10-K 1 spnc10k12-31x2015q4.htm 10-K 10-K
 
 
 
 
 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-K
x
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the year ended December 31, 2015
 
or
o
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the transition period from to
Commission file number 0-19711
THE SPECTRANETICS CORPORATION
(Exact name of Registrant as specified in its charter)
Delaware
(State or other jurisdiction of incorporation or organization)
84-0997049
(I.R.S. Employer Identification No.)
9965 Federal Drive
Colorado Springs, Colorado 80921
(Address of principal executive offices and zip code)
Registrant’s Telephone Number, Including Area Code:
(719) 633-8333
Securities registered pursuant to Section 12(b) of the Act:
None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $.001 par value
(Title of class)
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act Yes o No x
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act Yes o No x
Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No o
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of Registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. x
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer x
 
Accelerated filer o
 
Non-accelerated filer o
(Do not check if a smaller
reporting company)
 
Smaller reporting company o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act): Yes o No x
The aggregate market value of the voting stock of the Registrant, as of June 30, 2015, the last business day of the registrant’s most recently completed second fiscal quarter was $963,268,366, as computed by reference to the closing sale price of the voting stock held by non-affiliates on such date. As of February 22, 2016, there were outstanding 42,699,239 shares of Common Stock.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant’s definitive Proxy Statement for its 2016 Annual Meeting of Stockholders, to be filed with the Securities and Exchange Commission not later than April 29, 2016, are incorporated by reference into Part III as specified herein.
 
 
 
 
 



TABLE OF CONTENTS
PART I
PART II
PART III
 
 
 
PART IV
 
 
 
 
 
 
 

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PART I

The information in this annual report on Form 10-K includes “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, Section 21E of the Securities Exchange Act of 1934, as amended, and the Private Securities Litigation Reform Act of 1995, and is subject to the safe harbor created by that section. Forward-looking statements in this report or incorporated herein by reference constitute our expectations or forecasts of future events as of the date this report was filed with the Securities and Exchange Commission and are not statements of historical fact. You can identify these statements by the fact that they do not relate strictly to historical or current facts. Such statements may include words such as “anticipate,” “will,” “estimate,” “seek,” “expect,” “project,” “intend,” “should,” “plan,” “believe,” “hope,” and other words and terms of similar meaning in connection with any discussion of, among other things, future operating or financial performance, strategic initiatives and business strategies, regulatory or competitive environments, our intellectual property and product development. You are cautioned not to place undue reliance on these forward-looking statements and to note they speak only as of the date hereof. Factors that could cause actual results to differ materially from those set forth in the forward-looking statements are in the risk factors listed from time to time in our filings with the SEC and those set forth in Item 1A, “Risk Factors.” We disclaim any intention or obligation to update or revise any financial projections or forward-looking statements due to new information or other events. Some industry and market data in this annual report on Form 10-K are based on independent industry publications, including those generated by the Millennium Research Group and IMS Health, or other publicly available information. This information involves several assumptions and limitations. Although we believe that each source is reliable as of its respective date, we have not independently verified the accuracy or completeness of this information. Certain percentage amounts included herein may not add due to rounding.

ITEM 1.    Business

The Company

We develop, manufacture, market and distribute single-use medical devices used in minimally invasive procedures within the cardiovascular system. Our products are used to cross, prepare, and treat arterial blockages in the legs and heart and to remove pacemaker and defibrillator cardiac leads. We believe that the diversified nature of our business allows us to respond to a wide range of physician and patient needs. The innovative products and services we offer are divided into three categories:
Vascular Intervention (“VI”): Our broad portfolio of VI devices consists of laser and aspiration catheters, AngioSculpt® scoring balloon catheters, which are the specialty balloon market leader, support catheters, and the Stellarex™ drug-coated balloon (“DCB”) catheters.
Lead Management (“LM”): We are a global leader in devices for the removal of pacemaker and defibrillator cardiac leads. Our primary LM devices consist of our excimer laser sheaths, non-laser mechanical sheaths and cardiac lead management accessories for the removal of pacemaker and defibrillator cardiac leads.
Laser, service, and other: Our proprietary excimer laser system, the CVX-300®, is the only laser system approved in the United States, Europe, Japan and Canada for use in multiple minimally invasive cardiovascular procedures. We sell, rent and service our CVX-300 laser systems.

On January 27, 2015, we acquired certain assets and liabilities related to Covidien LP’s Stellarex™ (“Stellarex”) over the wire percutaneous transluminal angioplasty balloon catheter with a paclitaxel coated balloon. The Stellarex DCB platform is designed to treat peripheral arterial disease and currently is cleared for use in Europe. Stellarex uses EnduraCoat™ technology, a durable, uniform coating designed to prevent drug loss during transit and facilitate controlled, efficient drug delivery to the treatment site.


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On June 30, 2014, we completed our acquisition of AngioScore Inc., the U.S. market leader in specialty scoring balloon catheters. AngioScore develops, manufactures and markets the AngioSculpt scoring balloon catheter for the treatment of peripheral and coronary disease. The AngioSculpt catheter combines a semi-compliant balloon with a nitinol scoring element to address specific limitations of conventional balloon angioplasty catheters and rotational atherectomy. The AngioSculpt technology platform includes three models of coronary catheters and one model of peripheral catheters of various sizes and lengths. AngioScore is also developing the Drug-Coated AngioSculpt (“DCAS”), which is expected to be the world’s first drug-coated scoring balloon to treat coronary disease.

Our disposable devices include VI and LM products. For the year ended December 31, 2015, our disposable products generated 94% of our consolidated revenue, of which VI accounted for 66% and LM accounted for 28%. The remainder of our revenue is derived from sales and rental of our laser systems and related service.

Our two operating segments are United States Medical and International Medical. United States Medical includes direct sales operations in the United States and Canada. International Medical includes our sales presence in over 65 countries outside of the U.S. and Canada, including our direct sales operations in certain countries in Europe and Puerto Rico and a network of approximately 60 distributors. Total international revenue in 2015 was 16% of our consolidated revenue.


Our business strategy emphasizes:

Saving lives and limbs: We focus on inventing and delivering technology that enables physicians to complete procedures confidently and successfully, as well as treating cardiovascular disease and its complications. We want patients to live life fully, free from health conditions that stand in the way.
Proven solutions: At Spectranetics, we focus on proven algorithms of treatment for the most complex and challenging cardiovascular cases.
Expanding our reach: We thoughtfully invest to broaden our solutions portfolio and deliver answers to complex diseases through:
organic growth through new product development;
new clinical indications for our existing products;
continued execution of our commercial, educational, and clinical programs;
acquisitions that leverage our current customer base and expand our portfolio of products;
capitalizing on our expanded U.S. sales force in both VI and LM; and
continued global expansion.



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Vascular Intervention Products

We are dedicated to helping physicians cross, prepare and treat complex clinical challenges of peripheral and coronary artery disease. We provide a comprehensive portfolio of clinical solutions designed to eradicate restenosis, modify all plaque and reduce amputations. We partner with physicians to successfully treat challenging vascular conditions at every stage.

Peripheral Vascular Intervention Products

Peripheral artery disease (“PAD”) is characterized by clogged or obstructed arteries in the lower extremities. The resulting lack of blood flow can cause leg pain, cramping and weakness, and lead to tissue loss or, in very extreme cases, amputation. PAD is a global pandemic estimated to impact over 200 million people in the world, growing 25% from 2000 to 2010. In the U.S. and Europe alone, 25 million people are afflicted with PAD; however, only 10 million of these patients suffer from typical symptoms such as leg pain while walking or resting. PAD patients are underdiagnosed and undertreated with as few as one million patients receiving endovascular treatment each year, according to internal estimates using leading market research data. Of these patients, an estimated 875,000 are treated with percutaneous transluminal angioplasty (“PTA”) or stents while an estimated 125,000 patients are treated with atherectomy. An additional 400,000 to 500,000 PAD patients annually undergo bypass surgery or amputation in the U.S. and Europe.

Research shows that nearly half of all amputations occur without appropriate diagnostics and consideration of minimally invasive treatment options, leading to unnecessary amputations. This has a tremendous impact on patient quality of life, five-year mortality and healthcare economics. According to internal estimates, reducing amputations by 25% could save $3 billion in treatment and follow-up costs annually in the U.S. alone.

We believe that physicians, including interventional cardiologists, vascular surgeons, and interventional radiologists, prefer minimally invasive solutions to treat PAD when appropriate for the patient. Our focus and core competency is providing solutions for three complex conditions in PAD: chronic total occlusions (“CTO”), in-stent restenosis (“ISR”), and critical limb ischemia (“CLI”). We provide sound clinical solutions to cross, prepare and treat the lesion, thereby restoring blood flow and delivering the best long term outcomes for our customers’ patients.

Crossing the Lesion

Spectranetics is the U.S. market leader in support catheters, according to IMS Health data. To treat PAD, a physician must first cross the lesion with an interventional guidewire. Physicians encounter a CTO, which is a complete or near-complete blockage of a blood vessel, in approximately 40% of PAD procedures and as high as 80% in advanced CLI cases. The interventional procedure, whether atherectomy, balloon dilation, or stent placement, cannot occur without first crossing the lesion. Our crossing solutions products support vascular access in the arterial system to enable both coronary and peripheral interventions. Our primary crossing solutions products include the Quick-Cross™, Quick-Cross Select, and Quick-Cross Extreme. These solutions provide directional support, transmission, columnar strength, and the ability to gain access into difficult branched anatomy.

Preparing the Vessel

Our laser atherectomy and AngioSculpt specialty scoring balloon catheter vessel preparation technologies are a core part of our business. Vessel preparation can be advantageous to maximize the benefit of vascular treatments, whether stents, DCBs or covered stent platforms. We believe that our vessel preparation portfolio of products is uniquely aligned to overcome the complex challenges our physician customers routinely face.

Laser atherectomy has been approved or cleared by the Food and Drug Administration (“FDA”) for peripheral stenoses and occlusions, both as a stand-alone treatment and as an adjunctive treatment with other


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therapies, such as balloons and stents. In the periphery, laser catheters are often used as an alternative to stents and other atherectomy devices. Our Turbo-Elite, Turbo-Tandem and Turbo-Power catheters are approved to treat stenoses and occlusions within the arteries of the leg both above and below the knee.

We offer our laser catheters in sizes ranging from 0.9 to 2.5 millimeters in diameter, enabling physicians to treat both smaller and larger diameter arteries. Our single-use laser catheters contain up to 250 small-diameter, flexible optical fibers that can access difficult to reach peripheral and coronary anatomy and produce evenly distributed laser energy at the tip of the catheter. We believe our laser system and Turbo-Elite, Turbo-Tandem and Turbo-Power catheter technology offer several patient benefits, including a minimally invasive alternative to bypass surgery and amputation, predictable outcomes in addressing PAD, short procedure time and a robust safety profile. Our laser catheter is inserted into an artery through a small incision and then guided to the site of the blockage or lesion under x-ray guidance using conventional angioplasty tools. When the tip of the laser catheter has been placed at the site of the blockage or lesion, the physician activates the laser to ablate the lesion. Our laser generates minimal heat and is a contact ablation laser that only ablates materials within 50 microns (approximately the width of a human hair) ahead of the laser tip. It can break down the molecular bonds of plaque, moderate calcium and thrombus into particles, most of which are smaller than red blood cells, without significant thermal damage to surrounding tissue.

The acquisition of AngioScore expanded our portfolio of products for both vessel preparation and vessel treatment. The AngioSculpt scoring balloon catheter combines a semi-compliant balloon with a nitinol scoring element to address specific limitations of conventional balloon angioplasty catheters, including a lower occurrence of flow-limiting dissections and balloon slippage. It is often used for the vessel preparation of complex lesions in the arteries of the leg, including predilation of highly calcified, diffuse or complex de novo, restenotic and ISR lesions. The AngioSculpt peripheral scoring balloon platform includes catheters of various sizes and lengths to treat PAD both above and below the knee.

In July 2014, we launched the 200 mm length AngioSculpt scoring balloon catheters, which incorporate 200 mm balloons in diameters of 4.0, 5.0 and 6.0 mm with a novel scoring element specifically designed for these longer balloons. The devices are particularly useful in preparing and/or final dilation of the typical complex and long lesions found above the knee. In 2015, we launched 7 and 8 mm diameter AngioSculpt scoring balloons for use in larger vessels of the leg such as the common femoral and iliac arteries. The device is also used to open hemodialysis access sites, particularly those lesions that are resistant to plain old balloon angioplasty and require higher pressure dilation. It is believed that as many as 20% of revision endovascular treatments involve these more complex lesions.

Treating the Vessel

Physicians typically treat PAD by using balloon angioplasty (either a scoring balloon, DCB or PTA), or by placing a stent (either drug-coated, bare metal or covered). The acquisition of AngioScore in 2014 augmented our portfolio of products to treat vascular lesions. AngioSculpt peripheral scoring balloon catheters can be used for treatment of many lesion types, including highly calcified lesions, non-stent zones, and in-stent or native-vessel restenotic disease.

The acquisition of the Stellarex DCB in January 2015 further complemented our portfolio of products to treat PAD. Stellarex uses EnduraCoat technology, a durable, uniform coating designed to prevent drug loss during transit and facilitate controlled, efficient drug delivery to the treatment site. Stellarex received Conformité Européene (“CE”) mark in the European Union in December 2014. In 2015, Spectranetics completed enrollment in the ILLUMENATE Pivotal clinical study, a prospective, randomized controlled, multicenter study designed to assess the clinical performance of Stellarex. Completion of enrollment is a significant step toward FDA premarket approval, which we expect will be filed after one-year follow-up visits with all patients are completed.



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Differentiated Solutions for Treatment of Important and Complex PAD Patients

We have uniquely aligned our portfolio to deliver meaningful solutions to treat complex conditions including ISR and CLI.

In-Stent Restenosis (“ISR”). Physicians frequently implant stents to open obstructed blood vessels in patients suffering from PAD. Although stents deliver improved overall outcomes compared to PTA treatment, it is common for a return of the blockage to occur within the stent (ISR), which is therapeutically challenging. Once ISR develops, there is a high recurrence rate, up to 65% within two years, after PTA treatment, which has long been considered the standard of care for treatment of ISR. In 2014, our Turbo-Tandem and Turbo-Elite products became the only atherectomy devices cleared by the FDA for the treatment of ISR. Our first in-industry randomized clinical trial data for atherectomy, EXCITE ISR, demonstrated superior safety and efficacy of laser atherectomy with adjunctive PTA compared with PTA alone. In the U.S. alone, it is estimated that as many as 115,000 patients require treatment for ISR each year.

In late 2015, we obtained FDA 510(k) clearance of our Turbo-Power laser atherectomy catheter, a next generation ISR solution with improved ease of use and delivering clinical superiority in ISR treatment when used with PTA versus PTA alone. Uniquely designed for ISR treatment, the Turbo-Power laser atherectomy catheter treats at the tip with vaporizing technology for maximal luminal gain. The device debulks the lesion in a single step and offers remote automatic rotation for precise directional control. As the only company with an ISR indication for femoral and popliteal arteries of the leg (“FemPop”), backed by Level 1 clinical evidence, and primary competitors contraindicated or not indicated, we believe that we are well-positioned to continue to deliver tools that advance care for patients suffering from ISR.

Critical Limb Ischemia (“CLI”). We estimate that up to half of all PAD procedures involve CLI, a condition defined by a range of symptoms, from pain at rest to the presence of ulcers, tissue loss or gangrene. Our products can prepare and treat multiple lesion morphologies, including plaque, calcium, restenotic tissue and thrombus. Because the disease of the lower leg is primarily a diffuse, occlusive disease, removal or debulking of the lesion may be necessary to restore robust blood flow. The Turbo-Elite catheters come in a range of sizes and are uniquely designed to safely prepare the long diffuse lesions commonly found in CLI patients. Our Turbo-Elite laser atherectomy catheter ablates at the tip and has a very low profile. These two important features allow the physician to safely reach deep into the arteries of the foot. The AngioSculpt PTA scoring balloon comes in a range of sizes tailored to the arteries of the lower leg and is particularly well suited to dilate the vessel while limiting the likelihood of a major dissection requiring stent placement.

Coronary Vascular Intervention Products

Specialty Scoring Balloons, Atherectomy and Thrombectomy. In the coronary market, our disposable catheters are used to cross, prepare and treat complex coronary artery disease (“CAD”) as an adjunctive treatment to traditional percutaneous coronary interventions (“PCI”) using balloons and stents. In total, we have nine coronary indications.

Our coronary atherectomy product portfolio, led by the ELCA™ laser ablation catheter, comprises a broad selection of proprietary laser catheters. Our seven approved coronary atherectomy indications for the vessel preparation and treatment of challenging coronary lesion subsets include occluded saphenous vein bypass grafts, ostial lesions, long lesions, moderately calcified stenoses, total occlusions traversable by guidewire, lesions with previously failed balloon angioplasty, and restenosis in bare metal stents prior to brachytherapy. In the coronary market, our laser catheters are used to prepare the vessel prior to placement of a stent, particularly in challenging lesion subsets.



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With the acquisition of AngioScore in 2014, we expanded our ability to prepare and treat a variety of complex coronary diseases. The AngioSculpt scoring percutaneous transluminal coronary angioplasty (“PTCA”) balloon catheters are available in a range of sizes. The products are cleared to treat ISR and have an indication to treat complex type C lesions, which are the most difficult lesions to treat.

In the thrombus management market, we offer aspiration catheters, often used with other devices such as balloons and stents, to address thrombus-laden lesions. A thrombus, or clot, is an accumulation of blood coagulation large enough to block blood flow in the coronary, peripheral, or cerebral arteries. The thrombus may block the artery at the lesion location and can dislodge and travel further downstream in the arterial system. Depending on the location of the thrombus, arterial complications such as myocardial infarction in the coronary arteries, stroke in the brain, or acute limb ischemia in the extremities may occur. The thrombus management product line includes the QuickCat™ aspiration catheter, designed for quick deliverability and efficient thrombus removal from vessels in the arterial system.

Lead Management Products

We are a global leader in devices for the removal of pacemaker and defibrillation cardiac leads. The Heart Rhythm Society’s list of indications for lead extraction includes several well-defined scenarios involving non-functional leads, functional leads and venous occlusion. We believe that approximately 300,000 patients worldwide are indicated every year for a potential lead extraction as a result of an infection, classified by the Heart Rhythm Society as a Class I Indication for Extraction of Cardiac Leads, or a Class II Indication for Extraction of Cardiac Leads, which includes malfunction, system upgrade, venous occlusion, and other less common reasons. We believe that this results in a market potential of over $700 million with approximately 25% from Class I indications and approximately 75% from Class II indications. We believe that, although infection is a Class I indication for lead extraction, a majority of patients with cardiac device infection are not being treated. The near-term consequence of delayed device removal for infection is an increase in the mortality rate of such patients. Recognizing this, in 2009, the Heart Rhythm Society strengthened recommendations for extraction of infected leads.

We also believe that the majority of the Class II non-infected leads are capped and left in the body as a predominant mode of practice, based on physician perception of risk associated with removal and perception that abandoned leads are benign. We believe the long-term consequences associated with abandoned leads are more significant than generally believed and that clinical data, strongly supporting the safety of lead removal, will be instrumental in reshaping perceptions around this procedure as a mainstream treatment option for patients with devices.

Our primary Lead Management products include:
Spectranetics Laser Sheaths (GlideLight™ and SLS™ II). Spectranetics Laser Sheaths are laser-assisted lead removal devices designed to be used with our CVX-300 excimer laser system to extract implanted leads with minimal force. We believe that the advantages of laser lead extraction include low trauma to the surrounding veins, low occurrence of complication, effectiveness and time efficiency.
Lead Locking Device (LLD™).  Our Lead Locking Device product complements our laser sheath product line as an adjunctive mechanical tool. The LLD is a mechanical device that assists in the removal of leads by providing traction on the inner aspect of the leads, which are typically constructed of wire coils covered by insulating material.
Mechanical Tools (TightRail™ Rotating Dilator Sheath and SightRail™ Manual Dilator Sheath). The TightRail and the SightRail mechanical lead extraction platforms expand physicians’ options for removing cardiac leads, and complement the laser-based technology that established our leading position in lead extraction. Both product platforms are cleared for use in the U.S. and Europe.
     


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In addition to our primary products mentioned above, in February 2016, we received 510(k) regulatory clearance for our Bridge™ Occlusion Balloon product. The Bridge is a balloon designed to dramatically reduce blood loss in the event of a tear in the superior vena cava during a lead extraction procedure. The device is designed to give the physician adequate time to safely transition the patient for surgical repair and to give the surgeon the benefit of a clear field of view to repair the tear. Although a superior vena cava tear is a rare occurrence, we believe that this product is an important innovation in an effort to accomplish our goal of eliminating mortality as a risk during lead extraction procedures.
  
Laser Equipment and Service

We sell or rent our CVX-300 excimer laser systems to hospitals and physicians’ offices, and our field service engineers service the laser systems on a periodic basis.

Corporate Information
        
The Spectranetics Corporation is a Delaware corporation formed in 1984. Our principal executive offices are located at 9965 Federal Drive, Colorado Springs, Colorado 80921. Our telephone number is (719) 633-8333.
        
Our corporate website is www.spnc.com. A link to a third-party website is provided at our corporate website to access our SEC filings free of charge promptly after such material is electronically filed with, or furnished to, the SEC. We do not intend for information found on our website to be part of this document.

