FY 2021 ANNUAL REPORT
I AM HEART
RECOVERY
I A M A B I O M E D
FINANCIAL PERFORMANCE
F Y 2 0 2 1 - C O V I D Y E A R
Fiscal Year Ends March 31st
16
* Net cash balances are defined as total cash, short-term and long-term marketable securities. The Company currently has no debt.
84%
17
FY
18
19
20
21
83%
83%
82%
81%
17
18
19
20
21
$230
$249
$90
$157
$225
FY
GAAP Operating Income
DOLLARS IN MILLIONS
17
18
19
20
21
$848
$651
$277
$400
$513
FY
Total Revenue
DOLLARS IN MILLIONS
Gross Margin
Net Cash Balances*
DOLLARS IN MILLIONS
17
FY
18
19
20
21
$848 +1%
$841 +9%
$445 +35%
$594 +33%
$769 +30%
1
IMPELLA
® DEVICE PROGRESS
F Y 2 0 2 1 - C O V I D Y E A R
Fiscal Year Ends March 31st
17
FY
18
19
20
21
1,509
1,441
1,138
1,197
1,362
17
FY
18
19
20
21
$122
$99
$66
$75
$94
17
FY
18
19
20
21
996
789
411
470
568
17
FY
18
19
20
21
940
1,150
720
850
241
274
311
317
541
653
Research & Development Spend
DOLLARS IN MILLIONS
Total Impella U.S. Sites
Total Impella Publications
Total Abiomed Patent Portfolio
PATENTS
PATENTS PENDING
2
Q2
FY21 HIGHLIGHTS
Q1
4/29/2020
Abiomed Expands
Product Portfolio with
Acquisition of Cardio-
pulmonary Support
Technology (ECMO)
5/19/2020
PROTECT III Sub-study
Shows Placing Impella
Prior to High-Risk PCI
is Associated with
Lower Mortality
Compared to
Bailout PCI
7/16/2020
FDA Approves Data
Streaming from the
Impella Console,
Setting the Stage for
Artificial Intelligence
Algorithms
5/27/2020
Abiomed Hosts Virtual
Clinical Data and
Innovation Day
6/01/2020
FDA Issues
EMERGENCY USE
AUTHORIZATION
for Impella RP® as
Therapy for COVID-19
Patients with Right
Heart Failure and
Pulmonary Embolism
6/05/2020
FDA Approves
Abiomed’s
First-in-Human Trial
of Impella ECP™,
WORLD’S
SMALLEST
HEART PUMP
6/16/2020
Abiomed Launches
Online Virtual
Physician Education
Program, CAMP PCI
7/30/2020
Large Multi-Center
Study in Japan Finds
77% SURVIVAL
AND OVER 90%
NATIVE HEART
RECOVERY IN
SURVIVORS FOR
CARDIOGENIC
SHOCK
8/4/2020
FDA Issues Emergency
Use Authorization for
Impella® Heart Pumps
to Provide Unloading
Therapy to COVID-19
Patients on ECMO
and Impella
IABP
Impella 2.5
Impella 2.5/CP
31.0%
21.9%
15.0%
PROTECT II
PROTECT III
Protect II-like
N=210
p=0.03
p=0.035
p<0.0001
N=215
N=373
90 DAY MACCE:
PROTECT III
PROTECT II-LIKE
MACCE: Death, Stroke, MI, Repeat Revascularization
*Dangas et al. Am J Cardiol. 2014;113:222-228
N=Number of patients with 90-day follow-up
3
Q3
Q4
10/08/2020
TCT Connect
Presentations Highlight
how Impella® Enables
Improved Outcomes
for High-Risk PCI,
Cardiogenic Shock
and Right Heart
Failure Patients
10/26/2020
FDA Grants 510(k)
Clearance for
Abiomed’s Innovative
Cardiopulmonary
Support Technology
the Abiomed Breethe
Oxy-1 System™
12/5/2020
The Impella ECP™
Heart Pump
Completes the First
Stage in its FDA Early
Feasibility Study
12/5/2020
FDA Grants 510(k)
Clearance to the
XR™ Sheath for
Impella 2.5®
12/21/2020
First Patients,
Including a
COVID-19 Patient,
Treated with
Abiomed’s Innovative
ECMO Technology
1/7/2021
Abiomed Continues
to Strengthen its
Intellectual Property
with More Than
1,000 Patents
10/28/2020
FIRST
PATIENTS
TREATED
with the
World’s Smallest
Heart Pump, the
9FR
IMPELLA
ECP™
11/5/2020
FIRST 1,000
PATIENTS
TREATED
with Impella 5.5®
with SmartAssist®
1/29/2021
Large Clinical
Study Presented
at STS 2021 Finds
79% SURVIVAL
RATE WITH
IMPELLA 5.5®
WITH
SMARTASSIST®
for Cardiogenic
Shock Heart Failure
Patients
4
I am Abiomed. I am Heart Recovery.
Together with my teammates, we put Patients First and
are committed to recovering hearts and saving lives.
We sustain our winning culture by acting with honor
and integrity in all that we do.
We are dedicated to ensuring that Abiomed’s growth
as the standard of care is based on innovation,
improving outcomes and appropriate use. We advocate
for every patient to receive the care we desire for our
own family and friends, and we recognize the potential
benefits of other products and treatments.
We inspire each other and have the courage and
grit to explore new ideas and approaches that can
change the world. We work together to achieve our
goals and demand the best of ourselves.
We are dedicated to continuous improvement and strive
for perfection. And we always seek opportunities to
lead, manage, adapt and execute.
I am Abiomed. Patients First!
5
6
CHAVEZ ADAMS
H O L LY S P R I N G S , N C
I M P E L L A C P ® W I T H S M A R T A S S I S T ®
7
Chavez Adams, a 29-year-old husband and lawyer, tested positive
for COVID-19 in August 2020. He experienced flu-like symptoms and
made a full recovery. Six weeks later, Chavez developed a fever and
decided to seek treatment at his local urgent care clinic.
Recognizing Chavez’s heart rate was dangerously high, the urgent
care nurse sent him to WakeMed Health in Raleigh, North Carolina,
for escalated care. Chavez was admitted with a weak heart and
ejection fraction of less than 20%.
Once in the catheterization lab, Dr. Saroj Neupane quickly identified
that Chavez had myocarditis due to COVID-19 and was in cardiogenic
shock. He placed the Impella CP® with SmartAssist® heart pump to
support Chavez’s heart. Chavez continued to improve and regained
his strength. After three days on support, Impella CP with SmartAssist
was weaned and explanted. Chavez returned home with his native
heart, and today he has normal heart function with an ejection
fraction of 60%. Chavez is back to working full-time, exercising
4-5 times a week and looks forward to traveling again with
his wife, Ashlea.
Due to Chavez’s cardiogenic shock, it was crucial
to implant the Impella CP with SmartAssist to support his
heart and allow it the opportunity to recover. It warms
my heart to see Chavez survived COVID-19 and has
returned to his active lifestyle.
— D R . S A R O J N E U P A N E
8
KERRI BRYLES
S T. LO U I S , M O
I M P E L L A 5 . 0 ®
9
Kerri was COVID-19 positive when we identified
she had torrential mitral regurgitation. With the help of
Impella, our team was able to send her home to her family
with her native heart. It is a true joy to see Kerri now
thriving with her husband and three children.
— D R . J E R E M Y L E I D E N F R O S T
Kerri Bryles, 45, a mother, wife and pharmacist, always led a healthy
lifestyle and loved participating in boot camp workouts. In November
2020, Kerri’s husband, Tim, tested positive for COVID-19. Shortly
after, Kerri began feeling ill and noticed her oxygen levels were low.
She decided to seek treatment at a local hospital where she tested
positive for COVID-19. The hospital was at capacity due to the
coronavirus pandemic and transferred Kerri to St. Luke’s Hospital in
Chesterfield, Missouri.
The medical team discovered Kerri was in cardiogenic shock due to
heart-related issues driven by COVID-19. She also had torrential mitral
regurgitation. Dr. Jeremy Leidenfrost determined Kerri’s heart needed
support and placed the Impella 5.0® heart pump. Kerri’s condition
improved, she regained strength, and Impella 5.0 was removed after
five days on support. Physicians performed a mitral valve replacement
and on December 18, 2020, Kerri returned
home with normal heart function and was
reunited with her children. Kerri is now back
to her boot camp workouts and her busy
routine as a mom.
10
JAY RHONE
L A N D OV E R , M D
A B I O M E D B R E E T H E O X Y - 1 S Y S T E M ™
11
Jay Rhone, 47, is a devoted family man, retired Marine and ambulatory
services nurse at the Pentagon in Arlington, Virginia. In January
2021, Jay was experiencing severe shortness of breath when his wife
called 911. Jay was rushed to a local hospital and the medical team
determined he had a pulmonary embolism.
Jay was transferred to the University of Maryland Medical System
for treatment and Dr. Bartley Griffith placed Jay on veno-arterial
extracorporeal membrane oxygenation (VA ECMO) with the Abiomed
Breethe OXY-1 System™. Jay’s condition began to improve and he
was able to walk around the hospital daily while on support. With Jay
stabilized while on Breethe, Dr. Griffith determined his lung clots had
acute-on-chronic origins and required surgical removal. After surgery,
Jay made a full recovery and was successfully weaned off support
after six days. Today, Jay has returned to work and enjoys time with his
wife and three children.
The Abiomed Breethe OXY-1 System allowed us
to treat Jay with a revolutionary technology that facilitated
early mobilization and physical rehabilitation, which was
critically important in his recovery and allowed him to
return home to his family earlier.
— D R . B A R T L E Y G R I F F I T H
12
ROSIE COLEMAN
L I T T L E R O C K , A R
I M P E L L A 5 . 5 ® W I T H S M A R T A S S I S T ®
13
Rosie Coleman, 64, a retired executive director of elementary
education in Arkansas, lives an active lifestyle. In November 2020,
Rosie began experiencing shortness of breath and was diagnosed
with pneumonia. She decided to seek treatment at the University of
Arkansas for Medical Sciences (UAMS) Medical Center in Little Rock,
Arkansas. The medical team diagnosed Rosie with congestive heart
failure with an ejection fraction of 20% and recommended her for
coronary artery bypass grafting (CABG) surgery.
On December 11, 2020, Dr. Jay K. Bhama, cardiac surgeon and chief
of the division of cardiovascular surgery at UAMS, performed a
high-risk quadruple bypass surgery and repaired her tricuspid
and mitral valves. While weaning off bypass, Rosie went into
postcardiotomy cardiogenic shock (PCCS) and Dr. Bhama placed
Impella 5.5® with SmartAssist® to provide hemodynamic support.
After three days on support, Rosie’s condition improved and the
Impella was weaned and removed. Rosie returned home with normal
heart function and an ejection fraction of 55%. Today, Rosie enjoys her
daily walks and lives every day to the fullest.
The Impella 5.5 with SmartAssist heart pump
allowed Rosie’s heart to get the rest it needed to recover.
There is no doubt in my mind that Rosie recovered because of
the support Impella provided post-operation.
— D R . J A Y K . B H A M A
14
ELLA DUNMORE
D E T R O I T, M I
I M P E L L A C P ® W I T H S M A R T A S S I S T ®
15
Ella Dunmore, a 72-year-old mother and Army veteran, was
experiencing shortness of breath, chest pain and headaches for a
month before she decided to seek treatment. The medical team at
a local hospital found a critical blockage in her left main artery and
recommended she have coronary artery bypass grafting (CABG)
surgery, but Ella was fearful about undergoing an invasive open-heart
surgery and sought a second opinion.
She was referred to Dr. Amir Kaki, a leading expert for high-risk PCI,
interventional cardiologist and director of mechanical circulatory
support at Ascension St. John Hospital in Detroit. He identified
additional blockages with an ejection fraction of 45% and determined
Ella was an appropriate candidate for a Protected PCI procedure with
Impella®. On March 18, 2021, Dr. Kaki temporarily implanted the Impella
CP® with SmartAssist® heart pump while he cleared blockages and
placed stents. The following day, Ella returned home. Today, Ella feels
better because her ejection fraction is now 60%, in the normal range.
She exercises three days a week and is back to enjoying nature and
spending time with her daughter, Ashley.
Ella struggled with shortness of breath that
limited her quality of life. Our heart team identified her
as an appropriate candidate for Protected PCI, which
ultimately allowed Ella to return to her once active
routine with even more energy.
— D R . A M I R K A K I
16
During Fiscal Year 2021
(FY21), Abiomed responded
to the COVID-19 pandemic,
created Abiomed 2.0 and
became a smarter, more
productive digital company.
We adapted and executed
to advance our innovation,
clinical research and commercial distribution.
I would like to thank our employees and customers
for their courage and leadership as they faced
unprecedented challenges during the past
year and for their dedication to the mission of
recovering hearts and saving lives every day.
FISCAL YEAR 2021
FY21 represented one of our most productive fiscal
years in my 17-year tenure as CEO. We prioritized
supporting our patients 24x7, manufacturing our
lifesaving heart pumps while investing in innovation
and keeping our employees safe.
We delivered quarterly sequential improvement in
both revenue and patient utilization. This execution
resulted in global revenue growing in Q2 - Q4
and $848 million, 1% growth for the full fiscal year
versus prior year. We remained fiscally disciplined,
controlled discretionary expenses and instituted
temporary actions to reduce costs. This allowed us
to invest in innovation at record levels and deliver
strong GAAP operating margins.
Operationally, we had a very productive year and:
• Invested $122 million in R&D, up 23%
year-over-year
• Delivered 27.1% operating margins
• Ended the year with $848 million in cash, up
$197 million, or 30% while maintaining zero debt
• Increased our IP portfolio to 1,150 Impella patents
and 940 patents pending during the fiscal year
• Delivered double digit growth in Europe despite
the global pandemic with $105 million in revenue,
increasing 12% year-over-year
• Japan delivered $43 million in revenue,
increasing 22%
• Commercially launched the Impella 5.5® with
SmartAssist® and expanded this device to 211
total sites in the U.S., and surpassed the 1,000
patient milestone and grew U.S. surgical revenue
44% year-over-year
• Acquired an extracorporeal membrane
oxygenation (ECMO) platform and received
510(k) clearance for our innovative Abiomed
Breethe OXY-1 System™ and treated our first
patients at multiple sites.
• Received approval for a U.S. FDA Early
Feasibility Study (EFS) of Impella ECP™, a true
9 French (Fr) heart pump, and completed the
first phase within the fiscal year.
• Received U.S. FDA 510(k) clearance for
the Impella XR Sheath™, an expandable and
collapsible sheath, with the Impella 2.5®
heart pump
ABIOMED 2.0
This year, we created and transitioned to Abiomed
2.0, becoming a smarter, more connected, and
more efficient medical device company. As part
of Abiomed 2.0, we launched CAMP PCI, which
stands for Coronary Artery & Myocardial Protected
Percutaneous Coronary Intervention. It is our most
impactful training and education initiative to date,
delivering best-in-class training and education
Abiomed’s HR Business Partners posing for Wear Red
for Women Day
Dear Shareholders
17
10 clinical society guidelines. Throughout FY21, we
continued to learn from robust real-world clinical
data showing improvement in outcomes for both
high-risk Impella supported PCI and cardiogenic
shock. For high-risk PCI, prospective FDA-audited
studies like PROTECT III and physician led initiatives
like Restore EF demonstrated statistically improved
outcomes, including better safety and improved
heart function post-treatment. For cardiogenic
shock, we continue to see improvements in
survival rates and native heart recovery by using
best practice protocols, including early Impella
placement before the PCI. These best practices
have been validated globally with best-in-class
survival rates of and native heart recovery in Japan
presented this year by physician-researchers at
the Annual Scientific Meeting of the Japanese
Circulation Society.
These lessons learned have been validated and
used to help develop prospective RCTs like
PROTECT IV and RECOVER IV that can potentially
produce Class I guidelines in the future for
Impella use.
A LONG RUNWAY FOR GROWTH
Abiomed has a long runway for growth within our
existing products, existing indications and existing
markets. In the future, we are well-positioned
for profitable growth with new products, new
indications, stronger guidelines, and opportunities
for expansion into new geographies.
Starting with products, we have a large opportunity
ahead with the Impella 5.5 with SmartAssist as we
continue to expand this device to the 1,113 hospitals
onsite and online. We also accelerated the rollout
of Impella Connect®, our remote monitoring
capability, now live at nearly 1,000 U.S. hospitals.
Currently, we have the ability to monitor over
80% of our patients in the cloud. This innovative
technology enables our field team and clinical
support center to monitor and interact remotely
with medical providers. No other company
provides this level of 24x7 onsite, on-call and
online support.
TRANSFORMING THE STANDARD OF CARE
Abiomed remains at the forefront of transforming
the standard of care, leading the development
and adoption of best practices and improving
outcomes for a growing, high-risk population.
Coronary artery disease, type II diabetes and heart
failure have become an epidemic, resulting in
poor quality of life for 15 million people and more
than 875,000 deaths per year. Combined, these
conditions are the number one driver of healthcare
costs today. At Abiomed, we are addressing these
problems through our product portfolio and new
treatment alternatives.
Impella supported PCI, or Protected PCI, creates
a safer, minimally-invasive treatment option in the
catheterization (cath) lab allowing interventional
cardiologists to do a more complete procedure
in a single setting and treat patients who have
historically been turned down for surgery. This
treatment option translates to improved native
heart function and quality of life benefits that have
been validated in multiple FDA studies.
As a result of our PROTECT IV randomized
controlled trial (RCT), we are directly investing in
outreach referral programs to better identify the
undertreated population that are turned down
for surgery and not referred for Protected PCI
treatment. Since PROTECT IV is on-label, and
spans the heart team, we now estimate our new
U.S. addressable patient population for high-
risk PCI to be 440,000 patients. Additionally, we
believe there are 202,000 U.S. patients annually
diagnosed at the hospital with cardiogenic shock
who could benefit from Impella support.
Along with our FDA approvals, Abiomed has
amassed nearly 1,000 clinical publications and
multiple prospective studies that have resulted in
Abiomed’s VP, Global Operations and Integration participating
in our on site COVID testing.
18
Lastly on geographic expansion, we remain
focused on becoming the standard of care in the
top MedTech markets, the U.S., Germany, Italy and
Japan. However, we are also planting seeds in new
geographies such as the U.K., France, Hong Kong,
Australia, Singapore, Middle East and India where
we are working directly with physicians and societies
on the clinical benefits of Impella technology.
In FY22 and beyond, we will follow our operating
procedures, execute our strategy, and invest
with a focus on extending our lead in innovation,
advancing Impella clinical evidence and establishing
commercial excellence with our sales and
marketing initiatives.
I am confident that Abiomed will continue to drive
a new standard of care for the growing population
of high-risk heart and respiratory failure patients
around the world. I would like to again thank our
employees for their commitment and outstanding
efforts throughout this extraordinary year and I am
grateful to our customers for putting Patients First
every day. Together, we will work to create long-
term value for all of our stakeholders as we continue
to recover hearts and save lives.
with surgical suites in the U.S. The Impella 5.5
with SmartAssist has reported comparably higher
survival rates and native heart recovery for the
acutely decompensating heart failure patient
population. We believe the Impella BTR™ heart
pump, our wearable, long-term hemodynamic
support device, will further validate these
outcomes and expand our U.S. addressable market
by 100,000 Class III/IV heart failure patients. We
anticipate our first-in-human experience with
Impella BTR in Q4 of FY22.
We remain focused on breaking the small-bore
barrier with devices such as XR Sheath for Impella
CP® with SmartAssist and Impella ECP. We plan to
bring XR Sheath for Impella CP with SmartAssist to
the U.S. market in Q4 of FY22 and will continue to
progress through the EFS for the Impella ECP. We
believe smaller devices provide ease of use, drive
better patient outcomes and will ultimately expand
our customer base.
We also look forward to treating a new patient
population with our innovative Abiomed Breethe
OXY-1 System in FY22. This compact, state-of-the-
art, ECMO technology provides a new treatment
option for approximately 25,000 annual U.S.
patients in need of respiratory lung-support.
Turning to new indications, we will continue to
expand our sites and enroll additional patients in
the FDA STEMI DTU RCT, which is based on more
than 15 years of research and a successful 2019
FDA pilot RCT. This research could fundamentally
transform the standard of care for heart attacks
and reduce heart failure for more than 4 million
patients worldwide.
Michael Minogue
CHAIRMAN, PRESIDENT AND CHIEF EXECUTIVE OFFICER
Abiomed’s Leadership Training Program showing their support
for the I Am Abiomed Commitment
IMPELLA® EFFICACY IN JAPAN
J-PVAD Registry. Multi-Center, Prospective clinical registry
led by Impella® Committee. Three-year interim analysis1
Enrollment period: Oct 2017 – Jan 2020
79.4%
77.4%
87.5%
1. Sawa, Late Breaking Clinical Studies, The Japanese Circulation Society 2020
Annual Scientific Meeting
S U R V I V A L A T 3 0 D A Y S
Impella® Only Group
ALL
INDICATIONS
N=431
AMI-CS
N=202
MYOCARDITIS
N=32
19
ABIOMED
® PRODUCT PLATFORM
IMPELLA ECP™
IMPELLA 5.5®
Pipeline Technology*
IMPELLA BTR™
*All pipeline technology devices are currently in development and are not approved or cleared for sale or use in the United States. Impella ECP™ is an
investigational device, limited by Federal law to investigational use only. For indications for use and important safety information concerning Impella devices,
please visit https://www.heartrecovery.com/important-safety-information.
IMPELLA 2.5®
IMPELLA 5.0®
IMPELLA CP®
IMPELLA RP®
Automated Impella Controller™ (AIC),
Impella SmartAssist® and
Impella Connect® Technologies
The AIC controls the Impella® catheter performance
while SmartAssist® is designed to improve patient
outcomes with advanced algorithms and simplified
patient management. Impella Connect® allows for
access to patient metrics in the cloud and monitoring
by Abiomed® and other necessary medical personnel.
ABIOMED BREETHE
OXY-1 SYSTEM™
XR SHEATH™
20
CAMP PCI
CAMP PCI is the largest online and
interactive education and training
endeavor in the company’s history.
This online training platform gives
us the ability to reach physicians
remotely and share best practices,
techniques and technologies
to achieve more effective and
complete PCI. Resources include
learning modules, password-
protected community interaction,
“ask the faculty” functionality,
live case demonstrations, and
virtual proctoring.
In Fiscal Year 2021, we transitioned
to Abiomed 2.0, our adapted
business model which includes
more interactive, online training,
education, and patient support.
Abiomed 2.0 encompasses remote
monitoring through Impella
Connect®, online education with
CAMP PCI and virtual proctoring
with live cases.
VIRTUAL INVESTOR DAY
The company hosted a Virtual
Investor Day covering clinical data
and innovation which included
presentations from members of
Abiomed’s senior management team
and five physician experts providing
an overview and update on the
company’s robust clinical data and
latest innovations.
The Abiomed 2.0 Mission
To recover heart muscle and save lives with
percutaneous heart pump and oxygenation
technologies, enabling safer, more effective
treatment and therapies for high-risk,
urgent and emergent patients.
21
VIRTUAL PATIENT SUMMIT
Abiomed hosted the Abiomed
2.0 version of our annual
patient summit in August
FY21. Instead of traveling to
Danvers, five patients gathered
virtually. They learned about
Impella® and heart recovery,
took a virtual tour of the
Danvers Headquarters,
learned how to share their
story with the public, and
virtually met the operators who
made their individual pumps.
IMPELLA CONNECT®
Impella Connect is a HIPAA-compliant
service that allows Abiomed personnel
to remotely monitor the Impella console
and interact appropriately with medical
providers on topics such as hemodynamic
management, alarms and weaning. Within
the fiscal year we expanded Impella
Connect to nearly 1,000 hospitals.
22
* American Heart Association: Heart Disease and Stroke Statistics—2015 Update 1. Einarson et al. Cardiovasc Diabetol (2018) 17:83 2. Historic Survival without Impella Support/
Protocols:1990-2006: ~50% Mortality ;2017 CULPRIT SHOCK Study: ~50% Mortality, NEJM ; Jeger, et al. Ann Intern Med. 2008 3. Heart Disease Could Cost U.S. $1 Trillion Per Year By
2035: Report. https://health.usnews.com/health-care/articles/2017-02-14/heart-disease-could-cost-us-1-trillion-per-year-by-2035-report 4. All payer data 2019, ±5% error including
MedPar and NIS when available, Definitive Healthcare 5. Doshi D, et al. J Am Coll Cardiol. 2016;68(5):450-458 6. Watkins S, et al. EuroIntervention. 2015;10(12):1402-1408 7. Hannan,
et.al. Circulation. 2006;113:2406-2412, 8. Sarno, G. et. al, Am J Cardiol. 2010 Nov 15;106(10):1369-75, 9. Farooq V, et al. J Am Coll Cardiol. 2013;61(3):282-294 10. Jiménez-Navarro MF,
et al. Heart 2015;101:1233–1239 11. Kwok, C. et. al. JACC: Cardiovascular Interventions Mar 2019, 4306 12. Tripathi A, et al. Circ Cardiovasc Interv. 2017; 10:e005925
#1 CARDIAC MORTALITY RISK
CARDIOGENIC SHOCK
~50% mortality rate for last
20+ years without Impella ®
heart pumps2
202,000/year in U.S.4
#1 HEALTH EXPENDITURES
$555B
IN 2016 TO
$1.1T BY 2035
3
984,000
PCIs performed
in 20194
118,100
PCI patients were
readmitted within
90 days11,12
137,800
PCIs staged for
multiple
procedures6
108,000
PCI patients receive
an incomplete
revascularization7-10
319,000
surgical turn down,
High-Risk Patients
with CAD not
Treated with PCI5
#1
C A U S E O F D E A T H I N U . S .
A N D G R O W I N G :
CORONARY ARTERY DISEASE (CAD)
HEART FAILURE (HF)
RESPIRATORY FAILURE
(ADULT & PEDIATRIC)
ARDS, H1N1, SARS, COVID-19
EUA, cardiac arrest EUA,
long-term COPD
25,000/year in U.S.
15M+
P E O P L E W I T H C A D 875,000
D E A T H S P E R Y E A R F R O M C A D
OBESITY & TYPE II DIABETES
ARE RAPIDLY INCREASING CAD
WITH HEART ATTACKS AND
KIDNEY FAILURE FOR 10% OF
WORLD’S POPULATION1
P E R C U T A N E O U S C O R O N A R Y I N T E R V E N T I O N Q U A L I T Y M E T R I C S
23
878M+
$848M
$120+
2,000+
HOSPITALS USE IMPELLA®
MANUFACTURING
FACILITIES ARE
IN FISCAL YEAR SALES
DURING COVID
MILLION INVESTED IN RESEARCH
AND DEVELOPMENT IN FY21
BY THE INTERNATIONAL
ORGANIZATION OF STANDARDIZATION
ASSISTING EMPLOYEES AND THEIR
FAMILY MEMBERS NEGATIVELY
IMPACTED BY COVID-19 OR OTHER
EMERGENCY HARDSHIP SITUATIONS
6,214
POUNDS OF HAZARDOUS WASTE
TURNED INTO ENERGY
4,660
420yd3
500M+ KWh
POUNDS OF UNIVERSAL
WASTE RECYCLED
OF LANDFILL ELIMINATED
ENERGY SAVED
GALLONS OF WATER
CONSERVED
1,725
GLOBAL EMPLOYEES
100%
TRAINING
PARTICIPATION
43%
FEMALE
WORKFORCE
29%
U.S. DIVERSE
WORKFORCE
IN 2020, THE COMPANY
ESTABLISHED THE ABIOMED
CHARITABLE FOUNDATION
ESG EXECUTIVE
SUMMARY
50%
DIVERSE INDEPENDENT
BOARD DIRECTORS
24
At Abiomed, we are committed to giving
back to the community on a local and
national scale. The Abiomed Citizenship
and Give Back Program supports multiple
national organizations including those
that support heart health and U.S. military
veterans. The program also supports
education and local service organizations
in Massachusetts and the North Shore
community.
MedTechVets (www.medtechvets.org)
is a nonprofit organization that assists
and prepares service members and
military veterans for meaningful
employment in medical technology
and life science companies.
CITIZENSHIP AND
GIVE BACK PROGRAM
N A T I O N A L
B O A R D O F D I R E C T O R S
L O C A L
Michael R. Minogue
Founder
Gregory Gadson
Derek Herrera
Chairman
Robert Neuner
John DeBlasio
Michael Grice
25
PATIENT ADVOCACY
PROGRAM
A B I O M E D
HEART RECOVERY REUNIONS
As a part of the patient advocacy program,
Abiomed partners with hospitals to host Heart
Recovery Reunions (HRRs), which are events that
reunite Impella patients with the staff who saved
their life. During the COVID-19 pandemic, the
traditional in-person HRRs went virtual allowing
us to continue to bring together the hospital staff
with our patients and their families. Today, we have
a hybrid program of both in-person and virtual
events, which is stronger than ever before.
Over the last 17 years, Abiomed has developed a robust global patient advocacy
program. When an Impella patient recovers after a heart event or a high-risk procedure,
the Abiomed patient advocacy program offers these individuals a way to celebrate their
recovery, share their stories, and join a community of heart recovery.
26
Abiomed donated and shipped over 130,000 masks directly to hospitals and government
agencies in an effort to help local communities. Abiomed also invested over one million
dollars in protective equipment and daily COVID testing to keep our employees safe
and continue manufacturing life saving products. All of us at Abiomed want to thank the
frontline healthcare workers and medical community for all they do to support patients
and provide much needed medical care during the COVID-19 pandemic!
1
10-k Title Page
2021 FORM 10-K
2
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-K
(Mark One)
☒
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended March 31, 2021
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: 001-09585
ABIOMED, Inc.
(Exact Name of Registrant as Specified in Its Charter)
Delaware
04-2743260
(State or Other Jurisdiction of
Incorporation or Organization)
(I.R.S. Employer
Identification No.)
22 Cherry Hill Drive
Danvers, Massachusetts
01923
(Address of Principal Executive Offices)
(Zip Code)
(978) 646-1400
(Registrant’s Telephone Number, Including Area Code)
Securities registered pursuant to Section 12(b) of the Act:
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☒ No ☐
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act. Yes ☐ No ☒
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 ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405
of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth
company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.:
Large accelerated filer
☒
Accelerated filer
☐
Non-accelerated filer
☐
Smaller reporting company
☐
Emerging growth company
☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial
accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial
reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☒
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ☐ No ☒
As of September 30, 2020 the last business day of the registrant’s most recently completed second fiscal quarter, the aggregate market value of the voting and non-voting common
equity held by non-affiliates was $12,155,296,841. As of May 14, 2021, 45,295,979 shares of the registrant’s common stock, $0.01 par value, were outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant’s definitive Proxy Statement relating to the 2021 Annual Meeting of Stockholders are incorporated by reference into Part III (Items 10, 11, 12, 13 and 14)
of this Annual Report on Form 10-K. Such Proxy Statement will be filed with the Securities and Exchange Commission within 120 days after the end of the fiscal year to which
this report relates.
Title of each class
Trading symbol
Name of each exchange on which registered
Common Stock, $0.01 par value
ABMD
The Nasdaq Stock Market LLC
TABLE OF CONTENTS
PART I
Page
Item 1.
Business.........................................................................................................................................................................
1
Item 1A.
Risk Factors...................................................................................................................................................................
14
Item 1B.
Unresolved Staff Comments .........................................................................................................................................
33
Item 2.
Properties.......................................................................................................................................................................
33
Item 3.
Legal Proceedings .........................................................................................................................................................
34
Item 4.
Mine Safety Disclosures................................................................................................................................................
34
PART II
Item 5.
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities...
35
Item 6.
Selected Financial Data.................................................................................................................................................
37
Item 7.
Management’s Discussion and Analysis of Financial Condition and Results of Operations .......................................
38
Item 7A.
Quantitative and Qualitative Disclosures About Market Risk ......................................................................................
45
Item 8.
Financial Statements and Supplementary Data.............................................................................................................
46
Item 9.
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.......................................
46
Item 9A.
Controls and Procedures................................................................................................................................................
47
Item 9B.
Other Information..........................................................................................................................................................
49
PART III
Item 10.
Directors, Executive Officers and Corporate Governance............................................................................................
50
Item 11.
Executive Compensation...............................................................................................................................................
50
Item 12.
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.....................
50
Item 13.
Certain Relationships and Related Transactions, and Director Independence..............................................................
50
Item 14.
Principal Accountant Fees and Services .......................................................................................................................
50
PART IV
Item 15.
Exhibits and Financial Statement Schedules.................................................................................................................
51
Item 16.
Form 10-K Summary.....................................................................................................................................................
53
EXPLANATORY NOTES
Pending Trademarks and Registered Marks
Throughout this annual report on Form 10-K (“this Report”), we refer to various trademarks, service marks and trade names that
we use in our business. Abiomed, Impella, Impella 2.5, Impella 5.0, Impella LD, Impella CP, Impella RP, Impella 5.5, Impella
Connect, and SmartAssist are registered trademarks of Abiomed, Inc., and are registered in the U.S. and certain foreign countries.
Impella ECP, Impella XR Sheath, Impella BTR, CVAD, STEMI DTU, Automated Impella Controller and Abiomed Breethe OXY-1
System are pending trademarks of ABIOMED, Inc. Other trademarks and service marks appearing in this Report are the property of
their respective holders.
Company References
Throughout this Report, “ABIOMED, Inc.,” the “Company,” “we,” “us” and “our” refer to ABIOMED, Inc. and its consolidated
subsidiaries.
Industry Data and Forecasts
This Report includes data, including forecasts, obtained from industry publications and surveys and other information available
to us. Data and other metrics included in this Report to describe our industry or our products are inherently uncertain and speculative
in nature, and actual results for any period may materially differ. Estimates and forecasts involve uncertainties and risks and are
subject to change based on various factors, including those discussed above under “Forward-Looking Statements.” While we are not
aware of any misstatements regarding the third-party industry data presented in this Report, we have not independently verified any of
the data from third-party sources, nor have we ascertained the underlying assumptions relied upon therein.
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS AND RISK FACTOR SUMMARY
This Report, including the documents incorporated by reference in this Report, includes forward-looking statements within the
meaning of the Private Securities Litigation Reform Act of 1995. All statements, other than statements of historical facts, may be
forward-looking statements. These forward-looking statements may be accompanied by such words as “anticipate,” “believe,”
“estimate,” “expect,” “forecast,” “intend,” “may,” “plan,” “potential,” “project,” “target,” “should,” “likely,” “will” and other words
and terms of similar meaning. Each forward-looking statement in this Report is subject to risks and uncertainties that could cause
actual results to differ materially from those expressed or implied by such statement, including, without limitation, in “Item 1.
Business, “Item 1A. Risk Factors” and “Item 7A. Management’s Discussion of and Analysis of Financial Condition and Results of
Operations.” Factors that could cause actual results or conditions to differ from those anticipated by these and other forward-looking
statements include, among others, the items in the following list, which also summarizes some of our more principal risks:
•
the impact of public health threats and epidemics, including the novel coronavirus (“COVID-19”) pandemic and resulting
or prolonged economic downturns on our operations and financial conditions;
•
effects on our profitability if we are unable to manufacture our products as a result of natural or man-made disasters;
•
fluctuations in foreign currency exchange rates;
•
our dependence on Impella® products for most of our revenues;
•
our ability to successfully compete against our existing or potential competitors;
•
the acceptance of our products by cardiac surgeons and interventional cardiologists, especially those with significant
influence over medical device selection and purchasing decisions;
•
the effect of long sales and training cycles associated with expansion into new hospital cardiac centers;
•
the potential for reduced market acceptance of our products and reduced revenue due to lengthy clinician training process;
•
our ability to effectively manage our growth;
•
our ability to anticipate demand for, and successfully commercialize, our products;
•
the impact of unsuccessful clinical trials or procedures relating to products under development;
•
our ability to develop additional and high-quality manufacturing capacity to support continued demand for our products;
•
our dependence on third-party payers to provide reimbursement to our customers of our products;
•
our suppliers’ failure to provide the components we require;
•
our reliance on distributors to sell our products in international markets;
•
our success in expanding our direct sales activities into international markets;
•
our ability to sustain profitability at levels achieved in recent years;
•
the unpredictability of fluctuations in our operating results;
•
our ability to develop and commercialize new products or acquire desirable companies, products or technologies;
•
inventory write-downs and other costs due to product quality issues;
•
risks and liabilities associated with acquisitions of other companies or businesses, including our ability to integrate
acquired businesses into our operations;
•
the impact of consolidation in the healthcare industry on our prices;
•
our ability to attract and retain key personnel;
•
our ability to obtain governmental and other regulatory approvals and market and sell our products in certain jurisdictions;
•
regulatory or enforcement actions and product liability suits relating to off-label uses of our products;
•
the increased risk of material product liability claims and impact on our reputation and financial results;
•
our ability to maintain compliance with regulatory requirements and continuing regulatory review;
•
the impact of mandatory or voluntary product recalls;
•
material impairments caused by shutdowns of the U.S. federal government;
•
changes in healthcare reimbursement systems in the U.S. and abroad;
•
our ability to comply with healthcare “fraud and abuse” laws and any related penalties for non-compliance;
•
our failure to comply with the U.S. Foreign Corrupt Practices Act and other anti-corruption laws, export control laws,
import and customs laws, trade and economic sanctions laws and other laws governing our operations;
•
our or our vendors’ ability to achieve and maintain high manufacturing standards;
•
the economic effects of “Brexit” and related impacts to relationships with our existing and future customers;
•
our potential “ownership change” for U.S. federal income tax purposes and our limited utilization of net operating losses
from prior tax years;
•
our ability to maintain compliance with, and the impact on us of changes in, tax laws including U.S. Tax Reform
legislation;
•
our ability to comply with, and the impact of any related costs or regulatory actions with respect to, environmental, health
and safety requirements;
•
our failure to protect our intellectual property or develop or acquire additional intellectual property;
•
compliance with laws protecting the confidentiality of patient health information;
•
disruptions of critical information systems or material breaches in the security of our systems;
•
risks relating to our shares of common stock, including market price volatility and the potential for dilution to our
stockholders’ ownership interests through the sale of additional securities;
•
changes in methods, estimates and judgments we use in applying our accounting policies;
•
changes in accounting standards, tax laws and financial reporting requirements;
•
the outcome of ongoing securities class action litigation relating to our public disclosures; and
•
other factors discussed in “Part I, Item 1A. Risk Factors” of this Report.
The preceding list is not intended to be an exhaustive list of all of our forward-looking statements. Readers are cautioned not to
place undue reliance on any forward-looking statements contained in this Report, which speak only as of the date of this Report. Any
forward-looking statement made in this Report speaks only as of the date hereof. We undertake no obligation to update or revise these
forward-looking statements whether as a result of new information, future events or otherwise, unless otherwise required by law. Our
business is subject to risks and uncertainties, including those referenced above. Although we believe that the expectations reflected in
the forward-looking statements are reasonable, we cannot guarantee that future results, levels of activity, performance and events and
circumstances reflected in the forward-looking statements will be achieved or will occur. Investors, potential investors, and others
should give careful consideration to these risks and uncertainties.
1
PART I
ITEM 1.
BUSINESS
Corporate Background
Our Company was founded in 1981 and is incorporated in Delaware. Our common stock is listed on the Nasdaq Global Select
Market under the ticker symbol “ABMD.”
Our principal executive offices are located at 22 Cherry Hill Drive, Danvers, Massachusetts 01923. Our telephone number is
(978) 646-1400. We make available, free of charge on our website located at www.abiomed.com, our annual reports on Form 10-K,
quarterly reports on Form 10-Q, current reports on Form 8-K, and any amendments to those reports, as soon as reasonably practicable
after filing such reports with or furnishing such reports to the U.S. Securities and Exchange Commission, or SEC. We also use our
website for the distribution of Company information. The information we post on our website may be deemed to be material
information. Accordingly, investors should monitor our website, in addition to following our press releases, SEC filings and public
conference calls and webcasts. The contents of our website are not incorporated by reference into this Report.
Our Company
We are a leading provider of medical devices that provide circulatory support and oxygenation. Our products are designed to
enable the heart to rest by improving blood flow and/or provide sufficient oxygenation to those in respiratory failure. We develop,
manufacture and market proprietary products that are designed to enable the heart to rest, heal and recover by improving blood flow to
the coronary arteries and end-organs and/or temporarily assisting the pumping function of the heart. Our products are used in the
cardiac catheterization lab, or cath lab, by interventional cardiologists, the electrophysiology lab, the hybrid lab and in the heart
surgery suite by cardiac surgeons. A physician may use our devices for patients who are in need of hemodynamic support
prophylactically, urgently or emergently before, during or after angioplasty or heart surgery procedures. We believe that heart
recovery is the optimal clinical outcome for a patient experiencing heart failure because it enhances the potential for the patient to go
home with their own heart, facilitating the restoration of quality of life. In addition, we believe that, for the care of such patients, heart
recovery is often the most cost-effective solution for the healthcare system.
