ITEM 1A. RISK FACTORS
The
following uncertainties and factors, among others, could affect future performance and cause actual results to differ materially from
those expressed or implied by forward looking statements.
RISK
FACTORS SUMMARY
Risks
Related to Our Business and Business Operations
● Physicians may not commit enough time to sufficiently learn our system.
● Customers may choose to purchase competing products and not ours.
Risks
Relating to Technology and Intellectual Property Matters
● We may be unable to protect our technology from use by third parties.
● Software errors or other defects may be discovered in our products.
Risks
Relating to Regulatory and Legal Matters
Risks
Related to Our Common Stock
Risks
Related to the February 2021 CEO Performance Stock Unit Grant
Summary
of General Risk Factors
● General economic conditions could materially adversely impact us.
● We face currency and other risks associated with international operations.
Risks
Related to Our Business and Business Operations
We
may not generate cash from operations or be able to raise the necessary capital to continue operations.
We
may require additional funds to meet our operational, working capital and capital expenditure needs in the future. We cannot be certain
that we will be able to obtain additional funds on favorable terms or at all. If we cannot raise capital on acceptable terms, we will
not be able to, among other things:
● maintain customer and vendor relationships;
● hire, train and retain employees;
● maintain or expand our operations;
● enhance our existing products or develop new ones;
● respond to competitive pressures; or
● service our debt obligations and meet our financial covenants.
Our
failure to do any of these things could result in lower revenue and adversely affect our financial condition and results of operations,
and we may have to curtail or cease operations.
A
pandemic, epidemic or outbreak of infectious disease could have an adverse effect our business, operating results or financial condition.
The
novel coronavirus COVID-19 (“COVID-19”) pandemic has resulted, and is likely to continue to result, in significant disruptions
to the economy, as well as business and capital markets around the world. The full extent of the impact of the COVID-19 pandemic on our
business, results of operations and financial condition will depend on numerous evolving factors that we may not be able to accurately
predict.
As
a result of the COVID-19 outbreak, we have experienced business disruptions, including travel restrictions on us and our third-party
distributors, which have negatively affected our complex sales, marketing, installation, distribution and service network relating to
our products and services. The COVID-19 pandemic may continue to negatively affect demand for both our systems and our disposable products
by limiting the ability of our sales personnel to maintain their customary contacts with customers as governmental authorities institute
prolonged quarantines, travel restrictions, and shelter-in-place orders, or as our customers impose limitations on contacts and in-person
meetings that go beyond those imposed by governmental authorities.
In
addition, many of our hospital customers, for whom the purchase of our system involves a significant capital purchase which may be part
of a larger construction project at the customer site (typically the construction of a new building), may themselves be under economic
pressures. This may cause delays or cancellations of current purchase orders and other commitments, and may exacerbate the long and variable
sales and installation cycles for our robotic magnetic navigation systems. We may also experience significant reductions in demand for
our disposable products as our healthcare customers (physicians and hospitals) continue to re-prioritize the treatment of patients and
divert resources away from non-coronavirus areas, which we anticipate will lead to the performance of fewer procedures in which our disposable
products are used. In addition, patients may consider foregoing or deferring procedures utilizing our products, even if physicians and
hospitals are willing to perform them, which could also reduce demand for, and sales of, our disposable products.
As
of the date of the filing of this Annual Report on Form 10-K, we believe our manufacturing operations and supply chains have been manageably
impacted, but we cannot guarantee that they will not be impacted more severely in the future. If our manufacturing operations or supply
chains are materially interrupted, it may not be possible for us to timely manufacture relevant products at required levels, or at all.
Changes in economic conditions and supply chain constraints could lead to higher inflation than
previously experienced or expected, which could, in turn, lead to an increase in costs. We may be unable to raise the prices of our products
sufficiently to keep up with the rate of inflation. A material reduction or interruption to any of our manufacturing processes
or a substantial increase in costs would have a material adverse effect on our business, operating results, and financial condition.
As
governmental authorities around the world continue to institute prolonged mandatory closures, social distancing protocols and shelter-in-place
orders, or as private parties on whom we rely to operate our business put in place their own protocols that go beyond those instituted
by relevant governmental authorities, our ability to adequately staff and maintain our operations or further our product development
could be negatively impacted.
Any
disruption to the capital markets could negatively impact our ability to raise capital. If the capital markets are disrupted for an extended
period of time and we need to raise additional capital, such capital may not be available on acceptable terms, or at all. Continued disruptions
to the capital markets and other financing sources could also negatively impact our hospital customers’ ability to raise capital
or otherwise obtain financing to fund their operations and capital projects. Such could result in delayed spending on current projects,
a longer sales cycle for new projects where a large capital commitment is required, and decreased demand for our disposable products
as well as an increased risk of customer defaults or delays in payments for our systems installation, service contracts and disposable
products.
We
continue to evaluate and, where appropriate, take actions to reduce costs and spending across our organization. We will continue to actively
monitor the situation and may take further actions that alter our business operations that may be required by federal, state, or local
governmental authorities that may be implemented by our vendors, supplier or customers, or that we determine are in the best interests
of our employees, customers, suppliers and stockholders.
We
may not be able to fund our business operations in the same manner as we have done historically if we do not improve the operating performance
of the Company or raise additional capital.
