ITEM 1. BUSINESS
Overview
We are a global, integrated orthopedic and regenerative medicines
company committed to improving the lives of patients with degenerative orthopedic diseases and traumatic conditions with clinically
meaningful therapies along the continuum of care, from palliative pain management to regenerative tissue repair. We have over two
decades of global expertise developing, manufacturing, and commercializing more than twenty products based on its proprietary Hyaluronic
Acid (“HA”) technology. Our orthopedic medicine portfolio includes ORTHOVISC, MONOVISC, and CINGAL, which alleviate
pain and restore joint function by replenishing depleted HA, and HYALOFAST, a solid HA-based scaffold to aid cartilage repair and
regeneration.
Our therapeutic offerings consist of products
in the following areas: Orthobiologics, Dermal, Surgical, and Other, which includes our ophthalmic and veterinary products. All
of our products are based on HA, a naturally occurring, biocompatible polymer found throughout the body. Due to its unique biophysical
and biochemical properties, HA plays an important role in a number of physiological functions such as the protection and lubrication
of soft tissues and joints, the maintenance of the structural integrity of tissues, and the transport of molecules to and within
cells.
Our proprietary technologies for modifying
the HA molecule allow product properties to be tailored specifically to therapeutic use. Our patented technology chemically modifies
HA to allow for longer residence time in the body. We also offer products made from HA based on two other technologies: HYAFF,
which is a solid form of HA, and ACP gel, an autocross-linked polymer of HA. Our technologies are protected by an extensive
portfolio of owned and licensed patents.
Since our inception
in 1992, we have utilized a commercial partnership model for the distribution of our products to end-users. Our strong, worldwide
network of distributors has historically provided, and continues to provide, a solid foundation for our revenue growth and territorial
expansion. For near-term and long-term opportunities in the U.S. market, we have evaluated a potential hybrid commercial approach
that would see us balance a small direct model with an optimal form of strategic partnership, an approach we intend to utilize
for the commercialization of our injectable, HA-based surgical bone repair product. For longer-term future products in the U.S.
market, we intend to evaluate our commercial model and possible alternatives or augmentations in each instance on a case-by-case
basis, based on market dynamics and other factors. These models could include direct sales, distribution partnerships, or a hybrid
of those forms. We believe that the combination of the direct and distribution commercial models will maximize the revenue potential
from our current and future product portfolio.
On May 2, 2018, we publicly disclosed a voluntary recall of certain production lots of our HYAFF-based
products, HYALOFAST, HYALOGRAFT C, and HYALOMATRIX. We communicated with all affected distributors in advance of that announcement,
and we took all required or otherwise appropriate actions with respect to applicable regulatory bodies. We initiated the voluntary
recall following internal quality testing, which indicated that the products were at risk of not maintaining certain measures throughout
their entire shelf life. While there was no indication of any safety or efficacy issue related to the products, we are committed
to the highest standards of quality and removed the products from the field as a precautionary measure. During the first quarter
of 2018, we recorded a revenue reserve of $1.1 million, $0.9 million of which related to revenue recorded in prior periods, and
adjustments during the balance of the year were immaterial. We also recorded an inventory charge for fiscal year 2018 of $0.8 million
for the related non-saleable inventory, and we incurred $0.3 million of expenses associated with the administration and remediation
of the voluntary recall. During the fourth quarter of 2018, we resolved this matter and resumed shipment of these products, and
as of December 31, 2018, all of the affected products had been returned to us without the need for any material change to the related
reserves. As a result of this voluntary recall, revenue generated from the affected products during fiscal year 2018 declined between
$1 million and $2 million as compared to fiscal year 2017.
The following sections provide more specific
information about our products and related activities:
Orthobiologics
Our Orthobiologics products primarily consist
of viscosupplement and regenerative orthopedic products. These products are used in a wide range of treatments, from providing
pain relief from osteoarthritis to regenerating damaged tissue such as cartilage. Osteoarthritis is a debilitating disease that
causes pain, swelling, and restricted movement in joints. It occurs when the cartilage in a joint gradually deteriorates due to
the effects of mechanical stress, which can be caused by a variety of factors, including the normal aging process. In an osteoarthritic
joint, particular regions of the joint’s articulating surfaces are exposed to irregular forces, which results in the remodeling
of tissue surfaces that disrupt the normal equilibrium or mechanical function. As osteoarthritis advances, the joint gradually
loses its ability to regenerate cartilage tissue, and the cartilage layer attached to the bone eventually deteriorates to the point
that the bone becomes exposed. Advanced osteoarthritis often requires surgery and the possible implantation of artificial joints.
The current treatment options for osteoarthritis, prior to joint replacement surgery, include viscosupplements, analgesics, non-steroidal
anti-inflammatory drugs, and steroid injections.
Our viscosupplement franchise includes ORTHOVISC,
MONOVISC, ORTHOVISC
mini
, and CINGAL. Our first viscosupplement product, ORTHOVISC, is a three-injection osteoarthritis
treatment regimen available in the United States, Canada, and other international markets throughout the world. ORTHOVISC has been
marketed by us internationally since 1996, and it was approved for sale in the United States in 2004. MONOVISC is our
second generation, single-injection osteoarthritis treatment, and it is also available in the United States, Canada, and other
international markets throughout the world. MONOVISC has been marketed by us internationally since 2008 and was approved by the
FDA for sale in the United States in February 2014, with the related U.S. commercial introduction of the product in April 2014.
In the United States, our viscosupplement franchise, consisting of our ORTHOVISC and MONOVISC products, continues to maintain the
overall market leadership position. ORTHOVISC
mini
has been available in Europe since 2008, and it is designed for the treatment
of osteoarthritis in small joints. CINGAL, our third generation single-injection osteoarthritis product, combining the HA formulation
utilized in MONOVISC with an active steroid component, is available in Canada, the European Union, and other international markets
throughout the world. Commercial launch of this next generation viscosupplement was achieved in Canada during May 2016 and in the
European Union during June 2016. For additional information about CINGAL in the United States, see the section captioned “
Business—Research
and Development of Potential Products
.”
In the United States, ORTHOVISC is indicated
for the treatment of pain caused by osteoarthritis of the knee in patients who have failed to respond adequately to conservative,
non-pharmacologic therapy and to simple analgesics, such as acetaminophen. ORTHOVISC is a sterile, clear, viscous solution of hyaluronan
dissolved in physiological saline and dispensed in a single-use syringe. A complex sugar of the glycosaminoglycan family, hyaluronan
is a high-molecular-weight polysaccharide composed of repeating disaccharide units of sodium glucuronate and N-acetyl glucosamine.
ORTHOVISC is injected into joints in a series of three intra-articular injections one week apart. ORTHOVISC became available for
sale in the United States on March 1, 2004, and it is marketed by DePuy Synthes Mitek Sports Medicine, a division of DePuy
Orthopaedics, Inc. (“Mitek”) under the terms of an initial ten-year licensing, distribution, supply, and marketing
agreement which was entered into in December 2003 (the “Mitek ORTHOVISC Agreement”). The Mitek ORTHOVISC Agreement
has been extended for two additional five-year terms, and it will now expire on December 20, 2023, unless it is further extended
by Mitek. Outside of the U.S., we have a number of distribution relationships servicing international markets including Canada,
Europe, the Middle East, Latin America, and Asia. We continue to seek to establish distribution relationships in other key markets.
See the sections captioned “
Management’s Discussion and Analysis of Financial Condition and Results of Operations—Management
Overview
” and “
Risk Factors
.”
In the United States, MONOVISC is also indicated
for the treatment of pain caused by osteoarthritis of the knee in patients who have failed to respond adequately to conservative,
non-pharmacologic therapy and to simple analgesics, such as acetaminophen. MONOVISC is a sterile, clear, viscous solution of partially
cross-linked sodium hyaluronate in a phosphate buffered saline solution. A treatment of MONOVISC is comprised of one injection
of the product delivered directly into the affected joint. MONOVISC became available for sale in the United States in April 2014,
and it is marketed by Mitek under the terms of a fifteen-year licensing, distribution, supply, and marketing agreement, which was
entered into on December 21, 2011 (the “Mitek MONOVISC Agreement”). Outside of the United States, we have a number
of distribution relationships servicing international markets including Canada, Europe, the Middle East, Latin America, Asia, Australia,
and certain other international countries. We continue to seek to establish distribution relationships in other key markets. See
the sections captioned “
Management’s Discussion and Analysis of Financial Condition and Results of Operations—Management
Overview
” and “
Risk Factors.
”
In addition to the four viscosupplement
products discussed above, we also offer several additional products used in connection with orthopedic regenerative medicine. These
products are based on the HYAFF technology and are currently available in Europe, South America, Asia, and certain other international
markets. They include HYALOFAST, a biodegradable support for human bone marrow mesenchymal stem cells used for cartilage regeneration
and as an adjunct for microfracture surgery; HYALONECT, a resorbable knitted fabric mesh for use in orthopedic and trauma reconstructive
procedures to maintain the relative position of engrafted bone tissue or bone fragments from comminuted fractures; and HYALOSS
MATRIX, HYAFF fibers used to mix blood/bone grafts to form a paste for bone regeneration. We also offer HYALOGLIDE, an ACP
gel used in tenolysis treatment, with the potential for use in flexor tendon adhesion prevention and for use in the shoulder for
prevention of adhesive capsulitis with additional clinical data. This product is commercialized through a network of distributors,
primarily in Europe and the Middle East. We also received CE Mark approval in December 2016 for a product which utilizes our proprietary
HA technology to treat pain associated with lateral epicondylitis, better known as tennis elbow. Outside of the United States,
this product is marketed under the trade name ORTHOVISC-T. Additionally, in the second quarter of 2016, we submitted an Investigational
Device Exemption (“IDE”) to the FDA to conduct a Phase III clinical trial for this treatment, and the IDE was approved
by the FDA in June 2016. In addition to these products, we also received 510(k) clearance for an injectable, HA-based surgical
bone repair product in December 2017, which we intend to launch in the U.S. during 2019 utilizing the previously-described hybrid
commercial approach. In total, Orthobiologics products accounted for 89%, 87%, and 87% of our product revenue in 2018, 2017, and
2016, respectively.
