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.
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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 with devices we do not offer or 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 December 2028 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 December 2028 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. In early 2023, the transition period was further extended
to December 2028 for class IIa products. 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.
Our products are also subject to approval and regulation by foreign regulatory
and safety agencies. For example, the EU has adopted the EU Medical Device Regulation (the “EU MDR”) and the In Vitro Diagnostic
Regulation (the “EU IVDR”), each of which impose stricter requirements for the marketing and sale of medical devices, including
in the area of clinical evaluation requirements, quality systems and post-market surveillance. Implementation of the compliance requirements
of these regulations requires us to incur significant expenditures and utilize resources. Failure to continue to meet these requirements
could adversely impact our business in the EU and other regions that tie their product registrations to the EU requirements.
If we are unable to comply with the MDR by December 2028, we will not be able
to sell our products in the EU, which will materially impact our net revenues.
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 facilities. 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. Additionally, Command manufactures
and supplies the Company’s subassemblies, needle sets and tubing products in Nicaragua. There could be a delay in providing the
products timely due to their climate and international boundaries.
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We take precautions to safeguard our facilities, 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.
Public health crises, such as the COVID-19 pandemic, have had, and
could in the future have, a negative effect on our business.
Pandemics or disease outbreaks, such as the COVID-19 pandemic, have created
and may continue to create significant volatility, uncertainty and economic disruption in the markets we sell our products into and operate
in, primarily the U.S., Europe, and Asia-Pacific and may negatively impact business and healthcare activity globally. In response to the
COVID-19 pandemic, governments around the world have imposed measures designed to reduce the transmission of COVID-19 and individuals
continue to respond to the fear of contracting COVID-19. In particular, elective procedures and exams were delayed or cancelled, there
were significant reductions in physician office visits, and hospitals postponed or canceled capital purchases as well as limited or eliminated
services. While elective procedures and exams and capital purchases have increased from initially depressed levels, the reduction in elective
procedures, exams and capital purchases has had, and we believe may continue to have, a negative impact on the sales of our products .
Additionally, governments and other third-party payors around the world facing tightening budgets could move to further reduce the reimbursement
rates or the scope of coverage offered, which could further adversely affect sales of our products.
The extent to which fear of exposure to or actual effects of COVID-19,
new variants, disease outbreak, epidemic or a similar widespread health concern impacts our business will depend on future developments,
which are highly uncertain and cannot be predicted with confidence, such as the speed and extent of geographic spread of the disease,
the duration of the outbreak, travel restrictions, the efficacy of vaccination and treatment; impact on the U.S. and international healthcare
systems, the U.S. economy and worldwide economy; the timing, scope and effectiveness of U.S. and international governmental response;
and the impact on the health, well-being and productivity of our employees.
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, other mechanical devices, novel drug delivery devices
and methodologies, and devices and formulation technologies that allow drugs to be delivered in volumes smaller than the FREEDOM System
is designed to deliver. 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.
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. Pharmaceutical manufacturers, 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.
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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, numerous other federal, state, and non-U.S.
governmental authorities and equivalent regulatory bodies of other countries. 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. In the future our device products may be approved as part of a drug submission under a combination product regulatory
pathway. Under the combination product approval process, our device would typically be submitted as part of a drug application, typically
a BLA or NDA in the United States. The proof required for approval as a combination product is similar to that required for a 510(k),
but may differ in material ways. In addition, the regulatory approval is held by the pharmaceutical manufacturer, not KORU.
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 or any
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 and 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. 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,
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, such as China for example, require approval in the country
of origin or legal manufacturer first. Most countries outside of the U.S. require that product approvals be renewed or recertified
on a regular basis, generally every four to five years. The renewal or recertification process requires that we evaluate any device
changes and any new regulations or standards relevant to the device and conduct appropriate testing to document continued compliance.
Where renewal or recertification applications are required, they may need to be renewed and/or approved in order to continue selling
our products in those countries. There can be no assurance that we will receive the required approvals for new products or modifications
to existing products on a timely basis or that any approval will not be subsequently withdrawn or conditioned upon extensive post market
study requirements.
