UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-K
☒ ANNUAL
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2021
OR
☐ TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ____________ to __________
Commission file number 0-12305
REPRO MED SYSTEMS, INC.
(Exact name of registrant as specified in its charter)
24 CARPENTER ROAD, CHESTER, NY 10918
(Address of principal executive offices) (Zip Code)
(845)-469-2042
Registrant’s telephone number, including area
code
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Trading Symbol(s) Name of each exchange on which registered
common stock, $0.01 par value KRMD The Nasdaq Stock Market
Securities registered pursuant to Section 12(g) of the Act:
COMMON STOCK, $.01 PAR VALUE
(Title of Class)
Indicate by check mark if the registrant is a well-known seasoned issuer,
as defined in Rule 405 of the Securities Act. Yes ☐No☒
Indicate by check mark if the registrant is not required to file reports
pursuant to Section 13 or Section 15(d) of the Act. Yes ☐No☒
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes☒ No ☐
Indicate by check mark whether the registrant has submitted electronically
every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during
the preceding 12 months (or for such shorter period that the registrant was required to submit such files.) Yes☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer,
an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large
accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company”
in Rule 12b-2 of the Exchange Act.
Large accelerated filer ☐ Accelerated filer ☐
Non-accelerated filer ☒ Smaller reporting company ☒
Emerging growth company ☐
If an emerging growth company, indicate by check mark if the registrant
has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant
to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant has filed a report on and
attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b)
of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☐
Indicate by check mark whether the registrant is a shell company (as defined
in Rule 12b-2 of the Act). Yes ☐No☒
Based on the closing sales price of June 30, 2021, the aggregate market
value of the voting and nonvoting common equity held by non-affiliates of the registrant was $120,485,383.
As of February 28, 2022, 44,671,160 shares of common stock, $0.01 par value
per share, were outstanding, which excludes 3,420,502 shares of Treasury Stock.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant’s proxy statement for the 2022 Annual
Meeting of Shareholders are incorporated herein by reference in Part III of this Annual Report on Form 10-K to the extent stated herein.
Such proxy statement will be filed with the Securities and Exchange Commission within 120 days of the registrant’s fiscal year ended
December 31, 2021.
INDEX TO FORM 10-K
Page
PART I
Item 1. Business 1
Item 1A. Risk Factors 8
Item 1B. Unresolved Staff Comments 23
Item 2. Properties 23
Item 3. Legal Proceedings 23
Item 4. Mine Safety Disclosures 23
PART II
Item 6. Selected Financial Data 24
Item 7A. Quantitative and Qualitative Disclosures about Market Risk 29
Item 8. Financial Statements and Supplementary Data 29
Item 9A. Controls and Procedures 48
Item 9B. Other Information 49
PART III
Item 10. Directors, Executive Officers, and Corporate Governance 49
Item 11. Executive Compensation 49
Item 14. Principal Accountant Fees and Services 49
PART IV
Item 15. Exhibits and Financial Statement Schedules 50
Signatures 52
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PART I
Throughout this report, the “Company,” “KORU Medical,”
“KORU,” “we,” “us” or “our” refer to Repro Med Systems, Inc. d/b/a KORU Medical Systems.
FORWARD LOOKING STATEMENTS
This Annual Report on Form 10-K contains “forward-looking statements”
within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as
amended. Forward-looking statements can be identified by words such as: “believe,” “plan,” “goal,”
“intend,” “seek,” “expect,” “will,” and similar references to future periods. Examples
of forward-looking statements include, among others, statements we make under “Our Strategy” in Business under Item 1 of this
Form 10-K and “Overview” in Management’s Discussion and Analysis of Financial Condition and Results of Operations under
Item 7 of this Form 10-K, and statements regarding our move to the newly leased facility including continuity of product supply, compliance
with EU MDR, transition to our secondary manufacturing source, and 2022 expenses, capital investments, and inventory levels. Forward-looking
statements are neither historical facts nor assurances of future performance. Instead, they are based only on our current beliefs, expectations,
and assumptions regarding the future of our business, future plans and strategies, projections, anticipated events and trends, the economy
and other future conditions. Because forward-looking statements relate to the future, they are subject to inherent uncertainties,
risks and changes in circumstances that are difficult to predict and many of which are outside of our control. Our actual results
and financial condition may differ materially from those indicated in the forward-looking statements. Therefore, readers should not rely
on any of these forward-looking statements.
Important factors that could cause our actual results and financial condition
to differ materially from those indicated in the forward-looking statements include, among others, those discussed in this Annual Report
on Form 10-K, and in particular, the risks discussed under the caption “Risk Factors” in Item 1A, and those discussed in other
documents we file with the Securities and Exchange Commission (“SEC”).
Any forward-looking statement made by us in this Annual Report on Form
10-K is based only on information currently available to us and speaks only as of the date on which it is made. We undertake no
obligation to publicly update any forward-looking statement, whether written or oral, that may be made from time to time, whether as a
result of new information, future developments or otherwise.
ITEM 1. BUSINESS
OUR BUSINESS
KORU Medical designs, manufactures and markets proprietary portable and
innovative medical devices, primarily for the ambulatory infusion market as governed by the United States Food and Drug Administration
(the “FDA”) quality and regulatory system and international standards for quality system management. Our development and marketing
focus is primarily concentrated on our mechanical infusion products, the FREEDOM Infusion Systems (which we refer to as the “FREEDOM
System” when used with one or more accessories), which include the FREEDOM60® Syringe Driver, the FreedomEdge® Syringe Driver,
HIgH-Flo Subcutaneous Safety Needle SetsTM and Precision Flow Rate TubingTM.