The
Company has sustained operating losses throughout its corporate history and expects that its 2022 operating expenses will exceed its
2022 gross margin. The Company expects to continue to incur operating losses and negative cash flows until revenues reach a level sufficient
to support ongoing operations or expense reductions are in place. The Company’s liquidity needs will be largely determined by the
success of clinical adoption within the installed base of our robotic magnetic navigation system as well as by new placements of capital
systems. The Company’s plans for improving the liquidity conditions primarily include its ability to control the timing and spending
of its operating expenses and raising additional funds through debt or equity financing.
There
can be no assurance that any of our plans will be successful or that additional capital will be available to us on reasonable terms,
or at all, when needed. If we are unable to improve the operating performance of the Company or if we are unable to obtain sufficient
additional capital, it may impair our ability to obtain new customers or hire and retain employees, any of which could force us to substantially
revise our business plan or cease operations, which may reduce or negate the value of your investment.
Hospital
decision-makers may not purchase our Robotic Magnetic Navigation Systems or related products or may think that such systems and products
are too expensive.
To
achieve and grow sales, hospitals must purchase our products, and in particular, our robotic magnetic navigation system. The robotic
magnetic navigation system is a novel device, and hospitals and physicians are traditionally slow to adopt new products and treatment
practices. In addition, hospitals may delay their purchase or installation decision for the robotic magnetic navigation system based
on the disposable interventional devices that have received regulatory clearance or approval. Moreover, the robotic magnetic navigation
system is an expensive piece of capital equipment, representing a significant portion of the cost of a new or replacement interventional
lab. Although priced significantly below a robotic magnetic navigation system, the Odyssey Solution is still an expensive product.
If hospitals do not widely adopt our systems, or if they decide that they are too expensive, we may never become profitable. Any failure
to sell as many systems as our business plan requires could also have a seriously detrimental impact on our results of operations, financial
condition, liquidity position, and cash flow.
If
we are unable to fulfill our current purchase orders and other commitments on a timely basis or at all, we may not be able to achieve
future sales growth.
Our
backlog, which consists of purchase orders and other commitments, is considered by some investors to be a significant indicator of future
performance. Consequently, negative changes to this backlog or its failure to grow commensurate with expectations could negatively impact
our future operating results or our share price. Our backlog includes those outstanding purchase orders and other commitments that management
believes will result in recognition of revenue upon delivery or installation of our systems. We cannot assure you that we will recognize
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. In addition, these orders and commitments may be revised, modified or cancelled, either by their express terms,
as a result of negotiations or by project changes or delays. System installation is, by its nature, subject to the interventional lab
construction or renovation process which comprises multiple stages, all of which are outside of our control. Although the actual installation
of our robotic magnetic navigation system requires only a few weeks and can be accomplished by either our staff or by subcontractors,
successful installation of our system can be subjected to delays related to the overall construction or renovation process. If we experience
any failures or delays in completing the installation of these systems, our reputation would suffer and we may not be able to sell additional
systems. We have experienced situations in which our purchase orders and other commitments did not result in recognizing revenue from
placement of a system with a customer. In addition to construction delays, there are risks that an institution will attempt to cancel
a purchase order as a result of subsequent project review by the institution or the departure from the institution of physicians or physician
groups who have expressed an interest in purchasing our products.
Decreases
in our backlog have occurred in the past and could occur in the future, causing delays in revenue recognition or even removal of orders
and other commitments from our backlog. Such events would have a negative effect on our revenue and results of operations.
We
will likely experience long and variable sales and installation cycles, which could result in substantial fluctuations in our quarterly
results of operations.
We
anticipate that our robotic magnetic navigation system will continue to have a lengthy sales cycle because it consists of a relatively
expensive piece of capital equipment, the purchase of which requires the approval of senior management at hospitals, inclusion in the
hospitals’ interventional lab budget process for capital expenditures, and, in some instances, a certificate of need from the state
or other regulatory approval. In addition, historically the majority of our products have been delivered less than one year after the
receipt of a purchase order from a hospital, with the timing being dependent on the construction cycle for the new or replacement interventional
suite in which the equipment will be installed. In some cases, this time frame has been extended further because the interventional suite
construction is part of a larger construction project at the customer site (typically the construction of a new building), which may
occur with our existing and future purchase orders. We cannot assure you that the time from purchase order to delivery for systems to
be delivered in the future will be consistent with our historical experience. Moreover, a global economic slowdown may cause our customers
to further delay construction or significant capital purchases, which could further lengthen our sales cycle. This may contribute to
substantial fluctuations in our quarterly operating results. As a result, in future quarters our operating results could fall below the
expectations of securities analysts or investors, in which event our stock price would likely decrease.
Physicians
may not use our products if they do not believe they are safe, efficient and effective.
We
believe that physicians will not use our products unless they determine that our products provide a safe, effective and preferable alternative
to interventional methods in general use today. If longer-term patient studies or clinical experience indicate that treatment with our
system or products is less effective, less efficient or less safe than our current data suggest, our sales would be harmed, and we could
be subject to significant liability. Further, unsatisfactory patient outcomes or patient injury could cause negative publicity for our
products, particularly in the early phases of product introduction. In addition, physicians may be slow to adopt our products if they
perceive liability risks arising from the use of these new products. It is also possible that as our products become more widely used,
latent defects could be identified, creating negative publicity and liability problems for us and adversely affecting demand for our
products. If physicians do not use our products, we likely will not become profitable or generate sufficient cash to fund company operations
going forward.
