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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 December 31, 2004 |
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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 |
Commission file number 000-50988
VNUS Medical Technologies, Inc.
(Exact name of registrant as specified in its charter)
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Delaware
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94-3216535 |
(State or other jurisdiction of
incorporation or organization) |
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(I.R.S. Employer
Identification Number) |
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2200 Zanker Road, Suite F
San Jose, California
(Address of principal executive offices) |
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95131
(Zip Code) |
Registrant’s telephone number, including area code:
(408) 473-1100
Securities registered pursuant to Section 12(b) of the
Securities Exchange Act of 1934:
None
Securities registered pursuant to Section 12(g) of
the
Securities Exchange Act of 1934:
Common Stock, $0.001 par value per share
Indicate by check mark whether the registrant (1) 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 the
registrant’s 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 an accelerated
filer (as defined in Exchange Act
Rule 12b-2). Yes o No þ
The aggregate market value of the registrant’s common
equity held by non-affiliates was approximately
$2.7 million on June 30, 2004, the last business day
of the registrant’s most recently completed second fiscal
quarter.
As of March 15, 2005, there were 14,424,373 shares of
the registrant’s common stock outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Part III of this report incorporates information by
reference from the registrant’s definitive proxy statement
for its annual meeting of stockholders, which proxy statement is
due to be filed with the Securities and Exchange Commission not
later than 120 days after December 31, 2004.
VNUS MEDICAL TECHNOLOGIES, INC.
TABLE OF CONTENTS
PART I
FORWARD LOOKING STATEMENTS
Certain statements contained in or incorporated by reference
into this report are forward-looking statements within the
meaning of Section 21 of the Securities Exchange Act of
1934. Forward-looking statements include statements that are
predictive in nature and depend upon or refer to future events
or conditions, which include words such as “believes,”
“plans,” “anticipates,”
“estimates,” “expects,” “may,”
“will,” “should,” “could,”
“potential,” or similar expressions. In addition, any
statements concerning future financial performance,
reimbursement rates, ongoing business strategies or prospects,
and possible future actions are also forward-looking statements.
Forward-looking statements are based on current expectations and
projections about future events and are subject to risks,
uncertainties, and assumptions about our company, economic and
market factors and the industry in which we do business, among
other things. We discuss such risks, uncertainties and other
factors throughout this report and specifically under the
caption “Risk Factors” in Part II, Item 7
below. Our actual results could differ materially from those
discussed here. These statements are not guaranties of future
performance and we undertake no obligation to publicly update
any forward-looking statements, whether as a result of new
information, future events or otherwise, except as required by
law.
Overview
We are a leading provider of medical devices for the minimally
invasive treatment of venous reflux disease. Venous reflux
disease, a progressive condition caused by incompetent vein
valves, is characterized by the poor return of blood from the
legs to the heart. The disease results in symptoms such as leg
pain, swelling, fatigue, skin ulcers and painful varicose veins.
Our primary product line, the Closure system, consists of a
proprietary radio-frequency, or RF, generator and proprietary
disposable endovenous catheters to close diseased veins through
the application of temperature-controlled RF energy. We estimate
that in excess of 80,000 patients have been treated using
our Closure system since 1999, with approximately 40,000 of
these patients treated in 2004.
Published population studies indicate that approximately
25 million people in the United States and 40 million
people in Western Europe suffer from symptomatic venous reflux
disease and experience painful symptoms. Due to the pain and
discomfort of the condition, venous reflux disease can be
disabling and have a significant impact on quality of life by
disrupting physical, social and professional activities. We
believe that the large prevalence of venous reflux disease and
the limitations of other available treatments have created a
significant opportunity for our Closure system.
Treatment for symptomatic venous reflux disease often begins
with conservative therapy such as compression stockings or leg
elevation to temporarily relieve symptoms. Patients may also
receive treatments for the cosmetic signs of venous reflux
disease such as visible varicose veins. None of these
treatments, however, address the underlying cause of the
disease. They may alleviate, but do not eliminate, symptoms such
as leg pain or swelling, and the cosmetic signs of the disease
frequently recur. For patients with more advanced stages of the
disease who seek long-term relief from symptoms, treatment often
involves removing a patient’s diseased saphenous vein from
the circulatory system. Historically, open surgery, such as vein
stripping and ligation, has been the standard of care, but it is
traumatic and can result in significant post-operative pain and
extended recuperation. We believe that physicians and patients
are seeking minimally invasive alternatives to surgery that
effectively treat venous reflux and painful varicose veins.
We believe our Closure system represents a significant advance
over vein stripping and also provides significant advantages
over minimally invasive treatments that use laser energy to
treat the vein in a procedure referred to as endovenous laser
ablation, or EVL. Our Closure procedure effectively treats
venous reflux disease and painful varicose veins, is minimally
invasive, can be used in an outpatient or physician office
setting, and allows patients to quickly resume normal
activities. Moreover, our Closure procedure is supported by a
significant amount of clinical data. We sponsored a randomized
trial that compared the Closure
1
procedure to vein stripping, and found the Closure procedure to
be as effective as vein stripping at two years following
treatment, with fewer side effects and faster recovery.
As of March 15, 2004, the Closure procedure is accepted by
the policies of approximately 100 health insurers, representing
over 220 million covered lives in the United States. We
sell the Closure system in the United States through our
46 person direct sales organization and market the closure
system in selected international markets, primarily through
distributors.
Our principal offices are located at 2200 Zanker Road,
Suite F, San Jose, California 95131 and our telephone
number is (408) 473-1100. We were incorporated in Delaware
in January 1995. Our World Wide Web address is
http://www.vnus.com
The terms VNUS® and Closure® as well as our logo are
our registered trademarks.
Venous Reflux Disease
Healthy leg veins contain valves that allow blood to move in one
direction from the lower limbs towards the heart. These valves
open when blood is flowing toward the heart, and close to
prevent venous reflux, or the backward flow of blood. When veins
weaken and become enlarged, their valves cannot close properly,
leading to venous reflux and impaired drainage of venous blood
from the legs. This causes blood to pool in the leg veins and
venous blood pressure to increase. The pooling and increase in
venous pressure leads to pain, swelling and varicose veins.
Venous reflux is most common in the superficial veins. The
largest superficial vein is the great saphenous vein, which runs
from the top of the foot to the groin, where it attaches to a
deep vein. A primary goal of treating symptomatic venous reflux
is to eliminate the reflux at its source, usually the great
saphenous vein. If a diseased vein is either closed or removed,
blood automatically reroutes into other veins without any known
negative consequences to the patient.
Venous reflux can be classified as either asymptomatic or
symptomatic, depending on the degree of severity. Asymptomatic
venous reflux generally involves spider veins or painless
varicose veins for which treatment is not a medical necessity.
However, these patients often still seek treatment to address
the cosmetic conditions. Venous reflux disease in patients with
cosmetic signs can progress to more advanced stages and become
symptomatic.
Symptomatic venous reflux disease is a more advanced stage of
the disease and can have a profound impact on the patient’s
quality of life. Persons with symptomatic venous reflux disease
are more likely to seek treatment due to a combination of
symptoms and signs. The symptoms and signs of venous reflux
disease may include:
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leg pain and swelling; |
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leg heaviness and fatigue; |
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painful varicose veins; |
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skin changes such as discoloration or inflammation; and |
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open skin ulcers. |
Based on the large prevalence of the disease and its potentially
debilitating outcomes, the economic impact of venous reflux is
significant. A study we commissioned estimated that
approximately two million work days are lost annually in the
United States as a result of symptomatic venous reflux.
Factors that contribute to venous reflux disease include female
gender, heredity, obesity, lack of physical activity, multiple
pregnancies, age, past history of blood clots in the legs and
professions that involve long periods of standing. According to
population studies, the prevalence rate of visible tortuous
varicose veins, a common indicator of venous reflux disease, is
up to 15% for adult men and up to 25% for adult women. Our
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clinical registry of over 1,000 patients shows that the
average age of patients treated with the Closure procedure is
48 and that over 75% of the patients are women.
Venous Reflux Market
Based on published population studies, approximately
25 million people in the United States have symptomatic
venous reflux disease. A separate study we commissioned found
that of the symptomatic patients, approximately 1.2 million
currently seek treatment each year in the United States, of
which we estimate over 800,000 have reflux in the great
saphenous vein. We estimate that, of these
800,000 patients, approximately:
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620,000 patients receive compression stockings or varicose
vein procedures that do not address the primary underlying cause
of venous reflux; |
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100,000 patients undergo vein stripping surgery; and |
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80,000 patients receive minimally invasive treatment with
endovenous ablation, including our Closure procedure. |
In Western Europe, the prevalence rate of venous reflux disease
is comparable to the United States, resulting in approximately
1.6 times the number of people in the United States, or
40 million people, suffering from symptomatic venous reflux
disease. However, we estimate the incidence of vein stripping
procedures is approximately seven times the incidence in the
United States, with approximately 700,000 patients treated
annually.
Current Treatment Alternatives
Patients suffering from venous reflux disease can receive
various treatments for relief from the condition. Treatments of
varicose veins and spider veins can reduce the cosmetic signs of
the diseases, but only provide temporary relief. To provide
long-term elimination of symptoms as well as the signs of venous
reflux, including varicose veins, refluxing veins are surgically
removed or closed. The primary goal in treating symptomatic
venous reflux is to eliminate the reflux at its source, most
commonly the great saphenous vein. Three treatments use this
approach: conventional vein stripping, endovenous laser ablation
and our Closure procedure.
Conventional Vein Stripping and Ligation Surgery. Vein
stripping and ligation surgery has historically been the
standard treatment for addressing reflux in the great saphenous
vein. This procedure typically involves general anesthesia in a
hospital outpatient setting and begins with groin surgery to
expose and ligate, or tie off, the diseased great saphenous vein
and surrounding tributary veins. Next, a stripping tool is
inserted at the groin, threaded through the great saphenous vein
along the length of the thigh and out through the skin just
below the knee. The top of the great saphenous vein is then tied
to the stripping tool, which is pulled from below the knee to
remove the vein from the body. Branch veins connected to the
great saphenous vein are broken as it is removed from the thigh.
In conjunction with vein stripping, patients often undergo
phlebectomy to remove individual visible varicose veins on the
leg.
A commonly cited study of vein stripping and ligation surgery
published in 1999 in the Journal of Vascular Surgery reported
elimination of reflux in 71% of 51 limbs studied five years
after treatment. Two year results from this study published in
1996 in the European Journal of Vascular and Endovascular
Surgery reported elimination of reflux in 87% of 53 limbs
studied after vein stripping surgery. Although vein stripping
effectively treats saphenous vein reflux, the surgery can be
traumatic. Recuperation may require days to weeks before
patients resume normal activities or return to work. Other
primary drawbacks of vein stripping include that it:
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is an invasive procedure requiring groin surgery; |
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routinely involves post-operative pain, discomfort and
tenderness, which limits patients’ physical activities
during recovery; |
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often results in significant bruising of the thigh and temporary
discoloration of the skin; |
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is typically performed using general anesthesia, exposing the
patient to additional risk; and |
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may cause nerve injury. |
Despite these drawbacks, we estimate there are approximately one
million vein stripping surgeries performed worldwide each year,
with approximately 100,000 performed in the United States and
700,000 in Western Europe. As a result, we believe there is a
large opportunity for a minimally invasive venous reflux
treatment that avoids or minimizes the drawbacks of vein
stripping.
Endovenous Laser Ablation. EVL is a minimally invasive
procedure that utilizes an optical fiber to deliver laser energy
and heat the blood inside the saphenous vein. The laser delivers
energy that boils the blood, producing steam that damages the
vein and creates a blood clot. The optical fiber is withdrawn
while laser energy is delivered, inducing a blood clot to
occlude the length of the treated vein.
A September 2003 article in the Journal of Vascular Surgery
reported that 67% of EVL patients had pain for a median of one
week (with a range of 0.2 to 8 weeks) and 51% used
prescription pain medication. Another study of EVL published in
an article in April 2002 in the Journal of Vascular Surgery
describes laser-induced vein perforation, with bruising in
patients lasting approximately two weeks. Other complications of
EVL reported in medical journals include skin burn and deep vein
thrombosis, or DVT. EVL efficacy is depicted as achieving vein
occlusion rates of 76% at an average of seven-month follow-up in
one study, and in other single center reports, 90% to 97% at
one-year follow-up, and 93% at two-year follow up.
We believe the drawbacks of the current EVL procedure and
technology are significant in that they do not provide feedback
during treatment to guide laser energy delivery or optical fiber
withdrawal speed to reflect variability in vein size and blood
volume. Without guidance from feedback, EVL can result in
undesirable treatment outcomes such as perforation of the vein
wall or a large blood clot along the treated vein. This creates
the potential for:
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significant pain, tenderness, bruising and skin discoloration
during the post-operative period; and |
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veins to reopen from naturally occurring clot dissolving agents. |
EVL is less invasive than vein stripping and according to
published reports, can effectively treat venous reflux disease
and is approximately 10 minutes faster to perform than the
Closure procedure, which takes 40 to 60 minutes for
experienced users. However, due to the drawbacks of EVL, we
believe significant opportunity exists for a minimally invasive
procedure that has substantial clinical evidence establishing
equivalence or superiority to vein stripping, provides
physicians more control over the therapy and results in less
pain and discomfort for patients.
The VNUS Closure Procedure
Using our Closure system, physicians close diseased, large
superficial veins such as the great saphenous vein. This is
accomplished by inserting our proprietary catheter into a vein
to directly heat the vein wall with temperature-controlled RF
energy. Heating the vein wall causes collagen in the wall to
shrink and the vein to close. The blood then naturally reroutes
to healthy veins. Our Closure procedure can be performed on an
outpatient basis using local anesthesia in which the physician
numbs the leg before treatment. Currently, it is predominantly
performed in a hospital setting, though it may also be performed
in a physician’s office. We expect that the trend in 2005
will be for Closure procedures to be more commonly performed in
a physician’s office or surgicenter. The procedure consists
of four principal steps:
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Map the Saphenous Vein. A typical procedure begins with
noninvasive ultrasound imaging of the diseased vein to trace its
location. This step allows the physician to determine the site
where the Closure catheter will be inserted and to mark the
desired position of the catheter tip to begin treatment. |
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Insert the Closure Catheter. After the physician accesses
the saphenous vein, the Closure catheter is inserted into the
vein and advanced to the uppermost segment of the vein. The
physician then typically injects a volume of dilute anesthetic
fluid into the area surrounding the vein. The anesthetic numbs
the |
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leg, helps squeeze blood out of the vein and provides a fluid
layer outside the vein to protect surrounding tissue from heat
once the catheter starts delivering RF energy. Saline is then
slowly infused into the vein from the tip of the catheter to
further create a near-bloodless field inside the vein, allowing
the catheter to preferentially heat the vein wall, rather than
the blood. |
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Deliver RF Energy and Withdraw Catheter. Noninvasive
ultrasound is used to confirm the catheter tip position and the
physician then activates the RF generator, causing the
electrodes at the tip of the catheter to heat the vein wall to a
target temperature of typically 85 to 90 degrees
Centigrade, or 185 to 195 degrees Fahrenheit. As the vein
wall is heated, the vein shrinks and the catheter is gradually
withdrawn. During catheter pullback, which typically occurs over
9 to 18 minutes, the RF generator regularly adjusts the power
level to maintain target temperature to effectively shrink
collagen in the vein wall and close the vein over an extended
length. |
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Confirm Closing of Vein. After treatment, ultrasound
imaging is used to confirm closing of the vein. If a portion of
the vein is not closed, the catheter can be reinserted and
energy reapplied. After the procedure, the narrowed vein
gradually becomes fibrous, sealing the interior of the vein
walls and naturally redirecting blood flow to healthy veins.
Experienced physicians often complete the procedure in 40 to 60
minutes. |
Physicians generally instruct their patients to walk regularly
for several days after the Closure procedure and return within
72 hours for an ultrasound examination. Many physicians, at
their discretion, prescribe compression stockings to be worn for
several days or weeks after the procedure. Compression stockings
are prescribed as a routine item for vein procedures with the
goal of enhancing patient comfort in the initial days after
treatment.
We believe the Closure procedure provides the following benefits
for patients and physicians:
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Minimally Invasive Outpatient Procedure. Our Closure
catheters are inserted into the vein via a needle puncture in
the lower leg, eliminating the need for groin surgery and
general anesthesia. The Closure procedure can be performed using
local anesthesia in a physician’s office, as well as in an
outpatient hospital setting or surgicenter. |
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Less Post-Operative Pain. The Closure procedure does not
involve pulling the diseased vein from the thigh as with vein
stripping surgery, or boiling blood to occlude a vein as with
EVL. We believe this results in significantly less
post-operative pain, faster healing and allows the early
resumption of normal activities. Independent comparative studies
have shown that patients receiving the Closure procedure return
to work and normal activity significantly faster than those
receiving vein stripping. In a comparative trial of the Closure
procedure versus EVL, patients treated using the Closure system
in one leg and EVL in the other leg exhibited less pain and
bruising in the leg treated with the Closure system. |
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Excellent Clinical Outcomes. In a randomized comparative
trial of the Closure procedure and vein stripping, the Closure
procedure was found to be as effective as vein stripping at two
years following treatment, with fewer side effects and faster
recovery. A comparative trial versus EVL showed the Closure
procedure exhibited greater efficacy and less post-operative
bruising and pain. |
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Long-Lasting Results. Our multi-center registry data
shows venous reflux was eliminated in 87% of 119 limbs evaluated
at four years and 84% of 117 limbs evaluated at five years. |
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Safe and Controlled Procedure. Our Closure system
includes a number of safety features designed to ensure precise
delivery of RF energy. Our system continuously monitors the
temperature of the vein wall and adjusts energy delivery
throughout the procedure to provide a high level of
effectiveness and a low incidence of adverse events during
recovery. |
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Cosmetically Appealing. We believe that our Closure
system results in less bruising, pain and skin discoloration
than vein stripping or EVL. Additionally, because the Closure
procedure is catheter-based, it results in little or no scarring
compared to vein stripping. |
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We believe the primary disadvantages of the Closure procedure
versus treatment using EVL are that the Closure catheter is more
expensive than the EVL optical fiber and, according to suppliers
of EVL products, the EVL procedure is approximately
10 minutes shorter than the Closure procedure.
Clinical Results
We have established a significant body of clinical data
demonstrating the effectiveness and advantages of the Closure
procedure.
A randomized comparative trial of the Closure procedure versus
vein stripping demonstrated that the Closure procedure resulted
in:
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equivalent elimination of venous reflux at two-year follow-up; |
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faster recuperation and less post-operative pain; and |
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fewer complications and adverse findings. |
Based on our clinical registry data and independent
single-center reports, the Closure procedure has been
demonstrated to provide:
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long-term elimination of venous reflux; and |
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persistent relief of leg pain and other symptoms through five
years. |
A randomized comparative trial of the Closure procedure versus
EVL found that the Closure procedure:
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provided better efficacy; and |
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resulted in less post-operative pain and bruising. |
The two largest independent single-center studies of the Closure
procedure reported 97% vein occlusion in 170 patients, as
reported in a peer-reviewed article in 2002 in the Japanese
Journal of Phlebology, and 99% vein occlusion in 217 limbs, as
indicated in a non-peer reviewed report presented at the
European Society of Vascular Surgery in September 2003, in each
case at one year after treatment with the Closure system. In
September 2004, an article published in the Journal of Vascular
Surgery by a group of physicians at Maimonides Medical Center in
Brooklyn, New York, reported a 16% incidence of blood clots
extending into deep veins in the first 73 legs treated by the
group with the Closure procedure. Complete clot resolution was
achieved within two weeks in all but one patient and no patient
developed serious subsequent issues. The incidence of blood
clots reported by this group is inconsistent with several
previously published independent peer-reviewed reports that
found an incidence of blood clots from 0% to 1% in over 450
limbs treated. In addition, we are not aware of any other
physicians to whom we have sold catheters that have reported an
incidence of blood clots similar to that found by the Maimonides
Medical Center physicians. According to their Letter to the
Editor published in the Journal of Vascular Surgery in February
2005, this group of physicians at Maimonides Medical Center
still believe in the benefits of the technique and still
continue to perform the technique. We do not believe the 510(k)
clearance for our Closure procedure will be impacted by this
article or that the Food and Drug Administration will take any
adverse action with respect to the incidents identified in this
report. However, if the Food and Drug Administration were to
identify any serious safety risk it could impose a product
recall or withdraw our clearance and approval. Although we
believe this is an isolated occurrence, prospective customers
may deem this report relevant and require additional information
or references prior to purchasing our products or refrain from
purchasing our products.
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Randomized Trials of the Closure Procedure versus Vein
Stripping |
In 2000 we sponsored an 80 patient multi-center randomized
comparative trial of the Closure procedure versus vein
stripping, referred to as the EVOLVeS trial. In the EVOLVeS
trial every clinical outcome that resulted in a statistical
difference between treatment groups was in favor of the Closure
system over vein stripping.
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Results from the EVOLVeS trial showed that the minimally
invasive Closure procedure provided equivalent elimination of
venous reflux at two years after treatment. In the EVOLVeS
trial, venous reflux was absent at two years in 91.7% of the
limbs treated with the Closure procedure and in 89.7% of limbs
treated with vein stripping, as reported in the European Journal
of Vascular and Endovascular Surgery in January 2005. There was
no statistical difference between the two groups in rates of
nerve injury, infection and psychological scores related to
quality of life measurement.
In the EVOLVeS trial, patients treated with the Closure system
recuperated faster, had less post-operative pain, fewer adverse
events and better health-related quality of life than patients
treated with vein stripping surgery. These data were published
in August 2003 in a peer-reviewed article in the Journal of
Vascular Surgery. Superior results of the Closure system were
demonstrated by:
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Patients treated with the Closure procedure returning to normal
activities in an average of 1.2 days, compared to
3.9 days for patients treated with vein stripping; |
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81% of Closure patients returning to normal activities within
one day compared to only 47% of vein stripping patients; and |
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Employed patients treated with the Closure procedure returning
to work an average of 7.7 days faster than employed
patients treated with vein stripping surgery. |
The Closure procedure also resulted in significantly fewer
complications and adverse findings than vein stripping at
72 hours, one week and three weeks after treatment as shown
in the following table. Potential complications and adverse
findings included events such as infection, blood clots,
tenderness, bruising, skin redness, subcutaneous bleeding and
nerve injury resulting in localized numbness or tingling.
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% of Limbs Free of Adverse Findings |
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Closure Procedure |
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Vein Stripping |
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72 Hours
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43% |
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17% |
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1 Week
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35% |
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14% |
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3 Weeks
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71% |
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39% |
Severity of patient leg pain was scored at pre-treatment, three
days, one week, three weeks, four months, one year and two years
after treatment. Patients treated with vein stripping reported
worsening of leg pain three days and one week after surgery,
while patients treated with the Closure procedure reported a
reduction of leg pain as early as three days after treatment.
Patients treated with the Closure procedure reported
significantly better reduction of leg pain than patients treated
with vein stripping at every follow up. Two years after
treatment, patients from the Closure procedure treatment group
reported an 86% reduction of leg pain compared to only 51% after
vein stripping surgery.
In addition to the EVOLVeS trial, two single center randomized
trials were independently performed by third parties comparing
the Closure procedure to vein stripping. These trials involved
treatment of 28 patients in one trial and 60 in the other
and reached the same general conclusions as the published
EVOLVeS trial results. The clinical outcomes from these trials
showed that patients treated with our Closure procedure
exhibited significantly less post-operative pain, faster return
to normal activities, faster restoration of physical function
and better quality of life than vein stripping patients. Other
clinical outcomes in these trials showed no significant
differences between the treatment groups.
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Clinical Registry of the Closure Procedure |
In 1998 we established an ongoing clinical registry to which
more than 30 centers worldwide have contributed data. Our
registry now contains long-term data for up to five years
following treatment and shows the efficacy of the Closure
procedure at eliminating venous reflux.
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Elimination of |
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Reflux |
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1 Year
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473 |
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88% |
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2 Years
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263 |
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88% |
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3 Years
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133 |
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88% |
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4 Years
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119 |
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87% |
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5 Years
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117 |
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84% |
Long term elimination of saphenous vein reflux by the Closure
procedure was accompanied by significant relief of symptoms. Our
clinical registry data show that, prior to treatment with the
Closure procedure, 85% of patients reported leg pain, 79%
reported leg heaviness and fatigue and 39% exhibited leg
swelling, while after five years 9% reported leg pain, 8%
reported fatigue and 4% exhibited leg swelling.
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Closure Procedure Versus Endovenous Laser Treatment |
An independent randomized comparative trial of the Closure
procedure and EVL was reported at the American Venous Forum
meeting in February 2003. This unpublished study involved
50 patients with saphenous vein reflux in both legs. For
each patient, the Closure procedure was performed in one leg and
EVL in the other leg. Patients treated with the Closure
procedure experienced significantly better efficacy as
determined by vein occlusion rates, and had less post-operative
pain and thigh bruising than patients treated with EVL, as shown
in the following table.
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Closure Procedure |
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EVL |
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Bruising at one week following treatment
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4% |
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40% |
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Primary vein occlusion
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82% |
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56% |
The investigator in this trial also used foam sclerotherapy
injections at any patient follow up in which it was observed
that the treated veins were not completely closed. With the
assistance of foam sclerotherapy injections, the vein occlusion
rates remained significantly better for the Closure treated
legs, reporting 92% for Closure treated limbs and 84% for EVL
treated limbs.
In the study, there was no statistical difference found between
the Closure procedure and EVL for other potential clinical
complications such as rates of nerve injury, skin burns or
infection. We are aware of two other unpublished single-center
reports of EVL and Closure procedure efficacy. The data from
these two reports were retrospective and were not generated in a
designed-study approach. In these reports, the efficacy of both
procedures was good and the authors reported a slightly higher
efficacy for EVL. We are not aware of any comparative trials of
EVL versus vein stripping.
Products
Our Closure system consists of a proprietary RF generator and
proprietary disposable catheters. We also sell accessory
products such as sterile supply kits and other accessory
supplies used to conduct our Closure procedure.
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Disposable Endovenous Catheters |
Our proprietary disposable endovenous catheters are used to
deliver RF energy to heat the walls of saphenous veins. Each
catheter has a set of collapsible electrodes located at the tip.
The electrodes expand to contact the inner wall of the vein to
be treated and produce uniform heating on all sides of the vein
wall as well as a localized depth of heating to limit damage to
surrounding tissue. The electrodes collapse as the vein shrinks
in response to heating.
8
A temperature sensor located on one of the electrodes measures
and transmits the temperature of the vein wall to the RF
generator, which automatically adjusts the power level. This
enables the generator to use the minimum amount of power
necessary for the catheter to deliver a consistent temperature
and close the vein. The catheters also have a hollow center, or
lumen, which allows fluid delivery or standard guidewire usage.
Our catheters are available in two sizes, which allows doctors
to treat saphenous vein diameters that encompass over 95% of
patients.
Our RF generator delivers energy to the catheter and
continuously monitors the temperature at the vein wall,
automatically adjusting the power delivered to the catheter to
achieve a target temperature. This feedback system is designed
to allow the physician to perform the Closure procedure at a
relatively constant temperature over the entire length of the
treated vein. The RF generator is controlled by proprietary
embedded software which allows it to recognize each catheter
model and to automatically select the appropriate algorithm. The
RF generator is a table top unit and has a digital display panel
that can be configured for multiple languages and provides
readings of:
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the temperature of the vein wall at the point where energy is
applied; |
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the power used during treatment; and |
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the impedance, or amount of resistance between electrodes, so
that the physician can determine whether the electrodes are
maintaining adequate contact with the vein wall. |
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Accessories and Other Products |
Our accessory products include the Closure procedure pack and
other ancillary products. The Closure procedure pack contains
the sterile supplies needed to perform the Closure procedure,
consisting of gowns, surgical drapes, scalpels, introducer
sheaths and other incidental supplies. We typically purchase
procedure packs from a single supplier, although we are aware of
a number of alternative suppliers who can meet our
specifications and delivery requirements. We sell the procedure
packs separately from our catheters to our customers, which
include physicians and hospitals. Our other ancillary products
include reusable phlebectomy instruments for removal of varicose
veins and vein access supplies such as introducer sheaths and
needles. In late 2004, we entered into an agreement with Sontra
Medical under which we will distribute SonoPrep® rapid
topical anesthesia products, with sales beginning in 2005.
Seasonality
Our sales of disposable endovenous catheters and RF generators
have historically been lower, or have experienced lower
sequential sales growth, during the first three months of the
year, compared to other quarters during the year. We believe
this seasonality occurs as a result of a lower number of Closure
procedures scheduled during the December holiday period and
early in the first quarter of the year.
Sales and Marketing
We have focused our sales and marketing efforts on increasing
awareness of our Closure system among physicians with an active
vein treatment practice and among those looking to establish
such a practice. These physicians include vascular and general
surgeons, interventional radiologists and phlebologists.
We maintain a direct sales organization in the United States,
which as of December 31, 2004, consisted of 46 employees.
