Risks Related to the Company’s Business and Industry
In order for the Company to compete and grow, it must attract, recruit, retain and develop the
necessary personnel who have the needed experience.
Recruiting and retaining highly qualified personnel is critical to our success. These demands may
require us to hire additional personnel and will require our existing management personnel to
develop additional expertise. We face intense competition for personnel. The failure to attract and
retain personnel or to develop such expertise could delay or halt the development and
commercialization of our product candidates. If we experience difficulties in hiring and retaining
personnel in key positions, we could suffer from delays in product development, loss of customers
and sales and diversion of management resources, which could adversely affect operating results.
Our consultants and advisors may be employed by third parties and may have commitments under
consulting or advisory contracts with third parties that may limit their availability to us.
The development and commercialization of our products is highly competitive.
We face competition with respect to any products that we may seek to develop or commercialize in the future. Our competitors include major companies worldwide. Many of our competitors have significantly greater financial, technical and human resources than we have and superior expertise in research and development and marketing approved products and thus may be better equipped than us to develop and commercialize products. These competitors also compete with us in recruiting and retaining qualified personnel and acquiring technologies. Smaller or early-stage companies may also prove to be significant competitors, particularly through collaborative arrangements with large and established companies. Accordingly, our competitors may commercialize products more rapidly or effectively than we are able to, which would adversely affect our competitive position, the likelihood that our [products/services] will achieve initial market acceptance and our ability to generate meaningful additional revenues from our products.
We rely on other companies to provide raw materials and major components for our products.
We depend on these suppliers and subcontractors to meet our contractual obligations to our customers and conduct our operations. Our ability to meet our obligations to our customers may be adversely affected if suppliers or subcontractors do not provide the agreed-upon supplies or perform the agreed-upon services in compliance with customer requirements and in a timely and cost-effective manner. Likewise, the quality of our products may be adversely impacted if companies to whom we delegate manufacture of major components or subsystems for our products, or from whom we acquire such items, do not provide raw materials and major components which meet required specifications and perform to our and our customers’ expectations. Our suppliers may be less likely than us to be able to quickly recover from natural disasters and other events beyond their control and may be subject to additional risks such as financial problems that limit their ability to conduct their operations. The risk of these adverse effects may be greater in circumstances where we rely on only one or two subcontractors or suppliers for a particular raw material or component.
We depend on third-party service providers and outsource providers for a variety of services and
we outsource a number of our non-core functions and operations.
In certain instances, we rely on single or limited-service providers and outsourcing vendors around
the world because the relationship is advantageous due to quality, price, or lack of alternative
sources. If production or service was interrupted and we were not able to find alternate third-party
providers, we could experience disruptions in manufacturing and operations including product
shortages, higher freight costs and re-engineering costs. If outsourcing services are interrupted or
not performed or the performance is poor, this could impact our ability to process, record and
report transactions with our customers and other constituents. Such interruptions in the provision
of supplies and/or services could result in our inability to meet customer demand, damage our
reputation and customer relationships and adversely affect our business.
We depend on third party providers, suppliers and licensors to supply some of the hardware,
software and operational support necessary to provide some of our services.
We obtain these materials from a limited number of vendors, some of which do not have a long
operating history, or which may not be able to continue to supply the equipment and services we
desire. Some of our hardware, software and operational support vendors represent our sole source
of supply or have, either through contract or as a result of intellectual property rights, a position of
some exclusivity. If demand exceeds these vendors’ capacity or if these vendors experience
operating or financial difficulties or are otherwise unable to provide the equipment or services we
need in a timely manner, at our specifications and at reasonable prices, our ability to provide some
services might be materially adversely affected, or the need to procure or develop alternative
sources of the affected materials or services might delay our ability to serve our customers. These
events could materially and adversely affect our ability to retain and attract customers, and have a
material negative impact on our operations, business, financial results and financial condition.
Security breaches and other disruptions could compromise our information and expose us to
liability, which would cause our business and reputation to suffer.
We store sensitive data, including certain investor information, intellectual property, our
proprietary business information and that of our suppliers and business partners, and personally
identifiable information of our employees, in our data centers and on our networks. The secure
maintenance of this information is critical to our operations and business strategy. Despite our security measures, our information technology and infrastructure may be vulnerable to attacks by
hackers or breached due to employee error, malfeasance or other disruptions. Any such breach
could compromise our networks and the information stored there could be accessed, publicly
disclosed, lost or stolen. Any such access, disclosure or other loss of information could result in
legal claims or proceedings. We devote significant resources to protecting our information.
An intentional or unintentional disruption, failure, misappropriation or corruption of our
network and information systems could severely affect our business.
Such an event might be caused by computer hacking, computer viruses, worms and other
destructive or disruptive software, "cyber attacks" and other malicious activity, as well as natural
disasters, power outages, terrorist attacks and similar events. Such events could have an adverse
impact on us and our customers, including degradation of service, service disruption, excessive
call volume to call centers and damage to our plant, equipment and data. In addition, our future
results could be adversely affected due to the theft, destruction, loss, misappropriation or release
of confidential customer data or intellectual property. Operational or business delays may result
from the disruption of network or information systems and the subsequent remediation activities.
Moreover, these events may create negative publicity resulting in reputation or brand damage with
customers.
The Company’s success depends on the experience and skill of the board of directors, its
executive officers and key employees.
In particular, the Company is dependent on James Woody (Executive Chairman), Marc Feldmann
(Scientific Co-founder), and H. Michael Shepard (Co-founder, President, and Chief Scientific
Officer). The Company has entered into employment agreements with James Woody and H.
Michael Shepard, although there can be no assurance that they will continue to be employed by
the Company for a particular period of time. The loss of James Woody, Marc Feldman, or H.
Michael Shepard could harm the Company’s business, financial condition, cash flow and results
of operations.
The amount of capital the Company is attempting to raise in this Offering is not enough to
sustain the Company to profitablilty.
In order to achieve the Company’s near and long-term goals, the Company will need to procure
funds in addition to the amount raised in the Offering. There is no guarantee the Company will be
able to raise such funds on acceptable terms or at all. If we are not able to raise sufficient capital
in the future, we will not be able to execute our business plan, our continued operations will be in
jeopardy and we may be forced to cease operations and sell or otherwise transfer all or substantially
all of our remaining assets, which could cause an Investor to lose all or a portion of his or her
investment.
We are subject to income taxes as well as non-income based taxes, such as payroll, sales, use,
value-added, net worth, property and goods and services taxes.
Significant judgment is required in determining our provision for income taxes and other tax
liabilities. In the ordinary course of our business, there are many transactions and calculations
where the ultimate tax determination is uncertain. Although we believe that our tax estimates are
reasonable: (i) there is no assurance that the final determination of tax audits or tax disputes will
not be different from what is reflected in our income tax provisions, expense amounts for non-income based taxes and accruals and (ii) any material differences could have an adverse effect on
our financial position and results of operations in the period or periods for which determination is
made.
We are not subject to Sarbanes-Oxley regulations and lack the financial controls and safeguards
required of public companies.
We do not have the internal infrastructure necessary, and are not required, to complete an
attestation about our financial controls that would be required under Section 404 of the Sarbanes-
Oxley Act of 2002. There can be no assurance that there are no significant deficiencies or material
weaknesses in the quality of our financial controls. We expect to incur additional expenses and
diversion of management’s time if and when it becomes necessary to perform the system and
process evaluation, testing and remediation required in order to comply with the management
certification and auditor attestation requirements.
Changes in employment laws or regulation could harm our performance.
Various federal and state labor laws govern our relationship with our employees and affect operating costs. These laws include minimum wage requirements, overtime pay, healthcare reform and the implementation of the Patient Protection and Affordable Care Act, unemployment tax rates, workers’ compensation rates, citizenship requirements, union membership and sales taxes. A number of factors could adversely affect our operating results, including additional government- imposed increases in minimum wages, overtime pay, paid leaves of absence and mandated health benefits, mandated training for employees, increased tax reporting and tax payment, changing regulations from the National Labor Relations Board, and increased employee litigation including claims relating to the Fair Labor Standards Act.
The Company’s business operations may be materially adversely affected by a pandemic such
as the Coronavirus (COVID-19) outbreak.
