<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 SEPTEMBER 30, 2000
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from___________ to _____________
Commission file number 0-20584
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ABIOMED, INC.
-------------
(Exact name of registrant as specified in its charter)
DELAWARE 04-2743260
-------- ----------
(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 October 23, 2000, there were 20,621,510 shares outstanding of the
registrant's Common Stock, $.01 par value.
<PAGE>
ABIOMED, INC. AND SUBSIDIARIES
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page No.
<S> <C>
Part I - Financial Information:
Item 1. Condensed Consolidated Financial Statements
Consolidated Balance Sheets
September 30, 2000 and March 31, 2000 3-4
Consolidated Statements of Operations
Three and Six Months Ended September 30, 2000
and September 30, 1999 5
Consolidated Statements of Cash Flows
Six Months Ended September 30, 2000 and
September 30, 1999 6
Notes to Consolidated Financial Statements 7-11
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 12-19
Item 3. Quantitative and Qualitative Disclosure About
Market Risk 20
Part II - Other Information 21-23
Signatures 24
</TABLE>
2
<PAGE>
ABIOMED, INC. AND SUBSIDIARIES
PART 1. FINANCIAL INFORMATION
ITEM 1: FINANCIAL STATEMENTS
CONSOLIDATED BALANCE SHEETS
(in thousands)
ASSETS
<TABLE>
<CAPTION>
September 30, March 31,
2000 2000
(unaudited) (audited)
<S> <C> <C>
Current Assets:
Cash and cash equivalents (Note 7) $ 90,987 $101,917
Short-term marketable securities (Note 8)
8,917 4,467
Accounts receivable, net of allowance for doubtful accounts
of $184 at September 30, 2000 and March 31, 2000 (Note 3)
8,049 6,691
Inventories (Note 4)
3,912 3,546
Prepaid expenses and other current assets
583 526
-------- --------
Total current assets 112,448 117,147
-------- --------
Property and Equipment, at cost:
Machinery and equipment 6,921 6,427
Furniture and fixtures 672 622
Leasehold improvements 2,930 2,277
-------- --------
10,523 9,326
Less: Accumulated depreciation and amortization 6,270 5,375
-------- --------
4,253 3,951
-------- --------
Intellectual Property and Other Assets, net (Note 9) 7,086 690
-------- --------
$123,787 $121,788
======== ========
</TABLE>
The accompanying notes are an integral part
of these consolidated financial statements.
3
<PAGE>
ABIOMED, INC. AND SUBSIDIARIES
PART 1. FINANCIAL INFORMATION
ITEM 1: FINANCIAL STATEMENTS (continued)
CONSOLIDATED BALANCE SHEETS (CONTINUED)
(in thousands, except share data)
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
September 30, March 31,
2000 2000
(unaudited) (audited)
<S> <C> <C>
Current Liabilities:
Accounts payable $ 1,459 $ 1,553
Accrued expenses 5,471 6,360
Current portion of long-term liabilities 239 236
--------- ---------
Total current liabilities 7,169 8,149
--------- ---------
Long-Term Liabilities 498 715
Stockholders' Equity (Note 5):
Class B Preferred Stock, $.01 par value-
Authorized 1,000,000 shares
Issued and outstanding-none
- -
Common Stock, $.01 par value-
Authorized 100,000,000 shares
Issued and outstanding- 20,621,016 shares at
September 30, 2000 and 20,455,694 shares at
March 31, 2000 206 205
Additional paid-in capital 161,068 154,408
Accumulated deficit (45,154) (41,689)
--------- ---------
Total stockholders' equity 116,120 112,924
--------- ---------
$ 123,787 $ 121,788
========= =========
</TABLE>
The accompanying notes are an integral part
of these consolidated financial statements.
