Item 1A. Risk Factors
Our business
is subject to many risks and uncertainties, which may affect our future financial performance. If any of the events or circumstances
described below occur, our business and financial performance could be adversely affected, our actual results could differ materially
from our expectations, and the price of our stock could decline. The risks and uncertainties discussed below are not the only ones we
face. There may be additional risks and uncertainties not currently known to us or that we currently do not believe are material that
may adversely affect our business and financial performance. You should carefully consider the risks described below, together with all
other information included in this Annual Report on Form 10-K, including our financial statements and related notes, before making an
investment decision. If any of the adverse developments described in the following risk factors actually occurs, our business, financial
condition, or results of operations could be harmed. In that case, the trading price of our common stock could decline, and investors
in our securities may lose all or part of their investment.
Risks Related to Our Business and
Operations
We have incurred losses in the
past, our financial statements have been prepared on a going concern basis and we may be unable to achieve or sustain profitability in
the future.
To date, we have
financed our operations primarily through the issuance of public and private equity and convertible notes. We have devoted substantially
all of our resources to research and development, creating the infrastructure for a publicly traded medical device company, preparing
for our national commercial launch, and clinical and regulatory matters for our products. There can be no assurances that we will be
able to generate sufficient revenue from our existing products or from any future product candidates to transition to profitability and
generate consistent positive cash flows. We expect that our operating expenses will continue to increase as we continue to build our
commercial infrastructure, develop, enhance, and commercialize our existing and new products and incur additional operating and reporting
costs associated with being a public company. As a result, we expect to continue to incur operating losses for the foreseeable future
and may never achieve profitability. Furthermore, even if we do achieve profitability, we may not be able to sustain or increase profitability
on an ongoing basis. If we do not achieve profitability, it will be more difficult for us to finance our business and accomplish our
strategic objectives.
Our recurring losses
from operations and negative cash flows raise substantial doubt about our ability to continue as a going concern. As a result, our independent
registered public accounting firm included an explanatory paragraph in its report on our financial statements for the fiscal year ended,
December 31, 2024, describing the existence of substantial doubt about our ability to continue as a going concern. Our expected
future capital requirements may depend on many factors including expanding our clinician base, increasing the rate at which we train
clinicians, the number of additional clinical papers initiated, and the timing and extent of spending on the development of our technology
to increase our product offerings. We may need additional funding to fund our operations but additional funds may not be available to
us on acceptable terms on a timely basis, if at all. We may seek funds through borrowings or through additional rounds of financing,
including private or public equity or debt offerings. If we raise additional funds by issuing equity securities, our stockholders may
experience dilution. Any future debt financing into which we enter may impose upon us additional covenants that restrict our operations,
including limitations on our ability to incur liens or additional debt, pay dividends, repurchase our common stock, make certain investments,
and engage in certain merger, consolidation or asset sale transactions. Any future debt financing or additional equity that we raise
may contain terms that are not favorable to us or our stockholders. Furthermore, we cannot be certain that additional funding will be
available on acceptable terms, if at all. If we are unable to raise additional capital or generate sufficient cash from operations to
adequately fund our operations, we will need to curtail planned activities to reduce costs, which will likely harm our ability to execute
on our business plan and continue operations.
If hospitals,
clinicians, and other healthcare providers are unable to obtain coverage and reimbursement from third-party payors for procedures performed
using our products, adoption of our products may be delayed, and it is unlikely that they will gain further acceptance.
Growing sales of
our product depends on the availability of adequate coverage and reimbursement from third-party payors, including government programs
such as Medicare and Medicaid, private insurance plans, and managed care programs. Hospitals, clinicians, and other healthcare providers
that purchase or use medical devices generally rely on third-party payors to pay for all or part of the costs and fees associated with
the procedures performed with these devices.
Adequate coverage
and reimbursement for procedures performed with our products is central to the acceptance of our current and future products. We may
be unable to sell our products on a profitable basis if third-party payors deny coverage, continue to deny coverage or reduce their current
levels of payment, or if our costs for the product increase faster than increases in reimbursement levels.
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Many private payors
refer to coverage decisions and payment amounts determined by the Centers for Medicare and Medicaid Services, or CMS, which administers
the Medicare program, as guidelines for setting their coverage and reimbursement policies. By June 30, 2016, all Medicare Administrative
Contractors were regularly reimbursing for minimally invasive and/or open SI-Joint fusion. Private payors that do not follow the Medicare
guidelines may adopt different coverage and reimbursement policies for procedures performed with our products. Private commercial payors
have been slower to adopt positive coverage policies for minimally invasive and/or open SI-Joint fusion, and many private payors still
have policies that treat the procedure as experimental or investigational and do not regularly reimburse for the procedure. Future action
by CMS or third-party payors may further reduce the availability of payments to physicians, outpatient surgery centers, and/or hospitals
for procedures using our products.
The healthcare
industry in the United States has experienced a trend toward cost containment as government and private insurers seek to control healthcare
costs. Payors are imposing lower payment rates and negotiating reduced contract rates with service providers and being increasingly selective
about the technologies and procedures they choose to cover. There can be no guarantee that we will be able to provide the scientific
and clinical data necessary to overcome these policies. Payors may adopt policies in the future restricting access to medical technologies
like ours and/or the procedures performed using such technologies. Therefore, we cannot be certain that the procedures performed with
each of our products will be reimbursed. There can be no guarantee that, should we introduce additional products in the future, payors
will cover those products or the procedures in which they are used.
