Overview
– SINTX Technologies
SINTX
Technologies is a 25-year-old advanced ceramics company formed in December 1996, focused on providing solutions in a variety of biomedical,
industrial, and antipathogenic applications. The Company has grown from focusing primarily on the research, development and commercialization
of medical devices manufactured with silicon nitride to becoming an advanced ceramics company engaged in diverse fields, including biomedical,
industrial and antipathogenic applications. This diversification enables the Company to focus on its core competencies which are the
manufacturing, research, and development of products comprised from advanced ceramic materials for external partners. The Company seeks
to connect with new customers, partners and manufacturers to help them realize the goal of leveraging our expertise in advanced ceramics
to create new, innovative products across these sectors.
SINTX
Core Business
Biomedical
Applications: Since its inception, SINTX has been focused on medical grade silicon nitride. SINTX biomedical products have been shown
to be biocompatible, bioactive, antipathogenic, and to have superb bone affinity. Spinal implants made from SINTX silicon nitride have
been successfully implanted in humans since 2008 in the US, Europe, Brazil, and Taiwan. This established use, along with its inherent
resistance to bacterial adhesion and bone affinity suggests that it may also be suitable in other fusion device applications such as
hip implants foot wedges and dental implants. Bacterial infection of any biomaterial implants is always a concern. SINTX silicon nitride
has been shown to be resistant to bacterial colonization and biofilm formation, making it antibacterial. SINTX silicon nitride products
can be polished to a smooth and wear-resistant surface for articulating applications, such as bearings for hip and knee replacements.
We
believe that silicon nitride has a superb combination of properties that make it suited for long-term human implantation. Other biomaterials
are based on bone grafts, metal alloys, and polymers- all of which have well-known practical limitations and disadvantages. In contrast,
silicon nitride has a legacy of success in the most demanding and extreme industrial environments. As a human implant material, silicon
nitride offers bone ingrowth, resistance to bacterial and viral infection, ease of diagnostic imaging, resistance to corrosion, and superior
strength and fracture resistance, all of which claims are validated in our large and growing inventory of peer-reviewed, published literature
reports. We believe that our versatile silicon nitride manufacturing expertise positions us favorably to introduce new and innovative
devices in the medical and non-medical fields.
Industrial
Applications: It is the belief of SINTX that its silicon nitride has the best combination of
mechanical, thermal, and electrical properties of any technical ceramic material. It is a high-performance technical ceramic with high
strength, toughness, and hardness, and is extremely resistant to thermal shock and impact. It is also an electrically insulating ceramic
material. Typically, it is used in applications where high load-bearing capacity, thermal stability, and wear resistance are required.
The Company has obtained AS9100D certification and ITAR registration to facilitate entry into the aerospace and protective armor market.
SINTX
has recently entered the ceramic armor market through the purchase of assets from B4C, LLC and a technology partnership with Precision
Ceramics USA. SINTX will develop and manufacture high-performance ceramics for personnel, aircraft, and vehicle armor including a 100%
Boron Carbide material for ultimate lightweight performance in ballistic applications, and a composite material made of Boron Carbide
and Silicon Carbide for exceptional multi-hit performance against ballistic threats. SINTX has signed a 10-year lease at a building near
its headquarters in Salt Lake City, Utah to house development and manufacturing activities for SINTX Armor, and expects to be fully operational
by the end of Q2 2022.
Antipathogenic
Applications: There is a global need to improve protection against pathogens in everyday life. SINTX believes that by
incorporating its unique composition of silicon nitride antipathogenic powder into products such as face masks, filters, and wound
care devices, it is possible to manufacture surfaces that inactivate pathogens, thereby limiting the spread of infection and
disease. The discovery in 2020 that SINTX silicon nitride inactivates S ARS-CoV-2, the virus which causes the disease COVID-19, has
opened new markets and applications for our material and we have refocused many of our resources on these opportunities.
SINTX
presently manufactures advanced ceramic powders and components in its manufacturing facilities based in Salt Lake City, Utah.
Our
Products
Silicon
Nitride
To
control the quality, cost and availability of our silicon nitride products and product candidates, we operate our own silicon nitride
manufacturing facility. Our 30,000 square foot corporate facility includes an 18,000 square foot FDA registered and ISO 13485:2016 certified
medical device manufacturing space. It is equipped with state-of-the-art powder processing, spray drying, pressing and computerized machining
equipment, sintering furnaces, and other testing equipment that enables us to control the entire manufacturing process for our silicon
nitride products and product candidates. All operations with the exception of raw material production are performed in-house. We purchase
raw materials, consisting of silicon nitride ceramic powder and dopant chemical compounds, from several vendors which are ISO registered
and approved by us. These raw materials are characterized and tested in accordance with our specifications and then blended to formulate
our silicon nitride. We believe that there are multiple vendors that can supply us these raw materials and we continually monitor the
quality and pricing offered by our vendors to ensure high quality and cost-effective supply of these materials.
The
chemical composition of our in-house formulation of silicon nitride and our processing and manufacturing experience allows us to produce
silicon nitride in multiple distinct forms. This capability provides us with the ability to utilize our silicon nitride in a variety
of ways depending on the intended application, which, together with our silicon nitride’s key characteristics, distinguishes us
from other manufacturers of silicon nitride products.
We
currently produce silicon nitride for use in our commercial products and product candidates in the following forms:
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Solid
Silicon Nitride. This form of silicon nitride is a fully dense, load-bearing solid which can be used for devices that require
high strength, toughness, fracture resistance and low wear. Applications include medical devices – such as interbody spinal
fusion implants – and non-medical such as cutting tools, welding rods, and aerospace components. |
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Porous
Silicon Nitride. While this form of silicon nitride has a chemical composition that is identical to that of our monolithic solid
silicon nitride, this formulation has a porous structure, which is engineered to mimic cancellous bone, the spongy bone tissue that
typically makes up the interior of human bones. Our porous silicon nitride has interconnected pores ranging in size between about
90 and 600 microns, which is similar to that of cancellous bone. This form of silicon nitride can be used for the promotion of bone
in-growth and attachment. We believe our porous silicon nitride can act as a substitute for the orthobiologics currently used to
fill interbody devices in an effort to stimulate fusion, as a bone void filler, and as a porous scaffold for medical devices. |
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Silicon
Nitride Powder. We can produce silicon nitride powder that is osteogenic and antipathogenic. This powder can then be utilized
to produce composites or coatings. |
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Composite
of Silicon Nitride and PEEK. We have demonstrated in the laboratory that it is possible to compound our silicon nitride powder
and the polymer PEEK and that the ensuing composite material maintains the bioactive properties of silicon nitride. We have engaged
academic and commercial partners to assist us in developing this technology and have received an NIH grant to assist in advancing
this work. This composite material would allow the straightforward machinability of a complex device that would be more challenging
to manufacture from silicon nitride alone. |
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Silicon
Nitride Coating. With a similar chemical composition as our other forms of silicon nitride, this form of silicon nitride can
be applied as an adherent coating to metallic substrates, including cobalt-chromium, titanium and steel alloys, polymers, and ceramics.
We believe applying an extremely thin layer of silicon nitride as a coating may provide a highly wear-resistant articulation surface,
such as on femoral heads, which may reduce problems associated with metal or polymer wear debris. We also believe that the silicon
nitride coating can be applied to devices that require firm fixation and functional connections between the device or implant and
the surrounding tissue, such as hip stems and screws. The use of silicon nitride coating may also create an antibacterial, antiviral,
and antifungal barrier between the device and the adjacent bone or tissue. We are currently evaluating several different coating
technologies. |
We
believe we are the only FDA-registered and ISO 13485:2016 certified silicon nitride medical device manufacturing facility in the world,
and the only provider of structural ceramics-based medical devices used for spinal fusion applications. Silicon nitride is a chemical
compound comprised of the element’s silicon and nitrogen, with the chemical formula Si3N4. Silicon nitride,
an advanced ceramic, is lightweight, resistant to fracture and strong, and is used in many demanding mechanical, thermal and wear applications,
such as in space shuttle bearings, jet engine components, and body armor.
We
believe our silicon nitride is ideal as an implant material and is superior to other biomaterials currently used in the spine implant
market such as PEEK, allograft and autograft bone, metal and traditional oxide ceramics, none of which possess all of the favorable characteristics
of silicon nitride:
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Promotes
Bone Growth. Our silicon nitride is osteointegrative through its inherent surface topography and surface chemistry. The surface
topography provides scaffolding for new bone growth. As a hydrophilic material, silicon nitride attracts protein cells and nutrients
that stimulate osteoprogenitor cells to differentiate into osteoblasts, which are needed for optimal bone growth environments. Our
silicon nitride has an inherent surface chemistry that favors bone formation and healing, much more so than PEEK and metals. These
properties were highlighted in an in vivo study, where we measured the force required to separate devices from the spine after
being implanted for three months, which indicates the quality of osteointegration. In the absence of bacteria, the force required
to separate our silicon nitride from its surrounding bone was approximately three times that of PEEK, and nearly two times that of
titanium. In the presence of bacteria, the force required to separate our silicon nitride from its surrounding bone was over five
times that of titanium, while there was effectively no separation force required for PEEK, indicating essentially no osteointegration
in a septic environment. |
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Antibacterial.
We have demonstrated in in vitro and in vivo studies that silicon nitride has inherent surface antibacterial properties,
which reduce the risk of bacterial infection and biofilm in and around a silicon nitride device. PEEK, traditional ceramics, metals
and bone do not have this bacterial resistance. These properties were highlighted in an in vitro study (Acta Biomater. 2012
Dec;8(12):4447-54. Doi: 10.1016/j.actbio.2012.07.038. Epub 2012 Jul 31.), where live bacteria counts were between 8 and 30 times
lower on our silicon nitride than PEEK and up to 8 times lower on our silicon nitride than titanium. In addition to improving patient
outcomes, we believe the antibacterial properties of our silicon nitride should make it an attractive biomaterial to hospitals and
surgeons who are not reimbursed by third-party payers for the treatment of acute, implant-related infections. Additionally, silicon
nitride is synthetic and, therefore, there is a lower risk of disease transmission through cross-contamination or of an adverse auto-immune
response, sometimes associated with the use of allograft bone. |
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Antiviral:
Solid-surface inactivation of microbial pathogens has ancient roots; the Smith Papyrus (2600~2200 B.C.) described the use of
copper surfaces to sterilize chest wounds and drinking water. Today, brass and bronze on doorknobs help prevent microbial spread
in hospitals, and metal particles and surface coatings of selected metals are used in hygiene-sensitive environments, both as inactivators
and adjuvants in inducing cellular immunity. Cellular toxicity limits these approaches because while the reactive oxygen radicals
generated at metal surfaces efficiently kill bacteria and viruses, they also damage cells by oxidizing their proteins and lipids.
Recent data have shown that silicon nitride surfaces are effective against several types of viruses. With surface-contact transmission
of viral pathogens, particularly influenza, and the increasing use of consumer touchscreens in various retail industries, we believe
that our material has value to OEM partners focused on consumer glass-based surface coatings and treatments. We have filed a U.S.
patent application on this effect. |
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Antifungal:
We have conducted preliminary studies which suggest that our silicon nitride may be effective against fungal microbes. Plant-based
viruses, bacteria, and fungi affect some 15% of the world’s edible crops, or about 1 billion metric tons of edible produce
annually, with an economic impact in the US and Canada alone estimated to be between $1.5 to $5 Billion per year. The mycotoxins
produced by these plant fungi have an overall negative impact on human health and longevity. The inorganic nature of silicon nitride
may prove to be more beneficial than the use of petrochemical or organometallic fungicides which are known to have residual effects
in soil, on plants, and in fruit. |
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Imaging
Compatible. Our silicon nitride interbody spinal fusion devices are semi-radiolucent, clearly visible in X-rays, and produce
no distortion under MRI and no scattering under CT. These characteristics enable an exact view of the device for precise intra-operative
placement and post-operative bone fusion assessment in spinal fusion procedures. These qualities provide surgeons with greater certainty
of outcomes with our silicon nitride devices than with other biomaterials, such as PEEK and metals. |
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Hard,
Strong and Resistant to Fracture. Our silicon nitride is hard, strong and possesses superior resistance to fracture over traditional
ceramics and greater strength than polymers currently on the market. For example, our silicon nitride’s flexural strength is
more than five times that of PEEK and our silicon nitride’s compressive strength is over twenty times that of PEEK. Unlike
PEEK interbody spinal fusion devices, we believe our silicon nitride interbody spinal fusion devices can withstand the forces exerted
during implantation and daily activities over the long term. |
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Resistant
to Wear. We believe our silicon nitride joint implant product candidates could have higher resistance to wear than metal-on-cross-linked
polyethylene and traditional oxide ceramic-on-cross-linked polyethylene joint implants, the two most commonly used total hip replacement
implants. Wear debris associated with metal implants increases the risk of metal sensitivity and metallosis. It is a primary reason
for early failures of metal and polymer articulating joint components. |
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Non-Corrosive.