Our revenues derive from three business sources: (i) domestic core, (ii)
international core, and (iii) novel therapies. Our core domestic and international revenues consist of sales of our products for
the delivery of subcutaneous immunoglobulin (“SCIg”) to treat Primary Immunodeficiency Diseases (“PIDD”), Chronic
Inflammatory Demyelinating Polyneuropathy (“CIDP”), and other disease states that are FDA cleared for use with the KORU Medical
syringe driver. Novel therapies consist of product revenues related to the sales of our infusion system (syringe drivers, tubing and needles)
for feasibility/clinical trials (pre-clinical studies, Phase I, Phase II, Phase III) of biopharmaceutical companies in the drug development process
as well as non-recurring engineering services revenues received from biopharmaceutical companies to ready or customize the FREEDOM System
for clinical and commercial use.
OUR MISSION
Our mission is to improve the quality of life of patients around the world
by delivering innovative, effective, and easy-to-use drug delivery systems that can be used at home or alternate site settings, for patient
self-administration of drug therapy.
OUR STRATEGY
We plan to become the leading provider of solutions for subcutaneous large-volume
infusions defined as greater than 10ml . We intend to accomplish this objective by increasing penetration of our core SCIg market and
extending into new subcutaneous drug therapies.
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We have identified multiple factors driving growth of the SCIg market.
These include:
We intend to maintain and extend our leadership position in the SCIg market
through clinical and product innovation and commercial excellence. By improving our products, establishing thought leadership in subcutaneous
therapy, partnering with SCIg drug manufacturers, expanding geographically, and executing commercially we intend to increase our overall
global share position and the number of patients prescribed SCIg.
Furthermore, we plan to expand into new therapies outside of SCIg. We estimate
that at least 100 large-volume drugs are in clinical development utilizing subcutaneous infusion. The pipeline is driven by the need to
deliver high therapeutic doses, difficulty in formulating large molecules into small volumes, patient preference for and superior economics
of subcutaneous infusion over intravenous infusion, the COVID-19 pandemic causing pharmaceutical companies to shift development programs
toward at-home SC therapy, and other factors. Biopharmaceutical manufacturers seek device partners during the drug development process.
We intend to partner with them during clinical development—generating services revenues to prepare and customize our products for
clinical use and regulatory clearance and product revenues by selling devices for evaluations and clinical use—and, subsequently,
commercialization.
Our track record of regulatory clearance and successful patient use combined
with our channel access position KORU to both maximize our growth in the core SCIG market and expand into new therapeutic areas.
OUR PRODUCTS
FREEDOM SYSTEM
The FREEDOM System comprises the FREEDOM60 Syringe Driver (standard 60/50ml
syringe compatible) and FreedomEdge Syringe Driver (standard 30ml and 20ml syringe and prefilled syringe compatible), HIgH-Flo Subcutaneous
Safety Needle Sets and Precision Flow Rate Tubing. The systems are portable, easy to operate, maintenance free and do not require
batteries or electricity. The FREEDOM System operates at a lower pressure than an electrical, volumetric pump and maintains a balance
between what a patient’s subcutaneous tissues can absorb and what the system delivers, or what we refer to as DynEq®.
The FREEDOM System is cleared by the FDA for a wide range of flow rates
and certain medications for subcutaneous and intravenous indications, including specific clearance for leading immune globulins Cutaquig
®, Cuvitru®, Hizentra®, and Xembify® and a variety of antibiotics. The FREEDOM System is the only infusion system specifically
cleared for use with a prefilled syringe, the Hizentra® 20ml prefilled syringe.
Ambulatory infusion systems are most prevalent in the home care and alternate
site markets. The use of the FREEDOM System for treatment of PIDD through SCIg administration continues to increase and remains
the market leading delivery system in the U.S. for these infusions. There is an expanded indication for Hizentra® for patients
with CIDP which is an acquired immune-mediated inflammatory disorder of the peripheral nervous system. It is expected that new SCIg
drugs may enter the market. We believe the FREEDOM System is an ideal system for SCIg administration because:
• the patient is able to self-administer in any location;
• the system has less adverse events;
• the pump is easily configured for this application;
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HIgH-Flo Subcutaneous Safety Needle Sets are a critical element of the
FREEDOM System, are available in 26- and 24-gauge sizes and feature unique design elements specific to subcutaneous self-administration.
One such feature includes a back-cut needle designed for more comfort and less tissue damage with flexible wings to minimize patient
discomfort.
Precision Flow Rate Tubing is designed for repeatable flow rates without
allowing unrestricted flow. The tubing regulates the flow rate and infusion time for various applications when used with the FREEDOM
System. Each tubing set provides a different level of flow restriction and consistently delivers medication with low residual volume
to minimize drug waste.
SALES AND DISTRIBUTION
The FREEDOM System is sold through both direct sales and medical device
distributors to specialty pharmacy customers and home infusion providers. Our products are sold principally through a small number
of distributors so our specialty pharmacy customers receive the benefit of remote inventory management and one-stop shopping. We
sell the majority of our products through two distributors in the U.S. and two distributors outside the U.S. As of December 31,
2021, these four distributors comprised approximately 62% of our net revenues with one of our U.S. distributors contributing approximately
41%.
Specialty pharmacies, home infusion providers, and distributors are our
primary call points, although we provide education and training materials to clinicians, patients and patient advocates both in the field
and online.
