UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
WASHINGTON,
D.C. 20549
FORM
10-K
(MARK
ONE)
FOR
THE FISCAL YEAR ENDED DECEMBER 31, 2020
OR
FOR
THE TRANSITION PERIOD FROM TO
COMMISSION
FILE NUMBER 001-36159
STEREOTAXIS,
INC.
(Exact
name of the Registrant as Specified in its Charter)
4320
Forest Park Avenue, Suite
100
St.
Louis, MO63108
(Address
of Principal Executive Offices including Zip Code)
(314)678-6100
(Registrant’s
Telephone Number, Including Area Code)
Securities
registered pursuant to Section 12(b) of the Act:
Title of each class Trading Symbol(s) Name of each exchange on which registered
Common Stock, par value $0.001 per share STXS NYSE American
Securities
registered pursuant to Section 12(g) of the Act: None
Indicate
by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐ No☒
Indicate
by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ☐
No☒
Indicate
by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past 90 days. Yes☒ No ☐
Indicate
by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant
to Rule 405 of Regulation S-T “See 232.405 of this Chapter” during the preceding 12 months (or for such shorter period
that the registrant was required to submit such files). Yes☒ No ☐
Indicate
by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting
company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer”,
“smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Emerging growth company ☐
If
an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for
complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark
whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its
internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered
public accounting firm that prepared or issued its audit report. ☐
Indicate
by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ☐ No☒
The
aggregate market value of the registrant’s common stock held by non-affiliates of the registrant on the last business day
of the registrant’s most recently completed second fiscal quarter (based on the closing sales prices on the NYSE American
on June 30, 2020) was approximately $233.9million.
The
number of outstanding shares of the registrant’s common stock on February 28, 2021 was 73,758,714.
DOCUMENTS
INCORPORATED BY REFERENCE
Portions
of the Proxy Statement for the registrant’s 2021 Annual Meeting of Shareholders are incorporated by reference in Part III,
Items 10, 11, 12, 13 and 14.
STEREOTAXIS,
INC.
INDEX
TO ANNUAL REPORT ON FORM 10-K
STEREOTAXIS, INC.
INDEX TO FORM 10-K
Page
Part I
Item 1. Business 3
Item 1A. Risk Factors 16
Item 1B. Unresolved Staff Comments 33
Item 2. Properties 33
Item 3. Legal Proceedings 34
Item 4. Mine Safety Disclosure 34
Part II
Item 6. Selected Financial Data 34
Item 8. Financial Statements and Supplementary Data 42
Item 9A. Controls and Procedures 62
Item 9B. Other Information 63
PART III
Item 10. Directors and Executive Officers of the Registrant 63
Item 11. Executive Compensation 64
Item 14. Principal Accounting Fees and Services 64
PART IV
Item 15. Exhibits and Financial Statement Schedules 64
PART
I
ITEM 1. BUSINESS
In
this report, “Stereotaxis”, the “Company”, “Registrant”, “we”, “us”,
and “our” refer to Stereotaxis, Inc. and its wholly owned subsidiaries. Genesis RMN®, Epoch®,
Niobe®, Odyssey®, Odyssey CinemaTM, Vdrive®, Vdrive DuoTM,
V-CASTM, V-LoopTM, V-SonoTM, QuikCASTM and Cardiodrive®
are trademarks of Stereotaxis, Inc. All other trademarks that appear in this report are the property of their respective
owners.
FORWARD-LOOKING
STATEMENTS
This
annual report on Form 10-K, including the sections entitled “Business” and “Management’s Discussion and
Analysis of Financial Condition and Results of Operations,” contains forward-looking statements. These statements relate
to, among other things:
● our business, operating, sales and marketing, and regulatory strategies;
● our value proposition;
● our overall liquidity and our ability to fund operations;
● our ability to convert backlog to revenue;
● the adoption of our products by hospitals and physicians;
● the success of our business partnerships and strategic relationships;
● our industry generally, and overall economic conditions;
● our estimates regarding our capital requirements;
● our plans for hiring additional personnel; and
These
statements relate to future events or future financial performance, and involve known and unknown risks, uncertainties, and other
factors that may cause our actual results, levels of activity, performance or achievements to be materially different from any
future results, levels of activity, performance or achievements expressed or implied by such forward-looking statements. In some
cases, you can identify forward-looking statements by terminology such as “may”, “will”, “should”,
“could”, “expects”, “plans”, “intends”, “anticipates”, “believes”,
“estimates”, “predicts”, “potential”, or “continue”, or the negative of such terms
or other comparable terminology. Although we believe that the expectations reflected in the forward-looking statements are reasonable,
we cannot guarantee future results, levels of activity, performance, or achievements. These statements are only predictions.
