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MarketScreener Homepage  >  Equities  >  Nasdaq  >  Abiomed, Inc.    ABMD

ABIOMED, INC.

(ABMD)
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ABIOMED INC : MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (form 10-Q)

11/06/2020 | 04:03pm EST

Forward Looking Statements


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. Factors that could cause
actual results or conditions to differ from those anticipated by these and other
forward-looking statements include: the impact of the COVID-19 pandemic, efforts
to contain the pandemic and resulting economic downturn on our operations and
financial condition; our dependence on Impella® products for all 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; long sales and training
cycles associated with expansion into new hospital cardiac centers; reduced
market acceptance of our products due to lengthy clinician training process; our
ability to effectively manage our growth; our ability to successfully
commercialize our products; our ability to obtain regulatory approvals and
market and sell our products in certain jurisdictions; enforcement actions and
product liability suits relating to off-label uses of our products; unsuccessful
clinical trials or procedures relating to products under development; our
ability to maintain compliance with regulatory requirements; mandatory or
voluntary product recalls; shutdowns of the U.S. federal government; third-party
payers' failure to provide reimbursement of our products; changes in healthcare
reimbursement systems in the U.S. and other foreign jurisdictions; our failure
to comply with healthcare "fraud and abuse" laws; 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; uncertainties associated with our product
development efforts; our ability to increase manufacturing capacity to support
continued demand for our products; our or our vendors' failure to achieve and
maintain high manufacturing standards; our ability to attract and retain key
personnel; our suppliers' failure to provide the components we require; our
ability to expand our direct sales activities into international markets; the
economic effects of "Brexit"; poor performance of our distributors in the
international markets; our ability to sustain profitability; our potential
"ownership change" for U.S. federal income tax purposes and our limited
utilization of net operating losses from prior tax years; impact of changes in
tax laws, including recently enacted U.S. Tax Reform; our ability to develop and
commercialize new products or acquire desirable companies, products or
technologies; our failure to protect our intellectual property or develop or
acquire additional intellectual property; increased risk of material product
liability claims; inventory write-downs and other costs due to product quality
problems; liabilities due to failure to protect the confidentiality of patient
health information; disruptions of critical information systems or material
breaches in the security of our systems; risks and liabilities associated with
acquisitions of other companies or businesses; changes in accounting standards,
tax laws and financial reporting requirements; liabilities, expenses and
restrictions associated with environmental and health safety laws; changes in
methods, estimates and judgments we use in applying our accounting policies;
fluctuations in foreign currency exchange rates; 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 our Form 10-K for the year
ended March 31, 2020 and the filings subsequently filed with or furnished to the
SEC. Readers are cautioned not to place undue reliance on any forward-looking
statements, which speak only as of the date of this Report. Unless otherwise
required by law, we undertake no obligation to publicly release the results of
any revisions to these forward-looking statements that may be made to reflect
events or circumstances that occur after the date of this Report or to reflect
the occurrence of unanticipated events.

Overview


We are a leading provider of temporary mechanical circulatory support devices,
and we offer a continuum of care to heart failure patients. 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.

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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 approval which allows us to market these devices in the U.S. and
European Union. 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.

COVID-19 Pandemic


In March 2020, the World Health Organization categorized the novel Coronavirus
disease 2019, or (COVID-19) as a pandemic. COVID-19 continues to spread
throughout the United States and other countries across the world, and the
duration and severity of its effects are currently unknown. The global pandemic
has adversely impacted and is likely to further adversely impact our business
and markets, including our workforce and operations and the operations of our
customers, suppliers, and business partners. Considerable uncertainty still
surrounds the COVID-19 virus and its potential effects, and the extent of and
effectiveness of responses taken on international, national and local levels.
Measures taken to limit the impact of COVID-19, including shelter-in-place
orders, social distancing measures, travel bans and restrictions, and business
and government shutdowns, have already created significant negative economic
impacts on a global basis.

Beginning in mid-March 2020 and continuing into the first quarter of fiscal
2021, the Company experienced a significant 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. The Company's business was most
impacted in April 2020, 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 globally through the second quarter of fiscal 2021 as restrictions
were lifted and limitations eased. In the second quarter of fiscal 2021, patient
procedure volume trends have improved gradually as both demand for procedures
and availability of healthcare resources improved during the summer months.

While we currently expect to see sequential quarterly improvement in the
remainder of fiscal 2021, 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 based on some of the
resurgence that is now occurring in cities across the globe.