Our
collaborations with fluoroscopy system manufacturers and providers of catheters and electrophysiology mapping systems or other parties
may fail, or we may not be able to enter into additional collaborations in the future.
We
have collaborated with and are continuing to collaborate with fluoroscopy system manufacturers and providers of catheters and electrophysiology
mapping systems and other parties to make our instrument control technology compatible with their respective imaging products or disposable
interventional devices and to co-develop additional disposable interventional devices for use with our products. A significant portion
of our revenue from system sales is derived from these integrated products. The maintenance of these collaborations, 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.
Our
product commercialization plans could be disrupted, leading to lower than expected revenue and a material and adverse impact on our results
of operations and cash flow, if:
Some
of our collaborators are large, global organizations with diverse product lines and interests
that may diverge from our interests in commercializing our products. Accordingly, our collaborators may not devote adequate resources
to our products, or may experience financial difficulties, change their business strategy or undergo a business combination that may
affect their willingness or ability to fulfill their obligations to us.
The
failure of one or more of our collaborations could have a material adverse effect on our financial condition, results of operations and
cash flow. In addition, if we are unable to enter into additional collaborations in the future, or if these collaborations fail, our
ability to develop and commercialize products could be impacted negatively and our revenue could be adversely affected.
The
complexity associated with selling, marketing, and distributing products could impair our ability to increase revenue.
We
currently market our products in the U.S., Europe and the rest of the world 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. If we are unable to effectively utilize our existing sales force or increase our existing sales force in the
foreseeable future, we may be unable to generate the revenue we have projected in our business plan. Factors that may inhibit our sales
and marketing efforts include:
In
addition, if we fail to effectively use distributors or contract sales agents for distribution of our products where appropriate, our
revenue and profitability would be adversely affected.
Our
marketing strategy is dependent on collaboration with physician “thought leaders.”
Our
research and development efforts and our marketing strategy depend heavily on obtaining support, physician training assistance, and collaboration
from highly regarded physicians at leading commercial and research hospitals, particularly in the U.S. and Europe. If we are unable to
gain and/or maintain such support, training services, and collaboration or if the reputation or standing of these physicians is impaired
or otherwise adversely affected, our ability to market our products and, as a result, our financial condition, results of operations
and cash flow could be materially and adversely affected.
Physicians
may not commit enough time to sufficiently learn our system.
In
order for physicians to learn to use the robotic magnetic navigation system, they must attend structured training sessions in order to
familiarize themselves with a sophisticated user interface and they must be committed to learning the technology. Further, physicians
must utilize the technology on a regular basis to ensure they maintain the skill set necessary to use the interface. Continued market
acceptance could be delayed by lack of physician willingness to attend training sessions, by the time required to complete this training,
or by state or institutional restrictions on our ability to provide training. An inability to train a sufficient number of physicians
to generate adequate demand for our products could have a material adverse impact on our financial condition and cash flow.
Customers
may choose to purchase competing products and not ours.
Our
products must compete with traditional interventional methods. These methods are widely accepted in the medical community, have a long
history of use and do not require the purchase of an additional expensive piece of capital equipment. In addition, many of the medical
conditions that can be treated using our products can also be treated with pharmaceuticals or other medical devices and procedures. Many
of these alternative treatments are also widely accepted in the medical community and have a long history of use.
We
also face competition from companies that are developing robotic technologies for electrophysiology and non-electrophysiology interventional
procedures. We are aware of three companies that commercialized endovascular catheter navigation systems which have been cleared by the
FDA for electrophysiology procedures as well as two companies with electromagnetic catheter navigation systems that received CE Mark
approval in Europe. None of these companies seem to be active with any current commercial activities. Outside of electrophysiology, there
are at least two companies that have commercialized robotic systems for guidewire manipulation and can be viewed as potential competitors
as we look to address additional clinical applications.
We
face competition from companies that are developing drugs, gene or cellular therapies or other medical devices or procedures to treat
the conditions for which our products are intended. The medical device and pharmaceutical industries make significant investments in
research and development, and innovation is rapid and continuous. Other companies in the medical device industry continue to develop
new devices and technologies for traditional interventional methods.
If
these or other new products or technologies emerge that provide the same or superior benefits as our products at equal or lesser cost,
it could render our products obsolete or unmarketable. In addition, the presence of other competitors may cause potential customers to
delay their purchasing decisions, resulting in a longer than expected sales cycle, even if they do not choose our competitors’
products. We cannot be certain that physicians will use our products to replace or supplement established treatments or that our products
will be competitive with current or future products and technologies.
Many
of our other competitors also have longer operating histories, significantly greater financial, technical, marketing and other resources,
greater name recognition and a larger base of customers than we do. In addition, as the markets for medical devices develop, additional
competitors could enter the market. We cannot assure you that we will be able to compete successfully against existing or new competitors.
Our revenue would be reduced or eliminated if our competitors develop and market products that are more effective and less expensive
than our products.