Factors
that may cause our actual results to differ materially from our forward-looking statements include, among others, changes in general
economic and business conditions and the risks and other factors set forth in “Item 1A—Risk Factors” and elsewhere
in this annual report on Form 10-K.
Our
actual results may be materially different from what we expect. We undertake no duty to update these forward-looking statements
after the date of this annual report, even though our situation may change in the future. We qualify all of our forward-looking
statements by these cautionary statements.
OVERVIEW
Stereotaxis
designs, manufactures and markets an advanced robotic magnetic navigation system for use in a hospital’s interventional
surgical suite, or “interventional lab”, that we believe revolutionizes the treatment of arrhythmias by enabling enhanced
safety, efficiency, and efficacy for catheter-based, or interventional, procedures. Our primary products include the Genesis
RMN System, the Odyssey Solution, and related devices. We also offer to our customers the Stereotaxis Imaging Model
S x-ray System.
The
Genesis RMN System is designed to enable physicians to complete more complex interventional procedures by providing image-guided
delivery of catheters through the blood vessels and chambers of the heart to treatment sites. This is achieved using externally
applied magnetic fields that govern the motion of the working tip of the catheter, resulting in improved navigation, efficient
procedures, and reduced x-ray exposure.
In
addition to the robotic magnetic navigation systems and their components, Stereotaxis also has developed the Odyssey Solution,
which consolidates lab information enabling physicians to focus on the patient for optimal procedure efficiency. The system also
features a remote viewing and recording capability called Odyssey Cinema, which is an innovative solution that delivers
synchronized content for optimized workflow, advanced care, and improved productivity. This tool includes an archiving capability
that allows clinicians to store and replay entire procedures or segments of procedures. This information can be accessed from
locations throughout the hospital local area network and over the global Odyssey Network providing physicians with a tool
for clinical collaboration, remote consultation, and training.
We
promote our full suite of products in a typical hospital implementation, subject to regulatory approvals or clearances. This implementation
requires a hospital to agree to an upfront capital payment and recurring payments. The upfront capital payment typically includes
equipment and installation charges. The recurring payments typically include disposable costs for each procedure, equipment service
costs beyond the warranty period, and ongoing software updates. In hospitals where our full suite of products has not been implemented,
equipment upgrade or expansion can be implemented upon purchasing of the necessary upgrade or expansion.
We
have received regulatory clearance, licensing and/or CE Mark approvals necessary for us to market the Genesis RMN System
in the U.S. and Europe, and we are in the process of obtaining necessary registrations for extending our markets in other countries.
Our prior generation robotic magnetic navigation system, the Niobe System, and the Odyssey Solution, Cardiodrive,
and various disposable interventional devices have received regulatory clearance in the U.S., Europe, Canada, China, Japan and
various other countries. We have received the regulatory clearance, licensing and/or CE Mark approvals that allow us to market
the Vdrive and Vdrive Duo Systems with the V-CAS, V-Loop and V-Sono devices in the U.S., Canada
and Europe. Stereotaxis Imaging Model S x-ray System is CE marked and cleared by the FDA.
Not
all products have and/or require regulatory clearance in all of the markets we serve. Please refer to “Regulatory Approval”
in Item 1 for a description of the regulatory clearance, licensing, and/or approvals we currently have or are pursuing.
As
of December 31, 2020, we had approximately $6.9 million of backlog, consisting of outstanding purchase orders and other
commitments for these systems. Of the December 31, 2020 backlog, we expect approximately 93% to be recognized as revenue over
the course of 2021. We had backlog of approximately $1.1 million as of December 31, 2019. There can be no assurance that we will
recognize such revenue in any particular period or at all because some of our purchase orders and other commitments are subject
to contingencies that are outside our control. These orders and commitments may be revised, modified or canceled, either by their
express terms, as a result of negotiations or by project changes or delays. In addition, the sales cycle for the robotic magnetic
navigation system is lengthy and generally involves construction or renovation activities at customer sites. Consequently, revenues
and/or orders resulting from sales of our robotic magnetic navigation system can vary significantly from one reporting period
to the next.
We
have strategic relationships with technology leaders and innovators in the global interventional market. Through these strategic
relationships we provide compatibility between our robotic magnetic navigation system and digital imaging and 3D catheter location
sensing technology, as well as disposable interventional devices. The maintenance of these strategic relationships, or the establishment
of equivalent alternatives, is critical to our commercialization efforts. There are no guarantees that any existing strategic
relationships will continue and efforts are ongoing to ensure the availability of integrated next generation systems and/or equivalent
alternatives. We cannot provide assurance as to the timeline of the ongoing availability of such compatible systems or our ability
to obtain equivalent alternatives on competitive terms or at all.