4
<PAGE>
ABIOMED, INC. AND SUBSIDIARIES
PART 1. FINANCIAL INFORMATION
ITEM 1: FINANCIAL STATEMENTS (continued)
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share and share data)
(unaudited)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
------------------ ----------------
September 30, September 30, September 30, September 30,
2000 1999 2000 1999
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Revenues:
Products $ 4,953 $ 3,595 $ 10,457 $ 7,615
Funded research and development 2,032 573 2,387 2,905
------------ ------------ ------------ ------------
6,985 4,168 12,844 10,520
------------ ------------ ------------ ------------
Costs and expenses:
Cost of product revenues 1,485 1,115 3,420 2,473
Research and development 5,605 3,450 10,096 6,842
Selling, general and administrative 2,959 2,912 5,936 5,410
------------ ------------ ------------ ------------
10,049 7,477 19,452 14,725
------------ ------------ ------------ ------------
Loss from operations (3,064) (3,309) (6,608) (4,205)
Interest and other income 1,584 240 3,143 398
------------ ------------ ------------ ------------
Net loss $ (1,480) $ (3,069) $ (3,465) $ (3,807)
============ ============ ============ ============
Basic and diluted net loss per share
(Note 6): $ (0.07) $ (0.18) $ (0.17) $ (0.22)
Weighted average shares outstanding
(Note 6): 20,517,925 17,308,524 20,492,611 17,306,216
</TABLE>
The accompanying notes are an integral part
of these consolidated financial statements.
5
<PAGE>
ABIOMED, INC. AND SUBSIDIARIES
PART 1. FINANCIAL INFORMATION
ITEM 1: FINANCIAL STATEMENTS (continued)
CONSOLIDATED STATEMENT OF CASH FLOWS
(in thousands)
(unaudited)
<TABLE>
<CAPTION>
Six Months Ended
----------------
September 30, September 30,
2000 1999
------------- -------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (3,465) $ (3,807)
Adjustments to reconcile net loss to net cash
used in operating activities-
Depreciation and amortization 995 1,331
Changes in assets and liabilities-
Accounts receivable, net (1,358) (480)
Inventories (366) (663)
Prepaid expenses and other assets (192) (216)
Accounts payable (94) 854
Accrued expenses (959) (391)
Long-term liabilities (97) (46)
--------- ---------
Net cash used in operating activities (5,536) (3,418)
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from the sale of short-term marketable securities 39,697 7,441
Purchases of short-term marketable securities (44,147) (7,082)
Purchases of property and equipment (1,197) (1,170)
--------- ---------
Net cash used by investing activities (5,647) (811)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from exercise of stock options and stock issued
under employee stock purchase plan 370 67
Repayments of long-term debt and capital lease obligations (117) --
--------- ---------
Net cash provided by financing activities 253 67
--------- ---------
NET DECREASE IN CASH AND CASH EQUIVALENTS (10,930) (4,162)
CASH AND CASH EQUIVALENTS, EXCLUDING
MARKETABLE SECURITIES, AT BEGINNING OF PERIOD 101,917 9,279
--------- ---------
CASH AND CASH EQUIVALENTS, EXCLUDING
MARKETABLE SECURITIES, AT END OF PERIOD $ 90,987 $ 5,117
========= =========
SUPPLEMENTAL DISCLOSURE OF NON-CASH FINANCING ACTIVITIES:
Issuance of common stock and warrants in exchange for
purchase of intangible assets $ 6,291 $ --
========= =========
</TABLE>
The accompanying notes are an integral part
of these consolidated financial statements.
6
<PAGE>
ABIOMED, INC. AND SUBSIDIARIES
PART 1. FINANCIAL INFORMATION (continued)
ITEM 1: FINANCIAL STATEMENTS (continued)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
1. BASIS OF PREPARATION
The unaudited 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, 2000 and have been filed with the Securities and Exchange
Commission.
In our opinion, the accompanying consolidated financial statements
include all adjustments (consisting only of normal, recurring adjustments)
necessary to summarize fairly the financial position and results of operations
as of September 30, 2000 and for the six months then ended. The results of
operations for the six months ended September 30, 2000 may not be indicative of
the results that may be expected for the full fiscal year.
2. PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the
Company, and 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 include amounts due from customers, excluding
long-term amounts due from customers under sales-type leases (see Note 9), net
of allowance for doubtful accounts. Accounts receivable also include amounts due
from government and other third party sources related to the Company's research
and development contracts and grants. These research and development contracts
and grants generally provide for payment on a cost-plus-fixed-fee basis. The
Company recognizes revenues under its 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 CONSOLIDATED FINANCIAL STATEMENTS
(unaudited, continued)
3. ACCOUNTS RECEIVABLE (CONTINUED)
As of September 30, 2000, accounts receivable included $1,938,000 due
in connection with research and development contracts and grants compared to
$503,000 due in connection with research and development contracts and grants at
March 31, 2000. The contract and grant amount due at September 30, 2000 included
$1,800,000 in connection with AbioCor development that is scheduled to be
collected over the remaining term of that contract which expires December 31,
2001.
