ITEM 1A. Risk Factors
Investing
in our securities involves a high degree of risk. You should carefully consider the risks and uncertainties described below, together
with all of the other information contained in this Annual Report, before deciding to invest in our securities. If any of the following
risks materialize, our business, financial condition, results of operation and prospects will likely be materially and adversely affected.
In that event, the market price of our common stock could decline, and you could lose all or part of your investment.
Summary
The
risk factors described below are a summary of the principal risk factors associated with an investment in us. These are not the only
risks we face. You should carefully consider these risk factors and the other reports and documents filed by us with the SEC.
● Changes in external competitive market factors;
● Uncertainties in generating sustained revenue or achieving profitability;
● Unanticipated working capital or other cash requirements;
● Our ability to obtain and maintain intellectual property protection;
Risks
Related to Our Business and Strategy
We
have incurred losses since our inception, expect to incur losses in the future and may never achieve or sustain profitability.
We
have historically incurred losses and expect to continue incurring losses going forward. Our losses have resulted primarily from our
research programs and the development of our product candidates as well as from costs related to general and administrative expenses
relating to our operations. Currently, we are not generating revenue from operations, and we expect to incur losses for the foreseeable
future as we seek to obtain regulatory approval for our product candidates. Additionally, we expect that our general and administrative
expenses will increase due to the additional operational costs associated with our clinical studies, as well as the anticipated expansion
of our operations to commercialize our products if we receive FDA approval. We do not expect to generate significant revenue until we
are able to commercialize one or more of our product candidates after receiving FDA approval, or if any of our product candidates are
licensed or sold, if ever. We may never generate significant revenue or become profitable. Even if we do achieve profitability, we may
be unable to sustain or increase profitability on a quarterly or annual basis. Our failure to achieve and subsequently sustain profitability
could harm our business, financial condition, results of operations and cash flows.
We
currently depend entirely on the successful and timely regulatory approval and commercialization of our current product candidate, and
any future product candidates, which may not receive regulatory approval or, if any of our product candidates do receive regulatory approval,
we may not be able to successfully commercialize them.
We
currently have one product candidate, the enVVe System, and our business presently depends entirely on our success with this product
candidate. In order for our product candidate to succeed it needs to be approved by regulatory authorities, which may never happen. Our
product candidate is based on technologies that have not been used previously in the manner we propose. Market acceptance of our product
candidates will largely depend on our ability to demonstrate their relative safety, efficacy, cost-effectiveness and ease of use. We
may not be able to successfully develop and commercialize our product candidate. If we fail to do so, we will not be able to generate
substantial revenues, if any.
We
are subject to rigorous and extensive regulation by the FDA in the United States and by comparable agencies in other jurisdictions, including
the European Medicines Agency, or EMA, in the European Union, or EU. Our product candidate is currently in development, and we have not
received FDA approval for it. Our product candidate may not be marketed in the United States until they have been approved by the FDA
and may not be marketed in other jurisdictions until they have received approval from the appropriate foreign regulatory agencies. A
product candidate requires significant research, development, pre-clinical testing and extensive clinical investigation before submission
of any regulatory application for marketing approval. For example, on August 19, 2025, the Company received a not-approvable letter
from the FDA in response to its PMA application for the VenoValve. While the enVVe System is different than the VenoValve in that it
is a non-surgical, transcatheter based replacement venous valve, the enVVe System may also not receive FDA approval.
Obtaining
regulatory approval requires substantial time, effort and financial resources, and we may not be able to obtain approval of any of our
product candidates on a timely basis, or at all. The number, size, design and focus of pre-clinical and clinical trials that will be
required for approval by the FDA, the EMA or any other foreign regulatory agency varies depending on the device, the disease or condition
that the product candidates are designed to address and the regulations applicable to particular products. Pre-clinical and clinical
data can be interpreted in different ways, which could delay, limit or preclude regulatory approval. The FDA, the EMA and other foreign
regulatory agencies can delay, limit or deny approval of a product for many reasons, including, but not limited to:
● a product candidate may not be shown to be safe or effective;
● we may not be able to enroll enough patients to complete our product studies;
● a product candidate may fail to comply with regulatory requirements; and/or
For
example, with respect to the VenoValve, the FDA indicated that the favorable rVCSS data generated by the study to show clinical improvement,
together with the improvements in pain scores and venous specific quality of life indicators was not sufficient on its own to determine
favorability of the benefit risk profile for the VenoValve. The FDA also referenced the use of a hemodynamic measurement that correlates
with patient improvement, concerns about bias and the possibility that clinical improvement occurred as a result of the patients being
enrolled in a study and safety concerns attributed to the VenoValve open surgical procedure, and that required re-hospitalizations.
If
our current and future product candidates are not approved at all or quickly enough to provide net revenues to defray our operating expenses,
our business, financial condition, operating results and prospects could be harmed.
If
we are unable to successfully raise additional capital, our future clinical trials and product development could be limited and our long-term
viability may be threatened.
We
have experienced negative operating cash flows since our inception and have funded our operations primarily from proceeds received from
sales of our capital stock, and the issuance of convertible and non-convertible notes. We will need to seek additional funds in the future
through equity or debt financings, or strategic alliances with third parties, either alone or in combination with equity financings,
to complete our product development initiatives. These financings could result in substantial dilution to the holders of our common stock
or require contractual or other restrictions on our operations or on alternatives that may be available to us. If we raise additional
funds by issuing debt securities, these debt securities could impose significant restrictions on our operations. Any such required financing
may not be available in amounts or on terms acceptable to us, and the failure to procure such required financing could have a material
and adverse effect on our business, financial condition and results of operations, or threaten our ability to continue as a going concern.
