e10vk
UNITED STATES SECURITIES AND
EXCHANGE COMMISSION
Washington, D.C.
20549
Form 10-K
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ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
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For the fiscal year ended March
31, 2008
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or
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
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For the transition period
from to
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Commission file number:
000-51323
Micrus Endovascular
Corporation
(Exact name of registrant as
specified in its charter)
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Delaware
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23-2853441
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(State or other jurisdiction
of
incorporation or organization)
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(I.R.S. Employer
Identification No.)
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821 Fox Lane
San Jose, California
(Address of principal
executive offices)
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95131
(Zip Code)
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(408) 433-1400
(Registrants telephone
number, including area code)
Securities registered pursuant to Section 12(b) of the
Act:
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Title of Each Class
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Name of Each Exchange on Which Registered
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Common Stock, $0.01 par value per share
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The NASDAQ Stock Market, LLC
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Securities registered pursuant to Section 12(g) of the
Act:
None
Indicate by check mark if the registrant is a well-known
seasoned issuer, as defined in Rule 405 of the Securities
Act. Yes o No þ
Indicate by check mark if the registrant is not required to file
reports pursuant to Section 13 or Section 15(d) of the
Exchange
Act. Yes o No þ
Indicate by check mark whether the registrant (1) has filed
all reports required to be filed by Section 13 or 15(d) of
the Securities Exchange Act of 1934 during the preceding
12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been
subject to such filing requirements for the past
90 days. Yes þ No o
Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of
Regulation S-K
is not contained herein, and will not be contained, to the best
of registrants knowledge, in definitive proxy or
information statements incorporated by reference in
Part III of this
Form 10-K
or any amendment to this
Form 10-K. o
Indicate by check mark whether the registrant is a large
accelerated filer, an accelerated filer, a non-accelerated
filer, or a smaller reporting company. See the definitions of
large accelerated filer, accelerated
filer and smaller reporting company in
Rule 12b-2
of the Exchange Act. (Check one):
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Large accelerated
filer o
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Accelerated
filer þ
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Non-accelerated
filer o
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Smaller reporting
company o
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(Do not check if a smaller reporting company)
Indicate by check mark whether the registrant is a shell company
(as defined in
Rule 12b-2
of the Exchange
Act). Yes o No þ
As of September 28, 2007, the aggregate market value of the
registrants common stock held by non-affiliates of the
registrant was $178.3 million based on the closing sale
price of such stock as reported on the NASDAQ Global Market.
Shares of common stock held by each officer and director as of
that date and by each person who owned 5% or more of the
registrants outstanding common stock as of
September 28, 2007 have been excluded in that such persons
may be deemed to be affiliates. This determination of affiliate
status is not necessarily a conclusive determination for other
purposes.
As of May 30, 2008 registrant had outstanding
15,619,038 shares of common stock, $0.01 par value per
share.
DOCUMENTS
INCORPORATED BY REFERENCE
The Registrant has incorporated by reference portions of its
Proxy Statement for its 2008 Annual Meeting of Stockholders to
be filed with the Securities and Exchange Commission within
120 days after the close of the fiscal year covered by this
annual report.
MICRUS
ENDOVASCULAR CORPORATION
TABLE OF
CONTENTS
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FORWARD-LOOKING
STATEMENTS
Certain information contained in or incorporated by reference
in this Report contains forward-looking statements that involve
risks and uncertainties. The statements contained in this Report
that are not purely historical are forward-looking statements
within the meaning of Section 27A of the Securities Act of
1933, as amended (the Securities Act), and
Section 21E of the Securities Exchange Act of 1934, as
amended (the Exchange Act), including statements
regarding our expectations, beliefs, intentions or strategies
regarding the future. All forward-looking statements included in
this Report are based on information available to us on the date
hereof, and we assume no obligation to update any such
forward-looking statements. Our actual results could differ
materially from those discussed herein. Factors that could cause
or contribute to such differences include, but are not limited
to, those discussed in Item 1A, Risk Factors, and elsewhere
in this Report. References herein to Micrus,
the Company, we, our,
us and similar words or phrases are references to
Micrus Endovascular Corporation and its subsidiaries, unless the
context otherwise requires. Unless otherwise provided in this
Report, trademarks identified by
®
and
tm
are registered trademarks or trademarks, respectively, of
Micrus Endovascular Corporation or its subsidiaries. All other
trademarks are the properties of their respective owners.
PART I
The
Company
We develop, manufacture and market implantable and disposable
medical devices used in the treatment of cerebral vascular
diseases. Our products are used by interventional
neuroradiologists, interventional neurologists and neurosurgeons
to treat both cerebral aneurysms responsible for hemorrhagic
stroke and intracranial atherosclerosis which may lead to
ischemic stroke. Hemorrhagic and ischemic stroke are both
significant causes of death and disability worldwide.
Our product lines consist of endovascular systems that enable a
physician to gain access to the brain in a minimally invasive
manner through the vessels of the arterial system. We believe
our products provide a safe and reliable alternative to more
invasive neurosurgical procedures for treating aneurysms. Our
proprietary three-dimensional, embolic coils anatomically and
rapidly deploy within an aneurysm, forming a scaffold and
filling that conforms to a wide diversity of aneurysm shapes and
sizes. In addition, our
Cerecyte®
microcoil product line incorporates an absorbable material
called polyglycolic acid (PGA), bioactive filaments which reside
within the central lumen of our microcoils. We believe, based on
limited data, that the inclusion of these bioactive filaments
within the lumen of the coil may promote faster aneurysm healing
and may reduce the risk of recanalization or retreatment.
We are expanding our product line beyond microcoils and access
systems, and in January 2006, we entered into a license,
development and distribution agreement with Biotronik AG
(Biotronik) which provides us with exclusive access
to certain stent technologies for neurovascular applications. In
February 2006, Biotronik received CE Mark authorization for the
PHAROStm
stent for both the treatment of cerebral aneurysms and the
treatment of ischemic disease (atherosclerosis). In March 2006,
we launched our
PHAROStm
stent in certain countries that recognize the CE Mark, providing
us with our first commercial product for the treatment of
ischemic disease. We plan to pursue regulatory authorization in
the United States for our
PHAROStm
Vitessetm
stent, which we believe represents a significant market
opportunity for Micrus. In October 2007, we entered into a Stock
Purchase Agreement with The Cleveland Clinic Foundation
(The Cleveland Clinic) and acquired ReVasc
Technologies, Inc. (ReVasc), a wholly-owned
subsidiary of The Cleveland Clinic. This acquisition provides us
with an exclusive license to revascularization technology for
the treatment of intra-cranial thrombus or clot which can also
cause ischemic stroke. In January 2008, we entered into a
license, development and commercialization agreement with
Genesis Medical Interventional, Inc. (Genesis).
Under the terms of the agreement, we licensed the rights to
Genesis F.A.S.T. Funnel Catheter and clot retrieval system
for the treatment of ischemic stroke.
In fiscal 2008, we launched the
Cashmeretm
bare platinum and
Cerecyte®
microcoil systems and the
Courier®
ENZOtm
deflectable microcatheter. The
Cashmeretm
is a conformable and stretch-resistant platinum or
Cerecyte®
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microcoil designed to provide stable framing or filling of
aneurysms that may require a softer microcoil, such as aneurysms
with irregular shapes or ruptured aneurysms. The
ENZOtm
deflectable microcatheter is designed to offer improved
maneuverability through the brains tortuous vasculature
and to enable in vivo repositioning of the microcatheter in the
aneurysm, allowing physicians to more efficiently fill
aneurysms, which may lead to improved outcomes. We believe
ENZOtm
is the only deflectable microcatheter available for use in the
neurointerventional market.
We have increased the size of our sales and marketing
organization in the past 18 months, and currently market
our products through a direct sales force in the United States,
Canada, the United Kingdom, Germany, Austria and France. We
market through a network of distributors in the rest of Europe,
Latin America, Asia and the Middle East, and entered into an
exclusive distribution agreement with Goodman Co., Ltd.
(Goodman) to market our products in the Japanese
market. In December 2007, we received regulatory approval to
sell our stretch-resistant microcoils in Japan and we continue
to work with regulatory officials in Japan to gain approval for
our
Cerecyte®
microcoils. In July 2007, we entered into an exclusive
distribution agreement with Beijing Tianxinfu Medical Appliances
Co. Ltd. (TXF Medical) to market our products in
China upon receiving regulatory approvals.
We have executive offices in San Jose, California and sales
offices in Switzerland and the United Kingdom as well as a
development and manufacturing facility in Doral, Florida. We
were incorporated under the laws of the State of Delaware in
1996.
On November 30, 2006, we completed the acquisition of
VasCon LLC (VasCon), a privately held company
engaged in the development and manufacture of vascular access
and delivery devices. The acquisition of VasCon adds expertise
in developing clinically advanced access and catheter systems to
our core competencies and provides us with manufacturing
capabilities that are expected to lead to cost reductions for a
wide range of our products. Micrus Design Technology, Inc.
(MDT), a newly formed subsidiary, will develop and
manufacture neurovascular access and delivery products for us,
including our
ENZOtm
deflectable catheter.
Information on revenues, gross profits and total assets for our
business segments and by geographic area appears in Note 10
of Notes to Consolidated Financial Statements for
the year ended March 31, 2008, which are included in
Item 8 of this report and are incorporated herein by
reference.
Industry
Overview
Strokes consist of either aneurysms (hemorrhagic stroke) or
blockages (ischemic stroke) of vessels within or leading to the
brain often resulting in irreversible neurological impairment or
death. According to the American Heart Association, stroke is
the third leading cause of death in the United States. Patients
who survive a stroke are often left with disabilities, including
paralysis, coma, impaired cognition, decreased coordination,
loss of visual acuity, loss of speech, loss of sensation or some
combination of these conditions. A significant need for
effective prevention and treatment of stroke exists because of
the severity of the disorder, its prevalence in society, the
shortcomings of current therapies and the high cost of treatment
and care.
One cause of hemorrhagic stroke is the rupture of cerebral
aneurysms. A cerebral aneurysm is an outward bulging of an
artery in the brain that can develop at weak points in the
arterial wall. In some cases, the patient will experience
symptoms such as headache, blurred vision or dizziness as the
aneurysm grows, but in many cases patients will have no
symptoms. The most devastating complication of a cerebral
aneurysm occurs when the aneurysm ruptures, decreasing blood
flow to brain tissue and leading to increased pressure on the
brain. Rupture of a cerebral aneurysm typically occurs suddenly
and without warning, often leading to catastrophic brain injury
or death.
Historically, patients diagnosed with a cerebral aneurysm
underwent a craniotomy and aneurysmal clipping, a
highly-invasive surgical procedure in which a neurosurgeon
creates an opening in the skull, dissects or retracts brain
tissue to gain access to the aneurysm, and places a metal clip
at the base of the aneurysm to stop further blood flow into the
aneurysm, halting its growth and preventing future rupture. This
procedure is typically performed by a neurosurgeon at a
specialized hospital or medical center. Aneurysmal clipping
requires a lengthy recovery time, and has the significant
expense, morbidity and complication risks associated with a
major neurosurgical procedure.
In the 1990s interventional neuroradiologists and to a lesser
extent neurosurgeons, who collectively are referred to in the
industry as neurointerventionalists, started using
an alternative procedure to clipping, known as embolic coiling,
to treat cerebral aneurysms. Rather than reaching the aneurysm
by opening the skull and moving
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aside the brain tissue, access to the aneurysm in an embolic
coiling procedure is obtained through a catheterization
procedure in which the physician inserts a guide wire followed
by a catheter into the femoral artery of the upper leg and
threads them under fluoroscopy through the arterial system to
the brain and ultimately into the opening of the aneurysm. The
neurointerventionalist then advances embolic coils through the
microcatheter to fill the aneurysm. Embolic coils are small
platinum coils that range in size from 2 mm to 20 mm and once
released into the aneurysm assume complex shapes filling the
aneurysm. The coils form a barrier at the neck of the aneurysm
which decreases or stops blood flow into the aneurysm, enabling
formation of a clot and scar tissue which prevent further growth
or rupture of the aneurysm. Since the mid-1990s, embolic coiling
has become a widely accepted treatment for cerebral aneurysms
because it is a less invasive procedure than surgical clipping
and results in lower overall treatment cost, shorter recovery
times, and less trauma to the patient.
In 2002, The Lancet, a leading medical journal, published the
results of the International Subarachnoid Aneurysm Trial, an
independent, randomized clinical trial involving
2,143 patients in Europe, North America and Australia that
compared aneurysm clipping with embolic coiling as a method of
treating cerebral aneurysms. Known as ISAT, this trial
concluded, based on a survey of patients published in The
Lancet in October 2002, that among the patients
participating in the trial, endovascular intervention with
detachable platinum coils resulted in a 23% relative and 7%
absolute reduction in the risk of major brain injury or death
compared with neurosurgical clipping of the aneurysm at one year
follow up. The seven-year follow up data published in The
Lancet in September 2005 indicated a continued clinical
advantage for patients who underwent coiling versus clipping
procedures.
Market
Opportunity
According to the American Heart Association, approximately
720,000 strokes occur annually in the United States. Ischemic
stroke affects approximately 620,000 patients annually
while hemorrhagic stroke affects approximately
100,000 patients. We believe that a majority of the
hemorrhagic strokes are caused by cerebral aneurysms. We believe
embolic coiling is being used to treat approximately 45% of the
patients diagnosed with cerebral aneurysms in the United States.
Industry sources also indicate that approximately
65-70% of
patients diagnosed with cerebral aneurysms in certain European
countries are treated using embolic coiling procedures. We
believe that embolic coiling procedures can be used to treat a
similar percentage of patients with cerebral aneurysms in the
United States as awareness grows among patients and physicians
of the advantages of embolic coiling. Industry sources estimate
that in Japan embolic coiling is growing at an annual rate of
approximately 15% and in China coiling procedures appear to be
growing at approximately 18% year over year. Industry sources
further estimate that the worldwide endovascular device market
for treatment of hemorrhagic stroke was approximately
$600 million in 2007.
We believe that growth drivers in the market for embolic coiling
products include the overall trend towards less invasive
procedures, an increased number of neurointerventionalists
trained to perform embolic coiling procedures, and the aging
population in whom aneurysms occur with greater frequency.
The key challenges of embolic coiling procedures are the
following:
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Access to the Aneurysm Site. Specialized
products are required to access the complex vasculature of the
brain, properly access the aneurysm site and perform a coiling
procedure. These access products include microcatheters and
guidewires. In order to navigate the complex vascular anatomy of
the brain, access products must have enough column strength to
be pushed significant distances through this vasculature, yet be
flexible enough to travel to distal portions of the brain
without injuring blood vessels.
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Framing and Filling the Aneurysm. In order to
effectively treat an aneurysm, the neurointerventionalist must
fill the aneurysm with a sufficient volume of coils to disrupt
blood flow and occlude the aneurysm. Aneurysms vary in shape and
size and, consequently, neurointerventionalists seek an embolic
coiling solution that enables coils to conform to the
aneurysms shape without requiring extensive manipulation
of the coil. Coils that frame, or conform to, the aneurysm wall
reduce the risk of rupture and facilitate the retention of
additional coils in the aneurysm.
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Coverage of the Neck of the Aneurysm. It is
important to effectively cover the neck of the aneurysm with
coils to help reduce recanalization and improve the chances of a
better clinical outcome.
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Deployment. Once embolic coils are placed in
the aneurysm, the neurointerventionalist must be able to quickly
and reliably deploy the coils from the device positioning unit
within the microcatheter. Unreliable detachment mechanisms can
lead to inadvertent retraction of the embolic coil as the
neurointerventionalist withdraws the positioning unit only to
discover that the coil is still attached. Further, any delay in
deployment may increase procedure time and its attendant risks.
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Recanalization. Industry sources estimate that
recanalization, or the continued or renewed growth of the
aneurysm, occurs in approximately 15% to 25% of aneurysms
treated with embolic coiling. Experts believe that one of the
reasons for recanalization is due to incomplete filling of the
aneurysm with the embolic coils. Studies have shown that while
the recanalization rate is higher for patients treated with
embolic coiling procedures compared to aneurysm clipping,
embolic coiling has been demonstrated to be a safer treatment
approach for aneurysms. Therefore, embolic coiling solutions
that decrease recanalization rates and reduce the need for
retreatment are highly desirable.
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Risk of Rupture. Embolic coiling solutions
that enhance safety and limit the risk of rupture or re-rupture
in the treatment of aneurysms are also essential. Successful
framing and filling of the aneurysm requires precise placement
of the embolic coil. Neurointerventionalists seek embolic
coiling solutions that minimize stress on the aneurysm wall in
the course of placing or repositioning the coil in order to
reduce the risk of rupture.
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The
Micrus Solution
We are focused on a broad range of cerebral vascular treatments
and have developed a proprietary embolic coiling solution,
stents and access products that are designed to effectively
access and treat cerebral aneurysms and ischemic disease. In
addition, we have also developed a line of microcoils that
incorporate bioactive materials which we believe may improve
healing and reduce the need for retreatment.
Our solutions have the following key features:
Self-Deploying Anatomically Conforming
Coils. Our proprietary spherical
MicruSphere®,
Cashmeretm
and
Presidio®
microcoils deploy into a three-dimensional configuration that
assumes an aneurysms shape upon deployment and are
designed to provide uniform framing of the aneurysm. Our
self-deploying microcoils require very little manipulation for
effective placement, thereby reducing the need for microcoil
manipulation and attendant stress on the aneurysm wall.
Enhanced Coverage of the Neck of the
Aneurysm. We believe effective neck coverage
reduces the rate of recanalization. Our microcoils are designed
to facilitate coverage of the neck of the aneurysm in two ways.
First, the three dimensional configuration of our spherical
MicruSphere®,
Cashmeretm
and
Presidio®
microcoils provide the framework to stabilize the neck of the
aneurysm. Second, our
UltiPaq®
finishing coils are soft and flexible, permitting coverage
across the neck of the aneurysm.
Unique Framing and Filling Technology. Our
Presidio®
10 and 18 microcoils are each a single, stretch resistant
Cerecyte®
microcoil designed to deliver stable, predictable aneurysm
framing and filling to increase coverage of the aneurysm wall
and neck with a single coil deployment. As the
Presidio®
10 and 18 are also
Cerecyte®
microcoils, their bioactive filament may also induce a
beneficial tissue response. We believe that effective neck
coverage may reduce the rate of recanalization and need for
retreatment.
Deployment Technology. Our proprietary
electronic microcoil deployment system employs a resistive
heating fiber deployment mechanism that enables
neurointerventionalists to quickly and reliably deploy the
microcoil. Our electronic microcoil deployment system has been
designed so that microcoil deployment time remains consistent
regardless of the number of coils used in the procedure. We
believe that our electronic microcoil deployment system enables
neurointerventionalists to more rapidly deploy microcoils and
generally reduce procedure time.
Bioactive
Technology. Cerecyte®
is our proprietary microcoil product line that incorporates
filaments comprised of polyglycolic acid (PGA) within the lumen
of the microcoils.
MicruSphere®,
Cashmeretm,
Presidio®,
HeliPaq®
and
UltiPaq®
are all available in
Cerecyte®
versions. Initial data from single center studies presented at
major scientific meetings suggest that
Cerecyte®
may promote more thorough aneurysm healing and may reduce
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the risk of recanalization or the need for retreatment. To
improve on the scientific rigor of these early data points, we
are conducting two post market studies, a prospective randomized
trial and a registry, which will provide additional data
regarding the potential benefits of
Cerecyte®.
Stent Platform. Our
PHAROStm
stent is a rapid exchange balloon-delivered device which enables
the neurointerventionalist to deliver and deploy a stent in one
step, eliminating the need for pre-dilation of the constricted
vasculature. We believe this feature may reduce overall
procedural time and cost. We believe the balloon catheter marker
bands combined with the radiopacity of the stainless steel stent
provide for excellent visibility resulting in improved placement
accuracy of deployment. We also believe that the combination of
PHAROStm,
Rapid Exchange
Technologytm
and trackable tip will enable a physician to effectively access
the tortuous and distal anatomy of the brain. In March 2006, we
launched the
PHAROStm
stent in certain countries outside of the United States that
recognize the CE Mark. In March 2008, we filed an
Investigational Device Exemption (an IDE) with the
United States Food and Drug Administration (FDA) for
our next generation stent, the
PHAROStm
Vitessetm,
for the treatment of neurovascular stenoses that are accessible
to the system.
Improved Access Products. We launched an
access product line which includes the
Courier®
Enzotm
deflectable microcatheter, the
Courier®
line of microcatheters and the
Watusi®
line of guidewires. We believe that our
Courier®
microcatheters provide neurointerventionalists with more
predictable and secure access to the complex and distal anatomy
of the cerebral vasculature.
Micrus
Strategy
Our objective is to develop and commercialize innovative,
minimally invasive medical devices that provide a comprehensive
solution to physicians for the treatment of hemorrhagic and
ischemic stroke. The key elements of our strategy to achieve our
objective include:
Expand Our Hemorrhagic Market Share through Continued Product
Innovation. We believe our microcoils, catheters,
wires, and stents offer safer, more effective and less
technically demanding treatment options for
neurointerventionalists which have resulted in the rapid growth
of our revenues. We believe continued product innovations such
as the introductions of our
Cerecyte®
line of bioactive microcoils,
Cashmeretm
microcoils and the
Presidio®
microcoils,
ENZOtm
deflectable catheter, Ascent balloon and Neuropath guide
catheters, will allow us to further grow our market share. We
are continuing to develop new technologies which we believe may
further enhance aneurysm occlusion and reduce the rate of
recanalization.
Increase Our Per-Procedure Revenues. 5% of our
revenue for fiscal 2008 has come from the sale of non-embolic
products. This product line expansion includes stents,
microcatheters and guidewires that we believe have increased our
per-procedure revenue opportunity from approximately 40% to 80%
of every procedure dollar.
Enter the Ischemic Stroke Market. Through our
agreement with Biotronik, we launched our first product
addressing the ischemic stroke market, our
PHAROStm
stent. We intend to continue developing additional stent
platforms for this market. In March 2008, we filed an IDE with
the FDA for our next generation stent, the
PHAROStm
Vitessetm,
for the treatment of intracranial stenoses. In October 2007, we
acquired an exclusive license to revascularization technology
for the treatment of ischemic stroke through the acquisition of
ReVasc from The Cleveland Clinic. In January 2008, we entered
into a license, development and commercialization agreement with
Genesis. Under the terms of the agreement, we licensed the
rights to Genesis F.A.S.T. Funnel Catheter and clot
retrieval system for the treatment of ischemic stroke.
Leverage Our Sales and Marketing
Expansion. Over the past 18 months, we have
increased the number of employees in our sales and marketing
group worldwide and anticipate continuing to expand our sales
and marketing group in Europe and Asia Pacific and, as needed,
in other geographic territories. This expansion should provide
us access to more hospitals, garner more per-procedure revenues
and expand our market share.
Continue to Penetrate Asian Market. We believe
that Japan and China represent significant potential markets for
our products and, in March 2006, we launched our sales and
marketing efforts in Japan through our distribution partner,
Goodman. In December 2007, we received regulatory approval to
sell our stretch-resistant microcoils in Japan and we continue
to work with regulatory officials in Japan to gain approval for
our
Cerecyte®
microcoils. In
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July 2007, we entered into an exclusive distribution agreement
with TXF Medical to market our products in China. We will begin
selling our products in China upon receiving regulatory
approvals.
License or Acquire Complementary Products and
Technologies. In addition to growing our business
through internal product development efforts, we will continue
to look for opportunities to license
and/or
acquire technologies to provide solutions for the treatment of a
variety of cerebral vascular conditions. In July 2005, we
acquired certain deflectable catheter technologies from Vascular
FX. In January 2006, we entered into a license, development and
distribution agreement with Biotronik, a company with stent
design and manufacturing expertise, pursuant to which we
collaborate with Biotronik to develop certain neurovascular
stent products. This agreement provides us with the exclusive
worldwide right to market stent products developed jointly by
Biotronik and us. In November 2006, we acquired certain
neurovascular catheter patent and process technology through the
acquisition of VasCon. By continuing to acquire complementary
products, we believe we can address a broader range of physician
and patient needs. In October 2007, we acquired an exclusive
license to revascularization technology for the treatment of
ischemic stroke through the acquisition of ReVasc from The
Cleveland Clinic. In January 2008, we entered into a license,
development and commercialization agreement with Genesis. Under
the terms of the agreement, we licensed the rights to
Genesis F.A.S.T. Funnel Catheter and clot retrieval system
for the treatment of ischemic stroke. In April 2008, we entered
into a co-development agreement with Chemence Medical Products,
Inc. (Chemence) to jointly develop a liquid embolic
product for the treatment of cerebral aneurysms using
Chemences cyanoacrylate technology, development
capabilities and intellectual property.
Products
The following table shows our principal products and indicates
significant applications for these products. Most of our
products are intended for single use and are either disposed of
or, in the case of microcoils, remain in the patient after the
procedure. All of our products set forth in the following table
have received CE Mark authorization and, except for our
PHAROStm
stent, are covered by the FDA 510(k) process.
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Product Line
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Sizes
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Product Description
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MicruSphere®
Microcoil
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2-18 mm diameter
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Three-dimensional framing microcoil; stabilizes the aneurysm.
Available in bare platinum and
Cerecyte®.
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Presidio®
Microcoil
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4-20 mm diameter
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Framing and filling coil to deliver more neck and wall coverage
in a single deployment. Available in
Cerecyte®.
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Cashmeretm
Complex
Microcoil
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2-12 mm diameter
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Three-dimensional framing and filling complex coil for aneurysms
which require a softer coil. Available in
Cerecyte®
and stretch resistant platinum.
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Product Line
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Sizes
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Product Description
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Watusi®
Guidewire
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.014 diameter and 205 cm length
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Device used to guide microcatheters and other devices to the
aneurysm or stenosis site.
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PHAROStm
Stent System
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2.5 mm - 4.0 mm outer diameter and 8 mm - 20 mm length
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For use as scaffolding of wide-neck aneurysms to ensure that the
microcoil is not dislodged and for use in opening intracranial
arteries that have narrowed.
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EnPowertm
Detachment Control Box
and Connecting Cable
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Next-generation control box provides electronic control via a
lithium ion battery and initiates detachment of our proprietary
microcoil system.
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Microcoil
Products
We offer a range of microcoils designed to enable
neurointerventionalists to treat a wide variety of aneurysms.
These include our
MicruSphere®,
Cashmeretm
and
Ultipaq®
microcoil systems which are available in bare platinum and
Cerecyte®
versions, and the
Presidio®
line of microcoils which incorporates our proprietary
Cerecyte®
technology. All of our microcoils utilize our rapid deployment
system and perform certain specific functions:
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Frame. Our
MicruSphere®,
Presidio®
and
Cashmeretm
microcoils are typically the first microcoils used by the
neurointerventionalist to frame the aneurysm. The
MicruSphere®
microcoil folds automatically into a spherical three-dimensional
shape that conforms to the shape of the aneurysm. This
conforming shape reduces the need for the clinician to
manipulate and reposition the coil multiple times, shortens
procedure time, and reduces the potential for complications.
Additional microcoils may then be placed within the first
microcoil in smaller sizes in an approach known as the
Russian doll technique, sequentially filling the
aneurysm.
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Frame and Fill. Our
Presidio®
and
Cashmeretm
microcoils feature longer lengths and their own unique shapes
required to frame and fill the aneurysm. This can allow for more
platinum to be deployed at the neck of the aneurysm, as well as
greater packing density.
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Fill. The
Cashmeretm
microcoil is a stretch resistant complex coil which may also be
used as a filling coil. The
Cashmeretm
combines extra coil softness with a 3 dimensional secondary
shape in a 14 system coil. Attributes of a 14 system coil help
deliver more packing density per cm of coil compared with
smaller system microcoils. Our proprietary
HeliPaq®
and HeliPaq
SR®
products are filling microcoils used to fill gaps which may
remain in the center of the aneurysm after placement of one or
more of our
MicruSphere®
microcoils. Both the
HeliPaq®
and the HeliPaq
SR®
automatically form a helical shape upon deployment, which allows
filling of complex gaps in the aneurysm. The HeliPaq
SR®
employs a stretch-resistant system designed to prevent the
microcoil from stretching in an unwanted manner while being
positioned in the aneurysm.
InterPaq®
microcoils are filling coils used in larger size aneurysms
requiring a greater volume of coil mass in order to be
adequately filled.
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Finish. Our
UltiPaq®
microcoil is an extra-soft, stretch-resistant finishing coil,
used to provide additional aneurysm neck coverage and to fill
any final gaps in the aneurysm after placement of one or more
MicruSphere®,
Presidio®,
Cashmeretm
and/or
HeliPaq®
microcoils.
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Cerecyte®. Our
proprietary
Cerecyte®
microcoil product line incorporates filaments comprised of PGA
into most of our current line of microcoils
MicruSphere®,
Presidio®,
Cashmeretm,
HeliPaq®,
HeliPaq
SR®
and
UltiPaq®.
Because the PGA filaments run through the center of our
microcoils, our Cerecyte microcoils possess the same handling
characteristics as our standard platinum microcoils. Initial
data from single center studies presented at major scientific
meetings suggest that Cerecyte may improve clinical outcomes
compared to bare platinum coils. We are conducting two
post-market clearance studies to collect human clinical data for
the purpose of demonstrating accelerated healing by our
Cerecyte®
microcoil product line.
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Our ongoing
Cerecyte®
Microcoil Trial is a prospective randomized multi-center trial
which directly compares Micrus
Cerecyte®
bioactive coils to Micrus bare platinum coils for the treatment
of intracranial aneurysms. Up to 23 global centers will enroll
250 patients in each study arm. Our ongoing
Cerecyte®
Registry is a prospective non-randomized United States
multi-center registry designed to document the clinical and
angiographic outcomes of intracranial aneurysms treated with our
Cerecyte®
bioactive coils. The
Cerecyte®
Registry plans to enroll a total of 250 patients to assess
patient outcomes one year after treatment.
PHAROStm
Balloon-Expandable Stent
Our
PHAROStm
stent is a balloon-delivered device which can be used both to
treat ischemic disease and for scaffolding of wide-neck
aneurysms to ensure that the microcoil is not dislodged. For the
treatment of ischemic disease, our
PHAROStm
stent dilates intracranial arteries that have narrowed and
allows the neurointerventionalist to deliver and deploy a stent
in one step. We believe this feature will help reduce overall
procedural time and cost. We believe the balloon catheter marker
bands combined with the radiopacity of the stent provide for
excellent visibility resulting in improved accuracy of
deployment. We believe that PHAROS Rapid Exchange
Technology and trackable tip will enable a physician to access
tortuous and distal anatomy. In March 2006, we launched the
PHAROStm
stent in certain countries outside the United States that
recognize the CE Mark. In March 2008, we filed an IDE with the
FDA for our next generation stent, the
PHAROStm
Vitessetm,
for the treatment of neurovascular stenoses that are accessible
to the system.
Access
Products
We offer the following guidewire and microcatheter products:
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Courier®
ENZOtm
Microcatheter. Introduced to the United States in 2007 and to
Europe in January 2008, the
ENZOtm
deflectable tip microcatheter is designed to offer improved
maneuverability through the brains tortuous vasculature
and to enable in vivo repositioning of the microcatheter
in the aneurysm, allowing physicians to more efficiently fill
aneurysms, which may lead to improved outcomes. We believe
ENZOtm
is the only deflectable tip microcatheter available for use in
the neurointerventional market.
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Courier®
Microcatheter. Our
Courier®
microcatheter is a device used to deliver microcoils to the
aneurysm. Our
Courier®
microcatheter features our proprietary
Endurancetm
technology designed to enhance both tip shaping and tip shape
retention, both of which are vital to optimal coil delivery. It
is available in straight and pre-shaped configurations. Our
Courier®
Microcatheter has been designed to provide the
neurointerventionalist with the ability to navigate the tortuous
vasculature of the brain. The microcatheters design and
hydrophilic coating enable a high level of stability, tip shape
retention and overall tracking.
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Watusi®
Guidewire. Our
Watusi®
Guidewire is used to guide the microcatheter or other delivery
system to the aneurysm. Our
Watusi®
Guidewire features excellent visualization as well as our
proprietary Response
Tiptm
technology, which results in the ability to effectively shape
and re-shape the guidewire tip.
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Microcoil
Delivery System and Deployment Mechanism
Our microcoil delivery system is comprised of a device
positioning unit (DPU), a connecting cable and the
EnPower deployment control box. Our DPU is a flexible catheter
to which a Micrus microcoil is attached. The DPU allows
transport of the microcoil through the vasculature to the brain
and final positioning within the aneurysm. Deployment of the
microcoil occurs when the neurointerventionalist activates a
resistive heater at the tip of the DPU, shearing the
polyethylene fiber that holds the microcoil onto the DPU. Our
deployment technology results in fast and reliable deployment of
the microcoil from the DPU.
Sales and
Marketing
We market our products to interventional neuroradiologists and
neurosurgeons who generally practice at centers located in major
metropolitan areas. There are currently approximately 300 - 400
neurointerventionalists in the United States who perform embolic
coiling procedures. We believe less than one-third of these
physicians perform a substantial majority of the total number of
embolic coiling procedures performed in the United States each
year.
We have developed relationships with a number of these
neurointerventionalists who perform a large number of cerebral
vascular procedures. In fiscal 2008, a substantial portion of
our product sales were to approximately 107 hospitals in the
United States. In order to encourage the continued adoption of
our products, we believe that we need to continue to build and
maintain relationships with these neurointerventionalists. We
believe these relationships are enhanced by the presence of a
direct sales organization. Sales of embolic coiling products
involve a long-term relationship between the sales
representative and neurointerventionalist where the sales
representative must initially be present for product
demonstrations and to monitor procedures. We recruit our sales
representatives based on their experience with minimally
invasive devices and prior success in the medical device
industry. We provide ongoing sales and product training to our
employees and distributors and continually monitor their
performance. We also market our products at various industry
trade shows and conferences.
In the United States and Canada, we market our products through
our direct sales force to neurointerventionalists, while in
Europe and Asia Pacific we rely on both a direct sales force and
a distribution network. We currently have a North American
direct sales force of 40, a European direct sales force of 20
and an Asia Pacific direct sales force of 3. We also added a new
director of Latin American sales. We may add clinical and sales
support personnel at both the direct and distributor level in
Asia Pacific and Europe to ensure a high level of global
physician support for all our products.
We have entered into agreements with distributors in Italy,
Spain and other European countries, as well as portions of the
Middle East and Asia. Our distributors are experienced in the
interventional device markets and have relationships with
leading neurointerventionalists and institutions in those
countries. Our standard distribution agreement generally
(i) provides our distributors with an exclusive right to
distribute our products in a certain territory;
(ii) restricts them from selling products that are
competitive with our products for the limited duration of our
agreement with them; (iii) obligates them to obtain the
necessary authorizations, licenses and approvals to import,
market and distribute our products within the applicable
territory; and (iv) obligates them to promote and
distribute our products within the applicable territory.
We believe that Japan represents a significant market for our
products. On September 30, 2005, we entered into a
five-year, exclusive distribution agreement with Goodman to
promote and market our products in Japan. In February 2006, we
received the requisite local regulatory approvals to sell
certain of our products in Japan through Goodman, and the sale
of such products in Japan commenced in March 2006. On
September 20, 2007, we amended the distribution agreement
with Goodman to, among other thing, extend the duration of the
distribution agreement to six years from the original date of
the distribution agreement. In December 2007, we received
regulatory approval to sell our stretch-resistant microcoils in
Japan, and we continue to work with regulatory officials in
Japan to gain approval for our
Cerecyte®
microcoils.
Information on our revenues from sales to unaffiliated customers
is included in Note 10 of Notes to Consolidated
Financial Statements.
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We generate revenues from sales to hospitals and third-party
distributors. Once a sale has occurred, the customer has no
right of return. We provide the customers with limited warranty
privileges. Goodman, our distributor in Japan, accounted for 15%
of revenues for the year ended March 31, 2007. No customer
accounted for 10% or more of revenues for the years ended
March 31, 2008 and 2006, respectively.
Research
and Development
Our product development efforts are focused on designing
microcoils, guidewires, microcatheters, balloons, thrombectomy
devices and stents for the treatment of hemorrhagic and ischemic
stroke. We are working to develop next generation microcoils to
frame and fill the aneurysm more efficiently and thoroughly.
Also under development are next-generation balloon expandable
stents for the treatment of intracranial atherosclerosis,
self-expanding stents and covered stents as well as occlusion
balloons to augment the treatment of aneurysms with microcoils.
Additionally, we are developing technologies to treat acute
ischemic stroke. In October 2007, we acquired an exclusive
license to revascularization technology for the treatment of
ischemic stroke through the acquisition of ReVasc from The
Cleveland Clinic. In January 2008, we entered into a license,
development and commercialization agreement with Genesis. Under
the terms of the agreement, we licensed the rights to
Genesis F.A.S.T. Funnel Catheter and clot retrieval system
for the treatment of ischemic stroke. In April 2008, we entered
into a co-development agreement with Chemence to jointly develop
a liquid embolic product for the treatment of cerebral aneurysms
using Chemences cyanoacrylate technology, development
capabilities and intellectual property.
As of March 31, 2008, we had 37 full-time employees
engaged in research and development activities. Research and
development expenses for the fiscal years ended March 31,
2008, 2007 and 2006 were $13.7 million, $7.9 million
and $6.6 million, respectively. We plan on increasing our
research and development expenditures in future periods.
Biotronik
Collaboration
In January 2006, we entered into a license, development and
distribution agreement with Biotronik, pursuant to which we will
collaborate with Biotronik to develop certain neurovascular
products and we will be the exclusive worldwide distributor for
jointly developed neurovascular products. Biotronik granted us
an exclusive license to certain patents, know-how and other
proprietary technology in the neurovascular field.
Under the terms of our agreement, we paid an up-front licensing
fee of approximately $0.6 million to Biotronik and were
required to make milestone payments to Biotronik upon receipt of
approvals to market stent products we jointly developed for the
treatment of neurovascular disease and royalty payments on the
products sold. In February 2006, Biotronik received CE Mark
authorization for the
PHAROStm
stent intended for both the treatment of aneurysms and the
treatment of ischemic diseases. As a consequence, we made
milestone payments to Biotronik of approximately
$0.7 million in both March and April 2006. We recorded the
total milestone payments of $1.4 million as capitalized
licensed technology. We have accrued royalties of $20,000 for
PHAROStm
stent products sold in the fourth quarter of fiscal 2008 and
accrued service fees of $443,000 for new stent products
development at March 31, 2008. There are no future
milestone payments to Biotronik related to the
PHAROStm
stent. Additionally, we will continue to fund ongoing project
development based on the terms of this agreement.
ReVasc
Acquisition
In October 2007, we entered into a Stock Purchase Agreement (the
ReVasc Agreement) with The Cleveland Clinic and
acquired ReVasc, a wholly-owned subsidiary of The Cleveland
Clinic for an aggregate up-front purchase price of
$1.0 million. Pursuant to the ReVasc Agreement, we also
agreed to pay The Cleveland Clinic up to an additional
$5.0 million in payments upon the achievement of certain
milestones set forth in the ReVasc Agreement, with minimum
milestone payments of at least $2.0 million due to The
Cleveland Clinic by October 2010.
ReVasc was a party to a license agreement with The Cleveland
Clinic (the ReVasc License Agreement) pursuant to
which The Cleveland Clinic granted ReVasc an exclusive license
to its revascularization technology for the treatment of
ischemic stroke. In connection with the acquisition, the parties
amended the ReVasc License
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Agreement to provide, among other matters, for the payment to
The Cleveland Clinic of certain royalties for sales of products
based on the technology subject to the ReVasc License Agreement.
On December 7, 2007, we merged ReVasc into Micrus.
Following the merger, Micrus became the direct recipient of the
license of the revascularization technology from The Cleveland
Clinic under the ReVasc License Agreement.
Genesis
Collaboration
In January 2008, we entered into a license, development and
commercialization agreement with Genesis. Under the terms of the
agreement, we licensed the rights to Genesis F.A.S.T.
Funnel Catheter and clot retrieval system for the treatment of
ischemic stroke. The transaction includes an initial up-front
payment of $750,000, a future development milestone payment of
$150,000 payable upon the earlier to occur of the date of first
commercial sale or September 30, 2008 and royalties on
potential future product sales.
Disposition
of Cardiac and Peripheral Catheter Platform Assets
In January 2008, we entered into an Asset Purchase and Supply
Agreement (the Merit Agreement) with Merit Medical
Systems, Inc. (Merit) pursuant to which we sold
certain cardiac and peripheral catheter platform assets and
technology (the Merit Transaction). The majority of
the assets sold were originally acquired by the Company in
November 2006 in connection with its purchase of VasCon. Under
the terms of the Merit Agreement, we also agreed to manufacture
and supply certain guide catheters to Merit for a period of up
to one year following the closing. Pursuant to the Merit
Agreement, we received an up-front payment of $1.5 million
and will receive an additional $1.5 million upon the
earlier to occur of the date that Merit can independently
manufacture, validate and commercially produce certain guide
catheters or the one year anniversary of the closing.
