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LEGAL PROCEEDINGS
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We are not a party to any
material pending or threatened litigation.
RISKS RELATED TO OUR BUSINESS
We have a limited history of operations and a history of net losses, and we may not be able to achieve profitability even if we are able to generate
significant revenues.
We have a limited history of operations upon which you can evaluate our business. We began selling our first
products in 2002 and fully launched our flagship product, the EnCor system, in November 2005. We incurred net losses of $8.6 million in 2005, $15.4 million in 2006, and $5.9 million in the nine months ended September 30, 2007, and, as of that
date, had an accumulated deficit of approximately $71.5 million. In addition, we expect our operating expenses to increase as we expand our business to meet anticipated increased demand for our EnCor system, and prepare for the full
commercialization of the Contura MLB Catheter and devote resources to our sales and marketing and research and development activities. In order for us to become profitable, we believe that our EnCor system must be widely adopted. We cannot assure
you that we will be able to achieve or sustain profitability even if we are able to generate significant revenues. Our failure to achieve and sustain profitability would negatively impact the market price of our common stock and require us to obtain
additional funding.
Our success depends upon market adoption of our EnCor system, without which our results of operations will suffer.
We have historically derived our revenue primarily from our tissue marker products. However, our EnCor system, launched in November 2005, accounts for
a majority of our revenue growth, and we expect this to continue for the foreseeable future. Our ability to meet this expectation is based upon a number of assumptions, including:
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the adequacy of third-party reimbursement for the minimally invasive procedures in which EnCor is used;
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the market for minimally invasive breast biopsy procedures will continue to grow;
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we will be able to demonstrate compelling clinical data supporting EnCors safety and effectiveness;
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key features of EnCor will represent compelling technological advancements to potential users;
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EnCor will be endorsed by key opinion leaders; and
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physicians who specialize in breast care will rapidly adopt EnCor.
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Even if we are able to present potential customers with compelling clinical data, technological advancements or influential user experiences, they may be reluctant to switch from a competing device to which they have
grown accustomed. We may not be successful in our near-term strategy of marketing EnCor to our existing customer base of tissue marker users, and users of our earlier vacuum-assisted breast biopsy system, our SenoCor 360. Our commercial success also
depends on the continued general market shift to less invasive biopsy procedures. Failure of EnCor to be widely adopted would significantly harm our future financial performance.
Our future success will depend in part upon our ability to successfully commercialize our Contura MLB Catheter.
We expect our Contura MLB Catheter, which we received FDA 510(k) clearance in May 2007, to rapidly become a significant contributor to our revenues. The Contura MLB Catheter development has been completed but there
remains significant challenges that must be overcome before it can be fully commercialized, including:
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we have limited experience selling to radiological oncologists, the primary market for this product;
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protecting it with intellectual property rights;
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obtaining adequate third-party reimbursement;
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producing compelling clinical data on safety and effectiveness;
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partnering, as necessary, with suppliers; and
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manufacturing it consistently within our specifications and in accordance with the FDAs Quality System Regulations.
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If we are able to overcome these challenges, we may nevertheless be unable to convince potential customers that the Contura MLB Catheter represents a compelling
alternative to competing products. Our commercial success will also depend on a general market shift from whole to partial breast radiation. Our long-term commercialization experience with the Contura MLB Catheter could be significantly below
expectations or not achieved at all, which would have a material adverse effect on our future financial performance.
We have limited clinical data
regarding the safety and efficacy of our products. If future data or clinical experience is negative, we may lose significant market share.
Our success depends on the acceptance of our products by the medical community as safe and effective. Physicians that may be interested in using our products may hesitate to do so without long-term data on safety and efficacy. The limited
clinical studies on some of our products that have been published or presented as abstracts at major medical meetings typically have been based on the work of a small number of physicians examining small patient populations over relatively short
periods. Accordingly, the results of these clinical studies do not necessarily predict long-term clinical results, or even short-term clinical results from the broader physician community. If future safety or efficacy data or clinical experience is
negative, we may lose significant market share.
We compete against companies that have more established products and greater resources, which may
prevent us from achieving significant market penetration or improved operating results.