In December 2019, a novel strain of coronavirus was reported to have surfaced in Wuhan, China,
which spread throughout other parts of the world, including the United States. On January 30,
2020, the World Health Organization declared the outbreak of the coronavirus disease (COVID-
19) a “Public Health Emergency of International Concern.” On January 31, 2020, U.S. Health and
Human Services Secretary Alex M. Azar II declared a public health emergency for the United
States to aid the U.S. healthcare community in responding to COVID-19, and on March 11, 2020
the World Health Organization characterized the outbreak as a “pandemic.” COVID-19 resulted in
a widespread health crisis that adversely affected the economies and financial markets worldwide.
The Company’s business could be materially and adversely affected. The extent to which COVID-
19 impacts the Company’s business will depend on future developments, which are highly
uncertain and cannot be predicted, including new information which may emerge concerning the
severity of COVID-19 and the actions to contain COVID-19 or treat its impact, among others. If
the disruptions posed by COVID-19 or other matters of global concern continue for an extended
period of time, the Company’s operations may be materially adversely affected.
We face risks related to health epidemics and other outbreaks, which could significantly disrupt
the Company’s operations and could have a material adverse impact on us.
The outbreak of pandemics and epidemics could materially and adversely affect the Company’s
business, financial condition, and results of operations. If a pandemic occurs in areas in which we have material operations or sales, the Company’s business activities originating from affected
areas, including sales, materials, and supply chain related activities, could be adversely affected.
Disruptive activities could include the temporary closure of facilities used in the Company’s supply
chain processes, restrictions on the export or shipment of products necessary to run the Company’s
business, business closures in impacted areas, and restrictions on the Company’s employees’ or
consultants’ ability to travel and to meet with customers, vendors or other business relationships.
The extent to which a pandemic or other health outbreak impacts the Company’s results will
depend on future developments, which are highly uncertain and cannot be predicted, including
new information which may emerge concerning the severity of a virus and the actions to contain
it or treat its impact, among others. Pandemics can also result in social, economic, and labor
instability which may adversely impact the Company’s business.
If the Company’s employees or employees of any of the Company’s vendors, suppliers or customers become ill or are quarantined and in either or both events are therefore unable to work, the Company’s operations could be subject to disruption. The extent to which a pandemic affects the Company’s results will depend on future developments that are highly uncertain and cannot be predicted.
We face risks relating to public health conditions such as the COVID-19 pandemic, which could
adversely affect the Company’s customers, business, and results of operations.
Our business and prospects could be materially adversely affected by the COVID-19 pandemic or
recurrences of that or any other disease in the future. Material adverse effects from COVID-19 and
other causes could result in numerous known and currently unknown ways including from
quarantines and lockdowns which impair the Company’s business. If the Company purchases
materials from suppliers in affected areas, the Company may not be able to procure such products
in a timely manner. The effects of a pandemic can place travel restrictions on key personnel which
could have a material impact on the business. In addition, a significant outbreak of contagious
diseases in the human population could result in a widespread health crisis that could adversely
affect the economies and financial markets of many countries, resulting in an economic downturn
that could reduce the demand for the Company’s products and impair the Company’s business
prospects including as a result of being unable to raise additional capital on acceptable terms to us,
if at all.
Changes in raw material and manufacturing input prices could adversely affect our business
and results of operations.
Raw material costs and energy are a significant operating expense. The cost of raw materials and
energy can be volatile and are susceptible to rapid and substantial increases due to factors beyond
our control, such as changing economic conditions, political unrest, instability in energy-producing
nations, and supply and demand considerations. Price increases and general volatility could
adversely affect our business and results of operations.
Failure to develop new products and production technologies or to implement productivity and
cost reduction initiatives successfully may harm our competitive position.
We depend significantly on the development of commercially viable new products, product grades
and applications, as well as process technologies, free of any legal restrictions. If we are
unsuccessful in developing new products, applications and production processes in the future, our competitive position and results of operations may be negatively affected. However, as we invest
in new technology, we face the risk of unanticipated operational or commercialization difficulties,
including an inability to obtain necessary permits or governmental approvals, the development of
competing technologies, failure of facilities or processes to operate in accordance with
specifications or expectations, construction delays, cost over-runs, the unavailability of financing,
required materials or equipment and various other factors. Likewise, we have undertaken and are
continuing to undertake initiatives to improve productivity and performance and to generate cost
savings. These initiatives may not be completed or beneficial or the estimated cost savings from
such activities may not be realized.
Product liability claims could adversely impact our business and reputation.
Our business exposes us to potential product liability risk, as well as warranty and recall claims that are inherent in the design, manufacture, sale and use of our products. We sell products in industries such as pharmaceuticals where the impact of product liability risk is high. In the event our products actually or allegedly fail to perform as expected and we are subject to such claims above the amount of insurance coverage, outside the scope of our coverage, or for which we do not have coverage, our results of operations, as well as our reputation, could be adversely affected. Our products may be subject to recall for performance or safety-related issues. Product recalls subject us to harm to our reputation, loss of current and future customers, reduced revenue and product recall costs. Product recall costs are incurred when we, either voluntarily or involuntarily, recall a product through a formal campaign to solicit the return of specific products due to a known or suspected performance issue. Any significant product recalls could have an adverse effect on our business and results of operations.
Successful development of our products is uncertain.
The product candidates that we expect to develop are based on processes and methodologies that are not currently widely employed. Our development of current and future product candidates is subject to the risks of failure and delay inherent in the development of new products and products based on new technologies, including:
* delays in product development, clinical testing, or manufacturing;
* unplanned expenditures in product development, clinical testing, or manufacturing;
* failure to receive regulatory approvals;
* inability to manufacture on our own, or through any others, product candidates on a commercial scale;
* failure to achieve market acceptance; and
* emergence of superior or equivalent products.
Because of these risks, our research and development efforts may not result in any commercially viable products. If a significant portion of these development efforts are not successfully completed, required regulatory approvals are not obtained, or any approved products are not commercially successfully, our business, financial condition, and results of operations may be materially harmed.
Certain provisions of the Health Care Reform Law could affect us adversely.
The Patient Protection and Affordable Care Act as amended by the Health Care and Education Reconciliation Act (the Healthcare Reform Law), each enacted in March 2010, generally known as the Health Care Reform Law, significantly expand health insurance coverage to uninsured Americans and changes the way health care is financed by both governmental and private payers. Additionally, further federal and state proposals for health care reform are likely. Such regulation could have a negative effect on our business, financial condition, and results of operations.
The Health Care Reform Law 2.3% excise tax on domestic sales of medical devices by
manufacturers and importers beginning in 2013, and the fee on branded prescription drugs and
biologics that was implemented in 2011, may adversely affect sales and cost of goods sold.
For example, (i) where we purchase medical devices from third-party manufacturers, the
manufacturers may increase their prices to cover their payment of the excise tax and our costs to
purchase such medical devices may therefore increase and (ii) where we manufacture medical
devices or are the importer of record, our cost of goods sold have increased because we are subject
to paying the excise tax.
Political, economic and regulatory influences are subjecting the healthcare industry to potential
fundamental changes that could substantially affect our results of operations.
Government and private sector initiatives to limit the growth of healthcare costs, including price
regulation, competitive pricing, coverage and payment policies, comparative effectiveness of
therapies, technology assessments and alternative payment models, are continuing in many
countries where we intend to do business, including the U.S.. These changes are causing the
marketplace to put increased emphasis on the delivery of more cost-effective treatments. Certain
provisions of the legislation will not be effective for a number of years and it is unclear what the
full impact of the legislation will be. Provisions of this legislation, including Medicare provisions
aimed at improving quality and decreasing costs, comparative effectiveness research, an
independent payment advisory board, and pilot programs to evaluate alternative payment
methodologies, could meaningfully change the way healthcare is developed and delivered, and
may adversely affect our business and results of operations. Further, we cannot predict what
healthcare programs and regulations will be ultimately implemented at the federal or state level,
or the effect of any future legislation or regulation in the U.S. or internationally. However, any
changes that lower reimbursements for our products, reduce medical procedure volumes or
increase cost containment pressures on us or other participants in the healthcare industry could
adversely affect our business and results of operations.
Privacy laws and regulations could restrict our ability or the ability of our customers to obtain,
use or disseminate patient information, or could require us to incur significant additional costs
to re-design our products.
