ABMD ABIOMED Inc

You should carefully consider the following risks and all other information set forth in this report, including, without limitation, our consolidated financial statements and the related notes thereto and “Part II, Item 7. Management Discussion and Analysis of Financial Condition and Results of Operations.” The risks and uncertainties we have described are not the only ones we face. If any of these risks materialize, the trading price of our common stock could fall and you could lose all or part of your investment.

Risks Related to Our Business

A pandemic, epidemic or outbreak of an infectious disease, such as COVID-19, may materially and adversely impact our business, our operations and our financial results.

In recent months, a new strain of coronavirus (COVID-19) has spread to many countries in the world and the outbreak has been declared a pandemic by the World Health Organization. The U.S. Secretary of Health and Human Services has also declared a public health emergency in the U.S. in response to the outbreak. Considerable uncertainty still surrounds the COVID-19 virus and its potential effects, and the extent of and effectiveness of responses taken on international, national and local levels. Measures taken to limit the impact of COVID-19, including shelter-in-place orders, social distancing measures, travel bans and restrictions, and business and government shutdowns have already resulted in significant negative economic impacts on a global basis.

As the coronavirus pandemic continues to rapidly evolve, we cannot at this time accurately predict the effects of these conditions on our operations. Uncertainties remain as to the ultimate geographic spread of the virus, the severity of the disease, the duration of the outbreak, and the length and scope of the travel restrictions and business closures imposed by the governments of impacted countries. The continued outbreak of COVID-19, or another infectious disease with similar characteristics, may lead to the implementation of further responses, including additional travel restrictions, government-imposed quarantines or stay-at-home orders, and other public health safety measures, which may result in further disruptions to our business and operations. The COVID-19 outbreak has had an impact on our business, and a continuing outbreak or future outbreaks may have several adverse effects on our business, results of operations and financial condition.

Because outbreaks of infectious diseases like COVID-19 have been shown to burden healthcare systems due to the high volume of infected patients, hospitals and physicians may also resort to expense-reducing measures in other areas of healthcare practice, including after an outbreak subsides. Our customers may decline to schedule future procedures utilizing our products, which would negatively impact our operations and financial results. There may also be a decrease in the number of emergency procedures using our products if patients avoid hospital settings during an infectious disease outbreak.

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Regulatory oversight and actions regarding our products may be disrupted or delayed in regions impacted by COVID-19, including the U.S. and Europe, which may impact review and approval timelines for products in development and/or changes to existing products that need regulatory review and approval. Additionally, although we remain invested in innovation, our efforts in product engineering and research and development may be impacted if our employees in those areas are advised to continue to work remotely as part of social distancing measures.

COVID-19 has also created significant disruption to and volatility in national, regional and local economies and markets. Uncertainties related to, and perceived or experienced negative effects from, COVID-19 may cause significant volatility or decline in the trading price of our securities, capital market conditions and general economic environment. Our future results of operations and liquidity could be adversely impacted by delays in payments of outstanding receivable amounts beyond normal payment terms, supply chain disruptions and operational challenges faced by our customers. Continued outbreaks of COVID-19 or a significant outbreak of contagious diseases in the human population could result in a widespread health crisis that could adversely affect the economies and financial markets of many countries, resulting in a further economic downturn or a global recession that could affect demand for our products and likely impact our operating results. These may increase the likelihood of litigation, including derivative stockholder litigation, limit or restrict our ability to access capital on favorable terms, or at all, lead to consolidation that negatively impacts our business, weaken demand, increase competition, cause us to reduce our capital spend further, or otherwise disrupt our business or make it more difficult to implement our strategic plans.

A prolonged downturn in global economic conditions may materially adversely affect our business.

Our business and results of operations are affected by international, national and regional economic conditions. Financial markets in the U.S., Europe and Asia have been experiencing extreme disruption in recent months, including, among other things, extreme volatility in securities prices. We are unable to predict the likely duration and severity of the current disruptions in financial markets and adverse economic conditions throughout the world. These economic developments affect businesses such as ours and those of our customers in a number of ways that could result in unfavorable consequences to us. Current economic conditions or a deepening economic downturn in the U.S. and elsewhere, including as a result of a continued or future outbreak of COVID-19 or a similar infectious disease, or reductions in the level of government funding for scientific research, may cause our current or potential customers to delay or reduce purchases, which could, in turn, result in reductions in sales of our products, materially and adversely affecting our results of operations and cash flows. Volatility and disruption of global financial markets could limit our customers’ ability to obtain adequate financing to maintain operations and proceed with planned or new capital spending initiatives, leading to a reduction in sales volume that could materially and adversely affect our results of operations and cash flow. In addition, a decline in our customers’ ability to pay as a result of the economic downturn may lead to increased difficulties in the collection of our accounts receivable, higher levels of reserves for doubtful accounts and write-offs of accounts receivable, and higher operating costs as a percentage of revenues.

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We depend on Impella® products and services for most of our revenues.

We derive, and expect to continue to derive in the near future, most of our revenues from sales of our Impella devices and related services. While we cannot fully predict what level of revenues our Impella devices will generate, we anticipate that Impella revenues will continue to account for most of our revenues in the near future. Implementation of our business strategy depends on continued revenues from of our Impella devices and services. Our ability to generate revenues from our Impella devices and services may be impaired by the factors described below:

If we fail to compete successfully against our existing or potential competitors, our revenues or operating results may be harmed.

Competition from other companies offering circulatory care products is intense and subject to rapid technological change and evolving industry requirements and standards. We compete with companies that have greater financial, product development, sales and marketing resources and experience than we do. Our ability to compete effectively depends upon our ability to distinguish our company and our products from our competitors and their products. Factors affecting our competitive position include:

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Our customers are primarily hospitals that have limited budgets. Physicians endorse our products to hospitals that will then choose to purchase our products and subsequently pass this cost on to patients or their insurance providers. Physicians will recommend our products based on public information regarding patient outcomes, clinical trials, and the costs and benefits of using our products when compared to other substitutes available in the market. As a result, our products compete against a broad range of medical devices and other therapies for these limited funds. Our success will depend in large part upon our ability to enhance our existing products, to develop new products to meet regulatory and customer requirements and to achieve and maintain market acceptance for our products. We believe that important competitive factors with respect to the development and commercialization of our products include the relative speed with which we can develop products, establish clinical utility, complete clinical trials and regulatory approval processes, obtain and protect reimbursement, maintain cost effectiveness for our products, and supply commercial quantities of our products to our customers.

Advances in medical technology, biotechnology and pharmaceuticals may reduce the size of the potential markets for our products or render our products obsolete. We are aware of other cardiac assist device research efforts in the U.S., Canada, Europe and Japan. In addition, there are a number of companies, including Abbott Laboratories, Medtronic, Edwards Lifesciences, CardiacAssist, Terumo Heart, Teleflex, Getinge (Maquet Cardiovascular), and several early-stage companies, that are developing heart assist products, including implantable left ventricular assist devices and miniaturized rotary ventricular assist devices that directly and indirectly compete with our products.

The commercial success of our products will require acceptance by cardiac surgeons and interventional cardiologists, a limited number of whom have significant influence over medical device selection and purchasing decisions.

We may achieve our business objectives only if our products are accepted and recommended by leading cardiac surgeons and interventional cardiologists, whose decisions are likely to be based on a determination that our products are safe and effective and represent acceptable, cost-effective methods of treatment in light of reimbursement policies with respect to our products. Although we have developed relationships with leading cardiac surgeons, the commercial success of Impella devices and our other products will also require that we develop relationships with leading interventional cardiologists in cath labs. We cannot assure you that we can maintain our existing relationships and arrangements with leading cardiac surgeons or interventional cardiologists or that we can establish new relationships in support of our products. If cardiac surgeons and interventional cardiologists do not consider our products to be adequate for the treatment of our target cardiac patient population or if a sufficient number of these clinicians recommend and use competing products, it would seriously harm our business.

Expansion into hospital cardiac centers that have not historically used our products may incur long sales and training cycles that may cause our revenues and operating results to vary significantly from quarter to quarter.