If
the magnetic fields generated by our system are not compatible with, or interfere with, other widely used equipment in the interventional
labs, sales of our products would be negatively affected.
Our
robotic magnetic navigation system generates magnetic fields that directly govern the motion of the internal, or working, tip of disposable
interventional devices. If other equipment in the interventional labs or elsewhere in a hospital is incompatible with the magnetic fields
generated by our system, or if our system interferes with such equipment, we may be required to install additional shielding, which may
be expensive and which may not solve the problem. If magnetic interference becomes a significant issue at targeted institutions, it would
increase our installation costs at those institutions and could limit the number of hospitals that would be willing to purchase and install
our systems, either of which would adversely affect our financial condition, results of operations and cash flow.
The
use of our products could result in product liability claims that could be expensive, divert management’s attention, and harm our
reputation and business.
Our
business exposes us to significant risks of product liability claims. The medical device industry has historically been litigious, and
we could face product liability claims if the use of our products were to cause injury or death. The coverage limits of our product liability
insurance policies may not be adequate to cover future claims, and we may be unable to maintain product liability insurance in the future
at satisfactory rates or adequate amounts. A product liability claim, regardless of its merit or eventual outcome, could divert management’s
attention, and result in significant legal defense costs, significant harm to our reputation and a decline in revenue.
We
have incurred substantial losses in the past and may not be profitable in the future.
We
have incurred substantial net losses since inception, including incurring an accumulated deficit of $498.7 million as of December 31,
2021, and we expect to incur losses into the future as we continue the commercialization of our products. Moreover, the extent of our
future losses and the timing of profitability are highly uncertain. Although we have achieved operating profitability during certain
quarters, we may not achieve profitable operations on an annual basis, and if we achieve profitable operations, we may not sustain or
increase profitability on a quarterly or annual basis. If we require more time than we expect to generate significant revenue and achieve
annual profitability, or if we are unable to sustain profitability once achieved, we may not be able to continue our operations. Our
failure to achieve annual profitability or sustain profitability on an annual or quarterly basis could negatively impact the market price
of our common stock. Furthermore, even if we achieve significant revenue, we may choose to pursue a strategy of increasing market penetration
and presence or expand or accelerate new product development or clinical research activities at the expense of profitability.
Our
reliance on contract manufacturers and on suppliers, and in some cases, a single supplier, could harm our ability to meet demand for
our products in a timely manner or within budget.
We
depend on contract manufacturers to produce and assemble certain of the components of our systems and other products such as our electrophysiology
catheter advancement device and other disposable devices. We also depend on various third-party suppliers for the magnets we use in our
robotic magnetic navigation system and certain components of our Odyssey Solution. In addition, some of the components necessary
for the assembly of our products are currently provided to us by a single supplier, including the magnets for our robotic magnetic navigation
system and certain components of our Odyssey Solution, and we generally do not maintain large volumes of inventory. Our reliance
on these third parties involves a number of risks, including, among other things, the risk that:
If
any of these risks materialize, it could significantly increase our costs and impair product delivery.
Lead
times for materials and components ordered by us and our contract manufacturers vary and depend on factors such as the specific supplier,
contract terms and demand for a component at a given time. We, and our contract manufacturers, acquire materials, complete standard subassemblies
and assemble fully configured systems based on sales forecasts. If orders do not match forecasts, we, as well as our contract manufacturers,
may have excess or inadequate inventory of materials and components.
In
addition, if these manufacturers or suppliers stop providing us with the components or services necessary for the operation of our business,
we may not be able to identify alternate sources in a timely fashion. Any transition to alternate manufacturers or suppliers would likely
result in operational problems and increased expenses and could delay the shipment of or limit our ability to provide our products. We
cannot assure you that we would be able to enter into agreements with new manufacturers or suppliers on commercially reasonable terms
or at all. Additionally, obtaining components from a new supplier may require a new or supplemental filing with applicable regulatory
authorities and clearance or approval of the filing before we could resume product sales. Any disruptions in product flow may harm our
ability to generate revenue, lead to customer dissatisfaction, damage our reputation and result in additional costs or cancellation of
orders by our customers.
We
also rely on Biosense Webster and other parties to manufacture a number of disposable interventional devices for use with our robotic
magnetic navigation system. If these parties cannot manufacture sufficient quantities of disposable interventional devices to meet customer
demand, or if their manufacturing processes are disrupted, our revenue and profitability would be adversely affected.
Risks
associated with international manufacturing and trade could negatively impact the availability and cost of our products because materials
used to manufacture our magnets, one of our key system components, are sourced from overseas.