MANUFACTURING AND RAW MATERIALS
We currently perform product assembly, calibration, pre- and post-assembly
quality control inspection and testing, and final packaging for all of our products at our Chester, NY facility and expect to continue
such activities for certain of our products at our newly leased facility in Mahwah, NJ commencing on or about June 2022. In the
fourth quarter of 2020, we entered into an agreement with Command Medical Products, Inc. (“Command”), to manufacture and supply
the Company’s subassemblies, needle sets and tubing products for supply continuity and cost savings. We expect the transition to
Command to be completed in July 2022.
Our ability to meet customer demand depends, in part, on our ability to
obtain timely and adequate delivery of components for our products. All of the components that go into the manufacturing of our products
and accessories are sourced from third-party suppliers on a single source basis. We believe alternative sources of supply for all equivalent
materials are available from other sources or can be produced by the Company, and the Company does not believe it is substantially dependent
on any suppliers. The Company uses single-source suppliers in part due to governmental approval and validation requirements. A change
in supplier, or the use of multiple suppliers of the same materials, often would necessitate additional approvals and validations, which
the Company seeks to avoid unless and until the need arises. The Company does not have any contracts with suppliers that impose material
binding obligations on the Company or provide the Company with any material rights or benefits, other than the agreement with Command.
RESEARCH AND DEVELOPMENT
We recognize the importance of innovation to our long-term success and
are committed to research and new product development activities. Our product development team along with outside engineering resources
are engaged in continuously improving existing product performance and researching new product opportunities to enhance our product portfolio.
We spent $2.5 million and $1.3 million on research and development for the years ended December 31, 2021 and 2020, respectively.
We intend to make additional investments in research and development over the next twelve months.
REGULATORY
Our medical devices and technologies, as well as our business activities,
are subject to a complex set of regulations and rigorous enforcement, principally by the FDA, and numerous other federal, state, and non-U.S.
governmental authorities. To varying degrees, each of these agencies requires us to comply with laws and regulations governing the
development, testing, manufacturing, labeling, marketing and distribution of our products.
The FDA regulates, among other things, the research, development, testing,
manufacturing, approval, labeling, storage, recordkeeping, advertising, promotion and marketing, distribution, post approval monitoring
and reporting and import and export of medical devices in the U.S. to assure the safety and effectiveness of medical products for their
intended use. Thus, both before and after a product is commercially released, we have ongoing responsibilities under the FDA. For
instance, all medical devices marketed in the U.S. must be manufactured in accordance with the FDA’s quality system regulations
(“QSRs”). Accordingly, our facility and procedures and those of our suppliers are also subject to periodic inspections
by the FDA to determine compliance with applicable laws and regulations. The Federal Trade Commission also regulates the advertising
of our products. Further, we are subject to laws directed at preventing fraud and abuse, which subject our sales and marketing,
training and other practices to government scrutiny.
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Our business is also affected by patient privacy laws and government payor
cost containment initiatives, as well as environmental health and safety laws and regulations.
U.S. Device Classification and Clearance
Except where an exemption applies, each new or significantly modified medical
device we seek to commercially distribute in the U.S. will require either a premarket notification to the FDA requesting permission for
commercial distribution under Section 510(k) of the Federal Food, Drug and Cosmetic Act (“FFDCA”), also known as a 510(k)
clearance, or approval of a pre-market approval (“PMA”) application. For example, the use of our FREEDOM System with
therapies not covered by the existing FDA clearance will require additional 510(k) clearance or PMA approval.
Under the 510(k) process, applicants must demonstrate to the FDA that a
device is as safe and effective as, or substantially equivalent to, a legally marketed device, known as the “predicate” device.
Applicants must submit performance data to establish substantial equivalence. In some instances, data from human clinical
trials must also be submitted in support of a 510(k), and these data must be collected in a manner that conforms to the applicable Investigational
Device Exemption (“IDE”) regulations. The FDA must issue a substantial equivalence determination before commercial distribution
can occur. Changes to cleared devices that will not significantly affect the safety or effectiveness of the device can generally
be made without additional 510(k) submissions. Changes that will significantly affect the safety or effectiveness of the device
will require a new 510(k) prior to marketing of the modified device. Notably, the FDA has announced its intention to pursue comprehensive
reforms to its current 510(k) clearance pathway and to its post-market safety monitoring process. We cannot predict with any certainty
how these reforms may impact our business. See “ITEM 1A. RISK FACTORS.”
Under the PMA application process, the applicant must demonstrate that
the device is safe and effective for its intended use. This approval process applies to most Class III devices, and generally requires
clinical data to support the safety and effectiveness of the device, obtained in conformance with IDE regulations. The FDA will
approve a PMA application if it finds that there is a reasonable assurance that the device is safe and effective for its intended purpose,
and that the proposed manufacturing is in compliance with the QSRs. For novel technologies, the FDA will seek input from an advisory
panel of medical experts regarding the safety and effectiveness of, and their benefit-risk analysis for the device. The PMA process
is generally more detailed, lengthier and more expensive than the 510(k) process, though both processes can be expensive and lengthy,
and requires payment of significant user fees, unless an exemption is available.
We are also required to comply with the regulations of every other country
where we commercialize products before we can launch or maintain new products on the market. Many countries that previously did
not have medical device regulations, or had minimal regulations, are now introducing them.
International sales of medical devices manufactured in the U.S. that are
not approved by the FDA for use in the U.S., or that are banned or deviate from lawful performance standards, are subject to FDA export
requirements. Additionally, exported devices are subject to the regulatory requirements of each country to which the device is exported.