Research and Development
        
We believe research and development investments are critical to increasing our revenue and revenue growth rate. Our product development and technology teams are focused on developing additional disposable devices addressing the VI and LM markets, and further developing our laser system. We believe in the near-term our primary research and development effort and expense will be within our DCB programs, Stellarex and DCAS. Our team of research scientists, engineers and technicians, supported by third-party research and engineering organizations, performs substantially all of our research and development activities. Our research and development expense, which also includes clinical studies costs, regulatory costs, and royalty costs, totaled $64.4 million in 2015, $28.7 million in 2014 and $22.1 million in 2013.

Clinical Trials
        
We sponsor and support clinical investigations to evaluate patient safety and clinical efficacy, and to advance adoption and support regulatory approval or clearance for new product initiatives. Our clinical and regulatory departments are focused on developing the necessary clinical data to achieve initial regulatory approval or clearance, and expanded indications for our existing and emerging products around the world. The goal of a clinical trial is to meet the primary endpoint, which measures clinical effectiveness and may also provide information about the performance and safety of a device, which are the bases for FDA approval or clearance. Primary endpoints for clinical trials are selected based on the proposed intended use of the medical device. Results in clinical trials form the basis for approval or clearance of the product, but results in clinical practice may be somewhat less favorable than in a trial, because there may be variables in clinical practice that are controlled in the clinical trial setting.



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Current and Recent Clinical Trials

The trials listed below represent the significant trials we are currently conducting or have recently conducted. This is not a complete listing of every trial conducted or underway. We may not complete some or all of the trials underway, and the clinical results of the completed trials may not be favorable, or even if favorable, they may not be sufficient to support approval or clearance of a new device or a new indication for a currently approved or cleared device.

Stellarex DCB ILLUMENATE

The Stellarex DCB platform is being evaluated in five clinical studies, including one Investigational Device Exemption (“IDE”) trial in the United States and four international trials. The Stellarex DCB received CE mark to be marketed in the European Union in December 2014, and we launched the product in Europe in late January 2015. It is not approved in the U.S., where it is currently limited to investigational use.

In March 2015, findings from the ILLUMENATE First-in-Human (“FIH”) study, a prospectIve, controlled, multi-center, open, singLe arm study for the treatment of subjects presenting de novo occLUded/stenotic or re-occluded/restenotic lesions of the superficial feMoral or poplitEal arteries using a paclitaxel-coated percutaNeous Angioplasty catheTEr, were posted in Catheterization and Cardiovascular Interventions, a publication of the Society for Cardiovascular Angiography and Interventions.

In addition to the FIH study, which is now complete, the Stellarex DCB is currently being studied in four active above-the-knee ILLUMENATE clinical trials:

The ILLUMENATE Pharmacokinetic Study is a prospectIve, singLe-arm, muLti-center, pharmacokinetic study to evalUate treatMent of obstructive supErficial femoral artery or popliteal lesioNs with A novel pacliTaxel-coatEd percutaneous angioplasty balloon and has an enrollment of 25 subjects at two sites.

The ILLUMENATE Pivotal Trial is a prospectIve, randomized, singLe-blind, U.S. muLti-center study to evalUate treatMent of obstructive supErficial femoral artery or popliteal lesioNs with A novel pacliTaxel-coatEd percutaneous angioplasty balloon and has an enrollment of 300 subjects at 45 sites.

The ILLUMENATE European Randomized Trial is a prospectIve, randomized, multi-center, singLe-blind study for the treatment of subjects presenting with de novo occLUded/stenotic or re-occluded/restenotic lesions of the supErficial feMoral poplitEal arteries using a paclitaxel-coated or bare percutaNeous transluminal Angioplasty balloon catheTEr and has an enrollment of 328 subjects at 30 sites.

The ILLUMENATE Global Registry is a prospectIve, singLe-arm, global muLti-center study to evalUate treatMent of obstructive supErficial femoral artery or popliteal lesioNs with A novel pacliTaxel-coatEd percutaneous angioplasty balloon with an enrollment of 371 subjects at 65 sites.

These five clinical trials will be used to evaluate the safety and effectiveness of the Stellarex DCB platform and are intended to support U.S. and Canada regulatory approval. We cannot predict the outcome of the active ILLUMENATE clinical trials, and the outcome of the FIH study is not predictive of the outcome of any other trials. There is no assurance that the ongoing trials will support approval, and there is no assurance that our anticipated time frame will be met.

In January 2016, we announced that we expect to release clinical data related to our ILLUMENATE clinical trials during the course of 2016. Our initial clinical data release will be an interim analysis of 12-month data on a subset of the patients enrolled in the ILLUMENATE Global Registry. In addition to this data, we will be


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presenting the full 12-month data from each of the ILLUMENATE Pivotal Trial and ILLUMENATE European Randomized Trial.

Stellarex DCB Future Studies

Spectranetics will sponsor a large, multicenter registry in Europe in 2016, referred to as the Stellarex Vascular e-Registry (“SAVER”). In addition, we will support physician-initiated studies to evaluate long and calcified lesions, beginning in 2016.

EXCITE ISR

The EXCImer Laser Randomized Controlled Study for the Treatment of Femoropopliteal arteries (above and behind the knee) ISR (“EXCITE ISR”) study, granted by the FDA in 2011, incorporated a 2:1 randomization plan, comparing laser ablation using our Turbo-Tandem and Turbo-Elite laser ablation devices followed by adjunctive balloon angioplasty with balloon angioplasty alone as a control. The primary endpoint is freedom from TLR through six months following the procedure. The primary safety endpoint is freedom from major adverse events (“MAE”), such as death, major amputation, or TLR, at 30 days following the procedure.

ISR occurs when a previously placed stent becomes occluded, or blocked. We designed the treatment-to-control EXCITE ISR study to investigate the safety and efficacy of treatment with laser atherectomy in subjects with ISR, and the study was adequately powered based on hypothesized results.

In March 2014, we announced early termination of the EXCITE ISR study, achieving statistically significant results in both safety and efficacy. We met the endpoints of the study based on the enrollment of 250 patients versus the 318 patients originally planned.

In July 2014, we announced FDA 510(k) clearance of Turbo-Tandem and Turbo-Elite for the treatment of peripheral ISR in bare nitinol stents, when used in conjunction with percutaneous transluminal angioplasty. FDA clearance was based on the EXCITE ISR clinical findings.

In January 2015, the initial results of the EXCITE ISR trial were published in the Journal of the American College of Cardiology; Cardiovascular Interventions. Also in January 2015, the complete six month results of the EXCITE ISR trial were presented at the Leipzig Interventional Course (“LINC”) conference.

In November 2015, we received FDA 510(k) clearance of our peripheral atherectomy product, the Turbo-Power laser atherectomy catheter, for the treatment of ISR. In addition to our Turbo-Tandem and Turbo-Elite products, these products are now the only atherectomy devices cleared by the FDA for the treatment of ISR.

Sales and Marketing
       
Our primary goal is to increase the global use of our vascular and cardiovascular products in new and existing accounts. We seek to educate and train physicians and institutions regarding the safety, efficacy, ease of use and growing number of disease states treated by our VI and LM product portfolios. Through published studies of clinical applications and training initiatives, we share clinical outcomes with customers and potential customers to demonstrate that our products are proven safe and effective.

U.S. Sales and Marketing
        
During 2014, we nearly doubled our sales and marketing team through planned expansion and the acquisition of AngioScore. We further augmented our marketing team with the acquisition of Stellarex in 2015. Due to differentiated selling strategies and physician specialties, our U.S. sales organization is divided into two


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strategic groups, one focusing on VI and the other on LM. This strategic segmentation allows our sales teammates to better understand the needs of the customers within their respective product lines. Our VI commercial team works with interventional cardiologists, vascular surgeons and interventional radiologists who perform vascular procedures on a more regular basis utilizing a wider range of treatment options. Our LM commercial team works with electrophysiologists and cardiac surgeons who perform lead extraction procedures.
        
Our VI and LM educational sessions include hands-on training with a unique simulation system. The simulation technology augments traditional procedural training for physicians on the use of our products by permitting hands-on practice with extraction tools, catheter navigation and laser simulation techniques in multiple case scenarios in a virtual operating environment.
         
Our field team in the U.S. includes field service engineers who are responsible for the installation of lasers and participation in the training program at each site. The field service engineers also perform ongoing service on the lasers placed under our various rental programs.

Our marketing team supports our two U.S. sales organizations, the Stellarex DCB program and global product development initiatives. Our team includes marketing and product managers responsible for all marketing activities for each of our core businesses. Our marketing activities are designed to support our direct sales teams and include branding, sales enablement tools, advertising and product publicity in trade journals, newsletters, continuing education programs, public relations and attendance at trade shows and professional association meetings.

International Sales and Marketing

We have a sales presence in over 65 countries outside of the U.S., including our direct sales operations in certain countries in Europe and Puerto Rico and a network of approximately 60 distributors. We also have a global marketing presence in key markets internationally that drives commercial execution of our full line of products to our direct international sales force and distributor partners. We sell substantially all of our products internationally, including Stellarex, which we sell in Europe; however, Stellarex is not approved in the U.S., where it is currently limited to investigational use. Total international revenue in 2015 was $39.3 million, or 16% of our consolidated revenue. This represents an increase of $1.8 million, or 5% (17% on a constant currency basis), over 2014 international revenue of $37.5 million. See the “Non-GAAP Financial Measures” section in Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” for a discussion of our use of the constant currency financial measure. For further discussion of our International Medical segment and our financial information by geographic areas, please see Note 11, “Segment and Geographic Reporting,” of the consolidated financial statements in Part IV, Item 15 of this annual report.

We market and sell our products in Europe, the Middle East and Russia through our wholly-owned subsidiary, Spectranetics International, B.V., and its wholly-owned international subsidiaries and through distributors. We conduct international business in Japan and an expanding set of countries in the Asia Pacific and Latin America regions through distributors.

Foreign sales may be subject to certain risks, including export/import licenses, tariffs, foreign exchange rate fluctuations, other trade regulations and foreign medical regulations and reimbursement. Tariff and trade policies, domestic and foreign tax and economic policies, exchange rate fluctuations and international monetary conditions have not significantly affected our business.

Competition
        
The medical device industry is highly competitive, subject to rapid change and significantly affected by new product introductions and other activities of industry participants. Our primary competitors are manufacturers of products used in competing therapies to cross, prepare and treat disease within the peripheral and coronary


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markets, such as mechanical methods to remove arterial blockages, balloon angioplasty and stents, specialty balloon angioplasty alternatives to our specialty scoring balloons, bypass surgery and amputation. Primary competitors include Medtronic, Boston Scientific Corporation, C.R. Bard, Inc., QT Vascular–Singapore, Biotronik and Cardiovascular Systems, Inc. In the lead management market, we compete with Cook Medical, Inc., as well as Biotronik internationally. There has been consolidation in the industry, and we expect that to continue.

Manufacturing
        
We manufacture substantially all of our products. We have vertically integrated a number of manufacturing processes in an effort to provide increased quality and reliability of the components used in the manufacturing processes. Many of our manufacturing processes are proprietary. We believe that our level of manufacturing integration allows us to better control lead time, costs, quality and process advancements, to accelerate new product development cycle time, to provide greater design flexibility, and to scale manufacturing, should market demand increase.

We manufacture a significant number of our disposable products and all of our CVX-300 laser systems at our corporate headquarters in Colorado Springs, Colorado. We maintain manufacturing capabilities at another location in Colorado Springs for business continuity contingency planning purposes. We manufacture the AngioSculpt products at our facility in Fremont, California. The Stellarex products are manufactured in a separate facility, also located in Fremont, California.

Our manufacturing facilities are subject to periodic inspections and audits by federal, state, international, and other regulatory authorities, including inspections by the FDA and audits by our Notified Body (currently the British Standards Institution (“BSI”)), which is authorized by the European Commission (“EC”) to conduct such audits on behalf of the European Union (“EU”). Most raw materials, components and subassemblies used in our products are purchased from outside suppliers and are generally readily available from multiple sources, and a minority of our products is single sourced.

During 2015, we have undergone external quality system audits and factory safety inspections, some of which resulted in Form 483 notices. We cannot assure you that material nonconformities will not be identified in the future, or that the FDA will not issue us any “it has come to our attention” or warning letters based on the promotion or manufacturing of any of our products.

Patents and Proprietary Rights
        
We hold numerous issued U.S. patents and trademarks and have rights to additional U.S. patents under license agreements in the name of The Spectranetics Corporation and AngioScore, Inc. We also hold issued patents and trademarks in other countries. In addition, we also have pending U.S. and international patent applications that cover numerous inventions, including general features of the laser system, our catheters, our scoring balloon technology platform, the coatings of our DCB platform, and other technologies, as well as pending trademark applications.

It is our policy to require our employees and consultants to execute confidentiality agreements upon the commencement of an employment or consulting relationship with us. Each agreement provides that all confidential information developed or made known to the individual during the relationship will be kept confidential and not disclosed to third parties except in specified circumstances. In the case of employees, the agreements provide that all inventions developed by the individual pursuant to their employment are our exclusive property. These agreements may not provide meaningful protection if unauthorized use or disclosure of such information occurs.

We also rely on trade secrets and unpatented know how to protect our proprietary technology and may be vulnerable to competitors who attempt to copy our products or gain access to our trade secrets and know how.


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We are party to license agreements under which we license patents covering certain aspects of our products. For example, we have an amended vascular laser angioplasty catheter license agreement with SurModics, Inc., under which SurModics has granted us a worldwide non-exclusive license to use a lubricious coating that is applied to our products using certain SurModics patents. We pay SurModics royalties as a specified percentage of net sales of products using its patents, subject to a quarterly minimum royalty. The license agreement expires on the later of the expiration of the last licensed patent or the fifteenth anniversary of the date a licensed product is first sold unless terminated earlier (1) by either party if the other party is involved with insolvency, dissolution or bankruptcy proceedings, (2) by us upon 90 days’ advance written notice, or (3) by SurModics upon 60 days’ advance written notice if we have failed to perform our obligations under the agreement and have not cured such breach during such 60-day period, or if the royalties we pay SurModics are not greater than specified levels. In 2015, we incurred royalties of approximately $1.2 million to SurModics under this license agreement.

In December 2009, we entered into a license agreement with Peter Rentrop, M.D. As part of the agreement, we received a worldwide, exclusive license to certain patents and patent applications owned by Dr. Rentrop, which, in general, apply to laser catheters with a tip diameter less than one millimeter. We pay Dr. Rentrop royalties of a specified percentage of net sales of products using his patents subject to a quarterly minimum royalty. The license agreement expires in January 2020, unless terminated earlier in accordance with its terms. In 2015, we incurred royalties of approximately $2.0 million to Dr. Rentrop under this license agreement.

In March 2010, AngioScore entered into a development and license agreement with InnoRa GmbH, Ulrich Speck and Bruno Scheller. As part of the agreement, AngioScore received an exclusive license to certain InnoRa intellectual property related to drug coatings of certain balloon catheters in the field of the treatment of coronary artery disease and peripheral arterial disease, and AngioScore obtained ownership of any new technology developed under the agreement. AngioScore pays InnoRa royalties of a specified percentage of net sales of products developed under the agreement. The exclusive rights granted by InnoRa are subject to AngioScore meeting certain milestones. If AngioScore does not satisfy the milestones, then the exclusive license rights will convert to a non-exclusive license, and AngioScore will license certain new technology developed under the agreement to InnoRa. In 2015, AngioScore did not incur royalties under this license agreement.

Third-Party Reimbursement

U.S. Third-Party Reimbursement

Our CVX-300 excimer laser system and related disposable devices are generally purchased by hospitals, which then bill various third-party payers for the healthcare services provided to their patients. These payers include Medicare, Medicaid and private insurance payers. The Centers for Medicare and Medicaid Services (“CMS”) administers the federal Medicare program. Medicare policies and payment rates depend on the setting in which the services are performed. Private payers are influenced by Medicare coverage and payment methodologies.

Hospitals are reimbursed for inpatient services by Medicare under the Inpatient Prospective Payment System (“IPPS”). Payment is made to the hospital through the Medicare Severity Diagnosis Related Group (“MS-DRG”) methodology. MS-DRGs classify discharges into groups with similar clinical characteristics that are expected to require similar resource utilization. MS-DRG assignment for a patient’s hospitalization is based on the patient’s reason for admission, discharge diagnoses, and procedures performed during the inpatient stay. Hospitals are paid a fixed payment that is designed to be inclusive of all supplies, devices, and overhead associated with the stay. IPPS does not separately reimburse for the actual cost of the medical device used or for the services provided. Hospitals performing inpatient procedures using our technology are paid the applicable MS-DRG payment rate for the inpatient stay.
        
For outpatient hospital services, payments are also made under a prospective payment system, the Outpatient Prospective Payment System (“OPPS”). Payments are based on Ambulatory Payment Classifications


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(“APCs”), under which each procedure is categorized. Most procedures are assigned to APCs with other procedures that are clinically and resource comparable.

An ambulatory surgery center (“ASC”) is a center not attached to a hospital where surgical procedures are performed at which patients have a recovery of less than 24 hours. The payment methodology uses relative weights based on the OPPS. Medicare pays ASCs for covered surgical procedures. The payment includes ASC facility services furnished in connection with the covered procedure. In 2013, lower extremity revascularization procedures in ASCs were designated by Medicare as covered procedures.

Besides payments made to hospitals and ASCs for procedures using our technology, Medicare makes separate payments to physicians for their professional services. Payments to physicians are made under the national Medicare Physician Fee Schedule (“MPFS”). National payment rates are assigned based on the Resource Based Relative Value System (“RBRVS”). Payment is adjusted for geographic location and place of service. Lower extremity revascularization procedures have been designated by Medicare as covered procedures in office-based labs and inpatient and outpatient sites of service since 2011.
 
Hospital outpatient and physician services are reported with the Healthcare Common Procedure Coding System (“HCPCS”), which includes the AMA Current Procedural Terminology (“CPT”).  Cardiac lead extraction procedures are typically reported with the current code sets describing lead removal. Percutaneous coronary and peripheral vascular laser atherectomy procedures are reported with the current code sets that describe coronary atherectomy and percutaneous endovascular revascularization.

Most third-party payers cover and reimburse for procedures using our products.

International Third-Party Reimbursement

Market acceptance of our products in international markets is dependent in part upon the availability of reimbursement from healthcare payment systems.  Reimbursement and healthcare payment systems in international markets vary significantly by country.  The main types of healthcare payment systems in international markets are government-sponsored healthcare and private insurance.  Countries with government-sponsored healthcare, such as the United Kingdom, have a centralized, nationalized healthcare system.  New devices are brought into the system through negotiations between departments at individual hospitals at the time of budgeting.  In most foreign countries, there are also private insurance systems that may offer payments for alternative therapies.

Government Regulation

Overview of Medical Device Regulation
        
Our products are medical devices subject to extensive regulation by the FDA under the Federal Food, Drug, and Cosmetic Act (“FDCA”). FDA regulations govern, among other things, the following activities we perform:
product design, development, manufacture and testing;
product labeling;
product storage;
premarket clearance or approval;
advertising and promotion;
product sales and distribution; and
post-market safety reporting.
        
To be commercially distributed in the United States, non-exempt medical devices must receive either approval through a Premarket Approval (“PMA”) or be found to be substantially equivalent to an already marketed


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510(k) cleared device through a Premarket Notification 510(k) from the FDA prior to marketing and distribution under the FDCA.
        
510(k) Clearance Premarket Notification Pathway.    To obtain 510(k) clearance, a manufacturer must submit a Premarket Notification 510(k) application demonstrating that the proposed device is substantially equivalent in intended use and in safety and effectiveness to a previously 510(k) cleared device or a device in commercial distribution before May 28, 1976.
        
PMA Pathway.   A high risk device not eligible for 510(k) clearance must follow the PMA pathway, which requires valid scientific evidence providing a reasonable assurance of the safety and effectiveness of the device to the FDA’s satisfaction.
        
A PMA application must provide extensive preclinical and clinical trial data and also information about the device and its components regarding, among other things, device design, manufacturing and labeling. As part of the PMA review, the FDA will typically inspect the manufacturer’s facilities for compliance with Quality System Regulations (“QSR”), which impose elaborate testing, control, documentation and other quality assurance procedures. After initial PMA approval, changes in design, manufacturing, labeling and other changes often require prior FDA approval.
        
Postmarket.   After a device is placed on the market, numerous regulatory requirements apply. These include: FDA labeling regulations that prohibit manufacturers from promoting products for unapproved or “off-label” uses; the Medical Device Reporting regulation, which requires that manufacturers report to the FDA if their device may have caused or contributed to a death or serious injury or malfunctioned in a way that would likely cause or contribute to a death or serious injury if it recurred; and the Reports of Corrections and Removals regulation, which requires manufacturers to report recalls and field actions to the FDA if initiated to reduce a risk to health posed by the device or to remedy a violation of the FDCA.
        
Labeling and promotional activities are also subject to scrutiny by the FDA and, in certain instances, by the Federal Trade Commission (“FTC”). The FDA and FTC actively enforce regulations prohibiting marketing of products for unapproved uses.

International Regulations.   International sales of our products are subject to foreign regulations, including health and medical safety regulations. The regulatory review process varies from country to country. Many countries also impose product standards, packaging and labeling requirements and import restrictions on devices.

The Medical Device Directive (“MDD”) is a directive that covers the regulatory requirements for medical devices in the European Union, and upon successful completion, the MDD process results in the approval to apply for a CE mark. The Company has received CE mark registration for the majority of our current products. The CE mark indicates a product is certified for sale throughout the European Union and that the manufacturer of the product complies with applicable safety and quality standards.
        