Many of our products compete, and our future
products may compete, against products that are more established and accepted within our target markets. With fewer resources and operating history than many of our competitors and potential future competitors, and a less-established reputation, it
may be difficult for our products to gain significant market penetration. We may be unable to convince physicians to switch their practice away from competing devices. Competing effectively will require us to distinguish our company and our products
from our competitors and their products, and turns on factors such as:
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ease of use and performance;
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quality and scale of our sales and marketing efforts;
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our ability to offer a broad portfolio of products across the continuum of breast care;
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establishing a strong reputation through compelling clinical study publications and endorsements from influential physicians; and
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brand and name recognition.
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Competition could result in price-cutting, reduced profit margins and loss of market share, any of which could have a
material adverse effect on our results of operations. In addition, our competitors with greater financial resources could acquire other companies that would enhance their name recognition and market share, and allow them to compete more effectively
by bundling together related products. For example one competitor provides incentives for the purchase of its biopsy capital equipment and disposables when purchased with its digital mammography and stereotactic tables. Certain potential customers
may view this value proposition as attractive, which could result in their decision not to purchase our products. We also anticipate that new products and improvements to existing products could be introduced that would compete with our current and
future products. If we are unable to compete effectively, we will not be able to generate expected sales and our future financial performance will suffer.
Our ability to compete depends upon our ability to innovate, develop and commercialize new products and product enhancements.
The markets in which we compete involve rapid and substantial technological development and product innovations. There are few barriers to prevent new entrants or existing competitors from developing or acquiring products or technological
improvements that compete effectively against our products or technology. If we are unable to innovate successfully to anticipate or respond to competitive threats, obtain regulatory approvals, or protect such innovation with defensible intellectual
property, our revenues could fail to grow or could decline. Our business strategy is in part based upon our expectation that we will continue to make frequent new product introductions and improvements to existing products that will be demanded by
our target customers. If we are unable to continue to develop new products and technologies as anticipated, our ability to grow and our future financial performance could be materially harmed. For example, we recently received 510(k) clearance from
the FDA for our new SenoSonix System, an integration of Encor with ultra sound technology from Ultrasonix Medical Corporation of Canada. We have yet to commercially launch this product and there can be no assurances that we will be successful in
obtaining meaningful revenues once it has been commercialized.
Our business strategy is heavily focused on integrated breast centers and other large
institutions.
We are focusing our sales efforts on becoming a preferred provider to integrated breast centers and other large customer
accounts. We cannot assure you that we will be able to secure or maintain these accounts or that this strategy will maximize our revenue growth. These targeted customers often have a rigorous and lengthy qualification process for approving new
vendors and products. Additionally, breast centers are in many cases not located at one physical location, but instead involve the coordinated efforts of various geographically dispersed offices and physicians, which may complicate the qualification
process and may strain our sales and support organizations. Further, these customers have not entered, and we do not expect them in the future to enter, long-term contracts to purchase our products. Therefore, obtaining approval from these potential
customers to sell them our products may not result in significant or long-term sales of our products to them. Our strategy of focusing on large institutions may result in relatively few customers contributing a significant amount to our revenues.
For example, Kaiser Permanente is our largest customer, and in the year ended December 31, 2006, and quarter ended September 30, 2007, represented approximately 7.6% and 5.2%, respectively, of our total revenues. We cannot assure you that
Kaiser or other customer accounts will continue to purchase our products. The loss of any of these customers could have a material adverse impact on our results of operations.
Our strategy of providing a broad array of products to the breast care market may be difficult to achieve, given our size and limited resources.
We aim to be an attractive and convenient supplier for integrated breast centers by offering a broad product line of minimally invasive devices for breast
care specialists. Commercializing several product lines simultaneously may be difficult because we are a relatively small company. Additionally, offering a broad product line will require us to manufacture, sell and support some products that are
not as profitable or in as high demand as some of our other products, which could have a material adverse effect on our overall results of operations. To succeed in our approach, we will need to grow our organization considerably and enhance our
relationships with third-party manufacturers and suppliers. If we fail to make product introductions successfully or in a timely manner because we lack resources, or if we fail to adequately manufacture, sell and support our existing products, our
reputation may be negatively affected and our results of operations could be materially harmed.