Some countries do not have medical device regulations, but in most foreign countries, medical devices are regulated. Frequently,
regulatory approval may first be obtained in a foreign country prior to application in the U.S. due to differing regulatory requirements;
however, other countries require approval in the country of origin first. Most countries outside of the U.S. require that product
approvals be recertified on a regular basis, generally every five years. The recertification process requires that we evaluate any
device changes and any new regulations or standards relevant to the device and, where needed, conduct appropriate testing to document
continued compliance. Where recertification applications are required, they must be approved in order to continue selling our products
in those countries.
Post-Approval Regulation
Even after a device is cleared or approved by FDA for marketing, numerous
regulatory requirements continue to apply. The FDA and other worldwide regulatory agencies and competent authorities actively monitor
compliance to local laws and regulations through review and inspection of design and manufacturing practices, record-keeping, reporting
of adverse events, labeling and promotional practices. The FDA can ban certain medical devices, detain or seize adulterated or misbranded
medical devices, order repair, replacement or refund of these devices and require notification of health professionals and others with
regard to medical devices that present unreasonable risks of substantial harm to the public health. The FDA may also enjoin and
restrain a company for certain violations of the FFDCA and the Safe Medical Devices Act pertaining to medical devices or initiate action
for criminal prosecution of such violations. In addition, FDA and other governmental agencies such as the Department of Justice
can take action against a company that promotes “off-label” uses. Regulatory agencies and authorities in the countries
where we do business can halt production in or distribution within their respective country or otherwise take action in accordance with
local laws and regulations. Any adverse regulatory action, depending on its magnitude, may restrict a company from effectively marketing
and selling its products, may limit a company’s ability to obtain future premarket clearances or approvals, and could result in
a substantial modification to a company’s business practices and operations.
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Manufacturing Regulation
We must also comply with FDA and foreign agency regulations governing medical
device manufacturing practices. The FDA and foreign agencies require manufacturers to register their establishments, and they monitor
compliance with device manufacturing requirements through inspections of manufacturing facilities. If an investigator observes conditions
that might be violative, the manufacturer must correct those conditions or explain them satisfactorily or face potential regulatory action
that might include physical removal of the product from the marketplace. We are an FDA-registered medical device manufacturer and
must demonstrate that we comply with the FDA’s QSR and Current Good Manufacturing Practices (“cGMPs”).
We believe that our products and procedures are in compliance with all
applicable FDA and international regulations. There is no assurance, however, that other products we are developing or products
that we may develop in the future will be cleared by the FDA and classified as Class II products, or that additional regulations restricting
the sale of our present or proposed products will not be promulgated by the FDA or other foreign agencies. In addition, changes
in FDA, or other federal or state health, environmental or safety regulations or their applications could adversely affect our business.
Other Healthcare Laws
We are subject to additional healthcare regulation and enforcement by the
federal government and by authorities in the states and foreign jurisdictions in which we conduct our business. These laws include:
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Violations of any of the laws described above include civil and criminal
penalties, damages, fines, the curtailment or restructuring of an entity’s operations, the debarment, suspension or exclusion from
federal and state healthcare programs and/or imprisonment.
Coverage and Reimbursement
Our profitability and operations are subject to changes in legislative,
regulatory and reimbursement policies and decisions as well as changes in private payer reimbursement coverage and payment decisions and
policies. Our products are purchased by specialty pharmacies and ambulatory service providers or hospitals that typically bill various
third-party payors, such as governmental programs (e.g., Medicare, Medicaid, and comparable non-U.S. programs), private insurance plans
and managed care plans, for the healthcare services and products provided to their patients. The ability of our customers to obtain
appropriate coverage and reimbursement for our products and the drugs they administer is critical because it affects which products customers
purchase and the price they are willing to pay. Third-party payors are increasingly reducing coverage and reimbursement for certain
healthcare services and products and challenging prices charged for healthcare services and products.
Environmental Health and Safety Laws
We are required to comply with federal, state, and local environmental
laws; however, there is no significant effect of compliance on capital expenditures, earnings, or competitive position. We do not
use significant amounts of hazardous materials in the assembly of our products.
COMPETITION AND THE MARKET
Competition for the FREEDOM System includes electronic (volumetric) pumps,
elastomeric (“infuser”) pumps, and fully mechanical pumps as well as other types of pumps. Safety, ease of use, familiarity,
cost effectiveness, accuracy, pressure, etc. are driving influencers of pump selection. Electronic pumps deliver drugs at a programmed
flow rate. They are more costly and require electricity or batteries, extensive training and maintenance and must be programmed
by a qualified pharmacist or clinician. Elastomeric pumps are one-time-use balloon type devices used for infusion of drugs in intravenous
(“IV”) and surgical wound site applications. Pharmacies are required to fill them with drugs and deliver them to the
patient. They are easy to use from the patient point of view but can be more costly and time consuming to fill, are temperature
sensitive and have larger residual volumes than other delivery systems.
Competition for infusion devices for new drugs includes a variety of technologies
and companies. No single technological approach—autoinjectors, electronic (volumetric pumps), mechanical pumps, needle-free injectors,
on-body wearable pumps, pen injectors, and pre-filled syringes—will meet the needs of all or even a majority of drugs. For drugs
requiring infusion volumes over 3 ml, the segment most similar to the SCIg drugs currently delivered by the FREEDOM System, the most relevant
approaches include mechanical pumps, on-body wearable pumps, and simple electronic pumps. Challenges to their successful commercialization
include high costs per infusion, increased environmental impact, complexity for users, and complex mechanisms with multiple failure modes.