Our silicon nitride does not have the drawbacks associated with the corrosive nature of metal within the body, including metal
sensitivity and metallosis, nor does it result in the release of metal ions into the body. As a result, we believe our silicon nitride
products will have lower revision rates and fewer complications than comparable metal and traditional oxide ceramic products. |
We
and a number of independent third parties have conducted extensive biocompatibility, biomechanical, in vivo and in vitro testing
on our silicon nitride composition to establish its safety and efficacy in support of regulatory clearance of our biomaterial, products
and product candidates. We have also completed additional testing of our silicon nitride products and product candidates. The results
of this testing have been published in over 130 peer reviewed publications and presentations that include basic science studies, small-
and large-animal data, and human clinical studies. We believe that our product development strategy is consistent with the manner in
which other biomaterials have been successfully introduced into the market and adopted as the standard of care. Listed below is an overview
of some of the key testing completed on our silicon nitride biomaterial, products and product candidates to date, as well as other information
about our silicon nitride and other biomaterials.
Other
Advanced Ceramic Products
In
2021, SINTX entered the ceramic armor market through the purchase of assets from B4C, LLC, Dayton, Ohio, and a technology partnership
with Precision Ceramics USA. SINTX operates its armor business through its wholly owned subsidiary SINTX Armor, Inc. SINTX will develop
and manufacture high-performance ceramics for personnel, aircraft, and vehicle armor including a 100% boron carbide material for ultimate
lightweight performance in ballistic applications, and a composite material made of boron carbide and silicon carbide for exceptional
multi-hit performance against ballistic threats. The demand for ceramic armor has been propelled in the defense industries and is increasingly
being used in the manufacturing of vests, backpacks, and vehicle panels for military applications. Since its introduction during the
Vietnam War, ceramic armor has developed into a modern solution for defeating ballistic threats. Armor solutions utilizing ceramics are
commonly used to protect vehicles, personnel, aircraft, and marine vessels due to their light weight and high hardness.
Boron
carbide has additional uses including wear components – such as nozzles – and as a neutron absorber in nuclear reactors.
SINTX is pursuing opportunities in these market segments as well.
SINTX
has signed a 10-year lease at a building near its headquarters in Salt Lake City, Utah to house development and manufacturing activities
for SINTX Armor. The Company has relocated the B4C assets from Dayton into this facility and is making necessary upgrades to the facility
infrastructure to operate the equipment.
Our
Competitive Strengths
We
believe we can use our silicon nitride technology platform to become a leading advanced ceramic company and have the following principal
competitive strengths:
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Sole
Provider of Silicon Nitride Medical Devices. We believe we are the only company that designs, develops, manufactures and sells
medical grade silicon nitride-based products. Due to its key characteristics, we believe our silicon nitride enables us to offer
new and transformative products across multiple medical specialties. In addition, with the FDA clearance of our silicon nitride Valeo
products, we are the only company to develop and manufacture a ceramic for use in FDA cleared spinal fusion medical devices in the
United States. |
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In-House
Manufacturing Capabilities. We operate an 18,000 square foot manufacturing facility located at our corporate headquarters in
Salt Lake City, Utah. This operation complies with the FDA’s quality system regulation, or QSR, and is certified under the
International Organization for Standardization’s, or ISO, standard 13485:2016 for medical devices. This facility allows us
to rapidly design and produce silicon nitride products while controlling the entire manufacturing process from raw material to finished
components. |
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Extensive
Network of Scientific Collaborators. We have developed strong, multi-year, collaborative relationships with surgeons who have
used our products. These surgeons have supported us in collecting clinical data on silicon nitride and on reporting the successful
patient outcomes they have observed. We also have long standing relations with university laboratories in Japan and the US and participate
in a European consortium on silicon nitride. Our partner in Japan has been at the forefront of silicon nitride biomaterial research
for several years and has published extensively on the subject. |
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Highly
Experienced Management and Technical Advisory Team. Members of our management team have extensive experience in silicon nitride,
ceramics, research and development, manufacturing and operations, product development, launching of new silicon nitride products
into multiple industries. We also collaborate with a network of leading technical advisors in the design, development and use of
our silicon nitride products and product candidates. |
Our
Strategy
Our
goal is to become a leading advanced ceramics company. Key elements of our strategy to achieve this goal are the following:
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Develop
new products with anti-pathogenic properties, including inactivation of the SARS-CoV-2 virus, utilizing our silicon nitride technology.
We have conducted multiple tests over the last nine years which have identified and verified the antipathogenic properties of
our silicon nitride powders, fully dense components, and silicon nitride-containing composites. Our research has explored the fundamental
mechanisms responsible for these antipathogenic properties with the objective of developing commercial products and revenue from
them. We have several partnerships exploring opportunities in face masks, filters, wound care, and coatings. |
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Develop
additional commercial opportunities outside of the medical device market. The Company has pursued the development of non-medical
uses for its silicon nitride since selling the retail spine business in 2018. In 2019, the Company became ITAR-registered and obtained
AS9100D certification of its quality management system. SINTX has hired experienced business development employees to identify new
markets and applications for its materials and develop commercial relationships. The Company made the first shipments of non-medical
products in its history in 2020. These were primarily prototype orders, and we expect some of these to transition into regular production
orders. The launch of SINTX Armor will generate revenue from new products. The potential use of the Company’s silicon nitride
in antipathogenic applications has also opened up the potential to enter many new markets. |
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Develop
new silicon nitride manufacturing technologies. Our current manufacturing process has allowed us to successfully produce spinal
implants for over 10 years. We have made advancements in our processes – including the purchase of new manufacturing equipment
– which we have leveraged to develop new porous and textured implants. In 2021, SINTX purchased new equipment for its research
and development team to develop new composite products of silicon nitride with rigid polymers and fabrics. |
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Apply
our silicon nitride technology platform to new medical opportunities. We believe our biomaterial expertise, flexible manufacturing
process, and strong intellectual property will allow us to transition currently available medical device products made of inferior
biomaterials and manufacture them using silicon nitride and our technology platform to improve their characteristics. We are seeking
partnerships to utilize our capabilities and manufacture products for medical OEM and private label partnerships. We see specific
opportunities in markets such as foot and ankle, dental, maxillofacial, and arthroplasty. |
Market
Opportunity
Biomedical
We
believe our silicon nitride biomaterial technology platform provides us with numerous competitive advantages in the biomaterials market.
We manufacture interbody spinal fusion devices for CTL Amedica and have approximately 7 years remaining of a 10-year exclusive right
to continue to manufacture them for CTL Amedica. We are developing products on our own behalf and for third party manufacturers –
including CTL – for use as components in spine, total hip and knee joint replacements, as well as dental and maxillofacial applications.
We believe we can also utilize our silicon nitride technology platform to develop future products in additional medical and non-medical
markets.
We
believe that the main drivers for growth within the orthopedic biomaterials market are the following:
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Introduction
of New Technologies. Better performing and longer-lasting biomaterials, improved diagnostics, and advances in surgical procedures
allow for surgical intervention earlier in the continuum of care and better outcomes for patients. We believe surgical options using
better performing and longer-lasting biomaterials will gain acceptance among surgeons and younger patients and drive accelerated
growth and increase the size of the spinal fusion and joint replacement markets. |
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Favorable
and Changing Demographics. With the growing number of elderly people, age-related ailments are expected to rise sharply, which
we believe will increase the demand and need for biomaterials and devices with improved performance capabilities. Also, middle-aged
and older patients increasingly expect to enjoy active lifestyles, and consequently demand effective treatments for painful spine
and joint conditions, including better performing and longer-lasting interbody spinal fusion devices and joint replacements. |
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Market
Expansion into New Geographic Areas. We anticipate that demand for biomaterials and the associated medical devices will increase
as the applications in which biomaterials are used are introduced to and become more widely accepted in underserved countries, such
as Brazil and China. We also expect to introduce our products into established markets such as Australia and Japan. |
Personal
Protective Equipment (PPE)
We
believe that there is the opportunity for significant growth in the personal protective equipment or PPE market for products that are
shown to have antiviral properties. The Company has demonstrated in controlled research studies the anti-viral properties of its silicon
nitride which may be useful in the reduction of the spread of COVID-19 and other pathogens. The study results demonstrated that our unique
grade of silicon nitride inactivates the SARS-CoV-2 virus within a minute after exposure and has the potential to decrease the risk of
viral disease spread on surfaces. Studies have shown that coronavirus spreads between humans when an infected person coughs or sneezes.
Also, the virus can remain active on a variety of commonly touched surfaces for hours to days. We believe that by incorporating our unique
composition of silicon nitride into products such as face masks and personal protective equipment, it is possible to manufacture surfaces
that inactivate viral particles, thereby limiting the spread of the disease. We envision incorporating our silicon nitride into high-contact
surfaces such as medical equipment, screens, countertops, and doorknobs in locations where viral persistence is a concern, such as homes,
casinos, and cruise ships. To that effect, we have successfully dispersed and embedded silicon nitride particles into nonwoven and woven
fabric fibers.
The
first area of focus for application of our unique silicon nitride powder is in face masks and face mask filters. Face masks used by healthcare
workers today can capture virus particles, but the virus can remain viable in the mask, even as long 7 days after use. Inclusion of silicon
nitride technology into the mask may enhance personal safety while reducing the risk of disease spread.
Intellectual
Property
We
rely on a combination of patents, trademarks, trade secrets, nondisclosure agreements, proprietary information ownership agreements and
other intellectual property measures to protect our intellectual property rights. We believe that in order to have a competitive advantage,
we must continue to develop and maintain the proprietary aspects of our technologies.
We have fourteen
issued U.S. patents, one foreign patent, fifteen pending U.S. non-provisional patent applications, three pending U.S.
provisional patent applications, thirty-three pending foreign applications and ten pending PCT patent applications. Our
first issued patent expired in 2016, with the last of these patents expiring in 2039. The core patent (US 6,881,229) expires in
June 2022.
We have seven U.S. patents directed to articulating
implants using our high-strength, high toughness doped silicon nitride solid ceramic. The issued patents, which include US 6,881,229;
US 7,666,229; US 7,780,738; US 8,123,812; US 8,133,284; US 9,051,639; and US 9,517,136 begin to expire in June 2022.
We also have two U.S. patents related to our CSC
technology that are directed to implants that have both a dense load-bearing, or cortical, component and a porous, or cancellous, component,
together with a surface coating. These issued patents, US 8,133,284 and US 9,649,197 will expire in June 2022 and 2035, respectively.
In addition, U.S. Patent No. 10,806,831 directed
to antibacterial implants and U.S. Patent No. 11,191,787 directed to antipathogenic devices were recently issued which will expire in
2037 and 2039, respectively.
With
respect to PCT patent application serial no. PCT/US2018/014781 directed to antibacterial biomedical implants, we entered the national
stage in Europe, Australia, Brazil, Canada, China, Japan, Hong Kong, and South Korea as well as two divisional patent applications filed
in Australia and Japan to seek potential patent protection for our proprietary technologies in those countries.
With
respect to PCT patent application serial no. PCT/US2019/026789 directed to methods for improving the wear performance of ceramic-polyethylene
or ceramic-ceramic articulation couples utilized in orthopaedic joint prostheses, we entered the national stage in Australia, Brazil,
Canada, Europe, Japan, Korea, and Mexico to seek proprietary technologies in those countries.
With
respect to PCT application serial no. PCT/US2019/048072 directed to antipathogenic devices and methods, we entered the national stage
in Europe, Japan, Mexico, Australia, Brazil, Canada, South Korea, China and India to seek proprietary technologies in those
countries.
With
respect to PCT application serial no. PCT/US2020/037170 directed to methods of surface functionalization of zirconia-toughened alumina
with silicon nitride, we entered the national stage in Europe, Australia, Brazil, Canada, China, India, Japan, Mexico, and the United
States in order to seek proprietary technologies in those countries.
