Overview
We develop, manufacture and sell minimally-invasive medical devices that are used in the diagnosis of breast cancer. Our initial product focus has been
biopsy systems and breast tissue markers and in January 2008 we launched a radiation balloon for localized partial breast radiation therapy. With the emergence of clinicians coordinating multi-disciplinary patient care through integrated breast
centers, we believe that our ability to provide a broad array of products will enhance our competitive positioning. Since we launched our first breast tissue marker products in 2002, we have established over 1,000 customer accounts. In 2007, we
generated net revenues of $35.0 million. The sale of disposable products, including our breast biopsy probes and tissue markers, accounted for 86.2% of our revenues in 2007.
The EnCor system, our flagship product for use in breast biopsy procedures, is a minimally-invasive vacuum-assisted breast biopsy system. EnCor allows
users to obtain multiple biopsy samples with a quick, single probe insertion. In contrast to existing competitive systems, EnCor is the only “open/closed” tissue collection system, providing the operator with a clear view of tissue samples
through a proprietary transparent collection chamber, and the ability to either open the chamber to examine and remove one or more samples or to continue uninterrupted collection of multiple samples. EnCor also incorporates novel programmability,
which allows the user to select automated cutting patterns, tissue density and number of samples, and to deliver anesthetic. The EnCor system’s handpieces and disposable probes are compatible with the most commonly used imaging modalities,
including x-ray, ultrasound, and magnetic resonance imaging, or MRI. With its simplicity and versatility, we believe that EnCor can play an important role in the paradigm shift from invasive open surgical to minimally-invasive biopsy procedures. We
launched the EnCor system on a limited basis and conducted marketing preference testing in late 2004 and subsequently progressed with a full commercial launch in November 2005. In 2007, we further enhanced the versatility of the EnCor system with
the FDA clearance in the United States of our new SenoSonix system, a combination of EnCor with state-of-the art ultrasound imaging technology, and with the commercial launch of VisiLoc, an MRI visible obturator that helps to facilitate accurate
probe placement under MRI guidance. As of December 31, 2007, we had an installed base of 536 EnCor systems and we had sold more than 119,000 EnCor disposable probes.
Our Contura Multi-Lumen Radiation Balloon Catheter, or Contura MLB, our flagship radiation therapy product, for which we received FDA 510(k) clearance in May 2007 and launched in January 2008, is designed to be a
novel localized partial breast radiation therapy device that uses vacuum to remove excess seroma and air to enhance conformance of often irregularly shaped lumpectomy cavity walls to the balloon’s surface in order to deliver precise radiation
dosing through multiple radiation source lumens. We believe that Contura MLB can play an important role in the paradigm shift from traditional whole breast radiation therapy to localized partial breast radiation therapy.
We were incorporated in Delaware in January 1998.
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Industry Overview
Breast Cancer
One in eight women in the United States will develop breast cancer during her lifetime, a risk that
was one in fourteen in 1960. It is estimated that in the United States, approximately 180,000 new cases of breast cancer were diagnosed in 2007. Breast cancer is the second-leading cause of cancer-related death in U.S. women overall, and the leading
cause of cancer-related death for women of ages 20 to 59.
Over 70% of breast cancers occur in women who have no identifiable risk factor
other than age. The older a woman is, the greater her chance of getting breast cancer. One of the major challenges in the treatment of breast cancer is that, while the disease typically does not show symptoms in early stages, survival is
dramatically impacted by the stage at which the disease is diagnosed and treated. If breast cancer is detected at an early “localized” stage and treated, the 5-year survival rate is 98%. If the cancer has spread to nearby lymph nodes, the
5-year survival rate decreases to 81%. If the cancer has spread, or metastasized, to organs such as the lungs, bone marrow, liver or brain, the 5-year survival rate falls to 26%. These statistics underscore the need for early diagnosis and treatment
of breast cancer. Currently, 62% of breast cancers are discovered at an early, localized stage. 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. However, 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 and as a result of this and other factors, the trend towards earlier and broader screening programs may not continue.
Breast Cancer Screening, Diagnosis and Treatment
The principal means of breast cancer
screening are physical examination and mammography. In a physical examination, the patient’s breast is examined to search for palpable lesions or any other abnormalities. However, physical examination cannot detect small, early stage lesions
that may be cancerous. As a result, mammography, a low-dose x-ray imaging technique, is recognized as the best screening method for detecting breast cancer in its earliest stages, when the disease is most successfully treated and there are more
treatment options. Mammograms can find 85% to 90% of breast cancers in women over 50, and can discover a lesion one to four years before a lump can be felt. However, when the patient has dense breast tissue, breast implants or is breastfeeding, the
images produced by a mammogram can be difficult for a radiologist to interpret. Consequently, physicians will often order a secondary screening using ultrasound, or, in some cases, MRI.
If breast cancer screening detects a lesion, a physician will typically recommend that the patient undergo a breast biopsy, a diagnostic procedure in
which breast tissue samples are extracted to determine whether a lesion is benign or malignant. The breast biopsy procedure is performed by either a radiologist or surgeon. As a final step in the biopsy procedure, the physician usually places a
tissue marker at the location from which the sample was removed as a point of reference. If the sample is found to be cancerous and more tissue must be removed from the breast, the marker will help the physician identify the specific area from which
tissue should be removed. This can minimize the amount of healthy tissue removed from the breast during surgery. If surgery is not required, the marker will be visible on future screenings to enable the physician to identify the site of the previous
biopsy.
If a breast biopsy indicates that a patient’s lesion is malignant, the patient is often scheduled for surgery to remove the
tumor and to sample nearby lymph nodes to determine if the cancer has spread. Surgical procedures include a breast conserving therapy, known as lumpectomy, in which the cancerous lesion and a margin of surrounding normal tissue is removed, and
mastectomy, in which the entire breast is removed. It is estimated that at least 50% of women with breast cancer, typically women whose breast cancer was detected at an early stage, are good candidates for lumpectomies. In most cases, a course of
radiation therapy after lumpectomy is part of the treatment, as a means of destroying any cancer cells that may remain. Additionally, 75% of women who have mastectomies go on to have surgical reconstruction of one or both breasts, either using
artificial implants or their own body tissue to rebuild the breast. Some women who have lumpectomies also choose breast reconstruction for cosmetic improvement.
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Evolution of Breast Biopsy Procedures
In the United States, there are approximately 1.7 million breast biopsies performed annually. This number has increased significantly since 1997,
when approximately 750,000 biopsies were performed. In 1997, the American Cancer Society updated its guidelines for breast cancer screening, recommending that women should begin annual screening at age 40. The previous guideline had recommended
annual mammography for women beginning at age 50. This updated guidance, along with increased public awareness and technological improvements in screening and diagnostic equipment, likely has contributed to the increase in breast biopsies over the
past decade. Biopsy methods include surgical biopsy, needle biopsy, and vacuum-assisted biopsy, all of which, according to the American Cancer Society, have similar accuracy rates.
Surgical Biopsy
. Traditionally, most breast biopsies were performed as open surgical procedures, and such procedures remain common today, often
being preferred for large lesions. The procedure has several drawbacks. Surgery is highly invasive, requires at least one full day of recovery and can leave a visible scar and depression at the site of the removed tissue. It can also lead to scar
formation within the breast, which can complicate the interpretation of follow-up mammograms.
Needle Biopsy
. Needle biopsy emerged
as the first minimally-invasive biopsy technique, enabling extraction of tissue samples without surgery, but rather through insertion of a needle to remove tissue. The typical procedure involves repeated needle insertions to acquire multiple
samples. If the breast lesion is large enough to feel, the physician can do a needle biopsy by directly guiding the needle into the lesion. If the lesion is too small or too deep within the breast to be felt, a needle biopsy is done using breast
imaging methods to guide the needle into the lesion. There are two types of needle biopsy:
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Fine needle aspiration
uses a fine-gauge, hollow needle and a syringe to sample clusters of cells from a lesion. While fine needle aspiration is the fastest
and simplest procedure among all biopsy methods, it is typically used only on lesions that are large enough to be felt. An experienced breast cytopathologist is required to determine if cells are cancerous, but this method cannot distinguish between
cancer that remains confined to particular cells, known as
in situ
cancer, from invasive cancer that has spread to surrounding tissue, two types of cancer that are generally treated differently.
