ABIOMED, INC. 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. The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our condensed consolidated financial statements and the accompanying notes included in this Report. The following discussion may contain forward-looking statements that reflect our plans, estimates and beliefs, which are subject to risks, uncertainties and assumptions. Our actual results could differ materially from those expressed or implied by such statements. The forward-looking statements in this Report are based on certain risks and uncertainties, including, but not limited to, the risk factors described in "Part I, Item 1A. Risk Factors" of our annual report on Form 10-K for the year endedMarch 31, 2022 and the following: the impact of public health threats and epidemics, including the COVID-19 pandemic; the impact of prolonged economic downturns on our operations and financial conditions; fluctuations in foreign currency exchange rates and inflation; climate change; corporate social responsibility and sustainability matters; 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 new circulatory assist products and our development efforts; 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 and maintain 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; changes in healthcare policy and reimbursement systems in theU.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 theU.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" forU.S. federal income tax purposes and our limited utilization of net operating losses and income tax credit carryforwards from prior tax years; our ability to maintain compliance with, and the impact on us of changes in, tax laws; 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, both domestically and internationally, or develop or acquire additional intellectual property; claims that our current or future products infringe or misappropriate the proprietary rights of others; 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; the potential for dilution to our stockholders' ownership interests through the sale of additional securities; the failure to satisfy or waive the conditions to consummation of the J&J Transaction, many of which are largely outside of the parties' control; the impact failure to complete the J&J Transaction could have on stock price and future business; business uncertainties and certain contractual restrictions the Company is subject to while the J&J Transaction is pending; the risk of incurring substantial transaction fees and costs in connection with the J&J Transaction; the termination fee and restrictions on solicitation contained in the J&J Merger Agreement; litigation against the Company, J&J, or the members of their respective boards; the impact that uncertainty about the J&J Transaction may have on the relationships between the Company and its customers, vendors and employees; the risk that the Company or J&J may terminate the J&J Merger Agreement if the J&J Merger is not consummated byJuly 1, 2023 (orSeptember 1, 2023 in certain circumstances); and the risk that our stockholders potentially may not receive any payment on the contingent value rights and the contingent value rights may otherwise expire valueless. 27
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Overview
We are a provider of medical devices that provide circulatory support and oxygenation. We develop, manufacture and market proprietary products that are designed to enable the heart to rest and recover by improving blood flow and/or performing the pumping function of the heart and provide sufficient oxygenation to those in respiratory failure. Our 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. 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.
COVID-19 Pandemic
We are subject to additional risks and uncertainties as a result of the ongoing
novel coronavirus ("COVID-19") pandemic. Since March 2020 , the ongoing COVID-19
pandemic has adversely impacted and is likely to further adversely impact our
business and markets, including our workforce and the operations of our
customers, suppliers, and business partners. While the COVID-19 (including new
variants of 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. To ensure the health and safety of our global
employees, we continue to offer onsite COVID-19 testing and vaccinations in
order to maintain a safe working environment. Our proactive testing and
vaccination programs have reduced exposure with early detection and enabled our
manufacturing facilities to operate at full capacity.
The depth and extent to which the COVID-19 pandemic may directly or indirectly
impact our business, results of operations, financial condition and individual
markets is dependent upon various factors, including the spread of additional
variants; the availability of vaccinations, personal protective equipment,
intensive care unit ("ICU") and operating room capacity, and medical staff; and
government interventions to reduce the spread of the virus. When COVID-19
infection rates spike in a particular region, our patient utilization volumes
have generally been negatively impacted as hospitals face capacity limitations,
staffing shortages and some in-patient treatments have been deferred.
While patient utilization increased in the second quarter of fiscal year 2023,
sales were impacted by extended vacations from physicians and medical employees,
in addition to the ongoing impact of hospital staffing shortages. We continue to
closely monitor the impact of COVID-19 on all aspects of our business, including
customers, employees, suppliers, vendors, business partners and distribution
channels, as well as on procedures and the demand for our products by keeping
apprised of local, regional, and global COVID-19 surges (including new variants
of the virus).
While we cannot reliably estimate the extent to which the COVID-19 pandemic may
impact patient utilization and revenues of our products, our focus is to
continue increasing patient utilization of our Impella devices in the U.S. and
growing our business internationally, with a continued focus on Europe and
Japan . As of the date of issuance of these financial statements, the extent to
which the COVID-19 pandemic may materially adversely affect our financial
condition, liquidity or results of operations is uncertain.