Our products have lengthy sales cycles and we may incur substantial sales and marketing expenses and expend significant effort without making a sale. We sell primarily to hospitals that often have administrative requirements to introduce and expand a new technology, such as Impella devices, at their sites. Even after making the decision to purchase our Impella devices, our customers often deploy our products slowly or infrequently. In addition, cardiac centers of hospitals that buy the majority of our products are usually led by cardiac surgeons who are heavily recruited by competing hospitals. When one of these cardiac surgeons moves to a new hospital, we sometimes experience a significant reduction in purchases by the hospital from which the physician has departed while it replaces the lead physician supporting our Impella devices. As a result, our revenues and operating results may vary significantly from quarter to quarter. In addition, product purchases often lag behind initial expressions of interest in our product by new centers due to training and education regarding the use of the products. Hospitals also need to perform internal administrative requirements prior to the initial implant procedures. These challenges in our sales initiatives may be further adversely impacted by outbreaks of COVID-19 or similar infectious diseases. For more information, see “—A pandemic, epidemic or outbreak of an infectious disease, such as COVID-19, or coronavirus, may materially and adversely impact our business, our operations and our financial results.”

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The training required for clinicians to use our products could reduce the market acceptance of our products and reduce our revenue.

Clinicians must be trained to use our products proficiently. It is critical to the success of our business that we ensure that there are a sufficient number of clinicians familiar with, trained on and proficient in the use of our products. Convincing clinicians to dedicate the time and energy necessary to obtain adequate training in the use of our products is challenging and we may not be successful in these efforts. Our physician education and training initiatives may also be impaired by outbreaks of COVID-19 or similar infectious diseases requiring social distancing. If clinicians are not properly trained, they may misuse or ineffectively use our products. Any improper use of our products may result in unsatisfactory outcomes, patient injury, negative publicity or lawsuits against us, any of which could harm our reputation and affect future product sales. Furthermore, our inability to educate and train clinicians to use our products may lead to lower demand for our products.

If we do not effectively manage our growth, we may be unable to successfully develop, market and sell our products.

Our future revenue and operating results will depend on our ability to manage the anticipated growth of our business. We have experienced significant growth in recent years in which we have expanded our operations and we have increased our employee headcount. This growth has placed significant demands on our management as well as our financial and operational resources. In order to achieve our business objectives, we will need to continue to grow. However, continued growth presents numerous challenges, including:

Any failure to manage our growth effectively could impede our ability to successfully develop, market and sell our products, which could seriously harm our business.

The demand for our existing products and products under development is unproven, and we may be unable to successfully commercialize our products.

Our existing products, which have received regulatory approval for commercialization only in the last few years, and our products under development may not enjoy commercial acceptance or success, thus adversely affecting our business and operational results. We need to create new indications and geographic markets for our Impella devices and other existing products, as well as other new or future products, including achieving market acceptance among physicians, hospitals, patients and third-party payers. In particular, we must gain and maintain acceptance of our Impella devices among interventional cardiologists and cardiac surgeons. The obstacles we will face in trying to create successful commercial markets for our products include:

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Several of these obstacles may be further exacerbated by outbreaks of COVID-19 or similar infectious diseases. For more information, see “—A pandemic, epidemic or outbreak of an infectious disease, such as COVID-19, or coronavirus, may materially and adversely impact our business, our operations and our financial results.”

If we fail to obtain and maintain necessary governmental approvals for our products and indications, we may be unable to market and sell our products in certain jurisdictions.

Medical devices such as ours are extensively regulated by the FDA in the U.S. and by other federal, state, local and foreign authorities. Governmental regulations relate to the testing, development, manufacturing, labeling, design, sale, promotion, distribution, importing, exporting and shipping of our products. In the U.S., before we can market a new medical device, or a new use of, or claim for, or significant modification to, an existing product, we must generally first receive PMA from the FDA. This process can be expensive and lengthy, and can entail significant expenses, primarily related to clinical trials. It generally takes between one to three years to receive approval, or even longer, from the time the PMA application is submitted to the FDA. Regulatory clearances or approvals, either foreign or domestic, may not be granted on a timely basis, if at all. If we are unable to obtain regulatory approvals or clearances for use of our products under development, or if the patient populations for which they are approved are not sufficiently broad, the commercial success of these products could be limited. The FDA may also limit the claims that we can make about our products. Any significant modifications to the design, materials, or intended use of those devices require FDA approval through PMA or HDE supplemental applications.

If we do not receive FDA approval for one or more of our products, we will be unable to market and sell those products in the U.S., which would have a material adverse effect on our operations and prospects.

We also market or are beginning to market our products in international markets, including the European Union, Canada, and Japan. Regulatory approval processes differ among those jurisdictions and approval in the U.S. or any other single jurisdiction does not guarantee approval in any other jurisdiction. Obtaining foreign approvals could involve significant delays, difficulties and costs for us and could require additional clinical trials.

If the FDA or another regulatory or enforcement agency determines that we have promoted our products for one or more off-label uses, we may be subject to various penalties, including civil or criminal penalties.

The FDA, the U.S. Department of Justice, the Office of the Inspector General of Department of Health and Human Services, and other regulatory or enforcement agencies actively enforce regulations prohibiting the promotion of unapproved medical devices and the promotion of otherwise approved or cleared medical devices for unapproved uses. If any such agency determines that our promotional materials or training constitutes promotion of an unapproved use, it could request that we modify our training or promotional materials or subject us to regulatory enforcement actions, including the issuance of a warning letter, injunction, recall or withdrawal, seizure, civil fine and criminal penalties. Although our policy is to refrain from statements that could be considered off-label promotion of our products, such agencies could disagree and conclude that we have engaged in off-label promotion.

To the extent a regulatory agency commences an investigation in the future, we may not be able to resolve that matter, without incurring penalties or facing significant consequences. Even if we are successful in resolving such a matter without incurring penalties, responding to a subpoena or other government inquiry could result in substantial costs and could significantly and adversely impact our reputation and divert management’s attention and resources, which could have a material adverse effect on our business, operating results, financial condition and ability to finance our operations.

Finally, the ability of the FDA to review and clear or approve new products can be affected by a variety of factors, including government budget and funding levels, ability to hire and retain key personnel and accept the payment of user fees, and statutory, regulatory, and policy changes. This could affect our ability to develop or commercialize new products in a timely manner, which could negatively impact our business.

Off-label use of our products may result in injuries that lead to product liability suits, which could be costly to our business.

The use of our products outside their approved indications for use, or “off-label use,” may increase the risk of injury to patients. Clinicians may use our products for off-label uses, as the FDA does not restrict or regulate a clinician’s choice of treatment within the practice of medicine. Off-label use of our products may increase the risk of product liability claims against us. Product liability claims are expensive to defend and could divert our management’s attention and result in substantial damage awards against us.

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Unsuccessful clinical trials or procedures relating to products under development could have a material adverse effect on our prospects.

The regulatory approval process for new products and new indications for existing products often requires extensive clinical trials and procedures, including early clinical feasibility studies. Unfavorable or inconsistent clinical data from current or future clinical trials or procedures conducted by us, our competitors, or third parties, or perceptions regarding such clinical data, whether or not true, could adversely affect both our ability to obtain necessary approvals and the market’s view of our future prospects. Such clinical trials and procedures are inherently uncertain and there can be no assurance that these clinical trials or procedures will be completed in a timely or cost-effective manner or result in a commercially viable product or expanded indication. Failure to successfully complete these clinical trials or procedures in a timely and cost-effective manner could have a material adverse effect on our prospects. Clinical trials or procedures may experience significant setbacks even after earlier trials have shown promising results. Further, preliminary results from clinical trials or procedures may be contradicted by subsequent clinical analysis. In addition, results from our clinical trials or procedures may not be supported by actual long-term studies or clinical experience. If preliminary clinical results are later contradicted, or if initial results cannot be supported by actual long-term studies or clinical experience, our business could be adversely affected. Clinical trials or procedures may be delayed, suspended, or terminated by us, the FDA, or other regulatory authorities at any time, if it is believed that the trial participants face unacceptable health risks or for numerous other reasons. The FDA may disagree with our interpretation of the data from our clinical trials, or may find the clinical trial design, conduct or results inadequate to demonstrate safety and effectiveness of the product candidate. The FDA may also require additional pre-clinical studies or clinical trials, which could further delay approval of our products.