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Core needle biopsy
uses an inner notched needle and a larger outer hollow needle, which are sequentially advanced, to cut and collect single tissue samples.
Compared to fine needle aspiration, core needle biopsy allows for a more accurate assessment of a breast lesion because the larger core needle usually removes enough tissue for the pathologist to evaluate abnormal cells in relation to the
surrounding small sample of breast tissue taken in the specimen. However, this method is not well-suited to characterizing small lesions that may indicate early cancers. False negatives may occur if the needle misses the lesion and instead takes a
sample of normal tissue, which may lead to the undiagnosed cancer going untreated.
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Vacuum-Assisted Biopsy
. In a
single sample, vacuum-assisted biopsy is able to remove approximately six to ten times as much breast tissue as core needle biopsy. Vacuum-assisted biopsy incorporates a special probe that can capture tissue samples from a single insertion into the
breast through a small nick in the skin, promoting minimal patient discomfort and a relatively short procedure time. Vacuum-assisted biopsy is typically performed with imaging technology, either using a specially designed stereotactic x-ray table to
pinpoint the site of the lesion, or with real-time ultrasound guidance. During the procedure, vacuum is used to draw tissue from the lesion into an opening located on or at the end of the biopsy probe, and a cutter is then used to sever this tissue
sample. Among the minimally-invasive biopsy options, vacuum-assisted biopsy is the only method that can obtain multiple contiguous tissue samples with a single insertion, which makes the procedure an attractive alternative for most lesions,
including those that may be indicative of early stage cancer.
A vacuum-assisted biopsy device can either be an “open” or
“closed” system. An open system requires each sample to be individually cut, extracted and removed from the device, a relatively time consuming process that requires the assistance of a technician. The first open system vacuum-assisted
biopsy device, the Mammotome, was introduced in
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1995. A closed system automatically transports samples to a sealed tissue collection chamber, allowing multiple samples to be collected without having to
interrupt collection by removing tissue from the device. In 2002, a closed system vacuum-assisted biopsy device called the ATEC was introduced. Both open and closed systems have been widely adopted. While closed systems may result in faster
procedure times and minimize fluid loss, open systems allow visualization of the sample, which may be preferred by a technician to ensure that the proper area of the breast is being targeted. Today, in many cases customers prefer a vacuum-assisted
biopsy system that is compatible with all three major imaging modalities, stereotactic, ultrasound, and MRI.
According to the Millennium
Research Group, vacuum-assisted biopsies were projected to become the predominant biopsy method, surpassing open surgical breast biopsy procedures in 2007. Vacuum-assisted biopsies are already the predominant minimally-invasive method, accounting
for 566,500 of 1,070,800 such procedures performed in the United States in 2006. Millennium projects that vacuum-assisted biopsies will account for 869,600 of 1,540,450 such procedures performed in 2011.
Evolution from Whole to Partial Breast Radiation Therapy
Following a lumpectomy to remove a cancerous breast tumor, many patients are subsequently treated with breast radiation therapy to destroy any cancer cells that may remain. Similar to the evolution in breast biopsy
toward minimally-invasive procedures, radiation therapy is beginning to transition from whole breast radiation, which is currently used in the vast majority of cases, to more localized radiation therapy.
Whole Breast Radiation
. Following a lumpectomy, the current standard of care is to treat patients with external beam radiation that is widely
directed at the whole breast. Although the use of radiation has improved long-term survival rates, this treatment is inconvenient for patients, often requiring daily outpatient radiation treatments for six to eight weeks, and can expose healthy
tissue and organs to damaging effects from the radiation.
Accelerated Partial Breast Irradiation, or APBI
. APBI delivers localized
radiation to a targeted surgical site. For appropriate patients, this method offers a number of advantages including greatly-diminished treatment time, concentrated radiation exposure and the reduction of skin irritation and burning. There are
currently three approaches to APBI in the market.
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Radiation Balloon Brachytherapy
. This approach involves a catheter attached to a fluid expandable balloon that is inserted into the lumpectomy cavity. A
mixture of saline and contrast media is injected to expand the balloon to contact the walls of the lumpectomy cavity, a radioactive source is then inserted into the balloon. Radiation is administered for five to ten minutes, allowing a therapeutic
radiation dose to penetrate tissue approximately one centimeter from the exterior of the balloon. Typically, this procedure is repeated twice a day for five days on an outpatient basis. While the technical challenges are fewer than with other
partial breast radiation treatment options, delivering a uniform radiation dose remains an obstacle due to the difficulties in conforming the shape of the balloon to the walls of the often irregularly-shaped cavity, the site of the cavity, or
accumulation of fluid from the body around the balloon. Radiation balloon brachytherapy is in the early stage of adoption by the market.
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Conformal Radiotherapy
. Like whole breast radiation, this approach uses a radiation source outside the body. Rather than targeting the entire breast,
however, this approach uses a CT scan or MRI scan to pinpoint the tumor site in three dimensions and a computer program to aim radiation beams that “conform” closely to the shape of the tumor and thereby helping to minimize damage to
healthy tissue. This approach is well-established in the treatment of prostate cancer, but is in the early stages of adoption and clinical study for breast cancer. Conformal radiotherapy may play a greater role in brachytherapy in the future.
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Multi-Catheter Interstitial Brachytherapy
. This approach involves placing 20 to 30 small catheters completely through the breast at carefully selected
locations around the lumpectomy site. A radioactive source is inserted into the catheters twice a day for 20 minutes to deliver radiation, typically over a one-week period, during which time the catheters remain in the breast. The multiple catheter
placements may cause infection, as well as potential cosmetic damage. Additionally, the procedure requires a high level of technical expertise for appropriate catheter placement and radiation dose administration.
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Breast Care Market Trends
The breast care market has undergone a significant evolution over recent years, driven by advancements in imaging technologies, which has led a paradigm shift to less invasive devices and procedures for screening and
for diagnosis, and to comprehensive patient care through integrated breast centers.
Advances in Imaging Technology for Screening
.
Digital mammography is being rapidly adopted as clinical studies suggest advantages over traditional film mammography. When the patient has dense breast tissue, breast implants or is breastfeeding, the images produced by either traditional or
digital mammography can be difficult for a radiologist to interpret. Consequently, physicians will often order a secondary screening using ultrasound. MRI may also be used as a secondary screening method for these patients, and is being recommended
as a primary screening technique for high-risk women as young as 30.
Advances in Imaging Technology for Biopsy
. Technological
advances in imaging have allowed for more effective and less invasive diagnosis and treatment of breast cancer. While stereotactic x-ray imaging and ultrasound guidance are used most frequently in conjunction with biopsy procedures, MRI may also
become an important alternate imaging modality for both diagnosis and treatment.
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Stereotactic x-ray imaging
uses x-ray to capture images of breast tissue. With the patient lying on a specialized treatment table known as a stereotactic
table, x-ray images are taken from two angles which permits integrated computerized equipment to map the exact location of the target lesion, thereby enabling the physician to fire a biopsy needle or probe into the lesion. Stereotactic imaging is
used in the vast majority of vacuum-assisted biopsies today.
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Ultrasound imaging
bounces low-power, high-frequency sound waves off internal tissue to provide real-time images of the interior of the breast to guide the
physician’s manual placement of a biopsy probe at the site of the lesion. Ultrasound is widely available and relatively inexpensive, and does not expose the patient to radiation. As with screening, ultrasound is used as a primary breast imaging
application for biopsy of women who have dense breast tissue, typically under the age of 40, women with breast implants or women who are breastfeeding.
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Magnetic resonance imaging
(MRI) uses a magnet, radio waves and a computer to make a series of detailed images of the inside of the breast. Technological
advances have made MRI an emerging alternative for image-guided biopsy. Several academic institutions and leading breast centers have begun performing biopsies under MRI guidance. Although there are several hurdles, including the relatively high
cost of and significant time required for this procedure, the clinical benefits of this approach are gaining acceptance.
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Paradigm Shift to Less Invasive Procedures
. Advancements in imaging technology have allowed abnormal breast tissue to be identified at an early stage and have helped facilitate the emergence of novel, less invasive diagnostic and
therapeutic devices for accessing and removing this tissue. For example, open surgical biopsies and needle biopsies are giving way to minimally-invasive vacuum-assisted procedures. Similarly, excision of tumors is shifting from invasive mastectomies
to less invasive lumpectomies. In addition, radiation treatment is shifting from whole breast radiation to partial breast radiation.