Our
present and future capital requirements will be significant and will depend on many factors, including:
● the costs, timing and outcome of regulatory review of our product candidates;
● the effect of competing technological and market developments;
● market acceptance of our product candidates;
● the ability to achieve revenue growth and improve gross margins;
We
may not be able to acquire additional funds on acceptable terms, or at all. If we are unable to raise adequate funds, we may have to
liquidate some or all of our assets or delay, reduce the scope of or eliminate some or all of our development programs.
If
we do not have, or are not able to obtain, sufficient funds, we may be required to delay development or commercialization of our product
candidates. We also may have to reduce the resources devoted to our product candidates or cease operations. Any of these factors could
harm our operating results.
We
may never be able to generate sufficient revenue from the commercialization of our product candidates to achieve and maintain profitability.
Our
ability to operate profitably in the future will depend upon, among other items, our ability to (i) fully develop product candidates,
(ii) scale up our business and operational structure, (iii) obtain regulatory approval of product candidates from the FDA and foreign
regulators, (iv) market and sell product candidates, (v) successfully gain market acceptance of our product candidates by doctors and
patients, and (vi) obtain sufficient and on-time supply of components from our third-party suppliers. If our product candidates are never
successfully commercialized, we may never receive a return on our investments in product development, regulatory compliance, manufacturing,
and quality assurance, which may cause us to fail to generate revenue and gain economies of scale from such investments.
We
only utilize a few suppliers for porcine tissue for our product candidates and the loss of a supplier could have an adverse impact on
our business.
We
rely on two domestic third-party vendors to supply porcine tissue for our product candidates. Our ability to supply our current and future
product candidates commercially, if approved, depends, in part, on our ability to obtain this porcine tissue in accordance with our specifications
and with regulatory requirements and in sufficient quantities to meet demand. Our ability to obtain porcine tissue may be affected by
matters outside our control, including that these suppliers may cancel our arrangements on short notice or have disruptions to their
operations.
If
we are required to establish additional or replacement suppliers for the porcine tissue, it may not be accomplished timely and our operations
could be disrupted. Even if we are able to find replacement suppliers, the replacement suppliers may need to be qualified and may require
additional regulatory authority approval, which could result in further delay. In the event of a supply disruption, our product inventories
may be insufficient to supply our customers and the development of any future product candidates would be delayed, limited or prevented,
which could have an adverse impact on our business.
We
depend upon third-party suppliers for certain components of our product candidates, making us vulnerable to supply problems and price
fluctuations, which could harm our business.
We
rely on a number of third-party suppliers to provide certain components of our product candidates. We do not have long-term supply agreements
with most of our suppliers, and, in many cases, we purchase goods on a purchase order basis. Our suppliers may encounter problems for
a variety of reasons, including unanticipated demand from larger customers, failure to follow specific protocols and procedures, failure
to comply with applicable regulations, equipment malfunction, quality or yield problems and environmental factors, any of which could
delay or impede their ability to meet our demand. Our reliance on these third-party suppliers also subjects us to other risks that could
harm our business, including:
In
addition, there are a limited number of suppliers and third-party manufacturers that operate under the FDA’s Quality System Regulation,
or QSR, requirements, maintain certifications from the International Organization for Standardization that are recognized as harmonized
standards in the European Economic Area, or EEA, and that have the necessary expertise and capacity to supply components for our product
candidates. As a result, it may be difficult for us to locate manufacturers for our anticipated future needs, and our anticipated growth
may strain the ability of our current suppliers to deliver products, materials and components to us. If we are unable to arrange for
third-party manufacturing of components for our product candidates, or to do so on commercially reasonable terms, we may not be able
to complete development of, market and sell our current or new product candidates. Further, any supply interruption from our suppliers
or failure to obtain additional suppliers for any of the components used in our product candidates would limit our ability to manufacture
our product candidates. Failure to meet these commitments could result in legal action by our customers, loss of customers or harm to
our ability to attract new customers, any of which could have a material and adverse effect on our business, financial condition, results
of operations and growth.
If
we successfully develop product candidates, which at this time will likely take several years at a minimum, we will have to demonstrate
the efficacy and financial viability of our products to doctors, hospitals, insurance companies, and other stakeholders.
There
are multiple stakeholders that determine the success of a medical device, including doctors, hospitals, medical insurance companies,
and others. Educating these stakeholders on the benefits of product candidates will require a significant commitment by a marketing team
and sales organization. Surgeons and hospitals may be slow to change their practices because of familiarity with existing devices and/or
treatments, perceived risks arising from the use of new devices, lack of experience using new devices, lack of clinical data supporting
the benefits of such devices or the cost of new devices. There may never be widespread adoption of our product candidates by surgeons
and hospitals. In addition, medical insurance companies would need to understand the costs and benefits of our product candidates compared
to the existing standards of care, if they are to provide reimbursement for the cost of our product candidates and the procedures to
implant our product candidates. We may have difficulty and may never achieve the market acceptance that we need from doctors, hospitals,
medical insurance companies and others that are necessary for a successful product.
We
may be unable to convince hospital facilities to approve the use of our product candidates.
In
the United States, in order for surgeons to use our product candidates, the hospital facilities where these surgeons treat patients will
typically require that the product candidates receive approval from the facility’s value analysis committee (“VAC”).