Macroeconomic Conditions
Our revenues and results of operations may be susceptible to fluctuations in macroeconomic conditions, including inflation and slowing economic growth and contractions, fluctuations in the rate of exchange between theU.S. dollar and foreign currencies, changes in customer and consumer sentiment and demand, increasing prices for raw materials, transportation and labor costs, disruptions in the manufacturing, supply and distribution operations of us and our suppliers. The nature and extent of the impact of these factors among others varies by region and remains uncertain and unpredictable.
Acquisition of preCARDIA
We acquired 100% interest in preCARDIA onMay 28, 2021 . preCARDIA is a developer of a proprietary catheter and controller that will complementAbiomed 's product portfolio to expand options for patients with acute decompensated heart failure ("ADHF"). The preCARDIA system is uniquely designed to rapidly treat ADHF-related volume overload by effectively reducing cardiac filling pressures and promoting decongestion to improve overall cardiac and renal function. We acquired preCARDIA for a purchase price of$115.2 million . The acquisition was accounted for as an asset acquisition as substantially all of the fair value of the acquisition related to the acquired in-process research and development asset. Since the acquired technology platform is pre-commercial and has not reached technical feasibility, the cost of the in-process research and development asset was expensed, resulting in a charge of$115.5 million to the condensed consolidated statements of operations for the six months endedSeptember 30, 2021 . In addition, we recognized a gain of$21.0 million related to our previously owned minority interest within the condensed consolidated statements of operations for the six months endedSeptember 30, 2021 . In connection with the acquisition, we acquired a license agreement, under which there is a potential payout of$5 million based on the achievement of a commercial milestone. 28
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The J&J Transaction
OnOctober 31, 2022 , the Company, Johnson & Johnson ("J&J"), andAthos Merger Sub, Inc. , a wholly owned subsidiary of J&J ("Merger Sub"), entered into an Agreement and Plan of Merger (the "J&J Merger Agreement"), pursuant to which, on the terms and subject to the conditions set forth in the J&J Merger Agreement, (i) Merger Sub will commence a tender offer (the "J&J Offer") to acquire all outstanding shares of common stock of the Company ("Company Shares") for$380.00 per share in cash, without interest and less any applicable withholding tax, and one non-tradeable contingent value right per Company Share (each, a "CVR") which represents the right to receive contingent payments of up to$35.00 per Company Share, in cash, without interest and less any applicable withholding tax, upon achievement of certain specified milestones and (ii) following consummation of the J&J Offer, Merger Sub will merge with and into the Company (the "J&J Merger" and together with the J&J Offer and the other transactions contemplated by the J&J Merger Agreement and the CVR Agreement (as defined below), the "J&J Transaction")), with the Company surviving the J&J Merger as a wholly owned subsidiary of J&J. On the terms and subject to the conditions set forth in a contingent value right agreement (the "CVR Agreement") to be entered into by J&J and a rights agent mutually agreed between J&J and the Company, each CVR will represent the right to receive the following cash payments if the following milestones are achieved: (i)$10.00 per CVR if the results from the STEMI DTU study, the PROTECT IV study or the RECOVER IV study contribute to the publication of a Class I recommendation in the clinical practice guideline recommending the use of any device in the Impella product family in high risk PCI orSTEMI patients with or without cardiogenic shock within four years from their respective clinical endpoint publication dates, but in all cases no later thanDecember 31, 2029 ; (ii)$7.50 per CVR if, prior toJanuary 1, 2028 , theU.S. Food and Drug Administration approves a premarket approval application or premarket approval application supplement for the use of any device in the Impella product family in patients withSTEMI , or Anterior STEMI, without cardiogenic shock; and (iii) either (x)$17.50 per CVR if J&J achieves$3.7 billion aggregate worldwide net sales with respect to certain of the Company's products during the period from the first day of J&J's second fiscal quarter of 2027 through the last day of J&J's first fiscal quarter of 2028 or (y)$8.75 per CVR if J&J achieves$3.7 billion aggregate worldwide net sales with respect to certain of the Company's products in any four consecutive fiscal quarters during the period from the first day of J&J's third fiscal quarter of 2027 through the last day of J&J's first fiscal quarter of 2029. The boards of directors of both the Company and J&J have unanimously approved the J&J Merger and the board of directors of the Company unanimously recommends that the Company's stockholders tender their Company Shares in the J&J Offer. The closing of the J&J Transaction is subject to the tender of more than 50% of the Company Shares, the expiration or termination of any waiting period (and extensions thereof) under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, and the receipt of certain other non-U.S. regulatory approvals, and other customary closing conditions. The companies expect the J&J Transaction to close prior to the end of the first calendar quarter of 2023. Additional information about the J&J Merger Agreement, the J&J Offer and the J&J Merger will be set forth in the Company's Solicitation/Recommendation Statement on Schedule 14D-9 that will be filed with theSEC .