Environmental Regulations.   We are also subject to certain federal, state and local regulations regarding environmental protection and hazardous substance controls, among others. Compliance with such environmental regulations has not had a material effect on our capital expenditures or competitive position.

Corporate Compliance and Corporate Integrity Agreement. We have processes, policies and procedures designed to maintain compliance with applicable federal, state and foreign laws and regulations governing our operations.

In December 2009, to resolve a federal investigation, we entered a five-year Corporate Integrity Agreement with the Office of Inspector General of the United States Department of Health and Human Services (“OIG”). On


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April 13, 2015, the Company’s monitor under the Corporate Integrity Agreement (“CIA”) with the OIG notified the Company that the CIA had been completed.

Product Liability Insurance
        
Our business entails the risk of product liability claims. We maintain product liability insurance for $25 million per occurrence with an annual aggregate maximum of $25 million.

Employees
        
As of December 31, 2015, we had 892 full time employees worldwide, an increase from 753 at December 31, 2014, primarily due to the Stellarex acquisition. We believe that we have a good relationship with our employees.




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ITEM 1A.    Risk Factors

Risks related to our business and industry
We may be unable to compete successfully with larger companies in our highly competitive industry.
The medical device industry is highly competitive. Our primary competitors are manufacturers of products used in competing therapies within the peripheral and coronary atherectomy and lead management markets, such as:
atherectomy and thrombectomy, using mechanical methods to remove arterial blockages;
balloon angioplasty and stents;
specialty balloon angioplasty, such as scoring balloons, pillowing balloons, cutting balloons and drug-coated balloons;
bypass surgery;
amputation; and
mechanical lead removal tools.

We believe that the primary competitive factors in the interventional coronary and peripheral markets include:
the ability to treat a variety of lesions safely and effectively as demonstrated by credible clinical data;
ease of use;
the impact of managed care practices, related reimbursement to the healthcare provider and procedure costs;
size and effectiveness of sales forces; and
research and development capabilities.

Many of our competitors have substantially greater financial, manufacturing, marketing and technical resources than we do. There has been consolidation in the industry, and we expect that to continue. Larger competitors may have substantially larger sales and marketing operations than we do. This may allow those competitors to spend more time with potential customers and to focus on a larger number of potential customers, which gives them a significant advantage over our sales and marketing team and our international distributors in making sales. At times, we have experienced significant sales personnel turnover, and sales personnel turnover could be an issue in the future.
Larger competitors may also have broader product lines, which enables them to offer customers bundled purchase contracts and quantity discounts. These competitors may have more experience than we have in research and development, marketing, manufacturing, preclinical testing, conducting clinical trials, obtaining FDA and foreign regulatory approvals and marketing approved products. Our competitors may discover technologies and techniques, or enter into partnerships and collaborations, to develop competing products that are more effective or less costly than our products or the products we may develop. This may render our technology or products obsolete or noncompetitive. Academic institutions, government agencies, and other public and private research organizations may seek patent protection regarding potentially competitive products or technologies and may establish exclusive collaborative or licensing relationships with our competitors. Our competitors may be better equipped than we are to respond to competitive pressures. Competition will likely intensify.
Technological change may adversely affect sales of our products and may cause our products to become obsolete.
The medical device market is characterized by extensive research and development and rapid technological change. We derive most of our revenue from the sale of our disposable catheters. Technological progress or new developments in our industry could adversely affect sales of our products. Our products could be rendered obsolete because of future innovations by our competitors or others in the treatment of cardiovascular disease.


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We may be unable to sustain our revenue growth.
Our ability to continue to increase our revenue in future periods will depend on our ability to successfully penetrate our target markets and increase sales of our VI products (including our AngioSculpt products) and LM products and generate significant sales from our Stellarex DCB catheters and new and improved products we introduce, which will, in turn, depend in part on our success in growing our customer base and obtaining reorders from those customers. New products will also need to be developed and approved or cleared by the FDA and foreign regulatory agencies to sustain revenue growth in our markets. Additional clinical data and new products may be necessary to grow revenue. We may not be able to generate, sustain, or increase revenue on a quarterly or annual basis. If we cannot achieve or sustain revenue growth for an extended period, our financial results will be adversely affected and our stock price may decline.
Our products may not achieve or maintain market acceptance.
Even if we obtain FDA approval or clearance of our products, or new indications for our products, market acceptance of our products in the healthcare community, including physicians, patients and third-party payers, depends on many factors, including:
our ability to provide incremental clinical and economic data that shows the safety and clinical efficacy and cost effectiveness of, and patient benefits from, our products;
the availability of alternative treatments;
whether our products are included on insurance company formularies;
the willingness and ability of patients and the healthcare community to adopt new technologies;
the convenience and ease of use of our products relative to other treatment methods;
the pricing and reimbursement of our products relative to other treatment methods; and
the marketing and distribution support for our products.

Even if we obtain all necessary FDA approvals and clearances, any of our products may fail to achieve market acceptance. If we do not educate physicians about PAD and the need to address cardiac device infection through lead removal and the existence of our products, these products may not gain market acceptance, as many physicians do not routinely screen for PAD while screening for coronary artery disease and are not aware of the need to remove and replace coronary leads when treating cardiac device infections. If our products achieve market acceptance, they may not maintain that market acceptance over time if competing products or technologies are introduced that are received more favorably or are more cost effective. Our Lead Management products are used, in part, to remove advisory leads, which are leads for which a physician advisory has been issued by the manufacturer of the lead. When the advisory leads are extracted or become inactive, the market for our Lead Management products will be reduced. Failure to achieve or maintain market acceptance would limit our ability to generate revenue and would have a material adverse effect on our business, financial condition, and results of operations.
If we do not achieve our projected development and commercialization goals, our business may be harmed.
For planning, we estimate the timing of the accomplishment of various scientific, clinical, regulatory and other product development and commercialization goals, which we sometimes refer to as milestones. These milestones may include the commencement or completion of scientific studies and clinical trials and the submission of regulatory filings. From time to time, we publicly announce the expected timing of some of these milestones. We base these milestones on a variety of assumptions, which are subject to numerous risks and uncertainties. There is a risk we will not achieve these milestones on a timely basis or at all. Even if we achieve these milestones, the actual timing of the achievement of these milestones can vary dramatically compared to our estimates, often for reasons beyond our control, depending on numerous factors, including:
the rate of progress, costs and results of our clinical trials and research and development activities;
our ability to identify and enroll patients who meet clinical trial eligibility criteria;


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the extent of scheduling conflicts with participating physicians and clinical institutions;
adverse reactions reported during clinical trials or commercialization;
the ability of our products to meet the standards for clearance or approval;
the receipt of IDE approvals, marketing approvals and clearances by our competitors and by us from the FDA and other regulatory agencies; and
other actions by regulators, including actions related to a class of products.    

If we do not meet these milestones for our products or if we are delayed in achieving these milestones, the development and commercialization of new products, modifications of existing products or sales of existing products for new approved indications may be prevented or delayed, which could damage our reputation or materially adversely affect our business. Even if we achieve a milestone for a product, market acceptance for the product is not assured.
We have a history of losses and may not return to profitability.
We incurred net losses from our inception in 1984 until 2000, and again in 2002, 2006, from 2008 to 2010 and from 2013 to 2015. At December 31, 2015, we had accumulated $194.6 million in net losses since inception. We may not be profitable in the future.
We incurred significant costs in connection with the AngioScore and Stellarex acquisitions, and we have risks associated with integration of the AngioScore and Stellarex acquisitions.
We incurred significant transaction costs relating to the AngioScore and Stellarex acquisitions. Additionally, we have incurred and will continue to incur significant costs in connection with integrating the operations of AngioScore and Stellarex with our own. These costs are charged as an expense in the period incurred. We may not be able to predict the timing, nature and amount of all such costs. These integration costs could materially affect our results of operations in the period in which such charges are recorded. We may not achieve the planned eliminations of duplicative costs or realization of other efficiencies related to the integration of the business in the near term, or at all.
We do not have a history of acquiring businesses or assets of the size and complexity of AngioScore or Stellarex. The success of the acquisitions depends, in part, on our ability to successfully integrate AngioScore’s business and operations and fully realize the anticipated benefits and potential synergies from combining our business with AngioScore’s business and our ability to successfully integrate and operate the Stellarex assets and successfully launch the Stellarex products in Europe and receive approvals for the Stellarex products in other markets in a timely manner. If we are unable to achieve these objectives, the anticipated benefits and potential synergies of these acquisitions may not be realized fully or at all, or may take longer to realize than expected. Any failure to timely realize these anticipated benefits and potential synergies would have a material adverse effect on our business, operating results and financial condition.
We have made certain assumptions relating to the AngioScore and Stellarex acquisitions that have proven in the past and may prove in the future to be materially inaccurate.
We have made certain assumptions relating to the AngioScore and Stellarex acquisitions that relate to numerous matters, including:
projections of future revenue and revenue growth rates;
the amount of goodwill and intangibles resulting from the acquisitions;
certain other purchase accounting adjustments that are being recorded in our financial statements in connection with the acquisitions;
our ability to maintain, develop and deepen relationships with customers; and
other financial and strategic risks of the acquisitions.


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Certain assumptions relating to the AngioScore and Stellarex acquisitions may prove to be inaccurate. For example, for the year ended December 31, 2015, we failed to achieve the expected revenue growth with respect to the AngioScore acquisition. Our assumptions relating to the AngioScore and Stellarex acquisitions may be inaccurate in the future, which may result in our failure to realize the expected benefits of the acquisitions, failure to realize expected revenue growth rates, failure to receive product clearances or approvals in a timely manner or at all, higher than expected operating, transaction and integration costs, failure to integrate acquired personnel, loss of key employees, loss of key vendors, as well as general economic and business conditions that may adversely affect us following the acquisitions. If our assumptions regarding these acquisitions prove to be inaccurate and we cannot achieve or sustain revenue growth or we experience higher costs for an extended period, our financial results will be adversely affected and our stock price may decline.
If we make additional acquisitions, we could incur significant costs and encounter difficulties that harm our business.
We may acquire companies, products, or technologies in the future. If we engage in such acquisitions, we may incur significant transaction and integration costs and have difficulty integrating the acquired personnel, operations, products or technologies or otherwise realizing synergies or other benefits from the acquisitions. The integration process could result in the loss of key employees, loss of key customers, loss of key vendors, decreases in revenue and increases in operating costs, as well as the disruption of our business. Acquisitions may dilute our earnings per share, disrupt our ongoing business, distract our management and employees, increase our expenses, subject us to liabilities and increase our risk of litigation, all of which could harm our business. If we use cash to acquire companies, products or technologies, it may divert resources otherwise available for other purposes or increase our debt. If we use our common stock to acquire companies, products or technologies, we may experience a change of control or our stockholders may experience substantial dilution or both.
If we cannot obtain additional funding, we may be unable to make desirable acquisitions or fund expanding growth and operations.
We may require additional funds to make acquisitions of desirable companies, products or technologies, or fund expanding growth and operations. There can be no assurance that financing will be available in amounts or on terms acceptable to us, if at all. The inability to obtain additional capital may restrict our ability to grow and may reduce our ability to make desirable acquisitions. Any equity or convertible debt financing may result in substantial dilution to our existing stockholders.
If we do not manage our growth or control costs related to growth, our results of operations will suffer.
We intend to grow our business by expanding our customer base, sales force and product offerings, including through additional acquisitions or other business combinations. Growth could place significant strain on our management, employees, operations, operating and financial systems, and other resources. To accommodate significant growth, we could be required to open additional facilities, expand and improve our information systems and procedures and hire, train, motivate and manage a growing workforce, all of which would increase our costs. Our systems, facilities, procedures and personnel may not be adequate to support our future operations. Further, we may not maintain or accelerate our current growth, manage our expanding operations or achieve planned growth on a timely and profitable basis.
Litigation and other legal proceedings may adversely affect our business.
From time to time we are involved in legal proceedings relating to patent and other intellectual property matters, product liability claims, employee claims, tort or contract claims, federal regulatory investigations, securities class action, and other legal proceedings or investigations, which could have an adverse impact on our reputation, business and financial condition and divert the attention of our management from the operation of our


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business. Litigation is inherently unpredictable and can result in excessive or unanticipated verdicts and/or injunctive relief that affect how we operate our business. We could incur judgments or enter into settlements of claims for monetary damages or for agreements to change the way we operate our business, or both. There may be an increase in the scope of these matters or there may be additional lawsuits, claims, proceedings or investigations in the future, which could have a material adverse impact on us. Adverse publicity about regulatory or legal action against us could damage our reputation and brand image, undermine our customers’ confidence and reduce long-term demand for our products, even if the regulatory or legal action is unfounded or not material to our operations.
We must indemnify officers and directors, including, in certain circumstances, former employees and directors, against all losses, including expenses, incurred by them in legal proceedings and advance their reasonable legal defense expenses, unless certain conditions apply. Insurance for claims of this nature does not apply in all such circumstances, may be denied or may not be adequate to cover all legal or other costs related to the proceeding. A prolonged uninsured expense and indemnification obligation could have a material adverse impact on us. From 2009 through 2013, we incurred more than $6 million in indemnification costs not covered by insurance for former employees charged in connection with a previously disclosed federal investigation. In connection with an action by a former director of AngioScore, a court held in August 2014 that AngioScore is required to advance the former director’s attorneys’ fees. In November 2015, the court granted in part our motion for summary judgment and ordered that TriReme is liable for 50% of advanced fees and costs, and must pay all fees and costs to be advanced moving forward until such fees and costs equal the fees and costs paid by AngioScore, and thereafter, the fees and costs will be advanced 50% by TriReme and 50% by AngioScore. A judge or jury could determine that AngioScore must ultimately pay the former director’s legal fees and costs defending against the breach of fiduciary duty and other claims, and the fees and costs associated with the dispute regarding indemnification, which could be material. As of December 31, 2015, AngioScore has incurred approximately $12.8 million in advancement costs, which may not be covered by insurance.
We have been named as a defendant in a securities class action lawsuit that may result in substantial costs and could divert management’s attention.
On August 27, 2015, a person purporting to represent a class of persons who purchased our securities between February 19, 2015 and July 23, 2015 filed a lawsuit against us and certain of our officers in the United States District Court for the District of Colorado. The lawsuit asserts claims under Sections 10(b) and 20 of the Securities Exchange Act of 1934, alleging that certain of our public statements concerning our projected revenue for 2015 were false and misleading. Plaintiff seeks unspecified monetary damages on behalf of the alleged class, interest, and attorney’s fees and costs of litigation. On December 18, 2015, the court appointed lead plaintiff and lead counsel in this matter.
We are not able to predict the ultimate outcome of this action. It is possible it could be resolved adversely to us, result in substantial costs, result in derivative actions and additional claims, and divert management’s attention and resources, which could harm our business. While we maintain director and officer liability insurance and have submitted this claim to our carriers who have acknowledged coverage and reserved their rights under the policies, the amount of insurance coverage may not be sufficient to cover a claim, and the continued availability of this insurance cannot be assured. Protracted litigation, including any adverse outcomes, may have an adverse impact on our business, results of operations or financial condition, could subject us to adverse publicity, and require us to incur significant legal fees.
We may incur substantial costs because of litigation or other proceedings relating to patent and other intellectual property rights, which could cause substantial costs and liability.
There may be patents and patent applications owned by others relating to peripheral and coronary atherectomy products, lead management products, specialty balloons, drug-coated balloons, or other technologies, which, if determined to be valid and enforceable, may be infringed by us. Holders of certain patents, including


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holders of patents involving the use of lasers, catheters, specialty balloons or drug-coated balloons in the body, may contact us and request we enter into license agreements for the underlying technology and pay them royalties, which could be substantial.
If we need to obtain a license to use any intellectual property, we may be unable to obtain these licenses on favorable terms or at all or we may be required to make substantial royalty or other payments to use this intellectual property.
Litigation concerning patents and proprietary rights is time-consuming, expensive and unpredictable, and could divert the attention of our management from our business operations. We cannot guarantee that other patent holders will not sue us and prevail. An adverse ruling could subject us to significant liability, require us to seek licenses, and restrict our ability to manufacture and sell our products. We are, and in the past have been, a party to legal proceedings involving our intellectual property and may be a party to future proceedings. For a discussion of our legal proceedings, please refer to Note 14, “Commitments and Contingencies,” to our consolidated financial statements included in Part IV, Item 15 of this annual report. Some of our competitors may be able to sustain the costs of complex patent litigation more effectively than we can because they have substantially greater resources. An unfavorable outcome in an interference proceeding or patent infringement suit could require us to pay substantial damages, to lose our patent protection, to cease using the technology or to license rights, potentially at a substantial cost, from prevailing third parties. There is no guarantee that any prevailing party would offer us a license or that we could acquire any license on commercially acceptable terms. Even if we can obtain rights to a third-party’s patented intellectual property, those rights may be non-exclusive, and therefore our competitors may obtain access to the same intellectual property. Ultimately, we may have to cease some of our business operations because of patent infringement claims, which could severely harm our business. To the extent we are found to be infringing on the intellectual property rights of others, we may not develop or otherwise obtain alternative technology. If we need to redesign our products to avoid third-party patents, we may suffer significant regulatory delays associated with conducting additional studies or submitting technical, manufacturing or other information related to any redesigned product and, ultimately, in obtaining regulatory approval. Further, any such redesigns may result in less effective or less commercially desirable products or both.
AngioScore is subject to pending litigation that may materially harm its intellectual property and our business.
AngioScore is the plaintiff in a lawsuit that AngioScore filed, prior to our acquisition of AngioScore, against Eitan Konstantino, a former board member of AngioScore and founder of TriReme Medical, LLC (“TriReme”), Quattro Vascular Pte Ltd. (“Quattro”) and QT Vascular Ltd. (“QT Vascular”), which sell a balloon angioplasty device sold under the name “Chocolate.” The lawsuit alleged infringement of an AngioScore patent and sought injunctive relief and damages. In June 2014, AngioScore amended its complaint against the former director to allege breach of his fiduciary obligations while serving as a director of AngioScore and against the other defendants to allege aiding and abetting that breach. Trial on the breach of fiduciary duty case occurred in April 2015. In July 2015, the court ruled in favor of AngioScore, finding that Konstantino breached his fiduciary duties to AngioScore, that TriReme and Quattro aided and abetted that breach, and that QT Vascular is liable for the acts of TriReme and Quattro. In its ruling, the court found that Konstantino breached his fiduciary duties to AngioScore by developing the Chocolate balloon catheter while serving on the AngioScore board of directors and failing to present that corporate opportunity to AngioScore. Konstantino subsequently launched the product through TriReme, Quattro and QT Vascular. The court awarded AngioScore $20.034 million against all defendants plus disgorgement from Konstantino of all benefits he accrued from his breach of fiduciary duties, including amounts he received for assigning his intellectual property rights to the Chocolate balloon, a royalty on past and future sales of the Chocolate balloon, and all of his shares and options in QT Vascular. The defendants have filed an appeal of this ruling.
Trial on the patent infringement case was held in September 2015. The jury found against AngioScore in the patent infringement case and found that certain of the asserted claims of the patent are invalid. The patent infringement verdict has no impact on the court’s findings or award of damages in connection with the breach of


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fiduciary duty claims or the ability to recover advanced fees and costs, discussed below. Regardless of whether AngioScore prevails in the litigation, the former director’s company and other third parties may use the AngioScore discoveries or technologies without paying damages, licensing fees or royalties to us, which could significantly diminish the value of the AngioScore intellectual property.
The former director has filed claims for advancement of fees and costs and indemnification by AngioScore against the breach of fiduciary duty claims. In November 2015, the court granted in part the Company’s motion for summary judgment and ordered that TriReme is liable for 50% of advanced fees and costs, and must pay all fees and costs to be advanced moving forward until such fees and costs equal the fees and costs paid by AngioScore, and thereafter, the fees and costs will be advanced 50% by TriReme and 50% by AngioScore.
In June 2014, TriReme sued AngioScore seeking to change the inventorship of certain patents owned by AngioScore. TriReme alleges that an Israeli physician, Chaim Lotan, should be named as a co-inventor on three patents owned by AngioScore. Dr. Lotan allegedly assigned any rights he may have had in the three patents to TriReme. AngioScore moved to dismiss this litigation in January 2015, asserting that Dr. Lotan previously assigned any rights he may have had in the patents to AngioScore in 2003. In March 2015, the court granted AngioScore’s motion to dismiss this case. TriReme appealed the court’s ruling, and on February 5, 2016, the appellate court reversed the lower court’s ruling dismissing the case and remanded the case for further proceedings.
We cannot at this time determine the likelihood of any outcome. As of December 31, 2015, we had no amounts accrued for potential damages. During the year ended December 31, 2015, we incurred $19.9 million of legal fees associated with these matters, which includes amounts advanced for the former director’s legal fees and costs related to the breach of fiduciary duty claims. These expenses are included within the “Acquisition transaction, integration and legal costs” line of the consolidated statements of operations and comprehensive loss. A judge or jury could determine that AngioScore must ultimately pay the former director’s legal fees and costs defending against the breach of fiduciary duty and other claims, and the fees and costs associated with the dispute regarding indemnification. The cost of this litigation may continue to be material to us and may not be covered by insurance. Any of the foregoing could have a material adverse effect on our business.
Healthcare reform initiatives and other administrative and legislative proposals may adversely affect our business, financial condition, results of operations and cash flows in our key markets.
There have been and continue to be proposals by the federal government, state governments, regulators and third-party payers to control or manage the increased costs of health care and, more generally, to reform the U.S. healthcare system. Certain of these proposals could limit the prices we are able to charge for our products or the coverage and reimbursement available for our products and could limit the acceptance and availability of our products. The adoption of proposals to control costs could have a material adverse effect on our financial position and results of operations.
The Patient Protection and Affordable Care Act (“PPACA”) makes significant changes to the way healthcare is financed by both federal and state governments and private insurers, and directly impacts the medical device and pharmaceutical industries. The PPACA includes, with limited exceptions, a deductible excise tax of 2.3% on sales of medical devices by entities, including us, which manufacture or import certain medical devices offered for sale in the United States, including many of our products. The tax was effective January 1, 2013, but is currently suspended under a two-year moratorium that began January 1, 2016. Revenue from many of our products is subject to that excise tax. It is unclear whether the moratorium will be made permanent or, if the tax once again is collected, whether the cost of the tax will be offset by higher sales volumes resulting from the expansion of health insurance coverage.
Congress has proposed and adopted other legislative changes regarding healthcare since it enacted the PPACA. On August 2, 2011, the Budget Control Act of 2011 created measures for spending reductions by Congress.