Dermal
Our dermal products consist of advanced
wound care products, based on the HYAFF technology, and an aesthetic dermal filler, based on our proprietary chemically modified,
cross-linked HA technology. Products utilizing our HYAFF technology are used for the treatment of skin wounds, ranging from burns
to diabetic ulcers. The products cover a variety of wound treatment solutions including debridement agents, advanced therapies
to aid healing, and scaffolds used as skin substitutes. Leading products include HYALOMATRIX and HYALOFILL, for the treatment of
complex wounds such as burns and ulcers. The dermal products are commercialized through a network of distributors, primarily
in the United States, Europe, Latin America, and the Middle East. Products cleared for sale in the United States include HYALOMATRIX,
HYALOFILL, HYALOGRAN, HYALOSAFE, and HYALOMATRIX 3D. In 2014, we entered into an agreement with Medline Industries, Inc. with a
current expiration date of December 31, 2022 to commercialize HYALOMATRIX in the United States.
Our aesthetic dermatology product is a dermal
filler based on our proprietary, chemically modified, cross-linked HA, and it is commercially available in select countries in
the Middle East. Internationally, this product is marketed under the ELEVESS name. In the United States, the trade name is HYDRELLE,
although the product is not currently marketed in the United States.
Surgical
Our surgical business consists of products
used to prevent post-surgical adhesions after abdominal-pelvic, spinal, and ear, nose, and throat (“ENT”) surgeries.
HYALOBARRIER is a clinically proven, post-operative adhesion barrier for use in the abdominopelvic area. The product is currently
commercialized in Europe, the Middle East, and certain African and Asian countries through a distribution network, but it is not
approved for sale in the United States.
Surgical adhesions occur when fibrous bands
of tissues form between adjacent tissue layers during the wound healing process. Although surgeons attempt to minimize the formation
of adhesions, they nevertheless occur quite frequently after surgery. Adhesions in the abdominal and pelvic cavity can cause particularly
serious problems such as intestinal blockage following abdominal surgery and infertility following pelvic surgery. Fibrosis following
spinal surgery can complicate re-operation and may cause pain.
We also offer several products used in connection
with the treatment of ENT disorders. The lead products are MEROGEL, a woven fleece nasal packing, and MEROGEL INJECTABLE,
a thick, viscous hydrogel composed of cross-linked hyaluronic acid—a biocompatible agent that creates a moist wound-healing
environment. We have partnered with Medtronic XoMed, Inc. (“Medtronic”) for worldwide distribution of these ENT
products.
Other
Our other products include our ophthalmic
and veterinary products, which are legacy products and not a part of our core business. Our ophthalmic business includes injectable,
high molecular weight HA products used as viscoelastic agents in ophthalmic surgical procedures such as cataract extraction and
intraocular lens implantation. These products coat, lubricate, and protect sensitive tissue such as the endothelium, and they function
to maintain the shape of the eye, thereby facilitating ophthalmic surgical procedures. Our veterinary product, HYVISC, is a high
molecular weight injectable HA product for the treatment of joint dysfunction in horses due to non-infectious synovitis associated
with equine osteoarthritis. HYVISC has viscoelastic properties that lubricate and protect the tissues in horse joints. HYVISC is
distributed by Boehringer Ingelheim Vetmedica, Inc. (“Boehringer”) in the United States and in selected countries
in the Middle East.
See Note 3
“Revenue by Product
Group, by Significant Customer and by Geographic Location; Geographic Information”
to our consolidated financial statements
included elsewhere in this Annual Report on Form 10-K for a discussion regarding our segments and geographic sales.
See also the section captioned “
Risk
Factors—Risks Related to Our Commercialization Activities—We experience quarterly sales volume variation, which makes
our future results difficult to predict and makes period-to-period comparisons potentially not meaningful
” for a discussion
regarding the effect that quarterly sales volume variation could have on our business and financial performance.
See also the section captioned “
Risk
Factors —Risks Related to Our Business and Competitive Position—A significant portion of our revenues are derived from
a small number of customers, the loss of which could materially adversely affect our business, financial condition and results
of operations
” for a discussion regarding our dependence on large-volume customers and the effects that the loss of any
such customer could have on our business and financial performance.
See also the section captioned “
Risk
Factors—Risks Related to Our Business and Industry—Our manufacturing processes involve inherent risks, and disruption
could materially adversely affect our business, financial condition and results of operations
” for a discussion of the
sources and availability of raw materials related to the manufacture of our products.
Research and Development of Potential Products
Our research and development efforts primarily
consist of the development of new medical applications for our HA-based technology, the management of clinical trials for certain
product candidates, the preparation and processing of applications for regulatory approvals or clearances at all relevant stages
of product development, and process development and scale-up manufacturing activities for our existing and new products. Our development
focus is orthopedic and regenerative medicines and includes products for tissue protection, repair, and regeneration. For the years
ended December 31, 2018, 2017 and 2016, these expenses were $18.2 million, $18.8 million, and $10.7 million, respectively.
We anticipate that we will continue to commit significant resources to, and increase our aggregate spending on, research and development
activities, including in relation to preclinical activities and clinical trials, in the future.
Our third generation, single-injection
osteoarthritis product under development in the United States, CINGAL, which is composed of our proprietary cross-linked HA material
combined with an approved steroid and is designed to provide both short- and long-term pain relief to patients, is our lead pipeline
product and a critical component of our growth strategy. We completed an initial CINGAL Phase III clinical trial, including the
associated statistical analysis for 368 enrolled patients, during the fourth quarter of 2014 with data indicating that the product
met all primary and secondary endpoints relative to placebo set forth for the trial. During the first half of 2015, we completed
a CINGAL retreatment study with 242 patients who had participated in the Phase III clinical trial and reported safety data related
to the retreatment study. This initial Phase III clinical trial and the associated retreatment study supported the Health Canada
and CE Mark approval of the product, and the commercial launch of the product in both Canada and the European Union occurred in
the second quarter of 2016. In the United States, after discussions with the U.S. Food and Drug Administration (“FDA”)
related to the regulatory pathway for CINGAL, we conducted a formal meeting with the FDA’s Office of Combination Products
(“OCP”) to present and discuss our data in September 2015, and we submitted a formal request for designation with
OCP a month later. In its response to our formal request for designation, OCP assigned the product to the FDA’s Center for
Drug Evaluation and Research (“CDER”) as the lead agency center for premarket review and regulation. We then held
discussions with CDER to understand the requirements for submitting a New Drug Application (“NDA”) for CINGAL. We
held a meeting with CDER in September 2016 to align on an approval framework and on submission requirements for this NDA for CINGAL,
including the execution of an additional Phase III clinical trial to supplement our existing CINGAL pivotal study data. We submitted
an Investigational New Drug Application (“IND”) in late 2016, and discussions with CDER indicated that they did not
have objections to our clinical protocol design. As a result, we commenced work on this second Phase III clinical trial (“CINGAL
16-02 Study”) in the first quarter of 2017, and the first patient was treated in the second quarter of 2017. Enrollment
of the 576 patients in this second Phase III clinical trial was completed during October 2017, and we completed the six-month
patient follow-up in April 2018. We received and analyzed the data from the CINGAL 16-02 Study during the second quarter of 2018,
and, while substantial pain reduction associated with CINGAL was evident at each measurement point, we determined based on statistical
analysis that it did not meet the primary study endpoint of demonstrating a statistically significant difference in pain reduction
between CINGAL and the approved steroid component of CINGAL at the six-month time point. In the third quarter of 2017, we initiated
an additional three-month extended follow-up study in conjunction with the CINGAL 16-02 Study to investigate the efficacy of CINGAL
over this longer period. The first patients were enrolled in this follow-up study in the fourth quarter of 2017 and we completed
the nine-month patient follow-up in the third quarter of 2018. Given the totality of the results from our studies related to CINGAL,
we have evaluated multiple strategies to optimize the potential U.S. regulatory pathway for the product. We recently met with
FDA to discuss this potential approval pathway for CINGAL in the United States moving forward. In the meeting, FDA indicated that
an additional Phase III clinical trial would be necessary to support U.S. marketing approval for CINGAL, and we are continuing
to align with FDA on the parameters and requirements for this additional clinical trial, which we expect to commence once alignment
is achieved.
We have several research and development
programs underway for new products, including for HYALOFAST (in the United States), an innovative product for cartilage tissue
repair, and other early stage regenerative medicine development programs. HYALOFAST, which received CE Mark approval in September
2009, is commercially available in Europe and certain international countries. During the first quarter of 2015, we submitted an
Investigational Device Exemption (“IDE”) for HYALOFAST to the FDA, which was approved in July 2015. We commenced patient
enrollment in a clinical trial in December 2015, and we are advancing site initiations and patient enrollment activities. In the
second quarter of 2016, a supplement to the HYALOFAST IDE was approved to expand the inclusion criteria for the clinical study,
which was aimed at decreasing the time needed to complete the clinical trial. The previously-described voluntary recall of certain
production lots of our HYAFF-based products did not impact the HYALOFAST clinical trial, as the product used in the clinical trial
is not sourced from the affected production lots. Given the changing medical landscape with respect to the randomization arm for
this trial, the microfracture procedure, we are actively pursuing alternative strategies to accelerate patient enrollment.