We market our products in selected international markets
primarily through exclusive distributors. Our international
network of distributors currently market and sell our products
in ten countries in Europe, six countries in Asia and seven
countries in the rest of the world. We plan to enter into
additional distribution agreements on a market-by-market basis.
We also have a direct sales presence in France and Germany, and
a clinical specialist based in Europe.
9
Our marketing group supports our sales representatives primarily
through four physician-targeted initiatives:
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We educate and train our sales representatives and the
physicians interested in performing the Closure procedure. We
also educate experienced physicians in the use of the Closure
procedure for treatments such as large veins, venous ulcer
patients and small saphenous veins through workshops and
one-on-one training sessions. |
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• |
We assist physicians in educating their current and potential
patients about the Closure procedure. We create and make
available an expansive array of support tools for physician use
such as patient videos, brochures and patient testimonials
designed to help physicians educate patients on the many
benefits of the Closure procedure. |
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• |
We advise physicians in the reimbursement process via the
support of our Reimbursement Services team, which works directly
with physicians and their office personnel, hospital and
surgicenter personnel, and patients to obtain authorization from
payors for patients to receive the Closure procedure. We also
work with providers to challenge any procedure authorization
denials by payors by providing our clinical data. |
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We seek to add and promote products to leverage our position as
the leader in vein treatments to position VNUS as the
single-source supplier for a physician’s vein treatment
needs. |
Our marketing group also engages in consumer-directed
initiatives to encourage patients to contact their physicians
regarding the Closure procedure. We seek to educate potential
patients through public relations, advertisements and articles
in prominent magazines, newspapers, websites, and local and
national television. We have also established a website where we
provide information to patients and physicians interested in the
Closure procedure.
No single customer accounted for 10% or more of our net revenues
in the year ended December 31, 2004.
Reimbursement
Payment for patient care in the United States is generally made
by third-party payors, which include private insurers and
governmental insurance programs such as Medicare. We anticipate
that sales volumes and prices of our products will continue to
be dependent in large part on the availability of reimbursement
from these third-party payors. To date, third-party
reimbursement for our Closure procedure is well established in
the United States. Approximately 100 individual third-party
payors have established a policy of coverage encompassing
approximately 220 million lives in the United States. Nine
of the top ten health insurers and administrators in the United
States cover the Closure procedure, including nearly all Blue
Cross Blue Shield entities, United Healthcare, Aetna, Cigna,
Humana and Kaiser.
The coding classification of physician services is established
by the American Medical Association (“AMA”) under the
Current Procedural Terminology, or CPT, coding system.
Third-party payors, including the Medicare program, have
incorporated into their physician fee schedule CPT codes
(and other codes) as part of the determination of allowable
payment amounts for a physician’s services in performing
various medical procedures.
To obtain reimbursement for the Closure procedure in 2004 and
before, physicians and medical facilities utilized established
CPT codes that describe procedures that encompass the methods
used in the Closure procedure. This typically resulted in a
number of coding scenarios for the Closure procedure. Medical
policy from insurers such as certain Blue Cross Blue Shield
plans sometimes required the use of a procedure code that was
specific for endovenous radio frequency ablation of refluxing
saphenous veins. Other insurers, such as Medicare, sometimes
required the use of a miscellaneous vascular procedure code for
which there was no standard payment rate. Insurers also
recommended in their medical policy to use specific procedure
codes that describe transcatheter occlusion or embolization
procedures. We believe that approximately 99% of our customers
have successfully received reimbursement for the Closure
procedure using established medical reimbursement codes.
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Separate new CPT codes have been approved by the AMA for both
radio-frequency and laser ablation of venous reflux and became
effective at the beginning of 2005. Beginning in 2005, the
national average payment by Medicare to physicians under the
Medicare fee schedule is $2,216 when the Closure procedure is
performed in the physician’s office, which is $175 more
than the national average Medicare will pay for laser ablation.
If the Closure procedure is performed in a hospital, the
Medicare national average payment to physicians is $365, which
is the same rate established for laser ablation. When the
Closure procedure is performed on a Medicare patient in the
hospital, the hospital will receive a national average payment
of $1,538 as reimbursement for the Closure catheter and
supplies, which is the same amount the hospital receives for
supplies and equipment used in laser ablation. We estimate that
approximately 10% of the U.S. patients who receive
treatment with the Closure system are covered by or eligible for
Medicare coverage. Private healthcare insurers may establish
payment rates that are different from Medicare. These rates are
typically higher than those established by Medicare.
Market acceptance of our products in international markets is
dependent, in part, upon the availability and adequacy of
reimbursement within prevailing healthcare payment systems. In
international markets, reimbursement and healthcare payment
systems vary significantly by country. International
reimbursement and healthcare payment systems include both
government sponsored healthcare and private insurance.
Currently, the Closure procedure is covered and reimbursed by
the five largest private healthcare insurers in the United
Kingdom. We have launched several initiatives in Europe to
achieve third party or national reimbursement, particularly in
France and Germany where we sell the Closure system through a
direct sales force. We have been informed that the Closure
procedure has received provisional approval for listing in the
nomenclature of surgical procedures in France, which is expected
to be finalized by the end of 2005.
Research and Development
In response to physician feedback and our own assessments, we
are continually working on enhancements to our product designs
and procedures to improve patient outcomes, improve ease-of-use
and shorten procedure time. In addition, we are exploring the
development of new products and new indications in the treatment
of various venous diseases. For example, we are developing the
VNUS RFStm
device to treat and occlude refluxing perforator veins in the
legs. This product was in a clinical study at the end of 2004.
From time to time we have considered the acquisition of product
lines and licensing of technology and complementary products.
We sponsor and conduct clinical research activities with
investigators and institutions to measure key clinical outcomes
that can influence market adoption of our Closure procedure. We
also conduct clinical studies in support of new products that we
are developing. We perform preclinical studies for the
development and evaluation of new products and procedural
techniques.
In the years ended December 31, 2004, 2003 and 2002, we
incurred $5.0 million, $3.7 million and
$2.2 million, respectively, of research and development
expense.
Manufacturing
We manufacture, package and label our disposable catheters
within our 30,000 square foot facility in San Jose,
California. We outsource the manufacture of our RF generators
and accessory products. We believe that our existing
manufacturing facilities are adequate to support our growth
through 2006.
The manufacturing process for our disposable catheters includes
the assembly, testing, packaging, sterilization and inspection
of components that have been manufactured by us or to our
specifications by suppliers. We purchase components used in our
disposable products from various suppliers. When practicable, we
have established second-source suppliers. However, we rely on
sole-source suppliers to manufacture a limited number of the
components used in our disposable catheters. We believe that
alternative suppliers for these products would be available to
us if the need should arise. In addition, we attempt to mitigate
supply shortages through maintaining inventory levels based on
the risk associated with a particular supplier. Typically, we
have not obtained contractual commitments from our suppliers to
continue to supply products to us, nor are we contractually
obligated to continue to purchase from a particular supplier.
11
Our quality assurance group provides an independent inspection
at various steps in the manufacturing cycle that is designed to
verify that each lot of components and finished products are
compliant with our specifications and applicable regulatory
requirements. We inspect incoming components, and inspect and
test products both during and after the manufacturing process.
We also inspect our packaged products and audit the
sterilization process to ensure quality products. Sterilization
testing is processed at a certified third-party laboratory to
verify the effectiveness of the sterilization process. Our
quality assurance systems are required to be in conformance with
the Quality System Regulations as mandated by the Food and Drug
Administration. For sale of products in European Community, our
products and quality structure are required to be compliant to
the current standard, ISO 13485 for medical devices. Prior
to receiving certification to ISO 13485 in October 2003, we
maintained certification to ISO 9001/ EN46001 for the same
purpose.
We rely on Byers Peak, Inc. to manufacture our RF generators to
our custom specifications. Under our non-exclusive agreement
with Byers Peak, Inc. we provide a rolling 90-day firm
commitment order for generators and a six month rolling
forecast. We are required to purchase all inventory of parts and
work in progress if we revise our commitment or forecast, cancel
orders or terminate the agreement. Byers Peak, Inc. also
provides us a warranty on the generators for the shorter of
18 months from the date of shipment to us or 12 months
from the date of first use. The agreement has an initial term of
three years, expiring February 20, 2007 and continues
indefinitely thereafter until terminated by us or Byers Peak,
Inc. upon 180 days notice.
Suppliers of components used in the manufacture of our
disposable catheters and of our RF generators may encounter
problems during manufacturing due to a variety of reasons,
including failure to follow specific protocols and procedures,
failure to comply with applicable regulations, including the
Food and Drug Administration’s Quality System Regulations,
equipment malfunction and environmental factors. Furthermore,
establishing additional or replacement suppliers for our
materials may take a substantial period of time, as a change in
supplier may require us to submit a new 510(k) submission. This
could create supply disruptions that would materially adversely
affect our reputation, product sales and profitability.
For those components other than RF generators for which there
are relatively few alternate sources of supply, we believe that
we could establish additional or replacement sources of supply
in a timely manner to meet the requirements of our business.
Patents and Proprietary Technology
We believe that in order to maintain our competitive advantage,
we must develop and maintain the proprietary aspects of our
technologies. To this end, we file patent applications to
protect technology, inventions and improvements that we believe
are significant to the growth of our business. In the United
States, as of December 31, 2004, we had 29 issued patents
and 24 pending patent applications, many of which relate to
our Closure system and procedure, including, among other things,
vein shrinkage and occlusion using various forms of energy,
including RF; self expanding and collapsing electrodes; and use
of single and double electrode array devices. Fourteen of the
issued patents relate to devices or devices with methods and 15
relate to methods. We also have other issued patents and pending
patent applications that are not directly related to the Closure
system or the Closure procedure. Our issued patents related to
the Closure system and procedure will expire between 2016 and
2018.
Internationally, as of December 31, 2004, we have 9 foreign
patents providing protection in Australia, New Zealand,
Singapore, Russia, China and Europe. In addition, we have 32
pending foreign patent applications, many of which relate to the
Closure technology, in Europe, Japan, Australia, Canada, New
Zealand, Singapore, Russia and other countries.
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 during their term of employment or
contract, using our property, or which relate to our business.
Despite 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.
Finally, our competitors may independently develop similar
technologies.
12
The medical device industry is characterized by the existence of
a large number of patents and frequent litigation based on
allegations of patent infringement. As the number of entrants
into our market increases, the risk of an infringement claim
against us grows. While we attempt to ensure that our products
and methods do not infringe other parties’ patents and
proprietary rights, our competitors may assert that our
products, and the methods we employ, are covered by
U.S. patents held by them. In addition, our competitors may
assert that future products and methods we may market infringe
their patents.
Competition
Within the market for the treatment of venous reflux disease, we
compete against vein stripping procedures and companies that
have commercialized and sell EVL systems. Sclerotherapy and
phlebectomy procedures that treat varicose veins at the surface
of the skin are complementary to the Closure procedure because
they do not treat saphenous vein reflux and may be used in
conjunction with the Closure system.
Vein stripping and ligation surgery has historically been the
standard of care to address venous reflux disease. This
procedure is well established among physicians who treat venous
reflux disease, has extensive long-term data, is routinely
taught to new surgeons and has remained relatively unchanged for
the past 50 years.
Competitors that have developed and market EVL systems include
AngioDynamics, Inc., biolitec AG, Diomed Holdings, Inc., Dornier
MedTech GmbH, New Star Lasers, Inc., doing business as CoolTouch
Inc., and Vascular Solutions, Inc. Most of these
competitors’ EVL systems use laser energy to occlude
diseased veins by clotting the blood in the vein. New Star
Lasers claims that its EVL system occludes diseased veins by
causing the collagen in the vein wall to shrink, rather than by
clotting the blood. Some of these competitors may have greater
technical and marketing resources than we do, and they may
succeed in developing products that would render our instruments
obsolete or noncompetitive.
Additionally, we are aware that physicians have used foam
sclerotherapy to treat great saphenous reflux. Similar to
sclerotherapy, in this procedure the physician combines air with
a sclerosant solution to create a foam for injection into the
refluxing saphenous vein. The FDA has not approved the marketing
of sclerosant solutions for this purpose. Provensis, a division
of BTG plc, after having its clinical trial of sclerosant foam
placed on clinical hold by the FDA, reported it is reformulating
and re-testing its sclerosant foam. However, it does not expect
approval by the Food and Drug Administration prior to 2009.
Because of the size of the potential market, we anticipate that
new or existing competitors may develop competing products,
procedures or clinical solutions. These products, procedures or
solutions could prove to be more effective, safer or less costly
than the Closure procedure. The introduction of new products,
procedures or clinical solutions by competitors may result in
price reductions, reduced margins or loss of market share and
may render our products obsolete.
We believe that the principal competitive factors in the market
for the treatment of venous reflux include:
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improved patient outcomes; |
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approval of reimbursement by healthcare payors; |
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the publication of peer-reviewed clinical studies; |
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product quality; |
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cost effectiveness; |
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acceptance by leading physicians; |
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ease-of-use for physicians; |
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sales and marketing capability; |
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timing and acceptance of product innovation; and |
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patent protection. |
13
Government Regulation
Our products are regulated in the United States as medical
devices by the Food and Drug Administration and other regulatory
bodies.
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 from the Food
and Drug Administration. The Food and Drug Administration can
also impose restrictions on the sale, distribution or use of
devices at the time of their clearance or approval, or
subsequent to marketing.
510(k) Clearance Pathway. When we are required to obtain
a 510(k) clearance for a device that we wish to market, we must
submit a premarket notification to the Food and Drug
Administration demonstrating that the device is substantially
equivalent to a previously cleared 510(k) device or a device
that was in commercial distribution before May 28, 1976 (or
to a pre-1976 class III device for which the Food and Drug
Administration has not yet called for the submission of
premarket approval applications). The Food and Drug
Administration attempts to respond to a 510(k) premarket
notification within 90 days of submission of the
notification, but the response may be a request for additional
information or data, sometimes including clinical data. As a
practical matter, premarket clearance can take significantly
longer, including up to one year or more.
After a device receives 510(k) clearance for a specific intended
use, any modification that could significantly affect its safety
or effectiveness, or that would constitute a major change in its
intended use, design or manufacture, will require a new 510(k)
clearance or could require premarket approval. The Food and Drug
Administration requires each manufacturer to make this
determination initially, but the Food and Drug Administration
can review any such decision and can disagree with a
manufacturer’s determination. If the Food and Drug
Administration disagrees with a manufacturer’s
determination that a new clearance or approval is not required
for a particular modification, the Food and Drug Administration
can require the manufacturer to cease marketing and/or recall
the modified device until 510(k) clearance or premarket approval
is obtained. Also, in these circumstances, we may be subject to
significant regulatory fines or penalties. We have made and plan
to continue to make additional product enhancements to our
Closure system device that we believe do not require new 510(k)
clearances. We have used the special 510(k) system of obtaining
FDA clearance on products that have undergone minor
modifications.
Premarket Approval Pathway. A premarket approval
application must be submitted if the device cannot be cleared
through the 510(k) process. The premarket approval process is
much more demanding than the 510(k) premarket notification
process. A premarket approval application must be supported by
extensive data and information including, but not limited to,
technical, preclinical, clinical trials, manufacturing and
labeling to demonstrate to the Food and Drug
Administration’s satisfaction the safety and effectiveness
of the device. After the Food and Drug Administration determines
that a premarket approval application is complete, the Food and
Drug Administration accepts the application and begins an
in-depth review of the submitted information. The Food and Drug
Administration, by statute and regulation, has 180 days to
review an accepted premarket approval application, although the
review generally occurs over a significantly longer period of
time, and can take up to several years.
Clinical Trials. A clinical trial is almost always
required to support a premarket approval application and is
sometimes required for a 510(k) premarket notification. Clinical
trials for a “significant risk” device require
submission of an application for an investigational device
exemption, or IDE, to the Food and Drug Administration. The IDE
application must be supported by appropriate data, such as
animal and laboratory testing results, showing that it is safe
to test the device in humans and that the testing protocol is
scientifically sound. Clinical trials for a significant risk
device may begin once the IDE application is approved by the
Food and Drug Administration and the Institutional Review Board
overseeing the clinical trial. If the product is deemed a
“non-significant risk” device under Food and Drug
Administration regulations, only informed consent and approval
from the IRB overseeing the clinical trial is required. Clinical
trials are subject to extensive recordkeeping and reporting
requirements. Our clinical trials must be conducted under the
oversight
14
of an IRB at the relevant clinical trials site and in accordance
with applicable regulations and policies including, but not
limited to, the Food and Drug Administration’s good
clinical practice, or GCP, requirements. We, the Food and Drug
Administration or the Institutional Review Board at each site at
which a clinical trial is being performed may suspend a clinical
trial at any time for various reasons, including a belief that
the risks to study subjects outweigh the anticipated benefits.
The results of clinical testing may not be sufficient to obtain
approval of the product.
Continuing Food and Drug Administration Regulation. After
a device is placed on the market, numerous regulatory
requirements apply. These include:
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Quality System Regulations, which requires manufacturers to
follow design, testing, control, documentation and other quality
assurance procedures during the manufacturing process; |
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labeling regulations, which govern product labels and labeling,
prohibit the promotion of products for unapproved or
“off-label” uses and impose other restrictions on
labeling and promotional activities; |
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medical device reporting, or MDR, regulations, which require
that manufacturers report to the Food and Drug Administration 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; and |
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notices of correction or removal, and recall regulations. |
The MDR regulations require that we report to the Food and Drug
Administration any incident in which our product may have caused
or contributed to a death or serious injury, or in which our
product malfunctioned and, if the malfunction were to recur, it
would likely cause or contribute to a death or serious injury.
As of December 31, 2004 we have submitted 41 MDRs. In
36 cases, a thrombus, or blood clot, was noticed after varying
lengths of time after the Closure procedure. In four cases, the
patient developed a pulmonary embolism. In March, 2005 we
received a report that a patient treated with a motorized
varicose vein treatment device and our radiofrequency ablation
catheter was admitted to a hospital and diagnosed with a
pulmonary embolism 13 days after the procedure and died the
following day. We reported this event to the FDA via the MDR
process. Information on the events leading to the patient’s
death is incomplete. The treating physician’s office has
informed us that the patient was free of deep vein thrombosis at
a routine ultrasound scan performed two days after the
procedure. The next day the patient contacted the
physician’s office indicating the patient did not feel
well. The patient was then seen by the treating physician seven
days after treatment. On the 12th day after treatment the
patient reported shortness of breath and saw a primary care
physician who referred the patient to a hospital emergency room.
The patient was admitted to the hospital and diagnosed with
pulmonary emboli. No treatment details are available. We do not
have sufficient information to determine which of the two
procedures may have caused, or had a major contribution to the
pulmonary emboli. We have not received any report of malfunction
of the equipment used in the Closure procedure. This is the
first report we have received of a patient death following
treatment with our catheter or system. Pulmonary embolism is a
known risk from any surgical procedure including our
radiofrequency procedure, and is described in our risk factors
and product labeling. We believe that none of these incidents
were caused by design faults or defects in the product.
Advertising and promotion of medical devices are also regulated
by the Federal Trade Commission and by state regulatory and
enforcement authorities. Recently, some promotional activities
for FDA-regulated products have been the subject of enforcement
actions brought under healthcare reimbursement laws and consumer
protection statutes. In addition, under the federal Lanham Act,
competitors and others can initiate litigation relating to
advertising claims.
We have registered with the Food and Drug Administration as a
medical device manufacturer and we have obtained a manufacturing
license from the California Department of Health and Services.
Compliance with regulatory requirements is assured through
periodic, unannounced facility inspections by the Food and Drug
Administration and the Food and Drug Branch of the California
Department of Health Services, and these inspections may include
the manufacturing facilities of our subcontractors. Failure to
comply with
15
applicable regulatory requirements can result in enforcement
action by the Food and Drug Administration, which may include
any of the following sanctions:
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Warning Letters or untitled letters; |
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fines, injunctions, and civil penalties; |
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recall or seizure of our products; |
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customer notification, or orders for repair, replacement or
refund; |
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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. |
The Food and Drug Administration has twice inspected our
facility and Quality System, and the Food and Drug Branch of the
California Department of Health Services has inspected our
facility and Quality System once. In each of these inspections
no significant incidents of non-compliance were found. We cannot
assure you that we can maintain the same level of regulatory
compliance in the future at our facility.
Current Clearances. We have received 510(k) clearances to
market our VNUS Closure system, our VNUS Vessel and Tissue
Coagulation System, VNUS RFS, and our VNUS RF Generator. Our
VNUS VarEx Phlebectomy Instruments are exempt from the premarket
notification requirements. We do not presently have any 510(k)
or premarket approval submissions pending at the Food and Drug
Administration.
Our products are regulated in the European Union as medical
devices per the European Union Directive (93/42/EEC), also known
as the Medical Device Directive. An authorized third party,
notified body, must approve our products for CE marking. The
Closure system was approved for CE marking in 1998. The
remaining products are currently CE marked. We cannot assure you
that we will be able to obtain the CE mark approval for new
products in the future. The CE mark is contingent upon our
continued compliance to the applicable regulations and the
Quality System Requirements of ISO 13485 standard.
The European Community has regulations similar to that of the
Food and Drug Administration for the advertising and promotion
of the medical devices, clinical investigations, and adverse
events. We believe that we are in compliance with such
regulations at this time.
Most major markets have different levels of regulatory
requirements for medical devices. The Closure system is
currently approved/cleared/licensed/registered in Canada, South
Korea, Taiwan, China, Hong Kong, and South Africa. The
regulatory process is currently underway in Singapore and
Australia. Modifications to the approved products require a new
regulatory submission in all major markets. The regulatory
process for the current models of our disposable catheter is
underway in South Korea, Taiwan and China. The regulatory
requirements, and the review time vary significantly from
country to country. We cannot assure you that we will be able to
obtain or maintain the required regulatory approvals. The VNUS
Closure system can also be marketed in the several other
countries that do not regulate medical devices. We cannot assure
you the timing or the successes of our efforts to obtain the
approvals for the current and future products in the
international markets.
16
Fraud and Abuse Laws
The federal healthcare program Anti-Kickback Statute prohibits
persons from knowingly and willfully soliciting, offering,
receiving or providing remuneration, directly or indirectly, in
exchange for or to induce either the referral of an individual,
or the furnishing, arranging for or recommending a good or
service, for which payment may be made in whole or part under a
federal healthcare program such as the Medicare and Medicaid
programs. The definition of “remuneration” has been
broadly interpreted to include anything of value, including for
example gifts, discounts, the furnishing of supplies or
equipment, credit arrangements, payments of cash and waivers of
payments. Several courts have interpreted the statute’s
intent requirement to mean that if any one purpose of an
arrangement involving remuneration is to induce referrals or
otherwise generate business involving goods or services
reimbursed in whole or in part under federal healthcare
programs, the statute has been violated. Penalties for
violations include criminal penalties and civil sanctions such
as fines, imprisonment and possible exclusion from Medicare,
Medicaid and other federal healthcare programs. In addition,
some kickback allegations have been claimed to violate the
Federal False Claims Act, discussed in more detail below.
The Anti-Kickback Statute is broad and prohibits many
arrangements and practices that are lawful in businesses outside
of the healthcare industry. Recognizing that the Anti-Kickback
Statute is broad and may technically prohibit many innocuous or
beneficial arrangements, the Office of Inspector General of
Health and Human Services, or OIG, has issued a series of
regulations, known as the “safe harbors,” beginning in
July of 1991. These safe harbors set forth provisions that, if
all their applicable requirements are met, will assure
healthcare providers and other parties that they will not be
prosecuted under the Anti-Kickback Statute. The failure of a
transaction or arrangement to fit precisely within one or more
safe harbors does not necessarily mean that it is illegal or
that prosecution will be pursued. However, conduct and business
arrangements that do not fully satisfy each applicable safe
harbor may result in increased scrutiny by government
enforcement authorities such as the OIG. Many states have
adopted laws similar to the Anti-Kickback Statute. Some of these
state prohibitions apply to referral of patients for healthcare
items or services reimbursed by any source, not only the
Medicare and Medicaid programs.
Government officials have focused recent enforcement efforts on
marketing of healthcare services, among other activities, and
recently have brought cases against individuals or entities with
sales personnel who allegedly offered unlawful inducements to
potential or existing customers in an attempt to procure their
business.
The Ethics in Patient Referral Act of 1989, commonly referred to
as the federal physician self-referral law or Stark Law,
prohibits physician referrals of Medicare patients to an entity
for certain “designated health services” if the
physician or an immediate family member has an indirect or
direct financial relationship with the entity and no statutory
or regulatory exception applies. Financial relationships include
an ownership interest in, or compensation arrangement with, the
entity. It also prohibits an entity receiving a prohibited
referral from billing and collecting for services rendered
pursuant to such referral. “Designated health
services” under Stark include inpatient and outpatient
hospital services.
A person who engages in a scheme to circumvent the Stark
Law’s prohibitions may be fined up to $100,000 for each
such arrangement or scheme. In addition, anyone who presents or
causes to be presented a claim to the Medicare program in
violation of the Stark Law is subject to monetary penalties of
up to $15,000 per claim submitted, an assessment of several
times the amount claimed, and possible exclusion from
participation in federal healthcare programs. In addition,
claims submitted in violation of the Stark Law may be alleged to
be subject to liability under the federal False Claims Act and
its whistleblower provisions (as discussed below).
Several states in which we operate have enacted legislation that
prohibits physician self-referral arrangements and/or requires
physicians to disclose any financial interest they may have with
a healthcare
17
provider to their patients when referring patients to that
provider. Some of these statutes cover all patients and are not
limited to Medicare beneficiaries. Possible sanctions for
violating state physician self-referral laws vary, but may
include loss of license and civil and criminal sanctions. State
laws vary from jurisdiction to jurisdiction and, in a few
states, are more restrictive than the federal Stark Law. Some
states have indicated they will interpret their own
self-referral statutes the same way that CMS interprets the
Stark Law, but it is possible the states will interpret their
own laws differently in the future.
Federal false claims laws prohibit any person from knowingly
presenting, or causing to be presented, a false claim for
payment to the federal government or knowingly making, or
causing to be made, a false statement to get a false claim paid.
Recently, several healthcare companies have been prosecuted
under the false claims laws for allegedly providing free product
to customers with the expectation that the customers would bill
federal programs for the product. The majority of states also
have statutes or regulations similar to the federal false claims
laws, which apply to items and services reimbursed under
Medicaid and other state programs, or, in several states, apply
regardless of the payer. Sanctions under these federal and state
laws may include civil monetary penalties, exclusion of a
manufacturer’s products from reimbursement under government
programs, criminal fines, and imprisonment.
|
|
|
Fraud on a Health Benefit Plan and False Statements |
The Health Insurance Portability and Accountability Act of 1996,
or HIPAA, created two new federal crimes: healthcare fraud and
false statements relating to healthcare matters. The healthcare
fraud statute prohibits knowingly and willfully executing a
scheme to defraud any healthcare benefit program, including
private payors. A violation of this statute is a felony and may
result in fines, imprisonment or exclusion from government
sponsored programs. The false statements statute prohibits
knowingly and willfully falsifying, concealing or covering up a
material fact or making any materially false, fictitious or
fraudulent statement in connection with the delivery of or
payment for healthcare benefits, items or services. A violation
of this statute is a felony and may result in fines or
imprisonment.
Privacy and Security
HIPAA requires certain “covered entities” to comply
with established standards regarding the privacy and security of
protected health information, or PHI, and to use standardized
code sets when conducting certain electronic transactions. HIPAA
further requires that covered entities enter into agreements
meeting certain regulatory requirements with their
“business associates”, which effectively obligate the
business associates to safeguard the covered entity’s PHI
against improper use and disclosure. While not directly
regulated by HIPAA, a business associate may face significant
contractual liability pursuant to such an agreement if the
business associate breaches the agreement or causes the covered
entity to fail to comply with HIPAA. In the course of our
business operations, we have become the business associate of
one or more covered entities. Accordingly, we incur compliance
related costs in meeting HIPAA-related obligations under
business associates agreements to which we are a party.
Moreover, if we fail to meet our contractual obligations under
such agreements, we may incur significant liability.
Employees
As of December 31, 2004, we had 163 employees, consisting
of 22 in research and development, clinical research and
regulatory affairs, 48 in manufacturing and quality assurance,
79 in sales and marketing and 14 in general and administrative
functions. From time to time we also employ independent
contractors to support our engineering, marketing, sales and
support, clinical, and general and administrative organizations.
Financial Information
The additional financial information required to be included in
this Item 1 is incorporated herein by reference to
Part II, Item 8 of this report.