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A Joint Select Committee on Deficit Reduction, tasked with recommending a targeted deficit reduction of at least $1.2 trillion for the years 2013 through 2021, could not reach required goals, triggering the legislation’s automatic reduction to several government programs. This includes aggregate reductions to Medicare payments to providers of up to 2% per fiscal year. The 2% Medicare payment reductions went into effect in April 2013 and, unless additional Congressional action is taken, will stay in effect through 2025 due to the Bipartisan Budget Act of 2015 signed into law in November 2015. The American Taxpayer Relief Act (“ATRA”) also reduced Medicare payments to several providers, including hospitals, imaging centers and cancer treatment centers, and increased the statute of limitations period for the government to recover overpayments to providers from three to five years. These laws may cause additional reductions in Medicare and other healthcare funding, which could have a material adverse effect on our customers and our financial condition.
Various healthcare reform proposals also have emerged at the state level. We expect that the PPACA and other federal and state healthcare initiatives that may be adopted could limit the amounts that federal and state governments will pay for healthcare products and services, and could have a material adverse effect on our industry and our results of operations.
Regulatory compliance is expensive, complex and uncertain, and approvals and clearances can often be denied or significantly delayed.
The FDA and similar state and foreign agencies regulate our products as medical devices. Complying with these regulations is costly, time consuming, complex and uncertain. FDA regulations and regulations of similar state and foreign agencies are wide-ranging and include oversight of:
product design, development, manufacture (including supply chain) and testing;
product safety and efficacy;
product manufacturing;
product labeling;
product storage and shipping;
record keeping;
pre-market clearance or approval;
advertising and promotion;
product sales and distribution;
product changes;
product recalls; and
post-market surveillance and reporting of deaths or serious injuries.

All of our potential products and improvements of our current products are subject to extensive regulation and will likely require permission from regulatory agencies and ethics boards to conduct clinical trials, and clearance or approval from the FDA and other regulatory agencies prior to commercial sale and distribution. Under FDA regulations, unless exempt, the FDA permits commercial distribution of a new medical device only after the device has received 510(k) clearance or is the subject of an approved PMA. The FDA will clear marketing of a medical device through the 510(k) process if it is demonstrated that the new product is substantially equivalent to other 510(k) cleared products. Sometimes, a 510(k) clearance must be supported by preclinical and clinical data. The PMA process is more costly and lengthy than the 510(k) process, and reasonable assurance of safety and efficacy must be supported by valid scientific evidence, including data from preclinical studies and human clinical trials. Therefore, to obtain regulatory clearance or approvals, we typically must, among other requirements, provide the FDA and similar foreign regulatory authorities with preclinical and clinical data that demonstrate to the satisfaction of the FDA and such other authorities that our products satisfy the criteria for clearance or approval. Preclinical testing and clinical trials must comply with the regulations of the FDA and other government authorities in the United States and similar agencies in other countries.


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We may be required to obtain PMAs, PMA supplements or additional 510(k) premarket clearances to market modifications to our existing products. The FDA requires device manufacturers to make and document a determination of whether a modification requires an approval, supplement or clearance; however, the FDA can review a manufacturer’s decision. The FDA may not agree with our decisions not to seek approvals, supplements or clearances for particular device modifications. If the FDA requires us to obtain PMAs, PMA supplements or pre-market clearances for any modification to a previously cleared or approved device, we may be required to cease manufacturing and marketing the modified device or perhaps also to recall such modified device until we obtain FDA clearance or approval and we may be subject to significant regulatory fines or penalties.
The FDA may not approve our current or future PMA applications or supplements or clear our 510(k) applications on a timely basis or at all. The FDA may also issue Form 483 notices, “it has come to our attention” or warning letters based on the promotion or manufacturing of any of our approved or cleared products. Additionally, the FDA may subject us to fines, suspensions or revocations of approvals, seizures or recalls of products, operating restrictions, criminal prosecutions and other penalties. The absence of such approvals or clearance, or any enforcement action by the FDA, could have a material adverse impact on our ability to generate future revenue.

In addition, the FDA may change its clearance and approval policies, adopt additional regulations or revise existing regulations, or take other actions which may prevent or delay approval or clearance of our products under development or impact our ability to modify our currently approved or cleared products on a timely basis. For example, in response to industry and healthcare provider concerns regarding the predictability, consistency and rigor of the 510(k) regulatory pathway, the FDA initiated an evaluation of the program, and in January 2011, announced several proposed actions intended to reform the review process governing the clearance of medical devices. The FDA intends these reform actions to improve the efficiency and transparency of the clearance process, as well as bolster patient safety. Some of these proposals, if enacted, could impose additional regulatory requirements upon us which could delay our ability to obtain new 510(k) clearances, increase the costs of compliance or restrict our ability to maintain our current clearances. In addition, as part of the Food and Drug Administration Safety and Innovation Act, Congress reauthorized the Medical Device User Fee Amendments with various FDA performance goal commitments and enacted several ‘‘Medical Device Regulatory Improvements’’ and miscellaneous reforms which are further intended to clarify and improve medical device regulation both pre- and post-market.”
 
International regulatory approval processes may take longer than the FDA approval process. If we fail to comply with applicable FDA and foreign regulatory requirements, we may not receive regulatory approvals or may be subject to FDA or foreign enforcement actions. We may be unable to obtain future regulatory approval in a timely manner, or at all, especially if existing regulations are changed or new regulations are adopted. For example, the FDA clearance process for the use of excimer laser technology in clearing blocked arteries in the leg took longer than we anticipated due to requests for additional clinical data and changes in regulatory requirements. A failure or delay in obtaining necessary regulatory approvals would materially adversely affect our business.
If our clinical trials are unsuccessful or significantly delayed, or if we do not complete our clinical trials, our business may be harmed.
Clinical development is a long, expensive and uncertain process and is subject to delays and to the risk that products may ultimately prove unsafe or ineffective in treating the indications for which they are designed. Completion of the clinical trials usually takes several years or more. We cannot assure you that we will successfully complete clinical testing of our products within the period we have planned, or at all. Even if we achieve positive interim results in clinical trials, these results do not necessarily predict final results, and positive results in early trials do not necessarily indicate success in later trials. Several companies in the medical device industry have suffered significant setbacks in advanced clinical trials, even after receiving promising results in earlier trials.


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We may experience numerous unforeseen events during, or because of, the clinical trial process that could delay or prevent us from receiving regulatory approval for new products, modification of existing products, or new approved or cleared indications for existing products including:
delays in enrolling an adequate number of subjects in clinical trials when competing with other companies;
enrollment in our clinical trials may be slower than we anticipate, or we may experience high drop-out rates of subjects from our clinical trials, resulting in significant delays;
the FDA or similar foreign regulatory authorities may find the product is not sufficiently safe for investigational use in humans;
officials at the FDA or similar foreign regulatory authorities may interpret data from preclinical testing and clinical trials in less favorable ways than we do;
there may be delays or failure in obtaining approval of our IDE or clinical trial protocols from the FDA or other regulatory authorities;
there may be delays in obtaining institutional review board approvals or government approvals to conduct clinical trials at prospective sites;
the FDA or similar foreign regulatory authorities may find our or our suppliers’ manufacturing processes or facilities unsatisfactory;
the FDA or similar foreign regulatory authorities may change their approval policies or adopt new regulations that may negatively affect or delay our ability to bring a product to market or receive approvals or clearances to treat new indications;
our clinical trials may produce negative or inconclusive results, and we may decide, or regulators may require us, to conduct additional clinical or preclinical testing or to abandon programs;
we may have trouble in managing multiple clinical sites;
trial results may not meet the level of statistical significance required by the FDA or other regulatory authorities;
we may experience delays in agreeing on acceptable terms with third-party research organizations and trial sites that will conduct the clinical trials; and
we, or regulators, may suspend or terminate our clinical trials because the participating patients are being exposed to unacceptable health risks.

Failures or perceived failures in our clinical trials will delay and may prevent our product development and regulatory approval process, damage our business prospects and negatively affect our reputation and competitive position.
From time to time, we engage outside parties to perform services related to certain of our clinical studies and trials, and any failure of those parties to fulfill their obligations could cause costs and delays.
From time to time, we engage consultants and contract research organizations to help design, monitor and analyze the results of certain of our clinical studies and trials. The consultants and contract research organizations we engage interact with clinical investigators to enroll patients in our clinical trials. We depend on these consultants, contract research organizations and clinical investigators to perform the clinical studies and trials and monitor and analyze data from these studies and trials under the investigational plan and protocol for the study or trial and in compliance with regulations and standards, commonly referred to as good clinical practices, for conducting, recording and reporting results of clinical studies or trials to assure that the data and results are credible and accurate and the trial participants are adequately protected, as required by the FDA and foreign regulatory authorities. The consultants and contract research organizations also are responsible for protecting confidential patient data and complying with U.S. and foreign laws and regulations related to data privacy, including the Health Insurance Portability and Accountability Act of 1996, as amended by the Health Information Technology for Economic and Clinical Health Act (“HIPAA”). We may face delays in our regulatory approval process if these parties do not perform their obligations in a timely or competent fashion or if we must change service providers. This risk is


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greater for our clinical studies and trials conducted outside of the United States, where it may be more difficult to ensure our studies and trials are conducted in compliance with FDA requirements. Any third parties we hire to design or monitor and analyze results of our clinical studies and trials may also provide services to our competitors, which could compromise the performance of their obligations to us. If these third parties do not successfully carry out their duties or meet expected deadlines, or if the quality, completeness or accuracy of the data they obtain is compromised due to the failure to adhere to our clinical trial protocols or for other reasons, our clinical studies or trials may be extended, delayed or terminated or may otherwise prove to be unsuccessful, and our development costs will increase. We may not establish or maintain relationships with these third parties on favorable terms, or at all. If we need to enter into replacement arrangements because a third-party is not performing in accordance with our expectations, we may not do so without undue delays or considerable expenditures, or at all.
The FDA and similar foreign regulatory bodies may hold us responsible for any failure of our third-party consultants or contract research organizations. Our monitoring of our third-party consultants or contract research organizations may fail to detect, remedy, or report their failures.
Our regulatory compliance program cannot guarantee we comply with all potentially applicable U.S. federal and state regulations and all potentially applicable foreign regulations.
The development, testing, manufacturing, distribution, pricing, sales, marketing, promotion, import, export and reimbursement of our products, together with our general operations, are subject to extensive federal and state regulation in the United States and in foreign countries, including the National Physician Payment Transparency Program in the U.S., which requires collection of information about payments to physicians and teaching hospitals for each calendar year and reporting such information by the 90th day of each subsequent calendar year. Congress and certain governmental entities, such as the FDA, the OIG, and the U.S. Department of Justice have been increasing their scrutiny of our industry. Although we have a regulatory compliance program, our employees, our consultants or our contractors may not comply with all potentially applicable U.S. federal and state laws and regulations or all potentially applicable foreign laws and regulations, including laws and regulations about the promotion of our approved or cleared products. Promotion of products cleared under a 510(k) can be particularly risky because 510(k) cleared indications can be vague, and the FDA or other regulatory agencies may determine that our promotion of a product is “off-label.” This may also occur with products approved under a PMA. If we fail to comply with these laws or regulations, a range of actions could result, including, but not limited to, the termination of clinical trials, failing to approve a product candidate, restrictions on our products or manufacturing processes, including withdrawal or recall of our products from the market, significant fines, penalties and/or damages, exclusion from government healthcare programs or other sanctions or litigation. We recently completed a five-year corporate integrity agreement as part of a 2009 settlement of a federal compliance investigation of our company.
Our products may be subject to recalls after receiving FDA or foreign approval or clearance, which could divert managerial and financial resources, harm our reputation, and adversely affect our business.
We are subject to medical device reporting regulations that require us to report to the FDA or similar foreign governmental authorities if our products cause or contribute to death or serious injury or malfunction in a way that would be reasonably likely to contribute to death or serious injury if the malfunction recurred. The FDA and similar foreign governmental authorities have the authority to require the recall of our products because of any failure to comply with applicable laws and regulations, or defects in design or manufacture. A government mandated or voluntary product recall by us could occur because of component failures, device malfunctions, or other adverse events, such as serious injuries or deaths, or quality-related issues such as manufacturing errors or design or labeling defects. We have conducted voluntary recalls in the past and may do so in the future. In addition, the FDA or a similar foreign regulatory body may require us to recall our products. Any recalls of our products could divert managerial and financial resources, harm our reputation and adversely affect our business.


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The continuing development of many of our products depends upon our maintaining strong working relationships with physicians.
The research, development, marketing and sale of many of our new and improved products depend upon our maintaining working relationships with physicians. We rely on these professionals to provide us with considerable knowledge and experience regarding the development, marketing and sale of our products. Physicians assist us as researchers, marketing and product consultants, inventors and public speakers. If we cannot maintain our strong working relationships with these professionals and continue to receive their advice and input, the development and marketing of our products could suffer, which could have a material adverse effect on our business and results of operations. At the same time, the medical device industry’s relationship with physicians is under increasing scrutiny by the OIG and the Department of Justice (“DOJ”). Our failure to comply with requirements governing the industry’s relationships with physicians, including the reporting of certain payments to physicians under the National Physician Payment Transparency Program or an investigation into our compliance by the OIG or the DOJ, could have a material adverse effect on our business.
We may not effectively be able to protect our intellectual property, which could have a material adverse effect on our business, financial condition or results of operations.
The medical device market in which we participate is largely technology driven. Physicians historically have moved quickly to new products and new technologies. As a result, intellectual property rights, particularly patents and trade secrets, play a significant role in product development and differentiation. Trademarks also play a role in product differentiation. In order to protect our intellectual property, we may be involved in intellectual property litigation, which is inherently complex, expensive and unpredictable.
We hold patents and licenses to use patented technology, and have numerous pending patent applications. Our patents cover numerous inventions, including features of our catheters and other technologies. Our competitors may seek to produce products that include technologies that are not subject to patent protection, which may negatively affect our business.
The patents we own and license may not be sufficiently broad to protect our technology or to give us any competitive advantage. Our patents could be challenged as invalid, unenforceable, or circumvented by competitors. Issuing a patent is not conclusive as to its validity or enforceability. Any patents for which we have applied may not be granted. Third parties own numerous United States and foreign issued patents and pending patent applications in the fields in which we manufacture and sell our products.
Because patent applications can take many years to issue, there may be pending applications, unknown to us, which may later result in issued patents our products or technologies may infringe. Challenges raised in patent infringement litigation may cause determinations our patents or licensed patents are invalid, unenforceable, or otherwise subject to limitations. In such events, third parties may use the discoveries or technologies without paying damages, licensing fees or royalties to us, which could significantly diminish the value of our intellectual property. We could also be adversely affected if our licensors terminate our licenses to use patented technology.
We hold trademark applications or registrations relating to our products. Our trademarks may also be challenged as invalid or not distinctive by competitors or third parties. Issuing a trademark registration is not conclusive as to its validity or the right to use such trademark. Third parties own numerous United States and foreign trademark registrations and trademark applications in the fields in which we manufacture and sell our products.
The laws of certain foreign countries do not protect our intellectual property rights to the same extent as do the laws of the United States. The foregoing could have a material adverse effect on our business.


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If we cannot protect and control unpatented trade secrets, know-how and other proprietary technology, we may suffer competitive harm.
Besides patented intellectual property, we also rely on trade secrets, unpatented proprietary technology, confidential information and know-how to protect our technology and maintain our competitive position, particularly when patent protection is not appropriate or obtainable. However, trade secrets and unpatented proprietary technology are difficult to protect. To protect proprietary technology and processes, we rely in part on confidentiality and intellectual property assignment agreements with our employees, consultants and others. These agreements may not prevent disclosure of confidential information nor result in the effective assignment to us of intellectual property, and may not provide an adequate remedy if unauthorized disclosure of confidential information or other breaches of the agreements occur. Others may independently discover trade secrets and proprietary information licensed to us or that we own, and in such case, we could not assert any trade secret rights against such party. Enforcing a claim that a party illegally obtained and is using trade secrets licensed to us or that we own is difficult, expensive and time consuming, and the outcome is unpredictable. Courts outside the United States may be less willing to protect trade secrets or unpatented proprietary technology. Costly and time-consuming litigation could be necessary to enforce and determine the scope of our proprietary rights, and failure to obtain or maintain trade secret protection could adversely affect our competitive business position.
We have important sole source suppliers and may be unable to replace them if they stop supplying us.
We purchase certain components of our CVX-300 laser system and select disposable products from several sole source suppliers. We do not have guaranteed commitments from these suppliers, as we order products through purchase orders placed with these suppliers from time to time. While we believe that we could obtain replacement components from alternative suppliers, we may be unable to do so. Losing any of these suppliers could cause a disruption in our production. Our suppliers may encounter problems during manufacturing due to a variety of reasons, including failure to follow specific protocols and procedures, failure to comply with applicable regulations, equipment malfunction and environmental factors. Establishing additional or replacement suppliers for these materials may take significant time, as certain of these suppliers must be approved by regulatory authorities. If we cannot secure on a timely basis sufficient quantities of the materials we depend on to manufacture our laser systems and disposable products, if we encounter delays or contractual or other difficulties in our relationships with these suppliers, or if we cannot find replacement suppliers at an acceptable cost, then manufacturing our laser system and disposable products may be disrupted, which could increase our costs and have a material adverse effect on our business.
If critical components used in manufacturing our CVX-300 excimer laser system or other products become scarce or unavailable, we may incur increased costs and delays in the manufacturing and delivery of our products, which could damage our business.
Certain critical components used in manufacturing our products may be subject to supply shortages, which could subject our business to the risk of price increases and delays in the delivery of our products. For example, in 2015, there was a temporary shortage of neon gas, which is used in our CVX-300 excimer laser system. If we are unable to continue obtaining components from our suppliers in the quantities we require, on a timely basis, and at acceptable prices, we may not be able to deliver our products on a timely or cost-effective basis to our customers, which could reduce our product sales, increase our costs, and harm our business. Moreover, if any of our suppliers become unable to supply our required materials, then we may need to find new suppliers, which could take significant time and could disrupt our production. As a result, we could experience significant delays in manufacturing and delivering our products to customers. We cannot assure you we can continue obtaining required materials that are in short supply within the time frames we require at an affordable cost, if at all.


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Our net operating loss carryovers may be limited.
We have net operating loss carryovers, or NOLs, including NOLs that we acquired in the AngioScore acquisition, that we may use to offset against taxable income for U.S. federal income tax purposes. However, Section 382 of the Internal Revenue Code of 1986, as amended, may limit the NOLs that we may use in any year for U.S. federal income tax purposes in the event of certain changes in ownership of our company. The NOLs of AngioScore or any other company that we may acquire may also be limited due to the ownership change that occurs upon acquisition. Any limitation on our ability to use NOLs could, depending on the extent of such limitation, result in higher U.S. federal income taxes being paid (and therefore a reduction in cash) during any year in which we have taxable income than if such NOLs were available as an offset against such income for U.S. federal income tax reporting purposes.
The stated value of long-lived and intangible assets may become impaired and result in an impairment charge.
As of December 31, 2015, we had approximately $263.1 million of intangible assets and goodwill, $221.3 million of which related to the AngioScore acquisition. In addition, if in the future we acquire additional businesses or technologies, a substantial portion of the value of such assets may be recorded as intangible assets or goodwill. The carrying amounts of intangible assets and goodwill are affected whenever events or changes in circumstances indicate that the carrying amount of any asset may not be recoverable. Such events or changes might include a significant decline in market share, a significant decline in revenue, a significant increase in losses or decrease in profits, rapid changes in technology, failure to achieve the benefits of capacity increases and utilization, significant litigation arising out of an acquisition or other matters. Adverse events or changes in circumstances may affect the estimated undiscounted future operating cash flows expected to be derived from intangible assets and goodwill. If at any time we determine that an impairment has occurred, we will be required to reflect the impaired value as a charge, resulting in a reduction in earnings in the period such impairment is identified and a corresponding reduction in our net asset value. In 2015, we recorded an intangible asset impairment of $2.5 million to record a partial impairment of the in-process research and development intangible assets acquired as part of the AngioScore acquisition. For more information, refer to Note 2, “Business Combinations,” to our consolidated financial statements in Part IV, Item 15, “Exhibits and Financial Statement Schedules.” In 2014, we recorded an impairment charge of approximately $4.1 million related to the intangible assets acquired as part of our product acquisition from Upstream Peripheral Technologies Ltd. (“Upstream”) in January 2013, based on their updated fair value using revised cash flow assumptions related to those assets. The potential recognition of impairment in the carrying value of our long-lived assets, if any, could have a material and adverse effect on our financial condition and results of operations.