We believe that demand for minimally invasive products
for the diagnosis and treatment of breast cancer must grow in order for our business to grow as anticipated.
While there have been
trends in recent years that favor increased screening, diagnosis and treatment of breast cancer, these trends may not continue. For example, the incidence of breast cancer in the United States appears to have fallen from its highest level over the
last few years. Additionally, while the number of breast biopsies performed annually has increased significantly since 1997 when the American Cancer Society updated its guidelines for breast cancer screening, recommending that women should begin
annual screening at age 40 rather than the previously recommended age 50, new
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guidance could be published that could support a reversal of this trend. Some studies conclude that annual breast cancer screening by mammography for women
under age 50 may be more harmful, due to increased radiation exposure, than beneficial. These factors, in addition to possible future innovations in screening technologies or in breast cancer treatment options, could result in a decline in breast
biopsy procedures and radiation therapy, which could reduce our overall market.
We have limited sales and marketing experience and failure to build and
manage our sales force or to market and distribute our products effectively could have a material adverse effect on our results of operations.
We rely on a direct sales force to sell our products. In order to meet our anticipated sales objectives, we expect to grow our sales organization significantly over the next several years. There are significant risks involved in building
and managing our sales organization, including our ability to:
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hire and successfully integrate qualified individuals as needed;
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provide adequate training for the effective sale of our products; and
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retain and motivate our sales employees.
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We expect
that our Contura MLB Catheter will be a principal driver of future growth. However, our sales force historically has primarily sold diagnostic products and therefore has limited experience selling a therapeutic device. Our Contura MLB Catheter
competes with products that are well-established. Accordingly, it is difficult for us to predict how well our sales force will perform.
Our failure to adequately address these risks could have a material adverse effect on our ability to sell our products, causing our revenues to be lower than expected and harming our results of operations.
We may be subject in the future to costly claims of infringement or misappropriation of the intellectual property rights of others, which could impact our business
and harm our operations.
Our industry has been characterized by frequent demands for licenses and litigation. Our competitors,
potential competitors or other patent holders may, in the future, assert that our products and the methods we employ are covered by their patents or misappropriate their intellectual property. In addition, we do not know whether our competitors will
apply for and obtain patents that will prevent, limit or interfere with our ability to make, use, sell or import our products. Because patent applications may take years to issue, there may be applications now pending of which we are unaware that
may later result in issued patents that our products infringe. There also could be existing patents that one or more components of our systems may inadvertently infringe. Although we may seek to settle any future claims, we may not be able to do so
on reasonable terms, or at all. If we lose a claim against us, we may be ordered to pay substantial damages, including compensatory damages, which may be trebled in certain circumstances, plus prejudgment interest. We also could be enjoined,
temporarily, preliminarily or permanently, from making, using, selling, offering to sell or importing our products or technologies essential to our products, which could significantly harm our business and operating performance.
We may become involved in litigation not only as a result of alleged infringement of a third partys intellectual property rights but also to
protect our own intellectual property. Enforcing our patent rights against infringers, even when such litigation is resolved in our favor, could involve substantial costs and divert managements attention from our core business and harm our
reputation.
If we are unable to obtain and maintain intellectual property protection covering our products, others may be able to make, use or sell our
products, which could have a material adverse effect on our business and results of operations.
We rely on patent, copyright, trade
secret and trademark laws and confidentiality agreements to protect our technology, products and our competitive position in the market. Additionally, our patent applications, including those covering our EnCor system, may not result in patents
being issued to us or, if they are issued, may not be in a form that is advantageous to us. Any patents we obtain may be challenged or invalidated by third parties. Competitors also may design around our protected technology or develop their own
technologies that fall outside our intellectual property rights. In addition, we may not be able to prevent the unauthorized disclosure or use of our technical knowledge or other trade secrets by consultants, vendors, former employees or current
employees, despite the existence of confidentiality agreements and other contractual restrictions. Monitoring unauthorized uses and disclosures of our intellectual property is difficult, and we cannot be certain that the steps we have taken to
protect our intellectual property will be effective or that any remedies we may have in these circumstances would be adequate. Moreover, the laws of foreign countries may not protect our intellectual property rights to the same extent as the laws of
the United States.