If the reimbursement
provided by third-party payors to hospitals, clinicians, and other healthcare providers for procedures performed using our products is
insufficient, adoption and use of our products and the prices paid for our implants may decline.
When a Tenon procedure
utilizing The Catamaran System is performed, both the clinician and the healthcare facility, a hospital (inpatient or outpatient
clinic), submit claims for reimbursement to the patient’s insurer. Generally, the facility obtains a lump sum payment, or facility
fee, for SI-Joint fusions. Our products are purchased by the facility, along with other supplies used in the procedure. The facility
must also pay for its own fixed costs of operation, including certain operating room personnel involved in the procedure, and other medical
services care. If these costs exceed the facility reimbursement, the facility’s managers may discourage or restrict clinicians
from performing the procedure in the facility or using certain technologies, such as The Catamaran System, to perform the procedure.
The Medicare 2023
national average hospital inpatient payment ranges from approximately $25,661 to approximately $46,437 depending on the procedural approach
and the presence of Complication and Comorbidity (CC)/Major Complication and Comorbidity (MCC).
The Medicare 2023
national average hospital outpatient clinic payment is $17,756. We believe that insurer payments to facilities are generally adequate
for these facilities to offer The Catamaran System. However, there can be no guarantee that these facility payments will not decline
in the future. The number of procedures performed, and the prices paid for our implants may in the future decline if payments
to facilities for SI-Joint fusions decline.
Clinicians are
reimbursed separately for their professional time and effort to perform a surgical procedure. Depending on the surgical approach, the
incision size, type and extent of imaging guidance, indication for procedure, and the insurer, The Catamaran System procedure may be
reported by the clinician using any one of the applicable following CPT® codes 27279, 27280, 27299. The Medicare 2022 national average
payment for CPT® 27279 is $807 and $1,325 for 27280. CPT® 27299 has no national valuation. Clinicians, however, can present a
crosswalk to another procedure believed to be fairly equivalent and/or comparison to a code for which there is an existing valuation.
For some governmental
programs, such as Medicaid, coverage and reimbursement differ from state to state, and some state Medicaid programs may not pay an adequate
amount for the procedures performed with our products, if any payment is made at all. Similar to Medicaid, many private payors’
coverage and payment may differ from one payer to another as well.
We believe that
some clinicians view the current Medicare reimbursement amount as insufficient for the procedure, given the work effort involved with
the procedure, including the time to diagnose the patient and obtain prior authorization from the patient’s health insurer when
necessary. Many private payors require extensive documentation of a multi-step diagnosis before authorizing SI-Joint fusion for a patient.
We believe that some private payors apply their own coverage policies and criteria inconsistently, and clinicians may experience difficulties
in securing approval and coverage for sacroiliac fusion procedures. Additionally, many private payors limit coverage for open SI-Joint
fusion to trauma, tumors or extensive spine fusion procedures involving multiple levels. The perception by physicians that the reimbursement
for SI-Joint fusion is insufficient to compensate them for the work required, including diagnosis, documentation, obtaining payor approval
for the procedure, and burden on their office staff, may negatively affect the number of procedures performed and may therefore impede
the growth of our revenues or cause them to decline.
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We may not
be able to convince physicians that The Catamaran System is an attractive alternative to our competitors’ products and that our
procedure is an attractive alternative to existing surgical and non-surgical treatments of the SI-Joint.
Clinicians play
the primary role in determining the course of treatment in consultation with their patients and, ultimately, the product that will be
used to treat a patient. In order for us to sell The Catamaran System successfully, we must convince clinicians through education and
training that treatment with The Catamaran System is beneficial, safe, and cost-effective for patients as compared to our competitors’
products. If we are not successful in convincing clinicians of the merits of The Catamaran System, they may not use our product, and
we will be unable to increase our sales and achieve or grow profitability.
Historically, most
spine clinicians did not include SI-Joint pain in their diagnostic work-up because they did not have an adequate surgical procedure to
perform for patients diagnosed with the condition. As a result, some patients with lower back pain resulting from SI-Joint dysfunction
are misdiagnosed. We believe that educating clinicians and other healthcare professionals about the clinical merits and patient benefits
of The Catamaran System is an important element of our growth. If we fail to effectively educate clinicians and other medical professionals,
they may not include a SI-Joint evaluation as part of their diagnosis and, as a result, those patients may continue to receive unnecessary
or only non-surgical treatment.
Clinicians may also hesitate to change
their medical treatment practices for other reasons, including the following:
● lack of experience with minimally invasive procedures;
● costs associated with the purchase of new products; and
● time commitment that may be required for training.
Furthermore, we
believe clinicians may not widely adopt The Catamaran System unless they determine, based on experience, clinical data, and published
peer-reviewed publications, that surgical intervention provides benefits or is an attractive alternative to non-surgical treatments of
SI-Joint dysfunction. In addition, we believe support of our products relies heavily on long-term data showing the benefits of using
our product. If we are unable to provide that data, clinicians may not use our product. In such circumstances, we may not achieve expected
sales and may be unable to achieve profitability.