Our strategic focus and the driver of our revenue growth is the market penetration of our family of Impella® heart pumps. The
Impella device portfolio, which includes the Impella 2.5®, Impella CP®, Impella 5.0®, Impella LD®, Impella 5.5® and Impella RP®
devices, has supported thousands of patients worldwide. We expect that most of our product and service revenue in the near future
will be from our Impella devices. Our Impella 2.5, Impella CP, Impella 5.0, Impella LD, Impella 5.5 and Impella RP devices have
U.S. Food and Drug Administration, or FDA, and CE Mark approvals which allows us to market these devices in the U.S. and
European Union, respectively. We expect to continue to make additional pre-market approval, or PMA, supplement submissions for
our Impella portfolio of devices for additional indications. Our Impella 2.5, Impella CP and Impella 5.0 devices have regulatory
approval from the Ministry of Health, Labor and Welfare, or MHLW, in Japan. In October 2020, we also received a 510(k) clearance
for the Abiomed Breethe OXY-1 System (the “OXY-1 System”) from the FDA for an all-in-one, compact cardiopulmonary bypass
system.
COVID-19 Pandemic
For a discussion of the impact of the ongoing COVID-19 pandemic on our business, see “Part II, Item 7. Management’s
Discussion and Analysis of Financial Condition and Results of Operations—COVID-19 Pandemic.”
Our Existing Products
Impella 2.5®
The Impella 2.5 device is a percutaneous micro heart pump with an integrated motor and sensors. The device is designed
primarily for use by interventional cardiologists to support patients in the cath lab who may require assistance to maintain circulation.
The Impella 2.5 heart pump can be quickly inserted via the femoral artery to reach the left ventricle of the heart, where it is directly
deployed to draw blood out of the ventricle and deliver it to the circulatory system. This function is intended to reduce ventricular
work and provide blood flow to vital organs. The Impella 2.5 heart pump is introduced with normal interventional cardiology
procedures and can pump up to 2.5 liters of blood per minute.
Our Impella 2.5 device has FDA, CE Mark and MHLW approvals which allows us to market these devices in the U.S.,
European Union and Japan, respectively. We expect to continue to make additional PMA supplement submissions for our Impella
portfolio of devices for additional indications. Our Impella 2.5, Impella CP and Impella 5.0 devices have regulatory approval from the
MHLW in Japan. The Impella 2.5 device also has Health Canada approval which allows us to market the device in Canada.
2
Impella CP®
The Impella CP device provides blood flow of approximately one liter more per minute than the Impella 2.5 device and is
primarily used by either interventional cardiologists to support patients in the cath lab or by cardiac surgeons in the heart surgery suite.
Our Impella CP devices has FDA and CE Mark approval which allows us to market this device in the U.S. and European Union.
We expect to continue to make additional PMA supplement submissions for our Impella portfolio of devices for additional indications
of Impella CP in the U.S. In March 2019, we received Japanese Pharmaceuticals and Medical Devices Agency (“PMDA”) approval
from the MHLW for our Impella CP heart pump in Japan. We began selling the Impella CP heart pump in Japan in fiscal year 2020.
Impella 5.0® and Impella LD®
The Impella 5.0 and Impella LD devices are percutaneous micro heart pumps with integrated motors and sensors for use
primarily in the heart surgery suite. These devices are designed to support patients who require higher levels of circulatory support as
compared to the Impella 2.5 or Impella CP.
Our Impella 5.0 and Impella LD devices have FDA and CE Mark approval which allows us to market these devices in the U.S.
and European Union. We expect to continue to make additional PMA supplement submissions for our Impella portfolio of devices for
additional indications. Our Impella 5.0 devices have regulatory approval from the MHLW in Japan and Health Canada regulatory
approval in Canada.
Impella 5.5®
The Impella 5.5 device is designed to be a percutaneous micro heart pump with integrated motors and sensors. The Impella 5.5
delivers peak flows of greater than six liters per minute. The Impella 5.5 has a motor housing that is thinner and 45% shorter than the
Impella 5.0 and it improves ease of pump insertion through the vasculature.
In September 2019, the Impella 5.5 device received a PMA from the FDA for safety and efficacy in the therapy of cardiogenic
shock for up to 14 days in the U.S. The Impella 5.5 pump was introduced in the U.S. through a controlled rollout at hospitals with
established heart recovery protocols beginning in fiscal year 2020. The Impella 5.5 device received CE Mark approval in Europe in
April 2018 is being introduced in Europe through a similar controlled rollout. We are also targeting a submission of the Impella 5.5
device to the PMDA in Japan in fiscal year 2022. The adoption of the Impella 5.5 device has decreased the utilization of Impella 5.0
and Impella LD at certain sites.
Impella RP®
The Impella RP device is a percutaneous catheter-based axial flow pump that is designed to allow greater than four liters of
blood flow per minute and is intended to provide the flow and pressure needed to compensate for right side heart failure. Our Impella
RP device has FDA and CE Mark approval which allows us to market these devices in the U.S. and European Union. The Impella RP
is the first percutaneous single access heart pump designed for right heart support to receive FDA approval. The Impella RP device is
approved to provide support of the right heart during times of acute failure for certain patients who have received a left ventricle assist
device or have suffered heart failure due to AMI, a failed heart transplant, or following open heart surgery. We expect to continue to
make additional PMA supplement submissions for our Impella portfolio of devices for additional indications.
Impella SmartAssist®
The Impella SmartAssist platform includes optical sensor technology for improved pump positioning and the use of algorithms
that enable improved native heart assessment during the weaning process. The Impella SmartAssist platform is currently available for
our Impella CP and Impella 5.5 heart pumps. The Impella SmartAssist platform is also approved under CE Mark in the European
Union and other countries that require a CE Mark approval.
Impella Connect®
Impella Connect is a cloud-based technology that enables secure, remote viewing of the Automated Impella Controller, or AIC,
for physicians and hospital staff from anywhere with internet connectivity. We began a controlled roll-out of Impella Connect at
certain hospital sites during fiscal year 2020 and transitioned most of our higher volume customers during fiscal year 2021.
3
OXY-1 System
The OXY-1 System is a portable external respiratory assistance device that we acquired as part of our acquisition of Breethe,
Inc. (“Breethe”), in April 2020 as part of our efforts to expand our product portfolio to support the needs of patients, such as those
suffering from cardiogenic shock or respiratory failure, whose lungs can no longer provide sufficient oxygenation. The OXY-1
System takes venous blood from the patient, removes carbon dioxide and adds oxygen much like a human lung, and returns the
oxygenated blood safely back to the patient. In October 2020, the OXY-1 System received a 510(k) clearance from the FDA for an all-
in-one, compact cardiopulmonary bypass system. In the third quarter of fiscal year 2021, we initiated a controlled launch of the OXY-
1 System at a limited number of hospitals in the U.S, that we expect to continue in fiscal year 2022.
Our Product Pipeline
Impella ECP™
The Impella ECP device is designed for blood flow of greater than three liters per minute. It is intended to be delivered on a
standard sized catheter and will include an expandable inflow in the left ventricle. The Impella ECP device has completed the first
stage in its FDA early feasibility study (“EFS”) in December 2020 by enrolling and treating five patients. The prospective, multi-
center, non-randomized EFS is designed to allow us, study investigators, and the FDA to make qualitative assessments about the
safety and feasibility of Impella ECP use in high-risk percutaneous coronary intervention (“PCI”) patients. In January 2021, we
received approval from the FDA to expand the EFS for the Impella ECP device based on their review of results from the first five
patients. The Impella ECP device is still in development and has not been approved for commercial use or sale.
Impella XR Sheath™
The Impella XR Sheath is a low-profile sheath that expands and recoils, allowing for small bore access and closure with certain
Impella heart pumps. It inserts at 10 French (Fr) and the flexible, nitinol braids momentarily expand during insertion, then recoil,
simplifying access for complex interventions. The Impella XR sheath is intended to produce less trauma at the arterial access site
compared to large bore sheaths. In December 2020, the Impella XR Sheath for our Impella 2.5 device received a 510(k) clearance
from the FDA. We are currently developing an Impella XR Sheath for our Impella CP device and anticipate making an FDA
submission in fiscal year 2022.
Impella BTR™
The Impella BTR device is designed to be a percutaneous micro heart pump with integrated motors and sensors. The Impella
BTR device is designed to be smaller, provide up to one year of hemodynamic support and is expected to allow for greater than five
liters of blood flow per minute. The Impella BTR device also includes a wearable driver designed for hospital discharge. The Impella
BTR pump is still in development and has not been approved for commercial use or sale.
Our Markets
According to the Heart Disease and Stroke Statistics 2021 Update Report from the American Heart Association, or AHA,
coronary heart disease, or CHD, is the number one cause of death in the U.S. According to the report, 47% of women and 36% of men
over the age of 45 will die within five years of their first heart attack, and CHD causes approximately one of every seven deaths in the
U.S. CHD is a condition of the coronary arteries that causes reduced blood flow and insufficient oxygen delivery to the affected
portion of the heart. CHD leads to acute myocardial infarction, or AMI, commonly known as a heart attack, which may lead to heart
failure, a condition in which the heart is unable to pump enough blood to the body’s major organs.
A broad spectrum of therapies exists for the treatment of patients in early stages of CHD. Angioplasty procedures and stents are
commonly used in the cath lab to restore and increase blood flow to the heart. These treatments are often successful in slowing the
progression of heart disease, extending life, and/or improving the quality of life for some period of time. Patients presenting with acute
cardiac injuries potentially have recoverable hearts. Treatment for these patients in pre-shock in the cath lab is primarily focused on
hemodynamic stabilization. Acute heart failure patients in profound shock typically require treatment in the surgery suite. These are
patients suffering from cardiogenic shock after a heart attack, post-cardiotomy cardiogenic shock or myocarditis complicated with
cardiogenic shock. Chronic heart failure patients have hearts that are unlikely to be recoverable due to left and/or right-side heart
failure and their conditions cause their hearts to fail over time. Limited therapies exist today for patients with severe, end-stage, or
chronic heart failure.
In more severe cases of heart failure, patients are sent directly to the surgery suite for coronary bypass or valve replacement
surgery. The most severe acute heart failure patients are in profound cardiogenic shock, including those suffering from myocarditis (a
viral attack of the heart), or from those suffering from an impaired ability of the heart to pump blood after a heart attack or heart
surgery. These patients typically require treatments involving the use of mechanical circulatory support devices that provide increased
blood flow and reduce the stress on the heart. Many less severe patients in the cath lab could also benefit from circulatory support
devices or other clinical treatment, which could potentially prevent them from entering into profound shock.
4
Percutaneous assist devices, like the Impella portfolio of devices, are mechanical devices that help the failing heart pump blood
or take over the pumping function of the failing heart. Percutaneous assist devices allow for less invasive placement and removal and
can be done through a small puncture in the leg in the cath lab, electrophysiology lab, or operating room. We believe heart recovery is
a preferred clinical outcome for patients, since it generally lowers the overall relative cost to the healthcare system versus alternative
therapies and treatment paths that may require multiple surgeries, lengthy or repeated hospital stays, chronic therapeutic and
immunosuppressant drugs and other related healthcare costs.
Research and Product Development
Since our founding in 1981, we have gained substantial expertise in circulatory support through the development of many
product platforms to support heart patients. This includes our Impella platform that we currently market and other technologies that we
have supported, and sold in the past, which we do not actively market currently. Our current strategy is to develop a complete
portfolio of products across the continuum of care in heart recovery, primarily focused in the area of circulatory care. We intend to
continue to use this experience to develop additional circulatory support products as well as making enhancements to our existing
products, with an emphasis on improving access and closure with our devices. In addition, we have a number of new products at
various stages of development, some of which integrate the Impella technology platform including the Impella ECP, Impella XR
Sheath and Impella BTR devices.
We expended $121.9 million, $98.8 million and $93.5 million on research and development in fiscal years 2021, 2020 and 2019,
respectively. Our research and development expenditures include costs related to clinical trials and studies for our current and
anticipated future products.
We are pursuing additional randomized control trials in high-risk PCI and cardiogenic shock, such as the STEMI DTU Study
and PROTECT IV Study, to complement our clinical evidence and best practices to optimize patient outcomes.
STEMI DTU™ Study
In November 2018, we announced the results of our FDA-approved prospective multi-center feasibility study, “STEMI Door to
Unloading with Impella CP system in acute myocardial infarction” (“STEMI DTU”). The study, which enrolled 50 patients at 10 sites,
focused on the feasibility and safety of unloading the left ventricle using the Impella CP heart pump prior to primary PCI in patients
presenting with ST segment elevation myocardial infarction, or STEMI, without cardiogenic shock, with the hypothesis that this will
potentially reduce infarct size. The hypothesis of this novel approach to treating STEMI patients, based on extensive mechanistic
research, is that unloading the left ventricle prior to PCI reduces myocardial workload and oxygen demand and also initiates a cardio-
protective effect at the myocardial cell level, which may alleviate myocardial damage caused by reperfusion injury at the time of
revascularization. The intent of this study was to help refine the protocol and lay the groundwork for a future pivotal study with more
sites and patients and will be designed for statistical significance.
In April 2019, the FDA approved the initiation of the STEMI DTU pivotal randomized controlled trial. The prospective, multi-
center, two-arm trial plans to enroll 668 patients undergoing treatment for a STEMI heart attack at up to 60 sites. Half the patients will
be randomized to receive delayed reperfusion after 30 minutes of left ventricular unloading with the Impella CP. The other half will
receive immediate reperfusion, the current standard of care. The STEMI DTU trial will test the hypothesis that unloading the left
ventricle for 30 minutes prior to reperfusion will reduce myocardial damage from a heart attack and lead to a reduction in future heart
failure related events. The trial allows for an adaptive design, which permits adjustments to the study sample size after an interim
analysis. We began the trial in the third quarter of fiscal 2020 and we estimate that it will take three to four years to complete
enrollment.
PROTECT IV Study
In April 2021, we announced that the first patient has been enrolled in PROTECT IV, a large, prospective, multi-center
randomized controlled trial that is designed to provide the level of clinical evidence needed to achieve a Class I guideline
recommendation for Impella in high-risk PCI. The two-arm trial will compare the benefits of high-risk PCI with Impella (primarily
Impella CP) versus high-risk PCI without Impella support. The primary endpoint of the study is the composite of all-cause death,
stroke, myocardial infarction or hospitalization for cardiovascular causes at a minimum of one year. The trial has an adaptive design.
It aims to enroll 1,252 consecutive qualified patients at more than 100 hospital sites across the U.S. and Europe. The PROTECT IV
trial will leverage advancements in technology and best practices learned since the completion of the PROTECT II randomized
controlled trial and the FDA PMA for the Impella 2.5 heart pump for high-risk PCI. Data from PROTECT II found, when compared to
intra-aortic balloon pump, Impella 2.5 led to a 29% reduction in MACCE, defined as composite of death, stroke, myocardial infarction
and repeat procedures, at 90 days. PROTECT IV also builds on PROTECT III, a contemporary, prospective, single-arm FDA post-
approval study of Impella 2.5 and Impella CP for high-risk PCI.
5
Sales, Clinical Support, Marketing and Field Service
Our clinical support personnel consist primarily of registered nurses and other personnel with considerable experience in either
the surgery suite or the cath lab, and they play a critical role in training and educating physicians in the use of our products. In recent
years, we have significantly increased the number of our direct sales and clinical support personnel in the U.S, Germany and Japan.
Manufacturing
We manufacture our products in Danvers, Massachusetts, Aachen, Germany and Halethorpe, Maryland. Our Aachen facility
performs final assembly and manufactures most of our disposable Impella devices, including the Impella 2.5, Impella CP, Impella 5.0,
Impella 5.5, Impella LD and Impella RP. Our Danvers facility also manufactures and performs final assembly for the Impella CP
device, Impella 5.5, and certain Impella subsystems and accessories, including our Impella AIC, the console that powers our Impella
devices. Our Halethorpe, Maryland facility manufactures the OXY-1 System. In addition, we rely on third-party suppliers to provide
us with components used in our existing products and products under development. For example, we outsource some of the
manufacturing for components and circuit cards within our consoles.
We have expanded our manufacturing capacity in all our facilities to support demand for our products. We believe our existing
manufacturing facilities provide sufficient physical capacity to meet anticipated demand for at least the next twelve months. Our U.S.
and German manufacturing facilities are certified as being in compliance with standards established by the International Organization
for Standardization, or ISO, and operate under the FDA’s good manufacturing practice requirements for medical devices set forth in
the Quality System Regulation, or QSR.
Intellectual Property
We have developed, and our business depends on, significant know-how and proprietary technology. To protect our know-how
and proprietary technology, we rely on trade secret laws, trademarks, patents, copyrights, and confidentiality agreements and other
contracts. However, these methods afford only limited protection. Others may independently develop equivalent proprietary
information or technology, gain access to our trade secrets or disclose or use such secrets or technology without our approval.
A substantial portion of our intellectual property rights relating to the Impella devices and other products under development,
such as the Impella ECP, Impella XR Sheath and Impella BTR devices, are in the form of trade secrets and patents. We protect our
trade secrets and proprietary knowledge in part through confidentiality agreements with employees, consultants and other parties. We
cannot assure you that our trade secrets will not become known to or be independently developed by our competitors.
We own or have rights to numerous U.S. and foreign patents. Patents filed both in the U.S. and Europe generally have a life of
20 years from the filing date. Our U.S. and foreign patents have expiration dates ranging from 2020 to 2036 and beyond as we
continue to innovate and file for new patent applications. We also own or have rights to certain pending U.S. and foreign patent
applications. We believe patents will issue pursuant to such applications, but cannot guarantee it. Moreover, neither the timing of any
issuance, the scope of protection, nor the actual issue date of these pending applications can be forecasted with precision. Where we
have licensed patent rights from third parties, we could be required to pay royalties.
Our patents may not provide us with competitive advantages. Our pending or future patent applications may not be issued.
Others may hold or obtain patents that cover aspects or uses of our innovations. The patents of others may render our patents obsolete,
limit our ability to patent or practice our innovations, or otherwise have an adverse effect on our ability to conduct business. Because
foreign patents may afford less protection than U.S. patents, our foreign patent estate may not adequately protect our technology.
The medical device industry is characterized by a large number of patents and by frequent and consequential intellectual
property litigation. Our products and technologies could infringe on the proprietary rights of third parties. If third parties successfully
assert infringement or other claims against us, we may not be able to sell our products or we may have to pay significant damages and
ongoing royalties. In addition, patent or intellectual property disputes or litigation may be costly, result in product development delays,
or divert the efforts and attention of our management and technical personnel. If any such disputes or litigation arise, we may seek to
enter into a royalty or licensing arrangement. However, such an arrangement may not be available on commercially acceptable terms,
if at all. We may decide, in the alternative, to litigate the claims or seek to design around the patented or otherwise protected
proprietary technology, which may also be costly and time consuming.
The U.S. government may obtain certain rights to use or disclose technical data developed under government contracts that
supported the development of some of our products. We retain the right to obtain patents on any inventions developed under those
contracts, provided we follow prescribed procedures and are subject to a non-exclusive, non-transferable, royalty-free license to the
U.S. government.
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Competition
Competition among providers of treatments for the failing heart is intense and subject to rapid technological change and
evolving industry requirements and standards. We compete with many companies that have greater financial, product development,
sales and marketing resources and experience than we do. Furthermore, new product development and technological change
characterize the areas in which we compete. Our present or future products could be rendered obsolete or uneconomical as a result of
technological advances by one or more of our present or future competitors or by other therapies, including drug therapies. We must
continue to develop and commercialize new products and technologies to remain competitive in the cardiovascular medical
technology industry. We believe that we compete primarily on the basis of clinical superiority supported by extensive data, and
innovative features that enhance patient benefit, product performance, ease of use and reliability. Customer and clinical support, and
data that demonstrate both improvement in a patient's quality of life and a product's cost-effectiveness are additional aspects of
competition.
The cardiovascular segment of the medical technology industry is dynamic and subject to significant change due to cost-of-care
considerations, regulatory reform, industry and customer consolidation and evolving patient needs. The ability to provide products and
technologies that demonstrate value and improve clinical outcomes is becoming increasingly important for medical technology
manufacturers.
We are aware of other cardiac assist device research efforts in the U.S., Canada, Europe and Japan. In addition, there are a
number of companies, including Abbott Laboratories, Medtronic, Edwards Lifesciences, Boston Scientific, LivaNova, Terumo Heart,
Teleflex, Getinge (Maquet Cardiovascular) and several early-stage companies, that are developing medical devices that provide
circulatory support and oxygenation, including implantable left ventricular assist devices, miniaturized rotary ventricular assist devices
and cardiopulmonary bypass devices that directly and indirectly compete with our products.
Third-Party Reimbursement
Our products and services are generally purchased by hospitals that rely on third-party payers to cover and reimburse the costs
of related patient care. In the U.S., as well as in many foreign countries, government-funded or private insurance programs pay the
cost of a significant portion of a patient’s medical expenses. No uniform policy of coverage or reimbursement for medical technology
exists among all these payers. Therefore, coverage and reimbursement can differ significantly from payer to payer and by jurisdiction.
Third-party payers may include government healthcare programs such as Medicare or Medicaid, private insurers or managed
care organizations. The Centers for Medicare & Medicaid Services (“CMS”) is responsible for administering the Medicare program in
the U.S. and, along with its contractors, establishes coverage and reimbursement policies for the Medicare program. Medicare’s
coverage and reimbursement policies are particularly significant to our business because a large percentage of the population for
which our products are intended includes individuals who are Medicare beneficiaries. In addition, private payers often follow the
coverage and reimbursement policies of Medicare. We cannot assure that government or private third-party payers will continue to
cover and reimburse the procedures using our products in whole or in part in the future or that payment rates for reimbursement will
be adequate. If governmental and private payers’ policies do not cover surgical procedures performed using our products, we may not
be able to generate the revenues necessary to support our business.
Medicare payment may be made, in appropriate cases, for procedures performed in the in-patient hospital setting using our
technology. Medicare generally reimburses hospitals in which the procedures are performed based upon prospectively determined
amounts. For hospital in-patient stays, the prospective payment generally is determined by the patient’s condition and other patient
data and procedures performed during the in-patient stay, using a classification system known as International Classification of
Diseases, or ICD, and medical severity diagnosis-related groups, or MS DRGs. Prospective rates are adjusted for, among other things,
regional differences, co-morbidity and complications. Hospitals performing in-patient procedures using our devices generally do not
receive separate Medicare reimbursement for the specific costs of purchasing or implanting our products. Rather, reimbursement for
these costs is bundled with the MS DRG-based payments made to hospitals for the procedures during which our devices are
implanted, removed, or replaced. Because prospective payments are based on predetermined rates and may be less than a hospital’s
actual costs in furnishing care, hospitals have incentives to lower their in-patient operating costs by utilizing products, devices and
supplies that will reduce the length of in-patient stays, decrease labor or otherwise lower their costs. Thus, hospitals may decide not to
use our products if reimbursement amounts are insufficient to cover any additional costs incurred when purchasing our products.
Coverage and reimbursement for procedures to implant, remove or replace our products are generally established in the U.S.
market. For instance, Medicare covers the use of LVADs when used for support of blood circulation post-cardiotomy, as a
temporary life-support system until a human heart becomes available for transplant, or as destination therapy for patients who require
permanent mechanical cardiac support, when the use is consistent with FDA approval and FDA-approved labeling instructions, as
applicable. Coverage and reimbursement for procedures to implant the Impella 2.5, Impella CP, Impella 5.0, Impella LD, Impella 5.5
and Impella RP devices are also established for in-hospital use by Medicare including ICD-10 for procedures and MS DRG coding.
Actual coverage and payment may vary by local Medicare fiscal intermediary or third-party insurer. Our Impella devices are also
covered by commercial and/or Medicare plans of many third-party insurers including Aetna, Humana, Cigna, Blue Cross Blue Shield,
and United Healthcare.
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In September 2020, CMS released final Medicare payment levels for inpatient hospital discharges for fiscal year 2021 (October
1, 2020 through September 30, 2021). The Final Rule for the IPPS update includes ICD-10 coding and confirms assignment of
percutaneous Impella implantation to MS-DRG 215 for Other Heart Assist System Implant, and maintains bi-ventricular Impella (MS-
DRG 1), ECpella (MS-DRG 3), and Impella hospital transfer / support (MS-DRG 268) for the receiving hospital. The Final Rule also
set the relative weight for MS-DRG 215 equal to the average of the proposed FY2021 rate and FY2020 rate, an 11% reduction, instead
of the proposed 24% reduction. In addition, CMS increased rates for MS-DRGs 1, 3, and 268 by 8%, 3%, and 5%, respectively. The
Final Rule will be effective for the 12 months beginning on October 1, 2020 for all Medicare hospital inpatient discharges.
In April 2021, the CMS released a draft of proposed Medicare payment levels for inpatient hospital discharges after October 1,
2021. The April 2021 proposed rule, or the Proposed Rule, for the IPPS update includes reassigning select ICD-10-PCS codes from
MS-DRG 215 to additional cardiovascular related MS-DRGs to align clinical populations and better reflect hospital resources. For the
sickest patients who utilize extensive resources, hospitals are eligible to receive additional outlier payments, which may collectively
increase reimbursement in future years. The AHA and CMS have established a system of care around the utilization of percutaneous
heart pumps. The history and creation of this dedicated payment system with Impella implant/explant, bi-ventricular, ECPella, and
transfer reimbursement allow some of the most critically ill patients the potential to survive and achieve native heart recovery. As
highlighted by CMS, the FDA has granted Emergency Use Authorizations (“EUAs”) to us for COVID-19. For the duration of the
public health emergency, hospitals treating patients diagnosed with COVID-19 receive an additional 20 percent in reimbursement. The
Proposed Rule for the IPPS is open for public comment until June 28, 2021. The final rulemaking may differ substantially from this
proposal and will take effect for the year beginning October 1, 2021.
In addition to payments to hospitals for procedures using our technology, Medicare makes separate payments to physicians for
their professional services when they perform surgeries to implant, remove, replace or repair our devices or when they perform
percutaneous insertion and removal of Impella devices. Physicians generally bill for such services using a coding system known as
Current Procedural Terminology, or CPT, codes. Physician services performed in connection with the implantation, removal or
repositioning of our approved products are billed using a variety of CPT codes. Generally, Medicare payment levels for physician
services are based on the Medicare Physician Fee Schedule and are revised annually by CMS. Physicians may choose not to use our
products if reimbursement amounts do not justify the additional costs expended when employing our products.
In general, third-party reimbursement programs in the U.S. and abroad, whether government-funded or commercially insured,
are developing a variety of increasingly sophisticated methods of controlling healthcare costs, including prospective reimbursement
and capitation programs, group purchasing, reducing benefit coverage, requiring second opinions prior to major surgery, negotiating
reductions to charges on patient bills, promoting healthier lifestyle initiatives and exploring more cost-effective methods of delivering
healthcare. These types of cost containment programs, as well as legislative or regulatory changes to reimbursement policies, could
limit the amount which healthcare providers may be willing to pay for our medical devices.
Government Regulation and Other Matters
Our products and facilities are subject to regulation by numerous government agencies, including the FDA, European Union
Member States competent authorities, and the Japanese Pharmaceuticals and Medical Devices Agency, to confirm compliance with
the various laws and regulations governing the development, testing, manufacturing, labeling, marketing, and distribution of our
products. We are also governed by federal, state, local, and international laws of general applicability, such as those regulating
employee health and safety, and the protection of the environment. Overall, the amount and scope of domestic and foreign laws and
regulations applicable to our business has increased over time. Compliance with these regulations has not had a material effect on our
capital expenditures, earnings, or competitive position to date, but new regulations or amendments to existing regulations to make
them more stringent could have such an effect in the future. We cannot estimate the expenses we may incur to comply with potential
new laws or changes to existing laws, or the other potential effects these laws may have on our business.
United States Regulation
In the U.S., the FDA has responsibility for regulating medical devices under the authority of the Federal Food, Drug and
Cosmetic Act, or FFDCA. The FDA regulates design, development, testing, clinical studies, manufacturing, labeling, distribution,
import, export, sale promotion, and record keeping for medical devices, and reporting of adverse events, recalls, or other field actions
by manufacturers and users to identify potential problems with marketed medical devices. Many of the devices that we develop,
manufacture and market are in a category for which the FDA has implemented stringent clinical investigation and pre-market
clearance or approval requirements. The process of obtaining FDA clearance or approval to market a product is resource intensive,
lengthy, and costly. FDA review may involve delays that adversely affect the marketing and sale of our products. Some our products
are pending regulatory clearance or approval to begin commercial sales in various markets. Ultimately, the FDA may not authorize the
commercial release of a medical device if it determines the device is not safe and effective or does not meet other standards for
clearance or approval. Additionally, even if a product is cleared or approved, the FDA may impose restrictions requiring postmarket
testing and surveillance programs to monitor the effects of these products once commercialized.
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The FDA has the authority to halt the distribution of certain medical devices, detain or seize adulterated or misbranded medical
devices, order the repair, replacement, or refund of the costs of such devices, or preclude the importation of devices that are or appear
to be violative. The FDA also conducts inspections to determine compliance with the QSR concerning the manufacturing and design
of devices and medical device reporting regulations, recall regulations, clinical testing regulations, and other requirements. The FDA
may withdraw product clearances or approvals due to failure to comply with regulatory standards, or the occurrence of unforeseen
problems following initial approval, and require notification of health professionals and others with regard to medical devices that
present unreasonable risks of harm to the public health. Additionally, the failure to comply with FDA or comparable regulatory
standards or the discovery of previously unknown product problems could result in fines, delays, or suspensions of regulatory
clearances or approvals, seizures, injunctions, recalls, refunds, civil money penalties, or criminal prosecution. Our compliance with
applicable regulatory requirements is subject to continual review. Moreover, the FDA and several other U.S. agencies administer
controls over the export of medical devices from the U.S. and the import of devices into the U.S., which could also subject us to
sanctions for noncompliance.
Premarket Regulation
The FDA classifies medical devices into one of three classes (Class I, II or III) based on the statutory framework described in
the FFDCA. Our Impella products are categorized as Class III devices. Class III devices are typically life-sustaining, life-supporting or
implantable devices, or new devices that have not been found to be substantially equivalent to legally marketed devices. Class III
devices must generally receive PMA approval from the FDA before they can be marketed.
The PMA approval pathway requires that the applicant demonstrate to the FDA’s satisfaction, based on valid scientific
evidence, that there is a reasonable assurance of the safety and effectiveness of the device for its intended use. During the PMA
process, the FDA examines detailed data to assess the safety and effectiveness of the device. This information includes design,
development, manufacture, labeling, advertising, preclinical testing and clinical study data. Prior to approving a PMA, the FDA may
conduct an inspection of the manufacturing facilities and the clinical sites where supporting studies were conducted. The facility
inspection evaluates our compliance with QSR. An inspection of clinical sites evaluates compliance with good clinical practice
standards, including, for studies conducted under an investigational device exemption, or IDE, that the studies meet the requirements
of FDA’s IDE regulations. Typically, the FDA will convene an advisory panel meeting to review the data presented in the PMA. The
panel’s recommendation is given substantial weight but is not binding on the FDA. Under a set of performance measures that the FDA
has committed to achieving in return for the receipt of user fees from manufacturers, FDA attempts to review all PMAs not requiring
an advisory panel meeting within 180 “FDA days” and review of a PMA application that does require an advisory panel meeting
within 320 “FDA days.” The term “FDA days” excludes the time the applicant spends responding to FDA requests for additional
information. While the FDA has approved PMA applications within the allotted time period, reviews can occur over a significantly
longer period.
Upon completion of its review, the FDA will either approve or deny the PMA. If the FDA’s evaluation is favorable, the PMA is
approved, and the device may be marketed in the U.S. The FDA may approve a PMA with post-approval conditions such as
postmarket collection of clinical data. Failure to comply with the conditions of approval can result in material adverse enforcement
action, including the loss or withdrawal of the PMA approval. A PMA approval may include significant limitations on the indicated
uses for which a device may be marketed. The FDA interprets the FFDCA as prohibiting the promotion of approved medical devices
for unapproved uses. After approval of a PMA, a new PMA or PMA supplement is required in the event of a significant modification
to the device, the device labeling, or the manufacturing process. The FDA can initiate proceedings to withdraw a PMA approval for
failure to comply with regulatory requirements or the occurrence of unforeseen problems following initial marketing.
See “Item 1. Business – Our Existing Products” for additional information regarding regulatory approvals on our Impella
devices. We expect to make additional PMA supplement submissions for additional indications for use for our Impella devices in the
future.
When clinical trials of a device are required in order to obtain FDA approval, the sponsor of the trial is generally required to file
an IDE application before commencing the trials. The FDA reviews and must approve an IDE before a clinical study may begin in the
U.S. In addition, the clinical study must be approved by an Institutional Review Board, or IRB, at each clinical site. The FDA, the
IRB, or we may suspend a clinical trial at any time for various reasons, including if information emerges suggesting that the subjects
are being exposed to an unacceptable health risk. All clinical studies of investigational devices must be conducted in compliance with
FDA requirements. Following the completion of a study, the data from the study must be collected, analyzed and presented in an
appropriate submission to the FDA, either as a report submitted to the IDE file or in a marketing application such as a PMA.
9
In addition, certain medical devices can be approved by the FDA in the U.S. under a humanitarian device extension (“HDE”)
rather than a PMA. In order for a device to be eligible for an HDE, there must be a qualifying target patient population of less than
8,000 patients per year for which there is no other comparable device available to treat the condition. The FDA must agree that a
device meets these criteria before it can be approved under an HDE. FDA approval of an HDE also requires demonstration that the
device is safe for its intended application, that it is potentially effective, and that the probable benefits outweigh the associated risks. If
another device receives approval through the PMA process that addresses the same patient population as the HDE device, the HDE
device may need to be withdrawn from the U.S. market. An approved HDE authorizes sales of the device to any hospital after review
and approval by the hospital’s IRB. Proposed modifications to approved HDE devices, like modifications to approved PMA devices,
require FDA approval through a new HDE application or an HDE supplement.
The EUA authority allows the FDA to strengthen the public health protections against biological, chemical, radiological, and
nuclear agents that may be used to harm the society. Under section 564 of the Federal Food, Drug and Cosmetic Act, the FDA may
allow medical countermeasures to be used in an emergency to diagnose, treat or prevent serious or life-threatening diseases or
conditions caused by such agents, when there are no adequate, approved and available alternatives. Section 564 permits the FDA to
authorize the introduction into interstate commerce of a drug, device or biological product intended for use in an actual or potential
emergency during the effective period of a declaration. EUA candidates include products and uses that are not approved, cleared or
licensed under sections 505, 510(k) and 515 of the Federal Food, Drug, and Cosmetic Act or section 351 of the Public Health Act. The
FDA may issue an EUA only if, after consultation with the Director of National Institute of health (“NIH”) and the Director of Centers
for Disease Control and Prevention (“CDC”), the FDA concludes that the four statutory criteria for issuance (Serious or Life-
Threatening Disease or Condition, Evidence of Effectiveness, Risk-Benefit Analysis, No Alternatives) have been met. The FDA
assesses the sufficiency of the effectiveness data and the risk-benefit profile of each candidate product on a case-by-case basis. The
FDA recommends that requests for medical devices under consideration for EUAs include clinical evidence data to support the
proposed intended use, as necessary and appropriate. The FDA provides that an EUA will be in effect for the duration of the
declaration under which it was issued, unless the EUA is revoked because the criteria of issuance are no longer met or revocation is
appropriate to protect public health or safety. The FDA will periodically review the circumstances and appropriateness of an EUA,
including circumstances that might warrant revocation of the EUA. Such circumstances may include significant adverse inspectional
findings; reports of adverse events linked to, or suspected of being caused by, the EUA product; product failure; product
ineffectiveness; and availability of a preferred product.
Postmarket Regulation
The medical devices that we manufacture and distribute pursuant to regulatory clearances or approvals by the FDA and other
countries’ regulatory authorities are subject to continuing regulation by those agencies. The FDA reviews design, manufacturing, and
distribution practices, labeling and record keeping, and manufacturers’ required reports of adverse experience and other information to
identify potential problems with marketed medical devices. Among other FDA requirements, we must comply with the FDA’s good
manufacturing practice regulations for medical devices, known as the QSR. These regulations govern the methods used in, and the
facilities and controls used for, the design, testing, manufacture, packaging, labeling, storage, installation, and servicing of all finished
medical devices intended for human use. We must also comply with Medical Device Reporting, or MDR requirements, which require
us to report to the FDA any incident in any of our products that may have caused or contributed to a death or serious injury, including
medical intervention to prevent a death or serious injury, or in which any of our products malfunctioned and, if such malfunction were
to recur, would be likely to cause or contribute to a death or serious injury. Labeling, advertising, and promotional activities are
subject to scrutiny by the FDA and, in certain circumstances, by the Federal Trade Commission. The FDA’s enforcement policy
prohibits the marketing of approved medical devices for unapproved uses. We are subject to routine inspection by the FDA for
compliance with the QSR and MDR requirements, as well as other applicable regulations. If the FDA were to conclude that we are not
in compliance with applicable laws or regulations, or that any of our medical devices are ineffective or pose an unreasonable health
risk, the FDA could ban such medical devices, detain or seize adulterated or misbranded medical devices, order a recall, repair,
replacement, or refund of such devices, and require us to notify health professionals and others that the devices present unreasonable
risks of harm to the public health. The FDA may also seek a judicial injunction enjoining certain violations of the FFDCA and
imposing operating restrictions and assess civil or criminal fines and penalties against our officers, employees, or us. The FDA may
also recommend criminal prosecution to the U.S. Department of Justice. Conduct giving rise to civil or criminal penalties may also
form the basis for private civil litigation by third-party payers or other persons allegedly harmed by our conduct. Regulatory
authorities outside the U.S. enforce similar laws and regulations within their respective jurisdictions.
The FDA and other regulatory agencies actively enforce regulations prohibiting promotion of off-label uses and the promotion
of products for which marketing clearance has not been obtained. If the FDA or another regulatory agency determines that our
promotional materials or training constitutes promotion of an unapproved use, it could request that we modify our training or
promotional materials or subject us to regulatory enforcement actions, including the issuance of a warning letter, injunction, seizure,
civil fine and criminal penalties. Although our policy is to refrain from statements that could be considered off-label promotion of our
products, the FDA or another regulatory agency could disagree and conclude that we have engaged in off-label promotion.
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The FDA can require postmarket surveillance, or PMS, for significant risk devices, such as our medical devices, that require
ongoing collection, analysis, and periodic submission to the FDA of clinical data during commercialization over a period of up to
several years. The PMS data collection requirements are often burdensome and expensive. The failure to comply with the FDA’s
regulations can result in enforcement action, including seizure of products, injunction, prosecution, civil fines and penalties, recall
and/or suspension of FDA approval.
The FDA, in cooperation with U.S. Customs and Border Protection, or CBP, administers controls over the import and export of
medical devices into and out of the U.S. International sales of our medical devices that have not received FDA approval are therefore
subject to FDA export requirements. The CBP imposes its own regulatory requirements on the import of medical devices, including
inspection and possible sanctions for noncompliance.
Other Regulations
We are subject to additional laws and regulations that govern our business operations, products, and technologies, including:
•
federal, state, and foreign anti-kickback laws and regulations, which generally prohibit payments to anyone, including
physicians, as an inducement to purchase or recommend a product;
•
the Stark law, which prohibits physicians from referring Medicare or Medicaid patients to a provider that bills these
programs for the provision of certain designated health services if the physician (or a member of the physician's
immediate family) has a financial relationship with that provider;
•
federal, state and foreign laws and regulations that protect the confidentiality of certain personal information, including
patient health information, and restrict the use and disclosure of such information, in particular, the Health Insurance
Portability and Accountability Act in the U.S., and the European Union’s General Data Protection Regulation
(“GDPR”) (as further described in “Part I, Item 1A. Risk Factors—Risks Related to Intellectual Property, Privacy and
Security—If we are found to have violated laws protecting the confidentiality of patient health information, we could
be subject to civil or criminal penalties, which could increase our liabilities and harm our reputation or our business”);
•
the Physician Payments Sunshine Act, which requires public disclosure of the financial relationships of. healthcare
professionals and teaching hospitals in the U.S. with applicable manufacturers, including medical device,
pharmaceutical, and biologics companies;
•
the False Claims Act, which prohibits the submission of false or otherwise improper claims for payment to the United
States government, including federally funded health care program, and health care fraud statutes that prohibit false
statements and improper claims to any third-party payor; and
•
the United States Foreign Corrupt Practices Act (“FCPA”), which can be used to prosecute United States companies for
arrangements with foreign government officials or other parties, or for not keeping accurate financial records or
maintaining adequate internal controls to prevent and detect arrangements with foreign government officials or other
parties (as further described in “Part I, Item 1A. Risk Factors—Legal, Regulatory and Compliance Risks—We are
subject to the U.S. Foreign Corrupt Practices Act and other anticorruption laws, as well as export control laws, import
and customs laws, trade and economic sanctions laws and other laws governing our operations”).
Failure to comply with these laws and regulations could result in criminal liability, significant fines or penalties, negative
publicity, and material costs and expenses associated with investigation enforcement activities, and individual settlement agreements
that impose a government monitor for a period of several years.
We are also subject to various local, state, federal, and international laws and regulations relating regarding environmental
protection, hazardous substances and health and safety. These requirements govern, among other things, matters such as safe working
conditions, laboratory and manufacturing practices, the handling, storage, use and disposal of hazardous materials and wastes and, if
any, the associated cleanup of properties affected by discharges, releases or exposure to pollutants, air emissions, wastewater, and
occupational and human health and safety. Specifically, the use of hazardous or potentially hazardous substances in connection with
our research and development and manufacturing activities, such as the manufacture of our biomaterials, is subject to compliance with
federal environmental regulations and by various state and local agencies. We believe we have been, and we are in material
compliance with all applicable laws and regulations (including environmental laws and regulations). We further believe that we
currently have no liabilities under such requirements that could reasonably be expected to materially harm our business, results of
operations or financial condition.