State, federal and foreign laws, such as the federal Health Insurance Portability and Accountability
Act of 1996 (HIPAA), regulate the confidentiality of sensitive personal information and the
circumstances under which such information may be released. These and future laws could have
an adverse impact on our results of operations. Other health information standards, such as regulations under HIPAA, establish standards regarding electronic health data transmissions and
transaction code set rules for specified electronic transactions, for example transactions involving
claims submissions to third party payors. These also continue to evolve and are often unclear and
difficult to apply. In addition, under the federal Health Information Technology for Economic and
Clinical Health Act (HITECH Act), which was passed in 2009, many businesses that were
previously only indirectly subject to federal HIPAA privacy and security rules became directly
subject to such rules because the businesses serve as "business associates" to our customers. On
January 17, 2013, the Office for Civil Rights of the Department of Health and Human Services
released a final rule implementing the HITECH Act and making certain other changes to HIPAA
privacy and security requirements. Compliance has increased the requirements applicable to some
of our businesses. Failure to maintain the confidentiality of sensitive personal information in
accordance with the applicable regulatory requirements, or to abide by electronic health data
transmission standards, could expose us to breach of contract claims, fines and penalties, costs for
remediation and harm to our reputation.
The healthcare industry is highly regulated.
We are subject to regulation in the U.S. at both the federal and state level and in foreign countries. In addition, the U.S. federal and state governments have allocated greater resources to the enforcement of these laws. If we fail to comply with these regulatory requirements, or if allegations are made that we failed to comply, our results of operations and financial condition could be adversely affected.
The manufacture, distribution, marketing and use of our products are subject to extensive
regulation and increased scrutiny by the Food and Drug Administration (FDA) and other
regulatory authorities globally.
Any new product must undergo lengthy and rigorous testing and other extensive, costly and time-
consuming procedures mandated by FDA and foreign regulatory authorities. Changes to current
products may be subject to vigorous review, including additional 510(k) and other regulatory
submissions, and approvals are not certain. Our facilities must be approved and licensed prior to
production and remain subject to inspection from time to time thereafter. Failure to comply with
the requirements of FDA or other regulatory authorities, including a failed inspection or a failure
in our adverse event reporting system, could result in adverse inspection reports, warning letters,
product recalls or seizures, monetary sanctions, injunctions to halt the manufacture and distribution
of products, civil or criminal sanctions, refusal of a government to grant approvals or licenses,
restrictions on operations or withdrawal of existing approvals and licenses. Any of these actions
could cause a loss of customer confidence in us and our products, which could adversely affect
our sales and results of operations.
The sales, marketing and pricing of products and relationships that pharmaceutical and medical
device companies have with healthcare providers are under increased scrutiny by federal, state
and foreign government agencies.
Compliance with the Anti-Kickback Statute, False Claims Act, Food, Drug and Cosmetic Act
(including as these laws relate to off-label promotion of products) and other healthcare related
laws, as well as competition, data and patient privacy and export and import laws is under increased
focus by the agencies charged with overseeing such activities, including FDA, Office of Inspector
General (OIG), Department of Justice (DOJ) and the Federal Trade Commission. The DOJ and the Securities and Exchange Commission have also increased their focus on the enforcement of the
U.S. Foreign Corrupt Practices Act (FCPA), particularly as it relates to the conduct of
pharmaceutical companies.
Federal and State Laws Pertaining to Healthcare Fraud and Abuse Could Adversely Affect Our
Business.
We are subject to various federal and state laws targeting fraud and abuse in the healthcare industry,
including anti-kickback laws, false claims laws, laws constraining the sales, marketing and other
promotional activities of manufacturers of medical devices by limiting the kinds of financial
arrangements we may enter into with physicians, hospitals, laboratories and other potential
purchasers of medical devices, laws requiring the reporting of certain transactions between us and
healthcare professionals and HIPAA, as amended by HITECH, which governs the conduct of
certain electronic healthcare transactions and protects security and privacy of protected health
information. Violations of these laws are punishable by criminal or civil sanctions, including
substantial fines, imprisonment and exclusion from participation in government healthcare
programs such as Medicare and Medicaid. Many of the existing requirements are new and have
not been definitively interpreted by state authorities or courts, and available guidance is limited.
Unless and until we are in full compliance with these laws, we could face enforcement action and
fines and other penalties, and could receive adverse publicity, all of which could materially harm
our business. In addition, changes in or evolving interpretations of these laws, regulations, or
administrative or judicial interpretations, may require us to change our business practices or
subject our business practices to legal challenges, which could have a material adverse effect on
our business, financial condition and results of operations.
We will rely on third-party distributors to effectively distribute our products outside the United
States.
We will depend, in part, on distributors for the marketing and selling of our products in most
geographies. We depend on these distributors’ efforts to market our products, yet we are unable to
control their efforts completely. These distributors typically sell a variety of other, non-competing
products that may limit the resources they dedicate to selling our products. In addition, we are
unable to ensure that our distributors comply with all applicable laws regarding the sale of our
products. If our distributors fail to effectively market and sell our products, in full compliance with
applicable laws, our operating results and business may suffer. Recruiting and retaining qualified
third-party distributors and training them in our technology and product offerings require
significant time and resources. To develop and expand our distribution, we must continue to scale
and improve our processes and procedures that support our distributors. Further, if our relationship
with a successful distributor terminates, we may be unable to replace that distributor without
disruption to our business. If we fail to maintain relationships with our distributors, fail to develop
new relationships with other distributors, including in new markets, fail to manage, train or
incentivize existing distributors effectively, or fail to provide distributors with competitive
products on attractive terms, or if these distributors are not successful in their sales efforts, our
revenue may decrease and our operating results, reputation and business may be harmed.
The commercial success of our products will depend in part upon the level of reimbursement we receive from third parties for the cost of our products to users.
The commercial success of any product will depend, in part, on the extent to which reimbursement for the costs of our products and related treatments will be available from third-party payors such as government health administration authorities, private health insurers, managed care programs, and other organizations. Adequate third-party insurance coverage may not be available for us to establish and maintain price levels that are sufficient for us to continue our business or for realization of an appropriate return on investment in product development.
If we are unable to educate physicians on the safe and effective use of our products, we may be
unable to achieve our expected growth.
An important part of our sales process includes the education of physicians on the safe and
effective use of our products. There is a learning process for physicians to become proficient in
the use of our products and it typically takes several procedures for a physician to become
comfortable using the products. It is critical to the success of our commercialization efforts to
educate physicians on the proper use of the products, and to provide them with adequate product
support. It is important for our growth that these physicians advocate for the benefits of our
products in the broader marketplace. If physicians are not properly trained, they may misuse or
ineffectively use our products. This may also result in unsatisfactory patient outcomes, patient
injuries, negative publicity or lawsuits against us, any of which could have an adverse effect on
our business.
The design, manufacture and marketing of the pharmaceuticals and products we produce entail
an inherent risk of product liability claims.
Manufacturing and marketing of our commercial products, and clinical testing of our products
under development, may expose us to product liability and other tort claims. Although we have,
and intend to maintain, liability insurance, the coverage limits of our insurance policies may not
be adequate and one or more successful claims brought against us may have a material adverse
effect on our business and results of operations. There are a number of factors that could result in
an unsafe condition or injury to, or death of, a patient with respect to these or other products which
we manufacture or sell, including component failures, manufacturing flaws, design defects or
inadequate disclosure of product-related risks or product-related information. Product liability
claims may be brought by individuals or by groups seeking to represent a class. The outcome of
litigation, particularly class action lawsuits, is difficult to assess or quantify. Plaintiffs in these
types of lawsuits often seek recovery of very large or indeterminate amounts, and the magnitude
of the potential loss relating to such lawsuits may remain unknown for substantial periods of time.
Any costs (the material components of which are settlements, judgments, legal fees and other
related defense costs) not covered under our previously issued product liability insurance policies
and existing reserves could have a material adverse effect on our revenues, financial position and
cash flows. Additionally, product liability claims could negatively affect our reputation, continued
product sales, and our ability to obtain and maintain regulatory approval for our products.
If third-party payors do not provide adequate coverage and reimbursement for the use of our
products, our revenues will be negatively impacted.