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 also taken proactive actions to mitigate the
business impact of COVID-19 on our financial operations. These actions taken to
date include temporary salary reductions and furloughs for certain employees, a
hold on most hiring, eliminating non-critical consultants, contractors, and
temporary workers, reducing discretionary spending, travel restrictions and
implementing alternate work schedules for the Aachen and Danvers production
teams. These actions are designed to preserve full-time jobs, preserve cash and
retain the ability to ramp up quickly when demand returns, while at the same
time continuing to invest in innovation.

We are closely monitoring 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 extent to which the
COVID-19 global pandemic impacts our business, results of operations, and
financial condition will depend on future developments, which are highly
uncertain and are difficult to predict these developments include, but are not
limited to, the duration and spread of the outbreak, its severity, the actions
to contain the virus or address its impact, 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. Even after the
COVID-19 outbreak has subsided, we may continue to experience materially adverse
impacts on our financial condition and results of operations.

Acquisition of Breethe, Inc.


We acquired Breethe, Inc. ("Breethe"), a Maryland corporation, on April 24,
2020. Breethe is engaged in research and development of a novel extracorporeal
membrane oxygenation ("ECMO") system that 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, such as ARDS, H1N1, SARS, or COVID-19.
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 Abiomed
Breethe OXY-1 System received a 510(k) clearance from the FDA for an all-in-one,
compact cardiopulmonary bypass system. Abiomed plans to have a controlled launch
of the Breethe system at a limited number hospitals in the U.S, with full U.S.
commercial availability expected in fiscal year 2022.

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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 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 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. The Impella 2.5 device also has Health Canada
approval which allows us to market the device in Canada.

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 pre-market approval, or PMA supplement submissions for our Impella
portfolio of devices for additional indications. In March 2019, we received PMDA
approval from MHLW for our Impella CP heart pump in Japan. We began selling the
Impella CP heart pump in Japan in fiscal 2020.

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 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 fiscal 2020 and we estimate that it will
take three to four years to complete enrollment.

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.


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 pre-market approvals, or PMA supplement submissions
for our Impella portfolio of devices for additional indications. Our Impella 5.0
devices have regulatory approval from the Ministry of Health, Labor and Welfare,
or MHLW, in Japan.

Impella 5.5®

The Impella 5.5 device is designed to be a percutaneous micro heart pump with
integrated motors and sensors. 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 2020.
Impella 5.5 received CE marking approval in Europe in April 2018 and was
introduced in Europe through a similar controlled rollout. We are also targeting
a submission to the PMDA in Japan in fiscal 2021. The adoption of the Impella
5.5 device may lessen the utilization of Impella 5.0 and Impella LD at certain
sites.

Impella RP®

The Impella RP 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

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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 pre-market approval, or 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
currently developed for the Impella CP SmartAssist and Impella 5.5 SmartAssist
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, cloud-based,
remote viewing of the Automated Impella Controller, or AIC, for physicians and
hospital staff from anywhere with internet connectivity. The Impella Connect is
intended to provide enhanced monitoring capability, reduce setup time and
improve ease of use for physicians. We began a controlled roll-out of Impella
Connect at certain hospital sites during fiscal 2020 and plan to transition the
majority of our significant customers in fiscal 2021.

Our Product Pipeline

Abiomed Breethe OXY-1 System

The Abiomed Breethe OXY-1 System ("OXY-1 System") is a portable external respiratory assistance device that we acquired as part of the Breethe, Inc. acquisition. 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. We plan to have a controlled launch of the Breethe system at a limited number hospitals in the U.S., with full U.S. commercial availability expected in fiscal year 2022.

Impella ECP™


The Impella ECP pump 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. We began patient enrollment
in October 2020. The Impella ECP pump is still in development and has not been
approved for commercial use or sale.

Impella XR Sheath™


The Impella XR Sheath is a sheath designed to expand and recoil to all for ease
of use upon insertion of an Impella heart pump and minimize the size of the
arteriotomy. The Impella XR Sheath device is still in development and has not
been approved for commercial use or sale. We submitted an application for FDA
510(k) clearance for our Impella 2.5 pump in August 2020 and we also continue to
work on development of an Impella XR Sheath on our Impella CP device for an FDA
submission in fiscal 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.