Emergence of Integrated Breast Centers
. Effective screening, diagnosis and treatment of breast cancer require interaction among specialists in multiple departments of a healthcare system. These include, but are not limited to,
surgery, oncology, radiology, pathology and plastic surgery. While many of these services exist in any given healthcare system, the concept of a breast center is to organize these services into a coordinated, multidisciplinary approach where the
patient’s care is integrated. This coordinated approach allows for higher-quality and more patient-focused care than
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she might receive from the same specialists working in isolation. Breast centers can be at one physical location, with all services available at one site, or
they can be virtual, organizing the interaction of diverse services found at different locations. A factor in the accelerating establishment of integrated breast centers is the increasing public awareness of the importance of quality breast care.
Breast centers are also actively educating the general public as it relates to the latest clinical and technological advances available in minimally-invasive diagnosis and treatment.
We believe that there is significant opportunity for a company that offers breast centers a full range of minimally-invasive diagnostic and therapeutic
devices that are both compatible with multiple imaging modalities and flexible enough to be tailored to the diverse needs of the physicians on the breast care team.
Our Solution
We have commercialized, and are continuing to develop, a broad product line of
minimally-invasive breast care devices to be used by breast care specialists. By focusing on the continuum of care from diagnostic to excision and therapeutic procedures, we believe that we will be an attractive and convenient supplier for
integrated breast centers.
Our Breast Care Management Product Continuum
Our current commercial products and products under development include:
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Diagnostic
. Breast biopsy systems and lymph node gamma ray detection devices.
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Marking
. Tissue markers which identify the biopsy site, under the major imaging modalities, for future diagnostic and surgical reference, and are
compatible with most imaging technologies and biopsy devices.
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Excising and Reconstruction
. Tissue cutting devices designed to facilitate the contoured removal of lesions and facilitate the use of balloons in
radiation therapy and breast reconstruction devices for use in various post-surgical cosmetic procedures.
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Treatment
. Radiation balloons for localized partial breast radiation therapy.
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The EnCor system, our flagship product for use in breast biopsy procedures, is a vacuum-assisted system which allows users to obtain multiple tissue
samples with a quick, single insertion. EnCor can be used with multiple imaging modalities, including stereotactic x-ray, ultrasound and MRI. EnCor is the only “open/closed” tissue collection system, providing the operator with a clear
view of tissue samples through a proprietary transparent collection chamber, and the ability to either open the chamber to examine and remove one or more samples or to continue uninterrupted collection of multiple samples. Our EnCor system also
incorporates proprietary programmability and automation features which provide a competitive advantage to other marketed biopsy systems. In 2007, we further enhanced the versatility of the EnCor system with the FDA clearance in the United States of
our new SenoSonix system, a combination of EnCor with state-of-the art ultrasound imaging technology, and with the commercial launch of VisiLoc, an MRI visible obturator that helps to facilitate accurate probe placement under MRI guidance.
The Contura Multi-Lumen Radiation Balloon Catheter, or Contura MLB, our flagship radiation therapy product, for which we received FDA
510(k) clearance in May 2007 and launched in January 2008, is designed to be a novel localized partial breast radiation therapy device that uses vacuum to remove excess seroma and air to enhance conformance of often irregularly shaped lumpectomy
cavity walls to the balloon’s surface in order to deliver precise radiation dosing through multiple radiation source lumens.
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Our Strategy
Our goal is to become the leader in providing minimally-invasive solutions across the continuum of care in the breast care market. The key elements of our business strategy to achieve this goal are to:
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Provide Differentiated, Tailored Solutions in the Breast Biopsy Market
. We believe that our EnCor breast biopsy system represents a significant
advancement in the breast biopsy market. We seek to leverage this recent product introduction to establish a leadership position in the minimally-invasive breast biopsy market. We believe that by making the EnCor system modular and upgradeable,
which enables the addition of features over time, customers will view it as an attractive platform product that can be tailored to the needs of their practice. The EnCor system allows for significant flexibility across multiple imaging modalities,
programmability, automation and the ability to shift between open and closed tissue collection. In addition to EnCor, we believe that EnCor 360 (previously referred to by us and marketed as SenoCor 360) and SenoSonix with EnCor is a
complementary product that will continue to address a need in the ultrasound guided vacuum-assisted biopsy market. We intend to continue to develop and commercialize advanced products in the minimally-invasive breast biopsy market, such as VisiLoc,
which helps to facilitate accurate biopsy probe placement under MRI. Additionally, we believe that the EnCor hardware architecture and the ease of software upgrades allows us to continuously and easily bring technological improvements to market.
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Provide Products Across the Continuum of Breast Care
. While our initial product focus has involved devices used in diagnosis of breast cancer, such as
biopsy systems and breast tissue markers, we launched Contura MLB in January 2008 and are also developing a series of additional excision and therapeutic products that we will seek to commercialize over the next few years. With the emergence of
integrated breast centers designed to provide comprehensive and specialized patient care, we believe that our ability to provide novel solutions to a broad set of needs in breast cancer management will enhance our competitive positioning in the
market.
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Focus on Breast Care Centers and Key Opinion Leaders
. We believe that integrated breast centers are emerging as the focal point for breast care, with
teams of surgeons, radiologists, oncologists and technicians providing coordinated care. Our products, spanning the continuum of breast care from diagnostics to therapeutics, positions us to meet many clinical needs of breast centers. We intend to
grow our sales team over the next few years to expand our coverage of breast centers. As a key element of our strategy, we focus on educating and training clinicians on our products through frequent hands-on classes and industry events. We have
worked with key opinion leaders in training several thousand clinicians in the effective use of our products.
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Capitalize on Cross-Selling Opportunities within Our Existing Customer Base
. We believe that we have a significant opportunity to grow our revenues by
selling additional products to existing customers. We have established a strong base of customers who have a history of placing repeat orders for our products. We believe this customer base is an attractive target for early adoption of our
complementary products as they are commercially launched. For example, our EnCor and EnCor 360 biopsy hardware, disposables and tissue markers are sold to the same surgeon customers that are purchasing Contura MLB.
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Pursue Strategic Acquisitions and Partnerships
. In addition to adding to our product portfolio through internal development efforts, we intend to
explore the acquisition of other product lines, technologies or companies that may leverage our sales force or be complementary to our strategic objectives. We may also evaluate distribution agreements, licensing transactions and other strategic
partnerships, which may include expansion of our selling and marketing efforts beyond the United States. We are also collaborating with a number of large corporations who sell imaging products to offer our customers bundled packages of products and
joint clinical education programs.
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Our Products and Products under Development
We are focused on developing and offering a broad portfolio of products that address needs across the continuum of breast care, from the diagnosis to the
treatment of breast cancer. The sale of disposable products, including our breast biopsy probes and tissue markers, accounted for 86% of our revenues in 2007 and 89% in 2006. The following table provides information concerning our primary products
and products under development.
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Product Category/Name
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Primary Component(s)
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Year (or
Expected Year)
of Full
Commercial
Launch
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DIAGNOSTIC PRODUCTS
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Breast Biopsy
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SenoRx Breast Biopsy Console
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Console for EnCor and EnCor 360 Biopsy Devices
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2002
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EnCor
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Reusable Handpiece and Disposable Probe
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2005
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(1)
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EnCor 360(3)
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Reusable Handpiece and Disposable Probe
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2003
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(1)
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VisiLoc
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Obturator Compatible with EnCor MRI
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2008
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SenoSonix
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EnCor Hardware Integration with ultrasound imaging
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2008
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Tissue Markers
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Gel Mark
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Applicator and Combination Metal/Bioresorbable Markers
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2002
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Gel Mark Ultra
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Applicator and Combination Metal/Bioresorbable Markers
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2004
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Gel Mark UltraCor
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Applicator and Combination Metal/Bioresorbable Markers
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2004
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SenoMark
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Applicator and Combination Metal/Bioresorbable Markers
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2006
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Gel Mark UltraCor MRI
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Applicator and Combination Metal/Bioresorbable Markers
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2006
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(1)
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Tissue Marker Line Extension
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Applicator and Combination Metal/Bioresorbable Markers
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2009
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Gamma Ray Detection
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Gamma Finder
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Reusable Probe and Disposable Sleeve
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2003
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THERAPEUTIC/EXCISION PRODUCTS
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Radiation Therapy
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Contura MLB
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Radiation Balloon
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2008
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Contura MLB Line Extension
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Radiation Balloon
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2009
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Excision and Reconstruction
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SenoPulse RF Generator
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Console for Excision/Reconstruction Devices
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2010
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(1)
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Single Step
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Reusable Handpiece and Disposable Probe
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2010
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(1)
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Shape Select
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Disposable Device
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2010
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(1)
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(1)
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FDA clearance received and product available prior to full commercial launch.