We
purchase the permanent magnets for our robotic magnetic system from a manufacturer that uses material produced in Japan, and we anticipate
that a certain amount of the production work for these magnets will be performed for this manufacturer in China. Given the complex relationships
between China and the U.S., political, diplomatic, military, or other events could result in business disruptions, including increased
regulatory enforcement against companies, tariffs, trade embargoes, and export restrictions relating to this production work. For example,
in 2020, the U.S. government amended the Entity List rules to expand the requirement to obtain a license prior to the export of certain
technologies. In addition, in 2020, a new U.S. regulation seeks to prohibit the U.S. government from contracting with companies who use
the products or services of certain Chinese companies. While we believe that these regulations do not materially impact our business
at this time, we cannot predict the impact that additional regulatory changes may have on our business in the future, which could adversely
affect our business operations in China, or may otherwise limit our ability to offer our products and services in China and other parts
of the world. In addition, our subcontractor may purchase magnets for our disposable interventional devices directly from a manufacturer
in Japan. The relationships with these manufacturers and suppliers are generally on a purchase order basis and do not provide a contractual
obligation to provide adequate supply or acceptable pricing on a long-term basis. These vendors could discontinue sourcing or supplying
these magnets at any time. If any of our significant vendors were to discontinue their relationship with us or with our subcontractor,
or if the factories were to suffer a disruption in their production, we may be unable to replace the vendors in a timely manner, which
could result in short-term disruption to our supply of magnets as we transition our orders to new vendors or factories which could, in
turn, cause a significant increase in price or a disruption of imports, including the imposition of import restrictions, could adversely
affect our business, financial condition and results of operations. The flow of components from our vendors could also be adversely affected
by financial or political instability or travel restrictions or bans in any of the countries in which the goods we purchase are manufactured,
if the instability or restriction affects the production or export of product components from those countries. Trade restrictions in
the form of tariffs or quotas, or both, could also affect the importation of those product components and could increase the cost and
reduce the supply of products available to us. For example, the previous administration implemented, or was considering the imposition
of, tariffs on certain foreign goods, and we cannot predict the ongoing status of tariffs or any further potential legislation or actions
taken by the U.S. federal government that restrict trade, such as additional tariffs, trade barriers, and other protectionist or retaliatory
measures taken by governments in Europe, Asia, and other countries, could adversely impact our ability to sell products and services,
which could increase the cost of our products and the components and raw materials that go into making them. Countries may also adopt
other protectionist measures that could limit our ability to offer our products and services. In addition, decreases in the value of
the U.S. dollar against foreign currencies, or significant price increase from these suppliers, could increase the cost of products we
purchase from overseas vendors.
We
may encounter problems at our manufacturing facilities or those of our subcontractors or otherwise experience manufacturing delays that
could result in lost revenue.
We
subcontract all or part of the manufacture and assembly of components of our products and devices. The products we design may not satisfy
all of the performance requirements of our customers and we may need to improve or modify the design or ask our subcontractors to modify
their production process in order to do so. In addition, we, or our subcontractors, may experience quality problems, substantial costs
and unexpected delays related to efforts to upgrade and expand manufacturing, assembly and testing capabilities. If we incur delays due
to quality problems or other unexpected events, our revenue may be impacted.
Our
growth may place a significant strain on our resources, and if we fail to manage our growth, our ability to develop, market, and sell
our products will be harmed.
Our
business plan contemplates a period of substantial growth and business activity. This growth and activity will likely result in new and
increased responsibilities for management personnel and place significant strain upon our operating and financial systems and resources.
To accommodate our growth and compete effectively, we will be required to improve our information systems, create additional procedures
and controls and expand, train, motivate and manage our work force. We cannot be certain that our personnel, systems, procedures, and
controls will be adequate to support our future operations. Any failure to effectively manage our growth could impede our ability to
successfully develop, market, and sell our products.
Risks
Relating to Technology and Intellectual Property Matters
The
rate of technological innovation of our products might not keep pace with the rest of the market.
The
rate of innovation for the market in which our products compete is fast-paced and requires significant resources and innovation. If other
products and technologies are developed that compete with, or may compete with, our products, it could be difficult for us to maintain
our advantages associated with being an early developer of this technology. Likewise, the innovation and development cycle of competitors
may impact our research and development efforts and ultimately, commercial adoption of viable research and development efforts. In addition,
connectivity with other devices in the electrophysiology lab is a key driver of value. If the Company is not able to continue to commit
sufficient resources to ensure that its products are compatible with other products within the electrophysiology lab, this could have
a negative impact on revenue.
Security
breaches and other disruptions to our information technology infrastructure could interfere with our operations, compromise confidential
information, and expose us to liability which could materially adversely impact our business and reputation.
Security
breaches and other disruptions to our information technology infrastructure could interfere with our operations; compromise information
belonging to us, our employees, customers, and suppliers; and expose us to liability which could adversely impact our business and reputation.
In the ordinary course of business, we rely on information technology networks and systems, some of which are managed by third parties,
to process, transmit, and store electronic information, and to manage or support a variety of business processes and activities. Additionally,
we collect and store certain data, including proprietary business information and customer and employee data, and may have access to
confidential or personal information in certain of our businesses that is subject to privacy and security laws, regulations, and customer-imposed
controls. Despite our cyber security measures (including employee and third-party training, use of user names and passwords for access
to information technology systems, monitoring of networks and systems, and maintenance of backup and protective systems) which are continuously
reviewed and upgraded, our information technology networks and infrastructure may still be vulnerable to damage, disruptions, or shutdowns
due to attack by hackers, breaches, employee error or malfeasance, power outages, computer viruses, telecommunication or utility failures,
systems failures, war or other military conflicts, natural disasters, or other catastrophic events. We have programs in place
to detect, contain, and respond to data security incidents, and we continually make improvements to our networks and systems in order
to minimize or eliminate vulnerabilities. However, because the techniques used to exploit systems change frequently and can be difficult
to detect, we may not be able to prevent these intrusions or mitigate them when and if they occur. Additionally, we rely on some information
technology networks and systems managed by third parties, and we rely on these third parties to deploy appropriate measures to protect
their systems and networks. Vulnerabilities in their systems could compromise the security of our own infrastructure. Any such events
could result in legal claims or proceedings, liability or penalties under privacy laws, disruption in operations, and damage to our reputation,
which could materially adversely affect our business. While we have experienced, and expect to continue to experience, these types of
threats to our information technology networks and infrastructure, to date none of these threats has had a material impact on our business
or operations.