In connection with the Merit Transaction, we also entered into a
license agreement granting Merit the right to use certain
non-patented intellectual property in the cardiology and
peripheral radiology fields and a non-competition agreement,
whereby we agreed not to engage in certain competitive business
activities in the fields of cardiology and peripheral radiology
for a period of five years.
We delivered and transferred title to the acquired assets,
primarily inventory related to the catheter products, to Merit
in February and March 2008. Pursuant to the Merit Agreement, we
must provide reasonable assistance to help Merit build a
production line for coronary guide catheters and may be required
to train Merits personnel in manufacturing, validating and
sterilizing coronary guide catheters. We anticipate that the
production line for coronary guide catheters will become fully
operational in the second quarter of fiscal 2009. If requested
by Merit, we must provide reasonable assistance to help Merit
build production lines for peripheral guiding sheaths
and/or
cardiovascular microcatheters. Merit must inform us within six
months following the completion of the coronary guide catheters
production line that this assistance will be needed.
Though certain elements, namely the acquired assets and
licensing rights, have been delivered as of March 31, 2008,
we are still obligated to deliver the regulatory documentation
and production line assistance. Because we lack the ability to
separate the multiple obligations (elements) of this
transaction, the up-front payment of $1.5 million, net of
direct and incremental costs incurred and the net book value of
assets transferred to Merit, has been deferred until such time
as all elements of the transaction are delivered.
Chemence
Collaboration
In April 2008, we entered into a co-development agreement with
Chemence to jointly develop a liquid embolic product for the
treatment of cerebral aneurysms using Chemences
cyanoacrylate technology, development capabilities and
intellectual property. We will be responsible for overseeing the
regulatory and clinical process and will be the exclusive
worldwide distributor for the neurovascular product developed
based on this collaborative agreement. Under the terms of the
agreement, we have made an up-front payment of $100,000 to
Chemence and will make additional payments of up to $200,000
upon achieving certain development milestones.
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Physician
Advisors
We rely extensively on our physician advisors to advise on our
research and development efforts and to provide feedback on the
clinical use of our products. Our advisors are experts in
interventional neuroradiology and cerebral vascular diseases. We
regularly consult with our physician advisors regarding our
research and development efforts, preclinical trials and
clinical trials.
Some of our physician advisors have been granted options to
purchase shares of our common stock
and/or
receive a consulting fee. All of our physician advisors are
reimbursed for reasonable expenses. In addition, our medical
advisors receive compensation for clinical studies they conduct
for us. All of our medical advisors are employed by other
organizations and may have commitments to or have consulting
arrangements with other companies, including our competitors,
that may limit their availability to consult with us. Although
these advisors may contribute significantly to our business, we
generally do not expect them to devote more than a small portion
of their time to us. We also routinely seek advice, input and
feedback on our products and business from a larger broader
group of physicians and advisors, some of whom may also receive
appropriate compensation for their time and expert opinions.
Manufacturing
We manufacture
and/or
assemble, inspect, test and package all our proprietary
microcoils and microcatheters at our headquarters in
San Jose, California, or in Doral, Florida. Peripheral
catheter products are manufactured at our subsidiary facility,
MDT, in Doral, Florida. As of March 31, 2008, we had
164 employees in manufacturing, quality control,
manufacturing engineering and materials and logistics.
We have substantial design, manufacturing and applications
engineering expertise in the development of small vessel access
and delivery systems and intend to continue to leverage this
expertise to develop new products. By designing and
manufacturing most of the components of our products, we have
been able to maintain greater control of quality and
manufacturing process changes. Our microcoils are very small in
size, ranging from 1.5 mm to 20 mm in diameter and are
manufactured using microfabrication techniques. We have
developed proprietary manufacturing technologies and processes
in the areas of platinum memory shaping, metal fabrication and
microcatheter and stent fabrication.
Trained product personnel assemble and test each of our
components and products in a controlled environment room. At
various assembly stages each lot of product undergoes thorough
testing to ensure compliance with applicable regulations,
including Quality System Regulations (QSR) requirements in the
United States and ISO 13485 certification standards in Europe.
These standards specify the requirements necessary for a quality
management system to consistently provide product that meet
customer requirements and to include processes for achieving the
outputs of the quality management system that are required in
order to obtain a CE Mark to sell medical devices within the
European Union. Our quality assurance group verifies that
product fabrication and inspection process steps meet our
stringent quality specifications and applicable regulatory
requirements. Upon successful completion of these steps, the
products are sterilized, packaged and prepared for shipment. We
typically ship products as orders are received.
We have implemented quality control systems as part of our
manufacturing processes, which we believe are in substantial
compliance with United States Good Manufacturing Practices (GMP)
or Quality System Regulations (QSR) requirements. Our
San Jose facility has also been inspected by the California
Department of Health Services on behalf of the State of
California and under contract with the FDA, and is registered
with the State of California to manufacture our products. We
believe we are in compliance with the FDA GMP for medical
devices, and our facilities are subject to inspection by the
FDA. The most recent of such inspections occurred in April 2006
in San Jose and in September 2007 in Doral. However, we
cannot assure you that we will remain in compliance with GMP and
our failure to do so could have a material adverse effect on our
business, operating results and financial condition.
We purchase the raw materials required for production from
various qualified outside vendors. In addition, the deployment
control box is manufactured by an outside supplier. We rely on
single sources for some of our critical components, including
the deployment control box, the platinum used to manufacture the
microcoils and certain
15
custom hypodermic tubing material. In addition, we have a sole
source subcontract arrangement for sterilization services. We
believe we have alternative sources for most of the components
purchased from single sources currently and generally maintain
adequate supply of products to avoid production interruptions.
Where we do not have a qualified second source vendor for a
product component and depending on the exact component, we
believe it would take us from two days to a month to either
manufacture the product component ourselves or have a readily
available new supply of the product component. Any unanticipated
interruption in the supply of these components and services
could have a material adverse effect on us.
Patents
and Proprietary Rights
Our success depends in part on our ability to obtain and
maintain proprietary protection for our products, technology and
know-how, to operate without infringing on the proprietary
rights of others and to prevent others from infringing our
proprietary rights. Our policy is to seek protection of our
proprietary position by filing United States and foreign patent
applications to protect technology, inventions and improvements
that are important to our business. We also rely on trade
secrets, know-how and continuing technological innovation to
develop and maintain our proprietary position. We hold 66 issued
United States patents and 83 issued foreign patents expiring
between 2016 and 2026. In addition, we have 44 United States and
66 foreign patent applications pending covering various aspects
of our products and technology.
The issued patents relate, among other things, to subject matter
in the following areas:
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vasoocclusive microcoils and devices and methods for
manufacturing such coils and devices;
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microcoil deployment systems;
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bioactive microcoils;
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intracranial vascular stents;
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catheters for neurovascular intervention;
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embolic clot retrieval devices; and
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bioactive material placement systems and methods.
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In addition to developing our own technology, we have obtained
licenses to certain patents and other intellectual property,
including for materials used as coating on our guidewires and
for certain type of coils. These licenses grant us the right to
use the licensed patents to make, use and sell products that
contain the licensed technology. We pay for these licenses
through a combination of fixed payments and royalties on sales
of covered products. Each of these licenses continues until
expiration of the licensed patents. Payments under these license
arrangements currently do not account for a material portion of
our expenses.
Although we work aggressively to protect our technology, there
is no assurance that any patents will be issued from current
pending patent applications or from future patent applications.
We also cannot assure you that the scope of any patent
protection will exclude competitors or provide competitive
advantages to us, that any of our patents will be held valid if
subsequently challenged, or others will not claim rights in or
ownership of our patents and proprietary rights. Furthermore,
there can be no assurance that others have not developed or will
develop similar products, duplicate any of our products or
design around our patents.
The medical device industry has been characterized by extensive
litigation regarding patents and other intellectual property
rights, and many companies in the industry have employed
intellectual property litigation to gain a competitive
advantage. In September 2004, Boston Scientific Corporation and
Target Therapeutics, Inc., a subsidiary of Boston Scientific
Corporation, (collectively, Boston Scientific) filed
a patent infringement suit against us, as described in greater
detail in the section below entitled Legal
Proceedings. We may in the future be subject to further
litigation from other companies in our industry. The defense and
prosecution of patent suits, United States Patent and Trademark
Office interference proceedings and related administrative
proceedings can be costly and time consuming. An adverse
determination in our litigation with Boston Scientific or in any
other litigation or administrative proceedings with any other
third party could subject us to significant liabilities or
require us to seek licenses. There is no assurance that any such
licenses will be available on satisfactory terms, if at all.
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Adverse determinations in a judicial or administrative
proceeding or failure to obtain necessary licenses could prevent
us from manufacturing and selling our products, which would have
a material adverse effect on our business, operating results and
financial condition.
In addition to patents, we rely on trademark, trade secret and
other intellectual property laws, nondisclosure agreements and
other measures to protect our intellectual property rights. We
believe that in order to have a competitive advantage, we must
develop and maintain the proprietary aspects of our
technologies. We require our employees, consultants and advisors
to execute confidentiality agreements in connection with their
employment, consulting or advisory relationships with us. We
also require our employees, consultants and advisors who we
expect to work on our products to agree to disclose and assign
to us all inventions conceived while working for us, using our
property or which relate to our business. Despite any measures
taken to protect our intellectual property, unauthorized parties
may attempt to copy aspects of our products or to obtain and use
information that we regard as proprietary.
Competition
We compete primarily with Boston Scientific, Cordis, a division
of Johnson & Johnson (Cordis), ev3/Micro
Therapeutics and Terumo/MicroVention. Boston Scientific,
ev3/Micro Therapeutics and Cordis offer broad product lines
consisting of embolic microcoils, microcatheters, stents,
balloons and guidewires. Boston Scientific, Cordis, ev3/Micro
Therapeutics and Terumo/MicroVention currently market a variety
of microcatheters which are compatible with our coil systems.
Both Boston Scientific and ev3/Micro Therapeutics sell bioactive
microcoils. Boston Scientific markets the Matrix coil which
features a platinum core coated with an absorbable suture
material intended to cause a tissue reaction.
Terumo/MicroVention markets the
HydroCoil®
which is an embolic microcoil that swells in the presence of
fluid to provide greater volumetric occlusion to an aneurysm.
Cordis markets a bare platinum line of microcoils but does not
market bioactive or stretch resistant microcoils. Through its
acquisition by Terumo, MicroVention now markets microcatheter
and wires as well, joining Boston Scientific, Cordis, ev3 and
Micrus in this market segment. Boston Scientific has received
from the FDA a Humanitarian Device Exemption (HDE)
to market stents for the treatment of hemorrhagic and ischemic
stoke. Cordis has received an HDE to market a stent indicated
for the treatment of hemorrhagic stroke.
Boston Scientific, Terumo/MicroVention, ev3 and Cordis are all
large publicly traded company or divisions of large publicly
traded companies, and enjoy several competitive advantages over
us, including: greater financial and personnel resources;
significantly greater name recognition; established
relationships with neurointerventionalists; established
distribution networks; greater resources for product research
and development; greater experience in, and resources for,
launching, marketing, distributing and selling products; and
more broad-based and deeper product lines.
We believe the principal competitive factors in the market for
medical devices used in the treatment of cerebral vascular
diseases include:
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improved patient outcomes as a result of physician use of the
device;
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access to and acceptance by leading physicians;
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depth of product line;
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product quality and reliability;
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ease of use for physicians;
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sales and marketing capability; and
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brand recognition and reputation.
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Our current or potential competitors may succeed in developing
technologies and products that are more effective than those
developed by us or that would render our products obsolete or
noncompetitive. Additionally, there can be no assurance that we
will be able to effectively compete with such competitors in the
manufacturing,
17
marketing and sale of our products. At any time, other companies
may develop alternative treatments, products or procedures for
the treatment of cerebral aneurysms that compete directly or
indirectly with our products. If alternative treatments prove to
be superior to our products, adoption of our products could be
negatively affected and our future revenues could suffer.
Our ability to develop safe, effective and reliable products in
a timely manner is the key to our competitive position.
Consequently, our success will depend on how quickly we are able
to respond to medical and technological changes through the
development, clinical evaluation and commercialization of new
products. Product development involves a high degree of risk and
there can be no assurance that our research and development
efforts will result in commercially successful products.
Government
Regulation
United
States
The research, development, manufacture, labeling, distribution
and marketing of our products are subject to extensive
regulation by the FDA and other regulatory bodies. Our current
products are regulated by the FDA as medical devices, and we are
required to obtain review and clearance or approval from the FDA
prior to commercializing our devices.
FDAs
Premarket Clearance and Approval Requirements
Unless an exemption applies, each medical device we wish to
commercially distribute in the United States will require either
prior 510(k) clearance or prior premarket approval (PMA) from
the FDA. The FDA classifies medical devices into one of three
classes. Class I devices are subject to only general
controls (e.g. establishment registration and device listing,
labeling, medical devices reporting (MDR), and prohibitions
against adulteration and misbranding). Class II medical
devices require prior 510(k) clearance before they may be
commercially marketed. The FDA will clear marketing of a medical
device through the 510(k) process if it is demonstrated that the
new product has the same intended use, is substantially
equivalent to another legally marketed device, including a
510(k)-cleared product, and otherwise meets the FDAs
requirements. Class II devices are also subject to general
controls and may be subject to established standards and other
special controls. Devices deemed by the FDA to pose a great
risk, such as life-sustaining, life-supporting or implantable
devices, or devices deemed not substantially equivalent to a
legally marketed device are placed in Class III, most of
which require premarket approval. Both premarket clearance and
premarket approval applications are subject to the payment of
user fees, paid at the time of submission for FDA review. The
FDA officially reclassified neurovascular embolization devices
such as our microcoils products to Class II medical devices
effective January 28, 2005. For our microcoil products,
catheter products and guidewire product, we have obtained
multiple 510(k) clearances.
510(k)
Clearance
To obtain 510(k) clearance, we must submit a premarket
notification demonstrating that the proposed device is
substantially equivalent to a previously cleared 510(k) device
or a device that was in commercial distribution before
May 28, 1976 for which the FDA has not yet called for the
submission of premarket approval applications. The FDAs
510(k) clearance pathway usually takes from three to twelve
months from the date the application is submitted, but it can
take significantly longer.
After a device receives 510(k) clearance, any modification that
could significantly affect its safety or effectiveness, or that
would constitute a significant change in its intended use, will
require a new 510(k) clearance or could require premarket
approval. The FDA requires each manufacturer to make this
determination initially, but the FDA can review any such
decision and can disagree with a manufacturers
determination. If the FDA disagrees with a manufacturers
determination, the FDA can require the manufacturer to cease
marketing
and/or
recall the modified device until 510(k) clearance or premarket
approval is obtained. If the FDA requires us to seek 510(k)
clearance or premarket approval for any modifications to a
previously cleared product, we may be required to cease
marketing or recall the modified device until we obtain this
clearance or approval. Also, in these circumstances, we may be
subject to significant regulatory fines or penalties.
18
Premarket
Approval
A PMA application must be submitted if the device cannot be
cleared through the 510(k) process. A PMA application must be
supported by extensive data including, but not limited to,
technical, preclinical, clinical trials, manufacturing and
labeling to demonstrate to the FDAs satisfaction the
safety and effectiveness of the device for its intended use.
After a PMA application is complete, the FDA begins an in-depth
review of the submitted information, which generally takes
between one and three years, but may take significantly longer.
During this review period, the FDA may request additional
information or clarification of information already provided.
Also during the review period, an advisory panel of experts from
outside the FDA may be convened to review and evaluate the
application and provide recommendations to the FDA as to the
approvability of the device. In addition, the FDA will conduct a
preapproval inspection of the manufacturing facility to ensure
compliance with quality system regulations. New PMA applications
or PMA supplements are required for significant modifications to
the manufacturing process, labeling or design of an approved
device. PMA supplements often require submission of the same
type of information as a PMA application, except that the
supplement is limited to information needed to support any
changes from the device covered by the original PMA application,
and may not require as extensive clinical data or the convening
of an advisory panel.
Continuing
FDA Regulation
After a device is placed on the market, numerous regulatory
requirements apply. These include:
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quality system regulation (QSR), which requires manufacturers to
follow design, testing, control, documentation and other quality
assurance procedures during the manufacturing process (otherwise
known as Good Manufacturing Practices or GMPs);
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labeling regulations, which prohibit the promotion of products
for unapproved or off-label uses and impose other
restrictions on labeling; and
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medical device reporting regulations, which require that
manufacturers report to the FDA if their device may have caused
or contributed to a death or serious injury or malfunctioned in
a way that would likely cause or contribute to a death or
serious injury if it were to recur.
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Failure to comply with applicable regulatory requirements can
result in enforcement action by the FDA, which may include any
of the following sanctions:
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fines, injunctions, and civil penalties;
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recall or seizure of our products;
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operating restrictions, partial suspension or total shutdown of
production;
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refusing our request for 510(k) clearance or premarket approval
of new products;
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withdrawing 510(k) clearance or premarket approvals that are
already granted; and
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criminal prosecution.
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We are also subject to unannounced inspections by the FDA and
the Food and Drug Branch of the California Department of Health
Services, and these inspections may include the manufacturing
facilities of our subcontractors.
International
International sales of medical devices are subject to foreign
government regulations, which vary substantially from country to
country. The time required to obtain market authorization by a
foreign country may be longer or shorter than that required for
FDA market authorization, and the requirements may differ.
The primary regulatory environment in Europe is that of the
European Union, which consists of countries encompassing most of
the major countries in Europe. The European Union has adopted
numerous directives and
19
standards regulating the design, manufacture, clinical trials,
labeling, and adverse event reporting for medical devices.
Devices that comply with the requirements of a relevant
directive will be entitled to bear CE conformity marking,
indicating that the device conforms with the essential
requirements of the applicable directives and, accordingly, can
be commercially distributed throughout Europe. The method of
assessing conformity varies depending on the class of the
product, but normally involves a combination of self-assessment
by the manufacturer and a third-party assessment by a
Notified Body. This third-party assessment may
consist of an audit of the manufacturers quality system
and specific testing of the manufacturers product. An
assessment by a Notified Body in one country within the European
Union is required in order for a manufacturer to commercially
distribute the product throughout the European Union.
In Japan, medical devices must be approved prior to importation
and commercial sale by the Ministry of Health, Labor and Welfare
(MHLW). Manufacturers of medical devices outside of Japan must
utilize a contractually bound Japanese entity to submit an
application for device approval to the MHLW. The MHLW evaluates
each device for safety and efficacy. As part of its approval
process, the MHLW may require that the product be tested in
Japanese laboratories. The approval process for products such as
our existing microcoil products is typically
12-15 months
once an application has been accepted for review. Other medical
devices may require a longer review period for approval. Once
approved, the manufacturer may import the device into Japan for
sale by the manufacturers contractually bound importer or
distributor.
After a device is approved for importation and commercial sale
in Japan, the MHLW continues to monitor sales of approved
products for compliance with labeling regulations, which
prohibit promotion of devices for unapproved uses and reporting
regulations, which require reporting of product malfunctions,
including serious injury or death caused by any approved device.
Failure to comply with applicable regulatory requirements can
result in enforcement action by the MHLW, which may include
fines, injunctions, and civil penalties, recall or seizure of
our products, operating restrictions, partial suspension or
total shutdown of sales in Japan, or criminal prosecution.
In addition to MHLW oversight, the regulation of medical devices
in Japan is also governed by the Japanese Pharmaceutical Affairs
Law (PAL). PAL was substantially revised in July 2002, and the
new provisions were implemented in stages through April 2005.
Revised provisions of the approval and licensing system of
medical devices in Japan, which constitutes the core of import
regulations, came into effect on April 1, 2005. The revised
law changes class categorizations of medical devices in relation
to risk, introduces a third party certification system,
strengthens safety countermeasures for biologically derived
products, and reinforces safety countermeasures at the time of
resale or rental. The revised law also abolishes the ICC system
and replaces it with the primary distributor system.
Under the revised PAL, manufacturers outside of Japan must now
appoint a primary distributor located in Japan that
holds a primary distributor license for medical devices to
provide primary distribution services, including conducting
quality assurance and safety control tasks, for each product at
the time an application for the approval of each such product is
submitted to the MHLW. We are unable at this time to determine
the impact of such changes on our approved products, products
for which we have already applied for approval in Japan or
future products. We do not anticipate that these changes will
have a material impact on our existing level of third-party
reimbursement for sales of our products in Japan.
Third-Party
Reimbursement
We believe that substantially all of the procedures conducted in
the United States with our products have been reimbursed to date
and that substantially all commercial procedures in Europe have
been reimbursed. We believe that the procedures performed using
our products are generally already reimbursable under government
programs and most private plans. Accordingly, we believe
providers in the United States will generally not be required to
obtain new billing authorizations or codes in order to be
compensated for performing medically necessary procedures using
our products on insured patients or patients covered under
government programs such as Medicare and Medicaid. We also
believe that our procedures will be generally reimbursable under
governmental programs and private plans in Japan. In Japan, we
are required to obtain regulatory clearance for our products to
be eligible for reimbursements by third party payors, even
though reimbursement for embolic coiling procedure is already in
place. In China, there is only limited healthcare reimbursement
available for the treatment of stroke.
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We cannot assure you that reimbursement polices of third party
payors will not change in the future with respect to some or all
of the procedures using our products and systems. See Risk
Factors If neurointerventionalists are unable to
obtain sufficient reimbursement for procedures performed with
our products, it is unlikely that our products will be widely
used for a discussion of various risks associated with
reimbursement from third party payors.
Product
Liability and Insurance
We maintain general liability insurance, product liability
insurance, directors and officers liability insurance, workers
compensation insurance and other insurance coverage that we
believe are customary in type and amounts for the business of
the type we operate. Medical device companies are subject to an
inherent risk of product liability and other liability claims in
the event that the use of their products results in personal
injury claims. Any such claims could have an adverse impact on
us. There can be no assurance that product liability or other
claims will not exceed such insurance coverage limits or that
such insurance will continue to be available on commercially
acceptable terms, if at all.
Environmental
Our company is subject to a variety of federal, state and local
environmental protection measures. We believe that our
operations comply in all material respects with applicable
environmental laws and regulations. Our compliance with these
requirements did not during the past fiscal year, and is not
expected to, have a material effect upon our capital
expenditures, cash flows, earnings or competitive position.
Given the scope and nature of these laws, however, there can be
no assurance that our compliance with environmental laws and
regulations will not have a material impact on our results of
operations.
Employees
As of March 31, 2008, in the United States we had 318 full
time employees, including 59 in sales and marketing, 164 in
operations and manufacturing, 37 in research and development, 19
in quality assurance and regulatory compliance, and 39 in
general and administrative functions. As of March 31, 2008,
we had 36 employees in Europe, including 22 in sales and
marketing and 14 in general and administrative functions. None
of our employees is represented by a collective bargaining
agreement and we have never experienced a work stoppage. We
believe our employee relations are good.
Seasonality
Our worldwide sales do not reflect any significant degree of
seasonality; however, in Europe we traditionally experience
somewhat lower demand in the second fiscal quarter than
throughout the rest of the fiscal year as a result of the
European summer holiday schedule.
Available
Information
We are required to file reports under the Exchange Act with the
Securities and Exchange Commission (the SEC). You
may read and copy our materials on file with the SEC at the
SECs Public Reference Room at 100 F Street, NE,
Washington, DC 20549. You may obtain information regarding the
SECs Public Reference Room by calling the SEC at
1-800-SEC-0330.
The SEC also maintains an Internet website at
http://www.sec.gov
that contains reports, proxy and information statements and
other information.
You may also obtain copies of our annual report on
Form 10-K,
our quarterly reports on
Form 10-Q,
our current reports on
Form 8-K
and amendments to these reports as soon as reasonably
practicable after such material is electronically filed with or
furnished to the SEC free of charge by visiting the investor
relations page on our website, www.micruscorp.com. Information
contained on our website is not part of this annual report on
Form 10-K.
21
Certain
Factors that May Affect Our Business and Future
Results
Some of the information included herein contains forward-looking
statements as defined in Section 27A of the Securities Act
of 1933, as amended, and Section 21E of the Securities
Exchange Act of 1934, as amended. Such forward-looking
statements are based on the beliefs of, estimates made by and
information currently available to our management and are
subject to certain risks, uncertainties and assumptions. Any
statements contained herein (including, without limitation,
statements to the effect that the Company, we, or management
may, will, expects,
anticipates, estimates,
continues, plans, believes,
or projects, or statements concerning
potential or opportunity, and any
variations thereof, comparable terminology or the negative
thereof) that are not statements of historical fact should be
construed as forward-looking statements. Our actual results may
vary materially from those expected in these forward-looking
statements. The realization of such forward-looking statements
may be impaired by risks including, but not limited to the
following:
Our
future success is dependent on the continued growth in embolic
coiling procedures and our ability to convince a concentrated
customer base of neurointerventionalists to use our products as
an alternative to other available products.
Our future success and revenue growth are significantly
dependent upon an increase in the use of embolic coiling as a
procedure to treat cerebral aneurysms. If the number of embolic
coiling procedures does not increase or if a new procedure that
does not employ our products becomes a more acceptable
alternative among neurointerventionalists, our business would be
seriously harmed.
The number of interventional neuroradiologists and neurosurgeons
trained to conduct embolic coiling procedures is relatively
small, both in the United States and abroad. There are currently
approximately 300 neurointerventionalists in the United States
who perform embolic coiling procedures. We believe less than
one-third of these physicians perform a substantial majority of
the total number of embolic coiling procedures per year. For the
year ended March 31, 2008, a substantial portion of our
product sales were to approximately 107 hospitals in the United
States. The growth in the number of interventional
neuroradiologists and neurosurgeons in the United States is
constrained by the lengthy training programs required to educate
these physicians. Accordingly, our revenue growth will be
primarily dependent on our ability to increase sales of our
products to our existing customers and to increase sales of
products to trained neurointerventionalists that currently use
products offered by our competitors. We believe that
neurointerventionalists who do not currently use our products
will not widely adopt our products unless they determine, based
on experience, clinical data and published peer reviewed journal
articles, that our products provide benefits or an attractive
alternative to the clipping of aneurysms or the use of
competitors products. We believe neurointerventionalists
base their decision to use an alternative procedure or product
on the following criteria, among others:
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extent of clinical evidence supporting patient benefits;
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their level of experience with the alternative product;
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perceived liability risks generally associated with the use of
new products and procedures;
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availability of reimbursement within healthcare payment
systems; and
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costs associated with the purchase of new products and equipment.
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In addition, we believe that recommendations and support of our
products by influential physicians are essential for market
acceptance and adoption. If we do not receive continued support
from such influential physicians, neurointerventionalists and
hospitals may not use our products. In such circumstances, we
may not achieve expected revenue levels and our business will
suffer.
22
We are
currently involved in a patent litigation action involving
Boston Scientific and, if we do not prevail in this action, we
could be liable for past damages and be prevented from making,
using, selling, offering to sell, importing into the United
States or exporting from the United States, our microcoils, our
primary product line.
In September 2004, Boston Scientific, filed a patent
infringement suit in the United States District Court for the
Northern District of California, alleging that our embolic coil
products infringe two patents (United States Patent Nos.
5,895,385 (the 385 Patent) and 6,010,498 (the
498 Patent)) owned by the Regents of the
University of California (the Regents) and
exclusively licensed to Boston Scientific and that this
infringement is willful. Sales of our embolic coil products
currently represent approximately 94% of our revenues. Boston
Scientific is a large, publicly-traded corporation with
significantly greater financial resources than us.
In November 2004, we answered Boston Scientifics complaint
and counterclaimed, alleging that Boston Scientifics
embolic coil products, and their use, infringe three of our
patents. In addition, we alleged that Boston Scientific has
violated United States antitrust laws, and has violated certain
California state laws by committing unfair business practices,
disparaging our products, and interfering with our prospective
economic advantage. Each party seeks an injunction preventing
the making, using, selling, offering to sell, importing into the
United States or exporting from the United States, of the
others embolic coil products in the United States, damages
for past infringement, which may be trebled, and payment of its
legal fees and costs. In addition, each party seeks a
declaration that the patents of the other are invalid and not
infringed and has alleged that certain of the asserted patents
of the other are unenforceable due to inequitable conduct.
In January 2005, Boston Scientific filed a motion to dismiss our
claims for disparagement, interference with prospective economic
advantage and unfair business practices. That motion has been
fully briefed and oral argument is scheduled for June 23,
2008
In November 2006, we withdrew one of our three asserted patents
from the litigation to pursue a reissue application filed with
the United States Patent and Trademark Office
(USPTO).
A hearing on claim construction was held in June 2007. In March
2008, the Court issued an order construing certain claim terms
of patents that were asserted by Boston Scientific against
Micrus or asserted by Micrus against Boston Scientific. On
April 23, 2008, the district court entered a scheduling
order on future events in this action, including the close of
all discovery on January 26, 2009. A trial date has not
been set by the district court.
Boston Scientific has also been a party in two other lawsuits
against Cordis and Micro Therapeutics, Inc./ev3, Inc./Dendron
GmbH (collectively MTI) in which the two Boston
Scientific patents asserted against us are or were also at
issue. An outcome of either of these lawsuits adverse to Cordis
or MTI, and related to the same patent claims Boston Scientific
asserts against us, could have an adverse impact on certain of
our defenses in our litigation with Boston Scientific.
According to court records, the Regents, Boston Scientific and
MTI entered into a settlement agreement on March 21, 2008,
and on April 4, 2008 the Regents, Boston Scientific and MTI
dismissed the action, including all claims and counter-claims,
with prejudice.
On January 18, 2008, in the Cordis case, the district court
granted Boston Scientifics motion for summary judgment
that Cordis TRUFILL Detachable Coil System infringed claim
7 of the 385 Patent under the doctrine of equivalents. On
January 25, 2008, the district court granted Boston
Scientifics motion for summary judgment against Cordis
that claims 10 and 35 of the 385 patent, and claims 1, 3,
7, 9, and 10 of the 498 patent, are not invalid for having
been on-sale or in public use before the statutory bar period.
On March 21, 2008, the district court
granted-in-part Boston
Scientifics motion for summary judgment that the 385
patent and 498 patent are not unenforceable for
inequitable conduct. The district court also
denied-in-part Boston
Scientifics motion on the ground that triable issues of
fact remained concerning the patent applicants
representations to the patent examiner during the application
process. The district courts determinations on the
validity and enforceability of the 385 and 498
patents are important because Boston Scientific is asserting
these same patents against us in our lawsuit and we are alleging
that these patents are invalid and unenforceable.
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In October 2004, Cordis requested ex parte reexamination
of certain claims in Boston Scientifics 385 and
498 patents. In April 2007, the USPTO issued a Notice of
Intent to Issue Ex Parte Reexamination Certificate for the
498 patent, apparently confirming all of the claims of
that patent. In December 2006, the USPTO issued a Notice of
Allowance for the 385 patent in which it apparently
confirmed the patentability of the claims in that patent.
We are unable at this time to determine the likely outcome of
our patent litigation with Boston Scientific. Patent lawsuits
involve complex legal and factual issues which can take a number
of years and a great deal of expense and management attention to
resolve. We may also be subject to negative publicity due to the
litigation. In the event it is determined that we infringe
patent claims asserted by Boston Scientific and that those
claims are not invalid and not unenforceable we may, among other
things, be required to do one or more of the following:
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pay damages, including up to treble damages and Boston
Scientifics attorneys fees and costs, which may be
substantial;
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cease, because of an injunction, the making, using, selling,
offering to sell, importing into the United States or exporting
from the United States of our embolic coil products, which
currently represent virtually all of our revenues, found to
infringe the patent claims asserted by Boston Scientific;
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expend significant resources to redesign our technology so that
it does not infringe the patent claims asserted by Boston
Scientific, which may not be possible;
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discontinue manufacturing or other processes that incorporate
technology that infringes the patent claims asserted by Boston
Scientific;
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become subject to a compulsory license order under which we
would be required to pay Boston Scientific a royalty on future
sales of our products; and/or
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obtain a license from Boston Scientific to use the relevant
patents, which may not be available to us on acceptable terms,
or at all.
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If our embolic coil products were found to infringe, any
development or acquisition of products or technologies that do
not infringe the patent claims asserted by Boston Scientific
could require the expenditure of substantial time and other
resources and could have a material adverse effect on our
business and financial results. If we were required to but could
not obtain a license under the patent claims asserted by Boston
Scientific, we would likely be prevented from commercializing or
further commercializing the relevant products. We believe that
it is unlikely that we would be able to obtain a license under
the patent claims being asserted by Boston Scientific. If we
need to redesign our products to avoid the patent claims being
asserted by Boston Scientific, we may suffer significant
regulatory delays associated with conducting additional studies
or submitting technical, manufacturing or other information
related to the redesigned product and, ultimately, in obtaining
approval.
As a result of Boston Scientifics answer to our
counterclaim that Boston Scientific infringes our two remaining
patents-in-suit,
the validity of those patents is now at issue in the lawsuit.
The court could find that those patents are invalid, which would
prevent us from asserting those patents against third parties.
An unfavorable outcome for us in this patent litigation would
significantly harm our business and may cause us to materially
change our business model.
We
have a limited operating history, have incurred significant
operating losses since inception, and expect to continue to
incur losses, and we cannot assure you that we will achieve
profitability.
We were incorporated in the State of Delaware in 1996, and began
commercial sales of our microcoil products in 2000. We have yet
to demonstrate that we can generate sufficient sales of our
products to become profitable. The extent of our future
operating losses and the timing of profitability are uncertain,
and we may never achieve profitability. We have incurred
significant net losses since our inception, including losses of
approximately $16.3 million, $5.5 million and
$8.3 million for the fiscal years ended March 31,
2008, 2007 and 2006, respectively. At March 31, 2008, we
had an accumulated deficit of $71.4 million. It is possible
that we will never generate
24
sufficient revenues from product sales to achieve profitability.
Even if we do achieve significant revenues from our product
sales, we expect our operating expenses to increase as we, among
other things:
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grow our internal and third-party sales and marketing forces to
expand the sales of our products in the United States and
internationally;
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increase our research and development efforts to improve upon
our existing products and develop new products;
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perform clinical research and trials on our existing products
and product candidates;
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expand our regulatory resources in order to obtain governmental
approvals for our existing product enhancements and new products;
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acquire
and/or
license new technologies; and
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expand manufacturing.
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As a result of these activities, we may never become profitable.
Even if we do achieve profitability, we may not be able to
sustain or increase profitability on an ongoing basis.
Our
quarterly operating and financial results and our gross margins
are likely to fluctuate significantly in future
periods.
Our quarterly operating and financial results are difficult to
predict and may fluctuate significantly from period to period.
The level of our revenues, gross margins and results of
operations at any given time will be based primarily on the
following factors:
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neurointerventionalist and patient acceptance of our products;
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changes in the number of embolic coiling procedures performed to
treat cerebral aneurysms;
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the seasonality of our product sales;
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the mix of our products sold;
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stocking patterns for distributors;
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the development of new procedures to treat cerebral aneurysms;
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results of clinical research and trials on our existing products
and products in development;
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demand for, and pricing of, our products;
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levels of third-party reimbursement for our products;
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timing of new product offerings, acquisitions, licenses or other
significant events involving us or our competitors;
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increases in the costs of manufacturing and selling our products;
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the amount and timing of our operating expenses;
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litigation expenses;
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fluctuations in foreign currency exchange rates;
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regulatory approvals and legislative changes affecting the
products we may offer or those of our competitors;
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the effect of competing technological and market developments;
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changes in our ability to obtain and maintain FDA and other
domestic and foreign regulatory approval or clearance for our
products;
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inventory adjustments we may have to make in any quarter;
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interruption in the manufacturing or distribution of our
products;
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our ability to maintain and expand our sales force and
operational personnel;
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the ability of our suppliers to timely provide us with an
adequate supply of materials and components; and
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amount and timing of capital expenditures and other costs
relating to any potential expansion of our operations.
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Many of the products we may seek to develop and introduce in the
future will require FDA approval or clearance and will be
required to meet similar regulatory requirements in other
countries where we seek to market our products, without which we
cannot begin to commercialize them. Forecasting the timing of
sales of our products is difficult due to the delay inherent in
seeking FDA and other clearance or approval, or the failure to
obtain such clearance or approval. In addition, we will be
increasing our operating expenses as we build our commercial
capabilities. Accordingly, we may experience significant,
unanticipated quarterly losses. Because of these factors, our
operating results in one or more future quarters may fail to
meet the expectations of securities analysts or investors, which
could cause our stock price to decline significantly.
We may
not be able to develop new products or product enhancements that
will be accepted by the market.
Our success will depend in part on our ability to develop and
introduce new products and enhancements to our existing
products. We cannot assure you that we will be able to
successfully develop or market new products or that any of our
future products will be accepted by the neurointerventionalists
who use our products or the payors who reimburse for many of the
procedures performed with our products. The success of any new
product offering or enhancement to an existing product will
depend on several factors, including our ability to:
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properly identify and anticipate neurointerventionalist and
patient needs;
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develop new products or enhancements in a timely manner;
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obtain the necessary regulatory approvals for new products or
product enhancements;
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provide adequate training to potential users of our products;
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receive adequate reimbursement for our procedures; and
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develop an effective marketing and distribution network.
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If we do not develop new products or product enhancements in
time to meet market demand or if there is insufficient demand
for our products or enhancements, we may not achieve expected
revenue levels and our business will suffer.
Our
international operations and our relationships with physicians
and other consultants require us to comply with a number of
United States and international regulations.
We are required to comply with a number of international
regulations related to sales of medical devices and contractual
relationships with physicians in countries outside of the United
States. In addition, we must comply with the Foreign Corrupt
Practices Act (FCPA) which prohibits United States
companies or their agents and employees from providing anything
of value to a foreign official for the purposes of influencing
him or her to help obtain or retain business, direct business to
any person or corporate entity, or obtain any unfair advantage.
In August 2004, while reviewing our sales and payment
procedures, we identified certain payments we made to physicians
outside the United States that may have violated the FCPA and
the laws of certain foreign countries. Following an internal
investigation, we voluntarily disclosed to the United States
Department of Justice (DOJ) the factual information
obtained in our internal investigation of potential violations
of the FCPA.
After reviewing the results of the internal investigation and
the compliance procedures implemented by us, the DOJ entered
into an agreement (the DOJ Agreement) with us in
February 2005. Pursuant to that agreement, the DOJ agreed not to
prosecute us for the conduct disclosed to the DOJ, and we agreed
to various conditions, including
26
establishing policies and procedures to assure compliance with
the FCPA and other relevant anti-bribery laws, retaining an
independent law firm to act as a monitor for purposes of
reporting to the DOJ for a period of three years as to our
compliance with the DOJ Agreement and to monitor our
implementation of and adherence to FCPA compliance policies and
procedures, and fully cooperating with the DOJ, the independent
monitor, and the SEC. The monitor filed his final report with
the DOJ in May 2008, and we have agreed to extend the period of
the monitorship until June 20, 2008.
The payments we made to physicians in France, Germany, Spain and
Turkey are also likely to have violated the applicable laws in
those foreign jurisdictions and may possibly have violated laws
in Switzerland, where our Swiss subsidiary is located. We are
not able to determine at this time what penalties or other
sanctions, if any, authorities in France, Germany, Spain or
Turkey may impose on us as a result of such violations. Such
amounts could be material to our financial position, results of
operations or cash flows. We have been notified by the Swiss
Federal Prosecutor that it does not intend to bring any action
or impose any penalties on us relating to our activities in
Switzerland.
Though we have adopted a number of compliance procedures,
including a Foreign Corrupt Practices Act Policy and related
procedures, and appointed a Compliance Officer, we cannot assure
you that we will be able to comply with the various regulations
in foreign jurisdictions, which vary from country to country.
Implementing and monitoring such compliance procedures in a
number of foreign jurisdictions can be very expensive and
time-consuming. Any failure by us to adopt appropriate
compliance procedures and ensure that our employees and agents
comply with applicable laws and regulations in foreign
jurisdictions could result in substantial penalties
and/or
restrictions in our ability to sell products in certain foreign
jurisdictions.
We are
in a highly competitive market segment, face competition from
large, well-established medical device manufacturers with
significant resources, and may not be able to increase
penetration in our markets or otherwise compete
effectively.
The market for medical devices for treatment of cerebral
vascular diseases is intensely competitive, subject to rapid
change and significantly affected by new product introductions
and other market activities of industry participants. We compete
primarily with the Target Therapeutics division of Boston
Scientific, the market leader, as well as Cordis, ev3/Micro
Therapeutics and Terumo/MicroVention. At any time, other
companies may develop alternative treatments, products or
procedures for the treatment of cerebral aneurysms that compete
directly or indirectly with our products. If alternative
treatments prove to be superior to our microcoil or other
products, continued use or adoption of our products could be
negatively affected and our future revenues could suffer.