In
relation to the sale of our spine implant business to CTL Medical under the Asset Purchase Agreement dated September 5, 2018 we assigned
our entire right to forty eight (48) U.S. patents, two (2) foreign patents and three (3) pending patent applications from our patent
portfolio to CTL Medical under that transaction. In addition, three (3) U.S. patents (U.S. patent nos. 9,399,309; 9,517,136; and 9,649,197)
directed to silicon nitride manufacturing processes were licensed to CTL Medical under an irrevocable, fully paid-up, worldwide license
for a ten year term with CTL Medical also having a Right of First Negotiation to acquire these patents if SINTX decides to later sell
these IP assets to a third party.
Our
remaining issued patents and pending applications are directed to additional aspects of our products and technologies including, among
other things:
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designs
for intervertebral fusion devices; |
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designs
for hip implants; |
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designs
for knee implants; |
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implants
with improved antibacterial characteristics; |
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implants
with improved wear performance and surface functionalization |
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antipathogenic,
antibacterial, antimicrobial, antifungal, and antiviral compositions, devices, and methods; and
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Methods and systems for laser cladding, laser coting,
and laser sintering of silicon nitride. |
We
also expect to rely on trade secrets, know-how, continuing technological innovation and in-licensing opportunities to develop and maintain
our intellectual property position. However, trade secrets are difficult to protect. We seek to protect the trade secrets in our proprietary
technology and processes, in part, by entering into confidentiality agreements with commercial partners, collaborators, employees, consultants,
scientific advisors and other contractors and into invention assignment agreements with our employees and some of our commercial partners
and consultants. These agreements are designed to protect our proprietary information and, in the case of the invention assignment agreements,
to grant us ownership of the technologies that are developed.
Competition
The
main alternatives to our silicon nitride biomaterial include: PEEK, which is predominantly manufactured by Invibio; BIOLOX®
delta, which is a traditional oxide ceramic manufactured by CeramTec; allograft bone; metals; and coated metals.
We
believe our main competitors in the medical device market, which utilize a variety of competitive biomaterials, include: Medtronic, Inc.;
DePuy Synthes Companies, a group of Johnson & Johnson companies; Stryker Corporation; and Zimmer Biomet, Inc. Presently, these companies
buy ceramic components on an OEM basis from manufacturers such as CeramTec, Kyocera and CoorsTek, Inc., among others. We anticipate that
these and other orthopedic companies and OEMs will seek to introduce new biomaterials and products that compete with ours.
Our
main competitors in the industrial market segment include CoorsTek, Kyocera, and Saint Gobain.
Our
main competitors in the antipathogenic market segment include BactiGuard and MicroBan.
Competition
within our industries is primarily based on technology, innovation, product quality, and product awareness and acceptance by customers.
Our principal competitors have substantially greater financial, technical and marketing resources, as well as significantly greater manufacturing
capabilities than we do, and they may succeed in developing products that render our products and product candidates non-competitive.
Our ability to compete successfully will depend upon our ability to develop innovative products with advanced performance features.
Government
Regulation of Medical Devices
Governmental
authorities in the United States, at the federal, state and local levels, and other countries extensively regulate, among other things,
the research, development, testing, manufacture, labeling, promotion, advertising, distribution, marketing and export and import of products
such as those we are commercializing and developing. Failure to obtain approval or clearance to market our products and products under
development and to meet the ongoing requirements of these regulatory authorities could prevent us from continuing to market or develop
our products and product candidates.
United
States
Pre-Marketing
Regulation
In
the United States, medical devices are regulated by the FDA. Unless an exemption applies, a new medical device will require either prior
510(k) clearance or approval of a premarket approval application, or PMA, before it can be marketed in the United States. The information
that must be submitted to the FDA in order to obtain clearance or approval to market a new medical device varies depending on how the
medical device is classified by the FDA. Medical devices are classified into one of three classes on the basis of the controls deemed
by the FDA to be necessary to reasonably ensure their safety and effectiveness. Class I devices, which are those that have the lowest
level or risk associated with them, are subject to general controls, including labeling, premarket notification and adherence to the
QSR. Class II devices are subject to general controls and special controls, including performance standards. Class III devices, which
have the highest level of risk associated with them, are subject to most of the previously identified requirements as well as to premarket
approval. Most Class I devices and some Class II devices are exempt from the 510(k) requirements, although manufacturers of these devices
are still subject to registration, listing, labeling and QSR requirements.
A
510(k) premarket notification must demonstrate that the device in question is substantially equivalent to another legally marketed device,
or predicate device, that did not require premarket approval. In evaluating the 510(k), the FDA will determine whether the device has
the same intended use as the predicate device, and (a) has the same technological characteristics as the predicate device, or (b) has
different technological characteristics, and (i) the data supporting the substantial equivalence contains information, including appropriate
clinical or scientific data, if deemed necessary by the FDA, that demonstrates that the device is as safe and as effective as a legally
marketed device, and (ii) does not raise different questions of safety and effectiveness than the predicate device. Most 510(k)s do not
require clinical data for clearance, but the FDA may request such data. The FDA’s goal is to review and act on each 510(k) within
90 days of submission, but it may take longer based on requests for additional information. In addition, requests for additional data,
including clinical data, will increase the time necessary to review the notice. If the FDA does not agree that the new device is substantially
equivalent to the predicate device, the new device will be classified in Class III, and the manufacturer must submit a PMA. Since July
2012, however, with the enactment of the Food and Drug Administration Safety and Innovation Act, or FDASIA, a de novo pathway is directly
available for certain low to moderate risk devices that do not qualify for the 510(k) pathway due to lack of a predicate device. Modifications
to a 510(k)-cleared medical device may require the submission of another 510(k) or a PMA if the changes could significantly affect the
safety or effectiveness or constitute a major change in the intended use of the device.
Modifications
to a 510(k)-cleared device frequently require the submission of a traditional 510(k), but modifications meeting certain conditions may
be candidates for FDA review under a Special 510(k). If a device modification requires the submission of a 510(k), but the modification
does not affect the intended use of the device or alter the fundamental scientific technology of the device, then summary information
that results from the design control process associated with the cleared device can serve as the basis for clearing the application.
A Special 510(k) allows a manufacturer to declare conformance to design controls without providing new data. When the modification involves
a change in material, the nature of the “new” material will determine whether a traditional or Special 510(k) is necessary.
For example, in its Device Advice on How to Prepare a Special 510(k), the FDA uses the example of a change in a material in a finger
joint prosthesis from a known metal alloy to a ceramic that has not been used in a legally marketed predicate device as a type of change
that should not be submitted as a Special 510(k). However, if the “new” material is a type that has been used in other legally
marketed devices within the same classification for the same intended use, a Special 510(k) is appropriate. The FDA gives as an example
a manufacturer of a hip implant who changes from one alloy to another that has been used in another legally marketed predicate. Special
510(k)s are typically processed within 30 days of receipt.
The
PMA process is more complex, costly and time consuming than the 510(k) clearance procedure. A PMA must be supported by extensive data
including, but not limited to, technical, preclinical, clinical, manufacturing, control and labeling information to demonstrate to the
FDA’s satisfaction the safety and effectiveness of the device for its intended use. After a PMA is submitted, the FDA has 45 days
to determine whether it is sufficiently complete to permit a substantive review. If the PMA is complete, the FDA will file the PMA. The
FDA is subject to performance goal review times for PMAs and may issue a decision letter as a first action on a PMA within 180 days of
filing, but if it has questions, it will likely issue a first major deficiency letter within 150 days of filing. It may also refer the
PMA to an FDA advisory panel for additional review and will conduct a preapproval inspection of the manufacturing facility to ensure
compliance with the QSR, either of which could extend the 180-day response target. While the FDA’s ability to meet its performance
goals has generally improved during the past few years, it may not meet these goals in the future. A PMA can take several years to complete
and there is no assurance that any submitted PMA will ever be approved. Even when approved, the FDA may limit the indication for which
the medical device may be marketed or to whom it may be sold. In addition, the FDA may request additional information or request the
performance of additional clinical trials before it will reconsider the approval of the PMA or as a condition of approval, in which case
the trials must be completed after the PMA is approved. Changes to the device, including changes to its manufacturing process, may require
the approval of a supplemental PMA.
If
a medical device is determined to present a “significant risk,” the manufacturer may not begin a clinical trial until it
submits an investigational device exemption, or IDE, to the FDA and obtains approval of the IDE from the FDA. The IDE must be supported
by appropriate data, such as animal and laboratory testing results and include a proposed clinical protocol. These clinical trials are
also subject to the review, approval and oversight of an institutional review board, or IRB, which is an independent and multi-disciplinary
committee of volunteers who review and approve research proposals, and the reporting of adverse events and experiences, at each institution
at which the clinical trial will be performed. The clinical trials must be conducted in accordance with applicable regulations, including
but not limited to the FDA’s IDE regulations and current good clinical practices. A clinical trial may be suspended by the FDA,
the IRB or the sponsor at any time for various reasons, including a belief that the risks to the study participants outweigh the benefits
of participation in the trial. Even if a clinical trial is completed, the results may not demonstrate the safety and efficacy of a device
or may be equivocal or otherwise not be sufficient to obtain approval.
Post-Marketing
Regulation
After
a device is placed on the market, numerous regulatory requirements apply. These include:
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compliance
with the QSR, which require manufacturers to follow stringent design, testing, control, documentation, record maintenance, including
maintenance of complaint and related investigation files, and other quality assurance controls during the manufacturing process; |
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labeling
regulations, which prohibit the promotion of products for uncleared or unapproved or “off-label” uses and impose other
restrictions on labeling; and |
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medical
device reporting obligations, which require that manufacturers investigate and report to the FDA adverse events, including deaths,
or serious injuries that may have been or were caused by a medical device and malfunctions in the device that would likely cause
or contribute to a death or serious injury if it were to recur. |
Failure
to comply with applicable regulatory requirements can result in enforcement action by the FDA, which may include any of the following
sanctions:
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warning
letters; |
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fines,
injunctions, and civil penalties; |
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recall
or seizure of our products; |
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operating
restrictions, partial suspension or total shutdown of production; |
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refusal
to grant 510(k) clearance or PMA approvals of new products; |
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withdrawal
of 510(k) clearance or PMA approvals; and |
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criminal
prosecution. |
To
ensure compliance with regulatory requirements, medical device manufacturers are subject to market surveillance and periodic, pre-scheduled
and unannounced inspections by the FDA, and these inspections may include the manufacturing facilities of our subcontractors.
International
Regulation
International
sales of medical devices are subject to foreign government regulations, which vary substantially from country to country. The time required
to obtain approval by a foreign country may be longer or shorter than that required for FDA approval, and the requirements may differ.
For example, the primary regulatory authority with respect to medical devices in Europe is that of the European Union. The European Union
consists of 28 countries and has a total population of over 500 million people. The unification of these countries into a common market
has resulted in the unification of laws, standards and procedures across these countries, which may expedite the introduction of medical
devices like those we are offering and developing. Norway, Iceland, Lichtenstein and Switzerland are not members of the European Union
but have transposed applicable European medical device laws into their national legislation. Thus, a device that is marketed in the European
Union may also be recognized and accepted in those four non-member European countries as well.
The
European Union has adopted numerous directives and standards regulating the design, manufacture, clinical trials, labeling and adverse
event reporting for medical devices. Devices that comply with the requirements of relevant directives will be entitled to bear CE Conformity
Marking, indicating that the device conforms to the essential requirements of the applicable directives and, accordingly, can be commercially
distributed throughout the European Union. Actual implementation of these directives, however, may vary on a country-by-country basis.
The CE Mark is a mandatory conformity mark on medical devices distributed and sold in the European Union and certifies that a medical
device has met applicable requirements.
The
method of assessing conformity varies, but normally involves a combination of self-assessment by the manufacturer and a third-party assessment
by a “Notified Body.” Notified Bodies are independent testing houses, laboratories, or product certifiers authorized by the
European Union member states to perform the required conformity assessment tasks, such as quality system audits and device compliance
testing. An assessment by a Notified Body based within the European Union is required in order for a manufacturer to distribute the product
commercially throughout the European Union. Medium and higher risk devices require the intervention of a Notified Body which will be
responsible for auditing the manufacturer’s quality system. The Notified Body will also determine whether or not the product conforms
to the requirements of the applicable directives. Devices that meet the applicable requirements of E.U. law and have undergone the appropriate
conformity assessment routes will be granted CE “certification.” The CE Mark is mandatory for medical devices sold not only
within the countries of the European Union but more generally within most of Europe. As many of the European standards are converging
with international standards, the CE Mark is often used on medical devices manufactured and sold outside of Europe (notably in Asia that
exports many manufactured products to Europe). CE Marking gives companies easier access into not only the European market but also to
Asian and Latin American markets, most of whom recognize the CE Mark on medical device as a mark of quality and adhering to international
standards of consumer safety, health or environmental requirements.