We
may be unable to protect our technology from use by third parties, which may allow them to compete with us and harm our business.
Our
commercial success depends in part on obtaining patent and other intellectual property right protection for the technologies contained
in our products and on successfully defending these rights against third party challenges. The patent positions of medical device companies,
including ours, can be highly uncertain and involve complex and evolving legal and factual questions. We cannot assure you that we will
obtain the patent protection we seek, that any protection we do obtain will be found valid and enforceable if challenged or that it will
confer any significant commercial advantage. U.S. patents and patent applications may also be subject to interference proceedings and
U.S. patents may be subject to re-examination proceedings in the U.S. Patent and Trademark Office, and foreign patents may be subject
to opposition or comparable proceedings in the corresponding foreign patent office, which proceedings could result in either loss of
the patent, or denial of the patent application, or loss or reduction in the scope of one or more of the claims of the patent or patent
application. In addition, such interference, re-examination, and opposition proceedings may be costly. Thus, any patents that we own
or license from others may not provide any protection against competitors. Our pending patent applications, those we may file in the
future, or those we may license from third parties may not result in patents being issued and certain foreign patent applications for
medical related devices and methods may be found unpatentable. If issued, they may not provide us with proprietary protection or competitive
advantages against competitors with similar technology.
Some
of our technology was developed in conjunction with third parties, and thus there is a risk that a third party may claim rights in our
intellectual property. Outside the U.S., we rely on third-party payment services for the payment of foreign patent annuities and other
fees. Non-payment or delay in payment of such fees, whether intentional or unintentional, may result in loss of patents or patent rights
important to our business. Many countries, including certain countries in Europe, have compulsory licensing laws under which a patent
owner may be compelled to grant licenses to third parties (for example, the patent owner has failed to “work” the invention
in that country, or the third party has patented improvements). In addition, many countries limit the enforceability of patents against
government agencies or government contractors. In these countries, the patent owner may have limited remedies, which could materially
diminish the value of the patent. We also cannot assure you that we will be able to develop additional patentable technologies. If we
fail to obtain adequate patent protection for our technology, or if any protection we obtain becomes limited or invalidated, others may
be able to make and sell competing products, impairing our competitive position.
Our
trade secrets, nondisclosure agreements and other contractual provisions to protect unpatented technology provide only limited and possibly
inadequate protection of our rights. As a result, third parties may be able to use our unpatented technology, and our ability to compete
in the market would be reduced. In addition, employees, consultants and others who participate in developing our products or in commercial
relationships with us may breach their agreements with us regarding our intellectual property, and we may not have adequate remedies
for the breach.
Our
competitors may independently develop similar or alternative technologies or products that are equal or superior to our technology and
products without infringing any of our patent or other intellectual property rights, or may design around our proprietary technologies.
Our competitors may acquire similar or even the same technology components that are utilized in our current offering eroding some differentiation
in the marketplace. In addition, the laws of some foreign countries do not protect intellectual property rights to the same extent, as
do the laws of the U.S., particularly in the field of medical products and procedures.
Third
parties may assert that we are infringing their intellectual property rights, and any defense of such assertions may be unsuccessful
and expensive, even if we are successful.
Successfully
commercializing our products depends in part on not infringing patents held by third parties. It is possible that one or more of our
products, including those that we have developed in conjunction with third parties, infringes existing patents. We may also be liable
for patent infringement by third parties whose products we use or combine with our own and for which we have no right to indemnification.
In addition, because patent applications are maintained under conditions of confidentiality and can take many years to issue, there may
be applications now pending of which we are unaware and which may later result in issued patents that our products infringe. Determining
whether a product infringes a patent involves complex legal and factual issues and may not become clear until finally determined by a
court in litigation. Our competitors may assert that our products infringe patents held by them. Moreover, as the number of competitors
in our market grows the possibility of a patent infringement claim against us increases. If we were unsuccessful in obtaining a license
or redesigning our products, we could be subject to litigation. If we lose in this kind of litigation, a court could require us to pay
substantial damages or prohibit us from using technologies essential to our products covered by third-party patents. An inability to
use technologies essential to our products would have a material adverse effect on our financial condition, results of operations and
cash flow and could undermine our ability to continue our current business operations.
Expensive
intellectual property litigation is frequent in the medical device industry and may cause to incur substantial expenses to defend.
Infringement
actions, validity challenges and other intellectual property claims and proceedings, whether with or without merit, can be expensive
and time-consuming and would divert management’s attention from our business. We have incurred, and expect to continue to incur,
substantial costs in obtaining patents and may have to incur substantial costs defending our proprietary rights. Incurring such costs
could have a material adverse effect on our financial condition, results of operations and cash flow.