In the third quarter of 2017, we submitted
an application to the FDA for 510(k) clearance of an injectable, HA-based surgical bone repair product that is reabsorbed by the
body and replaced by the growth of new bone during the healing process. The 510(k) clearance was received from the FDA in December
2017, and we expect to make this bone repair product commercially available in the United States during 2019 utilizing the previously-described
hybrid commercial approach. In addition to other early stage research and development initiatives we are currently undertaking,
we are working to expand our regenerative medicine pipeline with a new product candidate in the form of an implant for rotator
cuff repair utilizing our proprietary solid HA, which could be used to repair partial and full-thickness rotator cuff tears. We
finalized development of an initial product prototype during the fourth quarter of 2018, and we are performing important preclinical
testing of and developing the surgical instrumentation for the potential product.
We are also currently proceeding with other
research and development programs, one of which utilizes our proprietary HA technology to treat pain associated with common repetitive
overuse injuries, such as lateral epicondylitis, also known as tennis elbow. We submitted a CE Mark application for this treatment
during the first quarter of 2016 and received a CE Mark for the treatment of pain associated with tennis elbow in December 2016.
We began work towards a post-market clinical study in relation to the CE Mark for this product in the fourth quarter of 2018.
Outside of the United States, this product is marketed under the trade name ORTHOVISC-T. Additionally, in the second quarter of
2016, we submitted an IDE to the FDA to conduct a Phase III clinical trial for this treatment, which was approved by the FDA in
June 2016. We also have several other research and development programs underway focused on expanding the indications of our current
products, including MONOVISC. Notwithstanding those internal programs, the previously-disclosed program conducted and funded by
Mitek seeking to expand MONOVISC’s indication to include treatment of pain associated with osteoarthritis of the hip was
cancelled in the fourth quarter of 2018 after the performance of an independent interim analysis required by the related clinical
protocol. During 2019, we will also be performing post-market clinical work in relation to the CE Mark for MONOVISC.
In June 2015, we entered into an agreement
with the Institute for Applied Life Sciences at the University of Massachusetts Amherst to collaborate on research to develop a
therapy for rheumatoid arthritis. The purpose of this research was to develop a novel modality for the treatment of rheumatoid
arthritis. The agreement with the University of Massachusetts Amherst was extended in January 2018, and it was terminated in October
2018 after discussions between the parties. In January 2018, we entered into an agreement with the University of Liverpool to develop
an injectable mesenchymal stem cell therapy for the treatment of age-related osteoarthritis with the goal of bringing a therapeutics
candidate through clinical trials to market to meet an unmet therapeutic need. We are currently in the preclinical phase of this
program and aim to finalize proof of concept during the second quarter of 2020.
Our research and development efforts may
not be successful in (1) developing our existing product candidates, (2) expanding the therapeutic applications of our
existing products, or (3) resulting in new applications for our HA technology. There is also a risk that we may choose not
to pursue development of potential product candidates. We may not be able to obtain regulatory approval for any new applications
we develop. Furthermore, even if all regulatory approvals are obtained, there can be no assurances that we will achieve meaningful
sales of such products or applications.
See also the section captioned “
Risk
Factors—Risks Related to Our Product Development and Regulatory Compliance —Failure to obtain, or any delay in obtaining,
FDA or other U.S. and foreign governmental approvals for our products may have a material adverse effect on our business, financial
condition and results of operations.
” for a discussion regarding the impact of government regulations on our product
development activities.
Patent and Proprietary Rights
Our products and trademarks, including our
corporate name, product names, and logos, are proprietary. We rely on a combination of patent protection, trade secrets and trademark
laws, license agreements, and confidentiality and other contractual provisions to protect our proprietary information.
We have a policy of seeking patent protection
for patentable aspects of our proprietary technology. In the United States, we own 19 patents, 1 of which is co-owned with other
parties, license 10 patents, and have 4 patent applications currently pending. These U.S. patents have expiration dates through
2030. Internationally, we own 181 patents, 7 of which are co-owned with other parties, license 71 patents, and have 29 patent applications
currently pending. Outside of the United States, we own, co-own, license, or have filed for patents in 39 jurisdictions. Our international
patents have expiration dates through 2032. In 2018, we were granted 29 new patents in Austria, Czech Republic, Denmark, France,
Germany, Great Britain, Ireland, Italy, the Netherlands, Poland, Spain, Sweden, and Switzerland. Many of these patents, including
all licensed patents, belong to the Anika S.r.l. patent estate, which is extensive and partly intertwined with its former parent
company Fidia Farmaceutici S.p.A. (“Fidia”) through a patent licensing agreement that provides Anika S.r.l. with access
to certain of Fidia’s patents to the extent required to support Anika S.r.l.’s products. In 2018, 3 of the patents
belonging to the Anika S.r.l. patent estate expired in the United States, and 13 expired internationally. We intend to seek patent
protection for products and processes developed in the course of our activities when we believe such protection is in our best
interests and when the cost of seeking such protection is not inordinate relative to the potential benefits.
Other entities have filed patent applications
for, or have been issued patents concerning, various aspects of HA-related products or processes. In addition, the products or
processes we develop may infringe the patent rights of others in the future. Any such infringement may have a material adverse
effect on our business, financial condition, and results of operations.
We rely upon trade secrets and proprietary
know-how for certain non-patented aspects of our technology. To protect such information, we require certain customers and vendors,
and all employees, consultants, and licensees to enter into confidentiality agreements limiting the disclosure and use of such
information. These agreements, however, may not provide adequate protection.
See also the section captioned “
Risk
Factors—Risks Related to Our Intellectual Property—We may be unable to adequately protect our intellectual property
rights, which could have a material impact on our business and future financial results
” for a discussion of the risks
we face with respect to protecting intellectual property we develop.
We have granted Mitek an exclusive and non-transferable,
royalty-bearing license to develop, commercialize, and sell ORTHOVISC and MONOVISC in the United States pursuant to the Mitek ORTHOVISC
Agreement and the Mitek MONOVISC Agreement. These agreements include a license to manufacture and have manufactured such products
in the event that we are unable to supply Mitek with ORTHOVISC or MONOVISC in accordance with the terms of the relevant agreement.
We have also granted Mitek the exclusive, royalty free right to use the trademarks ORTHOVISC and MONOVISC in connection with the
marketing, distribution, and sale of the licensed products within the United States.
Government Regulation
The clinical development, manufacturing,
and marketing of our products are subject to governmental regulation in the United States, the European Union, and other territories
worldwide. Various statutes, regulations and interpretations thereof, directives, and guidelines, including the Food, Drug, and
Cosmetic Act in the United States, govern the development, design, non-clinical and clinical research, testing, manufacture, safety,
efficacy, labeling, packaging, storage, record keeping, premarket clearance or approval, adverse event reporting, advertising,
and promotion of our products. Product development and approval within these various regulatory frameworks takes a number of years
and involves the expenditure of substantial resources. Pharmaceutical and medical device manufacturers are also inspected regularly
by the FDA and other applicable regulatory bodies.
Medical products regulated by the FDA are
generally classified as drugs, biologics, or medical devices, and the current classification standards for our current or future
may be altered over time. Drugs and biologic products undergo rigorous preclinical testing prior to beginning clinical trials.
Clinical trials for new drugs or biologic products include Phase I trials in healthy volunteers to understand safety, dosage tolerance,
and pharmacokinetics, Phase II trials in a limited patient population to identify initial efficacy and side effects, and Phase
III pivotal trials to statistically evaluate the safety and efficacy of the product. Medical devices intended for human use are
classified into three categories (Class I, II or III) on the basis of the controls deemed reasonably necessary by the FDA
to assure their safety and effectiveness. Class II devices are cleared for marketing under the premarket notification 510(k)
regulatory pathway, which may include clinical testing. Class III devices require pre-market approval based on valid scientific
evidence of safety and effectiveness, including evidence elicited through appropriate clinical testing. The failure to adequately
demonstrate the quality, safety, and efficacy of a product under development can delay or prevent regulatory approval of the product.
In order to gain marketing approval, we must submit to the relevant regulatory authority for review information on the quality
aspects of the product as well as the non-clinical and clinical data. The FDA undertakes this review in the United States.
In the European Union, medical devices must
be CE Marked in order to be marketed. CE marking a device involves working with a Notified Body, and in some cases a Competent
Authority, to demonstrate that the device meets all applicable requirements of the Medical Devices Directive and that our Quality
Management System is compliant. Drug approval in the European Union follows one of several possible processes: (i) a centralized
procedure involving members of the European Medicines Agency’s Committee for Medicinal Products for Human Use; (ii) a “mutual
recognition procedure” in which an individual country's regulatory agency approves the product followed by “mutual
recognition” of this approval by regulatory agencies of other countries; or (iii) a decentralized procedure in which the
approval is sought through the regulatory agencies of multiple countries at the same time.
Approval timelines can range from several
months to several years, or applications can be denied entirely. Product or product component classifications as drugs, biologics,
or medical devices may change over time due to new regulations or augmented interpretation of data or current regulations. The
approval process can be affected by a number of factors. For example, additional studies or clinical trials may be requested during
the review, which may delay marketing approval and involve unbudgeted costs. As a condition of approval, the regulatory agency
may require post-marketing surveillance to monitor for adverse effects, and may require other additional studies, as it deems appropriate.
After approval for an initial indication, further clinical studies are generally necessary to gain approval for any additional
indications. The terms of any approval, including labeling content, may be more restrictive than expected and could affect the
marketability of a product.
As a condition of approval, the relevant
regulatory agency requires that the product continues to meet applicable regulatory requirements related to quality, safety, and
efficacy, and it requires strict procedures to monitor and report any adverse effects. Where adverse effects occur or may occur,
the regulatory agency may require additional studies or changes to the labeling. Compelling new “adverse” data may
result in a product approval being withdrawn at any stage following review by an agency and discussion with the product manufacturer.
The branch of the FDA responsible for product
marketing oversight routinely reviews company marketing practices and also may impose pre-clearance requirements on materials intended
for use in marketing of approved drug products. We are also subject to various U.S. federal and state laws pertaining to healthcare
fraud and abuse, including anti-kickback and false claims laws. Similar review and regulation of advertising and marketing practices
exists in the other geographic areas where we operate.