We
were incorporated in Delaware in June, 1990 as Stereotaxis, Inc. Our principal executive offices are located at 4320 Forest Park
Avenue, Suite 100, St. Louis, Missouri 63108, and our telephone number is (314) 678-6100.
THE
STEREOTAXIS VALUE PROPOSITION
Although
great strides have been made in manual device technology and in related manual interventional techniques, significant challenges
remain that reduce interventional productivity and limit both the number of complex procedures and the types of diseases that
can be treated manually. These challenges primarily involve the inherent mechanical limitations of manual instrument control and
the lack of integration of the information systems used by physicians in the interventional lab as well as a significant amount
of training and experience required to ensure proficiency. As a result, many complex cases in electrophysiology are treated with
palliative drug therapy, and many complex procedures in interventional cardiology are still referred to as highly invasive bypass
surgeries.
Our
systems address the current challenges in the interventional lab by providing precise computerized control of the working tip
of the interventional instrument and by integrating this control with the visualization technology and information systems used
during electrophysiology and interventional cardiology procedures, on a cost-justified basis.
We
believe that our systems will:
PRODUCTS
Robotic
Magnetic Navigation
Our
proprietary robotic magnetic navigation systems (RMN) include the Genesis RMN and the prior generation Niobe Systems.
These systems are designed to enable physicians to complete more complex interventional procedures by providing image-guided delivery
of catheters and guidewires through the blood vessels and chambers of the heart to treatment sites. This is achieved using externally
applied magnetic fields that govern the motion of the working tip of the catheter or guidewire, resulting in improved navigation,
efficient procedures and reduced x-ray exposure. Our systems provide physicians with precise remote digital instrument control
in combination with sophisticated image integration. It can be operated either from an adjacent room and outside the x-ray fluoroscopy
field or beside the patient table, as in traditional interventional procedures. The RMN system allows the operator to navigate
disposable interventional devices to the treatment site through complex paths in the blood vessels and chambers of the heart to
deliver treatment by using computer controlled, externally applied magnetic fields to directly govern the motion of the working
tip of these devices, each of which has a magnetically sensitive tip that predictably responds to magnetic fields generated by
our system. Because the working tip of the disposable interventional device is directly controlled by these external magnetic
fields, the physician has the same degree of control regardless of the number or type of turns, or the distance traveled by the
working tip to arrive at its position in the blood vessels or chambers of the heart. This results in highly precise digital control
of the working tip of the disposable interventional device while still giving the physician the option to manually advance the
device.
Through
our arrangements with fluoroscopy system manufacturers and providers of catheters and electrophysiology mapping systems, we provide
compatibility between the robotic magnetic navigation system and the visualization and information systems used during electrophysiology
procedures in order to provide the physician with a comprehensive information and instrument control system. In addition, we have
integrated the robotic magnetic navigation system with 3D catheter location sensing technology to provide accurate real-time information
as to the 3D location of the working tip of the instrument.
The
components of therobotic magnetic navigation
system are identified and described below:
Robotic
Magnetic Navigation System. Our robotic magnetic navigation systems utilize two permanent magnets mounted on articulating
and pivoting arms with one magnet on either side of the patient table. These magnets generate magnetic navigation fields that
are less than the strength of fields typically generated by MRI equipment and therefore require significantly less shielding,
and cause significantly less interference, than MRI equipment. The robotic magnetic navigation system is indicated for use in
cardiac, peripheral and neurovascular applications.
Cardiodrive®
Automated Catheter Advancement System. As the physician conducts the procedure from the adjacent control room, the
Cardiodrive Automated Catheter Advancement System (“Cardiodrive”) in conjunction with the QuikCAS automated
catheter advancement system is used to remotely advance and retract the electrophysiology catheter in the patient’s heart
while the robotic magnetic navigation system magnets precisely steer the working tip of the device.