In addition, most of our current and potential competitors are
either large publicly traded or divisions or subsidiaries of
large publicly traded companies, and enjoy several competitive
advantages over us, including:
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greater financial and personnel resources;
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significantly greater name recognition;
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established relationships with neurointerventionalists;
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established distribution networks;
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greater experience in obtaining and maintaining FDA, and other
regulatory approvals for products and product enhancements, and
greater experience in developing compliance programs for
compliance with numerous federal, state, local and similar laws
in
non-United
States jurisdictions;
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greater resources for product research and development;
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greater experience in, and resources for, launching, marketing,
distributing and selling products; and
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broader product lines.
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Except for our agreements with our distributors, we have no
material long-term purchase agreements with our customers, who
may at any time switch to the use of our competitors
products.
For these reasons, we may not be able to compete successfully
against our current or potential future competitors and sales of
our products and our revenues may decline.
27
Our
sales in international markets subject us to foreign currency
exchange and other risks and costs that could harm our
business.
A substantial portion of our revenues are derived from outside
the United States. For the fiscal years ended March 31,
2008, 2007 and 2006, revenues from customers outside the United
States represented approximately 51%, 51% and 53%, respectively,
of our revenues. We anticipate that revenues from international
customers will continue to represent a substantial portion of
our revenues as we continue to expand in new international
markets including China and Japan. Because we generate revenues
in foreign currencies, we are subject to the effects of exchange
rate fluctuations. For the fiscal year ended March 31,
2008, approximately 37% of our revenues were denominated in
currencies other than the U.S. dollar. The functional
currency of our Swiss subsidiary is the Swiss franc. In Europe,
our revenues are denominated in Swiss francs, euros, pounds
sterling and U.S. dollars. Accordingly, we are exposed to
market risk related to changes between the Swiss franc and these
other currencies in which we conduct business. If the Swiss
franc appreciates against the currencies in which our
receivables are denominated, we will recognize foreign currency
losses. For the preparation of our consolidated financial
statements, the financial results of our Swiss and UK
subsidiaries are translated into U.S. dollars based on
average exchange rates during the applicable period. If the
U.S. dollar appreciates against the Swiss franc and pound
sterling, the revenues we recognize from sales by our European
subsidiaries will be adversely impacted. Historically, we have
also been exposed to risks from fluctuations in currency
exchange rates due to intercompany loans made to Micrus
Endovascular SA (Micrus SA), our Swiss subsidiary,
in 2001 in connection with its incorporation. These loans are
denominated in Swiss francs and will fluctuate in value against
the U.S. dollar, causing us to recognize foreign exchange
gains and losses. Foreign exchange gains or losses as a result
of exchange rate fluctuations in any given period could harm our
operating results and negatively impact our revenues.
Additionally, if the effective price of our products were to
increase as a result of fluctuations in foreign currency
exchange rates, demand for our products could decline and
adversely affect our results of operations and financial
condition. We currently do not enter into foreign currency
forward contracts and other arrangements intended to hedge our
exposure to adverse fluctuations in exchange rates.
We are subject to various additional risks as a consequence of
doing business internationally which could harm our business,
including the following:
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unexpected delays or changes in regulatory requirements;
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local economic and political instability or other potentially
adverse conditions;
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lack of experience in certain geographical markets;
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increased difficulty in collecting accounts receivables in
certain foreign countries;
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delays and expenses associated with tariffs and other trade
barriers;
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difficulties and costs associated with attracting and
maintaining third party distributors;
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compliance with foreign laws and regulations; and
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adverse tax consequences or overlapping tax structures.
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If we
fail to increase our direct sales force in a timely manner, our
business could suffer.
We have a limited domestic and international direct sales force.
We also have a distribution network for sales in the major
markets in Europe, Latin America, Asia and the Middle East. As
we launch new products and increase our marketing efforts with
respect to existing products, we will need to expand the number
of our direct sales personnel on a worldwide basis. The
establishment and development of a more extensive sales force
will be expensive and time consuming. There is significant
competition for sales personnel experienced in interventional
medical device sales. If we are unable to attract, motivate and
retain qualified sales personnel and thereby increase our sales
force, we may not be able to increase our revenues.
If we
fail to properly manage our anticipated growth, our business
could suffer.
We have experienced, and may continue to experience, periods of
rapid growth and expansion, which have placed, and will likely
continue to place, a significant strain on our limited personnel
and other resources. In
28
particular, the expansion of our fabrication facility and the
continuing expansion of our direct sales force will require
significant management, technical and administrative resources.
Any failure by us to manage our growth effectively, could have
an adverse effect on our ability to achieve our development and
commercialization goals.
To achieve our revenue goals, we must successfully increase
production in our fabrication facility as required by customer
demand. We may in the future experience difficulties in
increasing production, including problems with production yields
and quality control and assurance and in satisfying and
maintaining compliance with regulatory requirements. These
problems could result in delays in product availability and
increases in expenses. Any such delay or increased expense could
adversely affect our ability to generate revenues.
Future growth will also impose significant added
responsibilities on management, including the need to identify,
recruit, train and integrate additional employees. In addition,
rapid and significant growth will place a strain on our
administrative and operational infrastructure. In order to
manage our operations and growth we will need to continue to
improve our operational, financial and management controls,
reporting systems and procedures. If we are unable to manage our
growth effectively, it may be difficult for us to execute our
business strategy and our operating results and business could
suffer.
We are
required to evaluate our internal control over financial
reporting under Section 404 of the Sarbanes-Oxley Act of
2002 and are exposed to future risks of non
compliance.
Pursuant to Section 404 of the Sarbanes-Oxley Act of 2002
(Section 404), we are required to furnish a
report by our management on our internal control over financial
reporting. The report contains, among other matters, an
assessment of the effectiveness of our internal control over
financial reporting as of the end of our fiscal year, including
a statement as to whether or not our internal control over
financial reporting is effective. This assessment must include
disclosure of any material weaknesses in our internal control
over financial reporting identified by management. The report
must also contain a statement that our independent registered
public accounting firm has issued an attestation report on the
effectiveness of internal control over financial reporting.
We completed our assessment of our internal control over
financial reporting as required by Section 404 for the
fiscal year ended March 31, 2008. Our assessment, testing
and evaluation resulted in our conclusion that as of
March 31, 2008, our internal control over financial
reporting was effective. Our independent registered accounting
firm has also expressed the opinion that our internal controls
over financial reporting were effective during that period.
However, our controls, may not prove to be adequate for the
future periods, and we cannot predict the outcome of our testing
in future periods. If our internal controls are deemed to be
ineffective in future periods, our financial results or the
market price of our stock could be adversely affected. In any
event, we will incur additional expenses and commitment of
managements time in connection with further evaluations,
which may adversely affect our future operating results and
financial condition.
Our
future capital needs are uncertain and we may need to raise
additional funds in the future, and such funds may not be
available on acceptable terms or at all.
We believe that our current cash position, together with the
cash to be generated from expected product sales will be
sufficient to meet our projected operating requirements for at
least the next 12 months. However, after such period we may
be required to seek additional funds from public and private
stock or debt offerings, borrowings under lease lines or other
sources. Our capital requirements will depend on many factors,
including:
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the revenues generated by sales of our products;
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the costs associated with expanding our sales and marketing
efforts;
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the expenses we incur in manufacturing and selling our products;
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the costs of developing and or acquiring new products or
technologies;
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the cost of obtaining and maintaining FDA and other domestic and
foreign approval or clearance of our products and products in
development;
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costs associated with our litigation with Boston Scientific and
our securities litigation;
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the expenses we incur related to compliance with the United
States FCPA and laws and regulations in
non-United
States jurisdictions;
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costs associated with compliance with the Sarbanes-Oxley Act of
2002 and rules and regulations affecting public companies
promulgated by the SEC and The NASDAQ Stock Market;
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the costs associated with our facilities expansion, if
any; and
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the costs associated with increased capital expenditures.
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As a result of these factors, we may need to raise additional
funds, and such funds may not be available on favorable terms,
or at all. Furthermore, if we issue equity or debt securities to
raise additional funds, our existing stockholders may experience
dilution, and the new equity or debt securities may have rights,
preferences and privileges senior to those of our existing
stockholders. In addition, if we raise additional funds through
collaboration, licensing or other similar arrangements, it may
be necessary to relinquish valuable rights to our potential
products or proprietary technologies, or grant licenses on terms
that are not favorable to us. If we cannot raise funds on
acceptable terms, we may not be able to develop or enhance our
products, execute our business plan, take advantage of future
opportunities, or respond to competitive pressures or
unanticipated customer requirements. In these events, our
ability to achieve our development and commercialization goals
would be adversely affected.
If we
choose to acquire new and complementary businesses, products or
technologies instead of developing them ourselves, we may be
unable to complete these acquisitions or to successfully
integrate them in a cost effective and non-disruptive
manner.
Our success depends on our ability to continually enhance and
broaden our product offerings in response to changing customer
demands, competitive pressures and technologies. We may in the
future pursue the acquisition of additional complementary
businesses, products or technologies instead of developing them
ourselves. We do not know if we will be able to successfully
complete any such acquisitions, or whether we will be able to
successfully integrate any acquired business, product or
technology or retain any key employees. Integrating any
business, product or technology we acquire could be expensive
and time consuming, disrupt our ongoing business and distract
our management. If we are unable to integrate any acquired
businesses, products or technologies effectively, our business
will suffer. In addition, any amortization or charges resulting
from the costs of acquisitions could harm our business and
operating results.
We are
dependent on single source suppliers for components and
materials used in our devices, and the loss of any of these
suppliers, or their inability to supply us with an adequate
supply of materials, could harm our business.
We rely on third-party suppliers for components and materials
used in our products and rely on single sources for many of the
microcoil and delivery system components, including tubing,
connectors and sterilization services. Our dependence on
third-party suppliers involves several risks, including limited
control over pricing, availability, quality, delivery schedules
and supplier compliance with regulatory requirements. Any delays
in delivery of such components or provision of such services or
shortages of such components could cause delays in the shipment
of our products, which could significantly harm our business. We
generally acquire our single source components pursuant to
purchase orders placed in the ordinary course of business, and
we have no guaranteed supply arrangements with any of our single
source suppliers. Because of our reliance on these vendors, we
may also be subject to increases in component costs. These
increases could significantly harm our business. For us to be
successful, our third-party suppliers must also be able to
provide us with the materials and components of our products in
substantial quantities, in compliance with regulatory
requirements, in accordance with agreed upon specifications, at
acceptable cost and on a timely basis. Our anticipated growth
may strain the ability of suppliers to deliver an increasingly
large supply of materials and components. If we are unable to
obtain sufficient quantities of high quality components and
materials to meet customer demand on a timely basis, we could
lose customers, our reputation may be harmed and our business
could suffer. If any one or more of our third-party suppliers
cease to provide us with sufficient quantities of our materials
or components in a timely manner or on terms acceptable to us,
we would have to seek alternative sources of supply. We could
incur delays while we locate and engage alternative qualified
suppliers and we might be
30
unable to engage alternative suppliers on favorable terms. Any
such disruption or increased expenses could harm our
commercialization efforts and adversely affect our ability to
generate revenues.
We rely on independent contract manufacturers for the
manufacture and assembly of certain of our products and
components. Reliance on independent contract manufacturers
involves several risks, including the potential inadequacy of
capacity, the unavailability of or interruptions in access to
certain process technologies and reduced control over product
quality, compliance with regulatory requirements, delivery
schedules, manufacturing yields and costs. Such manufacturers
have possession of and at times title to molds for certain
manufactured components of our products. Shortages of raw
materials, production capacity constraints or delays by our
contract manufacturers could negatively affect our ability to
meet our production obligations and result in increased prices
for affected parts. Any such reduction, constraint or delay may
result in delays in shipments of our products or increases in
the prices of components, either of which could have a material
adverse effect on our business, operating results and financial
condition. We have no supply agreements with our current
contract manufacturers and utilize purchase orders which are
subject to supplier acceptance. The unanticipated loss of any of
our contract manufacturers could cause delays in our ability to
deliver product while we identify and qualify a replacement
manufacturer. If our current or future independent contract
manufacturers are unable to meet our requirements for
manufactured components, our business could suffer.
Our
operations are currently conducted at several locations that may
be at risk from earthquakes or other natural
disasters.
We currently conduct our manufacturing, development and
management activities at two locations in Silicon Valley,
California, near known earthquake fault zones and in Doral,
Florida, where there is a risk of hurricanes. We have taken
precautions to safeguard our facilities, including insurance,
health and safety protocols, and off-site storage of computer
data. However, any future natural disaster, such as an
earthquake or hurricane, could cause substantial delays in our
operations, damage or destroy our equipment or inventory, and
cause us to incur additional expenses. A disaster could
seriously harm our business and results of operations.
If we
are unable to effectively manage our inventory held on
consignment by our intended customers, we will not achieve our
expected results.
A significant portion of our inventory is held on consignment by
hospitals that purchase the inventory as they use it. In these
consignment locations, we do not have physical possession of the
consigned inventory. We therefore have to rely on information
from our customers as well as periodic inspections by our sales
personnel to determine when our products have been used. We have
in the past experienced problems managing appropriate consigned
inventory levels and as a result we recorded an impairment of
inventory for anticipated obsolescence in fiscal 2004 and an
impairment of excess inventory in both fiscal 2004 and 2005. If
we are not able to effectively manage appropriate consigned
inventory levels, we may suffer inventory losses that will
reduce our gross profit levels. There can be no assurance that
any efforts to strengthen our monitoring and management of
consigned inventory will be adequate to meaningfully reduce the
risk of inventory loss.
We are
dependent on our senior management team, key clinical advisors
and scientific personnel, and the loss of any of them could harm
our business.
Our continued success depends in part upon the continued
availability and contributions of our senior management team and
the continued participation of our key clinical advisors. We
have entered into agreements with certain members of our senior
management team, but none of these agreements guarantee the
services of the individual for a specified period of time. We
also rely on the skills and talents of our scientific personnel
because of the complexity of our products. The loss of members
of our senior management, key clinical advisors or scientific
personnel, or our inability to attract or retain other qualified
personnel or advisors could have a material adverse effect on
our results of operations and financial condition.
31
The
medical device industry is characterized by patent litigation,
which could be costly, result in the diversion of
managements time and efforts and require us to pay
damages.
The medical device industry is characterized by extensive
litigation and administrative proceedings over patent and other
intellectual property rights. Accordingly, we may in the future
be subject to further litigation and administrative proceedings
over such rights with other companies in our industry. As we
have discussed above with respect to our current litigation with
Boston Scientific, whether a product or method infringes a
patent involves complex legal and factual issues rendering the
outcome of any patent dispute largely unpredictable. In the
future, other competitors may assert that at least one of our
products, its components, or the methods we employ in the use or
manufacture of our products are covered by and infringe the
competitors United States or foreign patents held by them.
In addition, should our patents or applications have claims that
encompass the same scope as claims pending or issued to a third
party competitor, that third party may claim that its claims
have priority over ours because they invented the claimed
subject matter first. Because patent applications generally take
many years to issue, there may be third party applications
presently pending of which we are unaware, that may in the
future result in issued patents that at least one of our
products, its components, or the methods we employ in the use or
manufacture of our product(s) may infringe. There could also be
issued patents that one or more components of our products may
inadvertently be infringing, of which we are unaware. As the
number of participants in the market for cerebral vascular
treatments and the number of issued patents in this technology
area grows, the possibility of being charged with patent
infringement increases.
As we have discussed above with respect to our litigation with
Boston Scientific, any infringement claims against us may cause
us to incur substantial costs, could place a significant strain
on our financial resources, divert the attention of management
from our core business and harm our reputation. If the relevant
patent claims are upheld as valid and enforceable and we are
found to infringe, we could be required to pay substantial
damages
and/or
royalties and could be prevented from selling our products
unless we could obtain a license or were able to redesign our
products to avoid infringement. Any such license may not be
available on reasonable terms, if at all. If we fail to obtain
any required licenses or make any necessary changes to our
products or technologies, we may be unable to commercialize one
or more of our products or practice the methods we employ in the
use or manufacture of our products.
Our
ability to protect our intellectual property and proprietary
technology through patents and other means is
uncertain.
Our success depends significantly on our ability to procure
proprietary rights to the technologies used in our products. We
rely on patent protection, as well as a combination of
copyright, trade secret and trademark laws, and nondisclosure,
confidentiality and other contractual restrictions to protect
our proprietary technology. However, these legal means afford
only limited protection and may not be sufficient to adequately
protect our intellectual property or permit us to gain or keep
any competitive advantage. For example, any of our pending
United States or foreign patent applications may ultimately not
issue as a patent or, alternatively, may issue with claims that
are of little or no value to us. In addition, once issued, a
valuable patent may be challenged successfully by third parties
and invalidated, such as is being attempted by Boston Scientific
in our presently ongoing litigation. In addition, our patent
protection for material aspects of our products and methods is
presently being pursued with applications that have been filed
but not issued, such that these material aspects are not
presently protected by patents. Competitors may further be able
to get around having to license our technology in order to avoid
infringement by designing around our issued and published patent
claims, thereby staying clear of our proprietary rights.
Similarly, competitors may develop products and methods that are
equivalent or superior to ours. Our confidentiality agreements
and intellectual property assignment agreements with our
employees, consultants and advisors may not be enforceable or
may not provide meaningful protection for our trade secrets or
other proprietary information in the event of unauthorized use
or disclosure or other breaches of the agreements. Furthermore,
the laws of some foreign countries may not protect our
intellectual property rights to the same extent as do the laws
of the United States. Both the process of procuring patent
rights and the process of managing patent disputes can be time
consuming and expensive.
In the event a competitor infringes upon our patent or other
intellectual property rights, enforcing those rights may be
difficult and time consuming. Even if successful, litigation to
enforce our intellectual property rights or to
32
defend our patents against challenge could be prolonged, costly
and could divert our managements attention. We may not
have sufficient resources to enforce our intellectual property
rights or to defend our patents against a challenge.
If we
fail to obtain, or experience significant delays in obtaining,
FDA clearances or approvals for our future products or product
enhancements, or to comply with similar regulatory requirements
in other countries where we market our products, our ability to
commercially distribute and market our products could
suffer.
Our medical devices are subject to rigorous regulation by the
FDA and numerous other federal, state and foreign governmental
authorities. Our failure to comply with such regulations could
lead to the imposition of injunctions, suspensions or loss of
regulatory clearances or approvals, product recalls, termination
of distribution or product seizures or the need to invest
substantial resources to comply with various existing or new
requirements. In the more egregious cases, criminal sanctions,
civil penalties, disgorgement of profits or closure of our
manufacturing facilities are possible. The process of obtaining
regulatory clearances or approvals to market a medical device,
particularly from the FDA, can be costly and time consuming, and
there can be no assurance that such clearances or approvals will
be granted on a timely basis, if at all. In particular, the FDA
permits commercial distribution of most new medical devices only
after the device has received 510(k) clearance or is the subject
of an approved pre-market approval application, or PMA. The FDA
will clear the marketing of a medical device through the 510(k)
process if it is demonstrated that the new product has the same
intended use, is substantially equivalent to another legally
marketed device, including a 510(k)-cleared product, and
otherwise meets the FDAs requirements. The PMA approval
process is more costly, lengthy and uncertain than the 510(k)
clearance process and requires the development and submission of
clinical studies supporting the safety and effectiveness of the
device. Product modifications may also require the submission of
a new 510(k) clearance, or the approval of a PMA before the
modified product can be marketed. Changes in labeling and
manufacturing site for a PMA approved device may require the
submission and approval of a PMA supplement. Any products we
develop that require regulatory clearance or approval may be
delayed, if approved at all. In addition, we believe that some
of our new products will require an approved PMA before we can
commercially distribute the device and we cannot assure you that
any new products or any product enhancements we develop will be
subject to the shorter 510(k) clearance process instead of the
more lengthy PMA requirements. Additionally, certain of our
products under development may involve both device and drug or
biologic regulation and we will need to comply with drug and
biologic regulations in addition to medical device requirements.
Accordingly, we anticipate that the regulatory review and
approval process for some of our future products or product
enhancements may take significantly longer than anticipated or
that we have experienced in the past. We will also be required
to pay a medical device user fee and may also be required to pay
a drug or biologic user fee. There is no assurance that the FDA
will not require that a certain new product or product
enhancement go through the lengthy and expensive PMA approval
process. We have no experience in obtaining PMA approval. We
also have no experience in obtaining drug or biologic approval,
and will need to rely on third party assistance in navigating
the regulatory approval pathway for future combination products.
Further, pursuant to FDA regulations, we can only market our
products for cleared or approved uses. Certain of our products
may be used by physicians for indications other than those
cleared or approved by the FDA, but we cannot promote the
products for such off-label uses.
Modifications
to our marketed products may require new 510(k) clearances or
pre-market approvals, or may require us to cease marketing or
recall the modified products until clearances are
obtained.
Any modification to a 510(k)-cleared device that could
significantly affect its safety or effectiveness, or that would
constitute a change in its intended use, requires a new 510(k)
clearance or, possibly, PMA approval. The FDA requires every
manufacturer to make this determination in the first instance,
but the FDA may review a manufacturers decision. The FDA
may not agree with any of our past or future decisions regarding
whether new clearances or approvals are necessary. If the FDA
requires us to seek 510(k) clearance or PMA approval for any
modification to a previously cleared product, we may be required
to cease marketing
and/or to
recall the modified product until we obtain clearance or
approval, and we may be subject to significant regulatory fines
or penalties. Further, our products could be subject to recall
if the FDA determines, for any reason, that our products are not
safe, including but not limited to new safety data from use of
the product, or manufacturing defects. Any recall or FDA
33
requirement that we seek additional approvals or clearances
could result in delays, fines, costs associated with
modification of a product, loss of revenue and potential
operating restrictions imposed by the FDA
If we
or our suppliers fail to comply with the FDAs quality
system regulations, the manufacture of our products could be
delayed.
We and our suppliers are required to comply with the FDAs
quality system regulations, which cover the methods and
documentation of the design, testing, production, control,
quality assurance, labeling, packaging, storage and shipping of
our products. The FDA enforces these quality system regulations
through unannounced inspections. If we or one of our suppliers
fail a quality system regulations inspection or if any
corrective action plan is not sufficient, or is very expensive
or time consuming to implement, the manufacture of our products
could be delayed until satisfactory corrections are made, or in
the event we are unable to correct the problems we may not be
able to continue manufacturing and distributing the particular
device or devices. Such a delay potentially could disrupt our
business, harm our reputation and adversely affect our sales and
revenues.
If
neurointerventionalists are unable to obtain sufficient
reimbursement for procedures performed with our products, it is
unlikely that our products will be widely used.
Successful sales of our products will depend on the availability
of adequate reimbursement from third-party payors. Healthcare
providers that purchase medical devices for treatment of their
patients, generally rely on third-party payors to cover the use
of the product for the particular procedure and reimburse all or
part of the costs and fees associated with the procedures
performed with these devices. Currently, the costs of our
products distributed domestically are being reimbursed by third
party payors. There is no guarantee that coverage and adequate
reimbursement will be available in the future for our existing
and/or new
products. Both public and private insurance reimbursement plans
are central to new product acceptance. Neurointerventionalists
are unlikely to use our products if they do not receive
reimbursement adequate to cover the cost of our products and
related procedures.
In international markets, market acceptance may depend, in part,
upon the availability of reimbursement within prevailing
healthcare payment systems. Reimbursement and healthcare payment
systems in international markets vary significantly by country,
and include both government sponsored healthcare and private
insurance. Currently, the costs of our products distributed
internationally, other than in some Latin American countries,
are being reimbursed by public and private healthcare insurers.
We may not obtain international reimbursement approvals in a
timely manner, if at all, our failure to receive international
reimbursement approvals would negatively impact market
acceptance of our products in the international markets in which
those approvals are sought.
In addition, in certain countries, such as France, Germany,
China and Japan, we are required to obtain regulatory clearance
for our products to be eligible for reimbursements by third
party payors, even though reimbursement for embolic coiling
procedures is already in place.
Future reimbursement may be subject to increased restrictions
both in the United States and in international markets.
Third-party reimbursement and coverage may not be available or
adequate in either the United States or international markets.
Future legislation, regulation or reimbursement policies of
third-party payors may adversely affect the demand for our
existing products or our products currently under development
and limit our ability to sell our products on a profitable basis.
Changes
to existing accounting pronouncements or taxation rules or
practices may affect how we conduct our business and affect our
reported results of operations.
New accounting pronouncements or tax rules and varying
interpretations of accounting pronouncements or taxation
practice have occurred and may occur in the future. A change in
accounting pronouncements or interpretations or taxation rules
or practices can have a significant effect on our reported
results and may even affect our reporting of transactions
completed before the change is effective. Changes to existing
rules and pronouncements, future changes, if any, or the
questioning of current practices or interpretations may
adversely affect our reported financial results or the way we
conduct our business.
34
We may
become subject to product liability claims which could require
us to pay damages that exceed our insurance
coverage.
Our business exposes us to potential product liability claims
that are inherent in the testing, manufacture and sale of
medical devices for neurointerventional procedures. These
procedures involve significant risk of serious complications,
including intracranial bleeding, brain injury, paralysis and
even death. Any product liability claim brought against us, with
or without merit, could result in the increase of our product
liability insurance rates or the inability to secure coverage in
the future. In addition, we could have to pay an amount in
excess of policy limits, which would have to be paid out of cash
reserves. If longer-term patient results and experience indicate
that our products or any component cause tissue damage, motor
impairment or other adverse effects, we could be subject to
significant liability. Finally, even a meritless or unsuccessful
product liability claim could harm our reputation in the
industry, lead to significant legal fees and could result in the
diversion of managements attention from managing our
business.
We may
be subject to damages resulting from claims that we or our
employees have wrongfully used or disclosed alleged trade
secrets of their former employers.
Many of our employees were previously employed at other medical
device companies, including our competitors or potential
competitors. Although no claims against us are currently
pending, we may be subject to claims that these employees have
wrongfully used or disclosed alleged trade secrets of their
former employers or we have inadvertently or otherwise used or
disclosed trade secrets or other proprietary information of
their former employers. Litigation may be necessary to defend
against these claims. Even if we are successful in defending
against these claims, litigation could result in substantial
costs and be a distraction to management. If we fail in
defending such claims, in addition to paying monetary damages,
we may lose valuable intellectual property rights or personnel.
A loss of key research personnel or their work product could
hamper or prevent our ability to commercialize product
candidates, which could severely harm our business.
The
price of our common stock has fluctuated and we expect will
continue to fluctuate substantially and you may not be able to
sell your shares at or above your purchase price.
The market price of our common stock has been and we expect will
continue to be highly volatile and may fluctuate substantially
due to many factors, including:
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volume and timing of orders for our products;
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the introduction of new products or product enhancements by us
or our competitors;
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disputes or other developments with respect to intellectual
property rights;
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our ability to develop, obtain regulatory clearance for, and
market, new and enhanced products on a timely basis;
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product liability claims or other litigation;
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quarterly variations in our or our competitors results of
operations;
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sales of large blocks of our common stock, including sales by
our executive officers and directors;
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changes in governmental regulations or in the status of our
regulatory approvals or applications;
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changes in the availability of third-party reimbursement in the
United States or other countries;
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changes in revenues or earnings estimates or recommendations by
securities analysts; and
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general market conditions and other factors, including factors
unrelated to our operating performance or the operating
performance of our competitors.
|
Furthermore, to the extent there is an inactive market for our
common stock, the value of your shares and your ability to sell
your shares at the time you wish to sell them may be impaired.
An inactive market may also impair our ability to raise capital
by selling shares and may impair our ability to acquire other
companies, products or technologies by using our shares as
consideration.
35
Because
of their significant stock ownership, our executive officers,
directors and principal stockholders may be able to exert
control over us and our significant corporate
decisions.
Based on shares outstanding at March 31, 2008, our
executive officers, directors, and stockholders holding more
than 5% of our outstanding common stock and their affiliates, in
the aggregate, beneficially owned approximately 58% of our
outstanding common stock. As a result, these persons, acting
together, may have the ability to determine the outcome of all
matters submitted to our stockholders for approval, including
the election and removal of directors and any merger,
consolidation, or sale of all or substantially all of our
assets. This concentration of ownership may harm the market
price of our common stock by, among other things:
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delaying, deferring or preventing a change in control of our
company;
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|
impeding a merger, consolidation, takeover or other business
combination involving our company; or
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|
causing us to enter into transactions or agreements that are not
in the best interests of all stockholders.
|
Future
sales of our common stock may depress our stock
price.
Our current stockholders hold a substantial number of shares of
our common stock that they are able to sell in the public market
A significant portion of these shares are held by a small number
of stockholders. Sales by our current stockholders of a
substantial number of shares could significantly reduce the
market price of our common stock. Moreover certain holders of
our common stock have the right to require us to file
registration statements covering their shares or to include
their shares in registration statements that we may file for
ourselves or other stockholders.
We have registered 6,749,963 shares of common stock that we
may issue under our 1998 Stock Plan (the 1998 Plan),
2005 Equity Incentive Plan (the 2005 Plan) and 2005
Employee Stock Purchase Plan. These shares can be freely sold in
the public market upon issuance. The sale by any of these
holders of a large number of securities in the public market
could reduce the trading price of our common stock and impede
our ability to raise future capital.
We do
not intend to pay cash dividends.
We have never declared or paid cash dividends on our capital
stock. We currently intend to retain all available funds and any
future earnings for us in the operation and expansion of our
business and do not anticipate paying any cash dividends in the
foreseeable future. In addition, the terms of any future debtor
credit facility may preclude us from paying any dividends. As a
result, capital appreciation, if any, of our common stock will
be your sole source of potential gain for the foreseeable future.
We may
become involved in securities class action litigation that could
divert managements attention and harm our
business.
The stock market in general, The NASDAQ Stock Market and the
market for medical device companies in particular, continues to
experience extreme price and volume fluctuations that are
unrelated or disproportionate to companies operating
performance. Further, the market prices of securities of medical
device companies have been particularly volatile. These broad
market and industry factors may materially harm the market price
of our common stock, regardless of our operating performance. In
the past, following periods of volatility in the market price of
a particular companys securities, securities class action
litigation has often been brought against that company. As noted
above, we are currently involved in securities litigation as a
defendant in the United States District Court in the Southern
District of Florida. We have moved to dismiss this action and
will continue to take all appropriate response to the lawsuit.
But we may become involved in more of this type of litigation in
the future. Litigation often is expensive and diverts
managements attention and resources, which could
materially harm our financial condition and results of
operations.
36
Anti-takeover
provisions in our organizational documents and Delaware law may
discourage or prevent a change of control, even an acquisition
which would be beneficial to our stockholders, and thereby
affect our stock price adversely and prevent attempts by our
stockholders to replace or remove our current
management.
Our amended and restated certificate of incorporation and
amended bylaws contain provisions that could delay or prevent a
change of control of our company or changes in our board of
directors that our stockholders might consider favorable. Some
of these provisions:
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authorize the issuance of preferred stock which can be created
and issued by the board of directors without prior stockholder
approval, with rights senior to those of the common stock;
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provide for a classified board of directors, with each director
serving a staggered three-year term;
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prohibit our stockholders from filling board vacancies, calling
special stockholder meetings, or taking action by written
consent;
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prohibit our stockholders from making certain changes to our
amended and restated certificate of incorporation or bylaws
except with
662/3%
stockholder approval; and
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require advance written notice of stockholder proposals and
director nominations.
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In addition, we are subject to the provisions of
Section 203 of the Delaware General Corporation Law, which
may prohibit certain business combinations with stockholders
owning 15% or more of our outstanding voting stock. These and
other provisions in our amended and restated certificate of
incorporation, restated bylaws and Delaware law could make it
more difficult for stockholders or potential acquirers to obtain
control of our board of directors or initiate actions that are
opposed by our then-current board of directors, including
delaying or impeding a merger, tender offer, or proxy contest
involving our company. Any delay or prevention of a change of
control transaction or changes in our board of directors could
cause the market price of our common stock to decline.
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Item 1B.
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Unresolved
Staff Comments.
|
None.
Our worldwide headquarters are located in San Jose,
California. On June 6, 2005, we entered into a
non-cancelable seven-year lease pursuant to which we lease
approximately 42,000 square feet of building space with
both administrative and manufacturing facilities.
On March 11, 2008, our wholly-owned subsidiary, MDT,
entered into a non-cancelable ten-year lease in Miramar,
Florida, which will commence pursuant to the completion of the
building improvements. These improvements are scheduled to be
completed on or before August 31, 2008. The facility
comprises a total of approximately 27,000 square feet,
which we currently plan to use for administrative, clean room,
manufacturing and distribution facilities.
On December 4, 2007, our wholly owned subsidiary, Micrus
SA, entered into a non-cancelable eight-year lease for office
space in Switzerland. The office space comprises a total of
approximately 5,500 square feet.
Additionally, we lease office space for our wholly-owned
subsidiary, Micrus Endovascular UK Limited (Micrus
UK), under a non-cancelable lease agreement with a term
through December 2010.
We otherwise believe that our existing facilities are adequate
to meet our current and near term future needs.
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Item 3.
|
Legal
Proceedings.
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FCPA
Investigation
In August 2004, while reviewing our sales and payment
procedures, we identified certain payments we made to physicians
located in France, Germany, Spain and Turkey that were likely to
have violated the FCPA and the laws
37
of such countries as well as possibly the laws of Switzerland,
where our Swiss subsidiary is located. Our audit committee
immediately directed our legal counsel to conduct an internal
investigation into these payments. In September 2004, we
voluntarily disclosed to the DOJ the factual information
obtained in our internal investigation of potential violations
of the FCPA.
Soon after reaching the preliminary conclusions of the
investigation, our Board of Directors adopted a Foreign Corrupt
Practices Act Policy and appointed a Compliance Officer. The
Compliance Officer has with the assistance of our general
counsel and outside legal counsel developed a number of other
corporate policies that will govern payments to and contractual
agreements with physicians and other consultants. In addition,
the employment of our then Chief Executive Officer and our then
Vice President of Sales and Marketing was terminated in November
2004.
After reviewing the results of the internal investigation and
the compliance procedures implemented by us, the DOJ entered
into an agreement (the DOJ Agreement) with us in
February 2005 pursuant to which it will not prosecute us for the
conduct disclosed to the DOJ, and we agreed to: (i) accept
responsibility for the actions of our employees and officers,
(ii) pay a monetary penalty of $450,000,
(iii) continue to cooperate with the DOJ in its
investigation, including the waiver of legal privileges,
(iv) establish policies and procedures to assure compliance
with the FCPA and other relevant bribery laws, (v) retain
and pay for an independent law firm to act as a monitor for
purposes of reporting to the DOJ for a period of three years as
to our compliance with the DOJ Agreement and monitoring our
implementation and adherence to FCPA compliance policies and
procedures, and (vi) cooperate fully with the DOJ, the
independent monitor and the SEC. The monitor filed his final
report with the DOJ in May 2008, and we have agreed to
extend the period of the monitorship until June 20, 2008.
The monetary penalty was accrued in fiscal 2005 and was paid in
April 2005. The ongoing cost of compliance with the DOJ
agreement is recorded as an expense as incurred.
The payments we made to physicians located in France, Germany,
Spain and Turkey also may have likely violated the applicable
laws in those foreign jurisdictions and may possibly have
violated laws in Switzerland, where our Swiss subsidiary is
located. We are not able to determine at this time what
penalties or other sanctions, if any, authorities in France,
Germany, Spain, or Turkey may impose on us, as a result of such
violations. Such amounts could be material to our financial
position, results of operations or cash flows. We have been
notified by the Swiss Federal Prosecutor that it does not intend
to bring any action or impose any penalties on us relating to
our activities in Switzerland.
Patent
Litigation
In September 2004, Boston Scientific, filed a patent
infringement suit in the United States District Court for the
Northern District of California, alleging that our embolic coil
products infringe two patents (United States Patent Nos.
5,895,385 (the 385 Patent) and 6,010,498 (the
498 Patent)) owned by the Regents and
exclusively licensed to Boston Scientific and that this
infringement is willful. Sales of our embolic coil products
currently represent approximately 94% of our revenues. Boston
Scientific is a large, publicly-traded corporation with
significantly greater financial resources than us.
In November 2004, we answered Boston Scientifics complaint
and counterclaimed, alleging that Boston Scientifics
embolic coil products, and their use, infringe three of our
patents. In addition, we alleged that Boston Scientific has
violated United States antitrust laws, and has violated certain
California state laws by committing unfair business practices,
disparaging our products, and interfering with our prospective
economic advantage. Each party seeks an injunction preventing
the making, using, selling, offering to sell, importing into the
United States or exporting from the United States, of the
others embolic coil products in the United States, damages
for past infringement, which may be trebled, and payment of its
legal fees and costs. In addition, each party seeks a
declaration that the patents of the other are invalid and not
infringed and has alleged that certain of the asserted patents
of the other are unenforceable due to inequitable conduct.
In January 2005, Boston Scientific filed a motion to dismiss our
claims for disparagement, interference with prospective economic
advantage and unfair business practices. That motion has been
fully briefed and oral argument is scheduled for June 23,
2008
38
In November 2006, we withdrew one of our three asserted patents
from the litigation to pursue a reissue application filed with
the United States Patent and Trademark Office
(USPTO).
A hearing on claim construction was held in June 2007. In March
2008, the Court issued an order construing certain claim terms
of patents that were asserted by Boston Scientific against
Micrus or asserted by Micrus against Boston Scientific. On
April 23, 2008, the district court entered a scheduling
order on future events in this action, including the close of
all discovery on January 26, 2009. A trial date has not
been set by the district court.
Boston Scientific has also been a party in two other lawsuits
against Cordis and Micro Therapeutics, Inc./ev3, Inc./Dendron
GmbH (collectively MTI) in which the two Boston
Scientific patents asserted against us are or were also at
issue. An outcome of either of these lawsuits adverse to Cordis
or MTI, and related to the same patent claims Boston Scientific
asserts against us, could have an adverse impact on certain of
our defenses in our litigation with Boston Scientific.
According to court records, the Regents, Boston Scientific and
MTI entered into a settlement agreement on March 21, 2008,
and on April 4, 2008 the Regents, Boston Scientific and MTI
dismissed the action, including all claims and counter-claims,
with prejudice.
On January 18, 2008, in the Cordis case, the district court
granted Boston Scientifics motion for summary judgment
that Cordis TRUFILL Detachable Coil System infringed claim
7 of the 385 Patent under the doctrine of equivalents. On
January 25, 2008, the district court granted Boston
Scientifics motion for summary judgment against Cordis
that claims 10 and 35 of the 385 patent, and claims 1, 3,
7, 9, and 10 of the 498 patent, are not invalid for having
been on-sale or in public use before the statutory bar period.
On March 21, 2008, the district court
granted-in-part Boston
Scientifics motion for summary judgment that the 385
patent and 498 patent are not unenforceable for
inequitable conduct. The district court also
denied-in-part Boston
Scientifics motion on the ground that triable issues of
fact remained concerning the patent applicants
representations to the patent examiner during the application
process. The district courts determinations on the
validity and enforceability of the 385 and 498
patents are important because Boston Scientific is asserting
these same patents against us in our lawsuit and we are alleging
that these patents are invalid and unenforceable.
In October 2004, Cordis requested ex parte reexamination
of certain claims in Boston Scientifics 385 and
498 patents. In April 2007, the USPTO issued a Notice of
Intent to Issue Ex Parte Reexamination Certificate for the
498 patent, apparently confirming all of the claims of
that patent. In December 2006, the USPTO issued a Notice of
Allowance for the 385 patent in which it apparently
confirmed the patentability of the claims in that patent.
Securities
Litigation
On October 3, 2007, a purported securities class action
complaint (the Complaint) was filed in the
United States District Court for the Southern District of
Florida against Micrus and certain of our directors and officers
(the Defendants). The Complaint alleged that Micrus
and the individual defendants made materially false
and/or
misleading statements or omissions in violation of the federal
securities laws during the period of February 12, 2007
through September 16, 2007 (the
Class Period). The Complaint sought to recover
damages on behalf of anyone who purchased or otherwise acquired
our stock during the Class Period. On January 22,
2008, the Court appointed lead class plaintiff, and on
February 6, 2008, plaintiffs filed their Consolidated
Complaint.
On February 26, 2008, we filed a Motion to Dismiss the
Consolidated Complaint for failure to state a claim, and on
May 20, 2008 the Court granted the Motion to Dismiss,
giving plaintiffs ten days, until May 30, 2008, to amend
their Complaint. Plaintiffs failed to amend their Complaint, and
on June 6, 2008, the Court dismissed the case with
prejudice.
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Item 4.
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Submission
of Matters to a Vote of Security Holders.
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None.
39
PART II
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Item 5.
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Market
for Registrants Common Equity, Related Stockholder Matters
and Issuer Purchases of Equity Securities.
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Our common stock is traded on The NASDAQ Stock Market under the
symbol MEND. The following table sets forth the high
and low daily bid prices per share of our common stock, as
reported by The NASDAQ Stock Market.