4. INVENTORIES
Inventories are stated at the lower of cost (first-in, first-out) or
market and consist of the following (in thousands):
<TABLE>
<CAPTION>
September 30, March 31,
2000 2000
----------------------- -------------------
<S> <C> <C>
Raw materials $ 1,686 $ 1,490
Work-in-process 693 713
Finished goods 1,533 1,343
------- -------
$ 3,912 $ 3,546
======= =======
</TABLE>
Finished goods and work-in-process inventories consist of direct material, labor
and overhead.
5. STOCKHOLDERS' EQUITY
In August 2000, the Company announced that its Board of Directors had
approved a two-for-one split of the Company's outstanding shares of common stock
to be effected in the form of a stock dividend. Each shareholder of record at
the close of business on August 25, 2000 received one additional share of common
stock for each share of common stock held on that date. Shares held for issuance
in connection with all stock option plans and rights plans of the Company were
also split on a two-for-one basis in accordance with the provisions of each such
plan. Share and per share information in this report have been restated for all
periods reported to reflect the effect of this two-for-one stock split.
8
<PAGE>
ABIOMED, INC. AND SUBSIDIARIES
PART 1. FINANCIAL INFORMATION (continued)
ITEM 1: FINANCIAL STATEMENTS (continued)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited, continued)
5. STOCKHOLDERS' EQUITY (CONTINUED)
In September 2000, the Company entered into an agreement to acquire the
exclusive rights to The Pennsylvania State University implantable replacement
heart (referred to as the Penn State Heart or the BeneCor-TM- heart) as well as
the assets of BeneCor Heart Systems, Inc., a company recently created to
commercialize the Penn State Heart. The terms of these transactions consist of
payment of 110,000 post-stock split shares of the Company's Common Stock, plus
the issuance of warrants to purchase up to 400,000 additional post-stock split
shares of the Company's Common Stock at an exercise price of $0.01 per share.
Exercise of the warrants is contingent on the achievement of certain clinical
and regulatory milestones with the BeneCor heart by specified dates. In
connection with this acquisition, the Company has capitalized the purchase cost
which totaled $6,361,000, including acquisition costs of approximately $70,000.
This amount is classified as Intellectual Property, a long-term asset in the
accompanying consolidated balance sheet. The cost includes the fair market value
of the 110,000 shares of Common Stock issued and the fair market value of
110,000 equivalent shares under the warrants. The Company intends to amortize
this asset ratably over a period of three years. Beyond the initial 110,000
shares that may be distributed under the warrants, to the extent that the
designated milestones are achieved, the Company intends to record the value of
these warrants in the period that the milestone is achieved.
During the six months ended September 30, 2000, options to purchase
626,000 shares of Common Stock were granted at prices ranging from $15.563 to
$39.375, on a post-split basis. During that same period options to purchase
145,202 shares were canceled and options to purchase 50,724 shares of Common
Stock were exercised at prices ranging from $8.000 to $18.000 per share.
6. NET LOSS PER COMMON SHARE
Basic net loss per share is computed by dividing net loss by the
weighted average number of common shares outstanding during the period. Diluted
net loss per share is computed by dividing net loss by the weighted average
number of dilutive common shares outstanding during the period. Diluted weighted
average shares reflect the dilutive effect, if any, of common stock options
based on the treasury stock method. No common stock options are considered
dilutive in periods in which a loss is reported, such as the six months ended
September 30, 2000 and September 30, 1999, because all such common equivalent
shares would be antidilutive. The number of equivalent shares that otherwise
would have been dilutive for the three and six months ended September 30, 2000
and September 30, 1999, were 1,945,359, 1,875,722, 551,260 and 567,536,
respectively. As described in Note 5,
9
<PAGE>
ABIOMED, INC. AND SUBSIDIARIES
PART 1. FINANCIAL INFORMATION (continued)
ITEM 1: FINANCIAL STATEMENTS (continued)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited, continued)
6. NET LOSS PER COMMON SHARE (CONTINUED)
per share information in this report has been restated for all periods reported
to reflect the effect of the Company two-for-one stock split declared in August
2000.