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(2)
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Subject to submission for and receipt of FDA 510(k) clearance; initial preference testing may occur one year earlier.
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(3)
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Previously referred to by us and marketed as SenoCor 360.
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Breast Biopsy Systems
Components of Our Breast Biopsy Systems
Our breast biopsy systems primarily consist of two
components—reusable handpieces and disposable probes—and are used in conjunction with our SenoRx Breast Biopsy Console.
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SenoRx Breast Biopsy Console
. The SenoRx Breast Biopsy Console is compatible with both our EnCor and EnCor 360 reusable handpieces and disposable probes.
This modular console is a portable hardware system which may be conveniently transported to various areas of the healthcare facility. The primary modules of our console include:
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a control module, which facilitates convenient user interface with proprietary software, a visual display screen, and controls that allows the user to customize the
various parameters of the diagnostic procedure; and
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a vacuum system, which pulls tissue into the probe for excision and subsequent delivery of tissue to the sample collection chamber.
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Reusable Handpieces
. Handpieces are instruments which facilitate placement or insertion of the biopsy probe. The handpieces primarily consist of motors,
circuitry, sensors and proprietary software incorporated into a housing. We commercialize three different biopsy handpieces: EnCor Stereotactic/Ultrasound, EnCor MRI, and EnCor 360.
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Disposable Probes and Accessories
. Our probes are sterile, single-use, vacuum-assisted disposables, which are used with our EnCor and EnCor 360 handpieces.
They consist of a sharp stainless steel tissue cutter and, with EnCor, a tissue sample collection chamber. The probe accessories also include additional tubing and a vacuum canister.
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We offer probes in a variety of sizes, ranging from 7-gauge to 10-gauge, depending on user preference. The probe cutters and tips incorporate one or more
of our proprietary tissue cutting technologies.
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Tri-Concave Tip
. A three-edged tip used on our EnCor probes, EnCor 360 probes and MRI insertion device, designed especially for facilitating easy placement
into dense breast tissue.
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360° Tissue Cutter
. A hollow, cylindrical cutting edge used on our EnCor 360 probes, which automatically rotates and advances to generate large 360°
contiguous samples.
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Oscillating Cutters
. Cone-shaped cutters used on our EnCor probes, which shear tissue in a manner similar to a scissors cut.
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In 2007, we also received clearance for and launched two additional products that are used together or in conjunction with our EnCor system.
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VisiLoc MRI Visible Obturator
. An MRI visible obturator that is used during an MRI-guided EnCor procedure, designed to facilitate biopsy probe placement
under MRI guidance.
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SenoSonix with EnCor
. An integration of our EnCor system with a state-of-the-art ultrasound imaging system developed by UltraSonix Medical Corporation.
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EnCor Breast Biopsy System
Our flagship product for use in breast biopsy procedures, the EnCor system, is a vacuum-assisted breast biopsy system that facilitates adoption of minimally-invasive biopsy procedures over open surgical biopsy. The
EnCor system is comprised of a reusable handpiece and disposable probes that are used in conjunction with our SenoRx Breast Biopsy Console. We believe the EnCor system offers a comprehensive set of features which make it an attractive solution for
meeting the diverse demands of breast care providers. Key features of the EnCor system include:
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Single Insertion/Multiple Sample
. Offers the flexibility to obtain multiple samples from a single insertion, enhancing speed and convenience in biopsy
procedures.
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Open/Closed” System
. Functions either as an open or closed system, providing the operator with a clear view of tissue samples through a
proprietary transparent collection chamber, and the ability to either open the chamber to examine and remove one or more samples or to continue uninterrupted collection and automatic transfer of multiple samples from inside the breast to the
collection chamber.
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Highly-Automated and Programmable
. Automated and programmable tissue collection and automated anesthetic delivery. Aligns and rotates automatically through a
variety of optional programmed cutting patterns. Provides multiple programmed options for users to choose their own approach to the array of lesions they may encounter.
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Multi-Modality System
. Compatible with each of the three major imaging modalities used in the market—stereotactic, ultrasound and MRI—and
transportable, eliminating the need for multiple systems.
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Modular Hardware and Upgradeable Design
. Customers are able to purchase all or part of the system according to their needs, thus minimizing up-front costs.
In addition, the modular system facilitates easy repair and replacement of components. Software-based design allows us to continuously innovate by adding new features which may extend the useful life of the device. The user may update the system by
upgrading software rather than purchasing new hardware.
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Precise Probe Placement
. Tools to facilitate accurate placement of EnCor probe under MRI imaging.
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The EnCor system also incorporates a number of additional features, including compatibility with our tissue markers, multiple gauge sizes, automated
sample rinsing, lighting, an ergonomically-designed handpiece, noise reduction and novel MRI probe insertion accessories and proprietary ultrasound options. We received FDA 510(k) clearance and conducted marketing preference testing of the EnCor
system in 2004, with full commercial launch in 2005.
EnCor 360 Breast Biopsy System
Our EnCor 360 system (previously referred to by us and marketed as SenoCor 360) utilizes a vacuum to provide the physician with a contiguous 360°
breast biopsy sample. The EnCor 360 system incorporates our mechanical Tri-Concave Tip to penetrate virtually any lesion, regardless of size, location or density. EnCor 360 secures tissue through the end of the probe, providing a large, high-quality
sample. Since the EnCor 360 is interchangeable and compatible with the SenoRx Breast Biopsy console, users may select EnCor 360 or EnCor depending upon their clinical and economic objectives.
We received FDA 510(k) clearance in 2002 and launched EnCor 360 in 2003, as our initial product in the vacuum-assisted breast biopsy segment. In 2007,
subject to the submission for and receipt of regulatory clearance, we expect to launch a line extension to the EnCor 360, to enhance our ability to compete in the physician office segment. We intend to continue to offer the EnCor 360 as a low-cost,
ultrasound-guided breast biopsy device. We believe that our EnCor 360 and future product enhancements will continue to appeal to clinicians doing ultrasound biopsies in their offices, which is a more price-sensitive segment of the biopsy market.
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SenoSonix with EnCor
In October 2007 we received 510(k) clearance from the FDA for SenoSonix with EnCor, an integration of our EnCor system with a state-of-the-art ultrasound imaging system developed by UltraSonix Medical Corporation of
Canada. We currently anticipate receiving the right to affix CE Mark in the European Union for SenoSonix with EnCor in the first half of 2008. We plan to market SenoSonix with EnCor in the United States primarily for physician in-office procedures
and particularly in Europe, where we believe a greater percentage of biopsy procedures are done under ultrasound imaging guidance. SenoSonix with EnCor may be used with either our EnCor or EnCor 360 probes.
VisiLoc MRI Visible Obturator
We launched the
VisiLoc MRI Visible Obturator in the United States in November 2007. VisiLoc is an MRI visible obturator that is used during an MRI-guided EnCor procedure and is designed to help facilitate biopsy probe placement under MRI guidance.
Gel Mark and SenoMark (Biopsy Site Tissue Markers)
Biopsy site tissue markers are placed at a biopsy site to provide a visible landmark for future surgical reference. If cancer is found and more tissue must be removed from the breast, the marker will help the physician identify the specific
area from which tissue should be removed. If surgery is not necessary, the marker will be visible on future mammograms to enable the breast care specialist to identify the site of the biopsy.
We offer a full portfolio of tissue markers that are compatible not only with our EnCor and EnCor 360 biopsy product lines, but also with competing
biopsy systems. Our products consist of markers that come in a variety of materials, including gelatin and synthetic materials, titanium and stainless steel, and associated delivery applicators. The markers are designed to facilitate easy placement
and optimize visibility under different imaging modalities.
We were first to commercialize markers visible not only under x-ray, but also
ultrasound imaging. Gel Mark and Gel Mark Ultra are designed to provide pellet-shaped, ultrasound-visible, bioresorbable tissue marker alternatives. Gel Mark UltraCor provides core needle users with an ultrasound-visible tissue marking alternative.