We may not have adequate intellectual property protection for some of our products and products under development and
consequently may need to obtain licenses from third parties. For example, we believe that we may need to obtain a third-party license related to our Guided Electrosurgical Dissection, or GED, device, which is currently under development. If we are
unable to negotiate a license on terms acceptable to us, we may be unable to market our GED device unless we redesign it, which could have a material adverse effect on our future results of operations.
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We are dependent on sole-source and single-source suppliers for certain of our products and components, thereby
exposing us to supply interruptions that could have a material adverse effect on our business.
We have one product and several
components of other products that we obtain from sole suppliers. We rely on one vendor for our Gamma Finder product, one vendor for our biopsy probe motors and one vendor for a biopsy probe coating. Other products and components come from single
suppliers, but alternate suppliers are easier to identify. However, in many of these cases we have not yet qualified alternate suppliers and rely upon purchase orders, rather than longer-term supply agreements. We also do not carry a significant
inventory of most components used in our products and generally could not replace our suppliers without significant effort and delay in production. In addition, switching components may require product redesign and new regulatory clearances by the
FDA, either of which could significantly delay or prevent production and involve substantial costs.
Reliance on third-party vendors may
lead to unanticipated interruptions in supply or failure to meet demand on a timely basis. Any supply interruption from our vendors or failure to obtain additional vendors for any of the components could limit our ability to manufacture our products
and fulfill customer orders on a timely basis, which could harm our reputation and revenues.
We have limited experience manufacturing certain
components of our products in significant quantities, which could adversely impact the rate at which we grow.
We may encounter
difficulties in manufacturing relating to our products and products under development for the following reasons:
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our limited experience in manufacturing such products in significant quantities and in compliance with the FDAs Quality System Regulation;
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to increase our manufacturing output significantly, we will have to attract and retain qualified employees, who are in short supply, for the manufacturing, assembly
and testing operations; and
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some of the components and materials that we use in our manufacturing operations are currently provided by sole and single sources of supply.
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Our limited manufacturing experience has in the past resulted in unexpected and costly delays. For example, in 2006, as
a part of our settlement of litigation with Suros Surgical Systems (now a wholly-owned subsidiary of Hologic), we implemented a redesign to the EnCor system cutter. This effort resulted in a short-term decrease in yields and a delay in implementing
certain cost improvements, which had an adverse effect on our costs of goods sold. In addition, although we believe that our current manufacturing capabilities will be adequate to support our commercial manufacturing activities for the foreseeable
future, we may be required to expand our manufacturing facilities if we experience faster-than-expected growth. If we are unable to provide customers with high-quality products in a timely manner, we may not be able to achieve wide market adoption
for our EnCor system or other products and products under development. Our inability to successfully manufacture or commercialize our devices could have a material adverse effect on our product sales.
We rely on third-party manufacturers for certain components, and the loss of any of these manufacturers, or their inability to provide us with an adequate supply of
high-quality components, could have a material adverse effect on our business.
Although we manufacture certain components and assemble
some of our products at our corporate headquarters in Aliso Viejo, California, we rely on third parties to manufacture most of the components of our products and are in the process of transferring additional manufacturing and assembly to our
Thailand contract manufacturer. Some of these relationships are new and we have not had experience with their large commercial-scale manufacturing capabilities. For example, since the end of 2005, we have been transferring a portion of our
manufacturing operations to a third party in Thailand. Because of the distance between California and Thailand, we may have difficulty adequately supervising and supporting its operations. There are several risks inherent in relying on third-party
manufacturers, including:
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failure to meet our requirements on a timely basis as demand grows for our products;
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errors in manufacturing components that could negatively affect the performance of our products, cause delays in shipment of our products, or lead to malfunctions
or returns;
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inability to manufacture products to our quality specifications and strictly enforced regulatory requirements;
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inability to implement design modifications that we develop in the future;
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unwillingness to negotiate a long-term supply contract that meets our needs or to supply components on a short-term basis on commercially reasonable terms;
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prioritization of other customers orders over ours; and
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inability to fulfill our orders due to unforeseen events, including foreign political events, that result in a disruption of their operations.