We and our component suppliers may not meet regulatory quality standards applicable to our manufacturing processes, which could have an adverse effect on our business, financial condition, and results of operations.
As a medical device manufacturer, we must register with the FDA and are subject to periodic inspection by the FDA for compliance with the FDA’s QSR requirements, which require manufacturers of medical devices to adhere to certain good manufacturing practices, including design controls, product validation and verification, in process testing, quality control and documentation procedures. Compliance with applicable regulatory requirements is subject to continual review and is rigorously monitored through periodic inspections by the FDA and other regulatory agencies. Our component suppliers are also required to meet certain standards applicable to their manufacturing processes.
We cannot assure you that we or our component suppliers comply or can continue to comply with all regulatory requirements. The failure by us or one of our component suppliers to achieve or maintain compliance with these requirements or quality standards may disrupt our ability to supply products sufficient to meet demand until compliance is achieved or, with a component supplier, until a new supplier has been identified and evaluated. Our or our component supplier’s failure to comply with applicable regulations could cause sanctions to be imposed


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on us, including warning letters, fines, injunctions, civil penalties, failure of regulatory authorities to grant marketing approval of our products, delays, suspension or withdrawal of approvals or clearances, license revocation, seizures or recalls of products, operating restrictions and criminal prosecutions, which could harm our business. We cannot assure you that if we need to engage new suppliers to satisfy our business requirements, we can locate new suppliers in compliance with regulatory requirements. Our failure to do so could have a material adverse effect on our business.
In the European Union, we must maintain certain International Organization for Standardization, or ISO, certifications to sell our products and must undergo periodic inspections by notified bodies, including the British Standards Institution, to obtain and maintain these certifications. If we fail these inspections or fail to meet these regulatory standards, our business could be materially adversely affected.
Healthcare cost containment pressures and legislative or administrative reforms resulting in restrictive coverage and reimbursement practices of third-party payers could decrease the demand for our products, the prices that customers are willing to pay for those products and the number of procedures performed using our devices, which could have an adverse effect on our business.
Our products are purchased principally by hospitals and stand-alone peripheral intervention practices, which typically bill various third-party payers, including governmental programs, such as Medicare and Medicaid, private insurance plans and managed care plans, for the healthcare services provided to their patients. The ability of our customers to obtain appropriate coverage and reimbursement for our products and services from government and private third-party payers is critical to our success. The availability of coverage and reimbursement affects which products customers purchase and the prices they are willing to pay.
Reimbursement varies from country to country, state to state and plan to plan and can significantly influence the acceptance of new products and services. Certain private third-party payers may view some procedures using our products as experimental and may not provide coverage. Third-party payers may not cover and reimburse the procedures using our products in whole or in part in the future, or payment rates may not be adequate, or both. Further, the adequacy of coverage and reimbursement by third-party payers is also related to billing codes to describe procedures performed using our products. Hospitals and physicians use several billing codes to bill for such procedures. Third-party payers may not continue to recognize the billing codes available for use by our customers.
Reimbursement rates are unpredictable, and we cannot project how our business may be affected by future legislative and regulatory developments. Future legislation or regulation, or changing payment methodologies, may have a material adverse effect on our business, and reimbursement may not be adequate for all customers. From time to time, typically on an annual basis, payment amounts are updated and revised by third-party payers. Because the cost of our products generally is recovered by the healthcare provider as part of the payment for performing a procedure and not separately reimbursed, these updates could directly impact the demand for our products. For example, in July 2013, the Centers for Medicare and Medicaid Services, or CMS, proposed reimbursement changes that would have decreased reimbursement for procedures in an office-based facility. Although CMS chose not to implement those changes in 2013, we cannot assure you that CMS will not take similar actions in the future.
The Medicare program is subjected to annual updates to physician payments. This is performed using a prescribed statutory formula. The Protecting Access to Medicare Act of 2014, signed into law in April 2014, provided for a 0.5% update from 2013 payment rates under the Medicare Physician Fee Schedule through 2014 and a 0% update from January 1 until April 1, 2015. The Medicare Access and CHIP Reauthorization Act of 2015, signed into law in April 2015, lays out annual updates to payments for at least the next 10 years: payment rates will be updated by 0.5% for July 1, 2015 through December 31, 2015, and then annually through 2019; the law then provides a 0% update from 2020 through 2025. Beginning in 2026, payment rates will be updated either by 0.25% annually for providers participating in non-alternative payment models or by 0.75% annually for providers participating in alternative payment models. In addition, the Medicare physician fee schedule has been adopted by


30


some private payers into their plan specific physician payment schedule. We cannot predict how pending and future healthcare legislation will impact our business, and any changes in coverage and reimbursement that further restricts coverage of our products or lowers reimbursement for procedures using our devices could materially affect our business.
After we develop new products or seek to market our products for new approved or cleared indications, we may find limited demand for the product unless government and private third-party payers provide adequate coverage and reimbursement. Even with reimbursement approval and coverage by government and private payers, providers submitting reimbursement claims may face delay in payment if there is confusion by providers regarding the appropriate codes to use in seeking reimbursement. Such delays may create an unfavorable impression within the marketplace regarding the level of reimbursement or coverage available for our products.
Demand for our products or new approved indications for our existing products may fluctuate over time if federal or state legislative or administrative policy changes affect coverage or reimbursement levels for our products or the services related to our products. In the United States, there have been and we expect there will continue to be legislative and regulatory proposals to change the healthcare system, some of which could significantly affect our business. Legislative or administrative reforms to the U.S. or international reimbursement systems in a manner that significantly reduces reimbursement for procedures using our medical devices or denies coverage for those procedures could have a material adverse effect on our business.
We may be subject, directly or indirectly, to federal and state healthcare fraud and abuse and health information privacy and security laws and regulations and, if we cannot fully comply with such laws, could face substantial penalties.
Various broad federal and state healthcare fraud and abuse laws may directly or indirectly affect our operations. Such laws include the federal Anti-Kickback Statute and related state anti-kickback laws. The federal Anti-Kickback Statute prohibits any person from knowingly and willfully offering, paying, soliciting or receiving remuneration, directly or indirectly, to induce or reward either the referral of an individual, or the furnishing, purchasing, leasing or ordering of, or arranging for or recommending the furnishing, purchasing, leasing or ordering of an item or service, for which payment may be made under federal healthcare programs, such as Medicare and Medicaid. A person may be found guilty of violating the statute without actual knowledge of the statute or specific intent to violate it. The federal Stark law and self-referral prohibitions under analogous state laws restrict referrals by physicians and, sometimes, other healthcare providers, practitioners and professionals, to entities with which they have indirect or direct financial relationships for furnishing of designated health services. The federal False Claims Act prohibits, among other things, individuals or entities from knowingly presenting, or causing to be presented, claims for payment to Medicare, Medicaid or other third-party payers that are false or fraudulent. The government may assert that a claim including items or services resulting from a violation of the federal Anti-Kickback Statute constitutes a false or fraudulent claim for purposes of the federal False Claims Act or federal civil money penalties statute. HIPAA created federal criminal laws that prohibit executing a scheme to defraud any healthcare benefit program or making false statements relating to healthcare matters. These healthcare fraud and abuse laws are subject to evolving interpretations by various federal and state enforcement and regulatory authorities. Under current interpretations of the federal False Claims Act and certain similar state laws, some of these laws also may be subject to enforcement in a qui tam lawsuit brought by a private party “whistleblower,” with or without the intervention of the government. Whistleblowers are entitled to be paid a portion of the judgment or settlement amount and therefore have financial incentives to file these cases.
If our operations, including our laser system placement and disposable products sales and marketing programs, clinical research or consulting arrangements with physicians, are found to violate these laws and are not protected under a statutory exception or regulatory safe harbor provision, we, our officers or our employees may be subject to civil and/or criminal penalties, including large monetary penalties, damages, fines, imprisonment and exclusion from Medicare and other federal healthcare program participation. Exclusion would preclude our products


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from use in treatment of Medicare or other federal healthcare program patients and could negatively impact sales of our products. If federal or state investigations or enforcement actions occur, our business and financial condition would be harmed.
There has been a recent trend of increased federal and state regulation of payments made to physicians. The PPACA imposes reporting and disclosure requirements on medical device and drug manufacturers for any “transfer of value” made or distributed to physicians and teaching hospitals. Medical device and drug manufacturers will also be required to report and disclose any investment interests held by physicians and their immediate family members during the preceding calendar year. Failure to submit required information or the submission of incorrect information may result in significant civil monetary penalties. Manufacturers must submit reports providing payment data for a calendar year by the 90th day of the subsequent calendar year. Some states, including California, Massachusetts and Vermont, have enacted statutes with various requirements, such as implementation of compliance programs, and the tracking and reporting of gifts, compensation and other remuneration to physicians. The shifting compliance environment and the need to build and maintain robust and expandable systems to comply with multiple jurisdictions with different compliance and/or reporting requirements increases the possibility that a healthcare company may run afoul of one or more requirements. If we are investigated or found to have violated these laws, we may incur significant expenses, including fines and penalties.
In addition, HIPAA and other federal and state data privacy and security laws govern the collection, dissemination, security, use and confidentiality of patient-identifiable health information. The costs of complying with privacy and security-related legal and regulatory requirements may be burdensome, and if we do not comply with existing or new federal or state laws and regulations related to patient health information, we could be subject to criminal or civil sanctions and any resulting liability could adversely affect our business.
If we fail to obtain regulatory approvals in other countries for our products, we cannot market our products in those countries, which could harm our business.
The requirements governing the conduct of clinical trials and manufacturing and marketing of our products, new products, or additional indications for our existing products outside the United States vary widely from country to country. Foreign approvals may take longer to obtain than FDA approvals and can require additional testing and different clinical trial designs. Foreign regulatory approval processes include all of the risks associated with the FDA approval processes. Some foreign regulatory agencies also must approve the reimbursement policies related to specific products. We have had difficulties in the past in obtaining reimbursement approvals for our products in Europe and are seeking regulatory and reimbursement approval for certain of our products in Japan and other countries. We cannot assure you that we will receive this approval or that revenue in Japan and other countries will increase if we receive it. Regulatory approval in one country does not ensure regulatory approval in another, but a failure or delay in obtaining regulatory approval in one country may negatively influence the regulatory process in others. We may not file for regulatory approvals and may not receive necessary approvals to market our existing products in any foreign country. If we fail to comply with these regulatory requirements or fail to obtain and maintain required approvals in any foreign country, we cannot sell our products in that country and our ability to generate revenue could be materially adversely affected.
There are risks from having international operations.
For the year ended December 31, 2015, our revenue from international operations represented 16% of consolidated revenue. Changes in overseas political or economic conditions, war or other conflicts, currency exchange rates, foreign laws regulating the approval and sales of medical devices, foreign tax laws, export/import licenses or tariffs, other trade regulations or intellectual property protection could adversely affect our ability to market our products outside the United States. Our international operations subject us to the extraterritorial effects of U.S. laws such as the Foreign Corrupt Practices Act. Any significant changes in the competitive, political, legal, regulatory, reimbursement or economic environment where we conduct international operations may have a material


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adverse impact on our business. To the extent we expand our international operations, we expect our sales and expenses denominated in foreign currencies to expand, therefore increasing the risk fluctuations in currency exchange rates will adversely affect us. We do not hedge against foreign currency fluctuations, which could result in reduced consolidated revenue or increased operating expenses.
We use both a direct sales organization and distributors for sales of our products throughout most of the countries that comprise our international operations. The international sales and marketing efforts could fail to attain long-term success.
If our manufacturing operations are interrupted, our results may be adversely affected.
Our ability to manufacture our products may be adversely affected by factors such as a failure to follow specific internal protocols and procedures, equipment malfunction, environmental factors or damage to our facility. If an interruption in manufacturing occurs, we may be unable to quickly move to alternate means of producing affected products or to meet customer demand. If the interruption results from a failure to follow regulatory protocols and procedures, we may be required to recall affected products and may experience delays in resuming production of affected products due primarily to a need to obtain regulatory approvals. We may suffer loss of market share, which we may be unable to recapture, and harm to our reputation, which could adversely affect our results of operations and financial condition.
An interruption in or breach of security of our information or manufacturing systems, including the occurrence of a cyber incident or a deficiency in our cybersecurity, may cause a loss of business or damage to our reputation.
We rely on communications, information and manufacturing systems to conduct our business. Any failure, interruption, or cyber incident of these systems could cause failures or disruptions in our customer relationship management or product manufacturing. A cyber incident is an intentional attack or an unintentional event that can include gaining unauthorized access to information systems to disrupt operations, corrupt data, or steal confidential information. The occurrence of any failures, interruptions, or cyber incidents could cause a loss of customer business or reputation and have a material effect on our business, financial condition, results of operations and cash flows.
Product liability and other claims against us may reduce demand for our products or result in substantial damages.
Our business exposes us to potential liability for risks that may arise from the clinical testing of our unapproved or cleared new products, the clinical testing of expanded indications for existing products, the use of our products by physicians and the manufacture and sale of any approved products. An individual may bring a product liability claim against us, including frivolous lawsuits, if one of our products causes, or merely appears to have caused, an injury. We maintain product liability insurance for $25 million per occurrence with an annual aggregate maximum of $25 million. We cannot assure, however, that product liability claims will not exceed our insurance coverage limits or that such insurance coverage limits will continue to be available on acceptable terms, or at all. Our insurers may also claim that certain claims are not within the scope of our product liability insurance. A product liability claim, recall, or other claim regarding uninsured liabilities or for amounts over insured liabilities could have a material adverse effect on our business. Any product liability claim or series of claims or class actions brought against us, with or without merit, could result in:
liabilities that substantially exceed our insurance levels, which we would then be required to pay from other sources, if available;
an increase of our product liability insurance rates or the inability to renew or obtain product liability insurance coverage in the future on acceptable terms, or at all;
withdrawal of clinical trial volunteers or subjects;
damage to our reputation and the reputation of our products;


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regulatory investigations that could require costly recalls or product modifications;
litigation costs; and
diversion of management’s attention from managing our business.

Patients treated with our products often are seriously ill or have pacemaker or ICD leads embedded and surrounded by scar tissue within their chest. Patients treated with our products may suffer from severe infection, PAD, coronary artery disease, diabetes, high blood pressure, high cholesterol and other problematic conditions. During procedures or the clinical follow-up subsequent to procedures involving the use of our products, serious adverse events may occur and some patients may die. Serious adverse events or patient deaths involving the use of our products may subject us to product liability litigation, product recalls or other regulatory enforcement actions or limit our ability to grow our revenue, which could have a material adverse impact on our business.
Consumers, healthcare providers or others selling our products may make claims. We may be subject to claims against us even if an alleged injury is due to the actions of others. We rely on the expertise of physicians, nurses and other associated medical personnel to perform the medical procedures and related processes relating to our products. If these medical personnel are not properly trained or are negligent in using our products, the therapeutic effect of our products may be diminished or the patient may suffer injury or death, which may subject us to liability. An injury or death resulting from the activities of our suppliers may serve as a basis for a claim against us. We maintain policies and procedures and require training designed to educate our employees that off-label promotion is illegal. However, we cannot prevent a physician from using our products for any off-label applications. If injury to a patient results from such use, we may become involved in a product liability suit, which may be expensive to defend. Even if we do not become involved in a suit, quality or safety issues could cause reputational harm, warning letters, product recalls or seizures, monetary sanctions, injunctions to halt manufacture and distribution of devices, civil or criminal sanctions, or withdrawal of existing approvals or clearances.
Although there is federal preemption for medical devices approved by the FDA under a PMA application that in some situations provides a shield against state tort product liability claims, Supreme Court decisions or federal legislation could reverse the exemption. If this preemption is removed, product liability claims may increase. Federal preemption for medical devices cleared through the 510(k) process is limited, if it exists at all.
Environmental and health safety laws 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 the contamination of the environment or expose individuals to hazardous substances, we could be liable for damages and fines, and any liability could significantly exceed our insurance coverage and have a material adverse effect on our financial condition. We maintain insurance for certain environmental risks, subject to substantial deductibles; however, we cannot assure you we can continue to maintain this insurance in the future at an acceptable cost or at all. Future changes to environmental and health and safety laws could cause us to incur additional expenses or restrict our operations.
We depend on attracting, retaining and developing key management, clinical, scientific and sales and marketing personnel, and losing these personnel could impair the development and sales of our products.
Our success depends on our continued ability to attract, retain, develop and motivate highly qualified management, clinical, scientific and sales and marketing personnel. Except for our chief executive officer, we do not have employment agreements with our employees. Our employees are employed “at will,” and each employee can terminate his or her employment with us at any time. As a condition of employment, our employees sign a confidentiality and trade secrets agreement that precludes them, upon termination of their employment, from disclosing any proprietary information, recruiting our employees or working for a competitor. We also have


34


agreements with some of our officers that provide for the payment of either two years’ salary plus bonus or one year’s salary plus bonus if the officer’s employment ends in certain circumstances. The agreements also prohibit the officer from competing with us and soliciting our employees and customers if termination of employment occurs. The enforceability of these agreements depends on the circumstances at the time of separation, and the agreements may be difficult to enforce. We do not carry key person insurance covering members of senior management. The competition for qualified personnel in the medical device industry is intense. We will need to hire additional personnel as we continue to expand our development activities and drive sales of our products. We may not attract, retain and develop quality personnel on acceptable terms due to the competition for such personnel.
Consolidation in the healthcare industry could have an adverse effect on our revenue and results of operations.
Many healthcare industry companies, including healthcare systems, are consolidating to create new companies with greater market power. As the healthcare industry consolidates, competition to provide goods and services to industry participants will become more intense. These industry participants may try to use their market power to negotiate price concessions or reductions for medical devices that incorporate components produced by us. If we reduce our prices because of consolidation in the healthcare industry, our revenue would decrease and our consolidated earnings, financial condition, or cash flows would suffer.
A U.S. and global economic downturn could adversely affect our operating results, financial condition, or liquidity.
We are subject to risks arising from adverse changes in domestic and global economic conditions, including recession or economic slowdown and disruption of credit markets. Over the past several years, the global credit and capital markets have experienced extreme volatility and disruption. The strength of the United States and global economy is uncertain, and the United States may experience slowed growth or another recession. Turbulence in the financial markets and general economic uncertainties may make it more difficult and more expensive for hospitals and health systems to obtain credit, which would contribute to pressures on our operating margin, resulting from rising supply costs, reduced investment income and philanthropic giving, increased interest expense, reimbursement pressure, reduced elective healthcare spending and uncompensated care. In such circumstances, we expect many of our customers would continue to scrutinize costs, trim budgets and look for opportunities to further reduce or slow capital spending.
The potential decline in federal and state revenues that may result from such conditions may create additional pressures to contain or reduce reimbursements for our products from Medicare, Medicaid and other government-sponsored programs. Increasing job losses or slow improvement in the unemployment rate in the U.S. has and may continue to result in a smaller percentage of patients being covered by an employer group health plan and a larger percentage being covered by lower paying Medicare, Medicaid and health plans offered through PPACA exchanges.
Further, a strengthening of the United States dollar or other economic event may adversely affect the results of our international operations when those results are translated into United States dollars. Disruptions in the credit markets could impede our access to capital, which could further adversely affect us if we cannot maintain our current credit ratings. If we cannot obtain financing, we may need to defer capital expenditures or seek other sources of liquidity, which may not be available to us on acceptable terms, if at all. All of these factors related to the global economic situation, which are beyond our control, could negatively affect our business, results of operations, financial condition and liquidity.