Our products are subject to extensive regulatory requirements, including continuing regulatory review, which could affect the manufacturing and marketing of our products.

The FDA and other regulatory agencies continue to review products even after they have received initial approval. If and when the FDA or another regulatory agency clears or approves our products under development, the manufacture and marketing of these products will be subject to continuing regulation, post-approval clinical studies, including compliance with the FDA’s adverse event reporting requirements, prohibitions on promoting a product for unapproved uses, and Quality System Regulation, or QSR, requirements, which obligate manufacturers, including third-party and contract manufacturers, to adhere to stringent design, testing, control, documentation and other quality assurance procedures during the design and manufacture of a device.

Any modification to an FDA approved device that could significantly affect its safety or effectiveness, or that would constitute a major change in its intended use, requires a supplemental PMA or HDE approval. The FDA requires each manufacturer to determine in the first instance whether a modification requires approval, but the FDA may review and potentially disagree with any such decision. Modifications of this type are common with new products. We anticipate that the first generation of each of our products will undergo a number of changes, refinements, enhancements and improvements over time. If the FDA requires us to seek approval for modification of a previously approved product for which we have concluded that new clearances or approvals are unnecessary, we may be required to cease marketing or to recall the modified product until we obtain clearance or approval and we may be subject to significant regulatory fines or penalties, which could have a material adverse effect on our financial results and competitive position. We also cannot assure you that we will be successful in obtaining clearances or approvals for our modifications, if required. We and our third-party suppliers of product components are also subject to inspection and market surveillance by the FDA and other regulatory agencies for QSR and other requirements, the interpretation of which can change. Compliance with QSR and similar legal requirements can be difficult and expensive. While we continue to monitor our quality management in order to improve our overall level of compliance, our facilities are subject to periodic and unannounced inspection by U.S. and foreign regulatory agencies to audit compliance with the QSR and comparable foreign regulations. Enforcement actions resulting from failure to comply with government requirements could result in fines, suspensions of approvals or clearances, recalls or seizure of products, operating restrictions or shutdown, and criminal prosecutions that could adversely affect the manufacture and marketing of our products. The FDA or another regulatory agency could withdraw a previously approved product from the market upon receipt of newly discovered information, including a failure to comply with regulatory requirements, the occurrence of unanticipated safety problems of other defects in products following approval, or other reasons, which could adversely affect our operating results.

Even after receiving regulatory clearance or approval, our products may be subject to product recalls, which could harm our reputation and divert our managerial and financial resources.

The FDA and similar governmental authorities in other countries have the authority to order mandatory recall of our products or order their removal from the market if the government finds that our products might cause adverse health consequences or death. A government-mandated or voluntary recall by us could occur as a result of component failures, manufacturing errors by us or our suppliers or design defects, including labeling defects, or unanticipated safety problems. We have in the past initiated voluntary recalls for some of our products and we could do so in the future. Any recall of our products may harm our reputation with customers and divert managerial and financial resources.

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Shutdowns of the U.S. federal government could materially impair our business and financial condition.

Development of our product candidates and/or regulatory approval may be delayed for reasons beyond our control. For example, over the last several years the U.S. government has shut down several times and certain regulatory agencies, such as the FDA, CMS and the SEC, have had to furlough their government employees and stop critical activities. If a prolonged government shutdown or budget sequestration occurs, it could significantly impact the ability of the FDA to timely review and process our regulatory submissions, which could have a material adverse effect on our business. Further, in our operations as a public company, future government shutdowns could impact our ability to communicate with the SEC on various topics, such as shareholder proposals, or to have our registration statements declared effective, which could affect our ability to access the capital markets quickly.

We depend on third-party reimbursement to our customers for market acceptance of our products. If third-party payers fail to provide coverage and appropriate levels of reimbursement for the medical procedures in which our products are used, our sales and profitability would be adversely affected.

Sales of medical devices largely depend on the reimbursement of patients’ medical expenses by government healthcare programs and private health insurers. Without the financial support of government reimbursement or third-party insurers’ payments for patient care, the market for our products will be limited. Medical products and devices incorporating new technologies are closely examined by governments and private insurers to determine whether the products and devices will be covered by reimbursement, and if so, the level of reimbursement which may apply.

In the U.S., future action by the Centers for Medicare & Medicaid Services, or CMS (which administers the Medicare program), other government agencies or private payors, may diminish payments to physicians, outpatient surgery centers and/or hospitals, which could harm our ability to market and sell our products. Private payors may adopt coverage decisions and payment amounts determined by CMS as guidelines in setting their coverage and reimbursement policies. Private payors that do not follow the Medicare guidelines may adopt different coverage and reimbursement policies for procedures performed with our products. In addition, for governmental programs, such as Medicaid, coverage and reimbursement differs from state to state. Medicaid payments to physicians and facilities are often lower than payments by other third party payors, and some state Medicaid programs may not pay an adequate amount for the procedures performed with our products, if any payment is made at all. Internationally, medical reimbursement systems vary significantly from country to country, with some countries limiting medical centers spending through fixed budgets, regardless of levels of patient treatment, and other countries requiring application for, and approval of, government or third-party reimbursement. For more information, see Part I, Item 1. “Business—Third-Party Reimbursement.”

In addition, third-party payers, including private and government insurers, are increasingly requiring evidence that medical devices are cost-effective. If we are unable to demonstrate that our devices are cost-effective, the third-party payer may not reimburse the use of our products, which could reduce sales of our products to healthcare providers who depend upon reimbursement for payment. We also cannot be sure that third-party payers will continue the current levels of reimbursement to physicians and medical centers for use of our products. Any reduction in the amount of this reimbursement could harm our business. Increasing awareness of healthcare costs, public interest in healthcare reform and continuing pressure from Medicare, Medicaid, group purchasing organizations and other payers to reduce costs in the healthcare industry, as well as increasing competition from other protective products, could make it more difficult for us to sell our products at current prices. 

Changes in healthcare reimbursement systems in the U.S. and abroad could reduce our revenues and profitability.

In March 2010, the U.S. federal government enacted the Patient Protection and Affordable Care Act, or ACA, which made changes to the manner in which many healthcare services are provided and paid for in the U.S. The ACA includes provisions that, among other things, reduce or limit Medicare reimbursement, require all individuals to have health insurance (with limited exceptions) and impose increased taxes on certain companies and individuals. Results of the recent U.S. elections in 2016 have created a political environment in which significant portions of the ACA could be repealed or revised.  Recent tax reform legislation removed the financial penalty for individuals who do not have health insurance effective in 2019, a change that likely will result in fewer individuals electing to purchase health insurance. In addition, proposed changes in regulations would allow wider availability of health insurance that does not provide coverage for all of the essential health benefits required under the ACA. It remains unclear what other portions of the ACA may remain, or what any replacement or alternative programs may be created by any future legislation or regulation. For example, CMS has indicated that it intends to increase flexibility in state Medicaid programs, including by expanding the scope of waivers under which states may implement Medicaid expansion provisions, imposing different eligibility or enrollment restrictions, or otherwise implementing programs that vary from federal standards.

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Any such future actions may have significant impact on the reimbursement for healthcare services generally, including reducing significantly the number of individuals who have health insurance that can pay for our products, which could lead our health care provider customers to be more cost conscious. At the same time, certain members of the U.S. Congress have proposed measures that would expand the role of government-sponsored coverage, including single payer or so-called “Medicare-for-All” proposals, which could have far-reaching implications for the healthcare industry if enacted. Such a system could reduce our customers’ revenues, such as Medicare and other public reimbursement rates, on average could be lower than existing commercial health plan reimbursement rates. Even if legislation creating such a single-payer system is not enacted in the near term, continued introduction of legislation promoting a single-payer system by several members of the U.S. Congress could increase uncertainty for our customers and cause them to delay purchases of our products and services.  Accordingly, our business and results of operations could therefore be adversely affected by any future federal or state healthcare reform legislation or regulation. In sum, even if we succeed in bringing our new products to market, uncertainties regarding future healthcare policy, legislation and regulation, as well as private market practices, could affect our ability to sell our products in commercially acceptable quantities at profitable prices in certain countries.