HUMAN CAPITAL RESOURCES
As of December 31, 2021, we had 77 full time employees and no part time
employees. As of December 31, 2021, approximately 57% of the Company’s workforce was female and approximately 20% of the Company’s
employees in managerial roles were female. Approximately 41% were minorities (non-White) in the Company workforce as of December
31, 2021. None of our employees are represented by a collective bargaining agreement.
To help drive consistent execution of our business strategy, including
our customer focused philosophy, and support their development, we provide training opportunities to our employees that align with their
responsibilities over their career with us. We maintain a dedicated Internet-based learning platform with a broad portfolio of written,
audio-visual and interactive enterprise-wide and discipline-specific policy and training materials. This platform includes a library
of self-directed courses and virtual, instructor-led programs for employees at all levels of our organization. Managers and supervisors
are provided training to help their employees progress in their professional development.
We believe our employees are key to achieving our business objectives.
We have COVID-19 prevention protocols in place to minimize the spread of COVID-19 in our workplace. These protocols, which
remain in place, meet or exceed the Centers for Disease Control guidelines and where applicable, state mandates.
Our key human capital measures include employee safety, turnover, absenteeism
and production. We frequently benchmark our compensation practices and benefits programs against those of comparable industries
and in the geographic areas where our facilities are located. We believe that our compensation and employee benefits are competitive
and allow us to attract and retain skilled and unskilled labor throughout our organization. Our notable health, welfare and retirement
benefits include:
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• Company subsidized health insurance
• 401(k) Plan with Company matching contributions
• Paid time off
• Life and disability insurance
We strive to maintain an inclusive environment free from discrimination
of any kind, including sexual or other discriminatory harassment. Our employees have multiple avenues available through which inappropriate
behavior can be reported, including a confidential hotline. All reports of inappropriate behavior are promptly investigated with
appropriate action taken to stop such behavior.
PATENTS AND INTELLECTUAL PROPERTY
We filed and received U.S. and foreign protection for many of our products
relating to infusion systems and related components. We had one patent granted in the U.S. and eleven foreign patents granted outside
the U.S. in 2021. As of December 31, 2021, we have six applications pending in the U.S. and 13 applications pending in foreign jurisdictions.
Expiration dates for the entire patent portfolio range (US & Foreign) from 2022 to 2038. In some cases where it was no longer
deemed economically beneficial, we have allowed certain patent and/or trademark protections to lapse. In addition, the patent application
process for both the U.S. and foreign countries is highly uncertain and involves complex legal and factual issues that differ from country
to country. Consequently, there can be no assurance that patent applications relating to products or technology will result in patents
being granted or that, if issued, the patents will afford protection against competitors with similar technology. There can be no
assurance that we will have the financial resources necessary to enforce any patent rights we may hold.
EXECUTIVE OFFICERS
The following table sets forth certain information with respect to our
executive officers as of March 2, 2022:
Name Age Position / Held Since
Linda Tharby 53 Chief Executive Officer and President (since April 2021)
Karen Fisher 55 Chief Financial Officer, Secretary and Treasurer (since 2015)
Manuel Marques 49 Chief Operating Officer (since December 2018)
Executive officers hold office at the discretion of the Board of Directors.
Ms. Tharby was appointed as President and CEO in April 2021. Ms. Tharby
has over 25 years of executive leadership experience building and leading strong performing global organizations that develop and commercialize
products and service innovations, while delivering solutions to patients in the home setting. Prior to joining KORU, Ms. Tharby spent
the last 24 years working in various roles of increased responsibility at Becton Dickinson (“BD”). Ms. Tharby was a member
of the Executive Leadership team of BD that transformed the company from an $8 billion medical supplies company to an $18 billion global
medical technology company. Ms. Tharby’s most recent role at BD was Chief Customer Experience Officer from July 2018 through December
2020. In her prior role, as BD’s Chief Human Resources Officer, from October 2016 through July 2018, she led the company through
its $24 billion acquisition and integration of C.R. Bard in 2017. She also held numerous global business leadership roles at BD, including
Executive Vice President and President of Life Sciences, Group President of Pre-Analytical Systems and Biosciences, Worldwide President
of Diabetes Care, and Vice President/General Manager of Pharmaceutical Systems. Ms. Tharby has an Honors Bachelor of Business Administration
from Wilfrid Laurier University in Waterloo, Ontario Canada.
Ms. Fisher has more than 26 years of financial experience at a variety
of industries. Prior to joining KORU in 2015, Ms. Fisher was Assistant Controller, Senior Manager for Armored Autogroup, Inc., a
worldwide consumer products company. Before joining Armored Autogroup, Inc., she spent seven years at Gilman Ciocia, Inc., where
she served in a variety of financial roles, including Chief Accounting Officer and Treasurer, and, earlier, as Controller. Before Gilman
Ciocia, Inc., she held multiple financial management roles at The New York Times Company and Thomson Financial. Ms. Fisher is a
Certified Public Accountant and a graduate of Arizona State University with a B.S. in accounting.
Mr. Marques was appointed as Chief Operating Officer in December 2018.
Prior to that, Mr. Marques served as our Vice President of Operations and Engineering from February 2016 and joined KORU as Director
of Manufacturing and Manufacturing Engineering in July 2015. Prior to joining KORU, Mr. Marques served as Lean Manufacturing Champion
at Nobel Biocare Procera LLC, a manufacturer of dental implants and CAD/CAM-based individualized prosthetics, until joining KORU. Mr.