SenoMark provides those users who prefer a pad-shape with an ultrasound-visible, bioresorbable tissue marker alternative. Our UltraCor MRI may be an attractive alternative for clinicians interested in marking lesions under MRI guidance. We received
FDA 510(k) clearance and began commercializing Gel Mark in 2002, Gel Mark Ultra and Gel Mark UltraCor in 2004, and SenoMark in 2006. We received FDA 510(k) clearance and conducted marketing preference testing of the Gel Mark UltraCor MRI in 2004,
with full commercial launch occurring in the second half of 2006. The Company is also exploring the use of tissue markers for use in other indications.
Gamma Finder (Gamma Ray Detection Device)
Immediately prior to removal of a malignant lesion in the breast, a
patient may be injected with gamma ray emitting isotopes near the site of the lesion to determine if the cancer has spread. Our Gamma Finder is currently the only cordless handpiece probe to detect the emission of gamma rays, and, consequently,
whether breast cancer has spread to the lymph nodes. The Gamma Finder detects and gives a numerical indication and an acoustic signal when close to a gamma ray emitting source. Our Gamma Finder has all the features of traditional, larger, corded
gamma ray detection devices, with the convenience of a portable and compact device. The Gamma Finder consists of a reusable probe and a disposable sterility sleeve. We began commercializing the Gamma Finder in 2003 upon receipt of FDA 510(k)
clearance, and, in 2005, added automatic ten second count and binary pitch mode features.
Contura MLB Radiation Balloon
Current radiation therapy includes less invasive alternatives to whole breast radiation therapy, known as partial breast radiation therapy, consisting of
balloon brachytherapy, conformal radiotherapy and multi-catheter interstitial brachytherapy. We believe that balloon brachytherapy will be widely adopted over time due to its ease of use, low-cost and clinical effectiveness and have recently
launched our Contura Multi-Lumen Radiation Balloon Catheter, or Contura MLB.
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Our Contura MLB design consists of a multilumen catheter with several access ports on one end and an
inflatable balloon on the other. The balloon is positioned into the cavity formed in the breast following a lumpectomy and subsequently inflated with saline through one of the ports. Small openings in the catheter allow for the suction of excess
seroma and air from the lumpectomy cavity through a second access port. We believe that this suction feature will help conform the walls of the lumpectomy cavity to the exterior of the balloon. Multiple lumens are designed to provide for precise
placement of radioactive seeds, which we believe will allow clinicians to expand their use of radiation therapy to a greater number of patients. Such patients may include those with smaller anatomies and with tumors closer to the skin, who were not
previously able to receive treatment with other minimally-invasive radiation balloon products. The overall design and the use of special balloon materials is intended to control the distance between the radiation source and the tissue in contact
with the balloon and to result in controlled radiation dosing.
We received FDA 510(k) clearance for Contura MLB in May 2007 and launched
in January 2008. Following the clearance of Contura MLB in May 2007, we began limited commercialization and market preference testing of the product. By December 31, 2007, we had expanded the use of Contura MLB to 34 clinical sites.
Additionally, we anticipate developing and commercializing additional line extensions for this product over the next several years.
SenoPulse RF
Generator (Excision/Therapeutic Console)
The SenoPulse RF Generator will be used to power our radiofrequency cutting technologies
in order to provide advanced breast tissue cutting capabilities. The SenoPulse RF Generator offers high-frequency and impedance-matching circuitry to enable cutting into a wide variety of tissue types, high start voltage and sustained power for
continuous cutting ability, and low heat generation to minimize thermal damage. The SenoPulse RF Generator directs modulated, monopolar radiofrequency energy and will be used in the Single Step and Shape Select cutting and excision devices. We
received FDA 510(k) clearance for the SenoPulse RF Generator in 2005.
Single Step (Cutting Device for Excision Procedures)
Single Step is an alternative excision device to a scalpel or a straight-bladed electrosurgical scalpel commonly known as a Bovie. The Single Step system
is an automated surgical excision device that uses a long-wire RF disposable probe and reusable handpiece to cut and remove a large, intact volume of tissue through a small surgical incision. The Single Step system is powered by the SenoPulse RF
Generator. The Single Step probe is inserted into the breast, where the surgeon anchors the device and excises tissue of a predetermined size. The surgeon controls the amount and shape of the tissue removed by selecting the appropriate option on the
SenoPulse RF Generator. The Single Step is designed to produce a smooth and optimally-shaped cavity to facilitate lesion removal and subsequent use of balloon brachytherapy. We intend to build upon data obtained with one of our previous products by
evaluating the clinical benefit of anchoring or stabilizing lesions in conjunction with the automatic lesion cutting ability of our Single Step system. We received FDA 510(k) clearance for the Single Step and anticipate making several design
enhancements and conducting clinical testing prior to fully commercializing the product in 2010.
Shape Select (Cutting Device for Breast Excision
and Reconstruction)
Shape Select is a unique disposable surgical cutting device with a variable length, shapeable, long-wire cutter
powered by the SenoPulse RF Generator. The device is advantageous in breast surgeries such as skin sparing reconstructive mastectomy and lumpectomy, where the ability to bend and shape the cutter enables the surgeon to create customized curved
tissue surfaces. It may also be useful in surgeries requiring cutting and coagulation of large planes of tissue, such as standard mastectomy, breast reduction and the removal of fatty tissue in abdominoplasty. The Shape Select is an alternative to
either the scalpel or the Bovie, the use of which limits the surgeon’s ability to create curved and long cuts. We have received FDA 510(k) clearance for Shape Select and anticipate fully commercializing the product in 2010.
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Sales and Marketing
We focus our sales and marketing efforts on increasing awareness of our products among breast care specialists, including radiologists, surgeons and oncologists. We market and sell our products through a direct sales
force in the United States. As of December 31, 2007, we employed a vice president of sales and marketing and support staff and a 59 person direct sales force, including 18 clinical specialists, five brachytherapy specialists, four regional
sales managers and 32 sales representatives.
In our selling process, we use clinical studies, cost-benefit data and case studies. To date,
we have 23 clinical studies that have either been published or presented as abstracts at major medical meetings. Peer-to-peer selling is also a critical element of our strategy. We have developed popular training seminars, including a Continuing
Medical Education-accredited course led by nationally-known breast cancer specialists such as Drs. Nathalie Duchesne, Mark Gittleman, Phillip Israel, Terese Kaske, Frank Vicini, Doug Arthur, Dorin Todor, and Phillipe Zabag. We hosted 64
seminars in 2007, educating and providing hands-on training to over 1,300 clinicians about our products. We plan to initiate a Contura MLB long-term physician registry study by the middle of 2008.
An additional element of our educational efforts is our relationships with several manufacturers of ultrasound imaging systems. With these companies, we
co-sponsor several breast practice seminars across the country to educate clinicians on the changes that are driving the specialization of breast care and the emergence of integrated breast centers. We also contribute to organizations designed to
increase awareness of breast cancer, including our sponsorship of the newsletter and website of the American Society of Breast Surgeons.
International sales do not currently account for a significant portion of total sales. We do not have a direct sales force outside of the United States. We have the authorization to affix the CE Mark to Gel Mark Ultra, Gel Mark UltraCor,
and our EnCor system and to commercialize these devices in the European Economic Community, Hong Kong, Singapore, Taiwan, and several other Asian countries. In October 2007, we partnered with local distributors who have breast imaging and/or
interventional radiology franchises in Austria, Belgium, England, Hong Kong, Ireland, Luxembourg, The Netherlands, Singapore, Switzerland, and Taiwan to sell EnCor and our tissue marker products in these ten countries. We are currently in
negotiations with distributors for a number of additional countries in which our products are already approved and intend to expand beyond these initial countries in 2008. We also have agreements with distributors in Korea and China that are
assisting us in applying for regulatory approvals to market our products in those countries.
Competition
We compete primarily on the basis of our ability to provide minimally-invasive products to diagnose and treat breast cancer safely and effectively, with
ease and predictability of product use, brand name recognition and cost. We believe that we compete favorably with respect to these factors, although we cannot assure you that we will be able to continue to do so in the future or that new products
that perform better than those we offer will not be introduced.