Our Existing Products
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. As we continue to innovate our product portfolio, we expect to continue to transition our sales focus to newer generations of Impella devices over time. In the catheterization lab, we expect to continue shifting sales focus from the Impella 2.5 device to the Impella CP device and in the surgical suite, from the Impella 5.0 device to the Impella 5.5 device. Accordingly, we expect that a greater concentration of our product revenues will be from Impella CP and Impella 5.5 devices in the future.
Below is a summary of our existing products and the countries where they have received regulatory approval. We expect to continue to make additional regulatory submissions for our products for additional indications and in additional countries.
Impella 2.5®
The Impella 2.5 device is a percutaneous heart pump with an integrated motor and sensors. The technology 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 received FDA and PMDA approvals which allows us to market it in theU.S. andJapan , respectively. The technology is also approved for use in multiple other countries. 29 --------------------------------------------------------------------------------
Impella CP®
The Impella CP device provides blood flow of up to 4.3 liters of blood per minute 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 device has received FDA, CE Mark, PMDA approvals which allows us to market it in theU.S. ,European Union andJapan , respectively. The technology is also approved for use in multiple other countries.
Impella 5.0® and Impella LD®
The Impella 5.0 and Impella LD devices are percutaneous 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 and Impella CP devices.
Our Impella 5.0 and Impella LD devices have received FDA, CE Mark, PMDA
approvals which allow us to market them in the
Impella 5.5®
The Impella 5.5 device is designed to be a percutaneous heart pump with integrated motors and sensors. The Impella 5.5 device delivers peak flows of greater than six liters per minute. The Impella 5.5 device has a motor housing that is thinner and 45% shorter than the Impella 5.0 device and it improves ease of pump insertion through the vasculature. InSeptember 2019 , the Impella 5.5 device received PMA approval from the FDA for safety and efficacy in the therapy of cardiogenic shock for up to 14 days in theU.S. The Impella 5.5 device was introduced in theU.S. through a controlled rollout at hospitals with established heart recovery protocols beginning in fiscal year 2020. InApril 2018 , the Impella 5.5 device received CE Mark approval inEurope and was introduced inEurope through a controlled rollout, similar to theU.S. InNovember 2021 , the Impella 5.5 device received PMDA approval and we began a controlled rollout inJapan in fiscal year 2022, similar to theU.S. andEurope . Impella RP® The Impella RP device is a percutaneous catheter-based axial flow pump that is designed to allow for 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 received FDA and CE Mark approval which allows us to market this technology in theU.S. andEuropean Union . The Impella RP device is the first percutaneous 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. Additionally, we have adapted the design of the Impella RP device to be implanted through the internal jugular vein in the neck; we believe this approach is the preferred method for heart surgeons as it allows for increased patient mobility. We anticipate making a regulatory submission for this technology in fiscal year 2023. 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, Impella 5.5 and Impella RP heart pumps. The Impella SmartAssist platform received FDA, CE Mark and PMDA approvals which allows us to market it in theU.S. ,European Union andJapan , respectively. The technology is also approved for use in multiple other countries.
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. We began a controlled rollout of Impella Connect at certain hospital sites during fiscal year 2020 and have transitioned most of our customers to this technology. We continue to introduce this technology to hospitals outside theU.S. 30 --------------------------------------------------------------------------------
The Breethe OXY-1 System is a portable external respiratory assistance device that we acquired as part of our acquisition of Breethe, inApril 2020 in connections with 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 Breethe 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. InOctober 2020 , the Breethe OXY-1 System received 510(k) clearance from the FDA for an all-in-one, compact cardiopulmonary bypass system. We have conducted a controlled launch of the Breethe OXY-1 System at a limited number of hospitals in theU.S. and have seen positive results regarding survival, blood compatibility, durability of the Pump Lung Unit ("PLU"), hemodynamic flow rates and ease of patient ambulation. Based on our early patient study, we identified areas of improvement around the electronics of the console and implemented a voluntary recall at the seven hospitals where the Breethe OXY-1 Systems were placed in fiscal year 2022. Until the corrective action is completed, we are not expanding the number of patients or centers under the controlled launch. The console upgrades require 510(k) clearance from the FDA. We expect to resume commercialization of the Breethe OXY-1 System under a controlled rollout in the fourth quarter of fiscal year 2023.