18
We are headquartered in San Jose, California, where we
lease approximately 30,000 square feet under a lease
expiring June 30, 2007. Our manufacturing operations are
contained in our headquarters building. We believe that our
existing facilities are adequate for our current needs and that
suitable additional or alternative space will be available at
such time as it becomes needed on commercially reasonable terms.
|
|
| Item 3: |
Legal Proceedings |
We are not currently a party to in any material legal
proceedings.
|
|
| Item 4: |
Submission of Matters to a Vote of Security Holders |
On October 14, 2004, stockholders holding
7,033,201 shares of our common stock (on a post reverse
stock-split basis) acted by written consent to:
|
|
|
| |
• |
approve an amendment to our certificate of incorporation
effecting a two-for-three reverse split of our common stock; |
| |
| |
• |
approve an amendment and restatement of our certificate of
incorporation and bylaws, each to become effective immediately
following the completion of our initial public offering; and |
| |
| |
• |
approve an amendment to our 2000 Equity Incentive Plan to
(i) increase the number of authorized shares of common
stock issuable under the plan to 2,378,666, and (ii) on
December 31 of each year, beginning on December 31,
2005, further increase the number of shares reserved for
issuance under the plan by the lower of
(x) 800,000 shares, (y) 4% of the number of
shares of our common stock then outstanding or (z) such
other number of shares of our common stock as is determined by
the administrator of the plan, provided that the maximum number
of shares of our common stock that may be issued upon the
exercise of incentive stock options during the term of the plan
may not exceed 6,378,666. |
PART II
|
|
| Item 5: |
Market for Registrant’s Common Equity, Related
Stockholder Matters and Issuer Purchases of Equity
Securities |
Market Information
Our common stock has been traded on The NASDAQ Stock Market
under the symbol “VNUS” since our initial public
offering on October 20, 2004. The following table sets
forth the intra-day high and low per share bid prices of our
common stock from October 20, 2004 through
December 31, 2004, as reported by The NASDAQ Stock Market.
| |
|
|
|
|
|
|
|
|
| |
|
High | |
|
Low | |
| |
|
| |
|
| |
|
October 20, 2004 - December 31, 2004
|
|
$ |
21.30 |
|
|
$ |
12.80 |
|
As of March 15, 2005, there were approximately 141 holders
of record of our common stock.
Dividend Policy
We have never paid cash dividends on our stock and currently
anticipate that we will continue to retain any future earnings
to finance the growth of our business.
Securities Authorized for Issuance Under Equity Compensation
Plans
See the information incorporated by reference to Part III,
Item 12 of this report for information regarding securities
authorized for issuance under our equity compensation plans.
19
Purchases of Equity Securities
Neither we, nor any affiliated purchaser of ours, acquired any
of our equity securities during the year ended December 31,
2004.
Changes in Securities and Use of Proceeds
On September 20, 2004, our board of directors approved a
two-for-three reverse stock split of our common shares. The
reverse stock split was effected on October 14, 2004. All
common stock data presented herein have been restated to
retroactively reflect this stock split.
We effected the initial public offering of our common stock
pursuant to a Registration Statement on Form S-1 (File
No. 333-117640) that was declared effective by the
Securities and Exchange Commission on October 19, 2004. On
October 20, 2004, 4,000,000 shares of common stock
were sold on our behalf, together with an additional
1,375,995 shares sold on behalf of certain of our
stockholders, at an initial public offering price of
$15.00 per share, for an aggregate offering price of
$80.6 million. The lead underwriters in the offering were
Banc of America Securities LLC and Piper Jaffray & Co.
Following the sale of the 5,375,995 shares, the offering
terminated.
We paid to the underwriters underwriting discounts and
commissions totaling $4.2 million in connection with the
offering of the shares sold on our behalf and the selling
stockholders paid underwriting discounts and commissions of
approximately $1.4 million in connection with the shares
sold on their behalf. In addition, we incurred additional
expenses of approximately $1.8 million in connection with
the offering, which when added to the underwriting discounts and
commissions paid by us, amounts to total expenses of
approximately $6.0 million. Thus, the net offering proceeds
to us, after deducting underwriting discounts and commissions
and offering expenses, were approximately $54.0 million. No
offering expenses were paid directly or indirectly to any of our
directors or officers (or their associates) or persons owning
10% or more of any class of our equity securities or to any
other affiliates. The selling stockholders received proceeds,
before expenses, of approximately $19.2 million. We did not
receive any of the proceeds received by the selling stockholders.
We expect to use the net proceeds from our initial public
offering to fund our operations, including sales and marketing
activities, clinical research and development and for working
capital and other general corporate purposes. In addition, we
may use a portion of the net proceeds from our initial public
offering to acquire products, technologies or businesses that
are complementary to our own.
To date, we have used approximately $474,000 for sales and
marketing activities, approximately $78,000 for clinical
research and product developing activities and approximately
$260,000 for working capital and other general corporate
purposes.
20
|
|
| Item 6: |
Selected Consolidated Financial Data |
The following table sets forth our selected financial data. This
information should be read together with the consolidated
financial statements and related notes and
“Management’s Discussion and Analysis of Financial
Condition and Results of Operations,” included under
Part II, Item 7 of this report below. The statements
of operations data for the years ended December 31, 2004,
2003 and 2002 and the balance sheet data as of December 31,
2004 and 2003, are derived from our audited financial statements
included elsewhere in this report. The statements of operations
data for the years ended December 31, 2001 and 2000, and
the balance sheet data as of December 31, 2002, 2001 and
2000 are derived from our audited financial statements that were
not included in this report. The historical results are not
necessarily indicative of our operating results or financial
position to be expected in the future.
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Years Ended December 31, | |
| |
|
| |
| |
|
2004 | |
|
2003 | |
|
2002 | |
|
2001 | |
|
2000 | |
| |
|
| |
|
| |
|
| |
|
| |
|
| |
| |
|
(in thousands, except per share data) | |
| |
|
(unaudited) | |
|
Consolidated Statements of Operations Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Net revenues
|
|
$ |
38,166 |
|
|
$ |
21,838 |
|
|
$ |
10,041 |
|
|
$ |
5,564 |
|
|
$ |
2,155 |
|
| |
Cost of revenues(1)
|
|
|
9,542 |
|
|
|
6,311 |
|
|
|
3,646 |
|
|
|
3,262 |
|
|
|
2,130 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Gross profit
|
|
|
28,624 |
|
|
|
15,527 |
|
|
|
6,395 |
|
|
|
2,302 |
|
|
|
25 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Sales and marketing(1)
|
|
|
16,235 |
|
|
|
11,997 |
|
|
|
7,728 |
|
|
|
5,602 |
|
|
|
4,233 |
|
| |
|
Research and development(1)
|
|
|
5,034 |
|
|
|
3,676 |
|
|
|
2,156 |
|
|
|
2,534 |
|
|
|
2,387 |
|
| |
|
General and administrative(1)
|
|
|
4,706 |
|
|
|
2,609 |
|
|
|
2,749 |
|
|
|
2,427 |
|
|
|
2,726 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
Total operating expenses
|
|
|
25,975 |
|
|
|
18,282 |
|
|
|
12,633 |
|
|
|
10,563 |
|
|
|
9,346 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Income (loss) from operations
|
|
|
2,649 |
|
|
|
(2,755 |
) |
|
|
(6,238 |
) |
|
|
(8,261 |
) |
|
|
(9,321 |
) |
| |
Interest income (expense) and other, net
|
|
|
439 |
|
|
|
171 |
|
|
|
283 |
|
|
|
(240 |
) |
|
|
298 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Income (loss) before provision for income taxes
|
|
|
3,088 |
|
|
|
(2,584 |
) |
|
|
(5,955 |
) |
|
|
(8,501 |
) |
|
|
(9,023 |
) |
| |
Provision for income taxes
|
|
|
222 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Net income (loss)
|
|
$ |
2,866 |
|
|
$ |
(2,584 |
) |
|
$ |
(5,955 |
) |
|
$ |
(8,501 |
) |
|
$ |
(9,023 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Basic net income (loss) per share(2)
|
|
$ |
0.73 |
|
|
$ |
(1.97 |
) |
|
$ |
(4.73 |
) |
|
$ |
(7.09 |
) |
|
$ |
(8.04 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Diluted net income (loss) per share(2)
|
|
$ |
0.23 |
|
|
$ |
(1.97 |
) |
|
$ |
(4.73 |
) |
|
$ |
(7.09 |
) |
|
$ |
(8.04 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Shares used in computing basic net income (loss) per share(2)
|
|
|
3,946 |
|
|
|
1,309 |
|
|
|
1,260 |
|
|
|
1,199 |
|
|
|
1,123 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Shares used in computing diluted net income (loss) per share(2)
|
|
|
12,368 |
|
|
|
1,309 |
|
|
|
1,260 |
|
|
|
1,199 |
|
|
|
1,123 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| (1) |
Includes charges for stock-based compensation in the following
amounts: |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of revenues
|
|
$ |
90 |
|
|
$ |
56 |
|
|
$ |
51 |
|
|
$ |
576 |
|
|
$ |
164 |
|
|
Sales and marketing
|
|
|
525 |
|
|
|
257 |
|
|
|
342 |
|
|
|
491 |
|
|
|
290 |
|
|
Research and development
|
|
|
84 |
|
|
|
89 |
|
|
|
160 |
|
|
|
285 |
|
|
|
249 |
|
|
General and administrative
|
|
|
352 |
|
|
|
146 |
|
|
|
278 |
|
|
|
120 |
|
|
|
302 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Total
|
|
$ |
1,051 |
|
|
$ |
548 |
|
|
$ |
831 |
|
|
$ |
1,472 |
|
|
$ |
1,005 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
21
|
|
| (2) |
See Note 2 of the notes to our consolidated financial
statements for a description of the method used to compute basic
and diluted net income (loss) per share and shares used in
computing basic and diluted net income (loss) per share. |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
As of December 31, | |
| |
|
| |
| |
|
2004 | |
|
2003 | |
|
2002 | |
|
2001 | |
|
2000 | |
| |
|
| |
|
| |
|
| |
|
| |
|
| |
| |
|
(in thousands) | |
| |
|
(unaudited) | |
|
Consolidated Balance Sheet Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Cash and cash equivalents
|
|
$ |
68,566 |
|
|
$ |
11,711 |
|
|
$ |
12,601 |
|
|
$ |
17,376 |
|
|
$ |
2,805 |
|
| |
Working capital
|
|
|
70,681 |
|
|
|
12,713 |
|
|
|
14,530 |
|
|
|
19,141 |
|
|
|
2,543 |
|
| |
Total assets
|
|
|
77,972 |
|
|
|
17,789 |
|
|
|
17,885 |
|
|
|
22,442 |
|
|
|
4,576 |
|
| |
Total debt
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
518 |
|
| |
Accumulated deficit
|
|
|
(41,173 |
) |
|
|
(44,039 |
) |
|
|
(41,455 |
) |
|
|
(35,500 |
) |
|
|
(26,999 |
) |
| |
Total stockholders’ equity
|
|
$ |
72,308 |
|
|
$ |
14,241 |
|
|
$ |
16,214 |
|
|
$ |
21,299 |
|
|
$ |
3,026 |
|
|
|
| Item 7: |
Management’s Discussion and Analysis of Financial
Condition and Results of Operations |
This financial review presents our operating results for each
of the three years in the period ended December 31, 2004,
and our financial condition at December 31, 2004. You
should read the following discussion of our financial condition
and results of our operations in conjunction with the
information presented in our consolidated financial statements
and the related notes to our consolidated financial statements.
Except for the historical information contained herein, this
discussion contains forward-looking statements that involve
risks and uncertainties, such as statements of our plans,
objectives, expectations and intentions. Factors that could
cause or contribute to these differences include those discussed
in “Risk Factors” below, as well as those discussed
elsewhere. Our actual results could differ materially from those
discussed here. The cautionary statements made herein should be
read as applying to all related forward-looking statements
wherever they appear herein.
Business Overview
We are a leading provider of medical devices for the minimally
invasive treatment of venous reflux disease. Our primary product
line, the Closure system, consists of a proprietary RF generator
and proprietary disposable endovenous catheters to close
diseased veins through the application of temperature-controlled
RF energy. We launched our new generation RF generator in the
fourth quarter of 2004. We estimate that in excess of
80,000 patients have been treated using our Closure system
since 1999, with approximately 40,000 of these patients treated
in 2004.
Since our inception in January 1995, we have focused on the
development of minimally invasive treatments for venous reflux
disease. Until 1999, our operations consisted primarily of
start-up activities, including the development of our Closure
system, recruiting personnel and raising capital. We launched
commercial sales of the Closure system in Europe in late 1998
and in the United States in late 1999.
For the year ended December 31, 2004, we generated net
revenues of $38.2 million and net income of
$2.9 million. As of December 31, 2004, we have
incurred cumulative losses of approximately $41.2 million.
From inception to September 30, 2003 we were not
profitable. In the last quarter of 2003 and each of the four
quarters of 2004 we were profitable. We market the Closure
system through a direct sales organization in the United States
and our Closure procedure is covered by the policies of
approximately 100 health insurers, representing approximately
220 million covered lives in the United States. We market
the Closure system in selected international markets primarily
through distributors.
We manufacture, package and label our disposable catheters and
outsource the manufacture of our RF generators and accessory
packs. Our net revenues are derived from the sale of disposable
catheters, RF generators and accessory products, which comprised
77%, 18% and 5% of our net revenues, respectively, in
22
2004. We expect that any shift in the percentage of net revenues
derived from the sales of disposable catheters and RF generators
during 2005 will be modest.
We have a diverse customer base of hospitals, physicians and
physician groups, with no customer accounting for 10% or more of
our net revenues in the years ended December 31, 2004, 2003
and 2002. Our customers are reimbursed by governmental and
third-party payors, and that reimbursement is subject to
periodic review and adjustment.
Financial Operations Overview
Net Revenues. Our net revenues are derived primarily from
the sale of disposable endovenous catheters and RF generators.
Our large installed base of RF generators facilitates a
recurring revenue stream from the sale of disposable catheters.
In addition, we derive a small portion of our revenues from the
sale of accessory products.
Cost of Revenues. Our cost of revenues represents the
cost of materials, overhead, direct labor and delivery charges
associated with the manufacture of disposable catheters, the
purchase and delivery of RF generators, the purchase and
delivery of accessory products, depreciation and amortization of
stock-based compensation.
Sales and Marketing Expenses. Sales and marketing
expenses consist primarily of marketing personnel compensation,
sales force incentive compensation, travel, promotional
materials, advertising, patient education materials, other
expenses incurred to provide reimbursement services and clinical
training and amortization of deferred stock-based compensation.
Research and Development Expenses. Research and
development expenses consist primarily of personnel expenses,
supplies, materials and expenses associated with product
development, expenses associated with preclinical and clinical
studies, legal fees for the protection of intellectual property
and amortization of deferred stock-based compensation.
General and Administrative Expenses. General and
administrative expenses consist primarily of personnel expenses
for accounting, human resources, information technology and
corporate administration, legal fees, accounting fees,
facilities expenses and amortization of deferred stock-based
compensation.
Critical Accounting Policies and Estimates
The preparation of financial statements and related disclosures
in conformity with accounting principles generally accepted in
the United States requires us to make judgments, estimates and
assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities
at the date of the financial statements and the reported amounts
of revenues and expenses during the reporting period. On an
ongoing basis we re-evaluate our judgments and estimates,
including those related to doubtful accounts, income taxes and
loss contingencies. We base our estimates and judgments on our
historical experience, knowledge of current conditions and our
belief of what could occur in the future considering available
information, including assumptions that are believed to be
reasonable under the circumstances. Actual results may differ
from these estimates under different assumptions or conditions.
By their nature, these estimates and judgments are subject to an
inherent degree of uncertainty and actual results could differ
materially from the amounts reported based on these policies.
Revenue Recognition. We recognize revenues in accordance
with Securities and Exchange Commission Staff Accounting
Bulletin No. 104, “Revenue
Recognition.” SAB No. 104 requires that four
basic criteria must be met before revenues can be recognized:
(1) persuasive evidence of an arrangement exists;
(2) title has transferred; (3) the fee is fixed and
determinable; and (4) collectibility is reasonably assured.
We generally use contracts and customer purchase orders to
determine the existence of an arrangement. We use shipping
documents and third-party proof of delivery to verify delivery.
We assess whether the fee is fixed or determinable based on the
terms of the agreement associated with the transaction. In order
to determine whether collection is probable, we assess a number
of factors, including past transaction history
23
with the customer and the credit-worthiness of the customer. If
we determine that collection is not reasonably assured, we would
defer the recognition of revenue until collection becomes
reasonably assured, which is generally upon receipt of payment.
Our domestic and international return policy allows customers to
return unused products for a period of 30 and 60 days,
respectively, subject to restocking fees. We make provisions for
estimated returns and allowances based on historical levels. To
date, returns and allowances have been insignificant. If actual
returns and allowances were to deviate significantly from our
estimates, our revenues could be adversely affected.
Valuation of Inventory. We value our inventory at the
lower of cost or market. We calculate an inventory reserve for
estimated obsolescence or excess inventory based upon historical
demand and assumptions about future demand for our products and
market conditions. The allowance is measured as the difference
between the current cost of the inventory and estimated market
value and is charged to the provision for inventory
obsolescence, which is a component of our cost of revenues. At
the point of recognition of the loss, a new, lower-cost basis
for that inventory is established, and subsequent changes in
facts and circumstances do not result in the restoration or
increase in that newly established cost basis. If there were to
be a sudden and significant decrease in demand for our products,
or if there were a higher incidence of inventory obsolescence
because of rapidly changing technology, we could be required to
increase our inventory allowance and our gross profit could be
adversely affected.
Warranty Costs. At the time we recognize revenues, we
establish an accrual for estimated warranty expense associated
with revenues, recorded as a component of cost of revenues. We
offer a one-year limited warranty on our RF generator which is
included in the sales price of the generator. Our estimate of
costs to service our warranty obligations is based upon the
number of units sold, historical and anticipated cost per claim
and rates of warranty claims. We primarily estimate material
costs based upon historical trends in the volume of product
returns within the warranty period and the cost to repair or
replace the equipment. Our service agreement with our RF
generator manufacturer provides us with a warranty on the
generators for the shorter of 18 months from the date of
shipment to us or 12 months from the date of first use. As
such, our warranty expense is only required to cover those
expenses not covered by our service agreement. If we experience
an increase in warranty claims compared with our historical
experience, or if costs of servicing warranty claims are greater
than the expectations on which the accrual has been based, our
gross profit could be adversely affected.
Allowance for Doubtful Accounts. We maintain an allowance
for doubtful accounts for estimated losses resulting from the
inability of our customers to make required payments. We
estimate the allowance based on the aging of account balances,
collection history, credit quality of the customer and current
economic conditions that may affect a customer’s ability to
pay.
We generally maintain a diverse customer base that mitigates the
risk of concentration with one customer. However, if the overall
condition of the healthcare industry were to deteriorate,
resulting in an impairment of our customers’ ability to
make payments, significant additional allowances could be
required. Additionally, if a major customer’s
creditworthiness deteriorates, or if actual defaults are higher
than our historical experience, our estimates of the
recoverability of amounts due to us could be overstated, and
additional allowances could be required, which could have an
adverse impact on our financial results.
Income Taxes. We account for income taxes under the
liability method. Under this method, we determine deferred tax
assets and liabilities at the balance sheet date based upon 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 affect taxable
income. The tax consequences of most events recognized in the
current year’s financial statements are included in
determining income taxes currently payable. However, because tax
laws and financial accounting standards differ in their
recognition and measurement of assets, liabilities, equity,
revenues, expenses and gains and losses, differences arise
between the amount of taxable income and pretax financial income
for a year and between the tax bases of assets or liabilities
and their reported amounts in our financial statements. Because
it is assumed that the reported amounts of assets and
liabilities will be recovered and settled, respectively, a
difference between the tax bases of an asset or a liability and
its reported amount on the balance sheet will result in a
taxable or a deductible amount in some future
24
years when the related liabilities are settled or the reported
amounts of the assets are recovered. We then assess the
likelihood that our deferred tax assets will be recovered from
future taxable income and unless we believe that recovery is
more likely than not, we must establish a valuation allowance to
reduce the deferred tax assets to the amounts expected to be
realized.
As part of the process of preparing our financial statements, we
are required to estimate our income taxes. This process involves
estimating our current tax liability, together with assessing
temporary differences that may result in deferred tax assets.
Our effective tax rates differ from the statutory rates due to
the impact of net operating loss carryforwards, research and
experimentation tax credits, state taxes and the tax impact of
non-U.S. operations. Because we have had a history of net
losses from inception through the year ended December 31,
2003, recovery of the deferred tax assets is in doubt and we
have established a valuation allowance against the entire
balance of the deferred tax assets. If we are able to
demonstrate consistent profitability in the future, and we are
able to establish that recovery is more likely than not, we
would reduce the valuation allowance at a future date.
Our future effective tax rates could be adversely affected by
changes in the valuation of our deferred tax assets or
liabilities or changes in tax laws or interpretations thereof.
In addition, we are subject to examination of our income tax
returns by the Internal Revenue Service and other tax
authorities; however, we are not currently under audit by any
taxing jurisdiction. We regularly assess the likelihood of
adverse outcomes resulting from these examinations to determine
the adequacy of our provision for income taxes.
At December 31, 2004, we had federal net operating loss
carryforwards of approximately $32.4 million and state net
operating loss carryforwards of approximately $22.5 million
available to reduce future taxable income. The federal net
operating loss carryforwards expire in various periods through
2022 and the state net operating loss carryforwards expire in
various periods through 2012. We have federal and state research
tax credit carryforwards of approximately $928,000 and $934,000,
respectively. The federal research credits expire in various
periods through 2022 and the state research credits can be
carried forward indefinitely. The amounts of and the benefits
from net operating loss and credit carryforwards may be impaired
in some circumstances. Events which may cause such limitations
include, but are not limited to, sale of equity securities and
other changes in ownership. We have provided a full valuation
allowance on the deferred tax asset associated with the net
operating loss and credit carryforwards because of the
uncertainty regarding realization of tax benefits We expect to
continue to provide a full valuation allowance on the deferred
tax assets until we can determine that it is more likely than
not that we will be able to realize a benefit from the deferred
tax assets.
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. Any ownership changes, as
defined, may restrict utilization of carryforwards.
For the year ended December 31, 2004, we recorded an income
tax provision of approximately $222,000, or an effective tax
rate of approximately 7%. We expect to record an income tax
provision at an effective tax rate of 7% in 2005.
Stock-Based Compensation Expense. We account for
stock-based employee compensation arrangements in accordance
with the provisions of Accounting Principles Board, or APB,
Opinion No. 25, “Accounting for Stock Issued to
Employees,” and Financial Accounting Standards Board,
or FASB, Interpretation, or FIN, No. 28,
“Accounting for Stock Appreciation Rights and Other
Variable Stock Option or Award Plans,” and comply with
the disclosure provisions of SFAS No. 123,
“Accounting for Stock-Based Compensation” and
SFAS No. 148, “Accounting for Stock-Based
Compensation — Transition and Disclosure.”
Under APB Opinion No. 25, compensation cost is recognized
based on the difference, if any, on the date of grant between
the fair value of our stock and the amount an employee must pay
to acquire the stock. SFAS No. 123 defines a
“fair value” based method of accounting for an
employee stock option or similar equity investment.
We award a limited number of stock options and warrants to
non-employees. We account for non-cash stock-based expense from
options and warrants issued to non-employees in accordance with
the provisions of SFAS No. 123 and Emerging Issues
Task Force Pronouncement No. 96-18, “Accounting for
Equity
25
Investments that are Issued to Non-Employees for Acquiring,
or in Conjunction with Selling, Goods or Services.” For
these options and warrants, we recognize the non-cash
stock-based expense over the service period of the underlying
awards, based on an estimate of their fair value on the vesting
dates using the Black-Scholes option-pricing model. All unvested
options issued to non-employees are marked to market until such
options vest.
We amortize stock-based compensation on the accelerated vesting
method over the vesting periods of the stock options, which is
generally four years. The accelerated vesting method provides
for vesting of portions of the overall awards at interim dates
and results in accelerated vesting as compared to the
straight-line method. From January 1, 2002 through
December 31, 2004, we recorded unearned stock-based
compensation of $2.2 million. Employee stock-based
compensation amortized to expense during this period was
$2.2 million. At December 31, 2004, we had a total of
$1.2 million remaining to be amortized over the vesting
periods of the stock options. We are evaluating the impact of
the adoption of SFAS 123(R) and have not yet determined
whether the adoption of the new standard will result in amounts
that are similar to the current pro forma disclosures under
SFAS 123.
Based on the closing price of our common stock on
December 31, 2004 of $13.52 per share, the intrinsic
value of the options outstanding at December 31, 2004 was
$17.9 million, of which $10.7 million was vested and
$7.2 million was unvested.
Recent Accounting Pronouncements
In December 2004, the FASB issued SFAS No. 123
(revised 2004), “Share-Based Payment”
(“SFAS 123(R)”) which requires the measurement of
all share-based payments to employees, including grants of
employee stock options, using a fair-value-based method and the
recording of such expense in our consolidated statements of
income. The accounting provisions of SFAS 123(R) are
effective for reporting periods beginning after June 15,
2005. We will adopt SFAS 123(R) effective as of the third
quarter of fiscal 2005. The pro forma disclosures previously
permitted under SFAS 123 no longer will be an alternative
to financial statement recognition. See Note 2, Summary of
Significant Accounting Policies, in the notes to our
consolidated financial statements included in this report for
the pro forma net income (loss) and net income (loss) per share
amounts, for 2002 through 2004, as if we had used a
fair-value-based method to measure compensation expense for
employee stock incentive awards. We are evaluating the impact of
the adoption of SFAS 123(R) and have not yet determined
whether the adoption of the new standard will result in amounts
that are similar to the current pro forma disclosures under
SFAS 123.
Results of Operations
|
|
|
Changes to previously announced fiscal 2004 fourth quarter
and fiscal year end results (in thousands, except per share
data): |
On February 22, 2005, the Company announced results for the
fourth quarter and fiscal year ended December 31, 2004 of
net income per share — basic, of $0.07 and $0.26,
respectively (based on a weighted average number of shares used
in per share calculations — basic of 13,528 and
11,113, respectively). Subsequent to that date, we noted that
the share number and consequently the net income per
share — basic for both the fourth quarter and fiscal
year 2004 was incorrect. The correct weighted average number of
shares to use in the calculation of net income per
share — basic for fourth quarter and fiscal 2004
should have been 11,677 and 3,946, respectively. The discrepancy
between the weighted average number of shares used in per share
calculations — basic previously announced and the
correct number is due to an error in the calculation of the
weighted effect of the conversion of the outstanding preferred
shares into common shares in October 2004. The impact of the
error is to increase net income per share — basic
(1) for the fourth quarter by $0.02 from the incorrect
previously announced number of $0.07 to the correct net income
per share — basic of $0.09, and (2) for the
fiscal year ended December 31, 2004 by $0.47 from the
incorrect previously announced number of $0.26 to the correct
net income per share — basic of $0.73. The previously
announced fourth quarter and fiscal year ended December 31,
2004 net income per share — diluted of $0.07 and $0.23
per share, respectively, are correct and remain unchanged.
26
The following table sets forth our results of operations,
expressed as percentages of revenues, for the years ended
December 31, 2004, 2003 and 2002.
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Years Ended December 31, | |
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|
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| |
|
2004 | |
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2003 | |
|
2002 | |
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|
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Net revenues
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|
|
100.0 |
% |
|
|
100.0 |
% |
|
|
100.0 |
% |
|
Cost of revenues
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|
|
25.0 |
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28.9 |
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36.3 |
|
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Gross profit
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75.0 |
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71.1 |
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63.7 |
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Operating expenses:
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| |
Sales and marketing
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42.6 |
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54.9 |
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77.0 |
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Research and development
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13.2 |
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16.8 |
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21.4 |
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General and administrative
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12.3 |
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12.0 |
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27.4 |
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Total operating expenses
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68.1 |
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83.7 |
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125.8 |
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Income (loss) from operations
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6.9 |
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(12.6 |
) |
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(62.1 |
) |
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Interest income (expense) and other, net
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1.2 |
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0.8 |
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2.8 |
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Income (loss) before provision for income taxes
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8.1 |
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(11.8 |
) |
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(59.3 |
) |
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Provision for income taxes
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0.6 |
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— |
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— |
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Net income (loss)
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|
7.5 |
% |
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(11.8 |
)% |
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(59.3 |
)% |
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Years Ended December 31, 2004, 2003 and 2002 |
The following table sets forth the percentage of net revenues
derived from the sale of disposable endovenous catheters, RF
generators and accessories for the years ended December 31,
2004, 2003 and 2002:
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|
|
|
|
|
|
|
|
| |
|
Year Ended | |
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|
December 31, | |
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|
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2004 | |
|
2003 | |
|
2002 | |
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|
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|
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Catheters
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|
|
77 |
% |
|
|
72 |
% |
|
|
67 |
% |
|
RF Generators
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|
18 |
% |
|
|
24 |
% |
|
|
31 |
% |
|
Accessories
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5 |
% |
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|
4 |
% |
|
|
2 |
% |
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|
|
|
|
|
|
|
|
|
| |
|
|
100 |
% |
|
|
100 |
% |
|
|
100 |
% |
| |
|
|
|
|
|
|
|
|
|
The following table sets forth the percentage of net revenues
from domestic and international sales for the years ended
December 31, 2004, 2003, and 2002:
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|
|
|
|
|
|
|
|
| |
|
Year Ended | |
| |
|
December 31, | |
| |
|
| |
| |
|
2004 | |
|
2003 | |
|
2002 | |
| |
|
| |
|
| |
|
| |
|
United States
|
|
|
96 |
% |
|
|
96 |
% |
|
|
94 |
% |
|
Europe
|
|
|
3 |
% |
|
|
3 |
% |
|
|
6 |
% |
|
Other international
|
|
|
1 |
% |
|
|
1 |
% |
|
|
— |
|
| |
|
|
|
|
|
|
|
|
|
| |
|
|
100 |
% |
|
|
100 |
% |
|
|
100 |
% |
| |
|
|
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|
|
|
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|
Net Revenues. Net revenues increased $16.4 million,
from $21.8 million in 2003 to $38.2 million in 2004.