VACs typically review the comparative effectiveness and cost of medical devices used in the facility. The makeup and evaluation processes
for VACs vary considerably, and it can be a lengthy, costly and time-consuming effort to obtain approval by the relevant VAC. For example,
even if we have an agreement with a hospital system for the purchase of a product, in most cases, they must obtain VAC approval by each
hospital within the system to sell at that particular hospital. Additionally, hospitals typically require separate VAC approval for each
specialty in which a product is used, which may result in multiple VAC approval processes within the same hospital even if such product
has already been approved for use by a different specialty group. VAC approval is often needed for each different product to be used
by the surgeons in that specialty. In addition, hospital facilities and group purchasing organizations, or GPOs, which manage purchasing
for multiple facilities, may also require us to enter into a purchasing agreement and satisfy numerous elements of their administrative
procurement process, which can also be a lengthy, costly and time-consuming effort. If we do not receive access to hospital facilities
in a timely manner, or at all, via these VAC and purchasing contract processes, or otherwise, or if we are unable to secure contracts
on commercially reasonable terms in a timely manner, or at all, our costs may increase, our sales may decrease and our operating results
may be harmed.
We
face significant competition and our business prospects will depend on our ability to develop and commercialize our current product candidates
and may also depend on our ability to develop additional product candidates.
The
medical device industry is highly competitive and subject to rapid change and technological advancements. New technologies, techniques
or products could emerge that might make our products obsolete or offer better combinations of price and performance than the products
that we plan to offer. Therefore, it is important to our business that we continue to develop and enhance our product candidate offerings
and potentially introduce new product candidates.
Developing
new product candidates is expensive and time-consuming. Even if we are successful in developing additional product candidates, the success
of any new product candidates or enhancements to existing product candidates will depend on several factors, including our ability to:
● properly identify and anticipate surgeon and patient needs;
● develop an effective and dedicated sales and marketing team;
● avoid infringing upon the intellectual property rights of others;
● provide adequate training to potential users of our product candidates; and
If
we are unsuccessful in developing and commercializing additional devices in other areas, our ability to realize our revenue may be impaired.
Existing
markets for surgical devices are characterized by rapid technological change and innovation. It is critical to our success that we anticipate
changes in technology and customer requirements and physician, hospital and healthcare provider practices. It is also important that
we successfully introduce new, enhanced and competitive product candidates to meet our prospective customers’ needs on a timely
and cost-effective basis. At the same time, however, we must carefully manage our introduction of new product candidates. If potential
customers believe that such product candidates will offer enhanced features or be sold for a more attractive price, they may delay purchases
until such product candidates are available. We may also continue to offer older products as we transition to new product candidates,
and we may not have sufficient experience managing transitions. If we do not successfully innovate and introduce new technology into
our anticipated product lines or successfully manage the transitions of our technology to new product offerings, our revenue, results
of operations and business could be adversely impacted.
Our
competitors may be able to respond more quickly and effectively than we can to new or changing opportunities, technologies, industry
standards, distribution reach or customer requirements. We anticipate that we will face strong competition in the future as current or
future competitors develop new or improved product candidates and as new companies enter the market with novel technologies.
If
we are unable to produce an adequate supply of our product candidates for use in our current and planned clinical trials or for commercialization
because of our limited manufacturing resources or our facility is damaged or becomes inoperable, our regulatory, development and commercialization
efforts may be delayed.
Our
manufacturing resources for our product candidates are limited. We currently manufacture our product candidates for our research and
development and clinical trial purposes at our manufacturing facility in Irvine, California. If our existing manufacturing facility experiences
a disruption, we would have no other means of manufacturing our product candidates until we are able to restore the manufacturing capability
at our current facility or develop alternative manufacturing facilities. Any damage to or destruction of our facilities or our equipment,
prolonged power outage or contamination at our facilities would significantly impair our ability to produce our product candidates and
prepare our product candidates for clinical trials.
Additionally,
to produce our product candidates in the quantities that we anticipate will be required for commercialization, we will have to increase
or “scale up” our production process over the current level of production. We may encounter difficulties in scaling up our
production, including issues involving yields, controlling and anticipating costs, quality control and assurance, supply and shortages
of qualified personnel. If our scaled-up production process is not efficient or results in a product that does not meet quality or other
standards, we may be unable to meet market demand and our revenues, business and financial prospects would be adversely affected. Further,
third parties with whom we may develop relationships may not have the ability to produce the quantities of the materials we may require
for clinical trials or commercial sales or may be unable to do so at prices that allow us to price our products competitively.
Our
facility and equipment would be costly to replace and could require substantial lead time to repair or replace. The facility may be harmed
or rendered inoperable by natural or man-made disasters, including earthquakes, flooding, fire, vandalism and power outages, which may
render it difficult to operate our business for some period of time. While we have taken precautions to safeguard our facilities, any
inability to operate our business during such periods could lead to the loss of customers or harm to our reputation. We also possess
insurance for damage to our property and the disruption of our business, but this insurance may not be sufficient to cover all of our
potential losses and this insurance may not continue to be available to us on acceptable terms, or at all.
We
currently have no sales and limited marketing infrastructure and we may not be able to build a sales and marketing infrastructure sufficient
for us to commercialize our current product candidate or future product candidates, if approved, and may be unable to do so or may never
generate sufficient revenue to achieve or sustain profitability.
In
order to commercialize products that are approved by regulatory agencies, we will have to increase our expenditures to undertake development
or commercialization activities. If we are unable to successfully execute commercialization activities, we may have to curtail the development
of our product candidates, reduce or delay development programs, delay potential commercialization of our product candidates or reduce
the scope of any sales or marketing activities.