7. CASH AND CASH EQUIVALENTS
The Company classifies any marketable security with a maturity date of
90 days or less at the time of purchase as a cash equivalent.
8. MARKETABLE SECURITIES
The Company classifies any security with a maturity date of greater
than 90 days at the time of purchase as marketable securities and classifies
marketable securities 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, securities that the Company has the positive intent and ability to
hold to maturity are reported at amortized cost and classified as
held-to-maturity securities. At September 30, 2000, the amortized cost of these
securities approximated market value.
9. INTELLECTUAL PROPERTY AND OTHER ASSETS
Intellectual Property and Other Assets include the unamortized costs of
technology rights and know-how acquired in connection with the Company's
purchase of BeneCor Heart Systems, Inc. and the BeneCor Heart as described in
Note 5 and approximately $396,000 in net unamortized costs related to ABIOMED's
awarded and pending patents. As of March 31, 2000, the unamortized cost of these
patents approximated $356,000.
Also included as 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 September 30, 2000, the long-term amount due from these
sales-type leases approximated $325,000. As of March 31, 2000, the long-term
amount due from these sales-type leases approximated $273,000.
10
<PAGE>
ABIOMED, INC. AND SUBSIDIARIES
PART 1. FINANCIAL INFORMATION (continued)
ITEM 1: FINANCIAL STATEMENTS (continued)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited, continued)
10. ROYALTY OBLIGATION
Through August 3, 2000, the Company incurred a royalty equal to 5.5% of
certain BVS product revenues. The royalty was due to the Abiomed Limited
Partnership (the Partnership). The Partnership was formed in March 1985 and
provided initial funding for development of technology now owned by the Company.
Because the Company owns 61.7% of the Partnership, the net royalty expense to
the Company was approximately 2.1% on these certain BVS product revenues. The
net royalty costs are included in cost of product revenues in the accompanying
consolidated statements of operations. The Partnership is inactive except with
respect to receiving and distributing proceeds from these royalty rights.
11. COMPREHENSIVE INCOME
SFAS No. 130, REPORTING COMPREHENSIVE INCOME, requires disclosure of
all components of comprehensive income and loss on an annual and interim basis.
Comprehensive income and loss is defined as the change in equity of a business
enterprise during a period from transactions and other events and circumstances
from non-owner sources. There were no components of comprehensive income or loss
that require disclosure for the six months ending September 30, 2000 or
September 30, 1999.
12. SEGMENT AND ENTERPRISE WIDE DISCLOSURES
SFAS No. 131, DISCLOSURES ABOUT SEGMENTS OF AN ENTERPRISE AND RELATED
INFORMATION, requires certain financial information and supplementary
information to be disclosed on an annual and interim basis for each reportable
segment of an enterprise. The Company believes that it 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 SEPTEMBER 30, 2000
PRODUCT REVENUES
Product revenues increased by $1.4 million, or 38%, to $5.0 million in
the three months ended September 30, 2000 from $3.6 million in the three months
ended September 30, 1999. The increase in product revenues is primarily
attributable to increased shipments of BVS consoles and BVS disposable blood
pumps and increased average selling prices of BVS disposable blood pumps.
Domestic sales accounted for 96% of total product revenue during each of the
three months ended September 30, 2000 and 1999, respectively.
FUNDED RESEARCH AND DEVELOPMENT REVENUES
Revenues from research and development contracts and grants increased
by $1.4 million, or 255%, to $2.0 million in the three months ended September
30, 2000 from $0.6 million in the three months ended September 30, 1999. The
higher revenues from research and development contracts and grants is due to
recognition of $1.8 million in AbioCor Implantable Replacement Heart
(AbioCor(TM)) contract revenue during the quarter ended September 30, 2000. No
contract revenue for AbioCor is included in funded research and development
revenues in the quarter ended September 30, 1999. The $1.8 million amount was
awarded to the Company in the quarter ended September 30, 2000 from the National
Heart Lung and Blood Institute (NHLBI) as additional funding under an existing
contract. No funding beyond this $1.8 million award is anticipated under this
contract.