The FDA has broad regulatory compliance
and enforcement powers. If the FDA determines that we failed to comply with applicable regulatory requirements, it can take a variety
of compliance or enforcement actions, including, without limitation, issuing an FDA Form 483 notice of inspectional observations
or a warning letter, imposing civil money penalties, suspending or delaying issuance of approvals, requiring product recall, imposing
a total or partial shutdown of production, withdrawal of approvals or clearances already granted, pursuing product seizures, consent
decrees or other injunctive relief, or criminal prosecution through the Department of Justice. The FDA can also require us to repair,
replace, or refund the cost of products that we manufactured or distributed. Outside the United States, regulatory agencies may
exert a range of similar powers.
We are also subject to various laws and
regulations concerning data privacy. Changing privacy laws in the United States, Europe, Brazil and elsewhere, including the adoption
by the European Union of the General Data Protection Regulation (“GDPR”) effective in May 2018, create new individual
privacy rights and impose increased obligations on companies handling personal data. The GDPR, which is wide-ranging in scope,
imposes several requirements relating to the consent of the individuals to whom the personal data relates, the information provided
to the individuals, the security and confidentiality of the personal data, data breach notification, and the use of third party
processors in connection with the processing of the personal data. The GDPR also imposes strict rules on the transfer of personal
data out of the E.U. to the U.S. and empowers enforcement agencies to impose large penalties for noncompliance, including the
potential for fines of up to €20 million or 4% of the annual global revenues of the infringer, whichever is greater.
See also the sections captioned “
Risk Factors—Risks
Related to Our Product Development and Regulatory Compliance—Failure to obtain, or any delay in obtaining, FDA or other U.S.
and foreign governmental approvals for our products may have a material adverse effect on our business, financial condition and
results of operations,
” “
Risk Factors—Risks Related to Our Product Development and Regulatory Compliance—Once
obtained, we cannot guarantee that FDA or international product approvals will not be withdrawn or that relevant agencies will
not require other corrective action, and any withdrawal or corrective action could materially affect our business and financial
results,
” “
Risk Factors—Risks Related to Our Product Development and Regulatory Compliance—Our operations
and products are subject to extensive regulation, compliance with which is costly and time consuming, and our failure to comply
may result in substantial penalties, including recalls of our products,
” “
Risk Factors—Risks Related to
Our Product Development and Regulatory Compliance—Any changes in FDA or international regulations related to product approval,
including those that apply retroactively, could adversely affect our competitive position and materially affect our business and
financial results,
” and “
Risk Factors—Risks Related to Our Product Development and Regulatory Compliance—We
are subject to various healthcare laws and regulations, and any failure to comply with applicable laws could subject us to significant
liability and harm our business
” for a discussion regarding the potential impact of government regulations on our business
and financial results.
Competition
We compete with many companies including
large pharmaceutical firms and specialized medical products companies across all of our product lines. Many of these companies
have substantially greater financial resources, larger research and development staffs, more extensive marketing and manufacturing
organizations, and more experience in the regulatory processes than we have. We also compete with academic institutions, government
agencies, and other research organizations, which may be involved in the research and development and commercialization of products.
Many of our competitors also compete against us in securing relationships with collaborators for their research and development
and commercialization programs.
We compete with other market participants
primarily on the efficacy of our products, our products’ reputation for safety, our focus on HA-based products, and the breadth
of our HA-based product portfolio. Other factors that impact competition in our industry are the timing and scope of regulatory
approvals, the availability of raw material and finished product supply, marketing and sales capability, reimbursement coverage,
product pricing, and patent protection. Some of the principal factors that may affect our ability to compete in the HA development
and commercialization markets include:
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The quality and breadth of our continued development of our technology portfolio;
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Our ability to complete successful clinical studies and obtain FDA marketing and foreign regulatory approvals prior to our competitors;
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The execution by our key partners of their commercial strategies for our products and our ability to manage our relationships with those key partners;
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The successful execution of our commercial strategies, including our hybrid commercial approach;
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Our ability to recruit and retain skilled employees; and
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The availability of capital resources to fund strategic activities related to the significant expansion of our business or product portfolio, including through acquisitions of third parties or certain assets.
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We are aware of several companies that are
developing and/or marketing products utilizing HA for a variety of human applications. In some cases, competitors have already
obtained product approvals, submitted applications for approval, or commenced human clinical studies, either in the United States
or in certain foreign countries. All of our products face substantial competition. There exist major worldwide competing products,
made from HA and other materials, for use in orthopedics, surgical adhesion prevention, advanced wound care, ENT, cosmetic dermatology,
ophthalmic surgery, and the treatment of equine osteoarthritis. There is a risk that we will be unable to compete effectively against
our current or future competitors. Additionally, legislation and regulation aimed at curbing rising healthcare costs has resulted
in a consolidation trend in the healthcare industry to create larger companies, including hospitals, with greater market power.
In turn, this has led to greater and more intense competition in the provision of products and services to market participants.
Important market makers, like group purchasing organizations and integrated delivery networks, have increased their negotiating
leverage, and if these market makers demand significant price concessions or if we are excluded as a supplier by these market makers,
our product revenue could be adversely impacted.
See also the sections captioned “
Risk Factors—Risks Related to Our Business and Competitive
Position—Substantial competition could materially affect our financial performance,
” “
Risk Factors—Risks
Related to Our Business and Competitive Position—We are dependent upon marketing and distribution partners and the failure
to maintain strategic alliances on acceptable terms will have a material adverse effect on our business, financial condition, and
results of operations
,”
“Risk Factors—Risks Related to Our Commercialization Activities—Our business
may be adversely affected if consolidation in the healthcare industry leads to demand for price concessions or if we are excluded
from being a supplier by a group purchasing organization or similar entity
,” “
Risk Factors—Risks Related
to Our Business and Industry—We actively explore acquisitions as a part of our future growth strategy, which exposes us to
a variety of risks that could adversely affect our business operations
,” and “
Risk Factors—Risks Related
to Our Business and Industry—Attractive acquisition opportunities may not be available to us
” for additional discussion
of the impact competition could have on our business and financial results.
Employees
As of December 31, 2018, we had 133
employees, 24 of whom were located outside the United States. We consider our relations with our employees to be good. None
of our U.S. employees are represented by labor unions, but certain employees based in Italy are represented by unions, adding complexity
and additional risks to the wage and employment decision processes.
Environmental Laws
We believe that we are in compliance with
all foreign, federal, state, and local environmental regulations with respect to our manufacturing facilities and that the cost
of ongoing compliance with such regulations does not have a material effect on our operations.
Product Liability
The testing, marketing, and sale of human
health care products entails an inherent risk of allegations of product liability, and we cannot assure that substantial product
liability claims will not be asserted against us. Although we have not received any material product liability claims to date and
have coverage under our insurance policy of $5.0 million per occurrence and $5.0 million in the aggregate, we cannot assure that
if material claims arise in the future, our insurance will be adequate to cover all situations. Moreover, we cannot assure that
such insurance, or additional insurance, if required, will be available in the future or, if available, will be available on commercially
reasonable terms. Any product liability claim, if successful, could have a material adverse effect on our business, financial condition,
and results of operation.
Available Information
Our Annual Reports on Form 10-K, including
our consolidated financial statements, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, and other information,
including amendments and exhibits to such reports, filed or furnished pursuant to the Securities Exchange Act of 1934, as amended,
are available free of charge in the “SEC Filings” section of our website located at http://www.anikatherapeutics.com,
as soon as reasonably practicable after the reports are filed with or furnished to the SEC. The information on our website is not
part of this Annual Report on Form 10-K. Reports filed with the SEC may be viewed at www.sec.gov.
ITEM 1A. RISK FACTORS
Our operating results and financial condition
have varied in the past and could vary significantly in the future depending on a number of factors. You should consider carefully
the risks and uncertainties described below, in addition to the other information contained in this Annual Report on Form 10-K,
before deciding whether to purchase our common stock. If any of the following risks actually occurs, our business, financial condition,
results of operations, and future prospects could be materially and adversely affected. In that event, the trading price of our
common stock could decline, and you could lose part or all of your investment.
Risks Related to Our Business and Competitive
Position
Our financial performance depends
on the continued sales growth and increasing demand for our products and we may not be able to successfully manage the expansion
of our operations.
Our future success
depends on substantial growth in product sales. There can be no assurance that such growth can be achieved or, if achieved, sustained.
There can be no assurance that, even if substantial growth in product sales and the demand for our products is achieved, we will
be able to:
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Maintain and develop the necessary manufacturing capabilities;
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Develop and successfully implement appropriate new commercial models to generate increased sales or obtain the assistance of additional marketing partners;
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Attract, retain, and integrate required key personnel; and
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Implement the financial, accounting, and management systems needed to manage our overall business and growing demand for our products.
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Our failure to successfully manage future
growth could have a material adverse effect on our business, financial condition, and results of operations.
Substantial competition could materially
affect our financial performance.
We compete with many
companies, including large pharmaceutical companies, specialized medical products companies, and healthcare companies. Many of
these companies have substantially greater financial resources, larger research and development staffs, more extensive intellectual
technology portfolios, more extensive marketing and manufacturing organizations, and more experience in the regulatory process
than us. We also compete with academic institutions, government agencies, and other research organizations that may be involved
in research, development, and commercialization of products similar to our own. Because a number of companies are developing or
have developed HA products for similar applications and have received FDA approval, the successful commercialization of a particular
product will depend in part upon our ability to complete clinical studies and obtain FDA marketing and foreign regulatory approvals
prior to our competitors, or, if regulatory approval is not obtained prior to our competitors, to identify markets for our products
that may be sufficient to permit meaningful sales of our products. For example, we are aware of several companies that are developing
and/or marketing products utilizing HA for a variety of human applications. In some cases, competitors have already obtained product
approvals, submitted applications for approval, or have commenced human clinical studies, either in the United States or in certain
foreign countries. For example, certain HA products made by our competitors for the treatment of osteoarthritis in the knee received
FDA approval before ours and have been marketed in the United States since 1997, as well as select markets in Canada, Europe, and
other countries. In addition, the market for our current or future products could be adversely impacted if disruptive technologies
or modalities are developed by third parties. There can be no assurance that we will be able to compete against current or future
competitors or that competition will not have a material adverse effect on our business, financial condition, and results of operations.