Our global regulatory environment is becoming increasingly stringent and
unpredictable, which could increase the time, cost and complexity of obtaining regulatory approvals for our products, as well as the clinical
and regulatory costs of supporting those approvals. Several countries that did not have regulatory requirements for medical devices
have established such requirements in recent years and other countries have expanded on existing regulations. Certain regulators
are exhibiting less flexibility and are requiring local preclinical and clinical data in addition to global data. While harmonization
of global regulations has been pursued, requirements continue to differ significantly among countries. In the United Kingdom, for
example, the Medicines and Healthcare products Regulatory Agency (MHRA) is responsible for regulating the UK medical device market. With
recent changes in the United Kingdom’s membership with the European Union, the MHRA has and will continue to impose new regulatory
obligations becoming effective in 2021 through 2023, for medical device manufacturers. We expect this global regulatory environment
will continue to evolve, which could impact our ability to obtain future approvals for our products or could increase the cost and time
to obtain such approvals in the future.
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Our business and financial results may be materially adversely affected
if our facility is not ready for manufacturing when the lease on our current facility expires on March 31, 2023.
The lease on our current corporate headquarters and manufacturing facility
expires on March 31, 2023. We have entered into a lease for a new facility for our operations, and we expect to complete our move into
that facility in the first quarter of 2023. If we are unable to establish continuous manufacturing operations in our new facility before
our existing lease expires, our revenues will suffer. We may not be able to establish such operations before our existing lease expires
due to a number of factors, including delays in construction caused by raw materials, labor shortages and unforeseen complications; delays
in receiving necessary regulatory approvals from U.S. and international authorities; unexpected manufacturing quality issues; inability
to hire or retain necessary personnel; and other unforeseen circumstances. We have begun building our product inventory and expect to
continue to do so through the first quarter of 2023, in order to ensure we can continue to service our customers in the event we are unable
to maintain continuous manufacturing operations.
Health care policy changes and industry cost-containment measures
could result in downward pricing pressure for our products and limit our sales.
Most of our customers, and those to whom our customers supply medical devices,
rely on third-party payers, including government programs and private health insurance plans, to reimburse some or all the cost of the
medical devices we manufacture. The continuing efforts of governmental authorities, insurance companies and other payers of health
care costs to contain or reduce these costs and, more generally, to reform the health care system, could limit the prices we are able
to charge for our products or the amounts of reimbursement available for our products or the drugs that they administer, which would put
pressure on us to reduce our prices for our products and/or limit our sales. The adoption of some or all of these proposals could
have a material adverse effect on our business, results of operations, financial condition and cash flows.
Issues with product quality could have an adverse effect upon our
business, subject us to regulatory actions, cause a loss of customer confidence in us or our products, among other negative consequences.
Quality management plays an essential role in determining and meeting customer
requirements, preventing defects, improving our products and services, and assuring the safety and efficacy of our products. Our
future success depends on our ability to maintain and continuously improve our quality management program. While we have a quality
system that covers the lifecycle of our products, quality and safety issues may occur with respect to any of our products. A quality
or safety issue may result in adverse inspection reports, voluntary or official action indicated, warning letters, import bans, product
recalls (either voluntary or required by the FDA or
similar governmental authorities in other countries) or seizures, monetary
sanctions, injunctions to halt manufacture and distribution of products, civil or criminal sanctions, costly litigation, refusal of a
government to grant approvals and licenses, restrictions on operations or withdrawal of existing approvals and licenses. An inability
to address a quality or safety issue in an effective and timely manner may also cause negative publicity, a loss of customer confidence
in us or our current or future products, which may result in the loss of sales and difficulty in successfully launching new products.
Defects or quality issues associated with our products could adversely
affect the results of our operations.
The design, manufacture and marketing of medical devices involve certain
inherent risks. Manufacturing or design defects, component failures, unapproved or improper use of our products, or inadequate disclosure
of risks or other information relating to the use of our products can lead to injury or other serious adverse events. We are subject
to the FDA’s medical device reporting regulations and similar foreign regulations, which require us to report to the FDA when we
receive or become aware of information that reasonably suggests that one or more of our products may have caused or contributed to a death
or serious injury or malfunctioned in a way that, if the malfunction were to recur, it could cause or contribute to a death or serious
injury. The timing of our obligation to report is triggered by the date we become aware of the adverse event as well as the nature
of the event. If we fail to comply with our reporting obligations, the FDA could take action, including warning letters, untitled
letters, administrative actions, criminal prosecution, imposition of civil monetary penalties, revocation of our device clearances or
approvals, seizure of our products, or delay in clearance or approval of future products.