We account for revenues from research and development funded under
government contracts and grants as work is performed, provided that the
government has appropriated sufficient funds for the work. As of September 30,
2000, our total backlog of research and development contracts and grants was
$1.7 million. All of these contracts and grants contain provisions that make
them terminable at the convenience of the government. ABIOMED retains rights to
commercialize all technological discoveries and products resulting from the
research and development efforts under these contracts and grants.
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 30% in the three months ended September 30, 2000 from 31% in the three months
ended September 30, 1999. The 1% decrease in the three months ended September
30, 2000, is primarily due to the discontinuation of a royalty obligation due to
the Abiomed Limited Partnership. The royalty obligation, which on a net basis
was approximately 2.1% of the majority of BVS product revenues, contractually
expired for product sold after August 3, 2000.
RESEARCH AND DEVELOPMENT EXPENSES
Research and development expenses increased by $2.2 million, or 62%, to
$5.6 million in the three months ended September 30, 2000, from $3.5 million in
the three months ended September 30, 1999. The increase in expenditures during
the quarter just ended was primarily due to increased spending for the AbioCor.
Research and development expenses during the three months ended September 30,
2000 included $3.8 million of direct expenses incurred in connection with
development activities for the AbioCor, compared to $2.4 million for the same
period of the prior year. The increase in AbioCor spending was primarily
attributable to increased manufacturing, testing and documentation activities in
preparation for clinical trials.
Included in research and development expenses during the three months
ended September 30, 2000 were $0.4 million in costs related to the BeneCor heart
acquisition. These costs were for relocating technical personnel to the
Company's headquarters in Massachusetts to work on developing, testing and
manufacturing the BeneCor heart and compensation for certain of these new
employees in late September after the acquisition. The Company anticipates that
the project team working on developing the BeneCor heart will increase to a
total of approximately fifteen people by the end of the Company's current fiscal
year. In addition, separate and related research and development concerning the
BeneCor heart is continuing at The Pennsylvania State University to which the
Company has rights to the extent that the results of such work applies to heart
replacement technology.
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)
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses increased by $0.1 million,
or 1.6%, to $3.0 million in the three months ended September 30, 2000 compared
to $2.9 million in the three months ended September 30, 1999. The increase was
primarily attributable to increased selling and marketing expenditures and
increased occupancy charges associated with occupying our new facility in
Danvers, Massachusetts while continuing to lease manufacturing space in our
older facility. These increases were partially offset by reduced legal costs
associated with the favorable ruling the Company received in January 2000 in the
trade secret case between the Company and World Heart Systems, Inc.
INTEREST AND OTHER INCOME
Interest and other income consist primarily of interest earned on our
investment balances, net of interest and other expenses. Interest and other
income increased by $1.4 million to $1.6 million for the three months ended
September 30, 2000 from $0.2 million for the three months ended September 30,
1999. The increase was due to higher average funds available for investment
during the quarter just ended.
NET LOSS
Net loss for the three months ended September 30, 2000 was
approximately $1.5 million, or $0.07 per share. This compares to a net loss of
approximately $3.1 million, or $0.18 per share, in the same period of the
previous year. The lower net loss for the three months ended September 30, 2000
was primarily attributable to the $1.8 million in revenue related to the AbioCor
government contract, which did not contribute any revenue in the three months
ended September 30, 1999. The losses for both periods are primarily attributable
to the Company's development and pre-clinical testing costs associated with the
AbioCor.
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)
SIX MONTHS ENDED SEPTEMBER 30, 2000
PRODUCT REVENUES
Product revenues increased by $2.8 million, or 37%, to $10.5 million in
the six months ended September 30, 2000 from $7.6 million in the six months
ended September 30, 1999. The increase in product revenues is primarily
attributable to increased shipments of BVS disposable blood pumps and consoles
and increased average selling prices of BVS disposable blood pumps. Domestic
sales accounted for 97% of total product revenue during the six months ended
September 30, 2000 and 1999, respectively.