11
International Regulation
Internationally, the approval and regulation of medical devices is subject to a variety of laws and regulation. In Europe, our
products are subject to extensive regulatory requirements. Our Impella 2.5, Impella CP, Impella 5.0, Impella LD, Impella 5.5, Impella
RP, and Impella AIC are all approved under CE Mark and are available for sale in the European Union and other markets that
recognize CE Mark approval. The European Union requires that medical devices may only be placed on the market if they do not
compromise safety and health when properly installed, maintained, and used in accordance with their intended purpose. National laws
conforming to the European Union's legislation regulate our products under the medical devices regulatory system. Although the more
variable national requirements under which medical devices were formerly regulated have been substantially replaced by the European
Union Medical Devices Directive, individual nations can still impose unique requirements that may require supplemental submissions.
The European Union medical device laws require manufacturers to declare that their products conform to the essential regulatory
requirements after which the products may be placed on the market bearing the CE Mark. Manufacturers' quality systems for products
in all but the lowest risk classification are also subject to certification and audit by an independent notified body. In Europe, particular
emphasis is being placed on more sophisticated and faster procedures for the reporting of adverse events to the competent authorities.
In May 2017, the European Union implemented a new regulatory requirement for medical devices under the Medical Device
Regulation (“MDR”). The Medical Device Regulation became fully effective in fiscal year 2021 and introduced new requirements for
many medical devices, including enhanced requirements for clinical evidence and documentation, increased focus on device
identification and traceability, new definitions and registration of economic operators throughout the distribution chain, and additional
postmarket surveillance and vigilance. Compliance with the Medical Device Regulation requires re-certification of many of our
products to the enhanced standards.
In Japan, pre-market approval and clinical studies are required as is governmental pricing approval for medical devices. Our
Impella 2.5, Impella CP, Impella 5.0 and Impella AIC have regulatory approval and are available for sale in Japan. Clinical studies are
subject to a stringent Japanese “Good Clinical Practices” standard. Approval time frames from the Japanese MHLW vary from simple
notifications to review periods of one or more years, depending on the complexity and risk level of the device. In addition, importation
of medical devices into Japan is subject to the “Good Import Practices” regulations. As with any highly regulated market, significant
changes in the regulatory environment could adversely affect future sales.
In many of the other foreign countries in which we market our products, we may be subject to regulations affecting, among
other things:
•
product standards and specifications;
•
packaging requirements;
•
labeling requirements;
•
marketing restrictions;
•
product collection and disposal requirements;
•
quality system requirements;
•
import restrictions;
•
tariffs;
•
customs and duties; and
•
tax requirements.
Many of the regulations applicable to our devices and products in these countries are similar to those of the FDA. In some
countries, the level of government regulation of medical devices is increasing, which can lengthen time to market and increase
registration and approval costs. In many countries, the national health or social security organizations require our products to be
qualified before they can be marketed and considered eligible for reimbursement.
Health Care Initiatives
Government and private sector initiatives to limit the growth of health care costs, including price regulation and competitive
pricing, coverage and payment policies, comparative effectiveness reviews, technology assessments, and managed-care arrangements,
are continuing in many countries where we do business, including the U.S., Canada, Europe, and Asia. As a result of these changes,
the marketplace has placed increased emphasis on the delivery of more cost-effective medical therapies. For example, government
programs, private health care insurance, and managed-care plans have attempted to control costs by restricting coverage and limiting
the level of reimbursement for procedures or treatments, and some third-party payers require their pre-approval before new or
innovative devices or therapies are utilized by patients. These various initiatives have created increased price sensitivity over medical
products generally and may impact demand for our products and technologies.
12
The delivery of our products is subject to regulation by the department of Health and Human Services in the U.S. and
comparable state and foreign agencies responsible for reimbursement and regulation of health care items and services. Foreign
governments also impose regulations in connection with their health care reimbursement programs and the delivery of health care
items and services. Reimbursement schedules regulate the amount the U.S. government will reimburse hospitals and doctors for the
inpatient care of persons covered by Medicare. CMS may also review whether and/or under what circumstances a procedure or
technology is reimbursable for Medicare beneficiaries. Changes in current reimbursement levels could have an adverse effect on
market demand and our pricing flexibility.
Health care cost containment efforts have also prompted domestic hospitals and other customers of medical device
manufacturers to consolidate into larger purchasing groups to enhance purchasing power and this trend is expected to continue. The
medical device industry has also experienced some consolidation, partly in order to offer a broader range of products to large
purchasers. As a result, transactions with customers are larger, more complex, and could likely involve more long-term contracts than
in the past. These larger customers, due to their enhanced purchasing power, may attempt to increase pressure on product pricing.
Seasonality
Our quarterly net sales are influenced by many factors, including new product introductions, acquisitions, regulatory approvals,
patient and physician holiday schedules, and other factors. Net sales in the first half of our most recent fiscal years represented 44%,
49%, and 47% of total fiscal year net sales for fiscal years 2021, 2020 and 2019, respectively. Our revenues in the first half of our
fiscal years have historically generally represented a lower percentage of total annual revenues than second half revenues due to the
seasonality of the U.S., European and Japanese markets, where summer vacation schedules normally result in fewer medical
procedures for our products.
Human Capital
As of March 31, 2021, we had 1,725 full-time employees, including:
•
371 in product engineering, research and development, clinical development and regulatory;
•
686 in sales, clinical support, marketing, field service and related support, 538 of whom are in the U.S. and Canada, 92 of
whom are in Europe and 56 of whom are in Asia;
•
482 in manufacturing; and
•
186 in general and administration.
We understand that our success depends in large part on our ability to recruit, develop and retain a productive and engaged
workforce. Accordingly, investing in our employees, focusing on safety, offering competitive compensation and benefits, promoting a
diverse workforce, adopting forward thinking human capital management practices and community outreach are critical elements of
our corporate strategy.
•
Health, Safety and Wellness. As a medical device manufacturer that provides on-site support to hospitals, health and safety
issues are fundamental considerations in our operations. We are committed to protecting our employees by working to
implement safety practices and procedures and institute training initiatives. We monitor compliance on an ongoing basis with
these Company protocols as well as federal, state, local and foreign regulations to which we are subject to. In particular, this
includes Occupational Safety and Health Administration, or OSHA, requirements and other similar statutory standards
outside the U.S. Our training programs are focused on the particular risks that our employees deal with in our normal
operations, including hazardous materials, emergency evacuation, ergonomics and biohazards.
•
Competitive Compensation and Benefits. Our compensation program is designed to align employee compensation with our
performance and to provide the proper incentives to attract, retain and motivate employees to achieve superior results. The
structure of our compensation program aims to balance incentive earnings for both short-term and long-term performance.
We believe that we provide employee wages that are competitive and consistent with employee positions, skill levels,
experience, knowledge and geographic location. We engage internationally recognized external compensation and benefits
consulting firms to evaluate the effectiveness of our executive compensation and benefit programs and to provide
benchmarking independently. We are committed to providing comprehensive benefit options that allow our employees and
their families to live healthier and more secure lives. Our benefits include various health insurance and wellness programs;
retirement and savings plans; an employee stock purchase plan; paid time off and family leave; and other benefits.
•
Diversity and Inclusion Initiatives. We value diversity as a strength because we feel a diverse workforce leads to innovative
ideas and solutions that help us recover more hearts and save more lives. We are committed to building an environment
where employees are encouraged to achieve their full potential. We continue to foster a vibrant and inclusive culture, where
people are respected and feel a sense of belonging regardless of their race, nationality, gender, age, religion or sexual
13
orientation. We have targeted recruitment programs for veterans and university students, including those of diverse
backgrounds.
•
Employee Development. We seek to offer opportunities for employee education, development and training with a goal of
creating a culture of leadership and knowledge of our business and industry. We offer professional skills and leadership
development programs to support the growth of our employees. Many of our training opportunities are embodied in our
Code of Conduct, which emphasizes a strong commitment to educating our employees on their legal, ethical and labor-
related obligations under applicable law and our own Company policies and procedures. Additionally, we offer tuition
reimbursement for courses taken in pursuit of an undergraduate or graduate degree.
•
Community Support. We provide opportunities for and actively encourage our employees to participate in corporate giving
and volunteer opportunities in the communities in which we work. We are extremely proud of the generosity and dedication
of our employees who contribute to the Abiomed Citizenship and Give Back Group, which supports local and national
organizations in the United States aimed supporting heart health and U.S. veterans. We also participate in the Mentoring
Veterans Program, a 501(c)(3) nonprofit organization co-founded by our Chairman and Chief Executive Officer, by helping
military veterans network with industry mentors in the life sciences industries.
•
Response to the COVID-19 Pandemic. Throughout the COVID-19 pandemic, our priorities have been to support our
clinician partners, protect the well-being of our employees, and maintain continuous access to our life-saving technologies
while offering front-line in-hospital support. We and our employees have worked together to institute, and maintain
ongoing compliance with, stringent safety protocols to ensure continued production in our U.S. and German facilities, such
as through working shift adjustments to increase social distancing, requirements for the wearing of masks and personal
protective gear and for physical distancing, on-site COVID testing for our employees in both Danvers, Massachusetts and
Aachen, Germany, the placement of temperature-taking stations, increased sanitizing in between shifts and readily available
hand sanitizing stations in order to maintain a safe working environment for our employees. Our proactive testing program
has reduced exposure with early detection, reduced employee anxiety and enabled our manufacturing facilities to operate at
full capacity in line with local social distancing requirements. For a discussion of the impact of the COVID-19 pandemic on
our business, including our employees, see “Part II, Item 7. Management’s Discussion and Analysis of Financial Condition
and Results of Operations—COVID-19 Pandemic.”
To assess and improve employee retention and engagement, we survey employees annually with the assistance of third-party
consultants and take timely action to address key areas of employee concern. Our senior leadership team regularly engages with our
employees to understand and identify potential opportunities for improvement.
We routinely enter into contractual agreements with our employees, which typically include confidentiality and non-competition
commitments. None of our employees are represented by a labor union or covered by a collective bargaining agreement. We have
never experienced any employment-related work stoppages and we consider our employee relations to be good.
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ITEM 1A.
RISK FACTORS
You should carefully consider the following risks and all other information set forth in this Report, including, without limitation,
our business and forward-looking information, consolidated financial statements and the related notes thereto and “Part II, Item 7.
Management’s Discussion and Analysis of Financial Condition and Results of Operations.” The risks and uncertainties we have
described are not the only ones we face. If any of these risks materialize, the trading price of our common stock could fall and you
could lose all or part of your investment.
Macroeconomic and External Risks
We are subject to risks associated with public health threats and epidemics, including COVID-19.
We are subject to risks associated with public health threats and epidemics, including the global health concerns relating to the
ongoing COVID-19 pandemic. The global COVID-19 pandemic has adversely impacted and is likely to further adversely impact
nearly all aspects of our business and markets, including our workforce and operations and the operations of our customers, suppliers
and business partners. In particular, we may experience material financial or operational impacts, including:
•
significant volatility or reductions in demand for our products;
•
impacts and delays to clinical trials, our pipeline milestones, or regulatory clearances and approvals; or
•
the inability to meet our customers’ needs or other obligations due to disruptions to our operations or the operations of
our third-party partners, suppliers, contractors, logistics partners, or customers including disruptions to production,
development, manufacturing, administrative and supply operations and arrangements.
Beginning in mid-March 2020, we experienced a decline in patient utilization in our main markets in the U.S., Europe and
Japan as healthcare systems diverted resources to meet the increasing demands of managing COVID-19. Our business was most
impacted in the first quarter of fiscal year 2021, in terms of the decline in patients and revenue from the shelter-in-place restrictions in
a majority of countries and limitations on procedures in hospitals. We experienced sequential quarterly improvement during the
second quarter of fiscal year 2021 as patient procedure volume trends and availability of healthcare resources improved as certain
restrictions were lifted and limitations eased during the summer of 2020. During the third quarter of fiscal year 2021, a broad
resurgence of COVID-19 cases throughout the U.S. and Europe slowed our continued recovery in patient utilization. Despite these
challenges, we experienced increased recovery in patient utilization and revenue during the fourth quarter of fiscal year 2021 due to
the high-risk nature of the patient population that are treated with our Impella devices.
The full extent to which the pandemic will directly or indirectly impact our business, results of operations and financial
condition, including but not limited to, sales, expenses, manufacturing, clinical trials, research and development costs, reserves and
allowances, fair value measurements, will depend on future developments that are highly uncertain and difficult to predict. These
developments include, but are not limited to, the duration and spread of the ongoing COVID-19 pandemic (including new variants of
COVID-19), its severity, the actions to contain the virus or address its impact, the timing, distribution, and efficacy of vaccines and
other treatments, U.S. and foreign government actions to respond to the reduction in global economic activity, and how quickly and to
what extent normal economic and operating conditions can resume.
A prolonged downturn in global economic conditions may materially adversely affect our business.
Our business and results of operations were affected by worldwide economic conditions which slowed business growth in fiscal
2021. Financial markets where we operate, particularly in the U.S., Europe and Asia, have experienced disruption in recent months,
including, among other things, volatility in securities prices. We are unable to predict the likely duration and severity of any
disruptions in financial markets and adverse economic conditions throughout the world. These economic developments affect
businesses such as ours and those of our customers in a number of ways that could result in unfavorable consequences to us. An
economic downturn in the U.S. and elsewhere, including as a result of a continued or future outbreak of COVID-19 or a similar
infectious disease, or reductions in the level of government funding for scientific research, may cause our current or potential
customers to delay or reduce purchases, which could, in turn, result in reductions in sales of our products, materially and adversely
affecting our results of operations and cash flows. Volatility and disruption of global financial markets could limit our customers’
ability to obtain adequate financing to maintain operations and proceed with planned or new capital spending initiatives, leading to a
reduction in sales volume that could materially and adversely affect our results of operations and cash flow. In addition, a decline in
our customers’ ability to pay as a result of the economic downturn may lead to increased difficulties in the collection of our accounts
receivable, higher levels of reserves for doubtful accounts and write-offs of accounts receivable, and higher operating costs as a
percentage of revenues.
15
If a natural or man-made disaster strikes our manufacturing facilities, we will be unable to manufacture our products for a
substantial amount of time and our sales and profitability will decline.
Our facilities and the manufacturing equipment we use to produce our products would be costly to replace and could require
substantial lead time to repair or replace. The facilities may be affected by natural or man-made disasters and in the event they were
affected by a disaster, we would be forced to rely on third-party manufacturers. Although we believe we possess adequate insurance
for the disruption of our business from causalities, such insurance may not be sufficient to cover all of our potential losses and may not
continue to be available to us on acceptable terms, or at all.
Fluctuations in foreign currency exchange rates could result in declines in our reported sales and results of operations.
Because some of our international sales are denominated in local currencies and not in U.S. dollars, our reported sales and
earnings are subject to fluctuations in foreign currency exchange rates, primarily the Euro and the Yen. At present, we do not hedge
our exposure to foreign currency fluctuations from international operations. As a result, revenues and expenses occurring in the future
that are denominated in foreign currencies may be translated into U.S. dollars at less favorable rates, resulting in reduced revenues and
earnings.
Risks Related to Our Business, Industry and Operations
We depend on Impella® products and services for most of our revenues.
We derive, and expect to continue to derive in the near future, most of our revenues from sales of our Impella devices and
related services. While we cannot fully predict what level of revenues our Impella devices will generate, we anticipate that Impella
revenues will continue to account for most of our revenues in the near future. Implementation of our business strategy depends on
continued revenues from of our Impella devices and services. Our ability to generate revenues from our Impella devices and services
may be impaired by the factors described below:
•
our failure to obtain approvals and maintain clearance from the FDA and foreign regulatory authorities or to comply with
government regulations, or the withdrawal of market clearance or the taking of other enforcement actions that could limit
or impair our ability to sell our products;
•
announcements by the FDA relating to our products and their impact on market perception of our product, including
short-term impact;
•
lack of acceptance or continued acceptance by physicians, hospitals, or patients;
•
our reliance on specialized suppliers for certain components and materials;
•
manufacturing or quality control issues;
•
reputational risk relating to customer reviews of our products;
•
our inability to protect our proprietary technologies or an infringement of others’ patents;
•
the loss of a distributor or a distributor’s failure to perform its obligations;
•
our failure to compete successfully against our existing or potential competitors;
•
additional risks associated with selling in international markets;
•
long and variable sales and deployment cycles;
•
failure by third-party payers to provide appropriate levels of reimbursement for hospitals and physicians using our
products;
•
our failure to comply with federal and state regulations; and
•
product liability claims.
16
If we fail to compete successfully against our existing or potential competitors, our revenues or operating results may be harmed.
Competition from other companies offering circulatory care products is intense and subject to rapid technological change and
evolving industry requirements and standards. We compete with companies that have greater financial, product development, sales
and marketing resources and experience than we do. Our ability to compete effectively depends upon our ability to distinguish our
company and our products from our competitors and their products. Factors affecting our competitive position include:
•
the availability of other products and procedures that are technically equivalent or superior to our products, and which
may be sold at lower prices;
•
product performance and design;
•
product safety;
•
sales, marketing and distribution capabilities;
•
comparable clinical outcomes;
•
our ability to complete clinical trials and regulatory approval processes;
•
success and timing of new product development and introductions;
•
physician and hospital acceptance of our products and the amount of time to convert physicians and hospitals into users of
our products;
•
reimbursement approval from health care insurance providers and the cost-effectiveness of these reimbursements to our
hospital customers;
•
our ability to integrate potential acquired businesses into our operations;
•
penetration into existing and new geographic markets; and
•
intellectual property protection.
Our customers are primarily hospitals that have limited budgets. Physicians endorse our products to hospitals that will then
choose to purchase our products and subsequently pass this cost on to patients or their insurance providers. Physicians will
recommend our products based on public information regarding patient outcomes, clinical trials, and the costs and benefits of using
our products when compared to other substitutes available in the market. As a result, our products compete against a broad range of
medical devices and other therapies for these limited funds. Our success will depend in large part upon our ability to enhance our
existing products, to develop new products to meet regulatory and customer requirements and to achieve and maintain market
acceptance for our products. We believe that important competitive factors with respect to the development and commercialization of
our products include the relative speed with which we can develop products, establish clinical utility, complete clinical trials and
regulatory approval processes, obtain and protect reimbursement, maintain cost effectiveness for our products, and supply commercial
quantities of our products to our customers.
Advances in medical technology, biotechnology and pharmaceuticals may reduce the size of the potential markets for our
products or render our products obsolete. We are aware of other cardiac assist device research efforts in the U.S., Canada, Europe and
Japan. In addition, there are a number of companies, including Abbott Laboratories, Medtronic, Edwards Lifesciences, CardiacAssist,
Terumo Heart, Teleflex, Getinge (Maquet Cardiovascular), and several early-stage companies, that are developing heart assist
products, including implantable left ventricular assist devices and miniaturized rotary ventricular assist devices that directly and
indirectly compete with our products.
The commercial success of our products will require acceptance by cardiac surgeons and interventional cardiologists, a limited
number of whom have significant influence over medical device selection and purchasing decisions.
We may achieve our business objectives only if our products are accepted and recommended by leading cardiac surgeons and
interventional cardiologists, whose decisions are likely to be based on a determination that our products are safe and effective and
represent acceptable, cost-effective methods of treatment in light of reimbursement policies with respect to our products. The
commercial success of Impella devices and our other products will also require that we continue our existing relationships and develop
new relationships with leading cardiac surgeons and interventional cardiologists. We cannot assure you that we can maintain our
existing relationships and arrangements with leading cardiac surgeons or interventional cardiologists or that we can establish new
relationships in support of our products. If cardiac surgeons and interventional cardiologists do not consider our products to be
adequate for the treatment of our target cardiac patient population or if a sufficient number of these clinicians recommend and use
competing products, it would seriously harm our business.
17
Expansion into hospital cardiac centers that have not historically used our products may incur long sales and training cycles that
may cause our revenues and operating results to vary significantly from quarter to quarter.
Our products have lengthy sales cycles and we may incur substantial sales and marketing expenses and expend significant effort
without making a sale. We sell primarily to hospitals that often have administrative requirements to introduce and expand a new
technology, such as our Impella devices, at their sites. Even after making the decision to purchase our Impella devices, our customers
often deploy our products slowly or infrequently. In addition, cardiac centers of hospitals that buy the majority of our products are
usually led by cardiac surgeons who are heavily recruited by competing hospitals. When one of these cardiac surgeons moves to a new
hospital, we sometimes experience a significant reduction in purchases by the hospital from which the physician has departed while it
replaces the lead physician supporting our Impella devices. As a result, our revenues and operating results may vary significantly from
quarter to quarter. In addition, product purchases often lag behind initial expressions of interest in our product by new centers due to
training and education regarding the use of the products. Hospitals also need to perform internal administrative requirements prior to
the initial implant procedures. These challenges in our sales initiatives may be further adversely impacted by the ongoing COVID-19
pandemic or similar infectious diseases. For more information, see “—We are subject to risks associated with public health threats and
epidemics, including COVID-19.”
The training required for clinicians to use our products could reduce the market acceptance of our products and reduce our
revenue.
Clinicians must be trained to use our products proficiently. It is critical to the success of our business that we ensure that there
are a sufficient number of clinicians familiar with, trained on and proficient in the use of our products. Convincing clinicians to
dedicate the time and energy necessary to obtain adequate training in the use of our products is challenging and we may not be
successful in these efforts. Our physician education and training initiatives may also be impaired by the ongoing COVID-19 pandemic
or similar infectious diseases requiring social distancing. If clinicians are not properly trained, they may misuse or ineffectively use
our products. Any improper use of our products may result in unsatisfactory patient outcomes, patient injury, negative publicity or
lawsuits against us, any of which could harm our reputation and affect future product sales. Furthermore, our inability to educate and
train clinicians to use our products may lead to lower demand for our products.
If we do not effectively manage our growth, we may be unable to successfully develop, market and sell our products.
Our future revenue and operating results will depend on our ability to manage the anticipated growth of our business. We have
experienced significant growth in recent years in which we have expanded our operations and we have increased our employee
headcount. This growth has placed significant demands on our management as well as our financial and operational resources. In
order to achieve our business objectives, we will need to continue to grow. However, continued growth presents numerous challenges,
including:
•
developing and retaining our global sales, marketing and administrative infrastructure and capabilities;
•
expanding manufacturing capacity, maintaining quality and increasing production in an efficient manner;
•
increasing our foreign and domestic regulatory compliance capabilities;
•
implementing appropriate operational, financial and IT systems and internal controls;
•
impact of the ongoing COVID-19 pandemic and related remote working arrangements on our ability to support our
customers;
•
identifying, attracting and retaining qualified personnel, particularly experienced clinical staff; and
•
hiring, training, managing and supervising our personnel worldwide.
Any failure to manage our growth effectively could impede our ability to successfully develop, market and sell our products,
which could seriously harm our business.
18
The demand for our existing products and products under development is unproven, and we may be unable to successfully
commercialize our products.
Our existing products, which have received regulatory approval for commercialization only in the last few years, and our
products under development may not enjoy commercial acceptance or success, thus adversely affecting our business and operational
results. We need to create new indications and geographic markets for our Impella devices and other existing products, as well as
other new or future products, including achieving market acceptance among physicians, hospitals, patients and third-party payers. In
particular, we must gain and maintain acceptance of our Impella devices among interventional cardiologists and cardiac surgeons. The
obstacles we will face in trying to create successful commercial markets for our products include:
•
limitations inherent in first-generation devices, and our potential inability to develop successive improvements, including
increases in service life and improvements in the ease of use of our products;
•
introduction by other companies of new treatments, products and technologies that compete with our products;
•
willingness of physicians to recommend the use of our products;
•
timing and amount of reimbursement for these products, if any, by third-party payers, and the cost-effectiveness of using
our products by our customers given these reimbursement considerations;
•
potential reluctance of clinicians and hospitals to obtain and support adequate training to use our products;
•
cost of our products; and
•
potential reluctance of physicians, patients, hospitals and society as a whole to accept medical devices that replace or
assist the heart and risk of mechanical failure inherent in such devices.
Several of these obstacles may be further exacerbated by the ongoing COVID-19 pandemic (including new variants of COVID-
19) or similar infectious diseases. For more information, see “—We are subject to risks associated with public health threats and
epidemics, including COVID-19.”
Unsuccessful clinical trials or procedures relating to products under development could have a material adverse effect on our
prospects.
The regulatory approval process for new products and new indications for existing products often requires extensive clinical
trials and procedures, including early clinical feasibility studies. Unfavorable or inconsistent clinical data from current or future
clinical trials or procedures conducted by us, our competitors, or third parties, or perceptions regarding such clinical data, whether or
not true, could adversely affect both our ability to obtain necessary approvals and the market’s view of our future prospects. Such
clinical trials and procedures are inherently uncertain and there can be no assurance that these clinical trials or procedures will be
completed in a timely or cost-effective manner or result in a commercially viable product or expanded indication. Failure to
successfully complete these clinical trials or procedures in a timely and cost-effective manner could have a material adverse effect on
our prospects. Clinical trials or procedures may experience significant setbacks even after earlier trials have shown promising results.
Further, preliminary results from clinical trials or procedures may be contradicted by subsequent clinical analysis. In addition, results
from our clinical trials or procedures may not be supported by actual long-term studies or clinical experience. If preliminary clinical
results are later contradicted, or if initial results cannot be supported by actual long-term studies or clinical experience, our business
could be adversely affected. Clinical trials or procedures may be delayed, suspended, or terminated by us, the FDA, or other
regulatory authorities at any time, if it is believed that the trial participants face unacceptable health risks or for numerous other
reasons. The FDA may disagree with our interpretation of the data from our clinical trials, or may find the clinical trial design,
conduct or results inadequate to demonstrate safety and effectiveness of the product candidate. The FDA may also require additional
pre-clinical studies or clinical trials, which could further delay approval of our products.
Our future success depends in part on the development of new circulatory assist products, and our development efforts may not be
successful.
We are devoting most of our research and development and regulatory efforts, and significant financial resources, to the
development of our Impella devices and product extensions of existing commercial products and new products. The development of
new products and product extensions presents enormous challenges in a variety of areas, including blood compatible surfaces, blood
compatible flow, manufacturing techniques, pumping mechanisms, physiological control, energy transfer, anatomical fit and surgical
techniques. We may be unable to overcome all of these challenges, which could adversely affect our results of operations and
prospects and limit our ability to bring new products to market or make changes to enhance existing commercial products.
19
If we are unable to develop additional, high-quality manufacturing capacity, our growth may be limited and our business could be
seriously harmed.
To be successful in the long-term, we will need to increase our manufacturing capacity to support continued demand for our
products. We may encounter difficulties in scaling up manufacturing of our products, including problems related to product yields,
quality control and assurance, component and service availability, dependable sources of supply, adequacy of internal control policies
and procedures, ability to automate certain manufacturing processes and lack of skilled personnel. For more information, see “—A
pandemic, epidemic or outbreak of an infectious disease, such as COVID-19, or coronavirus, may materially and adversely impact our
business, our operations and our financial results.”
If we cannot hire, train and retain enough experienced and capable scientific, technical, and manufacturing employees, we may
not be able to manufacture sufficient quantities of our existing or future products on time and at an acceptable cost, which could limit
market acceptance of our products or otherwise damage our business. In order to meet the expected demand for our Impella devices,
we have continued to implement process improvements on the Impella production line at our manufacturing facilities in Aachen,
Germany, Danvers, Massachusetts to increase the output that we can produce at these facilities. In addition to programs designed to
further increase yield and capacity levels, we have expanded manufacturing employment in recent years and increased manufacturing
floor space in Danvers and Aachen. We continue to work on initiatives to expand our Impella manufacturing capacity in all our
manufacturing facilities. We are also working with our existing suppliers and new suppliers to ensure we are able to have sufficient
inventory as we increase our manufacturing capability to support growing demand. We are and will continue outsourcing certain sub
assembly production to third-party suppliers. We are also working on process improvements, such as certain automation techniques, to
allow us to manufacture our products more efficiently as much of our manufacturing process is labor dependent. If we are unable to
implement these process improvements on a timely basis in order to meet customer demand, it could inhibit our future revenue
growth.
We depend on third-party reimbursement to our customers for market acceptance of our products. If third-party payers fail to
provide coverage and appropriate levels of reimbursement for the medical procedures in which our products are used, our sales
and profitability would be adversely affected.
Sales of medical devices largely depend on the reimbursement of patients’ medical expenses by government healthcare
programs and private health insurers. Without the financial support of government reimbursement or third-party insurers’ payments
for patient care, the market for our products will be limited. Medical products and devices incorporating new technologies are closely
examined by governments and private insurers to determine whether the products and devices will be covered by reimbursement, and
if so, the level of reimbursement which may apply.
In the U.S., future action by the Centers for Medicare & Medicaid Services, or CMS (which administers the Medicare program),
other government agencies or private payors, may diminish payments to physicians, outpatient surgery centers and/or hospitals, which
could harm our ability to market and sell our products. Private payors may adopt coverage decisions and payment amounts determined
by CMS as guidelines in setting their coverage and reimbursement policies. Private payors that do not follow the Medicare guidelines
may adopt different coverage and reimbursement policies for procedures performed with our products. In addition, for governmental
programs, such as Medicaid, coverage and reimbursement differs from state to state. Medicaid payments to physicians and facilities
are often lower than payments by other third parties, and some state Medicaid programs may not pay an adequate amount for the
procedures performed with our products, if any payment is made at all. Internationally, medical reimbursement systems vary
significantly from country to country, with some countries limiting medical centers spending through fixed budgets, regardless of
levels of patient treatment, and other countries requiring application for, and approval of, government or third-party reimbursement.
For more information, see “Part I, Item 1. Business—Third-Party Reimbursement.”
In addition, third-party payers, including private and government insurers, are increasingly requiring evidence that medical
devices are cost-effective. If we are unable to demonstrate that our devices are cost-effective, the third-party payer may not reimburse
the use of our products, which could reduce sales of our products to healthcare providers who depend upon reimbursement for
payment. We also cannot be sure that third-party payers will continue the current levels of reimbursement to physicians and medical
centers for use of our products. Any reduction in the amount of this reimbursement could harm our business. Increasing awareness of
healthcare costs, public interest in healthcare reform and continuing pressure from Medicare, Medicaid, group purchasing
organizations and other payers to reduce costs in the healthcare industry, as well as increasing competition from other protective
products, could make it more difficult for us to sell our products at current prices.
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If our suppliers cannot provide the components we require, our ability to manufacture our products could be harmed.
We rely on third-party suppliers to provide us with many of the components used in our existing products and products in
development. For example, we outsource the manufacturing of most of our consoles and the sterilization process for our products.
Relying on third-party suppliers makes us vulnerable to component part failures or obsolescence and interruptions in supply, either of
which could impair our ability to conduct clinical trials or to ship our products to our customers on a timely basis. Using third-party
vendors makes it difficult and sometimes impossible for us to test fully certain components, such as components on circuit boards,
maintain quality control, manage inventory and production schedules and control production costs. Many of our manufacturing
suppliers may be required to comply with the FDA or other regulatory manufacturing regulations and to satisfy regulatory inspections
in connection with the manufacture of the components. Any failure by a supplier to comply with applicable requirements could lead to
a disruption in supply. Vendor lead times to supply us with ordered components vary significantly and often can exceed six months or
more. Both now, and as we expand our manufacturing capacity, we cannot be sure that our suppliers will furnish us required
components when we need them or be able to provide us with sufficient inventory to support our expected growth in demand for our
products. The ongoing COVID-19 pandemic(including new variants of COVID-19) or similar infectious diseases may also create
disruptions in our supply chain. For more information, see “—A pandemic, epidemic or outbreak of an infectious disease, such as
COVID-19, or coronavirus, may materially and adversely impact our business, our operations and our financial results.” These factors
could make it more difficult for us to manufacture our products effectively and efficiently and could adversely impact our results of
operations.
Some of our suppliers may be the only source for a particular component, which makes us vulnerable to significant cost
increases or shortage of supply. We have many foreign suppliers for some of our parts in which we are subject to currency exchange
rate volatility. Some of our vendors are small in size and may have difficulty supplying the quantity and quality of materials required
for our products as our business grows. Vendors that are the sole source of certain products may decide to limit or eliminate sales of
certain components due to product liability or other concerns and we might not be able to find a suitable replacement for those
products. Our inventory may run out before we find alternative suppliers and we might be forced to purchase excess inventory, if
available, to last until we are able to qualify an alternate supplier. If we cannot obtain a necessary component, we may need to find,
test and obtain regulatory approval or clearance for a replacement component, produce the component ourselves or redesign the
related product, which would cause significant delay and could increase our manufacturing costs. Any of these events could adversely
impact our results of operations.
We rely on distributors to sell our products in some international markets and poor performance by a distributor could reduce our
sales and harm our business.
We rely on distributors to market and sell our products in certain parts of Europe, Asia, South America and the Middle East.
Many of these distributors have the exclusive right to distribute our products in their territory. We may hire distributors to market our
products in additional international markets in the future. Our success in these markets will depend almost entirely upon the efforts of
our distributors, over whom we have little or no control. If a distributor does not market and sell our products effectively and maintain
a continued focus on the sale, distribution and support of our products up to our standards, we could lose sales and impair our ability
to compete and introduce our technology in that market. From time to time, these distributors could decide to reduce their levels of
inventory with regard to certain of our products due to various factors, which could have an adverse effect on our business depending
on the extend of the distributor’s sales. Outbreaks of infectious diseases such as COVID-19 or similar diseases, may also create
disruptions in our distribution networks, especially in foreign markets that are forced to implement extended quarantine measures due
to a lack of treatment and/or testing resources. For more information, see “—A pandemic, epidemic or outbreak of an infectious
disease, such as COVID-19, or coronavirus, may materially and adversely impact our business, our operations and our financial
results.” We are subject to credit risk and foreign currency risk associated with shipments to our distributors and this could negatively
impact our financial condition and liquidity in the future.
We may not be successful in expanding our direct sales activities into international markets.
We are seeking to expand our international sales of our products by recruiting direct sales and support teams outside the U.S.
Our international operations in Germany, Japan, France, Canada, the United Kingdom, Singapore and Australia are or will be subject
to a number of risks, which may vary from the risks we experience in the U.S., including:
•
the need to obtain regulatory approvals in foreign countries before our products may be sold or used;
•
the need to procure reimbursement for our products in each foreign market;
•
the generally lower level of reimbursement available in foreign markets relative to the U.S.;
•
the requirement to work with distributors or other partners to sell our products in international markets;
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•
longer sales cycles;
•
uncertainty with respect to enforcement of legal rights by local regulatory or judicial authorities;
•
limited protection of intellectual property rights;
•
difficulty and delays in collecting accounts receivable;
•
different income tax and sales tax environments;
•
difficulty in supporting patients using our products;
•
difficulty in attracting employees in foreign countries who want to work for a smaller U.S. based company;
•
different payroll, employee benefits and statutory requirements;
•
the adoption and expansion of trade restrictions, including the occurrence or escalation of a “trade war,” the imposition or
modification of sanctions or other governmental action related to tariffs or trade agreements or policies among the
governments of the United States, China and other countries;
•
regulatory changes and economic conditions leading up to and following “Brexit” (the United Kingdom’s recent exit from
the European Union), including uncertainties as to its timing and its effect on trade laws, tariffs and taxes;
•
fluctuations in the values of foreign currencies; and
•
political and economic instability.
If we are unable to effectively expand our sales activities in international markets, our results of operations could be negatively
impacted.
The profitability we have achieved in recent years may not be indicative of our ability to sustain profitability and it is possible that
we may incur losses from operations in future periods.
We recognized net income of $225.5 million, $203.0 million and $259.0 million for the fiscal years ended March 31, 2021, 2020
and 2019, respectively. The profitability we have achieved in recent years may not be indicative of our ability to sustain future
profitability and it is possible that we may incur losses from operations or net losses in future periods. Any losses incurred in the
future may result primarily from, among other things:
•
integration of newly-acquired companies and products, such as Breethe and the OXY-1 System, respectively, into our
operations and product lines;
•
changes in demand for our products;
•
the recent expansion of our global distribution network;
•
investments in new geographic markets;
•
ongoing product and clinical development;
•
costs related to new business development initiatives, such as potential acquisitions of new businesses;
•
legal expenses related to patent and other matters, such as the Maquet dispute and shareholder actions;
•
costs associated with hiring additional personnel, performing clinical trials, continuing our research and development
relating to our products under development, seeking regulatory approvals and, if we receive these approvals, commencing
commercial manufacturing and marketing activities;
•
expanded marketing initiatives, particularly with recent PMAs in the U.S.;
•
income and other related taxes;
•
increase in stock-based compensation as we hire new employees and our stock prices has continued or could expect to
continue to increase in the future;
•
significant disruption to and volatility in national, regional and local economies and markets and our internal operations
caused by pandemics;
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•
significant expenditures necessary to market and manufacture in commercial quantities our approved circulatory care
products;
•
difficulty in forecasting these expenditures;
•
the scope, scale and duration of the impact of the ongoing COVID-19 pandemic; and
•
a prolonged downturn in global economic conditions, including as a result of the ongoing COVID-19 pandemic.
Our operating results may fluctuate unpredictably.
Historically, our annual and quarterly operating results have fluctuated widely and we expect these fluctuations to continue.
Among the factors that may cause our operating results to fluctuate are:
•
timing of customer orders and deliveries;
•
seasonality of sales in the U.S., European and Japanese markets, where summer vacation schedules normally result in
fewer medical procedures during the first half of our fiscal year;
•
competitive changes, such as price changes or new product introductions that we or our competitors may make;
•
announcements by the FDA relating to our products and their impact on market perception of our product, including
short-term impact;
•
reputational risk relating to customer reviews of our products;
•
the impact of additional investments to expand manufacturing capacity on cost of product sales;
•
the timing of regulatory actions, such as product approvals or recalls;
•
costs we incur in developing and testing our Impella heart pumps and other products;
•
the impact of adverse data or the perception of adverse data relating to our products and technology among the medical
community;
•
costs we incur in anticipation of future sales, such as inventory purchases, expansion of manufacturing facilities, or
establishment of international sales offices;
•
additional taxes;
•
the impact and timing of equity awards on stock-based compensation;
•
timing of certain marketing programs and events;
•
availability of physicians to use our products, as there are seasonal impacts, due to physician vacations or training events
that limit their ability to be in the hospital to perform procedures that involve our products;
•
the impact of any businesses or technologies we may acquire in the future;
•
economic conditions in the healthcare industry;
•
gains or losses on our portfolio investments, such as Shockwave Medical, Inc. (“Shockwave Medical”);
•
efforts by governments, insurance companies and others to contain healthcare costs, including changes to reimbursement
policies and their impact on hospitals’ ability to purchase our products;
•
the impact of the adoption of certain accounting standards;
•
clinical trial results that reveal disadvantages of our products for various markets we address, or otherwise unfavorable or
inconsistent data about our products; and
•
the impact of a pandemic, epidemic or outbreak of an infectious disease, such as the ongoing COVID-19 pandemic, on our
and our customers’ ability to operate to full capacity.
We believe that period-to-period comparisons of our historical results are not necessarily meaningful and investors should not
rely on them as an indication of our future performance. To the extent we experience the factors described above, our future operating
results may not meet the expectations of securities analysts or investors, which may cause the market price of our common stock to
decline.
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We may not have sufficient funds to develop and commercialize our new products or make acquisitions of desirable companies,
products or technologies.
The development, manufacture and sale of any medical device is very expensive, and we may require additional funds to make
acquisitions of desirable companies, products or technologies. We cannot be sure that we will have the necessary funds to develop and
commercialize our new products or acquire companies, products or technologies, or that additional funds will be available on
commercially acceptable terms, if at all. We currently have no debt, and new sources of capital may not be available to us when we
need it or may be available only on terms that we would find unacceptable. If we are unable to obtain the necessary funding to support
these efforts, our business may be adversely affected. We believe we have sufficient liquidity to finance our operations for at least the
next fiscal year based on available working capital and cash from operations. We also may evaluate other financing alternatives as
necessary to fund operations, and any equity or convertible debt financing may involve dilution to our existing stockholders.
Quality issues may result in inventory write-downs and other costs.
Government regulations require us to track materials used in the manufacture of our products, so that if an issue is identified in
one product it can be traced to other products that may have the same issue. An identified quality issues may require reworking or
scrapping related inventory and/or recalling previous shipments. Because a malfunction in our products can possibly be life-
threatening, we may be required to recall and replace, free of charge, products already in the marketplace. Any quality issue could
cause us to incur significant expenses, lead to significant write-offs of inventory, injure our reputation and harm our business and
financial results.
If we acquire other companies or businesses, we will be subject to risks that could hurt our business.
