<PAGE>
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended DECEMBER 31, 1999
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
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Commission file number 0-20584
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ABIOMED, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 04-2743260
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(State of incorporation) (IRS Employer No.)
22 CHERRY HILL DRIVE
DANVERS, MASSACHUSETTS 01923
----------------------------
(Address of principal executive offices, including zip code)
(978) 777-5410
--------------
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) or 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 / /
As of January 17, 2000, there were 8,706,998 shares outstanding of the
registrant's Common Stock, $.01 par value.
<PAGE>
ABIOMED, INC. AND SUBSIDIARIES
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page No.
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<S> <C>
Part I - Financial Information:
Item 1. Condensed Consolidated Financial Statements
Consolidated Balance Sheets
December 31, 1999 and March 31, 1999 3-4
Consolidated Statements of Operations
Three and Nine Months Ended December 31, 1999
and December 31, 1998 5
Consolidated Statements of Cash Flows
Nine Months Ended December 31, 1999 and
December 31, 1998 6
Notes to Consolidated Financial Statements 7-11
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 12-20
Item 3. Quantitative and Qualitative Disclosure about
Market Risk 21
Part II - Other Information 22-23
Signatures 24
</TABLE>
2
<PAGE>
ABIOMED, INC. AND SUBSIDIARIES
PART 1. FINANCIAL INFORMATION
ITEM 1: FINANCIAL STATEMENTS
CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
December 31, March 31,
1999 1999
------------ ---------
(unaudited) (audited)
<S> <C> <C>
Current Assets:
Cash and cash equivalents (Note 7) $ 5,006,089 $ 9,279,210
Short-term marketable securities (Note 8) 7,705,207 8,902,031
Accounts receivable, net of allowance for doubtful accounts
of $208,000 and $204,000 at December 31, 1999 and March 31,
1999, respectively (Note 3) 6,861,816 6,437,225
Inventories (Note 4) 3,616,971 2,895,857
Prepaid expenses and other current assets 460,566 335,403
---------- ----------
Total current assets 23,650,649 27,849,726
---------- ----------
Property and Equipment, at cost (Note 9):
Machinery and equipment 5,849,970 5,443,930
Furniture and fixtures 662,028 575,166
Leasehold improvements 2,276,210 1,728,351
---------- ----------
8,788,208 7,747,447
Less: Accumulated depreciation and amortization 5,453,161 3,884,088
---------- ----------
3,335,047 3,863,359
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Other Assets, net (Notes 2 and 10) 1,033,126 1,268,536
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$ 28,018,822 $32,981,621
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---------- ----------
</TABLE>
The accompanying notes are an integral part
of these condensed consolidated financial statements.
3
<PAGE>
ABIOMED, INC. AND SUBSIDIARIES
PART 1. FINANCIAL INFORMATION
ITEM 1: FINANCIAL STATEMENTS (continued)
CONSOLIDATED BALANCE SHEETS (continued)
LIABILITIES AND STOCKHOLDERS' INVESTMENT
<TABLE>
<CAPTION>
December 31, March 31,
1999 1999
------------ ---------
(unaudited) (audited)
<S> <C> <C>
Current Liabilities:
Accounts payable $ 1,945,154 $ 874,648
Accrued expenses 5,189,995 4,830,620
Current portion of capital lease obligations (Note 9) 67,520 -
Current portion of notes payable to bank (Note 11) 65,076 -
------------ ------------
Total current liabilities 7,267,745 5,705,268
------------ ------------
Long Term Liabilities:
Other long term liabilities 186,136 204,816
Capital lease obligations, net of current portion (Note 9) 146,544 -
Note payable to bank, net of current portion (Note 11) 178,960 -
------------ ------------
Total long term liabilities 511,640 204,816
------------ ------------
Stockholders' Investment (Note 5):
Class B Preferred Stock, $.01 par value-
Authorized - 1,000,000 shares
Issued and outstanding - none - -
Common Stock, $.01 par value-
Authorized - 25,000,000 shares
Issued and outstanding - 8,703,873 shares at
December 31, 1999 and 8,650,802 shares at
March 31, 1999 87,039 86,508
Additional paid-in capital 58,771,418 58,219,906
Accumulated deficit (38,619,020) (31,234,877)
------------ ------------
Total stockholders' investment 20,239,437 27,071,537
------------ ------------
$ 28,018,822 $ 32,981,621
------------ ------------
------------ ------------
</TABLE>
The accompanying notes are an integral part
of these condensed consolidated financial statements.