If
it becomes necessary for us to establish a sales and marketing infrastructure, we may not be able to do so or we may not realize a positive
return on this investment. We would have to compete with established and well-funded medical device companies to recruit, hire, train
and retain sales and marketing personnel. Once hired, the training process is lengthy because it requires significant education of new
sales representatives to achieve the level of clinical competency with our products expected by specialists. Upon completion of the training,
we expect our sales representatives would typically require lead time in the field to grow their network of accounts and achieve the
productivity levels we expect them to reach in any individual territory. If we are unable to attract, motivate, develop and retain a
sufficient number of qualified sales personnel, or if our sales representatives do not achieve the productivity levels in the time period
we expect them to, our revenue will not grow at the rate we expect and our business, results of operations and financial condition will
suffer. Also, to the extent we hire sales personnel from our competitors, we may be required to wait until applicable non-competition
provisions have expired before deploying such personnel in restricted territories or incur costs to relocate personnel outside of such
territories. Any of these risks may adversely affect our ability to increase sales of our product candidates. If we are unable to expand
our sales and marketing capabilities, we may not be able to effectively commercialize our product candidates, which would adversely affect
our business, results of operations and financial condition.
Product
liability lawsuits against us could cause us to incur substantial liabilities, limit sales of our existing product candidates and limit
commercialization of any products that we may develop.
Our
business exposes us to the risk of product liability claims that are inherent in the manufacturing, distribution, and sale of medical
devices. This risk exists even if a device is cleared or approved for commercial sale by the FDA and manufactured in facilities licensed
and regulated by the FDA or an applicable foreign regulatory authority. Manufacturing and marketing of our commercial devices and clinical
testing of our product candidates, may expose us to product liability and other tort claims. Furthermore, surgeons may misuse our product
candidates or use improper techniques if they are not adequately trained, potentially leading to injury and an increased risk of product
liability. If our product candidates are misused or used with improper technique, we may become subject to costly litigation by our customers
or their patients. Regardless of the merit or eventual outcome, product liability claims may result in:
● significant litigation costs;
● damage to our reputation;
● withdrawal of clinical trial participants;
● loss of revenue; and
● the inability to commercialize any product candidates that we may develop.
Although
we maintain liability insurance, the coverage limits of our insurance policies may not be adequate, and one or more successful claims
brought against us may have a material adverse effect on our business and results of operations. If we are unable to obtain insurance
in the future at an acceptable cost or on acceptable terms with adequate coverage, we will be exposed to significant liabilities.
The
loss of our executive officers or our inability to attract and retain qualified personnel may adversely affect our business, financial
conditions and results of operations.
Our
business and operations depend to a significant degree on the skills, efforts and continued services of our executive officers who have
critical industry experience and relationships. Although we have entered into employment agreements with our executive officers, they
may terminate their employment with us at any time. Accordingly, these executive officers may not remain associated with us. The efforts
of these persons will be critical to us as we continue to develop our product candidates and business. We do not carry key person life
insurance on any of our management, which would leave our company uncompensated for the loss of any of our executive officers.
Further,
competition for highly skilled and qualified personnel is intense. As such, our future viability and ability to achieve sales and profit
will also depend on our ability to attract, train, retain and motivate highly qualified personnel in the diverse areas required for continuing
our operations. If we were to lose the services one or more of our current executive officers or if we are unable to attract, hire and
retain qualified personnel, we may experience difficulties in competing effectively, developing and commercializing our products and
implementing our business strategies, which could have a material adverse effect on our business, operations and financial condition.
Our
ability to use our net operating loss carryforwards and certain other tax attributes may be limited.
The
Company has incurred significant operating losses which have generated net operating loss carry-forwards for both federal and state purposes.
Other than federal NOL carryforwards generated after 2017, our NOL carryforwards will expire if not used over the next four years. Our
ability to realize the benefits of these NOL carryforwards will depend on our ability to generate income.
Further,
our ability to realize the benefits of NOL carryforwards are limited because of ownership changes. In general, a corporation that undergoes
an “ownership change” (generally defined as a greater than 50% change (by value) in its equity ownership over a rolling three
(3) year period) may be subject to limitations on its ability to utilize its NOLs and certain credit carryforwards to offset future taxable
income and taxes. We have analyzed the tax impacts of ownership changes that occurred in 2018, 2021, 2023, 2024, and in 2025. While those
ownership changes may have resulted in limits to the amount of NOLs that can be used in a given year, these are all post 2017 NOLs and
are carried forward indefinitely.
Future
changes in our stock ownership, as well as other changes that may be outside of our control, could result in additional ownership changes.
Our NOLs and credit carryforwards may also be limited under similar provisions of state law. We have recorded a full valuation allowance
related to our NOLs and other deferred tax assets due to the uncertainty of the ultimate realization of the future tax benefits of such
assets.
Risks
Related to Regulatory Approval and Other Governmental Regulations
Our
business and product candidates are subject to extensive governmental regulation and oversight, and our failure to comply with applicable
regulatory requirements could harm our business.
Our
product candidates and operations are subject to extensive regulation in the United States by the FDA and by regulatory agencies in other
countries where we anticipate conducting business activities. The FDA regulates the development, testing, manufacturing, labeling, storage,
record-keeping, promotion, marketing, sales, distribution and post-market support and reporting of medical devices in the United States.
The regulations to which we are subject are complex and may become more stringent over time. Regulatory changes could result in restrictions
on our ability to carry on or expand our operations, higher than anticipated costs or lower than anticipated sales.