We
may not be able to maintain all the licenses or rights from third parties necessary for the development, manufacture, or marketing of
new and existing products.
As
we develop additional products and improve or maintain existing products, we may find it advisable or necessary to seek licenses or otherwise
make payments in exchange for rights from third parties who hold patents covering certain technology. If we cannot obtain or maintain
the desired licenses or rights for any of our products, we could be forced to try to design around those patents at additional cost or
abandon the product altogether, which could adversely affect revenue and results of operations. If we have to abandon a product, our
ability to develop and grow our business in new directions and markets would be adversely affected.
Our
products and related technologies can be applied in different medical applications, and we may fail to focus on the most profitable areas.
The
robotic magnetic navigation system is designed to have the potential for expanded applications beyond electrophysiology and interventional
cardiology, including congestive heart failure, structural heart repair, interventional neurosurgery, interventional neuroradiology,
peripheral vascular, pulmonology, urology, gynecology and gastrointestinal medicine. However, we have limited financial and managerial
resources and, therefore, may be required to focus on products in selected industries and sites and to forego efforts with regard to
other products and industries. Our decisions may not produce viable commercial products and may divert our resources from more profitable
market opportunities. Moreover, we may devote resources to developing products in these additional areas but may be unable to justify
the value proposition or otherwise develop a commercial market for products we develop in these areas, if any. In that case, the return
on investment in these additional areas may be limited, which could negatively affect our results of operations.
We
may be subject to damages resulting from claims that our employees or we have wrongfully used or disclosed alleged trade secrets of their
former employers.
Many
of our employees were previously employed at hospitals, universities or other medical device companies, including our competitors or
potential competitors. We could, in the future, be subject to claims that these employees or we have used or disclosed trade secrets
or other proprietary information of their former employers. Litigation may be necessary to defend against these claims. If we fail in
defending such claims, in addition to paying monetary damages, we may lose valuable intellectual property rights or personnel. Even if
we are successful in defending against these claims, litigation could result in substantial costs and be a distraction to management.
Incurring such costs could have a material adverse effect on our financial condition, results of operations and cash flow.
Software
errors or other defects may be discovered in our products and the resulting performance issues may damage our business and our reputation
in the industry in which we operate.
Our
products incorporate many components, including sophisticated computer software. Complex software frequently contains errors, especially
when first introduced. Because our products are designed to be used to perform complex interventional procedures, we expect that physicians
and hospitals will have an increased sensitivity to the potential for software defects. We cannot assure you that our software or other
components will not experience errors or performance problems in the future. If we experience software errors or performance problems,
we would likely also experience:
● loss of revenue;
● delay in market acceptance of our products;
● damage to our reputation;
● additional regulatory filings;
● product recalls;
● increased service or warranty costs; and/or
● product liability claims relating to the software defects.
Risks
Related to Regulatory and Legal Matters
If
we or the parties in our strategic collaborations fail to obtain or maintain necessary FDA clearances or approvals for our medical device
products, or if such clearances or approvals are delayed, we will be unable to continue to commercially distribute and market our products.
Our
products are medical devices that are subject to extensive regulation in the U.S. and in foreign countries where we do business. Each
medical device that we wish to market in the U.S. must be designated as exempt from premarket approval or notification, or first receive
either a 510(k) clearance, de novo approval, or a pre-market approval, or PMA, from the U.S. FDA pursuant to the Federal Food, Drug,
and Cosmetic Act, or FD&C Act. The FDA’s 510(k) clearance process usually takes from four to 12 months, but it can take longer.
The process of obtaining PMA approval is much more costly, lengthy, and uncertain, generally taking from one to three years or even longer.
Although we have 510(k) clearance for many of our products, including disposable interventional devices, and we are able to market these
products commercially in the U.S., our business model relies significantly on revenue from new disposable interventional devices, some
of which may not achieve FDA clearance or approval. We cannot assure you that any of our devices will not be required to undergo the
lengthier and more burdensome PMA process. We cannot commercially market any disposable interventional devices in the U.S. until the
necessary clearances or approvals from the FDA have been received. In addition, we are working with third parties to co-develop disposable
products. In some cases, these companies are responsible for obtaining appropriate regulatory clearance or approval to market these disposable
devices. If these clearances or approvals are not received or are substantially delayed or if we are not able to offer a sufficient array
of approved disposable interventional devices, we may not be able to successfully market our system to as many institutions as we currently
expect, which could have a material adverse impact on our financial condition, results of operations and cash flow.
Furthermore,
obtaining 510(k) clearances, de novo approvals, PMAs or PMA supplement approvals, from the FDA could result in unexpected and significant
costs for us and consume management’s time and other resources. The FDA could ask us to supplement our submissions, collect non-clinical
data, conduct clinical trials or engage in other time-consuming actions, or it could simply deny our applications. In addition, even
if we obtain a 510(k) clearance, de novo approvals, or PMA or PMA supplement approval, the clearance or approval could be revoked or
other restrictions imposed if post-market data demonstrates safety issues or lack of effectiveness. We cannot predict with certainty
how, or when, the FDA will act on our marketing applications. If we are unable to obtain the necessary regulatory approvals, our financial
condition and cash flow may be adversely affected. Also, a failure to obtain approvals may limit our ability to grow domestically and
internationally.