These adverse events could also lead to safety alerts relating to our products
or recalls (either voluntary or as required by the FDA or similar governmental authorities in other countries), and could result, in certain
cases, in the removal of a product from the market. A recall could result in significant costs and lost sales and customers, enforcement
actions and/or investigations by state and federal governments or other enforcement bodies, as well as negative publicity and damage to
our reputation that could reduce future demand for our products. Any corrective action, whether voluntary or involuntary, as well
as defending ourselves in a lawsuit, will require the dedication of our time and capital, distract management from operating our business
and may harm our reputation and financial results.
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Personal injuries relating to the use of our products can also result in
significant product liability claims being brought against us. A product liability claim, regardless of its merit or outcome, could
not only result in significant legal defense costs, but also have a material adverse effect on our business and reputation and ability
to attract and retain customers for our products. In some circumstances, adverse events could also cause delays in regulatory approval
of new products or the imposition of post-market approval requirements.
We are subject to lawsuits.
We have been and may be party to lawsuits, settlement discussions, mediations,
arbitrations and other disputes, including patent and product liability claims, whether brought by companies, individuals or governmental
authorities. These matters may result in a loss of patent protection, reduced revenue, incurrence of significant liabilities and
diversion of our management’s time, attention and resources. Our insurance coverage may not provide adequate protection against
actual losses. In addition, we are subject to the risk that one or more of our insurers may become insolvent and become unable to
pay claims that may be made in the future. Even if we maintain adequate insurance, claims could have a material adverse effect on
our financial condition, liquidity and results of operations and on our ability to obtain suitable, adequate or cost-effective insurance
in the future. Litigation and other disputes, including any adverse outcomes, may have an adverse impact on our business, operations
or financial condition. Even claims without merit could subject us to adverse publicity and require us to incur significant legal
fees.
If we are unable to protect our patents or other proprietary rights,
or if we infringe the patents or other proprietary rights of others, our competitiveness and business prospects may be materially damaged.
Patent and other proprietary rights are essential to our business. We
own patents, trade secrets, trademarks and/or other intellectual property rights related to many of our products. Our success depends
to a significant degree on our ability to obtain and enforce patents, both in the U.S. and in other countries. We can lose the protection
afforded by these intellectual property assets through patent expirations, legal challenges or governmental action. Additionally,
our intellectual property rights may be challenged or infringed upon by third parties, particularly in countries where property rights
are not highly developed or protected, or we may be unable to enter into license agreements with third-party owners of intellectual property
on reasonable terms. Unauthorized use of our intellectual property rights or inability to preserve existing intellectual property
rights could adversely impact our competitive position and results of operations.
The patent position of a medical device company is often uncertain and
involves complex legal and factual questions. Significant litigation concerning patents and products is pervasive in our industry.
Patent claims include challenges to the coverage and validity of our patents on products or processes as well as allegations that
our products infringe patents held by competitors or other third parties. A loss in any of these types of cases could result in
a loss of patent protection or the ability to market products, which could lead to a significant loss of sales, or otherwise materially
affect future results of operations. We also rely on trademarks, trade secrets and know-how to develop, maintain and strengthen
our competitive positions. Third parties may know, discover or independently develop equivalent proprietary information or techniques,
or they may gain access to our trade secrets or disclose our trade secrets to the public.
Although our employees, consultants, parties to collaboration agreements
and other business partners are generally subject to confidentiality or similar agreements to protect our confidential and proprietary
information, these agreements may be breached, and we may not have adequate remedies in the event of a breach of confidence. To
the extent that our employees, consultants, parties to collaboration agreements and other business partners use intellectual property
owned by others in their work for us, disputes may arise as to the rights in related or resulting know-how and inventions.