Critical Accounting Policies and Estimates


Other than the accounting policy changes discussed in   "Note 2. Basis of
Preparation and Summary of Significant Accounting Policies"   to our
consolidated financial statements, which is incorporated herein by reference,
there have been no significant changes in our critical accounting policies
during the three and six months ended September 30, 2020, as compared to the
critical accounting policies disclosed in Management's Discussion and Analysis
of Financial Condition and Results of Operations included in our Annual Report
on Form 10-K for the fiscal year ended March 31, 2020.

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Recently Issued Accounting Pronouncements Not Yet Effective


Information regarding recent accounting pronouncements is included in   "Note 2.
Basis of Preparation and Summary of Significant Accounting Policies"   to our
consolidated financial statements and is incorporated herein by reference.

Results of Operations for the Three and Six Months Ended September 30, 2020 compared with the Three and Six Months Ended September 30, 2019

The following table sets forth certain condensed consolidated statements of operations data for the periods indicated as a percentage of total revenue:



                                         For the Three Months Ended          For the Six Months Ended
                                                September 30,                      September 30,
                                           2020               2019            2020               2019
Revenue                                      100.0     %        100.0   %       100.0     %        100.0   %
Costs and expenses as a percentage of
total revenue:
Cost of revenue                               18.5               17.0            19.9               17.4
Research and development                      14.6               11.7            15.2               11.6
Selling, general and administrative           37.7               41.9            39.4               41.7
Total costs and expenses                      70.8               70.6            74.5               70.7
Income from operations                        29.2               29.4            25.5               29.3
Other income and income tax                    0.5               23.0             3.0                4.4
provision, net
Net income as a percentage of total           29.7     %          6.4   %        28.5     %         24.9   %
revenue




Revenue

The following table disaggregates the Company's revenue by products and
services:



                                       For the Three Months Ended             For the Six Months Ended
                                              September 30,                         September 30,
                                          2020                 2019             2020                 2019
                                               (in $000's)                           (in $000's)
Impella product revenue             $    199,676$    196,939$    355,093$    396,804
Service and other revenue                 10,088                8,035           19,521               15,836
Total revenue                       $    209,764$    204,974$    374,614$    412,640




The following table disaggregates the Company's revenue by geographical
location:



                                       For the Three Months Ended             For the Six Months Ended
                                              September 30,                         September 30,
                                          2020                 2019             2020                 2019
                                               (in $000's)                           (in $000's)
U.S. revenue                        $    172,147$    172,015$    306,872$    347,500
International revenue                     37,617               32,959           67,742               65,140
Total revenue                       $    209,764$    204,974$    374,614$    412,640

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.

Total Revenue


Total revenue for the three months ended September 30, 2020 increased by $4.8
million, or 2%, to $209.8 million from $205.0 million for the three months ended
September 30, 2019. Total revenue for the six months ended September 30, 2020
decreased $38.0 million, or 9%, to $374.6 million from $412.6 million for the
six months ended September 30, 2019. The increase in total revenue in the second
quarter of fiscal 2021 was driven by both Impella product revenue and our
service and other revenue, as further described below.

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Impella Product Revenue


Impella product revenue for the three months ended September 30, 2020 increased
by $2.8 million, or 1%, to $199.7 million from $196.9 million for the three
months ended September 30, 2019. Impella product revenue for the six months
ended September 30, 2020 decreased by $41.7 million, or 11%, to $355.1 million
from $396.8 million for the six months ended September 30, 2019. Most of the
increase in Impella product revenue during the three months ended September 30,
2020 was related to sales growth outside of the U.S. with product sales being
relatively flat in the U.S. Impella product revenue outside of the U.S.
increased primarily due to higher utilization in Germany and Japan.

Impella procedure volumes have varied greatly since the end of March 2020 by
geography, and even by hospital, as patients and their physicians manage through
the COVID-19 pandemic.

Through the second quarter of fiscal 2021, patient procedure volume trends have
improved gradually both demand for procedures and availability of healthcare
resources have improved. We experienced sequential quarterly improvement during
the second quarter of fiscal 2021 as restrictions were somewhat lifted and
limitations eased.

While we currently expect to see sequential quarterly improvement in the
remainder of fiscal 2021, 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 based on some of the
resurgence that is now occurring in cities across the globe. While we cannot
reliably estimate the extent to which the COVID-19 pandemic may continue to
impact patient utilization and revenues of our products, we expect revenue from
our Impella devices to increase sequentially each quarter during fiscal 2021
with our focus on growing key using U.S. sites, our controlled launch of Impella
5.5, primarily in the U.S., and our focus on growing our business
internationally, with a continued focus on Germany and Japan.