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If a manufacturer fails to meet our needs with high-quality products on a timely basis, we may be unable to meet customer demand, which
could have a material adverse effect on our reputation and customer relationships.
Changes in coverage and reimbursement for procedures using our
products could affect the adoption of our products and our future revenues.
Breast biopsy procedures and markers are typically
reimbursed by third-party payors, including Medicare, Medicaid and private healthcare insurance companies. These payors may adversely change their coverage amounts and reimbursement policies. Also, healthcare reform legislation or regulation may be
proposed or enacted in the future that adversely affects these policies and amounts. For example, the Federal Deficit Reduction Act of 2006 may in the future affect future reimbursement rates for our vacuum assisted biopsy products and Contura MLB
Catheter products. We cannot assure you that the current scope of coverage or levels of reimbursement will continue to be available or that coverage of, or reimbursement for, our products will be available at all. If physicians, hospitals and other
providers are unable to obtain adequate reimbursement for our current products or future products, or for the procedures in which such products are used, they may be less likely to purchase the products, which could have a material adverse impact on
our market share.
Any acquisitions that we make could disrupt our business and have an adverse effect on our financial condition.
We expect that in the future we may identify and evaluate opportunities for strategic acquisitions of complementary product lines, technologies or
companies. We may also consider joint ventures and other collaborative projects. However, we may not be able to identify appropriate acquisition candidates or strategic partners, or successfully negotiate, finance or integrate any businesses,
products or technologies that we acquire. Furthermore, the integration of any acquisition and the management of any collaborative project may divert managements time and resources from our core business and disrupt our operations. We do not
have any experience with acquiring other product lines, technologies or companies. We may spend time and money on projects that do not increase our revenues. Any cash acquisition we pursue would diminish the funds available to us for other uses, and
any stock acquisition would be dilutive to our stockholders.
Our financial controls and procedures may not be sufficient to ensure timely and reliable
reporting of financial information, which, as a public company, could materially harm our stock price and NASDAQ listing.
As a public
company, we will require greater financial resources than we have had as a private company. We will need to hire additional employees for our finance department. We cannot provide you with assurance that our finance department has or will maintain
adequate resources to ensure that we will not have any future material weakness in our system of internal controls. The effectiveness of our controls and procedures may in the future be limited by a variety of factors including:
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faulty human judgment and simple errors, omissions or mistakes;
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fraudulent action of an individual or collusion of two or more people;
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inappropriate management override of procedures; and
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the possibility that any enhancements to controls and procedures may still not be adequate to assure timely and accurate financial information.
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If we fail to have effective controls and procedures for financial reporting in place, we could be unable to provide timely and accurate
financial information and be subject to NASDAQ delisting, SEC investigation, and civil or criminal sanctions.
Product liability claims may lead to
expensive and time-consuming litigation, substantial damages, increased insurance rates, and may have a material adverse effect on our financial condition.
Our business exposes us to potential product liability claims that are inherent in the manufacturing, marketing and sale of medical devices. For example, in the past we experienced, and in the future could experience,
an issue related to the tip of our Gel Mark Ultra Biopsy Site Marker shearing off in the patients breast during the biopsy procedure, which could lead to a claim of damages, though none has previously been made. We may be unable to avoid
product liability claims, including those based on manufacturing defects or claims that the use, misuse or failure of our products resulted in a misdiagnosis or harm to a patient. Although we believe that our liability coverage is adequate for our
current needs, and while we intend to expand our product liability insurance coverage to any products we intend to commercialize, insurance may be unavailable,
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prohibitively expensive or may not fully cover our potential liabilities. If we are unable to maintain sufficient insurance coverage on reasonable terms or
to otherwise protect against potential product liability claims, we may be unable to continue to market our products and to develop new products. Defending a product liability lawsuit could be costly and have a material adverse effect on our
financial condition, as well as significantly divert managements attention from conducting our business. In addition, product liability claims, even if they are unsubstantiated, may damage our reputation by raising questions about our
products safety and efficacy, which could materially adversely affect our results of operations, interfere with our efforts to market our products and make it more difficult to obtain commercial relationships necessary to maintain our
business.