Odyssey®
Solution
The
Odyssey Solution offers a fully integrated, real-time information solution to manage, control, record and share procedures
across networks or around the world. We believe that the Odyssey Solution enhances the physician workflow in interventional
labs through a consolidated user interface of multiple systems on a single display to enable greater focus on the case and improve
the efficiency of the lab. Through the use of a single mouse and keyboard, the Odyssey Solution allows the user to command
multiple systems in the lab from a single point of control. In addition, the Odyssey Solution acquires a real-time, remote
view of the lab, capturing synchronized procedure data for review of important events during cases. The Odyssey Solution
enables physicians to access recorded cases and create snapshots following procedures for enhanced clinical reporting, auditing
and presentation. The Odyssey Solution enables physicians to establish a comprehensive master archive of procedures performed
in the lab providing an excellent tool for training new staff on the standard practices. The Odyssey Solution further enables
procedures to be observed remotely around the world with high speed Internet access over a hospital VPN, even wirelessly using
a standard laptop or Windows tablet computer.
Stereotaxis
Imaging Model S X-ray System
Developed
in collaboration with Omega Medical Imaging, and designed to be specifically available with RMN Systems, the Stereotaxis Imaging
Model S provides an integrated complete solution for a robotic interventional operating room. It is a single-plane, full-power
x-ray system and includes the c-arm, powered table, motorized boom, and large high-definition monitors. Stereotaxis Imaging Model
S incorporates modern fluoroscopy technology to support high quality imaging while minimizing radiation exposure for patients
and physicians. The combination of RMN Systems with Stereotaxis Imaging Model S is designed to reduce the cost of acquisition,
the ongoing cost of ownership, and the complexity of installation of a robotic electrophysiology practice.
Disposables
and Other Accessories
Our
robotic magnetic navigation systems are designed to use a toolkit of proprietary disposable interventional devices. The toolkit
currently consists of:
Revenue
from sales of disposable products is recognized when control is transferred to the customers, which generally occurs at the time
of shipment, but can also occur at the time of delivery depending on the customer arrangement. Disposable products are covered
by an assurance type warranty that provides for the return of defective products. Warranty costs were not material for the periods
presented.
We
also manufacture and market various disposable (the V-Loop, V-Sono, and V-CAS) components which can be manipulated
by our VdriveTM Robotic Navigation System a complimentary product that provides navigation and stability for diagnostic and
therapeutic devices designed to improve interventional procedures. In addition we also market and distribute other disposable
and related devices that can be use with our robotic magnetic navigation systems.
Other
Recurring Revenue
Other
recurring revenue includes revenue from product maintenance plans, other post warranty maintenance, and the implied obligation
to provide software enhancements if and when available for a specified period, typically one year following installation of our
systems. Revenue from services and software enhancements is deferred and amortized over the service or update period, which is
typically one year. Revenue related to services performed on a time-and-materials basis is recognized when performed.
Regulatory
Approval
We
have received regulatory clearance, licensing and/or CE Mark approvals necessary for us to market the Genesis RMN System
in the U.S. and Europe, and we are in the process of obtaining necessary registrations for extending our markets in other countries.
We
have received regulatory clearance, licensing and/or CE Mark approvals necessary for us to market the Niobe System, Cardiodrive,
and various disposable devices in the U.S., Canada, Europe, China, Japan, and various other countries.
We
have received regulatory clearance, licensing and/or CE Mark approvals necessary for us to market the Vdrive and Vdrive
Duo Systems with the V-CAS, V-Loop and V-Sono devices in the U.S., Canada and Europe.
Biosense
Webster has received FDA approval, and CE Mark for the CARTO® RMT navigation system for use with the Niobe
System, the 4mm CELSIUS® RMT Diagnostic/Ablation Steerable Tip Catheter, the 4mm NAVISTAR® RMT Diagnostic/Ablation
Steerable Tip Catheter, the 8mm Navistar RMT DS Diagnostic/Ablation Steerable Tip Catheter, and the 3.5mm NAVISTAR®
RMT THERMOCOOL® Irrigated Tip Catheter. In addition, Biosense Webster has received FDA approval and CE Mark for
the 3.5mm CELSIUS® RMT THERMOCOOL® Irrigated Tip Catheter. Biosense Webster also received China
CFDA approval and Japan PMDA approval for the CARTO® RMT navigation system for use with the Niobe System,
and the 3.5mm NAVISTAR® RMT THERMOCOOL® Irrigated Tip Catheter. Our strategic relationship with
Biosense Webster provides for co-development of catheters that can be navigated with our system, both with and without Biosense
Webster’s 3D catheter location sensing technology. In addition, we can utilize technology which allows our system to recognize
specific disposable interventional devices in order to prevent unauthorized use of our system. See “Strategic Relationships”
below for a description of our arrangements with Biosense Webster.