Our success in marketing our products depends in large part on whether U.S. and international
government health administrative authorities, private health insurers and other organizations will
adequately cover and reimburse customers for the cost of our products. In the United States, a
third-party payor’s decision to provide coverage for our products does not imply that an adequate reimbursement rate will be obtained. Further, one third-party payor’s decision to cover our
products does not assure that other payors will also provide coverage for the products or provide
coverage at an adequate reimbursement rate. Reimbursement systems in international markets vary
significantly by country and by region within some countries, and reimbursement approvals must
be obtained on a country-by-country basis. In many international markets, a product must be
approved for reimbursement before it can be approved for sale in that country. Further, many
international markets have government-managed healthcare systems that control reimbursement
for new devices and procedures. In most markets there are private insurance systems as well as
government-managed systems. If sufficient coverage and reimbursement is not available for our
current or future products, in either the United States or internationally, the demand for our
products and our revenues will be adversely affected.
We face heavy government regulation, and FDA regulatory approval of our products is
uncertain.
The research, testing, manufacturing and marketing of drug products such as those that we are
developing are subject to extensive regulation by federal, state and local government authorities,
including the FDA. To obtain regulatory approval of a product, we must demonstrate to the
satisfaction of the applicable regulatory agency that, among other things, the product is safe and
effective for its intended use. In addition, we must show that the manufacturing facilities used to
produce the products are in compliance with current Good Manufacturing Practices regulations
(cGMP). The process of obtaining FDA and other required regulatory approvals and clearances
will require us to expend substantial time and capital. Despite the time and expense expended,
regulatory approval is never guaranteed. The number of preclinical and clinical trials that will be
required for FDA approval varies depending on the drug candidate, the disease or condition that
the drug candidate is in development for, and the requirements applicable to that particular drug
candidate. The FDA can delay, limit or deny approval of a drug candidate for many reasons,
including that:
* a drug candidate may not be shown to be safe or effective;
* the FDA may not approve our manufacturing process
* the FDA may interpret data from preclinical and clinical trials in different ways than we do; and
* the FDA may not meet, or may extend, the Prescription Drug User Fee Act date with respect to a particular New Drug Application ("NDA").
For example, if certain of our methods for analyzing our trial data are not accepted by the FDA, we may fail to obtain regulatory approval for our product candidates. Moreover, if and when our products do obtain marketing approval, the marketing, distribution and manufacture of such products would remain subject to extensive ongoing regulatory requirements. Failure to comply with applicable regulatory requirements could result in warning letters, fines, civil penalties, injunctions, recall or seizure of products, total or partial suspension of production, refusal of the government to grant future approvals, withdrawal of approvals, or criminal prosecution. Any delay or failure by us to obtain regulatory approvals for our product candidates could diminish competitive advantages that we may attain and would adversely affect the marketing of our products. To date, we have not received regulatory approval to market any of our product candidates in any jurisdiction. Following regulatory approval of any of our drug candidates, we will be subject to ongoing regulatory obligations and restrictions, which may result in significant expense and limit our ability to commercialize our potential products.
With regard to our drug candidates, if any, approved by the FDA or by another regulatory authority, we are held to extensive regulatory requirements over product manufacturing, labeling, packaging, adverse event reporting, storage, advertising, promotion and record keeping. Regulatory approvals may also be subject to significant limitations on the indicated uses or marketing of the drug candidates. Potentially costly follow-up or post-marketing clinical studies may be required as a condition of approval to further substantiate safety or efficacy, or to investigate specific issues of interest to the regulatory authority. Previously unknown problems with the drug candidate, including adverse events of unanticipated severity or frequency, may result in restrictions on the marketing of the drug, and could include withdrawal of the drug from the market.
In addition, the law or regulatory policies governing pharmaceuticals may change. New statutory requirements may be enacted or additional regulations may be enacted that could prevent or delay regulatory approval of our drug candidates. We cannot predict the likelihood, nature or extent of adverse government regulation that may arise from future legislation or administrative action, either in the United States or elsewhere. If we are not able to maintain regulatory compliance, we might not be permitted to market our drugs and our business could suffer.
We may in the future be subject to various U.S. federal and state laws pertaining to health care
fraud and abuse, including anti-kickback, self-referral, false claims and fraud laws, and any
violations by us of such laws could result in fines or other penalties.
If one or more of our product candidates is approved, we will likely be subject to the various U.S.
federal and state laws intended to prevent health care fraud and abuse. The federal anti-kickback
statute prohibits the offer, receipt, or payment of remuneration in exchange for or to induce the
referral of patients or the use of products or services that would be paid for in whole or part by
Medicare, Medicaid or other federal health care programs. Remuneration has been broadly defined
to include anything of value, including cash, improper discounts, and free or reduced price items
and services. Many states have similar laws that apply to their state health care programs as well
as private payors. Violations of the anti-kickback laws can result in exclusion from federal health
care programs and substantial civil and criminal penalties.
The False Claims Act (FCA) imposes liability on persons who, among other things, present or cause to be presented false or fraudulent claims for payment by a federal health care program. The FCA has been used to prosecute persons submitting claims for payment that are inaccurate or fraudulent, that are for services not provided as claimed, or for services that are not medically necessary. The FCA includes a whistleblower provision that allows individuals to bring actions on behalf of the federal government and share a portion of the recovery of successful claims. If our marketing or other arrangements were determined to violate the FCA or anti-kickback or related laws, then our revenue could be adversely affected, which would likely harm our business, financial condition, and results of operations. State and federal authorities have aggressively targeted medical technology companies for alleged violations of these anti-fraud statutes, based on improper research or consulting contracts with doctors, certain marketing arrangements that rely on volume-based pricing, off-label marketing schemes, and other improper promotional practices. Companies targeted in such prosecutions have paid substantial fines in the hundreds of millions of dollars or more, have been forced to implement extensive corrective action plans or Corporate Integrity Agreements, and have often become subject to consent decrees severely restricting the manner in which they conduct their business. If we become the target of such an investigation or prosecution based on our contractual relationships with providers or institutions, or our marketing and promotional practices, we could face similar sanctions, which would materially harm our business.
If we are found to have violated laws protecting the privacy or security of patient health
information, we could be subject to civil or criminal penalties, which could increase our
liabilities and harm our reputation or our business.
There are a number of U.S. federal and state laws and foreign laws protecting the privacy and
security of individually identifiable health information, or "protected health information" including
patient records, and restricting the use and disclosure of that protected health information that we
are subject to. In the United States, the U.S. Department of Health and Human Services
promulgated health information privacy and security rules under the Health Insurance Portability
and Accountability Act of 1996 (HIPAA) and then significantly strengthened and broadened the
applicability of HIPAA under the Health Information Technology for Economic and Clinical
Health Act (HITECH, together HIPAA). HIPAA applies to health care providers engaging in
certain standard transactions electronically; health plans and health care clearing houses. These
entities are referred to as "covered entities." Certain HIPAA provisions also apply to "business
associates" of covered entities, or third party providers of services to covered entities that involve
the use or disclosure of protected health information. HIPAA’s privacy rules protect medical
records and protected health information in all forms by limiting its use and disclosure, giving
individuals the right to access, amend and seek accounting of their own health information and
limiting, in some circumstances, the use and disclosure of protected health information to the
minimum amount reasonably necessary to accomplish the intended purpose of the use or
disclosure. HIPAA’s security standards require both covered entities and business associates to
implement administrative, physical and technical security measures to maintain the security of
protected health information in electronic form. Covered entities and business associates must
conduct initial and ongoing risk assessments to ensure the ongoing effectiveness of security
measures and maintain a written information security plan. We are a [covered entity] [business
associate] and as such, we must comply with HIPAA and ensure that all aspects of our operations
comply with relevant HIPAA standards. We are subject to random audit by federal authorities, and
enforcement by both state and federal regulators. We are also subject to investigation in response
to complaints. If we are found to be in violation of the HIPAA requirements, we could be subject
to civil or criminal penalties as well as fines, which could increase our liabilities and harm our
reputation or our business.
Beyond HIPAA, most states have adopted data security laws protecting the personal data of state residents. Personal data subject to protection typically includes name coupled with social security number, state-issued identification number, or financial account number. Most states require specific, technical security measures for the protection of all personal data, including employee data, and impose their own breach notification requirements in the event of a loss of personal data. State data security laws generally overlap and apply simultaneously with HIPAA. [Non-U.S. privacy protection requirements such as the European Union’s Data Protection Directive governing the processing of personal data, may be stricter than the U.S. law and violation would impose similar or more severe penalties. These laws could create liability for us or increase our cost of doing business, and any failure to comply could result in harm to our reputation, and potentially fines and penalties.