In April 2020, we completed the acquisition of Breethe with an aim to complement and expand our product portfolio with
Breethe’s novel extracorporeal membrane oxygenation system. We may pursue acquisitions in the future to obtain complementary
businesses, products or technologies. Any such acquisition may not produce the revenues, earnings or business synergies that we
anticipate and could be dilutive to earnings. An acquired business, product, or technology might not perform as we expect. Our
management could spend a significant amount of time, effort and money in identifying, pursuing and completing the acquisition. If we
complete an acquisition, we may encounter significant difficulties and incur sizable expenses in integrating the operations and
personnel of the acquired company into our operations. For more information on the acquisition of Breethe, see “Part II, Item 7.
Management’s Discussion and Analysis of Financial Condition and Results of Operations—Acquisition of Breethe, Inc.” We may lose
the services of key employees of the acquired company and we may make changes in management that impair the acquired company’s
relationships with its legacy employees, vendors and customers. Furthermore, we may acquire development-stage companies that are
not yet profitable, that require continued investment or become subject to events that could impair the value of our investment, which
could decrease our future earnings. We may also assume significant liabilities in such a transaction.
Any of these outcomes could prevent us from realizing the anticipated benefits of an acquisition. To pay for an acquisition, we
might use stock or cash. Alternatively, we might borrow money from a bank or other lender. If we use stock, our stockholders would
experience dilution of their ownership interests. If we use cash or debt financing, our financial liquidity would be reduced.
If we include future milestones as part of the potential purchase price of an acquisition, then we will have to estimate the value
of these milestones each reporting period and any changes underlying these estimates with respect to expected timing or valuation of
these milestones could have a volatile impact on our earnings. See “Part II, Item 7. Management’s Discussion and Analysis of
Financial Condition and Results of Operation— Acquisition of Breethe, Inc.” We periodically make investments in medical device
companies that focus on heart failure and heart pumps and other medical device technologies. The aggregate carrying amount of our
portfolio of investments in medical device companies, including Shockwave Medical was $101.6 million and $94.4 million as of
March 31, 2021 and 2020, respectively, and is classified within other assets in the consolidated balance sheets.
Consolidation in the healthcare industry could lead to demands for price concessions, which could have an adverse effect on our
business, results of operations or financial condition.
Because healthcare costs have risen significantly over the past decade, numerous initiatives and reforms initiated by legislators,
regulators and third-party payers to curb these costs have resulted in a consolidation trend in the healthcare industry to aggregate
purchasing power. As the healthcare industry consolidates, competition to provide products and services to industry participants has
become and will continue to become more intense. This in turn has resulted and will likely continue to result in greater pricing
pressures and the exclusion of certain suppliers from important market segments as group purchasing organizations, independent
delivery networks and large single accounts continue to use their market power to consolidate purchasing decisions for hospitals. We
expect that market demand, government regulation, third-party coverage and reimbursement policies and societal pressures will
continue to change the worldwide healthcare industry, resulting in further business consolidations and alliances among our customers,
which may reduce competition, exert further downward pressure on the prices of our products and may adversely impact our business,
results of operations or financial condition.
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If we cannot attract and retain key management, scientific, sales and other personnel we need, we will not be successful.
We depend heavily on the contributions of the principal members of our business, such as financial, technical, sales and support,
regulatory and clinical, operating, manufacturing and administrative management and staff, many of whom would be difficult to
replace. Our key personnel include our senior officers, many of whom have very specialized scientific, medical or operational
knowledge. The loss of the service of any of the key members of our senior management team, whether due to dismissal, resignation
or illness, may significantly delay or prevent our achievement of our business objectives and divert remaining management’s attention
to seeking qualified replacements. Our ability to attract, train and retain qualified personnel, consultants and advisors is critical to our
success. For example, many members of our clinical staff are registered nurses with experience in the surgery suite or cath lab, of
which only a limited number of whom seek employment with a company like ours. Competition for skilled and experienced personnel
in the medical device industry is intense. We face competition for skilled and experienced management, scientific, clinical,
engineering and sales personnel from numerous medical device and life sciences companies, hospitals, universities, governmental
entities and other research institutions. Hiring efforts may also be compounded by intensified restrictions on travel (including during
the ongoing COVID-19 pandemic). If we lose the services of any of the principal members of our management and staff and have not
developed adequate succession plans, or if we are unable to attract, train and retain qualified personnel in the future, especially
scientific, clinical and sales personnel, our business could be adversely affected.
Legal, Regulatory and Compliance Risks
If we fail to obtain and maintain necessary governmental approvals for our products and indications, we may be unable to market
and sell our products in certain jurisdictions.
Medical devices such as ours are extensively regulated by the FDA in the U.S. and by other federal, state, local and foreign
authorities. Governmental regulations relate to the testing, development, manufacturing, labeling, design, sale, promotion, distribution,
importing, exporting and shipping of our products. In the U.S., before we can market a new medical device, or a new use of, or claim
for, or significant modification to, an existing product, we must generally first receive Premarket Approval (“PMA”) from the FDA.
This process can be expensive and lengthy, and can entail significant expenses, primarily related to clinical trials. It generally takes
between one to three years to receive approval, or even longer, from the time the PMA application is submitted to the FDA.
Regulatory clearances or approvals, either foreign or domestic, may not be granted on a timely basis, if at all. If we are unable to
obtain regulatory approvals or clearances for use of our products under development, or if the patient populations for which they are
approved are not sufficiently broad, the commercial success of these products could be limited. The FDA may also limit the claims
that we can make about our products. Any significant modifications to the design, materials, or intended use of those devices require
FDA approval through PMA or humanitarian device extension (“HDE”) supplemental applications.
If we do not receive FDA approval for one or more of our products, we will be unable to market and sell those products in the
U.S., which would have a material adverse effect on our operations and prospects.
We also market or are beginning to market our products in international markets, including the European Union, Canada, and
Japan. Regulatory approval processes differ among those jurisdictions and approval in the U.S. or any other single jurisdiction does
not guarantee approval in any other jurisdiction. Obtaining foreign approvals could involve significant delays, difficulties and costs for
us and could require additional clinical trials.
If the FDA or another regulatory or enforcement agency determines that we have promoted our products for one or more off-label
uses, we may be subject to various penalties, including civil or criminal penalties.
The FDA, the U.S. Department of Justice, the Office of the Inspector General of Department of Health and Human Services,
and other regulatory or enforcement agencies actively enforce regulations prohibiting the promotion of unapproved medical devices
and the promotion of otherwise approved or cleared medical devices for unapproved uses. If any such agency determines that our
promotional materials or training constitutes promotion of an unapproved use, it could request that we modify our training or
promotional materials or subject us to regulatory enforcement actions, including the issuance of a warning letter, injunction, recall or
withdrawal, seizure, civil fine and criminal penalties. Although our policy is to refrain from statements that could be considered off-
label promotion of our products, such agencies could disagree and conclude that we have engaged in off-label promotion.
To the extent a regulatory agency commences an investigation in the future, we may not be able to resolve that matter, without
incurring penalties or facing significant consequences. Even if we are successful in resolving such a matter without incurring
penalties, responding to a subpoena or other government inquiry could result in substantial costs and could significantly and adversely
impact our reputation and divert management’s attention and resources, which could have a material adverse effect on our business,
operating results, financial condition and ability to finance our operations.
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Finally, the ability of the FDA to review and clear or approve new products can be affected by a variety of factors, including
government budget and funding levels, ability to hire and retain key personnel and accept the payment of user fees, and statutory,
regulatory, and policy changes. These factors could affect our ability to develop or commercialize new products in a timely manner,
which could negatively impact our business.
Off-label use of our products may result in injuries that lead to product liability suits, which could be costly to our business.
The use of our products outside their approved indications for use, or “off-label use,” may increase the risk of injury to patients.
Clinicians may use our products for off-label uses, as the FDA does not restrict or regulate a clinician’s choice of treatment within the
practice of medicine. Off-label use of our products may increase the risk of product liability claims against us. Product liability claims
are expensive to defend and could divert our management’s attention and result in substantial damage awards against us.
Product liability claims could damage our reputation and adversely affect our financial results.
The clinical use of medical products, even after regulatory approval, poses an inherent risk of product liability claims. We
maintain limited product liability insurance coverage, subject to certain deductibles and exclusions. We cannot be sure that product
liability insurance will be available in the future or will be available on acceptable terms or at reasonable costs, or that such insurance
will provide us with adequate coverage against potential liabilities. We have been and anticipate that as part of our ordinary course of
business we may be, subject to product liability claims alleging defects in the design, manufacture or labeling of our products.
Claims against us, regardless of their merit or potential outcome, may also hurt our ability to obtain physician endorsement of our
products or expand our business. As we continue to expand use or our existing products and introduce more products, we face an
increased risk that a material product liability claim will be brought against us.
Some of our products are designed for patients who suffer from late-stage or end-stage heart failure, and many of these patients
do not survive, even when supported by our products. There are many factors beyond our control that could result in patient death,
including the condition of the patient prior to use of the product, the skill and reliability of physicians and hospital personnel using and
monitoring the product and product maintenance by customers. However, the failure of our products used for clinical testing or sale
could give rise to product liability claims and negative publicity.
The risk of product liability claims is heightened when we sell products that are intended to support a patient until the end of
life. The finite life of our products, as well as complications associated with their use, could give rise to product liability claims
whether or not the products have extended or improved the quality of a patient’s life. If we are forced to pay product liability claims in
excess of our insurance coverage, our financial condition will be adversely affected.
Our products are subject to extensive regulatory requirements, including continuing regulatory review, which could affect the
manufacturing and marketing of our products.
The FDA and other regulatory agencies continue to review products even after they have received initial approval. If and when
the FDA or another regulatory agency clears or approves our products under development, the manufacture and marketing of these
products will be subject to continuing regulation, post-approval clinical studies, including compliance with the FDA’s adverse event
reporting requirements, prohibitions on promoting a product for unapproved uses, and Quality System Regulation, or QSR,
requirements, which obligate manufacturers, including third-party and contract manufacturers, to adhere to stringent design, testing,
control, documentation and other quality assurance procedures during the design and manufacture of a device.
Any modification to an FDA approved device that could significantly affect its safety or effectiveness, or that would constitute a
major change in its intended use, requires a supplemental PMA, HDE or EUA approval. The FDA requires each manufacturer to
determine in the first instance whether a modification requires approval, but the FDA may review and potentially disagree with any
such decision. Modifications of this type are common with new products. We anticipate that the first generation of each of our
products will undergo a number of changes, refinements, enhancements and improvements over time. If the FDA requires us to seek
approval for modification of a previously approved product for which we have concluded that new clearances or approvals are
unnecessary, we may be required to cease marketing or to recall the modified product until we obtain clearance or approval and we
may be subject to significant regulatory fines or penalties, which could have a material adverse effect on our financial results and
competitive position. We also cannot assure you that we will be successful in obtaining clearances or approvals for our modifications,
if required. We and our third-party suppliers of product components are also subject to inspection and market surveillance by the FDA
and other regulatory agencies for QSR and other requirements, the interpretation of which can change. Compliance with QSR and
similar legal requirements can be difficult and expensive. While we continue to monitor our quality management in order to improve
our overall level of compliance, our facilities are subject to periodic and unannounced inspection by U.S. and foreign regulatory
agencies to audit compliance with the QSR and comparable foreign regulations. Enforcement actions resulting from failure to comply
with government requirements could result in fines, suspensions of approvals or clearances, recalls or seizure of products, operating
restrictions or shutdown, and criminal prosecutions that could adversely affect the manufacture and marketing of our products. The
FDA or another regulatory agency could withdraw a previously approved product from the market upon receipt of newly discovered
information, including a failure to comply with regulatory requirements, the occurrence of unanticipated safety problems of other
defects in products following approval, or other reasons, which could adversely affect our operating results.
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Even after receiving regulatory clearance or approval, our products may be subject to product recalls, which could harm our
reputation and divert our managerial and financial resources.
The FDA and similar governmental authorities in other countries have the authority to order mandatory recall of our products or
order their removal from the market if the government finds that our products might cause adverse health consequences or death. A
government-mandated or voluntary recall by us could occur as a result of component failures, manufacturing errors by us or our
suppliers or design defects, including labeling defects, or unanticipated safety problems. We have in the past initiated voluntary recalls
for some of our products and we could do so in the future. Any recall of our products may harm our reputation with customers and
divert managerial and financial resources.
Shutdowns of the U.S. federal government could materially impair our business and financial condition.
Development of our product candidates and/or regulatory approval may be delayed for reasons beyond our control. For
example, over the last several years the U.S. government has shut down several times and certain regulatory agencies, such as the
FDA, CMS, IRS and the SEC, have had to furlough their government employees and stop critical activities. If a prolonged
government shutdown or budget sequestration occurs, it could significantly impact the ability of the FDA to timely review and process
our regulatory submissions, which could have a material adverse effect on our business. Further, in our operations as a public
company, future government shutdowns could impact our ability to communicate with the SEC on various topics, such as shareholder
proposals, or to have our registration statements declared effective, which could affect our ability to access the capital markets
quickly.
Changes in healthcare reimbursement systems in the U.S. and abroad could reduce our revenues and profitability.
In March 2010, the U.S. federal government enacted the Patient Protection and Affordable Care Act, as amended by the Health
Care and Education Reconciliation Act of 2010 (the “ACA”), which made changes to the manner in which many healthcare services
are provided and paid for in the U.S. The ACA includes provisions that, among other things, reduce or limit Medicare reimbursement,
require all individuals to have health insurance (with limited exceptions) and impose increased taxes on certain companies and
individuals. Since its enactment, there have been numerous judicial, administrative, executive, and legislative challenges to certain
aspects of the ACA, and we expect there will be additional challenges and amendments to the ACA in the future which could change
the way healthcare is financed by both governmental and private insurers and which may significantly impact our industry and our
business. Various portions of the ACA are currently undergoing legal and constitutional challenges in federal court, including a case
challenging the constitutionality of the ACA’s individual mandate which is currently before the U.S. Supreme Court. Pending the U.S.
Supreme Court’s decision, the ACA remains in effect, but it is unclear how this decision, and other efforts to repeal or further modify
the ACA, particularly given the new administration, will impact the ACA and consequently our business.
Moreover, any such future actions may have significant impact on the reimbursement for healthcare services generally,
including reducing significantly the number of individuals who have health insurance that can pay for our products, which could lead
our health care provider customers to be more cost conscious. At the same time, certain members of the U.S. Congress have proposed
measures that would expand the role of government-sponsored coverage, including single payer or so-called “Medicare-for-All”
proposals, which could have far-reaching implications for the healthcare industry if enacted. Such a system could reduce our
customers’ revenues, such as Medicare and other public reimbursement rates, on average could be lower than existing commercial
health plan reimbursement rates. Even if legislation creating such a single-payer system is not enacted in the near term, continued
introduction of legislation promoting a single-payer system by several members of the U.S. Congress could increase uncertainty for
our customers and cause them to delay purchases of our products and services. Accordingly, our business and results of operations
could therefore be adversely affected by any future federal or state healthcare reform legislation or regulation. In sum, even if we
succeed in bringing our new products to market, uncertainties regarding future healthcare policy, legislation and regulation, as well as
private market practices, could affect our ability to sell our products in commercially acceptable quantities at profitable prices in
certain countries.
We must comply with healthcare “fraud and abuse” laws, and we could face penalties for non-compliance and be excluded from
government healthcare programs, which would adversely affect our business, financial condition and results of operations.
Certain federal and state healthcare laws and regulations pertaining to fraud and abuse and patients’ rights may be applicable to
our business. We may be subject to healthcare fraud and abuse regulation and patient privacy regulation by both the federal
government and the states in which we conduct our business. The laws and regulations that govern our business operations, products,
and technologies, and may affect our ability to operate, include, among others, those listed in “Part I, Item 1. Business—Government
Regulation and Other Matters—Postmarket Regulation.”
27
To assist in our compliance efforts, we must adhere to many codes of ethics and conduct regarding our sales and marketing
activities in the U.S. and other countries in which we operate. Failure to comply with these laws and regulations could result in
criminal liability, significant fines or penalties, negative publicity, and substantial costs and expenses associated with investigation,
enforcement activities, and individual settlement agreements that impose a government monitor for a period of several years.
We are subject to the U.S. Foreign Corrupt Practices Act and other anticorruption laws, as well as export control laws, import and
customs laws, trade and economic sanctions laws and other laws governing our operations.
Our operations are subject to anti-corruption laws, including the FCPA, the U.S. domestic bribery statute contained in 18 U.S.C.
§ 201, the U.S. Travel Act, and other anti-corruption laws that apply in countries where we do business. The FCPA and these other
laws generally prohibit us and our employees and intermediaries from authorizing, promising, offering, or providing, directly or
indirectly, improper or prohibited payments, or anything else of value, to government officials or other persons to obtain or retain
business or gain some other business advantage.
We and those acting on our behalf operate in a number of jurisdictions where companies in the medical device and life science
industries are exposed to a high risk of potential FCPA violations associated with sales to healthcare professionals and institutions. We
participate in transactions with third parties whose corrupt or illegal activities could potentially subject us to liability under the FCPA
or local anti-corruption laws, even if we do not explicitly authorize or have actual knowledge of such activities. In addition, we cannot
predict the nature, scope or effect of future regulatory requirements to which our international operations might be subject or the
manner in which existing laws might be administered or interpreted. Compliance with the FCPA and these other laws is expensive and
difficult, particularly in countries in which corruption is a recognized problem. In addition, anti-corruption laws present particular
challenges in the medical device industry, because, in many countries, hospitals are operated by the government, and doctors and other
hospital employees are considered foreign officials. Certain payments to hospitals in connection with clinical trials and other work
have been deemed to be improper payments to government officials and have led to enforcement actions. We are also subject to other
laws and regulations governing our international operations.
There is no assurance that we will be completely effective in ensuring our compliance with all applicable anti-corruption laws,
including the FCPA or other legal requirements. If we are not in compliance with the FCPA and other anti-corruption laws, we may be
subject to criminal and civil penalties, disgorgement and other sanctions and remedial measures, and legal expenses, which could have
an adverse impact on our business, financial condition, results of operations and liquidity. Likewise, any investigation of any potential
violations of the FCPA and other anti-corruption laws could also have an adverse impact on our reputation, our business, results of
operations and financial condition. Further, the failure to comply with laws governing international business practices may result in
civil and criminal penalties and suspension or debarment from government contracting.
Any failure to achieve and maintain the high manufacturing standards that our products require may seriously harm our business.
Our products require precise, high-quality manufacturing. Achieving precision and quality control requires skill and diligence
by our personnel as well as our vendors. Any failure to achieve and maintain these high manufacturing standards, including the
incidence of manufacturing errors, design defects or component failures could result in patient injury or death, product recalls or
withdrawals, delays or failures in product testing or delivery, cost overruns or other problems that could seriously hurt our business.
Despite our very high manufacturing standards, we cannot completely eliminate the risk of errors, defects or failures. If we or our
vendors are unable to manufacture our products in accordance with necessary quality standards, or if we are unable to procure
additional high-quality manufacturing facilities, our business and results of operations may be negatively affected.
The economic effects of “Brexit” may affect relationships with existing and future customers and could have an adverse impact on
our business and operating results.
In June 2016, the United Kingdom held a referendum in which voters approved what is commonly referred to as Brexit, and
following protracted negotiations, the United Kingdom withdrew from the European Union on January 31, 2020. A transition period
ended on December 31, 2020, during which the United Kingdom and the European Union negotiated the terms of the United
Kingdom’s relationship with the European Union going forward, and implemented the European Union-United Kingdom Trade and
Cooperation Agreement beginning on January 1, 2021. The effects of and the perceptions as to the impact from the withdrawal of the
United Kingdom from the European Union has and may continue to adversely affect business activity and economic and market
conditions in the United Kingdom, the Eurozone, and globally, and could contribute to instability in global financial and foreign
exchange markets, including volatility in the value of the pound sterling and the euro. In addition, Brexit and the implementation of
the European Union-United Kingdom Trade and Cooperation Agreement could lead to additional . long-term political, economic,
financial, trade and legal implications and have regulatory impacts applicable to our business globally and specifically in the region. If
the United Kingdom were to significantly alter its regulations affecting the medical device industry, we could face significant new
costs. It may also be time-consuming and expensive for us to alter our internal operations in order to comply with new regulations.
28
Additionally, as a result of Brexit, the global markets and currencies have been adversely impacted. A potential devaluation of
the local currencies of our international buyers relative to the U.S. dollar may impair the purchasing power of our international buyers
and could cause international buyers to decrease their participation in our marketplaces or use of our products. Finally, Brexit could
lead to legal uncertainty and potentially divergent national laws and regulations as the United Kingdom determines which E.U. laws to
replace or replicate, and those laws and regulations may be cumbersome, difficult or costly in terms of compliance. Any of these
effects of Brexit, among others, could adversely affect our business, financial condition, operating results and cash flows.
We may undergo an “ownership change” for U.S. federal income tax purposes, which would limit our ability to utilize net
operating losses from prior tax years.
If we undergo an “ownership change” for U.S. federal income tax purposes, our ability to utilize net operating loss carry-
forwards from prior years to reduce taxable income in future tax years might be limited by the Internal Revenue Code, either by
limiting the amount of net operating losses that can be utilized to offset taxable income in a given year, or in total over the entire
carry-forward period. Certain changes in the ownership of our common stock may result in an ownership change sufficient to limit the
availability of our net operating losses. Net operating losses, foreign tax credits and research and development credits have expiry
dates in the U.S. and the ability to fully utilize them will be dependent upon generating taxable income in the future. The potential
benefits of net operating losses and other carryforwards may be limited as a result of examinations and audits by the Internal Revenue
Service (the “IRS”) and other taxing authorities. We also have net operating loss carry-forwards in other countries outside of the U.S.
and our ability to use those losses in the future to offset taxable income could be limited by tax regulations in those countries.
Compliance with and changes in tax laws, including the 2017 U.S. Tax Reform legislation, could materially and adversely impact
our financial condition, results of operations and cash flows.
On December 22, 2017, the Tax Cuts and Jobs Act, or Tax Reform Act, was signed into law that significantly revises the
Internal Revenue Code of 1986, as amended. The Tax Reform Act contained significant changes to corporate taxation, including
reduction of the corporate tax rate from a top marginal rate of 35% to a rate of 21%, effective January 1, 2018, limitation of the
deduction for net operating losses to 80% of current year taxable income in respect of net operating losses generated during or after
fiscal year 2018 and elimination of net operating loss carrybacks, revisions to the treatment for U.S. federal income tax purposes of
foreign earnings, immediate deductions for certain new investments instead of deductions for depreciation expense over time, and
modifying or repealing many business deductions and credits. The U.S. Treasury Department, the IRS and other standard-setting
bodies could interpret or issue guidance on how provisions of the Tax Reform Act will be applied or otherwise administered that is
different from our interpretation, which may materially affect our results of operations. In addition, the current U.S. presidential
administration may implement further changes to U.S. tax policy, including an increase in the U.S. corporate income tax rate. If any or
all of these (or similar) proposals are ultimately enacted into law, in whole or in part, they could have a negative impact to the
Company’s effective tax rate.
Additionally, the Organization for Economic Co-operation and Development (the “OECD”), the European Commission (the
“EC”) and individual taxing jurisdictions where we and our affiliates do business have recently focused on issues related to the
taxation of multinational corporations. The OECD has released its comprehensive plan to create an agreed set of international rules for
fighting base erosion and profit shifting. In addition, the OECD, the EC and individual countries are examining changes to how taxing
rights should be allocated among countries considering the digital economy. As a result, the tax laws in the U.S. and other countries in
which we and our affiliates do business could change on a prospective or retroactive basis and any such changes could materially
adversely affect our business
The U.S. Treasury Department, the IRS and other standard-setting bodies could interpret or issue guidance on how provisions of
the Tax Reform Act will be applied or otherwise administered that is different from our interpretation. Foreign governments may enact
tax laws in response to the Tax Reform Act that could result in further changes to global taxation and materially affect our financial
position and results of operations. The calculation of tax exposures involves the application of complex tax laws and regulations in
many jurisdictions, and there can be no assurance that we will accurately predict the ultimate outcomes of these tax estimates or that
issues raised by tax authorities will be resolved at a financial cost that does not exceed our related estimates of our tax provision.
Overall, we are unable to predict what tax changes may be enacted in the future, but U.S. tax changes or changes in how
international subsidiaries are taxed, including changes in how existing tax laws are interpreted or enforced, changes to U.S. corporate
income tax rates or changes to accounting standards, elections or assertions could have a material adverse effect on our business,
liquidity, financial condition, and/or results of operations. The uncertainty surrounding the effect of reforms on our financial results
and business could also weaken confidence among investors in our financial condition. This could, in turn, have a materially adverse
effect on the price of our common stock.
29
Environmental, health and safety laws, including recent environmental regulatory action regarding medical device sterilization
facilities, may result in liabilities, expenses and restrictions on our operations.
Our facilities and operations, including the manufacturing of our biomaterials, are subject to various, comprehensive and
frequently changing federal, state, local and foreign laws and regulations regarding environmental protection, hazardous substances
and health and safety. These requirements govern, among other things, safe working conditions, laboratory and manufacturing
practices, the handling, storage, use and disposal of hazardous materials and wastes and, if any, the associated cleanup of properties
affected by discharges, releases or exposure to pollutants, air emissions, wastewater, and occupational and human health and safety,
and may adversely affect our business. In particular, the use hazardous substances in connection with our research and development
and manufacturing activities exposes us to the risk of accidental injury, contamination or other liability. If our or our suppliers’
operations result in pollution of the environment or expose individuals to hazardous substances, we could be liable for damages,
expenses, and fines, and any liability could significantly exceed our insurance coverage and have a material adverse effect on our
financial condition. Environmental laws also impose obligations and liability for cleanup of properties affected by hazardous
materials, wastes and substance spoils or releases, which can be imposed on the parties generating or disposing of such substances or
the operator of the affected property, often without regard to whether the owner or operator knew of, or was responsible for, the
presence of hazardous substances. Additionally, increased costs on our suppliers stemming from compliance with new or existing
environmental or health safety laws and regulations may adversely affect us, as such laws and regulations could result in operational
impacts, including facility shutdowns. Suppliers may also choose to pass compliance costs to us in the form of adjusted pricing.
Recent environmental regulatory action regarding medical device sterilization may adversely impact us in the ways described
above, although the outcome of this action currently remains uncertain. Many of our products require sterilization prior to sale, and we
contract with third-party sterilizers to perform this service, including ethylene oxide sterilizers. In June 2020, the U.S. Environmental
Protection Agency, or the EPA, finalized amendments to national emissions standards to reduce hazardous air pollutants, including
emissions of ethylene oxide, by adding requirements for process vents, storage tanks, equipment in ethylene oxide service, and
updating requirements for flares controlling ethylene oxide emissions, heat exchange systems, and equipment leaks. Additional
regulation to address ethylene oxide emissions at sterilization facilities is expected in 2021, including revisions to the EPA’s national
emissions standards for such facilities. The EPA is currently conducting a registration review of ethylene oxide to ensure that it can
carry out its intended function without creating unreasonable risks to human health and the environment. EPA regulates ethylene
oxide’s use as a sterilant, which is considered an antimicrobial pesticide under the Federal Insecticide, Fungicide, and Rodenticide
Act.
Throughout the end of 2019 and 2020, state agencies shut down and/or temporarily suspended operations at ethylene oxide
sterilization facilities in Illinois, Michigan, Georgia and Delaware. The EPA stated that it will continue to coordinate with state and
local air agencies that have been working to reduce ethylene oxide emissions in their jurisdictions during the ongoing COVID-19
pandemic. Although the EPA’s Office of Inspector General released a report in March 2020 recommending that the EPA provide
residents in all communities near 25 high-priority ethylene oxide-emitting facilities with a forum with the EPA or state personnel
regarding exposure to ethylene oxide, the EPA Administrator immediately critiqued the report and requested that it be rescinded for
appropriate revision. The FDA also voiced concerns that shutdowns may diminish the supply of available sterilization facilities and
cause medical device shortages. Certain of the previously shut down facilities were permitted to resume certain operations due to
increased emissions controls and/or the need to sterilize protective equipment during the pandemic.
It is currently uncertain to what extent facilities that resumed operations in response to the ongoing COVID-19 pandemic will be
shut down again for environmental, health and safety concerns, or whether any additional shut-down facilities will reopen or other
facilities will be required to shut down. While the sterilization facilities previously or currently shut down or suspended do not
sterilize our products and are not otherwise in our supply chain, and our suppliers are not affected directly by these regulatory actions,
increased scrutiny and regulation of ethylene oxide sterilization facilities in the U.S. could create additional costs for our suppliers,
who may be required to take steps with respect to their sterilization processes. These costs could, in turn, be passed on to us and
adversely affect our business. Also, to the extent we or our contract sterilizers are unable to sterilize our products, whether due to these
regulatory or other constraints (such as capacity or availability of materials for sterilization), we may be unable to transition to other
contract sterilizers, sterilizer locations or sterilization methods in a timely or cost-effective manner, or at all. Failure to transition our
processes due to decreased third-party sterilization capacity could have a materially adverse impact on our results of operations and
financial condition.
30
Risks Related to Intellectual Property, Privacy and Security
We own patents, trademarks, trade secrets, copyrights and other intellectual property and know-how that we believe give us a
competitive advantage. If we cannot protect our intellectual property, both domestically and internationally, and develop or
otherwise acquire additional intellectual property, competition could force us to lower our prices, which could hurt our
profitability.
Our intellectual property rights are and will continue to be a critical component of our success. We rely and expect to continue
to rely on a combination of intellectual property, including patent, trademark, copyright, trade secret and domain name protection
laws, as well as confidentiality agreements with our employees and others, to protect our intellectual property and proprietary
rights. If we fail to obtain and maintain adequate intellectual property protection, we may not be able to prevent third parties from
using our proprietary technologies or from marketing products that are very similar or identical to ours.
A substantial portion of our intellectual property rights relating to the Impella devices and other products under development is
in the form of trade secrets and patents. Unlike patents, trade secrets are only recognized under applicable law if they are kept secret
by restricting their disclosure to third parties. We protect our trade secrets and proprietary knowledge in part through confidentiality
agreements with employees, consultants and other parties. However, certain consultants and third parties with whom we have business
relationships, and to whom in some cases we have disclosed trade secrets and other proprietary knowledge, may also provide services
to other parties in the medical device industry, including companies, universities and research organizations that are developing or
marketing competing products. In addition, some of our former employees who were aware of certain of our trade secrets and other
proprietary knowledge in the course of their employment may seek employment with, and become employed by, our competitors. We
cannot be assured that consultants, employees and other third parties with whom we have entered into confidentiality agreements will
not breach the terms of such agreements by improperly using or disclosing our trade secrets or other proprietary knowledge, that we
will have adequate remedies for any such breach, or that our trade secrets will not become known to or be independently developed by
our competitors. The loss of trade secret protection for technologies or know-how relating to our product portfolio and products under
development could adversely affect our business and our prospects.
Our business position also depends in part on our ability to maintain and defend our existing patents and obtain, maintain, and
defend additional patents and other intellectual property rights. We intend to seek additional patents, but our pending and future patent
applications may not result in issued patents or be granted on a timely basis. In addition, issued patents may not contain claims
sufficiently broad to protect us against third parties with similar technologies or products or provide us with any competitive
advantage, including exclusivity in a particular product area. The scope of our patent claims also may vary between countries, as
individual countries have distinctive patent laws. We may be subject to challenges by third parties regarding our intellectual property,
including, among others, claims regarding validity, enforceability, scope and effective term. Patent prosecution, related proceedings,
and litigation in the U.S. and in other countries may be expensive, time consuming and ultimately unsuccessful. In addition, patents
issued by foreign countries may afford less protection than is available under U.S. patent law and may not adequately protect our
proprietary information. Our competitors may independently develop proprietary technologies and processes that are the same as or
substantially equivalent to ours or design around our patents. Our competition may also hold or obtain intellectual property rights that
would threaten our ability to develop or commercialize our product offerings. The expiration of patents on which we rely for
protection of key products could diminish our competitive advantage and adversely affect our business and our prospects.
Companies in the medical device industry typically obtain patents and frequently engage in intellectual property litigation. Our
products and technologies could infringe on the rights of others. If a third party successfully asserts a claim for infringement against
us, we may be liable for substantial damages, be unable to sell products using that technology, or have to seek a license or redesign the
related product. These alternatives may be uneconomical or impossible. Intellectual property litigation could be costly, result in
product development delays and divert the efforts and attention of management from our business.
For a discussion of our material legal proceedings, including those related to patent matters, as of March 31, 2021, see “Note 16.
Commitment and Contingencies – Contingencies” to our consolidated financial statements in this Report, which is incorporated by
reference into this item.
If we are found to have violated laws protecting the confidentiality of patient health information, we could be subject to civil or
criminal penalties, which could increase our liabilities and harm our reputation or our business.
Our business requires us to use and store personally identifiable information of our customers, vendors, employees and business
partners and, in certain instances patients treated with our products in the clinical setting. We are subject to various domestic and
international privacy and security regulations, including but not limited to the Health Insurance Portability and Accountability Act of
1996 (“HIPAA”) and the GDPR.
HIPAA mandates, among other things, the adoption of uniform standards for the electronic exchange of information in common
healthcare transactions, as well as standards relating to the privacy and security of individually identifiable health information, which
31
require the adoption of administrative, physical and technical safeguards to protect such information. Noncompliance with HIPAA
requirements can result in administrative, criminal and civil penalties. Many states have enacted comparable laws addressing the
privacy and security of health information, some of which are more stringent than HIPAA. In addition, the California Consumer
Privacy Act, or the CCPA, which grants expanded rights to access and delete personal information and opt out of certain personal
information sharing, among other things, became effective on January 1, 2020 and will be expanded to include additional consumer
rights and business obligations when the California Privacy Rights Act (the “CPRA”) goes into effect on January 1, 2023. Additional
states have enacted, or are proposing similar, data privacy legislation.
The GDPR is a comprehensive update to the data protection regime in the European Economic Area which imposes
requirements relating to, among other things, consent to process personal data of individuals, the information provided to individuals
regarding the processing of their personal data, the security and confidentiality of personal data, and notifications in the event of data
breaches and use of data by third party processors.
We are also subject to laws and regulations with respect to cross-border transfers of such data out of certain jurisdictions in
which we operate, including the EU. If we are unable to transfer data between and among countries and regions in which we operate,
it could affect the manner in which we provide our services or adversely affect our financial results.
Due to the geographic scope of our operations, HIPAA, the CCPA, the GDPR and other privacy and security-related laws and
regulations, which are currently in effect or may come into effect, may increase our responsibility and liability in relation to personal
data that we process. We may in turn be required to put in place additional mechanisms ensuring compliance with privacy laws and
regulations. If we or any of our service providers are found to be in violation of the promulgated patient privacy rules under various
regimes, we could be subject to civil or criminal penalties, which could increase our liabilities, harm our reputation, and have a
material adverse effect on our business, financial condition and operating results.
Disruptions of critical information systems or material breaches in the security of our systems could harm our business, customer
relations and financial condition.
We rely in part on information technology, or IT, to store information, communicate with our business partners, interface with
customers, maintain financial accuracy, secure our data and accurately produce our financial statements. If our IT systems do not
effectively and securely collect, store, process and report relevant data for the operation of our business, whether due to equipment
malfunction or constraints, software deficiencies or human error, our ability to effectively plan, forecast and execute our business plan
and comply with applicable laws and regulations would be materially impaired. Any such impairment could have a material adverse
effect on our results of operations, financial condition and the timeliness with which we report our operating results.
In the current environment, there are numerous and evolving risks to cybersecurity and privacy, including criminal hackers,
hacktivists, state-sponsored intrusions, industrial espionage, employee malfeasance and human or technological error. High-profile
security breaches at other companies and in government agencies have increased in recent years, in some cases causing significant
harm, and security industry experts and government officials have warned about the risks of hackers and cyber-attacks targeting
businesses. Cyber-attacks are generally becoming more sophisticated and frequent. Computer hackers and others routinely attempt to
breach the security of technology products, services and systems, and to fraudulently induce employees, customers, or others to
disclosure information or unwittingly provide access to systems or data. We have experienced and expect to continue to experience
actual or attempted cyber-attacks of our IT systems or networks. To date, none of these actual or attempted cyber-attacks has had a
material effect on our operations or financial condition. While we devote significant resources to network security, data encryption
and other security measures to protect our systems and data, including our own proprietary information and the confidential and
personally identifiable information of our customers, employees, business partners and patients, these measures cannot provide
absolute security. The costs to eliminate or alleviate network security problems, bugs, viruses, worms, malicious software programs
and security vulnerabilities could be significant, and our efforts to address these problems may not be successful, resulting potentially
in the theft, loss, destruction or corruption of information we store electronically, as well as unexpected interruptions, delays or
cessation of service, any of which could cause harm to our business operations. Moreover, if a computer security breach or cyber-
attack affects our systems or results in the unauthorized release of proprietary or personally identifiable information, our reputation
could be materially damaged, our customer confidence could be diminished, and our operations, including technical support for our
devices, could be impaired. We would also be exposed to a risk of loss or litigation and potential liability, which could have a material
adverse effect on our business, results of operations and financial condition. Any of these may contribute to the loss of customers and
may have a material adverse effect on our business.
Risks Related to Our Common Stock
The market price of our common stock is volatile, which has in the past led to and may in the future lead to securities litigation
against us. Such litigation may be costly and result in an adverse outcome.
The market price of our common stock has fluctuated widely and may continue to do so. Many factors could cause the market
price of our common stock to rise and fall. Some of these factors are:
32
•
variations in our quarterly results of operations;
•
status of regulatory approvals for our products;
•
announcements by the FDA and other regulatory authorities relating to our products and their impact on market
perception of our product, including short-term impact;
•
reputational risk relating to customer reviews of our products;
•
introduction of new products by us or our competitors;
•
acquisitions or strategic alliances involving us or our competitors;
•
changes in healthcare policy or third-party reimbursement practices;
•
changes in estimates of our performance or recommendations by securities analysts;
•
the hiring or departure of key personnel;
•
results of clinical trials of our products;
•
notice of a recall or other safety issue that impacts the ability for customers to use our products;
•
future sales of shares of common stock in the public market;
•
the outcome of currently pending litigation and governmental investigations, or the initiation of additional litigation or
government investigations against us;
•
and market conditions in the industry, particularly around reimbursement for our products and the economy as a whole.
In addition, the stock market in general and the market for shares of medical device companies in particular have experienced
extreme price and volume fluctuations in recent years. These fluctuations are often unrelated to the operating performance of
individual companies. These broad market fluctuations may adversely affect the market price of our common stock. When the market
price of a company’s stock drops significantly, stockholders often institute securities class action litigation against that company. For
information on our ongoing securities class action, see “Note 16. Commitment and Contingencies” to our consolidated financial
statements in this Report, which is incorporated by reference into this item.
We are generally obliged under our bylaws, to the extent permitted under Delaware law, to indemnify our current and former
officers who are named as defendants in these types of lawsuits. While a certain amount of insurance coverage is available for
expenses or losses associated with these lawsuits, this coverage may not be sufficient. Based on information currently available, we
are unable to estimate reasonably a possible loss or range of possible losses, if any, with regard to the current securities class action
and shareholder derivative litigation; therefore, no litigation reserve has been recorded in our consolidated balance sheet. Although
we plan to defend against the securities class action and shareholder derivative litigation vigorously, there can be no assurances that a
favorable final outcome will be obtained. This litigation and other future litigation against us could cause us to incur substantial costs,
divert the time and attention of our management and other resources, or otherwise harm our business.
The sale of additional shares of our common stock, the issuance of restricted stock units or the exercise of outstanding options to
purchase our common stock, would dilute our stockholders’ ownership interest.
We have historically issued restricted stock units and stock options to acquire our common stock and we expect to continue to
issue restricted stock units and stock options to our employees and others in the future. If all outstanding stock options were exercised
and all outstanding restricted stock units vested, our stockholders would suffer dilution of their ownership interest. In addition, we
have issued from time to time, additional shares of our common stock in connection with acquisitions, public offerings, and other
activities. Future issuances of our common stock would also result in a dilution of our stockholders’ ownership interest.
Our certificate of incorporation and Delaware law could make it more difficult for a third-party to acquire us and may prevent our
stockholders from realizing a premium on our stock.
Provisions of our certificate of incorporation and Delaware General Corporation Law may make it more difficult for a third-
party to acquire us, even if doing so would allow our stockholders to receive a premium over the prevailing market price of our stock.
Those provisions of our certificate of incorporation and Delaware law are intended to encourage potential acquirers to negotiate with
us and allow our board of directors the opportunity to consider alternative proposals in the interest of maximizing stockholder value.
However, such provisions may also discourage acquisition proposals or delay or prevent a change in control, which could negatively
affect our stock price.
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The market value of our common stock could vary significantly based on market perceptions of the status of our product
development efforts.
The perception of securities analysts regarding our product development efforts and controlled launches of certain products,
particularly with respect to our Impella devices and the OXY-1 System, could significantly affect our stock price. As a result, the
market price of our common stock has and could in the future change substantially when we or our competitors make product
announcements. Many factors affecting our stock price are industry related and beyond our control.
We have not paid and do not expect to pay dividends and any return on our stockholders’ investment will likely be limited primarily
to gains realized based on the value of our common stock.
We have never paid dividends on our common stock and do not anticipate paying dividends on our common stock in the
foreseeable future. The payment of dividends on our common stock will depend on our earnings, financial condition and other
business and economic factors affecting us at such time as our board of directors may consider relevant. If we do not pay dividends,
our common stock may be less valuable because a return on our stockholders’ investment will only occur if our stock price
appreciates.