FINANCIAL
INFORMATION ABOUT CUSTOMERS
No
single customer accounted for more than 10% of total revenue for the year ended December 31, 2020. Revenue from Biosense Webster
Inc., related to royalties, accounted for $2.8 million, or 10%, of total net revenue for the year ended December 31, 2019. No
other single customer accounted for more than 10% of total revenue for the year ended December 31, 2019. Revenue from customers
in Finland accounted for $2.7 million, or 10%, of total revenue for the year ended December 31, 2020. No other single country,
other than the U.S., accounted for more than 10% of total revenue for the years ended December 31, 2020 and 2019.
CLINICAL
APPLICATIONS
We
have focused our clinical and commercial efforts on applications of our products primarily in electrophysiology procedures for
the treatment of arrhythmias and secondarily in complex interventional cardiology procedures for the treatment of coronary artery
disease. Our system potentially has broad applicability in other areas, such as structural heart repair, interventional neurosurgery,
interventional neuroradiology, peripheral vascular, renal denervation, pulmonology, urology, gynecology and gastrointestinal medicine,
and some of our patents may be applicable in these areas as well.
Electrophysiology
The
rhythmic beating of the heart results from the transmission of electrical impulses. When these electrical impulses are mistimed
or uncoordinated, the heart fails to function properly, resulting in symptoms that can range from fatigue to stroke or death.
Over 5.0 million people in the U.S. currently suffer from the resulting abnormal heart rhythms, which are known as arrhythmias.
The prevalence of arrhythmias is expected to continue to rise as the population ages and life expectancy continues to increase.
These conditions are a major physical and economic burden and are associated with stroke, heart failure, and adverse symptoms
causing patients to be very motivated to seek treatment. The combination of symptoms, prevalence and comorbidities make arrhythmias
a major economic factor in healthcare. We believe payors are very interested in therapies that may reduce the financial impact
of these diseases.
Drug
therapies for arrhythmias often fail to adequately control the arrhythmia and may have significant side effects. Consequently,
physicians have increasingly sought more permanent, non-pharmacological, solutions for arrhythmias. The most common interventional
treatment for arrhythmias, and in particular tachyarrhythmias, where the patient’s heart rate is too high or irregular,
is an ablation procedure in which the diseased tissue giving rise to the arrhythmia is isolated or destroyed. Prior to performing
an electrophysiology ablation, a physician typically performs a diagnostic procedure in which the electrical signal patterns of
the heart wall are “mapped” to identify the heart tissue generating the aberrant electrical signals. Following the
mapping procedure, the physician may then use an ablation catheter to eliminate the aberrant signal or signal path, restoring
the heart to its normal rhythm. In cases where an ablation is anticipated, physicians will choose an ablation catheter and perform
both the mapping and ablation with the same catheter. In February 2009 the FDA approved the Biosense Webster NAVISTAR®
THERMOCOOL® irrigated catheter to be labeled for the treatment of atrial fibrillation. This is the first
device approved by the FDA to be labeled for the interventional treatment of this arrhythmia.
We
believe more than 5,000 interventional labs around the world are currently capable of conducting electrophysiology procedures.
Nearly one million electrophysiology procedures are performed annually worldwide, and the procedure growth rate is approximately
10% annually.
We
believe that our robotic system is particularly well-suited for those electrophysiology procedures which are time consuming or
which can only be performed by highly experienced physicians. These procedures include:
We
believe that our system can address the current challenges in electrophysiology by permitting the physician to remotely navigate
disposable interventional devices from a control room outside the x-ray field. Additionally, we believe that our system allows
for more predictable and efficient navigation of these devices to the treatment site, and enables catheter contact to be consistently
maintained to efficiently apply energy on the wall of the beating heart. We also believe that our system will significantly lower
the skill barriers required for physicians to perform complex electrophysiology procedures and, additionally, improve interventional
lab efficiency and reduce disposable interventional device utilization.
Interventional
Cardiology
More
than half a million people die annually from coronary artery disease, a condition in which the formation of plaque in the coronary
arteries obstructs the supply of blood to the heart, making this the leading cause of death in the U.S. Despite various attempts
to reduce risk factors, each year over one million patients undergo interventional procedures in an attempt to open blocked vessels
and another one half million patients undergo open heart surgery to bypass blocked coronary arteries.
Blockages
within a coronary artery, often called lesions, are categorized by degree of obstruction as partial occlusions, non-chronic total
occlusions and chronic total occlusions. Lesions are also categorized by the degree of difficulty with which they can be opened
as simple or complex. Complex lesions, such as chronic total occlusions, longer lesions, and lesions located within smaller diameter
vessels, are often very difficult or time consuming to open with manual interventional techniques.