We must comply with healthcare “fraud and abuse” laws, and we could face penalties for non-compliance and be excluded from government healthcare programs, which would adversely affect our business, financial condition and results of operations.

Certain federal and state healthcare laws and regulations pertaining to fraud and abuse and patients’ rights may be applicable to our business. We may be subject to healthcare fraud and abuse regulation and patient privacy regulation by both the federal government and the states in which we conduct our business. The laws and regulations that govern our business operations, products, and technologies, and may affect our ability to operate, include, among others, those listed in “Part I, Item 1. Business—Government Regulation and Other Matters—Postmarket Regulation.”

To assist in our compliance efforts, we must adhere to many codes of ethics and conduct regarding our sales and marketing activities in the U.S. and other countries in which we operate. Failure to comply with these laws and regulations could result in criminal liability, significant fines or penalties, negative publicity, and substantial costs and expenses associated with investigation, enforcement activities, and individual settlement agreements that impose a government monitor for a period of several years.

We are subject to the U.S. Foreign Corrupt Practices Act and other anticorruption laws, as well as export control laws, import and customs laws, trade and economic sanctions laws and other laws governing our operations.

Our operations are subject to anti-corruption laws, including the FCPA, the U.S. domestic bribery statute contained in 18 U.S.C. §201, the U.S. Travel Act, and other anti-corruption laws that apply in countries where we do business. The FCPA and these other laws generally prohibit us and our employees and intermediaries from authorizing, promising, offering, or providing, directly or indirectly, improper or prohibited payments, or anything else of value, to government officials or other persons to obtain or retain business or gain some other business advantage.

We and those acting on our behalf operate in a number of jurisdictions where companies in the medical device and life science industries are exposed to a high risk of potential FCPA violations associated with sales to healthcare professionals and institutions. We participate in transactions with third parties whose corrupt or illegal activities could potentially subject us to liability under the FCPA or local anti-corruption laws, even if we do not explicitly authorize or have actual knowledge of such activities. In addition, we cannot predict the nature, scope or effect of future regulatory requirements to which our international operations might be subject or the manner in which existing laws might be administered or interpreted. Compliance with the FCPA and these other laws is expensive and difficult, particularly in countries in which corruption is a recognized problem. In addition, anti-corruption laws present particular challenges in the medical device industry, because, in many countries, hospitals are operated by the government, and doctors and other hospital employees are considered foreign officials. Certain payments to hospitals in connection with clinical trials and other work have been deemed to be improper payments to government officials and have led to enforcement actions. We are also subject to other laws and regulations governing our international operations.

There is no assurance that we will be completely effective in ensuring our compliance with all applicable anti-corruption laws, including the FCPA or other legal requirements. If we are not in compliance with the FCPA and other anticorruption laws, we may be subject to criminal and civil penalties, disgorgement and other sanctions and remedial measures, and legal expenses, which could have an adverse impact on our business, financial condition, results of operations and liquidity. Likewise, any investigation of any potential violations of the FCPA and other anti-corruption laws could also have an adverse impact on our reputation, our business, results of operations and financial condition. Further, the failure to comply with laws governing international business practices may result in civil and criminal penalties and suspension or debarment from government contracting.

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Our future success depends in part on the development of new circulatory assist products, and our development efforts may not be successful.

We are devoting most of our research and development and regulatory efforts, and significant financial resources, to the development of our Impella devices and product extensions of existing commercial products and new products. The development of new products and product extensions presents enormous challenges in a variety of areas, including blood compatible surfaces, blood compatible flow, manufacturing techniques, pumping mechanisms, physiological control, energy transfer, anatomical fit and surgical techniques. We may be unable to overcome all of these challenges, which could adversely affect our results of operations and prospects and limit our ability to bring new products to market or make changes to enhance existing commercial products.

If we are unable to develop additional, high-quality manufacturing capacity, our growth may be limited and our business could be seriously harmed.

To be successful in the long-term, we will need to increase our manufacturing capacity to support continued demand for our products. We may encounter difficulties in scaling up manufacturing of our products, including problems related to product yields, quality control and assurance, component and service availability, dependable sources of supply, adequacy of internal control policies and procedures and lack of skilled personnel. Our manufacturing output may also be decreased by social distancing measures we implement in an effort to contain outbreaks of COVID-19 or similar infectious diseases. For more information, see “—A pandemic, epidemic or outbreak of an infectious disease, such as COVID-19, or coronavirus, may materially and adversely impact our business, our operations and our financial results.”

If we cannot hire, train and retain enough experienced and capable scientific, technical, and manufacturing employees, we may not be able to manufacture sufficient quantities of our existing or future products on time and at an acceptable cost, which could limit market acceptance of our products or otherwise damage our business. In order to meet the expected demand for our Impella devices, we have continued to implement process improvements on the Impella production line at our manufacturing facilities in Aachen, Germany and Danvers, Massachusetts to increase the output that we can produce at the facility. In addition to programs designed to further increase yield and capacity levels, we have expanded manufacturing employment in recent years and increased manufacturing floor space in Danvers and Aachen. We continue to work on initiatives to expand our Impella manufacturing capacity in both Aachen and Danvers. We are also working with our existing suppliers and new suppliers to ensure we are able to have sufficient inventory as we increase our manufacturing capability to support growing demand. We are and will continue outsourcing certain sub assembly production to third-party suppliers. We are also working on process improvements, such as certain automation techniques, to allow us to manufacture our products more efficiently. If we are unable to implement these process improvements on a timely basis in order to meet customer demand, it could inhibit our revenue growth.

If a natural or man-made disaster strikes our manufacturing facilities, we will be unable to manufacture our products for a substantial amount of time and our sales and profitability will decline.

Our facilities and the manufacturing equipment we use to produce our products would be costly to replace and could require substantial lead time to repair or replace. The facilities may be affected by natural or man-made disasters and in the event they were affected by a disaster, we would be forced to rely on third-party manufacturers. Although we believe we possess adequate insurance for the disruption of our business from causalities, such insurance may not be sufficient to cover all of our potential losses and may not continue to be available to us on acceptable terms, or at all.

Any failure to achieve and maintain the high manufacturing standards that our products require may seriously harm our business.

Our products require precise, high-quality manufacturing. Achieving precision and quality control requires skill and diligence by our personnel as well as our vendors. Any failure to achieve and maintain these high manufacturing standards, including the incidence of manufacturing errors, design defects or component failures could result in patient injury or death, product recalls or withdrawals, delays or failures in product testing or delivery, cost overruns or other problems that could seriously hurt our business. Despite our very high manufacturing standards, we cannot completely eliminate the risk of errors, defects or failures. If we or our vendors are unable to manufacture our products in accordance with necessary quality standards, or if we are unable to procure additional high-quality manufacturing facilities, our business and results of operations may be negatively affected.

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If we cannot attract and retain key management, scientific, sales and other personnel we need, we will not be successful.

We depend heavily on the contributions of the principal members of our business, such as financial, technical, sales and support, regulatory and clinical, operating, manufacturing and administrative management and staff, many of whom would be difficult to replace. Our key personnel include our senior officers, many of whom have very specialized scientific, medical or operational knowledge. The loss of the service of any of the key members of our senior management team, whether due to dismissal, resignation or illness, may significantly delay or prevent our achievement of our business objectives and divert remaining management’s attention to seeking qualified replacements. Our ability to attract, train and retain qualified personnel, consultants and advisors is critical to our success. For example, many members of our clinical staff are registered nurses with experience in the surgery suite or cath lab, of which only a limited number of whom seek employment with a company like ours. Competition for skilled and experienced personnel in the medical device industry is intense. We face competition for skilled and experienced management, scientific, clinical, engineering and sales personnel from numerous medical device and life sciences companies, universities, governmental entities and other research institutions. Hiring efforts may also be compounded by intensified restrictions on travel (including during the COVID-19 pandemic). If we lose the services of any of the principal members of our management and staff and have not developed adequate succession plans, or if we are unable to attract, train and retain qualified personnel in the future, especially scientific, clinical and sales personnel, our business could be adversely affected.