A significant portion of our revenues
are derived from a small number of customers, the loss of which could materially adversely affect our business, financial condition
and results of operations.
We have historically derived the majority
of our revenues from a small number of customers who resell our products to end-users, and most of these customers are significantly
larger companies than us. For the year ended December 31, 2018, five customers accounted for 86% of product revenue, with
Mitek alone accounting for 73% of product revenue. We expect to continue to be dependent on a small number of large customers,
especially Mitek, for the majority of our revenues in the near-term future. The failure of these customers to purchase our products
in the amounts they historically have or in amounts that we expect would seriously harm our business.
In addition, if present and future customers
terminate their purchasing arrangements with us, significantly reduce or delay their orders, or seek to renegotiate their agreements
on terms less favorable to us, our business, financial condition, and results of operations will be adversely affected. If we accept
terms less favorable than the terms of the current agreements, such renegotiations may have a material adverse effect on our business,
financial condition, and/or results of operations. Furthermore, in any future negotiations we may be subject to the perceived or
actual leverage that these customers may have given their relative size and importance to us. Any termination, change, reduction,
or delay in orders could seriously harm our business, financial condition, and results of operations. Accordingly, unless and until
we diversify and expand our customer base, or develop alternative commercial strategies, our future success will significantly
depend upon the timing and size of future purchases by our largest customers, and the financial and operational success of these
customers. The loss of any one of our major customers or the delay of significant orders from such customers, even if only temporary,
could reduce or delay our recognition of revenues, harm our reputation in the industry, and reduce our ability to accurately predict
cash flow, and, as a consequence, it could seriously harm our business, financial condition, and results of operations.
Our license agreements with Mitek provide substantial
control of the U.S. marketing and development of MONOVISC and ORTHOVISC to Mitek, and Mitek’s actions could have a material
impact on our business, financial condition and results of operations.
The Mitek MONOVISC Agreement and Mitek
ORTHOVISC Agreement provide Mitek with, among other things, the exclusive right to market and sell MONOVISC and ORTHOVISC in the
United States, unilateral decision-making authority over the sale, price, and promotion of MONOVISC and ORTHOVISC, substantial
control over the future development of MONOVISC and ORTHOVISC related to the treatment of pain associated with osteoarthritis,
a license to manufacture and have manufactured such products in the event that we are unable to supply Mitek with ORTHOVISC or
MONOVISC in accordance with the terms of the relevant agreement, and certain rights of first refusal with respect to future products
we develop for the treatment of pain associated with osteoarthritis. In exchange, Mitek pays us a transfer price calculated with
reference to historical end-user prices in the market and a fixed royalty on their net product sales. As Mitek accounts for a
large percentage of our yearly revenue and has unilateral decision-making authority over in-market activities, including end-user
pricing and discounts, reimbursement strategy, and overall promotion strategy, actions taken by Mitek could impact our ability
to predict and generate revenue and have a material impact on our business, financial condition, and results of operations.
We are dependent upon marketing and distribution partners
and the failure to maintain strategic alliances on acceptable terms will have a material adverse effect on our business, financial
condition, and results of operations.
Though we intend to implement a hybrid commercial
approach in the United States in the near-term and evaluate future opportunities for the optimal commercial approach, our success
will remain dependent, in part, upon the efforts of our marketing and distribution partners and the terms and conditions of our
relationships with such partners. One partner, Mitek accounted for 73% of our product revenue in fiscal year 2018. We cannot assure
you that our partners, including Mitek, will not seek to renegotiate their current agreements on terms less favorable to us or
terminate such agreements. A failure to renew these partnerships on terms satisfactory to us, or at all, could result in a material
adverse effect on our operating results.
We continue to seek to establish long-term
distribution relationships in regions and countries not covered by existing agreements, and we may need to obtain the assistance
of additional marketing partners to bring new and existing products to market and to replace certain marketing partners. There
can be no assurance that we will be able to identify or engage appropriate distribution or collaboration partners or effectively
transition to any such new partnerships. The failure to establish strategic partnerships for the marketing and distribution of
our products on acceptable terms and within our planned timeframes could have a material adverse effect on our business, financial
condition, and results of operations.
As our international sales and operations grow, we could
become increasingly subject to additional economic, political, and other risks that could harm our business.
Since we manufacture our products for sale
worldwide, our business is subject to risks associated with doing business internationally. During the years ended December 31,
2018, 2017, and 2016, 19%, 20%, and 19%, respectively, of our product sales were to international distributors. We continue to
be subject to a variety of risks, which could cause fluctuations in the results of our international and domestic operations. These
risks include:
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The impact of recessions and other economic conditions in economies, including Europe in particular, outside the United States;
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Instability of foreign economic, political, and labor conditions;
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Unfavorable labor regulations applicable to our European operations, such as severance and the unenforceability of non-competition agreements in the European Union;
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The impact of strikes, work stoppages, work slowdowns, grievances, complaints, claims of unfair labor practices, or other collective bargaining disputes;
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Difficulties in complying with restrictions imposed by regulatory or market requirements, tariffs, or other trade barriers or by U.S. export laws;
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Imposition of government controls limiting the volume of international sales;
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Longer accounts receivable payment cycles;
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Potentially adverse tax consequences, including, if required or applicable, difficulties transferring funds generated in non-U.S. jurisdictions to the United States in a tax efficient manner;
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Difficulties in protecting intellectual property, especially in international jurisdictions;
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Difficulties in managing international operations; and
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Burdens of complying with a wide variety of foreign laws.
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Our success depends, in part, on our
ability to anticipate and address these and any new risks. We cannot guarantee that these or other factors will not adversely affect
our business or operating results.
Risks Related to Our Commercialization
Activities
We cannot be certain that we will
be successful or timely in implementing changes to our current commercial model in the United States, including the hybrid commercial
approach we intend to utilize for the commercialization of our injectable, HA-based surgical bone repair product and certain potential
future products, and our failure to do so could negatively impact our business and financial results.
For near-term opportunities in the U.S. market, including for our
injectable, HA-based surgical bone repair product, we intend to utilize hybrid commercial approach that would see us balance a
small direct model with an optimal form of strategic partnership. For longer-term future products in the U.S. market, we intend
to evaluate the appropriate commercial model for each on a case-by-case basis, based on market dynamics and other factors. These
models could include direct sales, distribution partnerships, or a hybrid of those forms. We cannot be certain that we will be
successful in implementing these models, including the hybrid commercial approach, as we may not be able to attract or retain
the sophisticated personnel required for such approach, to identify or negotiate favorable or acceptable terms with a desirable
strategic partner, to timely execute on our strategies, or to generate meaningful sales of our products as a result of other market
dynamics. Our failure to successfully or timely augment our current commercial model could have an adverse material effect on
our business, financial condition, and results of operations.
We are facing a delay in the pathway to commercialize
our CINGAL product in the United States, and we may face other unforeseen difficulties and delays in achieving regulatory approval
for CINGAL, which could affect our business and financial results.
In the second quarter of 2018, we received and analyzed the results of our second Phase III clinical trial
for CINGAL and found that, while substantial pain reduction associated with CINGAL was evident at each measurement point, the data
did not meet the primary study endpoint of demonstrating a statistically significant difference in pain reduction between CINGAL
and the approved steroid component of CINGAL at the six-month time point. After completing the analysis of the data related to
the totality of our studies for CINGAL, we recently met with FDA to discuss a potential approval pathway for CINGAL in the United
States moving forward. In the meeting, FDA indicated that an additional Phase III clinical trial would be necessary to support
U.S. marketing approval for CINGAL, and we are continuing to align with FDA on the parameters and requirements for this additional
clinical trial, which we expect to commence once alignment is achieved. Because these results or other unforeseen future developments
could have a substantial negative impact on the timeline for and the cost associated with a potential CINGAL regulatory approval,
if any, our overall business condition, financial results, and competitive position could be affected.
We must achieve market acceptance
of our products in order to be successful in the future.
Our success will depend in part upon the
acceptance of our existing and future products by the medical community, hospitals, physicians, other health care providers, third-party
payers, and end-users. Such acceptance may depend upon the extent to which the medical community and end-users perceive our products
as safer, more effective, or more cost-competitive than other similar products. Ultimately, for our new products to gain general
market acceptance, it may also be necessary for us to develop marketing partners or viable commercial strategies for the distribution
of our products. There can be no assurance that our new products will achieve significant market acceptance on a timely basis,
or at all. Failure of some or all of our future products to achieve significant market acceptance could have a material adverse
effect on our business, financial condition, and results of operations.
Sales of our products are largely dependent upon third
party reimbursement and our performance may be harmed by health care cost containment initiatives or decisions of individual third
party payers.
In the United States and other foreign markets,
health care providers, such as hospitals and physicians, that purchase health care products, such as our products, generally rely
on third party payers, including Medicare, Medicaid, and other health insurance and managed care plans, to reimburse all or part
of the cost of the health care product. We have generally depended upon the distributors of our products to secure reimbursement
and reimbursement approvals. Reimbursement by third party payers, both in the United States and internationally, may depend on
a number of factors, including the individual payer’s determination that the use of our products is clinically useful and
cost-effective, medically necessary, and not experimental or investigational. Since reimbursement approval is required from each
payer individually, seeking such approvals can be a time consuming and costly process which, in the future, could require us or
our marketing partners to provide supporting scientific, clinical, and cost-effectiveness data for the use of our products to each
payer separately. Significant uncertainty exists as to the reimbursement status of newly approved health care products, and any
failure or delay in obtaining reimbursement approvals can negatively impact sales of our new products. In addition, we cannot be
certain that payers who currently provide reimbursement for our products will continue to provide such reimbursement in the future,
and such payer decisions could negatively impact the sales of our current or future products.