Furthermore, our intellectual property, other proprietary technology and
other sensitive company data is potentially vulnerable to loss, damage or misappropriation from system malfunction, computer viruses,
unauthorized access to our data or misappropriation or misuse thereof by those with permitted access and other events. While we
have invested to protect our intellectual property, confidential information and other data, and continue to work diligently in this area,
there can be no assurance that our precautionary measures will prevent breakdowns, breaches, cyber incidents or other events. Such events
could have a material adverse effect on our reputation, business, financial condition or results of operations.
Misappropriation or other loss of our intellectual property from any of
the foregoing would have an adverse effect on our competitive position and may cause us to incur substantial litigation costs.
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We need to attract and retain key employees to be competitive.
Our ability to compete effectively depends upon our ability to attract
and retain executives and other key employees, including people in technical, marketing, sales, research and development, quality assurance
and regulatory compliance positions. We depend on key management personnel and attracting and retaining other qualified personnel,
and our business could be harmed if we lose key management personnel or cannot attract and retain other qualified personnel. We
do not maintain any “key man” insurance policies on the lives of any of our employees.
The failure to attract, integrate, motivate, and retain additional skilled
and qualified personnel could have a material adverse effect on our business. We compete for such personnel against numerous companies,
including larger, more established companies with significantly greater financial resources than we possess. Our ability to recruit
such talent will depend on a number of factors, including compensation and benefits, work location and work environment. There can
be no assurance that we will be successful in attracting or retaining such personnel and the failure to do so could have a material adverse
effect on our business, financial condition and results of operations.
We sell a majority of our products through only a few distributors
on whom we depend, and our financial results depend on their purchasing patterns.
Most of our customers prefer to purchase our products through distributors,
rather than directly from us, because of “one-stop shopping” convenience and their ability to ship directly to patients. We
sell most of our products through a small number of distributors, three in the U.S. and two outside the U.S. As of December 31,
2022, these five distributors comprised approximately 72% of our net revenues with one U.S. distributor contributing 41%. Purchasing
patterns by these distributors cannot always be predicted and fluctuate from quarter to quarter and year to year based on, among other
things, their expectations of customer demand. Any decline in business with the distributors outside the U.S. could have an adverse
impact on our business. If we were unable to sell through the distributors outside the U.S., we would have to find other distributors
or broaden our customer base and expand direct relationships with customers. Other distributors may not be available or may not
agree to arrangements that are commercially reasonable. In the U.S. we could transition to direct customer purchase; however, customers
may not want to purchase directly from us and may decide to purchase competitors’ products through their distributors. Moreover,
a transition from distributors to direct customer purchase would be time consuming and costly.
We and the biopharmaceutical companies with whom we do novel therapies
business (“our biopharma customers”) are subject to extensive regulation by governments around the world, and if these regulations
are not complied with, existing and future operations may be curtailed, and we could be subject to liability.
Our devices and our biopharma customers’ products that may utilize
our device are subject to extensive regulation by governmental authorities in the United States, Europe and other countries, including
the FDA. Not only do these regulations present challenges during the regulatory approval process, but after our devices or our biopharma
customers’ products that may utilize our device are approved for new indications and placed in the market, numerous regulatory requirements
will apply. These include, but are not limited to QSR, labeling regulations and FDA prohibitions against the promotion of products
for uncleared, unapproved or “off label” uses, medical device reporting regulations and post-market surveillance regulations,
and laws and regulations that govern the development, testing, manufacturing, advertising, marketing and distribution of medical devices,
including our devices and our biopharma customers’ products that may utilize our device. The FDA has broad post-market and
regulatory enforcement powers.
In the European Union (“EU”), we are required to comply with
the new Medical Device Regulation (“MDR” or “EU MDR”) effective May 2021, which will supersedes the prior Medical
Device Directives. Class IIa medical devices which have a valid CE certificate to the current Medical Device Directives can continue
to be sold until December 2028 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. In 2023, the transition period was extended further to December 2028 for
Class IIa products. 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 in the near future to implement.