Marques has over 24 years of experience within the dental, medical device, and automotive industries, and holds two U.S. patents for cardiovascular
medical devices. Mr. Marques obtained a B.S. in Mechanical Engineering Technology and an M.S. in Engineering Management from the
New Jersey Institute of Technology.
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ITEM 1A. RISK FACTORS
RISK FACTORS
An investment in our common stock involves significant risks. Before
making an investment in our common stock, you should carefully consider all of the information contained in this Annual Report on Form
10-K and our other filings with the SEC including the material risks and uncertainties that we have identified below. The risks
and uncertainties identified below are not the only risks and uncertainties we face. If any of the material risks or uncertainties
that we face were to occur, the trading price of our common stock could decline and you could lose part or all of your investment. Please
note that additional risks not currently known to us or that we currently deem immaterial also may adversely affect our business, operations,
results of operations, financial condition and prospects.
Risks Related to Our Business
If we are unable to successfully introduce new products or fail to
keep pace with advances in technology, our business, financial condition and results of operations could be adversely affected.
We need to successfully introduce new products to achieve our strategic
business objectives. A significant element of our strategy is to increase revenue growth by investing in innovation and new product
development, which will require substantial resources. Our successful product development will depend on many factors, including
our ability to attract strong talent to lead our research and development efforts, properly anticipate and satisfy customer needs, adapt
to new technologies, obtain regulatory concurrence on a timely basis, demonstrate satisfactory clinical results, manufacture products
in an economical and timely manner, obtain appropriate intellectual property protection for our products, gain and maintain market acceptance
of our products, and differentiate our products from those of our competitors. In addition, patents attained by others can preclude
or delay our commercialization of a product. There can be no assurance that any products now in development or that we may seek to develop
in the future will achieve technological feasibility, obtain regulatory concurrence or gain market acceptance. If we cannot successfully
introduce new products or adapt to changing technologies, our products may become obsolete, and our revenue and profitability could suffer.
Our business depends on an adequate supply of drugs to be administered
by our products.
Demand for our products depends on the availability of drugs to be administered
by them. Currently, most of our products require immunoglobulin therapies that rely on blood plasma collection for drugs such as
Hizentra® and Cuvitru®. Any disruption in the supply of these drugs for any reason, including contamination, could significantly
adversely affect our business. The change of any drug indication by the FDA or comparable foreign governmental agencies could also
result in decreased demand for our products. In addition, pharmaceutical companies and other competitors have or are developing
alternative therapies for disease states that are deliverable without a medical device. The COVID-19 pandemic has negatively impacted
the collection of plasma, the source of the active ingredient of SCIg medications, which may limit the supply of these drugs. If there
is not an adequate supply of drugs requiring administration by medical devices such as those provided by us or alternative therapies are
developed, our sales may suffer and/or our products may become obsolete.
Our compliance with EU MDR regulations by May 2024 will require significant
investment and, if we are not in compliance by that time, we will not be able to sell our products in the EU.
In the European Union (“EU”), we are required to comply with
the new Medical Device Regulation (“MDR” or “EU MDR”) effective May 2021, which supersedes the prior Medical Device
Directives. Medical devices which have a valid CE certificate to the current Medical Device Directives (issued before May 2021), as do
all of our current products, can continue to be sold until May 2024 or until the CE certificate expires, whichever comes first, providing
there are no significant changes as defined in Article 120 of EU MDR. The MDR was published in May 2017 with a 3-year transition period.
That transition period was extended to May 2021 due to the COVID-19 pandemic. The CE mark required to sell medical devices in the EU is
affixed following conformity assessment and either approval from an appointed independent notified body or through self-certification
by the manufacturer. The selected pathway to CE marking is based on product risk classification. CE marking indicates conformity to the
applicable essential requirements of the relevant Medical Device Directives and in the future to the general safety and performance requirements
for the new MDR. The MDR will change multiple aspects of the existing regulatory framework for CE marking, such as increased clinical
evidence requirements and other new requirements, including Unique Device Identification (“UDI”) as well as many other post-market
obligations. MDR also significantly modifies and increases the compliance requirements for the industry and will require significant investment
by us in the near future to implement.
If we are unable to comply with the MDR by May 2024, we will not be able
to sell our products in the EU, which will materially impact our net revenues.
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Interruption of our manufacturing operations, including due to transitioning
to our new facility, could adversely affect our future revenues and operating income.
The FDA and other U. S. and non-U.S. government agencies regulate our manufacturing
operations, which includes product assembly, calibration, pre- and post-assembly quality control inspection and testing, and final packaging
for all of our products. Variations in the manufacturing process may result in production failures which could lead to launch delays,
product shortage, unanticipated costs, lost revenues and damage to our reputation. A failure to identify and address manufacturing
problems prior to the release of products to our customers may also result in a quality or safety issue that could result in a recall
or other inability to sell our products.
Our products are currently manufactured and stored at our corporate headquarters
and manufacturing facility. Products are also stored in storage facilities in the local NY area. Loss or damage to our manufacturing
and storage sites due to weather, vandalism, terrorism, a natural disaster, issues in our manufacturing process, equipment failure or
other factors, could adversely affect our ability to manufacture sufficient quantities of products or otherwise deliver products to meet
customer demand or contractual requirements which may result in a loss of revenue and other adverse business consequences, including damage
to our relationship with customers.
We take precautions to safeguard our facility and storage site, including
acquiring insurance, adopting health and safety protocols and utilizing off-site storage of computer data. Our insurance may not
cover our losses in any particular case. In addition, regardless of the level of insurance coverage, damage to our facilities may
harm our business, financial condition and operating results.