Clinicians
and payors may not find our clinical evidence to be compelling, which could limit our sales, and on-going and future research may prove
our product to be less safe and effective than initially anticipated.
All of the component
parts of The Catamaran System have either received premarket clearance under Section 510(k) of the U.S. federal Food, Drug, and
Cosmetic Act, or FDCA, or are exempt from premarket review. The 510(k) clearance process of the U.S. Food and Drug Administration, or
FDA, requires us to document that our product is “substantially equivalent” to another 510(k) -cleared product. The 510(k)
process is shorter and typically requires the submission of less supporting documentation than other FDA approval processes, such as
a premarket approval, or PMA, and does not usually require pre-clinical or clinical studies. Additionally, to date, we have not been
required to complete clinical studies in connection with the sale of our product. For these reasons, clinicians may be slow to adopt
our product, third-party payors may be slow to provide coverage, and we may be subject to greater regulatory and product liability risks.
Further, future patient studies or clinical experience may indicate that treatment with our product does not improve patient outcomes.
Such results would slow the adoption of our product by clinicians, significantly reduce our ability to achieve expected sales, and could
prevent us from achieving profitability. Moreover, if future results and experience indicate that our product causes unexpected or serious
complications or other unforeseen negative effects, we could be subject to mandatory product recalls, suspension, or withdrawal of FDA
clearance.
Pricing pressure
from our competitors, changes in third-party coverage and reimbursement, healthcare provider consolidation, payor consolidation and the
proliferation of “physician-owned distributorships” may impact our ability to sell our product at prices necessary to support
our current business strategies.
If competitive
forces drive down the prices we are able to charge for our product, our profit margins will shrink, which will adversely affect our ability
to invest in and grow our business. The SI-Joint fusion market has attracted numerous new companies and technologies. As a result of
this increased competition, we believe there will be continued and increased pricing pressure, resulting in lower gross margins, with
respect to our product.
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Even to the extent
our product and procedures using our product are currently covered and reimbursed by third-party private and public payors, adverse changes
in coverage and reimbursement policies that affect our product, discounts, and number of implants used may also drive our prices down
and harm our ability to market and sell our product.
We are unable to
predict what changes will be made to the reimbursement methodologies used by third-party payors. We cannot be certain that under current
and future payment systems, in which healthcare providers may be reimbursed a set amount based on the type of procedure performed, such
as those utilized by Medicare and in many privately managed care systems, the cost of our product will be justified and incorporated
into the overall cost of the procedure. In addition, to the extent there is a shift from inpatient setting to outpatient settings, we
may experience pricing pressure and a reduction in the number of The Catamaran System procedures performed.
Consolidation in
the healthcare industry, including both third-party payors and healthcare providers, could lead to demands for price concessions or to
the exclusion of some suppliers from certain of our markets, which could have an adverse effect on our business, results of operations,
or financial condition. Because healthcare costs have risen significantly over the past several years, numerous initiatives and reforms
initiated by legislators, regulators, and third-party payors to curb these costs have resulted in a consolidation trend in the healthcare
industry to aggregate purchasing power. As the healthcare industry consolidates, competition to provide products and services to industry
participants has become and will continue to become more intense. This in turn has resulted and will likely continue to result in greater
pricing pressures and the exclusion of certain suppliers from important market segments as group purchasing organizations, independent
delivery networks, and large single accounts continue to use their market power to consolidate purchasing decisions for hospitals. We
expect that market demand, government regulation, third-party coverage, and reimbursement policies and societal pressures will continue
to change the worldwide healthcare industry, resulting in further business consolidations and alliances among our customers, which may
reduce competition, exert further downward pressure on the price of our product, and adversely impact our business, results of operations,
or financial condition. As we continue to expand into international markets, we will face similar risks relating to adverse changes in
coverage and reimbursement procedures and policies in those markets.
We operate
in a very competitive business environment and if we are unable to compete successfully against our existing or potential competitors,
our sales and operating results may be negatively affected and we may not grow.
The Catamaran System
is subject to intense competition. Many of our competitors are major medical device companies that have substantially greater financial,
technical, and marketing resources than we do, and they may succeed in developing products that would render our product obsolete or
non-competitive. In addition, many of these competitors have significantly longer operating histories and more established reputations
than we do. Our field is intensely competitive, subject to rapid change and highly sensitive to the introduction of new products or other
market activities of industry participants. Our ability to compete successfully will depend on our ability to develop proprietary products
that reach the market in a timely manner, receive adequate coverage and reimbursement from third-party payors, and are safer, less invasive,
and more effective than alternatives available for similar purposes as demonstrated in peer-reviewed clinical publications. Because of
the size of the potential market, we anticipate that other companies will dedicate significant resources to developing competing products.
In the United States,
we believe that our primary competitors are currently SI-bone, Inc., Globus Medical, Inc., Medtronic plc, XTant Medical Holdings, Inc.,
and RTI Surgical, Inc. At any time, these or other industry participants may develop alternative treatments, products or procedures for
the treatment of the SI-Joint that compete directly or indirectly with our product. If alternative treatments are, or are perceived to
be, superior to our product, sales of our product and our results of operations could be negatively affected. Some of our larger competitors
are either publicly traded or divisions or subsidiaries of publicly traded companies. These competitors may enjoy several competitive
advantages over us, including:
● significantly greater name recognition;
● large and established sales and marketing and distribution networks;
● more expansive portfolios of intellectual property rights; and
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New participants
have increasingly entered the medical device industry. Many of these new competitors specialize in a specific product or focus on a particular
market segment, making it more difficult for us to increase our overall market position. The frequent introduction by competitors of
products that are or claim to be superior to our product or that are alternatives to our existing or planned products may make it difficult
to differentiate the benefits of our product over competing products. In addition, the entry of multiple new products and competitors
may lead some of our competitors to employ pricing strategies that could adversely affect the pricing of our product and pricing in the
market generally.