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If our devices are commercialized as part of a drug-delivery combination
product we, as the manufacturer of the device component of that combination product, we are subject to unannounced and preapproval inspections
by the FDA of our manufacturing facility to determine our compliance with QSR and cGMP.
Failure to comply with applicable regulatory requirements can result in
an enforcement action by the FDA or other regulatory authority, which may include any or all of the following sanctions: fines, injunctions,
consent decrees and civil penalties, recall or seizure of our products or our biopharma customers’ products, operating restrictions,
partial suspensions or total shutdown of production, refusing our biopharma customers’ requests for regulatory approvals of their
drug-device combination products or new intended uses, as applicable, refusing our requests for regulatory approval of our devices, withdrawing
our biopharma customers’ or our regulatory approvals that may be granted and criminal prosecution.
The therapeutic efficacy of certain of our biopharma customers’
products that may utilize our device are either unproven in humans or has only been proven in limited circumstances, and we may not be
able to successfully develop and sell our products in combination with our biopharma customers’ products.
While some of our biopharma customers use our products with established,
approved drugs, in certain instances, the benefits of those drugs as injectable therapies are either unproven or have only been proven
in limited circumstances. Our ability to generate revenue from our products will depend heavily on the successful development, commercialization
and sales of our biopharma customers’ products, which is subject to many potential risks. For example, data developed in clinical
trials or following the commercialization of our biopharma customers’ products may show that such therapies do not prove to be effective
treatments for the targets they are being designed to act against (or as effective as other treatments available). In clinical trials
or following commercialization, it may be shown that those drugs interact with human biological systems in unforeseen, ineffective or
harmful ways. If those drugs are associated with undesirable side effects or have characteristics that are unexpected, the pharmaceutical
companies that make those drugs may need to abandon clinical development or discontinue commercial sales or limit clinical development
or sales to certain uses or subpopulations in which the undesirable side effects or other characteristics are less prevalent, less severe
or more acceptable from a risk-benefit perspective. As a result of these and other risks described herein that are inherent in the
development and sale of therapeutic agents, pharmaceutical companies may never successfully develop or successfully commercialize their
drugs, or the commercialization of their drugs may be abandoned or severely limited, which may limit our profitability with respect to
biopharma customers with drugs or drug-device combination products including those drugs and our device, and we may not be successful
in achieving commercial scale production and sales of our injectable drug delivery systems in combination with certain drugs.
Certain of the injectable therapies being targeted for use with our
products are not approved but are in various phases of clinical development. These injectable therapies may be independently terminated
by their makers prior to submission of a regulatory filing or even after regulatory approval and pharmaceutical developers may cease their
efforts with us, resulting in the cessation of any revenue associated with that contract or program.
We work with pharmaceutical and biotechnology companies who are targeting
the use of our products with a variety of injectable therapies. When we collaborate with pharmaceutical developers, they may engage
us in a variety of ways, including in vitro feasibility testing, product customization and validation (“development”),
non-interventional user testing of our devices, animal or human clinical research using our devices, regulatory submissions, manufacturing
development, and commercialization. Certain of those injectable therapies are not FDA approved and are in various phases of clinical development.
The clinical development of these pipeline therapies can be terminated by their developers at any stage. Our biopharma customers
may choose to continue their drug program without use of our devices. Use in one stage of work does not guarantee use in a future development
stage or in commercialization. Furthermore, these pharmaceutical companies could obtain regulatory approval for their injectable therapies
and decide for business reasons not to require or encourage utilization of our device. Prior investments we have made in manufacturing
capacity or research and development will then not result in the generation of revenue that would have previously been anticipated.
Our commercial success depends upon the attainment of significant
market acceptance of drug product candidates to be included in our biopharma customers’ products that may utilize our device, if
approved, among physicians, patients, healthcare payers or the medical community.
Even if biopharmaceutical companies obtain regulatory approval for their
drug product candidates, their product candidates may not gain sufficient levels of market acceptance among physicians, healthcare payers,
patients or the medical community to make them commercially feasible. Market acceptance of our biopharma customers’ product candidates,
if they receive approval, depends on a number of factors, including the:
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• efficacy and safety of the product candidates;
• clinical indications for which the product candidates are approved;
• safety of the product candidates seen in a broader patient group;
• prevalence and severity of any side effects;
• cost of treatment in relation to alternative treatments;
• relative convenience and ease of administration; and
• effectiveness of the pharmaceutical companies’ sales and marketing efforts.