The markets in which our products compete are highly competitive, subject
to change and significantly affected by new product introductions and other activities of industry participants. We face different competitors within different product lines. To our knowledge, we do not have one competitor that produces products
that compete with all our products. Several of our competitors have significant financial and human capital resources and have established reputations with our target customers, as well as worldwide distribution channels that are more effective than
ours. We are aware that several companies are developing products that, if successfully commercialized, would compete with our current and future products.
Our breast biopsy and marker products compete with, among others, products sold by Johnson & Johnson, C.R. Bard and Suros Surgical Systems, the latter of which was acquired by Hologic in 2006. Contura MLB
competes against well-established external beam radiation devices, as well as current and potential future manufacturers of balloon brachytherapy devices. We expect to compete directly with the current industry leader, Cytyc, which was acquired by
Hologic in 2007, as well as other companies that have minimally-invasive therapeutic devices in various stages of
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development. It has been reported that new short-term brachytherapy products from Cianna Medical, North American Scientific and Xoft will all begin to be
commercialized in 2008. Our commercial success will depend on a general market shift from whole to partial breast radiation and our ability to overcome Hologic/Cytyc’s current market leadership with its current balloon product. Furthermore, we
compete against Hologic/Cytyc with their bundling programs for digital mammography and stereotactic table platforms. Our excision products will compete with manufacturers of handheld surgical excision instrumentation and standard RF cutting devices.
Our competitors dedicate, and we believe they will continue to dedicate, significant resources to promote their products aggressively. The
breast cancer market is also characterized by extensive research efforts and technological progress. As a result, new products are likely to be developed and introduced into the market that could compete with our products more effectively.
Manufacturing
We assemble and package
the majority of our finished products at our current corporate headquarters in Aliso Viejo, California. Our Gamma Finder is licensed and produced exclusively for us by World of Medicine, a German medical device company. We manufacture in-house
several components used in our products, and we rely on several outside vendors to produce many components, and in some cases completed products that we quality check, sterilize, and package at our corporate headquarters. We also have established a
production engineering department to focus on integrating product changes into the manufacturing process and to continually improve upon product quality and cost.
We manufacture our proprietary products in a controlled environment and have implemented quality control systems as part of our manufacturing processes. We believe our manufacturing facility and control systems comply
with the FDA’s Quality System Regulations, or QSRs. We are certified to ISO 13485:2003, the medical device manufacturing standard, and applicable medical device directives promulgated by the European Economic Community, which facilitates entry
of our products into the European Economic Community. We have received our CMDCAS Certificate of Registration permitting importation of our devices into Canada.
Since 2005, we have continued to systematically transfer portions of our manufacturing operations to Infus Medical, a contract manufacturer with facilities in Thailand, which currently provides us with certain marker
production, assembly and packaging services, and with subassembly services for our EnCor system. We anticipate that over time we will transfer additional responsibility to this manufacturer related to production, assembly and packaging. We believe
that transferring production of our more established products abroad in a stepwise manner, along with increased sales volume, will result in cost savings and will allow us to focus our domestic efforts on developing, modifying and promoting our
newer products.
As a result of the settlement of litigation with Suros Surgical Systems, which was acquired by Hologic in 2006, and
without any admission of liability, in 2006 we implemented a design modification to our EnCor probe. As of December 31, 2007, we have manufactured over 91,000 probes with the modification and have not found the change to affect the operation or
performance of our EnCor probe. The design changes were made consistent with our quality system design review and control process, which is periodically reviewed by the FDA and our designated notified body in Europe.
We have one product and several components of other products that we obtain from sole-source suppliers. We rely on one vendor, World of Medicine, for our
Gamma Finder product, one vendor, Faulhaber, for our biopsy handpiece motors, one vendor, NuSil Technology, for a coating used in our biopsy probes, and one vendor, UltraSonix, for the ultrasound technology used in SenoSonix with EnCor. We do not
believe that we could replace these suppliers without significant effort and delay in production. Other products and components come from single suppliers, but alternate suppliers are easier to identify, though in many cases we have not yet
qualified alternate suppliers. We do not carry a significant inventory of most components used in our products. Most of our suppliers have no contractual obligations to supply us with, and we are not contractually obligated to purchase from them,
any of the components used in our devices.
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In April 2006, we obtained an additional 3,260 square foot facility in Laguna Hills, California, which is
being used for shipping and storage. The Laguna Hills lease and the lease for our current corporate headquarters in Aliso Viejo, California, expire in October 2008. We have reached capacity in our existing facilities and will move all of our
operations to a new facility in nearby Irvine, California. On March 5, 2008, we entered into a Lease Agreement with The Irvine Company LLC for the lease of approximately 41,402 square feet space at 3 Morgan, Irvine, California. The term of the
lease will commence on November 1, 2008 and expire on January 31, 2014. Additionally, following the completion of tenant improvements and the meeting of other specified requirements, the lease provides for a period of rent-free early
occupancy before the commencement date. This new facility must pass an inspection by the California Department of Health Services before manufacturing of our products can begin at this location.
Government Regulation
Our products are medical
devices subject to extensive and rigorous regulation by the FDA, as well as other federal and state regulatory bodies in the United States and comparable authorities in other countries. The FDA regulations govern, among other things, the following
activities that we perform, or that are performed on our behalf, to ensure that medical products distributed domestically or exported internationally are safe and effective for their intended uses:
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product design, development and manufacture;
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product safety, testing, labeling and storage;
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premarketing clearance or approval;
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recordkeeping procedures;
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product marketing, sales and distribution; and
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post-marketing surveillance, reporting of deaths or serious injuries and medical device reporting.
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The FDA’s Premarket Clearance and Approval Requirements
. Unless an exemption applies, each medical device we wish to distribute commercially
in the United States will require either prior 510(k) clearance or a premarket approval, or a PMA, from the FDA. Medical devices are classified into one of three classes—Class I, Class II, or Class III—depending on the
degree or risk associated with each medical device and the extent of control needed to ensure safety and effectiveness. Devices deemed to pose lower risks are placed in either Class I or II, which requires the manufacturer to submit to the FDA
a premarket notification requesting permission to commercially distribute the device. This process is generally known as 510(k) clearance. Some low-risk devices are exempted from this requirement. Devices deemed by the FDA to pose the greatest risk,
such as life-sustaining, life-supporting or implantable devices, or devices deemed not substantially equivalent to a previously cleared 510(k) device, are placed in Class III, requiring premarket approval. Our minimally-invasive breast care
products are Class I and II devices.
510(k) Clearance Pathway
. When a 510(k) clearance is required, we must submit a premarket
notification to the FDA demonstrating that our proposed device is substantially equivalent to a previously cleared and legally marketed 510(k) device or a device that was in commercial distribution before May 28, 1976 for which the FDA has not
yet required the submission of a PMA application. By statute, the FDA is required to clear or deny a 510(k) premarket notification within 90 days of submission of the application. As a practical matter, clearance often takes significantly longer.
The FDA may require further information, including clinical data, to make a determination regarding substantial equivalence. If the FDA determines that the device, or its intended use, is not substantially equivalent to a previously-cleared device
or use, the FDA will place the device, or the particular use, into Class III.
Premarket Approval Pathway
. A PMA application
must be submitted to the FDA if the device cannot be cleared through the 510(k) process. The PMA application process is much more demanding than the 510(k) premarket notification process. A PMA application must be supported by extensive data,
including but not limited to technical, preclinical, clinical trials, manufacturing and labeling to demonstrate to the FDA’s satisfaction the safety and effectiveness of the device.
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After a PMA application is submitted and the FDA determines that the application is sufficiently complete
to permit a substantive review, the FDA will accept the application for review. The FDA has 180 days to review an “accepted” PMA application, although the review of an application generally occurs over a significantly longer period of time
and can take up to several years. During this review period, the FDA may request additional information or clarification of the information already provided. Also, an advisory panel of experts from outside the FDA may be convened to review and
evaluate the application and provide recommendations to the FDA as to the approvability of the device. In addition, the FDA will conduct a preapproval inspection of the manufacturing facility to ensure compliance with the QSRs. New PMA applications
or PMA application supplements are required for significant modification to the manufacturing process, labeling and design of a device that is approved through the premarket approval process. Premarket approval supplements often require submission
of the same type of information as a premarket approval application, except that the supplement is limited to information needed to support any changes from the device covered by the original premarket approval application and may not require as
extensive clinical data or the convening of an advisory panel. We do not anticipate that any of our products in development will require the submission and approval of a PMA.