Net revenues increased $11.8 million, from
$10.0 million in 2002 to $21.8 million in 2003. The
increases in 2004 and 2003 were primarily due to an increase in
the number of disposable catheters and RF generators sold as a
result of our increased direct selling and marketing efforts in
the United States. We expect net revenues to continue to
increase in 2005. During 2004, we shipped products to 708
customers in the United States, compared to 486 customers in
2003 and 276 customers in 2002. Disposable catheters represented
77%, RF generators represented 18% and accessories represented
5% of net revenues in 2004, compared to 72% for
27
disposable catheters, 24% for RF generators and 4% for
accessories in 2003, and 67% for disposable catheters, 31% for
RF generators and 2% for accessories in 2002. International
sales accounted for 4% of net revenues in 2004 and in 2003 and
6% of net revenues in 2002. The percent of net revenues from
international sales in 2004 was the same as in 2003 as our
international sales grew at a similar rate as our sales in the
United States. The percent of net revenues from international
sales decreased in 2003 from 2002 as our sales in the United
States grew substantially faster than our international sales.
We expect that the percent of net revenues from international
sales will remain at approximately 4% of net revenues in 2005.
Gross Profit. Cost of revenues increased
$3.2 million, from $6.3 million in 2003 to
$9.5 million in 2004. Cost of revenues increased
$2.7 million, from $3.6 million in 2002 to
$6.3 million in 2003. The increases in 2004 and 2003 were
primarily due to the increased number of disposable catheters
and RF generators sold, partially offset by lower direct
material, labor and overhead costs per unit in the production of
disposable catheters. Gross profit in 2004 was
$28.6 million, or 75% of net revenues, compared to
$15.5 million, or 71% of net revenues in 2003 and
$6.4 million, or 64% of net revenues in 2002. The increases
in gross profit margin percentage in 2004 and 2003 were
primarily due to the allocation of manufacturing overhead over a
greater number of units produced, as well as reduced direct
costs of production per unit of our disposable catheters.
Although we expect prices of our disposable catheters to decline
somewhat in 2005, we expect that our gross margin percentage in
2005 will remain at approximately 75% of net revenues.
Sales and Marketing Expenses. Sales and marketing
expenses increased $4.2 million, from $12.0 million in
2003 to $16.2 million in 2004. Sales and marketing expenses
increased $4.3 million, from $7.7 million in 2002 to
$12.0 million in 2003. The increase in 2004 was primarily
due to increased payroll and related expenses of
$3.4 million as compared to 2003 incurred in connection
with the addition of employees to our marketing and direct sales
organization, increased amortization of deferred stock
compensation expenses of $268,000 and increased product
promotion expenses of $196,000. The increase in 2003 was
primarily due to increased payroll and related expenses of
$2.4 million as compared to 2002 incurred in connection
with the addition of employees to our direct sales organization,
increased customer service and product promotion expenses of
$1.2 million and increased international sales and
marketing expenses of $670,000. We expect sales and marketing
expenses to increase in 2005 as we continue to expand our
marketing and direct sales organizations.
Research and Development Expenses. Research and
development expenses increased $1.3 million, from
$3.7 million in 2003 to $5.0 million in 2004. Research
and development expenses increased $1.5 million, from
$2.2 million in 2002 to $3.7 million in 2003. The
increase in 2004 was primarily due to increased new product
development expenses of $1.2 million and clinical study
expenses of $161,000. The increase in 2003 was primarily due to
increased new product development expenses of $1.3 million
and clinical study expenses of $200,000 We expect research and
development expenses to increase in 2005 as we continue to
develop potential new products and conduct new clinical studies.
General and Administrative Expenses. General and
administrative expenses increased $2.1 million from
$2.6 million in 2003 to $4.7 million in 2004. General
and administrative expenses decreased $140,000, from
$2.7 million in 2002 to $2.6 million in 2003. The
increase in 2004 was primarily due to increased professional
fees of $849,000, increased personnel expenses of $400,000,
increased facility-related expenses of $488,000, increased
amortization of deferred stock compensation of $205,000 as well
as an increase in insurance expenses and state and local taxes.
These increases were driven primarily by the costs of becoming
and operating as a public company. The decrease in 2003 was
primarily due to a decrease in amortization of deferred
stock-based compensation expenses of $132,000. We expect general
and administrative expenses to increase in 2005 primarily due to
complying with the provisions of section 404 of the
Sarbanes-Oxley Act of 2002 and other expenses associated with
being a public company.
Interest Income (Expense) and Other, Net. Interest income
(expense) and other, net increased $268,000, from $171,000
in 2003 to $439,000 in 2004. Interest income (expense) and
other, net decreased $112,000, from $283,000 in 2002 to $171,000
in 2003. The increase in 2004 was primarily due to increased
average cash balances in 2004 and to a lesser extent, higher
interest rates earned on our interest-bearing accounts. The
decrease in 2003 was primarily due to lower interest rates
earned on our interest-bearing
28
accounts and to a lesser extent decreased average cash balances
in 2003. We expect interest income (expense) and other to
increase in 2005 primarily due to expected increased average
cash balances.
Provision for Income Taxes. We have significant net
operating loss (“NOLs”) and tax credit carryforwards.
The $222,000 provision for income taxes in 2004 represents the
estimated state income taxes payable, reduced for the use of
NOLs and tax credit carryforwards. We recorded no provision for
income taxes in 2003 or 2002 due to net operating losses. We
expect to use NOLs and other tax carryforward amounts to the
extent taxable income is earned in 2005 and beyond. At
December 31, 2004, we had federal net operating loss
carryforwards of approximately $32.4 million and state net
operating loss carryforwards of approximately
$22.5 million. The federal net operating loss carryforwards
expire in various periods through 2022 and the state net
operating loss carryforwards expire in various periods through
2012. We have federal and state research tax credit
carryforwards of approximately $928,000 and $934,000,
respectively. The federal research credits expire in various
periods through 2022 and the state research credits can be
carried forward indefinitely. The amounts of and the benefits
from net operating loss and credit carryforwards may be impaired
in some circumstances. Events which may cause such limitations
include, but are not limited to, sale of equity securities and
other changes in ownership. We have historically experienced
significant operating losses and operate in an industry subject
to rapid technological changes. Therefore, we believe there is
sufficient uncertainty regarding our ability to generate future
taxable income and use these NOLs and tax credit carryforwards
such that a full valuation allowance for deferred tax assets was
required at December 31, 2004. Over the course of the next
year, we will review our position on our valuation allowance. If
we continue to remain profitable during the coming year, there
is a possibility that we will release our valuation allowance.
Prior to the release of the valuation allowance, to the extent
that we are profitable, our effective tax rate should continue
to be substantially less than the applicable statutory rates.
Following the release of our valuation allowance, our effective
tax rate will approximate the applicable statutory rates.
Liquidity and Capital Resources
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
December 31, | |
| |
|
| |
| |
|
2004 | |
|
2003 | |
|
2002 | |
| |
|
| |
|
| |
|
| |
|
Cash and cash equivalents
|
|
$ |
68,566 |
|
|
$ |
11,711 |
|
|
$ |
12,601 |
|
|
Working capital
|
|
|
70,681 |
|
|
|
12,713 |
|
|
|
14,530 |
|
|
Net cash provided (used) in operating activities
|
|
|
3,229 |
|
|
|
(680 |
) |
|
|
(4,651 |
) |
|
Net cash used in investing activities
|
|
|
(525 |
) |
|
|
(238 |
) |
|
|
(163 |
) |
|
Net cash provided by financing activities
|
|
|
54,151 |
|
|
|
28 |
|
|
|
39 |
|
We incurred net losses from inception through September 30,
2003 of $44.1 million and have been profitable in each
subsequent quarter. We currently invest our cash and cash
equivalents in a large money market fund consisting of debt
instruments of the U.S. government, its agencies and
high-quality corporate issuers. Since inception, we have
financed our operations primarily through private sales of
convertible preferred stock and common stock. In addition, we
raised $54.0 million, net of issuance costs, from our
initial public offering of common stock in October 2004.
Net cash provided from operating activities was
$3.2 million in 2004. Cash provided from operating
activities in 2004 was attributable primarily to net income
after adjustments for non-cash depreciation and amortization
charges, partially offset by increases in accounts receivable,
inventories, prepaid expenses, accounts payable and accrued
liabilities. Net cash used in operating activities was $680,000
and $4.7 million for the years ended 2003 and 2002,
respectively. Cash used in operating activities in 2003 and 2002
was attributable primarily to net losses after adjustment for
non-cash depreciation and amortization charges and increases in
accounts receivable associated with higher revenues, partially
offset by increased accounts payable balances. Inventory
balances increased $773,000 in 2004 from 2003 primarily to
accommodate the increased demand for our disposable catheters.
There was a decrease in inventory of approximately $608,000 from
December 31, 2002 to December 31, 2003. This decrease
was the result of stronger than expected product demand
coinciding with the introduction of a new model of disposable
catheter product during that period that replaced the earlier
model. We expect to continue to increase inventory balances as
our catheter sales increase.
29
Net cash used in investing activities was $525,000, $238,000 and
$163,000 for the years ended 2004, 2003 and 2002, respectively.
For each of these periods, cash used in investing activities
reflected purchases of property and equipment, primarily for
research and development, information technology, manufacturing
operations and capital improvements to our facilities.
Net cash provided by financing activities was $54.1 million
in 2004. This amount primarily reflect proceeds received upon
our initial public offering in October 2004 and the exercise of
stock options. Net cash provided by financing activities was
$28,000 in 2003 and $39,000 in 2002. The amounts in 2003 and
2002 reflect proceeds received upon the exercise of stock
options.
We expect that marketing, research and general and
administrative expenses will continue to increase in absolute
dollars in connection with the growth of our business and our
operations as a public company, including expenses associated
with compliance with Section 404 of the Sarbanes-Oxley Act
of 2002. We also expect to incur additional costs and expenses
to expand our manufacturing capacity. We expect to fund these
increased costs and expenditures from our cash flows from
operations and our existing cash balance. However, our future
capital requirements depend on numerous forward-looking factors.
These factors include and are not limited to the following: the
revenues generated by sales of our products; the costs
associated with expanding our manufacturing, marketing, sales
and distribution efforts; the rate of progress and cost of our
research and development activities; the costs of obtaining and
maintaining Food and Drug Administration and other regulatory
clearances of our products and products in development; the
effects of competing technological and market developments; the
cost associated with being a public company, including expenses
associated with compliance with Section 404 of the
Sarbanes-Oxley Act of 2002 and the number and timing of
acquisitions and other strategic transactions.
We believe that our current cash and cash equivalents, and cash
we expect to generate from operations, will be sufficient to
meet our anticipated cash needs for working capital and capital
expenditures for at least the next 12 months. However, we
may require additional funds in order to further develop the
marketplace, complete clinical studies and deliver new products
to our customers. We may seek financing of future cash needs
through the sale of equity securities and debt. We cannot assure
you that additional financing will be available when needed or
that, if available, such financing will be obtained on terms
favorable to us or our stockholders. Insufficient funds may
require us to delay, scale back or eliminate some or all of our
business operations or may adversely affect our ability to
operate as a going concern. If additional funds are obtained by
issuing equity or debt securities, substantial dilution to
existing stockholders may result.
Off-Balance Sheet Liabilities
We did not have any off-balance sheet liabilities as of
December 31, 2004.
Contractual Obligations and Capital Expenditure
Requirements
The following table summarizes our contractual obligations as of
December 31, 2004:
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Payments Due by Period |
| |
|
|
| |
|
|
|
Less than | |
|
1-3 | |
|
3-5 | |
|
More than |
| Contractual Obligations |
|
Total | |
|
1 Year | |
|
Years | |
|
Years | |
|
5 Years |
| |
|
| |
|
| |
|
| |
|
| |
|
|
| |
|
(In thousands) |
|
Operating lease obligations
|
|
$ |
1,955 |
|
|
$ |
771 |
|
|
$ |
1,183 |
|
|
$ |
1 |
|
|
$ |
— |
|
|
Purchase obligations
|
|
|
752 |
|
|
|
752 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Total
|
|
$ |
2,707 |
|
|
$ |
1,523 |
|
|
$ |
1,183 |
|
|
$ |
1 |
|
|
$ |
— |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
30
Risk Factors
We expect to derive substantially all of our future revenues
from sales of our Closure system. If our Closure system fails to
achieve substantial market acceptance we may not generate
sufficient revenues to continue our operations.
Currently, our primary product offering is our Closure system,
which is comprised of two components, our RF generator and our
disposable catheter. We commercially introduced our Closure
system in late 1998 in Europe and in 1999 in the United States.
We launched new generation RF generator in the fourth quarter of
2004. We expect that sales of our Closure system will continue
to account for substantially all of our revenues for at least
the next several years. Vein stripping and ligation surgery is
the current standard of care for the treatment of venous reflux
disease. This procedure is well established among physicians,
has extensive long-term data, is routinely taught to new
surgeons and has remained relatively unchanged for the past
50 years. By contrast, our Closure system is a relatively
new treatment procedure for venous reflux disease. We cannot
assure you that our Closure procedure will compete effectively
against vein stripping and ligation surgery. We may have
difficulty gaining widespread acceptance of our Closure system
among physicians for a number of reasons including:
|
|
|
| |
• |
lack of experience with our Closure procedure; |
| |
| |
• |
perceived liability risks associated with the use of new
technologies or procedures for venous reflux disease; |
| |
| |
• |
the results of any adverse long-term clinical studies relating
to the effectiveness of our Closure system; |
| |
| |
• |
the cost of our RF generator; |
| |
| |
• |
the availability of alternative treatments or procedures that
may be, or may be perceived as, more effective, safer, faster,
easier to use or less costly than our Closure system; and |
| |
| |
• |
if reimbursement from U.S. healthcare payors for the
Closure system is reduced or discontinued. |
If physicians do not adopt our Closure system, we will not
achieve greater, or maintain our current, revenues or remain
profitable.
Our success also depends on whether physicians view our Closure
system as effective and economically beneficial. We believe that
physicians will not adopt our Closure system unless they
determine, based on experience and other factors, that our
Closure system is an attractive alternative to other available
treatment methods, including vein stripping and EVL. We also
believe that recommendations and support of our Closure system
by influential physicians and other healthcare providers are
important for market acceptance and adoption.
In addition, we recommend that a physician performing the
Closure procedure use noninvasive ultrasound imaging to position
the catheter in the vein to be treated. The purchase of
ultrasound imaging equipment can cost $25,000 or more. Not all
physicians who may be otherwise qualified to perform the Closure
procedure have access to this equipment. Accordingly, physicians
who do not have access to ultrasound imaging equipment may not
find it sufficiently cost effective to begin performing the
Closure procedure.
We may experience significant fluctuations in our quarterly
results and we may not maintain our recent profitability.
Except for 2004, we have incurred net losses each year since our
inception, including losses of $6.0 million in 2002 and
$2.6 million in 2003. As of December 31, 2004, we had
an accumulated deficit of approximately $41.2 million. For
the year ended December 31, 2004, we had net income of
$2.9 million. However, we cannot assure you that we will
sustain profitability or that losses will not occur in the
future. The
31
fluctuations in our quarterly results of operations have and
will continue to result from numerous factors, including:
|
|
|
| |
• |
delays or interruptions in manufacturing and shipping of our
products; |
| |
| |
• |
practices of insurance companies and Medicare with respect to
reimbursement for our procedure and our products; |
| |
| |
• |
physician and patient acceptance of our products and procedures; |
| |
| |
• |
seasonal demand; |
| |
| |
• |
pricing of our products; |
| |
| |
• |
timing of new product introductions; |
| |
| |
• |
timing of orders received; |
| |
| |
• |
our ability to train physicians in performing the Closure
procedure; and |
| |
| |
• |
the effect of competing technological and market developments. |
These factors, some of which are not within our control, may
cause the price of our stock to fluctuate substantially. If our
quarterly operating results fail to meet or exceed the
expectations of securities analysts or investors, our stock
price could drop suddenly and significantly. We believe the
quarterly comparisons of our financial results are not
necessarily meaningful and should not be relied upon as an
indication of our future performance.
In addition, we anticipate that our operating expenses will
increase substantially in the foreseeable future as we expand
our sales and marketing, manufacturing and product development
activities and administrative staff. If sales do not continue to
grow, we may not be able to maintain profitability. Our
expansion efforts may prove more expensive than we currently
anticipate, and we may not succeed in increasing our revenues
sufficiently to offset these higher expenses. If we fail to do
so, the market price for our common stock will likely decline.
Competition from existing and new products and procedures may
decrease our market share and cause our revenues to decline.
The medical device industry, including the market for venous
reflux disease treatments, is highly competitive, subject to
rapid technological change and significantly affected by new
product introductions and market activities of other
participants. For example, in 2002 the first EVL product was
cleared for marketing in the United States.
Several companies are marketing EVL systems for the treatment of
venous reflux disease. These companies include AngioDynamics,
Inc., biolitec AG, Diomed Holdings, Inc., Dornier MedTech GmbH,
New Star Lasers, Inc., doing business as CoolTouch Inc., and
Vascular Solutions, Inc. These or other competitors may succeed
in developing additional products that are superior to our
Closure system or that otherwise render our Closure system
obsolete or noncompetitive. Some of these companies are larger
than VNUS or may enjoy competitive advantages, including:
|
|
|
| |
• |
established distribution networks; |
| |
| |
• |
established relationships with physicians; |
| |
| |
• |
products and procedures that are less expensive and take less
time to perform; |
| |
| |
• |
greater experience in launching, marketing, distributing and
selling products; |
| |
| |
• |
established relationships with healthcare providers and
payors; and |
| |
| |
• |
greater financial and other resources for product development,
sales and marketing and patent litigation. |
32
Because of the size of the venous reflux market, we anticipate
that new or existing competitors may develop competing products,
procedures or clinical solutions. These products, procedures or
solutions could prove to be more effective, faster, safer or
less costly than the Closure procedure. The introduction of new
products, procedures or clinical solutions by competitors may
result in price reductions, reduced margins or loss of market
share and may render our products obsolete. In addition, we have
begun to discount the sales price of our catheters to improve
our competitive position.
If we become subject to product liability claims, we may be
required to spend significant time and money in litigation or
otherwise pay significant damages that may exceed our insurance
coverage.
The manufacture and sale of our products may expose us to
product liability claims and product recalls, including those
that may arise from the misuse or malfunction of, or design
flaws in, our products, or use of our products with components
not manufactured by us. Our Closure procedure may result in a
variety of complications, some of which are potentially serious.
The most serious potential complications include a pulmonary
embolism, which is a blood clot that travels to the lungs and
may cause shortness of breath or even death, blood clots in deep
veins, skin burns and nerve inflammation. Successful results
using our Closure system are dependent upon physician technique.
Although we inform physicians of the risks associated with
failing to follow the proper technique when performing the
Closure procedure, we cannot assure you that these efforts will
prevent complications. For example, in September 2004, an
article published in the Journal of Vascular Surgery reported
the preliminary experience of a group of physicians that found a
16% incidence of blood clots extending into deep veins in the
first 73 legs they treated with the Closure procedure.
We carry product liability insurance that is limited in scope
and amount and may not be adequate to fully protect us against
product liability claims. We could be required to pay damages
that exceed our insurance coverage. Any product liability claim,
with or without merit, could result in an increase in our
product liability insurance rates or our inability to secure
coverage on reasonable terms, if at all. Even in the absence of
a claim, our insurance rates may rise in the future to a point
where we decide not to carry this insurance. Even a meritless or
unsuccessful product liability claim would be time consuming and
expensive to defend and could result in the diversion of our
management’s attention from our business. Any of these
events could negatively affect our earnings and financial
condition.
Our intellectual property rights may not provide meaningful
commercial protection for our products, which could enable third
parties to use our technology or methods, or very similar
technology or methods, and could reduce our ability to
compete.
Our success depends significantly on our ability to protect our
proprietary rights to the technologies used in our products. We
may need to assert claims or engage in litigation to protect our
proprietary rights, which could cause us to incur substantial
costs, could place significant strain on our financial
resources, and divert the attention of management from our
business. 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 adequately protect our
rights or permit us to gain or keep any competitive advantage.
Our patent applications may not issue as patents in a form that
will be advantageous to us. Our issued patents and those that
may issue in the future may be challenged, invalidated or
circumvented, which could limit our ability to stop competitors
from marketing related products. Although we have taken steps to
protect our intellectual property and proprietary technology,
there is no assurance that third parties will not be able to
design around our patents. In addition, although we have entered
into confidentiality agreements and intellectual property
assignment agreements with our employees, consultants and
advisors, such agreements 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 foreign countries may not protect our
intellectual property rights to the same extent as the laws of
the United States. Foreign countries generally do not allow
patents to cover methods for performing surgical procedures. If
our intellectual property does not provide significant
protection against
33
competition, our competitors could compete more directly with
us, which could result in a decrease in our market share. All of
these factors may harm our competitive position.
Inadequate levels of reimbursement for the Closure procedure
from governmental or other third-party payors could affect the
adoption or use of our Closure system and may cause our revenues
to decline.
Widespread adoption or use of our Closure system by the medical
community is unlikely to occur if physicians do not receive
sufficient reimbursement from payors for performing our Closure
procedure. To date, our Closure procedure typically has been
reimbursed by private healthcare insurance, managed care payors
and Medicare. Many private payors use reimbursement amounts
determined by the Centers for Medicare and Medicaid Services, or
CMS, which administers the Medicare program, as a guideline in
setting their reimbursement policies. Actions by CMS or other
government agencies may diminish reimbursement payments to
physicians, hospitals and outpatient surgery centers.
Additionally, some private payors do not follow the Medicare
guidelines and those payors may reimburse for only a portion of
our procedure or not at all. Some private party payors,
including PacifiCare, have deemed the Closure procedure
experimental and will not provide reimbursement until additional
long-term data is available or published. Even to the extent our
Closure procedure is reimbursed by private payors and
governmental payors, adverse changes in payors’ policies
toward reimbursement for the procedure would also harm our
ability to market and sell our Closure system.
We are unable to predict all changes to the reimbursement
methodologies that will be employed by private or governmental
third-party payors. In November 2004, the codes to be used for
2005 by third-party payors and Medicare to identify and
reimburse for our Closure procedure and the disposable catheters
and other supplies used in the procedure were published by the
American Medical Association, or AMA and CMS. Due to a wide
range of physician payment levels in 2004 for performing the
Closure procedure in a hospital setting, the 2005 payment rates
as established by CMS will be less for some physicians
performing the Closure procedure in a hospital setting than in
2004. As a result, some physicians who currently perform the
Closure procedure in a hospital may choose to perform the
procedure in an office setting, which may delay catheter
purchases, or they may reduce the number of procedures they
perform, in which case our business may be harmed. Additionally,
the establishment of new procedure codes by the AMA and
reimbursement payment rates by CMS does not guarantee the
coverage of those codes or procedures by private healthcare
insurers. Private healthcare insurers may establish payment
rates that are different from Medicare.
If doctors do not treat multiple veins during a procedure, or
perform varicose vein removal adjunctively with the Closure
procedure, some hospitals may view the 2005 reimbursement rate
as inadequate to support the purchase of our disposable
catheter. Furthermore, for some governmental payors, such as the
Medicaid program, reimbursement differs from state to state, and
some state Medicaid programs may not reimburse for our procedure
in an adequate amount, if at all. Any lack of private or
governmental third-party payor coverage or inadequate
reimbursement for procedures performed using our Closure system
could harm our business and reduce our revenues.
Our international success is dependent upon the availability of
reimbursement within prevailing foreign healthcare payment
systems. Reimbursement and healthcare payment systems in
international markets vary significantly by country and include
both government-sponsored healthcare and private insurance. In
addition, healthcare cost containment efforts similar to those
we face in the United States are prevalent in many of the other
countries in which we sell our Closure system, and these efforts
are expected to continue. To the extent our Closure system has
historically received reimbursement under a foreign healthcare
payment system; such reimbursement has typically been
significantly less than the reimbursement provided in the United
States. If adequate levels of reimbursement from governmental
and third-party payors outside of the United States are not
attained and maintained, sales of our Closure system outside of
the United States may decrease and we may fail to achieve or
maintain significant non-U.S. sales.
34
Our manufacturing operations are dependent upon third-party
suppliers, making us vulnerable to supply problems and price
fluctuations, which could harm our business.
In October 2004, we transitioned the manufacture of our RF
generators to Byers Peak, Inc. from Stellartech Research
Corporation. Byers Peak, Inc. is, and we expect for the
foreseeable future will be, a sole-source supplier of our RF
generators. We and our contract manufacturers also rely on
sole-source suppliers to manufacture some of the components used
in our products. Our manufacturers and suppliers may encounter
problems during manufacturing due to a variety of reasons,
including failure to follow specific protocols and procedures,
failure to comply with applicable regulations, including the
Food and Drug Administration’s Quality System Regulations,
equipment malfunction and environmental factors, any of which
could delay or impede our ability to meet demand. Our reliance
on these outside manufacturers and suppliers also subjects us to
other risks that could harm our business, including:
|
|
|
| |
• |
suppliers may make errors in manufacturing components that could
negatively affect the efficacy or safety of our products or
cause delays in shipment of our products; |
| |
| |
• |
we may not be able to obtain adequate supply in a timely manner
or on commercially reasonable terms; |
| |
| |
• |
we may have difficulty locating and qualifying alternative
suppliers for our disposable catheter components or RF
generators; |
| |
| |
• |
switching components may require product redesign and submission
to the FDA of a pre-market supplement or possibly a separate
pre-market approval, either of which could significantly delay
production; |
| |
| |
• |
our suppliers manufacture products for a range of customers, and
fluctuations in demand for the products those suppliers
manufacture for others may affect their ability to deliver
components for us in a timely manner; and |
| |
| |
• |
our suppliers may encounter financial hardships unrelated to our
demand for components, which could inhibit their ability to
fulfill our orders and meet our requirements. |
Any interruption or delay in the supply of components or
materials, or our inability to obtain components or materials
from alternate sources at acceptable prices in a timely manner,
could impair our ability to meet the demand of our customers and
cause them to cancel orders or switch to competitive procedures.
To mitigate the risk of supply interruptions from a sole-source
supplier, we may determine to maintain excess inventory of the
products or components they supply. Managing our inventory
levels is important to our cash position and results of
operations. An excessive amount of inventory reduces our cash
available for operations and may result in excess or obsolete
materials. Inadequate inventory levels may make it difficult for
us to meet customer product demand, resulting in decreased
revenues. An inability to forecast future revenues or estimated
life cycles of products may result in inventory-related charges
that would negatively affect our gross margins and results of
operations.
We depend on our officers and if we are not able to retain
them or recruit additional qualified personnel, our business
will suffer.
We are highly dependent on our President and Chief Executive
Officer, Brian E. Farley, and other officers. Due to the
specialized knowledge each of our officers possesses with
respect to our Closure system and our operations, the loss of
service of one or more of these individuals could significantly
affect our ability to operate and manage our business. We do not
have any insurance in the event of the death or disability of
any of these key personnel. Each of our officers may terminate
their employment without notice and without cause or good
reason. For example, our Vice President, Account and Market
Development, terminated his employment by us in the first
quarter of 2005. We are currently actively recruiting to fill
this open position.
35
To successfully grow our business we will need to attract
additional qualified management, technical and sales
personnel.
To successfully grow our business we will need to attract
additional qualified management, technical and sales personnel.
To succeed in the implementation of our business strategy, our
management team must rapidly execute our sales strategy, achieve
market acceptance for our Closure system and further develop
products, while managing anticipated growth by implementing
effective planning, manufacturing and operating processes.
Managing this growth will require us to attract and retain
additional management and technical personnel. Our offices are
located in San Jose, California, where competition for
employees with experience in the medical device industry is
intensely competitive. We rely on direct sales employees to sell
our Closure system in the United States. We plan to expand our
sales team and failure to adequately train our employees in the
use and benefits of our products will prevent us from achieving
our market share and revenue growth goals. We cannot assure you
that we will be able to attract and retain the additional
personnel necessary to grow and expand our business and
operations. If we fail to identify, attract, retain and motivate
these highly skilled personnel, we may be unable to continue our
development and sales activities.