In
order to conduct a clinical investigation involving human subjects for the purpose of demonstrating the safety and effectiveness of a
medical device, a company must, among other things, apply for and obtain Institutional Review Board, or IRB, approval of the proposed
investigation. In addition, if the clinical study involves a “significant risk” (as defined by the FDA) to human health,
the sponsor of the investigation must submit and obtain FDA approval of an IDE application. Our product candidates are considered significant
risk devices requiring IDE approval prior to investigational use. We may not be able to obtain FDA and/or IRB approval to undertake clinical
trials in the United States for any new devices we intend to market in the United States in the future. If we do obtain such approvals,
we may not be able to conduct studies which comply with the IDE and other regulations governing clinical investigations or the data from
any such trials may not support clearance or approval of the investigational device. Failure to obtain such approvals or to comply with
such regulations could have a material adverse effect on our business, financial condition and results of operations. It is uncertain
whether clinical trials will meet desired endpoints, produce meaningful or useful data and be free of unexpected adverse effects, or
that the FDA will accept the validity of foreign clinical study data, and such uncertainty could preclude or delay market clearance or
authorizations resulting in significant financial costs and reduced revenue.
The
Company received a not-approvable letter from the FDA.
On
August 19, 2025, the Company received a not-approvable letter from the FDA in response to its PMA application for the VenoValve. The
letter indicated that the FDA completed its review of the VenoValve PMA application and determined that it is unable to approve the PMA
for the VenoValve in its current form. In particular, the FDA indicated that the favorable rVCSS data generated by the study to show
clinical improvement, together with the improvements in pain scores and venous specific quality of life indicators was not sufficient
on its own to determine favorability of the benefit risk profile for the VenoValve. Without a specific hemodynamic measurement that correlates
with patient improvement, the FDA raised concerns about bias and the possibility that clinical improvement occurred as a result of the
patients being enrolled in a study. The FDA also focused on safety concerns which were attributed to the VenoValve open surgical procedure,
and that required re-hospitalizations.
On
September 18, 2025, the Company filed a request for supervisory appeal of the not-approvable letter from the Center for Devices and Radiological
Health (CDRH) of the FDA received on August 19, 2025, in response to its PMA application for the VenoValve. The FDA provides several
internal informal and formal mechanisms to challenge staff decisions, including scientific controversies. One mechanism is a request
for supervisory review in which an appeal is made to the next line of supervision. These appeals involve a formal substantive request,
an in-person meeting, and a decision. It also often includes multiple interactions even after an initial appeal decision is made. Internal
Agency reviews are based on information already in the administrative file.
In
October 2025, the Company completed an in-person meeting with the FDA. In addition to representatives from an outside firm specializing
in FDA matters and appeals and representatives from the Company, the meeting also included a patient advocate from VenoValve U.S. pivotal
study as well as one of the Company’s primary investigators from the trial. Several employees from the FDA attended the meeting
including the Director of the Center for Devices and Radiological Health, who elected to hear the appeal and who will be issuing the
appeal decision. The FDA meeting provided the Company with the opportunity to put the major adverse events—those tied to the SAVVE
study’s safety endpoints—into the proper context. It also allowed the Company to re-emphasize the multiple physician-and
patient-reported clinical benefits that comprise the totality of the evidence from the study, supported by firsthand perspectives shared
by both the SAVVE study patient and investigator in attendance. Because there are no established industry or regulatory standards to
determine the effectiveness for a replacement venous valve, it is necessary for the Company and the Agency to establish a new regulatory
pathway for VenoValve effectiveness.
On
November 13, 2025, the Company received an unfavorable decision from the FDA in response to its supervisory appeal of the not-approvable
letter. The supervisory appeal upheld the review staff decision in the not-approvable letter that the VenoValve did not meet the standard
of reasonable assurance of safety and effectiveness.
In
light of receiving a not-approvable letter from the FDA and an unfavorable decision from the FDA in response to its supervisory appeal
of the not-approvable letter, there can be no assurances that the Company will ever get regulatory approval for the VenoValve or for
the enVVe System.
Our
product candidates will be subject to extensive governmental regulation in foreign jurisdictions, such as the EEA, and our failure to
comply with applicable requirements could cause our business, results of operations and financial condition to suffer.
In
the EEA, our product candidates will need to comply with the Essential Requirements set forth in Medical Device Regulation. Compliance
with these requirements is a prerequisite to be able to affix a CE mark to a product, without which a product cannot be marketed or sold
in the EEA. To demonstrate compliance with the Essential Requirements and obtain the right to affix the CE mark to our product candidates,
we must undergo a conformity assessment procedure, which varies according to the type of medical device and its classification. The conformity
assessment procedure requires the involvement of a Notified Body, which is an organization designated by a competent authority of an
EEA country to conduct conformity assessments. The Notified Body would audit and examine the Technical File and the quality system for
the manufacture, design and final inspection of our products. The Notified Body issues a CE Certificate of Conformity following successful
completion of a conformity assessment procedure and quality management system audit conducted in relation to the medical device and its
manufacturer and their conformity with the Essential Requirements. This Certificate entitles the manufacturer to affix the CE mark to
its medical products after having prepared and signed a related EC Declaration of Conformity.