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Risks Related to Our Debt
We may not have the cash necessary to satisfy our cash obligations under our outstanding 2.625% Convertible Senior Notes due 2034, our term loan facility or our revolving loan facility, and our future debt may contain limitations on our ability to satisfy our cash obligations under the notes, the term loan facility or the revolving loan facility.
We incurred $230 million in aggregate principal amount of senior indebtedness in June 2014 when we issued our 2.625% Convertible Senior Notes due 2034, or the Notes. The Notes bear cash interest payable semiannually at a rate of 2.625% per year and are convertible at any time, initially at a price of approximately $31.35 per share. The conversion price is subject to adjustment upon the occurrence of certain events including a fundamental change as defined in the indenture agreement. The Notes mature on June 1, 2034, unless earlier converted, redeemed by us, or repurchased in accordance with terms of the Notes. On each of June 5, 2021, June 5, 2024 and June 5, 2029 and upon a fundamental change, the holders may require us to repurchase some or all of their Notes for cash at a repurchase price equal to 100% of the principal amount of the Notes being repurchased, plus accrued and unpaid interest, if any, to, but excluding, the relevant repurchase date. We may not have sufficient funds to satisfy such cash obligations and, in such circumstances, may not be able to arrange the necessary financing to satisfy such cash obligations on favorable terms or at all. In addition, our ability to satisfy such cash obligations may be limited by applicable law or the terms of other instruments governing our indebtedness, including debt that we may incur in the future that is secured or senior in right of payment to the Notes. Our failure to pay such cash obligations would constitute an event of default under the indenture governing the Notes, which in turn could constitute an event of default under any of our outstanding indebtedness, thereby resulting in the acceleration of such indebtedness (including the Notes) and required prepayment and further restrict our ability to satisfy such cash obligations.
On December 7, 2015, we entered into a term credit and security agreement and a revolving credit and security agreement. The term credit and security agreement provides for a five-year $60 million term loan facility and the revolving credit and security agreement provides for a five-year $50 million revolving loan facility. Our obligations under these agreements are secured by a lien on substantially all of our assets. Interest-only payments are due during the first 24 months of the term loan facility, with principal payments beginning thereafter in equal monthly installments until maturity, provided that we may postpone making principal payments for an additional 12 months if certain conditions are met and the lenders and its agent agree to such extension. We may not have sufficient funds to satisfy such cash obligations and, in such circumstances, may not be able to arrange the necessary financing to satisfy such cash obligations on favorable terms or at all. In addition, our ability to satisfy such cash obligations may be limited by applicable law or the terms of other instruments governing our indebtedness, including debt that we may incur in the future that is senior in right of payment to the term loan facility or revolving loan facility. Our failure to pay such cash obligations would constitute an event of default under the term credit and security agreement and the revolving credit and security agreement, which in turn could constitute an event of default under any of our outstanding indebtedness (including the Notes), thereby resulting in the acceleration of such indebtedness and required prepayment and further restricting our ability to satisfy such cash obligations.
Our ability to make scheduled payments of the principal of, to pay interest on or to refinance our indebtedness, including the Notes, the term loan facility and the revolving loan facility, depends on our future performance, which is subject to prevailing economic, financial, competitive and other factors beyond our control. Our business may not continue to generate cash flow from operations in the future sufficient to service our debt and make necessary capital expenditures. If we are unable to generate such cash flow, we may be required to adopt one or more alternatives, such as selling assets, restructuring debt or obtaining additional equity capital on terms that may be onerous or highly dilutive. Our ability to refinance our indebtedness will depend on the capital markets and our financial condition at such time. We may not be able to engage in any of these activities or engage in these activities on desirable terms, which could result in a default on our debt obligations.


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Our term loan facility and revolving loan facility contain financial covenants that require us to maintain certain financial metrics and restrictive covenants that limit our flexibility. A breach of those covenants may cause us to be in default under the facilities and our other indebtedness, and our lenders could foreclose on our assets.
The term credit and security agreement and revolving credit and security agreement require us to maintain minimum cash and cash equivalents of not less than $10 million and achieve net revenues in excess of certain specified thresholds. A failure to increase our revenue levels or an inability to control costs or capital expenditures could negatively impact our ability to meet these financial covenants. If we breach such covenants or any of the restrictive covenants described below, the lenders could either refuse to lend funds to us under the revolving loan facility or accelerate the repayment of any outstanding borrowings under the term loan facility and revolving loan facility. We may not have sufficient assets to repay such indebtedness upon a default. If we are unable to repay the indebtedness, the lenders could initiate a bankruptcy proceeding or collection proceedings with respect to our assets.
The term credit and security agreement and revolving credit and security agreement also contain certain restrictive covenants that limit and in some circumstances prohibit, our ability to, among other things, incur additional debt, sell, lease or transfer our assets, pay dividends on our common stock, make capital expenditures and investments, guarantee debt or obligations, create liens, repurchase our common stock, enter into transactions with our affiliates and enter into certain merger, consolidation or other reorganization transactions. These restrictions could limit our ability to obtain future financing, make acquisitions or needed capital expenditures, withstand downturns in our business or the economy in general, conduct operations or otherwise take advantage of business opportunities that may arise, any of which could place us at a competitive disadvantage relative to our competitors.
Our debt could adversely affect our financial health and prevent us from fulfilling our debt service and other obligations.
As of December 31, 2015, our total consolidated indebtedness was approximately $314.2 million, including $230.0 million principal amount of Notes, a $60.0 million term loan facility and $24.2 million outstanding under our revolving loan facility. Our debt could have important consequences to you. For example, it could:
due to financial and other covenants contained in the agreements, make it more difficult for us to satisfy our financial obligations under our debt and our contractual and commercial commitments and increase the risk that we may default on our debt obligations;
require us to use a substantial portion of our cash flow from operations to pay interest and principal on our debt, which would reduce the funds available for working capital, capital expenditures and other general corporate purposes;
limit our ability to obtain additional financing for working capital, capital expenditures, acquisitions and other investments, or general corporate purposes, which may limit the ability to execute our business strategy;
heighten our vulnerability to downturns in our business, our industry or in the general economy and restrict us from exploiting business opportunities or making acquisitions;
place us at a competitive disadvantage compared to those of our competitors that may have less debt;
limit management’s discretion in operating our business;
limit our flexibility in planning for, or reacting to, changes in our business, the industry in which we operate or the general economy; and
result in higher interest expense if interest rates increase and we have outstanding floating rate borrowings.

We may incur substantial additional debt in the future. If new debt or other liabilities are added to our current debt levels, the related risks that we now face could intensify.


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Risks Related to Our Common Stock
Our stock price may continue to be volatile.
The market price of our common stock, similar to other medical device companies, has been, and is likely to continue to be, highly volatile. The trading price of our stock varied from a low of $10.78 to a high of $36.44 in 2015. The following factors may significantly affect the market price of our common stock:
actual or anticipated fluctuations in our operating results and the operating results of competitors;
announcements of technological innovations, new products or acquisitions by us or our competitors;
results of clinical trials or studies by us or our competitors;
governmental regulation;
developments regarding patents or proprietary rights, including assertions our patents are invalid or our products infringe the intellectual property rights of others;
public concern regarding the safety of products developed by us or others;
the initiation or cessation in coverage of our common stock, or changes in estimates or recommendations concerning us or our common stock, by securities analysts;
changes in accounting principles;
past or future management changes;
litigation;
adverse developments in any government inquiry or investigation;
changes in market and economic conditions;
the possibility of our financing future operations through additional issuances of equity securities, which may cause dilution to existing stockholders; and
any of the other events described in these “Risk Factors.”

In the past, following periods of volatility in the market price of a company’s securities, securities class action litigation has often been brought against that company. Following the decrease in our stock price in July 2015, we became the target of securities litigation. Due to the potential volatility of our stock price, we may be the target of securities litigation in the future. Securities litigation could cost substantial amounts and divert management’s attention and resources from our business and could require us to make substantial payments to settle those proceedings or satisfy any judgments that may be reached against us.
If securities or industry analysts issue an adverse or misleading opinion regarding our stock or do not publish research or reports about our business, our stock price could decline.
The trading market for our common stock depends in part on the research and reports that securities or industry analysts publish about our business and us. We do not control these analysts or the content and opinions included in their reports. The price of our common stock could decline if one or more analysts downgrade our common stock or if those analysts issue other unfavorable commentary or cease publishing reports about our business or us. If one or more analysts cease coverage of our company or fail to regularly publish reports about our company, we could lose visibility in the financial market, which could cause our stock price to decline. Further, securities or industry analysts may elect not to provide research coverage of our common stock and such lack of research coverage may adversely affect the market price of our common stock.
We have never paid cash dividends on our capital stock, and we do not anticipate paying any dividends in the foreseeable future.
We have never paid cash dividends on our capital stock and intend to retain our future earnings to fund the development and growth of our business. Capital appreciation of our common stock will be the sole source of gain on our common stock for the foreseeable future.


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The issuance of additional shares of our common stock in connection with acquisitions, conversion of the Notes or otherwise will dilute all other stockholdings and could affect the market price of our common stock.
As of December 31, 2015, we had 63.7 million shares of our common stock authorized but unissued and not reserved for issuance under our option and compensation plans or under other convertible or derivative instruments. We may issue all of these shares without any action or approval by our stockholders. We may pursue acquisitions of other companies and may issue shares of our common stock in connection with these acquisitions. Any shares of our common stock issued in connection with equity or convertible debt offerings, acquisitions, the conversion of the Notes, the exercise of stock options or restricted stock units, or otherwise may involve substantial dilution to our existing stockholders.
Protections against unsolicited takeovers in our charter and bylaws may reduce or eliminate our stockholders’ ability to resell their shares at a premium over market price.
Our charter and bylaws contain provisions relating to issuance of preferred stock, special meetings of stockholders and advance notification procedures for stockholder proposals that could have the effect of discouraging, delaying or preventing an unsolicited change in the control of our company. Our stockholders elect our board of directors for staggered three-year terms, which prevents stockholders from electing all directors at each annual meeting and may have the effect of discouraging, delaying or preventing a change in control.
We are subject to Section 203 of the Delaware General Corporation law, or Section 203, which in general and subject to exceptions, prohibits a publicly held Delaware corporation from engaging in a “business combination” (as defined in Section 203) with an “interested stockholder” (as defined in Section 203) for a period of three years after the transaction in which the person became an interested stockholder, unless certain conditions are met. Section 203 may discourage, delay, or prevent an acquisition of our company even at a price our stockholders may find attractive.

ITEM 1B.    Unresolved Staff Comments
        
None.



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ITEM 2.    Properties
        
The majority of our domestic operations are located in an 80,000 square foot building in Colorado Springs, Colorado. The facility has approximately 17,000 square feet of manufacturing space that contains our manufacturing operations for all products except for the AngioSculpt and Stellarex products, which are manufactured in Fremont, California. We also occupy 20,000 square feet adjacent to the headquarters for administrative functions. The term of both leases in Colorado Springs is through September 2023. In addition, we lease a 6,500 square foot office in Broomfield, Colorado, which lease expires in December 2017.
       
In addition to the leased facilities described above, we continue to occupy a building that we own in Colorado Springs, Colorado. This facility, which we purchased in 2005, contains approximately 24,000 square feet of usable space, and is used for storage and business continuity contingency planning.

In June 2014, with the acquisition of AngioScore, we acquired a leased facility in Fremont, California, which is comprised of approximately 42,000 square feet, housing manufacturing, research and development, and administrative functions. The lease expires in May 2016. We have vacated approximately 20,000 square feet of the leased space and established a new lease for the remaining approximately 22,000 square feet; the new lease expires in May 2021.

In January 2015, with the acquisition of the Stellarex DCB platform, we acquired a second leased facility in Fremont, California, which contains approximately 23,000 square foot of manufacturing space. The lease expires in May 2018.

In March 2015, we acquired a leased facility in Maple Grove, Minnesota, which is comprised of approximately 36,000 square feet, for research and development and administrative functions. The lease expires in August 2025.

Spectranetics International B.V. leases 3,337 square feet in Leusden, The Netherlands. The facility houses our operations for the marketing and distribution of products in Europe and the Middle East, and the lease expires December 31, 2016. Spectranetics Deutschland GmbH leases an office in Germany under a lease that expires in August 2018. With the acquisition of the Stellarex DCB platform, we established a sales and clinical office in Paris, France where Spectranetics International B.V. leases approximately 1,900 square feet with a lease expiration date of June 2024.

We believe these current and planned facilities are adequate to meet our requirements for the foreseeable future.


ITEM 3.    Legal Proceedings
        
For a discussion of our legal proceedings, please refer to Note 14, “Commitments and Contingencies,” to our consolidated financial statements in Part IV, Item 15, “Exhibits and Financial Statement Schedules.”


ITEM 4.    Mine Safety Disclosures

Not applicable.


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PART II

ITEM 5.    Market for the Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
        
Our common stock is traded on the NASDAQ Global Select Market under the symbol “SPNC.” The table below sets forth the high and low sales prices for our common stock as reported on the NASDAQ Global Select Market for each calendar quarter in 2015 and 2014.
 
High
 
Low
Year Ended December 31, 2014
 
 
 
1st Quarter
$
31.94

 
$
23.84

2nd Quarter
30.84

 
20.07

3rd Quarter
29.55

 
22.09

4th Quarter
35.56

 
24.88

Year Ended December 31, 2015
 
 
 
1st Quarter
$
36.44

 
$
31.77

2nd Quarter
35.13

 
23.01

3rd Quarter
25.67

 
11.55

4th Quarter
15.77

 
10.78

Number of Record Holders; Dividends
The closing sales price of our common stock on February 22, 2016 was $12.84. On February 22, 2016, we had 396 stockholders of record. This number was derived from our stockholder records and does not include beneficial owners of our common stock whose shares are held in the names of various dealers, clearing agencies, banks, brokers, nominees and other fiduciaries.
We have not paid cash dividends on our common stock in the past and do not expect to do so in the foreseeable future. The payment of dividends in the future will be at the discretion of the Board of Directors and will depend on our financial condition, results of operations, capital requirements and such other factors as the Board of Directors deems relevant. Our term loan facility and revolving loan facility limit our ability to pay cash dividends without the lenders’ prior approval.
Recent Sales of Unregistered Equity Securities
During 2015, we did not issue or sell any shares of our common stock or other equity securities of our company without registration under the Securities Act of 1933, as amended.
Issuer Purchases of Equity Securities
We repurchased none of our equity securities during the quarter ended December 31, 2015.
Securities Issuable Under Equity Compensation Plans
For a discussion of the securities authorized under our equity compensation plans, see Item 12, “Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters,” which incorporates by reference the information to be disclosed in our definitive proxy statement for our 2016 Annual Meeting of Stockholders.


41


ITEM 6.    Selected Financial Data
        
The following selected consolidated financial data, as of and for each year in the five-year period ended December 31, 2015, is derived from our consolidated financial statements. The information set forth below should be read in conjunction with Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” and the consolidated financial statements and notes thereto in Part IV, Item 15 of this annual report.
 
Year Ended December 31,
 
2015
 
2014
 
2013
 
2012
 
2011
 
(in thousands, except per share data)
Statement of Operations Data:
 
 
 
 
 
 
 
 
 
Revenue
$
245,956

 
$
204,914

 
$
158,811

 
$
140,285

 
$
127,287

Cost of products sold
63,134

 
53,459

 
41,356

 
37,927

 
35,723

Selling, general and administrative
143,355

 
128,129

 
91,750

 
82,254

 
70,502

Research, development and other technology
64,436

 
28,675

 
22,080

 
16,846

 
17,729

Medical device excise tax (1)
3,465

 
2,834

 
2,138

 

 

Acquisition transaction, integration and legal costs (2)
29,472

 
17,288

 

 
311

 

Intangible asset amortization (2)
13,275

 
6,335

 
901

 

 

Contingent consideration expense (2)
2,671

 
2,070

 
867

 

 

Change in fair value of contingent consideration liability (2)
(25,819
)
 
(1,064
)
 
(5,165
)
 

 

Intangible asset impairment (2)
2,496

 
4,138

 
4,490

 

 

Federal investigation legal and accrued indemnification costs (3)

 

 

 
 
 
(370
)
Settlement costs—license agreement dispute (4)

 

 

 

 
1,821

Litigation charges related to Cardiomedica S.p.A.

 

 

 

 
596

Operating (loss) income
(50,529
)
 
(36,950
)
 
394

 
2,947

 
1,286

Interest (expense) income, net (5)
(7,850
)
 
(4,062
)
 
3

 
8

 
(149
)
Foreign currency transaction (loss) gain
(369
)
 
(211
)
 
13

 
5

 
(12
)
(Loss) income before income taxes
(58,748
)
 
(41,223
)
 
410

 
2,960

 
1,125

Income tax expense (benefit) (6)
726

 
(322
)
 
780

 
734

 
231

Net (loss) income
$
(59,474
)
 
$
(40,901
)
 
$
(370
)
 
$
2,226

 
$
894

Net (loss) income per share, basic
$
(1.40
)
 
$
(0.98
)
 
$
(0.01
)
 
$
0.06

 
$
0.03

Net (loss) income per share, diluted
$
(1.40
)
 
$
(0.98
)
 
$
(0.01
)
 
$
0.06

 
$
0.03

Weighted average common shares outstanding:
 
 
 
 
 
 
 
 
 
Basic
42,430

 
41,679

 
38,941

 
34,377

 
33,458

Diluted
42,430

 
41,679

 
38,941

 
35,767

 
34,370



42


 
As of December 31,
 
2015
 
2014
 
2013
 
2012
 
2011
 
(In thousands)
Balance Sheet Data:
 
 
 
 
 
 
 
 
 
Working capital (7)
$
94,600

 
$
128,791

 
$
144,160

 
$
49,321

 
$
40,764

Cash and cash equivalents (7)
84,594

 
95,505

 
128,395

 
37,775

 
39,638

Property and equipment, net
44,719

 
33,819

 
28,281

 
27,006

 
27,249

Total assets (2) (7)
467,999

 
457,838

 
216,712

 
110,456

 
108,426

Long-term obligations (5)
287,351

 
254,338

 
3,487

 
1,566

 
956

Stockholders’ equity
116,969

 
162,157

 
190,000

 
88,697

 
79,510

________________________

(1)
On January 1, 2013, we began paying a medical device excise tax that the PPACA imposes on medical device manufacturers on their sales in the U.S. of certain devices.

(2)
In January 2013, we acquired certain products from Upstream Peripheral Technologies Ltd. (“Upstream”). In June 2014, we acquired AngioScore. In January 2015, we acquired Stellarex. See further discussion of these expenses in Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and in Note 2, “Business Combinations,” to our consolidated financial statements in Part IV, Item 15 of this annual report.

(3)
In the fourth quarter of 2011, we recorded a $0.4 million reduction in our accrual for indemnification costs to reflect a change in our estimate of the range of our contingent liability for indemnification obligations we had to three former employees related to a federal investigation.

(4)
In the fourth quarter of 2011, we recorded $1.8 million related to the termination of a license agreement with Medtronic, Inc.

(5)
In June 2014, we completed the sale of $230 million aggregate principal amount of Notes due in 2034. In December 2015, we entered into a five-year term loan facility. Interest expense in 2015 and 2014, including amortization of debt issuance costs, was primarily related to the Notes. See further discussion of these Notes in Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” and in Note 12, “Debt,” to our consolidated financial statements in Part IV, Item 15 of this annual report.

(6)
Income tax benefit for the year ended December 31, 2014 included a tax benefit of $1.3 million resulting from a reduction in the valuation allowance against our deferred tax assets related to the acquisition of AngioScore. See further discussion of this tax benefit in Note 13, “Income Taxes,” to our consolidated financial statements in Part IV, Item 15 of this annual report.

(7)
In May 2013, we completed an offering of 5,462,500 shares of our common stock at a public offering price of $18.00 per share minus the underwriters’ discount of $1.08 per share. We received net proceeds of approximately $92.0 million, after deducting underwriting discounts and commissions and offering expenses (approximately $0.4 million).


43


ITEM 7.    Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion should be read in conjunction with our consolidated financial statements and the related notes contained elsewhere in this annual report on Form 10-K and in our other SEC filings. The following discussion may contain forward-looking statements that constitute our expectations or forecasts of future events as of the date this report was filed with the SEC and are not statements of historical fact. You are cautioned not to place undue reliance on these forward-looking statements and to note that they speak only as of the date hereof. Factors that could cause actual results to differ materially from those in the forward-looking statements are included in the risk factors listed from time to time in our filings with the SEC and in Item 1A, “Risk Factors.” See the introduction to Part I of this annual report.

Corporate Overview
        
We develop, manufacture, market and distribute single-use medical devices used in minimally invasive procedures within the cardiovascular system. Our products are used to cross, prepare, and treat arterial blockages in the legs and heart and to remove pacemaker and defibrillator cardiac leads. We believe that the diversified nature of our business allows us to respond to a wide range of physician and patient needs. The innovative products and services we offer are divided into three categories:
Vascular Intervention (“VI”): Our broad portfolio of VI devices consists of laser and aspiration catheters, AngioSculpt® scoring balloon catheters, which are the specialty balloon market leader, support catheters, and the Stellarex™ drug-coated balloon (“DCB”) catheters.
Lead Management (“LM”): We are a global leader in devices for the removal of pacemaker and defibrillator cardiac leads. Our primary LM devices consist of our excimer laser sheaths, non-laser mechanical sheaths and cardiac lead management accessories for the removal of pacemaker and defibrillator cardiac leads.
Laser, service, and other: Our proprietary excimer laser system, the CVX-300®, is the only laser system approved in the United States, Europe, Japan and Canada for use in multiple minimally invasive cardiovascular procedures. We sell, rent and service our CVX-300 laser systems.

For an overview of our business, products, market opportunities, and clinical trials, please see Part I, Item I, “Business,” to this annual report on Form 10-K.

Recent Developments

Acquisition of Stellarex
On January 27, 2015, we acquired certain assets and liabilities related to Covidien LP’s Stellarex™ (“Stellarex”) over the wire percutaneous transluminal angioplasty balloon catheter with a paclitaxel coated balloon (“DCB Assets”). The DCB Assets include, among other things, the intellectual property, machinery and equipment, and inventories of finished products and raw materials used in connection with the Stellarex catheter. Under the terms of the Stellarex purchase agreement, we paid Covidien $30 million in cash and Covidien will retain certain liabilities relating to milestone payments that may become due in connection with our development of the DCB Assets.
On January 27, 2015, we and Covidien also entered into a Product Supply Agreement under which Covidien is supplying certain angioplasty balloon catheter products to us, subject to the terms and conditions set forth in the Product Supply Agreement. The Product Supply Agreement has an initial two-year term with an option to renew the agreement for an additional year under certain circumstances. In addition, we and Covidien entered into a Transition Services Agreement, pursuant to which Covidien is providing certain transition services to us for up to 24 months, subject to extension under certain circumstances.


44


The Stellarex DCB received CE mark to be marketed in the European Union in December 2014, and we launched the product in Europe in late January 2015. The Stellarex DCB is not approved in the United States, where it is currently limited to investigational use.