As a result, without
the timely introduction of new products and enhancements, our product may become obsolete over time. If we are unable to develop innovative
new products, maintain competitive pricing, and offer products that clinicians and other physicians perceive to be as reliable as those
of our competitors, our sales or margins could decrease, thereby harming our business.
We currently
manufacture (through third parties) and sell products used in a single procedure, which could negatively affect our operations and financial
condition.
Presently we do
not sell any products other than The Catamaran System and related tools and instruments. Therefore, we are solely dependent on widespread
market adoption of The Catamaran System and we will continue to be dependent on the success of this single product for the foreseeable
future. There can be no assurance that The Catamaran System will gain a substantial degree of market acceptance among clinicians, patients
or healthcare providers. Our failure to successfully increase sales of The Catamaran System or any other event impeding our ability to
sell The Catamaran System, would result in a material adverse effect on our results of operations, financial condition and continuing
operations.
We have a
limited operating history and may face difficulties encountered by early-stage companies in new and rapidly evolving markets.
Even though we
were formed in 2012 we have just built the infrastructure necessary to commercially launch The Catamaran System. Accordingly, we have
a limited operating history upon which to base an evaluation of our business and prospects. In assessing our prospects, you must consider
the risks and difficulties frequently encountered by early-stage companies in new and rapidly evolving markets, particularly companies
engaged in the development and sales of medical devices. These risks include our inability to:
● obtain coverage by third-party, private, and government payors;
● establish and increase awareness of our brand and strengthen customer loyalty;
● attract and retain qualified personnel;
● commercialize new products and enhance our existing product;
● manage rapidly changing and expanding operations;
● implement and successfully execute our business and marketing strategy;
● respond effectively to competitive pressures and developments.
We can also be
negatively affected by general economic conditions. Because of our limited operating history, we may not have insight into trends that
could emerge and negatively affect our business. As a result of these or other risks, our business strategy might not be successful.
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Our sales
volumes and our operating results may fluctuate over the course of the year.
Since we had our
first sales in April 2021 and our official national launch commenced in October 2022, we have limited history with respect to how rapidly
adoption of The Catamaran System will occur. Sales growth could be slower than we have projected. Our sales and results of operations
will be affected by numerous factors, including, among other things:
● payor coverage and reimbursement;
● maintaining our training schedule with clinicians;
● the evolving product offerings of our competitors;
● interruption in the manufacturing or distribution of our product;
● the effect of competing technological, industry and market developments;
● our ability to expand the geographic reach of our sales and marketing efforts;
● the number of selling days in the quarter; and
● impairment and other special charges.
Some of the products
we may seek to develop and introduce in the future will require FDA clearance or approval before commercialization in the United States.
As a result, it will be difficult for us to forecast demand for these products with any degree of certainty. In addition, we will be
increasing our operating expenses as we expand our commercial capabilities. Accordingly, we may experience significant, unanticipated
quarterly losses. If our quarterly or annual operating results fall below the expectations of investors or securities analysts, the price
of our common stock could decline substantially. Furthermore, any quarterly or annual fluctuations in our operating results may, in turn,
cause the price of our common stock to fluctuate substantially. Quarterly comparisons of our financial results may not always be meaningful
and should not be relied upon as an indication of our future performance.
If we do
not successfully implement our business strategy, our business and results of operations will be adversely affected.
Our business strategy
was based on assumptions about the market that might prove wrong. We believe that various demographics and industry-specific trends will
help drive growth in the market and our business, but these demographics and trends have been and will continue to be uncertain. Actual
demand for our product could differ materially from projected demand if our assumptions regarding these factors prove to be incorrect
or do not materialize, or if alternative treatments to those offered by our product gains widespread acceptance. Also, our strategy of
focusing exclusively on the SI-Joint market may limit our ability to grow. In addition, in order to increase our sales, we will need
to identify and contract with independent sales representatives in existing and new regions as well, and in the future, commercialize
new products. Moreover, we may decide to alter or discontinue aspects of our business strategy and may adopt different strategies due
to business or competitive factors not currently foreseen, such as new medical technologies that would make our product obsolete. Any
failure to implement our business strategy may adversely affect our business, results of operations, and financial condition.
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Our business
could suffer if we lose the services of key members of our senior management, key advisors or personnel.
We are dependent
upon the continued services of key members of our senior management and a number of key advisors and personnel. The loss of members of
our senior management team, key advisors or personnel, or our inability to attract or retain other qualified personnel or advisors, could
have a material adverse effect on our business, results of operations, and financial condition. We do not maintain “key person”
insurance for any of our executives or employees. In addition, several of the members of our executive management team are not subject
to non-competition agreements that restrict their ability to compete with us. Accordingly, the adverse effect resulting from the loss
of certain executives could be compounded by our inability to prevent them from competing with us.
