport with changes in the
Internal Revenue Code, the Employee Retirement Income Security Act, or the rules
thereunder. Except as provided herein, no amendment, suspension or termination
of this Plan may adversely affect the rights of any person under an Option that
has been granted to such person without such person's consent.
(c) This Plan shall terminate ten years from its effective date, and no
Option shall be granted under this Plan thereafter, but such termination shall
not affect the validity of Options granted prior to the date of termination.
Date of Board of Director Adoption: July 10, 1989 as amended on July 2, 1990 and
August 17, 1992.
<PAGE>
EXHIBIT 25
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation of our
report included in the Form 10-K, into the Company's previously filed
Registration Statements File No. 33-23053, No. 33-38030 and No. 33-65192.
/s/ ARTHUR ANDERSEN LLP
-----------------------
ARTHUR ANDERSEN LLP
Boston, Massachusetts
May 11, 1995
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