4
<PAGE>
ABIOMED, INC. AND SUBSIDIARIES
PART 1. FINANCIAL INFORMATION
ITEM 1: FINANCIAL STATEMENTS (continued)
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
December 31, December 31, December 31, December 31,
1999 1998 1999 1998
--------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C>
Revenues:
Products $ 5,195,105 $ 4,485,327 $ 12,810,447 $ 12,362,820
Contracts 748,557 641,374 3,653,205 3,534,550
------------ ------------ ------------ ------------
5,943,662 5,126,701 16,463,652 15,897,370
------------ ------------ ------------ ------------
Costs and expenses:
Cost of product revenues 1,610,330 1,700,538 4,082,785 4,700,749
Research and development 4,596,270 3,647,923 11,438,429 10,632,147
Selling, general and administrative 3,524,082 2,301,668 8,934,082 6,839,974
------------ ------------ ------------ ------------
9,730,682 7,650,129 24,455,296 22,172,870
------------ ------------ ------------ ------------
Loss from operations (3,787,020) (2,523,428) (7,991,644) (6,275,500)
Interest and other income, net 209,998 217,704 607,501 944,707
------------ ------------ ------------ ------------
Net loss $ (3,577,022) $ (2,305,724) $ (7,384,143) $ (5,330,793)
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
Net loss per share (Note 6):
Basic $ (0.41) $ (0.27) $ (0.85) $ (0.62)
Diluted $ (0.41) $ (0.27) $ (0.85) $ (0.62)
Weighted average shares outstanding (Note 6):
Basic 8,673,531 8,639,732 8,660,814 8,611,353
Diluted 8,673,531 8,639,732 8,660,814 8,611,353
</TABLE>
The accompanying notes are an integral part
of these condensed consolidated financial statements.
5
<PAGE>
ABIOMED, INC. AND SUBSIDIARIES
PART 1. FINANCIAL INFORMATION
ITEM 1: FINANCIAL STATEMENTS (continued)
CONSOLIDATED STATEMENT OF CASH FLOWS
(unaudited)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
December 31, December 31,
1999 1998
------------ ------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (7,384,143) $ (5,330,793)
Adjustments to reconcile net loss to net cash
used in operating activities-
Depreciation and amortization 1,718,078 1,171,885
Changes in assets and liabilities-
Accounts receivable (424,591) 45,862
Inventories (721,114) (1,096,776)
Prepaid expenses and other assets (38,758) (116,999)
Accounts payable 1,070,506 (891,316)
Accrued expenses 359,375 801,633
Long-term liabilities (18,680) 48,951
Liabilities of discontinued operations, net -- (197,123)
----------- ------------
Net cash used in operating activities (5,439,327) (5,564,676)
----------- ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from the sale of short-term marketable securities 9,690,457 32,824,871
Purchases of short-term marketable securities (8,493,633) (25,722,293)
Purchases of property and equipment (819,770) (1,418,669)
----------- ------------
Net cash provided by investing activities 377,054 5,683,909
----------- ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from exercise of stock options and stock issued
under employee stock purchase plan 552,043 687,506
Proceeds from long-term debt 249,459 --
Repayment of long-term debt and capital lease obligations (12,350) --
----------- ------------
Net cash provided by financing activities 789,152 687,506
----------- ------------
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (4,273,121) 806,739
CASH AND CASH EQUIVALENTS, EXCLUDING MARKETABLE
SECURITIES, AT BEGINNING OF PERIOD 9,279,210 2,683,151
----------- ------------
CASH AND CASH EQUIVALENTS , EXCLUDING MARKETABLE
SECURITIES, AT END OF PERIOD $ 5,006,089 $ 3,489,890
----------- ------------
----------- ------------
SUPPLEMENTAL DISCLOSURE OF NON-CASH FINANCING ACTIVITIES:
Capital lease obligation incurred for property and equipment $ 220,991 --
</TABLE>
The accompanying notes are an integral part
of these condensed consolidated financial statements.
6
<PAGE>
ABIOMED, INC. AND SUBSIDIARIES
PART 1. FINANCIAL INFORMATION (continued)
ITEM 1: FINANCIAL STATEMENTS (continued)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
1. BASIS OF PREPARATION
The unaudited condensed consolidated financial statements of ABIOMED,
Inc. (the Company) presented herein have been prepared in accordance with the
instructions to Form 10-Q and do not include all of the information and note
disclosures required by generally accepted accounting principles. These
statements should be read in conjunction with the consolidated financial
statements and notes thereto included in our latest audited financial
statements. These audited statements are contained in our Form 10-K for the year
ended March 31, 1999 and have been filed with the Securities and Exchange
Commission.
In our opinion, the accompanying condensed consolidated financial
statements include all adjustments (consisting only of normal, recurring
adjustments) necessary to present fairly the financial position and results of
operations as of December 31, 1999 and for the nine months then ended. The
results of operations for the nine months ended December 31, 1999 may not be
indicative of the results that may be expected for the full fiscal year.