Compliance
with Healthcare Laws
We
must comply with various U.S. federal and state laws, rules and regulations pertaining to healthcare fraud and abuse, including anti-kickback
and false claims laws, rules, and regulations, as well as other healthcare laws in connection with the commercialization of our products.
Fraud and abuse laws are interpreted broadly and enforced aggressively by various state and federal agencies, including the U.S. Department
of Justice, the U.S. Office of Inspector General for the Department of Health and Human Services and various state agencies.
We
have entered into agreements with certain surgeons for assistance with the design of our products, some of whom we anticipate may make
referrals to us or order our products. A majority of these agreements contain provisions for the payments of royalties. In addition,
some surgeons currently own shares of our stock. We have structured these transactions with the intention of complying with all applicable
laws, including fraud and abuse, data privacy and security, and transparency laws. Despite this intention, there can be no assurance
that a particular government agency or court would determine our practices to be in full compliance with such laws. We could be materially
impacted if regulatory or enforcement agencies or courts interpret our financial arrangements with surgeons to be in violation of healthcare
laws, including, without limitation, fraud and abuse, data privacy and security, or transparency laws.
The
U.S. federal Anti-Kickback Statute prohibits persons, including a medical device manufacturer (or a party acting on its behalf), from
knowingly or willfully soliciting, receiving, offering or paying remuneration, directly or indirectly, in exchange for or to induce either
the referral of an individual for a service or product or the purchasing, ordering, arranging for, or recommending the ordering of, any
service or product for which payment may be made by Medicare, Medicaid or any other federal healthcare program. This statute has been
interpreted to apply to arrangements between medical device manufacturers on one hand and healthcare providers on the other. The term
“remuneration” is not defined in the federal Anti-Kickback Statute and has been broadly interpreted to include anything of
value, such as cash payments, gifts or gift certificates, discounts, waiver of payments, credit arrangements, ownership interests, the
furnishing of services, supplies or equipment, and the provision of anything at less than its fair market value. Courts have broadly
interpreted the scope of the law, holding that it may be violated if merely “one purpose” of an arrangement is to induce
referrals, irrespective of the existence of other legitimate purposes. The Anti-Kickback Statute prohibits many arrangements and practices
that are lawful in businesses outside of the healthcare industry. Although there are a number of statutory exemptions and regulatory
safe harbors protecting certain business arrangements from prosecution, the exemptions and safe harbors are drawn narrowly, and practices
that involve remuneration intended to induce prescribing, purchasing or recommending may be subject to scrutiny if they do not qualify
for an exemption or safe harbor. Our practices may not in all cases meet all of the criteria for safe harbor protection from federal
Anti-Kickback Statute liability. The reach of the Anti-Kickback Statute was broadened by the enacted Patient Protection and Affordable
Care Act of 2010 and the Health Care and Education Affordability Reconciliation Act of 2010, collectively, the Affordable Care Act or
ACA, which, among other things, amends the intent requirement of the federal Anti-Kickback Statute such that a person or entity no longer
needs to have actual knowledge of the statute or specific intent to violate it in order to have committed a violation. In addition, the
ACA provides that the government may assert that a claim including items or services resulting from a violation of the federal Anti-Kickback
Statute constitutes a false or fraudulent claim for purposes of the federal False Claims Act (discussed below) or the civil monetary
penalties statute, which imposes fines against any person who is determined to have presented or caused to be presented claims to a federal
healthcare program that the person knows or should know is for an item or service that was not provided as claimed or is false or fraudulent.
In addition to the federal Anti-Kickback Statute, many states have their own anti-kickback laws. Often, these laws closely follow the
language of the federal law, although they do not always have the same scope, exceptions, safe harbors or sanctions. In some states,
these anti-kickback laws apply not only to payments made by government healthcare programs but also to payments made by other third-party
payors, including commercial insurance companies.
Sales,
marketing, consulting, and advisory arrangements between medical device manufacturers and sales agents and physicians are subject to
the Anti-Kickback Statute and other fraud and abuse laws. Government officials have focused recent enforcement efforts on, among other
things, the sales and marketing activities of healthcare companies, including medical device manufacturers, and have brought cases against
individuals or entities whose personnel allegedly offered unlawful inducements to potential or existing customers in an attempt to procure
their business. We expect these activities to continue to be a focus of government enforcement efforts. Settlements of these cases by
healthcare companies have involved significant fines and penalties and, in some instances, criminal plea agreements. We are also aware
of governmental investigations of some of the largest orthopedic device companies reportedly focusing on consulting and service agreements
between these companies and orthopedic surgeons. These developments are ongoing, and we cannot predict the effects they will have on
our business.
The
federal False Claims Act imposes liability on any person that, among other things, knowingly presents, or causes to be presented, a false
or fraudulent claim for payment by a federal healthcare program. The qui tam provisions of the False Claims Act allow a private individual
to bring civil actions on behalf of the federal government alleging that the defendant has submitted a false claim, or has caused such
a claim to be submitted, to the federal government, and to share in any monetary recovery. There are many potential bases for liability
under the False Claims Act. Liability arises, primarily, when a person knowingly submits, or causes another to submit, a false claim
for reimbursement to the federal government. The False Claims Act has been used to assert liability on the basis of inadequate care,
kickbacks, and other improper referrals, and allegations as to misrepresentations with respect to the services rendered. Qui tam actions
have increased significantly in recent years, causing greater numbers of healthcare companies, including medical device manufacturers,
to defend false claim actions, pay damages and penalties, or be excluded from participation in Medicare, Medicaid or other federal or
state healthcare programs as a result of investigations arising out of such actions. In addition, various states have enacted similar
laws analogous to the False Claims Act. Many of these state laws apply where a claim is submitted to any third-party payor and not merely
a federal healthcare program. We are unable to predict whether we would be subject to actions under the False Claims Act or a similar
state law, or the impact of such actions. However, the cost of defending such claims, as well as any sanctions imposed, could adversely
affect our financial performance. The Health Insurance Portability and Accountability Act of 1996, or HIPAA, also created several new
federal crimes, including healthcare fraud and false statements relating to healthcare matters. The healthcare fraud statute prohibits
knowingly and willfully executing a scheme to defraud any healthcare benefit program, including private third-party payors. The false
statements statute prohibits knowingly and willfully falsifying, concealing, or covering up a material fact or making any materially
false, fictitious, or fraudulent statement in connection with the delivery of or payment for healthcare benefits, items, or services.
In
addition, we may be subject to, or our marketing or research activities may be limited by, data privacy and security regulation by both
the federal government and the states in which we conduct our business. For example, HIPAA and its implementing regulations established
uniform federal standards for certain “covered entities” (healthcare providers, health plans and healthcare clearinghouses)
governing the conduct of certain electronic healthcare transactions and protecting the security and privacy of protected health information.
The American Recovery and Reinvestment Act of 2009, commonly referred to as the economic stimulus package, included expansion of HIPAA’s
privacy and security standards called the Health Information Technology for Economic and Clinical Health Act, or HITECH, which became
effective on February 17, 2010. Among other things, HITECH makes HIPAA’s privacy and security standards directly applicable to
“business associates”—independent contractors or agents of covered entities that create, receive, maintain, or transmit
protected health information in connection with providing a service for or on behalf of a covered entity. HITECH also increased the civil
and criminal penalties that may be imposed against covered entities, business associates and possibly other persons, and gave state attorneys
general new authority to file civil actions for damages or injunctions in federal courts to enforce the federal HIPAA laws and seek attorney’s
fees and costs associated with pursuing federal civil actions. These laws also require the reporting of breaches of protected health
information to affected individuals, regulators and in some cases, local or national media. HIPAA and HITECH impose strict limits on
our physician collaborators’ ability to use and disclose patient information on our behalf.
There
are also an increasing number of state “sunshine” laws that require manufacturers to provide reports to state governments
on pricing and marketing information. Several states have enacted legislation requiring medical device companies to, among other things,
establish marketing compliance programs, file periodic reports with the state, make periodic public disclosures on sales and marketing
activities, and to prohibit or limit certain other sales and marketing practices. In addition, a federal law known as the Physician Payments
Sunshine Act, now requires medical device manufacturers to track and report to the federal government certain payments and other transfers
of value made to physicians and teaching hospitals and ownership or investment interests held by physicians and their immediate family
members. The first reporting period covered only payments or transfers of value made and ownership or investment interests held by physicians
and their immediate family members from August 1, 2013 to December 31, 2013. The federal government disclosed the reported information
on a publicly available website beginning in September 2014. For calendar year 2014, the Physician Payments Sunshine Act will require
medical device manufacturers to report payments and transfers of values made and ownership or investment interests held by physicians
and their immediate family members for the full calendar year. These laws may adversely affect our sales, marketing, and other activities
by imposing administrative and compliance burdens on us. If we fail to track and report as required by these laws or to otherwise comply
with these laws, we could be subject to the penalty provisions of the pertinent state and federal authorities.
Clinical
research is heavily regulated by FDA regulations for the protection of human subjects (21 C.F.R. 50 and 56) and also the regulations
of the U.S Department of Health and Human Services, or the Common Rule (45 C.F.R 46). Both FDA human subject regulations and the Common
Rule impose restrictions on the involvement of human subjects in clinical research and require, among other things, the balancing of
the risks and benefits of research, the documented informed consent of research participants, initial and ongoing review of research
by an IRB. Similar regulations govern research conducted in foreign countries. Compliance with human subject protection regulations is
costly and time consuming. Failure to comply could substantially and adversely impact our research program and the development of our
products.
Because
of the breadth of these laws and the narrowness of available statutory and regulatory exemptions, it is possible that some of our business
activities could be subject to challenge under one or more of such laws. If our operations are found to be in violation of any of the
federal and state laws described above or any other governmental regulations that apply to us, we may be subject to penalties, including
criminal and significant civil monetary penalties, damages, fines, imprisonment, exclusion from participation in government healthcare
programs, injunctions, recall or seizure of products, total or partial suspension of production, denial or withdrawal of pre-marketing
product clearances and approvals, private “qui tam” actions brought by individual whistleblowers in the name of the government
or refusal to allow us to enter into supply contracts, including government contracts, and the curtailment or restructuring of our operations.
Public disclosure of privacy and data security violations could cause significant reputational harm. Any of these events could adversely
affect our ability to operate our business and our results of operations. To the extent that any of our products are sold in a foreign
country, we may be subject to similar foreign laws and regulations, which may include, for instance, applicable post-marketing requirements,
including safety surveillance, anti-fraud and abuse laws, implementation of corporate compliance programs, as well as laws and regulations
requiring transparency of pricing and marketing information and governing the privacy and security of health information, such as the
E.U.’s Directive 95/46 on the Protection of Individuals with regard to the Processing of Personal Data, or the Data Directive,
and the wide variety of national laws implementing the Data Directive.
Third-Party
Reimbursement
Because
we and our customers typically receive payment directly from hospitals and surgical centers, we do not anticipate relying directly on
payment for any of our products from third-party payors, such as Medicare, Medicaid, private insurers, and managed care companies. However,
our business will be affected by policies administered by federal and state healthcare programs, such as Medicare and Medicaid, as well
as private third-party payors, which often follow the policies of the state and federal healthcare programs. For example, our business
will be indirectly impacted by the ability of a hospital or medical facility to obtain coverage and third-party reimbursement for procedures
performed using our products. Many hospitals and clinics in the United States belong to group purchasing organizations (that typically
incentivize their hospital members to make a relatively large proportion of purchases from a limited number of vendors of similar products
that have contracted to offer discounted prices). Such contracts often include exceptions for purchasing certain innovative new technologies,
however. Accordingly, the commercial success of our products may also depend to some extent on our ability to either negotiate favorable
purchase contracts with key group purchasing organizations or persuade hospitals and clinics to purchase our product “off contract.”
These third-party payors may deny reimbursement if they determine that a device used in a procedure was not medically necessary; was
not used in accordance with cost-effective treatment methods, as determined by the third-party payor; or was used for an unapproved use.
A national or local coverage decision denying Medicare coverage for one or more of our products could result in private insurers and
other third party payors also denying coverage. Even if favorable coverage and reimbursement status is attained for our products, less
favorable coverage policies and reimbursement rates may be implemented in the future. The cost containment measures that third-party
payors and providers are instituting, both within the United States and abroad, could significantly reduce our potential revenues from
the sale of our products and any product candidates. We cannot provide any assurances that we will be able to obtain and maintain third
party coverage or adequate reimbursement for our products and product candidates in whole or in part.