Healthcare legislative reform measures may have a material adverse effect on our business and
results of operations.
In the United States, there have been and continue to be a number of legislative initiatives to
contain healthcare costs. For example, in March 2010, the Patient Protection and Affordable Care
Act, as amended by the Health Care and Education Reconciliation Act, or the Affordable Care Act,
was passed, which substantially changed the way health care is financed by both governmental
and private insurers, and significantly impacted the U.S. pharmaceutical industry. The Affordable
Care Act, among other things, subjected biologic products to potential competition by lower-cost
biosimilars, addressed a new methodology by which rebates owed by manufacturers under the
Medicaid Drug Rebate Program are calculated for drugs that are inhaled, infused, instilled,
implanted or injected, increased the minimum Medicaid rebates owed by manufacturers under the
Medicaid Drug Rebate Program and extended the rebate program to individuals enrolled in
Medicaid managed care organizations, established annual fees and taxes on manufacturers of
certain branded prescription drugs, and a new Medicare Part D coverage gap discount program, in
which manufacturers must agree to offer 50% point-of-sale discounts off negotiated prices of
applicable brand drugs to eligible beneficiaries during their coverage gap period, as a condition
for the manufacturer’s outpatient drugs to be covered under Medicare Part D.
We expect that additional state and federal healthcare reform measures will be adopted in the future, any of which could limit the amounts that federal and state governments will pay for healthcare products and services, which could result in reduced demand for our products or additional pricing pressures, which would negatively affect our business.
New product development involves a lengthy, expensive and complex process.
We may be unable to develop or commercialize any of the product candidates we are currently researching. Moreover, even if we develop such candidates, they may be subject to significant regulatory review, approval and other government regulations. We are currently conducting research and development on programs that may result in novel treatments for autoimmune diseases, acute inflammation, infectious diseases and cancer. There can be no assurance that our technologies will be capable of reliably addressing resistant infections or that we can develop and commercialize our products at all. New product development involves a lengthy, expensive and complex process and we currently have no fully validated candidates. In addition, before we can commercialize any new product candidates, we will need to:
* conduct substantial research and development; * conduct validation studies;
* expend significant funds;
* develop and scale-up our laboratory processes; and
* obtain regulatory approval and acceptance of our product candidates.
This process involves a high degree of risk and takes several years. Our product development efforts may fail for many reasons, including:
* failure of the product at the research or development stage; and
* lack of clinical validation data to support the effectiveness of the product.
Few research and development projects result in commercial products, and perceived viability in early clinical trials often is not replicated in later studies. At any point, we may abandon development of a product candidate or we may be required to expend considerable resources repeating clinical trials, which would adversely impact the timing for generating potential revenues from those product candidates. In addition, as we develop product candidates, we will have to make significant investments in product development, marketing and sales resources.
We may not be able to conduct clinical trials necessary to commercialize and sell our proposed
products and formulations.
In order to conduct clinical trials that are necessary to obtain approval by the FDA to market a
formulation or product, it is necessary to receive clearance from the FDA to conduct such clinical
trials. The FDA can halt clinical trials at any time for safety reasons or because we or our clinical
investigators do not follow the FDA’s requirements for conducting clinical trials. If we are unable
to receive clearance to conduct clinical trials or the trials are halted by the FDA, we would not be
able to achieve any revenue from such product as it is illegal to sell any drug or medical device for
human consumption without FDA approval. Moreover, it is our stated intention to attempt to avail
ourselves of the FDA’s Fast Track approval procedure, which we believe is less costly and time
consuming. If this approval pathway is not available to us with respect to a particular formulation
or product, or at all, the time and cost associated with developing and commercializing such
formulations or products may be prohibitive and our business strategy would be materially and
adversely affected.
Our long-term viability and growth will depend upon successful clinical trials.
Product development is very expensive and involves a high degree of risk. Only a small number of research and development programs result in the commercialization of a product. Success in preclinical work or early-stage clinical trials does not ensure that later stage or larger scale clinical trials will be successful. Conducting clinical trials is a complex, time-consuming and expensive process. Our ability to complete our clinical trials in a timely fashion depends in large part on a number of key factors including protocol design, regulatory and institutional review board approval, the rate of patient enrollment in clinical trials, and compliance with extensive current Good Clinical Practices. If we fail to adequately manage the design, execution and regulatory aspects of clinical trials, regulatory approvals may be delayed, or we may fail to gain approval for our product candidates. Clinical trials may indicate that our product candidates have harmful side effects or raise other safety concerns that may significantly reduce the likelihood of regulatory approval, result in significant restrictions on use and safety warnings in any approved label, adversely affect placement within the treatment paradigm, or otherwise significantly diminish the commercial potential of the product candidate. Also, positive results in a registrational trial may not be replicated in any subsequent confirmatory trials. Even if later stage clinical trials are successful, regulatory authorities may disagree with our view of the data or require additional studies, and may fail to approve or delay approval of our product candidates or may grant marketing approval that is more restricted than anticipated, including indications for a narrower patient population than expected and the imposition of safety monitoring or educational requirements or risk evaluation and mitigation strategies. In addition, if another Company is the first to file for marketing approval of a competing orphan drug candidate, that Company may ultimately receive marketing exclusivity for its drug candidate, preventing us from commercializing our orphan drug candidate in the applicable market for several years.
We face significant competition from other biotechnology and pharmaceutical companies.
We are aware of several companies that are working to develop drugs that would compete against our drug candidates. Many of our existing or potential competitors have substantially greater financial, technical and human resources than we do and significantly greater experience in the discovery and development of drug candidates, as well as in obtaining regulatory approvals of those drug candidates in the United States and in foreign countries. Our current and potential future competitors may also have significantly more experience commercializing drugs that have been approved for marketing. Mergers and acquisitions in the pharmaceutical and biotechnology industries could result in even more resources being concentrated among a small number of our competitors.
Competition may increase further as a result of advances in the commercial applicability of technologies and greater availability of capital for investment in these industries. Our competitors may succeed in developing, acquiring or licensing, on an exclusive basis, drug candidates that are more effective or less costly than any drug candidate that we may develop.
Our ability to compete successfully will depend largely on our ability to:
* discover, develop and commercialize drugs that are superior to other products in the market;
* demonstrate through our clinical trials that our drug candidates are differentiated from existing and future therapies;
* attract qualified scientific, product development and commercial personnel; * obtain patent or other proprietary protection for our drugs and technologies;
* obtain required regulatory approvals; successfully collaborate with pharmaceutical companies in the discovery, development and commercialization of new drugs; and
* negotiate competitive pricing and reimbursement with third party payors
The availability of our competitors’ products could limit the demand, and the price we are able to
charge, for any drug candidate we develop. The inability to compete with existing or subsequently
introduced drug candidates would have a material adverse impact on our business, financial
condition and prospects.
Established pharmaceutical companies may invest heavily to accelerate discovery and development of novel compounds or to in-license novel compounds that could make our drug candidates less competitive. In addition, any new product that competes with an approved product must demonstrate compelling advantages in efficacy, convenience, tolerability and safety in order to overcome price competition and to be commercially successful. Accordingly, our competitors may succeed in obtaining patent protection, discovering, developing or receiving FDA approval for or commercializing medicines before we do, which would have a material adverse impact on our business.
Our research and development efforts may not succeed in developing commercially successful
products and technologies, which may limit our ability to achieve profitability.
We must continue to explore opportunities that may lead to new products and technologies. To
accomplish this, we must commit substantial efforts, funds, and other resources to research and
development. A high rate of failure is inherent in the research and development of new products
and technologies. Any such expenditures that we make will be made without any assurance that
our efforts will be successful. Failure can occur at any point in the process, including after
significant funds have been invested.
Regardless of whether our clinical trials are deemed to be successful, promising new product candidates may fail to reach the market or may only have limited commercial success because of efficacy or safety concerns, failure to achieve positive clinical outcomes, inability to obtain necessary regulatory approvals or satisfy regulatory criteria, limited scope of approved uses, excessive costs to manufacture, the failure to establish or maintain intellectual property rights, or infringement of the intellectual property rights of others.
Even if we successfully develop new products or enhancements, they may be quickly rendered obsolete by changing customer preferences, changing industry standards, or competitors’ innovations. Innovations may not be quickly accepted in the marketplace because of, among other things, entrenched patterns of clinical practice or uncertainty over third-party reimbursement. We cannot state with certainty when or whether any of our products under development will be launched, whether we will be able to develop, license, or otherwise acquire drug candidates or products, or whether any products will be commercially successful. Failure to launch successful new products or new indications for existing products may cause our products to become obsolete, which may limit our ability to achieve profitability.