We
believe approximately 11,000 interventional labs worldwide are currently capable of conducting interventional cardiology. Over
4 million interventional cardiology procedures are performed annually in the U.S. alone. We estimate that approximately 10-15%
of these interventional cardiology procedures currently being performed are complex and therefore require longer procedure times
and may have sub-optimal outcomes. We believe that our system can substantially benefit this subset of complex interventional
cardiology procedures.
Interventional
Neuroradiology, Neurosurgery and Other Interventional Applications
Physicians
used a predecessor to our Niobe System to conduct a number of procedures for the treatment of brain aneurysms, a condition
in which a portion of a blood vessel wall balloons and which can result in debilitating or fatal bleeding and strokes. We believe
the robotic magnetic navigation system also has a range of potential applications in minimally invasive neurosurgery, including
biopsies and the treatment of tumors, treatment of vascular malformations and fetal interventions.
STRATEGIC
RELATIONSHIPS
We
have entered into business arrangements with technology leaders in the global interventional market, including manufacturers of
fluoroscopy systems, ablation catheters, and electrophysiology mapping systems, that we believe aid us in commercializing our
robotic magnetic navigation system. These arrangements are important to us as they provide for the integration of our system with
digital imaging and 3D catheter location sensing technology, as well as catheters compatible with our system.
Imaging
We
have successfully integrated our robotic magnetic navigation system with digital fluoroscopy systems to provide advanced interventional
lab visualization and instrument control through user-friendly computerized interfaces. The maintenance of these arrangements,
or the establishment of equivalent alternatives, is critical to our commercialization efforts. There are no guarantees that any
existing strategic relationships will continue and efforts are ongoing to ensure the availability of integrated next generation
systems and/or equivalent alternatives. We cannot provide assurance as to the timeline of the ongoing availability of such compatible
systems or our ability to obtain equivalent alternatives on competitive terms or at all.
Disposables
Devices
We
have entered into strategic relationships and successfully integrated with diagnostic mapping technologies to provide a robust
open ecosystem where physicians and patients benefit from the broad integration of procedure data.
With
Biosense Webster, we have jointly developed associated location and non-location sensing electrophysiology mapping and ablation
catheters that are navigable with our robotic magnetic navigation system. We believe that these products provide physicians with
the elements required for effective complex electrophysiology procedures: highly accurate information as to the exact location
of the catheter in the body and highly precise control over the working tip of the catheter.
The
co-developed catheters are manufactured and distributed by Biosense Webster, and both of the parties agreed to contribute to the
resources required for their development. We are entitled to royalty payments from Biosense Webster, payable quarterly based on
net revenues from sales of the co-developed catheters. Royalty revenue from the co-developed catheters represented 8% and 10%
of revenue for the years ended December 31, 2020 and 2019, respectively.
Biosense
Webster’s distribution rights for co-developed catheters are nonexclusive until December 31, 2022. Upon the expiration or
termination of the agreement, other than due to a change of control of Stereotaxis, the agreement provides for a continuation
of supply by Biosense Webster of the co-developed catheters to us or our customers for three years. The agreement provides an
opportunity to expand the product offering covered by the agreement to include a next generation irrigated magnetic catheter,
subject to mutually agreeable terms including exclusive distribution rights.
Under
the agreements with Biosense Webster, we granted Biosense Webster certain notice and discussion rights for product development
activities we undertake relating to localization of magnetically enabled interventional disposable devices in fields outside of
electrophysiology and mapping.
Either
party may terminate this agreement in certain specified “change of control” situations, although the termination would
not be effective until one year after the change of control and then would be subject to a wind-down period during which Biosense
Webster would continue to supply co-developed catheters to us or to our customers for three years (or, for non-location sensing
mapping and ablation catheters, until our first sale of a competitive product after a change of control, if earlier than three
years). If either party terminates the agreement under this provision, we must pay a termination fee to Biosense Webster equal
to 5% of our total equity value in the change of control transaction, up to a maximum of $10 million. If a change of control of
Stereotaxis occurs after Biosense Webster has received approval from the U.S. FDA for atrial fibrillation indication for the NAVISTAR®
RMT THERMOCOOL® catheter, we would be required to pay an additional $10 million fee to Biosense Webster,
and termination of the agreement by either party would not be effective until two years after the change of control. We also agreed
to notify Biosense Webster if we reasonably believe that we are engaged in substantive discussions with respect to the sale of
the Company or substantially all of our assets.
Additionally,
we have entered into a broad strategic collaboration with Osypka AG. This collaboration includes the development of a next-generation
magnetic ablation catheter to be navigated using Stereotaxis’ robotic technology. Stereotaxis is funding the development
and will be the sole owner of the catheter.