Various factors
outside our direct control may adversely affect manufacturing and distribution of our product.
The manufacture
and distribution of our product is challenging. Changes that our contract manufacturers may make outside the purview of our direct control
can have an impact on our processes, quality of our product, and the successful delivery of products to our customers. Mistakes and mishandling
are not uncommon and can affect supply and delivery. Some of these risks include:
● failure to manufacture in compliance with the required regulatory standards;
● transportation risk;
If any of these
risks were to materialize, our ability to provide our product to customers on a timely basis would be adversely impacted.
We are dependent
on a limited number of contract manufacturers, some of them single-source and some of them in single locations, for our product, and
the loss of any of these contract manufacturers, or their inability to provide us with an adequate supply of products in a timely and
cost-effective manner, could materially adversely affect our business.
We rely on contract
manufacturers to supply our product. For us to be successful, our contract manufacturers must be able to provide us with product in substantial
quantities, in compliance with regulatory requirements, in accordance with agreed upon specifications, at acceptable prices, and on a
timely basis. We have a limited history with our current contract manufacturers and do not have long-term supply contracts with them.
We are in the process of identifying and evaluating new contract manufacturers for our product. The inability to find the required contract
manufacturers or the time required to switch contract manufacturers could adversely affect sales.
In addition, our
anticipated growth could strain the ability of our contract manufacturers to deliver an increasingly large supply of product. Contract
manufacturers often experience difficulties in scaling up production, including financial issues, or problems with production yields
and quality control and assurance.
We use a small
number of contract manufacturers for our instruments. Our dependence on such a limited number of contract manufacturers exposes us to
risks, including, among other things:
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If any one or more
of these risks materialize, it could significantly increase our costs and impact our ability to meet demand for our product. If we are
unable to satisfy commercial demand for our product in a timely manner, our ability to generate revenue would be impaired, market acceptance
of our product could be adversely affected, and customers may instead purchase or use our competitors’ products. Additionally,
we could be forced to seek alternative sources of supply.
Because of the
nature of our internal quality control requirements, regulatory requirements, and the custom and proprietary nature of our product, we
may not be able to quickly engage additional or replacement contract manufacturers for our product and accessories. We may also be required
to assess any potential new contract manufacturer’s compliance with all applicable regulations and guidelines, which could further
impede our ability to obtain our product in a timely manner. As a result, we could incur increased product costs, experience delays in
deliveries of our product, suffer damage to our reputation, and experience an adverse effect on our business and financial results. Failure
of any of our contract manufacturers to meet our product demand level would limit our ability to meet our sales commitments to our customers
and could have a material adverse effect on our business.
We may also have
difficulty obtaining similar product from other contract manufacturers that are acceptable to the FDA and the failure of our contract
manufacturers to comply with strictly enforced regulatory requirements could expose us to delays in obtaining clearances or approvals,
regulatory action including warning letters, product recalls, termination of distribution, product seizures, civil, administrative, or
criminal penalties. We could incur delays while we locate and engage qualified alternative contract manufacturers, and we may be unable
to engage alternative contract manufacturers on favorable terms or at all. Any such disruption or increased expenses could harm our commercialization
efforts and adversely affect our ability to generate sales.
In addition, we
expect that most of our contract manufacturers will operate at a facility in a single location and substantially all their inventory
of component supplies and finished goods will be held at these locations. We, and our contract manufacturers, will take precautions to
safeguard facilities, including acquiring insurance, adopting health and safety protocols, and utilizing off-site storage of computer
data. However, vandalism, terrorism, or a natural or other disaster, such as an earthquake, fire, or flood, could damage or destroy equipment
or component supplies or finished product, cause substantial delays in our operations, result in the loss of key information, and cause
us to incur additional expenses. Our insurance may not cover our losses in any particular case. In addition, regardless of the level
of insurance coverage, damage to our or our contract manufacturers’ facilities could harm our business, financial condition, and
operating results.
As our sales
grow, our contract manufacturers may encounter problems or delays in the manufacturing of our product or fail to meet certain regulatory
requirements which could result in an adverse effect on our business and financial results.
To become profitable,
our contract manufactures must manufacture our product in adequate quantities in compliance with regulatory requirements and at an acceptable
cost. Increasing their capacity to manufacture and inspect our product may require them to improve internal efficiencies or require us
to re-design or change the specifications of our product. Our contract manufacturers may encounter several difficulties in increasing
this capacity, including:
● managing production yields;
● maintaining quality control and assurance;
● providing component and service availability;
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● maintaining adequate control policies and procedures;
● hiring and retaining qualified personnel; and
● complying with state, federal, and foreign regulations.
If we are unable
to satisfy commercial demand for The Catamaran System due to our contract manufacturer’s inability to manufacture and inspect our
product, our ability to generate revenue would be impaired, market acceptance of our product could be adversely affected and customers
may instead purchase or use our competitors’ products.
The size
and future growth in the market for the SI-Joint fixation market have not been established based on market reports and our estimates
are based on our own review and analysis of public information and may be smaller than we estimate, possibly materially. In addition,
our estimates of cost savings to the economy and healthcare system as a result of The Catamaran System procedure are based on our internal
estimates and market research and could also be smaller than we estimate, possibly materially. If our estimates and projections overestimate
the size of this market or cost savings, our sales growth may be adversely affected.