2. PRINCIPLES OF CONSOLIDATION
The condensed consolidated financial statements include the accounts of
the Company, its wholly owned subsidiaries, and the accounts of its
majority-owned subsidiary, Abiomed Limited Partnership. All significant
intercompany accounts and transactions have been eliminated in consolidation.
3. ACCOUNTS RECEIVABLE
Accounts receivable includes amounts due from customers, excluding
long-term amounts due from customers under sales-type leases (see Note 10), net
of allowance for doubtful accounts. Accounts receivable also include amounts due
from government and other third party sources related to our research and
development contracts and grants. These research and development contracts and
grants generally provide for payment on a cost-plus-fixed-fee basis. We
recognize revenues under government contracts and grants as work is performed,
provided that the government has appropriated sufficient funds for the work. The
Company retains rights to all technological discoveries and products resulting
from these efforts.
7
<PAGE>
ABIOMED, INC. AND SUBSIDIARIES
PART 1. FINANCIAL INFORMATION (continued)
ITEM 1: FINANCIAL STATEMENTS (continued)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited, continued)
4. INVENTORIES
Inventories include raw materials, work-in-process, and finished goods,
and are priced at the lower of cost (first-in, first-out) or market and consist
of the following:
<TABLE>
<CAPTION>
December 31, March 31,
1999 1999
------------ ---------
<S> <C> <C>
Raw materials $ 1,390,933 $ 1,403,253
Work-in-process 726,496 636,125
Finished goods 1,499,542 856,479
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$ 3,616,971 $ 2,895,857
--------- ---------
--------- ---------
</TABLE>
Finished goods and work-in-process inventories consist of direct material, labor
and overhead.
5. STOCKHOLDERS' INVESTMENT
During the nine months ended December 31, 1999, options to purchase
306,050 shares of Common Stock were granted at exercise prices ranging from
$8.875 to $30.688 per share. During the nine month period, options to purchase
37,750 shares were canceled and options to purchase 48,431 shares of Common
Stock were exercised at prices ranging from $5.750 to $18.000 per share.
During the nine months ended December 31, 1999, 4,640 shares of Common
Stock were issued under the Employee Stock Purchase Plan.
6. NET LOSS PER COMMON SHARE
We calculate net loss per common share in accordance with Statement of
Financial Accounting Standards (SFAS) No. 128, EARNINGS PER SHARE, which
requires that we present both basic and diluted net loss per share for all
periods presented. Basic net loss per share ("Basic EPS") is computed by
dividing net loss by the weighted average number of common shares outstanding
during the period. Diluted net loss per share ("Diluted EPS") is computed by
dividing net loss by the weighted average number of common and common equivalent
shares outstanding during the period using the treasury stock method. In
computing Diluted EPS, common equivalent shares are not considered dilutive in
periods in which a net loss is reported
8
<PAGE>
ABIOMED, INC. AND SUBSIDIARIES
PART 1. FINANCIAL INFORMATION (continued)
ITEM 1: FINANCIAL STATEMENTS (continued)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited, continued)
6. NET LOSS PER COMMON SHARE (continued)
because they are antidilutive. Accordingly, Basic EPS and Diluted EPS are the
same for all periods presented. The number of common equivalent shares that
otherwise would have been dilutive for the three and nine months ended December
31, 1999 and three and nine months ended December 31, 1998 are 769,932, 517,116,
42,324, and 135,599, respectively.
7. CASH AND CASH EQUIVALENTS
We classify marketable securities, with a maturity date of 90 days or
less at the time of purchase, as a cash equivalent.
8. MARKETABLE SECURITIES
We classify any security, with a maturity date of greater than 90 days
at the time of purchase, as marketable securities and classify marketable
securities with a maturity date of greater than one year from the balance sheet
date as long-term investments. At December 31, 1999, marketable securities
consisted primarily of government securities and high-grade corporate bonds. The
amortized cost of marketable securities approximated market value.
9. LEASES
On December 27, 1999, the Company entered into a 36-month capital lease
for $221,000 of computer equipment and software. Included in property and
equipment, these assets are to be used in research and development activities
and general operations. At the end of the lease term, the Company can either (a)
renew the lease for an additional 6-month option period at a reduced rental
rate, (b) purchase the equipment at its then fair market value, but no greater
than 12.5% of its original purchase cost, or (c) return the equipment to the
lessor. As of December 31, 1999, future minimum lease payments are approximately
$242,000.
During the quarter ended December 31, 1999, the Company also entered
into 36-month operating leases for office furniture. At the end of the lease
terms, the Company can either (a) renew the leases for additional 12-month
option periods at the then fair market rental value, (b) purchase the furniture
at its then fair market value, but no greater than 25% of its original purchase
cost, or (c) return the furniture to the lessor. Rental expense recorded for
these leases during the three months ended December 31, 1999 was approximately
$33,000. As of December 31, 1999, future minimum lease payments are
approximately $610,000.