For
inpatient and outpatient procedures, including those that will involve use of our products, Medicare and many other third-party payors
in the United States reimburse hospitals at a prospectively determined amount. This amount is generally based on one or more diagnosis
related groups, or DRGs, associated with the patient’s condition for inpatient treatment and generally based on ambulatory payment
classifications, or APCs, associated with the procedures performed as an outpatient at an ambulation surgicenter. Each DRG or APC is
associated with a level of payment and may be adjusted from time to time, usually annually. Prospective payments are intended to cover
most of the non-physician hospital costs incurred in connection with the applicable diagnosis and related procedures. Implant products,
such as those we plan to sell, represent part of the total procedure costs while labor, hospital room and board, and other supplies and
services represent the balance of those costs. However, the prospective payment amounts are typically set independently of a particular
hospital’s actual costs associated with treating a particular patient and implanting a device. Therefore, the payment that a hospital
would receive for a particular hospital visit would not typically take into account the cost of our products.
Medicare
has established a number of DRGs for inpatient procedures that involve the use of products similar to ours. Although Medicare has authority
to create special DRGs for hospital services that more properly reflect the actual costs of expensive or new-technology devices implanted
as part of a procedure, it has declined to do so in the past, and we do not expect that it will do so with respect to our current products
and product candidates. Medicare’s DRG and APC classifications may have implications outside of Medicare, as many other U.S. third-party
payors often use Medicare DRGs and APCs for purposes of determining reimbursement.
We
believe that orthopedic implants generally have been well received by third-party payors because of the ability of these implants to
greatly reduce long-term healthcare costs for patients with degenerative joint disease. However, coverage and reimbursement policies
vary from payor to payor and are subject to change. As discussed above, hospitals that purchase medical devices for treatment of their
patients generally rely on third-party payors to reimburse all or part of the costs and fees associated with the procedures performed
with these devices. Both government and private third-party coverage and reimbursement levels are critical to new product acceptance.
Neither hospitals nor surgeons are likely to use our products if they do not receive reimbursement for the procedures adequate to cover
the cost of our products.
While
it is expected that hospitals will be able to obtain coverage for procedures using our products, the level of payment available to them
for such procedures may change over time. State and federal healthcare programs, such as Medicare and Medicaid, closely regulate provider
payment levels and have sought to contain, and sometimes reduce, payment levels. Commercial insurers and managed care plans frequently
follow government payment policies and are likewise interested in controlling increases in the cost of medical care. These third-party
payors may deny payment if they determine that a procedure was not medically necessary, a device used in a procedure was not used in
accordance with cost-effective treatment methods, as determined by the third-party payor, or was used for an unapproved use. Further,
beginning January 1, 2021 and over the course of a three-year period, CMS will eliminate the inpatient only list for Medicare which will
result in all spine procedures being payable in the outpatient setting. Reimbursement levels in the hospital outpatient and ASC settings
are typically lower than for the hospital inpatient setting and may not be adequate to cover the cost of innovative and novel medical
devices.
In
addition, some payors are adopting pay-for-performance programs that differentiate payments to healthcare providers based on the achievement
of documented quality-of-care metrics, cost efficiencies, or patient outcomes. These programs are intended to provide incentives to providers
to find ways to deliver the same or better results while consuming fewer resources. As a result of these programs, and related payor
efforts to reduce payment levels, hospitals and other providers are seeking ways to reduce their costs, including the amounts they pay
to medical device suppliers. Adverse changes in payment rates by payors to hospitals could adversely impact our ability to market and
sell our products and negatively affect our financial performance.
In
international markets, healthcare payment systems vary significantly by country and many countries have instituted price ceilings on
specific product lines. There can be no assurance that our products will be considered cost-effective by third-party payors, that reimbursement
will be available or, if available, that the third-party payors’ reimbursement policies will not adversely affect our ability to
sell our products profitably.
Member
countries of the European Union offer various combinations of centrally financed healthcare systems and private health insurance systems.
The relative importance of government and private systems varies from country to country. Governments may influence the price of medical
devices through their pricing and reimbursement rules and control of national healthcare systems that fund a large part of the cost of
those products to consumers. Some jurisdictions operate positive and negative list systems under which products may be marketed only
once a reimbursement price has been agreed upon. Some of these countries may require, as condition of obtaining reimbursement or pricing
approval, the completion of clinical trials that compare the cost-effectiveness of a particular product candidate to currently available
therapies. Some E.U. member states allow companies to fix their own prices for devices but monitor and control company profits. The choice
of devices is subject to constraints imposed by the availability of funds within the purchasing institution. Medical devices are most
commonly sold to hospitals or healthcare facilities at a price set by negotiation between the buyer and the seller. A contract to purchase
products may result from an individual initiative or as a result of a competitive bidding process. In either case, the purchaser pays
the supplier, and payment terms vary widely throughout the European Union. Failure to obtain favorable negotiated prices with hospitals
or healthcare facilities could adversely affect sales of our products.
Employees
As
of March 1, 2022, we had 36 employees. We believe that our success will depend, in part, on our ability to attract and retain
qualified personnel. We have never experienced a work stoppage due to labor difficulties and believe that our relations with our employees
are good. None of our employees are represented by labor unions. We strive toward having a diverse team of employees and are committed
to equality, inclusion and workplace diversity.
In
addition to the other information contained in this Annual Report, the following risk factors should be considered carefully in evaluating
our company. Our business, financial condition, liquidity or results of operations could be materially adversely affected by any of these
risks.
Risks
Related to Our Business and Strategy
A
pandemic, epidemic or outbreak of an infectious disease in the United States or elsewhere may adversely affect our business.
We
continue to monitor the rapidly evolving situation and guidance from domestic and international authorities, including federal, state
and local public health authorities, regarding the COVID-19 pandemic, and we may need to make changes to our business based on their
recommendations. In these circumstances, there may be developments outside our control requiring us to adjust our operating plan. Although
the Company cannot reasonably estimate the length or severity of the impact that the pandemic will have on its financial results, the
Company has experienced, and may continue to experience, a material adverse impact on its sales, results of operations, and cash flows
in fiscal 2022.
A
significant outbreak in the future of contagious diseases, such as COVID-19, could result in a widespread health crisis that could adversely
affect the economies and financial markets of many countries, resulting in an economic downturn. As a result, our ability to raise additional
funds, if necessary, may be adversely impacted by risks, or the public perception of the risks, related to the recent outbreak of COVID-19.
Furthermore, the third parties we engage, or seek to engage, with respect to OEM manufacturing relationships, and, for supply and development
activities, may be adversely impacted by risks, or the public perception of the risks, related to the recent outbreak of COVID-19, which
may delay OEM relationships, and, product development opportunities, and increase our costs.
We
have incurred net losses since our inception and anticipate that we will continue to incur substantial net losses for the foreseeable
future. We may never achieve or sustain profitability.
We
have incurred substantial net losses since our inception. For the years ended December 31, 2021 and 2020 we incurred a net loss of $8.8
million and $7.0 million, respectively, and used cash in operations of $10.1 million and $9.1 million, respectively.
We have an accumulated deficit of $249.9 million as of December 31, 2021. Our losses have resulted principally from costs incurred
in connection with our sales and marketing activities, research and development activities, manufacturing activities, general and administrative
expenses associated with our operations, impairments on intangible assets and property and equipment, interest expense, loss on extinguishment
of debt and offering costs. Even if we are successful in launching new products into the market, we expect to continue to incur substantial
losses for the foreseeable future as we continue to manufacture products for CTL Medical and other OEM customers and research and develop
and seek regulatory approvals for our product candidates.
If
sales revenue from any of our products or product candidates that receive marketing clearance from the FDA or other regulatory body is
insufficient, if we are unable to develop and commercialize any of our product candidates, or if our product development is delayed,
we may never become profitable. Even if we do become profitable, we may be unable to sustain or increase our profitability on a quarterly
or annual basis.
Our
success depends on our ability to successfully commercialize advanced ceramic products for biomedical, industrial, and antipathogenic
applications, which to date have experienced only limited market acceptance.
We
believe we are the first and only company to use silicon nitride in medical applications. To date, however, we have had limited acceptance
of our silicon nitride-based products and prior to the disposition of our spine implant business to CTL, our product revenue was derived
substantially from our non-silicon nitride products. In order to succeed in our goal of becoming a leading advanced ceramics company,
we must increase market awareness of our silicon nitride interbody spinal fusion products in conjunction with CTL, and develop and launch
new biomedical, industrial, and antipathogenic products. If we fail in any of these endeavors or experience delays in pursuing them,
we will not generate revenues as planned and will need to curtail operations or seek additional financing earlier than otherwise anticipated.
Our
current products and our future products may not be accepted by hospitals and surgeons and may not become commercially successful.
With
the sale of our spine implant business to CTL we are now largely dependent on the efforts of CTL to sell the spinal fusion products that
we manufacture and then sell to CTL. If CTL is not able to sell such products or is unable to increase demand for such products, then
our revenues will substantially decline. Since obtaining regulatory clearance from the FDA for our first silicon nitride spinal fusion
products in 2008, we have not been able to obtain significant market share of the interbody spinal fusion market, and CTL may not obtain
such market share in the future. Even if we receive regulatory clearances or approvals for our other product candidates in development,
these product candidates may not gain market acceptance among customers.
The
orthopedic market is highly competitive, and we may not be able to compete effectively against the larger, well-established companies
that dominate this market or emerging and small innovative companies that may seek to obtain or increase their share of the market.
The
markets for orthopedic products are intensely competitive, and many of our competitors are much larger and have substantially more financial
and human resources than we do. Many have long histories and strong reputations within the industry, and a relatively small number of
companies dominate these markets. Medtronic, Inc.; DePuy Synthes Companies, a group of Johnson & Johnson companies; Stryker Corporation;
Zimmer-Biomet, Inc.; Zimmer Holdings, Inc.; and Smith & Nephew plc, account for a significant number of orthopedic sales worldwide.
These
companies enjoy significant competitive advantages over us, including:
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broad
product offerings, which address the needs of orthopedic surgeons and hospitals in a wide range of procedures; |
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products
that are supported by long-term clinical data; |
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greater
experience in, and resources for, launching, marketing, distributing and selling products, including strong sales forces and established
distribution networks; |
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existing
relationships with orthopedic surgeons; |
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extensive
intellectual property portfolios and greater resources for patent protection; |
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greater
financial and other resources for product research and development; |
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greater
experience in obtaining and maintaining FDA and other regulatory clearances and approvals for products and product enhancements; |
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established
manufacturing operations and contract manufacturing relationships; |
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significantly
greater name recognition and widely recognized trademarks; and |
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established
relationships with healthcare providers and payers. |
Our
products and any product candidates that we may introduce into the market may not enable us to overcome the competitive advantages of
these large and dominant orthopedic companies. In addition, even if we successfully introduce additional product candidates incorporating
our silicon nitride biomaterial into the market, emerging and small innovative companies may seek to increase their market share and
they may eventually possess competitive advantages, which could adversely impact our business. Our competitors may also employ pricing
strategies that could adversely affect the pricing of our products and pricing in the spinal fusion and total joint replacement market
generally.
Moreover,
many other companies are seeking to develop new biomaterials and products which may compete effectively against our products in terms
of performance and price. For example, Smith & Nephew has developed a ceramic-coated metal, known as Oxinium, which may overcome
certain of the limitations of metal joint replacement products and could directly compete with our silicon nitride and silicon nitride-coated
product candidates.
We
are dependent on CTL’s ability to sell the spinal fusion products we manufacture from silicon nitride. If CTL is not able to sell
such products or increase demand for the products our revenues will be substantially impacted which would have a significant impact on
our business and operating results.
Sales
of spinal fusion products manufactured from silicon nitride to CTL account for a significant percentage of our revenues from the sale
of products. We have entered into a 10-year manufacturing and supply agreement with CTL to supply CTL with its requirements of silicon
nitride manufactured spinal fusion products. CTL is not under any obligation to purchase any minimum quantities of products from us.
If CTL is not successful in creating demand for such products and selling such products, then they are not required to purchase any products
from us. Because of our significant customer concentration, our revenue could fluctuate significantly due to changes in economic conditions,
the use of competitive products, or the loss of, reduction of business with, CTL. A reduction or delay in orders from CTL, or a delay
or default in payment by any significant customer, could materially harm our business and results of operations.