We are not aware
of an independent third-party study that reliably reports the potential market size for the SI-Joint fixation market. Therefore, our
estimates of the size and future growth in the market for The Catamaran System product, including cost savings to the economy overall,
including patients and employers, and to the healthcare system and the number of people currently suffering from lower back pain who
may benefit from and be amenable to our procedure, is based on a number of internal and third-party studies, surveys, reports, and estimates.
While we believe these factors have historically provided and may continue to provide us with effective tools in estimating the total
market for our product and procedures and health cost savings, these estimates may not be correct and the conditions supporting our estimates
may change at any time, thereby reducing the predictive accuracy of these underlying factors. For example, we have consulted with our
clinical advisors and utilized public information as the basis for our market projections. Additionally, the surveys we have conducted
are based on a small number of respondents and are not statistically significant and may have other limitations. The actual incidence
of lower back pain, and the actual demand for our product or competitive products, could differ materially from our projections if our
assumptions and estimates are incorrect. As a result, our estimates of the size and future growth in the market for our product may prove
to be incorrect. In addition, actual health cost savings to the healthcare system as a result of The Catamaran System procedure may materially
differ from those presented in this report. If the actual number of people with lower back pain who would benefit from The Catamaran
System and the size and future growth in the market and related costs savings to the healthcare system is smaller than we have estimated,
it may impair our projected sales growth and have an adverse impact on our business.
In the future
our product may become obsolete, which would negatively affect operations and financial condition.
The medical device
industry is characterized by rapid and significant change. There can be no assurance that other companies will not succeed in developing
or marketing devices, and products that are more effective than The Catamaran System or that would render The Catamaran System obsolete
or non-competitive. Additionally, new surgical procedures, medications and other therapies could be developed that replace or reduce
the importance of our product. Accordingly, our success will depend in part on our ability to respond quickly to medical and changes
through the development and introduction of new products. Product development involves a high degree of risk and there can be no assurance
that our new product development efforts will result in any commercially successful products.
If we experience
significant disruptions in our information technology systems, our business, results of operations, and financial condition
could be adversely affected.
The efficient operation
of our business depends on our information technology systems. We will rely on our information technology systems to effectively manage:
● sales and marketing, accounting, and financial functions;
● inventory management;
● engineering and product development tasks; and
● our research and development data.
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Our information
technology systems are vulnerable to damage or interruption from:
● earthquakes, fires, floods, and other natural disasters;
● terrorist attacks and attacks by computer viruses or hackers;
● power losses; and
● computer systems, or Internet, telecommunications, or data network failures.
The failure of
our information technology systems to perform as we anticipate or our failure to effectively implement new systems could disrupt our
entire operation and could result in decreased sales, increased overhead costs, excess inventory and product shortages, and legal liability
issues, all of which could have a material adverse effect on our reputation, business, results of operations, and financial condition.
We may seek
to grow our business through acquisitions of or investments in new or complementary businesses, products or technologies, and the failure
to manage acquisitions or investments, or the failure to integrate them with our existing business, could have a material adverse effect
on us.
From time to time,
we expect to consider opportunities to acquire or make investments in other technologies, products, and businesses that may enhance our
capabilities, complement our current product, or expand the breadth of our markets or customer base. Potential and completed acquisitions
and strategic investments involve numerous risks, including:
● issues maintaining uniform standards, procedures, controls, and policies;
● unanticipated costs and liabilities associated with acquisitions;
● diversion of management’s attention from our core business;
● potential loss of key employees of acquired businesses; and
● increased legal and accounting compliance costs.
We have no current
commitments with respect to any acquisition or investment. We do not know if we will be able to identify acquisitions, we deem suitable,
whether we will be able to successfully complete any such acquisitions on favorable terms or at all, or whether we will be able to successfully
integrate any acquired business, product, or technology into our business or retain any key personnel, suppliers, or distributors. Our
ability to successfully grow through acquisitions depends upon our ability to identify, negotiate, complete, and integrate suitable target
businesses and to obtain any necessary financing. These efforts could be expensive and time consuming and may disrupt our ongoing business
and prevent management from focusing on our operations. If we are unable to successfully integrate any acquired businesses, products,
or technologies effectively, our business, results of operations, and financial condition will be materially adversely affected.
We may enter
into collaborations, in-licensing arrangements, joint ventures, strategic alliances, or partnerships with third-parties that may not
result in the development of commercially viable products or the generation of significant future revenue.
In the ordinary
course of our business, we may enter into collaborations, in-licensing arrangements, joint ventures, strategic alliances, partnerships,
or other arrangements to develop products and to pursue new markets. We have not entered into any collaboration arrangements to date.
Proposing, negotiating, and implementing collaborations, in-licensing arrangements, joint ventures, strategic alliances, or partnerships
may be a lengthy and complex process. Other companies, including those with substantially greater financial, marketing, sales, technology,
or other business resources, may compete with us for these opportunities or arrangements. We may not identify, secure, or complete any
such transactions or arrangements in a timely manner, on a cost-effective basis, on acceptable terms or at all. We have limited institutional
knowledge and experience with respect to these business development activities, and we may also not realize the anticipated benefits
of any such transaction or arrangement. These collaborations may not result in the development of products that achieve commercial success
or result in significant revenue and could be terminated prior to developing any products.