9
<PAGE>
ABIOMED, INC. AND SUBSIDIARIES
PART 1. FINANCIAL INFORMATION (continued)
ITEM 1: FINANCIAL STATEMENTS (continued)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited, continued)
10. OTHER ASSETS
Other assets include approximately $94,000 in unamortized purchase cost
of the Company's majority interest of the Abiomed Limited Partnership (the
Partnership). The interest in the Partnership is being amortized over its useful
life of five years. The Partnership was formed in March 1985 and provided
initial funding for the design and development of certain of our products.
Through August 3, 2000, a royalty is owed to the Partnership equal to
5.5% of certain revenues from these products. Because the Company owns 61.7% of
the Partnership, the net royalty expense to the Company is approximately 2.1% of
these product revenues. This royalty formula is subject to certain maximum
amounts and to certain additional adjustments in the event that the Company
sells the technology. The Partnership is inactive except with respect to
receiving and distributing proceeds from these royalty rights.
Also included in other assets are long-term accounts receivable related
to sales-type leases. The terms of these non-cancelable leases are one to three
years. As of December 31, 1999, the total amount due from sales-type leases was
$1,941,000 of which $664,000 was classified as long-term receivables. As of
March 31, 1999, the total amount due from these sales-type leases was $2,263,000
of which $892,000 was classified as long-term receivables.
Other assets also include the unamortized cost of a number of awarded
and pending patents. As of December 31, 1999, the unamortized cost of these
patents approximated $261,000. As of March 31, 1999, the unamortized cost of
these patents approximated $275,000.
11. BANK TERM LOANS
On October 14, 1999, the Company entered into an agreement with a bank
whereby it will be able to draw up to $1.2 million in term loans through March
31, 2000 for the acquisition of manufacturing equipment and leasehold
improvements. These term loans are subject to various financial covenants,
secured by the acquired equipment and leasehold improvements and are to be
repaid in equal monthly installments through September 1, 2003. These notes bear
interest at either the bank's prime rate or LIBOR rate, at the Company's
election. Through December 31, 1999, the Company has borrowed a total of
$249,000 under this loan facility at the bank's prime rate (8.5% at December 31,
1999), of which $244,000 remains outstanding as of that date.
10
<PAGE>
ABIOMED, INC. AND SUBSIDIARIES
PART 1. FINANCIAL INFORMATION (continued)
ITEM 1: FINANCIAL STATEMENTS (continued)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited, continued)
12. RECLASSIFICATION OF PRIOR YEAR AMOUNTS
Certain prior year financial statement information has been
reclassified to be consistent with the current year presentation.
13. SEGMENT AND ENTERPRISE WIDE DISCLOSURES
We believe that the Company operates in one business segment; the
research, development, and sale of medical devices to assist or replace the
pumping function of the failing heart.
11
<PAGE>
ABIOMED, INC. AND SUBSIDIARIES
PART 1. FINANCIAL INFORMATION (continued)
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
THREE MONTHS ENDED DECEMBER 31, 1999
PRODUCT REVENUES
Product revenues increased by $0.7 million, or 16%, to $5.2 million in
the three months ended December 31, 1999 from $4.5 million in the three months
ended December 31, 1998. The increase in product revenues is primarily
attributable to increased unit sales and increased average selling prices of BVS
disposable blood pumps sold to existing customers, and is partially offset by a
reduction in unit sales of BVS systems sold to new customers. We believe that
the increase in reorder sales of blood pumps and the decline in sales of BVS
systems to new customers was largely the result of a decision made at the
beginning of the current fiscal year to shift the focus of certain of our sales
representatives from sales to new customers to increased support of existing
customers in an effort to increase reorders of higher margin BVS blood pumps.
Reorder unit sales of BVS blood pumps increased by 14% during the three months
ended December 31, 1999 as compared to the same period of the prior year.
Domestic sales accounted for 96% of total product revenue during the three
months ended December 31, 1999, and 97% for the same period of the prior year.
CONTRACT REVENUES
Contract revenues increased by $0.1 million, or 17%, to $0.7 million in
the three months ended December 31, 1999 from $0.6 million in the three months
ended December 31, 1998. Approximately half of the contract revenues recorded in
the quarter ended December 31, 1999 were derived from our AbioBooster contract.
The remaining contract revenues during the period were primarily derived from
other government grants.
We account for contract revenues under our government contracts and
grants as work is performed, provided that the government has appropriated
sufficient funds for the work. As of December 31, 1999, our total backlog of
research and development contracts and grants was $2.0 million, including $0.8
million for AbioBooster research and development. All of these contracts and
grants contain provisions that make them terminable at the convenience of the
government. ABIOMED retains rights to all technological discoveries and products
resulting from these efforts.