If our suppliers cannot provide the components we require, our ability to manufacture our products could be harmed.

We rely on third-party suppliers to provide us with many of the components used in our existing products and products in development. For example, we outsource the manufacturing of most of our consoles other than final assembly and testing and the sterilization process for our products. Relying on third-party suppliers makes us vulnerable to component part failures or obsolescence and interruptions in supply, either of which could impair our ability to conduct clinical tests or to ship our products to our customers on a timely basis. Using third-party vendors makes it difficult and sometimes impossible for us to test fully certain components, such as components on circuit boards, maintain quality control, manage inventory and production schedules and control production costs. Manufacturers of our product components may be required to comply with the FDA or other regulatory manufacturing regulations and to satisfy regulatory inspections in connection with the manufacture of the components. Any failure by a supplier to comply with applicable requirements could lead to a disruption in supply. Vendor lead times to supply us with ordered components vary significantly and often can exceed six months or more. Both now, and as we expand our manufacturing capacity, we cannot be sure that our suppliers will furnish us required components when we need them or be able to provide us with sufficient inventory to support our expected growth in demand for our products. Outbreaks of COVID-19 or similar infectious diseases may also create disruptions in our supply chain. For more information, see “—A pandemic, epidemic or outbreak of an infectious disease, such as COVID-19, or coronavirus, may materially and adversely impact our business, our operations and our financial results.” These factors could make it more difficult for us to manufacture our products effectively and efficiently and could adversely impact our results of operations.

Some of our suppliers may be the only source for a particular component, which makes us vulnerable to significant cost increases or shortage of supply. We have many foreign suppliers for some of our parts in which we are subject to currency exchange rate volatility. Some of our vendors are small in size and may have difficulty supplying the quantity and quality of materials required for our products as our business grows. Vendors that are the sole source of certain products may decide to limit or eliminate sales of certain components due to product liability or other concerns and we might not be able to find a suitable replacement for those products. Our inventory may run out before we find alternative suppliers and we might be forced to purchase excess inventory, if available, to last until we are able to qualify an alternate supplier. If we cannot obtain a necessary component, we may need to find, test and obtain regulatory approval or clearance for a replacement component, produce the component ourselves or redesign the related product, which would cause significant delay and could increase our manufacturing costs. Any of these events could adversely impact our results of operations.

We may not be successful in expanding our direct sales activities into international markets.

We are seeking to expand our international sales of our products by recruiting direct sales and support teams outside the U.S. Our international operations in Germany, Japan, France, Canada, the United Kingdom, Singapore and Australia are or will be subject to a number of risks, which may vary from the risks we experience in the U.S., including:

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If we are unable to effectively expand our sales activities in international markets, our results of operations could be negatively impacted.

The economic effects of “Brexit” may affect relationships with existing and future customers and could have an adverse impact on our business and operating results. 

In June 2016, the United Kingdom held a referendum in which voters approved Brexit, and following protracted negotiations, the United Kingdom left the European Union on January 31, 2020. Although the United Kingdom has passed legislation regarding the immediate impact of the United Kingdom’s withdrawal from the European Union, it is still unclear what terms, if any, may be agreed within the United Kingdom and between the United Kingdom and other countries on many aspects of fiscal policy, cross-border trade and international relations, both in the final outcome and for any transitional period. Additionally, under the withdrawal agreement with the European Union, there is a transitional period until December 31, 2020 (extendable up to two years, with an offer to request an extension to be made by June 2020). As this is an unprecedented event, it is unclear what long-term economic, financial, trade and legal implications the withdrawal of the United Kingdom from the European Union would have and how such withdrawal would affect the regulation applicable to our business globally and specifically in the region. If the United Kingdom were to significantly alter its regulations affecting the medical device industry, we could face significant new costs. It may also be time-consuming and expensive for us to alter our internal operations in order to comply with new regulations.

Additionally, as a result of Brexit, the global markets and currencies have been adversely impacted. A potential devaluation of the local currencies of our international buyers relative to the U.S. dollar may impair the purchasing power of our international buyers and could cause international buyers to decrease their participation in our marketplaces or use of our products. Further, volatility in exchange rates resulting from Brexit is expected to continue in the short term as the United Kingdom finalizing its exit from the European Union. We translate sales and other results of our activities in the United Kingdom denominated in British pounds into U.S. dollars for our financial statements. During periods of a strengthening dollar, our reported international sales and earnings could be reduced because foreign currencies may translate into fewer U.S. dollars.  We incurred revenues in the United Kingdom of $1.5 million, $1.8 million and $1.1 million for the fiscal years ended March 31, 2020, 2019 and 2018, respectively. Finally, Brexit could lead to legal uncertainty and potentially divergent national laws and regulations as the United Kingdom determines which E.U. laws to replace or replicate, and those laws and regulations may be cumbersome, difficult or costly in terms of compliance. Any of these effects of Brexit, among others, could adversely affect our business, financial condition, operating results and cash flows.

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We rely on distributors to sell our products in some international markets and poor performance by a distributor could reduce our sales and harm our business.

We rely on distributors to market and sell our products in certain parts of Europe, Asia, South America and the Middle East. Many of these distributors have the exclusive right to distribute our products in their territory. We may hire distributors to market our products in additional international markets in the future. Our success in these markets will depend almost entirely upon the efforts of our distributors, over whom we have little or no control. If a distributor does not market and sell our products effectively and maintain a continued focus on the sale, distribution and support of our products up to our standards, we could lose sales and impair our ability to compete and introduce our technology in that market. From time to time, these distributors could decide to reduce their levels of inventory with regard to certain of our products due to various factors, which could have an adverse effect on our business depending on the extend of the distributor’s sales. Outbreaks of infectious diseases such as COVID-19 or similar diseases, may also create disruptions in our distribution networks, especially in foreign markets that are forced to implement extended quarantine measures due to a lack of treatment and/or testing resources. For more information, see “—A pandemic, epidemic or outbreak of an infectious disease, such as COVID-19, or coronavirus, may materially and adversely impact our business, our operations and our financial results.” We are subject to credit risk and foreign currency risk associated with shipments to our distributors and this could negatively impact our financial condition and liquidity in the future.

The profitability we have achieved in recent years may not be indicative of our ability to sustain profitability and it is possible that we may incur losses from operations in future periods.

We recognized net income of $203.0 million, $259.0 million and $112.2 million for the fiscal years ended March 31, 2020, 2019 and 2018, respectively. The profitability we achieved in recent years may not be indicative of our ability to sustain future profitability and it is possible that we may incur losses from operations or net losses in future periods. Any losses incurred in the future may result primarily from, among other things:

Our operating results may fluctuate unpredictably.

Historically, our annual and quarterly operating results have fluctuated widely and we expect these fluctuations to continue. Among the factors that may cause our operating results to fluctuate are:

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We believe that period-to-period comparisons of our historical results are not necessarily meaningful and investors should not rely on them as an indication of our future performance. To the extent we experience the factors described above, our future operating results may not meet the expectations of securities analysts or investors, which may cause the market price of our common stock to decline.

We may undergo an “ownership change” for U.S. federal income tax purposes, which would limit our ability to utilize net operating losses from prior tax years.

If we undergo an “ownership change” for U.S. federal income tax purposes, our ability to utilize net operating loss carry-forwards from prior years to reduce taxable income in future tax years might be limited by the Internal Revenue Code, either by limiting the amount of net operating losses that can be utilized to offset taxable income in a given year, or in total over the entire carry-forward period. Certain changes in the ownership of our common stock may result in an ownership change sufficient to limit the availability of our net operating losses. Net operating losses, foreign tax credits and research and development credits have expiry dates in the U.S. and the ability to fully utilize them will be dependent upon generating taxable income in the future. The potential benefits of net operating losses and other carryforwards may be limited as a result of examinations and audits by the IRS and other taxing authorities. We also have net operating loss carry-forwards in other countries outside of the U.S. and our ability to use those losses in the future to offset taxable income could be limited by tax regulations in those countries.  