Service and Other Revenue


Service and other revenue for the three months ended September 30, 2020
increased by $2.1 million, or 26%, to $10.1 million from $8.0 million for the
three months ended September 30, 2019. Service and other revenue for the six
months ended September 30, 2020 increased $3.7 million, or 23%, to $19.5 million
from $15.8 million for the six months ended September 30, 2019. 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 the three months ended September 30, 2020 increased by $3.8
million, or 11%, to $38.7 million from $34.9 million for the three months ended
September 30, 2019. Gross margin was 81.5% for the three months ended
September 30, 2020 and 83.0% for the three months ended September 30, 2019.

Cost of revenue for the six months ended September 30, 2020 increased by $2.8
million, or 4%, to $74.7 million from $71.9 million for the six months ended
September 30, 2019. Gross margin was 80.1% for the six months ended
September 30, 2020 and 82.6% for the six months ended September 30, 2019.

The increase in cost of product revenue and decrease in gross margin during the
three and six months ended September 30, 2020 was related to lower production
volume of our Impella devices and costs associated with our initial launch of
our Impella CP SmartAssist and Impella Connect products.

We expect that our ongoing investment in manufacturing capacity and the expansion of our Impella CP SmartAssist and Impella Connect platform may decrease gross margin slightly in the near future.

Research and Development Expenses


Research and development expenses for the three months ended September 30, 2020
increased by $6.5 million, or 27%, to $30.5 million from $24.0 million for three
months ended September 30, 2019. Research and development expense for the six
months ended September 30, 2020 increased $9.1 million, or 19%, to $56.9 million
from $47.8 million for the six months ended September 30, 2019. The increase in
research and development expenses was primarily due to product development
initiatives relating to our existing and pipeline products, the development of
the OXY-1 System, Impella XR Sheath™ and Impella ECP™ devices, the expansion of
our engineering organization, investment in our clinical trials and studies,
most notably the DTU-STEMI study and our continued focus on clinical and quality
initiatives for our Impella products.

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We expect research and development expenses to continue to increase as we continue to increase 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.

Selling, General and Administrative Expenses


Selling, general and administrative expenses for the three months ended
September 30, 2020 decreased by $6.8 million, or 8%, to $79.2 million from $86.0
million for the three months ended September 30, 2019. Selling, general, and
administrative expenses for the six months ended September 30, 2020 decreased
$24.4 million, or 14%, to $147.6 million from $172.0 million for the six months
ended September 30, 2019. The decrease in selling, general and administrative
expenses was primarily due to the proactive cost actions 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, eliminating certain non-critical consultants and
contractors. In addition, stock compensation expense was lower due to a lower
number of restricted stock units granted and earned.

Despite the ongoing challenges posed by COVID-19, we expect to continue to
invest on 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 14. Commitment and Contingencies" to our consolidated financial
statements. For the impact of COVID-19 on our business, see "COVID-19 Pandemic."

Operating Income


Operating income for the three months ended September 30, 2020 increased by $1.1
million, to $61.3 million, compared to $60.2 million for the three months ended
September 30, 2019. Operating margin was 29.2% for the three months ended
September 30, 2020 compared to 29.4% for the three months ended September 30,
2019. Operating income for the six months ended September 30, 2020 decreased by
$25.5 million, to $95.4 million, compared to $120.9 million for the six months
ended September 30, 2019. Operating margin was 25.5% for the six months ended
September 30, 2020 compared to 29.3% for the six months ended September 30,
2019.

Other Income (Expense), net


Other income (expense), net increased by $54.4 million, to other income of $11.6
million for three months ended September 30, 2020, compared to other expense of
$42.8 million for three months ended September 30, 2019. Other income (expense),
net increased by $39.0 million, to other income of $38.6 million for the six
months ended September 30, 2020 compared to other expense of $0.4 million for
the six months ended September 30, 2019. This increase was primarily due to a
gain of $10.8 million and $34.7 million from our investment in Shockwave Medical
during the three and six months ended September 30, 2020, respectively, compared
to a loss of $45.6 million and $5.9 million on the same investment for the three
and six months ended September 30, 2019, respectively.