If pharmaceutical companies’ candidates are approved but fail to
achieve market acceptance among physicians, patients or healthcare payers, we may not be able to generate anticipated revenue. This
may limit our ability to generate anticipated revenue from our prior investments. Moreover, even if we achieve commercial scale
production and sales of our injectable drug delivery systems in combination with certain injectable therapies, the makers of such therapies
may face indirect competition from companies who develop and market other brand name, biosimilar or generic injectable therapies as well
as alternative treatments and delivery methods that compete with our biopharma customers’ products that may utilize our device,
which may have a material adverse effect on our results of operations, our financial condition and/or cash flows.
Most brand name injectable therapies will face future competition
from generic or biosimilar therapies, which could significantly reduce their commercial viability.
Brand name injectable therapies will usually become exposed to competition
from generic or biosimilar rivals at some time after their regulatory approval and commercial launch. The average selling price
and market share of brand name injectable therapies can be significantly diminished following the introduction of generic or biosimilar
competition. These factors may result in our biopharma customers using our products with their brand name injectable therapies seeking
to withdraw such injectable therapy from the market or change market tactics in a way that makes the use of our products cost prohibitive.
This may result in reduction of revenues due to lower demand, termination of supply contracts, and other factors.
Most of our components and raw materials are sourced from single
suppliers. If we are unable to obtain sufficient components or raw materials on a timely basis or for a cost-effective price, or if we
experience other supply difficulties, our business and results of operations may be adversely affected.
Our ability to meet customer demand depends, in part, on our ability to
obtain timely and adequate delivery of raw materials and components for our products. A majority of the materials and components
that go into the manufacturing of our products are single-sourced from third-party suppliers.
The price and supply of materials and components for our products may be
impacted or disrupted for reasons beyond our control. While we work with suppliers to ensure continuity of supply, no assurance can be
given that these efforts will be successful. Although we do carry strategic inventory and maintain insurance to help mitigate the
potential risk related to any supply disruption, there can be no assurance that such measures will be sufficient or effective. The
termination, reduction or interruption in supply of raw materials and components and an inability to quickly develop acceptable alternative
sources for such supply, could adversely impact our ability to manufacture and sell our products in a timely or cost-effective manner.
We do not have long-term agreements in place with any of our suppliers,
with the exception of a long-term agreement with our needle and tubing set subassembly supplier which we entered in 2020. Due to regulatory
requirements relating to the qualification of suppliers, we are not likely to be able to establish additional or replacement sources on
a timely basis or without excessive cost. We are in the process of establishing alternative sources of supply for our raw materials
and components, but there can be no assurance we will be able to do so.
Additionally, volatility in our cost of energy, raw materials, components,
subassemblies, transportation/freight, and manufacturing and distribution could adversely affect our results of operations. Climate
change (including laws or regulations passed in response to it) could increase our costs, in particular our costs of supply, energy and
transportation/freight. Material or sustained increases in the price of oil and natural gas could have an adverse impact on the
cost of many of the plastic materials we use to make and package our products, as well as our transportation/freight costs. These
outcomes may in turn result in customers transitioning to available competitive products, loss of market share, negative publicity, reputational
damage, loss of customer confidence or other negative consequences (including a decline in stock price).
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Our failure to comply with laws and regulations relating to reimbursement
of health care products may subject us to penalties and adversely impact our reputation, business, results of operations, financial condition
and cash flows.