General Risk Factors
We use estimates, make judgments and apply certain methods in measuring the progress of our business in determining our
financial results and in applying our accounting policies. As these estimates, judgments and methods change, our assessment of
the progress of our business and our results of operations could vary.
The methods, estimates and judgments we use in applying our accounting policies have a significant impact on our results of
operations. Such methods, estimates and judgments are, by their nature, subject to risks, complexities, uncertainties and assumptions,
and factors may arise over time that may lead us to change our methods, estimates and judgments. Changes in any of our assumptions
may cause variation in our financial reporting and may adversely affect our reported financial results.
Revisions to accounting standards, tax laws and financial reporting requirements could result in changes to our standard practices
and could require a significant expenditure of time, attention and resources, especially by senior management.
We must follow accounting standards, tax laws and financial reporting requirements set by the governing bodies and lawmakers
in the U.S. and in other jurisdictions where we do business. From time to time, these governing bodies and lawmakers implement new
and revised rules and laws, which may require changes to our accounting policies, financial reporting, and the related information we
file with governing bodies. Implementing mandatory changes may require a significant expenditure of time, attention and resources. It
is impossible to completely predict the impact, if any, of future changes to accounting standards and financial reporting requirements.
ITEM 1B.
UNRESOLVED STAFF COMMENTS
None.
ITEM 2.
PROPERTIES
Our corporate offices are located in Danvers, Massachusetts. The locations and uses of our major properties as of March 31,
2021, are listed below:
Location
Function
Danvers, Massachusetts
(22 Cherry Hill Drive)
(1)
Corporate headquarters, research and development, regulatory and
clinical affairs, manufacturing, administration, marketing,
distribution
Danvers, Massachusetts
(24 - 42 Cherry Hill Drive)
(1)
Research and development, distribution, manufacturing,
administration
Halethorpe, Maryland
(2)
Research and development, manufacturing, administration
Aachen, Germany
(1)
Research and development, regulatory and clinical affairs,
manufacturing, administration, marketing, distribution
Berlin, Germany
(2)
Research and development
Tokyo, Japan
(2)
Administration, regulatory and clinical affairs, marketing,
distribution
(1) Owned properties
(2) Leased property
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We believe our properties have been well maintained, are in good operating condition, and provide adequate capacity to support
our business operations.
ITEM 3.
LEGAL PROCEEDINGS
We are from time to time involved in various legal actions, the outcomes of which are not within our complete control and may
not be known for prolonged periods of time. For a discussion of our material legal proceedings as of March 31, 2021, see “Note 16.
Commitment and Contingencies – Contingencies,” which is incorporated by reference into this item.
ITEM 4.
MINE SAFETY DISCLOSURES
Not applicable.
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PART II
ITEM 5.
MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER
PURCHASES OF EQUITY SECURITIES
Market Information
Our common stock is traded on the Nasdaq Global Market under the symbol “ABMD.”
Stockholders
As of May 14, 2021, we had approximately 357 holders of record of our common stock, including Cede & Co., the nominee of
the Depository Trust Company. The number of record holders may not be representative of the number of beneficial owners of our
common stock, whose shares are held in street name by banks, brokers and other nominees.
Dividends
We have never declared or paid any cash dividends on our common stock and do not anticipate paying any cash dividends on
our common stock in the foreseeable future. We anticipate that we will retain all of our future earnings, if any, to support operations
and to finance the growth and development of our business. Payment of any future dividends will be at the discretion of our board of
directors and will depend upon our financial condition, operating results, cash needs and growth plans.
Issuer Purchases of Equity Securities
In August 2019, our Board of Directors authorized a stock repurchase program for up to $200.0 million of shares of its common
stock. Under this stock repurchase program, we are authorized to repurchase shares through open market purchases, privately
negotiated transactions or otherwise in accordance with applicable federal securities laws, including through Rule 10b5-1 trading
plans and under Rule 10b-18 of the Securities Exchange Act of 1934 (the “Exchange Act”). The stock repurchase program has no time
limit and may be suspended for periods or discontinued at any time. We are funding the stock repurchase program with our available
cash and marketable securities. Through March 31, 2021, we have repurchased a total 533,336 shares at an aggregate cost of $96.2
million through this stock repurchase program. The remaining authorization under the stock repurchase program was $103.8 million
as of March 31, 2021. There were no stock repurchases during our fourth quarter of fiscal year 2021.
36
Performance Graph
The following graph compares the yearly change in the cumulative total stockholder return for our last five fiscal years, based
upon the market price of our common stock, with the cumulative total return on a Nasdaq Composite Index (U.S. Companies) and a
peer group, the Nasdaq Medical Equipment-SIC Code 3840-3849 Index, which is comprised of medical equipment companies, for that
period. The performance graph assumes the investment of $100 as of March 31, 2016 in our common stock, the Nasdaq Composite
Index (U.S. Companies) and the peer group index, and the reinvestment of any and all dividends.
3/31/2016
3/31/2017
3/31/2018
3/31/2019
3/31/2020
3/31/2021
$0
$50
$100
$150
$200
$250
$300
$350
$400
ABIOMED, Inc.
Nasdaq Composite Index
Nasdaq Medical Equipment SIC Code 3840-3849
COMPARISON OF 5 YEAR CUMULATIVE TOTAL RETURN*
*$100 invested on 3/31/2016 in stock or index-
funding reinvestment dividends.
Cumulative Total Return ($)
3/31/2016
3/31/2017
3/31/2018
3/31/2019
3/31/2020
3/31/2021
ABIOMED, Inc.
100
132
307
301
153
336
Nasdaq Composite Index
100
121
145
159
158
272
Nasdaq Medical Equipment SIC Code 3840-3849
100
109
122
135
103
159
This graph is not “soliciting material” under Regulation 14A or 14C of the rules promulgated under the Exchange Act, is not
deemed filed with the SEC and is not to be incorporated by reference in any of our filings under the Securities Act of 1933, as
amended, or the Exchange Act whether made before or after the date hereof and irrespective of any general incorporation language in
any such filing.
37
ITEM 6.
SELECTED FINANCIAL DATA
The following tables set forth, for the periods and at the dates indicated, our selected historical consolidated financial data. We
have derived the selected consolidated financial data for the fiscal years ended March 31, 2021, 2020 and 2019 and as of March 31,
2021 and 2020, from our consolidated financial statements appearing elsewhere in this Report. We have derived the selected
consolidated financial data for the fiscal years ended March 31, 2017 and 2016, and as of March 31, 2018, 2017 and 2016 from our
consolidated financial statements not appearing elsewhere in this Report. Our historical results are not necessarily indicative of the
results we may achieve in any future period. You should read the following information together with the more detailed information
contained in “Part II, Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our
consolidated financial statements and the accompanying notes appearing elsewhere in this Report.
SELECTED CONSOLIDATED FINANCIAL DATA
(In thousands, except per share data)
Fiscal Years Ended March 31,
Statement of operations data:
2021
2020
2019
2018
2017
Revenue
$
847,522 $
840,883 $
769,432 $ 593,749 $ 445,304
Costs and expenses:
Cost of revenue
161,907
151,305
129,567 98,581 70,627
Research and development
121,875
98,759
93,503 75,297 66,386
Selling, general and administrative
334,183
341,600
321,550 262,734 218,153
617,965
591,664
544,620 436,612 355,166
Income from operations
229,557
249,219
224,812 157,137 90,138
Other income:
Investment income, net
6,717
12,167
8,166
3,688
1,554
Other income (expense), net (1)
51,946
(4,561)
30,382
(388)
(349)
58,663
7,606
38,548
3,300
1,205
Income before income taxes
288,220
256,825
263,360 160,437 91,343
Income tax provision (2)(3)
62,695
53,816
4,344 48,267 39,227
Net income
$
225,525 $
203,009 $
259,016 $ 112,170 $ 52,116
Basic net income per share
$
5.00 $
4.49 $
5.77 $
2.54 $
1.21
Basic weighted average shares outstanding
45,140
45,179
44,911 44,153 43,238
Diluted net income per share
$
4.94 $
4.43 $
5.61 $
2.45 $
1.17
Diluted weighted average shares outstanding
45,674
45,816
46,151 45,849 44,658
Balance sheet data:
Cash, cash equivalents and marketable securities
$
847,780 $
650,911 $
513,416 $ 399,751 $ 277,091
Working capital
658,996
503,978
571,199 409,589 257,341
Total assets
1,494,359 1,216,462 1,054,346 786,375 550,414
Stockholders’ equity
1,329,675 1,065,466
936,890 689,524 452,071
(1)
In fiscal year 2019, we invested $25.0 million in Shockwave Medical, a medical device company. The fair value of this investment as of March
31, 2021 was $38.7 million. We recognized a pre-tax gain of $50.8 million for the year ended March 31, 2021, a pre-tax loss of $0.5 million for
the year ended March 31, 2020 and pre-tax gain of $32.0 million for the year ended March 31, 2019 in other (expense) income, net.
(2)
The income tax provision for fiscal years 2021, 2020 and 2019 included excess tax benefits of $12.1 million, $14.8 million and $69.3 million,
respectively. These recognized excess tax benefits resulted from restricted stock units that vested or stock options that were exercised.
(3)
In fiscal year 2018, we adopted ASU 2016-09 which requires that all excess tax benefits and tax deficiencies related share-based compensation
arrangements be recognized as income tax benefit or expense, instead of in stockholders’ equity as previous guidance required. The income tax
provision for the years ended March 31, 2021, 2020 and 2019 included excess tax benefits of $12.1 million, $14.8 million and $69.3 million,
respectively. These recognized excess tax benefits resulted from restricted stock units that vested or stock options that were exercised.
38
ITEM 7.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
You should read the following discussion and analysis of our financial condition and results of operations together with our
“Selected Financial Data” and the consolidated financial statements and the related notes included elsewhere in “Financial
Statements and Supplementary Data.” Some of the information contained in this discussion and analysis or set forth elsewhere in this
Report, including information with respect to our plans and strategy for our business, includes forward-looking statements that
involve risks and uncertainties. You should read “Part I, Item 1.A Risk Factors” in this Report for a discussion of important factors
that could cause actual results to differ materially from the results described in or implied by the forward-looking statements
contained in the following discussion and analysis.
Overview
We are a leading provider of medical devices that provide circulatory support and oxygenation. Our products are designed to
enable the heart to rest by improving blood flow and/or provide sufficient oxygenation to those in respiratory failure. We develop,
manufacture and market proprietary products that are designed to enable the heart to rest, heal and recover by improving blood flow to
the coronary arteries and end-organs and/or temporarily assisting the pumping function of the heart. Our products are used in the
cardiac catheterization lab, or cath lab, by interventional cardiologists, the electrophysiology lab, the hybrid lab and in the heart
surgery suite by cardiac surgeons. A physician may use our devices for patients who are in need of hemodynamic support
prophylactically, urgently or emergently before, during or after angioplasty or heart surgery procedures. We believe that heart
recovery is the optimal clinical outcome for a patient experiencing heart failure because it enhances the potential for the patient to go
home with their own heart, facilitating the restoration of quality of life. In addition, we believe that, for the care of such patients, heart
recovery is often the most cost-effective solution for the healthcare system.
Our strategic focus and the primary driver of our revenue growth is the market penetration of our family of Impella® heart
pumps. The Impella device portfolio, which includes the Impella 2.5®, Impella CP®, Impella 5.0®, Impella LD®, Impella 5.5® and
Impella RP® devices, has supported thousands of patients worldwide. We expect that most of our product and service revenue in the
near future will be from our Impella devices. Our Impella 2.5, Impella CP, Impella 5.0, Impella LD, Impella 5.5 and Impella RP
devices have FDA and CE Mark approval which allows us to market these devices in the U.S. and European Union. We expect to
continue to make additional PMA supplement submissions for our Impella portfolio of devices for additional indications. Our Impella
2.5, Impella CP and Impella 5.0 devices have regulatory approval from the MHLW in Japan.
In September 2019, the Impella 5.5 device received FDA PMA for safety and efficacy in the therapy of cardiogenic shock for up
to 14 days in the U.S. The Impella 5.5 pump was introduced in the U.S. through a controlled rollout at hospitals with established heart
recovery protocols beginning in the third quarter of fiscal year 2020. Impella 5.5 received CE marking approval in Europe in April
2018 and was introduced in Europe through a similar controlled rollout.
Acquisition of Breethe, Inc.
We acquired Breethe, a Maryland corporation, on April 24, 2020. Breethe is engaged in research and development of a novel
extracorporeal membrane oxygenation (“ECMO”) system that we expect will complement and expand our product portfolio to more
comprehensively serve the needs of patients whose lungs can no longer provide sufficient oxygenation, including some patients
suffering from cardiogenic shock or respiratory failure. We acquired Breethe for $55.0 million in cash, with additional potential
payouts up to a maximum of $55.0 million payable based on the achievement of certain technical, regulatory and commercial
milestones. In October 2020, the OXY-1 System received a 510(k) clearance from the FDA for an all-in-one, compact
cardiopulmonary bypass system. In the third quarter of fiscal year 2021, we initiated a controlled launch of the OXY-1 System at a
limited number of hospitals in the U.S, with expanded U.S. commercial availability expected in fiscal year 2022.
COVID-19 Pandemic
The ongoing COVID-19 pandemic has adversely impacted and is likely to further adversely impact nearly all aspects of our
business and markets, including our workforce and the operations of our customers, suppliers, and business partners.
Beginning in mid-March 2020, we experienced a decline in patient utilization in our main markets in the U.S., Europe and Japan
as healthcare systems diverted resources to meet the increasing demands of managing COVID-19. Our business was most impacted in
the first quarter of fiscal year 2021, in terms of the decline in patients and revenue from the shelter-in-place restrictions in a majority
of countries and limitations on procedures in hospitals. We experienced sequential quarterly improvement during the second quarter of
fiscal year 2021 as patient procedure volume trends and availability of healthcare resources improved as certain restrictions were lifted
and limitations eased during the summer of 2020. During the third quarter of fiscal year 2021, a broad resurgence of COVID-19 cases
throughout the U.S. and Europe slowed our continued recovery in patient utilization. Despite these challenges, we experienced
increased recovery in patient utilization and revenue during the fourth quarter of fiscal year 2021 due to the high-risk nature of the
patient population that are treated with our Impella devices.
39
While the COVID-19 pandemic remains fluid and continues to evolve differently across various geographies, we believe we are
likely to continue to experience variable impacts on our business. Hospitals are generally managing the pandemic better currently
than they have in the earlier part of the pandemic due to more testing, improved protocols, more experience with the effects of
COVID-19 and a greater number of vaccinated caregivers. During these challenging times, our priorities have been to support our
clinician partners, protect the well-being of our employees and maintain continuous access to our life-saving technologies while
offering front-line in-hospital support. We have established onsite COVID-19 testing for our employees in both Danvers,
Massachusetts and Aachen, Germany, set up temperature-taking stations, administered thousands of COVID-19 tests to date and
provided personal protective equipment for our employees in order to maintain a safe working environment.
Our proactive testing program has reduced exposure with early detection, reduced employee anxiety and enabled our
manufacturing facilities to operate at full capacity in line with local social distancing requirements. We also took proactive actions in
the first half of fiscal year 2021 in order to mitigate the business impact of COVID-19 on our financial operations and we continue
monitor closely the business impact of COVID-19. Despite the ongoing challenges posed by COVID-19, we continue to invest
strategically in engineering, regulatory, clinical trials and manufacturing in order to support our future growth initiatives and sales and
marketing activities, with a particular focus on training and education initiatives to drive utilization of our products and recovery
awareness for acute heart failure patients.
We continue to closely monitor the impact of COVID-19 on all aspects of our business and geographies, including its impact on
our customers, employees, suppliers, vendors, business partners and distribution channels. The full extent to which the pandemic will
directly or indirectly impact our business, results of operations and financial condition, including but not limited to sales, expenses,
manufacturing, clinical trials, research and development costs, reserves and allowances, fair value measurements, will depend on
future developments that are highly uncertain and difficult to predict. These developments include, but are not limited to, the duration
and spread of the ongoing COVID-19 pandemic (including new variants of COVID-19), its severity, the actions to contain the virus or
address its impact, the timing, distribution, and efficacy of vaccines and other treatments, U.S. and foreign government actions to
respond to the reduction in global economic activity, and how quickly and to what extent normal economic and operating conditions
can resume.
Critical Accounting Policies and Estimates
We prepare our consolidated financial statements in accordance with accounting principles generally accepted in the United
States (“U.S. GAAP”). Preparation of the consolidated financial statements requires us to make estimates and assumptions that affect
the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the consolidated
financial statements, as well as the reported amounts of revenue and expenses during the reporting period. Actual results could differ
from these estimates. The accounting policies we believe are critical in the preparation of our consolidated financial statements relate
to revenue recognition and income taxes. Our significant accounting policies are more fully described in “Note 2. Basis of Preparation
and Summary of Significant Accounting Policies” to our consolidated financial statements in this Report.
Revenue Recognition
Revenue is recognized when, or as, obligations under the terms of a contract are satisfied, which occurs when control of the
promised products or services is transferred to customers. Revenue is measured as the amount of consideration we expect to receive
in exchange for transferring products or services to a customer.
Product revenue is generally recognized when the customer obtains control of our product, which occurs at a point in time, and
may be upon shipment or upon delivery based on the contractual shipping terms of the contract.
Service revenue is generally recognized over time as the services are rendered to the customer based on the extent of progress
towards completion of the performance obligation. We recognize service revenue over the term of the service contract. Services are
expected to be transferred to the customer throughout the term of the contract and we believe recognizing revenue ratably over the
term of the contract best depicts the transfer of value to the customer. Revenue generated from preventative maintenance calls is
recognized at a point in time when the services are provided to the customer.
Revenue from the sale of products and services are evidenced by either a contract with the customer or a valid purchase order or
an invoice which includes all relevant terms of sale. We perform a review of each specific customer's credit worthiness and ability to
pay prior to acceptance as a customer. Further, we perform periodic reviews of customers' creditworthiness.
40
Income Taxes
Our provision for income taxes is composed of a current and a deferred portion. The current income tax provision is calculated
as the estimated taxes payable or refundable on income tax returns for the current year. The deferred income tax provision is
calculated for the estimated future tax effects attributable to temporary differences and net operating loss carryforwards and tax credits
using expected tax rates in effect in the years during which the differences are expected to reverse.
Deferred income taxes are recognized for the tax consequences in future years as the differences between the tax bases of assets
and liabilities and their financial reporting amounts at each fiscal year end based on enacted tax laws and statutory tax rates applicable
to the periods in which the differences are expected to impact taxable income.
We regularly assess our ability to realize our deferred tax assets. Assessing the realization of deferred tax assets requires
significant management judgment. We consider whether a valuation allowance is needed on our deferred tax assets by evaluating all
positive and negative evidence relative to our ability to recover deferred tax assets, including future reversals of existing taxable
temporary differences, projected future taxable income, tax planning strategies and recent financial results.
We recognize and measure uncertain tax positions using a two-step approach. The first step is to evaluate the tax position for
recognition by determining if, based on the technical merits, it is more likely than not that the position will be sustained upon audit,
including resolution of related appeals or litigation processes, if any. The second step is to measure the tax benefit at the largest
amount that is more likely than not of being realized upon ultimate settlement. We reevaluate these uncertain tax positions on an
ongoing basis, when applicable. This evaluation is based on factors including, but not limited to, changes in facts or circumstances,
new information and technical insights, and changes in tax laws. Any changes in these factors could result in the recognition of a tax
benefit or an additional charge to the tax provision. When applicable, we accrue for the effects of uncertain tax positions and the
related potential penalties and interest through income tax expense.
Other Investments
We periodically make investments in medical device companies that focus on heart failure and heart pumps and other medical
device technologies. For investments that do not have readily determinable market values, we measure these investments at cost minus
impairment, if any, plus or minus changes resulting from observable price changes in orderly transactions for an identical or similar
investment. We monitor any events or changes in circumstances that may have a significant effect on the fair value of investments,
either due to impairment or based on observable price changes, and make any necessary adjustments.
Recent Accounting Pronouncements
Information regarding recent accounting pronouncements is included in “Note 2. Basis of Preparation and Summary of
Significant Accounting Policies” to our consolidated financial statements in this Report.
Results of Operations for the Fiscal Years Ended March 31, 2021 and March 31, 2020 (“fiscal year 2021” and “fiscal year
2020”)
The following table sets forth certain consolidated statements of operations data for the periods indicated as a percentage of total
revenues:
Fiscal Years Ended March 31,
2021
2020
Revenue
100.0 %
100.0 %
Costs and expenses as a percentage of total revenue:
Cost of revenue
19.1
18.0
Research and development
14.4
11.7
Selling, general and administrative
39.4
40.6
Total costs and expenses
72.9
70.4
Income from operations
27.1
29.6
Other income and income tax provision, net
0.5
5.5
Net income as a percentage of total revenue
26.6 %
24.1 %
41
Revenue
The following table disaggregates our revenue by products and services:
Fiscal Years Ended March 31,
2021
2020
(in $000's)
Impella product revenue
$
806,322
$
806,824
Service and other revenue
41,200
34,059
Total revenue
$
847,522
$
840,883
The following table disaggregates our revenue by geographical location:
Fiscal Years Ended March 31,
2021
2020
(in $000's)
U.S.
$
691,579
$
705,409
Europe
105,320
94,266
Japan
42,868
35,215
Other International
7,755
5,993
Total revenue
$
847,522
$
840,883
Impella product revenue encompasses Impella 2.5, Impella CP, Impella 5.0, Impella LD, Impella 5.5, Impella RP and Impella
AIC product sales and related accessories. Service and other revenue represents revenue earned on service maintenance contracts and
preventative maintenance calls. The following is a discussion of our revenues for fiscal year 2021.
Total Revenue
Total revenue for fiscal year 2021 increased $6.6 million, or 1%, to $847.5 million from $840.9 million for fiscal year 2020. The
main drivers of our Impella product revenue and our service and other revenue are further described below.
The growth in total revenue for the fiscal year 2021 was adversely impacted by lower Impella product revenue in the first
quarter of fiscal year 2021 caused by the impact of COVID-19 pandemic in reducing hospital procedures during that time, which was
offset by sequential quarterly improvement during the second, third and fourth quarters of fiscal year 2021 as patient procedure
volume trends and availability of healthcare resources have improved as certain restrictions were lifted and limitations eased during
those periods.
Impella Product Revenue
Impella product revenue for fiscal year 2021 decreased slightly by $0.5 million to $806.3 million from $806.8 million for fiscal
year 2020. U.S. Impella product revenue for fiscal year 2021 totaled $655.2 million, down 3% compared to $674.4 million in the prior
fiscal year with U.S. patient usage of Impella heart pumps down 13%. Impella product revenue outside the U.S. for fiscal year 2021
totaled $151.1 million, an increase of 14% compared to $132.4 million in the prior fiscal year. Impella product revenue outside of the
U.S. increased primarily due to higher utilization in Germany and Japan.
As described above, Impella procedure volumes have varied significantly since the end of March 2020 by geography, and even
by hospital, as their physicians have managed the COVID-19 pandemic. Beginning in mid-March 2020, we experienced a decline in
patient utilization in the U.S., Europe and Japan as healthcare systems diverted resources to meet the increasing demands of managing
COVID-19. Our business was most impacted in the first quarter of fiscal year 2021, in terms of the decline in patients and revenue
from the shelter-in-place restrictions in many countries and limitations on procedures in hospitals. We experienced sequential
quarterly improvement during the second, third and fourth quarters of fiscal year 2021 as patient procedure volume trends and
availability of healthcare resources have improved as certain restrictions were lifted and limitations eased during those periods.
While the COVID-19 pandemic remains fluid and continues to evolve differently across various geographies, we believe we
will likely continue to experience variable impacts on our business. While we cannot reliably estimate the extent to which the COVID-
19 pandemic may continue to impact patient utilization and revenues of our products, our focus is on increasing patient utilization of
our Impella devices in the U.S., our controlled launch of Impella 5.5, primarily in the U.S. and Europe, and our plan to continue
growing our business internationally, with a continued focus on Europe and Japan.
42
Service and other revenue
Service and other revenue for fiscal year 2021 increased by $7.1 million, or 21%, to $41.2 million from $34.1 million for fiscal
year 2020. The increase in service revenue was primarily due to an increase in preventative maintenance service contracts. We have
expanded the number of Impella AIC consoles at many of our existing higher volume customer sites and continue to sell additional
consoles to new customer sites. We expect revenue growth for service revenue to be consistent with recent history as most of these
using sites in the U.S. have service contracts that normally have three-year terms.
Costs and Expenses
Cost of Revenue
Cost of revenue for fiscal year 2021 increased by $10.6 million, or 7%, to $161.9 million from $151.3 million for fiscal year
2020. Gross margin was 81% for fiscal year 2021 and 82% for fiscal year 2020.
The increase in cost of product revenue and decrease in gross margin was primarily due to increased investment in direct labor
and overhead as we expanded our manufacturing capacity of our facilities in the U.S. and Germany, a higher proportion of revenue
outside the U.S., sales mix and costs associated with our initial launch of Impella 5.5.
We expect that our ongoing investment in manufacturing capacity and the expansion of our Impella SmartAssist platform and
Impella Connect may decrease gross margin in the near future.
Research and Development Expenses
Research and development expenses for fiscal year 2021 increased by $23.1 million, or 23%, to $121.9 million from $98.8
million for fiscal year 2020. The increase in research and development expenses was primarily due to our ongoing product
development initiatives relating to our existing and pipeline products, the development of the Impella XR Sheath™, Impella ECP™ ,
Impella BTR devices and the OXY-1 System with the acquisition of Breethe, the expansion of our engineering organization,
continued investment in our clinical trials, most notably the STEMI DTU and PROTECT IV studies, and our focus on clinical and
quality initiatives for our products.
We expect research and development expenses to continue to increase with our ongoing efforts to expand our engineering,
product development and clinical spending related to our initiatives to improve our existing products and develop new technologies
and conduct clinical studies. Research and development expenses can fluctuate with project timing on engineering programs and
clinical trials.
Selling, General and Administrative Expenses
Selling, general and administrative expenses for fiscal year 2021 decreased by $7.4 million, or 2%, to $334.2 million from
$341.6 million for fiscal year 2020. The decrease in selling, general and administrative expenses was primarily due to lower stock
compensation expense due to a lower number of restricted stock units granted and earned and the proactive cost actions taken early in
fiscal year 2021 to mitigate the business impact of COVID-19 on our financial operations, including reducing discretionary spending
primarily related to travel and marketing expenses, decreases in hiring and eliminating certain non-critical consultants and contractors,
partially offset by targeted investments we made in expanding our sales distribution team and advertising. We also received an
employee retention credit associated with the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) to assist
companies impacted by COVID-19.
Despite the ongoing challenges posed by COVID-19, we expect to continue to invest in sales and marketing activities, with a
particular focus on training and education initiatives to drive utilization of our Impella devices and recovery awareness for acute heart
failure patients. We also expect to continue to incur legal expenses for the foreseeable future related to ongoing patent litigation,
securities class action litigation and other legal matters discussed in “Note 16. Commitment and Contingencies” to our consolidated
financial statements. For the impact of COVID-19 on our business, see “Part II, Item 7. Management’s Discussion and Analysis of
Financial Condition and Results of Operations—COVID-19 Pandemic.”
We continue to manage our discretionary costs closely in order to mitigate the business impact of COVID-19. Despite the
ongoing challenges posed by COVID-19, including the recent global resurgence, we aim to continue to invest strategically in
engineering, regulatory, clinical trials and manufacturing in order to support our future growth initiatives and sales and marketing
activities, with a particular focus on training and education to drive utilization of our Impella devices and recovery awareness for acute
heart failure patients.
Operating Income
Operating income decreased by $19.6 million, to $229.6 million for fiscal year 2021, compared to $249.2 million for fiscal year
2020. Operating margin was 27.1%% for fiscal year 2021 compared to 29.6%% for fiscal year 2020. The decreases in operating
margins are primarily related to lower revenues as a result of the impact from the COVID-19 pandemic and increases in research and
development expenses with our investments in engineering programs and clinical trials.
43
Other Income (Expense), net
Other (expense) income, net increased by $51.1 million, to $58.7 million for fiscal year 2021, compared to $7.6 million for
fiscal year 2020. This increase was primarily due to the recognition of a $50.8 million pre-tax gain from our investment in Shockwave
Medical in fiscal year 2021 compared to a $0.5 million loss in fiscal year 2020. We also recorded change in fair value on our
investments in other private medical device companies of $1.0 million and $4.7 million for fiscal year 2021 and fiscal year 2020,
respectively.
Income Tax Provision
The income tax provision increased by $8.9 million to $62.7 million for fiscal year 2021, compared to $53.8 million for fiscal
year 2020. Our effective income tax rate was 21.8% in fiscal year 2021, and 21.0% in fiscal year 2020. The increase in the income tax
provision and the effective tax rate for fiscal year 2021 were primarily driven by $12.1 million in excess tax benefits in fiscal year
2021, compared to $14.8 million excess tax benefits in fiscal year 2020.
Net Income
In fiscal year 2021, net income was $225.5 million, or $5.00 per basic share and $4.94 per diluted share. Net income in fiscal
year 2021 included excess tax benefits related to stock-based awards of $12.1 million, or $0.27 per basic share and $0.26 per diluted
share, and a $38.3 million gain, net of tax, or $0.85 per basic share and $0.84 per diluted share, related to our investment in
Shockwave Medical. For more information, see “Note 10. Other Assets—Investments in Shockwave Medical.”
In fiscal year 2020, net income was $203.0 million, or $4.49 per basic share and $4.43 per diluted share. Net income in fiscal
year 2020 included excess tax benefits related to stock-based awards of $14.8 million, or $0.33 per basic share and $0.32 per diluted
share, and a $0.4 million loss, net of tax, related to our investment in Shockwave Medical.
Results of Operations for the Fiscal Years Ended March 31, 2020 and March 31, 2019
For a comparison of our results of operations for the fiscal years ended March 31, 2020 and March 31, 2019, see “Part II, Item
7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” of our annual report on Form 10-K for
the fiscal year ended March 31, 2020 filed with the SEC on May 21, 2020, which comparative information is incorporated by
reference in this Report.
Liquidity and Capital Resources
As of March 31, 2021, our total cash, cash equivalents, and short and long-term marketable securities totaled $847.8 million, an
increase of $196.9 million compared to $650.9 million as of March 31, 2020. The change in our cash, cash equivalents, and short and
long-term marketable securities was primarily due to positive cash flows from operations, offset by cash used for investments in
property, equipment and other investments, and cash used for financing activities related to equity activity.
A summary of our cash flow activities is as follows:
For the Year Ended March 31,
2021
2020
Net cash provided by operating activities
$
274,578 $
314,920
Net cash used for investing activities
(223,344)
(125,455)
Net cash used for financing activities
(8,067)
(117,715)
Effect of exchange rate changes on cash
(2,798)
(430)
Net increase in cash and cash equivalents
$
40,369 $
71,320
For a discussion of our liquidity and capital resources as of and our cash flow activities for the fiscal year ended March 31,
2020, see “Part II, Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” of our annual
report on Form 10-K for the fiscal year ended March 31, 2020, filed with the SEC on May 21, 2020, which is incorporated by
reference in this Report.
Cash Provided by Operating Activities
For fiscal year 2021, cash provided by operating activities consisted of net income of $225.5 million, plus non-cash items of
$66.4 million less cash used for working capital of $17.4 million. Adjustments for non-cash items consisted primarily of $47.0 million
44
of stock-based compensation expense, a change in fair value of our investments in Shockwave Medical and other private medical
technology companies of $51.0 million, a $29.4 million change in our deferred tax provision, $24.1 million of depreciation and
amortization expense, $8.5 million in inventory write-downs and a change in fair value of contingent consideration of $2.4 million.
The decrease in cash from changes in working capital included a $2.5 million decrease in inventory due to the mix of customer
demand and production volumes related to our Impella devices and a $12.0 million decrease in accounts payable, accrued expenses
and other liabilities offset by a $12.1 million increase in accounts receivable associated with timing and volume of sales and
collections and a $5.2 million increase in deferred revenue.
For fiscal year 2020, cash provided by operating activities consisted of net income of $203.0 million, adjusted for non-cash
items of $103.9 million plus cash from working capital of $8.0 million. Adjustments for non-cash items consisted primarily of $39.8
million of stock-based compensation expense, a change in fair value of our investments in Shockwave Medical and other private
medical technology companies of $5.2 million, a $33.0 million change in our deferred tax provision, $20.4 million of depreciation and
amortization expense, $4.2 million in inventory write-downs and a change in fair value of contingent consideration of $0.6 million.
The increase in cash from changes in working capital included a $13.2 million increase in inventory to support demand for our Impella
devices offset by a $5.6 million decrease in accounts receivable associated with collections activity and a $18.3 million increase in
accounts payable and accrued expenses and a $2.8 million increase in deferred revenue.
Cash Used for Investing Activities
For fiscal year 2021, net cash used for investing activities included $159.6 million in purchases (net of maturities) of marketable
securities, $52.2 million for our acquisition of Breethe and $53.4 million for the purchase of property and equipment mostly related to
the $17.5 million purchase of the building adjacent to our corporate headquarters in Danvers, Massachusetts and continued expansion
of manufacturing capacity, office space and research development facilities in Danvers, Massachusetts and Aachen, Germany. We
also made $26.1 million of investments in medical technology companies and intangible assets during fiscal year 2021. These amounts
were partially offset by $67.9 million in proceeds from the sale of Shockwave Medical securities.
For fiscal year 2020, net cash used for investing activities included $60.5 million in purchases (net of maturities) of marketable
securities and other and $44.0 million for the purchase of property and equipment mostly related to the expansion of manufacturing
capacity and office space and research and development facilities in Danvers and Aachen and investments in information systems. We
also made $21.0 million of investments in medical technology companies and intangible assets during fiscal year 2020.
Capital expenditures for fiscal year 2022 are estimated to range from $40 million to $50 million, including, as part of long-term
development of our business, additional capital expenditures for manufacturing capacity and building expansions in our Danvers and
Aachen facilities and information systems development projects.
Cash Used for Financing Activities
For fiscal year 2021, net cash used for financing activities included $11.3 million for the repurchase of our common stock and
$11.3 million in payments in lieu of issuance of common stock for payroll withholding taxes upon vesting of certain equity awards.
These amounts were offset by $9.1 million in proceeds from the exercise of stock options and $5.5 million in proceeds from the
issuance of stock under the employee stock purchase plan.
For fiscal year 2020, net cash used for financing activities included $84.9 million for the repurchase of our common stock and
$41.7 million in payments in lieu of issuance of common stock for payroll withholding taxes upon vesting of certain equity awards.
These amounts were offset by $3.7 million in proceeds from the exercise of stock options and $5.1 million in proceeds from the
issuance of stock under the employee stock purchase plan.
Operating Capital and Liquidity Requirements
Our sources of cash liquidity are primarily from existing cash and cash equivalents, marketable securities and cash flows from
operations. As of March 31, 2021, our total cash, cash equivalents, and short and long-term marketable securities totaled $847.8
million, an increase of $196.9 million compared to $650.9 million as of March 31, 2020. Marketable securities as of March 31, 2021
consisted of $615.1 million held in funds that invest in U.S. Treasury securities, government-backed securities, corporate debt
securities and commercial paper. We generated operating cash flows of $274.6 million and $314.9 million for fiscal years 2021 and
2020, respectively. As of March 31, 2021, we had no debt outstanding. We believe that our sources of liquidity are sufficient to fund
the current requirements of working capital, capital expenditures, and other financial commitments for at least the next twelve months.
45
Our primary liquidity requirements are to fund the following: expansion of our commercial and operational infrastructures;
expansion of our manufacturing capacity and office space; the procurement and production of inventory to meet customer demand for
our Impella devices; creation of new product and business development initiatives; ongoing commercial launch in Japan and
expansion into potential new markets; expansion of the utilization of Impella Connect; increased clinical spending for clinical trials
such as STEMI DTU and PROTECT IV; legal expenses related to ongoing patent litigation and other legal matters; and payments in
lieu of issuance of common stock for payroll withholding taxes upon vesting of certain equity awards and provide for general working
capital needs. To date, we have primarily funded our operations through product sales and the sale of equity securities.
Our liquidity is influenced by our ability to sell our products in a competitive industry and our customers’ ability to pay for our
products. Factors that may affect liquidity primarily include our ability to penetrate the market for our products, our ability to maintain
or reduce the length of the selling cycle for our products, our capital expenditures, and our ability to collect cash from customers after
our products are sold. We also expect to continue to incur legal expenses for the foreseeable future related to ongoing patent litigation
and other legal matters. We continue to review our short-term and long-term cash needs on a regular basis.
We also took proactive actions in the first half of fiscal year 2021 in order to mitigate the business impact of COVID-19 on our
financial operations and we continue to manage discretionary costs closely in order to mitigate the business impact of COVID-19.
Despite the ongoing challenges posed by COVID-19, including the recent global resurgence, we continue to invest strategically in
engineering, regulatory, clinical trials and manufacturing in order to support our future growth initiatives and sales and marketing
activities, with a particular focus on training and education initiatives to drive utilization of our Impella devices and recovery
awareness for acute heart failure patients. We continue to closely monitor the impact of COVID-19 on all aspects of our business and
geographies, including its impact on our customers, employees, suppliers, vendors, business partners and distribution channels.
Off-Balance Sheet Arrangements
We had no off-balance sheet arrangements or guarantees of third-party obligations during the periods presented. An “off-
balance sheet arrangement” generally entails a transaction, agreement or other contractual arrangement to which an entity
unconsolidated with us is a party under which we have any obligation arising under a guarantee contract, derivative instrument or
variable interest or a retained or contingent interest in assets transferred to such entity or similar arrangement that serves as credit,
liquidity or market risk support for such assets.
ITEM 7A.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Our business and financial results are affected by fluctuations in world financial markets, including changes in currency
exchange rates and interest rates. We manage these risks through a combination of normal operating and financing activities.
Investment and Interest Rate Risk
Our exposure to market risk for changes in interest rates relates primarily to our marketable securities portfolio. Our investment
strategy is focused on preserving capital and supporting our liquidity requirements, while earning a reasonable market return. We
invest in a variety of U.S. government and agency securities, corporate debt securities and commercial paper. The market value of our
marketable securities may decline if current market interest rates rise. The fair value on marketable securities as of March 31, 2021
was $615.1 million. If market interest rates were to increase immediately and uniformly by 10% from levels as of March 31, 2021, we
believe the decline in fair market value of our investment portfolio would be immaterial. Our marketable securities are recorded at fair
value, and gains or losses from these securities are recognized within other comprehensive income as they occur.
Foreign Currency Exchange Rate Risk
We have foreign currency exposure to exchange rate fluctuations and particularly with respect to the Euro, British pound
sterling, Japanese yen, Singapore dollar and Australian dollar. Therefore, our investment in our subsidiaries is sensitive to fluctuations
in currency exchange rates. The effect of a change in currency exchange rates on our net investment in international subsidiaries is
reflected in the accumulated other comprehensive income component of stockholders’ equity. If foreign exchange rates for our
international subsidiaries were to have depreciated immediately and uniformly by 10% relative to the U.S. dollar from levels as of
March 31, 2021, the result would have been a reduction of stockholders’ equity of approximately $21.1 million.
46
As discussed in “Note 5. Financial Instruments” to our consolidated financial statements, we have an intercompany loan
agreement with our German subsidiary, Abiomed Europe GMBH. In conjunction with this intercompany loan agreement, we entered
into a cross-currency swap agreement to convert the Euro denominated intercompany loan into U.S. dollars. The objective of this
cross-currency swap is to hedge the variability of cash flows related to the forecasted interest and principal payments on the Euro
denominated fixed rate loan against changes in the exchange rate between the U.S. dollar and the Euro. We use such a foreign-
exchange-related derivative instrument to manage our exposure related to changes in the exchange rate on our intercompany loan. We
do not enter into derivative instruments for any purpose other than for the cash flow hedge described above.
Credit Risk
In the normal course of business, we provide credit to our customers in the health care industry, perform credit evaluations of
these customers, and maintain allowances for potential credit losses, which have historically been adequate compared to actual losses.
In fiscal year 2021, we had no customers that represented 10% or more of our total revenue or accounts receivable. Credit is extended
based on an evaluation of a customer’s historical financial condition and generally collateral is not required. Our history of credit
losses has not been significant and we maintain an allowance for doubtful accounts based on our assessment of the collectability of
accounts receivable. Accounts receivable are geographically dispersed, primarily throughout the U.S., as well as in Europe and other
foreign countries where formal distributor agreements exist. Our exposure to credit losses may increase if our customers are adversely
affected by changes in healthcare laws, coverage, and reimbursement, economic pressures or uncertainty associated with local or
global economic recessions, disruption associated with the current COVID-19 pandemic, or other customer-specific factors.