In addition, third
party payers are increasingly attempting to contain the costs of health care products and services by limiting both coverage and
the level of reimbursement for new therapeutic products and by refusing, in some cases, to provide coverage for uses of approved
products for disease indications for which the FDA, or the applicable foreign regulatory agency, has granted marketing approval.
Also, the U.S. Congress, certain state legislatures, and certain foreign governments and regulatory agencies have considered reforms,
including, among other items, the potential repeal of the Affordable Care Act in the United States, which may affect current reimbursement
practices and create additional uncertainty about the pricing of our products, including the potential implementation of controls
on health care spending through limitations on the growth of Medicare and Medicaid spending. There can be no assurance that third
party reimbursement coverage will be available or adequate for any products or services developed by us. Outside the United States,
the success of our products is also dependent in part upon the availability of reimbursement and health care payment systems. Domestic
and international reimbursement laws and regulations may change from time to time. Lack of adequate coverage and reimbursement
provided by governments and other third party payers for our products and services, including continuing coverage for MONOVISC
and ORTHOVISC in the United States, and any change of classification by the Centers for Medicare and Medicaid Services for ORTHOVISC
and MONOVISC, could have a material adverse effect on our business, financial condition, and results of operations.
Our business may be adversely
affected if consolidation in the healthcare industry leads to demand for price concessions or if we are excluded from being a supplier
by a group purchasing organization or similar entity.
Because healthcare
costs have risen significantly over the past decade, numerous initiatives and reforms have been launched by legislators, regulators,
and third-party payers to curb these costs. As a result, there has been a consolidation trend in the healthcare industry to create
larger companies, including hospitals, with greater market power. As the healthcare industry consolidates, competition to provide
products and services to industry participants has become and may continue to become more intense. This may result in greater pricing
pressures and the exclusion of certain suppliers from important markets as group purchasing organizations, independent delivery
networks, and large single accounts continue to use their market power to consolidate purchasing decisions. If a group purchasing
organization excludes us from being one of their suppliers, our net sales could be adversely impacted. We expect that market demand,
government regulation, third-party reimbursement policies, and societal pressures will continue to change the worldwide healthcare
industry, which may exert further downward pressure on the prices of our products.
We experience quarterly sales volume variation, which
makes our future results difficult to predict and makes period-to-period comparisons potentially not meaningful.
We experience quarterly fluctuations in
our products sales as a result of multiple factors, many of which are outside of our control. These quarterly fluctuations create
uncertainty as to the volume of sales that we may achieve in a given period. As a result, comparing our operating results on a
period-to-period basis might not be meaningful. You should not rely on our past results as an indication of our future performance.
Our operating results could be disproportionately affected by a reduction in revenue because a proportionately smaller amount of
our expenses varies with our revenue. As a result, our quarterly operating results are difficult to predict, even in the near term.
Risks Related to Our Product Development
and Regulatory Compliance
Failure to obtain, or any delay in obtaining, FDA or other
U.S. and foreign governmental approvals for our products may have a material adverse effect on our business, financial condition
and results of operations.
Several of our current products, and any
future products we may develop, will require clinical trials to determine their safety and efficacy for United States and international
marketing approval by regulatory bodies, including the FDA. Product development and approval within the FDA framework takes a number
of years and involves the expenditure of substantial resources. There can be no assurance that the FDA will accept submissions
related to our new products or the expansion of the indications of our current products, and, even if submissions are accepted,
there can be no guarantee that the FDA will grant approval for our new products, including CINGAL, HYALOFAST, or other line extensions
of our current products, or for the expansion of indications of our current products on a timely basis, if at all. In addition
to regulations enforced by the FDA, we are subject to other existing and future federal, state, local, and foreign regulations
applicable to product approval, which may vary significantly across jurisdictions. Additional approval of existing products may
be required when changes to such products may affect the safety and effectiveness, including for new indications for use, labeling
changes, process or manufacturing changes, the use of a different facility to manufacture, process or package the device, and changes
in performance or design specifications. Failure to obtain regulatory approvals of our products, including any changes to existing
products, could have an adverse material impact on our business, financial condition, and results of operations.
Even if ultimately granted, FDA and international
regulatory approvals may be subject to significant, unanticipated delays throughout the regulatory approval process. Internally,
we make assumptions regarding product approval timelines, both in the United States and internationally, in our business planning,
and any delay in approval could materially affect our competitive position in the relevant product market and our projections related
to future business results.
We cannot be certain that product approvals,
both in the United States and internationally, will not include significant limitations on the product indications, and other claims
sought for use, under which the products may be marketed. The relevant approval or clearance may also include other significant
conditions of approval such as post-market testing, tracking, or surveillance requirements. Any of these factors could significantly
impact our competitive position in relation to such products and could have a negative impact on the sales of such products.
Once obtained, we cannot guarantee
that FDA or international product approvals will not be withdrawn or that relevant agencies will not require other corrective action,
and any withdrawal or corrective action could materially affect our business and financial results.
Once obtained, marketing approval can be
withdrawn by the FDA or comparable foreign regulatory agencies for a number of reasons, including the failure to comply with ongoing
regulatory requirements or the occurrence of unforeseen problems following initial approval. Regulatory authorities could also
limit or prevent the manufacture or distribution of our products. Any regulatory limitations on the use of our products or any
withdrawal or suspension of approval or rescission of approval by the FDA or a comparable foreign regulatory agency could have
a material adverse effect on our business, financial condition, and results of operations.
Our operations and products are subject to extensive regulation,
compliance with which is costly and time consuming, and our failure to comply may result in substantial penalties, including recalls
of our products.
The FDA and foreign regulatory bodies impose
extensive regulations applicable to our operations and products, including regulations governing product standards, packing requirements,
labeling requirements, quality system and manufacturing requirements, import restrictions, tariff regulations, duties, and tax
requirements. We cannot assure you that we will be able to achieve and maintain compliance required for FDA, CE marking, or other
foreign regulatory approvals for any or all of our operations and products or that we will be able to produce our products in a
timely and profitable manner while complying with applicable requirements.
Failure to comply with applicable regulatory
requirements could result in substantial penalties, including warning letters, fines, injunctions, civil penalties, seizure of
products, total or partial suspension of production, refusal to grant pre-market clearance or pre-market approval for devices or
drugs, withdrawal of approvals, and criminal prosecution. Additionally, regulatory authorities have the power to require the recall
of our products. It also might be necessary for us, in applicable circumstances, to initiate a voluntary recall per regulatory
requirements of one or several of our products. The imposition of any of the foregoing penalties, whether voluntarily or involuntary,
could have a material negative impact on our business, financial condition, and results of operations.
Any changes in FDA or international regulations related
to product approval or approval renewal, including those currently under consideration by FDA or those that apply retroactively,
could adversely affect our competitive position and materially affect our business and financial results.
FDA and foreign regulations depend heavily
on administrative interpretation, and we cannot assure you that future interpretations made by the FDA or other regulatory bodies,
with possible retroactive effect, will not adversely affect us. Additionally, any changes, whether in interpretation or substance,
in existing regulations or policies, or any future adoption of new regulations or policies by relevant regulatory bodies, could
prevent or delay approval of our products. In the event our future, or current, products, including HA generally, are classified,
or re-classified, as human drugs, combination products, or biologics by the FDA or an applicable international regulatory body,
the applicable review process related to such products is typically substantially longer and substantially more expensive than
the review process to which they are currently subject as medical devices. In 2018, FDA publicly indicated its intent to consider
HA products for certain indications for regulation as a drug and has indicated that industry should submit new products or indication
expansions to the OCP to designate the appropriate FDA office for review. There exists uncertainty with respect to the final interpretation,
implementation, and consequences of this development, and this or any other potential regulatory changes in approach or interpretation
similar in substance to those mentioned in this paragraph and affecting our products could materially impact our competitive position,
business, and financial results.
Additionally, the implementation of the
new European Medical Device Regulation (“EU MDR”), set to take full effect in 2020, is expected to change several aspects
of the existing regulatory framework in Europe. Specifically, the EU MDR will require changes in the clinical evidence required
for medical devices, post-market clinical follow-up evidence, annual reporting of safety information for Class III products, and
bi-annual reporting for Class II products, Unique Device Identification (“UDI”) for all products, submission of core
data elements to a European UDI database prior to placement of a device on the market, reclassification of medical devices, and
multiple other labeling changes. Approvals for certain of our currently-marketed products could be curtailed or withdrawn as a
result of the implementation of the EU MDR, and acquiring approvals for new products could be more challenging and costly. For
example, the CE Mark indication for MONOVISC of the treatment of pain associated with osteoarthritis in all synovial joints was
limited to the knee joint by our notified body as a result of the EU MDR, pending our generation of adequate data to support the
broader indication previously granted. We do not expect this limitation to have a material impact on MONOVISC’s revenue generation,
but compliance with this and any other requirements could be time consuming and costly, and our failure to comply may subject us
to significant liabilities, which could have a material adverse effect on our business, financial condition, and results of operation.
We may rely on third parties to support certain aspects
of our clinical trials. If these third parties do not successfully carry out their contractual duties or meet expected deadlines,
we may not be able to obtain regulatory approval or commercialize our products, and our business could be substantially harmed.