The
maintenance of these arrangements, or the establishment of equivalent alternatives, is critical to our commercialization efforts.
There are no guarantees that any existing strategic relationships or collaborations will continue.
RESEARCH
AND DEVELOPMENT
We
have assembled an experienced group of engineers and physicists with recognized expertise in magnetics, software, control algorithms,
mechanics, electronics, systems integration and disposable interventional device design.
Our
research and development efforts are focused in the following areas:
● development and enhancement of Robotic Magnetic Navigation Systems;
Our
research and development team collaborates with strategic third parties to integrate our robotic magnetic navigation system’s
open architecture platform with key imaging, location sensing and information systems in the interventional lab. We have also
collaborated with a number of highly regarded interventional physicians in key clinical areas and have entered into agreements
with a number of universities and teaching hospitals, which serve to increase our access to world class physicians and to expand
our name recognition in the medical community.
CUSTOMER
SERVICE AND SUPPORT
We
provide worldwide maintenance and support services to our customers for our integrated products directly or with the assistance
of outsourced product and service representatives. By utilizing these relationships, we provide direct, on-site technical support
activities, including call center, customer support engineers and service parts logistics and delivery. In certain situations,
we use these third parties as a single point of contact for the customer, allowing us to focus on providing installation, training,
and back-up technical support.
Our
back-up technical support includes a combination of on-line, telephone and on-site technical assistance services 24 hours a day,
seven days a week. We employ service and support engineers with networking and medical equipment expertise, and outsource a portion
of our installation and support services. We offer different levels of support to our customers, including basic hardware and
software maintenance, extended product maintenance, and rapid response capability for both parts and service.
We
have established a call center in our St. Louis facilities, which provides real-time clinical and technical support to our customers
worldwide.
MANUFACTURING
Robotic
Magnetic Navigation Systems and Odyssey Solution
Our
manufacturing strategy for our Robotic Magnetic Navigation Systems and Odyssey Solution is to sub-contract the manufacture
of major subassemblies of our systems to maximize manufacturing flexibility and lower fixed costs. We maintain quality control
for all of our systems by completing final system assembly and inspection in-house.
We
purchase both custom and off-the-shelf components from a large number of suppliers and subject them to quality specifications
and processes. Some of the components necessary for the assembly of our products are currently provided to us by sole-sourced
suppliers (the only recognized supply source available to us) or single-sourced suppliers (the only approved supply source for
us among other sources). We purchase the majority of our components and major assemblies through purchase orders rather than long-term
supply agreements and generally do not maintain large volumes of finished goods.
Disposable
Interventional Devices
Our
manufacturing strategy for disposable interventional devices is to outsource their manufacture through subcontracting and to expand
partnerships for other interventional devices. We work closely with our contract manufacturers and have strong relationships with
component suppliers. We have entered into manufacturing agreements to provide high volume capability for devices other than catheters.
Software
The
software components of the robotic magnetic navigation system and Odyssey Solution, including control and application software,
are developed both internally and with integrated modules we purchase or license. We perform final testing of software products
in-house prior to their commercial release.
General
Our
manufacturing facility operates under processes that meet the FDA’s requirements under the Quality System Regulation (QSR).
Our ISO registrar and European notified British Standard Institution (BSI) has audited our facility annually since 2001 and found
the facility to be in compliance with relevant requirements. The most recent ISO 13485 and MDSAP Certificate of Registration were
issued in 2019 and 2020, respectively and are valid through September 2022.
SALES
AND MARKETING
We
market our products in the U.S and internationally through a direct sales force of senior sales specialists, distributors and
sales agents, supported by account managers and clinical specialists who provide training, clinical support, and other services
to our customers. In addition, Biosense Webster distributes magnetically-enabled electrophysiology mapping and ablation catheters,
co-developed pursuant to our agreement with them.
Our
sales and marketing efforts include two important elements: (1) selling robotic magnetic systems, Odyssey Solutions, and
Vdrive systems directly and through distributors; and (2) leveraging our installed base of systems to drive recurring sales
of disposable interventional devices, software and service.