Our devices are purchased principally by specialty pharmacies and
ambulatory service providers or hospitals that typically bill various third-party payers, 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
provided to their patients. The ability of those customers to obtain appropriate reimbursement from third-party payers for our
products and the drugs they administer is critical because it affects which products customers purchase and the prices they are
willing to pay. As a result, our devices are subject to regulation regarding quality and cost by U.S. governmental agencies,
including the Centers for Medicare & Medicaid Services (“CMS”), as well as comparable state and non-U.S. agencies
responsible for reimbursement and regulation of health care goods and services, including laws and regulations related to kickbacks,
false claims, self-referrals and health care fraud. Many states have similar laws that apply to reimbursement by state
Medicaid and other funded programs, and in some cases to all payers. In certain circumstances, insurance companies can attempt
to bring a private cause of action against a manufacturer for causing a false claim to be filed under the Federal Racketeer
Influenced and Corrupt Organizations Act. In addition, as a manufacturer of FDA-approved devices reimbursable by federal healthcare
programs, we are subject to the Physician Payments Sunshine Act, which requires us to annually report certain payments and other
transfers of value we make to U.S.-licensed physicians or U.S. teaching hospitals. Any failure to comply with these laws and
regulations could subject us or our officers and employees to criminal and civil financial penalties. Similar reporting requirements applicable to medical device manufacturers have also been implemented by some states. Failure to comply with these state
requirements could result in civil monetary penalties being assessed against us.
These laws and regulations, among other things, constrain our business,
marketing and other promotional activities by limiting the kinds of financial arrangements, including sales programs, we may have with
hospitals, physicians or other potential purchasers of our products. Due to the breadth of these laws, the narrowness of statutory exceptions
and regulatory safe harbors available, and the range of interpretations to which they are subject, it is possible that some of our current
or future practices might be challenged under one or more of these laws.
To enforce compliance with the healthcare regulatory laws, certain enforcement
bodies have recently increased their scrutiny of interactions between healthcare companies and healthcare providers, which has led to
a number of investigations, prosecutions, convictions and settlements in the healthcare industry. Responding to investigations can be
time-and resource-consuming and can divert management’s attention from the business. Additionally, as a result of these investigations,
healthcare providers and entities may have to agree to additional compliance and reporting requirements as part of a consent decree or
corporate integrity agreement. Any such investigation or settlement could increase our costs or otherwise have an adverse effect on our
business. Even an unsuccessful challenge or investigation into our practices could cause adverse publicity and be costly to respond
to. If our operations are found to be in violation of any of the healthcare laws or regulations described above or any other healthcare
regulations that apply to us, we may be subject to penalties, including administrative, civil and criminal penalties, damages, fines,
exclusion from participation in government healthcare programs, such as Medicare and Medicaid, imprisonment, contractual damages, reputational
harm, disgorgement and the curtailment or restructuring of our operations. In addition, we are subject to the U.S. Foreign Corrupt
Practices Act and similar anti-corruption laws outside the U.S. Actual or alleged violation of these laws by our employees, consultants,
sales agents or distributors could subject us to investigations by the U.S. or foreign governments, significant criminal or civil sanctions
and other liabilities, and damage our reputation.
We may need additional funding in the future, and if we are unable
to raise capital when needed, we may be forced to delay, reduce or eliminate our product development, commercial efforts, or sales efforts.
Producing and marketing our developed products is costly. Although
we believe we currently have adequate capital to fulfill our near-term funding needs, we may need to raise additional capital in the future
in order to execute our business plan and help us fund the development and commercialization of new products.
We may finance future cash needs through public or private equity offerings
and may also use debt financings or strategic collaboration and licensing arrangements. We may seek to access the public or private
equity markets whenever conditions are favorable, even if we do not have an immediate need for additional capital. To the extent
that we raise additional funds by issuing equity securities, our shareholders may experience additional dilution; any debt financing,
if available, may involve restrictive covenants and could result in high interest expense. If we raise additional funds through
collaboration and licensing arrangements, it may require us to relinquish certain enumerated rights to our product candidates, processes,
technologies, or development projects, or to enter into licenses on terms that are not favorable to us. We cannot be certain that
additional funding will be available on acceptable terms, or at all. If adequate funds are not available from the foregoing sources,
we may consider additional strategic financing options, or we may be required to delay, reduce the scope of, or eliminate our research
or development and/or some of our commercialization efforts.
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We may experience difficulties resulting from our relatively new
and evolving management structure and executive team.