The medical device industry is characterized by patent
litigation and we could become subject to litigation that could
be costly, result in the diversion of management’s
attention, require us to pay damages and discontinue selling our
products.
The medical device industry is characterized by extensive
litigation and administrative proceedings over patent and other
intellectual property rights. Whether a product infringes a
patent involves complex legal and factual issues, the
determination of which is often uncertain. Our competitors may
assert that our system or the methods we employ in the use of
our system are covered by U.S. or foreign patents held by
them. This risk is exacerbated by the fact that there are
numerous issued and pending patents relating to the use of RF
energy in catheter-based procedures in the medical technology
field. Because patent applications can take many years to issue,
there may be applications now pending of which we are unaware
that may later result in issued patents that our Closure system
may infringe. There could also be existing patents of which we
are unaware that one or more components of our system may
inadvertently infringe. As the number of competitors in the
market for the treatment of venous reflux disease grows, the
possibility of inadvertent patent infringement by us or a patent
infringement claim against us increases.
Any litigation or claim 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
business and harm our reputation. If the relevant patents were
upheld as valid and enforceable and we were found to infringe,
we could be prevented from selling our Closure system unless we
can obtain a license to use technology or ideas covered by such
patent or are able to redesign our Closure system to avoid
infringement. A license may not be available at all or on terms
acceptable to us, and we may not be able to redesign our
products to avoid any infringement. Modification of our products
or development of new products could require us to conduct
additional clinical trials and to revise our filings with the
Food and Drug Administration and other regulatory bodies, which
would be time-consuming and expensive. If we are not successful
in obtaining a license or redesigning our products, we may be
unable to sell our products and our business could suffer. In
addition, our patents are vulnerable to various invalidity
attacks, such as those based upon earlier patent applications,
patents, publications, products or processes, which might
invalidate or limit the scope of the protection that our patents
afford.
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. Accordingly, we
may in the future pursue the acquisition of complementary
businesses, products or technologies instead of developing them
ourselves. We have no current commitments with respect to any
acquisition or investment. We do not know if we will be able to
successfully complete any acquisitions, or whether we will be
able to successfully integrate
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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 increase our expenses.
We lack published long-term randomized trial data comparing
the efficacy of our Closure procedure with vein stripping and
EVL. If future data proves to be inconsistent with our clinical
results, our revenues may decline.
Currently, there is no randomized trial data beyond two years
comparing the long-term efficacy of the Closure procedure to
alternative treatments. Additional long-term patient follow-up
studies may indicate that the Closure procedure is not as safe
and effective as vein stripping or EVL. Currently available
published data from a comparative study of the Closure procedure
versus vein stripping is limited to the two-year period
following treatment. Data from an independent study comparing
clinical outcomes between the Closure procedure and EVL has not
been published. If new studies or comparative studies generate
results that are not as favorable as our clinical results, our
revenues may decline. Furthermore, physicians may choose not to
purchase our Closure system until they receive additional
published long-term clinical evidence and recommendations from
prominent physicians that indicate our Closure system
effectively treats venous reflux disease.
Any failure in our efforts to train physicians could reduce
the market acceptance of our Closure system and reduce our
revenues.
There is a learning process involved for physicians to become
proficient in the use of our Closure system. It is critical to
the success of our sales efforts to adequately train a
sufficient number of physicians and to provide them with
adequate instruction in the use of our Closure system. Following
completion of training, we rely on the trained physicians to
advocate the benefits of our products in the broader
marketplace. Convincing physicians to dedicate the time and
energy necessary for adequate training is challenging, and we
cannot assure you that we will be successful in these efforts.
If physicians are not properly trained, they may misuse or
ineffectively use our products. This may also result in
unsatisfactory patient outcomes, patient injury, negative
publicity or lawsuits against us, any of which could negatively
affect our reputation and sales of our Closure system.
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.
Some of our employees were previously employed at universities
or other medical device companies. Although there are no claims
currently pending against us, we may be subject to future claims
that these employees, or we, have inadvertently or otherwise
used or disclosed trade secrets or other proprietary information
of these 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 or sales personnel or their work product
could hamper or prevent our ability to improve our products or
sell our existing products, which would harm our business.
If we are unable to manufacture an adequate supply of our
products, we could lose customers and revenues and our growth
could be limited.
In order for us to maintain and expand our business successfully
within the United States and internationally, we must
manufacture commercial quantities of components that comprise
our Closure system in compliance with regulatory requirements at
an acceptable cost and on a timely basis. Our anticipated growth
may strain our ability to manufacture an increasingly large
supply of our products. Manufacturing facilities often
experience difficulties in scaling up production, including
problems with production yields and
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quality control and assurance. If we cannot scale our
manufacturing operations appropriately, maintain control over
expenses or otherwise adapt to anticipated growth, or if we have
underestimated our future growth, we may not have the capability
to satisfy market demand, which would harm our business.
We may be subject to fines, penalties or injunctions if we
are determined to be promoting the use of our products for
unapproved or “off-label” uses.
Although we believe our promotional materials and training
methods regarding physicians are conducted in compliance with
regulations of the Food and Drug Administration and other
applicable regulations, if the Food and Drug Administration
determines that our promotional materials or training
constitutes promotion of an unapproved use, it could request
that we modify our training or promotional materials or subject
us to regulatory enforcement actions, including the issuance of
a warning letter, injunction, seizure, civil fine and criminal
penalties. It is also possible that other federal, state or
foreign enforcement authorities might take action if they
consider promotional or training materials to constitute
promotion of an unapproved use, which could result in
significant fines or penalties under other statutory
authorities, such as laws prohibiting false claims for
reimbursement.
If we fail to comply with the extensive government
regulations relating to our business, we may be subject to
fines, injunctions and penalties.
Our products are classified as medical devices. Medical devices
are subject to extensive regulation in the United States by the
Food and Drug Administration and numerous other federal, state
and foreign governmental authorities. Food and Drug
Administration regulations specific to medical devices are wide
ranging and govern, among other things:
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design, development and manufacturing; |
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testing; |
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clinical trials in humans; |
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electronic product safety; |
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labeling; |
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storage; |
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marketing; |
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pre-market clearance or approval; |
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record keeping procedures; |
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advertising and promotion; |
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post-market surveillance and reporting of deaths, serious
injuries or malfunctions; and |
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export. |
Our manufacturing processes are required to comply with the Food
and Drug Administration’s Quality System Regulations, which
cover the procedures and documentation of the design, testing,
production, control, quality assurance, labeling, packaging,
sterilization, storage and shipping of our devices. The Food and
Drug Administration enforces its Quality System Regulations
through periodic unannounced inspections and if our
manufacturing facility fails a Quality System inspection, our
operations could be disrupted and our manufacturing interrupted.
Failure to take adequate and timely corrective action in
response to an adverse Quality System inspection could force a
shutdown of our manufacturing operations or a recall of our
products.
Compliance with these regulations can be complex, expensive and
time-consuming. While we believe we and our third-party
manufacturers and suppliers have complied with these regulations
in the past, and continue to do so on an ongoing basis, our
failure to comply with such regulations could lead to the
imposition of injunctions, suspensions or loss of regulatory
approvals, product recalls, orders for repair, replacement or
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refund, customer notifications, termination of distribution,
product seizures or civil penalties. In the most egregious
cases, criminal sanctions or closure of our manufacturing
facilities or those of our suppliers are possible. If we are
required to shut down our manufacturing operations or recall any
of our products, we may not be able to provide our customers
with the quantity of products they require, and we could lose
customers and suffer reduced revenue. If we are unable to obtain
sufficient quantities of high quality products to meet customer
demand on a timely basis, we could lose customers, our growth
may be limited and our business could be harmed.
We are also subject to medical device reporting regulations that
require us to report to the Food and Drug Administration if our
products cause or contribute to a death or serious injury or if
they malfunction. As of December 31, 2004, we have
submitted 41 medical device reports. In 36 cases, a thrombus, or
blood clot, was noticed at varying lengths of time after the
Closure procedure was performed. In four cases, the patient
developed a pulmonary embolism. In March, 2005 we received a
report that a patient treated with a motorized varicose vein
treatment device and our radiofrequency ablation catheter was
admitted to a hospital and diagnosed with a pulmonary embolism
13 days after the procedure and died the following day. We
reported this event to the FDA via the MDR process. Information
on the events leading to the patient’s death is incomplete.
The treating physician’s office has informed us that the
patient was free of deep vein thrombosis at a routine ultrasound
scan performed two days after the procedure. The next day the
patient contacted the physician’s office indicating the
patient did not feel well. The patient was then seen by the
treating physician seven days after treatment. On the 12th day
after treatment the patient reported shortness of breath and saw
a primary care physician who referred the patient to a hospital
emergency room. The patient was admitted to the hospital and
diagnosed with pulmonary emboli. No treatment details are
available. We do not have sufficient information to determine
which of the two procedures may have caused, or had a major
contribution to the pulmonary emboli. We have not received any
report of malfunction of the equipment used in the Closure
procedure. This is the first report we have received of a
patient death following treatment with our catheter or system.
Pulmonary embolism is a known risk from any surgical procedure
including our radiofrequency procedure, and is described in our
risk factors and product labeling. We believe that none of these
incidents were caused by design faults or defects in the
product, however, it is possible that claims could be made
against us alleging that our products are defective or unsafe.
Our failure to comply with applicable regulatory requirements
could result in enforcement action by the Food and Drug
Administration, which may include any of the above sanctions. In
addition, the identification of serious safety risks could
result in product recall or withdrawal of our clearance or
approval. The imposition of any one or more of these penalties
could have a negative effect on our production, product sales
and profitability.
Our third party component manufacturers may also be subject to
the same sanctions and, as a result, may be unable to supply
components for our products. Any failure to retain governmental
clearances or approvals that we currently hold or to obtain
additional similar clearances or approvals could prevent us from
successfully marketing our products and technology and could
harm our operating results. Furthermore, changes in the
applicable governmental regulations could prevent further
commercialization of our products and technologies and could
harm our business.
We spend considerable time and money complying with federal,
state and foreign regulations and, if we are unable to fully
comply with such regulations, we could face substantial
penalties.
We are directly or indirectly through our customers, subject to
extensive regulation by both the federal government and the
states and foreign countries in which we conduct our business.
The laws that directly or indirectly affect our ability to
operate our business include, but are not limited to, the
following:
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The Federal Food, Drug, and Cosmetic Act, which regulates the
design, testing, manufacture, labeling, marketing, distribution
and sale of prescription drugs and medical devices; |
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state food and drug laws; |
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the federal Anti-Kickback Law, which prohibits persons from
knowingly and willfully soliciting, offering, receiving or
providing remuneration, directly or indirectly, in cash or in
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the referral of an individual, or furnishing or arranging for a
good or service, for which payment may be made under federal
healthcare programs such as the Medicare and Medicaid Programs; |
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Medicare laws and regulations that prescribe the requirements
for coverage and payment, including the amount of such payment,
and laws prohibiting false claims for reimbursement under
Medicare and Medicaid; |
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the federal physician self-referral prohibition, commonly known
as the Stark Law, which, in the absence of a statutory or
regulatory exception, prohibits the referral of Medicare
patients by a physician to an entity for the provision of
designated healthcare services, if the physician or a member of
the physician’s immediate family has a direct or indirect
financial relationship, including an ownership interest in, or a
compensation arrangement with, the entity and also prohibits
that entity from submitting a bill to a federal payor for
services rendered pursuant to a prohibited referral; |
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state laws that prohibit the practice of medicine by
non-physicians and fee-splitting arrangements between physicians
and non-physicians, as well as state law equivalents to the
Anti-Kickback Law and the Stark Law, which may not be limited to
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the Federal Trade Commission Act and similar laws regulating
advertising and consumer protection. |
If our past or present operations are found to be in violation
of any of the laws described above or the other governmental
regulations to which we or our customers are subject, we may be
subject to the applicable penalty associated with the violation,
including civil and criminal penalties, damages, fines,
exclusion from the Medicare and Medicaid programs and the
curtailment or restructuring of our operations. If we are
required to obtain permits or licensure under these laws that we
do not already possess, we may become subject to substantial
additional regulation or incur significant expense. Any
penalties, damages, fines, curtailment or restructuring of our
operations would adversely affect our ability to operate our
business and our financial results. The risk of our being found
in violation of these laws is increased by the fact that many of
them have not been fully interpreted by applicable regulatory
authorities or the courts, and their provisions are open to a
variety of interpretations and additional legal or regulatory
change. Any action against us for violation of these laws, even
if we successfully defend against it, could cause us to incur
significant legal expenses, divert our management’s
attention from the operation of our business and damage our
reputation.
Product sales or introductions may be delayed or canceled as
a result of the Food and Drug Administration regulatory process,
which could cause our sales or profitability to decline.
The process of obtaining and maintaining regulatory approvals
and clearances to market a medical device from the Food and Drug
Administration and similar regulatory authorities abroad can be
costly and time consuming, and we cannot assure you that such
approvals and clearances will be granted. Pursuant to Food and
Drug Administration regulations, unless exempt, the Food and
Drug Administration permits commercial distribution of a new
medical device only after the device has received 510(k)
clearance or is the subject of an approved pre-market approval
application. The Food and Drug Administration will clear
marketing of a medical device through the 510(k) process if it
is demonstrated that the new product is substantially equivalent
to other 510(k)-cleared products. The pre-market approval
application process is more costly, lengthy and uncertain than
the 510(k) process, and must be supported by extensive data,
including data from preclinical studies and human clinical
trials. Because we cannot assure you that any new products, or
any product enhancements, that we develop will be subject to the
shorter 510(k) clearance process, significant delays in the
introduction of any new products or product enhancement may
occur. We cannot assure you that the Food and Drug
Administration will not require a new product or product
enhancement go through the lengthy and expensive pre-market
approval application process.
Delays in obtaining regulatory clearances and approvals may:
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delay or eliminate commercialization of products we develop; |
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require us to perform costly procedures; |
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diminish any competitive advantages that we may attain; and |
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reduce our ability to collect revenues or royalties. |
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Although we have obtained 510(k) clearance from the Food and
Drug Administration to market the Closure system, we cannot
assure you that the clearance of our Closure system will not be
withdrawn or that we will not be required to obtain new
clearances or approvals for modifications or improvements to our
products.
Modifications to our Closure system may require new marketing
clearances or approvals or require us to cease marketing or
recall the modified products until such clearance or approvals
are obtained.
Any modification to a 510(k)-cleared device that could
significantly affect its safety or effectiveness, or that would
constitute a major change in its intended use, design or
manufacture, requires a new 510(k) clearance or, possibly,
approval of a pre-market approval application. The Food and Drug
Administration requires every manufacturer to make this
determination in the first instance, but the Food and Drug
Administration may review any manufacturer’s decision. We
have made modifications to elements of our Closure system for
which we have not sought additional 510(k) clearance. The Food
and Drug Administration may not agree with our decisions
regarding whether new clearances or approvals are required. If
the Food and Drug Administration disagrees with us, we may be
required to cease marketing or to recall the modified product
until we obtain clearance or approval. In addition, we could be
subject to significant regulatory fines or penalties.
Furthermore, our products could be subject to recall if the Food
and Drug Administration determines, for any reason, that our
products are not safe or effective. Delays in receipt or failure
to receive clearances or approvals, the loss of previously
received clearances or approvals, or the failure to comply with
existing or future regulatory requirements could reduce our
sales, profitability and future growth prospects.
We sell the Closure system internationally and are subject to
various risks relating to such international activities which
could harm our international sales and profitability.
During the years ended December 31, 2004 and
December 31, 2003, 4% and 4%, respectively, of our net
revenues were attributable to international markets. By doing
business in international markets, we are exposed to risks
separate and distinct from those we face in our domestic
operations. Our international business may be adversely affected
by changing economic conditions in foreign countries. Because
most of our sales are currently denominated in
U.S. dollars, if the value of the U.S. dollar
increases relative to foreign currencies, our products could
become more costly to the international consumer and therefore
less competitive in international markets, which could affect
our profitability. Furthermore, while currently only a small
percentage of our sales are denominated in
non-U.S. currency, this percentage may increase in the
future, in which case fluctuations in exchange rates could
affect demand for our products. Engaging in international
business inherently involves a number of other difficulties and
risks, including:
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export restrictions and controls relating to technology; |
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the availability and level of reimbursement within prevailing
foreign healthcare payment systems; |
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pricing pressure that we may experience internationally; |
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required compliance with existing and changing foreign
regulatory requirements and laws; |
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laws and business practices favoring local companies; |
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longer payment cycles; |
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difficulties in enforcing agreements and collecting receivables
through certain foreign legal systems; |
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political and economic instability; |
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potentially adverse tax consequences, tariffs and other trade
barriers; |
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international terrorism and anti-American sentiment; |
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difficulties and costs of staffing and managing foreign
operations; and |
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difficulties in enforcing intellectual property rights. |
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Our exposure to each of these risks may increase our costs,
lengthen our sales cycle and require significant management
attention. We cannot assure you that one or more of these
factors will not harm our business.
Our stock price may be volatile which may cause the value of
our stock to decline or subject us to a securities class action
litigation.
The trading price of our common stock is likely to be highly
volatile and could be subject to wide fluctuations in price in
response to various factors, many of which are beyond our
control, including:
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the depth and liquidity of the market for our common stock; |
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volume and timing of orders for our products; |
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developments generally affecting medical device companies; |
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the announcement of new products or product enhancements by us
or our competitors; |
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changes in earnings estimates or recommendations by securities
analysts; |
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investor perceptions of us and our business, including changes
in market valuations of medical device companies; |
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actions by institutional or other large stockholders; |
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our results of operations and financial performance; and |
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general economic, industry and market conditions. |
In addition, the stock market in general, and The NASDAQ
National Market and the market for medical devices in
particular, have experienced substantial price and volume
volatility that is often seemingly unrelated to the operating
performance of particular companies. These broad market
fluctuations may cause the trading price of our common stock to
decline. In the past, securities class action litigation has
often been brought against a company after a period of
volatility in the market price of its common stock. We may
become involved in this type of litigation in the future. Any
securities litigation claims brought against us could result in
substantial expense and the diversion of management’s
attention from our business.
Our business may be harmed by a natural disaster, terrorist
attacks or other unanticipated problems.
Our manufacturing and office facilities are located in a single
building in San Jose, California. Despite precautions taken
by us, a natural disaster such as fire or earthquake, a
terrorist attack or other unanticipated problems at this
building could interrupt our ability to manufacture our products
or operate our business. These disasters or problems may also
destroy our product inventories. While we carry insurance for
certain natural disasters and business interruption, any
prolonged or repeated disruption or inability to manufacture our
products or operate our business could result in losses that
exceed the amount of coverage provided by this insurance, and in
such event could harm our business.
Our future capital needs are uncertain; we may need to raise
additional funds in the future and such funds may not be
available on acceptable terms, if at all.
We believe that the net proceeds from our initial public
offering, completed in October 2004, together with our current
cash, cash equivalents and short-term investments, will be
sufficient to meet our projected capital requirements for at
least the next 12 months. 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 manufacturing,
marketing, sales and distribution efforts; |
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the rate of progress and cost of our research and development
activities; |
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the costs of obtaining and maintaining Food and Drug
Administration and other regulatory clearance of our products
and products in development; |
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the effects of competing technological and market
developments; and |
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the number and timing of acquisitions and other strategic
transactions. |
As a result of these factors, we may need to raise additional
funds, and we cannot be certain that such funds will be
available to us on acceptable terms, if 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 potentially valuable rights to our future 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 expand our operations, develop new
products, take advantage of future opportunities or respond to
competitive pressures or unanticipated customer requirements.
Concentration of ownership among our existing directors,
executive officers and principal stockholders may prevent new
investors from influencing significant corporate decisions.
Our executive officers, directors and greater than 10%
stockholders directly or indirectly beneficially own or control
greater than a majority of our outstanding shares of common
stock. These executive officers, directors and significant
stockholders, acting as a group, have substantial control over
the outcome of corporate actions requiring stockholder approval,
including the election of directors, any merger, consolidation
or sale of all or substantially all of our assets or any other
significant corporate transactions. Some of these persons or
entities may have interests different than our other
stockholders. For example, these stockholders may delay or
prevent a change of control of us, even if such a change of
control would benefit our other stockholders, and these persons
or entities may pursue strategies that are different from the
wishes of other investors.
Anti-takeover provisions in our organizational documents and
Delaware law may discourage or prevent a change of control, even
if an acquisition would be beneficial to our stockholders, which
could cause our stock price to decline and prevent attempts by
our stockholders to replace or remove our current management.
In addition to the effect that the concentration of ownership by
our officers, directors and significant stockholders may have,
our amended and restated certificate of incorporation and our
amended and restated bylaws contain provisions that may enable
our management to resist a change in control. These provisions
may discourage, delay or prevent a change in the ownership of
our company or a change in our management. In addition, these
provisions could limit the price that investors would be willing
to pay in the future for shares of our common stock. Such
provisions include:
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our board of directors is authorized, without prior stockholder
approval, to create and issue preferred stock, commonly referred
to as “blank check” preferred stock, with rights
senior to those of common stock; |
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advance notice requirements for stockholders to nominate
individuals to serve on our board of directors or for
stockholders to submit proposals that can be acted upon at
stockholder meetings; |
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our board of directors is classified so that not all members of
our board of directors are elected at one time, which may make
it more difficult for a person who acquires control of a
majority of our outstanding voting stock to replace our
directors; |
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stockholder action by written consent is prohibited; |
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special meetings of our stockholders are permitted to be called
only by a majority of our board of directors, the chairman of
our board of directors or our president; |
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stockholders are not permitted to cumulate their votes for the
election of directors; |
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newly created directorships resulting from an increase in the
authorized number of directors or vacancies on our board of
directors are to be filled only by majority vote of the
remaining directors, even though less than a quorum is then in
office; |
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our board of directors is expressly authorized to modify, alter
or repeal our bylaws; and |
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stockholders are permitted to amend our bylaws only upon
receiving at least 75% of the votes entitled to be cast by
holders of all outstanding shares then entitled to vote
generally in the election of directors, voting together as a
single class. |
We are also 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, amended and
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.
If there are substantial sales of our common stock, our stock
price could decline.
If our existing stockholders sell a large number of shares of
our common stock or the public market perceives that existing
stockholders might sell shares of common stock, the market price
of our common stock could decline significantly. As of
March 15, 2005, we had 14,424,373 shares of common
stock outstanding. Of this number, all of the
5,375,995 shares offered in our initial public offering are
freely tradable without restriction or further registration
under the federal securities laws, unless held by our
“affiliates” as that term is defined in Rule 144
under the Securities Act of 1933. All of the remaining
9,048,378 shares outstanding may be sold pursuant to
Rule 144, 144(k) and 701 upon the expiration of lock-up
agreements that are currently expected to expire on or about
April 18, 2005.
Additionally, existing stockholders holding an aggregate of
approximately 7,800,000 shares of common stock, including
shares of common stock underlying warrants, have the right,
subject to some conditions, to require us to file a registration
statement with the Securities and Exchange Commission or include
their shares in registration statements that we may file for
ourselves or other stockholders. If we register their shares of
common stock following the expiration of the lock-up agreements,
they can freely sell those shares in the public market.
If we fail to maintain the adequacy of our internal controls,
our ability to provide accurate financial reports could be
impaired, and any failure to maintain our internal controls and
provide accurate financial reports would cause our market price
to decrease substantially.
Effective internal controls are necessary for us to provide
reliable financial reports and help prevent fraud. We are
continuously evaluating and working to improve our internal
controls. Our evaluation may conclude that enhancements,
modifications or changes to our internal controls are necessary
to satisfy the requirements of Sarbanes-Oxley Act of 2002. We
cannot be certain that the measures we implement will ensure
that we maintain adequate controls over our financial processes
and reporting in the future. Any failure to implement required
new or improved controls, or difficulties encountered in their
implementation, could harm our operating results or cause us to
fail to meet our financial reporting obligations. Any failure to
maintain the adequacy of our internal controls and provide
accurate financial reports could subject us to costly
litigation, could make it difficult to attract and retain
quality management personnel and could have a negative effect on
the market price of our stock.
44
Item 7A: Quantitative and
Qualitative Disclosures about Market Risk
To date, substantially all of our sales have been denominated in
U.S. dollars. Approximately 1% of total sales have been
denominated in currencies other than U.S. dollars.
Accordingly, we believe that there is currently no material
exposure to risk from changes in foreign currency exchange rates.
Our exposure to interest rate risk at December 31, 2004 is
related to our investment of our excess cash and cash
equivalents in debt instruments of the U.S. government and
its agencies, in high-quality corporate issuers, via a large
money market fund. This fund maintains an average investment
maturity of 90 days or less. Due to the short-term nature
of these investments, we believe that there is currently no
material exposure to interest rate risk arising from our
investments.
45
|
|
| Item 8: |
Consolidated Financial Statements and Supplementary
Data |
VNUS MEDICAL TECHNOLOGIES, INC. AND SUBSIDIARY
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
46
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders of
VNUS Medical Technologies, Inc and Subsidiary:
In our opinion, the consolidated financial statements listed in
the index appearing under Item 15(a)(1) present fairly, in
all material respects, the financial position of VNUS Medical
Technologies, Inc., and its subsidiary at December 31, 2004
and 2003 and the results of their operations and their cash
flows for each of the three years in the period ended
December 31, 2004, 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
index appearing under Item 15(a)(2) presents fairly, in all
material respects, the information set forth therein when read
in conjunction with the related consolidated financial
statements. These financial statements and financial statement
schedule are the responsibility of the Company’s
management. Our responsibility is to express an opinion on these
financial statements and financial statement schedule based on
our audits. We conducted our audits of these statements in
accordance with the standards of the Public Company Accounting
Oversight Board (United States). Those standards require that we
plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material
misstatement. An audit includes 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. We believe that our
audits provide a reasonable basis for our opinion.
/s/ PricewaterhouseCoopers LLP
San Jose, California
March 31, 2005
47
VNUS MEDICAL TECHNOLOGIES, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
| |
|
|
|
|
|
|
|
|
|
|
|
| |
|
December 31, | |
| |
|
| |
| |
|
2004 | |
|
2003 | |
| |
|
| |
|
| |
| |
|
(in thousands, except | |
| |
|
share data) | |
|
ASSETS |
|
Current assets:
|
|
|
|
|
|
|
|
|
| |
Cash and cash equivalents
|
|
$ |
68,566 |
|
|
$ |
11,711 |
|
| |
Accounts receivable, net of allowance for doubtful accounts of
$195 and $192, respectively
|
|
|
5,347 |
|
|
|
3,330 |
|
| |
Inventory
|
|
|
1,644 |
|
|
|
871 |
|
| |
Prepaid expenses and other current assets
|
|
|
677 |
|
|
|
242 |
|
| |
|
|
|
|
|
|
| |
|
Total current assets
|
|
|
76,234 |
|
|
|
16,154 |
|
|
Property and equipment, net
|
|
|
1,096 |
|
|
|
991 |
|
|
Other assets
|
|
|
642 |
|
|
|
644 |
|
| |
|
|
|
|
|
|
| |
|
|
Total assets
|
|
$ |
77,972 |
|
|
$ |
17,789 |
|
| |
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS’ EQUITY |
|
Current liabilities:
|
|
|
|
|
|
|
|
|
| |
Accounts payable
|
|
$ |
1,242 |
|
|
$ |
884 |
|
| |
Accrued liabilities
|
|
|
4,311 |
|
|
|
2,557 |
|
| |
|
|
|
|
|
|
| |
|
Total current liabilities
|
|
|
5,553 |
|
|
|
3,441 |
|
|
Other liabilities
|
|
|
111 |
|
|
|
107 |
|
| |
|
|
|
|
|
|
| |
|
Total liabilities
|
|
|
5,664 |
|
|
|
3,548 |
|
| |
|
|
|
|
|
|
|
Commitments and contingencies (Note 7)
|
|
|
|
|
|
|
|
|
| |
|
Stockholders’ equity:
|
|
|
|
|
|
|
|
|
| |
Convertible preferred stock: $0.001 par value; 10,000,000
authorized; none issued and outstanding at December 31,
2004 and 50,000,000 shares authorized;
25,186,747 shares issued and outstanding at
December 31, 2003
|
|
|
— |
|
|
|
25 |
|
| |
Common stock: $0.001 par value; 56,666,666 authorized,
14,371,439 issued and outstanding at December 31, 2004; and
21,000,000 shares authorized, 1,329,369 shares issued
and outstanding at December 31, 2003
|
|
|
14 |
|
|
|
1 |
|
| |
Additional paid-in capital
|
|
|
114,698 |
|
|
|
58,686 |
|
| |
Deferred stock compensation
|
|
|
(1,231 |
) |
|
|
(432 |
) |
| |
Accumulated deficit
|
|
|
(41,173 |
) |
|
|
(44,039 |
) |
| |
|
|
|
|
|
|
| |
|
Total stockholders’ equity
|
|
|
72,308 |
|
|
|
14,241 |
|
| |
|
|
|
|
|
|
| |
|
Total liabilities and stockholders’ equity
|
|
$ |
77,972 |
|
|
$ |
17,789 |
|
| |
|
|
|
|
|
|
The accompanying notes are an integral part of these
consolidated financial statements.