Our Product Pipeline
Impella ECP™
The Impella ECP device is designed for blood flow of greater than three and a
half liters per minute. It is intended to be delivered on a standard sized (9
French) catheter and will include an expandable inflow in the left ventricle.
The Impella ECP device has achieved initial FDA safety milestones, including
completion of the first stage in its FDA early feasibility study ("EFS"). The
prospective, multi-center, single arm EFS is designed to allow us, study
investigators, and the FDA to make qualitative assessments about the safety and
feasibility of the use of the Impella ECP device in high-risk percutaneous
coronary intervention ("PCI") patients. In fiscal year 2021, we received
approval from the FDA to expand the EFS for the Impella ECP device and we
continue to enroll patients in this study. In August 2021 , we received
Breakthrough Device designation by the FDA for the Impella ECP device, which is
provided pursuant to the FDA's Breakthrough Device Program, a program intended
to help patients receive more timely access to certain medical technologies by
providing a speedier development, assessment and review process for such
technologies. The protocol of a single arm pivotal high-risk PCI study for the
Impella ECP device, as part of an investigational device exemption ("IDE"), has
been approved by the FDA. We have supported over 25 patients in our early
feasibility study and began patient enrollment under a pivotal-like protocol in
March 2022 . We expect to transition to a pivotal trial in fiscal year 2023. The
Impella ECP device is still in development and has not been approved for
commercial use or sale.
Impella BTR™
The Impella BTR device is designed to be a percutaneous, weanable, smart heart pump with integrated motors and sensors. The Impella BTR device is designed to allow for greater than six liters of blood flow per minute, provide up to one year of hemodynamic support and include a wearable driver designed for hospital discharge. The Impella BTR device is expected to and intended to allow for heart recovery with adjunctive therapies for advanced heart-failure patients. InDecember 2021 , we received conditional approval for an IDE early feasibility study for the Impella BTR device and began enrollment in early fiscal year 2023. The Impella BTR device is still in development and has not been approved for commercial use or sale. preCARDIA™ The preCARDIA system is a minimally invasive, catheter-mounted superior vena cava therapy system designed to rapidly treat acutely decompensated heart failure ("ADHF") related volume overload by effectively reducing cardiac filling pressures and promoting decongestion to improve overall cardiac and renal function. The preCARDIA system allows for straightforward placement in the ICU by physicians and hemodynamic monitoring by medical staff. Prior to the acquisition of preCARDIA, the preCARDIA system received Breakthrough Device Designation by the FDA. InJanuary 2022 , we announced results of the first-in-human early feasibility study of the preCARDIA system. The multicenter, prospective, single-arm VENUS-HF early feasibility study examined 30 patients with ADHF who were assigned preCARDIA therapy for 12 or 24 hours. The primary endpoint was a composite of major adverse events through 30 days. The results support additional study of the preCARDIA system. In the second quarter of fiscal year 2023, the FDA authorized the preCARDIA early feasibility study to be expanded to up to 160 patients. The preCARDIA system 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 Presentation and Summary of Significant Accounting Policies" to our condensed 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 endedSeptember 30, 2022 , 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 endedMarch 31, 2022 . 31 --------------------------------------------------------------------------------