The
manufacturing process for our silicon nitride products is complex and requires sophisticated state-of-the-art equipment, experienced
manufacturing personnel and highly specialized knowledge. If we are unable to manufacture our silicon nitride products on a timely basis
consistent with our quality standards, our results of operation will be adversely impacted.
In
order to control the quality, cost and availability of our silicon nitride products, we developed our own manufacturing capabilities.
We operate a 30,000 square foot facility which is certified under the ISO 13485 medical device manufacturing standard for medical devices
and operates under the FDA’s quality systems regulations, or QSRs. All operations with the exception of raw material production
are performed at this facility.
We
are the sole manufacturer of our silicon-nitride based products. Our reliance solely on our internal resources to manufacture our silicon
nitride products entails risks to which we would not be subject if we had secondary suppliers for their manufacture, including:
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the
inability to meet our product specifications and quality requirements consistently; |
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a
delay or inability to procure or expand sufficient manufacturing capacity to meet additional demand for our products; |
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manufacturing
and product quality issues related to the scale-up of manufacturing; |
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the
inability to produce a sufficient supply of our products to meet product demands; |
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the
disruption of our manufacturing facility due to equipment failure, natural disaster or failure to retain key personnel; and |
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our
inability to ensure our compliance with regulations and standards of the FDA, including QSRs, and corresponding state and international
regulatory authorities, including the CFDA. |
Any
of these events could lead to a reduction in our product sales, product launch delays, failure to obtain regulatory clearance or approval
or impact our ability to successfully sell our products and commercialize our products candidates.
We
depend on a limited number of third-party suppliers for key raw materials used in the manufacturing of our silicon nitride products,
and the loss of these third-party suppliers or their inability to supply us with adequate raw materials could harm our business.
We
rely on a limited number of third-party suppliers for the raw materials required for the production of our silicon nitride products and
product candidates. Our dependence on a limited number of third-party suppliers involves several risks, including limited control over
pricing, availability, quality, and delivery schedules for raw materials. We have no supply agreements in place with any of our suppliers
and cannot be certain that our current suppliers will continue to provide us with the quantities of raw materials that we require or
that satisfy our anticipated specifications and quality requirements. Any supply interruption in limited or single sourced raw materials
could materially harm our ability to manufacture our products until a new source of supply, if any, could be identified and qualified.
We may be unable to find a sufficient alternative supply channel within a reasonable time or on commercially reasonable terms. Any performance
failure on the part of our suppliers could delay the production of our silicon nitride products and product candidates and delay the
development and commercialization of our product candidates, including limiting supplies necessary for commercial sale, clinical trials
and regulatory approvals, which could have a material adverse effect on our business.
In
order to be successful, we must expand our available product lines by commercializing new product candidates, but we may not be able
to do so in a timely fashion and at expected costs, or at all.
Although
we are currently manufacturing silicon nitride interbody spinal fusion implants for CTL, in order to be successful, we will need to expand
our product lines to include other advanced ceramic products for both medical and non-medical applications. Therefore, we are developing
new manufacturing technologies and new product candidates including our new ceramic armor products. To succeed in our commercialization
efforts, we must effectively continue product development and testing, find new strategic partners, obtain regulatory clearances and
approvals, and enhance our sales and marketing capabilities. Because of these uncertainties, there is no assurance that we will succeed
in bringing any of our current or future product candidates to market. If we fail in bringing our product candidates to market, or experience
delays in doing so, we will not generate revenues as planned and will need to curtail operations or seek additional financing earlier
than otherwise anticipated.
We
will depend on one or more strategic partners to develop and commercialize our biomedical and antipathogenic product candidates, and
if our strategic partners are unable to execute effectively on our agreements with them, we may never become profitable.
We
are seeking strategic partners to develop and commercialize our biomedical and antipathogenic product candidates. We will be reliant
on our strategic partners to develop and commercialize these product candidates, although we have not yet entered into an agreement with
any strategic partner to develop products and may be unable to do so on agreeable terms. In order to succeed in our joint commercialization
efforts, we and any future partners must execute effectively on all elements of a combined business plan, including continuing to establish
sales and marketing capabilities, manage certified, validated and effective commercial-scale manufacturing operations, conduct product
development and testing, and obtain regulatory clearances and approvals for our product candidates. If we or any of our strategic partners
fail in any of these endeavors, or experience delays in pursuing them, we will not generate revenues as planned and will need to curtail
operations or seek additional financing earlier than otherwise anticipated.
Part
of our strategy is to establish and develop OEM partnerships and arrangements, which subjects us to various risks.
Because
we believe silicon nitride is a superior platform and technology for application in the spine, total joint and other markets and industrial
applications, we are establishing OEM partnerships with other companies to replace their materials and products with silicon nitride.
Sales of products to OEM customers will expose our business to a number of risks. Sales through OEM partners could be less profitable
than direct sales. Sales of our products through multiple channels could also confuse customers and cause the sale of our products to
decline. In addition, OEM customers will require that products meet strict standards. Our compliance with these requirements could result
in increased development, manufacturing, warranty and administrative costs. A significant increase in these costs could adversely affect
our operating results. If we fail to meet OEM specifications on a timely basis, our relationships with our OEM partners may be harmed.
Furthermore, we would not control our OEM partners, and they could sell competing products, may not incorporate our technology into their
products in a timely manner and may devote insufficient sales efforts to the OEM products.
If
hospitals and other healthcare providers are unable to obtain coverage or adequate reimbursement for procedures performed with our products,
it is unlikely our products will be widely used.
In
the United States, the commercial success of our products will depend, in part, on the extent to which governmental payers at the federal
and state levels, including Medicare and Medicaid, private health insurers and other third-party payers provide coverage for and establish
adequate reimbursement levels for procedures utilizing our products. Because we typically receive payment directly from the companies
for whom we manufacture, such as CTL Medical, we do not anticipate relying directly on payment from third-party payers for our products.
However, hospitals and other healthcare providers that purchase orthopedic products manufactured by us from our customers for treatment
of their patients generally rely on third-party payers to pay for all or part of the costs and fees associated with our products as part
of a “bundled” rate for the associated procedures. The existence of coverage and adequate reimbursement for our products
and the procedures performed with them by government and private payers is critical to market acceptance of our existing and future products.
Neither hospitals nor surgeons are likely to use our products if they do not receive adequate reimbursement for the procedures utilizing
our products.
Many
private payers currently base their reimbursement policies on the coverage decisions and payment amounts determined by the Centers for
Medicare and Medicaid Services, or CMS, which administers the Medicare program. Others may adopt different coverage or reimbursement
policies for procedures performed with our products, while some governmental programs, such as Medicaid, have reimbursement policies
that vary from state to state, some of which may not pay for the procedures performed with our products in an adequate amount, if at
all. A Medicare national or local coverage decision denying coverage for one or more of our products could result in private and other
third-party payers also denying coverage for our products. Third-party payers also may deny reimbursement for our products if they determine
that a product used in a procedure was not medically necessary, was not used in accordance with cost-effective treatment methods, as
determined by the third-party payer, or was used for an unapproved use. Unfavorable coverage or reimbursement decisions by government
programs or private payers underscore the uncertainty that our products face in the market and could have a material adverse effect on
our business.
Many
hospitals and clinics in the United States belong to group purchasing organizations, which typically incentivize their hospital members
to make a relatively large proportion of purchases from a limited number of vendors of similar products that have contracted to offer
discounted prices. Such contracts often include exceptions for purchasing certain innovative new technologies, however. Accordingly,
the commercial success of our products may also depend to some extent on our ability to either negotiate favorable purchase contracts
with key group purchasing organizations and/or persuade hospitals and clinics to purchase our product “off contract.”
The
healthcare industry in the United States has experienced a trend toward cost containment as government and private payers seek to control
healthcare costs by paying service providers lower rates. While it is expected that hospitals will be able to obtain coverage for procedures
using our products, the level of payment available to them for such procedures may change over time. State and federal healthcare programs,
such as Medicare and Medicaid, closely regulate provider payment levels and have sought to contain, and sometimes reduce, payment levels.
Private payers frequently follow government payment policies and are likewise interested in controlling increases in the cost of medical
care. In addition, some payers are adopting pay-for-performance programs that differentiate payments to healthcare providers based on
the achievement of documented quality-of-care metrics, cost efficiencies, or patient outcomes. These programs are intended to provide
incentives to providers to deliver the same or better results while consuming fewer resources. As a result of these programs, and related
payer efforts to reduce payment levels, hospitals and other providers are seeking ways to reduce their costs, including the amounts they
pay to medical device manufacturers. We may not be able to sell our implants profitably if third-party payers deny or discontinue coverage
or reduce their levels of payment below that which we project, or if our production costs increase at a greater rate than payment levels.
Adverse changes in payment rates by payers to hospitals could adversely impact our ability to market and sell our products and negatively
affect our financial performance.
In
international markets, medical device regulatory requirements and healthcare payment systems vary significantly from country to country,
and many countries have instituted price ceilings on specific product lines. We cannot assure you that our products will be considered
cost-effective by international third-party payers, that reimbursement will be available or, if available, that the third-party payers’
reimbursement policies will not adversely affect our ability to sell our products profitably. Any failure to receive regulatory or reimbursement
approvals would negatively impact market acceptance of our products in any international markets in which those approvals are sought.
There
is no assurance that federal or state healthcare reform will not also adversely affect our business and financial results, and we cannot
predict how future federal or state legislative, judicial or administrative changes relating to healthcare reform will affect our business.
Prolonged
negative economic conditions in domestic and international markets may adversely affect us, our suppliers, partners and consumers, and
could harm our financial position.
There
is a risk that one or more of our current suppliers may not continue to operate. Any lender that is obligated to provide funding to us
under any future credit agreement with us may not be able to provide funding in a timely manner, or at all, when we require it. The cost
of, or lack of, available credit or equity financing could impact our ability to develop sufficient liquidity to maintain or grow our
company. These negative changes in domestic and international economic conditions or additional disruptions of either or both of the
financial and credit markets may also affect third-party payers and may have a material adverse effect on our business, results of operations,
financial condition and liquidity.
In
addition, we believe that various demographics and industry-specific trends will help drive growth in our target markets, but these demographics
and trends are uncertain. Actual demand for our products could be significantly less than expected if our assumptions regarding these
factors prove to be incorrect or do not materialize.
We
are dependent on our senior management team, engineering team, and external advisors, and the loss of any of them could harm our business.
We may not have sufficient personnel to effectuate our business strategy due to our recent reduction in force.
The
members of our current senior management team may not be able to successfully implement our strategy. In addition, we have not entered
into employment agreements, other than change-in-control severance agreements, with any of the members of our senior management team.
There are no assurances that the services of any of these individuals will be available to us for any specified period of time. The successful
integration of our senior management team, the loss of members of our senior management team, engineering team and key external advisors,
or our inability to attract or retain other qualified personnel or advisors could have a material adverse effect on our business, financial
condition and results of operations. We may not have sufficient number of qualified personnel to effectuate our business strategy which
could have a material adverse effect on our business, financial condition and results of operations.
If
we experience significant disruptions in our information technology systems, our business, results of operations and financial condition
could be adversely affected.
The
efficient operation of our business depends on our information technology systems. We rely on our information technology systems to effectively
manage our sales and marketing, accounting and financial functions; manufacturing processes; inventory; engineering and product development
functions; and our research and development functions. As such, our information technology systems are vulnerable to damage or interruption
including from earthquakes, fires, floods and other natural disasters; terrorist attacks and attacks by computer viruses or hackers;
power losses; and computer systems, or Internet, telecommunications or data network failures. The failure of our information technology
systems to perform as we anticipate or our failure to effectively implement new systems could disrupt our entire operation and could
result in decreased sales, increased overhead costs, excess inventory and product shortages, all of which could have a material adverse
effect on our reputation, business, results of operations and financial condition.
Cyber
security risks and the failure to maintain the integrity of company, employee or guest data could expose us to data loss, litigation
and liability, and our reputation could be significantly harmed.
We
collect and third parties collaborating on our clinical trials collect and retain large volumes of data, including personally identifiable
information regarding clinical trial participants and others, for business purposes, including for regulatory, research and development
and commercialization purposes, and our collaborators’ various information technology systems enter, process, summarize and report
such data. We also maintain personally identifiable information about our employees. The integrity and protection of our company, employee
and clinical data is critical to our business. We are subject to significant security and privacy regulations, as well as requirements
imposed by government regulation. Maintaining compliance with these evolving regulations and requirements could be difficult and may
increase our expenses. In addition, a penetrated or compromised data system or the intentional, inadvertent or negligent release or disclosure
of data could result in theft, loss or fraudulent or unlawful use of company, employee or clinical data which could harm our reputation,
disrupt our operations, or result in remedial and other costs, fines or lawsuits.