Even if we are able to obtain regulatory approvals for our new pharmaceutical products, generic
or branded, the success of those products is dependent upon market acceptance.
Levels of market acceptance for our new products could be impacted by several factors, including
but not limited to: i) the availability of alternative products from our competitors, ii) the price of
our products relative to that of our competitors, iii) the timing of our market entry, iv) the ability to market our products effectively to the retail level and v) the acceptance of our products by
government and private entities. Some of these factors are not within our control. Additionally,
continuing studies of the proper utilization, safety and efficacy of pharmaceutical products are
being conducted by the industry, government agencies and others. Such studies, which increasingly
employ sophisticated methods and techniques, can call into question the utilization, safety and
efficacy of previously marketed products. In some cases, studies have resulted, and may in the
future result, in the discontinuance of product marketing or other risk management programs such
as the need for a patient registry. These situations, should they occur, could have a material adverse
effect on our profitability, business, financial position and results of operations.
Our manufacturing activity is subject to certain risks.
We are dependent upon the uninterrupted and efficient operation of our contracted manufacturing facility in and our contracted distribution facilities. Our manufacturing facilities and distribution facilities are subject to the risk of regulatory review, catastrophic loss due to, among other things, earthquake, fire, flood, terrorism or other natural or man-made disasters, as well as occurrence of significant equipment failures. If any of these facilities were to experience a catastrophic loss, it would be expected to disrupt our operations and could result in personal injury or property damage, damage relationships with our customers or result in large expenses to repair or replace the facilities or systems, as well as result in other liabilities and adverse impacts.
In addition, the occurrence of manufacturing-related compliance issues could require subsequent withdrawal of the drug approval, reformulation of the drug product, additional testing or changes in labeling of the finished product. Any delay, interruption or cessation of production by our third- party manufacturers or strategic partners of our commercial products or product candidates, or their respective materials and components, as a result of any of the above factors or otherwise, may limit our ability to meet demand for commercial products and/or delay ongoing clinical trials, either of which could have a material adverse effect on our business, results of operations and financial condition.
Increased concerns over the safety of our products may result in negative publicity or increased
regulatory controls on our products.
The Company’s reputation is the foundation of our relationships with physicians, patients and other
customers. If we are unable to effectively manage real or perceived issues, which could negatively
impact sentiments toward the Company, our business could suffer. Pharmaceuticals and medical
devices are perceived to be dangerous products and our customers may have a number of concerns
about the safety of our products whether or not such concerns have a basis in generally accepted
science or peer-reviewed scientific research.
We may also be subject to adverse event reporting regulations that require us to report to the FDA or similar bodies in other countries if our products are associated with a death or serious injury, even if there is no available evidence of a causal relationship between the adverse event and the product. Such reports may be publicly released by the FDA and other authorities. Furthermore, any adverse publicity associated with adverse events for our products, and related post-marketing actions, could cause consumers to seek alternatives to our products, and thereby cause our sales to decline, even if our products are ultimately determined not to have been the primary cause of the adverse event.
Pharmaceutical products can develop unexpected safety or efficacy concerns, which could have
a material adverse effect on our business.
Pharmaceutical products receive regulatory approval based on data obtained in controlled clinical
trials of limited duration. After approval, the products are used for longer periods of time by much
larger numbers of patients; we and others (including regulatory agencies and private payers) collect
extensive information on the efficacy and safety of our marketed products by continuously
monitoring the use of our products in the marketplace. In addition, we or others may conduct post-
marketing clinical studies on efficacy and safety of our marketed products. New safety or efficacy
data from market surveillance, post-marketing clinical studies or general use may result in product
label changes, product recalls, withdrawals, or declining sales, as well as product liability,
consumer fraud and/or other claims, including potential civil or criminal governmental actions.
Product labeling changes for our marketed products could result in a negative impact on
revenues.
We or regulatory authorities may need to change the labeling for any pharmaceutical product,
including after a product has been marketed for several years. These changes are often the result
of additional data from post-marketing studies, head-to-head trials, adverse events reports, studies
that identify biomarkers (objective characteristics that can indicate a particular response to a
product or therapy) or other studies or post-marketing experience that produce important additional
information about a product. New information added to a product’s label can affect its risk-benefit
profile, leading to potential recalls, withdrawals, or declining revenue, as well as product liability
claims. Sometimes additional information from these studies identifies a portion of the patient
population that may be non-responsive to a medicine or would be at higher risk of adverse reactions
and labeling changes based on such studies may limit the patient population. The studies providing
such additional information may be sponsored by us, but they could also be sponsored by
competitors, insurance companies, government institutions, managed care organizations,
scientists, investigators, or other interested parties. While additional safety and efficacy
information from such studies assist us and healthcare providers in identifying the best patient
population for each product, it can also negatively impact our revenues due to inventory returns
and a more limited patient population going forward. Additionally, certain study results, especially
from head-to-head trials, could affect a product’s formulary listing, which could also adversely
affect our revenues.
We are dependent on our collaborative agreements for the development of products and business
development, which exposes us to the risk of reliance on the viability of third parties.
In conducting our research and development activities, we currently rely, and will in the future
rely, on collaborative agreements with third parties such as manufacturers, contract research
organizations, commercial partners, universities, governmental agencies and not-for-profit
organizations for both strategic and financial resources. The loss of, or failure to perform by us or
our partners under, any applicable agreements or arrangements, or our failure to secure additional
agreements for other products in development, would substantially disrupt or delay our research
and development and commercialization activities. Any such loss would likely increase our
expenses and materially harm our business, financial condition and results of operation.
We extensively outsource our clinical trial activities and usually perform only a small portion of
the start-up activities in-house.
We rely on independent third-party contract research organizations (CROs) to perform most of our
clinical studies, including document preparation, site identification, screening and preparation,
pre-study visits, training, program management and bioanalytical analysis. Many important
aspects of the services performed for us by the CROs are out of our direct control. If there is any
dispute or disruption in our relationship with our CROs, our clinical trials may be delayed.
Moreover, in our regulatory submissions, we rely on the quality and validity of the clinical work
performed by third-party CROs. If any of our CROs’ processes, methodologies or results were
determined to be invalid or inadequate, our own clinical data and results and related regulatory
approvals could be adversely impacted.
Reliance on third-party relationships and outsourcing arrangements could adversely affect our
business.
We utilize third parties, including suppliers, alliances with other pharmaceutical and biotechnology
companies, and third-party service providers, for selected aspects of product development, the
manufacture and commercialization of certain products, support for information technology
systems, and certain financial transactional processes. For example, we outsource [the day-to-day
management and oversight of our clinical trials to contract research organizations] [the
manufacture of certain of our products]. Outsourcing these functions involves the risk that the third
parties may not perform to our standards or legal requirements, may not produce reliable results,
may not perform in a timely manner, may not maintain the confidentiality of our proprietary
information, or may fail to perform at all. Failure of these third parties to meet their contractual,
regulatory, confidentiality, or other obligations to us could have a material adverse effect on our
business.
Product liability claims could harm our business.
The development, manufacture, testing, marketing and sale of pharmaceutical products are associated with significant risks of product liability claims. Side effects or adverse events known or reported to be associated with, or manufacturing defects in, the products sold by us could exacerbate a patient’s condition, or could result in serious injury or impairments or even death. This could result in product liability. Our products will have boxed warnings in their labels. Product liability claims may be brought by individuals seeking relief for themselves, or by groups seeking to represent a class of injured patients. Further, third party payors, either individually or as a putative class, may bring actions seeking to recover monies spent on one of our products. As sales of our products increase, the risk that product liability claims will be made against us increases. The risk of product liability claims may also increase if a company receives a warning letter from a regulatory agency. We cannot predict the frequency, outcome or cost to defend any such claims.
Product liability insurance coverage is expensive, can be difficult to obtain and may not be available to us in the future on acceptable terms, or at all. Our product liability insurance may not cover all of the future liabilities we might incur in connection with the development, manufacture or sale of our products. In addition, we may not continue to be able to obtain insurance on satisfactory terms or in adequate amounts. A successful claim or claims brought against us in excess of available insurance coverage could subject us to significant liabilities and could have a material adverse effect on our business, financial condition, results of operations and growth prospects. Such claims whether meritorious or not could also harm our reputation and the reputation of our products, adversely affecting our ability to market our products successfully. In addition, defending a product liability lawsuit is expensive and can divert the attention of key employees from operating our business.