Other Investment Risk
We are exposed to investment risks related to changes in the underlying financial condition and credit capacity of certain of our
other investments. We periodically make investments in medical device companies that focus on heart failure and heart pump
technologies. We monitor any events or changes in circumstances that may have a significant effect on the fair value of our other
investments, either due to impairment or based on observable price changes, and make any necessary adjustments. Should these
companies experience a decline in financial condition or credit capacity, or fail to meet certain development milestones, a decline in
the investments’ values may occur, resulting in unrealized or realized losses. The aggregate carrying amount of our other investments
was $101.6 million and $94.4 million as of March 31, 2021 and 2020, respectively, and is classified within other assets on our
consolidated balance sheets. In fiscal year 2019, we invested $25.0 million in medical device company Shockwave Medical. The fair
value of this investment as of March 31, 2021 was $38.7 million and we recognized a pre-tax gain of $50.8 million in other income
(expense), net. Also included in other income (expense) is a change in fair value on portfolio investment of $1.0 million relating to
certain of our investments in other private medical device companies.
ITEM 8.
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The information required by this item is incorporated by reference from the discussion under the heading “Part IV, Item 15.
Exhibits, Financial Statement Schedules” of this Report.
ITEM 9.
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
None.
47
ITEM 9A.
CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
Our management, with the participation of our principal executive officer and principal financial officer, has evaluated the
effectiveness of our disclosure controls and procedures (as defined in Rule 13a-15(e) and Rule 15d-15(e) under the Securities
Exchange Act of 1934, as amended, or the Exchange Act, as of March 31, 2021. Based on this evaluation, our principal executive
officer and principal financial officer concluded that, as of March 31, 2021, these disclosure controls and procedures were effective to
provide reasonable assurance that information required to be disclosed by us, including our consolidated subsidiaries, in reports that
we file or submit under the Exchange Act, is recorded, processed, summarized and reported, within the time periods specified in the
Commission’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to
ensure that information required to be disclosed by us in the reports that we file or submit under the Act is accumulated and
communicated to our management, including our principal executive officer and principal financial officer, as appropriate to allow
timely decisions regarding required disclosure.
Evaluation of Changes in Internal Control over Financial Reporting
During the fourth quarter of our fiscal year ended March 31, 2021, there were no changes in our internal control over financial
reporting that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. We
have not experienced any material impact to our internal control over financial reporting despite the fact that certain of our employees
have been working remotely due to the COVID-19 pandemic. We are continually monitoring and assessing the potential impact of
COVID-19 on our internal control over financial reporting to minimize the impact on their design and operating effectiveness.
Management’s Report on Internal Control over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term
is defined in Exchange Act Rule 13a-15(f) and Rule 15d-15(f). Under the supervision and with the participation of our management,
including our principal executive officer and principal financial officer, we assessed the effectiveness of our internal control over
financial reporting based on the framework in Internal Control—Integrated Framework (2013) issued by the Committee of
Sponsoring Organizations of the Treadway Commission. Based on our assessment under the framework in Internal Control—
Integrated Framework (2013), our management concluded that our internal control over financial reporting was effective as of
March 31, 2021.
Important Considerations
Our internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of
financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting
principles. Our internal control over financial reporting includes those policies and procedures that: (i) pertain to the maintenance of
records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company;
(ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in
accordance with generally accepted accounting principles and that receipts and expenditures of the company are being made only in
accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding
prevention or timely detection of unauthorized acquisition, use, or disposition of our assets that could have a material effect on the
financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also,
projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of
changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Deloitte & Touche LLP, an independent registered public accounting firm that audited our financial statements for the fiscal
year ended March 31, 2021, included in this Report, has issued an attestation report on the effectiveness of our internal control over
financial reporting. This Report is set forth below:
48
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Stockholders and the Board of Directors of ABIOMED, Inc.
Opinion on Internal Control over Financial Reporting
We have audited the internal control over financial reporting of ABIOMED, Inc. and subsidiaries (the “Company”) as of March 31,
2021, based on criteria established in Internal Control Integrated Framework (2013) issued by the Committee of Sponsoring
Organizations of the Treadway Commission (“COSO”). In our opinion, the Company maintained, in all material respects, effective
internal control over financial reporting as of March 31, 2021, based on criteria established in Internal Control — Integrated
Framework (2013) issued by COSO.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States)
(“PCAOB”), the consolidated financial statements as of and for the year ended March 31, 2021, of the Company and our report dated
May 21, 2021, expressed an unqualified opinion on those financial statements.
Basis for Opinion
The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of
the effectiveness of internal control over financial reporting, included in the accompanying "Management’s Report on Internal Control
over Financial Reporting." Our responsibility is to express an opinion on the Company’s internal control over financial reporting
based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the
Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange
Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects.
Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness
exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such
other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our
opinion.
Definition and Limitations of Internal Control over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of
financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting
principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the
maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the
company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in
accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in
accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding
prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect
on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections
of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in
conditions, or that the degree of compliance with the policies or procedures may deteriorate.
/s/ Deloitte & Touche LLP
Boston, Massachusetts
May 21, 2021
49
ITEM 9B.
OTHER INFORMATION
Not applicable.
50
PART III
ITEM 10.
DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
The information required by Item 10 is incorporated by reference herein from our definitive proxy statement which will be filed
no later than 120 days after the close of the fiscal year covered by this Report.
ITEM 11.
EXECUTIVE COMPENSATION
The information required by Item 11 is incorporated by reference herein from our definitive proxy statement which will be filed
no later than 120 days after the close of the fiscal year covered by this Report.
ITEM 12.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED
STOCKHOLDER MATTERS
The information required by Item 12 is incorporated by reference herein from our definitive proxy statement which will be filed
no later than 120 days after the close of the fiscal year covered by this Report.
ITEM 13.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
The information required by Item 13 is incorporated by reference herein from our definitive proxy statement which will be filed
no later than 120 days after the close of the fiscal year covered by this Report.
ITEM 14.
PRINCIPAL ACCOUNTANT FEES AND SERVICES
The information required by Item 14 is incorporated by reference herein from our definitive proxy statement which will be filed
no later than 120 days after the close of the fiscal year covered by this Report.
51
PART IV
ITEM 15.
EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) The following documents are filed as part of this report:
(1) The following financial statements are attached hereto.
Page
Report of Independent Registered Public Accounting Firm.......................................................................................................
F-2
Consolidated Balance Sheets as of March 31, 2021 and 2020 ..................................................................................................
F-4
Consolidated Statements of Operations for the Fiscal Years Ended March 31, 2021, 2020 and 2019......................................
F-5
Consolidated Statements of Comprehensive Income for the Fiscal Years Ended March 31, 2021, 2020 and 2019 .................
F-6
Consolidated Statements of Stockholders’ Equity for the Fiscal Years Ended March 31, 2021, 2020 and 2019......................
F-7
Consolidated Statements of Cash Flows for the Fiscal Years Ended March 31, 2021, 2020 and 2019.....................................
F-8
Notes to Consolidated Financial Statements ..............................................................................................................................
F-9
(2)
Consolidated financial statement schedule
Information is contained within “Note 6. Accounts Receivable” to our consolidated financial statements in this report.
(3)
Exhibits
EXHIBIT INDEX
Incorporated by Reference
Exhibit
No.
Description
Filed with
this Form
10-K
Form
Filing Date
Exhibit
No.
3.1
Restated Certificate of Incorporation
S-3
September 29, 1997
3.1
3.2
Amended & Restated By-Laws, as Amended and
Restated February 4, 2020
10-K (File No.
001-09585)
May 21, 2020
3.2
3.3
Amendment to the Company’s Restated Certificate of
Incorporation to increase the authorized shares of
common stock from 25,000,000 to 100,000,000.
8-K (File No.
001-09585)
March 21, 2007
3.4
4.1P
Specimen Certificate of common stock
S-1
June 5, 1987
4.1
4.2
Description of Common Stock
10-K (File No.
001-09585)
May 21, 2020
4.2
10.1*P
Form – Indemnification Agreement for Directors and
Officers
S-1
June 5, 1987
10.13
10.2*
Form – Employment, Nondisclosure and Non-
Competition Agreement
10-K (File No.
001-09585)
May 24, 2018
10.28
10.3*
Form – Change of Control Agreement
8-K (File No.
001-09585)
August 18, 2008
10.4
10.4*
1988 Employee Stock Purchase Plan, as Amended and
Restated February 5, 2019
10-K (File No.
001-09585)
May 23, 2019
10.6
10.5*
Second Amended & Restated 2015 Omnibus Incentive
Plan
Sch. 14A (File No.
001-09585)
June 22, 2018
Appendi
x A
10.6*
Form –Time-Based RSU Agreement (Non-Employee
Director) under the 2015 Omnibus Incentive Plan
10-Q (File No.
001-09585)
February 5, 2016
10.4
10.7*
Form – Time-Based RSU Agreement (Field Employee)
under the 2015 Omnibus Incentive Plan
10-K (File No.
001-09585)
May 25, 2017
10.18
10.8*
Form – Performance-Based RSU Agreement
(Employee) under the 2015 Omnibus Incentive Plan
10-K (File No.
001-09585)
May 25, 2017
10.19
52
Incorporated by Reference
Exhibit
No.
Description
Filed with
this Form
10-K
Form
Filing Date
Exhibit
No.
10.9*
Form – Time-Based Stock Option Agreement
(Employee) under the 2015 Omnibus Incentive Plan
10-K (File No.
001-09585)
May 25, 2017
10.43
10.10*
Form – Time-Based Stock Option Agreement (Non-
Employee Director) under the 2015 Omnibus Incentive
Plan
10-Q (File No.
001-09585)
February 5, 2016
10.7
10.11*
Form – Time-Based RSU Agreement (Executive
Officer) under the Second Amended and Restated 2015
Omnibus Incentive Plan
10-Q (File No.
001-09585)
November 6, 2020
10.1
10.12*
Form – Time-Based Stock Option Agreement
(Executive Officer) under the Second Amended and
Restated 2015 Omnibus Incentive Plan
10-Q (File No.
001-09585)
November 6, 2020
10.2
10.13*
Form – Performance-Based PSU Option Agreement
(Executive Officer) under the Second Amended and
Restated 2015 Omnibus Incentive Plan
10-Q (File No.
001-09585)
November 6, 2020
10.3
10.14*
Form – Performance-Based PSU Agreement (Chief
Executive Officer) under the Second Amended and
Restated 2015 Omnibus Incentive Plan
10-Q (File No.
001-09585)
February 4, 2021
10.1
10.15*
Form – Performance-Based PSU Agreement (Executive
Officer) under the Second Amended and Restated 2015
Omnibus Incentive Plan
10-Q (File No.
001-09585)
February 4, 2021
10.2
10.16*
Employment Agreement – Michael R. Minogue dated
April 5, 2004 (including Change in Control Agreement)
10-Q (File No.
001-09585)
August 9, 2004
10.10
10.17*
Amendment to Employment Agreement with Michael
R. Minogue dated December 31, 2008
10-Q (File No.
001-09585)
February 9, 2009
10.3
10.18*
Amendment to Change in Control Agreement with
Michael R. Minogue dated December 31, 2008
10-Q (File No.
001-09585)
February 9, 2009
10.4
10.19*
Offer letter with David Weber dated April 23, 2007
10-Q (File No.
001-09585)
August 9, 2007
10.1
10.20*
Offer letter with Todd A. Trapp dated March 30, 2018
10-K (File No.
001-09585)
May 24, 2018
10.43
10.21*
Change of Control Severance Agreement between
ABIOMED, Inc. and Todd Trapp dated April 6, 2018
10-K (File No.
001-09585)
May 24, 2018
10.44
10.22* Offer letter with Marc A. Began dated May 11, 2018
X
10.23*
Change of Control Severance Agreement between
ABIOMED, Inc and Marc A. Began dated November 1,
2018
X
10.24*
Change of Control Severance Agreement between
ABIOMED, Inc and Andrew J. Greenfield dated
September 15, 2008
X
21.1
Subsidiaries of the Registrant
X
23.1
Consent of Deloitte & Touche LLP, independent
registered public accounting firm
X
31.1
Rule 13a—14(a)/15d—14(a) certification of principal
executive officer.
X
53
Incorporated by Reference
Exhibit
No.
Description
Filed with
this Form
10-K
Form
Filing Date
Exhibit
No.
31.2
Rule 13a—14(a)/15d—14(a) certification of principal
accounting officer
X
32.1
Section 1350 certification
X
54
Incorporated by Reference
Exhibit
No.
Description
Filed with
this Form
10-K
Form
Filing Date
Exhibit
No.
101
The following financial information from the
ABIOMED, Inc. Annual Report on Form 10-K for the
fiscal year ended March 31, 2021, formatted in inline
Extensible Business Reporting Language (XBRL): (i)
Consolidated Balance Sheets as of March 31, 2021 and
2020; (ii) Consolidated Statements of Operations for the
fiscal years ended March 31, 2021, 2020 and 2019; (iii)
Consolidated Statements of Comprehensive Income for
the fiscal years ended March 31, 2021, 2020 and 2019;
(iv) Consolidated Statements of Stockholders’ Equity
for the fiscal years ended March 2021, 2020 and 2019;
(v) Consolidated Statements of Cash Flows for the fiscal
years ended March 31, 2021, 2020 and 2019; and (vi)
Notes to Consolidated Financial Statements.
X
104
Cover page from the ABIOMED, Inc. Annual Report on
Form 10-K for the year ended March 31, 2021,
formatted in inline XBRL and contained in Exhibit 101
X
*
Management contract or compensatory plan, contract or arrangement.
P
Exhibit filed by paper
Item 16.Form 10-K Summary.
None.
55
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: May 21, 2021
By
/s/ TODD A. TRAPP
Todd A. Trapp
Vice President, Chief Financial Officer
(Principal Financial 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 dates indicated.
SIGNATURE
TITLE
DATE
/s/ MICHAEL R. MINOGUE Chairman, Director, President and Chief Executive Officer
May 21, 2021
Michael R. Minogue
(Principal Executive Officer)
/s/ TODD A. TRAPP
Vice President, Chief Financial Officer
May 21, 2021
Todd A. Trapp
(Principal Financial Officer)
/s/ DOROTHY E. PUHY
Director
May 21, 2021
Dorothy E. Puhy
/s/ JEANNINE M. RIVET Director
May 21, 2021
Jeannine M. Rivet
/s/ ERIC A. ROSE
Director
May 21, 2021
Eric A. Rose
/s/ MARTIN P. SUTTER Director
May 21, 2021
Martin P. Sutter
/s/ PAUL G. THOMAS
Director
May 21, 2021
Paul G. Thomas
/s/ CHRIS D. VAN GORDER
Director
May 21, 2021
Chris D. Van Gorder
/s/ MYRON L. ROLLE
Director
May 21, 2021
Myron L. Rolle
/s/ PAULA A. JOHNSON
Director
May 21, 2021
Paula A. Johnson
F-1
ABIOMED, INC.
Consolidated Financial Statements
Index
Page
Report of Independent Registered Public Accounting Firm..........................................................................................................
F-2
Consolidated Balance Sheets as of March 31, 2021 and 2020 ......................................................................................................
F-4
Consolidated Statements of Operations for the Fiscal Years Ended March 31, 2021, 2020 and 2019 .........................................
F-5
Consolidated Statements of Comprehensive Income for the Fiscal Years Ended March 31, 2021, 2020 and 2019.....................
F-6
Consolidated Statements of Stockholders’ Equity for the Fiscal Years Ended March 31, 2021, 2020 and 2019.........................
F-7
Consolidated Statements of Cash Flows for the Fiscal Years Ended March 31, 2021, 2020 and 2019........................................
F-8
Notes to Consolidated Financial Statements..................................................................................................................................
F-9
F-2
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Stockholders and the Board of Directors of ABIOMED, Inc.
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of ABIOMED, Inc. and subsidiaries (the “Company”) as of March 31,
2021 and 2020, the related consolidated statements of operations, comprehensive income, stockholders' equity, and cash flows, for
each of the three years in the period ended March 31, 2021, and the related notes (collectively referred to as the "financial
statements"). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as
of March 31, 2021 and 2020, and the results of its operations and its cash flows for each of the three years in the period ended
March 31, 2021, in conformity with accounting principles generally accepted in the United States of America.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States)
(“PCAOB”), the Company's internal control over financial reporting as of March 31, 2021, based on criteria established in Internal
Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission and our
report dated May 21, 2021, expressed an unqualified opinion on the Company's internal control over financial reporting.
Basis for Opinion
These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the
Company's financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to
be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and
regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to
error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence
regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used
and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe
that our audits provide a reasonable basis for our opinion.
Critical Audit Matter
The critical audit matter communicated below arises from the current-period audit of the financial statements that was communicated
or required to be communicated to the audit committee and that (1) relates to accounts or disclosures that are material to the financial
statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of a critical audit
matter does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the
critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it
relates.
Valuation of investments in medical device companies – Refer to Note 10, Other Assets
Critical Audit Matter Description
At March 31, 2021, included with the Company’s other non-current assets were $63.0 million of investments in privately-held medical
device companies. As these investments do not have readily determinable market values, the Company typically measures these
investments at cost less any impairment, adjusted for observable price changes in orderly transactions for an identical or similar
investment.
We identified the valuation of these investments as a critical audit matter because of the significant judgement management uses to
estimate the investment value. Auditing the Company’s investments in privately held companies is challenging due to the subjectivity
in assessing whether observable price changes have occurred for investments that are identical or similar to the investment the
Company holds, and in assessing whether an investment is impaired.
F-3
How the Critical Audit Matter Was Addressed in the Audit
Our audit procedures related to the valuation of investments in privately held medical device companies included the following,
among others:
•
We tested the effectiveness of internal controls over the assessment of whether an observable price change in an orderly
transaction was for an identical or similar investment, and over the evaluation of whether investments were impaired.
•
We considered the appropriateness of the Company’s application of accounting policy, by obtaining and reviewing the
Company’s analysis, and comparing to the requirements of accounting principles generally accepted in the United States.
•
We tested the mathematical accuracy of the Company’s calculation of the carrying value of privately held investments,
including consideration of any related impairments.
•
We evaluated, on a sample basis, the accounting conclusions reached by the Company as to whether any observable
transactions had occurred that were identical or similar in nature through reading of the Company’s available financial and
other information regarding the investee and through public searches for corroborating or contradictory information. Further,
for selected investments, we evaluated the Company’s impairment conclusions considering this internal and external
information.
/s/ Deloitte & Touche LLP
Boston, Massachusetts
May 21, 2021
We have served as the Company's auditor since fiscal 2007.
F-4
ABIOMED, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
(in thousands, except share data)
March 31, 2021
March 31, 2020
ASSETS
Current assets:
Cash and cash equivalents
$
232,710 $
192,341
Short-term marketable securities
350,985
250,775
Accounts receivable, net
97,179
84,650
Inventories
81,059
90,088
Prepaid expenses and other current assets
26,032
18,009
Total current assets
787,965
635,863
Long-term marketable securities
264,085
207,795
Property and equipment, net
197,129
164,931
Goodwill
78,568
31,969
Other intangibles, net
42,150
14,913
Deferred tax assets
11,380
43,336
Other assets
113,082
117,655
Total assets
$
1,494,359 $
1,216,462
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable
$
34,842 $
32,774
Accrued expenses
66,046
75,107
Deferred revenue
24,322
19,147
Other current liabilities
3,759
4,857
Total current liabilities
128,969
131,885
Other long-term liabilities
10,162
9,305
Contingent consideration
24,706
9,000
Deferred tax liabilities
847
806
Total liabilities
164,684
150,996
Commitments and contingencies (Note 16)
Stockholders' equity:
Class B Preferred Stock, $.01 par value
—
—
Authorized - 1,000,000 shares; Issued and outstanding - none
Common stock, $.01 par value
453
451
Authorized - 100,000,000 shares; Issued 47,929,402 shares as of March 31, 2021
and 47,542,061 shares as of March 31, 2020
Outstanding 45,270,948 shares as of March 31, 2021 and 45,008,687 shares as of
March 31, 2020
Additional paid in capital
800,690
739,133
Retained earnings
828,007
602,482
Treasury stock at cost 2,658,454 shares as of March 31, 2021 and 2,533,374 shares as
of March 31, 2020
(288,030)
(265,411)
Accumulated other comprehensive loss
(11,445)
(11,189)
Total stockholders' equity
1,329,675
1,065,466
Total liabilities and stockholders' equity
$
1,494,359 $
1,216,462
The accompanying notes are an integral part of the consolidated financial statements.
F-5
ABIOMED, INC. AND SUBSIDIARIES
Consolidated Statements of Operations
(in thousands, except per share data)
Fiscal Years Ended March 31,
2021
2020
2019
Revenue
$
847,522 $
840,883 $
769,432
Costs and expenses:
Cost of revenue
161,907
151,305
129,567
Research and development
121,875
98,759
93,503
Selling, general and administrative
334,183
341,600
321,550
617,965
591,664
544,620
Income from operations
229,557
249,219
224,812
Other income:
Investment income, net
6,717
12,167
8,166
Other income (expense), net
51,946
(4,561)
30,382
58,663
7,606
38,548
Income before income taxes
288,220
256,825
263,360
Income tax provision
62,695
53,816
4,344
Net income
$
225,525 $
203,009 $
259,016
Basic net income per share
$
5.00 $
4.49 $
5.77
Basic weighted average shares outstanding
45,140
45,179
44,911
Diluted net income per share
$
4.94 $
4.43 $
5.61
Diluted weighted average shares outstanding
45,674
45,816
46,151
The accompanying notes are an integral part of the consolidated financial statements.
F-6
ABIOMED, INC. AND SUBSIDIARIES
Consolidated Statements of Comprehensive Income
(in thousands)
Fiscal Years Ended March 31,
2021
2020
2019
Net income
$
225,525 $
203,009 $
259,016
Other comprehensive (loss) income:
Foreign currency translation gain (loss)
2,142
(1,832)
(11,431)
Unrealized (loss) gain on derivative instrument
(2,095)
3,999
—
Net unrealized (loss) gain on marketable securities
(303)
1,333
946
Other comprehensive (loss) income
(256)
3,500
(10,485)
Comprehensive income
$
225,269 $
206,509 $
248,531
The accompanying notes are an integral part of the consolidated financial statements.
F-7
ABIOMED, INC. AND SUBSIDIARIES
Consolidated Statements of Stockholders’ Equity
(dollars in thousands)
Common Stock
Treasury Stock
Number of
Shares
Par Value
Number of
Shares
Amount
Additional
Paid in
Capital
Retained
Earnings
Accumulated
Other
Comprehensive
Income (Loss)
Total
Stockholders'
Equity
Balance, April 1, 2018
44,375,337
$
444
1,725,312
$
(67,078)
$
619,905
$
140,457
$
(4,204)
689,524
Restricted stock units issued
427,431
4
-
-
(4)
-
-
-
Stock options exercised
485,363
5
-
-
12,944
-
-
12,949
Stock issued under employee stock purchase plan
12,467
-
-
-
3,052
-
-
3,052
Stock issued to directors
316
-
-
-
116
-
-
116
Return of common stock to pay withholding taxes on restricted stock
(177,929)
(2)
177,929
(71,774)
-
-
-
(71,776)
Stock compensation expense
-
-
-
-
54,494
-
-
54,494
Other comprehensive loss
-
-
-
-
-
-
(10,485)
(10,485)
Net income
-
-
-
-
-
259,016
-
259,016
Balance, March 31, 2019
45,122,985
$
451
1,903,241
$
(138,852)
$
690,507
$
399,473
$
(14,689)
$
936,890
Restricted stock units issued
392,872
4
-
-
(4)
-
-
-
Stock options exercised
85,136
2
-
-
3,747
-
-
3,748
Stock issued under employee stock purchase plan
37,827
-
-
-
5,103
-
-
5,103
Return of common stock to pay withholding taxes on restricted stock
(164,446)
(2)
164,446
(41,685)
-
-
-
(41,687)
Stock compensation expense
-
-
-
-
39,781
-
-
39,781
Stock repurchase program
(465,687)
(5)
465,687
(84,874)
(84,879)
Other comprehensive income
-
-
-
-
-
-
3,500
3,500
Net income
-
-
-
-
-
203,009
-
203,009
Balance, March 31, 2020
45,008,687
$
451
2,533,374
$
(265,411)
$
739,133
$
602,482
$
(11,189)
$
1,065,466
Restricted stock units issued
140,159
2
-
-
(1)
-
-
1
Stock options exercised
215,262
2
-
-
9,073
-
-
9,075
Stock issued under employee stock purchase plan
31,920
-
-
-
5,479
-
-
5,479
Return of common stock to pay withholding taxes on restricted stock
(57,431)
(1)
57,431
(11,310)
-
-
-
(11,311)
Stock compensation expense
-
-
-
-
47,006
-
-
47,006
Stock repurchase program
(67,649)
(1)
67,649
(11,309)
-
-
-
(11,310)
Other comprehensive loss
-
-
-
-
-
-
(256)
(256)
Net income
-
-
-
-
-
225,525
-
225,525
Balance, March 31, 2021
45,270,948
$
453
2,658,454
$
(288,030)
$
800,690
$
828,007
$
(11,445)
$
1,329,675
The accompanying notes are an integral part of the consolidated financial statements.
F-8
ABIOMED, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(in thousands)
Fiscal Years Ended March 31,
2021
2020
2019
Operating activities:
Net income
$
225,525 $
203,009 $
259,016
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization
24,097
20,430
14,121
Bad debt (recoveries) expense
(126)
487
720
Stock-based compensation
47,006
39,781
54,494
Write-down of inventory and other
8,518
4,249
4,252
Accretion on marketable securities
1,977
(2,731)
(2,744)
Change in fair value of other investments
(50,983)
5,184
(30,161)
Deferred tax provision
29,380
32,953
(7,745)
Change in fair value of contingent consideration
2,406
(575)
(915)
Other non-cash operating activities
4,164
4,108
—
Changes in assets and liabilities:
Accounts receivable
(12,059)
5,551
(22,023)
Inventories
2,535
(13,237)
(37,181)
Prepaid expenses and other assets
(1,032)
(5,333)
(2,527)
Accounts payable
2,629
2,581
7,976
Accrued expenses and other liabilities
(14,632)
15,676
13,406
Deferred revenue
5,173
2,787
1,508
Net cash provided by operating activities
274,578
314,920
252,197
Investing activities:
Purchases of marketable securities
(556,199)
(611,280)
(361,602)
Proceeds from the sale and maturity of marketable securities and other
396,643
550,788
331,886
Acquisition of Breethe Inc., net of cash acquired
(52,183)
—
—
Purchases of other investments and intangible assets
(26,104)
(20,957)
(42,735)
Proceeds from sale of Shockwave Medical Investment
67,882
—
—
Purchases of property and equipment
(53,383)
(44,006)
(44,004)
Net cash used for investing activities
(223,344)
(125,455)
(116,455)
Financing activities:
Proceeds from the exercise of stock options
9,075
3,748
12,949
Taxes paid related to net share settlement upon vesting of stock awards
(11,311)
(41,687)
(71,776)
Repurchase of common stock
(11,310)
(84,879)
—
Proceeds from the issuance of stock under employee stock purchase plan
5,479
5,103
3,052
Net cash used for financing activities
(8,067)
(117,715)
(55,775)
Effect of exchange rate changes on cash
(2,798)
(430)
(1,921)
Net increase in cash and cash equivalents
40,369
71,320
78,046
Cash and cash equivalents at beginning of year
192,341
121,021
42,975
Cash and cash equivalents at end of year
$
232,710 $
192,341 $
121,021
Supplemental disclosure of cash flow information:
Cash paid for income taxes
$
48,693 $
9,685 $
5,290
Supplemental disclosure of non-cash investing and financing activities:
Property and equipment in accounts payable and accrued expenses
1,638
2,977
4,787
Right-of-use assets obtained in exchange for lease liabilities
2,592
15,650
—
The accompanying notes are an integral part of the consolidated financial statements.
F-9
ABIOMED, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Dollars in thousands, except per share data)
Note 1. Nature of Operations
ABIOMED, Inc. (the “Company” or “ABIOMED”) is a provider of mechanical circulatory support devices and offers a
continuum of care to heart failure patients. The Company develops, manufactures and markets proprietary products that are designed
to enable the heart to rest, heal and recover by improving blood flow and/or performing the pumping function of the heart. The
Company’s products are used in the cardiac catheterization lab, or cath lab, by interventional cardiologists and in the heart surgery
suite by cardiac surgeons for patients who are in need of hemodynamic support prophylactically or emergently before, during or after
angioplasty or heart surgery procedures.
Note 2. Basis of Preparation and Summary of Significant Accounting Policies
The accompanying consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting
principles, or GAAP, and Regulation S-X. The information presented reflects the application of significant accounting policies
described below.
Principles of Consolidation
The accompanying consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries.
All intercompany accounts and transactions have been eliminated in consolidation.
COVID-19 Pandemic
The Company is subject to risks and uncertainties as a result of the ongoing COVID-19 pandemic. The ongoing COVID-19
pandemic has adversely impacted and is likely to further adversely impact the Company’s business and markets, including the
Company’s workforce and the operations of its customers, suppliers, and business partners. The full extent to which the pandemic will
directly or indirectly impact the Company's business, results of operations and financial condition, including sales, expenses,
manufacturing, clinical trials, research and development costs, reserves and allowances, fair value measurements, asset impairment
charges, contingent consideration obligations, and the effectiveness of the Company's hedging instruments, will depend on future
developments that are highly uncertain and difficult to predict. These developments include, but are not limited to: the duration and
spread of the ongoing COVID-19 pandemic (including new variants of COVID-19), its severity, the actions to contain the virus or
address its impact, the timing, distribution, and efficacy of vaccines and other treatments, U.S. and foreign government actions to
respond to the reduction in global economic activity, and how quickly and to what extent normal economic and operating conditions
can resume.
Beginning in mid-March 2020, the Company experienced a decline in patient utilization in its main markets in the U.S., Europe
and Japan as healthcare systems diverted resources to meet the increasing demands of managing COVID-19. The Company’s business
was most impacted in the first quarter of fiscal year 2021, in terms of the decline in patients and revenue from the shelter-in-place
restrictions in a majority of countries and limitations on procedures in hospitals. The Company experienced sequential quarterly
improvement during the second quarter of fiscal year 2021 as patient procedure volume trends and availability of healthcare resources
improved as certain restrictions were lifted and limitations eased during the summer of 2020. During the third quarter of fiscal year
2021, a broad resurgence of COVID-19 cases throughout the U.S. and Europe slowed the Company’s continued recovery in patient
utilization. Despite these challenges, the Company experienced increased recovery in patient utilization and revenue during the fourth
quarter of fiscal year 2021 due to the high-risk nature of the patient population that are treated with the Company’s Impella devices.
While the COVID-19 pandemic remains fluid and continues to evolve differently across various geographies, the Company
believes it is likely to continue to experience variable impacts on its business. Hospitals are generally managing the pandemic better
currently than they have in the earlier part of the pandemic due to more testing, improved protocols, more experience with the effects
of COVID-19 and a greater number of vaccinated caregivers. During these challenging times, the Company’s priorities have been to
support its clinician partners, protect the well-being of its employees and maintain continuous access to its life-saving technologies
while offering front-line in-hospital support. The Company has established onsite COVID-19 testing for its employees in both
Danvers, Massachusetts and Aachen, Germany, set up temperature-taking stations, administered thousands of COVID-19 tests to date
and provided personal protective equipment for its employees in order to maintain a safe working environment.
F-10
The Company’s proactive testing program has reduced exposure with early detection, reduced employee anxiety and enabled its
manufacturing facilities to operate at full capacity in line with local social distancing requirements. The Company also took proactive
actions in the first half of fiscal year 2021 in order to mitigate the business impact of COVID-19 on its financial operations and it
continues to monitor closely in order the business impact of COVID-19. Despite the ongoing challenges posed by COVID-19,
including the recent global resurgence, the Company continues to invest strategically in engineering, regulatory, clinical trials and
manufacturing in order to support its future growth initiatives and sales and marketing activities, with a particular focus on training
and education initiatives to drive utilization of its products and recovery awareness for acute heart failure patients.
The Company continues to closely monitor the impact of COVID-19 on all aspects of its business and geographies, including its
impact on its customers, employees, suppliers, vendors, business partners and distribution channels. The extent to which the COVID-
19 pandemic impacts the Company’s business, results of operations, and financial condition will depend on future developments,
which are highly uncertain and are difficult to predict. Even after the ongoing COVID-19 pandemic has subsided, the Company may
continue to experience materially adverse impacts on its financial condition and results of operations.
Use of Estimates
The preparation of financial statements in conformity with U.S. GAAP, requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenue and expenses during the reporting period. The Company bases its estimates
on historical experience and various other factors believed to be reasonable under the circumstances, the results of which form the
basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. On an
ongoing basis, the Company evaluates its estimates, including those related to revenue recognition, collectability of receivables,
realizability of inventory, property and equipment, goodwill, intangible and other long-lived assets, other investments, accrued
expenses, stock-based compensation, income taxes including deferred tax assets and liabilities, contingencies and litigation. Provisions
for depreciation are based on their estimated useful lives using the straight-line method. Some of these estimates can be subjective and
complex and, consequently, actual results may differ from these estimates under different assumptions or conditions.
Cash Equivalents and Marketable Securities
The Company classifies any marketable security with an original maturity date of 90 days or less at the time of purchase as a
cash equivalent. Cash equivalents are carried on the balance sheet at fair market value. The Company classifies any marketable
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 date of greater than one year from the balance sheet date as long-term marketable securities.
The Company’s marketable securities, consisting of U.S. Treasury securities, government-back securities, corporate debt
securities, and commercial paper, are classified as available-for-sale securities and, accordingly, are recorded at fair value. The
difference between amortized cost and fair value is included in stockholders’ equity. Marketable 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 marketable securities. If
the Company does not have the intent and ability to hold a marketable security to maturity, it reports the investment as available-for-
sale marketable securities. The Company includes unrealized gains and, to the extent deemed temporary, unrealized losses in
stockholders’ equity. If any adjustment to fair value reflects a decline in the value of the investment, the Company considers available
evidence to evaluate whether the decline is “other than temporary” and, if so, marks the marketable security to market through a
charge reflected on the consolidated statements of operations.
Major Customers and Concentrations of Credit Risk
The Company primarily sells its products to hospitals and distributors. No individual customer accounted for more than 10% of
total revenues in fiscal years ended March 31, 2021, 2020 or 2019. No individual customer had an accounts receivable balance greater
than 10% of total accounts receivable as of March 31, 2021 and 2020.
Credit is extended based on an evaluation of a customer’s historical financial condition and generally collateral is not required.
The Company’s history of credit losses has not been significant and the Company maintains an allowance for doubtful accounts based
on its assessment of the collectability of accounts receivable. Accounts receivables are geographically dispersed, primarily throughout
the U.S., as well as in Europe and other foreign countries where formal distributor agreements exist in certain countries. The
Company's exposure to credit losses may increase if its customers are adversely affected by changes in healthcare laws, coverage, and
reimbursement, economic pressures or uncertainty associated with local or global economic recessions, or other customer-specific
factors.
F-11
Financial instruments which potentially subject the Company to a concentration of credit risk consist of cash, cash equivalents,
marketable securities, short and long-term marketable securities and accounts receivable. Management mitigates credit risk by limiting
the investment type and maturity to securities that preserve capital, maintain liquidity and have a high credit quality.
Financial Instruments
The Company’s financial instruments are comprised of cash and cash equivalents, derivative instruments, marketable securities,
accounts receivable, accounts payable and contingent consideration. The carrying amounts of accounts receivable and accounts
payable are considered reasonable estimates of their fair value, due to the short maturity of these investments.
Derivative Instruments
The Company uses a foreign-exchange-related derivative instrument to manage its exposure related to changes in the exchange
rate on its intercompany loan. The Company does not enter into derivative instruments for any purpose other than cash flow hedging.
The Company does not speculate using derivative instruments. The Company recognizes all derivative instruments as either assets or
liabilities in the balance sheet at their respective fair values. Changes in the fair value of the cross-currency swap designated as a
hedging instrument that effectively offsets the variability of cash flows are reported in accumulated other comprehensive income
(loss). These amounts subsequently are reclassified into the consolidated income statement in the same period in which the related
hedged item affects earnings. For more information, see “Note 5. Financial Instruments—Derivative Instruments.”
Inventories
Inventories are stated at the lower of cost or market. Cost is based on the first in, first out method. The Company regularly
reviews inventory quantities on hand and writes down to its net realizable value any inventory that it believes to be impaired.
Management considers forecast demand in relation to the inventory on hand, competitiveness of product offerings, market conditions
and product life cycles when determining excess and obsolescence and net realizable value adjustments. Once inventory is written
down and a new cost basis is established, it is not written back up if demand increases.
Property and Equipment
Property and equipment is recorded at cost less accumulated depreciation. Land is carried at cost and is not depreciated.
Depreciation is computed using the straight-line method based on estimated useful lives of three to five years for machinery and
equipment, computer software, and furniture and fixtures. Building and building improvements are depreciated using the straight-line
method over estimated useful lives of seven to thirty-three years. Leasehold improvements are amortized using the straight-line
method over the shorter of the lease term or the estimated useful lives of the related assets. Expenditures for maintenance and repairs
are expensed as incurred. Upon retirement or other disposition of assets, the costs and related accumulated depreciation are eliminated
from the accounts and the resulting gain or loss is reflected in operating expenses.
Property and equipment is reviewed for impairment losses whenever events or changes in circumstances indicate the carrying
amount may not be recoverable. An impairment loss would be recognized based on the amount by which the carrying value of the
asset or asset group exceeds its fair value. Fair value is determined primarily using the estimated future cash flows associated with the
asset or asset group under review discounted at a rate commensurate with the risk involved and other valuation techniques.
Other Investments
The Company periodically makes investments in medical device companies that focus on heart failure and heart pumps and
other medical device technologies. For investments that do not have readily determinable market values, the Company measures these
investments at cost minus impairment, if any, plus or minus changes resulting from observable price changes in orderly transactions
for an identical or similar investment. The Company monitors any events or changes in circumstances that may have a significant
effect on the fair value of investments, either due to impairment or based on observable price changes, and makes any necessary
adjustments.
Leases
On April 1, 2019, the Company adopted ASU 2016-02, “Leases.” This new guidance required that the Company’s lease
commitments to be recognized as operating lease liabilities and right-of-use assets, which increased total assets and total liabilities that
the Company reported on its consolidated balance sheet. For a discussion on the impact of this accounting policy adoption, including
key accounting policies and elections, see “Note 11. Leases.”
F-12
Goodwill
Goodwill is recorded when consideration for an acquisition exceeds the fair value of the net tangible and intangible assets
acquired. Goodwill is not amortized. The Company evaluates goodwill for impairment at least annually at October 31, as well as
whenever events or changes in circumstances suggest that the carrying amount may not be recoverable.
In applying the goodwill impairment test, the Company assesses qualitative factors to determine whether it is more likely than
not that the fair value of the reporting unit is less than its carrying value. Qualitative factors may include, but are not limited to,
macroeconomic conditions, industry conditions, the competitive environment, changes in the market for the Company’s products and
services, regulatory and political developments, cost factors, and entity specific factors such as strategies and overall financial
performance. If, after assessing these qualitative factors, the Company determines it is more likely than not that the fair value of a
reporting unit is less than its carrying value, then the Company performs a quantitative impairment test. The Company determined,
after performing the qualitative review, that it is more likely than not that the fair value of each of its reporting units substantially
exceeds the respective carrying amounts.
Indefinite-Lived Intangibles and In-Process Research and Development
In-process research and development, or IPR&D, assets are considered to be indefinite-lived until the completion or
abandonment of the associated research and development projects. IPR&D assets represent the fair value assigned to technologies that
are acquired, which at the time of acquisition have not reached technological feasibility and have no alternative future use. During the
period that the IPR&D assets are considered indefinite-lived, they are tested for impairment on an annual basis on October 31, or more
frequently if the Company becomes aware of any events occurring or changes in circumstances that indicate that the fair value of the
IPR&D assets are less than their carrying values. If and when development is complete, which generally occurs upon regulatory
approval and the Company is able to commercialize products associated with the IPR&D assets, these assets are then deemed definite-
lived and are amortized based on their estimated useful lives at that point in time. If development is terminated or abandoned, the
Company may have a full or partial impairment charge related to the IPR&D assets, calculated as the excess of carrying value of the
IPR&D assets over fair value. The Company performed its annual impairment review for fiscal year 2021 as of October 31, 2020 and
concluded that it was more likely than not that the fair value of the IPR&D assets is not less than its carrying value.
Finite-Lived Intangible Assets
The Company records finite-lived intangible assets at historical cost and amortizes over their estimated useful lives. The
Company uses a straight-line method of amortization, unless a method that better reflects the pattern in which the economic benefits
of the intangible asset are consumed or otherwise used up can be reliably determined. The approximate useful live for amortization of
the Company’s intangible assets is 15 years for the OXY-1 System amortizable technology from the acquisition of Breethe.
The Company reviews finite-lived intangible assets subject to amortization quarterly to determine if any adverse conditions exist
or a change in circumstances has occurred that would indicate impairment or a change in the remaining useful life. Conditions that
may indicate impairment include, but are not limited to, a significant adverse change in legal factors or business climate that could
affect the value of an asset, a product recall or an adverse action or assessment by a regulator. If the Company determines it is more
likely than not that the asset is impaired based on its qualitative assessment of impairment indicators, the Company tests the intangible
asset for recoverability.