Income Tax Provision


Our income tax provision was $10.7 million and $4.3 million for the three months
ended September 30, 2020 and 2019, respectively, and our income tax provision
was $27.2 million and $18.5 million for the six months ended September 30, 2020
and 2019, respectively. Our effective income tax rate was 14.7% and 24.7% for
the three months ended September 30, 2020 and 2019, respectively, and 20.3% and
15.4% for the six months ended September 30, 2020 and 2019, respectively. The
decrease in the effective income tax rate was due primarily to higher excess tax
benefits recognized associated with stock-based awards of $7.9 million and $0.5
million as an income tax benefit for three months ended September 30, 2020 and
2019 respectively, and of $8.5 million and $13.3 million for the six months
ended September 30, 2020 and 2019. These recognized excess tax benefits resulted
from restricted stock units that vested or stock options that were exercised
during the three months ended September 30, 2020 and 2019, respectively.

Net Income


For the three months ended September 30, 2020, net income was $62.2 million, or
$1.38 per basic share and $1.36 per diluted share, compared to $13.1 million, or
$0.29 per basic share and $0.28 per diluted share, for three months ended
September 30, 2019. For the six months ended September 30, 2020, net income was
$106.8 million, or $2.37 per basic share and $2.34 per diluted share, compared
to $102.0 million, or $2.25 per basic share and $2.22 per diluted share for the
six months ended September 30, 2019.

Net income for the three months ended September 30, 2020 included excess tax
benefits related to stock-based awards of $7.9 million, or $0.18 per basic share
and $0.17 per diluted share, and a total $8.2 million gain, net of tax, or $0.18
per basic and diluted share, related to our investment in Shockwave Medical. Net
income for the three months ended September 30, 2019 included excess

                                       33

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tax benefits related to stock-based awards of $0.5 million, or $0.01 per basic
and diluted share, and a $34.5 million unrealized loss, net of tax, or $0.76 per
basic share and $0.75 per diluted share, related to our investment in Shockwave
Medical.

Net income for the six months ended September 30, 2020 included excess tax
benefits related to stock-based awards of $8.5 million, or $0.19 per basic and
diluted share, and a $26.1 million gain, net of tax, or $0.58 per basic and
$0.57 per diluted share, related to our investment in Shockwave Medical. Net
income for the six months ended September 30, 2019 included excess tax benefits
related to stock-based awards of $13.3 million, or $0.29 per basic and diluted
share, and a $4.5 million unrealized loss, net of tax, or $0.10 per basic and
diluted share, related to our investment in Shockwave Medical.

Liquidity and Capital Resources


At September 30, 2020, our total cash, cash equivalents and marketable
securities totaled $735.7 million, an increase of $84.8 million compared to
$650.9 million at March 31, 2020. The increase in our cash, cash equivalents and
marketable securities during the six months ended September 30, 2020 was
primarily due to cash flows provided by operating activities offset by cash used
to fund our annual bonuses and proceeds from the sale of shares in Shockwave
Medical. These amounts were offset by taxes paid related to net settlement of
vesting of stock awards during the period and purchases of property and
equipment.

Following is a summary of our cash flow activities:



                                                            For the Six Months Ended September 30,
                                                               2020                        2019
Net cash provided by operating activities               $           108,968         $           138,887
Net cash used for investing activities                              (81,314 )                   (38,011 )
Net cash used for financing activities                              (14,711 )                   (71,005 )
Effect of exchange rate changes on cash                              (3,043 )                      (613 )
Net increase in cash and cash equivalents               $             9,900         $            29,258



Cash Provided by Operating Activities


For the six months ended September 30, 2020, cash provided by operating
activities consisted of net income of $106.8 million, adjustments for non-cash
items of $19.7 million and cash used in working capital of $17.5 million. As
discussed above, the change in net income was primarily due to modest increases
in Impella revenue, lower selling, general and administrative expenses to
reduced discretionary spending and hiring and gains from our investment in
Shockwave Medical, partially offset by increases in research and development
expenses due to product development and clinical initiatives relating to our
existing and pipeline products and lower excess tax benefits. Adjustments for
non-cash items consisted primarily of $20.9 million of stock-based compensation
expense, $14.2 million in deferred tax provision, $11.1 million of depreciation
and amortization expense, $3.1 million in inventory and other write-downs, and
$0.5 million in accretion on marketable securities. The change in cash from
working capital included a $4.8 million decrease in accounts receivable due to
timing of collections, a $6.1 million decrease in inventory due to lower
production volumes, a $32.1 million decrease in accounts payable and accrued
expenses primarily due to payment of annual bonuses during the quarter ended
September 30, 2020, and a $2.0 million increase in deferred revenue.