In addition, product liability claims could result in an investigation of the safety or efficacy of our products, our manufacturing processes and facilities, or our marketing programs conducted by the FDA, the EMA, or the competent authorities of the EU member states. Such investigations could also potentially lead to a recall of our products or more serious enforcement actions, limitations on the indications for which they may be used, or suspension, variation, or withdrawal of approval, any of which would adversely affect our business.
Limited reimbursement or insurance coverage of our approved products, if any, by third party
payors may render our products less attractive to patients and healthcare providers.
Market acceptance and sales of any approved products will depend significantly on reimbursement
or coverage of our products by third party payors and may be affected by existing and future
healthcare reform measures or the prices of related products for which third party reimbursement
applies. Coverage and reimbursement by a third-party payor may depend upon a number of factors,
including the third-party payor’s determination that use of a product is: a covered benefit under its
health plan; safe, effective and medically necessary; appropriate for the specific patient; cost-
effective; and neither experimental nor investigational.
Obtaining coverage and reimbursement approval for a product from a government or other third- party payor is a time consuming and costly process that could require us to provide supporting scientific, clinical and cost-effectiveness data for the use of our products to the payor, which we may not be able to provide. Furthermore, the reimbursement policies of third-party payors may significantly change in a manner that renders our clinical data insufficient for adequate reimbursement or otherwise limits the successful marketing of our products. Even if we obtain coverage for our product candidates, third party payors may not establish adequate reimbursement amounts, which may reduce the demand for, or the price of, our products. If reimbursement is not available or is available only to limited levels, we may not be able to commercialize certain of our products.
Publication of discounts by third party payors or authorities may lead to further pressure on the prices or reimbursement levels within the country of publication and other countries. If reimbursement of our products is unavailable or limited in scope or amount, or if pricing is set at unacceptable levels, we or our partner may elect not to commercialize our products, and our business and financial condition could be adversely affected.
If we are unable to negotiate and maintain satisfactory arrangements with group purchasing
organizations with respect to the purchase of our products, our business could be adversely
affected.
Our ability to sell our products to hospitals in the United States depends in part on our relationships
with group purchasing organizations, or GPOs. Many existing and potential customers for our
products become members of GPOs. GPOs negotiate pricing arrangements and contracts, sometimes on an exclusive basis, with medical supply manufacturers and distributors. These
negotiated prices are then made available to a GPO’s affiliated hospitals and other members. If we
are not one of the providers selected by a GPO, affiliated hospitals and other members may be less
likely to purchase our products, and if the GPO has negotiated a strict sole source, market share
compliance or bundling contract for another manufacturer’s products, we may be precluded from
making sales to members of the GPO for the duration of the contractual arrangement. Our failure
to renew contracts with GPOs may cause us to lose market share and could have a material adverse
effect on our sales, financial condition and results of operations. We cannot assure you that we will
be able to renew these contracts at the current or substantially similar terms. If we are unable to
keep our relationships and develop new relationships with GPOs, our competitive position may
suffer.
We are subject to complex government healthcare legislation and reimbursement programs, as
well as other cost-containment pressures.
Many of our products are purchased or reimbursed by federal and state government authorities,
private health insurers and other organizations, including heath maintenance and managed care
organizations. These third-party payors increasingly challenge pharmaceutical and medical device
product pricing, which could result in lower reimbursement rates and a reduction in demand for
our products.
In addition, legislative and regulatory proposals and enactments to reform healthcare insurance programs could significantly influence the manner in which pharmaceutical products, biologic products and medical devices are prescribed and purchased. Individual states have also become increasingly aggressive in passing legislation and implementing regulations designed to control pharmaceutical product pricing, including price or patient reimbursement constraints, discounts, restrictions on certain product access, and to encourage importation from other countries and bulk purchasing. Furthermore, regional healthcare authorities and individual hospitals are increasingly using bidding procedures to determine what pharmaceutical products and which suppliers will be included in their prescription drug and other healthcare programs. Any legally mandated price controls or utilization of bidding procedures could negatively and materially impact our revenues, results of operations and financial condition.
Sales of our products may be adversely affected by the continuing consolidation of our customer
base.
A significant proportion of our sales is made to relatively few U.S. retail drug chains, wholesalers,
managed care purchasing organizations, mail order distributors and hospitals. These customers are
continuing to undergo significant consolidation. Such consolidation has provided and may
continue to provide them with additional purchasing leverage, and consequently may increase the
pricing pressures that we face. Additionally, the emergence of large buying groups representing
independent retail pharmacies, and the prevalence and influence of managed care organizations
and similar institutions, enable those groups to extract price discounts on our products, which could
have a material adverse effect on our business, financial condition and results of operations.
Increased pricing pressure and other restrictions in the U.S. and abroad from managed care organizations, institutional Investors, and government agencies and programs, among others, could negatively affect our revenues and profit margins.
Our products continue to be subject to increasing pressures from market access, pricing and rebates and other restrictions in the U.S., the EU and other regions around the world, including from (i) rules and practices of managed care organizations and institutional and governmental Investors; (ii) judicial decisions and governmental laws and regulations for Medicare, Medicaid and U.S. healthcare reform, including the 2010 Patient Protection and Affordable Care Act; (iii) the potential impact of pharmaceutical reimbursement, Medicare Part D Formularies and product pricing in general; (iv) delays in gaining reimbursement; (v) government price erosion mechanisms across Europe and in other countries, resulting in deflation for pharmaceutical product pricing; (vi) collection delays in government-funded public hospitals outside the U.S. (vii) the impact on pricing from parallel trade across borders; (viii) other developments in technology and/or industry practices that could impact the reimbursement policies and practices of third-party payers; and (ix) limited or blocked market access due to real or perceived differences in value propositions for our products compared to competing products.
The illegal importation of counterfeit products and pharmaceutical and medical device products from countries where government price controls or other market dynamics result in lower prices may adversely affect our sales and profitability in the U.S. and other countries in which we operate.
Foreign imports are illegal under current U.S. law, with the sole exception of limited quantities of prescription drugs imported for personal use. However, the volume of illegal imports continues to rise as the ability of patients and other customers to obtain these lower priced imports has grown significantly. In addition, U.S. policy makers may expand consumers’ ability to import lower priced versions of our products and competing products from Canada, where there are government price controls. Any future legislation or regulations that increase consumer access to lower priced medicines from outside the U.S. may lower the prices we receive for our products, which could adversely impact our revenues.
Illegal imports and counterfeit products may reduce demand for our products.
The illegal importation of counterfeit products and pharmaceutical products from countries where government price controls or other market dynamics result in lower prices may adversely affect our sales and profitability in the United States and other countries in which we operate. Foreign imports are illegal under current U.S. law, with the sole exception of limited quantities of prescription drugs imported for personal use. However, the volume of illegal imports continues to rise as the ability of patients and other customers to obtain these lower priced imports has grown significantly. In addition, U.S. policy makers may expand consumers’ ability to import lower priced versions of our products and competing products from Canada, where there are government price controls. Any future legislation or regulations that increase consumer access to lower priced medicines from outside the United States could adversely impact our revenues.
In addition, third parties may illegally distribute and sell counterfeit versions of our products, which do not meet our rigorous manufacturing and testing standards. A patient who receives a counterfeit drug may be at risk for a number of dangerous health consequences. Our reputation and business could suffer harm as a result of counterfeit drugs sold under our brand name. In addition, thefts of inventory at warehouses, plants or while in-transit, which are then not properly stored and are later sold through unauthorized channels, could adversely impact patient safety, our reputation and our business.
Risks Related to the Securities
The Shares of Common Stock will not be freely tradable until one year from the initial purchase date. Although the Shares of Common Stock may be tradable under federal securities law, state securities regulations may apply and each Purchaser should consult with his or her attorney. You should be aware of the long-term nature of this investment. There is not now and likely will not be a public market for the Shares of Common Stock. Because the Shares of Common Stock have not been registered under the Securities Act or under the securities laws of any state or non- United States jurisdiction, the Shares of Common Stock have transfer restrictions and cannot be resold in the United States except pursuant to Rule 501 of Regulation CF. It is not currently contemplated that registration under the Securities Act or other securities laws will be effected. Limitations on the transfer of the Shares of Common Stock may also adversely affect the price that you might be able to obtain for the Shares of Common Stock in a private sale. Purchasers should be aware of the long-term nature of their investment in the Company. Each Purchaser in this Offering will be required to represent that it is purchasing the Securities for its own account, for investment purposes and not with a view to resale or distribution thereof.