We have made a number of changes to our management structure throughout
the organization in recent years and have filled a number of these positions while we are actively recruiting to fill others. Although,
we believe the persons who currently and will serve in these positions are and will be qualified to do so, they may take time to integrate
into the organization and with each other, if at all. Many of these persons have or will have had little to no experience with our
company prior to joining us, which may result in delays in our ability to implement our business plans. If we are unable to integrate,
motivate and retain the services of our new executives and other managers, or if integration takes longer than we expect, it may have
an adverse effect on our business and financial condition.
Changes in tax or labor laws or exposure to additional income tax
liabilities could increase our costs and reduce our margins.
Changes to the tax and labor laws in the U.S. or other countries in which
we operate could have an adverse effect on our operating results. Certain changes in tax rates, deductibility of interest, deductibility
of executive compensation expense, expensing of capital expenditures, the ability to use certain tax credits, taxation on earnings from
international business operations, and the system of taxation (from worldwide to territorial) could adversely affect our financial condition
and results of operations. Taxing authorities may audit us from time to time and disagree with certain positions we have taken in
respect of our tax liabilities. We regularly assess the likely outcomes of these audits in order to determine the appropriateness
of our tax provision. However, we may not accurately predict the outcome of these audits, and as a result the actual outcome of
these audits may have an adverse impact on our financial results.
Our manufacturing operations depend on low-cost labor. Recent increases
in U.S. minimum wage requirements, as well as those imposed by the state of New York and New Jersey will increase our costs for employees
to support those operations, reduce our margins and negatively impact our profit.
A downturn in global economic conditions could adversely affect our
operations.
Deterioration in the global economic environment, particularly in countries
with government-sponsored healthcare systems, may cause decreased demand for our products and increased competition, which could result
in lower sales volume and downward pressure on the prices for our products, longer sales cycles, and slower adoption of new technologies.
A weakening of economic conditions in the U.S. and/or abroad may also adversely affect our suppliers, which could result in interruptions
in supply.
We are subject to foreign currency exchange risk.
A portion of our revenues is currently, and we expect in the future to
be, derived from international operations. Our revenues from sales outside the U.S. may be adversely affected by fluctuations in
foreign currency exchange rates. We cannot predict with any certainty changes in foreign currency exchange rates or our ability
to mitigate these risks. We may experience additional volatility as a result of inflationary pressures and other macroeconomic factors.
If we cannot adequately mitigate foreign currency exchange rates, our revenues and profit may suffer.
Our distribution network and other operations outside the U.S. subject
us to certain risks.
Approximately 15% of our net revenues in the year ended December 31, 2022,
came from our operations outside the U.S., and we intend to continue to pursue growth opportunities in foreign markets. Our foreign
operations subject us to certain risks, including, among others, the effects of fluctuations in foreign currency exchange, uncertainties
with respect to local economic and political conditions, competition from local companies, trade protectionism and restrictions on the
transfer of goods across borders, U.S. diplomatic and trade relations with the governments of the foreign countries in which we operate,
foreign regulatory requirements or changes in such requirements, local product preferences and product requirements, longer payment terms
for accounts receivable than we experience in the U.S., difficulty in establishing, staffing and managing foreign operations, changes
to international trade agreements and treaties, changes in tax laws, weakening or loss of the protection of intellectual property rights
in some countries, and import or export licensing requirements.
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We are dependent on information technology systems and subject to
privacy and security laws, and our systems and infrastructure face certain risks, including from cyber security breaches and data leakage.
Despite the implementation of security measures, our internal computer
systems, and those of third parties on which we rely, are vulnerable to damage from computer viruses, malware, natural disasters, terrorism,
war, telecommunication and electrical failures, cyber-attacks or cyber-intrusions over the Internet, attachments to emails, persons inside
our organization, or persons with access to systems inside our organization. While we do not believe that we have experienced any
such system failure, accident, or security breach to date, if such an event were to occur and cause interruptions in our systems, it could
result in a material disruption of our operations. To the extent that any disruption or security breach results in a loss of or
damage to our data or applications or other data
applications relating to our technology, or inappropriate disclosure of
confidential or proprietary information, we could incur liabilities, damage to our reputation, and the further development of our product
candidates could be delayed. Additionally, such disruptions and security breaches, when there is a risk of patient harm, may require