Our business has been and could continue to be adversely affected
by the COVID-19 pandemic.
The COVID-19 pandemic has and will continue affecting economies and businesses
around the world. We are closely monitoring the impact of COVID-19 on all aspects of our business, including how it may impact our
employees and business operations. While we did not incur significant manufacturing disruptions during 2021 from the COVID-19 pandemic,
customer purchasing patterns and clinical trial activity have been less predictable. The COVID-19 pandemic has also impacted the rate
of diagnosis of many conditions due to fewer infections causing patients to seek diagnosis, reduced access to healthcare professionals,
and other factors including conditions treated by SCIg using the FREEDOM infusion system. We also believe COVID-19 has precipitated
limited availability and rising costs of raw materials and labor, which may impact our financial results if current trends continue. We
may experience disruptions that could severely impact our results of operations and financial condition. We are unable to predict
the impact that COVID-19 will have on our future operating results and financial condition due to numerous uncertainties. These
uncertainties include the geographic spread of the pandemic, the severity of the virus, the impact of the virus directly on our employees
or those of our suppliers, the duration of the outbreak, governmental actions, travel restrictions and social distancing, business closures
or business disruptions (including those impacting our supply chain), delays in clinical trials, the effectiveness of actions taken in
the United States and other countries to contain and treat the disease, the availability of plasma and drugs that are administered by
our products, the number of new prescriptions for PIDD and CIDP, purchasing patterns of customers in response to the pandemic, changes
to our operations, or whether the United States and additional countries are required to move to complete lock-down status, among others.
Our sales representatives are unable to hold in-person meetings with customers and health care providers to discuss our products,
which may further impact our sales. As local jurisdictions continue to put restrictions in place, our ability to continue to manufacture
our products may also be limited. Such events may result in a period of business and manufacturing disruption, and in reduced operations,
any of which could materially affect our business, financial condition and results of operations. The health of our workforce and
our ability to meet staffing needs at our facility cannot be predicted and is vital to our operations. We will continue to monitor
the COVID-19 situation closely and intend to follow health and safety guidelines as they evolve. Further, the spread of COVID-19,
which has caused a broad impact globally, may materially affect us economically. While the potential economic impact brought by,
and the duration of, COVID-19 may be difficult to assess or predict, it has resulted in significant disruption of global financial markets,
which could reduce our ability to access capital, negatively affecting our liquidity. In addition, the recession resulting from
the spread of COVID-19 could materially affect our business and the value of our common stock. The ultimate long-term impact of
COVID-19 is highly uncertain and cannot be predicted with confidence.
We may be unable to compete successfully in our highly competitive
industry.
We operate in a single market – ambulatory infusion – and are
dependent upon our success in that market. We face competition in our market from a wide range of international and domestic companies,
including those that deliver electronic volumetric pumps, elastomeric infuser pumps and other mechanical devices. These include
large medical device companies with multiple product lines, some of which may have greater financial and marketing resources than we do.
We also face competition from companies that are even more specialized than ours with respect to particular markets or product lines.
Some of those companies have greater financial and sales and marketing resources than we do or offer products at a lower price point
than ours. In addition, former employees may develop products that are competitive with ours or capitalize on customer relationships
developed while employed with us, subject to their continuing obligations under confidentiality agreements and other restrictive covenants
that may survive their employment. We face competition on the basis of product features, clinical or economic outcomes, product
quality, availability, price, services, technological innovation and other factors. In addition, we face changing customer preferences
and requirements, changes in the ways health care services are delivered, including the transition of high-acuity care to lower-acuity,
and non-acute care settings.
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Competition may increase further as additional companies begin to enter
our market or modify their existing products to compete directly with ours. If we are forced to reduce our prices due to increased
competition, our business could suffer.
The medical technology industry has also experienced a significant amount
of consolidation, resulting in larger companies with greater access to markets. Health care systems, other health care companies
and even retail pharmacies are also consolidating, resulting in greater purchasing power for these companies. As a result, competition
among medical device suppliers to provide goods and services has increased. Group purchasing organizations and integrated health
delivery networks have also served to concentrate purchasing decisions for some customers, which has led to downward pricing pressure
for medical device suppliers. Further consolidation in the industry could intensify competition among medical device suppliers and
exert additional pressure on the prices of our products.
Consolidation in the medical industry could have a negative impact with
payor and provider relationships and distributor relationships, as we could lose market share as consolidation occurs.
Technological developments by others may disrupt our business and
negatively impact our revenues.
The medical device industry is subject to rapid technological change and
discovery and frequent product introductions. The development of new or improved products, processes or technologies by other companies
that provide better features, pricing or clinical outcomes or economic value may render our products or proposed products obsolete or
less competitive. If our competitors respond more quickly to new or emerging technologies and changes in customer requirements or
we do not introduce new versions or upgrades to our product portfolio in response to those requirements, our products may not be marketable.
If competitors develop more effective or affordable products or achieve earlier patent protection or product commercialization for
new products than we do, our operations will likely be adversely affected.
We are subject to costly and complex laws and governmental regulations
and any adverse regulatory action may materially adversely affect our financial condition and business operations.