Results of Operations for the Three and Six Months Ended
Revenue
The following tables disaggregate our revenue by products and services:
For the Three Months Ended September 30,
2022 2021 Change
Amount % of Total Amount % of Total Amount
(in thousands) revenue (in thousands) revenue (in thousands) %
Product revenue $ 253,246 95 % $ 235,785 95 % $ 17,461 7 %
Service and other revenue 12,675 5 % 12,357 5 % 318 3 %
Total revenue $ 265,921 100 % $ 248,142 100 % $ 17,779 7 %
For the Six
Months Ended
2022 2021 Change
Amount % of Total Amount % of Total Amount
(in thousands) revenue (in thousands) revenue (in thousands) %
Product revenue $ 517,717 95 % $ 477,259 95 % $ 40,458 8 %
Service and other revenue 25,353 5 % 23,468 5 % 1,885 8 %
Total revenue $ 543,070 100 % $ 500,727 100 % $ 42,343 8 %
The following tables disaggregate our revenue by geographic location:
For the Three Months Ended September 30,
2022 2021 Change
Amount % of Total Amount % of Total Amount
(in thousands) revenue (in thousands) revenue (in thousands) %
United States $ 218,943 82 % $ 200,485 81 % $ 18,458 9 %
Europe 30,269 11 % 32,527 13 % (2,258 ) (7 )%
Japan 12,467 5 % 12,267 5 % 200 2 %
Rest of world 4,242 2 % 2,863 1 % 1,379 48 %
Outside the U.S. 46,978 18 % 47,657 19 % (679 ) (1 )%
Total revenue $ 265,921 100 % $ 248,142 100 % $ 17,779 7 %
For the Six
Months Ended
2022 2021 Change
Amount % of Total Amount % of Total Amount
(in thousands) revenue (in thousands) revenue (in thousands) %
United States $ 445,462 82 % $ 407,627 81 % $ 37,835 9 %
Europe 64,105 12 % 64,764 13 % (659 ) (1 )%
Japan 25,702 5 % 23,552 5 % 2,150 9 %
Rest of world 7,801 1 % 4,784 1 % 3,017 63 %
Outside the U.S. 97,608 18 % 93,100 19 % 4,508 5 %
Total revenue $ 543,070 100 % $ 500,727 100 % $ 42,343 8 %
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The following tables disaggregate our product revenue by geographic location:
For the Three Months Ended September 30,
2022 2021 Change
Amount % of Total Amount % of Total Amount
(in thousands) revenue (in thousands) revenue (in thousands) %
United States $ 207,948 78 % $ 189,761 76 % $ 18,187 10 %
Europe 29,042 11 % 31,328 13 % (2,286 ) (7 )%
Japan 12,014 5 % 11,833 5 % 181 2 %
Rest of world 4,242 2 % 2,863 1 % 1,379 48 %
Outside the U.S. 45,298 17 % 46,024 19 % (726 ) (2 )%
Total product revenue $ 253,246 95 % $ 235,785 95 % $ 17,461 7 %
For the Six
Months Ended
2022 2021 Change
Amount % of Total Amount % of Total Amount
(in thousands) revenue (in thousands) revenue (in thousands) %
United States $ 423,514 78 % $ 387,220 77 % $ 36,294 9 %
Europe 61,611 11 % 62,557 12 % (946 ) (2 )%
Japan 24,792 5 % 22,698 5 % 2,094 9 %
Rest of world 7,800 1 % 4,784 1 % 3,016 63 %
Outside the U.S. 94,203 17 % 90,039 18 % 4,164 5 %
Total product revenue $ 517,717 95 % $ 477,259 95 % $ 40,458 8 %
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 the three and six months ended September 30, 2022 .
Total Revenue
Total revenue increased by$17.8 million , or 7%, from the three months endedSeptember 30, 2021 to the three months endedSeptember 30, 2022 . Total revenue increased by$42.3 million , or 8%, from the six months endedSeptember 30, 2021 to the six months endedSeptember 30, 2022 . The increase in total revenue from the three and six months endedSeptember 30, 2021 to the three and six months endedSeptember 30, 2022 was driven by an increase in both product revenue and service and other revenue, as further described below.