48
VNUS MEDICAL TECHNOLOGIES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Year Ended December 31, | |
| |
|
| |
| |
|
2004 | |
|
2003 | |
|
2002 | |
| |
|
| |
|
| |
|
| |
| |
|
(in thousands, except share and | |
| |
|
per share data) | |
|
Net revenues
|
|
$ |
38,166 |
|
|
$ |
21,838 |
|
|
$ |
10,041 |
|
|
Cost of
revenues(1)
|
|
|
9,542 |
|
|
|
6,311 |
|
|
|
3,646 |
|
| |
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
28,624 |
|
|
|
15,527 |
|
|
|
6,395 |
|
| |
|
|
|
|
|
|
|
|
|
|
Operating expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales and
marketing(1)
|
|
|
16,235 |
|
|
|
11,997 |
|
|
|
7,728 |
|
|
Research and
development(1)
|
|
|
5,034 |
|
|
|
3,676 |
|
|
|
2,156 |
|
|
General and
administrative(1)
|
|
|
4,706 |
|
|
|
2,609 |
|
|
|
2,749 |
|
| |
|
|
|
|
|
|
|
|
|
| |
|
Total operating expenses
|
|
|
25,975 |
|
|
|
18,282 |
|
|
|
12,633 |
|
| |
|
|
|
|
|
|
|
|
|
|
Income (loss) from operations
|
|
|
2,649 |
|
|
|
(2,755 |
) |
|
|
(6,238 |
) |
|
Interest income (expense) and other income, net
|
|
|
439 |
|
|
|
171 |
|
|
|
283 |
|
| |
|
|
|
|
|
|
|
|
|
|
Income (loss) before provision for taxes
|
|
|
3,088 |
|
|
|
(2,584 |
) |
|
|
(5,955 |
) |
|
Provision for income taxes
|
|
|
222 |
|
|
|
— |
|
|
|
— |
|
| |
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$ |
2,866 |
|
|
$ |
(2,584 |
) |
|
$ |
(5,955 |
) |
| |
|
|
|
|
|
|
|
|
|
|
Net income (loss) per share (see Note 2)
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Basic
|
|
$ |
0.73 |
|
|
$ |
(1.97 |
) |
|
$ |
(4.73 |
) |
| |
|
|
|
|
|
|
|
|
|
| |
Diluted
|
|
$ |
0.23 |
|
|
$ |
(1.97 |
) |
|
$ |
(4.73 |
) |
| |
|
|
|
|
|
|
|
|
|
|
Weighted average number of shares used in per share calculations
(see Note 2)
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Basic
|
|
|
3,946 |
|
|
|
1,309 |
|
|
|
1,260 |
|
| |
|
|
|
|
|
|
|
|
|
| |
Diluted
|
|
|
12,368 |
|
|
|
1,309 |
|
|
|
1,260 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
| (1) |
Includes the following stock-based compensation |
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Year Ended December 31, | |
| |
|
| |
| |
|
2004 | |
|
2003 | |
|
2002 | |
| |
|
| |
|
| |
|
| |
|
Cost of revenues
|
|
$ |
90 |
|
|
$ |
56 |
|
|
$ |
51 |
|
|
Sales and marketing
|
|
|
525 |
|
|
|
257 |
|
|
|
342 |
|
|
Research and development
|
|
|
84 |
|
|
|
89 |
|
|
|
160 |
|
|
General and administrative
|
|
|
352 |
|
|
|
146 |
|
|
|
278 |
|
| |
|
|
|
|
|
|
|
|
|
| |
|
$ |
1,051 |
|
|
$ |
548 |
|
|
$ |
831 |
|
| |
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these
consolidated financial statements.
49
VNUS MEDICAL TECHNOLOGIES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Convertible | |
|
|
|
|
|
|
|
|
|
|
| |
|
Preferred Stock | |
|
Common Stock | |
|
Additional | |
|
Deferred | |
|
|
|
Total | |
| |
|
| |
|
| |
|
Paid-In | |
|
Stock | |
|
Accumulated | |
|
Shareholders’ | |
| |
|
Shares | |
|
Amount | |
|
Shares | |
|
Amount | |
|
Capital | |
|
Compensation | |
|
Deficit | |
|
Equity | |
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
| |
|
(in thousands, except share and per share data) | |
|
Balances at December 31, 2001
|
|
|
25,186,747 |
|
|
|
25 |
|
|
|
1,265,225 |
|
|
|
1 |
|
|
|
58,065 |
|
|
|
(1,292 |
) |
|
|
(35,500 |
) |
|
|
21,299 |
|
| |
Exercise of stock options for cash at $0.44 -
$1.50 per share
|
|
|
— |
|
|
|
— |
|
|
|
42,803 |
|
|
|
— |
|
|
|
39 |
|
|
|
— |
|
|
|
— |
|
|
|
39 |
|
| |
Deferred stock compensation for stock option grants
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
140 |
|
|
|
(140 |
) |
|
|
— |
|
|
|
— |
|
| |
Fair value of options issued for services
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
23 |
|
|
|
— |
|
|
|
— |
|
|
|
23 |
|
| |
Amortization of deferred stock compensation
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
808 |
|
|
|
— |
|
|
|
808 |
|
|
Net loss
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(5,955 |
) |
|
|
(5,955 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances at December 31, 2002
|
|
|
25,186,747 |
|
|
|
25 |
|
|
|
1,308,028 |
|
|
|
1 |
|
|
|
58,267 |
|
|
|
(624 |
) |
|
|
(41,455 |
) |
|
|
16,214 |
|
| |
Exercise of stock options for cash at $0.44 -
$1.50 per share
|
|
|
— |
|
|
|
— |
|
|
|
21,341 |
|
|
|
— |
|
|
|
28 |
|
|
|
— |
|
|
|
— |
|
|
|
28 |
|
| |
Deferred stock compensation for stock option grants
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
401 |
|
|
|
(366 |
) |
|
|
— |
|
|
|
35 |
|
| |
Fair value of options issued for services
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
22 |
|
|
|
— |
|
|
|
— |
|
|
|
22 |
|
| |
Cancellation of options
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(32 |
) |
|
|
32 |
|
|
|
— |
|
|
|
— |
|
| |
Amortization of deferred stock compensation
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
526 |
|
|
|
— |
|
|
|
526 |
|
|
Net loss
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(2,584 |
) |
|
|
(2,584 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances at December 31, 2003
|
|
|
25,186,747 |
|
|
|
25 |
|
|
|
1,329,369 |
|
|
|
1 |
|
|
|
58,686 |
|
|
|
(432 |
) |
|
|
(44,039 |
) |
|
|
14,241 |
|
| |
Exercise of warrants for Series C preferred stock
|
|
|
33,006 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
| |
Net exercise of warrants for common stock
|
|
|
— |
|
|
|
— |
|
|
|
2,602 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
| |
Exercise of stock options for cash at $0.04 -
$7.14 per share
|
|
|
— |
|
|
|
— |
|
|
|
82,871 |
|
|
|
— |
|
|
|
149 |
|
|
|
— |
|
|
|
— |
|
|
|
149 |
|
| |
Deferred stock compensation for stock option grants
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
1,701 |
|
|
|
(1,701 |
) |
|
|
— |
|
|
|
— |
|
| |
Fair value of options issued for services
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
181 |
|
|
|
— |
|
|
|
— |
|
|
|
181 |
|
| |
Cancellation of options
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(32 |
) |
|
|
32 |
|
|
|
— |
|
|
|
— |
|
| |
Conversion of preferred stock to common stock
|
|
|
(25,219,753 |
) |
|
|
(25 |
) |
|
|
8,957,389 |
|
|
|
9 |
|
|
|
16 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
| |
Issuance of common stock in initial public offering
|
|
|
— |
|
|
|
— |
|
|
|
4,000,000 |
|
|
|
4 |
|
|
|
53,998 |
|
|
|
— |
|
|
|
— |
|
|
|
54,002 |
|
| |
Repurchase of restricted stock
|
|
|
— |
|
|
|
— |
|
|
|
(792 |
) |
|
|
— |
|
|
|
(1 |
) |
|
|
— |
|
|
|
— |
|
|
|
(1 |
) |
| |
Amortization of deferred stock compensation
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
870 |
|
|
|
— |
|
|
|
870 |
|
|
Net income
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
2,866 |
|
|
|
2,866 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances at December 31, 2004
|
|
|
— |
|
|
$ |
— |
|
|
|
14,371,439 |
|
|
$ |
14 |
|
|
$ |
114,698 |
|
|
$ |
(1,231 |
) |
|
$ |
(41,173 |
) |
|
$ |
72,308 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these
consolidated financial statements.
50
VNUS MEDICAL TECHNOLOGIES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Year Ended December 31, | |
| |
|
| |
| |
|
2004 | |
|
2003 | |
|
2002 | |
| |
|
| |
|
| |
|
| |
| |
|
(in thousands) | |
|
Cash flows from operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Net income (loss)
|
|
$ |
2,866 |
|
|
$ |
(2,584 |
) |
|
$ |
(5,955 |
) |
| |
Adjustments to reconcile net income (loss) to net cash provided
by (used in) operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Depreciation and amortization
|
|
|
420 |
|
|
|
351 |
|
|
|
417 |
|
| |
|
Non-employee stock compensation and amortization of deferred
stock compensation
|
|
|
1,051 |
|
|
|
583 |
|
|
|
831 |
|
| |
|
Allowance for doubtful accounts
|
|
|
3 |
|
|
|
28 |
|
|
|
144 |
|
| |
|
Provision for excess and obsolete inventory
|
|
|
(165 |
) |
|
|
48 |
|
|
|
24 |
|
| |
|
Changes in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
Accounts receivable
|
|
|
(2,021 |
) |
|
|
(1,513 |
) |
|
|
(459 |
) |
| |
|
|
Inventory
|
|
|
(608 |
) |
|
|
560 |
|
|
|
(205 |
) |
| |
|
|
Prepaid expenses and other assets
|
|
|
(433 |
) |
|
|
(29 |
) |
|
|
24 |
|
| |
|
|
Accounts payable
|
|
|
358 |
|
|
|
472 |
|
|
|
160 |
|
| |
|
|
Accrued and other liabilities
|
|
|
1,758 |
|
|
|
1,404 |
|
|
|
368 |
|
| |
|
|
|
|
|
|
|
|
|
| |
|
|
|
Net cash provided by (used in) operating activities
|
|
|
3,229 |
|
|
|
(680 |
) |
|
|
(4,651 |
) |
| |
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Purchase of property and equipment
|
|
|
(525 |
) |
|
|
(238 |
) |
|
|
(163 |
) |
| |
|
|
|
|
|
|
|
|
|
| |
|
|
|
Net cash used in investing activities
|
|
|
(525 |
) |
|
|
(238 |
) |
|
|
(163 |
) |
| |
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Proceeds from sale of common stock
|
|
|
55,800 |
|
|
|
— |
|
|
|
— |
|
| |
Stock issuance costs
|
|
|
(1,798 |
) |
|
|
— |
|
|
|
— |
|
| |
Proceeds from exercise of stock options for common stock
|
|
|
149 |
|
|
|
28 |
|
|
|
39 |
|
| |
|
|
|
|
|
|
|
|
|
| |
|
|
|
Net cash provided by financing activities
|
|
|
54,151 |
|
|
|
28 |
|
|
|
39 |
|
| |
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in cash and cash equivalents
|
|
|
56,855 |
|
|
|
(890 |
) |
|
|
(4,775 |
) |
|
Cash and cash equivalents at beginning of year
|
|
|
11,711 |
|
|
|
12,601 |
|
|
|
17,376 |
|
| |
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of year
|
|
$ |
68,566 |
|
|
$ |
11,711 |
|
|
$ |
12,601 |
|
| |
|
|
|
|
|
|
|
|
|
|
Supplemental disclosure of cash flow information:
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Deferred stock-based compensation
|
|
|
1,669 |
|
|
|
334 |
|
|
|
140 |
|
| |
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these
consolidated financial statements.
51
VNUS MEDICAL TECHNOLOGIES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
VNUS Medical Technologies, Inc. (the “Company”) was
incorporated in Delaware on January 4, 1995. The Company
develops, markets and sells medical devices to treat venous
diseases. In March 1999, the Company sold its first product in
the United States. In October and November 1999, the Company
launched commercial sales of the Closure System in the United
States at meetings of the American College of Surgeons and
American College of Phlebology.
The Company has funded its operations through the issuance of
convertible preferred and common stock, and from operations. The
Company completed its initial public offering of common stock in
October 2004. During 1999, the Company commenced volume shipment
of its product and emerged from the development stage. Although
no longer in the development stage, the Company continues to be
subject to certain risks common to companies in similar stages
of development, including the dependence on a limited product
line; limited manufacturing, marketing and sales experience;
reliance on key individuals; potential competition from larger,
more established companies and uncertainty of future
profitability.
On July 15, 2004, the Company established the entity VNUS
Medical Technologie GmbH at: Markstrasse 2, 71384
Weinstadt, Germany. The subsidiary is responsible for direct
marketing and sales in the European Union of medical devices
supplied by the Company for the treatment of venous disease. The
Company also continues to market and sell their products through
distributors in portions of the European Union.
|
|
| Note 2 — |
Summary of Significant Accounting Policies |
Net Income (Loss) Per Share. The Company computes basic
net income (loss) per share by dividing net income (loss)
available to common stockholders by the weighted average number
of common shares outstanding during the period less the weighted
average number of common shares subject to repurchase by the
Company. Basic net income (loss) per share excludes the dilutive
effect of potential stock options including stock options,
common stock subject to repurchase, and warrants. Diluted income
per share reflects the dilution of potential common shares
outstanding during the period. In computing diluted income per
share, the Company adjusts share count by assuming that all
in-the-money options are exercised and that the Company
repurchases shares with the proceeds of these hypothetical
exercises. The Company further assumes that any unamortized
deferred stock-based compensation is also used to repurchase
shares. In determining the hypothetical shares repurchased, the
Company uses the average stock price for the period.
The following table sets forth the computation of basic and
diluted net income (loss) attributable to common stockholders
per common share (in thousands, except per share data):
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Year Ended December 31, | |
| |
|
| |
| |
|
2004 | |
|
2003 | |
|
2002 | |
| |
|
| |
|
| |
|
| |
|
Numerator:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) available to common stockholders, basic and
diluted
|
|
$ |
2,866 |
|
|
$ |
(2,584 |
) |
|
$ |
(5,955 |
) |
| |
|
|
|
|
|
|
|
|
|
|
Denominator:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding
|
|
|
3,947 |
|
|
|
1,318 |
|
|
|
1,278 |
|
|
Weighted average unvested common shares subject to repurchase
agreements
|
|
|
(1 |
) |
|
|
(9 |
) |
|
|
(18 |
) |
| |
|
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding used in computing
basic net income (loss) per share
|
|
|
3,946 |
|
|
|
1,309 |
|
|
|
1,260 |
|
52
VNUS MEDICAL TECHNOLOGIES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Year Ended December 31, | |
| |
|
| |
| |
|
2004 | |
|
2003 | |
|
2002 | |
| |
|
| |
|
| |
|
| |
|
Effect of dilutive securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Stock options, warrants, weighted average unvested common shares
subject to repurchase agreements
|
|
|
8,422 |
|
|
|
— |
|
|
|
— |
|
| |
|
|
|
|
|
|
|
|
|
|
Total shares, diluted
|
|
|
12,368 |
|
|
|
1,309 |
|
|
|
1,260 |
|
| |
|
|
|
|
|
|
|
|
|
|
Net income (loss) per common share:
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Basic
|
|
$ |
0.73 |
|
|
$ |
(1.97 |
) |
|
$ |
(4.73 |
) |
| |
|
|
|
|
|
|
|
|
|
| |
Diluted
|
|
$ |
0.23 |
|
|
$ |
(1.97 |
) |
|
$ |
(4.73 |
) |
| |
|
|
|
|
|
|
|
|
|
The following outstanding convertible preferred stock and
warrants, common stock warrants, employee stock options and
unvested common shares subject to repurchase were excluded from
the computation of diluted net income per share as they had an
antidilutive effect (in thousands):
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Year Ended December 31, | |
| |
|
| |
| |
|
2004 | |
|
2003 | |
|
2002 | |
| |
|
| |
|
| |
|
| |
|
Convertible preferred stock (assuming conversion, using
appropriate conversion ratio, to common shares)
|
|
|
— |
|
|
|
8,957 |
|
|
|
8,957 |
|
|
Convertible preferred stock warrants (assuming conversion, using
appropriate conversion ratio, to common shares)
|
|
|
— |
|
|
|
13 |
|
|
|
13 |
|
|
Common stock warrants
|
|
|
— |
|
|
|
147 |
|
|
|
147 |
|
|
Stock options
|
|
|
38 |
|
|
|
1,389 |
|
|
|
975 |
|
|
Unvested common shares subject to repurchase agreements
|
|
|
— |
|
|
|
4 |
|
|
|
14 |
|
| |
|
|
|
|
|
|
|
|
|
| |
|
|
38 |
|
|
|
10,510 |
|
|
|
10,106 |
|
| |
|
|
|
|
|
|
|
|
|
Basis of Consolidation. The consolidated financial
statements include the accounts of the Company and its
wholly-owned subsidiary. All intercompany transactions have been
eliminated in consolidation.
Use of Estimates. The preparation of 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 date of the financial statements and reported
amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Cash and Cash Equivalents. The Company considers all
highly-liquid investment instruments with an original maturity
of three months or less to be cash equivalents. As of
December 31, 2004, 2003 and 2002 the Company held its cash
and cash equivalents in a checking account, a money market
account and an investment account with high credit quality
financial institutions.
Fair Value of Financial Instruments. The Company’s
financial instruments, including cash and cash equivalents,
prepaid expenses and other current assets, accrued liabilities
and accounts payable are carried at cost, which approximates
fair value because of the short-term nature of those instruments.
Inventory. Inventory is stated at the lower of cost or
market, cost being determined using the first-in, first-out
(“FIFO”) method. Lower of cost or market is evaluated
by considering obsolescence, excessive levels of inventory,
deterioration and other factors.
Property and Equipment. Property and equipment are stated
at cost. Depreciation is computed using the straight-line method
over the estimated useful lives of the assets, or the lease term
of the respective assets,
53
VNUS MEDICAL TECHNOLOGIES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
if applicable. Leasehold improvements are amortized using the
straight-line method over the shorter of the estimated useful
life of the asset or the term of the lease.
The depreciation and amortization period for property and
equipment categories are as follows:
| |
|
|
|
|
|
Furniture and fixtures
|
|
|
3 years |
|
|
Computer and office equipment
|
|
|
3 years |
|
|
Laboratory equipment
|
|
|
5 years |
|
|
Software
|
|
|
3 to 5 years |
|
Upon retirement or sale, the cost and related accumulated
depreciation are removed from the balance sheet and the
resulting gain or loss is reflected in operations. Repairs and
maintenance are charged to operations as incurred.
Long-lived Assets. The Company evaluates its long-lived
assets for indicators of possible impairment by comparison of
the carrying amounts to future net undiscounted cash flows
expected to be generated by such assets when events or changes
in circumstances indicate the carrying amount of an asset may
not be recoverable. Should an impairment exist, the impairment
loss would be measured based on the excess carrying value of the
asset over the asset’s fair value or discounted estimates
of future cash flows. The Company has not identified any such
impairment losses to date.
Revenue Recognition. The Company sells its disposable
catheters and radio frequency generators to end-users in the
United States and in international markets. Catheters and RF
generators are also sold through distributors in international
markets. The Company also sells RF generators to third-party
leasing companies in the United States. These third party
leasing companies provide long-term lease financing to
end-users. The Company does not provide such long-term lease
financing to end-users.
Revenues from the sale of the Company’s disposable
catheters and RF generators are recognized when persuasive
evidence of an arrangement exists, title has transferred, the
seller’s price is fixed or determinable and collectibility
is reasonably assured. The Company’s domestic sales return
policy allows customers to return unused products for a period
within 30 days subject to restocking fees. The
Company’s international sales return policy allows
customers to return unused products for a period within
60 days subject to restocking fees. The Company makes
provisions for estimated returns and allowances based on
historical levels. To date, returns and allowances have not been
significant.
Warranty. The Company provides a one year limited
warranty on its RF generator which is included in the sales
price of the generator. The Company provides for the estimated
future costs of repair, upgrade or replacement upon shipment of
the product. The warranty accrual is based upon historical
trends in the volume of product returns within the warranty
period and the cost to repair or replace the equipment. The
warranty expense has been insignificant for all periods
presented.
Research and Development Costs. Costs related to
research, design and development of products are charged to
research and development expense as incurred.
Advertising Expenses. Advertising costs are expensed as
incurred. Advertising expenses incurred in the years ended
December 31, 2004, 2003 and 2002 were $229,000 and $184,000
and $0 respectively.
Stock-based Compensation. The Company uses the intrinsic
value method prescribed by Accounting Principles Board
(“APB”) Opinion No. 25, “Accounting for
Stock Issued to Employees” and Financial Accounting
Standards Board Interpretation (“FIN”) No. 44,
“Accounting for Certain Transactions Involving Stock
Compensation, an Interpretation of APB No 25,” in
accounting for its employee stock options. Accordingly,
compensation cost for stock options is measured as the excess,
if any, of the fair value of the Company’s stock at the
date of grant over the amount an employee must pay to acquire
the stock.
54
VNUS MEDICAL TECHNOLOGIES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
Pro forma information regarding net income (loss) is presented
as if the Company recorded compensation expense based on the
fair value of stock-based awards in accordance with
SFAS No. 148, “Accounting for Stock-Based
Compensation — Transition and Disclosure —
an amendment of SFAS No. 123,” is as follows
(in thousands, except per share data):
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Year Ended December 31, | |
| |
|
| |
| |
|
2004 | |
|
2003 | |
|
2002 | |
| |
|
| |
|
| |
|
| |
|
Net income (loss) as reported
|
|
$ |
2,866 |
|
|
$ |
(2,584 |
) |
|
$ |
(5,955 |
) |
|
Add: Employee stock-based compensation expense included in
reported net income, net of tax
|
|
|
809 |
|
|
|
526 |
|
|
|
808 |
|
|
Deduct: Employee stock-based compensation expense determined
under fair value based method, net of tax
|
|
|
(925 |
) |
|
|
(627 |
) |
|
|
(898 |
) |
| |
|
|
|
|
|
|
|
|
|
|
Pro forma net income (loss)
|
|
$ |
2,750 |
|
|
$ |
(2,685 |
) |
|
$ |
(6,045 |
) |
| |
|
|
|
|
|
|
|
|
|
|
Weighted average number of shares used in per share calculation:
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Basic
|
|
|
3,946 |
|
|
|
1,309 |
|
|
|
1,260 |
|
| |
Diluted
|
|
|
12,368 |
|
|
|
1,309 |
|
|
|
1,260 |
|
|
Pro forma net income (loss) per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Basic
|
|
$ |
0.70 |
|
|
$ |
(2.05 |
) |
|
$ |
(4.80 |
) |
| |
Diluted
|
|
$ |
0.22 |
|
|
$ |
(2.05 |
) |
|
$ |
(4.80 |
) |
The above pro forma effects on net income (loss) may not be
representative of the effects on future results as options
granted typically vest over four or five years and additional
option grants are expected to be made in future years.
The value of each option granted was estimated on the date of
grant with the following weighted average assumptions:
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Years Ended December 31, | |
| |
|
| |
| |
|
2004 | |
|
2003 | |
|
2002 | |
| |
|
| |
|
| |
|
| |
|
Risk-free interest rate
|
|
|
2.64- 3.62 |
% |
|
|
1.95- 3.04 |
% |
|
|
2.49- 4.39 |
% |
|
Expected life (in years)
|
|
|
4 |
|
|
|
4 |
|
|
|
4 |
|
|
Dividend yield
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
Volatility
|
|
|
65 |
% |
|
|
— |
|
|
|
— |
|
Note: Prior to the initial public offering, the minimum
value method was used.
Based on the above assumptions, the weighted average fair value
of employee stock option grants was $6.85, $2.50 and
$2.47 per share for the years ended December 31, 2004,
2003 and 2002, respectively.
The Company accounts for equity instruments issued to
non-employees in accordance with the provisions of
SFAS No. 123 and Emerging Issues Task Force
(“EITF”) Issue No. 96-18, Accounting for
Equity Instruments That Are Issued to Other Than Employees for
Acquiring, or in Conjunction with Selling, Goods or Services
and FIN No. 28, Accounting for Stock
Appreciation Rights and Other Variable Stock Option or Award
Plans, which require that such equity instruments are
recorded at their fair value on the measurement date, which is
typically the date of grant. The measurement of stock-based
compensation is subject to periodic adjustment as the underlying
equity instruments vest.
Income Taxes. The Company accounts for income taxes under
the liability method whereby deferred tax asset or liability
account balances are calculated at the balance sheet date using
current tax laws and rates
55
VNUS MEDICAL TECHNOLOGIES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
in effect for the year in which the differences are expected to
affect taxable income. Valuation allowances are established when
necessary to reduce deferred tax assets to the amounts expected
to be realized.
Recent Accounting Pronouncements. In December 2004, the
FASB issued SFAS No. 123 (revised 2004),
“Share-Based Payment” (“SFAS 123(R)”)
which requires the measurement of all employee share-based
payments to employees, including grants of employee stock
options, using a fair-value-based method and the recording of
such expense in our consolidated statements of income. The
accounting provisions of SFAS 123(R) are effective for
reporting periods beginning after June 15, 2005. The
Company will adopt SFAS 123(R) effective as of the third
quarter of fiscal 2005. The pro forma disclosures previously
permitted under SFAS 123 no longer will be an alternative
to financial statement recognition. See above, Stock-Based
Compensation for the pro forma net income (loss) and net
income (loss) per share amounts, for 2002 through 2004, as if
the Company had used a fair-value-based method to measure
compensation expense for employee stock incentive awards. The
Company is evaluating the impact of the adoption of
SFAS 123(R) and has not yet determined whether the adoption
of the new standard will result in amounts that are similar to
the current pro forma disclosures under SFAS 123.
|
|
| Note 3 — |
Concentration of Credit Risk |
Financial instruments that potentially subject the Company to a
concentration of credit risk consist of cash and cash
equivalents and accounts receivable. Cash and cash equivalents
are deposited in demand and money market accounts in three
financial institutions in the United States and internationally.
Deposits held with financial institutions may exceed the amount
of insurance provided on such deposits. The Company has not
experienced any material losses on its deposits of cash and cash
equivalents. The Company’s cash investment policies limit
cash investments to short-term, low-risk investments.
Concentrations of credit risk with respect to trade accounts
receivable are limited due to the large number of customers
comprising the Company’s customer base and their dispersion
across many geographies. The Company performs ongoing credit
evaluations of its customers and generally does not require
collateral from its customers. The Company maintains an
allowance for doubtful accounts based upon the expected
collectibility of all accounts receivable. No single customer
represents more than 10% of the accounts receivable amount or
revenues for any period presented.
Most of the Company’s products require premarket clearances
from the Food and Drug Administration and international
regulatory agencies prior to commercialized sales. The
Company’s current products have received Food and Drug
Administration clearance or are exempt from such clearance.
There can be no assurance that the Company’s future
products will receive required marketing clearances. If the
Company was denied such clearances or such clearances were
delayed, it would have a materially adverse impact on the
Company.
The Company relies on Byers Peak, Inc. to manufacture its RF
generators. The Company expects that Byers Peak, Inc. will be a
sole-source supplier of the RF generators in the future. The
Company also relies on sole-source suppliers to manufacture some
of the components used in its disposable catheters. The
Company’s manufacturers and suppliers may encounter
problems during manufacturing due to a variety of reasons,
including failure to follow specific protocols and procedures,
failure to comply with applicable regulations, including the
Food and Drug Administration’s Quality System Regulations,
equipment malfunction and environmental factors, any of which
could delay or impede its ability to meet demand.
|
|
| Note 4 — |
Operating Segment and Geographic Information |
The Company is organized and operates as one operating segment
to provide medical devices for the minimally invasive treatment
of venous reflux disease and uses one measure of profitability
to manage its business. In accordance with
SFAS No. 131 (SFAS 131), “Disclosures
About Segments of an Enterprise and
56
VNUS MEDICAL TECHNOLOGIES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
Related Information,” the chief operating
decision-maker has been identified as the President and Chief
Executive Officer, who reviews operating results to make
decisions about allocating resources and assessing performance
for the entire company. Since the Company operates in one
segment and provides one group of similar products and services,
all financial segment and product line information required by
SFAS 131 can be found in the consolidated financial
statements.
The following is a summary of the percentage of the
Company’s net revenues by geographic region and by product
within the Company’s single segment.