Our medical devices and technologies, as well as our business activities,
are subject to a complex set of regulations and rigorous enforcement, principally by the FDA, and numerous other federal, state, and non-U.S.
governmental authorities. To varying degrees, each of these agencies requires us to comply with laws and regulations governing the
design, development, and manufacturing; testing, labeling, content and language of instructions for use and storage; clinical trials;
product safety; establishment registration and device listing; marketing, promotion, and distribution of our products; premarket clearance
and approval; record keeping procedures; advertising and promotion; recalls and field safety corrective actions; post-market surveillance,
including reporting of deaths or serious injuries and malfunctions that, if they were to recur, could lead to death or serious injury;
post-market approval studies; and product import and export.
In the U.S., our device products are subject to clearance or approval by
FDA under the FFDCA. Before we can market a new medical device, or a new use of, new claim for, or significant modification to,
an existing product, we must first receive either 510(k) clearance or approval of a PMA application from the FDA, unless an exemption
applies. Under the 510(k) process, the manufacturer must submit to the FDA a premarket notification, demonstrating that the device
is “substantially equivalent,” as defined in the statute, to a legally marketed predicate device. To be “substantially
equivalent,” the proposed device must have the same intended use as the predicate device, and either have the same technological
characteristics as the predicate device or have different technological characteristics and not raise different questions of safety or
effectiveness than the predicate device. If the manufacturer is unable to demonstrate substantial equivalence to FDA’s satisfaction,
or if there is no available predicate device, then the manufacturer may be required to seek approval through the PMA application process,
which is generally more costly and time consuming than the 510(k) process. Through the PMA application process, the applicant must
submit data and information demonstrating reasonable assurance of the safety and effectiveness of the device for its intended use. Accordingly,
a PMA application typically includes, but is not limited to, extensive technical information regarding device design and development,
pre-clinical and clinical trial data, manufacturing information, labeling and financial disclosure information for the clinical investigators
in device studies.
We cannot guarantee that we will be able to obtain or maintain FDA 510(k)
clearance or premarket approval for our new products or enhancements or modifications to existing products (including the use of our FREEDOM
System with therapies not covered by the existing FDA clearance), and the failure to maintain approvals or clearances, or obtain approval
or clearance could have a material adverse effect on our business, results of operations, financial condition and cash flows. Even if
we are able to obtain approval or clearance, it may:
• take a significant amount of time
• require the expenditure of substantial resources
• involve modifications, repairs, or replacements of our products, and
• limit the proposed uses of our products.
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Both before and after a product is commercially released, we have ongoing
responsibilities under the FDA and other applicable non-U.S. government agency laws and regulations. The FDA and other worldwide
regulatory agencies actively monitor compliance with local laws and regulations through review and inspection of design and manufacturing
practices, recordkeeping, reporting of adverse events, labeling and promotional practices. The results of these inspections can
include inspectional observations on the FDA’s Form 483, warning letters, or other forms of enforcement. If the FDA, state
or foreign regulatory authorities were to conclude that we are not in compliance with any applicable laws or regulations, or that any
of our medical products are ineffective or pose an unreasonable health risk, they could deem our products adulterated or misbranded, and
take enforcement action against us. FDA, state and foreign regulatory authorities have broad enforcement powers. Possible
enforcement actions include, but are not limited to: temporarily or permanently suspending the sale and/or distribution of such
medical products; detaining or seizing all adulterated or misbranded medical products; ordering recall, repair, replacement, or refund
of such products; refusing to grant pending pre-market approval or 510(k) clearance applications; and/or requiring us to notify health
professionals and others that the devices present unreasonable risks of substantial harm to the public health. In addition, the
FDA prohibits device manufacturers from promoting their products for uses and indications other than those set forth in the approved product
labeling, and failure to comply with this prohibition could subject us to significant civil or criminal exposure, administrative obligations
and costs, and/or other potential penalties from, and/or agreements with, the federal government. The FDA and other non-U.S. government
agencies may also assess civil or criminal penalties against us, our officers or employees and impose operating restrictions on a company-wide
basis. The FDA may also recommend prosecution to the U.S. Department of Justice. Any adverse regulatory action, depending
on its magnitude, may restrict us from effectively marketing and selling our products and limit our ability to obtain future pre-market
clearances or approvals, and could result in a substantial modification to our business practices and operations.
Regulations regarding the development, manufacture and sale of medical
devices are evolving and subject to future change and have tended to become more stringent over time. Regulatory changes could result
in restrictions on our ability to continue or expand our operations, higher than anticipated costs, or lower than anticipated sales. We
cannot predict what impact, if any, those changes might have on our business; however, failure to comply with applicable regulatory requirements
could have a material adverse effect on our business, financial condition, and results of operations. Later discovery of previously
unknown problems with a product or manufacturer could result in fines, delays or suspensions of regulatory clearances or approvals, seizures
or recalls of products, physician advisories or other field actions, operating restrictions and/or criminal prosecution. We may
also initiate field actions as a result of a failure to strictly comply with our internal quality policies. The failure to receive
product approval clearance on a timely basis, suspensions of regulatory clearances, seizures or recalls of products, physician advisories
or other field actions, or the withdrawal of product approval by the FDA or by comparable agencies in foreign countries could have a material
adverse effect on our business, financial condition or results of operations.
Governmental regulations outside the U.S. have also, and may continue to,
become increasingly stringent and common. In the EU, for example, a new MDR was published in 2017 which, when it enters into full
force in May 2021, will include significant additional premarket and post-market requirements. Penalties for regulatory non-compliance
could be severe, including fines and revocation or suspension of a company’s EU device approval, ability to distribute products
and criminal sanctions. Future foreign governmental laws and regulations may have a material adverse effect on us.
In addition, exported devices are subject to the regulatory requirements
of each country to which the device is exported. Some countries do not have medical device regulations, but in most foreign countries,