Product Revenue
Product revenue increased by$17.5 million , or 7%, from the three months endedSeptember 30, 2021 to the three months endedSeptember 30, 2022 . Product revenue increased by$40.5 million , or 8%, from the six months endedSeptember 30, 2021 to the six months endedSeptember 30, 2022 .U.S. product revenue increased by$18.2 million , or 10%, from the three months endedSeptember 30, 2021 to the three months endedSeptember 30, 2022 .U.S. product revenue increased by$36.3 million , or 9%, from the six months endedSeptember 30, 2021 to the six months endedSeptember 30, 2022 . Outside theU.S. , product revenue decreased by$0.7 million , or 2%, from the three months endedSeptember 30, 2021 to the three months endedSeptember 30, 2022 . Outside theU.S. , product revenue increased by$4.2 million , or 5%, from the six months endedSeptember 30, 2021 to the six months endedSeptember 30, 2022 . Product revenue increased in the three and six months endedSeptember 30, 2022 , primarily due to higher patient utilization and sales mix in theU.S. ,Europe andJapan as compared to the three and six months endedSeptember 30, 2021 , partially offset by the unfavorable impact of foreign exchange fluctuations due to the strengthening of theU.S dollar during the six months endedSeptember 30, 2022 , extended vacations from physicians and medical employees and the ongoing impact of hospital staffing shortages. 33 --------------------------------------------------------------------------------
Service and other revenue
Service and other revenue increased by$0.3 million , or 3%, from the three months endedSeptember 30, 2021 to the three months endedSeptember 30, 2022 . Service and other revenue increased by$1.9 million , or 8%, from the six months endedSeptember 30, 2021 to the six months endedSeptember 30, 2022 . The increase in service revenue was primarily due to an increase in service contracts sold. 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 customer sites in theU.S. have service contracts which typically have three-year terms. Cost of revenue For the Three Months Ended September 30, 2022 2021 Change Amount % of Total Amount % of Total Amount (in thousands) revenue (in thousands) revenue (in thousands) % Cost of revenue $ 48,880 18 % $ 43,886 18 % $ 4,994 11 % For the Six
Months Ended
2022 2021 Change
Amount % of Total Amount % of Total Amount
(in thousands) revenue (in thousands) revenue (in thousands) %
Cost of revenue $ 101,506 19 % $ 89,074 18 % $ 12,432 14 %
Cost of revenue increased by $5.0 million , or 11%, from the three months ended
September 30, 2021 to the three months ended September 30, 2022 . Cost of revenue
increased by $12.4 million , or 14%, from the six months ended September 30, 2021
to the six months ended September 30, 2022 . Gross margin was 81.6% for the three
months ended September 30, 2022 and 82.3% for the three months ended September
30, 2021 . Gross margin was 81.3% for the six months ended September 30, 2022 and
82.2% for the six months ended September 30, 2021 .
Cost of product revenue increased due to our investment in direct labor and
overhead as we continue to expand the manufacturing capacity of our facilities
in the U.S. and Germany , resulting in a corresponding decrease to gross margin.
Operating expenses
For the Three Months Ended September 30,
2022 2021 Change
Amount % of Total Amount % of Total Amount
(in thousands) revenue (in thousands) revenue (in thousands) % Research and development $ 42,089
16 % $ 41,041 17 % $ 1,048 3 %
Selling, general and
administrative 116,958 44 % 102,779 41 % 14,179 14 %
Total operating expenses $ 159,047 60 % $ 143,820 58 % $ 15,227 11 %
For the Six
Months Ended
2022 2021 Change
Amount % of Total Amount % of Total Amount
(in thousands) revenue (in thousands) revenue (in thousands) %
Research and development $ 82,566 15 % $ 78,749 16 % $ 3,817 5 %
Selling, general and
administrative 234,954 43 % 206,263 41 % 28,691 14 %
Acquired in-process research
and development - 0 % 115,490 23 % (115,490 ) (100 )%
Total operating expenses $ 317,520 58 % $ 400,502 80 % $ (82,982 ) (21 )%
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Research and Development Expenses
Research and development expenses increased by$1.0 million , or 3%, from the three months endedSeptember 30, 2021 to the three months endedSeptember 30, 2022 . Research and development expenses increased by$3.8 million , or 5%, from the six months endedSeptember 30, 2021 to the six months endedSeptember 30, 2022 . The increase in research and development expenses was primarily due to ongoing product development initiatives relating to our existing and pipeline products, including the development of the Impella ECP™, preCARDIA and Impella BTR™ devices and continued investment in our clinical trials, most notably the STEMI DTU and PROTECT IV studies. The increase in research and development expenses was partially offset by a$3.1 million and a$6.5 million reduction to the fair value of our contingent consideration for the three months endedSeptember 30, 2022 and the six months endedSeptember 30, 2022 , respectively.
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, develop new technologies and conduct clinical studies.
Selling, General and Administrative Expenses
Selling, general and administrative expenses increased by$14.2 million , or 14%, from the three months endedSeptember 30, 2021 to the three months endedSeptember 30, 2022 . Selling, general and administrative expenses increased by$28.7 million , or 14%, from the six months endedSeptember 30, 2021 to the six months endedSeptember 30, 2022 . The increase in selling, general and administrative expenses was primarily due to increases in commercial hiring, marketing, travel and clinical training and education initiatives.
We aim to continue to invest strategically in hiring 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.