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Additionally, we
may not be able to exercise sole decision-making authority regarding the transaction or arrangement, which could create the potential
risk of creating impasses on decisions, and our future collaborators may have economic or business interests or goals that are, or that
may become, inconsistent with our business interests or goals. It is possible that conflicts may arise with our collaborators, such as
conflicts concerning the achievement of performance milestones, or the interpretation of significant terms under any agreement, such
as those related to financial obligations or the ownership or control of intellectual property developed during the collaboration. If
any conflicts arise with any future collaborators, they may act in their self- interest, which may be adverse to our best interest, and
they may breach their obligations to us. In addition, we may have limited control over the amount and timing of resources that any future
collaborators devote to our or their future products.
Disputes between
us and our collaborators may result in litigation or arbitration which would increase our expenses and divert the attention of our management.
Further, these transactions and arrangements will be contractual in nature and will generally be terminable under the terms of the applicable
agreements and, in such event, we may not continue to have rights to the products relating to such transaction or arrangement or may
need to purchase such rights at a premium. If we enter into in-bound intellectual property license agreements, we may not be able to
fully protect the licensed intellectual property rights or maintain those licenses. Future licensors could retain the right to prosecute
and defend the intellectual property rights licensed to us, in which case we would depend on the ability of our licensors to obtain,
maintain and enforce intellectual property protection for the licensed intellectual property. These licensors may determine not to pursue
litigation against other companies or may pursue such litigation less aggressively than we would. Further, entering into such license
agreements could impose various diligence, commercialization, royalty, or other obligations on us. Future licensors may allege that we
have breached our license agreement with them, and accordingly seek to terminate our license, which could adversely affect our competitive
business position and harm our business prospects.
We are increasingly
dependent on information technology, and our systems and infrastructure face certain risks, including cybersecurity and data leakage
risks.
Significant disruptions
to our information technology systems or breaches of information security could adversely affect our business. In the ordinary course
of business, we will collect, store and transmit large amounts of confidential information, and it is critical that we do so in a secure
manner to maintain the confidentiality and integrity of such information. We have also outsourced significant elements of our information
technology infrastructure; as a result, we manage independent vendor relationships with third parties who are responsible for maintaining
significant elements of our information technology systems and infrastructure and who may or could have access to our confidential information.
The size and complexity of our information technology systems, and those of our third-party vendors, make such systems potentially vulnerable
to service interruptions and security breaches from inadvertent or intentional actions by our employees, partners or vendors. These systems
are also vulnerable to attacks by malicious third parties and may be susceptible to intentional or accidental physical damage to the
infrastructure maintained by us or by third parties. Maintaining the secrecy of confidential, proprietary and/or trade secret information
is important to our competitive business position. While we have taken steps to protect such information and have invested in systems
and infrastructures to do so, there can be no guarantee that our efforts will prevent service interruptions or security breaches in our
systems or the unauthorized or inadvertent wrongful use or disclosure of confidential information that could adversely affect our business
operations or result in the loss, dissemination or misuse of critical or sensitive information. The increasing sophistication and frequency
of cybersecurity threats, including targeted data breaches, ransomware attacks designed to encrypt our data for ransom and other malicious
cyber activities, pose a significant risk to the integrity and confidentiality of our data systems. A breach our security measures or
the accidental loss, inadvertent disclosure, unapproved dissemination, misappropriation or misuse of trade secrets, proprietary information
or other confidential information, whether as a result of theft, hacking, fraud, trickery or other forms of deception, or for any other
cause, could enable others to produce competing products, use our proprietary technology or information, and/or adversely affect our
business position. Further, any such interruption, security breach, loss or disclosure of confidential information could result in financial,
legal, business and reputational harm to us and could have a material adverse effect on our business, financial position, results of
operations and/or cash flow.
Geopolitical
conditions, including trade disputes and direct or indirect acts of war or terrorism, could have an adverse effect on our operations
and financial results.
Our operations
could be disrupted by geopolitical conditions, political and social instability, acts of war, terrorist activity or other similar events.
In February 2022, Russia initiated significant military action against Ukraine. In response, the U.S. and certain other countries imposed
significant sanctions and export controls against Russia, Belarus and certain individuals and entities connected to Russian or Belarusian
political, business, and financial organizations, and the U.S. and certain other countries could impose further sanctions, trade restrictions,
and other retaliatory actions should the conflict continue or worsen. It is not possible to predict the broader consequences of the conflict,
including related geopolitical tensions, and the measures and retaliatory actions taken by the U.S. and other countries in respect thereof
as well as any counter measures or retaliatory actions by Russia or Belarus in response, including, for example, potential cyberattacks
or the disruption of energy exports, is likely to cause regional instability, geopolitical shifts, and could materially adversely affect
global trade, currency exchange rates, regional economies and the global economy. In addition, the ongoing conflicts in the Middle East
may further impact global economic conditions and market sentiments. This, in turn, could adversely affect the trading price of our shares
of common stock and investor interest in us. The outcome of the Russia-Ukraine war and conflicts in the Middle East remain uncertain,
and while it is difficult to predict the impact of any of the foregoing, the conflict and actions taken in response to the conflict could
increase our costs, disrupt our supply chain, reduce our sales and earnings, impair our ability to raise additional capital when needed
on acceptable terms, if at all, or otherwise adversely affect our business, financial condition, and results of operations.