We have hired experienced clinical development
and regulatory staff, and we have also retained the services of knowledgeable external service providers, including consultants
and clinical research organizations, to develop and supervise our clinical trials and regulatory processes. Despite our internal
investment in staffing, we will remain dependent upon these third-party contract research organizations to carry out portions of
our clinical and preclinical research studies for the foreseeable future. As a result, we have had and will have less control over
the conduct of the clinical trials, the timing and completion of the trials, the required reporting of adverse events, and the
management of data developed through the trials than would be the case if we were relying entirely on our own staff. Outside parties
may have staffing difficulties, may undergo changes in priorities or may become financially distressed, adversely affecting their
willingness or ability to conduct our trials. Failure by these third parties to comply with regulatory requirements or to meet
timing expectations may require us to repeat clinical or preclinical trials, which would delay the regulatory approval process,
or require substantial unexpected expenditures.
We are subject to various healthcare laws and regulations,
and any failure to comply with applicable laws could subject us to significant liability and harm our business.
Our business involves substantial interaction
and collaboration with healthcare professionals, including physician consultants, clinical investigators, and actual and potential
customers. These relationships are subject to federal and state healthcare laws, as well as equivalent foreign regulations. These
statutes and regulations include, without limitation, false claims laws, anti-kickback regulations, the Foreign Corrupt Practices
Act, and the Physician Payments Sunshine Act. Any failure to comply with these laws could subject us to significant liabilities,
which could have a material adverse effect on our business, financial condition, and results of operation.
We are subject to environmental regulations and any failure
to comply with applicable laws could subject us to significant liabilities and harm our business.
We are subject to a variety of local, state,
federal, and foreign government regulations relating to the storage, discharge, handling, emission, generation, manufacture, and
disposal of toxic or other hazardous substances used in the manufacture of our products. Any failure by us to control the use,
disposal, removal, or storage of hazardous chemicals or toxic substances could subject us to significant liabilities, which could
have a material adverse effect on our business, financial condition, and results of operations.
Risks Related to Our Business and Industry
We actively explore acquisitions as a part of our future
growth strategy, which exposes us to a variety of risks that could adversely affect our business operations.
Our business and future growth strategy
includes as an important component the acquisition of businesses, technologies, services, or products that we believe are a strategic
fit with or otherwise provide value to our business. We may fund these acquisitions by utilizing our cash, incurring debt, issuing
additional shares of our common stock, or by other means. Completed acquisitions may expose us to a number of risks and expenses,
including unanticipated liabilities, amortization expenses related to intangible assets with definite lives, or risks associated
with entering new markets with which we have limited experience or where commercial alliances with experienced partners or existing
sales channels are not available. Whether or not completed, acquisitions may result in diversion of management resources otherwise
available for ongoing development of our business and significant expenditures.
We may not be able to realize the expected
benefits of any completed acquisitions, including growth synergies and cost savings from the integration of acquired businesses
or assets with our existing operations and technologies, as rapidly as expected, or at all. In addition, the integration and reorganization
processes for our acquisitions may be complex, costly, and time consuming and include unanticipated issues, expenses, and liabilities.
We may have difficulty in developing, manufacturing, and marketing the products of a newly acquired company in a manner that enhances
the performance of our combined businesses or product lines and allows us to realize value from expected synergies. Moreover, we
may lose key clients or employees of acquired businesses as a result of the change in ownership to us. Following an acquisition,
we may not achieve the revenue or net income levels that justify the acquisition. Acquisitions may also result in one-time charges,
such as write-offs or restructuring charges, impairment of goodwill or acquired In-Process Research and Development, which could
adversely affect our operating results. The failure to achieve the expected benefits of any acquisition may harm our business,
financial condition, and results of operations.
Attractive acquisition opportunities may not be available
to us.
We routinely consider the acquisition of
other businesses. However, we may not locate suitable acquisition targets or have the opportunity to make acquisitions of such
targets on favorable terms, which could negatively impact the growth of our business. In order to pursue such opportunities, we
may require significant additional financing, which may not be available to us on favorable terms, if at all. Our current or potential
competitors, many of which have significantly greater resources than we do, may compete with us to acquire compatible businesses,
which would increase the acquisition prices and could cause us to expend significant time and funds on acquisitions we are unable
to complete.
The acquisitions we have made or may make in the future
may make us the subject of lawsuits from either an acquired company’s stockholders, an acquired company’s previous
stockholders, or our current stockholders.
We may be the subject of lawsuits from either
an acquired company’s stockholders, an acquired company’s previous stockholders, or our current stockholders. These
lawsuits could result from the actions of the acquisition target prior to the date of the acquisition, from the acquisition transaction
itself, or from actions after the acquisition. Defending potential lawsuits could cost us significant expense and distract management’s
attention from the operation of the business. Additionally, these lawsuits could result in the cancellation of, or the inability
to renew, certain insurance coverage that would be necessary to protect our assets.
Customer and employee uncertainty about the effects of
any acquisitions could harm us.
Customers of any companies we acquire may,
in response to the consummation of the acquisitions, delay or defer purchasing decisions, which could adversely affect the success
of our acquired businesses. Similarly, employees of acquired companies may experience uncertainty about their future roles, which
may adversely affect our ability to attract and retain key management, sales, marketing, and technical personnel following an acquisition.
We may seek additional financing in the future, which
could be difficult to obtain and which could dilute your ownership interest or the value of your shares.
Our future capital requirements and the
adequacy of available funds will depend, however, on numerous factors, including:
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Market acceptance of our existing and future products;
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The success and sales of our products under various distributor agreements and other appropriate commercial strategies, including the ability of our partners to achieve third party reimbursement for our products;
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The successful commercialization of products in development through appropriate commercial models and marketing channels;
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Progress in our product development efforts;
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The magnitude and scope of such product development efforts;
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Any potential acquisitions of products, technologies, or businesses;
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Progress with preclinical studies, clinical trials, and product approvals and clearances by the FDA and other agencies;
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The cost and timing of our efforts to manage our manufacturing capabilities and related costs;
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The cost of filing, prosecuting, defending, and enforcing patent claims and other intellectual property rights and the cost of defending any other legal proceeding;
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Competing technological and market developments;
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The development of strategic alliances for the marketing of certain of our products;
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The terms of such strategic alliances, including provisions (and our ability to satisfy such provisions) that provide upfront and/or milestone payments to us; and
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The cost of maintaining adequate inventory levels to meet current and future product demand.
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To the extent funds generated from our operations,
together with our existing capital resources, are insufficient to meet future requirements, we will be required to obtain additional
funds through equity or debt financings, through strategic alliances with corporate partners and others, or through other sources.
The terms of any future equity financings may be dilutive to our investors and the terms of any debt financings may contain restrictive
covenants, which limit our ability to pursue certain courses of action. Our ability to obtain financing is dependent on the status
of our future business prospects as well as conditions prevailing in the relevant capital markets at the time we seek financing.
No assurance can be given that any additional financing will be made available to us or will be available on acceptable terms should
such a need arise.
Our manufacturing processes involve
inherent risks, and disruption could materially adversely affect our business, financial condition, and results of operations.
The operation of biomedical manufacturing
plants involves many risks, including the risks of breakdown, failure, or substandard performance of equipment, the occurrence
of natural and other disasters, and the need to comply with the requirements of directives of government agencies, including the
FDA. In addition, we rely on a small number of suppliers for certain key raw materials and a small number of suppliers for a number
of other materials required for the manufacturing and delivery of our HA products. Although we believe that alternative sources
for many of these and other components and raw materials that we use in our manufacturing processes are available, we cannot be
certain that the supply of key raw materials, specifically HA, will continue be available at current levels or will be sufficient
to meet our future needs. Any supply interruption could harm our ability to manufacture our products until a new source of supply
is identified and qualified. We may not be able to find sufficient alternative suppliers in a reasonable time period, or on commercially
reasonable terms, if at all, and our ability to produce and supply our products could be impaired.
We use raw materials derived from animal sources to produce
certain of our products, and there is no guarantee that we will be able to continue to utilize this source of material in the future.
Our manufacturing processes and research
and development efforts for some of our ophthalmic and veterinary products involve products derived from animals. We procure our
animal-derived raw materials from a qualified vendor, who controls for contamination and has processes that effectively inactivate
infectious agents; however, we cannot assure you that we can completely eliminate the risk of transmission of infectious agents.
Furthermore, regulatory authorities could in the future impose restrictions on the use of animal-derived raw materials that could
impact our business.
The utilization of animals in research and
development and product commercialization is subject to increasing focus by animal rights activists. The activities of animal rights
groups and other organizations that have protested animal based research and development programs or boycotted the products resulting
from such programs could cause an interruption in our manufacturing processes and research and development efforts. The occurrence
of material operational problems, including but not limited to the events described above, could have a material adverse effect
on our business, financial condition, and results of operations during the period of such operational difficulties and beyond.
We lease properties in the United States and Italy, and
there is no guarantee that these leaseholds will be without issue or sufficient to support future growth.
We lease approximately 134,000 square feet
of administrative, research and development, and manufacturing space in Bedford, MA and approximately 33,000 square feet of office,
research and development, training, and warehousing space in Padova, Italy. The current term of the Bedford lease extends to 2022,
and the current term of the Padova lease extends to 2032, each with several options for renewal. Please see
Item 2 – Properties
for additional information on our current leases. The nature of these leaseholds presents certain risks. We must maintain a
positive working relationship with the respective owners as a dispute with either owner over payment, maintenance, or any other
matter could be disruptive to our business. Additionally, there is a possibility that changes to our business or the geographic
location of the facilities could make either location less suitable to our operations. Any renegotiation or termination of either
lease could result in substantial cost or business interruption to our operations. Additionally, there is no guarantee that our
current space will be sufficient to support our future growth or that any future relocation or expansion of our operations would
be completed smoothly or in a timely manner due to, among other things, unexpected construction delays or unexpected difficulties
related to the achievement of necessary permitting. Any business disruption as a result of any of these factors could have a material
impact on our business, financial condition, and results of operations.
We may face circumstances in the future that will result
in impairment charges, including, but not limited to, goodwill impairment and In-Process Research and Development (“IPR&D”)
charges.