12
<PAGE>
ABIOMED, INC. AND SUBSIDIARIES
PART 1. FINANCIAL INFORMATION (continued)
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(continued)
COST OF PRODUCT REVENUES
Cost of product revenues as a percentage of product revenues decreased
to 31% in the three months ended December 31, 1999 from 38% in the three months
ended December 31, 1998. The majority of this decrease in cost of product
revenues as a percentage of product revenues was attributable to higher average
selling prices for BVS blood pumps during the three months ended December 31,
1999 as compared to the same period of the prior year and to an increase in the
proportion of higher margin BVS blood pumps sold relative to lower margin BVS
consoles sold.
RESEARCH AND DEVELOPMENT EXPENSES
Research and development expenses increased by $0.9 million, or 26%, to
$4.6 million in the three months ended December 31, 1999, from $3.6 million in
the three months ended December 31, 1998. Research and development expenses were
77% of total revenues for the three months ended December 31, 1999 and 71% of
total revenues for the same period of the prior year. The increase in
expenditures during the three months ended December 31, 1999 was due primarily
to increased spending for the AbioCor. Research and development expenses during
the three months ended December 31, 1999 included $3.5 million of expenses
incurred in connection with our development activities for the AbioCor, compared
to $2.5 million for the same period of the prior year. The increase in AbioCor
expense is primarily attributable to the timing of materials purchases and to
increased manufacturing and testing activities.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses increased by $1.2 million,
or 53%, to $3.5 million in the three months ended December 31, 1999, from $2.3
million in the three months ended December 31, 1998. Expenditures increased to
59% of total revenues from 45% of total revenues in the same period a year
earlier. This increase is primarily attributed to increased selling and
marketing expenditures as a result of our implementing new programs designed to
improve sales of our disposable blood pumps, and to increased legal expenses.
13
<PAGE>
ABIOMED, INC. AND SUBSIDIARIES
PART 1. FINANCIAL INFORMATION (continued)
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(continued)
INTEREST AND OTHER INCOME
Interest and other income consists primarily of interest earned on our
investment balances, net of interest and other expenses. Interest and other
income remained consistent at $0.2 million in the three months ended December
31, 1999 and December 31, 1998.
NET LOSS
Net loss for the three months ended December 31, 1999 was approximately
$3.6 million, or $0.41 per share. This compares to a net loss of approximately
$2.3 million, or $0.27 per share, for the three months ended December 31, 1998.
The losses for both three-month periods are primarily attributable to
development and pre-clinical testing costs associated with the AbioCor
implantable replacement heart.
14
<PAGE>
ABIOMED, INC. AND SUBSIDIARIES
PART 1. FINANCIAL INFORMATION (continued)
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(continued)
NINE MONTHS ENDED DECEMBER 31, 1999
PRODUCT REVENUES
Product revenues increased by $0.4 million, or 4%, to $12.8 million in
the nine months ended December 31, 1999 from $12.4 million in the nine months
ended December 31, 1998. The increase in product revenues is primarily
attributable to increased unit sales and increased average selling prices of BVS
disposable blood pumps sold to existing customers, and is partially offset by a
reduction in unit sales of BVS systems sold to new customers. We believe that
the increase in reorder sales of blood pumps and the decline in sales of BVS
systems to new customers was largely a result of a decision made at the
beginning of the current fiscal year to shift the focus of certain of our sales
representatives from sales to new customers to increased support of existing
customers in an effort to increase reorders of higher margin BVS blood pumps.
Reorder unit sales of BVS blood pumps increased by 12% during the nine months
ended December 31, 1999 as compared to the same period of the prior year.
Domestic sales accounted for 96% of total product revenue during both the nine
months ended December 31, 1999 and the same period of the previous year.
CONTRACT REVENUES
Contract revenues increased by $0.2 million, or 3%, to $3.7 million in
the nine months ended December 31, 1999 from $3.5 million in the nine months
ended December 31, 1998. Approximately $1.8 million of the contract revenues
recognized in both periods were derived from our AbioCor government contract.
The remaining contract revenues recorded were primarily derived from our
AbioBooster contract and other government grants.
We account for contract revenues under our government contracts and
grants as work is performed, provided that the government has appropriated
sufficient funds for the work. Through December 31, 1999, the government has
appropriated all of the $8.5 million AbioCor contract amount, including the $1.8
million appropriated and recognized as contract revenues during the quarter
ended June 30, 1999. No amount remains to be recognized under the AbioCor
government contract as of December 31, 1999.
As of December 31, 1999, our total backlog of research and development
contracts and grants was $2.0 million, including $0.8 million for AbioBooster
research and development. All of these
15
<PAGE>
ABIOMED, INC. AND SUBSIDIARIES
PART 1. FINANCIAL INFORMATION (continued)
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(continued)
CONTRACT REVENUES (continued)
contracts and grants contain provisions that make them terminable at the
convenience of the government. ABIOMED retains rights to all technological
discoveries and products resulting from these efforts.