REIMBURSEMENT
We
believe that substantially all of the procedures, whether commercial or in clinical trials, conducted in the U.S. with the Niobe
System have been reimbursed to date. We expect that third-party payors will reimburse, under existing billing codes, procedures
in which compatible ablation catheters are used. We expect healthcare facilities in the U.S. to bill various third-party payors,
such as Medicare, Medicaid, other government programs and private insurers, for services performed with our products. We believe
that procedures performed using our products, or targeted for use by products that do not yet have regulatory clearance or approval,
are generally already reimbursable under government programs and most private plans. Accordingly, we believe providers in the
U.S. will generally not be required to obtain new billing authorizations or codes in order to be compensated for performing medically
necessary procedures using our products on insured patients. We cannot guarantee that reimbursement policies of third-party payors
will not change in the future with respect to some or all of the procedures using the robotic magnetic navigation system.
In
countries outside the United States, reimbursement is obtained from various sources, including governmental authorities, private
health insurance plans, and labor unions. In most foreign countries, private insurance systems may also offer payments for some
therapies. Additionally, health maintenance organizations are emerging in certain European countries. In Europe, we believe that
substantially all of the procedures, whether commercial or in clinical trials, conducted with the Niobe System have been
reimbursed to date. In Japan, the Ministry of Health, Labor and Welfare (MHLW) has classified the Niobe System as a C2
medical device (the highest reimbursement category), and has established a “technical fee” of Japanese Yen 50,000
per procedure. In other foreign countries, we may need to seek international reimbursement approvals, and we do not know if these
required approvals will be obtained in a timely manner or at all.
See
“Item 1A—Risk Factors” for a discussion of various risks associated with reimbursement from third-party payors.
INTELLECTUAL
PROPERTY
The
proprietary nature of, and protection for, our products, processes and know-how are important to our business. We seek patent
protection in the United States and internationally for our systems and other technology where available and when appropriate.
We
have an extensive patent portfolio that we believe protects the fundamental scope of our technology, including our magnet technology,
navigational methods, procedures, systems, disposable interventional devices and our 3D integration technology. As of December
31, 2020, we had 65 issued U.S. patents, 1 co-owned U.S. patent, and no licensed-in U.S. patents. In addition, we had 2 pending
U.S. patent applications. As of December 31, 2020, we had 23 issued foreign patents and 5 pending foreign patent applications.
The key patents that protect our Niobe and Genesis RMN Systems extend until 2022 and beyond.
We
also have a number of invention disclosures under consideration and several applications that are being prepared for filing. We
cannot be certain that any patents will be issued from any of our pending patent applications, nor can we be certain that any
of our existing patents or any patents that may be granted in the future will provide us with protection.
It
would be technically difficult and costly to reverse engineer our robotic magnetic navigation system, which contains numerous
complex algorithms that control our disposable devices inside the magnetic fields generated by the robotic magnetic navigation
system. We further believe that our patent portfolio is broad enough in scope to enable us to obtain legal relief if any entity
not licensed by us attempted to market disposable devices in the U.S. that can be navigated by the robotic magnetic navigation
system. We can also utilize security keys, such as embedded smart chips or associated software that could allow our system to
recognize specific disposable interventional devices in order to prevent unauthorized use of our system.
We
have also developed substantial expertise in magnet design, magnet physics and magnetic instrument control that was developed
in connection with the development of the robotic magnetic navigation system, which we maintain as trade secrets. This expertise
centers around our proprietary magnet design, which is a critical aspect of our ability to design, manufacture and install a cost-effective
magnetic navigation system that is small enough to be installed in a standard interventional lab. Our Odyssey Solution
contains numerous complex algorithms and proprietary software and hardware configurations, and requires substantial knowledge
to design and assemble, which we maintain as trade secrets. This proprietary software and hardware, some of which is owned by
Stereotaxis, and some of which is licensed to Stereotaxis, is a material aspect of the ability to design, manufacture and install
a cost-effective and efficient information integration, storage, and delivery platform.
In
addition, we seek to protect our proprietary information by entering into confidentiality, assignment of invention or license
agreements with our employees, consultants, contractors, advisers and other third parties. However, we believe that these measures
afford only limited protection.
COMPETITION
The
markets for medical devices are intensely competitive and are characterized by rapid technological advances, frequent new product
introductions, evolving industry standards and price erosion.
In
electrophysiology we consider the primary competition to our robotic magnetic navigation system to be traditional catheter-based
electrophysiology ablation approaches including RF (radiofrequency) ablation and non-RF therapies. To our knowledge, we are the
only company that has commercialized remote, digital and direct control of the working tip of catheters for use in RF ablation
procedures. Our success depends in part on convincing hospitals and physicians to convert traditional interventional procedures
to procedures using our robotic magnetic navigation system.
We
face competition from companies that are developing and marketing new products for use in electrophysiology. These products include
next generation mapping systems and RF ablation devices with which our robotic magnetic navigation system is not currently compatible,