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Year Ended | |
| |
|
December 31, | |
| |
|
| |
| |
|
2004 | |
|
2003 | |
|
2002 | |
| |
|
| |
|
| |
|
| |
|
United States
|
|
|
96 |
% |
|
|
96 |
% |
|
|
94 |
% |
|
Europe
|
|
|
3 |
% |
|
|
3 |
% |
|
|
6 |
% |
|
Other international
|
|
|
1 |
% |
|
|
1 |
% |
|
|
— |
|
| |
|
|
|
|
|
|
|
|
|
| |
|
|
100 |
% |
|
|
100 |
% |
|
|
100 |
% |
| |
|
|
|
|
|
|
|
|
|
|
Catheters
|
|
|
77 |
% |
|
|
72 |
% |
|
|
67 |
% |
|
RF Generators
|
|
|
18 |
% |
|
|
24 |
% |
|
|
31 |
% |
|
Accessories
|
|
|
5 |
% |
|
|
4 |
% |
|
|
2 |
% |
| |
|
|
|
|
|
|
|
|
|
| |
|
|
100 |
% |
|
|
100 |
% |
|
|
100 |
% |
| |
|
|
|
|
|
|
|
|
|
Essentially all of the Company’s long-lived assets are
located in the United States.
|
|
| Note 5 — |
Balance Sheet Components |
| |
|
|
|
|
|
|
|
|
| |
|
December 31, | |
| |
|
| |
| |
|
2004 | |
|
2003 | |
| |
|
| |
|
| |
|
Inventory
|
|
|
|
|
|
|
|
|
|
Finished goods
|
|
$ |
626 |
|
|
$ |
317 |
|
|
Raw materials and sub-assemblies
|
|
|
876 |
|
|
|
290 |
|
|
Radio-frequency generators
|
|
|
142 |
|
|
|
264 |
|
| |
|
|
|
|
|
|
| |
|
$ |
1,644 |
|
|
$ |
871 |
|
| |
|
|
|
|
|
|
|
Property and equipment, net
|
|
|
|
|
|
|
|
|
|
Furniture and fixtures
|
|
$ |
138 |
|
|
$ |
91 |
|
|
Computers and office equipment
|
|
|
493 |
|
|
|
366 |
|
|
Leasehold improvements
|
|
|
924 |
|
|
|
827 |
|
|
Laboratory equipment
|
|
|
735 |
|
|
|
498 |
|
|
Software
|
|
|
442 |
|
|
|
348 |
|
|
Equipment installation in progress
|
|
|
— |
|
|
|
77 |
|
| |
|
|
|
|
|
|
| |
|
|
2,732 |
|
|
|
2,207 |
|
|
Less: Accumulated depreciation and amortization
|
|
|
(1,636 |
) |
|
|
(1,216 |
) |
| |
|
|
|
|
|
|
| |
|
$ |
1,096 |
|
|
$ |
991 |
|
| |
|
|
|
|
|
|
57
VNUS MEDICAL TECHNOLOGIES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
| |
|
|
|
|
|
|
|
|
| |
|
December 31, | |
| |
|
| |
| |
|
2004 | |
|
2003 | |
| |
|
| |
|
| |
|
Accrued liabilities
|
|
|
|
|
|
|
|
|
|
Payroll and related expenses
|
|
$ |
692 |
|
|
$ |
410 |
|
|
Sales commissions and bonuses
|
|
|
2,402 |
|
|
|
1,803 |
|
|
Other
|
|
|
1,217 |
|
|
|
344 |
|
| |
|
|
|
|
|
|
| |
|
$ |
4,311 |
|
|
$ |
2,557 |
|
| |
|
|
|
|
|
|
At December 31, 2004, the Company had net operating loss
carryforwards of approximately $32.4 million and
$22.5 million for federal and state jurisdictions,
respectively, available to reduce future taxable income. The
federal net operating loss carryforwards expire in various
periods through 2022 and the state net operating loss
carryforwards expire in various periods through 2012. The
Company had federal and state research tax credit carryforwards
of approximately $928,000 and $934,000, respectively. The
federal research credits expire in various periods through 2022
and the California research credits can be carried forward
indefinitely.
The difference between the U.S. federal statutory income tax
rate (benefit) and the Company’s effective tax rate were as
follows:
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Years Ended December 31, | |
| |
|
| |
| |
|
2004 | |
|
2003 | |
|
2002 | |
| |
|
| |
|
| |
|
| |
|
U.S. federal statutory income tax rate
|
|
|
35.00 |
% |
|
|
(34.00 |
)% |
|
|
(34.00 |
)% |
|
State income taxes, net of federal tax benefit
|
|
|
6.40 |
% |
|
|
(5.83 |
)% |
|
|
— |
|
|
Deferred tax benefits utilized
|
|
|
(59.03 |
)% |
|
|
(16.58 |
)% |
|
|
— |
|
|
Accruals, allowances and reserves
|
|
|
4.72 |
% |
|
|
54.38 |
% |
|
|
27.94 |
% |
|
Amortization of stock-based compensation
|
|
|
11.14 |
% |
|
|
8.45 |
% |
|
|
5.18 |
% |
|
Other
|
|
|
8.93 |
% |
|
|
(6.42 |
)% |
|
|
0.88 |
% |
| |
|
|
|
|
|
|
|
|
|
| |
|
|
7.16 |
% |
|
|
0.00 |
% |
|
|
0.00 |
% |
| |
|
|
|
|
|
|
|
|
|
Deferred tax assets and liabilities consist of the following (in
thousands):
| |
|
|
|
|
|
|
|
|
| |
|
December 31, | |
| |
|
| |
| |
|
2004 | |
|
2003 | |
| |
|
| |
|
| |
|
Deferred tax assets
|
|
|
|
|
|
|
|
|
|
Net operating loss carryforwards
|
|
$ |
12,470 |
|
|
$ |
13,784 |
|
|
Tax credits
|
|
|
1,661 |
|
|
|
1,445 |
|
|
Accruals, allowances and reserves
|
|
|
564 |
|
|
|
460 |
|
|
Depreciation and amortization
|
|
|
494 |
|
|
|
619 |
|
|
Other
|
|
|
134 |
|
|
|
123 |
|
| |
|
|
|
|
|
|
|
Total gross deferred tax assets
|
|
|
15,323 |
|
|
|
16,431 |
|
|
Valuation allowance
|
|
|
(15,323 |
) |
|
|
(16,431 |
) |
| |
|
|
|
|
|
|
|
Net deferred tax assets
|
|
$ |
— |
|
|
$ |
— |
|
| |
|
|
|
|
|
|
Due to uncertainties surrounding the realization of deferred tax
assets through future taxable income, the Company has provided a
full valuation allowance, and, therefore, no benefit has been
recognized for the net operating loss and other deferred tax
assets.
58
VNUS MEDICAL TECHNOLOGIES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
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. Any ownership changes, as
defined, may restrict utilization of carryforwards.
|
|
| Note 7 — |
Commitments and Contingencies |
Leases. The Company leases office space and equipment
under non-cancelable operating leases with various expiration
dates through 2007. Rent expense for the years ended
December 31, 2004, 2003 and 2002 was $815,000, $672,000 and
$668,000, respectively. The terms of the facility lease provide
for rental payments on a graduated scale. The Company recognizes
rent expense on a straight-line basis over the lease period, and
has accrued for rent expense incurred but not paid.
At December 31, 2004, future minimum lease payments are as
follows (in thousands):
| |
|
|
|
|
| |
|
Operating | |
| Year Ending December 31, |
|
Leases | |
| |
|
| |
|
2005
|
|
$ |
771 |
|
|
2006
|
|
|
795 |
|
|
2007
|
|
|
388 |
|
|
2008
|
|
|
1 |
|
| |
|
|
|
| |
|
$ |
1,955 |
|
| |
|
|
|
Indemnifications. In the normal course of business, the
Company enters into contracts that contain a variety of
representations and warranties and provide for general
indemnifications. The Company’s exposure under these
agreements is unknown because it involves future 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.
Purchase Commitments. At December 31, 2004, the
Company had approximately $752,000 in non-cancelable purchase
commitments with suppliers.
Contingencies. The Company is subject to claims and
assessments from time to time in the ordinary course of
business. The Company’s management does not believe that
any such matters, individually or in the aggregate, will have a
material adverse effect on the Company’s financial
position, results of operations or cash flows.
In connection with the bridge loan financing entered into in
February and April 2001, the Company issued warrants to
purchase 140,000 shares of common stock at an exercise
price of $7.14 per share. The fair value of these warrants
at the date of grant was estimated using the Black-Scholes
option pricing model based on the estimated value of the
underlying stock, a volatility rate of 70%, no dividends, a
risk-free interest rate ranging from 4.52% to 4.59% and an
expected life of three years. The value was determined to be
approximately $299,000. This amount is included as a component
of stockholders’ equity and is included in 2001 interest
expense. As of December 31, 2004, the warrants had not been
exercised. The warrants expire January 31, 2006.
In connection with its facility lease entered into in January
2001, the Company issued warrants to
purchase 6,666 shares of common stock at an exercise
price of $7.68 per share. The fair value of these warrants
at the date of grant was estimated using the Black-Scholes
option pricing model based on the
59
VNUS MEDICAL TECHNOLOGIES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
estimated value of the underlying stock, a volatility rate of
70%, no dividends, a risk-free interest rate of 4.75% and an
expected life of three years. The value was determined to be
approximately $21,000. This amount is included as a component of
stockholders’ equity and is expensed over the term of the
lease and included in general and administrative expense. As of
December 31, 2004, these warrants were exercised in full on
a non-cash net exercise basis resulting in an issuance of 2,602
common shares.
In connection with a note payable entered into in June 1998, a
warrant was issued to purchase 44,118 fully paid and
non-assessable shares of Series C preferred stock at an
exercise price of $1.70 per share. The warrant holders exercised
these warrants in a cashless exercise on June 30, 2004 and
received 33,006 shares of Series C preferred stock
which was converted into common stock at the Company’s
initial public offering in October 2004. There are no warrants
to purchase preferred stock outstanding at December 31,
2004.
|
|
| Note 9 — |
Convertible Preferred Stock |
As of December 31, 2004, there were no outstanding shares
of convertible preferred stock.
As of December 31, 2003, the Company had convertible
preferred stock outstanding as follows (in thousands, except
share and per share data):
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
Original | |
|
|
|
|
|
|
|
Proceeds | |
| |
|
|
|
Issue Price | |
|
Shares | |
|
Shares | |
|
Liquidation | |
|
Net of | |
| Series |
|
Date of Issuance | |
|
Per Share | |
|
Authorized | |
|
Outstanding | |
|
Amount | |
|
Issuance Costs | |
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
Series A-1
|
|
|
January 1995 |
|
|
$ |
0.10 |
|
|
|
2,537,500 |
|
|
|
2,537,500 |
|
|
$ |
254 |
|
|
$ |
243 |
|
|
Series A-2
|
|
|
October 1995 |
|
|
$ |
0.30 |
|
|
|
2,030,000 |
|
|
|
2,030,000 |
|
|
|
609 |
|
|
|
609 |
|
|
Series A-3
|
|
|
March 1996 |
|
|
$ |
0.90 |
|
|
|
1,015,000 |
|
|
|
1,015,000 |
|
|
|
914 |
|
|
|
913 |
|
|
Series B
|
|
|
August 1996 |
|
|
$ |
1.20 |
|
|
|
1,691,667 |
|
|
|
1,691,667 |
|
|
|
2,030 |
|
|
|
2,029 |
|
|
Series C
|
|
|
May 1997/May 2001 |
|
|
$ |
1.70 |
(1) |
|
|
6,616,888 |
|
|
|
4,936,032 |
|
|
|
8,391 |
|
|
|
7,936 |
|
|
Series D
|
|
|
February/April 1999 |
|
|
$ |
2.00 |
|
|
|
8,750,000 |
|
|
|
8,074,250 |
|
|
|
16,149 |
|
|
|
16,122 |
|
|
Series E
|
|
|
August 2001 |
|
|
$ |
5.12 |
|
|
|
5,152,000 |
|
|
|
4,902,298 |
|
|
|
25,100 |
|
|
|
24,979 |
|
|
Undesignated
|
|
|
|
|
|
|
|
|
|
|
22,206,945 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
50,000,000 |
|
|
|
25,186,747 |
|
|
$ |
53,447 |
|
|
$ |
52,831 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| (1) |
The Company originally issued 4,694,835 shares of
Series C preferred stock in May 1997 at a price of $1.70
per share. In addition, 241,197 and 33,006 shares of
Series C preferred stock were issued upon exercise of
Series C warrants in May 2001 and June 2004, respectively.
See Note 8, Warrants. |
On September 20, 2004, the Company’s Board of
Directors approved a 2-for-3 reverse stock split of its common
shares. On October 14, 2004, the stockholders also approved
the reverse stock split, which became effective on
October 14, 2004, and an amendment and restatement of our
Certificate of Incorporation and Bylaws, which became effective
on October 20, 2004. All common stock data presented herein
have been restated to retroactively reflect this reverse stock
split.
|
|
| Note 11 — |
Stock Option Plans |
In 1995, the Company established the 1995 Stock Plan (the
“1995 Plan”) covering employees, directors and
consultants of the Company. Under the terms of the 1995 Plan,
incentive and nonqualified stock options and stock purchase
rights could be granted for up to 1,008,000 shares of the
Company’s authorized but
60
VNUS MEDICAL TECHNOLOGIES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
unissued common stock. In May 2000, upon the adoption of the
Company’s 2000 Equity Incentive Plan (the “2000
Plan”), the Company ceased granting options under the 1995
Plan.
In May 2000, the Company established the 2000 Plan covering
employees, directors and consultants of the Company. Under the
terms of the 2000 Plan, incentive and nonqualified stock options
and stock purchase rights may be granted. Initially,
420,000 shares of the Company’s authorized but
unissued common stock were available for grant under the 2000
Plan. On each anniversary of the 2000 Plan’s adoption by
the Board of Directors, the share reserve was automatically
increased by 98,000 shares. In 2001 and 2002, the
shareholders approved a 300,000 and a 133,333 share
increase to the 2000 Plan, respectively. In January 2004, the
shareholders approved a 333,333 share increase to the 2000
Plan. In October 2004, the shareholders approved (i) an
800,000 share increase to the 2000 Plan, which increased
the number of authorized shares of common stock issuable under
the 2000 Plan to 2,378,666, and (ii) on December 31 of
each year, beginning on December 31, 2005, further increase
the number of shares reserved for issuance under the 2000 Plan
by the lower of (x) 800,000 shares, (y) 4% of the
number of shares of our common stock then outstanding or
(z) such other number of shares of our common stock as is
determined by the administrator of the 2000 Plan, provided that
the maximum number of shares of our common stock that may be
issued upon the exercise of incentive stock options during the
term of the 2000 Plan may not exceed 6,378,666.
Under the terms of the 1995 Plan and the 2000 Plan, options have
a maximum term of 10 years and vest over schedules
determined by the Board of Directors. Certain options, upon the
discretion of the plan administrator, are exercisable prior to
becoming vested, and subject to the Company’s right to
repurchase the unvested shares at the exercise price.
Nonqualified stock options may be granted to employees and
consultants at no less than 85% of the fair market value of the
stock at the date of the grant.
In 2001, the Board of Directors approved a severance plan for
management and key employees whereby a change in control in the
Company would accelerate vesting of options under certain
conditions.
Activity under the 1995 and 2000 Plans is as follows:
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
Options Outstanding | |
|
|
| |
|
Options | |
|
| |
|
Weighted | |
| |
|
Available | |
|
|
|
Range of | |
|
Average | |
| |
|
for Future | |
|
Number of | |
|
Exercise | |
|
Exercise | |
| |
|
Grant | |
|
Options | |
|
Prices | |
|
Price | |
| |
|
| |
|
| |
|
| |
|
| |
|
Balances at December 31, 2001
|
|
|
192,229 |
|
|
|
809,743 |
|
|
$ |
0.04-$7.14 |
|
|
|
2.40 |
|
|
Authorized
|
|
|
398,000 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
Granted
|
|
|
(272,766 |
) |
|
|
272,766 |
|
|
|
1.50 |
|
|
|
1.50 |
|
|
Exercised
|
|
|
— |
|
|
|
(42,803 |
) |
|
|
0.04-1.50 |
|
|
|
0.91 |
|
|
Terminated/cancelled
|
|
|
57,105 |
|
|
|
(65,105 |
) |
|
|
0.61-7.14 |
|
|
|
3.47 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances at December 31, 2002
|
|
|
374,568 |
|
|
|
974,601 |
|
|
$ |
0.04-$7.14 |
|
|
|
2.15 |
|
|
Authorized
|
|
|
98,000 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
Granted
|
|
|
(489,915 |
) |
|
|
489,915 |
|
|
|
1.50 |
|
|
|
1.50 |
|
|
Exercised
|
|
|
— |
|
|
|
(21,341 |
) |
|
|
0.43-1.50 |
|
|
|
1.32 |
|
|
Terminated/cancelled
|
|
|
50,010 |
|
|
|
(53,814 |
) |
|
|
0.43-7.14 |
|
|
|
2.66 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances at December 31, 2003
|
|
|
32,663 |
|
|
|
1,389,361 |
|
|
$ |
0.04-$7.14 |
|
|
|
1.92 |
|
|
Authorized
|
|
|
1,231,333 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
Granted
|
|
|
(477,944 |
) |
|
|
477,944 |
|
|
|
3.00-16.70 |
|
|
|
5.41 |
|
|
Exercised
|
|
|
— |
|
|
|
(82,871 |
) |
|
|
0.04-7.14 |
|
|
|
1.79 |
|
|
Terminated/cancelled
|
|
|
101,632 |
|
|
|
(104,712 |
) |
|
|
0.71-10.50 |
|
|
|
2.87 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances at December 31, 2004
|
|
|
887,684 |
|
|
|
1,679,722 |
|
|
$ |
0.04-$16.70 |
|
|
$ |
2.86 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
61
VNUS MEDICAL TECHNOLOGIES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
The options outstanding and currently exercisable by exercise
price at December 31, 2004 are as follows:
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Options Outstanding | |
|
Options Exercisable | |
| |
|
| |
|
| |
| |
|
|
|
Weighted | |
|
|
| |
|
|
|
Average | |
|
|
|
Weighted | |
| |
|
|
|
Remaining | |
|
|
|
Average | |
| |
|
Number of | |
|
Contractual | |
|
Number of | |
|
Exercise | |
| Exercise Prices |
|
Options | |
|
Life (in Years) | |
|
Options | |
|
Price | |
| |
|
| |
|
| |
|
| |
|
| |
|
$ 0.04
|
|
|
1 |
|
|
|
0.54 |
|
|
|
1 |
|
|
$ |
0.04 |
|
|
0.11
|
|
|
21,700 |
|
|
|
1.10 |
|
|
|
21,700 |
|
|
|
0.11 |
|
|
0.32
|
|
|
2,016 |
|
|
|
1.36 |
|
|
|
2,016 |
|
|
|
0.32 |
|
|
0.43
|
|
|
11,560 |
|
|
|
1.92 |
|
|
|
11,559 |
|
|
|
0.43 |
|
|
0.61
|
|
|
45,145 |
|
|
|
2.82 |
|
|
|
45,140 |
|
|
|
0.61 |
|
|
0.71
|
|
|
200,687 |
|
|
|
4.64 |
|
|
|
200,353 |
|
|
|
0.71 |
|
|
1.50
|
|
|
825,889 |
|
|
|
7.63 |
|
|
|
525,381 |
|
|
|
1.50 |
|
|
3.00
|
|
|
295,511 |
|
|
|
9.18 |
|
|
|
63,551 |
|
|
|
3.00 |
|
|
6.00
|
|
|
29,226 |
|
|
|
9.48 |
|
|
|
1,694 |
|
|
|
6.00 |
|
|
7.14
|
|
|
131,552 |
|
|
|
5.90 |
|
|
|
130,073 |
|
|
|
7.14 |
|
|
9.00
|
|
|
18,896 |
|
|
|
9.54 |
|
|
|
1,761 |
|
|
|
9.00 |
|
|
10.50
|
|
|
52,873 |
|
|
|
9.69 |
|
|
|
465 |
|
|
|
10.50 |
|
|
12.60
|
|
|
2,666 |
|
|
|
9.80 |
|
|
|
— |
|
|
|
12.60 |
|
|
13.19
|
|
|
4,000 |
|
|
|
9.95 |
|
|
|
— |
|
|
|
13.19 |
|
|
13.75
|
|
|
5,000 |
|
|
|
9.92 |
|
|
|
— |
|
|
|
13.75 |
|
|
14.20
|
|
|
3,600 |
|
|
|
9.96 |
|
|
|
— |
|
|
|
14.20 |
|
|
14.91
|
|
|
4,400 |
|
|
|
9.94 |
|
|
|
— |
|
|
|
14.91 |
|
|
15.00
|
|
|
20,000 |
|
|
|
9.82 |
|
|
|
— |
|
|
|
15.00 |
|
|
16.70
|
|
|
5,000 |
|
|
|
9.91 |
|
|
|
— |
|
|
|
16.70 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
1,679,722 |
|
|
|
7.33 |
|
|
|
1,003,694 |
|
|
$ |
2.11 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
The Company’s stock plans only approve early exercise upon
approval of the Company’s plan administrator. At
December 31, 2004, there were no shares subject to
repurchase.
Employee Deferred Stock Based Compensation. Deferred
stock compensation represents the aggregate difference, at the
grant date, between the respective exercise price of stock
options and the fair value of the underlying stock.
The deferred stock compensation is amortized to expense over the
vesting period of the individual awards, generally four years.
The amortization method used is in accordance with FIN 28.
The Company recorded unearned stock-based compensation of
approximately $1,701,000, $366,000 and $140,000 during the years
ended December 31, 2004, 2003 and 2002 respectively.
Deferred stock compensation amortized to expense during these
respective periods was approximately $870,000, $526,000 and
$808,000, respectively.
62
VNUS MEDICAL TECHNOLOGIES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
The Company granted stock options to employees with exercise
prices below their estimated fair market value as follows:
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
Weighted | |
| |
|
|
|
|
|
|
|
Average | |
| |
|
|
|
Weighted | |
|
Weighted | |
|
Intrinsic | |
| |
|
Number of | |
|
Average | |
|
Average | |
|
Value | |
| |
|
Options | |
|
Exercise | |
|
Fair Value | |
|
Per | |
| Grants Made During Quarter Ended |
|
Granted | |
|
Price | |
|
Per Share | |
|
Share | |
| |
|
| |
|
| |
|
| |
|
| |
|
March 31, 2003
|
|
|
224,950 |
|
|
$ |
1.50 |
|
|
$ |
2.12 |
|
|
$ |
0.62 |
|
|
June 30, 2003
|
|
|
67,296 |
|
|
$ |
1.50 |
|
|
$ |
2.06 |
|
|
$ |
0.56 |
|
|
September 30, 2003
|
|
|
77,142 |
|
|
$ |
1.50 |
|
|
$ |
2.49 |
|
|
$ |
0.99 |
|
|
December 31, 2003
|
|
|
88,471 |
|
|
$ |
2.01 |
|
|
$ |
4.05 |
|
|
$ |
2.04 |
|
|
March 31, 2004
|
|
|
168,620 |
|
|
$ |
3.00 |
|
|
$ |
6.51 |
|
|
$ |
3.51 |
|
|
June 30, 2004
|
|
|
144,883 |
|
|
$ |
3.77 |
|
|
$ |
10.56 |
|
|
$ |
6.79 |
|
|
September 30, 2004
|
|
|
49,391 |
|
|
$ |
9.93 |
|
|
$ |
13.31 |
|
|
$ |
3.38 |
|
|
December 31, 2004
|
|
|
24,130 |
|
|
$ |
10.73 |
|
|
$ |
15.21 |
|
|
$ |
4.48 |
|
The valuation used to determine the estimated fair value of the
equity instruments was retrospective until the Company’s
IPO in October 2004.
Stock Compensation Expense Related to Consultant
Services. During the years ended December 31, 2004,
2003 and 2002, the Company granted options to consultants to
purchase 17,663, 19,000 and 9,400 shares of common
stock, respectively, in exchange for services, at a range of
exercise prices between $0.72 and $10.50 per share. The
Company determined the fair value using the Black-Scholes option
pricing model with the following assumptions: dividend yield of
0%; expected lives of one to five years; risk-free interest
rates ranging between 1.32% to 6.80% and expected volatility of
65% to 71%. Stock compensation expense is being recognized in
accordance with FIN 28 over the vesting periods of the
related options. In 2004, 2003 and 2002, the Company recorded
stock compensation expense of $181,000, $22,000 and $23,000,
respectively.
63
VNUS MEDICAL TECHNOLOGIES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
|
|
| Note 12 — |
Employee Benefit Plans |
The Company sponsors a 401(k) defined contribution plan covering
all employees. Contributions made by the Company are determined
annually by the board of directors. There have been no
contributions by the Company (approved or payable) through
December 31, 2004.
|
|
| Note 13 — |
Selected Quarterly Financial Data (unaudited): |
The following tables present the Company’s operating
results expressed in dollars and as a percent of revenues for
each of the eight quarters ending December 31, 2004. This
data has been derived from unaudited financial statements that,
in the opinion of the Company’s management, include all
adjustments, consisting only of normal recurring adjustments,
necessary for a fair presentation of such information when read
in conjunction with the Company’s annual audited
consolidated financial statements and notes thereto appearing
elsewhere in this report. These operating results are not
necessarily indicative of results for any future period.
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Dec. ’04 | |
|
Sept. ’04 | |
|
June ’04 | |
|
Mar. ’04 | |
|
Dec. ’03 | |
|
Sept. ’03 | |
|
June ’03 | |
|
Mar. ’03 | |
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
| |
|
(in thousands) | |
| |
|
(unaudited) | |
|
Net revenues
|
|
$ |
11,186 |
|
|
$ |
10,116 |
|
|
$ |
9,230 |
|
|
$ |
7,634 |
|
|
$ |
7,485 |
|
|
$ |
5,978 |
|
|
$ |
4,615 |
|
|
$ |
3,760 |
|
|
Cost of revenues(1)
|
|
|
2,845 |
|
|
|
2,562 |
|
|
|
2,285 |
|
|
|
1,850 |
|
|
|
1,945 |
|
|
|
1,756 |
|
|
|
1,460 |
|
|
|
1,150 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
8,341 |
|
|
|
7,554 |
|
|
|
6,945 |
|
|
|
5,784 |
|
|
|
5,540 |
|
|
|
4,222 |
|
|
|
3,155 |
|
|
|
2,610 |
|
|
Total operating expenses(1)
|
|
|
7,651 |
|
|
|
6,494 |
|
|
|
6,443 |
|
|
|
5,387 |
|
|
|
5,574 |
|
|
|
4,792 |
|
|
|
4,272 |
|
|
|
3,644 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from operations
|
|
|
690 |
|
|
|
1,060 |
|
|
|
502 |
|
|
|
397 |
|
|
|
(34 |
) |
|
|
(570 |
) |
|
|
(1,117 |
) |
|
|
(1,034 |
) |
|
Interest income (expense) and other, net
|
|
|
340 |
|
|
|
46 |
|
|
|
21 |
|
|
|
32 |
|
|
|
38 |
|
|
|
26 |
|
|
|
50 |
|
|
|
57 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before provision for income taxes
|
|
|
1,030 |
|
|
|
1,106 |
|
|
|
523 |
|
|
|
429 |
|
|
|
4 |
|
|
|
(544 |
) |
|
|
(1,067 |
) |
|
|
(977 |
) |
|
Provision for income taxes
|
|
|
(16 |
) |
|
|
(111 |
) |
|
|
(52 |
) |
|
|
(43 |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$ |
1,014 |
|
|
$ |
995 |
|
|
$ |
471 |
|
|
$ |
386 |
|
|
$ |
4 |
|
|
$ |
(544 |
) |
|
$ |
(1,067 |
) |
|
$ |
(977 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| (1) |
Includes charges for stock-based compensation in the following
amounts: |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of revenues
|
|
$ |
26 |
|
|
$ |
26 |
|
|
$ |
24 |
|
|
$ |
14 |
|
|
$ |
10 |
|
|
$ |
14 |
|
|
$ |
15 |
|
|
$ |
17 |
|
|
Operating expenses
|
|
|
284 |
|
|
|
270 |
|
|
|
273 |
|
|
|
134 |
|
|
|
93 |
|
|
|
121 |
|
|
|
135 |
|
|
|
143 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$ |
310 |
|
|
$ |
296 |
|
|
$ |
297 |
|
|
$ |
148 |
|
|
$ |
103 |
|
|
$ |
135 |
|
|
$ |
150 |
|
|
$ |
160 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
64
VNUS MEDICAL TECHNOLOGIES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Dec. ’04 | |
|
Sept. ’04 | |
|
June ’04 | |
|
Mar. ’04 | |
|
Dec. ’03 | |
|
Sept. ’03 | |
|
June ’03 | |
|
Mar. ’03 | |
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
Net revenues
|
|
|
100.0% |
|
|
|
100.0% |
|
|
|
100.0% |
|
|
|
100.0% |
|
|
|
100.0% |
|
|
|
100.0% |
|
|
|
100.0% |
|
|
|
100.0% |
|
|
Cost of revenues
|
|
|
25.4 |
|
|
|
25.3 |
|
|
|
24.8 |
|
|
|
24.2 |
|
|
|
26.0 |
|
|
|
29.4 |
|
|
|
31.6 |
|
|
|
30.6 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
74.6 |
|
|
|
74.7 |
|
|
|
75.2 |
|
|
|
75.8 |
|
|
|
74.0 |
|
|
|
70.6 |
|
|
|
68.4 |
|
|
|
69.4 |
|
|
Total operating expenses
|
|
|
68.4 |
|
|
|
64.2 |
|
|
|
69.8 |
|
|
|
70.6 |
|
|
|
74.5 |
|
|
|
80.1 |
|
|
|
92.6 |
|
|
|
96.9 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from operations
|
|
|
6.2 |
|
|
|
10.5 |
|
|
|
5.4 |
|
|
|
5.2 |
|
|
|
(0.5 |
) |
|
|
(9.5 |
) |
|
|
(24.2 |
) |
|
|
(27.5 |
) |
|
Interest income (expense) and other, net
|
|
|
3.0 |
|
|
|
0.4 |
|
|
|
0.2 |
|
|
|
0.4 |
|
|
|
0.5 |
|
|
|
0.4 |
|
|
|
1.1 |
|
|
|
1.5 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before provision for income taxes
|
|
|
9.2 |
|
|
|
10.9 |
|
|
|
5.6 |
|
|
|
5.6 |
|
|
|
0.0 |
|
|
|
(9.1 |
) |
|
|
(23.1 |
) |
|
|
(26.0 |
) |
|
Provision for income taxes
|
|
|
(0.1 |
) |
|
|
(1.1 |
) |
|
|
(0.6 |
) |
|
|
(0.6 |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
|
9.1% |
|
|
|
9.8% |
|
|
|
5.0% |
|
|
|
5.0% |
|
|
|
0.0% |
|
|
|
(9.1 |
)% |
|
|
(23.1 |
)% |
|
|
(26.0 |
)% |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
65
|
|
| Item 9: |
Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure |
None.
|
|
| Item 9A. |
Controls and Procedures |
We maintain disclosure controls and procedures that are designed
to ensure that information required to be disclosed in our
reports under the Securities Exchange Act of 1934 is recorded,
processed, summarized and reported within the time periods
specified in the rules and forms of the Securities and Exchange
Commission, and that such information is accumulated and
communicated to our management, including our chief executive
officer and chief financial officer, as appropriate, to allow
timely decisions regarding required disclosure. In designing and
evaluating the disclosure controls and procedures, management
recognizes that any controls and procedures, no matter how well
designed and operated, can provide only reasonable assurance of
achieving the desired control objectives, and management
necessarily is required to apply its judgment in evaluating the
cost-benefit relationship of possible controls and procedures.