As
a general rule, demonstration of conformity of medical products and their manufacturers with the Essential Requirements must be based,
among other things, on the evaluation of clinical data supporting the safety and performance of the products during normal conditions
of use. Specifically, a manufacturer must demonstrate that the device achieves its intended performance during normal conditions of use
and that the known and foreseeable risks, and any adverse events, are minimized and acceptable when weighed against the benefits of its
intended performance, and that any claims made about the performance and safety of the device (e.g., product labeling and instructions
for use) are supported by suitable evidence. This assessment must be based on clinical data, which can be obtained from (1) clinical
studies conducted on the devices being assessed, (2) scientific literature from similar devices whose equivalence with the assessed device
can be demonstrated or (3) both clinical studies and scientific literature. However, the pre-approval and post-market clinical requirements
are much more rigorous. The conduct of clinical studies in the EEA is governed by detailed regulatory obligations. These may include
the requirement of prior authorization by the competent authorities of the country in which the study takes place and the requirement
to obtain a positive opinion from a competent Ethics Committee. This process can be expensive and time-consuming.
The
FDA regulatory approval, clearance and license process is complex, time-consuming and unpredictable.
In
the United States, our product candidates are regulated as medical devices. Before our medical device product candidates may be marketed
in the United States, we must submit, and the FDA must approve a PMA application. For the PMA approval process, the FDA must determine
that a proposed device is safe and effective for its intended use based, in part, on extensive data, including, but not limited to, technical,
pre-clinical, clinical trial, manufacturing and labeling data. In addition, modifications to products that are approved through a PMA
application generally require FDA approval. The time required to obtain approval, clearance or license by the FDA to market a new therapy
is unpredictable but typically takes years and depends upon many factors, including the substantial discretion of the FDA, especially
after the Company received a not-approvable letter from the FDA related to the VenoValve. This timeline may be further extended as a
result of the recent reduction in workforce that has taken place within the federal government, including at the FDA.
Our
product candidates could fail to receive regulatory approval, clearance or license for many reasons, including the following:
For
example, with respect to the VenoValve, the FDA indicated that the favorable rVCSS data generated by the study to show clinical improvement,
together with the improvements in pain scores and venous specific quality of life indicators was not sufficient on its own to determine
favorability of the benefit risk profile for the VenoValve. The FDA also referenced the use of a hemodynamic measurement that correlates
with patient improvement, concerns about bias and the possibility that clinical improvement occurred as a result of the patients being
enrolled in a study and safety concerns attributed to the VenoValve open surgical procedure, and that required re-hospitalizations.
Even
if we were to obtain approval, clearance or license, the FDA may grant approval, clearance or license contingent on the performance of
costly post-marketing clinical trials or may approve our product candidates with a label that does not include the labeling claims necessary
or desirable for successful commercialization of our product candidates. Any of the above could materially harm our product candidates’
commercial prospects.
Even
if our product candidates are approved by regulatory authorities, if we fail to comply with ongoing regulatory requirements, or if we
experience unanticipated problems with our product candidates, our product candidates could be subject to restrictions or withdrawal
from the market.
The
manufacturing processes, post-approval clinical data and promotional activities of any product candidate for which we obtain marketing
approval will be subject to continual review and periodic inspections by the FDA and other regulatory bodies. Even if regulatory approval
of our product candidates is granted in the United States or elsewhere, the approval may be subject to limitations on the indicated uses
for which the product candidates may be marketed or contain requirements for costly post-marketing testing and surveillance to monitor
the safety or effectiveness of the product. Later discovery of previously unknown and unanticipated problems with our product candidates,
including but not limited to unanticipated severity or frequency of adverse events, delays or problems with the manufacturer or manufacturing
processes, or failure to comply with regulatory requirements, may result in restrictions on such product candidates or manufacturing
processes, withdrawal of the product candidates from the market, voluntary or mandatory recall, fines, suspension of regulatory approvals,
product seizures, injunctions or the imposition of civil or criminal penalties.
We
are required to report certain malfunctions, deaths and serious injuries associated with our products once approved by regulatory bodies,
which can result in voluntary corrective actions or agency enforcement actions.
All
manufacturers marketing medical devices in the EEA are legally bound to report incidents involving devices they produce or sell to the
regulatory agency, or competent authority, in whose jurisdiction the incident occurred. Under the EU Medical Devices Directive (Directive
93/42/EEC), an incident is defined as any malfunction or deterioration in the characteristics and/or performance of a device, as well
as any inadequacy in the labeling or the instructions for use which, directly or indirectly, might lead to or might have led to the death
of a patient, or user or of other persons or to a serious deterioration in their state of health. In addition, under the EU MDR, the
manufacturers are obligated to publish Periodic Safety Update Report (annually for high risk devices) which will be uploaded to EUDAMED
and require conformity assessment by Notified Bodies.
Malfunction
or misuse of our product candidates could result in future voluntary corrective actions, such as recalls, including corrections (e.g.,
customer notifications), or agency action, such as inspection or enforcement actions. If malfunctions or misuse do occur, we may be unable
to correct the malfunctions adequately or prevent further malfunctions or misuse, in which case we may need to cease manufacture and
distribution of the affected products, initiate voluntary recalls, and redesign the products or the instructions for use for those products.
Regulatory authorities may also take actions against us, such as ordering recalls, imposing fines, or seizing the affected products.
Any corrective action, whether voluntary or involuntary, will require the dedication of our time and capital, may distract management
from operating our business, and may harm our business, results of operations and financial condition.
Legislative
or regulatory reforms in the United States or the EU may make it more difficult and costly for us to obtain regulatory clearances or
approvals for product candidates or to manufacture, market or distribute product candidates after clearance or approval is obtained.