510(k) Clearance for Bridge Product
In February 2016, we received 510(k) regulatory clearance for our Bridge™ Occlusion Balloon product. The Bridge product is a balloon designed to dramatically reduce blood loss in the event of a tear in the superior vena cava during a lead extraction procedure. The device is designed to give the physician adequate time to safely transition the patient for surgical repair and to give the surgeon the benefit of a clear field of view to repair the tear. Although a superior vena cava tear is a rare occurrence, we believe that this product is an important innovation in an effort to accomplish our goal of eliminating mortality as a risk during lead extraction procedures.




45


Year Ended December 31, 2015 Compared with Year Ended December 31, 2014

Selected Consolidated Statements of Operations Data
        
The following tables present a summary of Consolidated Statements of Operations data for the years ended December 31, 2015 and December 31, 2014 based on the percentage of revenue for each line item, and the dollar and percentage change of each of the items. For a detailed discussion of each item, please see the explanations below.
 
For the Year Ended December 31,
(in thousands, except for percentages)
2015
 
% of
revenue (1)
 
2014
 
% of
revenue (1)
 
$
Change
 
% Change
Revenue
$
245,956

 
100
 %
 
$
204,914

 
100
 %
 
$
41,042

 
20
 %
Gross profit (2)
182,822

 
74
 %
 
151,455

 
74
 %
 
31,367

 
21
 %
Operating expenses
 
 
 

 
 
 
 

 
 
 
 

Selling, general and administrative
143,355

 
58
 %
 
128,129

 
63
 %
 
15,226

 
12
 %
Research, development and other technology
64,436

 
26
 %
 
28,675

 
14
 %
 
35,761

 
125
 %
Medical device excise tax
3,465

 
1
 %
 
2,834

 
1
 %
 
631

 
22
 %
Acquisition transaction, integration and legal costs
29,472

 
12
 %
 
17,288

 
8
 %
 
12,184

 
70
 %
Intangible asset amortization
13,275

 
5
 %
 
6,335

 
3
 %
 
6,940

 
110
 %
Contingent consideration expense
2,671

 
1
 %
 
2,070

 
1
 %
 
601

 
29
 %
Change in fair value of contingent consideration liability
(25,819
)
 
(10
)%
 
(1,064
)
 
(1
)%
 
(24,755
)
 
nm

Intangible asset impairment
2,496

 
1
 %
 
4,138

 
2
 %
 
(1,642
)
 
(40
)%
Total operating expenses
233,351

 
95
 %
 
188,405

 
92
 %
 
44,946

 
24
 %
Operating loss
(50,529
)
 
(21
)%
 
(36,950
)
 
(18
)%
 
(13,579
)
 
37
 %
Other expense
 
 
 
 
 
 
 
 
 
 
 
Interest expense
(7,850
)
 
(3
)%
 
(4,062
)
 
(2
)%
 
(3,788
)
 
93
 %
Foreign currency transaction loss
(369
)
 
 %
 
(211
)
 
 %
 
(158
)
 
75
 %
Loss before income taxes
(58,748
)
 
(24
)%
 
(41,223
)
 
(20
)%
 
(17,525
)
 
43
 %
Income tax expense (benefit)
726

 
 %
 
(322
)
 
 %
 
1,048

 
(325
)%
Net loss
$
(59,474
)
 
(24
)%
 
$
(40,901
)
 
(20
)%
 
$
(18,573
)
 
45
 %
 
 
 
 
 
 
 
 
 
 
 
 
Worldwide installed base of laser systems
1,392

 
 
 
1,271

 
 
 
121

 
 

(1)
Percentage amounts may not add due to rounding.
(2)
Includes the impact of $0.3 million and $2.1 million of amortization of acquired inventory step-up in 2015 and 2014, respectively.
nm = not meaningful.


46


Revenue and gross margin

In the following discussion, we disclose all growth rates on an “as reported” basis, and we specify the growth rate on a “constant currency” basis only when it differs from the “as reported” growth rate. See the “Non-GAAP Financial Measures” section below for a discussion of our use of the constant currency financial measure. The following is a summary of revenue by product line for the years ended December 31, 2015 and December 31, 2014:
 
For the Year Ended December 31,
(in thousands, except for percentages)
2015
 
% of revenue (1)
 
2014
 
% of revenue (1)
 
$
change
 
% change
Revenue:
 
 
 
 
 
 
 
 
 
 
 
Disposable products:
 
 
 
 
 
 
 
 
 
 
 
Vascular Intervention, ex-AngioSculpt
$
103,655

 
42
%
 
$
88,522

 
43
%
 
$
15,133

 
17
 %
AngioSculpt
56,825

 
23
%
 
29,626

 
14
%
 
27,199

 
92
 %
Total Vascular Intervention
160,480

 
65
%
 
118,148

 
58
%
 
42,332

 
36
 %
Lead Management
69,899

 
28
%
 
66,662

 
33
%
 
3,237

 
5
 %
Total disposable products
230,379

 
94
%
 
184,810

 
90
%
 
45,569

 
25
 %
Laser, service, and other
15,577

 
6
%
 
20,104

 
10
%
 
(4,527
)
 
(23)
 %
Total revenue
$
245,956

 
100
%
 
$
204,914

 
100
%
 
$
41,042

 
20
 %
Total revenue ex-AngioSculpt
$
189,131

 
77
%
 
$
175,288

 
86
%
 
$
13,843

 
8
 %

(1)
Percentage amounts may not add due to rounding.
 
Revenue increased $41.0 million, or 20% (22% on a constant currency basis), from $204.9 million for the year ended December 31, 2014 to $246.0 million for the year ended December 31, 2015. The increase was primarily due to an increase in VI disposables revenue, including the impact of a full year of AngioSculpt revenue in 2015, as compared with six months of AngioSculpt revenue in the prior year. Excluding revenue from AngioSculpt products, revenue increased 8% (10% on a constant currency basis). During 2015, approximately 52% of our disposable product revenue was from products used with our laser system, a decrease from 58% during the year ended December 31, 2014. The percentage decrease primarily related to the sales of the newly acquired AngioSculpt products.
   
VI revenue, which includes revenue from products used in the peripheral and coronary vascular systems, increased $42.3 million, or 36% (38% on a constant currency basis), from $118.1 million for the year ended December 31, 2014 to $160.5 million for the year ended December 31, 2015, primarily due to an increase in revenue from AngioSculpt products of $27.2 million, since 2014 revenue only included six months of AngioScore revenue. During 2015, AngioScore revenue was negatively impacted by market dynamics, including the launch of drug-coated balloons by competitors, and our sales force optimization efforts following the acquisition of AngioScore. Excluding revenue from AngioSculpt products, VI revenue increased 17% (18% on a constant currency basis). The increase in VI revenue excluding AngioSculpt was driven primarily by unit volume increases in peripheral atherectomy products in both hospitals and office-based physician clinics and, to a lesser extent, unit volume increases in our coronary atherectomy products. In the U.S., we have placed additional focus on our coronary business following the acquisition of AngioScore, which increased our portfolio of coronary products. In addition, a significant increase in outpatient hospital reimbursement for coronary interventions became effective January 1, 2015.

LM revenue, which includes revenue from excimer laser sheaths, mechanical sheaths, and cardiac lead management accessories for the removal of pacemaker and defibrillator cardiac leads, increased $3.2 million, or 5%


47


(8% on a constant currency basis) from $66.7 million for the year ended December 31, 2014 to $69.9 million for the year ended December 31, 2015. The growth was primarily due to global market penetration of our mechanical tools, which were launched in the third quarter of 2014.

Laser, service, and other revenue decreased $4.5 million, or 23% (20% on a constant currency basis), from $20.1 million for the year ended December 31, 2014 to $15.6 million for the year ended December 31, 2015, primarily due to lower sales of laser systems internationally.

We placed 190 laser systems with new customers during the year ended December 31, 2015 compared with 180 during the year ended December 31, 2014.  Of these laser placements, 121 lasers were newly manufactured during 2015, and 69 lasers were redeployed from a previous institution. The new placements during the year ended December 31, 2015 brought our worldwide installed base of laser systems to 1,392 (999 in the U.S.) as of December 31, 2015, compared to 1,271 (913 in the U.S.) as of December 31, 2014
        
Geographically, revenue in the U.S. increased $39.3 million, or 23%, from $167.4 million for the year ended December 31, 2014 to $206.7 million for the year ended December 31, 2015, primarily due to an increase in VI revenue, and, to a lesser extent, an increase in LM revenue, partially offset by a small decline in laser, service, and other revenue.  International revenue increased $1.8 million, or 5% (17% on a constant currency basis), from $37.5 million for the year ended December 31, 2014 to $39.3 million for the year ended December 31, 2015. The increase in international revenue was primarily due to an increase in VI and LM disposables revenue for the year ended December 31, 2015 compared with the year ended December 31, 2014. These increases were partially offset by a decrease in laser revenue internationally, notably in Japan, where we are transitioning to a volume-based laser placement model.

Gross margin was 74% for the year ended December 31, 2015, with no significant change as compared with the year ended December 31, 2014. Increased production efficiencies and a higher sales mix of disposable products were factors that improved margins during 2015. These improvements were offset by unfavorable impacts of currency and the impact of establishing manufacturing operations for the Stellarex DCB product, which is early in its launch cycle with lower volumes and a short shelf life.



48


Operating expenses

   Total operating expenses increased $44.9 million, or 24%, from $188.4 million for the year ended December 31, 2014 to $233.4 million for the year ended December 31, 2015. The following table shows the changes in operating expenses for the years ended December 31, 2015 and December 31, 2014:
 
For the Year Ended December 31,
(in thousands, except for percentages)
2015
 
% of revenue (1)
 
2014
 
% of revenue (1)
 
$
change
 
% change
Operating Expenses:
 
 
 
 
 
 
 
 
 
 
 
Selling, general and administrative
$
143,355

 
58
 %
 
$
128,129

 
63
 %
 
$
15,226

 
12
 %
Research, development and other technology
64,436

 
26
 %
 
28,675

 
14
 %
 
35,761

 
125
 %
Medical device excise tax
3,465

 
1
 %
 
2,834

 
1
 %
 
631

 
22
 %
Acquisition transaction, integration and legal costs
29,472

 
12
 %
 
17,288

 
8
 %
 
12,184

 
70
 %
Intangible asset amortization
13,275

 
5
 %
 
6,335

 
3
 %
 
6,940

 
110
 %
Contingent consideration expense
2,671

 
1
 %
 
2,070

 
1
 %
 
601

 
29
 %
Change in fair value of contingent consideration liability
(25,819
)
 
(10
)%
 
(1,064
)
 
(1
)%
 
(24,755
)
 
2,327
 %
Intangible asset impairment
2,496

 
1
 %
 
4,138

 
2
 %
 
(1,642
)
 
(40)
 %
Total operating expenses
$
233,351

 
95
 %
 
$
188,405

 
92
 %
 
$
44,946

 
24
 %
(1)Percentage amounts may not add due to rounding.
  
Selling, general and administrative.  Selling, general and administrative (“SG&A”) expenses increased $15.2 million, or 12%, from $128.1 million for the year ended December 31, 2014 to $143.4 million for the year ended December 31, 2015, primarily due to the expansion of our sales teams related to the AngioScore acquisition and the expansion of our sales team in Europe in early 2015 to support the launch and sales of the Stellarex DCB products. In addition, general and administrative personnel expenses increased in 2015 due to our organizational growth.
 
Research, development and other technology. Research, development and other technology expenses increased $35.8 million, or 125%, from $28.7 million for the year ended December 31, 2014 to $64.4 million for the year ended December 31, 2015. Costs associated with the Stellarex DCB research, development and clinical studies totaled $30.5 million, or 85% of the increase, for the year ended December 31, 2015. Costs included within research, development and other technology expenses are product development costs, clinical studies costs and royalty costs associated with various license agreements with third-party licensors.

Medical device excise tax. The Patient Protection and Affordable Care Act of 2010 imposes a medical device excise tax on medical device manufacturers on their sales in the U.S. of certain devices, which was effective January 1, 2013. The excise tax is 2.3% of the taxable base and applies to a substantial majority of our U.S. sales. We incurred $3.5 million of medical device excise tax expense for the year ended December 31, 2015 compared with $2.8 million for the year ended December 31, 2014. The increase in the medical device excise tax was due to increased U.S. revenue for the year ended December 31, 2015. In December 2015, legislation was enacted that suspends the medical device excise tax for 2016 and 2017.

Acquisition transaction, integration and legal costs. We incurred $29.5 million of costs related to the AngioScore and Stellarex acquisitions for the year ended December 31, 2015. Of this amount, $19.9 million comprised legal fees associated with the breach of fiduciary duty and patent infringement matter in which


49


AngioScore is the plaintiff, including amounts advanced for attorneys’ fees and costs. This matter is further described in Note 14, “Commitments and Contingencies,” to the consolidated financial statements included in Part IV, Item 15 of this annual report. Stellarex acquisition costs of $8.0 million primarily consisted of non-recurring costs associated with establishing in-house and third-party manufacturing operations related to Stellarex products and investment banking fees. We also incurred $1.6 million of severance, retention and consulting costs for the ongoing integration of AngioScore, which is substantially complete.

In the year ended December 31, 2014, we incurred $17.3 million of costs related to acquisitions. Of this amount, $15.8 million related to the AngioScore acquisition, and consisted primarily of investment banking, accounting, consulting, and legal fees, as well as severance, retention, and other integration costs. These costs also included legal fees associated with a patent-related matter in which AngioScore is the plaintiff. We incurred $1.5 million of expenses related to the Stellarex product acquisition that closed in 2015, consisting primarily of legal fees.

Intangible asset amortization. As part of our recent acquisitions, we acquired certain intangible assets, which are being amortized over periods from two to 12 years. We recorded $13.3 million of amortization expense related to these intangible assets for the year ended December 31, 2015, compared with $6.3 million for the year ended December 31, 2014. The increase was due to a full-year of amortization of the AngioScore intangible assets (as compared to six months amortization post-acquisition in 2014), as well as amortization related to the intangible assets acquired as part of the Stellarex acquisition. See Note 2, “Business Combinations,” and Note 5, “Goodwill and Other Intangible Assets,” of the consolidated financial statements in Part IV, Item 15 of this annual report for further discussion of these acquisitions and related accounting matters.

Contingent consideration expense. For the years ended December 31, 2015 and December 31, 2014, we recorded $2.7 million and $2.1 million of contingent consideration expense, respectively, related to our contingent consideration liabilities from the AngioScore and Upstream acquisitions, due to the passage of time (i.e., accretion). The year-over-year increase was primarily due to a full year of contingent consideration expense during 2015. See Note 2, “Business Combinations,” of the consolidated financial statements in Part IV, Item 15 of this annual report for further discussion.

Change in fair value of contingent consideration liability. During the year ended December 31, 2015, we remeasured the contingent consideration liability related to the AngioScore acquisition to its fair value and reduced it by approximately $25.8 million. Of this amount, $21.5 million related to a decrease in our future revenue estimates for the acquired AngioSculpt products. The remaining $4.3 million was the result of an analysis we performed during the third quarter of 2015 related to the costs and efforts remaining to complete the Drug-Coated AngioSculpt (“DCAS”) projects, which are subject to contingent regulatory milestone payments. This analysis resulted in a determination that it was unlikely we would meet the regulatory milestones for two of the three DCAS projects within the time frames required and with the expenditure of funds set forth in the AngioScore acquisition agreement. See Note 2, “Business Combinations,” of the consolidated financial statements in Part IV, Item 15 of this annual report for further discussion.

During the year ended December 31, 2014, as a result of our assessment of reduced estimated revenue related to the acquired Upstream products, we remeasured the contingent consideration liability related to the Upstream acquisition to its fair value and reduced the liability by $1.1 million.

Intangible asset impairment. For the year ended December 31, 2015, concurrent with the analysis of the contingent consideration liability discussed above, we recorded an intangible asset impairment of $2.5 million to record a partial impairment of the in-process research and development intangible assets acquired as part of the AngioScore acquisition. During the year ended December 31, 2014, we recorded an intangible asset impairment of $4.1 million related to the intangible assets acquired from Upstream based on their estimated fair value using revised cash flow assumptions related to those assets.


50


Other expense

Total other expense increased $3.9 million, or 92%, from $4.3 million for the year ended December 31, 2014 to $8.2 million for the year ended December 31, 2015. The following table shows the changes in other expense for the years ended December 31, 2015 and December 31, 2014:
 
For the Year Ended December 31,
(in thousands, except for percentages)
2015
 
% of revenue (1)
 
2014
 
% of revenue (1)
 
$
change
 
% change
Other expense:
 
 
 
 
 
 
 
 
 
 
 
Interest expense, net
$
(7,850
)
 
(3
)%
 
$
(4,062
)
 
(2
)%
 
$
(3,788
)
 
93
%
Foreign currency transaction loss
(369
)
 
 %
 
(211
)
 
 %
 
(158
)
 
75
%
Total other expense
$
(8,219
)
 
(3
)%
 
$
(4,273
)
 
(2
)%
 
$
(3,946
)
 
92
%
(1)
Percentage amounts may not add due to rounding.

The increase in other expense was primarily due to an increase in interest expense of $3.8 million for the year ended December 31, 2015, compared with the year ended December 31, 2014, which was primarily related to a full year of interest expense on the Notes (as compared to approximately seven months post-issuance in 2014), including amortization of debt issuance costs. In addition, other expense was impacted by an increase in foreign currency transaction loss of $0.2 million for the year ended December 31, 2015, which resulted from the intercompany transactions with our Dutch subsidiary, whose functional currency is the euro, due to a weakening of the euro during the year ended December 31, 2015.

Income tax (benefit) expense
        
We recorded income tax expense of $0.7 million for the year ended December 31, 2015, consisting of current foreign and state income tax expense and deferred federal and state income tax expense. Our income tax benefit of $0.3 million for the year ended December 31, 2014, consisted of a tax benefit of approximately $1.3 million that was partially offset by current foreign and state income tax expense and deferred federal income tax expense. The $1.3 million tax benefit resulted from a partial release of the valuation allowance against our deferred tax assets related to the AngioScore acquisition.

Our ability to realize the benefit of our deferred tax assets in future periods will depend on the generation of future taxable income and tax planning strategies. Due to our history of losses and our planned near-term investments in our growth, we have recorded a valuation allowance against substantially all of our deferred tax assets that are in excess of our deferred tax liabilities. We do not expect to further reduce the valuation allowance against our deferred tax assets until we have a sufficient historical trend of taxable income and can predict future taxable income with a higher degree of certainty.

See Note 13, “Income Taxes,” to our consolidated financial statements in Part IV, Item 15 of this annual report for further discussion of our accounting for income taxes.

Net loss
        
Net loss increased $18.6 million, from $40.9 million for the year ended December 31, 2014 to $59.5 million for the year ended December 31, 2015. The increase in net loss was primarily due to an increase in operating loss of $13.6 million, due primarily to increased research and development expenses from the Stellarex acquisition, and an increase of $3.9 million in other expense, described further above.


51


Year Ended December 31, 2014 Compared with Year Ended December 31, 2013

Selected Consolidated Statements of Operations Data
        
The following tables present a summary of Consolidated Statements of Operations data for the years ended December 31, 2014 and December 31, 2013 based on the percentage of revenue for each line item, and the dollar and percentage change of each of the items. For a detailed discussion of each item, please see explanations below.
 
For the Year Ended December 31,
(in thousands, except for percentages)
2014
 
% of
revenue (1)
 
2013
 
% of
revenue (1)
 
$
Change
 
% Change
Revenue
$
204,914

 
100
 %
 
$
158,811

 
100
 %
 
$
46,103

 
29
 %
Gross profit (2)
151,455

 
74
 %
 
117,455

 
74
 %
 
34,000

 
29
 %
Operating expenses
 
 
 

 
 
 
 

 
 
 
 

Selling, general and administrative
128,129

 
63
 %
 
91,750

 
58
 %
 
36,379

 
40
 %
Research, development and other technology
28,675

 
14
 %
 
22,080

 
14
 %
 
6,595

 
30
 %
Medical device excise tax
2,834

 
1
 %
 
2,138

 
1
 %
 
696

 
33
 %
Acquisition transaction, integration and legal costs
17,288

 
8
 %
 

 
 %
 
17,288

 
nm

Intangible asset amortization
6,335

 
3
 %
 
901

 
1
 %
 
5,434

 
603
 %
Contingent consideration expense
2,070

 
1
 %
 
867

 
1
 %
 
1,203

 
139
 %
Change in fair value of contingent consideration liability
(1,064
)
 
(1
)%
 
(5,165
)
 
(3
)%
 
4,101

 
nm

Intangible asset impairment
4,138

 
2
 %
 
4,490

 
3
 %
 
(352
)
 
nm

Total operating expenses
188,405

 
92
 %
 
117,061

 
74
 %
 
71,344

 
61
 %
Operating (loss) income
(36,950
)
 
(18
)%
 
394

 
 %
 
(37,344
)
 
nm

Other (expense) income
 
 
 
 
 
 
 
 
 
 
 
Interest (expense) income, net
(4,062
)
 
(2
)%
 
3

 
 %
 
(4,065
)
 
nm

Foreign currency transaction (loss) gain
(211
)
 
 %
 
13

 
 %
 
(224
)
 
nm

(Loss) income before income taxes
(41,223
)
 
(20
)%
 
410

 
 %
 
(41,633
)
 
nm

Income tax (benefit) expense
(322
)
 
 %
 
780

 
 %
 
(1,102
)
 
(141
)%
Net loss
$
(40,901
)
 
(20)
 %
 
$
(370
)
 
 %
 
$
(40,531
)
 
nm


(1)
Percentage amounts may not add due to rounding.
(2)
Includes the impact of $2.1 million of amortization of acquired inventory step-up in 2014.
nm = not meaningful.