We may be adversely affected by the impact of environmental and safety regulations.
We are subject to federal, state, local and foreign laws and regulations governing the protection of the environment and occupational health and safety,
including laws regulating the disposal of hazardous wastes and the health and safety of our employees. We may be required to obtain permits from governmental authorities for certain operations. If we violate or fail to comply with these laws and
regulations, we could incur fines, penalties or other sanctions, which could adversely affect our business and our financial condition and cause our stock price to decline. We also may incur material expenses in the future relating to compliance
with future environmental laws. In addition, we could be held responsible for substantial costs and damages arising from any contamination at our present facilities or third-party waste disposal sites. We cannot completely eliminate the risk of
contamination or injury resulting from hazardous materials, and we may incur material liability as a result of any contamination or injury.
Our success
will depend on our ability to attract and retain key personnel, particularly members of management and scientific staff.
We believe our
future success will depend upon our ability to attract and retain employees, including members of management, engineers and other highly skilled personnel. Our employees may terminate their employment with us at any time. Hiring qualified personnel
may be difficult due to the limited number of qualified professionals and the fact that competition for these types of employees is intense. If we fail to attract and retain key personnel, we may not be able to execute our business plan.
We may be unsuccessful in our long-term goal of expanding our product offerings outside the United States and Canada.
For both the year ended December 31, 2006 and for the quarter ended September 30, 2007, we derived approximately 95% of our net revenues from
sales within the United States and Canada. We have entered into distribution agreements with third parties outside the United States and Canada, but do not anticipate sales of our products through these distributors becoming a significant portion of
our revenues in the foreseeable future. If we do begin to offer our products more broadly outside the United States and Canada, we expect that we will remain dependent on third-party distribution relationships and will need to attract additional
distributors to increase the number of territories in which we sell our products. Distributors may not commit the necessary resources to market and sell our products to the level of our expectations. If current or future distributors do not perform
adequately, or we are unable to locate distributors in particular geographic areas, our ability to realize long-term international revenue growth could be materially adversely affected.
Although some of our products have regulatory clearances and approvals from jurisdictions outside the United States and Canada, many do not. These
products may not be sold in these jurisdictions until the required clearances and approvals are obtained. We cannot assure you that we will be able to obtain these clearances or approvals on a timely basis, or at all. In Japan, recent changes in the
laws and regulations governing the approval process for medical devices has made it unlikely that we will be able to obtain approvals for our products within the foreseeable future.
Our ability to use net operating loss carryforwards may be limited.
Section 382 of the Internal
Revenue Code generally imposes an annual limitation on the amount of net operating loss carryforwards that may be used to offset taxable income when a corporation has undergone significant changes in its stock ownership. We have internally reviewed
the applicability of the annual limitations imposed by Section 382 caused by previous changes in our stock ownership and believe such limitations should not be significant. Future ownership changes, including changes resulting from or affected
by our IPO, may adversely affect our ability to use our remaining net operating loss carryforwards. If our ability to use net operating loss carryforwards is limited, we may be subject to tax on our income earlier than we would otherwise be had we
been able to fully utilize our net operating loss carryforwards.
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Risks Related to Regulatory Matters
The FDA may find that we do not comply with regulatory requirements and take action against us.
Our
products and facilities are subject to periodic unannounced inspections by the FDA and other regulatory bodies. In particular, we are required to comply with the FDAs Quality System Regulations, or QSRs, and other regulations, which cover the
methods and documentation of the design, testing, production, control, quality assurance, labeling, packaging, storage, shipping and post-market surveillance of our products.