Risks
Related to Our Capital Resources and Impairments
We
will require additional financing and our failure to obtain additional funding would force us to delay, reduce or eliminate our product
development programs or commercialization efforts.
We
currently have limited committed sources of capital and we have limited liquidity. Our cash and cash equivalents as of December 31, 2021
was $14.3 million. We require substantial future capital in order to continue to conduct the research and development and regulatory
clearance and approval activities necessary to bring our products to market, and to establish effective marketing and sales capabilities.
Our existing capital resources are not sufficient to enable us to fund the completion of the development and commercialization of all
of our product candidates. We cannot determine with certainty the duration and completion costs of the current or future development
and commercialization of our product candidates for spinal fusion, joint replacement and coated metals or if, when, or to what extent
we will generate revenues from the commercialization and sale of any of these product candidates for which we obtain regulatory approval.
We may never succeed in achieving regulatory approval for certain or all of these product candidates. The duration, costs and timing
of clinical trials and development of our spinal fusion, joint replacement and coated metal product candidates will depend on a variety
of factors, including:
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the
scope, rate of progress, and expense of our ongoing, as well as any additional, clinical trials and other research and development
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future
clinical trial results we may must or choose to conduct; |
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changes in government regulation; and |
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timing and receipt of any regulatory approvals. |
A
change in the outcome of any of these variables with respect to the development of spinal fusion, joint replacement or coated metal product
candidates could mean a significant change in the costs and timing associated with the development of these product candidates.
In
addition, if adequate funds to develop our product candidates are not available on a timely basis, we may terminate or delay the development
of one or more of our product candidates, or delay activities necessary to commercialize our product candidates. Additional funding may
not be available to us on acceptable terms, or at all. Any additional equity financing, if available, may not be available on favorable
terms and will most likely be dilutive to our current stockholders, and debt financing, if available, may involve more restrictive covenants.
Our ability to access capital when needed is not assured and, if not achieved on a timely basis, will materially harm our business, financial
condition and results of operations or could cause us to cease operations.
The
timing and amount of our future capital requirements will depend on many factors, including:
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level of sales of our current products and the cost of revenue and sales and marketing; |
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the
extent of any clinical trials that we will be required to conduct in support of the regulatory clearance of our total hip and knee
replacement product candidates; |
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the
scope, progress, results and cost of our product development efforts; |
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the
costs, timing and outcomes of regulatory reviews of our product candidates; |
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number and types of products we develop and commercialize; |
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the
costs of preparing, filing and prosecuting patent applications and maintaining, enforcing and defending intellectual property-related
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Raising
additional capital by issuing securities or through debt financings or licensing arrangements may cause dilution to existing stockholders,
restrict our operations or require us to relinquish proprietary rights.
To
the extent that we raise additional capital through the sale of equity or convertible debt securities, your ownership interest may be
diluted, and the terms may include liquidation or other preferences that adversely affect your rights as a stockholder. Debt financing,
if available, may involve agreements that include covenants limiting or restricting our ability to take specific actions such as incurring
additional debt, making capital expenditures or declaring dividends. If we raise additional funds through collaboration and licensing
arrangements with third parties, we may have to relinquish valuable rights to our technologies or products or grant licenses on terms
that are not favorable to us. Any of these events could adversely affect our ability to achieve our product development and commercialization
goals and have a material adverse effect on our business, financial condition and results of operations.
In
previous years we have indicated that there was substantial doubt as to our ability to continue as a going concern. Depending on the
results of our future operations, we may again have substantial doubt as to our ability to continue as a going concern.
If
we seek additional financing to fund our business activities, investors or other financing sources may be unwilling to provide additional
funding on commercially reasonable terms or at all. If we seek additional funds and are unable to obtain sufficient additional funding,
our business, prospects, financial condition and results of operations will be materially and adversely affected, and we may be unable
to continue as a going concern. If we are unable to continue as a going concern, we may have to liquidate our assets and may receive
less than the value at which those assets are carried on our consolidated financial statements, and it is likely that investors will
lose all or a part of their investment. Our future reports may disclose our doubt about our ability to continue as a going concern.
Risks
Related to Regulatory Approval of Our Products and Other Government Regulations
Our
long-term success depends substantially on our ability to obtain regulatory clearance or approval and thereafter commercialize our product
candidates; we cannot be certain that we will be able to do so in a timely manner or at all.
The
process of obtaining regulatory clearances or approvals to market a medical device from the FDA or similar regulatory authorities outside
of the United States can be costly and time consuming, and there can be no assurance that such clearances or approvals will be granted
on a timely basis, or at all. The FDA’s 510(k) clearance process generally takes one to six months from the date of submission,
depending on whether a special or traditional 510(k) premarket notification has been submitted, but can take significantly longer. An
application for premarket approval, or PMA, must be submitted to the FDA if the device cannot be cleared through the 510(k) clearance
process or is not exempt from premarket review by the FDA. The PMA process almost always requires one or more clinical trials and can
take two to three years from the date of filing, or even longer. In some cases, including in the case of our interbody spinal fusion
devices which incorporate our CSC technology and our solid silicon nitride femoral head component, the FDA requires clinical data as
part of the 510(k) clearance process.
It
is possible that the FDA could raise questions about spinal fusion products or other medical device product candidates and could require
us to perform additional studies on our products and product candidates. Even if the FDA permits us to use the 510(k) clearance process,
we cannot assure you that the FDA will not require either supporting data from laboratory tests or studies that we have not conducted,
or substantial supporting clinical data. If we are unable to use the 510(k) clearance process for any of our product candidates, are
required to provide clinical data or laboratory data that we do not possess to support our 510(k) premarket notifications for any of
these product candidates, or otherwise experience delays in obtaining or fail to obtain regulatory clearances, the commercialization
of our product candidates in the United States will be delayed or prevented, which will adversely affect our ability to generate additional
revenues. It also may result in the loss of potential competitive advantages that we might otherwise attain by bringing our products
to market earlier than our competitors. Additionally, although the FDA allows modifications to be made to devices that have received
510(k) clearance with supporting documentation, the FDA may disagree with our decision to modify our cleared devices without submission
of a new 510(k) premarket notification, subjecting us to potential product recall, field alerts and corrective actions. Any of these
contingencies could adversely affect our business.
Similar
to our compliance with U.S. regulatory requirements, we must obtain and comply with international requirements, in order to market and
sell our products outside of the United States and we may only promote and market our products, if approved, as permitted by applicable
regulatory authorities. There is no guarantee that we will receive the necessary regulatory approvals for our product candidates either
inside the United States or internationally. If our product candidates do not receive necessary regulatory approvals, our business could
be materially and adversely affected.
The
safety of our products is not yet supported by long-term clinical data, and they may prove to be less safe and effective than our laboratory
data indicate.
We
obtained FDA clearance for each of our spinal fusion products that we currently manufacture for CTL Medical, and we have sought and intend
to seek FDA clearance or approval through the FDA’s 510(k) or PMA process and, where applicable, CE marking for our product candidates.
The 510(k) clearance process is based on the FDA’s agreement that a new product candidate is substantially equivalent to an already
marketed product for which a PMA was not required. While most 510(k) premarket notifications do not require clinical data for clearance,
the FDA may request that such data be provided. Long-term clinical data or marketing experience obtained after clearance may indicate
that our products cause unexpected complications or other unforeseen negative effects. If this happens, we could be subject to the withdrawal
of our marketing clearance and other enforcement sanctions by the FDA or other regulatory authority, product recalls, significant legal
liability, significant negative publicity, damage to our reputation and a dramatic reduction in our ability to sell our products, any
one of which would have a material adverse effect on our business, financial condition and results of operations.
We
may be required to conduct clinical trials to support regulatory approval of some of our product candidates. We have little experience
conducting clinical trials, they may proceed more slowly than anticipated, and we cannot be certain that our product candidates will
be shown to be safe and effective for human use.
In
order to commercialize our product candidates in the United States, we must submit a PMA for some of these product candidates, which
will require us to conduct clinical trials. We also plan to provide the FDA with clinical trial data to support some of our 510(k) premarket
notifications. We will receive approval or clearance from the FDA to commercialize products requiring a clinical trial only if we can
demonstrate to the satisfaction of the FDA, through well-designed and properly conducted clinical trials, that our product candidates
are safe and effective and otherwise meet the appropriate standards required for approval or clearance for specified indications.
Clinical
trials are complex, expensive, time consuming, uncertain and subject to substantial and unanticipated delays. Before we may begin clinical
trials, we must submit and obtain approval for an investigational device exemption, or IDE, that describes, among other things, the manufacture
of, and controls for, the device and a complete investigational plan. Clinical trials generally involve a substantial number of patients
in a multi-year study. Because we do not have the experience or the infrastructure necessary to conduct clinical trials, we will have
to hire one or more contract research organizations, or CROs, to conduct trials on our behalf. CRO contract negotiations may be costly
and time consuming and we will rely heavily on the CRO to ensure that our trials are conducted in accordance with regulatory and industry
standards. We may encounter problems with our clinical trials and any of those problems could cause us or the FDA to suspend those trials
or delay the analysis of the data derived from them.
A
number of events or factors, including any of the following, could delay the completion of our clinical trials in the future and negatively
impact our ability to obtain FDA approval for, and to introduce our product candidates:
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failure
to obtain financing necessary to bear the cost of designing and conducting clinical trials; |
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failure
to obtain approval from the FDA or foreign regulatory authorities to commence investigational studies; |
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conditions
imposed on us by the FDA or foreign regulatory authorities regarding the scope or design of our clinical trials; |
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failure
to find a qualified CRO to conduct our clinical trials or to negotiate a CRO services agreement on favorable terms; |
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delays
in obtaining or in our maintaining required approvals from institutional review boards or other reviewing entities at clinical sites
selected for participation in our clinical trials; |
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insufficient
supply of our product candidates or other materials necessary to conduct our clinical trials; |
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difficulties
in enrolling patients in our clinical trials; |
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negative
or inconclusive results from clinical trials, or results that are inconsistent with earlier results, that necessitate additional
clinical studies; |
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failure
on the part of the CRO to conduct the clinical trial in accordance with regulatory requirements; |
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our
failure to maintain a successful relationship with the CRO or termination of our contractual relationship with the CRO before completion
of the clinical trials; |
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serious
or unexpected side effects experienced by patients in whom our product candidates are implanted; or |
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failure
by any of our third-party contractors or investigators to comply with regulatory requirements or meet other contractual obligations
in a timely manner. |
Our
clinical trials may need to be redesigned or may not be completed on schedule, if at all. Delays in our clinical trials may result in
increased development costs for our product candidates, which could cause our stock price to decline and limit our ability to obtain
additional financing. In addition, if one or more of our clinical trials are delayed, competitors may be able to bring products to market
before we do, and the commercial viability of our product candidates could be significantly reduced.
Our
current and future relationships with third-party payers and current and potential customers in the United States and elsewhere may be
subject, directly or indirectly, to applicable anti-kickback, fraud and abuse, false claims, transparency, health information privacy
and security and other healthcare laws and regulations, which could expose us to criminal sanctions, civil penalties, contractual damages,
reputational harm administrative burdens and diminished profits and future earnings.