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Fiscal Year Ended March 31, 2008
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High
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Low
|
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First Quarter
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$
|
25.45
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|
$
|
20.06
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Second Quarter
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$
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26.00
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|
$
|
15.88
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Third Quarter
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|
$
|
21.45
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|
$
|
16.87
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Fourth Quarter
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|
$
|
20.55
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|
$
|
10.70
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|
|
|
|
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Fiscal Year Ended March 31, 2007
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High
|
|
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Low
|
|
|
First Quarter
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$
|
15.00
|
|
|
$
|
11.57
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Second Quarter
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|
$
|
15.00
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|
$
|
11.11
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Third Quarter
|
|
$
|
20.50
|
|
|
$
|
11.62
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Fourth Quarter
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|
$
|
25.00
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|
$
|
18.75
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The last reported sale price of our common stock on The NASDAQ
Stock Market on May 30, 2008 was $11.31 per share. As of
May 30, 2008, there were approximately 67 holders of record
of our common stock.
Dividend
Policy
We have never declared a divided or paid any cash dividends on
our common stock. Because we currently intend to retain any
future earnings to fund the development and growth of our
business, we do not anticipate paying any cash dividends in the
near future.
Unregistered
Securities Sold in Fiscal 2008
None
Issuer
Purchases of Equity Securities
We do not have a stock repurchase program and did not repurchase
any of our equity securities during the year ended
March 31, 2008.
Securities
Authorized for Issuance Under Equity Compensation
Plans
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|
|
|
|
|
|
|
|
|
Number of
|
|
|
|
|
|
|
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|
|
Securities
|
|
|
|
|
|
|
|
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|
Remaining Available
|
|
|
|
Number of
|
|
|
|
|
|
for Future Issuance
|
|
|
|
Securities to be
|
|
|
|
|
|
Under Equity
|
|
|
|
Issued Upon
|
|
|
Weighted Average
|
|
|
Compensation Plans
|
|
|
|
Exercise of
|
|
|
Exercise Price of
|
|
|
(Excluding
|
|
|
|
Outstanding
|
|
|
Outstanding
|
|
|
Securities
|
|
|
|
Options, Warrants
|
|
|
Options, Warrants
|
|
|
Reflected in Colum
|
|
Plan Category
|
|
and Rights
|
|
|
and Rights
|
|
|
(a))
|
|
|
Equity compensation plans approved by security holders
|
|
|
3,663,358
|
(1)
|
|
$
|
13.02
|
|
|
|
1,520,767
|
(2)
|
Equity compensation plans not approved by security holders
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
3,663,358
|
(1)
|
|
$
|
13.02
|
|
|
|
1,520,767
|
(2)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
40
|
|
|
(1) |
|
Includes 1,083,967 shares subject to options outstanding
under our 1998 Plan and 2,579,391 shares subject to options
and restricted stock units outstanding under our 2005 Plan. |
|
(2) |
|
Includes 1,064,417 shares of common stock reserved for
future issuance under our 2005 Plan and 456,350 shares of
common stock reserved for future issuance under our Purchase
Plan. As of April 1, 2008, the number of shares available
for issuance under the foregoing plans automatically increased
to 1,731,083 shares available for issuance under the 2005
Plan and 678,572 shares available for issuance under the
Purchase Plan. |
41
Stock
Performance Graph
Notwithstanding any statement to the contrary in any of the
Companys previous or future filings with the Securities
and Exchange Commission, the following information relating to
the price performance of the Companys common stock shall
not be deemed filed with the Commission or
soliciting material under the Securities Exchange
Act of 1934 and shall not be incorporated by reference into any
such filings.
The following graph shows a comparison of cumulative total
return for the Companys common stock, The NASDAQ Composite
Index, The NASDAQ Medical Equipment Index and The Russell 2000
Index. Such returns are based on historical results and are not
intended to suggest future performance. The graph assumes $100
was invested in the Companys common stock and in each of
the indexes on June 16, 2005 (the date the Companys
common stock commenced trading on The NASDAQ Stock Market). Data
for The NASDAQ Composite Index, The NASDAQ Medical Equipment
Index and The Russell 2000 Index assume reinvestment of
dividends. The Company has never paid dividends on its common
stock and has no present plans to do so.
COMPARISON
OF 33 MONTH CUMULATIVE TOTAL RETURN*
Among
Micrus Endovascular Corporation, The NASDAQ Composite Index,
The Russell 2000 Index And The NASDAQ Medical Equipment Index
* $100 invested on 6/16/05 in stock or
index-including
reinvestment of dividends.
Fiscal year ending March 31.
42
|
|
Item 6.
|
Selected
Financial Data.
|
The following selected consolidated financial data should be
read in conjunction with Managements Discussion and
Analysis of Financial Condition and Results of Operations
and the consolidated financial statements and the notes thereto
included in this report. The selected consolidated statements of
operations data for the fiscal years ended March 31, 2008,
2007 and 2006 and the selected consolidated balance sheet data
as of March 31, 2008 and 2007 are derived from the audited
consolidated financial statements that are included elsewhere in
this report. The selected consolidated statements of operations
data for the fiscal years ended March 31, 2005 and 2004 and
the selected consolidated balance sheet data as of
March 31, 2006, 2005 and 2004 are derived from our audited
consolidated financial statements not included in this report.
The historical results are not necessarily indicative of the
results of operations to be expected in any future periods. All
per share amounts for all periods presented have been restated
to reflect the
1-for-2.25
reverse stock split that became effective on June 10, 2005.
Consolidated
Statements of Operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended March 31,
|
|
|
|
2008(2)
|
|
|
2007(2)(3)
|
|
|
2006(4)
|
|
|
2005(5)
|
|
|
2004
|
|
|
|
(In thousands, except per share amounts)
|
|
|
Revenues
|
|
$
|
69,213
|
|
|
$
|
58,795
|
|
|
$
|
32,781
|
|
|
$
|
24,012
|
|
|
$
|
15,700
|
|
Cost of goods sold(1)
|
|
|
17,301
|
|
|
|
15,361
|
|
|
|
9,710
|
|
|
|
8,003
|
|
|
|
5,725
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
51,912
|
|
|
|
43,434
|
|
|
|
23,071
|
|
|
|
16,009
|
|
|
|
9,975
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development(1)
|
|
|
13,718
|
|
|
|
7,904
|
|
|
|
6,589
|
|
|
|
2,360
|
|
|
|
2,927
|
|
Sales and marketing(1)
|
|
|
30,237
|
|
|
|
24,121
|
|
|
|
15,171
|
|
|
|
8,781
|
|
|
|
6,012
|
|
General and administrative(1)
|
|
|
26,119
|
|
|
|
19,308
|
|
|
|
10,307
|
|
|
|
11,884
|
|
|
|
3,511
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
70,074
|
|
|
|
51,333
|
|
|
|
32,067
|
|
|
|
23,025
|
|
|
|
12,450
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from operations
|
|
|
(18,162
|
)
|
|
|
(7,899
|
)
|
|
|
(8,996
|
)
|
|
|
(7,016
|
)
|
|
|
(2,475
|
)
|
Interest and investment income
|
|
|
1,223
|
|
|
|
1,618
|
|
|
|
1,295
|
|
|
|
177
|
|
|
|
153
|
|
Interest expense
|
|
|
(3
|
)
|
|
|
(14
|
)
|
|
|
(12
|
)
|
|
|
(29
|
)
|
|
|
(20
|
)
|
Other income (expense), net
|
|
|
488
|
|
|
|
565
|
|
|
|
(632
|
)
|
|
|
164
|
|
|
|
328
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss before income taxes
|
|
|
(16,454
|
)
|
|
|
(5,730
|
)
|
|
|
(8,345
|
)
|
|
|
(6,704
|
)
|
|
|
(2,014
|
)
|
Income tax benefit
|
|
|
(194
|
)
|
|
|
(247
|
)
|
|
|
(84
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
|
(16,260
|
)
|
|
|
(5,483
|
)
|
|
|
(8,261
|
)
|
|
|
(6,704
|
)
|
|
|
(2,014
|
)
|
Accretion of redeemable convertible preferred stock to
redemption value including beneficial conversion feature
|
|
|
|
|
|
|
|
|
|
|
(659
|
)
|
|
|
(588
|
)
|
|
|
(530
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss attributable to common stockholders
|
|
$
|
(16,260
|
)
|
|
$
|
(5,483
|
)
|
|
$
|
(8,920
|
)
|
|
$
|
(7,292
|
)
|
|
$
|
(2,544
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss per share attributable to common stockholders basic and
diluted
|
|
$
|
(1.05
|
)
|
|
$
|
(0.38
|
)
|
|
$
|
(0.79
|
)
|
|
$
|
(5.22
|
)
|
|
$
|
(2.02
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average number of shares used in per share calculation
basic and diluted
|
|
|
15,438
|
|
|
|
14,621
|
|
|
|
11,240
|
|
|
|
1,397
|
|
|
|
1,257
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Includes stock-based compensation of the following: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended March 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
|
(In thousands)
|
|
|
Cost of goods sold
|
|
$
|
471
|
|
|
$
|
218
|
|
|
$
|
26
|
|
|
$
|
26
|
|
|
$
|
11
|
|
Research and development
|
|
$
|
533
|
|
|
$
|
222
|
|
|
$
|
22
|
|
|
$
|
69
|
|
|
$
|
207
|
|
Sales and marketing
|
|
$
|
1,325
|
|
|
$
|
802
|
|
|
$
|
169
|
|
|
$
|
134
|
|
|
$
|
162
|
|
General and administrative
|
|
$
|
2,629
|
|
|
$
|
1,332
|
|
|
$
|
172
|
|
|
$
|
3,210
|
|
|
$
|
174
|
|
43
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31,
|
|
|
|
2008
|
|
|
2007(3)
|
|
|
2006(4)
|
|
|
2005
|
|
|
2004
|
|
|
|
(In thousands)
|
|
|
Consolidated Balance Sheet Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
72,332
|
|
|
$
|
73,097
|
|
|
$
|
62,114
|
|
|
$
|
29,774
|
|
|
$
|
17,878
|
|
Mandatorily redeemable convertible preferred stock
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
58,442
|
|
|
$
|
49,479
|
|
Total stockholders equity (deficit)
|
|
$
|
48,180
|
|
|
$
|
56,294
|
|
|
$
|
51,316
|
|
|
$
|
(37,561
|
)
|
|
$
|
(34,193
|
)
|
Accumulated deficit
|
|
$
|
(71,362
|
)
|
|
$
|
(55,102
|
)
|
|
$
|
(49,619
|
)
|
|
$
|
(40,975
|
)
|
|
$
|
(34,271
|
)
|
|
|
|
(2) |
|
In fiscal 2008 and 2007, loss from operations, net loss and
basic and diluted net loss per share include the impact of
SFAS 123R, which were not present in prior years. Refer to
Notes 2 and 9 of our Notes to Consolidated Financial
Statements. |
|
(3) |
|
On November 30, 2006, we completed our acquisition of
VasCon. The results of operations of MDT, a newly formed
subsidiary, are included in the accompanying consolidated
statements of operations for all periods or partial periods
subsequent to the acquisition date. Additionally, the acquired
assets and liabilities assumed in the acquisition are included
in the consolidated balance sheet subsequent to the acquisition
date. See Note 3 of Notes to Consolidated Financial
Statements for further details regarding the transaction. |
|
(4) |
|
On September 20, 2005, we completed our acquisition of
Neurologic UK Limited (Neurologic). The results of
operations of Micrus UK, a newly formed subsidiary, are included
in the accompanying consolidated statements of operations for
all periods or partial periods subsequent to the acquisition
date. Additionally, the acquired assets and liabilities assumed
in the acquisition are included in the consolidated balance
sheet subsequent to the acquisition date. See Note 3 of
Notes to Consolidated Financial Statements for
further details regarding the transaction. |
|
(5) |
|
In fiscal 2005, loss from operations, net loss and basic and
diluted net loss per share include the impact of a stock-based
compensation charge of $3.0 million related to option
modification of the former CEOs options. |
|
|
Item 7.
|
Managements
Discussion and Analysis of Financial Conditions and Results of
Operations.
|
The following discussion and analysis of the financial
condition and results of operations of the Company should be
read in conjunction with the consolidated financial statements
and the related notes included elsewhere in this report, and
with other factors described from time to time in our other
filings with the Securities and Exchange Commission. This Annual
Report on
Form 10-K
contains forward-looking statements that involve risks and
uncertainties. Actual results and the timing of events may
differ materially from those contained in the forward-looking
statements due to a number of factors, including those discussed
in Part I, Item 1A Risk Factors above and
elsewhere in this Annual Report on
Form 10-K.
Overview
We develop, manufacture and market implantable and disposable
medical devices used in the treatment of cerebral vascular
diseases. Our products are used by interventional
neuroradiologists, interventional neurologists and neurosurgeons
to treat both cerebral aneurysms responsible for hemorrhagic
stroke and intracranial atherosclerosis which may lead to
ischemic stroke. Hemorrhagic and ischemic stroke are both
significant causes of death and disability worldwide. Our
product lines consist of endovascular systems that enable a
physician to gain access to the brain in a minimally invasive
manner through the vessels of the arterial system. We believe
our products provide a safe and reliable alternative to more
invasive neurosurgical procedures for treating aneurysms. Our
proprietary three-dimensional, embolic coils automatically and
rapidly deploy within an aneurysm, forming a scaffold that
conforms to a wide diversity of aneurysm shapes and sizes. We
also supply accessories for use with our microcoils and other
products for the treatment of neurovascular disease including
microcatheters, guidewires and stents. We plan on growing our
business by continuing to penetrate our existing hemorrhagic and
ischemic stroke markets, bringing new products and technologies
to interventional neuroradiologists, interventional neurologists
and neurosurgeons, and by entering new geographic territories
such as Asia where we commenced selling our products in Japan
through our distribution partner, Goodman, in March 2006.
Additionally, on July 31, 2007, we
44
entered into an exclusive distribution agreement with TXF
Medical to market our products in China upon receiving
regulatory approvals.
Our revenues are derived primarily from sales of our microcoils.
We also sell stents, access products and accessories for use
with our microcoils, which accounted for approximately 5%, 3%
and 2% of our revenues in fiscal 2008, 2007 and 2006,
respectively. Geographically, our revenues are generally from
sales to customers in the Americas, Europe and Asia. Our
products are shipped from our facilities in the United States,
Switzerland, the United Kingdom, and a logistics facility in the
Netherlands, to either hospitals or distributors. We invoice our
customers upon shipment. In select hospitals, our products are
held on consignment, and remain on site, free of charge until
used.
We anticipate that our cost of goods sold will generally
increase in absolute dollars during those quarters in which our
sales increase or we incur additional manufacturing costs in
anticipation of the commercial introduction of new products.
Furthermore, our gross margin percentage may decrease in those
quarters in which we initiate sales of new products or product
lines, or enter new geographic territories.
Our product development efforts are primarily focused on
expanding our current line of microcoils and broadening our
product offerings in the hemorrhagic and ischemic stroke
markets. In August 2004, we introduced our
Cerecyte®
microcoil product line and we have launched eight new products
in the last 24 months, including microcoils, stents,
microcatheters and guidewires. During the first quarter of
fiscal 2008, we introduced two new products the
Cashmeretm
microcoil system and the
ENZOtm
deflectable microcatheter. The
Cashmeretm
is a stretch-resistant microcoil designed to provide stable
framing or filling of aneurysms that may require a softer
microcoil, such as those with irregular shapes or ruptured
aneurysms. The
ENZOtm
deflectable microcatheter is designed to offer improved
maneuverability through the brains tortuous vasculature
and to enable in vivo repositioning of the microcatheter in the
aneurysm, allowing physicians to more efficiently fill
aneurysms, which may lead to improved outcomes. We intend to
continue this product line expansion with the goal of continuing
to increase our per-procedure revenue.
We also intend to continue to expand our direct sales force in
the North America and Europe as necessary and enter the Asian
markets through distributors. In March 2006, we launched our
sales and marketing efforts in Japan through our distribution
partner, Goodman. In December 2007, we received regulatory
approval to sell our stretch-resistant microcoils in Japan. We
continue to work with regulatory officials in Japan to gain
approval for our
Cerecyte®
microcoils. We recorded product sales to Goodman of
$6.3 million, $8.7 million and $2.2 million in
fiscal 2008, 2007 and 2006, respectively. We are also preparing
to enter China and have selected TXF Medical to be our
distributor in China. We will begin selling our products in
China upon receiving regulatory approvals. However, the timing
of these approvals are uncertain due to a pending review by the
Chinese State Food and Drug Administration (SFDA) of drug and
medical device approvals granted during the term of the former
SFDA minister. We believe this review process along with more
stringent approval procedures will delay review and approval of
applications for new products. As a result, we did not recognize
revenues from sales in China this fiscal year.
We currently anticipate that the broadening of our product line,
the worldwide expansion of our direct sales force and our entry
into the Asian market will be primarily funded with our
currently available cash and cash expected to be generated from
product sales.
We introduced our first proprietary, three-dimensional microcoil
in May 2000. Our revenues have grown from $1.8 million in
fiscal 2001 to $69.2 million in fiscal 2008.
Since inception, we have been unprofitable. We have incurred net
losses of $16.3 million, $5.5 million and
$8.3 million in fiscal 2008, 2007 and 2006, respectively.
As of March 31, 2008, we had cash and cash equivalents of
$25.5 million. We believe that our current cash position
and the cash expected to be generated from product sales will be
sufficient to meet our working capital and capital expenditure
requirements for at least the next twelve months. There is no
assurance that we will be profitable in the foreseeable future
as we expand our research and development, manufacturing, and
sales activities and expand geographically. As of March 31,
2008, we had an accumulated deficit of $71.4 million.
45
Recent
Developments
On July 31, 2007, we entered into a five-year, exclusive
distribution agreement with TXF Medical. Under the terms of the
distribution agreement, TXF Medical will promote and market our
full line of products, as such products are approved, in China
and is required to purchase a minimum of $53.5 million of
such products over the five year term of the agreement
commencing upon regulatory approvals to maintain its exclusive
distributor status in China, ranging from $2.5 million
during fiscal 2008 to $16.5 million during fiscal 2012. We
will begin distributing our products through TXF Medical in
China upon receiving regulatory approvals.
On October 26, 2007, we entered into a Stock Purchase
Agreement (the ReVasc Agreement) with The Cleveland
Clinic and ReVasc, a wholly-owned subsidiary of The Cleveland
Clinic, pursuant to which we acquired all of the outstanding
stock of ReVasc from The Cleveland Clinic for an aggregate
up-front purchase price of $1.0 million. Pursuant to the
ReVasc Agreement, we also agreed to pay The Cleveland Clinic up
to an additional $5.0 million in payments upon the
achievement of certain milestones set forth in the ReVasc
Agreement, with minimum milestone payments of at least
$2.0 million due to The Cleveland Clinic upon the third
anniversary of the closing of the purchase.
ReVasc was a party to a license agreement with The Cleveland
Clinic (the ReVasc License Agreement) pursuant to
which The Cleveland Clinic granted ReVasc an exclusive license
to its revascularization technology for the treatment of
ischemic stroke. In connection with the acquisition, the parties
amended the ReVasc License Agreement to provide, among other
matters, for the payment to The Cleveland Clinic of certain
royalties for sales of products based on the technology subject
to the ReVasc License Agreement.
We acquired only pre-regulatory approved technology and did not
assume any other assets or liabilities in connection with the
acquisition of ReVasc. Accordingly, the Agreement has been
accounted for as a purchase of in-process research and
development and $3.0 million, representing the up-front
purchase price of $1.0 million plus future minimum
milestone payments of $2.0 million, was recorded as
research and development expense during the third quarter of
fiscal 2008.
On December 7, 2007, we merged ReVasc into Micrus.
Following the merger, Micrus became the direct recipient of the
license of the revascularization technology from The Cleveland
Clinic under the ReVasc License Agreement.
On January 16, 2008, we entered into a license, development
and commercialization agreement with Genesis. Under the terms of
the agreement, we licensed the rights to Genesis F.A.S.T.
Funnel Catheter and clot retrieval system for the treatment of
ischemic stroke. The transaction includes an initial up-front
payment of $0.8 million, a future development milestone
payment of $150,000 payable upon the earlier occurrence of the
date of first commercial sale or September 30, 2008 and
royalties on potential future product sales. Both the initial
up-front payment of $0.8 million and future milestone
payment of $150,000 were recorded as research and development
expense upon the effective date of the Genesis agreement.
On January 29, 2008, we entered into agreements with
certain executive officers (the Accelerated
Employees) to fully accelerate the vesting of options to
purchase our common stock issued under our 2005 Equity Incentive
Plan and/or
our 1998 Stock Plan held by such Accelerated Employees if,
within the period 3 months prior or 12 months
following a change of control of the Company or sale of
substantially all of the Companys assets, an Accelerated
Employee ceases being employed by us because either such
Accelerated Employee is involuntary terminated by us (or any
subsidiary) without cause or such Accelerated
Employee voluntarily quits within 60 days of an event which
constitutes good reason.
On January 31, 2008, we entered into an Asset Purchase and
Supply Agreement (the Merit Agreement) with Merit
pursuant to which we sold our non-neurological cardiac and
peripheral catheter assets and technology (the Merit
Transaction). The majority of the assets sold were
originally acquired by us in November 2006 in connection with
our purchase of VasCon. Under the terms of the Merit Agreement,
we also agreed to manufacture and supply certain guide catheters
to Merit for period of up to one year following the closing.
Pursuant to the Merit Agreement, we received an up-front payment
of $1.5 million and will receive an additional
$1.5 million upon the earlier to occur of the date that
Merit can independently manufacture, validate and commercially
produce certain guide catheters or the one year anniversary of
the closing. In connection with the Merit Transaction, we also
entered
46
into a license agreement granting Merit the right to use certain
non-patented intellectual property in the cardiology and
peripheral radiology fields and a non-competition agreement,
whereby we agreed not to engage in certain competitive business
activities in the fields of cardiology and peripheral radiology
for a period of five years. We delivered and transferred title
to the acquired assets, primarily inventory related to the
catheter products, to Merit in February and March 2008. Pursuant
to the Merit Agreement, we must provide reasonable assistance to
help Merit build a production line for coronary guide catheters
and may be required to train Merits personnel in
manufacturing, validating and sterilizing coronary guide
catheters. We anticipate that the production line for coronary
guide catheters will become fully operational in the second
quarter of fiscal 2009. If requested by Merit, we must provide
reasonable assistance to help Merit build production lines for
peripheral guiding sheaths
and/or
cardiovascular microcatheters. Merit must inform us within six
months following the completion of the coronary guide catheters
production line that this assistance will be needed.
Though certain elements, namely the acquired assets and
licensing rights, have been delivered as of March 31, 2008,
we are still obligated to deliver the regulatory documentation
and production line assistance. Because we lack the ability to
separate the multiple obligations (elements) of this
transaction, the up-front payment of $1.5 million, net of
direct and incremental costs incurred and the net book value of
assets transferred to Merit, has been deferred until such time
as all elements of the transaction are delivered.
Results
of Operations
The following table sets forth the results of our operations,
expressed as percentages of revenues, for the fiscal years ended
March 31, 2008, 2007 and 2006:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended March 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
|
%
|
|
|
%
|
|
|
%
|
|
|
Consolidated Statements of Operations Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
|
100
|
%
|
|
|
100
|
%
|
|
|
100
|
%
|
Cost of goods sold
|
|
|
25
|
%
|
|
|
26
|
%
|
|
|
30
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
75
|
%
|
|
|
74
|
%
|
|
|
70
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development
|
|
|
20
|
%
|
|
|
13
|
%
|
|
|
20
|
%
|
Sales and marketing
|
|
|
43
|
%
|
|
|
41
|
%
|
|
|
46
|
%
|
General and administrative
|
|
|
38
|
%
|
|
|
33
|
%
|
|
|
31
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
101
|
%
|
|
|
87
|
%
|
|
|
97
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from operations
|
|
|
(26
|
)%
|
|
|
(13
|
)%
|
|
|
(27
|
)%
|
Interest and investment income
|
|
|
2
|
%
|
|
|
3
|
%
|
|
|
4
|
%
|
Interest expense
|
|
|
0
|
%
|
|
|
0
|
%
|
|
|
0
|
%
|
Other income (expense), net
|
|
|
1
|
%
|
|
|
1
|
%
|
|
|
(2
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss before income taxes
|
|
|
(23
|
)%
|
|
|
(9
|
)%
|
|
|
(25
|
)%
|
Income tax benefit
|
|
|
0
|
%
|
|
|
0
|
%
|
|
|
0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
|
(23
|
)%
|
|
|
(9
|
)%
|
|
|
(25
|
)%
|
Accretion of redeemable convertible preferred stock to
redemption value including beneficial conversion feature
|
|
|
0
|
%
|
|
|
0
|
%
|
|
|
(2
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss attributable to common stockholders
|
|
|
(23
|
)%
|
|
|
(9
|
)%
|
|
|
(27
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
47
Fiscal
Years Ended March 31, 2008 and 2007
Revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended March 31,
|
|
|
Change
|
|
|
|
2008
|
|
|
2007
|
|
|
$
|
|
|
%
|
|
|
|
(Dollars in thousands)
|
|
|
Americas
|
|
$
|
37,565
|
|
|
$
|
31,618
|
|
|
$
|
5,947
|
|
|
|
19
|
%
|
Europe (excluding the United Kingdom)
|
|
|
15,095
|
|
|
|
11,226
|
|
|
|
3,869
|
|
|
|
34
|
%
|
United Kingdom
|
|
|
9,100
|
|
|
|
6,448
|
|
|
|
2,652
|
|
|
|
41
|
%
|
Asia Pacific
|
|
|
7,453
|
|
|
|
9,503
|
|
|
|
(2,050
|
)
|
|
|
(22
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Revenues
|
|
$
|
69,213
|
|
|
$
|
58,795
|
|
|
$
|
10,418
|
|
|
|
18
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Our revenues are derived primarily from sales of our microcoils
used in the treatment of cerebral vascular diseases. The overall
increase in revenues in fiscal 2008 compared to fiscal 2007 was
primarily due to an increase in the number of microcoil products
sold during this period. Factors driving the increase included
growth in the overall market for embolic coils, an increase in
our share of both the domestic and foreign markets in which we
participate, expansion of our direct and distributor sales force
and the introduction of new products.
Revenues from embolic coils increased 15% to $65.4 million
for fiscal 2008 as compared to fiscal 2007 primarily due to the
launch of the
Cashmeretm
microcoil system and increased market penetration of the
Presidio®
microcoil system. Revenues from our non-embolic and accessories
products increased to $3.7 million in fiscal 2008 compared
with revenues of $1.6 million in fiscal 2007 primarily due
to the launch of the
ENZOtm
deflectable microcatheter and volume increases across multiple
product lines including our guiding catheters, guidewires and
stent. Additionally, the increase in revenues was partially due
to higher average selling prices as a result of increased sales
of our more expensive
Cerecyte®
product sales in fiscal 2008. We expect our embolic and
non-embolic sales to increase in the future as a result of
market growth, continued market penetration of products released
during the past two years and our planned launch of the
next-generation microcoil system and an occlusion balloon
catheter family. Products introduced in the past 24 months
comprised 21% of our revenues in fiscal 2008.
In December 2007, we received regulatory approval to sell our
stretch-resistant microcoils in Japan. We continue to work with
regulatory officials in Japan to gain approval for our
Cerecyte®
microcoils. The delay in these product approvals had an adverse
impact on the revenues previously anticipated from sales in
Japan for fiscal 2008. We sold $6.3 million of our
regulatory approved products in Japan in fiscal 2008, compared
with revenues of $8.7 million in fiscal 2007.
We are also preparing to enter China through our distribution
partner, TXF Medical, upon receiving regulatory approvals.
However, the timing of product approvals in China will be
delayed due to a pending review by the SFDA of drug and medical
device approvals granted during the term of the former SFDA
minister. We currently believe this review process along with
more stringent approval procedures will delay review and
approval of applications for new products. As a result, we did
not recognize revenues from sales in China this fiscal year.
Gross
Profit
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended March 31,
|
|
|
Change
|
|
|
|
2008
|
|
|
2007
|
|
|
$
|
|
|
%
|
|
|
|
(Dollars in thousands)
|
|
|
Cost of goods sold
|
|
$
|
17,301
|
|
|
$
|
15,361
|
|
|
$
|
1,940
|
|
|
|
13
|
%
|
Gross profit
|
|
$
|
51,912
|
|
|
$
|
43,434
|
|
|
$
|
8,478
|
|
|
|
20
|
%
|
Cost of goods sold consists primarily of materials, direct
labor, depreciation, overhead costs associated with
manufacturing, impairments of inventory, warranty expenses,
amortization of intangible assets that were acquired by us as
part of the acquisition of VasCon, amortization of capitalized
license technology associated with our
PHAROStm
stent product and royalties related to certain access device
products. The increase in cost of goods sold during fiscal 2008
as compared to fiscal 2007 was primarily due to an increase of
$0.8 million resulting from an increase in sales of our
products as well as an increase of $0.6 million in
amortization of intangible assets and an
48
increase of $187,000 in royalties. Cost of goods sold in fiscal
2008 and 2007 includes $0.8 million and $273,000,
respectively, related to the amortization of intangibles
acquired from the acquisition of VasCon on November 30,
2006. Additionally, stock-based compensation expense included in
cost of goods sold was $471,000 and $218,000 in fiscal 2008 and
2007, respectively.
Gross margin was 75% in fiscal 2008 and 74% in fiscal 2007. The
increase was primarily due to an increase in revenue from sales
of higher margin products, partially offset by higher levels of
distributor sales of lower margin products primarily in Japan
and certain European markets. We expect our gross margin to
fluctuate in future periods based on the mix of our product
sales.
Operating
Expenses
Research
and Development
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended March 31,
|
|
Change
|
|
|
2008
|
|
2007
|
|
$
|
|
%
|
|
|
(Dollars in thousands)
|
|
Research and development
|
|
$
|
13,718
|
|
|
$
|
7,904
|
|
|
$
|
5,814
|
|
|
|
74
|
%
|
Research and development expenses consist primarily of costs
associated with the design, development, and testing of new
products. Such costs are expensed as they are incurred and
include salaries and related personnel costs, fees paid to
outside consultants, and other direct and indirect costs related
to research and product development. Research and development
expenses increased in fiscal 2008 compared to fiscal 2007
primarily due to an increase of $2.4 million for technology
acquisition costs related to an in-process research and
development charge in connection with the acquisition of ReVasc
to obtain the rights to pre-regulatory approved
revascularization technology and the costs associated with the
acquisition of occlusion technology from Genesis. In addition,
there was an increase of $1.6 million related to increased
headcount, an increase of $1.1 million related to product
testing, outside services and supplies, as well as an increase
of $311,000 in stock-based compensation expense. In fiscal 2008
and 2007, approximately 16% and 4%, respectively, of our
research and development costs were attributable to our
subsidiary, MDT, formed on November 30, 2006 in connection
with the acquisition of VasCon.
We expect our base research and development expense to increase
in absolute dollars in future periods as we hire additional
development personnel, continue work on product developments,
and expand our existing product line.
Sales and
Marketing
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended March 31,
|
|
Change
|
|
|
2008
|
|
2007
|
|
$
|
|
%
|
|
|
(Dollars in thousands)
|
|
Sales and marketing
|
|
$
|
30,237
|
|
|
$
|
24,121
|
|
|
$
|
6,116
|
|
|
|
25
|
%
|
Sales and marketing expenses consist primarily of compensation
costs of our direct sales force and marketing personnel, as well
as overhead costs related to these activities. Also included are
costs associated with promotional literature and videos, trade
show participation, and education and training of physicians.
Sales and marketing expenses increased in fiscal 2008 compared
to fiscal 2007 primarily due to an increase of $3.6 million
in travel, recruiting and personnel costs due to an increase in
sales and marketing personnel in the North America, Europe and
Asia, an increase of $0.9 million in sales incentives
resulting from higher level of sales and changes in the sales
compensation structure, an increase of $0.8 million in
trade show, meeting and conference costs, an increase of
$0.7 million in market research costs, as well as an
increase of $523,000 in stock-based compensation expense. These
increases were partially offset by an aggregate decrease of
$340,000 in outside service, consulting and graphic design
costs. We anticipate that sales and marketing expenses will
increase in absolute dollars in future periods as we continue to
increase the size of our direct sales force and clinical support
group, increase spending on additional sales and marketing
programs and expand into additional geographic territories.
49
General
and Administrative
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended March 31,
|
|
Change
|
|
|
2008
|
|
2007
|
|
$
|
|
%
|
|
|
(Dollars in thousands)
|
|
General and administrative
|
|
$
|
26,119
|
|
|
$
|
19,308
|
|
|
$
|
6,811
|
|
|
|
35
|
%
|
General and administrative expenses consist primarily of
compensation and related costs for finance, human resources,
facilities, information technology, insurance, and professional
services. Professional services are principally comprised of
outside legal, audit, Sarbanes Oxley compliance and information
technology consulting. General and administrative expenses
increased in fiscal 2008 compared to fiscal 2007 primarily due
to an increase of $2.6 million related to higher finance
and administrative personnel costs due to increased headcount,
as well as an increase of $2.6 million in legal fees
primarily related to professional fees for the services of
attorneys and third-party accountants in connection with the
United States Department of Justice monitorship. In fiscal 2008,
we incurred professional fees of $3.7 million related to
the United States Department of Justice monitorship, which is
currently set to expire on June 20, 2008. Stock based
compensation expense increased $1.3 million in fiscal 2008
as compared to fiscal 2007. In fiscal 2008 and 2007,
approximately 7% and 3%, respectively, of our general and
administrative costs were attributable to our subsidiary, MDT.
We expect that general and administrative expenses, excluding
non-routine charges, will increase in absolute dollars in future
periods.
Other
Income, Net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended March 31,
|
|
|
Change
|
|
|
|
2008
|
|
|
2007
|
|
|
$
|
|
|
%
|
|
|
|
(Dollars in thousands)
|
|
|
Interest and investment income
|
|
$
|
1,223
|
|
|
$
|
1,618
|
|
|
$
|
(395
|
)
|
|
|
(24
|
)%
|
Interest expense
|
|
|
(3
|
)
|
|
|
(14
|
)
|
|
|
11
|
|
|
|
(79
|
)%
|
Other income, net
|
|
|
488
|
|
|
|
565
|
|
|
|
(77
|
)
|
|
|
(14
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other income, net
|
|
$
|
1,708
|
|
|
$
|
2,169
|
|
|
$
|
(461
|
)
|
|
|
(21
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income, net consists primarily of investment income and
foreign currency gains and losses. Total other income, net
decreased in fiscal 2008 compared to fiscal 2007 primarily due
to a decrease in interest and investment income resulting from
lower average cash and investment balances earning interest and
higher foreign exchange losses related to a loan made to Micrus
SA, partially offset by an increase in foreign exchange gains
resulting from differences in exchange rates between the time of
the recording of the transaction and settlement of foreign
currency denominated receivables and payables.
Income
Taxes
Effective April 1, 2007, we adopted Financial Accounting
Standards Interpretation No. 48 (FIN 48),
which requires that we recognize the financial statement effects
of a tax position when it becomes more likely than not, based on
the technical merits, that the position will be sustained upon
examination. As a result of the implementation of FIN 48,
we recognized a $192,000 increase in our unrecognized tax
benefits. None was accounted for as an increase in the
April 1, 2007 balance of accumulated deficit since the
benefit relates to attribute carryovers for which the related
deferred tax asset was subject to a full valuation allowance. At
the adoption date of April 1, 2007 and at March 31,
2008, we had no accrued interest or penalties related to tax
contingencies. Since the unrecognized tax benefit relates to
attribute carryover for which the related deferred tax asset was
subject to a full valuation allowance, the recognition of the
unrecognized tax benefits will not affect our effective tax
rate. We have elected to include interest and penalties as a
component of tax expense. We do not anticipate that the amount
of unrecognized tax benefits relating to tax positions existing
at March 31, 2008 will significantly increase or decrease
within the next 12 months. Because of net operating loss
and credit carryforwards, substantially all of our tax years,
dating to inception in 1996, remain open to federal tax
examination. Most state and foreign jurisdictions have 3 to 10
open tax years at any point in time.
50
We have incurred net operating losses for both federal and state
purposes since inception and, as a result, we have paid no
federal or state income taxes. In fiscal 2008, we recorded an
income tax benefit of approximately $194,000. The net income tax
benefit includes a deferred income tax expense of approximately
$72,000 for the Swiss subsidiarys operating profits and a
deferred tax benefit of approximately $266,000 for the tax
effect of the amortization related to the intangible assets
acquired in the Neurologic transaction which is not deductible
and the tax benefit of operating losses for our United Kingdom
subsidiary.
As of March 31, 2008, we had federal, state and foreign net
operating loss carryforwards (NOLs) of approximately
$42.5 million, $27.6 million and $1.6 million,
respectively. The federal NOLs will expire at various dates
beginning in 2012, the state NOLs expire beginning in 2013 and
the foreign NOLs will expire beginning in 2013. We also had
federal and state research and development tax credit
carryforwards of approximately $1.2 million and
$1.1 million, respectively, as of March 31, 2008. The
federal credits will expire beginning in 2012 and the state
credits can be carried forward indefinitely. Due to the
uncertainty of our ability to generate sufficient taxable income
to realize the carryforwards prior to their expiration, we have
recorded a valuation allowance at March 31, 2008 to offset
our federal and state deferred tax assets.
Fiscal
Years Ended March 31, 2007 and 2006
Revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended March 31,
|
|
|
Change
|
|
|
|
2007
|
|
|
2006
|
|
|
$
|
|
|
%
|
|
|
|
(Dollars in thousands)
|
|
|
Americas
|
|
$
|
31,618
|
|
|
$
|
17,381
|
|
|
$
|
14,237
|
|
|
|
82
|
%
|
Europe (excluding the United Kingdom)
|
|
|
11,226
|
|
|
|
8,034
|
|
|
|
3,192
|
|
|
|
40
|
%
|
United Kingdom
|
|
|
6,448
|
|
|
|
4,498
|
|
|
|
1,950
|
|
|
|
43
|
%
|
Asia Pacific
|
|
|
9,503
|
|
|
|
2,868
|
|
|
|
6,635
|
|
|
|
231
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Revenues
|
|
$
|
58,795
|
|
|
$
|
32,781
|
|
|
$
|
26,014
|
|
|
|
79
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The overall increase in revenues in fiscal 2007 compared to
fiscal 2006 was primarily due to an increase in the number of
microcoil products sold during this period. In fiscal 2007,
approximately 16% of our revenues were from sales of products
released in the last 18 months, compared with approximately
6% in fiscal 2006. Additionally, the increase in revenues was
partially due to higher average selling prices as a result of
increased
Cerecyte®
product sales in fiscal 2007. The increase in revenues from Asia
Pacific in fiscal 2007 compared to fiscal 2006 was primarily due
to product sales during the year to our distributor in Japan.
Revenues from Asia Pacific in fiscal 2007 included sales of
$8.7 million to our distributor in Japan, compared with the
initial sales of $2.2 million in March 2006.
Gross
Profit
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended March 31,
|
|
|
Change
|
|
|
|
2007
|
|
|
2006
|
|
|
$
|
|
|
%
|
|
|
|
(Dollars in thousands)
|
|
|
Cost of goods sold
|
|
$
|
15,361
|
|
|
$
|
9,710
|
|
|
$
|
5,651
|
|
|
|
58
|
%
|
Gross profit
|
|
$
|
43,434
|
|
|
$
|
23,071
|
|
|
$
|
20,363
|
|
|
|
88
|
%
|
The increase in cost of goods sold in fiscal 2007 compared to
fiscal year 2006 was primarily due to an increase in personnel
and manufacturing costs associated with increased sales of our
products as well as increased costs attributable to a general
increase in salaries, benefits and overhead costs resulting from
increased production (partially offset by increased
manufacturing efficiencies). Cost of goods sold in fiscal 2007
includes the amortization of intangibles acquired from the
acquisition of VasCon on November 30, 2006 and the
amortization of capitalized license fees which we started to
amortize in the third quarter of fiscal 2007 when we began
selling the
PHAROStm
stent product and generating revenue. Additionally, stock-based
compensation expense included in cost of goods sold was $218,000
and $26,000 in fiscal 2007 and 2006, respectively, with the
increase primarily due to the adoption of Statement of Financial
Accounting Standards
No. 123-revised
2004 (SFAS 123R).
51
Gross margin was 74% in fiscal 2007 and 70% in fiscal 2006. The
increase was primarily due to an increase in revenue from sales
of higher margin products and manufacturing efficiencies,
partially offset by higher levels of distributor sales of lower
margin products primarily in Japan and certain European markets.
Operating
Expenses
Research
and Development
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended March 31,
|
|
Change
|
|
|
2007
|
|
2006
|
|
$
|
|
%
|
|
|
(Dollars in thousands)
|
|
Research and development
|
|
$
|
7,904
|
|
|
$
|
6,589
|
|
|
$
|
1,315
|
|
|
|
20
|
%
|
Research and development expenses increased in fiscal 2007
compared to fiscal 2006 primarily due to an increase of
$1.4 million in outside services and consulting fees
related to new product development, an increase of
$1.0 million related to increased headcount, an increase of
$297,000 in supplies expense, as well as an increase of $200,000
in stock-based compensation expense primarily due to the
adoption of SFAS 123R in fiscal 2007. These increases were
partially offset by a decrease of $1.9 million primarily
due to the purchase of intellectual property from Vascular FX in
fiscal 2006.