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Compliance with and changes in tax laws, including recently enacted U.S. Tax Reform legislation, could materially and adversely impact our financial condition, results of operations and cash flows.

On December 22, 2017, the Tax Cuts and Jobs Act, or Tax Reform Act, was signed into law that significantly revises the Internal Revenue Code of 1986, as amended.  The newly enacted federal income tax law, among other things, contains significant changes to corporate taxation, including reduction of the corporate tax rate from a top marginal rate of 35% to a rate of 21%, effective January 1, 2018, limitation of the deduction for net operating losses to 80% of current year taxable income in respect of net operating losses generated during or after fiscal 2018 and elimination of net operating loss carrybacks, revisions to the treatment for U.S. federal income tax purposes of foreign earnings, immediate deductions for certain new investments instead of deductions for depreciation expense over time, and modifying or repealing many business deductions and credits.

Additionally, the Organization for Economic Co-operation and Development (OECD), the European Commission (EC) and individual taxing jurisdictions where we and our affiliates do business have recently focused on issues related to the taxation of multinational corporations. The OECD has released its comprehensive plan to create an agreed set of international rules for fighting base erosion and profit shifting. In addition, the OECD, the EC and individual countries are examining changes to how taxing rights should be allocated among countries considering the digital economy. As a result, the tax laws in the U.S. and other countries in which we and our affiliates do business could change on a prospective or retroactive basis and any such changes could materially adversely affect our business

The U.S. Treasury Department, the Internal Revenue Service and other standard-setting bodies could interpret or issue guidance on how provisions of the Tax Reform Act will be applied or otherwise administered that is different from our interpretation. Foreign governments may enact tax laws in response to the Tax Reform Act that could result in further changes to global taxation and materially affect our financial position and results of operations. The calculation of tax exposures involves the application of complex tax laws and regulations in many jurisdictions and there can be no assurance that we will accurately predict the ultimate outcomes of these tax estimates or that issues raised by tax authorities will be resolved at a financial cost that does not exceed our related estimates of our tax provision.  The uncertainty surrounding the effect of the reforms on our financial results and business could also weaken confidence among investors in our financial condition. This could, in turn, have a materially adverse effect on the price of our common stock.

We may not have sufficient funds to develop and commercialize our new products or make acquisitions of desirable companies, products or technologies.

The development, manufacture and sale of any medical device is very expensive, and we may require additional funds to make acquisitions of desirable companies, products or technologies. We cannot be sure that we will have the necessary funds to develop and commercialize our new products or acquire companies, products or technologies, or that additional funds will be available on commercially acceptable terms, if at all. We currently have no debt, and new sources of capital may not be available to us when we need it or may be available only on terms we would find unacceptable. If we are unable to obtain the necessary funding to support these efforts, our business may be adversely affected. We believe we have sufficient liquidity to finance our operations for at least the next fiscal year based on available working capital and cash from operations. We also may evaluate from time to time other financing alternatives as necessary to fund operations, and any equity or convertible debt financing may involve dilution to our existing stockholders.

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We own patents, trademarks, trade secrets, copyrights and other intellectual property and know-how that we believe give us a competitive advantage. If we cannot protect our intellectual property, both domestically and internationally, and develop or otherwise acquire additional intellectual property, competition could force us to lower our prices, which could hurt our profitability.

Our intellectual property rights are and will continue to be a critical component of our success.  We rely and expect to continue to rely on a combination of intellectual property, including patent, trademark, copyright, trade secret and domain name protection laws, as well as confidentiality agreements with our employees and others, to protect our intellectual property and proprietary rights.  If we fail to obtain and maintain adequate intellectual property protection, we may not be able to prevent third parties from using our proprietary technologies or from marketing products that are very similar or identical to ours.

A substantial portion of our intellectual property rights relating to the Impella devices and other products under development is in the form of trade secrets and patents. Unlike patents, trade secrets are only recognized under applicable law if they are kept secret by restricting their disclosure to third parties. We protect our trade secrets and proprietary knowledge in part through confidentiality agreements with employees, consultants and other parties. However, certain consultants and third parties with whom we have business relationships, and to whom in some cases we have disclosed trade secrets and other proprietary knowledge, may also provide services to other parties in the medical device industry, including companies, universities and research organizations that are developing or marketing competing products. In addition, some of our former employees who were aware of certain of our trade secrets and other proprietary knowledge in the course of their employment may seek employment with, and become employed by, our competitors. We cannot be assured that consultants, employees and other third parties with whom we have entered into confidentiality agreements will not breach the terms of such agreements by improperly using or disclosing our trade secrets or other proprietary knowledge, that we will have adequate remedies for any such breach, or that our trade secrets will not become known to or be independently developed by our competitors. The loss of trade secret protection for technologies or know-how relating to our product portfolio and products under development could adversely affect our business and our prospects.

Our business position also depends in part on our ability to maintain and defend our existing patents and obtain, maintain, and defend additional patents and other intellectual property rights. We intend to seek additional patents, but our pending and future patent applications may not result in issued patents or be granted on a timely basis.  In addition, issued patents may not contain claims sufficiently broad to protect us against third parties with similar technologies or products or provide us with any competitive advantage, including exclusivity in a particular product area. The scope of our patent claims also may vary between countries, as individual countries have distinctive patent laws. We may be subject to challenges by third parties regarding our intellectual property, including, among others, claims regarding validity, enforceability, scope and effective term. Patent prosecution, related proceedings, and litigation in the U.S. and in other countries may be expensive, time consuming and ultimately unsuccessful. In addition, patents issued by foreign countries may afford less protection than is available under U.S. patent law and may not adequately protect our proprietary information. Our competitors may independently develop proprietary technologies and processes that are the same as or substantially equivalent to ours or design around our patents. Our competition may also hold or obtain intellectual property rights that would threaten our ability to develop or commercialize our product offerings.  The expiration of patents on which we rely for protection of key products could diminish our competitive advantage and adversely affect our business and our prospects.

Companies in the medical device industry typically obtain patents and frequently engage in intellectual property litigation. Our products and technologies could infringe on the rights of others. If a third party successfully asserts a claim for infringement against us, we may be liable for substantial damages, be unable to sell products using that technology, or have to seek a license or redesign the related product. These alternatives may be uneconomical or impossible. Intellectual property litigation could be costly, result in product development delays and divert the efforts and attention of management from our business.

For a discussion of our material legal proceedings, including those related to patent matters, as of March 31, 2020, see “Note 13. Commitment and Contingencies – Contingencies” to our consolidated financial statements in this report, which is incorporated by reference into this item.

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Product liability claims could damage our reputation and adversely affect our financial results.

The clinical use of medical products, even after regulatory approval, poses an inherent risk of product liability claims. We maintain limited product liability insurance coverage, subject to certain deductibles and exclusions. We cannot be sure that product liability insurance will be available in the future or will be available on acceptable terms or at reasonable costs, or that such insurance will provide us with adequate coverage against potential liabilities. We have been and anticipate that as part of our ordinary course of business we may be, subject to product liability claims alleging defects in the design, manufacture or labeling of our products.   Claims against us, regardless of their merit or potential outcome, may also hurt our ability to obtain physician endorsement of our products or expand our business. As we continue to expand use or our existing products and introduce more products, we face an increased risk that a material product liability claim will be brought against us.

Some of our products are designed for patients who suffer from late-stage or end-stage heart failure, and many of these patients do not survive, even when supported by our products. There are many factors beyond our control that could result in patient death, including the condition of the patient prior to use of the product, the skill and reliability of physicians and hospital personnel using and monitoring the product and product maintenance by customers. However, the failure of our products used for clinical testing or sale could give rise to product liability claims and negative publicity.

The risk of product liability claims is heightened when we sell products that are intended to support a patient until the end of life. The finite life of our products, as well as complications associated with their use, could give rise to product liability claims whether or not the products have extended or improved the quality of a patient’s life. If we have to pay product liability claims in excess of our insurance coverage, our financial condition will be adversely affected.

Quality issues may result in inventory write-downs and other costs.