We underwent an inspection of our facilities by the FDA in April 2005, which resulted in the issuance in July 2005 of a Warning Letter from the FDA
related to, among other things, our failure to adequately validate manufacturing changes we undertook to prevent the tip of the Gel Mark Ultra Biopsy Site Marker from shearing off in the patients breast during the biopsy procedure, which we
had experienced. The letter required us to take prompt action to strengthen our Quality System and product engineering area. We responded to the FDA with a comprehensive corrective action plan in August 2005. We believe we are in compliance with the
QSRs. However, during a future inspection, the FDA may determine that we have failed to adequately or completely implement the corrective action plan or may find additional material violations. Such a determination could lead the FDA to commence an
enforcement action against us, which may include the following sanctions:
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injunctions, fines, other civil penalties or additional Warning Letters;
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the refusal of, or delay by, the FDA in granting further 510(k) clearances or approving further premarket approval applications;
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suspension or withdrawal of our FDA clearances or approvals;
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operating restrictions, including total or partial suspension of production, distribution, sales and marketing of our products; or
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product recalls, product seizures or criminal prosecution of our company, our officers or our employees.
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Any of these could have a material adverse effect on our reputation, results of operation and financial condition.
If we fail to obtain or maintain necessary FDA clearances or approvals for products, or if clearances or approvals are delayed, we will be unable to commercially
distribute and market our products in the United States.
Our products are medical devices, and as such are subject to extensive
regulation in the United States and in the foreign countries where we do business. Unless an exemption applies, each medical device that we wish to market in the United States must first receive 510(k) clearance or premarket approval from the FDA.
Either process can be lengthy and expensive. The FDAs 510(k) clearance process usually takes from three to twelve months from the date the application is complete, but it may take longer. The premarket approval process is much more costly,
lengthy and uncertain. It generally takes from one to three years from the date the application is completed or even longer. Achieving a completed application is a process that may require numerous clinical trials and the filing of amendments over
time. We expect that our products in the foreseeable future will be subject to 510(k) procedures and not premarket approval, or PMA, applications. We may not be able to obtain additional FDA clearances or approvals in a timely fashion, or at all.
Delays in obtaining clearances or approvals could adversely affect our revenues and profitability.
Modifications to our devices may require new 510(k)
clearances, which may not be obtained.
The FDA requires device manufacturers to initially make and document a determination of whether
or not a modification requires a new clearance; however, the FDA can review a manufacturers decision. Any modifications to an FDA-cleared device that could significantly affect its safety or effectiveness, or that would constitute a major
change in its intended use would require a 510(k) clearance or possibly a premarket approval.
We have modified aspects of some of our
products since receiving FDA clearance, but we believe that new 510(k) clearances are not required. We may make additional modifications, and in appropriate circumstances, determine that new clearance or approval is unnecessary. The FDA may not
agree with our decisions not to seek new clearances or approvals. If the FDA requires us to seek 510(k) clearances or approval for any modifications to a previously cleared product, we may be required to cease marketing or recall the modified device
until we obtain clearance or approval. Also, in these circumstances we may be subject to adverse publicity, regulatory Warning Letters and significant fines and penalties.
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Government regulation imposes significant restrictions and costs on the development and commercialization of our
products.
Any products cleared or approved by the FDA are subject to on-going regulation. Any discovery of previously unknown or
unrecognized problems with the product or a failure of the product to comply with any applicable regulatory requirements can result in, among other things:
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Warning Letters, injunctions, fines or other civil penalties;
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the refusal of, or delay by, the FDA in granting further 510(k) clearances or approving further premarket approval applications;
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suspension or withdrawal of our FDA clearances or approvals;
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operating restrictions, including total or partial suspension of production, distribution, sales and marketing of our products; or
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product recalls, product seizures or criminal prosecution of our company, our officers or our employees.
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Any of these could have a material adverse effect on our reputation and results of operations.
Risks Related to the Securities Markets and Ownership of Our Common Stock
Our common stock
has been publicly traded for a short time and an active trading market may not be sustained.
Prior to March 2007, there had been no
public market for our common stock. An active trading market may not be sustained. The lack of an active market may impair the value of your shares and your ability to sell your shares at the time you wish to sell them. An inactive market may also
impair our ability to raise capital by selling shares and may impair our ability to acquire other companies, products or technologies by using our shares as consideration.