COST OF PRODUCT REVENUES
Cost of product revenues as a percentage of product revenues decreased
to 32% in the nine months ended December 31, 1999 from 38% in the nine months
ended December 31, 1998. The majority of this decrease in cost of product
revenues as a percentage of product revenues was attributable to higher average
selling prices for BVS blood pumps during the nine months ended December 31,
1999 as compared to the same period of the prior year and to an increase in the
proportion of higher margin BVS blood pumps sold relative to lower margin BVS
console sales.
RESEARCH AND DEVELOPMENT EXPENSES
Research and development expenses increased by $0.8 million, or 8%, to
$11.4 million in the nine months ended December 31, 1999, from $10.6 million in
the nine for the months ended December 31, 1998. Research and development
expenses were 70% of total revenues for the nine months ended December 31, 1999
and 67% of total revenues for the same period of the prior year. The increase in
expenditures during the nine months ended December 31, 1999 was due primarily to
increased spending for the AbioCor, new products and enhancements for the BVS
product line and technologies under government contracts and grants. Research
and development expenses during the nine months ended December 31, 1999 included
$8.2 million of expenses incurred in connection with our development activities
for the AbioCor, compared to $7.5 million for the same period of the prior year.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses increased by $2.1 million,
or 31%, to $8.9 million in the nine months ended December 31, 1999, from $6.8
million in the nine months ended December 31, 1998. Expenditures increased to
54% of total revenues from 43% of total revenues in the same period a year
earlier. This increase is primarily attributed to increased selling and
marketing expenditures as a result of our implementing new programs designed to
improve sales of our disposable blood pumps, and increased legal expenses.
16
<PAGE>
ABIOMED, INC. AND SUBSIDIARIES
PART 1. FINANCIAL INFORMATION (continued)
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(continued)
INTEREST AND OTHER INCOME
Interest and other income consists primarily of interest earned on our
investment balances, net of interest and other expenses. Interest and other
income decreased by $0.3 million, or 36%, to $0.6 million in the nine months
ended December 31, 1999 from $0.9 million in the nine months ended December 31,
1998. This decrease was primarily due to lower average funds available for
investment.
NET LOSS
Net loss for the nine months ended December 31, 1999 was approximately
$7.4 million, or $0.85 per share. This compares to a net loss of approximately
$5.3 million, or $0.62 per share, for the nine months ended December 31, 1998.
The losses for both nine-month periods are primarily attributable to development
and pre-clinical testing costs associated with the AbioCor implantable
replacement heart.
LIQUIDITY AND CAPITAL RESOURCES
We have supported our operations primarily with net revenues from sales
of our BVS product line, government contracts and proceeds from our equity
financings. As of December 31, 1999, our cash, cash equivalents and marketable
securities total $12.7 million. We also have a $3 million line of credit from a
bank that expires on October 13, 2000, which bears interest at the bank's prime
rate (8.5% at December 31, 1999), and a term loan facility from the same bank,
which also bears interest at the bank's prime rate, that permits us to borrow up
to $1.2 million through March 31, 2000 for the acquisition of manufacturing
equipment and leasehold improvements. As of December 31, 1999, the entire line
of credit line was available and approximately $1.0 million was available under
the term loan facility.
During the nine months ended December 31, 1999, operating activities
used $5.4 million of cash. Net cash used by operating activities during this
period resulted primarily from a net loss of $7.4 million and increases in
accounts receivable and inventory of $0.4 million and $0.7 million,
respectively. These uses of cash were partially offset by increases in accounts
payable and accrued expenses of $1.4 million and non-cash charges for
depreciation and amortization of $1.7 million included in the net loss.
During the nine months ended December 31, 1999, investing activities
provided $0.4 million of cash. Approximately $1.2 million in cash provided from
the sale of short-term marketable securities, net of
17
<PAGE>
ABIOMED, INC. AND SUBSIDIARIES
PART 1. FINANCIAL INFORMATION (continued)
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(continued)
LIQUIDITY AND CAPITAL RESOURCES (continued)
purchases of similar securities, was partially offset by purchases of capital
equipment and expenditures for leasehold improvements of $0.8 million. We also
acquired an additional $0.2 million in capital equipment by entering into a
capital lease during this period. In January 1999, we entered into an operating
lease for 80,000 square feet of space in a building addition currently under
construction and located within the same industrial park as our current
facilities. We also entered into 36-month operating leases for an additional
$0.7 million in capital purchases for office furniture to be used in this new
facility. Our purpose for this new facility is to consolidate our operations and
to expand our manufacturing and research and development. We began occupying
this facility in fiscal 2000, and we expect to complete our phased move into
this facility in fiscal 2001. We anticipate that we will incur additional costs
of approximately $0.8 million for improvements to this new facility, including
costs to construct and qualify manufacturing clean rooms for our existing
products and for our products under development.