Government regulations require us to track materials used in the manufacture of our products, so that if an issue is identified in one product it can be traced to other products that may have the same issue. An identified quality issues may require reworking or scrapping related inventory and/or recalling previous shipments. Because a malfunction in our products can possibly be life-threatening, we may be required to recall and replace, free of charge, products already in the marketplace. Any quality issue could cause us to incur significant expenses, lead to significant write-offs of inventory, injure our reputation and harm our business and financial results.

If we are found to have violated laws protecting the confidentiality of patient health information, we could be subject to civil or criminal penalties, which could increase our liabilities and harm our reputation or our business.

Our business requires us to use and store personally identifiable information of our customers, vendors, employees and business partners and, in certain instances patients treated with our products in the clinical setting. We are subject to various domestic and international privacy and security regulations, including but not limited to HIPAA and the GDPR.

HIPAA mandates, among other things, the adoption of uniform standards for the electronic exchange of information in common healthcare transactions, as well as standards relating to the privacy and security of individually identifiable health information, which require the adoption of administrative, physical and technical safeguards to protect such information. In addition, many states have enacted comparable laws addressing the privacy and security of health information, some of which are more stringent than HIPAA. For instance, the California Consumer Privacy Act, or the CCPA, which grants expanded rights to access and delete personal information and opt out of certain personal information sharing, among other things, became effective on January 1, 2020.

The GDPR is a comprehensive update to the data protection regime in the European Economic Area that was effective beginning in fiscal 2019. The GDPR imposes new requirements relating to, among other things, consent to process personal data of individuals, the information provided to individuals regarding the processing of their personal data, the security and confidentiality of personal data, and notifications in the event of data breaches and use of third party processors.  Penalties for violations of the GDPR can be as high as the greater of €20 million or 4% of worldwide gross revenue. 

We are also subject to laws and regulations with respect to cross‑border transfers of such data out of certain jurisdictions in which we operate, including the EU. If we are unable to transfer data between and among countries and regions in which we operate, it could affect the manner in which we provide our services or adversely affect our financial results. 

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Due to the geographic scope of our operations, HIPAA, the CCPA, the GDPR and other privacy and security-related laws and regulations, which are currently in effect or may come into effect, may increase our responsibility and liability in relation to personal data that we process. We may in turn be required to put in place additional mechanisms ensuring compliance with privacy laws and regulations. If we or any of our service providers are found to be in violation of the promulgated patient privacy rules under various regimes, we could be subject to civil or criminal penalties, which could increase our liabilities, harm our reputation and have a material adverse effect on our business, financial condition and operating results.

Disruptions of critical information systems or material breaches in the security of our systems could harm our business, customer relations and financial condition.

We rely in part on information technology, or IT, to store information, communicate with our business partners, interface with customers, maintain financial accuracy, secure our data and accurately produce our financial statements. If our information technology systems do not effectively and securely collect, store, process and report relevant data for the operation of our business, whether due to equipment malfunction or constraints, software deficiencies or human error, our ability to effectively plan, forecast and execute our business plan and comply with applicable laws and regulations would be materially impaired. Any such impairment could have a material adverse effect on our results of operations, financial condition and the timeliness with which we report our operating results.

In the current environment, there are numerous and evolving risks to cybersecurity and privacy, including criminal hackers, hacktivists, state-sponsored intrusions, industrial espionage, employee malfeasance and human or technological error. High-profile security breaches at other companies and in government agencies have increased in recent years, and security industry experts and government officials have warned about the risks of hackers and cyber-attacks targeting businesses such as ours. Cyber-attacks are becoming more sophisticated and frequent, and in some cases have caused significant harm. Computer hackers and others routinely attempt to breach the security of technology products, services and systems, and to fraudulently induce employees, customers, or others to disclosure information or unwittingly provide access to systems or data.  

We have experienced and expect to continue to experience actual or attempted cyber-attacks of our IT systems or networks. To date, none of these actual or attempted cyber-attacks has had a material effect on our operations or financial condition. While we devote significant resources to network security, data encryption and other security measures to protect our systems and data, including our own proprietary information and the confidential and personally identifiable information of our customers, employees, business partners and patients, these measures cannot provide absolute security. The costs to eliminate or alleviate network security problems, bugs, viruses, worms, malicious software programs and security vulnerabilities could be significant, and our efforts to address these problems may not be successful, resulting potentially in the theft, loss, destruction or corruption of information we store electronically, as well as unexpected interruptions, delays or cessation of service, any of which could cause harm to our business operations. Moreover, if a computer security breach or cyber-attack affects our systems or results in the unauthorized release of proprietary or personally identifiable information, our reputation could be materially damaged, our customer confidence could be diminished, and our operations, including technical support for our devices, could be impaired. We would also be exposed to a risk of loss or litigation and potential liability, which could have a material adverse effect on our business, results of operations and financial condition. Any of these may contribute to the loss of customers and have a material adverse effect on our business.

If we acquire other companies or businesses, we will be subject to risks that could hurt our business.

We may pursue acquisitions to obtain complementary businesses, products or technologies. Any such acquisition may not produce the revenues, earnings or business synergies that we anticipate. An acquired business, product, or technology might not perform as we expect. Our management could spend a significant amount of time, effort and money in identifying, pursuing and completing the acquisition. If we complete an acquisition, we may encounter significant difficulties and incur sizable expenses in integrating the operations and personnel of the acquired company into our operations. For more information on the acquisition agreement that we signed in April 2020 for the acquisition of Breethe, Inc., or Breethe, see “Part II, Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations—Acquisition of Breethe, Inc.” We may lose the services of key employees of the acquired company and we may make changes in management that impair the acquired company’s relationships with its legacy employees, vendors and customers. Furthermore, we may acquire development-stage companies that are not yet profitable, that require continued investment or become subject to events that could impair the value of our investment, which could decrease our future earnings. We may also assume significant liabilities in such a transaction.

Any of these outcomes could prevent us from realizing the anticipated benefits of an acquisition. To pay for an acquisition, we might use stock or cash. Alternatively, we might borrow money from a bank or other lender. If we use stock, our stockholders would experience dilution of their ownership interests. If we use cash or debt financing, our financial liquidity would be reduced.

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If we include future milestones as part of the potential purchase price of an acquisition, then we will have to estimate the value of these milestones each reporting period and any changes underlying these estimates with respect to expected timing or valuation of these milestones could have a volatile impact on our earnings. See “Part II, Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operation— Acquisition of Breethe, Inc.” regarding the milestone payments under our signed with Breethe. We periodically make investments in medical device companies that focus on heart failure and heart pumps and other medical device technologies.  The aggregate carrying amount of our portfolio of investments in medical device companies was $38.7 million and $24.6 million at March 31, 2020 and 2019, respectively, and is classified within other assets in the consolidated balance sheets.

Revisions to accounting standards, tax laws and financial reporting requirements could result in changes to our standard practices and could require a significant expenditure of time, attention and resources, especially by senior management.

We must follow accounting standards, tax laws and financial reporting requirements set by the governing bodies and lawmakers in the U.S. and in other jurisdictions where we do business. From time to time, these governing bodies and lawmakers implement new and revised rules and laws, which may require changes to our accounting policies, financial reporting, and the related information we file with governing bodies. Implementing mandatory changes may require a significant expenditure of time, attention and resources. It is impossible to completely predict the impact, if any, of future changes to accounting standards and financial reporting requirements.

We use estimates, make judgments and apply certain methods in measuring the progress of our business in determining our financial results and in applying our accounting policies. As these estimates, judgments and methods change, our assessment of the progress of our business and our results of operations could vary.

The methods, estimates and judgments we use in applying our accounting policies have a significant impact on our results of operations. Such methods, estimates and judgments are, by their nature, subject to risks, complexities, uncertainties and assumptions, and factors may arise over time that may lead us to change our methods, estimates and judgments. Changes in any of our assumptions may cause variation in our financial reporting and may adversely affect our reported financial results.

Environmental and health safety laws, including recent environmental regulatory action regarding medical device sterilization facilities, may result in liabilities, expenses and restrictions on our operations.