If
our strategic collaborations elect not to or we fail to obtain regulatory approvals in other countries for products under development,
we will not be able to commercialize these products in those countries.
In
order to market our products outside of the U.S., we and our strategic collaborations or distributors must establish and comply with
numerous and varying regulatory requirements of other countries regarding safety and efficacy. Approval procedures vary among countries
and can involve additional product testing and additional administrative review periods. The time required to obtain approval in other
countries might differ from that required to obtain FDA approval. The regulatory approval process in other countries may include all
of the risks detailed above regarding FDA approval in the U.S. Regulatory approval in one country does not ensure regulatory approval
in another, but a failure or delay in obtaining regulatory approval in one country may negatively impact the regulatory process in others.
Failure to obtain regulatory approval in other countries or any delay or setback in obtaining such approval could have the same adverse
effects described above regarding FDA approval in the U.S. In addition, we may rely on our distributors and strategic collaborations,
in some instances, to assist us in this regulatory approval process in countries outside the U.S. and Europe, for example, in Japan.
We
may fail to comply with continuing regulatory requirements of the FDA and other authorities and become subject to enforcement action,
which may include substantial penalties.
Even
after product clearance or approval, we must comply with continuing regulation by the FDA and other authorities, including the FDA’s
Quality System Regulation, or QSR, requirements, labeling and promotional requirements and medical device adverse event and other reporting
requirements. Any failure to comply with continuing regulation by the FDA or other authorities could result in enforcement action that
may include suspension or withdrawal of regulatory approvals, recalling products, ceasing product manufacture and/or marketing, seizure
and detention of products, paying significant fines and penalties, criminal prosecution and similar actions that could limit product
sales, delay product shipment and harm our profitability. Congress could amend the FD&C Act, and the FDA could modify its regulations
promulgated under this law or its policies in a way to make ongoing regulatory compliance more burdensome and difficult.
Additionally,
any modification to an FDA 510(k) cleared or de novo-approved device that could significantly affect its safety or effectiveness, or
that would constitute a major change in its intended use, requires a new 510(k) clearance. Modifications to a PMA approved device or
its labeling may require either a new PMA or PMA supplement approval, which could be a costly and lengthy process. In addition, if we
are unable to obtain approval for key applications, we may face product market adoption barriers that we cannot overcome. In the future,
we may modify our products after they have received clearance or approval, and we may determine that new clearance or approval is unnecessary.
We cannot assure you that the FDA would agree with any of our decisions not to seek new clearance or approval. If the FDA requires us
to seek clearance or approval for any modification that we determined to not require clearance or approval in the first instance, we
could be subject to enforcement sanctions and we also may be required to cease marketing or recall the modified product until we obtain
FDA clearance or approval which could also limit product sales, delay product shipment and harm our profitability.
In
many foreign countries in which we market our products, we are subject to regulations affecting, among other things, product standards,
packaging requirements, labeling requirements, import restrictions, tariff regulations, duties and tax requirements. Many of these regulations
are similar to those of the FDA or other U.S. regulations. In addition, in many countries the national health or social security organizations
require our products to be qualified before procedures performed using our products become eligible for reimbursement. Failure to receive,
or delays in the receipt of, relevant foreign qualifications could have a material adverse effect on our business, financial condition
and results of operations. Due to the movement toward harmonization of standards in Europe, we expect a changing regulatory environment
characterized by a shift from a country-by-country regulatory system to a Europe-wide single regulatory system. We cannot predict the
timing of this harmonization and its effect on us. Adapting our business to changing regulatory systems could have a material adverse
effect on our business, financial condition, and results of operations. If we fail to comply with applicable foreign regulatory requirements,
we may be subject to fines, suspension, or withdrawal of regulatory approvals, product recalls, seizure of products, operating restrictions
and criminal prosecution.
In
addition, we are subject to the U.S. Foreign Corrupt Practices Act, anti-bribery, antitrust and anti-competition laws, and similar laws
in foreign countries. Any violation of these laws by our distributors or agents or by us could create a substantial liability for us
and also cause a loss of reputation in the market. From time to time, we may face audits or investigations by one or more government
agencies, compliance with which could be costly and time-consuming, and could divert our management and key personnel from our business
operations. An adverse outcome under any such investigation or audit could subject us to fines or other penalties, which could adversely
affect our business and financial results.
Our
suppliers, subcontractors, or we may fail to comply with the FDA quality system regulation or other quality standards.
Our
manufacturing processes must comply with the FDA’s QSR, which covers the methods and documentation of the design, testing, production,
control, quality assurance, labeling, packaging and shipping of our products. The FDA enforces the QSR through inspections. We cannot
assure you that we or our suppliers or subcontractors would pass such an inspection. The European Union recently adopted new EN ISO 13485:2016
standards, and we have been certified to these standards. If we or our suppliers or subcontractors fail to comply with the FDA regulation
or EN ISO 13485:2016 standards, we or they may be required to cease all or part of our operations for some period of time until we or
they can demonstrate that appropriate steps have been taken to comply with such standards or face other enforcement action, such as a
public warning letter, untitled letter, fines, injunctions, civil penalties, seizures, operating restrictions, partial suspension or