We acquired 100% interest in preCARDIA onMay 28, 2021 , for a purchase price of$115.2 million . In connection with the acquisition, we acquired net assets of$115.2 million , which included$115.5 million related to the fair value of the in-process research and development asset and$0.3 million for net liabilities assumed. The acquisition was accounted for as an asset acquisition as substantially all of the fair value of the acquisition related to the acquired in-process research and development asset. Since the acquired technology platform is pre-commercial and has not reached technical feasibility, the cost of the in-process research and development asset was expensed, resulting in a charge of$115.5 million to the condensed consolidated statements of operations for the six months endedSeptember 30, 2021 .
Interest and other income, net
For the Three Months Ended September 30,
2022 2021 Change
Amount Amount Amount
(in thousands) (in thousands) (in thousands) %
Interest and other
income, net $ 80,709 $ 6,835 $ 73,874 1,081 %
For the Six Months Ended September 30,
2022 2021 Change
Amount Amount Amount
(in thousands) (in thousands) (in thousands) %
Interest and other
income, net $ 84,481 $ 46,770 $ 37,711 81 %
35-------------------------------------------------------------------------------- Interest and other income, net increased by$73.9 million , or 1,081%, from the three months endedSeptember 30, 2021 to the three months endedSeptember 30, 2022 . For the three months endedSeptember 30, 2022 interest and other income, net was primarily comprised of a$47.4 million unrealized gain on other investments related to an upward adjustment due to observable price changes, a$15.2 million net realized gain from the sale of Shockwave Medical securities and a$14.5 million unrealized gain from our investment in Shockwave Medical, offset by impairment charges of$1.8 million related to our other investments. For the three months endedSeptember 30, 2021 interest and other income, net was primarily comprised of a$4.8 million unrealized gain from our investment in Shockwave Medical. Interest and other income, net increased by$37.7 million , or 81%, from the six months endedSeptember 30, 2021 to the six months endedSeptember 30, 2022 . For the six months endedSeptember 30, 2022 interest and other income, net was primarily comprised of$52.3 million unrealized gains on other investments related to upward adjustments due to observable price changes, a$15.2 million net realized gain from the sale of Shockwave Medical securities and a$9.7 million unrealized gain from our investment in Shockwave Medical, offset by impairment charges of$1.8 million related to our other investments. For the six months endedSeptember 30, 2021 interest and other income, net was primarily comprised of a$22.4 million unrealized gain from our investment in Shockwave Medical and a$21.0 million gain related to our previously owned minority interest in preCARDIA. Income tax provision For the Three Months Ended September 30, 2022 2021 Change Amount Amount Amount (in thousands) (in thousands) (in thousands) % Income tax provision $ 32,570 $ 10,318 $ 22,252 216 % For the Six Months Ended September 30, 2022 2021 Change Amount Amount Amount (in thousands) (in thousands) (in thousands) % Income tax provision $ 47,838 $ 27,493 $ 20,345 74 % The income tax provision increased by$22.3 million , or 216%, from the three months endedSeptember 30, 2021 to the three months endedSeptember 30, 2022 primarily due to the change in fair value of other investments. Our effective income tax rate was 23.5% and 15.3% for the three months endedSeptember 30, 2022 and 2021, respectively. The income tax provision increased by$20.3 million , or 74%, from the six months endedSeptember 30, 2021 to the six months endedSeptember 30, 2022 primarily due to the change in fair value of other investments. Our effective income tax rate was 22.9% and 47.5% for the six months endedSeptember 30, 2022 and 2021, respectively. The decrease in the effective income tax rate for the six months endedSeptember 30, 2022 is primarily due to a non-deductible charge for in-process research and development related to the preCARDIA acquisition that occurred during the six months endedSeptember 30, 2021 .
Liquidity and Capital Resources
As ofSeptember 30, 2022 , our total cash, cash equivalents and short and long-term marketable securities totaled$937.2 million , an increase of$41.5 million compared to$978.7 million atMarch 31, 2022 . The change in our total cash, cash equivalents and short and long-term marketable securities was primarily due to positive cash flows from operations, cash provided by investing activities, net of cash used for purchases of property, equipment and other investments, and net cash used for financing activities related to equity activity.