Clinical Trials
. Clinical trials are almost always required to support an FDA premarket application and are sometimes required for 510(k)
clearance. These trials generally require submission of an application for an Investigational Device Exemption, or IDE, to the FDA. The IDE application must be supported by appropriate data, such as animal and laboratory testing results, showing
that it is safe to test the device in humans and that the testing protocol is scientifically sound. The IDE must be approved in advance by the FDA for a specific number of patients unless the product is deemed a non-significant risk device eligible
for more abbreviated IDE requirements. Clinical trials for significant risk devices may not begin until the IDE application is approved by the FDA and the appropriate institutional review boards, or IRBs, at the clinical trial sites. Our clinical
trials must be conducted under the oversight of an IRB at the relevant clinical trial sites and in accordance with the FDA’s regulations, including but not limited to those relating to good clinical practices. We are also required to obtain
patients’ informed consent that complies with both the FDA’s requirements and state and federal privacy regulations. We, the FDA or the IRB at each site at which a clinical trial is being performed may suspend a clinical trial at any time
for various reasons, including a belief that the risks to study subjects outweigh the benefits. Even if a trial is completed, the results of clinical testing may not demonstrate the safety and efficacy of the device, may be equivocal or may
otherwise not be sufficient to obtain approval or clearance of the product.
Pervasive and Continuing Regulation
. After a device is
placed on the market, numerous regulatory requirements continue to apply. These include:
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the FDA’s Quality System Regulations, which require manufacturers, including third-party manufacturers, to follow stringent design, testing, control,
documentation and other quality assurance procedures during all aspects of the manufacturing process;
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labeling regulations and FDA prohibitions against the promotion of products for uncleared, unapproved or off-label uses;
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clearance or approval of product modifications that could significantly affect safety or efficacy or that would constitute a major change in intended use;
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medical device reporting, or MDR, regulations, which require that manufacturers report to the FDA if their device may have caused or contributed to a death or
serious injury or malfunctioned in a way that would likely cause or contribute to a death or serious injury if the malfunction were to recur; and
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post-market surveillance regulations, which apply when necessary to protect the public health or to provide additional safety and effectiveness data for the device.
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After a device receives 510(k) clearance or a PMA, any modification that could significantly affect its
safety or effectiveness, or that would constitute a major change in its intended use, will require a new clearance or approval. The FDA requires each manufacturer to make this determination initially, but the FDA can review any such decision and can
disagree with a manufacturer’s determination. We have modified various aspects of some of our marketed products since receiving regulatory clearance, but we believe that new 510(k) clearances are not required for these modifications. If the FDA
disagrees with our determination not to seek a new 510(k) clearance or PMA, the FDA may retroactively require us to seek 510(k) clearance or premarket approval. The FDA could also require us to cease marketing and distribution and/or recall the
modified device until 510(k) clearance or premarket approval is obtained. Also, in these circumstances, we may be subject to significant regulatory fines, penalties and Warning Letters.
The MDR regulations require that we report to the FDA any incident in which our product may have caused or contributed to a death or serious injury or in
which our product malfunctioned and, if the malfunction were to recur, would likely cause or contribute to death or serious injury.
We
have registered with the FDA as a medical device manufacturer and have obtained a manufacturing license from the California Department of Health Services, or CDHS. The FDA has broad post-market and regulatory enforcement powers. We are subject to
unannounced inspections by the FDA and the Food and Drug Branch of CDHS, or FDB, to determine our compliance with the QSRs and other regulations, and these inspections may include the manufacturing facilities of our suppliers. 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 shearing off in the patient’s breast during surgery, 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 QSRs. If, upon reinspection, the FDA determines we have not properly addressed their concerns or they identify new violations, we can be
subject to any of the following sanctions:
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Warning Letters, fines, injunctions, consent decrees and civil penalties;
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repair, replacement, refunds, recall or seizure of our products;
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operating restrictions, partial suspension or total shutdown of production;
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refusal of our requests for 510(k) clearance or premarket approval of new products, new intended uses or modifications to existing products;
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withdrawal of 510(k) clearance or premarket approvals that have already been granted; and
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Fraud and
Abuse
. We may directly or indirectly be subject to various federal and state laws pertaining to healthcare fraud and abuse, including anti-kickback laws. In particular, the federal Anti-Kickback Statute prohibits persons from knowingly and
willfully soliciting, offering, receiving or providing remuneration, directly or indirectly, in exchange for or to induce either the referral of an individual, or the furnishing, arranging for or recommending a good or service, for which payment may
be made in whole or part under federal healthcare programs, such as the Medicare and Medicaid programs. Penalties for violations include criminal penalties and civil sanctions such as fines, imprisonment and possible exclusion from Medicare,
Medicaid and other federal healthcare programs. The Anti-Kickback Statute is broad and prohibits many arrangements and practices that are lawful in businesses outside of the healthcare industry. In implementing the statute, the Office of Inspector
General, or OIG, has issued a series of regulations, known as the “safe harbors.” These safe harbors set forth provisions that, if all their applicable requirements are met, will assure healthcare providers and other parties that they will
not be prosecuted under the Anti-Kickback Statute. The failure of a transaction or arrangement to fit precisely within one or more safe harbors does not necessarily mean that it is illegal or that
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prosecution will be pursued. However, conduct and business arrangements that do not fully satisfy each applicable element of a safe harbor may result in
increased scrutiny by government enforcement authorities, such as the OIG.
International
. International sales of medical devices
are subject to foreign governmental regulations, which vary substantially from country to country. The time required to obtain clearance or approval by a foreign country may be longer or shorter than that required for FDA clearance or approval, and
the requirements may be different.
The primary regulatory environment in Europe is that of the European Economic Community, which has
adopted numerous directives and has promulgated voluntary standards regulating the design, manufacture, clinical trials, labeling and adverse event reporting for medical devices. Devices that comply with the requirements of a relevant directive will
be entitled to bear CE conformity marking, indicating that the device conforms with the essential requirements of the applicable directives and, accordingly, can be commercially distributed throughout the member states of the European Economic
Community, and other countries that comply with or mirror these directives. The method of assessing conformity varies depending on the type and class of the product, but normally involves a combination of self-assessment by the manufacturer and a
third-party assessment by our designated notified body, an independent and neutral institution appointed by a country to conduct the conformity assessment. This third-party assessment may consist of an audit of the manufacturer’s quality system
and specific testing of the manufacturer’s device. Such an assessment is required in order for a manufacturer to commercially distribute the product throughout these countries. ISO 9001 and ISO 13845 certifications are voluntary harmonized
standards. Compliance establishes the presumption of conformity with the essential requirements for a CE Marking. We have the authorization to affix the CE Mark to Gel Mark Ultra, Gel Mark UltraCor, and our EnCor system and to commercialize these
devices in the European Economic Community, Hong Kong, Singapore, Taiwan, and several other Asian countries. In October 2007 we partnered with local distributors who have breast imaging and/or interventional radiology franchises in Austria, Belgium,
England, Hong Kong, Ireland, Luxembourg, The Netherlands, Singapore, Switzerland, and Taiwan to sell EnCor and our tissue marker products in these ten countries.
Third-Party Reimbursement
Payment for patient care in the United States is generally made by third-party payors, including
private insurers and government insurance programs, such as Medicare and Medicaid. The Medicare program, the largest single payor in the United States, is a federal governmental health insurance program administered by the Centers for Medicare and
Medicaid Services, or CMS. Reimbursement for procedures related to breast cancer has been favorable as a result of the growing awareness of the impact of the disease as well as the recognition that proactive diagnosis and treatment is critical for
effective care. The costs associated with the purchase of our products are reimbursed through Medicare, Medicaid and other third-party payors. International market acceptance of our products may depend, in part, upon the availability of
reimbursement within the prevailing healthcare payment systems. Reimbursement and healthcare payment systems in international markets vary significantly by country, and include both government-sponsored healthcare and private insurance.
Research and Development
As of December 31,
2007, we had 17 employees, as well as several key on-going consultants, in our research and development department, which is overseen by our chief technical officer. Historically, we focused our research and development efforts on diagnostic
products, including our breast biopsy systems and our tissue markers. While we plan to continue to develop our diagnostic products, we are also focused on developing our therapeutic and excision products to enable us to serve the continuum of care
in the breast care market. We are currently developing our radiation balloon and various excision and reconstructive cutting devices.