Sales and
Marketing
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended March 31,
|
|
Change
|
|
|
2007
|
|
2006
|
|
$
|
|
%
|
|
|
(Dollars in thousands)
|
|
Sales and marketing
|
|
$
|
24,121
|
|
|
$
|
15,171
|
|
|
$
|
8,950
|
|
|
|
59
|
%
|
Sales and marketing expenses increased in fiscal 2007 compared
to fiscal 2006 primarily due to an increase of $2.9 million
associated with additional sales and marketing personnel in the
United States and Europe, higher sales incentive and commission
costs of $2.5 million on increased sales in the North
America and Europe, an increase of $0.9 million in
consulting expenses primarily due to outsourced product
marketing functions, higher travel expenses of
$0.7 million, an increase of $0.6 million in
stock-based compensation expense primarily due to the adoption
of SFAS 123R in fiscal 2007, an increase of $395,000
related to tradeshows, graphic design, promotional and printing
costs in connection with new product releases, as well as an
increase of $361,000 in meetings and conference expenses.
General
and Administrative
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended March 31,
|
|
Change
|
|
|
2007
|
|
2006
|
|
$
|
|
%
|
|
|
(Dollars in thousands)
|
|
General and administrative
|
|
$
|
19,308
|
|
|
$
|
10,307
|
|
|
$
|
9,001
|
|
|
|
87
|
%
|
General and administrative expenses increased in fiscal 2007
compared to fiscal 2006 primarily due to an increase of
$2.3 million related to higher finance and administrative
personnel costs due to increased headcount, an increase of
$2.3 million in legal fees primarily in connection with the
patent litigation with Boston Scientific, an increase of
$1.2 million in stock-based compensation expense primarily
due to the adoption of SFAS 123R in fiscal 2007, an
increase of $0.7 million in consulting fees in connection
with our compliance with Sarbanes Oxley regulations, common
stock offering expenses of $0.6 million we incurred on
behalf of the selling stockholders in connection with our
secondary offering, an increase of $406,000 primarily related to
the amortization of identifiable intangible assets in connection
with the purchase of Neurologic, an increase in audit fees of
$393,000 and an increase of $257,000 in recruiting expense.
52
Other
Income, Net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended March 31,
|
|
|
Change
|
|
|
|
2007
|
|
|
2006
|
|
|
$
|
|
|
%
|
|
|
|
(Dollars in thousands)
|
|
|
Interest and investment income
|
|
$
|
1,618
|
|
|
$
|
1,295
|
|
|
$
|
323
|
|
|
|
25
|
%
|
Interest expense
|
|
|
(14
|
)
|
|
|
(12
|
)
|
|
|
(2
|
)
|
|
|
17
|
%
|
Other income (expense), net
|
|
|
565
|
|
|
|
(632
|
)
|
|
|
1,197
|
|
|
|
(189
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other income, net
|
|
$
|
2,169
|
|
|
$
|
651
|
|
|
$
|
1,518
|
|
|
|
233
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other income, net increased in fiscal 2007 compared to
fiscal 2006 primarily due to an increase of $1.1 million
related to foreign exchange gains resulting from differences in
exchange rates between the time of the recording of the
transaction and settlement of foreign currency denominated
receivables and payables, and an increase in interest and
investment income of $323,000 primarily as a result of higher
interest rates and higher cash and investment balances due
primarily from proceeds from our initial public offering
(IPO) and secondary offering. During the first
quarter of fiscal 2006, a non-operating charge of $158,000 was
recorded as other expense upon the completion of the IPO for the
change in fair value of the 2005 common stock warrants.
Accretion
of Redeemable Convertible Preferred Stock to
Redemption Value
Our convertible preferred stock that was outstanding prior to
the closing of our IPO in June 2005 was redeemable at the
request of the holder on or after the sixth anniversary of the
original issuance date based upon certain circumstances. This
right expired upon the automatic conversion of all of our
preferred stock into common stock upon the closing of the IPO.
Prior to the closing of the IPO, we were accreting the carrying
value of the preferred stock to the mandatory redemption amount
on the sixth anniversary using the effective interest method
through periodic charges to additional paid-in capital. We
recorded a non-cash charge of $276,000 for the accretion on our
redeemable convertible preferred stock in fiscal 2006.
Beneficial
Conversion Feature
The difference between the proceeds allocated to our
Series E preferred stock and the estimated fair value of
the common stock issuable upon conversion resulted in a
beneficial conversion feature on the Series E preferred
stock which was recorded as a reduction to the Series E
preferred stock and an increase to additional
paid-in-capital.
The total beneficial conversion feature was $383,000 which,
prior to the completion of the IPO, was being amortized as a
reduction of net income available to common stockholders over
the period of redemption of the Series E preferred stock.
Upon completion of the IPO, we recorded a non-cash charge of
$383,000 for the beneficial conversion feature on our
Series E preferred stock in the first quarter of fiscal
2006.
Liquidity
and Capital Resources
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended March 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
Cash flow activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in operating activities
|
|
$
|
(7,524
|
)
|
|
$
|
(556
|
)
|
|
$
|
(9,055
|
)
|
Net cash used in investing activities
|
|
$
|
(3,437
|
)
|
|
$
|
(5,451
|
)
|
|
$
|
(5,940
|
)
|
Net cash provided by financing activities
|
|
$
|
3,165
|
|
|
$
|
5,098
|
|
|
$
|
35,666
|
|
Since our inception, we have funded our operations primarily
through issuances of stock and related warrants. On
June 21, 2005, we completed an IPO in which we sold
3,250,000 shares of our common stock at $11.00 per share
for net cash proceeds to us of approximately $33.2 million,
net of underwriting discounts and commissions. On July 6,
2005, we sold an additional 250,000 shares of common stock
at $11.00 per share pursuant to the over-allotment option
granted to the underwriters. Together with the over-allotment
shares sold by us, cash proceeds to us in the offering were
approximately $33.0 million, net of underwriting discounts
and offering expenses. On July 19, 2006, we completed a
secondary public offering in which certain stockholders sold
1,270,211 shares of common stock at the public offering
price of $11.89 per share. On July 19, 2006, the
underwriters purchased 190,531 shares
53
of common stock from us pursuant to their over-allotment option.
We did not receive any proceeds from the sale of common stock by
the selling stockholders. The total cash proceeds from the
over-allotment were approximately $2.0 million, net of the
underwriting discount and offering expenses. Common stock
offering expenses of $0.6 million were incurred by us on
behalf of the selling stockholders and were expensed to general
and administrative expense in the second quarter of fiscal 2007.
As of March 31, 2008, we had cash and cash equivalents of
$25.5 million, compared to $34.5 million at
March 31, 2007. We believe that our current cash position
and the cash expected to be generated from product sales will be
sufficient to meet our working capital and capital expenditure
requirements for at least the next twelve months.
Net cash used in operating activities during fiscal 2008 was
$7.5 million as compared to $0.6 million and
$9.1 million during fiscal 2007 and 2006, respectively. Net
cash used in operating activities during fiscal 2008 resulted
primarily from: operating losses; an increase in accounts
receivable which resulted from the sale of a greater number of
microcoil products and timing of collections for those sales; an
increase in inventory due to an increase in the number of
consignment locations and the buildup of finished goods in
anticipation of future sales; an increase in prepaid expenses
and other current assets, primarily due to deposits paid in
advance of our global sales meeting; and an increase in other
non-current assets, primarily due to payments of a brokers
commission and a security deposit in connection with the lease
at our new Florida facility. These factors were partially offset
by an increase in accounts payable due to the timing of our
payments to our vendors; an increase in accrued payroll and
payroll-related expenses which was attributable to increased
headcount and the timing of payroll payments; an increase in
accrued liabilities and other non-current liabilities primarily
due to accrued milestone payments to ReVasc and Genesis and
higher accrued professional fees associated with legal fees; and
non-cash items such as stock-based compensation expense
primarily due to the adoption of SFAS 123R in fiscal 2007,
depreciation and amortization and our provision for excess and
obsolete inventories.
Net cash used in operating activities during fiscal 2007
resulted primarily from: operating losses; an increase in
inventory due to the buildup of finished goods in anticipation
of future sales and an increase in the number of consignment
locations; an increase in prepaid expenses and other current
assets primarily related to the payment of directors and
officers insurance premiums; a decrease in accounts payable due
to the timing of our payments to our vendors; and a decrease in
other non current liabilities. These factors were partially
offset by a decrease in accounts receivable due to improved
collection efforts which resulted in lower days sales
outstanding; an increase in accrued payroll and payroll-related
expenses which was attributable to increased headcount and the
timing of payroll payments; an increase in accrued liabilities
due to higher accrued professional fees associated with legal
fees and Sarbanes Oxley compliance and higher VAT payables; and
non-cash items such as stock-based compensation expense
primarily due to the adoption of SFAS 123R in fiscal 2007,
depreciation and amortization, and our provision for excess and
obsolete of inventories.
Net cash used in operating activities during fiscal 2006
resulted primarily from: operating losses; an increase in
accounts receivable due to an increase in the number of
microcoil products sold, including the initial sales to our
distributor in Japan in March 2006; and a decrease in accounts
payable primarily attributable to payments of audit fees related
to our IPO and payments to the DOJ and payment of other legal
costs related to FCPA matters. These factors were partially
offset by an increase in accrued payroll and payroll-related
expenses due to increased headcount; an increase in accrued
liabilities primarily arising from import handling fees
associated with shipments to Japan and the short-term portions
of deferred revenue recorded for the up-front payment under our
distribution agreement with Goodman; and an increase in
non-current liabilities primarily consisting of a deferred tax
liability recorded in connection with the Neurologic acquisition
and the long-term portion of deferred revenue recorded for the
up-front payment pursuant to our distribution agreement with
Goodman.
Net cash used in investing activities during fiscal 2008 was
$3.4 million as compared to $5.5 million and
$5.9 million during fiscal 2007 and 2006, respectively. Net
cash used in investing activities during fiscal 2008 was related
to the earn-out payment associated with the purchase of
Neurologic, the purchase of capital equipment and prepayments
made related to leasehold improvements in connection with the
lease at our new Florida facility, partially offset by proceeds
from the sale of certain assets and technologies to Merit and
the sale of property and equipment to third parties.
54
Net cash used in investing activities during fiscal 2007 was
primarily related to the acquisition of VasCon, the earn-out
payment associated with the purchase of Neurologic, the
milestone payment to Biotronik which has been capitalized as
licensed technology and the purchase of capital equipment,
partially offset by proceeds from the sale of marketable
securities. Net cash used in investing activities during fiscal
2006 was primarily related to the purchase of Neurologic, the
purchase of capital equipment primarily related to the
relocation of our corporate headquarters and manufacturing
facilities, and the milestone payment to Biotronik which has
been capitalized as capitalized license technology.
Net cash provided by financing activities during fiscal 2008 was
$3.2 million as compared to $5.1 million and
$35.7 million during fiscal 2007 and 2006, respectively.
Net cash provided by financing activities during fiscal 2008
consisted of proceeds from the exercise of stock options and the
purchase of common stock under our employee stock purchase plan.
Net cash provided by financing activities during fiscal 2007
consisted of net proceeds from the exercise of the
over-allotment option by the underwriters in connection with our
secondary offering, and proceeds from the exercise of stock
options and the purchase of common stock under our employee
stock purchase plan. Net cash provided by financing activities
during fiscal 2006 primarily consisted of net proceeds from the
sale of common stock in our IPO, net proceeds from the
over-allotment option exercise by the underwriters, proceeds
from the exercise of preferred and common stock warrants, and
proceeds from the exercise of stock options and the purchase of
common stock under our employee stock purchase plan, partially
offset by payments related to issuance costs for preferred stock.
To the extent that existing cash and cash generated from
operations are insufficient to fund our future activities, we
may need to raise additional funds through public or private
equity or debt financing. Although we are currently not a party
to any definitive agreement with respect to potential
investments in, or acquisitions of, complementary businesses,
services or technologies, we may enter into such agreements in
the future, which could require us to seek additional funds
through public or private equity or debt financing. Additional
funds may not be available on terms favorable to us or at all.
Critical
Accounting Policies and Estimates
We prepare our consolidated financial statements in accordance
with accounting principles generally accepted in the United
States (GAAP). In doing so, we have to make estimates and
assumptions that affect our reported amounts of assets,
liabilities, revenues and expenses, as well as related
disclosure of contingent assets and liabilities. In many cases,
we could reasonably have used different accounting policies and
estimates. In some cases, changes in the accounting estimates
are reasonably likely to occur from period to period.
Accordingly, actual results could differ materially from our
estimates. To the extent that there are material differences
between these estimates and actual results, our financial
condition or results of operations will be affected. We base our
estimates on past experience and other assumptions that we
believe are reasonable under the circumstances, and we evaluate
these estimates on an ongoing basis. We refer to accounting
estimates of this type as critical accounting policies and
estimates, which we discuss below. Our management has reviewed
our critical accounting policies and estimates with our
accounting advisors, audit committee and board of directors.
Although our significant policies are more fully described in
Note 2 to our Consolidated Financial Statements appearing
at the end of this report, we believe the following accounting
policies to be critical to the judgment and estimates used in
the preparation of our consolidated financial statements.
Revenue Recognition. Our revenues are derived
primarily from the sale of our microcoil product line to
hospitals and third-party distributors. We also sell access
products and accessories for use with our microcoils.
Revenues are recognized when evidence of an arrangement exists,
delivery to the customer has occurred, the selling price is
fixed or determinable and collectibility is reasonably assured.
Revenues are recognized generally upon shipment, after the
receipt of a replenishment or purchase order, except sales made
to our South American distributors. Due to historically longer
delays in receiving payments and a higher level of write-offs
relating to our South American distributors, we have been unable
to conclude that collectibility is reasonably assured at the
time that the customer takes title to the inventory on sales to
this class of customers. Accordingly, for this class of
55
customers, we recognize revenues when collectibility is
reasonably assured which is generally when cash is collected. We
are currently evaluating our experience with our South American
distributors. If we conclude that collectibility is reasonably
assured upon shipment, we may begin to recognize revenue upon
shipment to these distributors. The outstanding accounts
receivable balance at March 31, 2008 for our South American
distributors was $668,000 and the related cost of goods sold
that has been deferred was $273,000.
Allowance for Doubtful Accounts. In estimating
the collectibility of our accounts receivable, we analyze
historical bad debts, customer concentrations, customer
credit-worthiness, current economic trends, and changes in
customer payment terms. We regularly review the adequacy of our
accounts receivable allowance after considering changes in
customers financial condition and the aging of account
receivable balances. If there are unanticipated future events,
this allowance may need to be adjusted.
Excess and Obsolete Inventory. We calculate an
inventory provision for estimated obsolescence or excess
inventories based upon historical scrap rates and assumptions
about future demand for our coil products and market conditions.
Our microcoil products have a three-year shelf life. Our coil
products are subject to demand fluctuations based on the
availability and demand for alternative products. Our inventory,
which consists primarily of microcoils, is at risk of
obsolescence following the introduction and development of new
or enhanced products. Our estimates and assumptions for excess
and obsolete inventory are reviewed and updated on a quarterly
basis. The estimates we use for demand are also used for
near-term capacity planning and inventory purchasing and are
consistent with our revenue forecasts. Future product
introductions and related inventories may require additional
provision based upon changes in market demand or introduction of
competing technologies. Provision for excess and obsolete
inventories result in a corresponding expense to cost of goods
sold.
Valuation of Goodwill and Intangibles. When we
acquire another company, the purchase price is allocated, as
applicable, between acquired in-process research and
development, other identifiable intangible assets, tangible net
assets and goodwill as required by GAAP. In-process research and
development is defined as the value assigned to those projects
for which the related products have not received regulatory
approval and have no alternative future use. Identifiable
intangible assets are amortized over time, while in-process
research and development is recorded as a charge on the date of
acquisition and goodwill is capitalized, subject to periodic
review for impairment. Under our accounting policy, we perform
an annual review of goodwill and identifiable intangible assets
in the fourth quarter of each fiscal year, or more often if
indicators of impairment exist. Evaluations of possible
impairment and, if applicable, adjustments to carrying values
require us to estimate, among other factors, future cash flows
over the life of the assets being evaluated, useful lives, and
fair market values of our reporting units and assets. When we
conduct our evaluation of goodwill, the fair value of goodwill
is assessed using valuation techniques that require management
judgment and actual results may differ from assumed or estimated
amounts. Should conditions be different from managements
last assessment, significant write-downs of goodwill may be
required. In fiscal 2008, we performed such evaluation and found
no impairment. However, any future write-downs of goodwill would
adversely affect our results of operations. See Note 4 to
our consolidated financial statements for further information
regarding goodwill and intangible assets.
Accounting for Income Taxes. Significant
management judgment is required in determining our provision for
income taxes, our deferred tax assets and liabilities and any
valuation allowance recorded against our net deferred tax
assets. We have recorded a full valuation allowance on our
federal and state net deferred tax assets as of March 31,
2008 and 2007, due to the uncertainties related to our ability
to utilize our deferred tax assets in the foreseeable future.
These deferred tax assets primarily consist of certain net
operating loss carry forwards and accruals deductible in
different periods.
Stock-based Compensation. We adopted the
provisions of, and account for stock-based compensation in
accordance with, SFAS 123R on April 1, 2006. We
elected the modified-prospective method, under which prior
periods are not revised for comparative purposes. Under the fair
value recognition provisions of this statement, stock-based
compensation cost is measured at the grant date based on the
fair value of the award and is recognized as expense on a
straight-line basis over the requisite service period, which is
generally the vesting period.
Due to the adoption of SFAS 123R, some exercises result in
tax deductions in excess of previously recorded benefits based
on the option value at the time of grant (windfall
tax benefits). We recognize windfall tax benefits associated
with the exercise of stock options directly to
stockholders equity only when realized. Accordingly,
56
deferred tax assets are not recognized for net operating loss
carryforwards resulting from windfall tax benefits occurring
from April 1, 2006 onward. A windfall tax benefit occurs
when the actual tax benefit realized by the company upon an
employees disposition of a share-based award exceeds the
deferred tax asset, if any, associated with the award that the
company had recorded. When assessing whether a tax benefit
relating to share-based compensation has been realized, we have
elected to follow the tax law ordering method, under which
current year share-based compensation deductions are assumed to
be utilized before net operating loss carryforwards and other
tax attributes. Also, we have elected to ignore the indirect tax
effects of share-based compensation deductions in computing its
research and development tax credit. We will recognize the full
effect of these deductions in the statements of operations when
the valuation allowance is released.
The fair value of stock options and employee stock purchase plan
shares is estimated on the date of grant using the Black-Scholes
option-pricing model. The Black-Scholes model requires that we
make certain assumptions that are factored into the valuation
analysis, including estimating the length of time employees will
retain their vested stock options before exercising them
(expected term) and the estimated volatility of our
common stock price over the expected term and the number of
options that will ultimately not complete their vesting
requirements (forfeitures). Changes in the
subjective assumptions can materially affect the estimate of
fair value of stock-based compensation and consequently, the
related amount recognized in the consolidated statements of
income.
We determine expected volatilities based on median results of a
peer group analysis of companies similar in size and financial
leverage to us. We have elected to use the simplified method for
estimating our expected term as allowed by Staff Accounting
Bulletin (SAB) 107, and extended by SAB 110.
SAB 110 permits the use of the simplified
method under certain conditions including a companys
inability to rely on historical exercise data. We will continue
to use the simplified method until we have sufficient historical
exercise data to provide a reasonable basis upon which to
estimate the expected term of our options. The risk-free rate is
indexed to the five-year Treasury note interest at the date of
grant and expected forfeiture rate is based on our historical
forfeiture information.
All stock-based payment awards are amortized on a straight-line
basis over the requisite service periods of the awards, which
are generally the vesting periods. See Note 9 to our
consolidated financial statements for further information
regarding the SFAS 123R.
Recent
Accounting Pronouncements
In September 2006, the FASB issued SFAS 157, Fair
Value Measurements. SFAS 157 defines fair value,
establishes a framework for measuring fair value in generally
accepted accounting principles, and expands disclosures about
fair value measurements. SFAS 157 applies to other
accounting pronouncements that require or permit fair value
measurements, the FASB having previously concluded in those
accounting pronouncements that fair value is the relevant
measurement attribute. Accordingly, this Statement does not
require any new fair value measurements. However, for some
entities, the application of SFAS 157 will change current
practice. Certain provisions of SFAS 157 are effective for
fiscal years beginning after November 15, 2007. We are
currently evaluating the impact of SFAS 157, but do not
expect the adoption of SFAS 157 to have a material impact
on our consolidated financial position, results of operations or
cash flows.
In February 2007, the FASB issued SFAS 159, The Fair
Value Option for Financial Assets and Financial
Liabilities, which expands opportunities to use fair value
measurements in financial reporting and permits entities to
choose to measure many financial instruments and certain other
items at fair value. SFAS 159 is effective for fiscal years
beginning after November 15, 2007. We currently have no
plans to implement the fair value option permitted by
SFAS 159, and accordingly, the adoption of SFAS 159
will not have a material impact on our consolidated financial
position, results of operations or cash flows.
In June 2007, the FASB issued Emerging Issue Task Force (EITF)
No. 07-03
(EITF 07-03),
Accounting for Non-Refundable Advance Payments for Goods
or Services to Be Used in Future Research and Development
Activities.
EITF 07-03
provides that nonrefundable advance payments for goods or
services that will be used or rendered for future research and
development activities should be deferred and capitalized. Such
amounts should be recognized as an expense as the related goods
are delivered or the related services are performed. If,
subsequently, based on managements assessment, it is no
longer expected that the goods will be delivered or services
will be rendered, then
EITF 07-03
requires that the capitalized advance payment be charged to
expense.
EITF 07-03
is
57
effective for fiscal years beginning after December 15,
2007. We are currently evaluating the impact of
EITF 07-03
but do not expect the adoption of
EITF 07-03
to have a material impact on our consolidated financial
position, results of operations or cash flows.
In December 2007, the FASB issued SFAS 141R (revised 2007),
Business Combinations, which replaces SFAS 141.
SFAS 141R requires the acquiring entity in a business
combination to recognize at full fair value all the assets
acquired and liabilities assumed in the transaction; establishes
the acquisition-date fair value as the measurement objective for
all assets acquired and liabilities assumed; and requires the
acquirer to disclose information needed to evaluate and
understand the nature and financial effect of the business
combination. SFAS 141R is effective for fiscal years
beginning after December 15, 2008 and is to be applied
prospectively to business combinations completed on or after the
date of adoption.
In February 2008, the FASB issued Financial Standard Position
(FSP)
SFAS 157-2,
Effective Date for FASB Statement No. 157. This
FSP permits the delayed application of SFAS 157 for all
nonrecurring fair value measurements of non-financial assets and
non-financial liabilities until fiscal years beginning after
November 15, 2008. We have elected to adopt SFAS 157
in accordance with the guidance of FSP
SFAS 157-2
as stated above.
Off-Balance
Sheet Arrangements
We do not have any off-balance sheet arrangements, as defined by
the rules and regulations of the SEC, that have or are
reasonably likely to have a material effect on our financial
condition, changes in financial condition, revenues or expenses,
results of operations, liquidity, capital expenditures or
capital resources. As a result, we are not materially exposed to
any financing, liquidity, market or credit risk that could arise
if we had engaged in these arrangements.
Contractual
Obligations
We have obligations under non-cancelable operating leases with
various expiration dates through 2013 and purchase commitments
for inventory, capital equipment and operating expenses, such as
materials for research and development and consulting.
As of March 31, 2008, our contractual obligations were as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments Due by Period
|
|
|
|
|
|
|
Less than
|
|
|
1-3
|
|
|
3-5
|
|
|
Beyond
|
|
|
|
Total
|
|
|
1 Year
|
|
|
Years
|
|
|
Years
|
|
|
5 Years
|
|
|
Contractual obligations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-cancelable operating lease obligations
|
|
$
|
7,697
|
|
|
$
|
1,022
|
|
|
$
|
3,131
|
|
|
$
|
1,504
|
|
|
$
|
2,040
|
|
Purchase obligations
|
|
|
4,218
|
|
|
|
4,218
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Minimum milestone payments to The Cleveland Clinic
|
|
|
1,500
|
|
|
|
500
|
|
|
|
1,000
|
|
|
|
|
|
|
|
|
|
Milestone payment to Genesis
|
|
|
150
|
|
|
|
150
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
13,565
|
|
|
$
|
5,890
|
|
|
$
|
4,131
|
|
|
$
|
1,504
|
|
|
$
|
2,040
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
We paid the third year earn-out amount associated with the
purchase of Neurologic in April 2008. The final earn-out payment
will be paid in the first quarter of fiscal 2009.
We paid the first year earn-out amount associated with the
purchase of VasCon in April 2008. The future earn-out payments
will be an amount not to exceed $10 million based on the
sales and manufacturing performance of MDT as set forth in the
asset purchase agreement.
We are required to pay The Cleveland Clinic up to
$5.0 million in payments upon the achievement of certain
milestones set forth in the stock purchase agreement, with
minimum milestone payments of at least $2.0 million to The
Cleveland Clinic upon the third anniversary of the closing of
the purchase. We paid $500,000 of this minimum milestone payment
in March 2008.
58
|
|
Item 7A.
|
Quantitative
and Qualitative Disclosures About Market Risk.
|
Foreign Currency Exchange Risks. Historically,
we have been exposed to risks from fluctuations in currency
exchange rates due to intercompany loans made to Micrus SA, our
Swiss subsidiary, in 2001 in connection with its incorporation.
These loans are denominated in Swiss francs and will fluctuate
in value against the U.S. dollar, causing us to recognize
foreign exchange gains and losses. The functional currency of
our Swiss subsidiary is the Swiss franc. The functional currency
of our UK subsidiary is the pound sterling. In Europe, our
revenues are denominated in Swiss francs, euros, pounds sterling
and other currencies. Accordingly, we are exposed to market risk
related to changes between the Swiss franc and these other
currencies. If the Swiss franc appreciates against the
currencies in which our receivables are denominated, we will
recognize foreign currency losses. For the preparation of our
consolidated financial statements, the financial results of our
Swiss subsidiary are translated into U.S. dollars based on
average exchange rates during the applicable period. A
hypothetical 10% decline in the value of the Swiss franc versus
the U.S. dollar would cause us to recognize a loss of
$204,000 related to our loan with Micrus SA and a $41,000
increase in our comprehensive loss from our investment in Micrus
SA as of March 31, 2008. A hypothetical 10% decline in the
value of the pound sterling versus the U.S. dollar would
cause us to recognize a $255,000 decrease in our comprehensive
loss from our investment in Micrus UK as of March 31, 2008.
A hypothetical 10% decline in the value of the euro versus the
Swiss franc would cause us to recognize a loss of $202,000 based
on our foreign denominated receivables as of March 31, 2008.
In fiscal 2008, approximately 37% of our revenues was
denominated in currencies other than the U.S. dollar. In
future periods, we believe a greater portion of our revenues
could be denominated in currencies other than the
U.S. dollar, thereby increasing our exposure to exchange
rate gains and losses on
non-United
States currency transactions. We do not currently enter into
forward exchange contracts to hedge exposure denominated in
foreign currencies or any other derivative financial instruments
for trading or speculative purposes. In the future, if we
believe our currency exposure merits, we may consider entering
into transactions to help mitigate that risk. We currently have
not entered into financial instruments for trading purposes.
Interest Rate Risk. Our cash is invested in
bank deposits and money market funds denominated in
U.S. dollars. The carrying value of these cash equivalents
approximates fair market value. Our investments in marketable
securities are subject to interest rate risk, which is the risk
that our financial condition and results of operations could be
adversely affected due to movements in interest rates.
59
|
|
Item 8.
|
Financial
Statements and Supplementary Data.
|
Index to
Consolidated Financial Statements
|
|
|
|
|
|
|
Page
|
|
|
|
|
61
|
|
|
|
|
62
|
|
|
|
|
63
|
|
|
|
|
64
|
|
|
|
|
65
|
|
|
|
|
66
|
|
Supplementary Data
|
|
|
|
|
|
|
|
101
|
|
60
REPORT OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders
of Micrus Endovascular Corporation
In our opinion, the consolidated financial statements listed in
the accompanying index present fairly, in all material respects,
the financial position of Micrus Endovascular Corporation and
its subsidiaries at March 31, 2008 and 2007, and the
results of their operations and their cash flows for each of the
three years in the period ended March 31, 2008 in
conformity with accounting principles generally accepted in the
United States of America. In addition, in our opinion, the
financial statement schedule listed in the accompanying index
presents fairly, in all material respects, the information set
forth therein when read in conjunction with the related
consolidated financial statements. Also in our opinion, the
Company maintained, in all material respects, effective internal
control over financial reporting as of March 31, 2008,
based on criteria established in Internal Control
Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission (COSO). The
Companys management is responsible for these financial
statements and financial statement schedule, for maintaining
effective internal control over financial reporting and for its
assessment of the effectiveness of internal control over
financial reporting, included in Managements Report on
Internal Control over Financial Reporting appearing under
Item 9A. Our responsibility is to express opinions on these
financial statements, on the financial statement schedule, and
on the Companys internal control over financial reporting
based on our integrated audits (which were integrated audits in
2008 and 2007). We conducted our audits in accordance with the
standards of the Public Company Accounting Oversight Board
(United States). Those standards require that we plan and
perform the audits to obtain reasonable assurance about whether
the financial statements are free of material misstatement and
whether effective internal control over financial reporting was
maintained in all material respects. Our audits of the financial
statements included examining, on a test basis, evidence
supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and
significant estimates made by management, and evaluating the
overall financial statement presentation. Our audit of internal
control over financial reporting included obtaining an
understanding of internal control over financial reporting,
assessing the risk that a material weakness exists, and testing
and evaluating the design and operating effectiveness of
internal control based on the assessed risk. Our audits also
included performing such other procedures as we considered
necessary in the circumstances. We believe that our audits
provide a reasonable basis for our opinions.
As discussed in Note 2, 5 and 9 to the Notes to
Consolidated Financial Statements, the Company changed the
manner in which it accounts for share-based compensation in
fiscal year 2007 and the manner in which it accounts for
uncertain tax positions in 2008.
A companys internal control over financial reporting is a
process designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with
generally accepted accounting principles. A companys
internal control over financial reporting includes those
policies and procedures that (i) pertain to the maintenance
of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the
company; (ii) provide reasonable assurance that
transactions are recorded as necessary to permit preparation of
financial statements in accordance with generally accepted
accounting principles, and that receipts and expenditures of the
company are being made only in accordance with authorizations of
management and directors of the company; and (iii) provide
reasonable assurance regarding prevention or timely detection of
unauthorized acquisition, use, or disposition of the
companys assets that could have a material effect on the
financial statements.
Because of its inherent limitations, internal control over
financial reporting may not prevent or detect misstatements.
Also, projections of any evaluation of effectiveness to future
periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree
of compliance with the policies or procedures may deteriorate.
/s/ PricewaterhouseCoopers
LLP
San Jose, California
June 12, 2008
61
MICRUS
ENDOVASCULAR CORPORATION
|
|
|
|
|
|
|
|
|
|
|
March 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
|
(In thousands, except share and per share amounts)
|
|
|
ASSETS
|
Current Assets:
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
25,526
|
|
|
$
|
34,536
|
|
Accounts receivable, net of allowance for doubtful accounts of
$95 and $234 at March 31, 2008 and 2007, respectively
|
|
|
11,297
|
|
|
|
8,168
|
|
Inventories
|
|
|
11,495
|
|
|
|
9,049
|
|
Prepaid expenses and other current assets
|
|
|
1,570
|
|
|
|
1,340
|
|
Deferred tax assets
|
|
|
|
|
|
|
102
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
49,888
|
|
|
|
53,195
|
|
Property and equipment, net
|
|
|
5,285
|
|
|
|
4,648
|
|
Goodwill
|
|
|
8,549
|
|
|
|
5,552
|
|
Intangible assets, net
|
|
|
7,153
|
|
|
|
9,405
|
|
Deferred tax assets
|
|
|
9
|
|
|
|
|
|
Other assets
|
|
|
1,448
|
|
|
|
297
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
72,332
|
|
|
$
|
73,097
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS EQUITY
|
Current Liabilities:
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
3,680
|
|
|
$
|
1,660
|
|
Accrued payroll and other related expenses
|
|
|
7,930
|
|
|
|
6,145
|
|
Deferred tax liabilities
|
|
|
43
|
|
|
|
75
|
|
Accrued liabilities
|
|
|
9,431
|
|
|
|
6,213
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
21,084
|
|
|
|
14,093
|
|
Deferred tax liabilities
|
|
|
314
|
|
|
|
570
|
|
Other non-current liabilities
|
|
|
2,754
|
|
|
|
2,140
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
24,152
|
|
|
|
16,803
|
|
|
|
|
|
|
|
|
|
|
Commitments and contingencies (Note 6)
|
|
|
|
|
|
|
|
|
Stockholders equity:
|
|
|
|
|
|
|
|
|
Preferred stock, $0.01 par value;
Authorized: 1,000,000 shares; none issued and outstanding
|
|
|
|
|
|
|
|
|
Common stock, $0.01 par value;
Authorized: 50,000,000 shares
Issued and outstanding:15,614,760 shares and
15,249,057 shares at March 31, 2008 and 2007,
respectively
|
|
|
156
|
|
|
|
152
|
|
Additional paid-in capital
|
|
|
119,897
|
|
|
|
111,920
|
|
Deferred stock-based compensation
|
|
|
|
|
|
|
(164
|
)
|
Accumulated other comprehensive loss
|
|
|
(511
|
)
|
|
|
(512
|
)
|
Accumulated deficit
|
|
|
(71,362
|
)
|
|
|
(55,102
|
)
|
|
|
|
|
|
|
|
|
|
Total stockholders equity
|
|
|
48,180
|
|
|
|
56,294
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders equity
|
|
$
|
72,332
|
|
|
$
|
73,097
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these
consolidated financial statements.
62
MICRUS
ENDOVASCULAR CORPORATION
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended March 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
|
(In thousands, except per share amounts)
|
|
|
Revenues
|
|
$
|
69,213
|
|
|
$
|
58,795
|
|
|
$
|
32,781
|
|
Cost of goods sold
|
|
|
17,301
|
|
|
|
15,361
|
|
|
|
9,710
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
51,912
|
|
|
|
43,434
|
|
|
|
23,071
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development
|
|
|
13,718
|
|
|
|
7,904
|
|
|
|
6,589
|
|
Sales and marketing
|
|
|
30,237
|
|
|
|
24,121
|
|
|
|
15,171
|
|
General and administrative
|
|
|
26,119
|
|
|
|
19,308
|
|
|
|
10,307
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
70,074
|
|
|
|
51,333
|
|
|
|
32,067
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from operations
|
|
|
(18,162
|
)
|
|
|
(7,899
|
)
|
|
|
(8,996
|
)
|
Interest and investment income
|
|
|
1,223
|
|
|
|
1,618
|
|
|
|
1,295
|
|
Interest expense
|
|
|
(3
|
)
|
|
|
(14
|
)
|
|
|
(12
|
)
|
Other income (expense), net
|
|
|
488
|
|
|
|
565
|
|
|
|
(632
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss before income taxes
|
|
|
(16,454
|
)
|
|
|
(5,730
|
)
|
|
|
(8,345
|
)
|
Income tax benefit
|
|
|
(194
|
)
|
|
|
(247
|
)
|
|
|
(84
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
|
(16,260
|
)
|
|
|
(5,483
|
)
|
|
|
(8,261
|
)
|
Accretion of redeemable convertible preferred stock to
redemption value including beneficial conversion feature
|
|
|
|
|
|
|
|
|
|
|
(659
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss attributable to common stockholders
|
|
$
|
(16,260
|
)
|
|
$
|
(5,483
|
)
|
|
$
|
(8,920
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss per share attributable to common stockholders:
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted
|
|
$
|
(1.05
|
)
|
|
$
|
(0.38
|
)
|
|
$
|
(0.79
|
)
|
Weighted-average number of shares used in per share calculations:
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted
|
|
|
15,438
|
|
|
|
14,621
|
|
|
|
11,240
|
|
The accompanying notes are an integral part of these
consolidated financial statements.
63
MICRUS
ENDOVASCULAR CORPORATION
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
Additional
|
|
|
Deferred
|
|
|
Other
|
|
|
|
|
|
Stockholders
|
|
|
|
Common Stock
|
|
|
Paid-in
|
|
|
Stock-based
|
|
|
Comprehensive
|
|
|
Accumulated
|
|
|
Equity
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Capital
|
|
|
Compensation
|
|
|
Loss
|
|
|
Deficit
|
|
|
(Deficit)
|
|
|
|
(In thousands)
|
|
|
Balance at March 31, 2005
|
|
|
1,468
|
|
|
$
|
15
|
|
|
$
|
4,397
|
|
|
$
|
(630
|
)
|
|
$
|
(368
|
)
|
|
$
|
(40,975
|
)
|
|
$
|
(37,561
|
)
|
Comprehensive loss:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(8,261
|
)
|
|
|
(8,261
|
)
|
Translation adjustments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
92
|
|
|
|
|
|
|
|
92
|
|
Change in unrealized loss on available-for-sale investments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
36
|
|
|
|
|
|
|
|
36
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(8,133
|
)
|
Issuance of common stock in connection with the initial public
offering (IPO), net of issuance costs
|
|
|
3,250
|
|
|
|
33
|
|
|
|
30,439
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
30,472
|
|
Conversion of preferred stock to common stock in connection with
the IPO
|
|
|
7,920
|
|
|
|
79
|
|
|
|
59,148
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
59,227
|
|
Exercise of over-allotment by underwriters
|
|
|
250
|
|
|
|
3
|
|
|
|
2,555
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,558
|
|
Reclassification of liability for Series E preferred stock
warrants upon IPO
|
|
|
|
|
|
|
|
|
|
|
3,358
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,358
|
|
Beneficial conversion feature related to issuance of
Series E preferred stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(383
|
)
|
|
|
(383
|
)
|
Accretion of preferred stock
|
|
|
|
|
|
|
|
|
|
|
(276
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(276
|
)
|
Exercise of common stock warrants
|
|
|
699
|
|
|
|
6
|
|
|
|
863
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
869
|
|
Exercise of stock options
|
|
|
563
|
|
|
|
6
|
|
|
|
459
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
465
|
|
Issuance of common stock under employee stock purchase plan
|
|
|
40
|
|
|
|
|
|
|
|
333
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
333
|
|
Amortization of deferred stock-based compensation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
229
|
|
|
|
|
|
|
|
|
|
|
|
229
|
|
Deferred stock-based compensation associated with stock options
forfeited
|
|
|
|
|
|
|
|
|
|
|
(4
|
)
|
|
|
4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-employee stock-based compensation
|
|
|
|
|
|
|
|
|
|
|
160
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
160
|
|
Payment for fractional shares on stock split
|
|
|
|
|
|
|
|
|
|
|
(2
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at March 31, 2006
|
|
|
14,190
|
|
|
|
142
|
|
|
|
101,430
|
|
|
|
(397
|
)
|
|
|
(240
|
)
|
|
|
(49,619
|
)
|
|
|
51,316
|
|
Comprehensive loss:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(5,483
|
)
|
|
|
(5,483
|
)
|
Translation adjustments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(283
|
)
|
|
|
|
|
|
|
(283
|
)
|
Change in unrealized loss on available-for-sale investments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11
|
|
|
|
|
|
|
|
11
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(5,755
|
)
|
Exercise of over-allotment by underwriters
|
|
|
190
|
|
|
|
2
|
|
|
|
2,037
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,039
|
|
Issuance of common stock in connection with VasCon acquisition
|
|
|
157
|
|
|
|
2
|
|
|
|
2,970
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,972
|
|
Exercise of common stock warrants
|
|
|
15
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercise of stock options
|
|
|
619
|
|
|
|
6
|
|
|
|
2,298
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,304
|
|
Issuance of common stock under employee stock purchase plan
|
|
|
78
|
|
|
|
|
|
|
|
755
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
755
|
|
Stock-based compensation under SFAS 123R (including amount
capitalized in inventory of $89)
|
|
|
|
|
|
|
|
|
|
|
2,293
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,293
|
|
Amortization of deferred stock-based compensation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
213
|
|
|
|
|
|
|
|
|
|
|
|
213
|
|
Deferred stock-based compensation associated with stock options
forfeited
|
|
|
|
|
|
|
|
|
|
|
(20
|
)
|
|
|
20
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-employee stock-based compensation
|
|
|
|
|
|
|
|
|
|
|
157
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
157
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at March 31, 2007
|
|
|
15,249
|
|
|
|
152
|
|
|
|
111,920
|
|
|
|
(164
|
)
|
|
|
(512
|
)
|
|
|
(55,102
|
)
|
|
|
56,294
|
|
Comprehensive loss:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(16,260
|
)
|
|
|
(16,260
|
)
|
Translation adjustments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1
|
|
|
|
|
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(16,259
|
)
|
Exercise of stock options
|
|
|
270
|
|
|
|
3
|
|
|
|
2,152
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,155
|
|
Issuance of common stock under employee stock purchase plan
|
|
|
93
|
|
|
|
1
|
|
|
|
1,009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,010
|
|
Restricted stock awards issued
|
|
|
1
|
|
|
|
|
|
|
|
21
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
21
|
|
Restricted stock units released
|
|
|
3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restricted stock withheld for minimum taxes
|
|
|
(1
|
)
|
|
|
|
|
|
|
(29
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(29
|
)
|
Stock-based compensation under SFAS 123R
(including amount capitalized in inventory of $51)
|
|
|
|
|
|
|
|
|
|
|
4,821
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,821
|
|
Amortization of deferred stock-based compensation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
163
|
|
|
|
|
|
|
|
|
|
|
|
163
|
|
Deferred stock-based compensation associated with stock options
forfeited
|
|
|
|
|
|
|
|
|
|
|
(1
|
)
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-employee stock-based compensation
|
|
|
|
|
|
|
|
|
|
|
4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at March 31, 2008
|
|
|
15,615
|
|
|
$
|
156
|
|
|
$
|
119,897
|
|
|
$
|
|
|
|
$
|
(511
|
)
|
|
$
|
(71,362
|
)
|
|
$
|
48,180
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these
consolidated financial statements.