A summary of our cash flow activities is as follows:
For the Six Months Ended
September 30,
2022 2021
Net cash provided by operating activities $ 81,524 $ 115,931
Net cash provided by (used for) investing activities 109,681 (108,395 )
Net cash used for financing activities (134,118 ) (786 )
Effect of exchange rate changes on cash and cash
equivalents (7,570 ) 2,422
Net increase in cash and cash equivalents$ 49,517 $ 9,172 36
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Cash Provided by Operating Activities
For the six months endedSeptember 30, 2022 , net cash provided by operating activities consisted of net income of$160.7 million , less non-cash items of$39.5 million and cash used for working capital of$39.6 million . As discussed above, the change in net income was primarily due to an increase in operating expenses and income tax expense, partially offset by an increase in revenue for the six months endedSeptember 30, 2022 compared to the six months endedSeptember 30, 2021 . Adjustments for non-cash items consisted primarily of a$77.4 million net change in fair value of our investments in Shockwave Medical and other private medical technology companies,$29.4 million of stock-based compensation expense,$13.3 million of depreciation and amortization expense,$7.4 million in deferred tax provision,$7.1 million in inventory and other write-downs, a change in fair value of contingent consideration of$6.5 million and$0.3 million in accretion on marketable securities. The decrease in cash from changes in working capital is primarily due to a$18.3 million increase in inventory to support growing sales volume, a$13.1 million increase in prepaid expenses and other assets due to timing of tax payments, a$6.4 million increase in accounts receivable due to timing of collections, a$1.8 million decrease in accounts payable, accrued expenses and other liabilities, partially offset by a$0.1 million increase in deferred revenue. For the six months endedSeptember 30, 2021 , cash provided by operating activities consisted of net income of$30.4 million , plus non-cash items of$132.1 million offset by cash used in working capital of$46.6 million . Adjustments for non-cash items consisted primarily of$115.5 million for acquired preCARDIA in-process research and development, a$21.0 million gain related to our previously owned minority interest in preCARDIA recognized upon the acquisition of preCARDIA inMay 2021 , a$22.4 million net change in fair value of our investments in Shockwave Medical and other private medical technology companies,$28.4 million of stock-based compensation expense,$13.9 million of depreciation and amortization expense,$8.2 million in deferred tax provision,$6.2 million in inventory and other write-downs and$1.8 million in accretion on marketable securities. The decrease in cash from changes in working capital included a$7.4 million decrease in accounts receivable due to timing of collections, a$21.9 million decrease in accounts payable, accrued expenses and other liabilities offset by a$20.3 million increase in prepaid expenses and other assets and a$11.7 million increase in inventory due to the mix of customer demand and production.
Cash Provided by (Used for) Investing Activities
For the six months endedSeptember 30, 2022 , net cash provided by investing activities included$87.1 million in sales and maturities (net of purchases) of marketable securities and$40.0 million in proceeds from sales of Shockwave Medical securities. These amounts were offset by$12.4 million used for the purchase of property and equipment primarily related to continued expansion of manufacturing capacity, office space and research development facilities in Danvers andAachen, Germany and$5.0 million for our investment in private medical technology companies. For the six months endedSeptember 30, 2021 , net cash used for investing activities included$82.8 million for our acquisition of preCARDIA,$3.9 million for our investment in private medical technology companies,$7.3 million in purchases of marketable securities (net of sales), and$14.4 million for the purchase of property and equipment primarily related to continued expansion of manufacturing capacity, office space and research development facilities in Danvers andAachen, Germany . Capital expenditures for fiscal year 2023 are estimated to range from$40 million to$50 million , including, as part of the long-term development of our business, additional capital expenditures for manufacturing capacity and building expansions in our Danvers andAachen facilities and information systems development projects.
Cash Used for Financing Activities
For the six months endedSeptember 30, 2022 , net cash used for financing activities included$126.6 million for repurchases of our common stock and$12.8 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$3.3 million in proceeds from the issuance of stock under the employee stock purchase plan and$2.0 million in proceeds from the exercise of stock options.
For the six months ended
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--------------------------------------------------------------------------------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 ofSeptember 30, 2022 , our cash, cash equivalents, and short and long-term marketable securities totaled$937.2 million , an increase of$41.5 million compared to$978.7 million as ofMarch 31, 2022 . Marketable securities as ofSeptember 30, 2022 consisted of$754.9 million held in funds that invest inU.S. Treasury securities, government-backed securities, corporate debt securities and commercial paper. We generated operating cash flows of$81.5 million and$115.9 million for the six months endedSeptember 30, 2022 and 2021, respectively. AtSeptember 30, 2022 , 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. We primarily fund our operations from product sales. 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 acquisitions of preCARDIA and Breethe; ongoing commercial launch inJapan and expansion into potential new markets; increased clinical spending; legal expenses related to ongoing patent litigation and other legal matters; purchases of our common stock through our share repurchase programs; 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. 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 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.
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