For the six months ended September 30, 2019, cash provided by operating
activities consisted of net income of $102.0 million, adjustments for non-cash
items of $54.5 million and cash used in working capital of $17.6 million. As
discussed above, the change in net income was primarily due to lower excess tax
benefits partially offset by higher revenue from increased utilization of our
Impella devices and an unrealized loss related to our investment in Shockwave
Medical. Adjustments for non-cash items consisted primarily of $26.4 million of
stock-based compensation expense, $10.2 million in deferred tax provision, $9.1
million of depreciation and amortization expense, $2.3 million in accretion on
marketable securities, and $2.2 million in inventory and other write-downs. The
change in cash from working capital included a $12.2 million increase in
inventory to support demand for our Impella devices, $3.8 million increase in
accounts receivable due to timing of collections, a $3.0 million increase in
deferred revenue, and a $0.5 million decrease in accounts payable and accrued
expenses.

Cash Used for Investing Activities


For the six months ended September 30, 2020, net cash used for investing
activities primarily consisted of $74.4 million in purchases from the sale of
marketable securities (net of maturities), $52.2 million in net cash for our
acquisition of Breethe and $19.6 million used in the purchase of property and
equipment primarily related to continued expansion of manufacturing capacity,
office space and research development facilities in Danvers and Aachen, Germany.
We also made an additional $3.1 million investment in a private medical
technology companies during fiscal 2021. These amounts were partially offset by
$67.9 million in proceeds from the sale of Shockwave Medical securities.

For the six months ended September 30, 2019, net cash used for investing
activities primarily consisted of $5.6 million in maturities (net of purchases)
of marketable securities and $24.6 million used in the purchase of property and
equipment primarily

                                       34
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related to continued expansion of manufacturing capacity, office space and
research development facilities in Danvers and Aachen, Germany. We invested an
additional $7.8 million in private medical technology companies during fiscal
2019.

Capital expenditures for fiscal 2021 are estimated to range from $30.0 million
to $50.0 million, including additional capital expenditures for manufacturing
capacity expansions in our Danvers and Aachen facilities, additional office
space, building and leasehold improvements and information systems development
projects.

Cash Used for Financing Activities


For the six months ended September 30, 2020, net cash used for financing
activities included $11.3 million for the repurchase of our common stock and
$10.9 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 $5.6 million in proceeds from the exercise of stock options and $2.0
million in proceeds from the issuance of stock under the employee stock purchase
plan.

For the six months ended September 30, 2019, net cash used for financing
activities included $41.2 million in payments in lieu of issuance of common
stock for payroll withholding taxes upon vesting of certain equity awards and
$34.9 million used in the repurchase of our common stock. These amounts were
offset by $2.7 million in proceeds from the exercise of stock options and $2.4
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. On
September 30, 2020, our total cash, cash equivalents, and short and long-term
marketable securities totaled $735.7 million, a decrease of $84.8 million
compared to $650.9 million at March 31, 2020. Marketable securities at
September 30, 2020 consisted of $533.5 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 $109.0 million and $138.9
million for the six months ended September 30, 2020 and 2019, respectively. At
September 30, 2020, 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.

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; funding of new product and business
development initiatives, such as the recent acquisition of Breethe; ongoing
commercial launch in Japan and expansion into potential new markets; increased
clinical spending; legal expenses related to ongoing patent litigation and other
legal matters; stock repurchases 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 continue to review our short-term and
long-term cash needs on a regular basis.

As discussed in "COVID-19 Pandemic," we have taken proactive actions to mitigate
the business impact of COVID-19 on our financial operations. While we currently
expect to see sequential quarterly improvement in the remainder of fiscal 2021,
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 based on some of the resurgence that occurring in cities
across the globe.

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.

Contractual Obligations and Commercial Commitments


We have various contractual obligations, which are recorded as liabilities in
our consolidated condensed financial statements. Other items are not recognized
as liabilities in our consolidated condensed financial statements but are
required to be disclosed. There have been no material changes, outside of the
ordinary course of business, to our contractual obligations as previously
disclosed in our Annual Report on Form 10-K for the fiscal year ended March 31,
2020.

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