FUNDED RESEARCH AND DEVELOPMENT REVENUES
Revenues from research and development contracts and grants decreased
by $0.5 million, or 18%, to $2.4 million in the six months ended September 30,
2000 from $2.9 million in the six months ended September 30, 1999. Both periods
include $1.8 million in revenue from the Company's AbioCor government contract.
The lower revenues from research and development contracts and grants is
primarily due to reduced activity on cost-plus-fixed-fee structured government
grants.
We account for revenues from research and development funded under
government contracts and grants as work is performed, provided that the
government has appropriated sufficient funds for the work. As of September 30,
2000, our total backlog of research and development contracts and grants was
$1.7 million. All of these contracts and grants contain provisions that make
them terminable at the convenience of the government. ABIOMED retains rights to
commercialize all technological discoveries and products resulting from the
research and development efforts under these contracts and grants.
COST OF PRODUCT REVENUES
Cost of product revenues as a percentage of product revenues increased
to 33% in the six months ended September 30, 2000 from 32% in the six months
ended September 30, 1999. The 1% increase in the six months ended September 30,
2000 is primarily due to the timing of production schedules and increased costs
associated with the Company's new and larger manufacturing facility.
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)
RESEARCH AND DEVELOPMENT EXPENSES
Research and development expenses increased by $3.3 million, or 48%,
to $10.1 million in the six months ended September 30, 2000, from $6.8
million in the six months ended September 30, 1999. Research and development
expenses were 79% of total revenues for the six months ended September 30,
2000 and 65% of total revenues for the six months ended September 30, 1999.
The increase in expenditures during the six months just ended was due to
increased spending for the AbioCor. Research and development expenses during
the six months ended September 30, 2000 included $7.4 million of direct
expenses incurred in connection with development activities for the AbioCor,
compared to $4.7 million for the same period of the prior year. The increase
in AbioCor spending was primarily attributable to increased manufacturing,
testing and documentation activities in preparation for clinical trials.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses increased by $0.5 million,
or 10%, to $5.9 million in the six months ended September 30, 2000, from $5.4
million in the six months ended September 30, 1999. Expenditures decreased to
46% of total revenues from 51% of total revenues in the same period last year.
This increase in expenses was primarily attributable to increased selling and
marketing programs, increased employee recruiting expenses and increased
occupancy charges associated with occupying our new facility in Danvers,
Massachusetts while continuing to lease manufacturing space in our older
facility. These increased costs were partially offset by reduced legal costs
associated with the favorable ruling the Company received in January 2000 in the
trade secret case between the Company and World Heart Systems, Inc.
INTEREST AND OTHER INCOME
Interest and other income consist primarily of interest earned on our
investment balances, net of interest and other expenses. Interest and other
income increased by $2.7 million to $3.1 million for the six months ended
September 30, 2000 from $0.4 million for the six months ended September 30,
1999. The increase was due to higher average funds available for investment
during the six month period just ended.
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)
NET LOSS
Net loss for the six months ended September 30, 2000 was approximately
$3.5 million, or $0.17 per share. This compares to a net loss of approximately
$3.8 million, or $0.22 per share, in the same period of the previous year. The
losses for both periods are primarily attributable to the Company's development
and pre-clinical testing costs associated with the AbioCor.
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 September 30, 2000, our cash, cash equivalents and marketable
securities totaled $99.9 million. We also had a $3 million line of credit from a
bank that expired on October 13, 2000. The Company has elected not to renew this
line of credit in light of the significant increase in the Company's balance of
cash, cash equivalents and marketable securities since the time that the line of
credit was last renewed.
During the six months ended September 30, 2000, operating activities
used $5.5 million of cash. Net cash used by operating activities during this
period reflected a net loss of $3.5 million, including depreciation and
amortization expense of $1.0 million, and increases in accounts receivable,
inventory and prepaid expenses and other assets of $1.3 million, $0.4 million
and $0.2 million, respectively. Decreases in accounts payable and accrued
expenses during the period further reduced cash by $1.1 million. The increase in
accounts receivable is primarily attributable to the $1.8 million due from the
AbioCor government contract, all of which was recognized in the quarter ended
September 30, 2000 and which is scheduled to be collected over the remaining
term of the contract which ends December 31, 2001. The increase in inventory is
primarily attributable to purchases of inventory related to the Company's new
BVS 5000t, a backup unit to the current BVS 5000, designed to allow transport of
BVS supported patients between medical centers for specialized care. The
decrease in accounts payable and accrued expenses reflects the timing of
payments.