During the nine months ended December 31, 1999, financing activities
provided $0.8 million, including $0.6 million from the exercise of stock options
and stock issued under the employee stock purchase plan and $0.2 million from
the issuance of bank term notes.
Income taxes incurred during each of the periods presented were not
material, and we continue to have significant net tax operating loss and tax
credit carryforwards.
On December 20, 1999, we filed a registration statement with the
Securities and Exchange Commission for a proposed public offering of
1,500,000 shares of common stock. The Company and one shareholder together
have also granted to the underwriters a 30-day option to purchase up to an
additional 225,000 shares solely to cover any over-allotments. We believe
that the net proceeds of this offering, together with our existing resources
and our revenue from government contracts and products sales, will be
sufficient to fund our planned operations, including the planned increases in
our internally funded AbioCor and new BVS development and product extension
efforts, for the foreseeable future. However, we cannot assure that we will
successfully complete this offering, and if we do, we may nevertheless
require significant additional funds in order to complete the development,
conduct clinical trials, and achieve regulatory approvals of the AbioCor and
other products under development over the next several years. We may also
need additional funds for possible future strategic acquisitions of
businesses, products or technologies complementary to our business. If this
offering of 1,500,000 shares of common stock is not completed, or does not
18
<PAGE>
ABIOMED, INC. AND SUBSIDIARIES
PART 1. FINANCIAL INFORMATION (continued)
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(continued)
LIQUIDITY AND CAPITAL RESOURCES (continued)
generate sufficient funds, or additional funds are required for any other
reason, we may seek to raise such funds from time to time through public or
private sales of equity or from borrowings.
YEAR 2000 READINESS DISCLOSURE
As of the date of this filing, we have not incurred any significant
business disruptions as a result of year 2000 issues. However, while no such
occurrence has developed, year 2000 issues that may arise related to key
suppliers and service providers may not become apparent immediately. We have
received assurances of year 2000 compliance from key suppliers and have
increased safety stocks of materials inventory where a prolonged loss of
material deliveries would have an adverse impact on our business, financial
condition and results of operations. We have also received assurances from key
service providers such as financial institutions, our payroll service provider,
and our retirement plan administrator as to their year 2000 readiness. We can
provide no assurance that we will not be adversely affected by these suppliers
and service providers due to noncompliance in the future.
RISK FACTORS WHICH MAY AFFECT FUTURE RESULTS
This document contains forward looking statements, including statements
regarding the anticipated timing and cost of our AbioCor development activities,
enhancements to be made to the BVS, planned expansion of our manufacturing
facilities, and adequacy of existing resources, including our pending public
stock offering. The Company's actual results, including our AbioCor development,
BVS new products and enhancements, facility expansion, and adequacy of resources
may differ materially based on a number of factors, both known and unknown,
including: uncertainty associated with new product development, testing and
clinical trials, complex and high quality manufacturing requirements, inability
to attract and retain human resources as needed, competition, technological
change, obtaining and maintaining regulatory regulations including the FDA and
other regulatory agencies, dependence on limited sources of supply, future
capital needs and uncertainty of additional funding, dependence on patents and
proprietary rights and other risks detailed in our Form 10-K for the year ended
March 31, 1999 and in our Form S-3 registration statement dated December 17,
1999 which were filed with the Securities and Exchange Commission. Investors are
cautioned that all such statements involve risks and uncertainties. Readers are
cautioned not
19
<PAGE>
ABIOMED, INC. AND SUBSIDIARIES
PART 1. FINANCIAL INFORMATION (continued)
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(continued)
RISK FACTORS WHICH MAY AFFECT FUTURE RESULTS (continued)
to place undue reliance on these forward-looking statements, which speak only as
of the date of this document. We undertake no obligation to publicly release the
results of any revisions to these forward-looking statements that may be made to
reflect events or circumstances after the date hereof or to reflect the
occurrence of unanticipated events.
20
<PAGE>
ABIOMED, INC. AND SUBSIDIARIES
PART 1. FINANCIAL INFORMATION (continued)
ITEM 3: QUANTITATIVE AND QUALITATIVE DISCLOSURE
ABOUT MARKET RISK
The Company does not use derivative financial instruments for
speculative or trading purposes. However, it is exposed to market risk related
to changes in interest rates. The Company maintains an investment portfolio
consisting mainly of federal agency obligations, state and municipal bonds, and
U.S. Treasury notes with maturities of one year or less. These held-to-maturity
securities are subject to interest rate risk and will fall in value if market
interest rates increase. If market interest rates were to increase immediately
and uniformly by 10 percent from levels at December 31, 1999, the fair market
value of the portfolio would decline by an immaterial amount. The Company has
the ability to hold the majority of its fixed income investments until maturity,
and therefore the Company would not expect its operating results or cash flows
to be affected to any significant degree by the effect of a sudden change in
market interest rates on its securities portfolio.