From
time to time, legislation is drafted and introduced in the U.S. Congress that could significantly change the statutory provisions governing
the regulation of medical devices or the reimbursement thereof. In addition, the FDA regulations and guidance are often revised or reinterpreted
by the FDA in ways that may significantly affect our business and our product candidates. For example, as part of the Food and Drug Administration
Safety and Innovation Act, or FDASIA, Congress reauthorized the Medical Device User Fee Amendments with various FDA performance goal
commitments and enacted several “Medical Device Regulatory Improvements” and miscellaneous reforms, which are further intended
to clarify and improve medical device regulation both pre- and post-clearance or approval. Any new statutes, regulations or revisions
or reinterpretations of existing regulations may impose additional costs or lengthen review times of any future products or make it more
difficult to manufacture, market or distribute our product candidates or future products. We cannot determine what effect changes in
regulations, statutes, legal interpretation or policies, when and if promulgated, enacted or adopted may have on our business in the
future. Such changes could, among other things, require:
● additional testing prior to obtaining clearance or approval;
● changes to manufacturing methods;
● recall, replacement or discontinuance of our systems or future products; or
● additional record keeping.
Any
of these changes could require substantial time and cost and could harm our business and our financial results.
The
highly publicized PIP scandal (use of non-medical grade silicone in breast implants) in 2010 led to publishing the first version of EU
Medical Device Regulation (MDR) by European Commission in 2012. After 347 amendments by European Parliament in 2014, followed by various
versions, the final version of the new EU Medical Device Regulation (MDR 2017/745) was published on May 5, 2017. Notified Bodies are
currently not accepting any new CE Mark applications under MDD (Medical Device Directives). All new medical devices, including ours,
must undergo assessment under MDR.
The
changes from EU Medical Device Directives (MDD) to Medical Device Regulation (MDR) are significant, with stricter clinical requirements
and post-market surveillance, shift from pre-approval to Life-cycle approach, centralized EUDAMED database for public transparency (e.g.
Periodic Safety Update Reports) and device registration, more device specific requirements (e.g. Common Specifications), legal liability
for defective devices, etc. The QMS audit under MDR will be much more rigorous, including audits and assessment of suppliers and device
testing. In addition, EU MDR introduces new stakeholders participating during the application review process, which will result in a
longer and more burdensome assessment of our new products. The new stakeholders will include Medical Device Coordination Group (MDCG)
established by Member States and Expert Panels appointed by European Union.
Further,
under either the FDA’s Medical Device Reporting or MDR regulations, we are required to report to the FDA any incident in which
our product candidates may have caused or contributed to a death or serious injury or in which our product malfunctioned and, if the
malfunction were to recur, would likely cause or contribute to death or serious injury. Any adverse event involving our products could
result in future voluntary corrective actions, such as product actions or customer notifications, or regulatory authority actions, such
as inspection, mandatory recall or other enforcement action. Repeated product malfunctions may result in a voluntary or involuntary product
recall, which could divert managerial and financial resources, impair our ability to manufacture our product candidates in a cost-effective
and timely manner and have an adverse effect on our reputation, financial condition and operating results.
Moreover,
depending on the corrective action we take to redress a product’s deficiencies or defects, the FDA may require us, or we may decide
that we will need, to obtain new approvals or clearances for the device before we may market or distribute the corrected device. Seeking
such approvals or clearances may delay our ability to replace the recalled devices in a timely manner. Moreover, if we do not adequately
address problems associated with our product candidates, we may face additional regulatory enforcement action, including FDA warning
letters, product seizure, injunctions, administrative penalties, withdrawals or clearances or approvals or civil or criminal fines. We
may also be required to bear other costs or take other actions that may have a negative impact on our sales as well as face significant
adverse publicity or regulatory consequences, which could harm our business, including our ability to market our product candidates in
the future.
We
are subject to federal, state and foreign healthcare laws and regulations, and a finding of failure to comply with such laws and regulations
could have a material and adverse effect on our business.
Our
operations are, and will continue to be, directly and indirectly affected by various federal, state or foreign healthcare laws, including,
but not limited to, those described below. These laws include:
The
risk of our being found in violation of these laws is increased by the fact that many of them have not been fully interpreted by the
regulatory authorities or the courts, and their provisions are open to a variety of interpretations. Because of the breadth of these
laws and the narrowness of the statutory exceptions and safe harbors available under such laws, it is possible that some of our business
activities, including our relationships with surgeons and other healthcare providers, some of whom recommend, purchase and/or prescribe
our product candidates, and our distributors, could be subject to challenge under one or more of such laws.
If
our operations are found to be in violation of any of the laws described above or any other governmental regulations that apply to us
now or in the future, we may be subject to penalties, including civil and criminal penalties, damages, fines, disgorgement, exclusion
from governmental health care programs and the curtailment or restructuring of our operations, any of which could adversely affect our
ability to operate our business and our financial results. Any action against us for violation of these laws, even if we successfully
defend against it, could cause us to incur significant legal expenses and divert our management’s attention from the operation
of our business.
Regulatory
healthcare reform measures and other legislative changes may have a material and adverse effect on business, results of operations and
financial condition.
FDA
regulations and guidance are often revised or reinterpreted by FDA and such actions may significantly affect our business and our product
candidates. Any new regulations or revisions or reinterpretations of existing regulations may impose additional costs or lengthen review
times for our product candidates. Delays in receipt of, or failure to receive, regulatory approvals for our product candidates would
have a material and adverse effect on our business, results of operations and financial condition.