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Inflation
may adversely affect our operations and financial results.
In periods of rising
inflation, the cost of raw materials, components and labor essential for manufacturing The Catamaran System may increase and as a consequence,
our overall profit margin may be adversely affected. In addition, inflation may result in limitations on healthcare spending, specifically
for procedures that are deemed elective or non-critical, which may include treatments utilizing The Catamaran System. A decrease in demand
for these procedures may significantly impact our financial condition and results of operations.
Risks Related
to Our Legal and Regulatory Environment
We and our
contract manufacturers are subject to extensive governmental regulation both in the United States and abroad, and failure to comply with
applicable requirements could cause our business to suffer.
The medical device
industry is regulated extensively by governmental authorities, principally the FDA and corresponding state and foreign regulatory agencies.
The FDA and other U.S. and foreign governmental agencies regulate, among other things, with respect to medical devices:
● design, development, and manufacturing;
● testing, labeling, content, and language of instructions for use and storage;
● clinical trials;
● product safety;
● marketing, sales, and distribution;
● premarket clearance and approval;
● conformity assessment procedures;
● record keeping procedures;
● advertising and promotion;
● compliance with good manufacturing practices requirements;
● recalls and field safety corrective actions;
● post-market approval studies; and
● product import and export.
The regulations
to which we are subject are complex and have tended to become more stringent over time. Regulatory changes could result in restrictions
on our ability to carry on or expand our operations, difficulties achieving new product clearances, higher than anticipated costs or
lower than anticipated sales.
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Before we can market
or sell a new regulated product or make a significant modification to an existing product in the United States, with very limited exception,
we must obtain either clearance under Section 510(k) of the FDCA for Class II devices or approval of a premarket approval application
from the FDA for a Class III device. In the 510(k) clearance process, the FDA must determine that a proposed device is “substantially
equivalent” to a device legally on the market, known as a “predicate” device, with respect to intended use, technology,
and safety and effectiveness, in order to clear the proposed device for marketing. Clinical data is sometimes required to support substantial
equivalence. The PMA pathway requires an applicant to demonstrate the safety and effectiveness of the device based, in part, on extensive
data, including, but not limited to, technical, preclinical, clinical trial, manufacturing, and labeling data. The PMA process is typically
required for devices that are deemed to pose the greatest risk, such as life-sustaining, life-supporting, or implantable devices. Products
that are approved through a PMA application generally need FDA approval before they can be modified. Similarly, some modifications made
to products cleared through a 510(k) may require a new 510(k). Both the 510(k) and PMA processes can be expensive and lengthy and require
the payment of significant fees, unless exempt. The FDA’s 510(k) clearance process usually takes from three to 12 months but may
last longer. The process of obtaining a PMA is much more costly and uncertain than the 510(k) clearance process and generally takes from
one to three years, or even longer, from the time the application is submitted to the FDA until an approval is obtained. The process
of obtaining domestic and international regulatory clearances or approvals to market a medical device can be costly and time consuming,
and we may not be able to obtain these clearances or approvals on a timely basis, if at all.
In the United States,
all of the components to The Catamaran System have either received premarket clearance under Section 510(k) of the FDCA or are exempt
from premarket review. If the FDA requires us to go through a lengthier, more rigorous examination for future products or modifications
to existing products than we had expected, our product introductions or modifications could be delayed or canceled, which could cause
our sales to decline. In addition, the FDA may determine that future products will require the more costly, lengthy, and uncertain PMA
process. Although we do not currently market any devices under PMA, the FDA may demand that we obtain a PMA prior to marketing certain
of our future products. In addition, if the FDA disagrees with our determination that a product, we currently market is subject to an
exemption from premarket review, the FDA may require us to submit a 510(k) or PMA in order to continue marketing the product. Further,
even with respect to those future products where a PMA is not required, we cannot assure you that we will be able to obtain the 510(k)
clearances with respect to those products.
The FDA can delay,
limit or deny clearance or approval of a device for many reasons, including:
In addition, the
FDA may change its clearance and approval policies, adopt additional regulations or revise existing regulations, or take other actions
which may prevent or delay clearance or approval of our product under development or impact our ability to modify our currently approved
or cleared product on a timely basis.
Any delay in, or
failure to receive or maintain, clearance or approval for our product under development could prevent us from generating revenue from
these products or achieving profitability.
In addition, even
after we have obtained the proper regulatory clearance or approval to market a product, the FDA has the power to require us to conduct
post-market surveillance on our product. These studies can be very expensive and time consuming to conduct. Failure to comply with those
studies in a timely manner could result in the revocation of the 510(k) clearance for a product that is subject to such surveillance
and the recall or withdrawal of the product, which could prevent us from generating sales from that product in the United States.
Additionally, as
part of the conformity assessment process, medical device manufacturers must carry out a clinical evaluation of their medical devices
to verify that they comply with the relevant Essential Requirements covering safety and performance. A clinical evaluation includes an
assessment of whether a medical device’s performance is in accordance with its intended use and that the known and foreseeable
risks linked to the use of the device under normal conditions are minimized and acceptable when weighed against the benefits of its intended