Research and development expenses for 2007, 2006 and 2005 were $6.4 million, $5.3 million and $4.9 million, respectively. We expect research and development efforts and expenses to increase in absolute dollar terms but decrease as a
percentage of net revenues.
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Patents and Proprietary Technology
We plan to pursue and maintain intellectual property protection in the United States, Europe, Japan, Canada and other countries such as China and Australia. As of December 31, 2007, we have 45 issued United
States patents primarily covering devices relating to breast biopsy, including biopsy site marking devices, excision devices and balloon products, the earliest of which will expire in 2018 and the last of which will expire in 2024, and 1 granted
European regional patent which has been validated in 7 national countries. In addition, we have 85 pending United States patent applications, 11 pending PCT (international) patent applications, 17 pending European regional patent applications, 20
pending Canadian patent applications, 5 pending Japanese patent applications, 7 pending Australian patent applications, as well as pending patent applications in Brazil, China, Mexico, South Korea and Singapore. We believe we have a strong
intellectual portfolio that has permitted us to make modifications to our products in response to competition without significant disruption to our operations.
We have three issued United States patents related either to the design or manufacturing of Contura MLB and additional United States patent applications are pending, some of which are expected to be issued in the
near-term. During the development of Contura MLB, we appropriately considered the intellectual property landscape, including citing as appropriate in our own patent filings the Hologic/Proxima patents that are the subject matter of our current
litigation with Hologic.
Together, our patents and patent applications protect aspects of our technologies. Key areas of our issued and
pending patent coverage include:
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biopsy systems, covering current embodiments and variations to the design of the EnCor and EnCor 360 probes, handpieces and control module;
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mechanical cutters, covering the Tri-Concave penetrating tip and the EnCor and EnCor 360 tissue cutting mechanisms;
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radiofrequency technologies, covering the SenoPulse RF Generator, devices powered by the generator, including the Single Step and Shape Select, and EnCor 360 probe;
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bioresorbable biopsy site markers, covering marker materials, methods for imparting ultrasound visibility, and marker delivery systems; and
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Contura MLB, covering the use of vacuum to help conform tissue surrounding the lumpectomy cavity to the walls of the radiation delivery balloon and our proprietary
balloon manufacturing process.
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We also rely on copyrights, trade secrets, technical know-how and continuing innovation
to develop and maintain our competitive position. We seek to protect our proprietary information and other intellectual property by generally requiring our employees, consultants, contractors, outside scientific collaborators and other advisors to
execute non-disclosure agreements on commencement of their employment or engagement.
Employees
As of December 31, 2007, we had 145 employees, including 67 employees in sales and marketing, 17 employees in research and development, 3
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employees in manufacturing, 14 employees in clinical, regulatory and quality assurance and 10 employees in general and administrative. We believe that our future success will depend on our continued ability to attract, hire and retain qualified
personnel. None of our employees are represented by a labor union or are parties to a collective bargaining agreement, and we believe our employee relations are good.
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Available Information
We are subject to the reporting requirements under the Securities Exchange Act of 1934. Consequently, we are required to file reports and information with the Securities and Exchange Commission (SEC), including
reports on the following forms: annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities
Exchange Act of 1934. These reports and other information concerning the company may be accessed through the SEC’s website at http://www.sec.gov.
You may also find on our website at http://www.senorx.com/ electronic copies of our annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments to those
reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934. Such filings are placed on our website as soon as reasonably possible after they are filed with the SEC. Our charter for our Audit and
Compensation Committees and our Code of Ethics are available on our website. In the event that we grant a waiver under our Code of Ethics, to any of our officers and directors, we will publish it on our website.
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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, fully launched our flagship product for use in breast biopsy procedures, the EnCor system, in November 2005, and launched our flagship radiation therapy product, the Contura MLB, in January 2008. We incurred net losses of $9.9
million in 2007, $15.4 million in 2006, and $8.6 million in 2005, and, as of December 31, 2007, had an accumulated deficit of approximately $75.5 million. In addition, we expect our operating expenses to increase as we expand our business to
meet anticipated increased demand for our EnCor system, continue with the full commercialization of the Contura MLB, 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 and Contura MLB 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 and Contura MLB, 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 and we will maintain or grow our current share of this market;
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we will be able to demonstrate compelling clinical data supporting EnCor’s 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 EnCor 360. Our commercial success also
depends on the continued general market shift to less invasive biopsy procedures.
We commercially launched Contura MLB in January 2008 and
have yet to achieve significant sales. Failure of EnCor or Contura MLB to be widely adopted would significantly harm our future financial performance.
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Our future success will depend in part upon our ability to successfully commercialize our Contura MLB.
We expect our Contura MLB, which we received FDA 510(k) clearance in May 2007, to rapidly become a significant contributor to our revenues. The Contura
MLB development has been completed, but there remain significant challenges that must be overcome before we can obtain significant revenue from this product, including:
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we have limited experience selling to radiological oncologists, the primary market for this product;
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attracting and retaining qualified sales professionals to sell it;
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differentiating Contura MLB from competing products and obtaining a significant share of this market;
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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 FDA’s 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 represents a compelling
alternative to competing products. It has been reported that new short-term brachytherapy products from Cianna Medical, North American Scientific and Xoft will all begin to be commercialized in 2008. Our commercial success will also depend on a
general market shift from whole to partial breast radiation. If we are unable to obtain a significant share of the brachytherapy market for the reasons listed above, or that competing products are more compelling and achieve better acceptance by the
market, our long-term commercialization experience with the Contura MLB could be significantly below expectations or not achieved at all, which would have a material adverse effect on our future financial performance. Additionally, the adoption of
conformal radiotherapy may grow at a faster rate than the overall market for partial breast radiation therapies, and as a result, could impact the speed of adoption of balloon brachytherapy devices, including Contura MLB.
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
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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
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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, 2007 and 2006, represented approximately 5.8% and 7.6%, respectively, of our total revenues. We cannot assure you that Kaiser or other large
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 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;
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retain and motivate our sales employees; and
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integrate our new brachytherapy sales professionals and successfully sell into the radiation oncology market.
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We expect that our Contura MLB 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 competes with products that are well-established. Accordingly, it is difficult for us to predict how well our sales force will perform.
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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 are currently and may in the future be subject
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. On January 8, 2008, Hologic and its wholly-owned subsidiaries, including Cytyc Corporation and Cytyc LP, filed a lawsuit
against us in the United States District Court, Northern District of California, San Jose Division. The complaint generally alleges patent infringement of certain Hologic brachytherapy patent claims, seeking unspecified monetary damages and an
injunction against us for infringement of those claims. On February 6, 2008, Hologic filed a motion seeking a preliminary injunction in the case and requested that the Court stop the sale of Contura MLB. On March 7, 2008, Hologic
filed an amended complaint restating its allegations regarding patent infringement, and adding new claims under the Lanham Act and California state unfair competition and false advertising statutes. Because the outcome of this litigation is
undetermined, we cannot reasonably estimate the possible loss or range of loss that may arise from the litigation or the likelihood of success. If we lose the preliminary injunction hearing or the principal law suit itself, we may be completely
prevented from selling Contura MLB and as a result, our future prospects will be significantly harmed.
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 party’s 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 management’s 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.
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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. If any such licenses are required, we may be unable to negotiate terms acceptable to us and such failure could have a material adverse effect on our future results of
operations.
We may be unsuccessful in our long-term goal of expanding our product offerings outside the United States and Canada.
For the year ended December 31, 2007, we derived approximately 95.3% 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.
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, one vendor for a biopsy
probe coating and one vendor for the ultrasound technology used in SenoSonix with EnCor. 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 FDA’s 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, 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
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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 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. For example, Medicare modestly reduced 2008 reimbursement rates
for multiple-dwell radiation balloon catheter procedures, which includes Contura MLB, performed by surgeons when compared with other radiation balloons.
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 management’s 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 patient’s 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
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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, 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 management’s 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.
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.
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 FDA’s 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.
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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 patient’s
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 FDA’s 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 manufacturer’s 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.
Following the expiration of lock-up arrangements with our stockholders in September 2007 that
were entered into in connection with our IPO, all shares of our common stock that were outstanding before the IPO are now eligible for resale, subject to compliance with Rule 144 under the Securities Act. If our stockholders sell substantial amounts
of our common stock, 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.
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