As required by Securities and Exchange Commission
Rule 13a-15(b), our management, including our chief
executive officer and chief financial officer, carried out an
evaluation of the effectiveness of the design and operation of
our disclosure controls and procedures as of December 31,
2004. Based on the foregoing, our chief executive officer and
chief financial officer concluded that our disclosure controls
and procedures were effective at the reasonable assurance level.
There has been no change in our internal controls over financial
reporting during our most recent fiscal quarter that has
materially affected, or is reasonably likely to materially
affect, our internal controls over financial reporting.
Item 9B. Other
Information
None.
PART III
Item 10: Directors and
Executive Officers of the Registrant
Executive officers are elected annually by the Board and serve
at the discretion of the Board. The following table sets forth
certain information regarding our directors and executive
officers as of March 25, 2005.
Executive Officers and Directors
The following table sets forth specific information regarding
our executive officers and directors expected to be in office
upon completion of this offering:
| |
|
|
|
|
|
|
| Name |
|
Age | |
|
Position |
| |
|
| |
|
|
|
Brian E. Farley
|
|
|
47 |
|
|
President and Chief Executive Officer, Director |
|
Timothy A. Marcotte
|
|
|
48 |
|
|
Chief Financial Officer and Vice President, Finance and
Administration |
|
William A. Perry
|
|
|
40 |
|
|
Vice President, Worldwide Marketing and International Sales |
|
Scott H. Cramer
|
|
|
43 |
|
|
Senior Vice President, U.S. Sales |
|
Robert G. McRae
|
|
|
36 |
|
|
Senior Vice President, Manufacturing and Research &
Development |
Brian E. Farley joined VNUS in 1995 as General Manager
and was the first employee. Mr. Farley has served as a
member of our board of directors and as our President and Chief
Executive Officer since January 1996. Prior to joining VNUS,
Mr. Farley was employed in various management and executive
positions in
66
research and development, clinical research and business
development by Guidant Corporation, a medical device company,
and in the medical device division of Eli Lilly and Company, a
diversified healthcare company. Mr. Farley holds both a
B.S. in Engineering with an emphasis in Biomedical Engineering
and an M.S. in Electrical Engineering from Purdue University.
Timothy A. Marcotte joined VNUS in April 2004 as Chief
Financial Officer and Vice President, Finance and
Administration. From October 2002 to April 2004,
Mr. Marcotte was an independent financial consultant. From
November 1999 to October 2002, Mr. Marcotte served as the
Chief Financial Officer of Repeater Technologies, Inc., a
wireless communications equipment manufacturer. In addition,
Mr. Marcotte served as the Chief Operating Officer of
Repeater Technologies, Inc. from December 2000 to September
2002, and Chief Executive Officer of Repeater Technologies, Inc.
from September 2002 to October 2002. A petition was filed on
behalf of Repeater Technologies, Inc. under the federal
bankruptcy laws in October 2002. From March 1999 to November
1999, Mr. Marcotte was an independent financial consultant.
From July 1997 to March 1999, Mr. Marcotte served as Vice
President of Finance and Chief Financial Officer at Sunrise
Technologies International, Inc., a laser medical device
manufacturer. Mr. Marcotte holds both a B.S. in
Anthropology/ Zoology and an M.B.A. from the University of
Michigan.
William A. Perry joined VNUS in February 2003 as Vice
President, Worldwide Marketing and International Sales. From
February 2001 to November 2002, he served as Vice President of
Marketing & Sales at EndoVasix, Inc., an endovascular
device company. Mr. Perry served as Vice President of
Marketing & Sales (Europe) at Symphonix Devices, Inc.,
a company specializing in implantable hearing systems, from
January 1999 to February 2001. Prior to January 1999,
Mr. Perry held various management positions at Tenerus,
Inc., a software company, Influence Medical Technologies, Ltd.,
a urologic/gynecologic device company, Indigo Medical, Inc., a
medical device company acquired by Johnson & Johnson,
Coherent, Inc., a laser medical device manufacturer, and Kastle
Systems, a commercial real estate systems company.
Mr. Perry holds a B.S. in International Politics with a
concentration in International Economics from Georgetown
University and a Masters in International Management from the
American Graduate School of International Management —
Thunderbird.
Scott H. Cramer joined VNUS in October 2000 as Vice
President of North American Sales. From July 1997 to September
2000, Mr. Cramer was employed by EndoSonics Corporation, a
cardiovascular device company, most recently as Vice President
U.S. Sales. From February 1996 to July 1997,
Mr. Cramer served first as the Eastern Region Manager and
then as the National Sales Manager at Cardiometrics, Inc., a
medical device company. From June 1990 to December 1995,
Mr. Cramer held several positions at Baxter Healthcare
Corporation’s cardiovascular division. Mr. Cramer
holds a B.S. degree in Finance from the Philadelphia College of
Textiles and Science.
Robert G. McRae joined VNUS in October 2001 as a Senior
Manufacturing Manager. Mr. McRae was promoted to Director
of Manufacturing Operations in April 2002, and to Vice
President, Manufacturing and Research & Development in
February 2003. From June 2000 to October 2001, Mr. McRae
was employed by QuinStreet, Inc., an online marketing company,
first as a Software Engineer and later as a Software
Configuration Manager. He held various management and
manufacturing engineering positions at VNUS from October 1997 to
June 2000, and at Stryker Endoscopy, a division of Stryker
Corporation, a medical device company, from May 1996 to October
1997. From 1987 to 1993, Mr. McRae served in the United
States Navy as an Instructor/ In-Flight Ordnanceman.
Mr. McRae holds a B.S. in Mechanical Engineering from
San Jose State University and an M.B.A. from
Santa Clara University.
|
|
| Item 11: |
Executive Compensation |
The information required under this item is incorporated herein
by reference to our definitive proxy statement pursuant to
Regulation 14A, which proxy statement will be filed with
the Securities and Exchange Commission not later than
120 days after the close of our fiscal year ended
December 31, 2004.
67
|
|
| Item 12: |
Security Ownership of Certain Beneficial Owners and
Management and Related Stockholder Matters |
The information required under this item is incorporated herein
by reference to our definitive proxy statement pursuant to
Regulation 14A, which proxy statement will be filed with
the Securities and Exchange Commission not later than
120 days after the close of our fiscal year ended
December 31, 2004.
|
|
| Item 13: |
Certain Relationships and Related Transactions |
The information required under this item is incorporated herein
by reference to our definitive proxy statement pursuant to
Regulation 14A, which proxy statement will be filed with
the Securities and Exchange Commission not later than
120 days after the close of our fiscal year ended
December 31, 2004.
|
|
| Item 14: |
Principal Accountant Fees and Services |
The information required under this item is incorporated herein
by reference to our definitive proxy statement pursuant to
Regulation 14A, which proxy statement will be filed with
the Securities and Exchange Commission not later than
120 days after the close of our fiscal year ended
December 31, 2004.
PART IV
|
|
| Item 15: |
Exhibits and Financial Statement Schedules |
(a) 1. Consolidated Financial Statements and
Supplementary Data:
The following financial statements are included herein under
Item 8:
| |
|
|
|
|
|
| |
|
Page | |
| |
|
Number | |
| |
|
| |
|
Report of Independent Registered Public Accounting Firm
|
|
|
47 |
|
|
Consolidated Balance Sheets at December 31, 2004 and
December 31, 2003
|
|
|
48 |
|
|
Consolidated Statements of Operations for Each of the Years in
the Three Year Period Ended December 31, 2004
|
|
|
49 |
|
|
Consolidated Statements of Stockholders’ Equity for Each of
the Years in the Three Year Period Ended December 31, 2004
|
|
|
50 |
|
|
Consolidated Statements of Cash Flows for Each of the Years in
the Three Year Period Ended December 31, 2004
|
|
|
51 |
|
|
Notes to Consolidated Financial Statements
|
|
|
52 |
|
| |
2. Financial Statement Schedules:
|
|
|
|
|
|
Schedule II — Valuation and Qualifying Accounts
|
|
|
72 |
|
| |
3. Exhibit Index
|
|
|
|
|
68
INDEX OF EXHIBITS
| |
|
|
|
|
| Exhibit | |
|
|
| Number | |
|
Description |
| | |
|
|
| |
3 |
.1 |
|
Form of Amended and Restated Certificate of Incorporation, to be
in effect upon the completion of the offering (incorporated by
reference to Exhibit 3.1 to the Company’s Registration
Statement on Form S-1/ A No. 333-117640, filed on
September 28, 2004.) |
| |
3 |
.2 |
|
Form of Amended and Restated Bylaws, to be in effect upon the
completion of the offering (incorporated by reference to
Exhibit 3.2 to the Company’s Registration Statement on
Form S-1/ A No. 333-117640, filed on
September 28, 2004.) |
| |
3 |
.3 |
|
Amended and Restated Certificate of Incorporation, currently in
effect (incorporated by reference to Exhibit 3.3 to the
Company’s Registration Statement on Form S-1/ A
No. 333-117640, filed on August 18, 2004.) |
| |
3 |
.4 |
|
Amended and Restated Bylaws, currently in effect (incorporated
by reference to Exhibit 3.4 to the Company’s
Registration Statement on Form S-1/ A No. 333-117640,
filed on August 18, 2004.) |
| |
3 |
.5 |
|
Amendment to Amended and Restated Certificate of Incorporation
currently in effect (incorporated by reference to
Exhibit 3.5 to the Company’s Registration Statement on
Form S-1/ A No. 333-117640, filed on October 15,
2004.) |
| |
4 |
.1 |
|
Specimen Stock Certificate (incorporated by reference to
Exhibit 4.1 to the Company’s Registration Statement on
Form No. S-1/ A 333-117640, filed on October 15,
2004.) |
| |
4 |
.2 |
|
Fifth Restated Stockholder Rights Agreement, dated
August 15, 2001 (incorporated by reference to
Exhibit 4.2 to the Company’s Registration Statement on
Form S-1 No. 333-117640, filed on July 23, 2004.) |
| |
4 |
.3 |
|
Warrant to purchase common stock between VNUS Medical
Technologies, Inc. and The Bay City Capital Fund I, L.P.
(incorporated by reference to Exhibit 4.3 to the
Company’s Registration Statement on
Form No. 333-117640, filed on July 23, 2004.) |
| |
4 |
.4 |
|
Warrant to purchase common stock between VNUS Medical
Technologies, Inc. and SPI Commerce Park, LP. (incorporated by
reference to Exhibit 4.4 to the Company’s Registration
Statement on Form S-1 No. 333-117640, filed on
July 23, 2004.) |
| |
10 |
.2# |
|
2000 Equity Incentive Plan (incorporated by reference to
Exhibit 10.2 to the Company’s Registration Statement
on Form S-1 No. 333-117640, filed on July 23,
2004.) |
| |
10 |
.3# |
|
First Amendment to 2000 Equity Incentive Plan (incorporated by
reference to Exhibit 10.3 to the Company’s
Registration Statement on Form S-1 No. 333-117640,
filed on July 23, 2004.) |
| |
10 |
.4# |
|
1995 Stock Plan (incorporated by reference to Exhibit 10.4
to the Company’s Registration Statement on Form S-1
No. 333-117640, filed on July 23, 2004.) |
| |
10 |
.5# |
|
First Amendment to 1995 Stock Plan (incorporated by reference to
Exhibit 10.5 to the Company’s Registration Statement
on Form S-1 No. 333-117640, filed on July 23,
2004.) |
| |
10 |
.6# |
|
Second Amendment to 1995 Stock Plan (incorporated by reference
to Exhibit 10.6 to the Company’s Registration
Statement on Form S-1 No. 333-117640, filed on
July 23, 2004.) |
| |
10 |
.7# |
|
VNUS Severance Plan for Management and Key Employees
(incorporated by reference to Exhibit 10.7 to the
Company’s Registration Statement on Form S-1
No. 333-117640, filed on July 23, 2004.) |
| |
10 |
.8#* |
|
Form of Stock Option Agreement Under the 2000 Equity Incentive
Plan, as amended. |
| |
10 |
.9# |
|
Summary of the 2004 Bonus Payments and 2005 Salary for the Chief
Executive Officer (incorporated by reference to the
Company’s Report on Form 8-K dated March 25,
2005.) |
| |
10 |
.10# |
|
Summary of the 2004 Bonus Payments and 2005 Salaries for
Executive Officers (incorporated by reference to the
Company’s Report on Form 8-K dated March 16,
2005.) |
| |
10 |
.11# |
|
Form of Indemnification Agreement for Directors and Officers.
(incorporated by reference to Exhibit 10.8 to the
Company’s Registration Statement on Form S-1/ A
No. 333-117640, filed on September 28, 2004.) |
69
| |
|
|
|
|
| Exhibit | |
|
|
| Number | |
|
Description |
| | |
|
|
| |
10 |
.12 |
|
RF Generator Development Agreement between VNUS Medical
Technologies, Inc. and Byers Peak, Inc. dated February 20,
2004 (incorporated by reference to Exhibit 10.9 to the
Company’s Registration Statement on Form S-1/ A
No. 333-117640, filed on August 18, 2004.) |
| |
10 |
.13 |
|
Service and Supply Agreement by and between VNUS Medical
Technologies, Inc. and Byers Peak, Inc., dated February 20,
2004 (incorporated by reference to Exhibit 10.10 to the
Company’s Registration Statement on Form S-1/ A
No. 333-117640, filed on September 28, 2004.) |
| |
10 |
.14 |
|
Lease by and between SPI Commerce Park, LP and VNUS Medical
Technologies, Inc., dated January 24, 2001 (incorporated by
reference to Exhibit 10.11 to the Company’s
Registration Statement on Form S-1 No. 333-117640,
filed on July 23, 2004.) |
| |
10 |
.15 |
|
First Amendment to Lease Agreement by and between SPI Commerce
Park, LP and VNUS Medical Technologies, Inc., dated
August 1, 2003 (incorporated by reference to
Exhibit 10.12 to the Company’s Registration Statement
on Form S-1 No. 333-117640, filed on July 23,
2004.) |
| |
10 |
.16 |
|
Second Amendment to Lease Agreement by and between SPI Commerce
Park, LP and VNUS Medical Technologies, Inc., dated
February 13, 2004 (incorporated by reference to
Exhibit 10.13 to the Company’s Registration Statement
on Form S-1 No. 333-117640, filed on July 23,
2004.) |
| |
10 |
.17 |
|
Second Amendment to 2000 Equity Incentive Plan (incorporated by
reference to Exhibit 10.14 to the Company’s
Registration Statement on Form S-1/ A No. 333-117640,
filed on July 23, 2004.) |
| |
21 |
* |
|
List of Subsidiaries of VNUS Medical Technology, Inc. |
| |
23 |
.1* |
|
Consent of PricewaterhouseCoopers LLP, Independent Registered
Public Accounting Firm. |
| |
31 |
.1* |
|
Certification of Chief Executive Officer Required Under
Rule 13a-14(a) of the Securities Exchange Act of 1934, as
amended. |
| |
31 |
.2* |
|
Certification of Principal Financial Officer Required Under
Rule 13a-14(a) of the Securities Exchange Act of 1934, as
amended. |
| |
32 |
* |
|
Certification of Chief Executive Officer and Principal Financial
Officer Required Under Rule 13a-14(b) of the Securities
Exchange Act of 1934, as amended, and 18 U.S.C.
Section 1350. |
|
|
| # |
Management compensation or arrangement. |
(b) Exhibits.
The exhibits required by Item 601 of Regulation S-K
are filed or furnished herewith.
70
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the Registrant has duly caused
this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
|
|
| |
VNUS Medical Technologies,
Inc.
|
|
|
| |
|
| |
Brian E. Farley |
| |
President, Chief Executive Officer |
| |
and Director |
Date: March 31, 2005
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed below by the following persons
on behalf of the Registrant and in the capacities and on the
date indicated.
| |
|
|
|
|
|
|
| |
|
By |
|
/s/ Brian E. Farley
Brian
E. Farley |
|
President, Chief Executive Officer and Director |
|
Date: March 31, 2005 |
| |
|
By |
|
/s/ Timothy A. Marcotte
Timothy
A. Marcotte |
|
Vice President and Chief Financial Officer
(Principal Financial Officer) |
|
Date: March 31, 2005 |
| |
|
By |
|
/s/ H. DuBose
Montgomery
H.
DuBose Montgomery |
|
Chairman of the Board |
|
Date: March 31, 2005 |
| |
|
By |
|
/s/ James Fitzsimmons
James
Fitzsimmons |
|
Director |
|
Date: March 31, 2005 |
| |
|
By |
|
/s/ Kathy LaPorte
Kathy
LaPorte |
|
Director |
|
Date: March 31, 2005 |
| |
|
By |
|
/s/ Edward Unkart
Edward
Unkart |
|
Director |
|
Date: March 31, 2005 |
71
FINANCIAL STATEMENT SCHEDULE
SCHEDULE II VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Balance at | |
|
|
|
|
|
Balance at | |
| |
|
Beginning | |
|
|
|
|
|
End of | |
| Description |
|
of Period | |
|
Additions | |
|
Write-offs | |
|
Period | |
| |
|
| |
|
| |
|
| |
|
| |
| |
|
(in thousands) | |
|
Allowance for Doubtful Accounts Year Ended:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2002
|
|
$ |
41 |
|
|
$ |
189 |
|
|
$ |
(66 |
) |
|
$ |
164 |
|
|
December 31, 2003
|
|
$ |
164 |
|
|
$ |
43 |
|
|
$ |
(15 |
) |
|
$ |
192 |
|
|
December 31, 2004
|
|
$ |
192 |
|
|
$ |
105 |
|
|
$ |
(102 |
) |
|
$ |
195 |
|
| |
|
Allowance for Excess and Obsolete Inventory Year Ended:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2002
|
|
$ |
124 |
|
|
$ |
128 |
|
|
$ |
(104 |
) |
|
$ |
148 |
|
|
December 31, 2003
|
|
$ |
148 |
|
|
$ |
77 |
|
|
$ |
(29 |
) |
|
$ |
196 |
|
|
December 31, 2004
|
|
$ |
196 |
|
|
$ |
68 |
|
|
$ |
(233 |
) |
|
$ |
31 |
|
| |
|
Allowance for Deferred Tax Assets Year Ended:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2002
|
|
$ |
13,427 |
|
|
$ |
1,639 |
|
|
$ |
— |
|
|
$ |
15,066 |
|
|
December 31, 2003
|
|
$ |
15,066 |
|
|
$ |
1,365 |
|
|
$ |
— |
|
|
$ |
16,431 |
|
|
December 31, 2004
|
|
$ |
16,431 |
|
|
$ |
— |
|
|
$ |
(1,108 |
) |
|
$ |
15,323 |
|
72
INDEX OF EXHIBITS
| |
|
|
|
|
| Exhibit | |
|
|
| Number | |
|
Description |
| | |
|
|
| |
3 |
.1 |
|
Form of Amended and Restated Certificate of Incorporation, to be
in effect upon the completion of the offering (incorporated by
reference to Exhibit 3.1 to the Company’s Registration
Statement on Form S-1/ A No. 333-117640, filed on
September 28, 2004.) |
| |
3 |
.2 |
|
Form of Amended and Restated Bylaws, to be in effect upon the
completion of the offering (incorporated by reference to
Exhibit 3.2 to the Company’s Registration Statement on
Form S-1/ A No. 333-117640, filed on
September 28, 2004.) |
| |
3 |
.3 |
|
Amended and Restated Certificate of Incorporation, currently in
effect (incorporated by reference to Exhibit 3.3 to the
Company’s Registration Statement on Form S-1/ A
No. 333-117640, filed on August 18, 2004.) |
| |
3 |
.4 |
|
Amended and Restated Bylaws, currently in effect (incorporated
by reference to Exhibit 3.4 to the Company’s
Registration Statement on Form S-1/ A No. 333-117640,
filed on August 18, 2004.) |
| |
3 |
.5 |
|
Amendment to Amended and Restated Certificate of Incorporation
currently in effect (incorporated by reference to
Exhibit 3.5 to the Company’s Registration Statement on
Form S-1/ A No. 333-117640, filed on October 15,
2004.) |
| |
4 |
.1 |
|
Specimen Stock Certificate (incorporated by reference to
Exhibit 4.1 to the Company’s Registration Statement on
Form No. S-1/ A 333-117640, filed on October 15,
2004.) |
| |
4 |
.2 |
|
Fifth Restated Stockholder Rights Agreement, dated
August 15, 2001 (incorporated by reference to
Exhibit 4.2 to the Company’s Registration Statement on
Form S-1 No. 333-117640, filed on July 23, 2004.) |
| |
4 |
.3 |
|
Warrant to purchase common stock between VNUS Medical
Technologies, Inc. and The Bay City Capital Fund I, L.P.
(incorporated by reference to Exhibit 4.3 to the
Company’s Registration Statement on
Form No. 333-117640, filed on July 23, 2004.) |
| |
4 |
.4 |
|
Warrant to purchase common stock between VNUS Medical
Technologies, Inc. and SPI Commerce Park, LP. (incorporated by
reference to Exhibit 4.4 to the Company’s Registration
Statement on Form S-1 No. 333-117640, filed on
July 23, 2004.) |
| |
10 |
.2# |
|
2000 Equity Incentive Plan (incorporated by reference to
Exhibit 10.2 to the Company’s Registration Statement
on Form S-1 No. 333-117640, filed on July 23,
2004.) |
| |
10 |
.3# |
|
First Amendment to 2000 Equity Incentive Plan (incorporated by
reference to Exhibit 10.3 to the Company’s
Registration Statement on Form S-1 No. 333-117640,
filed on July 23, 2004.) |
| |
10 |
.4# |
|
1995 Stock Plan (incorporated by reference to Exhibit 10.4
to the Company’s Registration Statement on Form S-1
No. 333-117640, filed on July 23, 2004.) |
| |
10 |
.5# |
|
First Amendment to 1995 Stock Plan (incorporated by reference to
Exhibit 10.5 to the Company’s Registration Statement
on Form S-1 No. 333-117640, filed on July 23,
2004.) |
| |
10 |
.6# |
|
Second Amendment to 1995 Stock Plan (incorporated by reference
to Exhibit 10.6 to the Company’s Registration
Statement on Form S-1 No. 333-117640, filed on
July 23, 2004.) |
| |
10 |
.7# |
|
VNUS Severance Plan for Management and Key Employees
(incorporated by reference to Exhibit 10.7 to the
Company’s Registration Statement on Form S-1
No. 333-117640, filed on July 23, 2004.) |
| |
10 |
.8#* |
|
Form of Stock Option Agreement Under the 2000 Equity Incentive
Plan, as amended. |
| |
10 |
.9# |
|
Summary of the 2004 Bonus Payments and 2005 Salary for the Chief
Executive Officer (incorporated by reference to the
Company’s Report on Form 8-K dated March 25,
2005.) |
| |
10 |
.10# |
|
Summary of the 2004 Bonus Payments and 2005 Salaries for
Executive Officers (incorporated by reference to the
Company’s Report on Form 8-K dated March 16,
2005.) |
| |
10 |
.11# |
|
Form of Indemnification Agreement for Directors and Officers.
(incorporated by reference to Exhibit 10.8 to the
Company’s Registration Statement on Form S-1/ A
No. 333-117640, filed on September 28, 2004.) |
| |
10 |
.12 |
|
RF Generator Development Agreement between VNUS Medical
Technologies, Inc. and Byers Peak, Inc. dated February 20,
2004 (incorporated by reference to Exhibit 10.9 to the
Company’s Registration Statement on Form S-1/ A
No. 333-117640, filed on August 18, 2004.) |
| |
|
|
|
|
| Exhibit | |
|
|
| Number | |
|
Description |
| | |
|
|
| |
10 |
.13 |
|
Service and Supply Agreement by and between VNUS Medical
Technologies, Inc. and Byers Peak, Inc., dated February 20,
2004 (incorporated by reference to Exhibit 10.10 to the
Company’s Registration Statement on Form S-1/ A
No. 333-117640, filed on September 28, 2004.) |
| |
10 |
.14 |
|
Lease by and between SPI Commerce Park, LP and VNUS Medical
Technologies, Inc., dated January 24, 2001 (incorporated by
reference to Exhibit 10.11 to the Company’s
Registration Statement on Form S-1 No. 333-117640,
filed on July 23, 2004.) |
| |
10 |
.15 |
|
First Amendment to Lease Agreement by and between SPI Commerce
Park, LP and VNUS Medical Technologies, Inc., dated
August 1, 2003 (incorporated by reference to
Exhibit 10.12 to the Company’s Registration Statement
on Form S-1 No. 333-117640, filed on July 23,
2004.) |
| |
10 |
.16 |
|
Second Amendment to Lease Agreement by and between SPI Commerce
Park, LP and VNUS Medical Technologies, Inc., dated
February 13, 2004 (incorporated by reference to
Exhibit 10.13 to the Company’s Registration Statement
on Form S-1 No. 333-117640, filed on July 23,
2004.) |
| |
10 |
.17 |
|
Second Amendment to 2000 Equity Incentive Plan (incorporated by
reference to Exhibit 10.14 to the Company’s
Registration Statement on Form S-1/ A No. 333-117640,
filed on July 23, 2004.) |
| |
21 |
* |
|
List of Subsidiaries of VNUS Medical Technology, Inc. |
| |
23 |
.1* |
|
Consent of PricewaterhouseCoopers LLP, Independent Registered
Public Accounting Firm. |
| |
31 |
.1* |
|
Certification of Chief Executive Officer Required Under
Rule 13a-14(a) of the Securities Exchange Act of 1934, as
amended. |
| |
31 |
.2* |
|
Certification of Principal Financial Officer Required Under
Rule 13a-14(a) of the Securities Exchange Act of 1934, as
amended. |
| |
32 |
* |
|
Certification of Chief Executive Officer and Principal Financial
Officer Required Under Rule 13a-14(b) of the Securities
Exchange Act of 1934, as amended, and 18 U.S.C.
Section 1350. |
|
|
| # |
Management compensation or arrangement. |
(b) Exhibits.
The exhibits required by Item 601 of Regulation S-K
are filed or furnished herewith.