Contingent Consideration
Contingent consideration represents potential milestones that the Company could pay as additional consideration for a business
acquisition and is recorded as a liability and is measured at fair value using a combination of (1) an income approach, based on various
revenue and cost assumptions and applying a probability to each outcome and (2) a Monte-Carlo valuation model that simulates
outcomes based on management estimates. With the income approach, probabilities were applied to each potential scenario and the
resulting values were discounted using a rate that considers the weighted average cost of capital, the related projections, and the
overall business. The Monte-Carlo valuation model simulates estimated future revenues during the earn out-period using
management's best estimates. Significant increases or decreases in any of the probabilities of success or changes in expected timelines
for achievement of any of these milestones could result in a significantly higher or lower fair value of the contingent consideration
liability. The fair value of the contingent consideration at each reporting date is updated by reflecting the changes in fair value
reflected within research and development expenses in the Company’s consolidated statement of operations.
F-13
Accrued Expenses
As part of the process of preparing its financial statements, the Company is required to estimate accrued expenses. This process
includes identifying services that third parties have performed and estimating the level of service performed and the associated cost
incurred on these services as of each balance sheet date in its financial statements. Examples of estimated accrued expenses include
estimates for certain payroll costs, such as bonuses and commissions; contract service fees, such as amounts due to clinical research
organizations and investigators in conjunction with clinical trials; professional service fees, such as attorneys and accountants, and
third-party expenses relating to marketing efforts associated with commercialization of the Company’s products. The dates in which
certain services commence and end, the level of services performed on or before a given date and the cost of services is often subject
to the Company’s judgment. The Company makes these judgments and estimates based upon known facts and circumstances.
Revenue Recognition
See “Note 4. Revenue Recognition” for a discussion of key accounting policies and elections related to revenue recognition.
Product Warranty
The Company generally provides a one-year warranty for certain products sold in which estimated contractual warranty
obligations are recorded as an expense at the time of shipment. The Company’s products are subject to regulatory and quality
standards. Future warranty costs are estimated based on historical product performance rates and related costs to repair given products.
The accounting estimate related to product warranty expense involves judgment in determining future estimated warranty costs.
Should actual performance rates or repair costs differ from estimates, revisions to the estimated warranty liability would be required.
Accumulated Other Comprehensive Income (Loss)
Comprehensive income (loss) is comprised of net income, plus all changes in equity of a business enterprise during a period
from transactions and other events and circumstances from non-owner sources, including any foreign currency translation
adjustments. These changes in equity are recorded as adjustments to accumulated other comprehensive income (loss) in the
Company’s consolidated balance sheet. The components of accumulated other comprehensive income (loss) consist of foreign
currency translation adjustments, unrealized gains (losses) on marketable securities, and unrealized gains (losses) on derivative
instruments. There were no reclassifications out of accumulated other comprehensive income (loss) during the fiscal years ended
March 31, 2021, 2020 and 2019.
Translation of Foreign Currencies
The functional currency of the Company’s foreign subsidiaries is their local currency. The assets and liabilities of the
Company’s foreign subsidiaries are translated into U.S. dollars at exchange rates in effect at the balance sheet date. Income and
expense items in the Company’s consolidated statement of operations are translated at the average exchange rates prevailing during
the period. The cumulative translation effect for subsidiaries using a functional currency other than the U.S. dollar is included in
accumulated other comprehensive income (loss) as a separate component of stockholders’ equity.
The Company’s intercompany accounts are denominated in the functional currency of the foreign subsidiary. Gains and losses
resulting from the remeasurement of intercompany transactions that the Company considers to be of a long-term investment nature are
recorded in accumulated other comprehensive income or loss as a separate component of stockholders’ equity, while gains and losses
resulting from the remeasurement of intercompany transactions from those foreign subsidiaries for which the Company anticipates
settlement in the foreseeable future are recorded in the consolidated statement of operations. The net foreign currency translation gains
and losses recorded in the consolidated statements of operations for the fiscal years ended March 31, 2021, 2020 and 2019 were not
significant.
F-14
Net Income Per Share
Basic net income per share is computed by dividing net income by the weighted average number of common shares outstanding
during the fiscal year. Diluted net income per share is computed using the treasury stock method by dividing net income by the
weighted average number of dilutive common shares outstanding during the fiscal year. Diluted shares outstanding is calculated by
adding to the weighted average shares outstanding any potential dilutive securities outstanding for the fiscal year. Potential dilutive
securities include stock options, restricted stock units, performance-based stock awards and shares to be purchased under the
Company’s employee stock purchase plan. The Company’s basic and diluted net income per share were as follows (figures in tables
are in thousands, except per share data):
Fiscal Years Ended March 31,
Basic Net Income Per Share
2021
2020
2019
Net income
$
225,525 $
203,009 $
259,016
Weighted average shares - basic
45,140
45,179
44,911
Net income per share - basic
$
5.00 $
4.49 $
5.77
Fiscal Years Ended March 31,
Diluted Net Income Per Share
2021
2020
2019
Net income
$
225,525 $
203,009 $
259,016
Weighted average shares - basic
45,140
45,179
44,911
Effect of dilutive securities
534
637
1,240
Weighted average shares - diluted
45,674
45,816
46,151
Net income per share - diluted
$
4.94 $
4.43 $
5.61
For the fiscal years ended March 31, 2021, 2020 and 2019, approximately 168,000, 232,000 and 64,000 shares of common stock
underlying outstanding securities related to out-of-the-money stock options and performance-based awards where milestones were not
met were not included in the computation of diluted earnings per share because their inclusion would be anti-dilutive.
Stock-Based Compensation
The Company’s stock-based compensation cost is measured at the grant date based on the fair value of the award and is
recognized as an expense over the requisite service period.
The fair value of stock option grants is estimated using the Black-Scholes option pricing model. Use of the valuation model
requires management to make certain assumptions with respect to selected model inputs. The risk-free interest rate is based on the
U.S. Treasury yield curve in effect at the time of grant for a term consistent with the expected life of the stock options. Volatility
assumptions are calculated based on historical volatility of the Company’s stock. The Company estimates the expected term of options
based on historical exercise experience and estimates of future exercises of unexercised options. In addition, an expected dividend
yield of zero is used in the option valuation model because the Company does not pay cash dividends and does not expect to pay any
cash dividends in the foreseeable future. Forfeitures are recorded as they occur instead of estimating forfeitures that are expected to
occur.
For awards with service conditions only, the Company recognizes stock-based compensation expense on a straight-line basis
over the requisite service period. For awards with service and performance-based conditions, the Company recognizes stock-based
compensation expense using the graded vesting method over the requisite service period. Estimates of stock-based compensation
expense for an award with performance conditions are based on the probable outcome of the performance conditions and the
cumulative effect of any changes in the probability outcomes are recorded in the period in which the changes occur.
Income Taxes
The Company’s provision for income taxes is comprised of a current and deferred provision. The current income tax provision
is calculated as the estimated taxes payable or refundable on income tax returns for the current fiscal year. The deferred income tax
provision is calculated for the estimated future income tax effects attributable to temporary differences and carryforwards using
expected tax rates in effect in the years during which the temporary differences are expected to reverse.
F-15
Deferred income taxes are recognized for the tax consequences in future years as the differences between the tax bases of assets
and liabilities and their financial reporting amounts at each fiscal year end based on enacted tax laws and statutory tax rates applicable
to the periods in which the differences are expected to impact taxable income.
The Company regularly assesses its ability to realize its deferred tax assets. Assessing the realization of deferred tax assets
requires significant management judgment. Valuation allowances are established when necessary to reduce net deferred tax assets to
the amount that is more likely than not to be realized.
The Company recognizes and measures uncertain tax positions using a two-step approach. The first step is to evaluate the tax
position for recognition by determining if, based on the technical merits, it is more likely than not that the position will be sustained
upon audit, including resolution of related appeals or litigation processes, if any. The second step is to measure the tax benefit at the
largest amount that is more likely than not of being realized upon ultimate settlement. The Company reevaluates these uncertain tax
positions on an ongoing basis, when applicable. This evaluation is based on factors including, but not limited to, changes in facts or
circumstances, new information and technical insights, and changes in tax laws. Any changes in these factors could result in the
recognition of a tax benefit or an additional charge to the tax provision. Refer to “Note 15. Income Taxes” for further information
related to the Tax Reform Act and its impact on the Company’s financial statements. When applicable, the Company accrues for the
effects of uncertain tax positions and the related potential penalties and interest through income tax expense.
Recently Adopted Accounting Pronouncements
Effective April 1, 2019, the Company adopted the Financial Accounting Standards Board (“FASB”) standard update ASU 2016-
02 “Leases,” which requires lessees to identify arrangements that should be accounted for as leases. Under this guidance, for lease
arrangements exceeding a one-year term, a right-of-use asset and lease obligation is recorded by the lessee for all leases on the balance
sheet, whether operating or financing, while the statement of operations includes lease expense for operating leases and amortization
and interest expense for financing leases. ASU 2016-02 was adopted using a modified retrospective approach for all leases existing at
or entered into after the April 1, 2019. Additional information and disclosures required by this new standard are contained in “Note 11.
Leases.”
In June 2016, the FASB issued ASU 2016-13, “Financial Instruments-Credit Losses (Topic 326).” This guidance will require
financial instruments to be measured at amortized cost, and accounts receivables to be presented at the net amount expected to be
collected. The new model requires an entity to estimate credit losses based on historical information, current information, and
reasonable and supportable forecasts, including estimates of prepayments. ASU 2016-13 is effective for annual reporting periods
beginning after December 31, 2019. This update did not have a material impact on the Company’s consolidated financial statements.
In January 2017, the FASB issued ASU 2017-04, “Intangibles - Goodwill and Other (Topic 350).” This new standard simplifies
the accounting for goodwill impairment by removing Step 2 of the goodwill impairment test, which required companies to estimate
the implied fair value of goodwill and recognize an impairment charge by the amount in which the carrying value exceeds the implied
fair value. Under the new guidance, if the carrying value of a reporting unit exceeds its fair value, a goodwill impairment charge will
be recorded, even if the difference is attributable to the fair value of other assets in the reporting unit. The Company adopted this
standard in the first quarter of fiscal 2021, and it did not have a material impact on the Company’s consolidated financial statements.
In August 2018, the FASB issued ASU 2018-13, “Fair Value Measurement (Topic 820).” Disclosure Framework-Changes to
the Disclosure Requirements for Fair Value Measurement, which modifies the disclosure requirements on fair value measurements.
This ASU is effective for fiscal years beginning after December 15, 2019 and early adoption is permitted. The Company adopted this
standard in the first quarter of fiscal year 2021 and did not have a material impact on its consolidated financial statements.
F-16
Recently Issued Accounting Pronouncements Not Yet Effective
In December 2019, the FASB issued ASU 2019-12, “Income Taxes (Topic 740).” This amendment to the guidance on income
taxes is intended to simplify the accounting for income taxes. The amendment eliminates certain exceptions related to the approach for
intraperiod tax allocation, the methodology for calculating income taxes in an interim period, and the recognition of deferred tax
liabilities for outside basis differences. The amendment also clarifies existing guidance related to the evaluation of a step up in the tax
basis of goodwill, and the effects of enacted changes in tax laws or rates in the effective tax rate computation, among other
clarifications. ASU 2019-12 will become effective for the Company in fiscal year 2022. The Company does not expect the adoption of
this standard to have a material impact on its consolidated financial statements.
In January 2020, the FASB issued ASU 2020-01, “Investments—Equity Securities (Topic 321), Investments—Equity Method
and Joint Ventures (Topic 323), and Derivatives and Hedging (Topic 815),” an amendment clarifying the interaction between
accounting standards related to equity securities, equity method investments, and certain derivative instruments. The guidance is
effective for fiscal years beginning after December 15, 2020. ASU 2020-01 will become effective for the Company in fiscal year
2022. The Company does not expect the adoption of this standard to have a material impact on its consolidated financial statements.
No other new accounting pronouncements, issued or effective, during the period had, or are expected to have, a material impact
on our consolidated financial statements.
Note 3. Acquisition
Acquisition of Breethe
The Company acquired Breethe, a Maryland corporation on April 24, 2020. Breethe is engaged in research and development of
an ECMO system that we aim to complement and expand the Company’s product portfolio to more comprehensively serve the needs
of patients whose lungs can no longer provide sufficient oxygenation, including patients suffering from cardiogenic shock, or
respiratory failure. The Company acquired Breethe for $55.0 million in cash, with additional potential payouts up to a maximum of
$55.0 million payable based on the achievement of certain technical, regulatory and commercial milestones.
Purchase Price Allocation
The acquisition of Breethe was accounted for as a business combination. The purchase price for the acquisition has been
allocated to the assets acquired and liabilities assumed based on their estimated fair values.
The acquisition-date fair value of the consideration transferred is as follows:
Total Acquisition Date Fair
Value (in thousands)
Cash and other considerations
$
57,850
Contingent consideration
13,300
Total consideration transferred
$
71,150
The following table summarizes the estimated fair values of the assets acquired and liabilities assumed on the date of acquisition
(in thousands):
Acquired assets:
Cash and cash equivalents
$
3,404
Property and equipment
744
Goodwill
44,485
In-process research and development
27,000
Other assets acquired
895
Total assets acquired
76,528
Liabilities assumed:
Accounts payable and other liabilities
1,562
Deferred tax liabilities
3,816
Net assets acquired
$
71,150
F-17
Goodwill is calculated as the difference between the acquisition-date fair value of the consideration transferred and the fair
values of the assets acquired and liabilities assumed. The goodwill is not deductible for income tax purposes.
IPR&D from the acquisition of Breethe represents the estimated fair value of the Breethe ECMO technology which had not
reached commercial technological feasibility nor had alternative future use at the time of the acquisition. During the third quarter of
fiscal year 2021, upon receiving FDA 510(k) clearance of the OXY-1 System, in October 2020, the Company reclassified the IPR&D
asset of $27 million from the acquisition of Breethe to a finite-lived developed technology intangible asset and began amortizing on a
straight-line basis over an estimated useful life of 15 years (see Note 8). The Company believes the amount of purchased IPR&D
assets represent fair value for these intangible assets as of the acquisition date.
Transaction costs such as legal, insurance and other costs related to the acquisition, aggregating approximately $0.9 million,
have been expensed as incurred and are included in selling, general and administrative expenses in the Company’s condensed
consolidated statements of operations.
The Company’s consolidated financial statements include the operating results of Breethe from the acquisition date. Separate
post-acquisition operating results and pro forma results of operations for this acquisition have not been presented as the effect is not
material to the Company’s financial results.
Note 4. Revenue Recognition
The Company adopted Topic 606 on April 1, 2018, using the modified retrospective method for all revenue contracts not
completed as of the date of adoption. The reported results for fiscal years 2021, 2020 and 2019 reflect the application of Topic 606
guidance.
The Company has made the following accounting policy elections and elected to use certain practical expedients, as permitted
by the FASB, in applying Topic 606: (1) the Company accounts for amounts collected from customers for sales and other taxes, net of
related amounts remitted to tax authorities; (2) the Company does not adjust the promised amount of consideration for the effects of a
significant financing component because, at contract inception, the Company expects the period between the time when the Company
transfers a promised good or service to the customer and the time when the customer pays for that good or service will be one year or
less; (3) the Company expenses costs to obtain a contract as they are incurred if the expected period of benefit, and therefore the
amortization period, is one year or less; (4) the Company accounts for shipping and handling activities that occur after control
transfers to the customer as a fulfillment cost rather than an additional promised service and these fulfillment costs are recorded as
selling, general and administrative expenses; (5) the Company does not assess whether promised goods or services are performance
obligations if they are immaterial in the context of the contract with the customer; and (6) the Company does not disclose the
transaction price allocated to unsatisfied performance obligations when the original expected contract duration is one year or less.
The Company generates revenue primarily from the sale of Impella 2.5, Impella CP, Impella 5.0, Impella LD, Impella RP,
Impella 5.5, Impella AIC and the OXY-1 System products and related accessories. The Company also earns revenue from
preventative maintenance service contracts and maintenance calls.
The Company determines revenue recognition through the following steps:
•
Identification of the contract, or contracts, with a customer
•
Identification of the performance obligation in the contract
•
Determination of the transaction price
•
Allocation of the transaction price to the performance obligation in the contract
•
Recognition of revenue when, or as, a performance obligation is satisfied
Identification of contracts and performance obligations
The Company accounts for a contract with a customer when there is an approval and commitment from both parties, the rights
of the parties are identified, payment terms are identified, the contract has commercial substance and collectability of the consideration
is probable. The Company's performance obligations consist mainly of transferring control of products and services identified in the
contracts, purchase orders or invoices. For each contract, the Company considers the obligation to transfer products and services to the
customer, each of which are distinct, to be performance obligations.
F-18
Transaction price and allocation to performance obligations
Transaction prices of products or services are typically based on contracted rates with customers and there is only variable
consideration in limited instances. To the extent that the transaction price includes variable consideration, the Company estimates the
amount of variable consideration that should be included in the transaction price utilizing the expected value method or the most likely
amount, depending on the circumstances, to which the Company expects to be entitled. An expected value method may be an
appropriate estimate of the amount of variable consideration if an entity has a large number of contracts with similar characteristics
whereas the most likely amount method may be an appropriate estimate of the amount of variable consideration if the contract has
only two possible outcomes. Variable consideration is included in the transaction price if, in the Company’s judgment, it is probable
that a significant future reversal of cumulative revenue under the contract will not occur. Estimates of variable consideration and
determination of whether to include estimated amounts in the transaction price are based largely on an assessment of the Company’s
anticipated performance and all information (historical, current and forecasted) that is reasonably available. Sales and other taxes
collected on behalf of third parties are excluded from revenue.
Consistent with industry practice, the Company generally offers customers a limited right of return for its products. Product
returns are typically not significant because returns are generally not allowed unless there are product order errors or the product is
damaged at time of receipt. Customers typically have a limited time frame to notify the Company of any defective or non-conforming
products. The Company’s limited warranty provision is accounted for using the cost accrual method and is recognized as expense
when products are sold and is not considered a separate performance obligation.
If a contract contains a single performance obligation, the entire transaction price is allocated to the single performance
obligation. Contracts that contain multiple performance obligations require an allocation of the transaction price based on the
estimated relative standalone selling prices of the promised products or services underlying each performance obligation. The
Company determines standalone selling prices based on the price at which the performance obligation is sold separately.
Revenue Recognition
Revenue is recognized when, or as, obligations under the terms of a contract are satisfied, which occurs when control of the
promised products or services is transferred to customers. Revenue is measured as the amount of consideration the Company expects
to receive in exchange for transferring products or services to a customer.
Product revenue is generally recognized when the customer obtains control of the Company’s product, which occurs at a point
in time, and may be upon shipment or upon delivery based on the contractual shipping terms of a contract.
Service revenue is generally recognized over time as the services are rendered to the customer based on the extent of progress
towards completion of the performance obligation. The Company recognizes service revenue over the term of the service contract.
Services are expected to be transferred to the customer throughout the term of the contract and the Company believes recognizing
revenue ratably over the term of the contract best depicts the transfer of value to the customer. Revenue generated from preventative
maintenance calls is recognized at a point in time when the services are provided to the customer.
Revenue from the sale of products and services are evidenced by either a contract with the customer or a valid purchase order
and an invoice which includes all relevant terms of sale and shipment of product or service provided has been incurred. The Company
performs a review of each specific customer's credit worthiness and ability to pay prior to acceptance as a customer. Further, the
Company performs periodic reviews of its customers' creditworthiness prospectively.
Disaggregation of Revenue
Revenue is disaggregated from contracts between product revenue and service and other revenue and by geography, which the
Company believes best depicts how the nature, amount, timing, and uncertainty of revenues and cash flows are affected by economic
factors. The Company generally sells its products and services through a direct sales force in the U.S. and Germany and through direct
sales and distribution agreements in other international markets outside (e.g., Japan, Europe, Canada, Latin America, Asia-Pacific,
Middle East).
F-19
The following table disaggregates the Company’s revenue by products and services:
Fiscal Years Ended March 31,
2021
2020
2019
(in $000's)
Impella product revenue
$
806,322 $
806,824 $
741,699
Service and other revenue
41,200
34,059
27,733
Total revenue
$
847,522 $
840,883 $
769,432
The following table disaggregates the Company’s revenue by geographical location:
Fiscal Years Ended March 31,
2021
2020
2019
(in $000's)
U.S.
$
691,579 $
705,409 $
665,082
Europe
105,320
94,266
57,460
Japan
42,868
35,215
17,502
Other international
7,755
5,993
29,388
Total revenue
$
847,522 $
840,883 $
769,432
Variable Consideration
Returns Reserve
The Company estimates an allowance for future sales returns based on historical return experience, which requires judgment.
The Company estimates the amount of its product sales that may be returned by its customers and records this estimate as a reduction
of revenue in the period the related product revenue is recognized. The Company estimates product return liabilities using the
expected value method based on its historical sales information and other factors that it believes could significantly impact its
expected returns, including product discontinuations, product recalls and expirations, of which it becomes aware. The Company’s cost
of replacing defective products has not been material and is accounted for at the time of replacement. The Company’s returns reserve
was not material as of March 31, 2021 and March 31, 2020.
Rebates and Discounts
The Company provides certain customers with rebates and discounts that are defined in the Company’s contract arrangements
with customers and are recorded as a reduction of revenue in the period the related revenue is recognized, resulting in a reduction to
revenue and the establishment of a liability, which are all included in accrued expenses in the accompanying consolidated balance
sheet. Rebates normally result from performance-based offers that are primarily based on attaining contractually specified sales
volumes as well as product usage. Discounts are normally from early payment incentives. The Company estimates the amount of
rebates and discounts based on an estimate of the third-party’s sales and the respective rebate or discount defined in the customer
contractual arrangement. Revenue adjustments that relate to performance obligations satisfied in prior periods during the twelve
months ended March 31, 2021 and 2020, were not material.
Contract Balances
Deferred Revenue
The Company’s deferred revenue balance was $24.3 million and $19.1 million as of March 31, 2021 and March 31, 2020,
respectively. The deferred revenue balance is comprised of product shipments in which the Company recognizes revenue when the
customer obtains control of the product, and preventative maintenance service contracts in which revenue is recognized ratably over
the term of the service contract. During the fiscal year ended March 31, 2021, the Company recognized $19.0 million of revenue that
was included in the deferred revenue balance as of March 31, 2020. During the fiscal year ended March 31, 2020, the Company
recognized $15.6 million of revenue that was included in the deferred revenue balance as of March 31, 2019.
Costs to Obtain or Fulfill a Customer Contract
The Company has certain costs to obtain and fulfill a customer contract, such as commissions and shipping costs. The Company
recognizes the incremental costs of obtaining contracts as an expense when incurred if the amortization period of the assets that the
Company otherwise would have recognized is one year or less. The Company accounts for shipping and handling activities related to
contracts with customers as costs to fulfill the promise to transfer the associated products. These costs are included in selling, general,
and administrative expenses.
F-20
Note 5. Financial Instruments
Cash Equivalents and Marketable Securities
The Company’s cash equivalents and marketable securities are invested in the following:
Amortized
Gross
Unrealized
Gross
Unrealized Fair Market
Cost
Gains
Losses
Value
March 31, 2021:
(in $000's)
Money market funds
$ 124,297 $
— $
— $ 124,297
Repurchase agreements
33,000
—
—
33,000
Total cash equivalents
157,297
—
—
157,297
Short-term U.S. Treasury mutual fund securities
72,221
28
—
72,249
Short-term government-backed securities
128,668
13
(12)
128,669
Short-term corporate debt securities
104,253
581
(2)
104,832
Short-term commercial paper
45,237
1
(3)
45,235
Total short-term marketable securities
350,379
623
(17)
350,985
Long-term government-backed securities
225,231
190
(37)
225,384
Long-term corporate debt securities
38,091
630
(20)
38,701
Total long-term marketable securities
263,322
820
(57)
264,085
$ 770,998 $
1,443 $
(74) $ 772,367
Amortized
Gross
Unrealized
Gross
Unrealized Fair Market
Cost
Gains
Losses
Value
March 31, 2020:
(in $000's)
Money market funds
$ 115,019 $
— $
— $ 115,019
Repurchase agreements
20,000
—
—
20,000
Total cash equivalents
135,019
—
—
135,019
Short-term U.S. Treasury securities
42,236
412
—
42,648
Short-term government-backed securities
67,594
401
—
67,995
Short-term corporate debt securities
107,290
94
(83)
107,301
Short-term commercial paper
32,757
74
—
32,831
Total short-term marketable securities
249,877
981
(83)
250,775
Long-term government-backed securities
90,911
153
—
91,064
Long-term corporate debt securities
116,110
851
(230)
116,731
Total long-term marketable securities
207,021
1,004
(230)
207,795
$ 591,917 $
1,985 $
(313) $ 593,589
Derivative Instruments
In October 2019, the Company entered into an intercompany agreement in which it loaned 85.0 million Euro to Abiomed
Europe GMBH, its German subsidiary. In conjunction with this intercompany loan agreement, the Company entered into a cross-
currency swap agreement to convert a notional amount of 85.0 million Euro equivalent to a $93.5 million denominated intercompany
loan into U.S. dollars. The objective of this cross-currency swap is to hedge the variability of cash flows related to the forecasted
interest and principal payments on the Euro denominated fixed rate loan against changes in the exchange rate between the U.S. dollar
and the Euro. Under the terms of this cross-currency swap contract, which has been designated as a cash flow hedge, the Company
will make interest payments in Euro and receive interest in U.S. dollars. Upon the maturity of this contract, the Company will pay the
principal amount of the loan in Euro and receive U.S. dollars from the counterparty. The cross-currency swap is carried on the
consolidated balance sheet at fair value, and changes in the fair values are recorded as unrealized gains or losses in accumulated other
comprehensive income (loss). The Company does not enter into derivative instruments for any purpose other than cash flow hedging.
F-21
The following table summarizes the terms of the cross-currency swap agreement as of March 31, 2021 (dollar amounts in
thousands):
Effective Date
Maturity
Fixed Rate
Aggregate Notional
Amount
(in $000's)
Pay EUR
October 15,
October 15,
2.75%
EUR 85,000
Receive U.S.$
2019
2024
4.64%
USD 93,457
The following table presents the fair value of the Company’s derivative instrument as follows:
March 31, 2021
March 31, 2020
Derivatives designated as hedging
instruments under ASC 815
Balance sheet classification
(in $000's)
Cross-currency swap
(Long-term liabilities) other assets $
(4,298) $
3,786
The Company has structured its cross-currency swap agreement to be 100% effective and, as a result, there was no net impact to
earnings resulting from hedge ineffectiveness. Changes in the fair value of the cross-currency swap are designated as a hedging
instrument that effectively offsets the variability of cash flows are reported in accumulated other comprehensive income (loss). These
amounts subsequently are reclassified into the consolidated income statement in the same period in which the related hedged item
affects earnings. The change of fair value of the cross-currency swap during the fiscal year 2021 was solely due to the appreciation of
the Euro against the U.S. dollar.
For the fiscal year 2021 and 2020, the Company recorded income related to the interest rate differential of the cross-currency
swaps of $1.6 million and $0.8 million, respectively, in other income (expense), net, included in the consolidated statements of
operations.
Contingent Consideration
Contingent consideration represents potential milestones that the Company may pay as additional consideration related to
acquired businesses. The Company has contingent consideration potentially payable related to the acquisition of ECP
Entwicklungsgesellschaft mbH (“ECP”) in July 2014 and the acquisition of Breethe in April 2020. The fair value of the contingent
consideration at each reporting date is updated by reflecting the changes in fair value reflected within research and development
expenses in the Company’s consolidated statement of operations. Significant increases or decreases in any valuation assumptions,
including probabilities of success or changes in expected timelines for achievement of any of these milestones, could result in a
significantly higher or lower fair value of the contingent consideration liability. There is no assurance that any of the conditions for the
milestone payments will be met.
The components of contingent consideration liability are as follows:
March 31, 2021
March 31, 2020
(in $000's)
ECP
$
10,306 $
9,000
Breethe
14,400
—
$
24,706 $
9,000
ECP
In July 2014, the Company acquired ECP and AIS GmbH Aachen Innovative Solutions (“AIS”) for $13.0 million in cash, with
additional potential payouts totaling $15.0 million based on the achievement of CE Mark approval in the European Union and a
revenue-based milestone related to the development of the future Impella ECPTM expandable catheter pump technology. These
potential milestone payments may be made, at the Company’s option, by a combination of cash or ABIOMED common stock.
The Company used a combination of an income approach, based on various revenue and cost assumptions and applying a
probability to each outcome and a Monte-Carlo valuation model, both of which consider significant unobservable inputs. For the
clinical and regulatory milestone, probabilities were applied to each potential scenario and the resulting values were discounted using
a rate that considers weighted average cost of capital as well as a specific risk premium associated with the riskiness of the earn out
itself, the related projections, and the overall business. The revenue-based milestone is valued using a Monte-Carlo valuation model,
which simulates estimated future revenues during the earn out-period using management’s best estimates.
F-22
Key unobservable inputs include the discount rate used to present value the projected revenues and cash flows (ranging from
1.2% to 17%), the mean probability of achieving the various technical, regulatory and commercial milestones of 69% and projected
revenues, which are based on the Company’s operational forecasts and long-range strategic plans.
Breethe
In April 2020, the Company acquired Breethe for $55.0 million in cash, with additional potential payouts up to a maximum of
$55.0 million payable based on the achievement of certain technical, regulatory and commercial milestones.
The Company used a combination of an income approach, based on various revenue and cost assumptions and applying a
probability to each outcome and a Monte-Carlo valuation model, both of which consider significant unobservable inputs. For the
regulatory milestones, probabilities were applied to each potential scenario and the resulting values were discounted using a rate that
considers weighted average cost of capital as well as a specific risk premium associated with the earn out itself, the related projections,
and the overall business. The commercial milestones are valued using a Monte-Carlo valuation model, which simulates estimated
future revenues during the earn out-period using management’s best estimates.
Key unobservable inputs include the discount rates used to present value the projected revenues and cash flows (ranging from
1.4% to 2%), the probability of achieving the various technical, regulatory and commercial milestones (estimated to range from 25%
to 75%) and projected revenues, which are based on the Company’s operational forecasts and long-range strategic plans.
Fair Value Hierarchy
Fair value is defined as the price that would be received upon the sale of an asset or paid to transfer a liability in an orderly
transaction between market participants at the measurement date. Financial assets and liabilities carried at fair value are to be
classified and disclosed in one of the following three categories:
Level 1: Quoted market prices in active markets for identical assets or liabilities.
Level 2: Observable market-based inputs or unobservable inputs that are corroborated by market data.
Level 3: Unobservable inputs that are not corroborated by market data.
Level 1 primarily consists of financial instruments whose values are based on quoted market prices such as exchange-traded
instruments and listed equities.
Level 2 includes financial instruments that are valued using models or other valuation methodologies. These models are
primarily industry-standard models that consider various assumptions, including time value, yield curve, volatility factors, prepayment
speeds, default rates, loss severity, current market and contractual prices for the underlying financial instruments, as well as other
relevant economic measures. Substantially all of these assumptions are observable in the marketplace, can be derived from observable
data or are supported by observable levels at which transactions are executed in the marketplace.
Level 3 is comprised of unobservable inputs that are supported by little or no market activity. Financial assets are considered
Level 3 when their fair values are determined using pricing models, discounted cash flows or similar techniques and at least one
significant model assumption or input is unobservable.
F-23
The following table presents the Company’s fair value hierarchy for its financial instruments measured at fair value:
Level 1
Level 2
Level 3
Total
March 31, 2021:
(in $000's)
Assets
Money market funds
$
124,297 $
— $
— $
124,297
Repurchase agreements
—
33,000
—
33,000
Short-term U.S. Treasury securities
—
72,249
—
72,249
Short-term government-backed securities
—
128,669
—
128,669
Short-term corporate debt securities
—
104,832
—
104,832
Short-term commercial paper
—
45,235
—
45,235
Long-term government-backed securities
—
225,384
—
225,384
Long-term corporate debt securities
—
38,701
—
38,701
Investment in Shockwave Medical
38,655
—
—
38,655
Liabilities
Cross currency swap agreement
—
4,298
—
4,298
Contingent consideration
—
—
24,706
24,706
Level 1
Level 2
Level 3
Total
March 31, 2020:
(in $000's)
Assets
Money market funds
$
115,019 $
— $
— $
115,019
Repurchase agreements
—
20,000
—
20,000
Short-term U.S. Treasury securities
—
42,648
—
42,648
Short-term government-backed securities
—
67,995
—
67,995
Short-term corporate debt securities
—
107,301
—
107,301
Short-term commercial paper
—
32,831
—
32,831
Long-term government-backed securities
—
91,064
—
91,064
Long-term corporate debt securities
—
116,731
—
116,731
Cross currency swap agreement
—
3,786
—
3,786
Investment in Shockwave Medical
55,704
—
—
55,704
Liabilities
Contingent consideration
—
—
9,000
9,000
The Company has determined that the estimated fair value of its money market funds and its investment in Shockwave Medical,
a publicly traded medical device company, are reported as Level 1 financial assets as they are valued at quoted market prices in active
markets. The investment in Shockwave Medical is classified within other assets in the consolidated balance sheet.
The Company has determined that the estimated fair value of its repurchase agreements, U.S. Treasury mutual fund securities,
government-backed securities, corporate debt securities and commercial paper and cross-currency swap agreement are reported as
Level 2 financial assets as they are based on model-driven valuations in which all significant inputs are observable, or can be derived
from or corroborated by observable market data for substantially the full term of the asset.
Level 3 Financial Liabilities
This contingent consideration liability is reported as Level 3 as the estimated fair value of the contingent consideration related to
the acquisitions of ECP and Breethe require significant management judgment or estimation. Quantitative information about the
significant unobservable inputs utilized by the Company in the fair value measurements are described above.
This contingent consideration liability is reported as Level 3 as the estimated fair value of the contingent consideration related to
the acquisitions of ECP and Breethe require significant management judgment or estimation and is calculated as described above.
F-24
The following table summarizes the change in fair value, as determined by Level 3 inputs, of the contingent consideration:
Fiscal Years Ended March 31,
2021
2020
2019
(in $000's)
Level 3 liabilities, beginning balance
$
9,000 $
9,575 $
10,490
Additions
13,300
—
—
Payments
—
—
—
Change in fair value
2,406
(575)
(915)
Level 3 liabilities, ending balance
$
24,706 $
9,000 $
9,575
The change in fair value of the contingent consideration was primarily due to the addition of contingent consideration related to
the Breethe acquisition and the passage of time impact on fair value measurements.
Information About Uncertainty of Level 3 Fair Value Measurements
The significant unobservable inputs used in the fair value of the Company’s contingent consideration are the discount rate and
forecasted financial information. Significant increases (decreases) in the discount rate would have resulted in a significantly lower
(higher) fair value measurement. Significant increases (decreases) in the forecasted financial information would have resulted in a
significantly higher (lower) fair value measurement. As of March 31, 2021 and 2020, the present value of expected payments related
to the Company’s contingent consideration was $24.7 million and $9.0 million, respectively. The undiscounted value of the payments,
assuming that all contingencies are met, would be $70.0 million and $15.0 million, respectively.
Note 6. Accounts Receivable
The components of accounts receivable are as follows:
March 31, 2021
March 31, 2020
(in $000's)
Trade receivables
$
97,953 $
85,852
Allowance for doubtful accounts
(774)
(1,202)
$
97,179 $
84,650
The following table summarizes activity in the allowance for doubtful accounts:
Fiscal Years Ended March 31,
2021
2020
2019
(in $000's)
Balance at beginning of year
$
1,202 $
1,040 $
320
Additions (recoveries)
(127)
487
720
Write-offs
(301)
(325)
—
Balance at end of year
$
774 $
1,202 $
1,040
Note 7. Inventories
The components of inventories are as follows:
March 31, 2021
March 31, 2020
(in $000's)
Raw materials and supplies
$
27,782 $
31,411
Work-in-progress
$
35,187
35,008
Finished goods
$
18,090
23,669
$
81,059 $
90,088
The Company’s inventories relate to its Impella® and OXY-1 System product platform. Finished goods and work-in-process
inventories consist of direct material, labor and overhead.
F-25
Note 8. Property and Equipment
The components of property and equipment are as follows:
March 31, 2021
March 31, 2020
(in $000's)
Land
$
10,875 $
7,179
Building and building improvements
148,870
100,176
Leasehold improvements
439
14,546
Machinery and equipment
91,784
71,636
Furniture and fixtures
15,608
14,600
Construction in progress
10,906
15,075
Total cost
278,482
223,212
Less accumulated depreciation
(81,353)
(58,281)
$
197,129 $
164,931
In March 2021, the Company acquired the building adjacent to its corporate headquarters that it had been leasing in Danvers,
Massachusetts. The total acquisition cost for the land and building was approximately $17.5 million, with $3.4 million being recorded
to land and $13.8 million being recorded to building and building improvements. In addition, the Company reclassified $11.0 million
in leasehold improvements and $4.7 million in right-of-use assets and recorded a $0.5 million adjustment to remove the prior lease
liability due to the termination of the lease agreement upon the property acquisition.
Depreciation expense related to property and equipment was $23.1 million, $20.1 million, and $13.9 million for the fiscal years
ending March 31, 2021, 2020 and 2019, respectively.
Note 9. Goodwill, In-Process Research & Development and Other Assets
Goodwill
The carrying amount of goodwill as of March 31, 2021 and 2020 was $78.6 million and $32.0 million, respectively, and has
been recorded in connection with the Company’s acquisition of Impella Cardiosystems AG, in May 2005, ECP in July 2014 and
Breethe in April 2020. The goodwill activity is as follows:
(in $000's)
Balance, March 31, 2019
$
32,601
Foreign currency translation impact
(632)
Balance, March 31, 2020
$
31,969
Breethe acquisition
44,485
Foreign currency translation impact
2,114
Balance, March 31, 2021
$
78,568
The Company evaluates goodwill at least annually on October 31, as well as whenever events or changes in circumstances
suggest that the carrying amount may not be recoverable. The Company has no accumulated impairment losses on goodwill.
F-26
Other Intangible Assets, net
Other intangible assets consist of the following:
March 31, 2021
March 31, 2020
Weighted
Average
Useful
Life (in
years)
Cost
Accumulated
Amortization
Net
Carrying
Value
Cost
Accumulated
Amortization
Net
Carrying
Value
(in $000's)
Finite-lived intangible assets
Developed technology
14.6 $ 27,000 $
(750) $ 26,250
—
—
—
Indefinite-lived intangible assets
In-process research and development
15,900
— 15,900 14,913
— 14,913
Total
$ 42,900 $
(750) $ 42,150 $ 14,913
— $ 14,913
The Company’s finite-lived intangible asset represents developed technology associated with the estimated fair value of the
OXY-1 System. Upon receiving FDA 510(k) clearance of the OXY-1 System in October 2020, the Company reclassified the IPR&D
asset of $27.0 million during the quarter ended December 31, 2020 from the acquisition of Breethe (see Note 3) to finite-lived
developed technology intangible assets and began amortizing the intangible asset on a straight-line basis over an estimated useful life
of 15 years. The estimated fair value of developed technology was determined using a probability-weighted income approach, which
discounts expected future cash flows to present value. The projected cash flow estimates for the OXY-1 System were based on certain
key assumptions, including estimates of future revenue and expenses, the stage of development of the technology at the acquisition
date and the time and resources needed to complete development.
The Company’s IPR&D assets represents the estimated fair value of the Impella ECPTM related to the acquisition of ECP and
AIS, in July 2014. The estimated fair value of the IPR&D assets at the acquisition date was determined using a probability-weighted
income approach, which discounts expected future cash flows to present value. The projected cash flow estimates for the future
Impella ECPTM expandable catheter pump were based on certain key assumptions, including estimates of future revenue and expenses,
taking into account the stage of development of the technology at the acquisition date and the time and resources needed to complete
development.
The Company evaluates the other intangible assets at least annually on October 31, as well as whenever events or changes in
circumstances suggest that the carrying amount may not be recoverable. The Company has no accumulated impairment losses on other
intangible assets. The change in the indefinite-lived intangible assets balance for the fiscal year ended March 31, 2021 was related to
foreign currency translation impact.
Note 10. Other Assets
The components of other assets are as follows:
Fiscal Years Ended March 31,
2021
2020
(in $000's)
Investment in Shockwave Medical
$
38,655 $
55,704
Other investments
62,995
38,741
Operating lease right-of-use assets (Note 11)
6,109
11,760
Cross-currency swap (Note 5)
—
3,786
Other intangible assets and other assets
5,323
7,664
Total other assets
$
113,082 $
117,655
F-27
Investment in Shockwave Medical
In fiscal year 2019, the Company invested $25.0 million in Shockwave Medical, a publicly traded medical device company.
During the fiscal year ended March 31, 2021, the Company sold approximately 1.4 million of its shares for cash proceeds of
$67.9 million in which it realized a gain of $47.3 million. The fair value of this investment as of March 31, 2021 and 2020 was $38.7
million and $55.7 million. Amounts recorded in other income (expense) were gains of $50.8 million and $0.5 million for the years
ended March 31, 2021 and 2020, respectively. The Company held 0.3 million shares of Shockwave Medical as of March 31, 2021.