64
MICRUS
ENDOVASCULAR CORPORATION
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended March 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
|
(In thousands)
|
|
|
Cash flows from operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(16,260
|
)
|
|
$
|
(5,483
|
)
|
|
$
|
(8,261
|
)
|
Adjustments to reconcile net loss to net cash used in operating
activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
3,178
|
|
|
|
2,143
|
|
|
|
989
|
|
Provision for doubtful accounts
|
|
|
(145
|
)
|
|
|
(84
|
)
|
|
|
102
|
|
Loss on disposal of equipment
|
|
|
35
|
|
|
|
4
|
|
|
|
1
|
|
Provision for excess and obsolete inventories
|
|
|
240
|
|
|
|
279
|
|
|
|
264
|
|
Increase in fair value of 2005 common stock warrants
|
|
|
|
|
|
|
|
|
|
|
158
|
|
Realized (gain) loss on investments
|
|
|
|
|
|
|
(4
|
)
|
|
|
5
|
|
Stock-based compensation
|
|
|
4,958
|
|
|
|
2,574
|
|
|
|
389
|
|
Deferred income taxes
|
|
|
(209
|
)
|
|
|
(329
|
)
|
|
|
|
|
Changes in operating assets and liabilities, net of effect of
acquisitions:
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
|
(2,115
|
)
|
|
|
601
|
|
|
|
(4,005
|
)
|
Inventories
|
|
|
(2,786
|
)
|
|
|
(3,810
|
)
|
|
|
(239
|
)
|
Prepaid expenses and other current assets
|
|
|
(156
|
)
|
|
|
(545
|
)
|
|
|
(134
|
)
|
Other assets
|
|
|
(148
|
)
|
|
|
19
|
|
|
|
(208
|
)
|
Accounts payable
|
|
|
1,920
|
|
|
|
(437
|
)
|
|
|
(938
|
)
|
Accrued payroll and other related expenses
|
|
|
1,582
|
|
|
|
2,936
|
|
|
|
1,507
|
|
Accrued liabilities
|
|
|
1,403
|
|
|
|
1,818
|
|
|
|
826
|
|
Other non-current liabilities
|
|
|
979
|
|
|
|
(238
|
)
|
|
|
489
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in operating activities
|
|
|
(7,524
|
)
|
|
|
(556
|
)
|
|
|
(9,055
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from maturities of available-for-sale securities
|
|
|
|
|
|
|
1,000
|
|
|
|
2,000
|
|
Acquisition of property and equipment
|
|
|
(2,013
|
)
|
|
|
(1,343
|
)
|
|
|
(2,070
|
)
|
Advance payments for leasehold improvements at new Florida
facility
|
|
|
(802
|
)
|
|
|
|
|
|
|
|
|
Proceeds from sale of property and equipment
|
|
|
110
|
|
|
|
|
|
|
|
|
|
Purchase of VasCon, LLC, net of cash acquired
|
|
|
|
|
|
|
(2,860
|
)
|
|
|
|
|
Purchase of Neurologic UK Ltd., net of cash acquired
|
|
|
|
|
|
|
(11
|
)
|
|
|
(5,139
|
)
|
Payment to Biotronik AG for developed technology
|
|
|
|
|
|
|
(834
|
)
|
|
|
(731
|
)
|
Proceeds from sale of assets and technologies
|
|
|
1,500
|
|
|
|
|
|
|
|
|
|
Earn-out payment in connection with acquisition of Neurologic UK
Ltd.
|
|
|
(2,232
|
)
|
|
|
(1,403
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities
|
|
|
(3,437
|
)
|
|
|
(5,451
|
)
|
|
|
(5,940
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Costs of issuance of convertible preferred stock and warrants
|
|
|
|
|
|
|
|
|
|
|
(11
|
)
|
Proceeds from issuance of common stock, net of issuance costs
|
|
|
|
|
|
|
2,039
|
|
|
|
33,872
|
|
Proceeds from exercise of preferred and common stock warrants
|
|
|
|
|
|
|
|
|
|
|
1,007
|
|
Proceeds from exercise of stock options
|
|
|
2,155
|
|
|
|
2,304
|
|
|
|
465
|
|
Proceeds from employee stock purchase plan
|
|
|
1,010
|
|
|
|
755
|
|
|
|
333
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by financing activities
|
|
|
3,165
|
|
|
|
5,098
|
|
|
|
35,666
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of foreign exchange rate changes on cash
|
|
|
(1,214
|
)
|
|
|
(659
|
)
|
|
|
416
|
|
Net increase (decrease) in cash and cash equivalents
|
|
|
(7,796
|
)
|
|
|
(909
|
)
|
|
|
20,671
|
|
Cash and cash equivalents at beginning of year
|
|
|
34,536
|
|
|
|
36,104
|
|
|
|
15,017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of year
|
|
$
|
25,526
|
|
|
$
|
34,536
|
|
|
$
|
36,104
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental disclosure of cash flow information:
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest paid
|
|
$
|
3
|
|
|
$
|
14
|
|
|
$
|
12
|
|
Income taxes paid liability assumed in Neurologic UK
Ltd. acquisition
|
|
$
|
|
|
|
$
|
|
|
|
$
|
192
|
|
Supplemental schedule of non-cash investing and financing
activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of common stock for purchase of VasCon, LLC
|
|
$
|
|
|
|
$
|
2,972
|
|
|
$
|
|
|
Conversion of preferred stock to common stock in connection with
IPO
|
|
$
|
|
|
|
$
|
|
|
|
$
|
59,227
|
|
Accretion to redemption value of redeemable convertible
preferred stock including beneficial conversion feature
|
|
$
|
|
|
|
$
|
|
|
|
$
|
659
|
|
Reclassification of 2005 common stock warrants to equity in
connection with IPO
|
|
$
|
|
|
|
$
|
|
|
|
$
|
3,358
|
|
Accrued earn-out payment associated with the purchase of
Neurologic UK Ltd.
|
|
$
|
2,997
|
|
|
$
|
2,232
|
|
|
$
|
1,403
|
|
Accrued earn-out payment associated with the purchase of VasCon,
LLC
|
|
$
|
378
|
|
|
$
|
|
|
|
$
|
|
|
Accrued milestone payment associated with the Biotronik AG
transaction
|
|
$
|
|
|
|
$
|
|
|
|
$
|
732
|
|
The accompanying notes are an integral part of these
consolidated financial statements.
65
MICRUS
ENDOVASCULAR CORPORATION
|
|
Note 1
|
Formation
and Business of the Company
|
Micrus Endovascular Corporation (the Company) was
incorporated under the laws of the state of Delaware in June
1996. The Company develops, manufactures and markets both
implantable and disposable medical devices used in the treatment
of cerebral vascular diseases.
Liquidity
The Company has incurred net losses since inception. Management
believes that the Companys current cash position as of
March 31, 2008 and the cash expected to be generated from
product sales will be sufficient to meet the Companys
working capital and capital expenditure requirements through at
least March 31, 2009. There is no assurance that the
Company will be profitable in the foreseeable future. To the
extent that existing cash and cash generated from operations are
insufficient to fund its future activities, the Company may need
to raise additional funds through public or private equity or
debt financing. Additional funds may not be available on terms
favorable to the Company or at all.
|
|
Note 2
|
Summary
of Significant Accounting Policies
|
Principles
of consolidation
The consolidated financial statements include the accounts of
the Company and its wholly-owned subsidiaries. All significant
intercompany balances and transactions have been eliminated in
consolidation.
The Companys international subsidiaries use their local
currency as the functional currency. Assets and liabilities are
translated at exchange rates prevailing at the balance sheet
dates. Revenue, expense, gain and loss accounts are translated
at average exchange rates during the period. Resulting
translation adjustments are recorded directly to accumulated
other comprehensive income (loss).
Use of
estimates
The preparation of consolidated financial statements in
conformity with accounting principles generally accepted in the
United States of America requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities
at the dates of the consolidated financial statements and the
reported amounts of revenues and expenses during the reporting
periods. Actual results could differ from these estimates. These
estimates and assumptions include reserves and write-downs
related to accounts receivable and inventories, the
recoverability of long-term assets, deferred tax assets and
related valuation allowances and valuation of equity instruments.
Revenue
recognition and product warranty
The Company generates revenue primarily from the sale of its
microcoil product line. The Company also sells access products
and accessories for use with its microcoils. Revenue is
generated from sales to hospitals and third-party distributors.
Revenue is recognized when evidence of an arrangement exists,
delivery to the customer has occurred, the selling price is
fixed or determinable and collectibility is reasonably assured.
Revenue is recognized generally upon shipment after the receipt
of a replenishment or purchase order.
The evidence of an arrangement generally consists of a contract
or a purchase order approved by the customer.
Delivery to the customer occurs when the customer takes title to
the product. Generally title passes upon shipment, but may occur
when the product is received by the customer based on the terms
of the agreement with the customer.
66
MICRUS
ENDOVASCULAR CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The selling price for all sales are fixed and agreed with the
customer prior to shipment and are generally based on
established list prices.
The Company performs credit checks on new customers and periodic
credit checks on existing customers. Accordingly, collectibility
is generally assured prior to shipment. In the event a sale is
made to a customer for which collectibility is not reasonably
assured, the Company either requires prepayment of the order or
revenue is deferred and recognized upon collection. The Company
maintains a reserve for amounts which may not be collectible.
The Company maintains inventory at various hospital locations
under the custody of hospital personnel for use in procedures.
The Company recognizes revenue on sales to these customers when
the revenue criteria have been met, which occurs when the
hospital informs the Company that product has been removed from
inventory and used in a procedure.
Once a sale has occurred, the customer has no right of return
and the Company provides its customers with limited warranty
privileges. To date, product returns under warranty have not
been significant.
Sales to distributors are recognized at the time of shipment,
provided that the Company has received an order, the price is
fixed or determinable and collectibility is reasonably assured.
Non-refundable fees received from distributors upon entering
into multi-year distribution agreements, where there is no
culmination of a separate earnings process, are deferred and
amortized over the term of the distribution agreement or the
expected period of performance, whichever is longer.
Sales made to the Companys South American distributors are
made according to the same contractual terms as sales made to
other customers. However, the Company has historically
experienced longer delays in receiving payments and a higher
level of write-offs relating to its South American distributors
and has been unable to conclude that collectibility is
reasonably assured at the time that the customer takes title to
the inventory on sales to this class of customers. Accordingly,
for this class of customers, the Company recognizes revenue when
cash is collected. Revenues recognized from these customers were
$1,550,000, $1,057,000 and $839,000 for the years ended
March 31, 2008, 2007 and 2006, respectively. The related
cost of goods sold is deferred and recognized at the time the
related sale is recognized.
Cost
of goods sold
The Companys cost of goods sold includes the cost of
products sold to customers including materials, direct labor,
depreciation, overhead costs associated with manufacturing,
impairments of inventory and warranty expenses. Cost of goods
sold also includes amortization of capitalized license
technology and acquired intangible assets resulting from
transactions with Biotronik AG (Biotronik) and
VasCon, LLC (VasCon), respectively (see Note 3).
Concentration
of credit risk
Financial instruments which potentially subject the Company to
concentrations of credit risk include cash and cash equivalents
and accounts receivable. The Company maintains cash and cash
equivalents with various major financial institutions. Deposits
in these banks may exceed the amount of insurance provided on
such deposits. The Company has not experienced any losses on its
deposits of cash and cash equivalents.
The Company grants credit to its customers, which are primarily
located in the United States, Europe, Asia Pacific and South
America, and performs ongoing credit evaluations on its
customers and collateral is generally not required for trade
receivables. The Company maintains an allowance for potential
credit losses and such losses have been within the
Companys expectations.
The Company had no customer which accounted for 10% or more of
revenues and had one customer which accounted for 16% of
accounts receivable at March 31, 2008. The Company had one
customer which accounted for 15% of revenues for the year ended
March 31, 2007 and none which accounted for more than 10%
for the year ended
67
MICRUS
ENDOVASCULAR CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
March 31, 2006. The Company had no customer which accounted
for 10% or more of accounts receivable at March 31, 2007
and one customer which accounted for 26% of accounts receivable
at March 31, 2006.
Certain
significant risks and uncertainties
Most of the Companys products require approval from the
Food and Drug Administration and foreign regulatory agencies
prior to commercialized sale and are subject to continued
regulations once approved. There can be no assurance that the
Companys new products or new versions of previous products
will receive these required approvals. If the Company was denied
such approvals or such approvals were delayed, it could have a
materially adverse impact on the Company.
A portion of the Companys sales operations are based
outside of the United States, principally in Europe, Asia
Pacific and South America. As a result, the Company must comply
with a wide variety of foreign laws and regulations. In
particular, the Company may be materially adversely affected by
changes in the political, social and economic conditions in
these countries, and by changes in government policies with
respect to such matters as laws and regulations, methods to
address inflation, currency conversion and restrictions and
rates and methods of taxation.
Certain of the components and materials used in the
Companys devices are provided by single source suppliers.
The loss of any of these suppliers, or their inability to supply
the Company with an adequate supply of materials could have a
materially adverse impact on the Company.
Cash
and cash equivalents
The Company considers all highly liquid investments purchased
with original maturities of three months or less to be cash
equivalents. Cash equivalents may be invested in money market
funds. Cash equivalents are carried at cost, which approximates
fair value.
Fair
value of financial instruments
Carrying amounts of certain of the Companys financial
instruments, including cash and cash equivalents, accounts
receivable, accounts payable, accrued expenses and other
liabilities, approximate fair value due to their short
maturities.
Allowance
for doubtful accounts
The Company maintains an allowance for doubtful accounts for
estimated losses resulting from the inability of its customers
to make required payments. The Company provides an allowance for
specific customer accounts where collection is doubtful and also
provides an allowance for other accounts based on historical
collection and write-off experience. If the financial condition
of customers were to deteriorate, resulting in an impairment of
their ability to make payments, additional allowances may be
required.
Inventories
Inventories of raw materials,
work-in-progress
and finished goods are stated at the lower of cost or market,
cost being determined under a standard cost method, which
approximates actual cost on a
first-in,
first-out basis.
The Company makes inventory provisions for estimated excess and
obsolete inventory based on historical scrap rates and
managements assessment of future demand and market
conditions. If actual future demand or market conditions are
less favorable than those projected by management, additional
inventory provisions may be required.
68
MICRUS
ENDOVASCULAR CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Property
and equipment
Property and equipment are stated at cost and depreciated on a
straight-line basis over the estimated useful lives of the
related assets, which is generally three to seven years.
Amortization of leasehold improvements is computed using the
straight-line method over the shorter of the remaining lease
term or the estimated useful life of the related assets.
Construction in progress is not depreciated until the related
asset is placed in service. Upon sale or retirement of assets,
the costs and related accumulated depreciation and amortization
are removed from the consolidated balance sheets and the
resulting gain or loss is reflected in the statements of
operations. Maintenance and repairs are expensed as incurred.
Impairment
of long-lived assets
The Company reviews long-lived assets, including property and
equipment, for impairment whenever events or changes in business
circumstances indicate that the carrying amount of the assets
may not be fully recoverable. An impairment loss is recognized
when estimated undiscounted future cash flows expected to result
from the use of the asset and its eventual disposition are less
than its carrying amount. Impairment, if any, is measured as the
amount by which the carrying amount of a long-lived asset
exceeds its fair value. Through March 31, 2008, there have
been no such impairments.
Goodwill
and intangible assets
Goodwill represents the excess of the purchase price over the
fair value of the net tangible and identifiable intangible
assets acquired in a business combination. Negative goodwill
represents the excess fair value of the net assets acquired in a
business combination over the purchase price. If the acquisition
involves contingent consideration, the negative goodwill is
recorded as a deferred credit (non-current liability) in the
consolidated balance sheet and is reduced by the contingent
consideration that is paid, with any additional contingent
consideration being recorded as goodwill.
Intangible assets resulting from acquisitions are estimated by
management based on the fair value of the assets received.
Identifiable intangible assets are comprised of existing process
technology, distribution agreements, non-compete agreements and
customer relationships, and are carried at cost less accumulated
amortization. Amortization is computed using the straight-line
method over their estimated useful lives ranging from five to
seven years. In accordance with Statement of Financial
Accounting Standards No. 142, Goodwill and Other
Intangible Assets, goodwill is not subject to
amortization. The Company evaluates goodwill for impairment
annually in the fourth quarter, or more frequently if events or
changes in circumstances suggest that the carrying amounts may
not be recoverable.
Intangible assets not resulting from acquisitions are comprised
of patents and licensed technology, and are carried at cost less
accumulated amortization. Amortization of patents is computed
using the straight-line method over their estimated useful lives
of ten years. Patent application, maintenance costs and costs
incurred in obtaining the license rights to technology in the
research phase are expensed as incurred. Amortization of
licensed technology is computed using the straight-line method
over its estimated useful life of seven years when the Company
starts selling the product and generating revenue.
Through March 31, 2008, there have been no impairment
charges related to goodwill and intangible assets.
Comprehensive
loss
Comprehensive loss generally represents all changes in
stockholders equity (deficit) except those resulting from
investments or contributions by stockholders. The Companys
unrealized gains and losses on its available-for-sale securities
and the foreign currency translation represent the only
components of comprehensive loss excluded from reported net
loss. These components of comprehensive loss are presented in
the statements of stockholders equity (deficit).
69
MICRUS
ENDOVASCULAR CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Research
and development
Research and development costs are charged to operations as
incurred and consist primarily of costs associated with
evaluating in-process technology, purchases of intellectual
property, personnel costs and supplies.
Advertising
costs
Advertising costs are expensed as incurred and included in sales
and marketing expenses.
Shipping
and handling of products
Amounts billed to customers for shipping and handling of
products are included in revenues. Costs incurred related to
shipping and handling of products are included in cost of goods
sold.
Foreign
currency transactions
Other income includes foreign currency gains or losses related
to a loan with the Companys Swiss subsidiary, and currency
gains or losses resulting from differences in exchange rates
between the time of recording of the transaction and the cash
settlement of foreign currency denominated receivables and
payables. The Company recorded currency gains (losses) for the
years ended March 31, 2008, 2007 and 2006 of $546,000,
$667,000 and ($444,000), respectively.
Income
taxes
The Company accounts for income taxes under the asset and
liability method. Under this method, deferred tax assets and
liabilities are determined based on the difference between the
financial statement and tax bases of assets and liabilities
using enacted tax rates in effect for the year in which the
differences are expected to effect taxable income. Valuation
allowances are established when necessary to reduce deferred tax
assets to the amounts expected to be realized.
Net
loss per share
Basic net loss per share is computed by dividing net loss
attributable to common stockholders by the weighted average
number of common shares outstanding during the period. Diluted
net loss per share is computed by giving effect to all potential
dilutive common shares, including stock options and restricted
stock units. There is no difference between basic and diluted
net loss per share for all periods presented due to the
Companys net losses.
Anti-dilutive
securities
The following outstanding stock options and restricted stock
units were excluded from the computation of diluted net loss per
common share for the periods presented because their impact
would have been anti-dilutive (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended March 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
Shares issuable upon exercise of common stock options
|
|
|
3,656
|
|
|
|
3,182
|
|
|
|
2,804
|
|
Shares issuable upon settlement of restricted stock units
|
|
|
7
|
|
|
|
10
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,663
|
|
|
|
3,192
|
|
|
|
2,804
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
70
MICRUS
ENDOVASCULAR CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Stock-based
compensation
The Company has adopted various stock plans that provide for the
grant of stock awards to employees, non-employee directors and
consultants. The Company also has an employee stock purchase
plan which enables employees to purchase the Companys
common stock.
On April 1, 2006, the Company adopted the provisions of,
and accounts for stock-based compensation in accordance with the
Financial Accounting Standards Boards (FASB)
Statement of Financial Accounting Standards
No. 123 revised 2004
(SFAS 123R), Share-Based Payment
which replaced Statement of Financial Accounting Standards
No. 123 (SFAS 123), Accounting for
Stock-Based Compensation and supersedes APB Opinion
No. 25 (APB 25), Accounting for Stock
Issued to Employees. Under the fair value recognition
provisions of SFAS 123R, stock-based compensation cost is
measured at the grant date based on the fair value of the award
and is recognized as expense on a straight-line basis over the
requisite service period, which is generally the vesting period.
The Company elected the modified-prospective method of
transition, under which prior periods were not revised for
comparative purposes. The valuation provisions of SFAS 123R
apply to new grants and to grants that were outstanding prior to
the effective date and are subsequently modified. Estimated
compensation for grants that were outstanding as of the
effective date will be recognized over the remaining service
period using the compensation cost estimated for the
SFAS 123 pro forma disclosures, excluding pre-initial
public offering (IPO) options for which the fair
value was determined using the minimum value method. For these
grants, any remaining unamortized deferred compensation expenses
continued to be accounted for under the intrinsic value method
of APB 25.
Due to the adoption of SFAS 123R, some exercises result in
tax deductions in excess of previously recorded benefits based
on the option value at the time of grant (windfall
tax benefits). The Company recognizes windfall tax benefits
associated with the exercise of stock options directly to
stockholders equity only when realized. Accordingly,
deferred tax assets are not recognized for net operating loss
carryforwards resulting from windfall tax benefits occurring
from April 1, 2006 onward. A windfall tax benefit occurs
when the actual tax benefit realized by the company upon an
employees disposition of a share-based award exceeds the
deferred tax asset, if any, associated with the award that the
company had recorded. When assessing whether a tax benefit
relating to share-based compensation has been realized, the
Company has elected to follow the tax law ordering method, under
which current year share-based compensation deductions are
assumed to be utilized before net operating loss carryforwards
and other tax attributes. Also, the Company has elected to
ignore the indirect tax effects of share-based compensation
deductions in computing its research and development tax credit.
The Company will recognize the full effect of these deductions
in the statements of operations when the valuation allowance is
released.
Recent
accounting pronouncements
In September 2006, the FASB issued Statement of Financial
Accounting Standard (SFAS) 157, Fair Value
Measurements. SFAS 157 defines fair value,
establishes a framework for measuring fair value in generally
accepted accounting principles, and expands disclosures about
fair value measurements. SFAS 157 applies to other
accounting pronouncements that require or permit fair value
measurements, the FASB having previously concluded in those
accounting pronouncements that fair value is the relevant
measurement attribute. Accordingly, this Statement does not
require any new fair value measurements. However, for some
entities, the application of SFAS 157 will change current
practice. Certain provisions of SFAS 157 are effective for
fiscal years beginning after November 15, 2007. The Company
is currently evaluating the impact of SFAS 157, but do not
expect the adoption of SFAS 157 to have a material impact
on the Companys consolidated financial position, results
of operations or cash flows.
In February 2007, the FASB issued SFAS 159, The Fair
Value Option for Financial Assets and Financial
Liabilities, which expands opportunities to use fair value
measurements in financial reporting and permits entities to
choose to measure many financial instruments and certain other
items at fair value. SFAS 159 is effective for fiscal years
beginning after November 15, 2007. The Company currently
has no plans to implement the fair value
71
MICRUS
ENDOVASCULAR CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
option permitted by SFAS 159 and accordingly, the adoption
of SFAS 159 will not have a material impact on the
Companys consolidated financial position, results of
operations or cash flows.
In June 2007, the FASB issued Emerging Issue Task Force (EITF)
No. 07-03
(EITF 07-03),
Accounting for Non-Refundable Advance Payments for Goods
or Services to Be Used in Future Research and Development
Activities.
EITF 07-03
provides that nonrefundable advance payments for goods or
services that will be used or rendered for future research and
development activities should be deferred and capitalized. Such
amounts should be recognized as an expense as the related goods
are delivered or the related services are performed. If,
subsequently, based on managements assessment, it is no
longer expected that the goods will be delivered or services
will be rendered, then
EITF 07-03
requires that the capitalized advance payment be charged to
expense.
EITF 07-03
is effective for fiscal years beginning after December 15,
2007. The Company is currently evaluating the impact of
EITF 07-03
but does not expect the adoption of
EITF 07-03
to have a material impact on the Companys consolidated
financial position, results of operations or cash flows.
In December 2007, the FASB issued SFAS 141R (revised 2007),
Business Combinations, which replaces SFAS 141.
SFAS 141R requires the acquiring entity in a business
combination to recognize at full fair value all the assets
acquired and liabilities assumed in the transaction; establishes
the acquisition-date fair value as the measurement objective for
all assets acquired and liabilities assumed; and requires the
acquirer to disclose information needed to evaluate and
understand the nature and financial effect of the business
combination. SFAS 141R is effective for fiscal years
beginning after December 15, 2008 and is to be applied
prospectively to business combinations completed on or after the
date of adoption.
In February 2008, the FASB issued Financial Standard Position
(FSP)
SFAS 157-2,
Effective Date for FASB Statement No. 157. This
FSP permits the delayed application of SFAS 157 for all
nonrecurring fair value measurements of non-financial assets and
non-financial liabilities until fiscal years beginning after
November 15, 2008. The Company has chosen to adopt
SFAS 157 in accordance with the guidance of FSP
SFAS 157-2
as stated above.
|
|
Note 3
|
Business
Combinations, Assets Disposition and Technology Acquisition and
License Agreements
|
Fiscal
2007 Business Combination
VasCon
On November 30, 2006, the Company completed the acquisition
of VasCon, a privately held company engaged in the development
and manufacture of vascular access and delivery devices. The
acquisition of VasCon adds expertise in developing clinically
advanced access and catheter systems to the Companys core
competencies and provides the Company with manufacturing
capabilities that are expected to lead to cost reductions for a
wide range of the Companys products. VasCons
existing cardio and peripheral vascular products will continue
to be sold through non-Micrus distribution channels. Micrus
Design Technology, Inc. (MDT), a newly formed
subsidiary of the Company, will develop and manufacture
neurovascular access and delivery products for the Company,
including the Companys deflectable catheter.
The transaction included an up-front payment and additional
contingent earn-out payments as described below. The total
consideration paid of approximately $5,876,000 as of
March 31, 2007, consisted of the up-front payment of
approximately $2,500,000 in cash, the issuance of
156,666 shares of the Companys common stock having an
aggregate value of approximately $2,972,000 calculated based on
the average closing price two days before and the day of the
acquisition and $404,000 in acquisition-related closing costs.
Additionally, VasCon may receive certain earn-out payments in an
amount not to exceed $10,000,000 based on sales and
manufacturing performance as set forth in the asset purchase
agreement entered into by the parties. At March 31, 2008,
the Company has accrued the first year earn-out payment to the
former VasCon shareholders of approximately $378,000, and this
amount was paid in April 2008. The common stock portion of the
up-front payment was placed
72
MICRUS
ENDOVASCULAR CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
in escrow to satisfy certain indemnification obligations of
VasCon and its members as described in such asset purchase
agreement.
Total consideration is comprised of (in thousands):
|
|
|
|
|
Initial cash payment
|
|
$
|
2,500
|
|
Accrued earn-out payment
|
|
|
378
|
|
Issuance of shares of common stock
|
|
|
2,972
|
|
Acquisition-related closing costs
|
|
|
404
|
|
|
|
|
|
|
Total purchase price
|
|
$
|
6,254
|
|
|
|
|
|
|
The results of operations of MDT are included in the
accompanying consolidated statements of operations for all
periods or partial periods subsequent to the acquisition date.
The purchase price was allocated to the net tangible and
identifiable intangible assets acquired and the liabilities
assumed based on their estimated fair values at the date of
acquisition as determined by management. At the acquisition
date, the fair value of the net assets acquired exceeded the
purchase consideration resulting in negative goodwill in the
amount of $1,596,000. Because the acquisition involves
contingent consideration that may exceed the negative goodwill
amount, the negative goodwill has been recorded as a deferred
credit (non-current liability) in the consolidated balance sheet
and is being reduced by any earned contingent consideration of
up to $10,000,000 that will be paid over the next three years,
with any additional contingent consideration being recorded as
goodwill.
Total consideration is allocated as follows (in thousands):
|
|
|
|
|
Inventories
|
|
$
|
592
|
|
Fixed assets
|
|
|
1,654
|
|
Other acquired net assets
|
|
|
76
|
|
Intangible assets
|
|
|
5,150
|
|
Contingent purchase price
|
|
|
(1,218
|
)
|
|
|
|
|
|
Total purchase price
|
|
$
|
6,254
|
|
|
|
|
|
|
The Company acquired certain intangible assets in the amount of
$5,150,000 in connection with the acquisition of VasCon. These
intangible assets are comprised of existing process technology
of $4,590,000, existing product technology of $260,000 and
patents of $300,000. The Company determined the valuation of the
identifiable intangible assets acquired in the transaction using
future revenue assumptions and a valuation analysis. The amounts
allocated to the identifiable intangible assets were determined
through established valuation techniques accepted in the
technology industry. These purchased intangible assets are being
amortized on a straight-line basis over a weighted-average
period of approximately seven years.
The following table presents unaudited pro forma financial
information for the combined entity of Micrus Endovascular
Corporation and VasCon for the year ended March 31, 2007
and 2006, as if the acquisition had occurred at the beginning of
each of the periods presented after giving effect to certain pro
forma adjustments (in thousands except for per share amounts):
|
|
|
|
|
|
|
|
|
|
|
Years Ended March 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
Revenues
|
|
$
|
59,587
|
|
|
$
|
37,032
|
|
Net loss attributable to common stockholders
|
|
$
|
(7,220
|
)
|
|
$
|
(9,751
|
)
|
Net loss per share attributable to common
stockholders basic and diluted
|
|
$
|
(0.49
|
)
|
|
$
|
(0.86
|
)
|
73
MICRUS
ENDOVASCULAR CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Fiscal
2006 Business Combination
Neurologic
On September 20, 2005, the Company entered into a Share
Purchase Agreement (Neurologic Purchase Agreement)
acquiring all of the outstanding capital stock of Neurologic UK
Limited (Neurologic), a privately held distributor
of the Companys products in the United Kingdom
(UK). The acquisition of Neurologic, which was the
Companys largest distributor, provided the Company with
additional leverage and a strengthened presence in the UK market
and the Company has used this acquisition as a platform to
expand sales to existing accounts and support sales to customers
using alternative procedures and competing products.
The transaction included an initial cash payment of
approximately $4,709,000, additional consideration of
approximately $131,000 as a result of certain purchase price
adjustments, and future multi-year revenue based earn-out
payments. All earn-out payments shall be one-third of
Neurologics product sales during specified periods. At
March 31, 2008, 2007 and 2006, the Company accrued for
additional considerations under the earn-out agreement of
approximately $2,997,000, $2,232,000 and $1,403,000 for the
third, second and first year earn-out payments, respectively,
all of which were recorded as additions to goodwill (See
Note 4). The Company paid the first, second and third year
earn-outs in April 2006, April 2007 and April 2008,
respectively. The final earn-out payment will be made in the
first quarter of fiscal 2009.
As a result of the purchase of Neurologic, the Company
established a new wholly owned subsidiary in the UK and changed
the name from Neurologic to Micrus Endovascular UK Limited
(Micrus UK). The Company concurrently entered into
long term Services Agreements with each of the two founders of
Neurologic to provide for their employment by Micrus UK.
In addition, pursuant to the Neurologic Purchase Agreement, the
two founders of Neurologic agreed to a non-competition provision
to last for a period of six years, under which they may not
actively carry on any business that would compete with
Neurologics business within the UK or Ireland. Similarly,
they agreed not to solicit former clients, customers or
suppliers of Neurologic for a period of three years.
The results of operations of Neurologic are included in the
accompanying consolidated statements of operations for all
periods or partial periods subsequent to the acquisition date.
The net tangible assets acquired and liabilities assumed in the
acquisition were recorded at fair value. The Company determined
the valuation of the identifiable intangible assets acquired in
the transaction to be $3,900,000 using future revenue
assumptions and a valuation analysis. The amounts allocated to
the identifiable intangible assets were determined through
established valuation techniques accepted in the technology
industry. The Company has recorded goodwill of $8,549,000
associated with the purchase of Neurologic.
Total consideration is comprised of (in thousands):
|
|
|
|
|
Total cash payments
|
|
$
|
4,840
|
|
Earn-out payments (paid and accrued)
|
|
|
6,632
|
|
Forgiven intercompany payables
|
|
|
611
|
|
Direct acquisition related costs
|
|
|
316
|
|
|
|
|
|
|
Total consideration
|
|
$
|
12,399
|
|
|
|
|
|
|
74
MICRUS
ENDOVASCULAR CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Total consideration is allocated as follows (in thousands):
|
|
|
|
|
Acquired net assets
|
|
$
|
664
|
|
Deferred tax liability
|
|
|
(714
|
)
|
Goodwill
|
|
|
8,549
|
|
Other intangible assets consisting of:
|
|
|
|
|
Customer relationships
|
|
|
900
|
|
Distribution agreements
|
|
|
2,300
|
|
Non-compete agreements
|
|
|
700
|
|
|
|
|
|
|
Total purchase price
|
|
$
|
12,399
|
|
|
|
|
|
|
Any future earn-out payments will be added to goodwill.
The Company has recorded a deferred tax liability for the tax
effect of the amortizable intangible assets which are not
deductible for tax purposes.
The following table summarizes the estimated fair values of the
assets acquired and liabilities assumed at the date of
acquisition (in thousands):
|
|
|
|
|
Cash
|
|
$
|
6
|
|
Accounts receivable
|
|
|
760
|
|
Inventories
|
|
|
690
|
|
Prepaid expenses and other current assets
|
|
|
143
|
|
|
|
|
|
|
Total current assets acquired
|
|
|
1,599
|
|
Accounts payable
|
|
|
(612
|
)
|
Accrued and other liabilities
|
|
|
(323
|
)
|
|
|
|
|
|
Total current liabilities assumed
|
|
|
(935
|
)
|
|
|
|
|
|
Net assets acquired
|
|
$
|
664
|
|
|
|
|
|
|
The following table presents unaudited pro forma financial
information for the combined entity of Micrus Endovascular
Corporation and Neurologic for the year ended March 31,
2006, as if the acquisition had occurred at the beginning of
fiscal 2006 after giving effect to certain purchase accounting
adjustments (in thousands, except per share amount):
|
|
|
|
|
|
|
2006
|
|
|
Revenues
|
|
$
|
33,560
|
|
Net loss attributable to common stockholders
|
|
$
|
(9,220
|
)
|
Net loss per share attributable to common
stockholders basic and diluted
|
|
$
|
(0.82
|
)
|
Assets
Disposition
Merit
On January 31, 2008, the Company entered into an Asset
Purchase and Supply Agreement (the Merit Agreement)
with Merit Medical Systems, Inc. (Merit) pursuant to
which the Company sold its non-neurological cardiac and
peripheral catheter assets and technology (the Merit
Transaction). The majority of the assets sold were
originally acquired by the Company in November 2006 in
connection with its purchase of VasCon. Under the terms of the
Merit Agreement, the Company also agreed to manufacture and
supply certain guide catheters to Merit for a period of up to
one year following the closing. Pursuant to the Merit Agreement,
the Company received an up-
75
MICRUS
ENDOVASCULAR CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
front payment of $1,500,000 and will receive an additional
$1,500,000 upon the earlier to occur of the date that Merit can
independently manufacture, validate and commercially produce
certain guide catheters or the one year anniversary of the
closing.
In connection with the Merit Transaction, the Company also
entered into a License Agreement granting Merit the right to use
certain non-patented intellectual property in the cardiology and
peripheral radiology fields and a Non-Competition Agreement,
whereby the Company agreed not to engage in certain competitive
business activities in the fields of cardiology and peripheral
radiology for a period of five years.
The Company delivered and transferred title to the acquired
assets, primarily inventory related to the catheter products, to
Merit in February and March 2008. Pursuant to the Merit
Agreement, the Company must provide reasonable assistance to
help Merit build a production line for coronary guide catheters
and may be required to train Merits personnel in
manufacturing, validating and sterilizing coronary guide
catheters. The Company anticipates that the production line for
coronary guide catheters will become fully operational in the
second quarter of fiscal 2009. If requested by Merit, the
Company must provide reasonable assistance to help Merit build
production lines for peripheral guiding sheaths
and/or
cardiovascular microcatheters. Merit must inform the Company
within six months following the completion of the coronary guide
catheters production line that this assistance will be needed.
Though certain elements, namely the acquired assets and
licensing rights, have been delivered as of March 31, 2008,
the Company is still obligated to deliver the regulatory
documentation and production line assistance. Because the
Company lacks the ability to separate the multiple obligations
(elements) of this transaction, the up-front payment of
$1,500,000, net of direct and incremental costs incurred and the
net book value of assets transferred to Merit, has been deferred
until such time as all elements of the transaction are delivered.
Technology
Acquisition and License Agreements
Genesis
On January 16, 2008, the Company entered into a license,
development and commercialization agreement (the Genesis
Agreement) with Genesis Medical Interventional, Inc.
(Genesis). Under the terms of the Genesis Agreement,
the Company will license the rights to Genesiss F.A.S.T.
Funnel Catheter and clot retrieval system for the treatment of
ischemic stroke. The transaction includes an initial up-front
payment of $750,000, a future development milestone payment of
$150,000 payable upon the earlier to occur of the date of first
commercial sale or September 30, 2008 and royalties on
potential future product sales. Both the initial up-front
payment of $750,000 and future milestone payment of $150,000
were recorded as research and development expense upon the
effective date of the Genesis Agreement.
ReVasc
On October 26, 2007, the Company entered into a Stock
Purchase Agreement (the ReVasc Agreement) with The
Cleveland Clinic Foundation (The Cleveland Clinic)
and ReVasc Technologies, Inc. (ReVasc), a
wholly-owned subsidiary of The Cleveland Clinic, pursuant to
which the Company acquired all of the outstanding stock of
ReVasc from The Cleveland Clinic for an aggregate up-front
purchase price of $1,000,000. ReVasc did not have the necessary
set of activities to be considered as a business and as such
this transaction was classified as a technology acquisition.
Pursuant to the ReVasc Agreement, the Company also agreed to pay
The Cleveland Clinic up to an additional $5,000,000 in payments
upon the achievement of certain milestones set forth in the
ReVasc Agreement, with minimum milestone payments of at least
$2,000,000 due to The Cleveland Clinic by October 2010.
ReVasc was a party to a license agreement with The Cleveland
Clinic (the ReVasc License Agreement) pursuant to
which The Cleveland Clinic granted ReVasc an exclusive license
to its revascularization technology for the treatment of
ischemic stroke. In connection with the acquisition, the parties
amended the ReVasc License Agreement to provide, among other
matters, for the payment to The Cleveland Clinic of certain
royalties for sales of products based on the technology subject
to the ReVasc License Agreement.
76
MICRUS
ENDOVASCULAR CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The Company acquired only pre-regulatory approved technology and
did not assume any other assets or liabilities in connection
with the acquisition of ReVasc. Accordingly, the ReVasc
Agreement has been accounted for as a purchase of in-process
research and development and $3,000,000, representing the
up-front purchase price of $1,000,000 plus future minimum
milestone payments of $2,000,000, was recorded as research and
development expense during fiscal 2008. In March 2008, the
Company paid the first milestone payment of $500,000 to The
Cleveland Clinic. The Company has recorded the remaining minimum
milestone payments of $1,500,000 in accrued liabilities and
other non-current liabilities at March 31, 2008 (see
Note 4).
On December 7, 2007, the Company merged ReVasc into Micrus.
Following the merger, Micrus became the direct recipient of the
license of the revascularization technology from The Cleveland
Clinic under the ReVasc License Agreement.
Biotronik
AG
On January 6, 2006, the Company entered into a License,
Development and Distribution Agreement (the Biotronik
Agreement) with Biotronik, a Swiss corporation, pursuant
to which the Company will collaborate with Biotronik to develop
certain neurovascular products and the Company will be the
exclusive worldwide distributor for neurovascular products.