Federal, state, local and foreign laws regarding environmental protection, hazardous substances and human health and safety may adversely affect our business. Using hazardous substances in our operations exposes us to the risk of accidental injury, contamination or other liability from the use, storage, importation, handling or disposal of hazardous materials. If our or our suppliers’ operations result in pollution of the environment or expose individuals to hazardous substances, we could be liable for damages, expenses, and fines, and any liability could significantly exceed our insurance coverage and have a material adverse effect on our financial condition. Additionally, increased costs on our suppliers stemming from compliance with new or existing environmental or health safety laws and regulations may adversely affect us, as such laws and regulations could result in operational impacts, including facility shutdowns. Suppliers may also choose to pass compliance costs to us in the form of adjusted pricing.

Recent environmental regulatory action regarding medical device sterilization may adversely impact us in the ways described above, although the outcome of this action currently remains uncertain. Many of our products require sterilization prior to sale, and we contract with third-party sterilizers to perform this service, including ethylene oxide sterilizers. In November 2019, the U.S. Environmental Protection Agency, or the EPA, proposed amendments to national emissions standards to reduce hazardous air pollutants, including emissions of ethylene oxide, by adding requirements for process vents, storage tanks and equipment in ethylene oxide service. Additional regulation to address ethylene oxide emissions at sterilization facilities is expected, including revisions to the EPA’s national emissions standards for such facilities. In addition, throughout the end of 2019 and the beginning of 2020, state agencies shut down and/or temporarily suspended operations at ethylene oxide sterilization facilities in Illinois, Michigan and Georgia. During the ongoing COVID-19 pandemic, the EPA stated that it will continue to coordinate with state and local air agencies that have been working to reduce ethylene oxide emissions in their jurisdictions. However, certain of the previously-shut down facilities have been permitted to resume certain operations due to increased emissions controls and/or the need to sterilize protective equipment during the pandemic. In addition, although the EPA’s Office of Inspector General released a report in March 2020 recommending that the EPA provide residents in all communities near 25 high-priority ethylene oxide-emitting facilities with a forum with the EPA or state personnel regarding exposure to ethylene oxide, the EPA Administrator immediately critiqued the report and requested that it be rescinded for appropriate revision. The FDA has also voiced concerns that shutdowns may diminish the supply of available sterilization facilities and cause medical device shortages.

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It is currently uncertain to what extent facilities that resumed operations in response to the COVID-19 pandemic will be shut down again for environmental concerns, or whether any shut-down facilities will reopen or other facilities will be required to shut down. While the sterilization facilities previously or currently shut down or suspended do not sterilize our products and are not otherwise in our supply chain, and our suppliers are not affected directly by these recent regulatory actions, increased scrutiny and regulation of ethylene oxide sterilization facilities in the U.S. could create additional costs for our suppliers, who may be required to take steps with respect to their sterilization processes. These costs could, in turn, be passed on to us and adversely affect our business. Also, to the extent we or our contract sterilizers are unable to sterilize our products, whether due to these regulatory or other constraints (such as capacity or availability of materials for sterilization), we may be unable to transition to other contract sterilizers, sterilizer locations or sterilization methods in a timely or cost effective manner, or at all. This failure to transition our processes due to decreased third-party sterilization capacity could have a materially adverse impact on our results of operations and financial condition.

Fluctuations in foreign currency exchange rates could result in declines in our reported sales and results of operations.

Because some of our international sales are denominated in local currencies and not in U.S. dollars, our reported sales and earnings are subject to fluctuations in foreign currency exchange rates, primarily the Euro. At present, we do not hedge our exposure to foreign currency fluctuations. As a result, revenues and expenses occurring in the future that are denominated in foreign currencies may be translated into U.S. dollars at less favorable rates, resulting in reduced revenues and earnings.

Consolidation in the healthcare industry could lead to demands for price concessions, which could have an adverse effect on our business, results of operations or financial condition.

Because healthcare costs have risen significantly over the past decade, numerous initiatives and reforms initiated by legislators, regulators and third-party payers to curb these costs have resulted in a consolidation trend in the healthcare industry to aggregate purchasing power. As the healthcare industry consolidates, competition to provide products and services to industry participants has become and will continue to become more intense. This in turn has resulted and will likely continue to result in greater pricing pressures and the exclusion of certain suppliers from important market segments as group purchasing organizations, independent delivery networks and large single accounts continue to use their market power to consolidate purchasing decisions for hospitals. We expect that market demand, government regulation, third-party coverage and reimbursement policies and societal pressures will continue to change the worldwide healthcare industry, resulting in further business consolidations and alliances among our customers, which may reduce competition, exert further downward pressure on the prices of our products and may adversely impact our business, results of operations or financial condition.

Risks Related to Our Common Stock

The market price of our common stock is volatile, which has in the past led to and may in the future lead to securities litigation against us. Such litigation may be costly and result in an adverse outcome.

The market price of our common stock has fluctuated widely and may continue to do so. Many factors could cause the market price of our common stock to rise and fall. Some of these factors are:

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In addition, the stock market in general and the market for shares of medical device companies in particular have experienced extreme price and volume fluctuations in recent years. These fluctuations are often unrelated to the operating performance of individual companies. These broad market fluctuations may adversely affect the market price of our common stock. When the market price of a company’s stock drops significantly, stockholders often institute securities class action litigation against that company. see “Note 13. Commitment and Contingencies” to our consolidated financial statements in this report, which is incorporated by reference into this item.

We are generally obliged under our bylaws, to the extent permitted under Delaware law, to indemnify our current and former officers who are named as defendants in these types of lawsuits.  While a certain amount of insurance coverage is available for expenses or losses associated with these lawsuits, this coverage may not be sufficient.  Based on information currently available, we are unable to estimate reasonably a possible loss or range of possible losses, if any, with regard to the securities class action and shareholder derivative litigation; therefore, no litigation reserve has been recorded in our consolidated balance sheet.  Although we plan to defend against the securities class action and shareholder derivative litigation vigorously, there can be no assurances that a favorable final outcome will be obtained.  This litigation and other future litigation against us could cause us to incur substantial costs, divert the time and attention of our management and other resources, or otherwise harm our business.

The sale of additional shares of our common stock, the issuance of restricted stock units or the exercise of outstanding options to purchase our common stock, would dilute our stockholders’ ownership interest.

We have historically issued restricted stock units and stock options to acquire our common stock and we expect to continue to issue restricted stock units and stock options to our employees and others in the future. If all outstanding stock options were exercised and all outstanding restricted stock units vested, our stockholders would suffer dilution of their ownership interest. In addition, we have issued from time to time, additional shares of our common stock in connection with acquisitions, public offerings, and other activities. Future issuances of our common stock would also result in a dilution of our stockholders’ ownership interest.

Our certificate of incorporation and Delaware law could make it more difficult for a third-party to acquire us and may prevent our stockholders from realizing a premium on our stock.

Provisions of our certificate of incorporation and Delaware General Corporation Law may make it more difficult for a third-party to acquire us, even if doing so would allow our stockholders to receive a premium over the prevailing market price of our stock. Those provisions of our certificate of incorporation and Delaware law are intended to encourage potential acquirers to negotiate with us and allow our board of directors the opportunity to consider alternative proposals in the interest of maximizing stockholder value. However, such provisions may also discourage acquisition proposals or delay or prevent a change in control, which could negatively affect our stock price.

The market value of our common stock could vary significantly based on market perceptions of the status of our product development efforts.

The perception of securities analysts regarding our product development efforts could significantly affect our stock price. As a result, the market price of our common stock has and could in the future change substantially when we or our competitors make product announcements. Many factors affecting our stock price are industry related and beyond our control.

We have not paid and do not expect to pay dividends and any return on our stockholders’ investment will likely be limited to gains realized based on the value of our common stock.

We have never paid dividends on our common stock and do not anticipate paying dividends on our common stock in the foreseeable future. The payment of dividends on our common stock will depend on our earnings, financial condition and other business and economic factors affecting us at such time as our board of directors may consider relevant. If we do not pay dividends, our common stock may be less valuable because a return on our stockholders’ investment will only occur if our stock price appreciates.