Other Investments
The Company periodically makes investments in medical device companies that focus on heart failure and heart pumps and
other medical device technologies. The carrying value of the Company’s portfolio of other investments and the changes in the balance
were as follows:
Fiscal Years Ended March 31,
2021
2020
(in $000's)
Beginning balance
$
38,741 $
24,584
Additions
26,104
19,599
Reclassification
(2,000)
-
Impairment
(800)
(750)
Change in fair value, net
950
(4,692)
Ending balance
$
62,995 $
38,741
Other Intangible Assets and Other Assets
The Company’s other intangible assets and other assets is comprised primarily of license manufacturing rights to certain
technology from third parties and other long-term assets such as prepaid expenses.
Note 11. Leases
Lessee
The Company has lease agreements for real estate including corporate offices and warehouse space, vehicles and certain office
equipment.
At the inception of a contractual arrangement, the Company determines whether it contains a lease by assessing whether there is
an identified asset and whether the contract conveys the right to control the use of the identified asset in exchange for consideration
over a period of time. If both criteria are met, the Company calculates the associated lease liability and corresponding right-of-use
asset upon lease commencement. Operating lease assets and liabilities are recognized based on the present value of minimum lease
payments over the lease term using an appropriate discount rate. Right-of-use assets also include any lease payments made at or before
lease commencement and any initial direct costs incurred and exclude any lease incentives received.
The discount rate used is the rate that the Company would have to pay to borrow on a collateralized basis over a similar term for
an amount equal to the lease payments in a similar economic environment. At the lease commencement date, the discount rate implicit
in the lease is used to discount the lease liability, if readily determinable. If not readily determinable or lease do not contain an implicit
rate, the Company’s incremental borrowing rate is used as the discount rate. Discount rates are updated when there is a new lease or a
modification to an existing lease, and the methodology is reassessed annually.
The Company records operating lease liabilities within current liabilities or long-term liabilities based upon the length of time
associated with the lease payments. The Company records its operating lease right-of-use assets as long-term assets. Leases with an
initial term of 12 months or less are not recognized on the consolidated balance sheet. The Company have elected the practical
expedient where lease agreements with lease and non-lease components are accounted for as a single lease component for all assets.
The Company’s financing leases are not material to our financial statements.
F-28
The Company adopted ASC Topic 842 on April 1, 2019 using the optional transition method. As such, the disclosures required
under ASC Topic 842 are not presented for periods before the date of adoption.
The Company elected the package of transitional practical expedients for leases existing prior to the adoption date. The
Company did not reassess whether existing contracts are or contain leases, leases retained their historical lease classification and
initial direct costs were not reassessed for capitalization under the new standard. Operating lease assets and liabilities were recognized
based on the present value of minimum lease payments over the remaining lease term as of the adoption date.
The following table presents supplemental balance sheet information related to the Company’s operating leases:
March 31, 2021
March 31, 2020
(in $000's)
Assets
Operating lease right-of-use assets in other assets
$
6,109
$
11,760
Liabilities
Operating lease liabilities in other current liabilities
2,459
3,671
Operating lease liabilities in other long-term liabilities
3,657
8,549
Total operating lease liabilities
$
6,116
$
12,220
In March 2021, the Company acquired the building adjacent to its corporate headquarters that it had been leasing in Danvers,
Massachusetts. The total acquisition cost for the land and building was approximately $17.5 million, with $3.4 million being recorded
to land and $13.8 million being recorded to building and building improvements. In addition, the Company reclassified $11.0 million
in leasehold improvements and $4.7 million in right-of-use assets and recorded a $0.5 million adjustment to remove the prior lease
liability due to the termination of the lease agreement upon the property acquisition.
Expense charged to operations under operating leases was $4.1 million and $3.7 million during the fiscal years ended March 31,
2021 and 2020, respectively. Short-term lease expenses were not material.
Maturities of operating lease liabilities as of March 31, 2021 are as follows:
(in thousands, except lease term and discount rate)
Fiscal Years Ended March 31,
2022
$
2,574
2023
1,404
2024
1,165
2025
617
2026
77
Thereafter
599
Total minimum lease payments
6,436
Less: imputed interest
(320)
Present value of operating lease liabilities
$
6,116
Weighted average remaining lease term
4.02
Weighted average discount rate
1.96%
Lessor
In March 2021, as part of the $17.5 million purchase of a building located in Danvers, Massachusetts, we assumed existing
leases with third parties for a portion of the building which are classified as operating leases. The leases have annual escalating
payments and the latest expires in March 2025 in accordance with the terms and conditions of the existing agreement. For the year
ended March 31, 2021, operating lease income was not material.
F-29
Note 12. Accrued Expenses
Accrued expenses consisted of the following:
March 31, 2021
March 31, 2020
(in $000's)
Employee compensation
$
40,954 $
32,273
Research and development
6,983
5,749
Sales and income taxes
5,914
21,641
Marketing
3,674
1,705
Warranty
2,053
1,818
Professional, legal and accounting fees
1,957
6,880
Other
4,511
5,041
$
66,046 $
75,107
Employee compensation consists primarily of accrued bonuses, accrued commissions and accrued employee benefits as of
March 31, 2021 and 2020.
Note 13. Stockholders’ Equity
Class B Preferred Stock
The Company has authorized 1,000,000 shares of Class B Preferred Stock, $.01 par value, of which the board of directors can
set the designation, rights and privileges. No shares of Class B Preferred Stock have been issued or are outstanding.
Stock Repurchase Program
In August 2019, the Company’s Board of Directors authorized a stock repurchase program for up to $200.0 million of shares of
its common stock. Under this stock repurchase program, the Company is authorized to repurchase shares through open market
purchases, privately negotiated transactions or otherwise in accordance with applicable federal securities laws, including through Rule
10b5-1 trading plans and under Rule 10b-18 of the Exchange Act. The stock repurchase program has no time limit and may be
suspended for periods or discontinued at any time. The Company is funding the stock repurchase program with its available cash and
marketable securities. Through fiscal year 2021 and 2020, the Company has repurchased a total of 67,649 and 465,687 shares,
respectively, at an aggregate cost of $11.3 million and $84.9 million, respectively. The remaining authorization under the stock
repurchase program was $103.8 million as of March 31, 2021.
The following table provides stock repurchase activities:
For the Year Ended March 31,
2021
2020
Shares repurchased
67,649
465,687
Average price per share
$
167.19 $
182.27
Value of shares repurchased (in millions)
$
11.3 $
84.9
F-30
Accumulated Other Comprehensive Income (Loss)
The components of accumulated other comprehensive income (loss), are as follows (in thousands):
Foreign Currency
Translation
Gains (Losses)
Unrealized Gains
(Losses) on
Investments
Unrealized Gains
(Losses) on
Derivative
Instruments
Total
(in $000's)
Balance, April 1, 2018
(3,597)
(607)
—
(4,204)
Other comprehensive (loss) income
(11,431)
946
—
(10,485)
Balance, March 31, 2019
(15,028)
339
—
(14,689)
Other comprehensive income (loss)
(1,832)
1,333
3,999
3,500
Balance, March 31, 2020
(16,860)
1,672
3,999
(11,189)
Other comprehensive (loss) income
2,142
(303)
(2,095)
(256)
Balance, March 31, 2021
$
(14,718) $
1,369 $
1,904
(11,445)
Note 14. Stock Award Plans and Stock-Based Compensation
Stock Award Plans
The Company grants stock options and restricted stock awards to employees and others. All outstanding stock options of the
Company as of March 31, 2021 were granted with an exercise price equal to the fair market value on the date of grant. Outstanding
stock options, if not exercised, expire 10 years from the date of grant.
2015 Stock Incentive Plan
The Company’s 2015 Amended and Restated Omnibus Incentive Plan (the “2015 Plan”) authorizes the grant of a variety of
equity awards to the Company’s officers, directors, employees, consultants and advisers, including awards of unrestricted and
restricted stock, restricted stock units, incentive and nonqualified stock options to purchase shares of common stock, performance
share awards and stock appreciation rights. The 2015 Plan provides that options may only be granted at the current market value on
the date of grant. Each share of stock issued pursuant to a stock option or stock appreciation right counts as one share against the
maximum number of shares issuable under the 2015 Plan, while each share of stock issued pursuant to any other type of award counts
as 1.8 shares against the maximum number of shares issuable under the 2015 Plan. The Company’s policy for issuing shares upon
exercise of stock options or the vesting of its restricted stock awards and restricted stock units is to issue shares of common stock at
the time of exercise or conversion. As of March 31, 2021, a total of approximately 3,334,890 shares were available for future issuance
under the 2015 Plan.
Stock-Based Compensation
The following table summarizes stock-based compensation expense by financial statement line item in the Company’s
consolidated statements of operations:
Fiscal Years Ended March 31,
2021
2020
2019
(in $000's)
Cost of revenue
$
3,760 $
2,641 $
2,643
Research and development
6,941
5,534
9,312
Selling, general and administrative
36,305
31,606
42,539
$
47,006 $
39,781 $
54,494
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The components of stock-based compensation were as follows:
Fiscal Years Ended March 31,
2021
2020
2019
(in $000's)
Restricted stock units
$
36,347 $
28,895 $
45,998
Stock options
8,982
9,006
7,445
Employee stock purchase plan
1,677
1,880
1,051
$
47,006 $
39,781 $
54,494
Stock Options
The following table summarizes stock option activity for the fiscal year ended March 31, 2021:
Weighted
Weighted
Average
Aggregate
Average
Remaining
Intrinsic
Options
Exercise
Contractual
Value
(in thousands)
Price
Term (years)
(in thousands)
Outstanding at beginning of period
869 $
112.03
5.30
Granted
70
225.60
Exercised
(215)
42.16
Cancelled and expired
(13)
248.42
Outstanding at end of period
711 $
141.87
5.46 $
129,912
Exercisable at end of period
537 $
104.55
4.51 $
117,880
Options vested and expected to vest at end of period
711 $
141.87
5.46 $
129,912
Stock options generally vest and become exercisable annually over three years. The remaining unrecognized stock-based
compensation expense for unvested stock option awards as of March 31, 2021 was approximately $8.9 million and the weighted-
average period over which this cost will expected to be recognized is 1.6 years.
The aggregate intrinsic value of options exercised for fiscal years 2021, 2020 and 2019 was $54.9 million, $15.0 million and
$174.0 million, respectively. The total cash received as a result of employee stock option exercises during the fiscal years ended
March 31, 2021, 2020 and 2019 was approximately $9.1 million, $3.7 million and $12.9 million, respectively.
The Company estimates the fair value of each stock option granted at the grant date using the Black-Scholes option valuation
model. The weighted average grant-date fair values and weighted average assumptions used in the calculation of fair value of options
granted were as follows:
Fiscal Years Ended March 31,
2021
2020
2019
Valuation assumptions:
Weighted average grant-date fair value
$
77.82 $
93.05
$
141.47
Risk-free interest rate
0.32%
1.97%
2.91%
Expected option life (years)
4.22
4.14
4.04
Expected volatility
42.9%
42.3%
42.8%
The risk-free interest rate is based on the U.S. Treasury yield curve in effect at the time of grant for a term consistent with the
expected life of the stock options. Volatility assumptions are calculated based on the historical volatility of the Company’s stock. The
Company estimates the expected term of options based on historical exercise experience and estimates of future exercises of
unexercised options. An expected dividend yield of zero is used in the option valuation model because the Company does not pay cash
dividends and does not expect to pay any cash dividends in the foreseeable future. Forfeitures are recorded as they occur instead of
estimating forfeitures that are expected to occur.
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Restricted Stock Units
The following table summarizes restricted stock unit activity for the fiscal year ended March 31, 2021:
Number of
Shares
Weighted
Average
Grant Date
Fair Value
(in thousands)
(per share)
Restricted stock units at beginning of period
320 $
263.92
Granted
230
254.78
Vested
(139)
227.32
Forfeited
(109)
266.57
Restricted stock units at end of period
301 $
273.57
Restricted stock units generally vest annually over three years. The remaining unrecognized compensation expense for
outstanding restricted stock units, including performance-based awards, as of March 31, 2021 was $51.9 million and the weighted-
average period over which this cost will expected to be recognized is 1.8 years.
The weighted average grant-date fair value for restricted stock units granted during the fiscal years ended March 31, 2021, 2020
and 2019 was $254.78, $258.59 and $376.95 per share, respectively. The total fair value of restricted stock units vested in fiscal years
2021, 2020 and 2019 was $27.9 million, $99.3 million and $171.3 million, respectively.
Performance Awards
Restricted stock units include certain awards that vest subject to certain performance. The remaining unrecognized
compensation expense for outstanding performance restricted stock units as of March 31, 2021 was $24.2 million and the weighted-
average period over which this cost will be recognized is 1.8 years.
In November 2020, performance-based awards of restricted stock units for the potential issuance of up to 66,000 shares of
common stock were issued to certain executive officers, which vest upon achievement of prescribed service milestones by the award
recipients and the achievement of prescribed performance milestones by the Company.
In May 2020, performance-based awards of restricted stock units for the potential issuance of up to 62,000 shares of common
stock were issued to certain executive officers and employees, which vest upon achievement of prescribed service milestones by the
award recipients and the achievement of prescribed performance milestones by the Company.
In May 2019, performance-based awards of restricted stock units for the potential issuance of up to 196,580 shares of common
stock were issued to certain executive officers and employees, which vest upon achievement of prescribed service milestones by the
award recipients and the achievement of prescribed performance milestones by the Company. The Company did not meet the
prescribed performance milestones in fiscal year 2020 and therefore no shares vested for these performance-based awards and the
Company reversed all previously recorded stock stock-based compensation expense related to this award in the three months ended
March 31, 2020.
In May 2018, performance-based awards of restricted stock units for the potential issuance of 114,000 shares of common stock
were issued to certain executive officers and employees, which vest upon achievement of prescribed service milestones by the award
recipients and performance milestones by the Company. The Company met the prescribed performance milestones in fiscal year 2019
such that the remaining outstanding 22,000 shares of common stock as of March 31, 2021 will vest subject to service requirements for
vesting for these employees and stock-based compensation expense is being recognized accordingly over the employee’s service term.
Market-Based Awards
In May 2020, the Company awarded certain executive officers and employees a total of up to 61,762 market-based restricted
stock units. These restricted stock units will vest and result in the issuance of shares of common stock based on continuing
employment and the relative ranking of the total shareholder return (“TSR”) of the Company’s common stock in relation to the TSR
of 20 peer companies over a two-year and three-year performance period based on a comparison of average closing stock prices
during the 20 trading days prior to the first day of the performance period, reinstated dividends during each performance period and
the average closing stock prices during the final 20 trading days of each performance period. The actual number of market-based
restricted stock units that may be earned can range from 0% to 200% of the target number of shares. Additionally, the payout
percentage is further adjusted based on the Company’s performance relative to the constituents of the S&P 500 Index on the first day
F-33
of the performance period that are still actively trading on the last day of each performance period. The restricted stock units will vest
following the end of the two-year and three-year performance period, respectively.
The Company used a Monte-Carlo simulation model to estimate the grant-date fair value of the TSR restricted stock units. The
fair value related to these awards are recorded as compensation expense over the period from date of grant to May 2022 and May
2023, respectively, regardless of the actual TSR outcome reached.
The table below sets forth the assumptions used to value the awards and the estimated grant-date fair value:
Risk-free interest rate
0.2%
Expected volatility
35.5%
Dividend yield
—
Remaining performance period (years)
1.9 - 2.9
Estimated grant date fair value per share
$347.05 - $349.28
Target performance (number of shares)
30,881
Employee Stock Purchase Plan
The Company has an employee stock purchase plan, or ESPP. Under the ESPP, eligible employees, including officers and
directors, who have completed at least three months of employment with the Company or its subsidiaries who elect to participate in
the purchase plan instruct the Company to withhold a specified amount of the employee’s income each payroll period during a six-
month payment period (the periods April 1—September 30 and October 1—March 31). On the last business day of each six-month
payment period, the amount withheld is used to purchase shares of the Company’s common stock at an exercise price equal to 85% of
the lower of its market price on the first business day or the last business day of the payment period.
Note 15. Income Taxes
The Company’s income tax provision was $62.7 million, $53.8 million and $4.3 million for fiscal years 2021, 2020 and 2019,
respectively. The Company’s effective tax rate was 21.8%, 21.0% and 1.6% for fiscal years 2021, 2020 and 2019, respectively.
The components of the Company’s income tax provision are as follows:
Fiscal Years Ended March 31,
2021
2020
2019
(in $000's)
Income before provision for income taxes:
United States
$
249,204 $
214,825 $
223,340
Foreign
39,016
42,000
40,020
Income before income taxes
288,220
256,825
263,360
Current tax expense:
Federal
8,624
—
—
State
12,379
6,563
564
Foreign
12,312
14,300
11,525
33,315
20,863
12,089
Deferred tax expense (benefit):
Federal
30,413
33,239
(7,153)
State
(2,382)
1,584
(1,503)
Foreign
1,349
(1,870)
911
29,380
32,953
(7,745)
Total income tax provision
$
62,695 $
53,816 $
4,344
F-34
The components of the Company’s net deferred taxes were as follows:
March 31, 2021
March 31, 2020
(in $000's)
Deferred tax assets
Net operating loss and tax credit carryforwards
$
27,893
$
50,604
Stock-based compensation
13,790
13,607
Nondeductible reserves and accruals
12,097
9,570
Foreign net operating loss carryforwards
6,856
6,778
Deferred revenue
5,522
4,404
Depreciation and amortization
51
114
Other, net
312
949
$
66,521 $
86,026
Deferred tax liabilities
Goodwill
(7,897)
(7,843)
In-process research and development
(12,496)
(4,564)
Depreciation
(11,747)
(9,211)
Basis differences on other investments
(7,766)
(6,124)
Domestic deferred tax liability on foreign net operating loss carryforwards
(415)
(584)
(40,321)
(28,326)
Net deferred tax assets
26,200
57,700
Valuation allowance
(15,667)
(15,170)
Net deferred tax assets
$
10,533
$
42,530
Reported as:
Deferred tax assets
$
11,380
$
43,336
Deferred tax liabilities
(847)
(806)
Net deferred tax assets
$
10,533
$
42,530
The significant differences between the statutory and effective income tax rate consist of the following items:
Fiscal Years Ended March 31,
2021
2020
2019
Statutory income tax rate
21.0 %
21.0 %
21.0 %
Increase (decrease) resulting from:
Credits
(6.0)
(10.8)
(1.5)
Rate differential on foreign operations
4.1
3.2
0.2
Excess tax benefits from stock-based awards
(3.3)
(5.2)
(24.1)
State taxes, net
3.2
3.1
0.1
Permanent differences
2.4
5.0
1.8
Change in valuation allowance
0.3
5.3
(0.4)
Foreign taxes
—
—
4.1
Other
0.1
(0.6)
0.4
Effective tax rate
21.8 %
21.0 %
1.6 %
The Company regularly assesses its ability to realize its deferred tax assets. Assessing the realization of deferred tax assets
requires significant management judgment. In determining whether its deferred tax assets are more likely than not realizable, the
Company evaluates all available positive and negative evidence, and weights the evidence based on its objectivity.
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As of March 31, 2021 and 2020, respectively, the Company maintained a valuation allowance of $15.7 million and $15.2
million for deferred tax assets primarily related to foreign tax credits that are expected not to be utilizable in the foreign branch basket.
Based on the review of all available evidence, the Company recorded a valuation allowance to reduce these deferred tax assets to the
amount that is more likely than not to be realizable as of March 31, 2021 and 2020.
Changes in the valuation allowance for deferred tax assets were as follows:
Fiscal Years Ended March 31,
2021
2020
2019
(in $000's)
Balance at beginning of year
$
15,170 $
1,302 $
1,652
Increase
497
13,868
—
Decrease
—
—
(350)
Balance at end of year
$
15,667 $
15,170 $
1,302
ASU 2016-09 requires excess tax benefits and shortfalls to be recognized in the income tax provision as discrete items in the
period when restricted stock units vest or stock option exercises occur, whereas previously such income tax effects were recorded as
part of additional paid-in capital only when the related tax deduction resulted in a reduction of current income taxes payable. The
Company recognized excess tax benefits associated with stock-based awards of $12.1 million, $14.8 million and $69.3 million as an
income tax benefit for fiscal years 2021, 2020 and 2019, respectively. The amount of future excess tax benefits or shortfalls will likely
fluctuate from period to period based on the price of the Company’s stock, the number of restricted stock units that vest or stock
options that are exercised, and the fair value assigned to such stock-based awards under U.S. GAAP.
As of March 31, 2021, the Company had foreign net-operating losses (“NOLs”) of approximately $27.2 million. As of March
31, 2021, the Company had foreign tax credits of $13.8 million which expire in varying years from fiscal year 2029 through fiscal
year 2031. In addition, as of March 31, 2021, the Company had federal and state research and development credit carryforwards of
approximately $0.4 million and $12.8 million, respectively, which expire in varying years from fiscal year 2022 through fiscal year
2041.
The Company’s operating income outside the U.S. is deemed to be permanently reinvested in foreign jurisdictions. The Tax
Reform Act allows for a 100% deduction for the repatriation of foreign subsidiary earnings with minimal U.S. income tax
consequences other than a one-time deemed repatriation toll charge. Since most of the Company’s cash and cash equivalents are held
by foreign subsidiaries which are disregarded entities for domestic tax purposes, any repatriation of such funds to the U.S. would
likely have a nominal tax impact, if any.
As of March 31, 2021 and 2020, the Company has no material uncertain tax positions, and no interest and penalties on uncertain
tax positions were recognized during fiscal years 2021, 2020 and 2019, respectively. The Company is subject to the examination of its
income tax returns by the IRS and other tax authorities. The outcome of these audits cannot be predicted with certainty. The
Company’s management regularly assesses the likelihood of adverse outcomes resulting from these examinations to determine the
adequacy of the Company’s provision for income taxes. If any issues addressed in the Company’s tax audits are resolved in a manner
not consistent with management’s expectations, the Company could be required to adjust its provision for income taxes in the period
such resolution occurs. The Company’s most recent completed income tax audits were in the U.S. relating to fiscal year 2016 and in
Germany, which covered fiscal years 2012 through 2015. These tax audits did not materially impact the Company’s financial
statements. In October 2020, the Company was notified by the German tax authorities that they will be conducting an income tax audit
on Abiomed Europe GmbH and ECP for fiscal years 2016 through 2019 beginning in January 2021. All other tax years remain subject
to examination by the IRS, state and foreign tax authorities.
Note 16. Commitments and Contingencies
From time to time, the Company is involved in legal and administrative proceedings and claims of various types. In some
actions, the claimants seek damages, as well as other relief, which, if granted, would require significant expenditures. The Company
records a liability in its consolidated financial statements for these matters when a loss is known or considered probable and the
amount can be reasonably estimated. The Company reviews these estimates each accounting period as additional information is
known and adjusts the loss provision when appropriate. If a matter is both probable to result in liability and the amount of loss can be
reasonably estimated, the Company estimates and discloses the possible loss or range of loss. If the loss is not probable or cannot be
reasonably estimated, a liability is not recorded in its consolidated financial statements.
Thoratec Matters
F-36
Thoratec Corporation (“Thoratec”), a subsidiary of Abbott Laboratories (“Abbott”), has challenged a number of Company-
owned patents in Europe in connection with the launch of Thoratec’s HeartMate PHP™ medical device (“PHP”) in Europe and the
Company has counterclaimed for infringement in the District Court in Düsseldorf. The litigation was stayed pending the highest
Court’s ruling on the validity and scope of the litigated patents. In September 2019, the Federal Court of Justice in Germany upheld
the Company’s patents that are the subject of the patent infringement action for the sales and marketing of Thoratec’s PHP pump in
Germany. Subsequently, the District Court in Düsseldorf lifted the stay, re-opened the litigation proceedings, and ruled in favor of
Abiomed. The Court acknowledged that Thoratec’s PHP product infringes two of ABIOMED patents related to the key features of
Impella® intravascular pump and future expandable heart pump, known as Impella ECP®. Abbott appealed and the oral hearing is set
for August 26, 2021. If upheld, the verdict is provisionally enforceable, which means that ABIOMED will be able to seek a court
ordered injunction preventing the sale and marketing of PHP, should Thoratec attempt to launch HeartMate PHP in Germany.
These actions relate solely to Thoratec’s ability to manufacture and sell its PHP product in Europe and have no impact on the
Company's ability to manufacture or sell its Impella® line of medical devices. The actions do not expose the Company to liability
risk, except under local German law that requires a losing party in a proceeding to pay a portion of the other party’s legal fees.
Maquet Matters
In December 2015, the Company received a letter from Maquet Cardiovascular LLC (“Maquet”), a subsidiary of Getinge AB,
asserting that the Company’s Impella® devices infringe certain claims with guidewire, lumen, rotor, purge and sensor features, which
were in two Maquet patents and one pending patent application (which has since issued as a third patent) in the U.S. and elsewhere,
and attaching a draft litigation complaint. The letter encouraged the Company to take a license from Maquet. In May 2016, the
Company filed suit in U.S. District Court for the District of Massachusetts (“D. Mass.” or “the Court”) against Maquet, seeking a
declaratory judgment that the Company’s Impella devices do not infringe Maquet’s cited patent rights.
In August 2016, Maquet sent a letter to the Company identifying four new Maquet U.S. continuation patent filings with claims
that Maquet alleges are infringed by the Company’s Impella devices. The four U.S. continuation applications have been issued as
patents of Maquet but expired on September 1, 2020.
In September 2016, Maquet filed a response to the Company’s suit in D. Mass., including various counterclaims alleging that
the Company’s Impella 2.5®, Impella CP®, Impella 5.0®, and Impella RP® heart pumps infringe certain claims of the three original
issued U.S. patents (“2016 Action”). In July 2017, the Court granted a motion to add three of the four additional continuation patents
to the 2016 Action. In April 2018, the Court conducted a Markman hearing on claim interpretation. On September 7, 2018, the judge
issued a Memorandum and Order on Claim Construction, where he interpreted the disputed claim terms in the case. Maquet then filed
a motion for reconsideration of the Court’s construction of one of the disputed claim terms. The motion was denied on May 22, 2019.
As a result of the Court’s denial, only one of the six originally asserted patents is in dispute. The Company filed a motion for summary
judgement (the “MSJ”) for the remaining patent on September 18, 2019 (non-infringement) and April 13, 2020 (invalidity). The
parties argued the MSJ for non-infringement on November 19, 2019, the MSJ for invalidity on August 20, 2020 and are waiting for
Court’s resolution. The Court has not set a date for trial. The only remaining patent asserted in this case expired on September 1,
2020.
In November 2017, Maquet filed a second action in D. Mass (the “2017 Action”) alleging that the Company’s Impella 2.5®,
Impella CP®, and Impella 5.0® heart pumps infringe certain claims of the fourth additional U.S. continuation patent mentioned above
(the seventh patent overall). Discovery in the 2017 Action is ongoing.
In a series of letters during January and February 2019, Maquet informed the Company of seven new patent applications filed
from the patents in the 2016 Action and 2017 Action with claims Maquet alleges would be infringed by the Impella® products if the
new applications were to issue as patents. One of the newly issued patents has been added to the 2017 Action. A Markman hearing for
the newly-added patent was held on November 18, 2019. A Markman order has not been issued yet. The asserted patent in this case
expired on September 1, 2020. Discovery remains ongoing.
In the 2016 Action and 2017 Action, Maquet seeks injunctive relief and monetary damages in the form of a reasonable royalty,
with three times the amount for alleged willful infringement. In its responses to the Company’s counterclaims, Maquet admits that its
current commercially available products do not embody the claims of the asserted patents.
The Company is unable to estimate the potential liability with respect to the legal matters noted above. There are numerous
factors that make it difficult to meaningfully estimate possible loss or range of loss at this stage of the legal proceedings, including the
significant number of legal and factual issues still to be resolved in the Maquet and Thoratec patent disputes.
Securities Class Action Litigation
On or about August 6, 2019, the Company received a securities class action complaint filed on behalf of a single shareholder in
the U.S. District Court for the Southern District of New York (“SDNY”), on behalf of himself and persons or entities that purchased
or acquired the Company’s securities between January 31, 2019 through July 31, 2019. On October 7, 2019, a similar purported class
action complaint was filed by a different shareholder on behalf of himself and persons or entities that purchased or acquired the
Company’s securities between November 1, 2018 and July 31, 2019. Also, on October 7, 2019, four shareholders filed applications to
F-37
be appointed lead plaintiff and for their counsel to be appointed lead counsel for the class. Two of those shareholders also filed
motions to consolidate the two cases and two of the shareholders have withdrawn their applications to be lead plaintiff.
The complaints allege that the Company violated Sections 10(b) and 20(a) of and Rule 10b-5 under the Exchange Act, in
connection with allegedly misleading disclosures made by the Company regarding its financial condition and results of operations.
The Company believes that the allegations are without merit and plans to defend itself vigorously.
On June 29, 2020, the Court issued an order consolidating the two cases and appointed Local 705 International Brotherhood of
Teamsters Pension Fund as the lead plaintiff and the Labaton Sucharow firm as lead counsel. On September 17, 2020, the lead
plaintiff filed an amended complaint in which it proposed a new class period of May 3, 2018 to July 31, 2019. As prescribed by a
scheduling order, the Company filed a motion to dismiss on November 16, 2020, lead plaintiff filed its opposition to that motion on
January 15, 2021, and the Company filed its reply on February 24, 2021.
Shareholder Derivative Litigation
On November 6 and 7, 2019, two shareholders filed derivative actions in SDNY that were subsequently consolidated. On
November 8, 2019, another shareholder filed a derivative action in Massachusetts Suffolk County Superior Court. On January 7,
2020, another shareholder derivative action was filed in the U.S. District Court for the District of Delaware. The complaints in these
actions rely on many of the same allegations as in the securities class actions, and assert that, between November 1, 2018 and July 31,
2019, the directors of the Company made or allowed to be made misleading public statements regarding the Company’s growth,
ultimately harming the Company.
The Company has agreed with the plaintiffs in all three actions to stay the cases pending resolution of a motion to dismiss in the
securities class actions. As a result of the stay, the Delaware action has been administratively closed.
Litigation Demand
On March 3, 2020, a shareholder sent a letter to the Board of Directors asserting that the directors of the Company made or
allowed to be made misleading public statements regarding the Company’s growth. The letter relies on many of the same allegations
as the securities class actions and derivative actions, and demands that the Board (i) undertake an independent investigation of the
directors, (ii) bring suit against the directors on behalf of the Company, and (iii) take a number of additional affirmative actions to
redress the purported wrongs. On March 30, 2020, the Company, after discussions with the Board of Directors, sent a written response
to the shareholder’s counsel which they responded to on June 1, 2020. The Company then sent a further response to the shareholder’s
counsel on June 15, 2020, affirming the decision to defer consideration of the litigation demand pending further developments in the
securities class action suit. Following the filing of the amended complaint in the securities class action, described above, the same
shareholder renewed their demand on September 29, 2020. The Company responded on October 9, 2020 and once again affirmed that
it will defer consideration of the demand pending further substantive developments in the securities class action suit.
On November 5, 2020, a second shareholder sent a letter to the Board of Directors that made essentially the same demands as
the September 29, 2020 letter from the first shareholder. The Company responded on November 23, 2020, noting that it will defer
consideration of the demand pending further substantive developments in the securities class action suit.
The Company is unable to estimate the potential liability with respect to the various legal matters noted above. There are
numerous factors that make it difficult to estimate reasonably possible loss or range of loss at this stage of the legal proceedings,
including the significant number of legal and factual issues still to be resolved in the securities class action litigation, as well as in the
shareholder derivative litigations.
Note 17. Segment and Enterprise Wide Disclosures
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. The Company’s chief operating decision maker (determined to be the Chief Executive Officer)
does not manage any part of the Company separately, and the allocation of resources and assessment of performance are based on the
Company’s consolidated operating results. International sales (sales outside the U.S. and primarily in Europe) accounted for 18%,
16% and 14% of total revenue during the fiscal years ended March 31, 2021, 2020 and 2019, respectively. As of March 31, 2021 and
2020, most of the Company’s long-lived assets are located in the U.S. except for $56.4 million and $46.7 million as of March 31, 2021
and 2020, respectively, which are located primarily in Germany.
F-38
Note 18. Quarterly Results of Operation (Unaudited)
The following is a summary of the Company’s unaudited quarterly results of operations:
Fiscal Year Ended March 31, 2021
1st Quarter
2nd Quarter
3rd Quarter
4th Quarter
Total Year
(in $000's)
Revenue
$
164,850 $
209,764 $
231,663 $ 241,246 $ 847,522
Cost of revenue
35,983
38,736
41,110
46,078
161,907
Other operating expenses
94,801
109,692
119,202
132,364
456,058
Other income (1)
27,010
11,579
9,384
10,690
58,663
Income before income taxes
61,076
72,915
80,735
73,494
288,220
Income tax provision (2)
16,488
10,702
18,867
16,638
62,695
Net income
$
44,588 $
62,213 $
61,868 $ 56,856 $ 225,525
Basic net income per share
$
0.99 $
1.38 $
1.37 $
1.26 $
5.00
Diluted net income per share
$
0.98 $
1.36 $
1.35 $
1.24 $
4.94
Fiscal Year Ended March 31, 2020
1st Quarter
2nd Quarter
3rd Quarter
4th Quarter
Total Year
(in $000's)
Revenue
$
207,666 $
204,974 $
221,584 $
206,658 $
840,883
Cost of revenue
37,073
34,867
39,996
39,369
151,305
Other operating expenses
109,868
109,925
111,329
109,237
440,359
Other income (expense) (1)
42,413
(42,824)
26,757
(18,739)
7,606
Income before income taxes
103,138
17,358
97,016
39,313
256,825
Income tax provision (2)
14,215
4,287
27,799
7,515
53,816
Net income
$
88,923 $
13,071 $
69,217 $
31,798 $
203,009
Basic net income per share
$
1.97 $
0.29 $
1.53 $
0.71 $
4.49
Diluted net income per share
$
1.93 $
0.28 $
1.51 $
0.70 $
4.43
(1) In fiscal year 2019, the Company invested $25.0 million in medical device company Shockwave Medical. The fair value of
this investment as of March 31, 2021 was $38.7 million. The Company recognized a pre-tax gain of $50.8 million for the
year ended March 31, 2021 and a pre-tax loss of $0.5 million for the year ended March 31, 2020 in other income (expense),
net.
(2) The income tax provision for the years ended March 31, 2021 and 2020 included excess tax benefits of $12.1 million and
$14.8 million, respectively. These recognized excess tax benefits resulted from restricted stock units that vested or stock
options that were exercised during the years ended March 31, 2021 and 2020.
OFFICES
Abiomed, Inc., 22 Cherry Hill Drive, Danvers, MA 01923, USA
Voice: 1 (978) 646-1400 Facsimile: 1 (978) 739-0584 Email: ir@abiomed.com
Abiomed Europe GmbH Neuenhofer Weg 3, 52074 Aachen, Germany
Voice: +49 (241) 8860-0 Facsimile: +49 (241) 8860-111
Abiomed Japan K.K. 2-2-1, Nihombashimuromachi, Chuo Ku, Tokyo, 103-0022
Voice: +81-(0) 3-4540-5600 Facsimile: +81-(0) 3-6740-1479
NASDAQ GLOBAL MARKET
Trading symbol: ABMD
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 is to retain its cash flows and any
future earnings to finance future growth.
AVAILABLE PUBLICATIONS
The company’s annual report is distributed regularly to stockholders.
Additional publications are available to stockholders, including the
company’s annual report on Form 10-K, and quarterly reports on
Form 10-Q, as filed with the Securities and Exchange Commission,
news releases issued by the company, and brochures on specific
products. Such publications are available on our website at
www.abiomed.com or by writing us at:
Abiomed, Inc. 22 Cherry Hill Drive, Danvers, MA 01923, USA
TRANSFER AGENT AND REGISTRAR
American Stock Transfer & Trust Company, LLC
6201 15th Ave, Brooklyn, NY 11219, USA
INDEPENDENT REGISTERED PUBLIC
ACCOUNTING FIRM
Deloitte & Touche LLP
200 Berkeley Street, Boston, MA 02116, USA
FACTORS THAT MAY AFFECT
FUTURE RESULTS
Certain statements in this annual report, including statements made
in the letter to the shareholders, employees, customers and their
patients; narrative text, captions, and graphics, constitute “forward-
looking statements,” such as statements regarding the company’s plans,
objectives, expectations and intentions. These statements can often
be identified by the use of forward-looking terminology such as “may,”
“will,” “should,” “expect,” “anticipate,” “believe,” “plan,” “intend,” “could,”
“estimates,” “is being,” “goal,” “schedule” or other variations of these
terms or comparable terminology. All forward-looking statements involve
risks and uncertainties. The company’s actual results may differ materially
from those anticipated in these forward-looking statements based upon a
number of factors, including uncertainties associated with development,
testing and related regulatory approvals, potential future losses, complex
manufacturing, high-quality requirements, dependence on limited sources
of supply, competition, technological change, government regulation,
future capital needs, uncertainty of additional financing, and other risks
and challenges detailed in the company’s filings with the Securities and
Exchange Commission, including the annual report filed on Form 10-K for
the company’s fiscal year ended March 31, 2021. Readers are cautioned not
to place undue reliance on any forward-looking statements, which speak
only as of the date of this annual report. The company undertakes no
obligation to publicly release the results of any revisions to these forward-
looking statements that may be made to reflect any changes
in the company’s expectations, or events or circumstances that occur
after the date of this annual report or to reflect the occurrence of
unanticipated events.
SENIOR MANAGEMENT
MICHAEL R. MINOGUE
Chairman, President and Chief Executive Officer
DAVID M. WEBER, PH.D.
Senior Vice President and Chief Operating Officer
TODD A. TRAPP
Vice President, Chief Financial Officer and Treasurer
MARC A. BEGAN
Vice President, General Counsel and Secretary
CHUCK SIMONTON, M.D.
Vice President and Chief Medical Officer
THORSTEN SIESS, PH.D.
Vice President and Chief Technology Officer
ANDREW J. GREENFIELD
Vice President and Chief Commercial Officer
BOARD OF DIRECTORS
MICHAEL R. MINOGUE (CHAIRMAN)
Abiomed President and Chief Executive Officer
DOROTHY E. PUHY (LEAD DIRECTOR)
Former Executive Vice President and Chief Operating Officer,
Dana-Farber Cancer Institute
JEANNINE M. RIVET
Former Executive Vice President, UnitedHealth Group
ERIC A. ROSE, M.D.
Former Non-Executive Chairman, SIGA Technologies, Inc.
MARTIN P. SUTTER
Co-Founder and Managing Director, EW Healthcare Partners
PAUL G. THOMAS
Chief Executive Officer and Founder, Prominex, Inc.
CHRISTOPHER D. VAN GORDER, FACHE
President, Chief Executive Officer and Director of Scripps Health
MYRON L. ROLLE, MD
Global Neurosurgery Fellow and Neurosurgery Resident at Massachusetts
General Hospital and Founder of the Myron L. Rolle Foundation
PAULA A. JOHNSON, MD, MPH
President of Wellesley College
W. GERALD AUSTEN, M.D. (DIRECTOR EMERITUS)
Edward D. Churchill Distinguished Professor of Surgery, Harvard Medical
School, Surgeon-in-Chief-Emeritus, Massachusetts General Hospital and
Chairman of the Massachusetts General Hospital Chiefs Council
All content in this document is for informational purposes only and is
not intended to provide specific instructions to hospitals or physicians
on how to bill for medical procedures. Hospitals and physicians should
consult appropriate insurers, including Medicare fiscal intermediaries
and carriers for specific coding, billing and payment levels. This
document represents no promise or guarantee by the company,
concerning medical necessity, levels of payment, coding, billing
or coverage issues.
Nothing in this document shall be construed to encourage or require any
healthcare provider or institution to provide inpatient, outpatient or any
other services to patients, to order any goods or services from the
company or otherwise, to generate business for the company. Customers
utilizing this information should not knowingly or intentionally conduct
themselves in a manner so as to violate the prohibition against fraud
and abuse in connection with federal or state healthcare programs.
Please note some photos in this report were taken to prior to COVID-19.
Abiomed, Inc.
22 Cherry Hill Drive
Danvers, MA 01923 USA
Abiomed Europe GmbH
Neuenhofer Weg 3
52074 Aachen, Germany
Abiomed Japan
2-2-1 Nihonbashi-Muromachi,
Chuou-ku, Tokyo, 103-0022
© 2 0 2 1 A B I O M E D , I N C . A L L R I G H T S R E S E R V E D .
Recovering Hearts and Saving Lives
Recovering hearts and saving lives is the founding
principle and guiding compass of our organization.
This is our highest recognition of success.
Recovering and preserving our patients’ hearts and
oxygenating their bodies enables them to return
home to their families and enjoy an improved
quality of life.
Leading in Technology and Innovation
We are committed to providing patients and
healthcare providers with the highest quality
devices and optimal cost-effective solutions.
We accomplish this through the relentless
exploration of new ideas and approaches that
allow us to address new clinical challenges for
our customers and patients.
Sustaining a Winning Culture
Patients First. Our patients and customers are the
motivation for all that we do and achieving our
mission is dependent on their well-being. We must
always act with integrity and honor and demand
the best of ourselves. We work hard, have faith in
each other, and have fun celebrating the patient
success stories.
Growing Shareholder Value
Growing shareholder value rewards our investors
and helps to ensure the company’s financial
stability, allowing for the continued pursuit of our
mission. Shareholder value is driven by executing
our goals and achieving positive financial results.
For employees, growth of shareholder value
provides financial security for our families and
the pursuit of happiness for our future.