In
March 2010, the PPACA was signed into law. Initially it included a deductible 2.3% excise tax on any entity that manufactures or imports
medical devices offered for sale in the United States, with limited exceptions. Although this excise tax was permanently repealed on
December 20, 2019, it or similar taxes, may be enacted in the future. Other elements of the PPACA remain in force, including comparative
effectiveness research, an independent payment advisory board and payment system reforms, including shared savings pilots and other provisions,
which may significantly affect the payment for, and the availability of, healthcare services and result in fundamental changes to federal
healthcare reimbursement programs, any of which may materially affect numerous aspects of our business, results of operations and financial
condition.
In
addition, other legislative changes have been proposed and adopted in the United States since the PPACA was enacted. On August 2,
2011, the Budget Control Act of 2011 created measures for spending reductions by Congress. A Joint Select Committee on Deficit
Reduction, tasked with recommending a targeted deficit reduction of at least $1.2 trillion for the years 2013 through 2021, was
unable to reach required goals, thereby triggering the legislation’s automatic reduction to several government programs. This
includes aggregate reductions of Medicare payments to providers up to 2% per fiscal year, which went into effect on April 1, 2013.
The 2% reduction in Medicare payments to providers, originally triggered by the Budget Control Act of 2011, has been extended
multiple times. Most recently, the Consolidated Appropriations Act, 2023 extended this 2% sequester through fiscal year 2032. On
January 2, 2013, the American Taxpayer Relief Act of 2012, or the ATRA, was signed into law which further reduced Medicare payments
to certain providers, including hospitals.
We
expect that additional state and federal healthcare reform measures will be adopted in the future, any of which could limit the amounts
that federal and state governments will pay for healthcare products and services, which could result in reduced demand for our product
candidates, if approved, and services or additional pricing pressures.
Our
relationships with physician consultants, owners and investors could be subject to additional scrutiny from regulatory enforcement authorities
and could subject us to possible administrative, civil or criminal sanctions.
Federal
and state laws and regulations impose restrictions on our relationships with physicians who are consultants, owners and investors. We
may enter into consulting agreements, license agreements and other agreements with physicians in which we provide cash as compensation.
We have or may have other written and oral arrangements with physicians, including for research and development grants and for other
purposes.
We
could be adversely affected if regulatory agencies were to interpret our financial relationships with these physicians, who may be in
a position to influence the ordering of and use of our product candidates for which governmental reimbursement may be available, as being
in violation of applicable laws. If our relationships with physicians are found to be in violation of the laws and regulations that apply
to us, we may be required to restructure the arrangements and could be subject to administrative, civil and criminal penalties, including
exclusion from participation in government healthcare programs, imprisonment, and the curtailment or restructuring of our operations,
any of which could negatively impact our ability to operate our business and our results of operations.
Our
company and many of our collaborators and potential collaborators are required to comply with the Federal Health Insurance Portability
and Accountability Act of 1996, the Health Information Technology for Economic and Clinical Health Act and implementing regulation affecting
the transmission, security and privacy of health information, and failure to comply could result in significant penalties.
Numerous
federal and state laws and regulations, including the Health Insurance Portability and Accountability Act of 1996, or HIPAA, and the
Health Information Technology for Economic and Clinical Health Act, or the HITECH Act, govern the collection, dissemination, security,
use and confidentiality of health information that identifies specific patients. HIPAA and the HITECH Act require our surgeon and hospital
customers and potential customers to comply with certain standards for the use and disclosure of health information within their companies
and with third parties. The Privacy Standards and Security Standards under HIPAA establish a set of standards for the protection of individually
identifiable health information by health plans, health care clearinghouses and certain health care providers, referred to as Covered
Entities, and the business associates with whom Covered Entities enter into service relationships pursuant to which individually identifiable
health information may be exchanged. Notably, whereas HIPAA previously directly regulated only these Covered Entities, the HITECH Act
makes certain of HIPAA’s privacy and security standards also directly applicable to Covered Entities’ business associates.
As a result, both Covered Entities and business associates are now subject to significant civil and criminal penalties for failure to
comply with Privacy Standards and Security Standards.
HIPAA
requires Covered Entities (like many of our customers and potential customers) and business associates to develop and maintain policies
and procedures with respect to protected health information that is used or disclosed, including the adoption of administrative, physical
and technical safeguards to protect such information. The HITECH Act expands the notification requirement for breaches of patient-identifiable
health information, restricts certain disclosures and sales of patient-identifiable health information and provides for civil monetary
penalties for HIPAA violations. The HITECH Act also increased the civil and criminal penalties that may be imposed against Covered Entities
and business associates and gave state attorneys general new authority to file civil actions for damages or injunctions in federal courts
to enforce the federal HIPAA laws and seek attorney fees and costs associated with pursuing federal civil actions. Additionally, certain
states have adopted comparable privacy and security laws and regulations, some of which may be more stringent than HIPAA.
Any
new legislation or regulation in the area of privacy and security of personal information, including personal health information, could
also adversely affect our business operations. If we do not comply with existing or new applicable federal or state laws and regulations
related to patient health information, we could be subject to criminal or civil sanctions and any resulting liability could adversely
affect our financial condition.
In
addition, countries around the world have passed or are considering legislation that would impose data breach notification requirements
and/or require that companies adopt specific data security requirements. If we experience a data breach that triggers one or more of
these laws, we may be subject to breach notification obligations, civil liability and litigation, all of which could also generate negative
publicity and have a negative impact on our business.
We
are currently, and in the future may be, subject to various governmental regulations related to the manufacturing of product candidates,
and we may incur significant expenses to comply with, experience delays in our product commercialization as a result of and be subject
to material sanctions if we or our contract manufacturers violate these regulations.