During the six months ended September 30, 2000, investing activities
used $5.6 million of cash. Approximately $4.4 million in cash was used for the
acquisition of short-term marketable securities, net of sales of similar
securities. We also expended cash for capital equipment and leasehold
improvements of $1.2 million during the six months ended September 30, 2000.
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)
Financing activities generated $0.3 million of cash during the six
months ended September 30, 2000. Stock options exercised during the period
generated $0.4 million in cash. Repayment of long-term debt and capital leases
used $0.1 million in cash.
Income taxes incurred during the six months ended September 30, 2000
were not material, and we continue to have significant net tax operating loss
and tax credit carryforwards.
We believe that our existing resources and our revenue from product
sales will be sufficient to fund our planned operations, including the planned
increases in our internally funded AbioCor, BeneCor, and new BVS development and
product extension efforts, for the foreseeable future. However, we may 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 additional funds are
required, we may raise such funds from time to time through public or private
sales of equity or from borrowings.
On September 16, 2000, the Company entered into an agreement to acquire
the exclusive rights to The Pennsylvania State University implantable
replacement heart as well as the assets of BeneCor Heart Systems, Inc., a
company recently created to commercialize this technology.
The terms of these transactions consisted of payment of 110,000 shares
of the Company's common stock, plus the issuance of warrants to purchase up to
400,000 additional shares of the Company's common stock at an exercise price of
$0.01 per share. Exercise of the warrants are contingent on the achievement of
certain clinical and regulatory milestones with the BeneCor heart by specified
dates. The share amounts per above have been adjusted to include the effect of
the two-for-one stock split effected by the Company in the form of a stock
dividend. In the stock split, each shareholder of record at the close of
business on August 25, 2000 received one additional share of common stock for
each share of common stock held on that date. Shares held for issuance in
connection with all stock option plans and rights plans of the Company were also
split on a two-for-one basis in accordance with the provisions of each such
plan.
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)
RISK FACTORS WHICH MAY AFFECT FUTURE RESULTS
This document contains forward-looking statements, including statements
regarding new products under development and adequacy of existing resources. The
Company's actual results, including our AbioCor development, BeneCor
development, BVS enhancements and adequacy of resources may differ materially
based on a number of factors, both known and unknown, including: uncertainty of
product development, clinical trials and commercial acceptance; complex
manufacturing; high quality requirements; the need to demonstrate required
reliability of products under development; dependence on key personnel; risks
associated with a growing number of employees; difficulties in recruiting
required human resources on schedule; competition and technological change,
government regulations including the FDA and other regulatory agencies; risks
associated with international expansion; reliance on government contracts;
dependence on limited sources of supply; future capital needs and uncertainty of
additional funding; dependence on third-party reimbursement; potential
inadequacy of product liability insurance; dependence on patents and proprietary
rights; and other risks detailed in our Form 10-K for the year ended March 31,
2000 which was filed with the Securities and Exchange Commission. Investors are
cautioned that all such statements involve risks and uncertainties. Readers are
cautioned not 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.
19
<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 September 30, 2000, 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.
20
<PAGE>
ABIOMED, INC. AND SUBSIDIARIES
PART II. OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS
On July 13, 2000, the motion for a new trial filed by WorldHeart
Corporation was denied in the United States District Court for
Delaware. Following the jury verdict, which on February 4, 2000 was
rendered unanimously in the favor of the Company, and following
judgment entered by the Court in favor of the Company, WorldHeart
Corporation filed motion for relief from judgment and other actions.
This motion has now been denied and WorldHeart Corporation's time to
appeal or otherwise contest the judgment of the Court expired on
August 14, 2000.
Item 2. CHANGES IN SECURITIES
In August 2000, the Company announced that its Board of Directors
had approved a two-for-one split of the Company's outstanding shares
of common stock to be effected in the form of a stock dividend. Each
shareholder of record at the close of business on August 25, 2000
received one additional share of common stock for each share of common
stock held on that date. Shares held for issuance in connection with
all stock option plans and rights plans of the Company were also split
on a two-for-one basis in accordance with the provisions of each such
plan. Share and per share information in this report have been
restated for all periods reported to reflect the effect of this
two-for-one stock split.