Pursuant to the terms of the agreement, Biotronik granted to the
Company an exclusive license to certain patents, know-how and
other proprietary technology in the neurovascular field. The
Biotronik Agreement has a term that is perpetual unless earlier
terminated by the parties or by operation of law.
Under the terms of the Biotronik Agreement, the Company paid an
up-front licensing fee of 500,000, or approximately
$610,000, and was required to make milestone payments to
Biotronik upon receipt of approvals to market stent products
jointly developed for the treatment of neurovascular disease and
royalty payments on the products sold. The Company recorded the
up-front licensing fee as research and development expense in
the fiscal year ended March 31, 2006 as there were no
regulatory clearances for a product at that time. In February
2006, Biotronik met the established milestones of the agreement
when it received CE Mark authorization for the
PHAROStm
product intended for both the treatment of aneurysms and the
treatment of ischemic diseases. As a consequence the Company
paid milestone payments to Biotronik of $731,000 and $732,000 in
March and April 2006, respectively. The Company recorded the
milestone payments of $1,463,000 as capitalized licensed
technology at March 31, 2006. Under the terms of this
agreement, there are no future milestone payments to Biotronik
related to the
PHAROStm
stent. The Company capitalized additional costs associated with
the
PHAROStm
stent development of $102,000 in the first quarter of fiscal
2007. The Company commenced amortization of the capitalized
licensed technology in the third quarter of fiscal 2007 when it
began selling the
PHAROStm
product and generating revenue. This capitalized licensed
technology will be amortized over its estimated useful life of
seven years. Additionally, the Company accrued royalty payments
of approximately $20,000 and $34,000 to Biotronik for the
products sold in fiscal 2008 and 2007, respectively and accrued
service fees of $443,000 for new stent products development at
March 31, 2008.
Vascular
FX
On July 28, 2005, the Company entered into a Technology
Transfer Agreement with Vascular FX, a Delaware limited
liability company, pursuant to which the Company purchased the
intellectual property of Vascular FX. The $4,000,000 cash
purchase price included a $1,500,000 payment at closing followed
by milestone payments to be made over time, in addition to
royalty payments on potential future product sales. On January
31 and May 31, 2006, the Company made milestone payments of
$1,000,000 and $1,500,000, respectively. The Company recorded
the initial and milestone payments in the corresponding
accounting periods as research and development expense since
there are currently no FDA approved products being sold and the
intellectual property has no alternative future use. There are
no future milestone payments to Vascular FX under the terms of
the agreement.
77
MICRUS
ENDOVASCULAR CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
Note 4
|
Balance
Sheet Components
|
Inventories
Inventories consisted of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
March 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
Raw materials
|
|
$
|
2,154
|
|
|
$
|
1,862
|
|
Work-in-progress
|
|
|
1,667
|
|
|
|
1,413
|
|
Finished goods
|
|
|
3,002
|
|
|
|
3,005
|
|
Consigned inventory
|
|
|
4,331
|
|
|
|
2,622
|
|
Inventory held by Latin American distributors
|
|
|
341
|
|
|
|
147
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
11,495
|
|
|
$
|
9,049
|
|
|
|
|
|
|
|
|
|
|
Consigned inventory is held at customer locations, primarily
hospitals, and is under the physical control of the customer.
The Company retains title to the inventory until used and
purchased by the customer, generally when used in a medical
procedure.
Inventory held by distributors at March 31, 2008 consists
of $273,000 in inventory that was held by the Companys
Latin American distributors and $68,000 in inventory that was
held by the Companys Chinese distributor. Inventory held
by distributors at March 31, 2007 was all held by the
Companys Latin American distributors.
Property
and equipment
Property and equipment consisted of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
March 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
Computer equipment and software
|
|
$
|
1,728
|
|
|
$
|
1,210
|
|
Furniture, fixtures and equipment
|
|
|
5,403
|
|
|
|
4,701
|
|
Leasehold improvements
|
|
|
1,010
|
|
|
|
936
|
|
Construction in progress
|
|
|
447
|
|
|
|
148
|
|
|
|
|
|
|
|
|
|
|
Total cost
|
|
|
8,588
|
|
|
|
6,995
|
|
Less accumulated depreciation and amortization
|
|
|
(3,303
|
)
|
|
|
(2,347
|
)
|
|
|
|
|
|
|
|
|
|
|
|
$
|
5,285
|
|
|
$
|
4,648
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization expense related to property and
equipment was $1,252,000, $857,000 and $491,000 for the years
ended March 31, 2008, 2007 and 2006, respectively.
78
MICRUS
ENDOVASCULAR CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Goodwill
Activity related to goodwill consisted of the following (in
thousands):
|
|
|
|
|
|
|
|
|
|
|
Years Ended March 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
Balance beginning of year
|
|
$
|
5,552
|
|
|
$
|
3,309
|
|
Addition related to Neurologic earn-out payment
|
|
|
2,997
|
|
|
|
2,243
|
|
|
|
|
|
|
|
|
|
|
Balance end of year
|
|
$
|
8,549
|
|
|
$
|
5,552
|
|
|
|
|
|
|
|
|
|
|
All of the Companys goodwill has been allocated to the
United Kingdom business segment.
Intangible
assets
Intangible assets consisted of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Useful
|
|
|
Gross Carrying Amount
|
|
|
Accumulated Amortization
|
|
|
Net
|
|
|
|
Life
|
|
|
March 31,
|
|
|
|
|
|
|
|
|
March 31,
|
|
|
March 31,
|
|
|
|
|
|
|
|
|
March 31,
|
|
|
March 31,
|
|
|
March 31,
|
|
|
|
(Years)
|
|
|
2007
|
|
|
Additions
|
|
|
Dispositions
|
|
|
2008
|
|
|
2007
|
|
|
(Additions)
|
|
|
Dispositions
|
|
|
2008
|
|
|
2008
|
|
|
2007
|
|
|
Existing process technology
|
|
|
7
|
|
|
$
|
4,590
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
4,590
|
|
|
$
|
(219
|
)
|
|
$
|
(655
|
)
|
|
$
|
|
|
|
$
|
(874
|
)
|
|
$
|
3,716
|
|
|
$
|
4,371
|
|
Distribution agreements
|
|
|
5
|
|
|
|
2,300
|
|
|
|
|
|
|
|
|
|
|
|
2,300
|
|
|
|
(704
|
)
|
|
|
(460
|
)
|
|
|
|
|
|
|
(1,164
|
)
|
|
|
1,136
|
|
|
|
1,596
|
|
Capitalized license fee
|
|
|
7
|
|
|
|
1,565
|
|
|
|
|
|
|
|
|
|
|
|
1,565
|
|
|
|
(112
|
)
|
|
|
(224
|
)
|
|
|
|
|
|
|
(336
|
)
|
|
|
1,229
|
|
|
|
1,453
|
|
Patents microcoil
|
|
|
10
|
|
|
|
1,100
|
|
|
|
|
|
|
|
|
|
|
|
1,100
|
|
|
|
(770
|
)
|
|
|
(110
|
)
|
|
|
|
|
|
|
(880
|
)
|
|
|
220
|
|
|
|
330
|
|
Non-compete agreements
|
|
|
6
|
|
|
|
700
|
|
|
|
|
|
|
|
|
|
|
|
700
|
|
|
|
(177
|
)
|
|
|
(117
|
)
|
|
|
|
|
|
|
(294
|
)
|
|
|
406
|
|
|
|
523
|
|
Customer relationships
|
|
|
5
|
|
|
|
900
|
|
|
|
|
|
|
|
|
|
|
|
900
|
|
|
|
(274
|
)
|
|
|
(180
|
)
|
|
|
|
|
|
|
(454
|
)
|
|
|
446
|
|
|
|
626
|
|
Patents catheter
|
|
|
7
|
|
|
|
300
|
|
|
|
|
|
|
|
(300
|
)
|
|
|
|
|
|
|
(14
|
)
|
|
|
(25
|
)
|
|
|
39
|
|
|
|
|
|
|
|
|
|
|
|
286
|
|
Existing product technology
|
|
|
2
|
|
|
|
260
|
|
|
|
|
|
|
|
(260
|
)
|
|
|
|
|
|
|
(40
|
)
|
|
|
(70
|
)
|
|
|
110
|
|
|
|
|
|
|
|
|
|
|
|
220
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
11,715
|
|
|
$
|
|
|
|
$
|
(560
|
)
|
|
$
|
11,155
|
|
|
$
|
(2,310
|
)
|
|
$
|
(1,841
|
)
|
|
$
|
149
|
|
|
$
|
(4,002
|
)
|
|
$
|
7,153
|
|
|
$
|
9,405
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The disposition of intangible assets in fiscal 2008 resulted
from the Companys sale of assets under the Merit Agreement
(see Note 3).
Amortization of intangible assets included in the results of
operations is as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended March 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
Cost of goods sold
|
|
$
|
974
|
|
|
$
|
385
|
|
|
$
|
|
|
Operating expenses
|
|
|
867
|
|
|
|
879
|
|
|
|
496
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
1,841
|
|
|
$
|
1,264
|
|
|
$
|
496
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The amortization expense of the intangible assets related to
existing technology in the manufacturing process and design of
products resulting from the acquisition of VasCon in the amount
of $750,000 and $273,000 is included in cost of goods sold for
fiscal 2008 and 2007.
The Company started generating revenue from the stent product
associated with the capitalized license technology in the third
quarter of fiscal 2007. The amortization expense related to the
capitalized license technology in the amount of $224,000 and
$112,000 is included in cost of goods sold for fiscal 2008 and
2007.
79
MICRUS
ENDOVASCULAR CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The expected future amortization of intangible assets is as
follows (in thousands):
|
|
|
|
|
For Years Ended March 31,
|
|
Amortization
|
|
|
2009
|
|
$
|
1,746
|
|
2010
|
|
|
1,746
|
|
2011
|
|
|
1,298
|
|
2012
|
|
|
935
|
|
2013
|
|
|
879
|
|
Thereafter
|
|
|
549
|
|
|
|
|
|
|
Total
|
|
$
|
7,153
|
|
|
|
|
|
|
Accruals
Accrued payroll and other related expenses consisted of the
following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
March 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
Accrued bonuses
|
|
$
|
2,642
|
|
|
$
|
2,646
|
|
Accrued salaries
|
|
|
1,071
|
|
|
|
702
|
|
Accrued vacation
|
|
|
1,750
|
|
|
|
1,333
|
|
Accrued commissions
|
|
|
1,660
|
|
|
|
725
|
|
Accrued payroll taxes
|
|
|
807
|
|
|
|
739
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
7,930
|
|
|
$
|
6,145
|
|
|
|
|
|
|
|
|
|
|
Accrued liabilities consisted of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
March 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
Earn-out payment in connection with Neurologic acquisition
|
|
$
|
2,997
|
|
|
$
|
2,232
|
|
Professional fees
|
|
|
1,715
|
|
|
|
1,069
|
|
VAT payable
|
|
|
560
|
|
|
|
438
|
|
Milestone fee to The Cleveland Clinic
|
|
|
500
|
|
|
|
|
|
Accrued travel and entertainment
|
|
|
492
|
|
|
|
218
|
|
Biotronik development costs
|
|
|
443
|
|
|
|
163
|
|
Earn-out payment in connection with VasCon
|
|
|
378
|
|
|
|
|
|
Development costs
|
|
|
288
|
|
|
|
559
|
|
Milestone fee to Genesis
|
|
|
150
|
|
|
|
|
|
Deferred revenue from Japan distribution agreement
|
|
|
113
|
|
|
|
150
|
|
Other
|
|
|
1,795
|
|
|
|
1,384
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
9,431
|
|
|
$
|
6,213
|
|
|
|
|
|
|
|
|
|
|
80
MICRUS
ENDOVASCULAR CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Other
non-current liabilities
Other non-current liabilities consisted of the following (in
thousands):
|
|
|
|
|
|
|
|
|
|
|
March 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
Contingent purchase price (Note 3)
|
|
$
|
1,218
|
|
|
$
|
1,596
|
|
Milestone fee to The Cleveland Clinic
|
|
|
1,000
|
|
|
|
|
|
Deferred revenue from Japan distribution agreement
|
|
|
281
|
|
|
|
375
|
|
Pension plan obligation
|
|
|
82
|
|
|
|
|
|
Other non-current liabilities
|
|
|
173
|
|
|
|
169
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
2,754
|
|
|
$
|
2,140
|
|
|
|
|
|
|
|
|
|
|
On September 30, 2005, the Company entered into a
five-year, exclusive Distribution Agreement with Goodman Co.,
Ltd. (Goodman). Under the terms of the Distribution
Agreement, Goodman will promote and market the Companys
full line of products, as such products are approved, in Japan
and will purchase a minimum of $27,250,000 of such products over
the five year term of the agreement, ranging from $2,000,000
during the fiscal year ended March 31, 2006 to $9,000,000
during the fiscal year ending March 31, 2010. On
September 20, 2007, the Company amended the distribution
agreement with Goodman to, among other thing, extend the
duration of the distribution agreement to six years from the
original date of the distribution agreement. In connection with
the Distribution Agreement, Goodman paid the Company an up-front
cash payment of $750,000 which has been recorded as deferred
revenue. The Company is recognizing the deferred revenue on a
straight-line basis over the six year term of the agreement.
As of March 31, 2008, the Company had federal, state and
foreign net operating loss carryforwards (NOLs) of
approximately $42,500,000, $27,600,000 and $1,600,000,
respectively. The federal NOLs will expire at various dates
beginning in 2012, the state NOLs expire beginning in 2013 and
the foreign NOLs will expire beginning in 2013. The federal and
state loss carryforwards that are attributable to excess tax
deductions from stock option exercises are not included in the
deferred tax assets shown below. The benefit of approximately
$10,100,000 and $6,700,000 of federal and state loss
carryforwards, respectively, will be credited to equity when
realized.
The Company also had federal and state research and development
tax credit carryforwards of approximately $1,200,000 and
$1,100,000 respectively, as of March 31, 2008. The federal
credits will expire beginning in 2012 and the state credits can
be carried forward indefinitely.
The Tax Reform Act of 1986 limits the use of net operating loss
and tax credit carryforwards in the case of an ownership
change of a corporation. An ownership change, as defined,
may restrict utilization of tax attribute carryforwards. The
Company experienced an ownership change, as defined in
Section 382 of the Internal Revenue Code, in May 2002, but
the previously limited net operating loss and tax credit
carryovers have now become available to offset taxable income in
future periods. If an ownership change has occurred subsequent
to May 2002, all net operating loss carryovers and all tax
credit carryovers arising prior to the ownership change would be
subject to limitation in the post change period for US tax
purposes.
Tax filings are based on tax laws which are subject to
significant and varied interpretation. It is often unclear
whether a particular position taken in a tax return will
ultimately be sustained. The Company has reviewed its filing
positions and believes it has adequately accrued for such
uncertainties.
81
MICRUS
ENDOVASCULAR CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The related benefit from income taxes consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended March 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
Current
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
State
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign
|
|
|
|
|
|
|
(63
|
)
|
|
|
(11
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current income tax benefit
|
|
|
|
|
|
|
(63
|
)
|
|
|
(11
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
|
|
|
|
|
|
|
|
|
|
|
State
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign
|
|
|
(194
|
)
|
|
|
(184
|
)
|
|
|
(73
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total deferred income tax benefit
|
|
|
(194
|
)
|
|
|
(184
|
)
|
|
|
(73
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total income tax benefit
|
|
$
|
(194
|
)
|
|
$
|
(247
|
)
|
|
$
|
(84
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Company has incurred net operating losses for both federal
and state purposes since inception and, as a result, the Company
has paid no federal or state income taxes. In fiscal 2008, the
Company recorded an income tax benefit of approximately
$194,000. The net income tax benefit includes a deferred income
tax expense of approximately $72,000 for the Swiss
subsidiarys operating profits and a deferred tax benefit
of approximately $266,000 for the tax effect of the amortization
related to the intangible assets acquired in the Neurologic
transaction which is not deductible and the tax benefit of
operating losses for its United Kingdom subsidiary.
Net deferred tax assets (liabilities) consisted of the following
(in thousands):
|
|
|
|
|
|
|
|
|
|
|
March 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
Deferred tax assets:
|
|
|
|
|
|
|
|
|
Net operating loss carryforwards
|
|
$
|
13,099
|
|
|
$
|
11,511
|
|
Basis difference in fixed assets
|
|
|
2,850
|
|
|
|
2,117
|
|
Accruals deductible in different periods
|
|
|
3,973
|
|
|
|
2,529
|
|
Credit carryforwards
|
|
|
1,755
|
|
|
|
1,620
|
|
|
|
|
|
|
|
|
|
|
Total deferred tax assets
|
|
|
21,677
|
|
|
|
17,777
|
|
Less valuation allowance
|
|
|
(21,419
|
)
|
|
|
(17,750
|
)
|
|
|
|
|
|
|
|
|
|
Net deferred tax asset
|
|
|
258
|
|
|
|
27
|
|
Deferred tax liabilities:
|
|
|
|
|
|
|
|
|
Accruals deductible in different periods
|
|
|
(125
|
)
|
|
|
|
|
Basis difference in fixed and intangible assets
|
|
|
(481
|
)
|
|
|
570
|
|
|
|
|
|
|
|
|
|
|
Total deferred tax liabilities
|
|
|
(606
|
)
|
|
|
(570
|
)
|
|
|
|
|
|
|
|
|
|
Net deferred tax liability
|
|
$
|
(348
|
)
|
|
$
|
(543
|
)
|
|
|
|
|
|
|
|
|
|
The Company has recorded a valuation allowance against its
federal and state deferred tax assets as of March 31, 2008
and 2007, due to the uncertainty surrounding the realization of
such assets. Management evaluates on a periodic basis the
recoverability of deferred tax assets. At such time as it is
determined that it is more likely than not that deferred tax
assets are realizable, the valuation allowance will be reduced.
82
MICRUS
ENDOVASCULAR CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The effective tax rate differs from the United States federal
statutory rate as a result of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended March 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
Income tax benefit at statutory rate
|
|
|
(35
|
)%
|
|
|
(35
|
)%
|
|
|
(35
|
)%
|
State taxes, net of federal benefit
|
|
|
(4
|
)%
|
|
|
(4
|
)%
|
|
|
(3
|
)%
|
In process R&D write-off
|
|
|
7
|
%
|
|
|
|
|
|
|
|
|
Technology acquisition
|
|
|
2
|
%
|
|
|
|
|
|
|
|
|
Non-US income taxed at different rates
|
|
|
1
|
%
|
|
|
(14
|
)%
|
|
|
11
|
%
|
Change in valuation allowance
|
|
|
24
|
%
|
|
|
40
|
%
|
|
|
23
|
%
|
Nondeductible deferred compensation
|
|
|
6
|
%
|
|
|
12
|
%
|
|
|
1
|
%
|
Other
|
|
|
(2
|
)%
|
|
|
(3
|
)%
|
|
|
2
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effective income tax rate
|
|
|
(1
|
)%
|
|
|
(4
|
)%
|
|
|
(1
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The domestic and foreign components of loss before income taxes
were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended March 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
Domestic
|
|
$
|
(15,474
|
)
|
|
$
|
(7,168
|
)
|
|
$
|
(5,709
|
)
|
Foreign
|
|
|
(980
|
)
|
|
|
1,438
|
|
|
|
(2,636
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss before income taxes
|
|
$
|
(16,454
|
)
|
|
$
|
(5,730
|
)
|
|
$
|
(8,345
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effective April 1, 2007, the Company adopted Financial
Accounting Standards Interpretation No. 48
(FIN 48), which requires that the Company
recognize the financial statement effects of a tax position when
it becomes more likely than not, based on the technical merits,
that the position will be sustained upon examination. As a
result of the implementation of FIN 48, the Company
recognized a $192,000 increase in its unrecognized tax benefits.
None was accounted for as an increase in the April 1, 2007
balance of accumulated deficit since the benefit relates to
attribute carryovers for which the related deferred tax asset
was subject to a full valuation allowance. At the adoption date
of April 1, 2007 and at March 31, 2008, the Company
had no accrued interest or penalties related to tax
contingencies. Since the unrecognized tax benefit relates to
attribute carryover for which the related deferred tax asset was
subject to a full valuation allowance, the recognition of the
unrecognized tax benefits will not affect the Companys
effective tax rate. The Company has elected to include interest
and penalties as a component of tax expense. The Company does
not anticipate that the amount of unrecognized tax benefits
relating to tax positions existing at March 31, 2008 will
significantly increase or decrease within the next
12 months. Because of net operating loss and credit
carryforwards, substantially all of the Companys tax
years, dating to inception in 1996, remain open to federal tax
examination. Most state and foreign jurisdictions have 3 to 10
open tax years at any point in time.
The following table summarizes the activity related to the
Companys unrecognized tax benefit for the year ended
March 31, 2008 (in thousands):
|
|
|
|
|
|
|
Amount
|
|
|
Unrecognized tax benefits April 1, 2007
|
|
$
|
192
|
|
Gross increases prior year tax positions
|
|
|
|
|
Gross increases current year tax positions
|
|
|
40
|
|
Settlements with taxing authorities
|
|
|
|
|
Expiration of statute of limitations
|
|
|
|
|
|
|
|
|
|
Unrecognized tax benefits March 31, 2008
|
|
$
|
232
|
|
|
|
|
|
|
83
MICRUS
ENDOVASCULAR CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
Note 6
|
Commitments
and Contingencies
|
Lease
commitments
On June 6, 2005, the Company entered into a non-cancelable
seven-year operating lease agreement (the Lease).
Pursuant to the Lease, the Company has leased approximately
42,000 square feet of building space which is being used as
the Companys headquarters in the United States with both
administrative and manufacturing facilities. The Lease commenced
in January 2006. The lease provides a right to extend the term
for one period of sixty months that may be exercised by the
Company.
The Lease provides for a base rent that increases periodically
and averages approximately $41,445 monthly over the lease
period and is accounted for on a straight-line basis. The Lease
also provides for certain additional payments including the
Companys share of landlords operating expenses,
including project costs, property taxes and overhead management
fees.
On March 11, 2008, the Companys wholly-owned
subsidiary, MDT, entered into a non-cancelable ten-year lease in
Miramar, Florida, which will commence pursuant to the completion
of the building improvements. These improvements are scheduled
to be completed on or before August 31, 2008. MDT has
agreed to contribute approximately $842,000 towards the cost of
those improvements and has paid $56,000 to the landlord prior to
the lease execution. Of the remaining improvement costs,
$393,000 was paid when the lease was executed and the remaining
$393,000 was deposited with the escrow agent. MDT also paid
$101,000 to the broker for services rendered. All of these
payments were recorded in other non-current assets. The facility
comprises a total of approximately 27,000 square feet,
which the Company will use for administrative, clean room,
manufacturing and distribution facilities. The operating lease
provides for a base rent that increases periodically and
averages approximately $17,935 monthly over the lease
period and is accounted for on a straight-line basis. The
operating lease also provides for certain additional payments
including the Companys share of landlords operating
expenses and applicable sales tax.
On December 4, 2007, the Companys wholly owned
subsidiary, Micrus Endovascular SA (Micrus SA),
entered into a non-cancelable eight-year lease for office space
in Switzerland. The office space comprises a total of
approximately 5,500 square feet.
Additionally, the Company leases office space for its
wholly-owned subsidiary, Micrus UK, under non-cancelable lease
agreement with a term through December 2010.
The combined annual rent for Micrus SA and Micrus UK operating
leases is approximately $193,000. The leases also provide for
certain additional payments including the Companys share
of the landlords operating expenses.
Future minimum lease payments are as follows (in thousands):
|
|
|
|
|
|
|
Minimum
|
|
For Years Ended March 31,
|
|
Lease Payments
|
|
|
2009
|
|
$
|
1,022
|
|
2010
|
|
|
1,055
|
|
2011
|
|
|
1,049
|
|
2012
|
|
|
1,027
|
|
2013
|
|
|
954
|
|
Thereafter
|
|
|
2,590
|
|
|
|
|
|
|
Total minimum lease payments
|
|
$
|
7,697
|
|
|
|
|
|
|
Rent expense for the years ended March 31, 2008, 2007 and
2006 was $724,000, $653,000 and $519,000, respectively.
84
MICRUS
ENDOVASCULAR CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Indemnification
In the normal course of business, the Company enters into
contracts and agreements that contain a variety of
representations and warranties and provide for general
indemnification. The Companys exposure under these
agreements is unknown because it involves claims that may be
made against the Company in the future, but have not yet been
made. To date, the Company has not paid any claims or been
required to defend any action related to its indemnification
obligations, and accordingly, the Company has not accrued any
amounts for such indemnification obligations. However, the
Company may record charges in the future as a result of these
indemnification obligations.
Litigation
The Company is from time to time subject to various lawsuits.
The Company does not believe that it is probable that resolution
of pending litigation will have a material adverse effect on the
Companys consolidated financial statements, however the
outcome of litigation is inherently uncertain.
FCPA
investigation
In August 2004, the Company identified certain payments made to
physicians located in France, Germany, Spain and Turkey that are
likely to have violated the Foreign Corrupt Practices Act
(FCPA) and the laws of such countries as well as
possibly the laws of Switzerland, where the Companys Swiss
subsidiary is located. The Companys audit committee
immediately directed internal legal counsel to conduct an
internal investigation into these payments. In September 2004,
the Company voluntarily disclosed to the United States
Department of Justice (DOJ) the factual information
obtained in the Companys internal investigation of
potential violations of the FCPA. In February 2005, the DOJ and
the Company entered into an agreement pursuant to which the DOJ
agreed not to prosecute the Company for conduct disclosed to the
DOJ, provided that the Company accepted responsibility for the
actions of its employees and officers, paid a monetary penalty
of $450,000, continues to cooperate with the DOJ in its
investigation, including the waiver of legal privileges,
establishes policies and procedures to assure compliance with
the FCPA and other relevant bribery laws, retains and pays for
an independent monitor, which shall report to the DOJ for a
period of three years to assure compliance with the agreement
with the DOJ and the Companys implementation and adherence
to FCPA compliance policies and procedures, and cooperates fully
with the DOJ, the independent monitor and the SEC. The monitor
filed his final report with the DOJ in May 2008, and the Company
has agreed to extend the period of the monitorship until
June 20, 2008. The monetary penalty was accrued in fiscal
2005 and was paid in April 2005. The ongoing cost of compliance
with the DOJ agreement is recorded as an operating expense as
incurred.
The payments made to physicians in France, Germany, Spain and
Turkey also may likely have violated the applicable laws in
those foreign jurisdictions and may possibly have violated laws
in Switzerland, where the Companys Swiss subsidiary is
located. The Company is not able to determine at this time what
penalties or other sanctions, if any, authorities in France,
Germany, Spain, or Turkey may impose as a result of such
violations. Such amounts could be material to the financial
position, results of operations or cash flows of the Company.
The Company has been notified by the Swiss Federal Prosecutor
that it does not intend to bring any action or impose any
penalties on the Company relating to its activities in
Switzerland.
Patent
litigation
In September 2004, Boston Scientific Corporation and Target
Therapeutics, Inc., a subsidiary of Boston Scientific
Corporation, (collectively Boston Scientific), filed
a patent infringement suit in the United States District Court
for the Northern District of California, alleging that the
Companys embolic coil products infringe two patents
(United States Patent Nos. 5,895,385 (the 385
Patent) and 6,010,498 (the 498 Patent))
owned by the Regents of the University of California (the
Regents) and exclusively licensed to Boston
Scientific and that this infringement is willful. Sales of the
Companys embolic coil products currently represent
approximately 94%
85
MICRUS
ENDOVASCULAR CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
of the Companys revenues. Boston Scientific is a large,
publicly-traded corporation with significantly greater financial
resources than the Company.
In November 2004, the Company answered Boston Scientifics
complaint and counterclaimed, alleging that Boston
Scientifics embolic coil products, and their use, infringe
three of the Companys patents. In addition, the Company
alleged that Boston Scientific has violated United States
antitrust laws, and has violated certain California state laws
by committing unfair business practices, disparaging its
products, and interfering with its prospective economic
advantage. Each party seeks an injunction preventing the making,
using, selling, offering to sell, importing into the United
States or exporting from the United States, of the others
embolic coil products in the United States, damages for past
infringement, which may be trebled, and payment of its legal
fees and costs. In addition, each party seeks a declaration that
the patents of the other are invalid and not infringed and has
alleged that certain of the asserted patents of the other are
unenforceable due to inequitable conduct.
In January 2005, Boston Scientific filed a motion to dismiss the
Company claims for disparagement, interference with prospective
economic advantage and unfair business practices. That motion
has been fully briefed and oral argument is scheduled for
June 23, 2008
In November 2006, the Company withdrew one of its three asserted
patents from the litigation to pursue a reissue application
filed with the United States Patent and Trademark Office
(USPTO).
A hearing on claim construction was held in June 2007. In March
2008, the Court issued an order construing certain claim terms
of patents that were asserted by Boston Scientific against
Micrus or asserted by Micrus against Boston Scientific. On
April 23, 2008, the district court entered a scheduling
order on future events in this action, including the close of
all discovery on January 26, 2009. A trial date has not
been set by the district court.
Boston Scientific has also been a party in two other lawsuits
against Cordis and Micro Therapeutics, Inc./ev3, Inc./Dendron
GmbH (collectively MTI) in which the two Boston
Scientific patents asserted against the Company are or were also
at issue. An outcome of either of these lawsuits adverse to
Cordis or MTI, and related to the same patent claims Boston
Scientific asserts against the Company, could have an adverse
impact on certain of the Company defenses in its litigation with
Boston Scientific.
According to court records, the Regents, Boston Scientific and
MTI entered into a settlement agreement on March 21, 2008,
and on April 4, 2008 the Regents, Boston Scientific and MTI
dismissed the action, including all claims and counter-claims,
with prejudice.
On January 18, 2008, in the Cordis case, the district court
granted Boston Scientifics motion for summary judgment
that Cordis TRUFILL Detachable Coil System infringed claim
7 of the 385 Patent under the doctrine of equivalents. On
January 25, 2008, the district court granted Boston
Scientifics motion for summary judgment against Cordis
that claims 10 and 35 of the 385 patent, and claims 1, 3,
7, 9, and 10 of the 498 patent, are not invalid for having
been on-sale or in public use before the statutory bar period.
On March 21, 2008, the district court
granted-in-part Boston
Scientifics motion for summary judgment that the 385
patent and 498 patent are not unenforceable for
inequitable conduct. The district court also
denied-in-part Boston
Scientifics motion on the ground that triable issues of
fact remained concerning the patent applicants
representations to the patent examiner during the application
process. The district courts determinations on the
validity and enforceability of the 385 and 498
patents are important because Boston Scientific is asserting
these same patents against the Company in its lawsuit and the
Company is alleging that these patents are invalid and
unenforceable.
In October 2004, Cordis requested ex parte reexamination
of certain claims in Boston Scientifics 385 and
498 patents. In April 2007, the USPTO issued a Notice of
Intent to Issue Ex Parte Reexamination Certificate for the
498 patent, apparently confirming all of the claims of
that patent. In December 2006, the USPTO issued a Notice of
Allowance for the 385 patent in which it apparently
confirmed the patentability of the claims in that patent.
86
MICRUS
ENDOVASCULAR CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The Company is unable at this time to determine the outcome of
any such litigation. If the litigation is protracted or results
in an unfavorable outcome to the Company, the impact to the
financial position, results of operations or cash flows of the
Company could be material.
Securities
litigation
On October 3, 2007, a purported securities class action
complaint (the Complaint) was filed in the United
States District Court for the Southern District of Florida
against the Company and certain of its directors and officers
(the Defendants). The Complaint alleged that the
Company and the individual defendants made materially false
and/or
misleading statements or omissions in violation of the federal
securities laws during the period of February 12, 2007
through September 16, 2007 (the
Class Period). The Complaint sought to recover
damages on behalf of anyone who purchased or otherwise acquired
the Companys stock during the Class Period. On
January 22, 2008, the Court appointed lead class plaintiff,
and on February 6, 2008, plaintiffs filed their
Consolidated Complaint.
On February 26, 2008, the Company filed a Motion to Dismiss
the Consolidated Complaint for failure to state a claim, and on
May 20, 2008 the Court granted the Motion to Dismiss,
giving plaintiffs ten days, until May 30, 2008, to amend
their Complaint. Plaintiffs failed to amend their Complaint, and
on June 6, 2008, the Court dismissed the case with
prejudice.
The Companys Certificate of Incorporation, as amended,
authorizes the Company to issue 1,000,000 shares of
$0.01 par value preferred stock. As of March 31, 2008,
there are no shares of preferred stock issued or outstanding.
Conversion
Upon closing of the Companys IPO, all outstanding shares
of redeemable convertible preferred stock automatically
converted into 7,919,626 shares of common stock.
Redemption
The Companys preferred stock that was outstanding prior to
the IPO was redeemable at the request of the holder on or after
the sixth anniversary of the original issuance dates based upon
certain circumstances. Prior to the closing of the IPO, the
Company was accreting the carrying value of the preferred stock
from the issuance date to the mandatory redemption amount on the
sixth anniversary using the effective interest method through
periodic charges to additional paid-in capital and accumulated
deficit.
Preferred
Stock Warrants
In conjunction with its Series D and D-1 preferred stock
financing in August 2000, the Company issued warrants to
Series D and
Series D-1
stockholders to purchase shares of Series D redeemable
convertible preferred stock (the Series D preferred
stock warrants). The total proceeds of the issuance of the
preferred stock in the financing was allocated between the
relative fair value of the preferred stock and the warrants,
resulting in a discount to the preferred stock which, prior to
the closing of the IPO, was being accreted to its face amount
through periodic charges against additional paid-in capital and
accumulated deficit through the redemption date.
Between April 1, 2005 and the closing of the Companys
IPO, the holders of warrants to purchase 397,068 shares of
Series D preferred stock exercised their warrants. Of these
warrants, the holders of warrants to purchase
365,196 shares elected to net exercise their warrants which
resulted in the issuance of 115,700 shares and no proceeds
to the Company from the exercise of these warrants. Holders of
warrants to purchase 31,872 shares of Series D
preferred stock exercised their warrants providing proceeds to
the Company of approximately $239,000.
87
MICRUS
ENDOVASCULAR CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The warrants to purchase 7,753 shares of Series D
preferred stock that were not exercised prior to the closing of
the IPO expired.
The Companys Certificate of Incorporation, as amended,
authorizes the Company to issue 50,000,000 shares of
$0.01 par value common stock. Each holder of common stock
has the right to one vote and is also entitled to receive
dividends whenever funds are legally available and when declared
by the Board of Directors, subject to the prior rights of
holders of all classes of stock outstanding having priority
rights as to dividends. No dividends have been declared or paid
as of March 31, 2008.
On June 10, 2005, the Company effected a
one-for-2.25
reverse stock split of its preferred and common shares. All
preferred and common share data presented herein have been
restated to retroactively reflect the reverse stock split.
On June 21, 2005, the Company completed an IPO in which it
sold 3,250,000 shares of common stock at $11.00 per share
providing net cash proceeds to the Company of approximately
$33,248,000, net of underwriting discounts and commissions. Upon
the closing of the IPO, all of the Companys outstanding
shares of redeemable convertible preferred stock automatically
converted into 7,919,626 shares of common stock. On
July 6, 2005, the underwriters purchased an additional
250,000 shares of common stock at $11.00 per share pursuant
to their over-allotment option. Together with the over-allotment
shares sold by the Company, cash proceeds to the Company in the
offering were approximately $33,030,000, net of underwriting
discounts and offering expenses.
On July 19, 2006, the Company completed a secondary public
offering in which certain stockholders sold
1,270,211 shares of common stock at the public offering
price of $11.89 per share. On July 19, 2006, the
underwriters purchased 190,531 shares of common stock from
the Company pursuant to the exercise of their over-allotment
option. The Company did not receive any proceeds from the sale
of common stock by the selling stockholders. The total cash
proceeds from the exercise of the over-allotment option were
approximately $2,041,000, net of the underwriting discount and
offering expenses. Common stock offering expenses of $600,000
were incurred by the Company on behalf of the selling
stockholders and were expensed to general and administrative
expense in the second quarter of fiscal 2007.
2003
Common Stock Warrants
In conjunction with the
Series D-3
preferred stock financing in June 2003, the Company issued
warrants to the
Series D-3
stockholders to purchase 666,644 shares of common stock at
an exercise price of $7.52 per share (the 2003 common
stock warrants). The 2003 common stock warrants were to
expire upon the earlier of June 2008 or the closing of an IPO.
Between April 1, 2005 and the closing of the Companys
IPO, the holders of warrants to purchase 664,648 shares of
the Companys common stock exercised their warrants. Of
these warrants, the holders of warrants to purchase
562,520 shares elected to net exercise their warrants which
resulted in the issuance of 178,216 shares of common stock
and no proceeds to the Company from the exercise of these
warrants. Holders of warrants to purchase 102,128 shares of
common stock exercised their 2003 common stock warrants for cash
providing proceeds to the Company of approximately $768,000.
Of the 2003 common stock warrants, there were warrants to
purchase 1,996 shares of common stock that were not
exercised prior to closing of the IPO and expired.
2005
Common Stock Warrants
In conjunction with the Series E preferred stock financing
in February and March of 2005, the Company issued warrants to
purchase common stock of the Company (the 2005 common
stock warrants). The 2005 common stock
88
MICRUS
ENDOVASCULAR CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
warrants were not initially exercisable, but were to become
exercisable for an aggregate of 671,614 shares of common
stock at $9.00 per share if the Company had not closed the IPO
prior to December 31, 2005, or for an adjusted number of
shares (calculated based on the IPO price) with an exercise
price of $0.000225 if the IPO closed prior to December 31,
2005 at a price less than $13.50 per share. Based on the IPO
price of $11.00 per share, the 2005 common stock warrants became
exercisable for an aggregate of 305,272 shares of common
stock at an exercise price of $0.000225 per share.
Between April 1, 2005 and March 31, 2006, warrants to
purchase 289,794 of common stock were exercised. All of these
warrants were exercised at an aggregate exercise price of
$0.000225 per share. Warrants covering an aggregate of
265,537 shares of common stock were exercised without cash.
In most cases the aggregate purchase price was offset by the
value of fractional shares payable upon exercise of such
warrants; however an aggregate of 2 shares were withheld in
payment of the aggregate exercise price of one warrant resulting
in a net issue of 265,535 shares. Warrants covering an
additional 24,259 shares of common stock were exercised for
cash. In fiscal 2007, the remaining warrants to purchase
15,476 shares of common stock at an exercise price of
$0.000225 were exercised.
Prior to the completion of the IPO, the 2005 common stock
warrants were accounted for as a liability and marked to market
at each period-end date. The original aggregate fair value of
these warrants of $3,201,000 was recorded as a liability. Upon
completion of the IPO, the fair value of these warrants was
approximately $3,359,000 and the Company recognized a
non-operating charge of $158,000 in the quarter ended
June 30, 2005. Following the completion of the IPO, these
warrants were accounted for as a component of stockholders
equity. Subsequent changes in the fair value of these warrants
were not reflected in income.
The difference between the proceeds allocated to the
Series E preferred stock and the estimated fair value of
the common stock issuable upon conversion resulted in a
beneficial conversion feature on the Series E preferred
stock which was recorded as a reduction to the Series E
preferred stock and an increase to additional
paid-in-capital.
The total beneficial conversion feature was $383,000 which,
prior to the IPO, was being amortized as a reduction of net loss
available to common stockholders over the period of redemption
of the Series E preferred stock. Upon completion of the
IPO, the Company recorded a charge of $383,000 for the
beneficial conversion feature in the quarter ended June 30,
2005.
|
|
Note 9
|
Stock
Option Plans and Other Employee Benefits
|
Stock
Option Plans
The Companys stock option program is a long-term retention
program that is intended to attract, retain and provide
incentives for talented employees, officers and directors, and
to align stockholder and employee interests. The Company
considers the stock option program critical to its operations
and productivity. As of March 31, 2008, the Company has
three stock option plans: the 1996 Stock Option Plan (the
1996 Plan), the 1998 Stock Plan (the 1998
Plan), and the 2005 Equity Incentive Plan (the 2005
Plan). Currently, the Company grants options from the 2005
Plan, which permits the Company to grant options to all
employees, including executive officers, and outside
consultants, and directors. Effective June 16, 2005, no new
options may be granted under the 1996 plan or the 1998 Plan.
Stock options issued under the Companys stock option plans
generally vest based on 4 years of continuous service and
have ten-year contractual terms.