21
<PAGE>
ABIOMED, INC. AND SUBSIDIARIES
PART II. OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS
On January 20, 1998, World Heart Corporation and the Ottawa Heart
Institute Research Corporation filed a complaint in U.S. District Court for the
District of Delaware. World Heart Corporation is currently developing a left
ventricular assist device, using technology initially developed by the Ottawa
Heart Institute Research Corporation. The complaint seeks damages and injunctive
relief for alleged breaches of contract, misappropriation of trade secrets,
conversion of trade secrets and patent infringement by ABIOMED. The plaintiffs'
claims and allegations relate to a transcutaneous energy transmission device
being developed by the Ottawa Heart Institute Research Corporation in connection
with their left ventricular assist device under development. Between 1992 and
1995, we evaluated prototypes of the Ottawa Institute Research Corporation's
transcutaneous energy transmission device for possible use in connection with
the AbioCor-TM- implantable replacement heart and determined that it did not
meet our needs. The plaintiffs allege that we subsequently utilized aspects of
their proprietary technology in developing our own transcutaneous energy
transmission device.
We do not believe that we are infringing any intellectual proprietary
rights of the plaintiffs, and have so stated in our answer to the complaint. We
are vigorously defending the case.
On October 20, 1999, World Heart Corporation informed us that they have
determined that our transcutaneous energy transmission device does not infringe
their patent. On November 22, 1999, the parties filed with the court to
permanently dismiss the patent infringement claim. The plaintiffs continue to
press the remaining claims. Unless action is taken by the plaintiffs or by the
court to dismiss the remaining claims prior to trial, we intend to defend
ourselves in court. Trial is scheduled to commence in early 2000.
Although we believe the plaintiffs' claims and allegations to be
without merit, it is possible that our defense may not prevail. If we do not
prevail, we might be required to use or develop alternative transcutaneous or
non-transcutaneous technology, to seek a license to use certain technology, or
to modify the design of our transcutaneous energy transmission device. Although
alternative technologies may be used to provide energy to the AbioCor system,
such alternative technologies, though functional, may lack features of our
current design. As a result, if we do not prevail, our development of the
AbioCor may be adversely affected and our business may be harmed.
On May 7, 1999, we filed a motion requesting leave of court to assert a
counterclaim alleging that World Heart Corporation and Ottawa Heart Institute
Research Corporation misappropriated our trade secrets. The court has deferred
action on that motion.
22
<PAGE>
ABIOMED, INC. AND SUBSIDIARIES
PART II. OTHER INFORMATION (continued)
Item 2. CHANGES IN SECURITIES
None
Item 3. DEFAULTS UPON SENIOR SECURITIES
None
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
Item 5. OTHER INFORMATION
None
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
a) EXHIBITS
Exhibit 27 - Financial Data Schedule
b) REPORTS ON FORM 8-K
On December 3, 1999, the Company filed a Current Report on
Form 8-K reporting under Item 5 that the patent infringement
claim, asserted by WorldHeart Corporation and the Ottawa Heart
Institute Research Corporation had been permanently dismissed.
23
<PAGE>
ABIOMED, INC. AND SUBSIDIARIES
PART II. OTHER INFORMATION (continued)
- -------------------------------------------------------------------------------
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
ABIOMED, Inc.
Date: January 19, 2000 /s/ David M. Lederman
---------------------
David M. Lederman
CEO and President
Date: January 19, 2000 /s/ John F. Thero
-----------------
Senior Vice President Finance
and Treasurer
Chief Financial Officer
Principal Accounting Officer
24
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<PAGE>
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<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S CONSOLIDATED STATEMENT OF OPERATIONS, CONSOLIDATED BALANCE SHEET, AND
CONSOLIDATED STATEMENT OF CASH FLOWS AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
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<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> MAR-31-2000
<PERIOD-START> APR-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 5,006,089
<SECURITIES> 7,705,207
<RECEIVABLES> 7,069,821
<ALLOWANCES> 208,005
<INVENTORY> 3,616,971
<CURRENT-ASSETS> 23,650,649
<PP&E> 8,788,208
<DEPRECIATION> 5,453,161
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0
0
<COMMON> 87,039
<OTHER-SE> 20,152,398
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<SALES> 16,463,652
<TOTAL-REVENUES> 16,463,652
<CGS> 15,521,214
<TOTAL-COSTS> 24,455,296
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (607,501)
<INCOME-PRETAX> (7,384,143)
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