In September 2000, the Company entered into an agreement to acquire
the exclusive rights to The Pennsylvania State University implantable
replacement heart (referred to as the Penn State Heart or the
BeneCor-TM- heart) as well as the assets of BeneCor Heart Systems,
Inc., a company recently created to commercialize the Penn State
Heart. The terms of these transactions consist of payment of 110,000
post-stock split shares of the Company's Common Stock, plus the
issuance of warrants to purchase up to 400,000 additional post-stock
split shares of the Company's Common Stock at an exercise price of
$0.01 per share. Exercise of the warrants is contingent on the
achievement of certain clinical and regulatory milestones with the
BeneCor heart by specified dates.
Item 3. DEFAULTS UPON SENIOR SECURITIES
None
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
At the Company's Annual Meeting of Shareholders held on August
9, 2000, the stockholders approved the following:
(a) Elected two persons to serve as Class II directors as
follows:
21
<PAGE>
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS (CONTINUED)
<TABLE>
<CAPTION>
Director Votes for Votes Withheld
-------- --------- --------------
<S> <C> <C>
John F. O'Brien 9,547,645 180,745
Henri A. Termeer 9,549,189 179,201
</TABLE>
(b) A proposal to amend the Company's Restated Certificate of
Incorporation to increase the authorized shares of Common
Stock from 25,000,000 to 100,000,000. The proposal
received 9,136,973 votes for and 583,375 votes against.
There were 8,042 abstentions and 506,107 non-voting.
(c) A proposal to adopt the Company's 2000 Stock Incentive
Plan. The proposal received 5,186,976 votes for and
767,910 votes against. There were 34,806 abstentions and
4,244,805 non-voting.
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 September 21, 2000, ABIOMED, Inc. announced that it has
entered into agreements to acquire the exclusive rights to
The Pennsylvania State University implantable replacement
heart as well as the assets of BeneCor Heart Systems,
Inc., a company recently created to commercialize the Penn
State Heart.
The terms of these transactions consist of payment by ABIOMED
of 55,000 shares of ABIOMED common stock, plus the issuance of
warrants for up to 200,000 additional shares of ABIOMED
common stock. These share amounts became 110,000 and 400,000
respectively as a result of the ABIOMED two-for-one stock
split described earlier in this Form 10-Q. Exercise of the
warrants are contingent on the achievement of certain
clinical and regulatory milestones with the Penn State Heart
by specified dates.
In addition to the acquisition of exclusive rights to
intellectual property and physical assets, the transaction
includes arrangements for ABIOMED to begin a collaborative
relationship with The Pennsylvania State University, its
College of Medicine, and The Milton S. Hershey
22
<PAGE>
ABIOMED, INC. AND SUBSIDIARIES
PART II. OTHER INFORMATION (continued)
Item 6. EXHIBITS AND REPORTS ON FORM 8-K (CONTINUED)
Medical Center. ABIOMED will also have access to future advances
in related implantable replacement heart technology generated by
the research and development team at The Pennsylvania State
University. ABIOMED intends to pursue the commercialization of
the Penn State Heart at its Danvers, Massachusetts facility.
Like ABIOMED's AbioCor Heart, the Penn State Heart is an implantable
replacement heart designed to replace a patient's irreversibly failing
heart. Heart disease remains the number one cause of death in the USA,
resulting in over 700,000 annual deaths. These two designs represent
the most successful devices to emerge after more than three decades of
research and development sponsored by the U.S. Federal Government
through the National Heart, Lung and Blood Institutes.
23
<PAGE>
ABIOMED, INC. AND SUBSIDIARIES
PART II. OTHER INFORMATION
--------------------------------------------------------------------------------
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: October 26, 2000 /s/ David M. Lederman
---------------------------
David M. Lederman
CEO and President
Date: October 26, 2000 /s/ John F. Thero
---------------------------
Senior Vice President Finance
and Treasurer
Chief Financial Officer
Principal Accounting Officer
24