As of December 31, 2018, we had long-lived
assets, including goodwill and IPR&D, of $76.1 million. If the fair value of any of our long-lived assets decreases as a result
of an economic slowdown, a downturn in the markets where we sell products and services, or a downturn in our financial performance
or future outlook, we may be required to record an impairment charge on such assets.
We are required to test intangible assets
with indefinite life periods for potential impairment annually and on an interim basis if there are indicators of a potential impairment.
We also are required to evaluate amortizable intangible assets and fixed assets for impairment if there are indicators of a possible
impairment. Impairment charges could have a negative impact on our results of operations and financial position, as well as on
the market price of our common stock.
We could become subject to product liability claims, which,
if successful, could materially adversely affect our business, financial condition, and results of operations.
The testing, marketing, and sale of human
health care products entail an inherent risk of allegations of product liability, and there can be no assurance that substantial
product liability claims will not be asserted against us. Although we have not received any material product liability claims to
date and have an insurance policy of $5.0 million per occurrence and $5.0 million in the aggregate to cover such product liability
claims should they arise, there can be no assurance that material claims will not arise in the future or that our insurance will
be adequate to cover all situations. Moreover, there can be no assurance that such insurance, or additional insurance, if required,
will be available in the future or, if available, will be available on commercially reasonable terms. Any product liability claim,
if successful, could have a material adverse effect on our business, financial condition, and results of operations.
Our business is dependent upon hiring and retaining qualified
management and technical personnel.
We are highly dependent on the members of
our management and technical staff, the loss of one or more of whom could have a material adverse effect on us. We have experienced
a number of management changes in recent years, and there can be no assurances that any future management changes will not adversely
affect our business. We believe that our future success will depend in large part upon our ability to attract and retain technical
and highly skilled executive, managerial, professional, and technical personnel. We face significant competition for such personnel
from competitive companies, research and academic institutions, government entities, and other organizations. There can be no assurance
that we will be successful in hiring or retaining the personnel we require. The failure to hire and retain such personnel could
have a material adverse effect on our business, financial condition, and results of operations.
Currency exchange rate fluctuations may have a negative
impact on our reported earnings.
Approximately 5% of our business during
2018 was conducted in functional currencies other than the U.S. dollar, which is our reporting currency. Thus, currency fluctuations
among the U.S. dollar and the other currencies in which we do business have caused and will continue to cause foreign currency
transaction gains and losses. Currently, we attempt to manage foreign currency risk through the matching of assets and liabilities.
In the future, we may undertake to manage foreign currency risk through additional hedging methods. We recognize foreign currency
gains or losses arising from our operations in the period incurred. We cannot guarantee that we will be successful in managing
foreign currency risk or in predicting the effects of exchange rate fluctuations upon our future operating results because of the
variability of currency exposure and the potential volatility of currency exchange rates.
Information security breaches or business system disruptions
may adversely affect our business.
We rely on our information technology infrastructure
and management information systems to effectively run our business. While we have not previously experienced a material information
security breach caused by illegal hacking, computer viruses, or acts of vandalism or terrorism, we may in the future be subject
to such a breach. Our security measures or those of our third-party service providers may not detect or prevent such breaches.
Any such compromise to our information security could result in an interruption in our operations, the unauthorized publication
of our confidential business or proprietary information, the unauthorized release of customer, vendor, or employee data, the violation
of privacy, including under the GDPR recently promulgated in the European Union, or other laws and exposure to litigation, any
of which could harm our business and operating results.
Risks Related to Our Intellectual Property
We may be unable to adequately protect our intellectual
property rights, which could have a material impact on our business and future financial results.
Our efforts to enforce our intellectual
property rights may not be successful. We rely on a combination of copyright, trademark, patent, and trade secret laws, confidentiality
procedures, and contractual provisions to protect our proprietary rights. Our success will depend, in part, on our ability to obtain
and enforce patents and trademarks, to protect trade secrets, to obtain licenses to technology owned by third parties when necessary,
and to conduct our business without infringing on the proprietary rights of others. The patent positions of pharmaceutical, medical
product, and biotechnology firms, including ours, can be uncertain and involve complex legal and factual questions. There can be
no assurance that any patent applications will result in the issuance of patents or, if any patents are issued, that they will
provide significant proprietary protection or commercial advantage or will not be circumvented by others. Filing and prosecution
of patent applications, litigation to establish the validity and scope of patents, assertion of patent infringement claims against
others, and the defense of patent infringement claims by others can be expensive and time consuming. There can be no assurance
that, in the event that any claims with respect to any of our patents, if issued, are challenged by one or more third parties,
any court or patent authority ruling on such challenge will determine that such patent claims are valid and enforceable. An adverse
outcome in such litigation or patent review process could cause us to lose exclusivity covered by the disputed rights. If a third
party is found to have rights covering products or processes used by us, we could be forced to cease using the technologies or
marketing the products covered by such rights, we could be subject to significant liabilities to such third party, and we could
be required to license technologies from such third party in order to continue production of the products. Furthermore, even if
our patents are determined to be valid, enforceable, and broad in scope, there can be no assurance that competitors will not be
able to design around such patents and compete with us using the resulting alternative technology. We have a policy of seeking
patent protection for patentable aspects of our proprietary technology. We intend to seek patent protection with respect to products
and processes developed in the course of our activities when we believe such protection is in our best interest and when the cost
of seeking such protection is not inordinate. However, no assurance can be given that any patent application will be filed, that
any filed applications will result in issued patents, or that any issued patents will provide us with a competitive advantage or
will not be successfully challenged by third parties. The protections afforded by patents will depend upon their scope and validity,
and others may be able to design around our patents.
We also rely upon trade secrets and proprietary
know-how for certain non-patented aspects of our technology. To protect such information, we require all employees, consultants,
and licensees to enter into confidentiality agreements limiting the disclosure and use of such information. There can be no assurance
that these agreements provide meaningful protection or that they will not be breached, that we would have adequate remedies for
any such breach, or that our trade secrets, proprietary know-how, and our technological advances will not otherwise become known
to others. In addition, there can be no assurance that, despite precautions taken by us, others have not and will not obtain access
to our proprietary technology. Further, there can be no assurance that third parties will not independently develop substantially
equivalent or better technology.
There can be no assurance that we will not infringe upon
the intellectual property rights of others, which could have a significant impact on our business and financial results.
Other entities have filed patent applications
for, or have been issued patents concerning, various aspects of HA-related products or processes, including in the segments in
which we do business. There can be no assurance that the products or processes developed by us will not infringe on the patent
rights of others in the future. The cost of defending infringement suits is typically large, and there is no guarantee that any
future defense would be successful. In addition, infringement could lead to substantial damages payouts or our inability to produce
or market certain of our current or future products. As a result, any such infringement may have a material adverse effect on our
business, financial condition, and results of operations.
Risks Related to Ownership of Our Common
Stock
Our stock price may be highly volatile,
and we cannot assure you that market making in our common stock will continue.
The market price of shares of our common
stock may be highly volatile. Factors such as announcements of new commercial products or technological innovations by us or our
competitors, disclosure of results of clinical testing or regulatory proceedings, government regulation and approvals, developments
in patent or other proprietary rights, public concern as to the safety of products developed by us, and general market conditions
may have a significant effect on the market price of our common stock. The trading price of our common stock could be subject to
wide fluctuations in response to quarter-to-quarter variations in our operating results, material announcements by us or our competitors,
governmental regulatory action, conditions in the health care industry generally or in the medical products industry specifically,
or other events or factors, many of which are beyond our control. In addition, the stock market has experienced extreme price and
volume fluctuations, which have particularly affected the market prices of many medical products companies and which often have
been unrelated to the operating performance of such companies. Our operating results in future quarters may be below the expectations
of equity research analysts and investors. In such an event, the price of our common stock would likely decline, perhaps substantially.
If securities or industry analysts
do not publish or cease publishing research or reports about us, our business, or our market, or if they adversely change their
recommendations regarding our stock, our stock price and trading volume could decline.
The trading market
for our common stock is influenced by the research and reports that securities or industry analysts may publish about us, our business,
our market, or our competitors. No person is under any obligation to publish research or reports on us, and any person publishing
research or reports on us may discontinue doing so at any time without notice. If adequate research coverage is not maintained
on our company or if any of the analysts who cover us downgrade our stock or publish inaccurate or unfavorable research about our
business or provide relatively more favorable recommendations about our competitors, our stock price would likely decline. If any
analysts who cover us were to cease coverage of our company or fail to regularly publish reports on us, we could lose visibility
in the financial markets, which in turn could cause our stock price or trading volume to decline.
We currently do not intend to pay dividends on our common
stock in the foreseeable future.
We have never declared or paid any cash
dividends on our common stock. We currently intend to retain earnings, if any, for use in our business and do not anticipate paying
cash dividends on our common stock in the foreseeable future. Accordingly, investors are not likely to receive any dividends on
their common stock in the foreseeable future, and their ability to achieve a return on their investment will therefore depend on
appreciation in the price of our common stock.
Our charter documents contain anti-takeover provisions
that may prevent or delay an acquisition of our company.
Our charter documents continue to contain
anti-takeover provisions that could prevent or delay an acquisition of our company. The provisions include, among others, a classified
board of directors, advance notice to the board of stockholder proposals, limitations on the ability of stockholders to remove
directors and to call stockholder meetings, and a provision that allows vacancies on the Board of Directors to be filled by vote
of a majority of the remaining directors. We are also subject to Section 203 of the Delaware General Corporate Law which, subject
to certain exceptions, prohibits a Delaware corporation from engaging in any of a broad range of business combinations with any
“interested stockholder” for a period of three years following the date that such stockholder becomes an interested
stockholder. Those provisions could have the effect of discouraging a third party from pursuing a non-negotiated takeover of our
company at a price considered attractive by many stockholders and could have the effect of preventing or delaying a potential acquirer
from acquiring control of our company.