If our public guidance or our future operating performance does not meet investor expectations, our stock price could decline.
As a public company, we provide guidance to the investing community regarding our anticipated future operating performance. Our business typically has a short sales cycle, so that we do not have significant backlog of
orders at the start of a quarter, and our ability to sell our products successfully is subject to many uncertainties. In light of these factors, it is difficult for us to estimate with accuracy our future results. Our expectations regarding these
results will be subject to numerous risks and uncertainties that could make actual results differ materially from those anticipated. If our actual results do not meet our public guidance or our guidance or actual results do not meet the expectations
of third-party financial analysts, our stock price could decline significantly.
We expect that the price of our common stock will fluctuate
substantially.
The market price of our common stock is likely to be highly volatile and may fluctuate substantially due to many
factors, including:
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volume and timing of sales of our products;
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the introduction of new products or product enhancements by us or our competitors;
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disputes or other developments with respect to our intellectual property rights or the intellectual property rights of others;
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our ability to develop, obtain regulatory clearance or approval for, and market, new and enhanced products on a timely basis;
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product liability claims or other litigation;
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quarterly variations in our or our competitors results of operations;
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sales of large blocks of our common stock, including sales by our executive officers and directors;
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announcements of technological or medical innovations for the diagnosis and treatment of breast cancer;
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changes in governmental regulations or in the status of our regulatory approvals or applications;
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changes in the availability of third-party reimbursement in the United States or other countries;
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changes in earnings estimates or recommendations by securities analysts; and
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general market conditions and other factors, including factors unrelated to our operating performance or the operating performance of our competitors.
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These and other factors may make the price of our stock volatile and subject to unexpected fluctuation.
Our directors, executive officers and principal stockholders have significant voting power and may take actions that may not be in the best interests of our other
stockholders.
Our officers, directors and principal stockholders that currently hold more than 5% of our common stock together control
nearly a majority of our outstanding common stock. As a result, these stockholders, if they act together, will be able to exercise significant influence over the management and affairs of our company and all matters requiring stockholder approval,
including the election of directors and approval of significant corporate transactions. This concentration of ownership may have the effect of delaying or preventing a change in control, might have a material adverse effect on the market price of
our common stock and may not be in the best interest of our other stockholders.
A sale of a substantial number of shares of our common stock may cause
the price of our common stock to decline.
As of September 30, 2007, approximately 10,782,635 shares of common stock have become
eligible for sale following the expiration of lock-up arrangements with our stockholders that we had previously entered into in connection with our IPO. If our stockholders sell substantial amounts of our common stock in the public, the market price
of our common stock could decline.
Our Amended and Restated Certificate of Incorporation and Bylaws, and Delaware law, contain provisions that could
discourage a takeover.
Our Amended and Restated Certificate of Incorporation and Bylaws, and Delaware law, contain provisions that
might enable our management to resist a takeover, and might make it more difficult for an investor to acquire a substantial block of our common stock. These provisions include:
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a classified board of directors;
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advance notice requirements to stockholders for matters to be brought at stockholder meetings;
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a supermajority stockholder vote requirement for amending certain provisions of our Amended and Restated Certificate of Incorporation and Bylaws;
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limitations on stockholder actions by written consent; and
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the right to issue preferred stock without stockholder approval, which could be used to dilute the stock ownership of a potential hostile acquirer.
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These provisions might discourage, delay or prevent a change in control of our company or a change in our management. The existence of
these provisions could adversely affect the voting power of holders of our common stock and limit the price that investors might be willing to pay in the future for shares of the common stock.
We do not intend to pay cash dividends.
We have
never declared or paid cash dividends on our capital stock. We currently intend to retain all available funds and any future earnings for use in the operation and expansion of our business and do not anticipate paying any cash dividends in the
foreseeable future. In addition, the terms of any future debt or credit facility may preclude us from paying any dividends. As a result, we anticipate that capital appreciation of our common stock, if any, will be your sole source of potential gain
for the foreseeable future.