52


Revenue and gross margin

The following is a summary of revenue by category for the years ended December 31, 2014 and December 31, 2013:
 
For the Year Ended December 31,
(in thousands, except for percentages)
2014
 
% of revenue (1)
 
2013
 
% of revenue (1)
 
$
change
 
% change
Revenue:
 
 
 
 
 
 
 
 
 
 
 
Disposable products:
 
 
 
 
 
 
 
 
 
 
 
Vascular Intervention, ex-AngioSculpt
$
88,522

 
43
%
 
$
75,601

 
48
%
 
$
12,921

 
17
 %
AngioSculpt
29,626

 
14
%
 

 
%
 
29,626

 
100
 %
Total Vascular Intervention
118,148

 
58
%
 
75,601

 
48
%
 
42,547

 
56
 %
Lead Management
66,662

 
33
%
 
62,518

 
39
%
 
4,144

 
7
 %
Total disposable products
184,810

 
90
%
 
138,119

 
87
%
 
46,691

 
34
 %
Laser, service, and other
20,104

 
10
%
 
20,692

 
13
%
 
(588
)
 
(3)
 %
Total revenue
$
204,914

 
100
%
 
$
158,811

 
100
%
 
$
46,103

 
29
 %
Total revenue ex-AngioSculpt
$
175,288

 
86
%
 
$
158,811

 
100
%
 
$
16,477

 
10
 %

(1)
Percentage amounts may not add due to rounding.
    
Revenue increased $46.1 million, or 29%, from $158.8 million for the year ended December 31, 2013 to $204.9 million for the year ended December 31, 2014. The increase was due to increased disposables revenue, partially offset by a small decrease in laser, service, and other revenue. Excluding revenue from AngioSculpt products, revenue increased 10%.

VI revenue increased $42.5 million, or 56%, from $75.6 million for the year ended December 31, 2013 to $118.1 million for the year ended December 31, 2014, due in part to revenue of $29.6 million from AngioSculpt scoring balloons during the July-December 2014 period. VI revenue represented 64% of our disposables product revenue for the year ended December 31, 2014.

LM revenue increased $4.1 million, or 7% (6% on a constant currency basis), from $62.5 million for the year ended December 31, 2013 to $66.7 million for the year ended December 31, 2014. The growth was primarily due to increased units sold, including our TightRail™ and SightRail™ mechanical lead extraction products.

Laser, service, and other revenue decreased $0.6 million, or 3%, from $20.7 million for the year ended December 31, 2013 to $20.1 million for the year ended December 31, 2014, due primarily to a decrease in rental revenue.

We placed 180 laser systems with new customers during the year ended December 31, 2014 compared with 170 during the year ended December 31, 2013.  Of these laser placements, 127 lasers were newly manufactured during 2014, and 53 lasers were redeployed from a previous institution. The new placements during the year ended December 31, 2014 brought our worldwide installed base of laser systems to 1,271 (913 in the U.S.) as of December 31, 2014, compared to 1,144 (837 in the U.S.) as of December 31, 2013. 
        
Geographically, revenue in the U.S. was $167.4 million for the year ended December 31, 2014, an increase of 29% from $130.1 million for the year ended December 31, 2013, primarily due to an increase in VI revenue, including revenue from the AngioSculpt scoring balloons.  International revenue was $37.5 million, an increase of 31% from $28.7 million for the year ended December 31, 2013, or 30% on a constant currency basis.  The increase


53


in international revenue was primarily due to an increase in VI revenue in Japan and Europe and to a lesser extent, laser equipment revenue in Europe for the year ended December 31, 2014 as compared with the year ended December 31, 2013.
     
Gross margin percentage was 73.9% for the year ended December 31, 2014 and 74.0% for the year ended December 31, 2013. Excluding the amortization of the acquired inventory step-up adjustment of $2.1 million, gross margin percentage was 74.9% for the year ended December 31, 2014 (see the “Non-GAAP Financial Measures” section below for a reconciliation of non-GAAP gross margin percentage). The additional gross margin (excluding the step-up adjustment) was generated by higher production volumes and manufacturing efficiencies, in addition to favorable product mix, with a higher percentage of higher margin disposables revenue for the year ended December 31, 2014 as compared with the year ended December 31, 2013. These increases in gross margin were partially offset by the addition of the AngioScore products revenue, which carries a slightly lower gross margin percentage than our other disposable products, as well as slightly lower gross margin percentage on laser sales and rental revenue.

Operating expenses

Total operating expenses increased $71.3 million, or 61%, from $117.1 million for the year ended December 31, 2013 to $188.4 million for the year ended December 31, 2014. The following table shows the changes in operating expenses for the years ended December 31, 2014 and December 31, 2013:
 
For the Year Ended December 31,
(in thousands, except for percentages)
2014
 
% of revenue (1)
 
2013
 
% of revenue (1)
 
$
change
 
% change
Operating Expenses:
 
 
 
 
 
 
 
 
 
 
 
Selling, general and administrative
$
128,129

 
63
 %
 
$
91,750

 
58
 %
 
$
36,379

 
40
 %
Research, development and other technology
28,675

 
14
 %
 
22,080

 
14
 %
 
6,595

 
30
 %
Medical device excise tax
2,834

 
1
 %
 
2,138

 
1
 %
 
696

 
33
 %
Acquisition transaction, integration and legal costs
17,288

 
8
 %
 

 
 %
 
17,288

 
nm

Intangible asset amortization
6,335

 
3
 %
 
901

 
1
 %
 
5,434

 
603
 %
Contingent consideration expense
2,070

 
1
 %
 
867

 
1
 %
 
1,203

 
139
 %
Change in fair value of contingent consideration liability
(1,064
)
 
(1
)%
 
(5,165
)
 
(3
)%
 
4,101

 
(79)
 %
Intangible asset impairment
4,138

 
2
 %
 
4,490

 
3
 %
 
(352
)
 
(8)
 %
Total operating expenses
$
188,405

 
92
 %
 
$
117,061

 
74
 %
 
$
71,344

 
61
 %

(1)
Percentage amounts may not add due to rounding.
       
Selling, general and administrative.  SG&A expenses increased $36.4 million, or 40%, from $91.8 million for the year ended December 31, 2013 to $128.1 million for the year ended December 31, 2014.  SG&A expenses as a percentage of revenue decreased from 70% in the first quarter of 2014 to 58% in the fourth quarter of 2014. This reflected ongoing progress with the AngioScore integration and improving sales productivity in both VI and LM.

Within SG&A, sales and marketing expenses increased $26.3 million, or 38%, compared with the year ended December 31, 2013, primarily due to the AngioScore acquisition and the expansion of our field sales teams in early 2014, both in the U.S. and Europe. During 2014, we nearly doubled our sales and marketing team through


54


planned expansion and the acquisition of AngioScore. Higher commissions and bonuses based on higher revenue also contributed to the increase.

Also within SG&A, general and administrative expenses increased $10.1 million, or 45%, compared with the year ended December 31, 2013 from increased personnel expenses, primarily due to the AngioScore acquisition, an increase in stock-based compensation expense due to our organizational growth and a new performance-based equity plan, an increase in performance-based incentive compensation expense, and an increase in the provision for bad debt expense, professional fees, and insurance expense.

Research, development and other technology. Costs included within research, development and other technology expenses are product development costs, clinical studies costs and royalty costs associated with various license agreements with third-party licensors. Research, development and other technology expenses increased $6.6 million, or 30%, from $22.1 million for the year ended December 31, 2013 to $28.7 million for the year ended December 31, 2014. The increase was primarily due to an increase in product development costs of approximately $5.7 million compared with the year ended December 31, 2013 due to increased new product development personnel, an increase in project spending primarily related to the AngioScore DCAS project, and an increase in regulatory costs, associated primarily with filing and related fees as we prepared to enter new international markets.

Acquisition transaction, integration and legal costs. We incurred $17.3 million of costs related to acquisitions for the year ended December 31, 2014. Of this amount, $15.8 million related to the AngioScore acquisition, and consisted primarily of investment banking, accounting, consulting, and legal fees, as well as severance, retention, and other integration costs. These costs also included legal fees associated with a patent-related matter in which AngioScore is the plaintiff. We incurred $1.5 million of expenses related to the Stellarex product acquisition that closed in 2015, consisting primarily of legal fees.

Medical device excise tax. We incurred $2.8 million of medical device excise tax expense for the year ended December 31, 2014 compared with $2.1 million for the year ended December 31, 2013. The increase in the medical device excise tax was due to increased revenue for the year ended December 31, 2014.

Intangible asset amortization. As part of the AngioScore acquisition in June 2014, and the product acquisition from Upstream in January 2013, we acquired certain intangible assets, which are being amortized over periods from two to 10 years. We recorded $6.3 million of amortization expense related to the intangible assets acquired as part of the acquisitions for the year ended December 31, 2014 compared with $0.9 million for the year ended December 31, 2013. The increase was due to the intangible assets acquired as part of the AngioScore acquisition. See Note 2, “Business Combinations,” and Note 5, “Goodwill and Other Intangible Assets,” of the consolidated financial statements in Part IV, Item 15 of this annual report for further discussion of these acquisitions and related accounting matters.

Contingent consideration expense. For the years ended December 31, 2014 and December 31, 2013, we recorded $2.1 million and $0.9 million of contingent consideration expense, respectively, related to the increase in that liability due to the passage of time (i.e., accretion). The increase was due to the contingent consideration liability incurred as part of the AngioScore acquisition. See Note 2, “Business Combinations,” of the consolidated financial statements in Part IV, Item 15 of this annual report for further discussion.

Intangible asset impairment. For the year ended December 31, 2014, we recorded an impairment charge of $4.1 million related to the intangible assets acquired from Upstream based on their estimated fair value using revised cash flow assumptions related to those assets. This reduction in estimated fair value was the result of market factors associated with the access and overall retrograde interventional market and other relevant factors. In the fourth quarter of 2013, as a result of a similar assessment, we recorded an impairment charge of approximately $4.5 million related to those assets.



55


Change in fair value of contingent consideration liability. As a result of our assessment of the Upstream intangible assets, we remeasured the contingent consideration liability to its fair value and reduced the liability by $1.1 million during 2014. The intangible asset impairment charge of $4.1 million and the change in the contingent consideration liability of $1.1 million resulted in a net increase in the net loss of approximately $3.1 million for the year ended December 31, 2014.

In the fourth quarter of 2013, as a result of a similar assessment, we remeasured the contingent consideration liability to its fair value and reduced it by approximately $5.2 million. The impairment of the intangibles assets and the adjustment to the contingent consideration liability resulted in a net decrease in the net loss of $0.7 million for the year ended December 31, 2013.

Other income (expense)

Total other income (expense) decreased $4.3 million from other income of $16,000 for the year ended December 31, 2013 to other expense of $4.3 million for the year ended December 31, 2014. The following table shows the changes in other income (expense) for the years ended December 31, 2014 and December 31, 2013:
 
For the Year Ended December 31,
(in thousands, except for percentages)
2014
 
% of revenue (1)
 
2013
 
% of revenue (1)
 
$
change
 
% change
Other (expense) income:
 
 
 
 
 
 
 
 
 
 
 
Interest (expense) income, net
$
(4,062
)
 
(2
)%
 
$
3

 
%
 
$
(4,065
)
 
nm
Foreign currency transaction (loss) gain
(211
)
 
 %
 
13

 
%
 
(224
)
 
nm
Total other (expense) income
$
(4,273
)
 
(2
)%
 
$
16

 
%
 
$
(4,289
)
 
nm

(1)
Percentage amounts may not add due to rounding.

The increase in other expense was primarily due to an increase in interest expense of $4.1 million for the year ended December 31, 2014, compared with the year ended December 31, 2013, which was primarily related to the Notes, including amortization of debt issuance costs. In addition, other expense was impacted by an increase in foreign currency transaction loss of $0.2 million for the year ended December 31, 2014, which resulted from intercompany transactions with our Dutch subsidiary, whose functional currency is the euro, and sales to customers in euros, due to a weakening of the euro during the year ended December 31, 2014.

Net loss
        
As a result of the items discussed above, we recorded a net loss for the year ended December 31, 2014 of $40.9 million, or $0.98 per share, compared with a net loss of $0.4 million, or $0.01 per share, for the year ended December 31, 2013. The increase in net loss was primarily due to an increase in operating loss of $37.3 million, due primarily to the AngioScore acquisition, integration and legal expenses, an increase of $4.3 million in other expense, described further above, partially offset by a decrease in income tax expense of $1.1 million, described further in Note 13, “Income Taxes,” to our consolidated financial statements in Part IV, Item 15 of this annual report.
        




56


Liquidity and Capital Resources
        
As of December 31, 2015, we had cash and cash equivalents of $84.6 million, representing a decrease of $10.9 million from $95.5 million at December 31, 2014.

Our future liquidity requirements will be influenced by numerous factors. We believe that our cash and cash equivalents, anticipated funds from operations, and other sources of liquidity, which may include additional borrowings under the revolving loan facility or other credit or financing arrangements, will be sufficient to meet our liquidity requirements for at least the next 12 months based on our expected level of operations.

We may need or seek additional funding in the future. In addition to access to available borrowings under our revolving loan facility, we have an effective shelf registration statement on file with the SEC under which we may issue, from time to time, up to $200 million of senior debt securities, subordinated debt securities, common stock, preferred stock and other securities. Our ability to issue debt securities is limited by certain covenants in the term credit and security agreement and the revolving credit and security agreement. A financing transaction may not be available on terms acceptable to us, or at all, and a financing transaction may be dilutive to our current stockholders.

We have generated and used cash as follows:
 
For the Year Ended December 31,
(in thousands)
2015
 
2014
Net cash used in operating activities
$
(59,459
)
 
$
(20,449
)
Net cash used in investing activities
(39,538
)
 
(240,700
)
Net cash provided by financing activities
88,239

 
228,243


Operating Activities. For the year ended December 31, 2015, cash used in operating activities was $59.5 million. This compared with cash used in operating activities of $20.4 million for the year ended December 31, 2014. The primary sources and uses of cash in 2015 were:

(1)
Our net loss of $59.5 million included approximately $18.5 million of net non-cash expenses. Non-cash expenses primarily included $26.6 million of depreciation and amortization, $10.1 million of stock-based compensation, $2.7 million of contingent consideration expense and a $2.5 million intangible asset impairment, partially offset by a $25.8 million change in fair value of the contingent consideration liability.

(2)
Cash used as a result of a net increase in operating assets and liabilities of approximately $18.5 million was primarily due to an increase in equipment held for rental or loan of $12.1 million as a result of placement activity of our laser systems through our rental and evaluation programs, in addition to a decrease in accounts payable and accrued liabilities of $6.2 million, primarily as a result of a reduction in accrued legal costs in 2015.

Investing Activities. For the year ended December 31, 2015, cash used in investing activities was $39.5 million, consisting of the payment for the Stellarex acquisition of $30.0 million and capital expenditures of $9.5 million. This compared with cash used in investing activities of $240.7 million in the year ended December 31, 2014, consisting of $234.0 million of payments for the AngioScore acquisition and $6.7 million of capital expenditures. The capital expenditures for the years ended December 31, 2015 and 2014 included manufacturing equipment upgrades and replacements, additional capital items for research and development projects, and additional computer equipment and software purchases, including capital items required for the Stellarex product line.


57


Financing Activities. Cash provided by financing activities for the year ended December 31, 2015 was $88.2 million, consisting primarily of $60.0 million in proceeds from the term loan, proceeds on the line of credit, net, of $24.2 million, and the exercise of stock options and sales of common stock under our employee stock purchase plan of $4.8 million. In the year ended December 31, 2015, we paid $0.4 million in contingent consideration payments related to the Upstream product acquisition. In the year ended December 31, 2014, cash provided by financing activities was $228.2 million, consisting primarily of net proceeds from the issuance of convertible debt of $230.0 million and the exercise of stock options and sales of common stock under our employee stock purchase plan of $5.7 million.

The table below presents the change in receivables and inventory, in relative terms, through the presentation of financial ratios. Days sales outstanding are calculated by dividing the ending accounts receivable balance, net of allowances for sales returns and doubtful accounts, by the average daily sales for the quarter. Our days sales outstanding of 60 days as of December 31, 2015 is higher than our standard 30 day terms due to the increase in sales to our office-based physician clinics, which is the fastest growing segment of the VI business. In some cases, we have granted extended terms, generally no more than 90 days, to these physician-owned facilities, which are longer than our typical 30 day terms. Additionally, we have increased sales to our distributor in Japan, which under our contract is granted 75 day terms. Inventory turns are calculated by dividing annualized cost of sales for the quarter by ending inventory.
 
December 31, 2015
 
December 31, 2014
Days Sales Outstanding
60
 
59
Inventory Turns
2.4
 
2.5
  

Future Investments and Contingent Consideration Related to Acquisitions

On January 27, 2015, we completed the acquisition of the Stellarex DCB Assets and made a cash payment of $30 million. In addition, as planned, the Stellarex acquisition will require substantial additional investments prior to full commercialization, primarily within research, development and clinical trials.

In connection with the AngioScore acquisition, we have agreed to pay additional contingent merger consideration as follows:

(a)
annual cash payments for net sales of AngioScore products occurring in calendar years 2015, 2016 and 2017 equal to a multiple of 2.0 times each year’s annual increase in net sales in excess of 10% over the highest preceding year net sales, provided that the year-over-year change in net sales is positive and that such payments in the aggregate will not exceed $50 million;

(b)
the following payments related to AngioScore’s Drug-Coated AngioSculpt product:

(i)
a cash payment of $5 million if the product receives European CE mark approval for use in the coronary arteries by December 31, 2016;

(ii)
a cash payment of $5 million if the product receives European CE mark approval for use in the peripheral arteries by December 31, 2016; and

(iii)
a cash payment of $15 million if the product receives U.S. investigational device exemption approval for use in the coronary or peripheral arteries by December 31, 2016.

Regarding (a) above, no contingent revenue-based payment was incurred in 2015, and we do not expect to make any contingent revenue-based payments in the future. Regarding (b), we expect to make the $5 million payment for the coronary CE mark approval in the first half of 2016. As of December 31, 2015, the contingent


58


consideration liability related to the AngioScore acquisition was approximately $4.8 million. See further discussion of these matters in Note 2, “Business Combinations”, to our consolidated financial statements in Part IV, Item 15 of this annual report.

Term Loan Facility and Revolving Loan Facility

On December 7, 2015, the Company and AngioScore Inc., as borrowers (jointly, the “Borrowers”) entered into a term credit and security agreement (the “Term Loan Credit Agreement”) and a revolving credit and security agreement (the “Revolving Loan Credit Agreement”, and together with the Term Loan Credit Agreement, the “Credit Agreements”) with MidCap Financial Trust and the other lenders party thereto.  The Credit Agreements replace the Credit and Security Agreement (the “Wells Fargo Credit Agreement”) entered into by the Company and Wells Fargo Bank, National Association on February 25, 2011. The Term Loan Credit Agreement provides for a five-year $60 million term loan facility (the “Term Loan Facility”) and the Revolving Loan Credit Agreement provides for a five-year $50 million revolving loan facility (the “Revolving Loan Facility”). The Revolving Loan Facility may be increased to up to $70 million, subject to approval. The obligations of the Borrowers under the Credit Agreements are secured by a lien on substantially all of the assets of the Borrowers. For more information, see Note 12, “Debt,” to our consolidated financial statements in Part IV, Item 15 of this annual report.

At closing, we received $60.0 million under the Term Loan Facility and drew $18.0 million under the Revolving Loan Facility for general working capital and corporate purposes, as well as for the repayment of approximately $3.0 million outstanding under the Wells Fargo Credit Agreement.

The Revolving Loan Facility had an outstanding balance of $24.2 million as of December 31, 2015. We may prepay and re-borrow amounts borrowed under the Revolving Loan Facility without penalty. The Term Loan Facility had an outstanding balance of $60.0 million as of December 31, 2015.

Convertible Senior Notes

In June 2014, we sold $230 million aggregate principal amount of Convertible Senior Notes due 2034 (the “Notes”). Net proceeds from the sale of the Notes were used for the AngioScore acquisition. The Notes bear interest at a rate of 2.625% per annum. We pay interest on the Notes on June 1 and December 1 of each year, beginning December 1, 2014. The Notes will mature on June 1, 2034 (maturity date), unless earlier repurchased, redeemed or converted.

Holders may convert their Notes into shares of our common stock at their option at any time prior to the close of business on the second scheduled trading day immediately preceding the maturity date.

The initial conversion rate is 31.9020 shares of our common stock per $1,000 principal amount of Notes (equivalent to an initial conversion price of approximately $31.35 per share of our common stock). The conversion price is subject to adjustment in some events, but will not be adjusted for accrued interest. In addition, if a fundamental change occurs or we deliver a redemption notice, in certain circumstances we will increase the conversion rate for a holder that elects to convert its Note in connection with such fundamental change or redemption notice, as the case may be.

Holders may require us to repurchase some or all of their Notes for cash on each of June 5, 2021, June 5, 2024 and June 5, 2029 and upon a fundamental change (as defined in the indenture governing the Notes) at a repurchase price equal to 100% of the principal amount of the Notes being repurchased, plus accrued and unpaid interest, if any, to, but excluding, the relevant repurchase date.