1996
Stock Option Plan
As of June 16, 2005, no new stock option grants were
permitted under the 1996 Plan. There are no outstanding options
under the 1996 Plan and, as of the effectiveness of the
Companys IPO, there were no outstanding options under the
1996 Plan.
89
MICRUS
ENDOVASCULAR CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
1998
Stock Plan
As of June 16, 2005, no new stock option grants were
permitted under the 1998 Plan. However, all options previously
granted under the 1998 Plan continue to be administered under
the 1998 Plan. As of March 31, 2008, options to purchase
1,083,967 shares of common stock were outstanding under the
1998 Plan.
2005
Equity Incentive Plan
The 2005 Plan became effective upon the Companys IPO. The
2005 Plan provides for the issuance of stock options, stock
appreciation rights, stock awards (stock and stock units) and
cash awards. The Company initially reserved a total of
2,395,020 shares of its common stock for issuance under the
2005 Plan. In addition, the 2005 Plan provides for an automatic
annual increase in the number of shares reserved for issuance
there under on each April 1 by an amount equal to the lesser of
(i) 5% of the Companys total number of outstanding
shares on the immediately preceding March 31;
(ii) 666,666 shares, or (iii) a number of shares
determined by the Companys Board of Directors. The shares
reserved under the 2005 Plan will also be increased as a result
of the forfeiture or repurchase of shares issued under the 1998
Plan and the cancellation of unexercised options under the 1998
Plan. As of March 31, 2008, there were 3,643,808 remaining
shares reserved for issuance under the 2005 Plan, of which
1,064,417 were available for grant, 2,572,725 shares were
subject to outstanding options and 6,666 shares were
subject to outstanding restricted stock units.
Acceleration
Agreements
On January 29, 2008, the Company entered into agreements
with certain executive officers (the Accelerated
Employees) to fully accelerate the vesting of options to
purchase its common stock issued under the Companys 2005
Equity Incentive Plan
and/or 1998
Stock Plan and held by such Accelerated Employees if, within the
period 3 months prior to or 12 months following a
change of control of the Company or sale of substantially all of
the Companys assets, an Accelerated Employee ceases being
employed by the Company because either such Accelerated Employee
is involuntary terminated by the Company (or any subsidiary)
without cause or such Accelerated Employee
voluntarily quits within 60 days of an event which
constitutes good reason.
2005
Employee Stock Purchase Plan
The 2005 Employee Stock Purchase Plan (the Purchase
Plan) became effective upon the Companys IPO. The
Purchase Plan provides employees with an opportunity to purchase
the Companys common stock through accumulated payroll
deductions.
The Company initially reserved a total of 222,222 shares of
common stock for issuance under the Purchase Plan. The Purchase
Plan provides for annual increases in the total number of shares
available for issuance under this plan on April 1st of
each year beginning on April 1, 2006, by a number of shares
that is equal to the lesser of: (1) 2% of the outstanding
shares of the Companys common stock on the immediately
preceding March 31st; (2) 222,222 shares; or
(3) a lesser number determined by the Companys Board
of Directors. As of March 31, 2008, there were
456,350 shares reserved for issuance under the Purchase
Plan.
The Purchase Plan permits participants to purchase the
Companys common stock through payroll deductions of up to
15% of the participants compensation, provided that no
participant may purchase shares with a value that exceeds
$25,000 per year, or more than 1,111 shares per purchase
period. Amounts deducted and accumulated for the
participants account are used to purchase shares of the
Companys common stock on the last trading day of each
purchase period at a price of at least 85% of the lesser of the
fair market values of the common stock at the beginning of the
offering period or at the end of the purchase period.
The Purchase Plan provides for offering periods of
12 months and purchase periods of 6 months or such
shorter period as may be established by the Companys Board
of Directors. The offering periods start on
April 1st and October 1st of each year.
During the year ended March 31, 2008, there were
92,598 shares issued at a purchase price
90
MICRUS
ENDOVASCULAR CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
ranging from $10.51 to $15.53 per share and during the year
ended March 31, 2007, there were 77,564 shares issued
at a purchase price ranging from $8.25 to $11.93 per share under
the Purchase Plan.
Stock-Based
Compensation
On April 1, 2006, the Company adopted the provisions of
SFAS 123R. Under the fair value recognition provisions of
this statement, stock-based compensation cost is measured at the
grant date based on the fair value of the award and is
recognized as expense on a straight-line basis over the
requisite service period, which is generally the vesting period.
The Company currently uses the Black-Scholes option pricing
model to determine the fair value of employee stock options and
employee stock purchase plan shares. The Black-Scholes model
determines the fair value of stock-based payment awards on the
date of grant using an option pricing model and based upon the
Companys stock price as well as by assumptions regarding a
number of complex and subjective variables. These variables
include the Companys expected stock price volatility over
the term of the awards, actual and projected employee stock
option exercise behaviors, risk-free interest rate and expected
dividends.
Because there is insufficient historical information available
to estimate the expected term of the stock-based awards, the
Company adopted the simplified method for estimating the
expected term pursuant to Staff Accounting
Bulletin No. 107 (SAB 107), and
extended by SAB 110. SAB 110 permits the use of the
simplified method under certain conditions including
a companys inability to rely on historical exercise data.
On this basis, the Company estimated the expected term of
options granted by taking the average of the vesting term and
the contractual term of the option. The Company will continue to
use the simplified method until it has sufficient historical
exercise data to provide a reasonable basis upon which to
estimate the expected term of its options.
The expected volatility used in the valuation model is based on
the Companys peer group in the industry in which it does
business and the Companys historical volatility since its
IPO.
The risk-free interest rate is based on the yield on zero-coupon
United States Treasury securities with remaining terms similar
to the expected term on the employee stock option and employee
stock purchase plan awards.
The Company does not anticipate paying any cash dividends in the
foreseeable future and therefore uses an expected dividend yield
of zero in the option valuation model.
The Company is required to estimate forfeitures at the time of
grant and revise those estimates in subsequent periods if actual
forfeitures differ from those estimates. The Company uses
historical data to estimate pre-vesting option forfeitures and
record stock-based compensation expense only for those awards
that are expected to vest. All stock-based payment awards are
amortized on a straight-line basis over the requisite service
periods of the awards, which are generally the vesting periods.
91
MICRUS
ENDOVASCULAR CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The determination of the fair value of employee stock options
and employee stock purchase plan shares has been estimated using
the following weighted-average assumptions:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended March 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
Employee Stock Option Plans
|
|
|
|
|
|
|
|
|
|
|
|
|
Expected term (in years)
|
|
|
6
|
|
|
|
6
|
|
|
|
4
|
|
Volatility
|
|
|
42
|
%
|
|
|
44
|
%
|
|
|
44
|
%
|
Risk-free interest rate
|
|
|
4.0
|
%
|
|
|
4.7
|
%
|
|
|
4.3
|
%
|
Expected dividend yield
|
|
|
0
|
%
|
|
|
0
|
%
|
|
|
0
|
%
|
Weighted average fair value at date of grant
|
|
$
|
9.13
|
|
|
$
|
8.30
|
|
|
$
|
3.69
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Employee Stock Purchase Plan
|
|
|
|
|
|
|
|
|
|
|
|
|
Expected term (in years)
|
|
|
0.5
|
|
|
|
0.5
|
|
|
|
0.5
|
|
Volatility
|
|
|
43
|
%
|
|
|
45
|
%
|
|
|
44
|
%
|
Risk-free interest rate
|
|
|
3.9
|
%
|
|
|
5.1
|
%
|
|
|
4.2
|
%
|
Expected dividend yield
|
|
|
0
|
%
|
|
|
0
|
%
|
|
|
0
|
%
|
The fair value of each purchase right granted under the
Companys Purchase Plan during the year ended
March 31, 2008, 2007 and 2006 was estimated at the date of
grant using the Black-Scholes option pricing model, and is not
subject to revaluation as a result of subsequent stock price
fluctuations.
The stock-based compensation expense related to SFAS 123R
is as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
Years Ended March 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
Cost of goods sold
|
|
$
|
457
|
|
|
$
|
193
|
|
Research and development
|
|
|
533
|
|
|
|
203
|
|
Sales and marketing
|
|
|
1,312
|
|
|
|
684
|
|
General and administrative
|
|
|
2,489
|
|
|
|
1,124
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
4,791
|
|
|
$
|
2,204
|
|
|
|
|
|
|
|
|
|
|
Additionally, approximately $51,000 and $89,000 in stock-based
compensation expense related to SFAS 123R has been
capitalized in inventory at March 31, 2008 and 2007,
respectively.
As of March 31, 2008, there was approximately $13,491,000
of total stock-based compensation expense, after estimated
forfeitures, related to unvested employee stock options and
restricted stock units, which is expected to be recognized over
an estimated weighted average amortization period 2.6 years.
Stock-based compensation expense recognized for the years ended
March 31, 2008, 2007 and 2006 related to the amortization
of deferred stock-based compensation was $163,000, $213,000 and
$229,000, respectively. The aggregate deferred stock
compensation charge was reduced during fiscal 2007 and 2006 by
approximately $20,000 and $4,000, respectively, due to the
cancellations and vesting accelerations of stock options.
In previous years, certain stock options were issued to
non-employees, generally in exchange for consulting services
related to patient studies or marketing analysis. These stock
options were recorded at their fair value on the date of vesting
and recognized over the respective service or vesting period.
The fair value of the stock options
92
MICRUS
ENDOVASCULAR CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
granted was calculated at each reporting date using the
Black-Scholes option pricing model using the following
assumptions:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended March 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
Expected term (in years)
|
|
|
5
|
|
|
|
5
|
|
|
|
6
|
|
Volatility
|
|
|
40
|
%
|
|
|
42
|
%
|
|
|
45
|
%
|
Risk-free interest rate
|
|
|
4.8
|
%
|
|
|
4.7
|
%
|
|
|
4.4
|
%
|
Expected dividend yield
|
|
|
0
|
%
|
|
|
0
|
%
|
|
|
0
|
%
|
Stock-based compensation expense recognized for the years ended
March 31, 2008, 2007 and 2006 related to non-employee
options was $4,000, $157,000 and $160,000, respectively. All
non-employee options are fully-vested as of March 31, 2008.
Total stock-based compensation expense included in results of
operations is as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended March 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
Cost of goods sold
|
|
$
|
471
|
|
|
$
|
218
|
|
|
$
|
26
|
|
Research and development
|
|
|
533
|
|
|
|
222
|
|
|
|
22
|
|
Sales and marketing
|
|
|
1,325
|
|
|
|
802
|
|
|
|
169
|
|
General and administrative
|
|
|
2,629
|
|
|
|
1,332
|
|
|
|
172
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
4,958
|
|
|
$
|
2,574
|
|
|
$
|
389
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Periods
prior to the adoption of SFAS 123R
SFAS 123R requires the Company to present pro forma
information for the comparative period prior to the adoption as
if it had accounted for all of its stock options under the fair
value method of SFAS 123.
The following table sets forth the pro forma amounts regarding
the effect on net loss and net loss per share for the year ended
March 31, 2006 that would have resulted if the Company had
accounted for its employee stock plans under the fair value
provisions of SFAS 123:
|
|
|
|
|
|
|
Years Ended
|
|
|
|
March 31, 2006
|
|
|
Net loss attributable to common stockholders (as reported)
|
|
$
|
(8,920
|
)
|
Add: Stock-based employee compensation expenses included in
reported net loss
|
|
|
229
|
|
Deduct: Total stock-based employee compensation expenses
determined under fair value based method for all awards
|
|
|
(829
|
)
|
|
|
|
|
|
Adjusted net loss attributable to common stockholders
|
|
$
|
(9,520
|
)
|
|
|
|
|
|
Net loss per common share attributable to common stockholders,
basic and diluted:
|
|
|
|
|
As reported
|
|
$
|
(0.79
|
)
|
Adjusted
|
|
$
|
(0.85
|
)
|
General stock option information
93
MICRUS
ENDOVASCULAR CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The following table sets forth the summary of option activity
for the year ended March 31, 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-
|
|
|
|
|
|
|
|
|
|
Weighted-
|
|
|
Average
|
|
|
|
|
|
|
|
|
|
Average
|
|
|
Remaining
|
|
|
|
|
|
|
|
|
|
Exercise
|
|
|
Contractual
|
|
|
Aggregate
|
|
|
|
Shares
|
|
|
Price
|
|
|
Term
|
|
|
Intrinsic Value
|
|
|
|
|
|
|
|
|
|
(In years)
|
|
|
(In thousands)
|
|
|
Options outstanding at March 31, 2007
|
|
|
3,182
|
|
|
$
|
10.71
|
|
|
|
|
|
|
|
|
|
Options granted
|
|
|
989
|
|
|
$
|
19.59
|
|
|
|
|
|
|
|
|
|
Options exercised
|
|
|
(270
|
)
|
|
$
|
7.98
|
|
|
|
|
|
|
|
|
|
Options forfeited
|
|
|
(211
|
)
|
|
$
|
15.86
|
|
|
|
|
|
|
|
|
|
Options expired
|
|
|
(34
|
)
|
|
$
|
11.16
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options outstanding at March 31, 2008
|
|
|
3,656
|
|
|
$
|
13.02
|
|
|
|
8.0
|
|
|
$
|
9,028
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options exercisable at March 31, 2008
|
|
|
1,674
|
|
|
$
|
9.15
|
|
|
|
7.1
|
|
|
$
|
7,254
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The total aggregate intrinsic value of options exercised during
the years ended March 31, 2008, 2007 and 2006 was
$3,482,000, $8,546,000 and $5,804,000, respectively. The closed
market value per share of the Companys common stock as of
March 31, 2008 was $12.36 as reported by The NASDAQ Stock
Market.
The following table sets forth the summary of restricted stock
units activity for the year ended March 31, 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-
|
|
|
|
|
|
|
|
|
|
Weighted-
|
|
|
Average
|
|
|
|
|
|
|
|
|
|
Average
|
|
|
Remaining
|
|
|
|
|
|
|
|
|
|
Purchase
|
|
|
Contractual
|
|
|
Aggregate
|
|
|
|
Shares
|
|
|
Price
|
|
|
Term
|
|
|
Intrinsic Value
|
|
|
|
|
|
|
|
|
|
(In years)
|
|
|
(In thousands)
|
|
|
Non-vested restricted stock units at March 31, 2007
|
|
|
10
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
Awarded
|
|
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
Released
|
|
|
(3
|
)
|
|
$
|
|
|
|
|
|
|
|
|
|
|
Forfeited
|
|
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-vested restricted stock units at March 31, 2008
|
|
|
7
|
|
|
$
|
|
|
|
|
0.8
|
|
|
$
|
82
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
401(k)
Savings Plan
The Company has a 401(k) income deferral plan (the 401(k)
Plan). Eligible participants may contribute up to 75% of
their pretax salary up to the maximum allowed under Internal
Revenue Service regulations. According to the terms of the
401(k) Plan, the Company may make discretionary matching
contributions to the 401(k) Plan each year, allocable to all
plan participants. The Company made no discretionary
contributions during the years ended March 31, 2008, 2007
and 2006.
Defined
Benefit Plan
The Company has a qualified defined benefit pension plan for all
eligible Swiss employees at its wholly-owned subsidiary in
Switzerland, Micrus Endovascular SA. Retirement benefits are
provided based on employees years of service and earnings,
or in accordance with applicable employee benefit regulations.
The Companys practice is to fund amounts sufficient to
meet the requirements set forth in the applicable employee
benefit and tax regulations.
Net pension costs for fiscal years 2008 was $169,000. The net
pension liability recognized at March 31, 2008 was $82,000,
which is included in other non-current liabilities on the
consolidated balance sheet. As of the plans measurement
date of March 31, 2008, the fair value of plan assets was
$517,000 and the projected benefit obligation was $599,000.
94
MICRUS
ENDOVASCULAR CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Revenues from unaffiliated customers by geographic area, based
on the customers shipment locations were as follows (in
thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended March 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
United States
|
|
$
|
33,753
|
|
|
$
|
28,868
|
|
|
$
|
15,531
|
|
Japan
|
|
|
6,250
|
|
|
|
8,661
|
|
|
|
2,228
|
|
United Kingdom
|
|
|
9,100
|
|
|
|
6,448
|
|
|
|
4,498
|
|
Rest of the world
|
|
|
20,110
|
|
|
|
14,818
|
|
|
|
10,524
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
$
|
69,213
|
|
|
$
|
58,795
|
|
|
$
|
32,781
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Companys long lived assets by geographic area (in
thousands):
|
|
|
|
|
|
|
|
|
|
|
March 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
United States
|
|
$
|
4,907
|
|
|
$
|
4,342
|
|
United Kingdom
|
|
|
124
|
|
|
|
120
|
|
Rest of the world
|
|
|
254
|
|
|
|
186
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
5,285
|
|
|
$
|
4,648
|
|
|
|
|
|
|
|
|
|
|
The Company identifies its operating segments based on how
management views and evaluates the Companys operations,
which is primarily based on geographic location. As of
March 31, 2008, the Company has determined it operates in
four business segments, the Americas, Europe (excluding the
United Kingdom), the United Kingdom and Asia Pacific. The
products and services sold by each segment are substantially the
same and the Company evaluates performance and allocates
resources primarily based on revenues and gross profit. In
previous years, the Companys Europe (excluding the United
Kingdom) and the United Kingdom segments were aggregated as a
single business segment. Previous year information in the tables
that follow have been restated to conform with the current year
classification.
Revenues and gross profit for these segments were as follows (in
thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended March 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
Americas
|
|
$
|
37,565
|
|
|
$
|
31,618
|
|
|
$
|
17,381
|
|
Europe (excluding the United Kingdom)
|
|
|
15,095
|
|
|
|
11,226
|
|
|
|
8,034
|
|
United Kingdom
|
|
|
9,100
|
|
|
|
6,448
|
|
|
|
4,498
|
|
Asia Pacific
|
|
|
7,453
|
|
|
|
9,503
|
|
|
|
2,868
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
69,213
|
|
|
$
|
58,795
|
|
|
$
|
32,781
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross Profit:
|
|
|
|
|
|
|
|
|
|
|
|
|
Americas
|
|
$
|
29,621
|
|
|
$
|
25,426
|
|
|
$
|
13,123
|
|
Europe (excluding the United Kingdom)
|
|
|
10,552
|
|
|
|
7,310
|
|
|
|
5,167
|
|
United Kingdom
|
|
|
7,012
|
|
|
|
4,638
|
|
|
|
3,069
|
|
Asia Pacific
|
|
|
4,727
|
|
|
|
6,060
|
|
|
|
1,712
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
51,912
|
|
|
$
|
43,434
|
|
|
$
|
23,071
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
95
MICRUS
ENDOVASCULAR CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Total assets by operating segments at March 31, 2008 and
2007 were as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
March 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
Americas
|
|
$
|
52,043
|
|
|
$
|
56,507
|
|
Europe (excluding the United Kingdom)
|
|
|
7,265
|
|
|
|
5,479
|
|
United Kingdom
|
|
|
13,024
|
|
|
|
11,111
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
72,332
|
|
|
$
|
73,097
|
|
|
|
|
|
|
|
|
|
|
|
|
Note 11
|
Subsequent
Events
|
In April 2008, the Company entered into a co-development
agreement with Chemence Medical Products, Inc.
(Chemence) to jointly develop a liquid embolic
product for the treatment of cerebral aneurysms using
Chemences cyanoacrylate technology, development
capabilities and intellectual property. The Company will be
responsible for overseeing the regulatory and clinical process
and will be the exclusive worldwide distributor for the
neurovascular product developed based on this collaborative
agreement. Under the terms of the agreement, the Company has
made an up-front payment of $100,000 to Chemence and will make
additional payments of up to $200,000 upon achieving certain
development milestones.
|
|
Note 12
|
Quarterly
Financial Information (unaudited)
|
The following table represents certain unaudited quarterly
information for the eight quarters ended March 31, 2008. In
managements opinion, this information has been prepared on
the same basis as the audited financial statements and includes
all the adjustments necessary to fairly state the unaudited
quarterly results of operations set forth herein.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First
|
|
|
Second
|
|
|
Third
|
|
|
Fourth
|
|
|
|
Quarter
|
|
|
Quarter
|
|
|
Quarter
|
|
|
Quarter
|
|
|
|
(In thousands, except per share amounts)
|
|
|
2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
16,790
|
|
|
$
|
14,362
|
|
|
$
|
18,343
|
|
|
$
|
19,718
|
|
Gross profit
|
|
$
|
13,055
|
|
|
$
|
11,211
|
|
|
$
|
13,294
|
|
|
$
|
14,352
|
|
Net loss attributable to common stockholders
|
|
$
|
(1,393
|
)
|
|
$
|
(3,012
|
)
|
|
$
|
(5,704
|
)
|
|
$
|
(6,151
|
)
|
Net loss per share attributable to common stockholders basic and
diluted
|
|
$
|
(0.09
|
)
|
|
$
|
(0.20
|
)
|
|
$
|
(0.37
|
)
|
|
$
|
(0.40
|
)
|
2007:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
12,683
|
|
|
$
|
14,527
|
|
|
$
|
15,544
|
|
|
$
|
16,041
|
|
Gross profit
|
|
$
|
9,421
|
|
|
$
|
10,633
|
|
|
$
|
11,352
|
|
|
$
|
12,028
|
|
Net loss attributable to common stockholders
|
|
$
|
(2,959
|
)
|
|
$
|
(151
|
)
|
|
$
|
(1,002
|
)
|
|
$
|
(1,371
|
)
|
Net loss per share attributable to common stockholders basic and
diluted
|
|
$
|
(0.21
|
)
|
|
$
|
(0.01
|
)
|
|
$
|
(0.07
|
)
|
|
$
|
(0.09
|
)
|
2006:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
7,112
|
|
|
$
|
6,130
|
|
|
$
|
8,092
|
|
|
$
|
11,447
|
|
Gross profit
|
|
$
|
4,993
|
|
|
$
|
4,401
|
|
|
$
|
5,676
|
|
|
$
|
8,001
|
|
Net loss attributable to common stockholders
|
|
$
|
(1,897
|
)
|
|
$
|
(2,831
|
)
|
|
$
|
(1,652
|
)
|
|
$
|
(2,540
|
)
|
Net loss per share attributable to common stockholders basic and
diluted
|
|
$
|
(0.70
|
)
|
|
$
|
(0.20
|
)
|
|
$
|
(0.12
|
)
|
|
$
|
(0.18
|
)
|
96
|
|
Item 9.
|
Changes
in and Disagreements with Accountants on Accounting and
Financial Disclosure.
|
None
|
|
Item 9A.
|
Controls
and Procedures.
|
|
|
(a)
|
Evaluation
of disclosure controls and procedures.
|
With the participation of our Chief Executive Officer
(CEO) and Chief Financial Officer (CFO),
management has evaluated the effectiveness of our disclosure
controls and procedures (as defined in
Rule 13a-15(e)
and
15d-15(e)
under the Securities Exchange Act of 1934) as of the end of
the period covered by this report. Based on such evaluation, our
CEO and CFO have concluded that, as of the end of such period,
our disclosure controls and procedures are effective.
|
|
(b)
|
Managements
report on internal control over financial
reporting.
|
Our management is responsible for establishing and maintaining
adequate internal control over financial reporting, as such term
is defined in Exchange Act
Rules 13a-15(f)
and
15d-15(f),
to provide reasonable assurance regarding the reliability of our
financial reporting and the preparation of financial statements
for external purposes in accordance with United States generally
accepted accounting principles. Under the supervision and with
the participation of our management, including our CEO and CFO,
we conducted an evaluation of the design and operational
effectiveness of our internal control over financial reporting
as of March 31, 2008 based on the framework in Internal
Control Integrated Framework issued by the
Committee of Sponsoring Organizations of the Treadway Commission
(COSO).
Our management, including the CEO and CFO, does not expect our
disclosure controls or our internal control over financial
reporting will prevent or detect all errors or all fraud. A
control system, no matter how well designed and operated, can
provide only reasonable, not absolute, assurance that the
control systems objectives will be met. The design of a
control system must reflect the fact that there are resource
constraints, and the benefits of controls must be considered
relative to their costs. Further, because of the inherent
limitations in all control systems, no evaluation of controls
can provide absolute assurance that misstatements due to error
or fraud will not occur or that all control issues and instances
of fraud, if any, within the company have been detected. These
inherent limitations include the realities that judgments in
decision-making can be faulty and that breakdowns can occur
because of simple error or mistake. Controls can also be
circumvented by the individual acts of some persons, by
collusion of two or more people, or by management override of
the controls. The design of any system of controls is based in
part on certain assumptions about the likelihood of future
events, and there can be no assurance that any design will
succeed in achieving its stated goals under all potential future
conditions. Projections of any evaluation of controls
effectiveness to future periods are subject to risks. Over time,
controls may become inadequate because of changes in conditions
or deterioration in the degree of compliance with policies or
procedures.
Based on our evaluation utilizing the criteria set forth in
Internal Control Integrated Framework issued by
COSO, our management (including our CEO and CFO) concluded
that our internal control over financial reporting was effective
as of March 31, 2008. Managements assessment of the
effectiveness of our internal control over financial reporting
as of March 31, 2008 has been audited by
PricewaterhouseCoopers LLP, an independent registered public
accounting firm, as stated in their report included at
Item 8 in this Annual Report on
Form 10-K.
|
|
(c)
|
Changes
in internal control over financial reporting.
|
There have not been any changes in our internal control over
financial reporting (as defined in
Rule 13a-15(f)
and
15d-15(f)
under the Securities Exchange Act of 1934) during the
fourth quarter of our fiscal year ended March 31, 2008 that
have materially affected, or are reasonably likely to materially
affect, our internal control over financial reporting.
|
|
Item 9B.
|
Other
Information.
|
None
97
PART III
|
|
Item 10.
|
Directors,
Executive Officers and Corporate Governance.
|
Information required by this item is incorporated by reference
to the Micrus Proxy Statement for the 2008 Annual Meeting of
Stockholders.
|
|
Item 11.
|
Executive
Compensation.
|
Information required by this item is incorporated by reference
to the Micrus Proxy Statement for the 2008 Annual Meeting of
Stockholders.
|
|
Item 12.
|
Security
Ownership of Certain Beneficial Owners and Management and
Related Stockholder Matters
|
Information required by this item is incorporated by reference
to the Micrus Proxy Statement for the 2008 Annual Meeting of
Stockholders
|
|
Item 13.
|
Certain
Relationships and Related Transactions, and Director
Independence.
|
Information required by this item is incorporated by reference
to the Micrus Proxy Statement for the 2008 Annual Meeting of
Stockholders.
|
|
Item 14.
|
Principal
Accountant Fees and Services.
|
Information required by this item is incorporated by reference
to the Micrus Proxy Statement for the 2008 Annual Meeting of
Stockholders.
PART IV
|
|
Item 15.
|
Exhibits
and Financial Statement Schedules.
|
(a) The following documents are filed as part of this
Annual Report on
Form 10-K:
(1) Financial Statements. The following
statements of Micrus Endovascular Corporation and the report of
PricewaterhouseCoopers LLP, Independent Registered Public
Accounting Firm, are included in Part II, Item 8.
(2) Financial Statement Schedules. The
following schedule is required to be filed by Item 15(b).
Schedule II Valuation and Qualifying Accounts
for each of the three years in the period ended March 31,
2008
All other schedules have been omitted because they are either
inapplicable or the required information has been provided in
the consolidated financial statements or the notes thereto.
(b) Exhibits. The list of exhibits on the
Index to Exhibits on pages 102 through 103 of this report is
incorporated herein by reference.
98
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, Micrus Endovascular Corporation
has duly caused this report to be signed on its behalf by the
undersigned, thereto duly authorized.
MICRUS ENDOVASCULAR CORPORATION
John T. Kilcoyne
Chairman and Chief Executive Officer
Date: June 12, 2008
POWERS OF
ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose
signature appears below constitutes and appoints John T.
Kilcoyne and Gordon T. Sangster, and each of them, his true and
lawful attorneys-in-fact and agents with full power of
substitution, for him and in his name, place and stead, in any
and all capacities, to sign any amendments to this Report on
Form 10-K
and to file the same, with exhibits thereto and other documents
in connection therewith with the Securities and Exchange
Commission, hereby ratifying and confirming all that each of
said attorneys-in-fact, or his substitute or substitutes may do
or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of
1934, this
Form 10-K
has been signed by the following persons in the capacities and
on the dates indicated:
|
|
|
|
|
|
|
Signatures
|
|
Title
|
|
Date
|
|
|
|
|
|
|
/s/ JOHN
T. KILCOYNE
John
T. Kilcoyne
|
|
Chairman and Chief Executive Officer (Principal Executive
Officer)
|
|
June 12, 2008
|
|
|
|
|
|
/s/ GORDON
T. SANGSTER
Gordon
T. Sangster
|
|
Chief Financial Officer (Principal Financial and Accounting
Officer)
|
|
June 12, 2008
|
|
|
|
|
|
/s/ MICHAEL
R. HENSON
Michael
R. Henson
|
|
Director
|
|
June 12, 2008
|
|
|
|
|
|
/s/ MICHAEL
EAGLE
Michael
Eagle
|
|
Director
|
|
June 12, 2008
|
|
|
|
|
|
/s/ L.
NELSON HOPKINS
L.
Nelson Hopkins, M.D.
|
|
Director
|
|
June 12, 2008
|
|
|
|
|
|
/s/ FRED
HOLUBOW
Fred
Holubow
|
|
Director
|
|
June 12, 2008
|
|
|
|
|
|
/s/ FRANCIS
J. SHAMMO
Francis
J. Shammo
|
|
Director
|
|
June 12, 2008
|
99
|
|
|
|
|
|
|
Signatures
|
|
Title
|
|
Date
|
|
|
|
|
|
|
/s/ JEFFREY
H. THIEL
Jeffrey
H. Thiel
|
|
Director
|
|
June 12, 2008
|
|
|
|
|
|
/s/ GREGORY
H. WOLF
Gregory
H. Wolf
|
|
Director
|
|
June 12, 2008
|
100
Schedule II
Valuation and Qualifying Accounts
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at
|
|
|
Additions/
|
|
|
|
|
|
|
|
|
|
Beginning
|
|
|
Charged to
|
|
|
|
|
|
Balance at
|
|
|
|
of Year
|
|
|
Expenses
|
|
|
Deduction
|
|
|
End of Year
|
|
|
|
(In thousands)
|
|
|
Allowance for Doubtful Accounts
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended March 31, 2008
|
|
$
|
234
|
|
|
$
|
(145
|
)
|
|
$
|
6
|
|
|
$
|
95
|
|
Year Ended March 31, 2007
|
|
$
|
317
|
|
|
$
|
(84
|
)
|
|
$
|
1
|
|
|
$
|
234
|
|
Year Ended March 31, 2006
|
|
$
|
230
|
|
|
$
|
102
|
|
|
$
|
(15
|
)
|
|
$
|
317
|
|
Valuation allowance deferred tax assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended March 31, 2008
|
|
$
|
17,750
|
|
|
$
|
3,669
|
|
|
$
|
|
|
|
$
|
21,419
|
|
Year Ended March 31, 2007
|
|
$
|
16,078
|
|
|
$
|
1,936
|
|
|
$
|
(264
|
)
|
|
$
|
17,750
|
|
Year Ended March 31, 2006
|
|
$
|
16,731
|
|
|
$
|
|
|
|
$
|
(653
|
)
|
|
$
|
16,078
|
|
101
INDEX TO
EXHIBITS
|
|
|
|
|
Exhibit
|
|
|
Number
|
|
Description
|
|
|
3
|
.1
|
|
Certificate of Incorporation (Filed as Exhibit 3.2 of
Amendment No. 3 to the Companys Registration
Statement on
Form S-1
filed on May 17, 2005 (Registration
No. 333-123154)
(Amendment No. 3), and incorporated herein by
reference)
|
|
3
|
.2
|
|
Bylaws (Filed as Exhibit 3.4 of Amendment No. 3, and
incorporated herein by reference)
|
|
4
|
.1
|
|
Specimen Stock Certificate (Filed as Exhibit 4.1 of the
Companys Registration Statement on
Form S-1
filed on March 4, 2005 (Registration
No. 333-123154)
(Form S-1),
and incorporated herein by reference)
|
|
4
|
.2
|
|
Warrant dated as of December 11, 2000 among the Registrant
and Roberts Mitani Capital, LLC (Filed as Exhibit 4.2 of
Form S-1,
and incorporated herein by reference)
|
|
4
|
.3
|
|
Amended and Restated Stockholders Rights Agreement dated
as of February 21, 2005 among the Registrant and the
parties listed therein (Filed as Exhibit 4.3 of
Form S-1,
and incorporated herein by reference)
|
|
4
|
.4
|
|
Form of Common Stock Warrant issued in connection with the
Series E Preferred Stock and Warrant Purchase Agreement
dated February 21, 2005, among the Company and the
purchasers of the Companys Series E Preferred Stock
(Filed as Exhibit 4.4 to the Companys Quarterly
Report on
Form 10-Q
filed on February 14, 2006, and incorporated herein by
reference)
|
|
10
|
.1*
|
|
1996 Stock Option Plan (Filed as Exhibit 10.1 of
Form S-1,
and incorporated herein by reference)
|
|
10
|
.2*
|
|
1998 Stock Plan (Filed as Exhibit 10.2 of
Form S-1,
and incorporated herein by reference)
|
|
10
|
.3*
|
|
2005 Equity Incentive Plan (Filed as Exhibit 10.3 of
Amendment No. 4 to the Companys Registration
Statement on
Form S-1
filed on May 23, 2005 (Registration
No. 333-123154)
(Amendment No. 4), and incorporated herein by
reference)
|
|
10
|
.4*
|
|
2005 Equity Incentive Plan Form of Incentive Stock
Option Agreement for Executive Officers and Directors (Filed as
Exhibit 10.2 to the Companys Quarterly Report on
Form 10-Q
filed on August 15, 2005, and incorporated herein by
reference)
|
|
10
|
.5*
|
|
2005 Equity Incentive Plan Form of Nonstatutory
Stock Option Agreement for Executive Officers and Directors
(Filed as Exhibit 10.3 to the Companys Quarterly
Report on
Form 10-Q
filed on August 15, 2005, and incorporated herein by
reference)
|
|
10
|
.6*
|
|
2005 Employee Stock Purchase Plan, as amended (Filed as
Exhibit 10.4 of Amendment No. 6 to the Companys
Registration Statement on
Form S-1
filed on June 13, 2005 (Registration
No. 333-123154)
(Amendment No. 6), and incorporated herein by
reference)
|
|
10
|
.7*
|
|
Letter Agreement dated November 15, 2004 with John R.
Kilcoyne (Filed as Exhibit 10.7 of
Form S-1,
and incorporated herein by reference)
|
|
10
|
.8*
|
|
Letter Agreement dated November 5, 2003 with Robert A.
Stern (Filed as Exhibit 10.8 of
Form S-1,
and incorporated herein by reference)
|
|
10
|
.9*
|
|
Letter Agreement dated June 12, 1998 with Tom M. Holdych
(Filed as Exhibit 10.9 of
Form S-1,
and incorporated herein by reference)
|
|
10
|
.10*
|
|
Letter Agreement dated May 23, 2003 with Edward F. Ruppel,
Jr. (Filed as Exhibit 10.10 of
Form S-1,
and incorporated herein by reference)
|
|
10
|
.11*
|
|
Letter Agreement dated October 25, 2004 with Eckhard H.
Reitz (Filed as Exhibit 10.13 of
Form S-1,
and incorporated herein by reference)
|
|
10
|
.12*
|
|
Letter Agreement dated February 16, 2005 with Robert C.
Colloton (Filed as Exhibit 10.23 of Amendment No. 6,
and incorporated herein by reference)
|
|
10
|
.13
|
|
Office Lease dated June 6, 2005 between the Registrant and
WW/LJ GATEWAYS LTD., a California limited partnership, for
office space located at 821 Fox Lane in San Jose,
California (Filed as Exhibit 99.1 to the Companys
Current Report on
Form 8-K
filed on July 5, 2005, and incorporated herein by reference)
|
|
10
|
.14
|
|
Distribution Agreement, dated September 30, 2005, between
Micrus Endovascular Corporation and Goodman Co., Ltd. (Filed as
Exhibit 10.3 to the Companys Quarterly Report on
Form 10-Q
filed on November 14, 2005, and incorporated herein by
reference)
|
|
10
|
.15
|
|
Share Purchase Agreement, dated September 20, 2005, between
Mark Ellis and James Mackenzie and Micrus Endovascular
Corporation (Filed as Exhibit 2.1 to the Companys
Current Report on
Form 8-K
filed on September 26, 2005, and incorporated herein by
reference)
|
102
|
|
|
|
|
Exhibit
|
|
|
Number
|
|
Description
|
|
|
10
|
.16
|
|
License Agreement, effective July 1, 2005, between Micrus
Endovascular Corporation and Micrus Endovascular SA (Filed as
Exhibit 10.5 to the Companys Quarterly Report on
Form 10-Q
filed on November 14, 2005, and incorporated herein by
reference)
|
|
10
|
.17
|
|
Contract Manufacturing Agreement, effective July 1, 2005,
between Micrus Endovascular Corporation and Micrus Endovascular
SA (Filed as Exhibit 10.6 to the Companys Quarterly
Report on
Form 10-Q
filed on November 14, 2005, and incorporated herein by
reference)
|
|
10
|
.18
|
|
Agreement for Sharing Development Costs, effective July 1,
2005, between Micrus Endovascular Corporation and Micrus
Endovascular SA (Filed as Exhibit 10.7 to the
Companys Quarterly Report on
Form 10-Q
filed on November 14, 2005, and incorporated herein by
reference)
|
|
10
|
.19
|
|
Support Services Agreement, effective July 1, 2005, between
Micrus Endovascular Corporation and Micrus Endovascular SA
(Filed as Exhibit 10.8 to the Companys Quarterly
Report on
Form 10-Q
filed on November 14, 2005, and incorporated herein by
reference)
|
|
10
|
.20
|
|
Technology Transfer Agreement, effective July 28, 2005,
between Micrus Endovascular Corporation and Vascular FX (Filed
as Exhibit 10.9 to the Companys Quarterly Report on
Form 10-Q
filed on November 14, 2005, and incorporated herein by
reference)
|
|
10
|
.21
|
|
License, Development and Distribution Agreement, effective
January 6, 2006, between Micrus Endovascular Corporation
and Biotronik AG (Filed as Exhibit 10.23 to the
Companys Annual Report on
Form 10-K
filed on June 16, 2006 and incorporated herein by reference)
|
|
10
|
.22
|
|
Form of Director and Executive Officer Indemnification Agreement
(Filed as Exhibit 10.2 to the Companys Quarterly
Report on
Form 10-Q
filed on February 14, 2007)
|
|
10
|
.23*
|
|
Amended and Restated Employee Cash Bonus Plan with respect to
Executive Officers (Filed as Exhibit 10.26 to the
Companys Quarterly Report on
Form 10-Q
filed on August 8, 2007)
|
|
10
|
.24
|
|
Amendment No. 1 to Distribution Agreement, dated
September 20, 2007, between Micrus Endovascular Corporation
and Goodman Co., Ltd. (Filed as Exhibit 10.27 to the
Companys Quarterly Report on
Form 10-Q
filed on November 9, 2007)
|
|
10
|
.25
|
|
Distribution Agreement, dated July 31, 2007, between Micrus
Endovascular Corporation and Beijing Tianxinfu Medical Appliance
Co. Ltd. (Filed as Exhibit 10.28 to the Companys
Quarterly Report on
Form 10-Q
filed on November 9, 2007)
|
|
10
|
.26
|
|
Stock Purchase Agreement, dated October 26, 2007, between
Micrus Endovascular Corporation, ReVasc Technologies, Inc. and
The Cleveland Clinic Foundation which includes as an exhibit
thereto the Amended and Restated License Agreement, dated
October 26, 2007, between ReVasc Technologies, Inc. and The
Cleveland Clinic Foundation (Filed as Exhibit 10.29 to the
Companys Quarterly Report on
Form 10-Q
filed on February 11, 2008)
|
|
10
|
.27*
|
|
Letter Agreement dated November 12, 2007 with Gordon
Sangster (Filed as Exhibit 10.30 to the Companys
Quarterly Report on
Form 10-Q
filed on February 11, 2008)
|
|
10
|
.28*
|
|
Form of Acceleration Agreement (Filed as Exhibit 99.1 to
the Companys Current Report on
Form 8-K
filed on January 29, 2008, and incorporated herein by
reference)
|
|
10
|
.29#*
|
|
New Product Bonus Incentive Program with respect to Executive
Officers
|
|
21
|
.1#
|
|
List of Subsidiaries
|
|
23
|
.1#
|
|
Consent of PricewaterhouseCoopers LLP, Independent Registered
Public Accounting Firm
|
|
24
|
.1#
|
|
Powers of Attorney (appears on the signature page of this form)
|
|
31
|
.1#
|
|
Certification of Chief Executive Officer Pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002
|
|
31
|
.2#
|
|
Certification of Chief Financial Officer Pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002
|
|
32
|
.1#
|
|
Certifications Pursuant to 18 U.S.C. Section 1350, as
Adopted Pursuant to Section 906 of the
Sarbanes-Oxley
Act of 2002
|
|
|
|
# |
|
Filed herewith. |
|
* |
|
Indicates a management contract or compensatory plan or
arrangement, as required by Item 15(a)3. |
|
|
|
Confidential treatment requested for certain portions of this
Exhibit pursuant to
Rule 24b-2
promulgated under the Securities Exchange Act, which portions
are omitted and filed separately with the Securities and
Exchange Commission. |
103