Neither the Offering nor the Securities have been registered under federal or state securities
laws, leading to an absence of certain regulation applicable to the Company.
No governmental agency has reviewed or passed upon this Offering, the Company or any
Securities of the Company. The Company also has relied on exemptions from securities
registration requirements under applicable state securities laws. Investors in the Company,
therefore, will not receive any of the benefits that such registration would otherwise provide.
Prospective investors must therefore assess the adequacy of disclosure and the fairness of the terms
of this Offering on their own or in conjunction with their personal advisors.
No Guarantee of Return on Investment
There is no assurance that a Purchaser will realize a return on its investment or that it will not lose its entire investment. For this reason, each Purchaser should read the Form C and all Exhibits carefully and should consult with its own attorney and business advisor prior to making any investment decision.
A portion of the proceeds from the Offering will be used to pay accrued and unpaid wages of
Executive Management (Chief Scientific Officer and President, H. Michael Shepard and
Executive Chairman, James N. Woody).
These proceeds will not be available for the ongoing operations of the Company but will instead
be paid to these insiders as deferred compensation for prior service to the Company.
A portion of the proceeds from the Offering will be used to pay the accrued and unpaid expenses
of the Company’s vendors, including corporate and patent attorneys.
These proceeds will not be available for the ongoing operations of the Company but will instead
be paid to these insiders as repayment for expenses incurred prior to the Offering and owed to them
by the Company.
A majority of the Company is owned by a small number of owners.
Prior to the Offering the Company’s current owners of 20% or more beneficially own up to 54.8% of the Company. Subject to any fiduciary duties owed to our other owners or investors under Delaware law, these owners may be able to exercise significant influence over matters requiring owner approval, including the election of directors or managers and approval of significant Company transactions, and will have significant control over the Company’s management and policies. Some of these persons may have interests that are different from yours. For example, these owners may support proposals and actions with which you may disagree. The concentration of ownership could delay or prevent a change in control of the Company or otherwise discourage a potential acquirer from attempting to obtain control of the Company, which in turn could reduce the price potential investors are willing to pay for the Company. In addition, these owners could use their voting influence to maintain the Company’s existing management, delay or prevent changes in control of the Company, or support or reject other management and board proposals that are subject to owner approval.
The Company has the right to extend the Offering deadline.
The Company may extend the Offering deadline beyond what is currently stated herein. This means that your investment may continue to be held in escrow while the Company attempts to raise the Minimum Amount even after the Offering deadline stated herein is reached. Your investment will not be accruing interest during this time and will simply be held until such time as the new Offering deadline is reached without the Company receiving the Minimum Amount, at which time it will be returned to you without interest or deduction, or the Company receives the Minimum Amount, at which time it will be released to the Company to be used as set forth herein. Upon or shortly after release of such funds to the Company, the Securities will be issued and distributed to you.
There is no present market for the Securities and we have arbitrarily set the price.
We have arbitrarily set the price of the Securities with reference to the general status of the securities market and other relevant factors. The Offering price for the Securities should not be considered an indication of the actual value of the Securities and is not based on our net worth or prior earnings. We cannot assure you that the Securities could be resold by you at the Offering price or at any other price.
Your ownership of the shares of stock will be subject to dilution.
Owners do not have preemptive rights. In the future, the Company may conduct subsequent Offerings of securities convertible into shares pursuant to a compensation or distribution reinvestment plan, or otherwise issues additional shares. Investors who purchase shares in this Offering who do not participate in those other stock issuances will experience dilution in their percentage ownership of the Company’s outstanding shares. Furthermore, shareholders may experience a dilution in the value of their shares depending on the terms and pricing of any future share issuances (including the shares being sold in this Offering) and the value of the Company’s assets at the time of issuance.
Simultaneous Offerings of the Securities may result in futher dilution.
Simultaneous with this Offering, the Company is conducting an offering pursuant to Reg D, Rule 506(c) of the Securities Act of 1933, of up to 1,000,000 shares of Common Stock at a price of $8.00 per share (the “Reg D Offering”). Such offering is only open to “accredited investors” within the meaning of Regulation D and requires a minimum investment of $5,000.
The Company has filed to potentially conduct, but has not commenced, an offering pursuant to Regulation A of the Securities Act of 1933, of up to 5,000,000 Shares of Common Stock at $10.00 per Share (the Reg A Offering).
Investors who purchase shares in this Offering and who do not participate in the Reg D Offering or the potential Reg A Offering will experience dilution in their percentage ownership of the Company’s outstanding shares.
The Securities will be equity interests in the Company and will not constitute indebtedness.
The Securities will rank junior to all existing and future indebtedness and other non-equity claims on the Company with respect to assets available to satisfy claims on the Company, including in a liquidation of the Company. Additionally, unlike indebtedness, for which principal and interest would customarily be payable on specified due dates, there will be no specified payments of dividends with respect to the Securities and dividends are payable only if, when and as authorized and declared by the Company and depend on, among other matters, the Company’s historical and projected results of operations, liquidity, cash flows, capital levels, financial condition, debt service requirements and other cash needs, financing covenants, applicable state law, federal and state regulatory prohibitions and other restrictions and any other factors the Company’s board of directors deems relevant at the time. In addition, the terms of the Securities will not limit the amount of debt or other obligations the Company may incur in the future. Accordingly, the Company may incur substantial amounts of additional debt and other obligations that will rank senior to the Securities.
There can be no assurance that we will ever provide liquidity to Purchasers through either a
sale of the Company or a registration of the Securities.
There can be no assurance that any form of merger, combination, or sale of the Company will take
place, or that any merger, combination, or sale would provide liquidity for Purchasers.
Furthermore, we may be unable to register the Securities for resale by Purchasers for legal,
commercial, regulatory, market-related or other reasons. In the event that we are unable to effect
a registration, Purchasers could be unable to sell their Securities unless an exemption from
registration is available.
The Company does not anticipate paying any cash dividends for the foreseeable future.
The Company currently intends to retain future earnings, if any, for the foreseeable future, to repay indebtedness and to support its business. The Company does not intend in the foreseeable future to pay any dividends to holders of its shares of common stock.
In addition to the risks listed above, businesses are often subject to risks not foreseen or fully appreciated by the management. It is not possible to foresee all risks that may affect us. Moreover, the Company cannot predict whether the Company will successfully effectuate the Company’s current business plan. Each prospective Purchaser is encouraged to carefully analyze the risks and merits of an investment in the Securities and should take into consideration when making such analysis, among other, the Risk Factors discussed above.
THE SECURITIES OFFERED INVOLVE A HIGH DEGREE OF RISK AND MAY RESULT IN THE LOSS OF YOUR ENTIRE INVESTMENT. ANY PERSON CONSIDERING THE PURCHASE OF THESE SECURITIES SHOULD BE AWARE OF THESE AND OTHER FACTORS SET FORTH IN THIS FORM C AND SHOULD CONSULT WITH HIS OR HER LEGAL, TAX AND FINANCIAL ADVISORS PRIOR TO MAKING AN INVESTMENT IN THE SECURITIES. THE SECURITIES SHOULD ONLY BE PURCHASED BY PERSONS WHO CAN AFFORD TO LOSE ALL OF THEIR INVESTMENT.
Inspired by the Greek word enosis, or “union,” Enosi Life Sciences was born when world-renowned scientists Professor Sir Marc Feldmann and Dr. H. Michael Shepard joined forces to focus on second-generation therapeutics for cancer and autoimmune diseases based on their previous successes.
Feldmann and Shepard have both created therapies recognized by numerous awards. Both researchers have received Lasker Prizes, often called the American equivalent of the Nobel Prize. Feldmann's work resulted in the discovery of TNF Blockers, now the most successful medicine for autoimmune disease. Shepard's work, done primarily at Genentech, resulted in the discovery of the first monoclonal antibody approved for the treatment of solid tumors. Together they have done the research which underpins Enosi, which has filed two major patent applications.