Our
current and future arrangements with third-party payers and current and potential customers, including providers and physicians, as well
as physician owned distributorships or PODs, may expose us to broadly applicable fraud and abuse and other healthcare laws and regulations,
including, without limitation, the federal Anti-Kickback Statute and the federal False Claims Act, which may constrain the business or
financial arrangements and relationships through which we sell, market and distribute our products. In addition, we may be subject to
transparency laws and patient privacy regulations by U.S. federal and state governments and by governments in foreign jurisdictions in
which we conduct our business. The applicable federal, state and foreign healthcare laws and regulations that may affect our ability
to operate include:
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the
federal Anti-Kickback Statute, which prohibits, among other things, persons from knowingly and willfully soliciting, offering, receiving
or providing remuneration, directly or indirectly, in cash or in kind, to induce or reward, or in return for, either the referral
of an individual for, or the purchase, order or recommendation of, any good or service, for which payment may be made under federal
healthcare programs, such as Medicare and Medicaid; |
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federal
civil and criminal false claims laws and civil monetary penalty laws, including the federal False Claims Act, which impose criminal
and civil penalties, including civil whistleblower or qui tam actions, against individuals or entities for knowingly presenting,
or causing to be presented, to the federal government, including the Medicare and Medicaid programs, claims for payment that are
false or fraudulent or making a false statement to avoid, decrease or conceal an obligation to pay money to the federal government; |
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the
federal Health Insurance Portability and Accountability Act of 1996, or HIPAA, which imposes criminal and civil liability for executing
a scheme to defraud any healthcare benefit program or making false statements relating to healthcare matters; |
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HIPAA,
as amended by the Health Information Technology for Economic and Clinical Health Act of 2009, or HITECH, and their respective implementing
regulations, which impose obligations on covered healthcare providers, health plans, and healthcare clearinghouses, as well as their
business associates that create, receive, maintain or transmit individually identifiable health information for or on behalf of a
covered entity, with respect to safeguarding the privacy, security and transmission of individually identifiable health information; |
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the
Physician Payments Sunshine Act, which requires (i) manufacturers of drugs, devices, biologics and medical supplies for which payment
is available under Medicare, Medicaid or the Children’s Health Insurance Program, with specific exceptions, to report annually
to CMS information related to certain “payments or other transfers of value” made to physicians, which is defined to
include doctors, dentists, optometrists, podiatrists and chiropractors, and teaching hospitals, with data collection beginning on
August 1, 2013, (ii) applicable manufacturers and applicable group purchasing organizations to report annually to CMS ownership and
investment interests held in such entities by physicians and their immediate family members, with data collection beginning on August
1, 2013, (iii) manufacturers to submit reports to CMS by March 31, 2014 and the 90th day of each subsequent calendar year,
and (iv) disclosure of such information by CMS on a publicly available website beginning in September 2014; and |
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analogous
state and foreign laws and regulations, such as state anti-kickback and false claims laws, which may apply to sales or marketing
arrangements and claims involving healthcare items or services reimbursed by non-governmental third-party payers, including private
insurers; state and foreign laws that require medical device companies to comply with the medical device industry’s voluntary
compliance guidelines and the relevant compliance guidance promulgated by the federal government or otherwise restrict payments that
may be made to healthcare providers; state and foreign laws that require medical device manufacturers to report information related
to payments and other transfers of value to physicians and other healthcare providers or marketing expenditures; and state and foreign
laws governing the privacy and security of health information in certain circumstances, many of which differ from each other in significant
ways and often are not preempted by HIPAA, thus complicating compliance efforts. Efforts to ensure that our business arrangements
with third parties will comply with applicable healthcare laws and regulations may involve substantial costs. It is possible that
governmental authorities will conclude that our business practices may not comply with current or future statutes, regulations or
case law involving applicable fraud and abuse or other healthcare laws and regulations. If our operations are found to be in violation
of any of these laws or any other governmental regulations that may apply to us, we may be subject to significant civil, criminal
and administrative penalties, including, without limitation, damages, fines, imprisonment, exclusion from participation in government
healthcare programs, such as Medicare and Medicaid, and the curtailment or restructuring of our operations, which could have a material
adverse effect on our business. If any of the physicians or other healthcare providers or entities with whom we expect to do business,
including our collaborators, are found not to be in compliance with applicable laws, they may be subject to criminal, civil or administrative
sanctions, including exclusions from participation in government healthcare programs, which could also materially affect our business. |
Changes
in effective tax rates or adverse outcomes resulting from examination of our income or other tax returns could adversely affect our results
of operations and financial condition.
We
are subject to taxes by the U.S. federal, state, local and foreign tax authorities, and our tax liabilities will be affected by the allocation
of expenses to differing jurisdictions. Our future effective tax rates could be subject to volatility or adversely affected by a number
of factors, including:
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changes in the valuation of our deferred tax assets and liabilities; |
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expected timing and amount of the release of any tax valuation
allowance; |
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effects of equity-based compensation; |
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changes in tax laws, regulations or interpretations thereof;
or |
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earnings being lower than anticipated in jurisdictions where we have lower statutory tax
rates and higher than anticipated earnings in jurisdictions where we have higher statutory
tax rates. |
We
may also be subject to audits of our income, sales and other transaction taxes by U.S. federal, state, local and foreign taxing authorities.
Outcomes from these audits could have an adverse effect on our operating results and financial condition.
Recently
enacted and future legislation may increase the difficulty and cost for us to obtain and monitor regulatory approval or clearance of
our product candidates and affect the prices we may obtain for our products.
In
the United States and some foreign jurisdictions, there have been a number of legislative and regulatory changes and proposed changes
regarding the healthcare system that could prevent or delay clearance and/or approval of our product candidates, restrict or regulate
post-clearance and post-approval activities and affect our ability to profitably sell our products and any product candidates for which
we obtain marketing approval or clearance.
In
addition, FDA regulations and guidance are often revised or reinterpreted by the FDA in ways that may significantly affect our business
and our products. Any new regulations or revisions or reinterpretations of existing regulations may impose additional costs or lengthen
review times of our products. Delays in receipt of or failure to receive regulatory clearances or approvals for our new products would
have a material adverse effect on our business, results of operations and financial condition. In addition, the FDA is currently evaluating
the 510(k) process and may make substantial changes to industry requirements, including which devices are eligible for 510(k) clearance,
the ability to rescind previously granted 510(k) clearances and additional requirements that may significantly impact the process.
Among
policy makers and payers in the United States and elsewhere, there is significant interest in promoting changes in healthcare systems
with the stated goals of containing healthcare costs, improving quality and expanding access. In the United States, the medical device
industry has been a particular focus of these efforts and has been significantly affected by major legislative initiatives. In March
2010, President Obama signed into law the Patient Protection and Affordable Care Act, as amended by the Health Care and Education Affordability
Reconciliation Act, or collectively the ACA, a sweeping law intended, among other things, to broaden access to health insurance, reduce
or constrain the growth of healthcare spending, enhance remedies against fraud and abuse, add new transparency requirements for the healthcare
and health insurance industries, impose new taxes and fees on the health industry and impose additional health policy reforms.
Among
the provisions of the ACA of importance to our products and product candidates are:
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establishes
a new Patient-Centered Outcomes Research Institute to oversee and identify priorities in comparative clinical effectiveness research
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implements
payment system reforms including a national pilot program on payment bundling to encourage hospitals, physicians and other providers
to improve the coordination, quality and efficiency of certain healthcare services through bundled payment models. |
In
addition, other legislative changes have been proposed and adopted since the PPACA was enacted. For example, on January 2, 2013, former
President Obama signed into law the American Taxpayer Relief Act of 2012, or the ATRA, which, among other things, further reduced Medicare
payments to several providers, including hospitals, imaging centers and cancer treatment centers and increased the statute of limitations
period for the government to recover overpayments to providers from three to five years. Moreover, certain legislative changes to and
regulatory changes under the PPACA have occurred in the 115th United States Congress and under the Trump Administration. For example,
on December 22, 2017, former President Trump signed a budget reconciliation act into law, which among other things, repealed the penalty
for individuals who do not maintain minimum essential coverage, which was a central component of PPACA’s approach to expanding
coverage. On January 9, 2018, former President Trump signed the Bipartisan Budget Act of 2018, which, among other things, repealed the
PPACA provision establishing an independent payment advisory board that would have submitted recommendations to reduce Medicare spending
if projected Medicare spending exceeded a specified growth rate.
Additional
legislative changes to and regulatory changes under the PPACA remain possible. We expect that other state and federal healthcare reform
measures will be adopted in the future, any of which could reduce the number of patients with coverage or limit the amounts that federal
and state governments will pay for healthcare products and services, which could result in reduced demand for our products or additional
pricing pressure.
In
the European Union and some other international markets, the government provides health care at a low cost to consumers and regulates
prices of healthcare products, patient eligibility or reimbursement levels to control costs for the government-sponsored health care
system. Many countries are reducing their public expenditures and we expect to see strong efforts to reduce healthcare costs in international
markets, including patient access restrictions, suspensions on price increases, prospective and possibly retroactive price reductions
and other recoupments and increased mandatory discounts or rebates and recoveries of past price increases. These cost control measures
could reduce our revenues. In addition, certain countries set prices by reference to the prices in other countries where our products
are marketed. Thus, our inability to secure adequate prices in a particular country may not only limit the marketing of our products
within that country but may also adversely affect our ability to obtain acceptable prices in other markets. This may create the opportunity
for third-party cross border trade or influence our decision to sell or not to sell a product, thus adversely affecting our geographic
expansion plans and revenues.
Risks
Related to Our Intellectual Property and Litigation
If
the combination of patents, trade secrets and contractual provisions that we rely on to protect our intellectual property is inadequate,
our ability to commercialize our products successfully will be harmed, and we may not be able to operate our business profitably.
Our
success depends significantly on our ability to protect our proprietary rights to the technologies incorporated in our products. We rely
on a combination of patent protection, trade secret laws and nondisclosure, confidentiality and other contractual restrictions to protect
our proprietary technology. However, these may not adequately protect our rights or permit us to gain or keep any competitive advantage.
The
issuance of a patent is not conclusive as to its scope, validity or enforceability. The scope, validity or enforceability of our issued
patents can be challenged in litigation or proceedings before the U.S. Patent and Trademark Office, or the USPTO, or foreign patent offices.
In addition, our pending patent applications include claims to numerous important aspects of our products under development that are
not currently protected by any of our issued patents. We cannot assure you that any of our pending patent applications will result in
the issuance of patents to us. The USPTO or foreign patent offices may deny or require significant narrowing of claims in our pending
patent applications. Patents issued as a result of the pending patent applications, if any, may not provide us with significant commercial
protection or be issued in a form that is advantageous to us. Proceedings before the USPTO or foreign patent offices could result in
adverse decisions as to the priority of our inventions and the narrowing or invalidation of claims in issued patents. The laws of some
foreign countries may not protect our intellectual property rights to the same extent as the laws of the United States, if at all.
Our
competitors may successfully challenge and invalidate or render unenforceable our issued patents, including any patents that may issue
in the future, which could prevent or limit our ability to market our products and could limit our ability to stop competitors from marketing
products that are substantially equivalent to ours. In addition, competitors may be able to design around our patents or develop products
that provide outcomes that are comparable to our products but that are not covered by our patents.
We
have also entered into confidentiality and assignment of intellectual property agreements with all of our employees, consultants and
advisors as one of the ways we seek to protect our intellectual property and other proprietary technology. However, these agreements
may not be enforceable or may not provide meaningful protection for our trade secrets or other proprietary information in the event of
unauthorized use or disclosure or other breaches of the agreements.
In
the event a competitor infringes upon any of our patents or other intellectual property rights, enforcing our rights may be difficult,
time consuming and expensive, and would divert management’s attention from managing our business. There can be no assurance that
we will be successful on the merits in any enforcement effort. In addition, we may not have sufficient resources to litigate, enforce
or defend our intellectual property rights.
We
have no patent protection covering the composition of matter for our solid silicon nitride or for all of the components of the process
we use for manufacturing our silicon nitride, and competitors may create silicon nitride formulations substantially similar to ours.
Although
we have a number of U.S. and foreign patents and pending applications relating to our solid silicon nitride products or product candidates,
we have no patent protection either for the composition of matter for our silicon nitride or for the processes of manufacturing solid
silicon nitride. As a result, competitors may create silicon nitride formulations substantially similar to ours and use their formulations
in products that may compete with our silicon nitride products, provided they do not violate our issued product patents. Although we
have, and will continue to develop, significant know-how related to these processes, there can be no assurance that we will be able to
maintain this know-how as trade secrets, and competitors may develop or acquire equally valuable or more valuable know-how related to
the manufacture of silicon nitride.
We
could become subject to intellectual property litigation that could be costly, result in the diversion of management’s time and
efforts, require us to pay damages, prevent us from marketing our commercially available products or product candidates and/or reduce
the margins we may realize from our products that we may commercialize.
The
medical devices industry is characterized by extensive litigation and administrative proceedings over patent and other intellectual property
rights. Whether a product infringes a patent involves complex legal and factual issues, and the determination is often uncertain. There
may be existing patents of which we are unaware that our products under development may inadvertently infringe. The likelihood that patent
infringement claims may be brought against us increases as the number of participants in the orthopedic market increases and as we achieve
more visibility in the marketplace and introduce products to market.
Any
infringement claim against us, even if without merit, may cause us to incur substantial costs, and would place a significant strain on
our financial resources, divert the attention of management from our core business, and harm our reputation. In some cases, litigation
may be threatened or brought by a patent holding company or other adverse patent owner who has no relevant product revenues and against
whom our patents may provide little or no deterrence. If we were found to infringe any patents, we could be required to pay substantial
damages, including triple damages if an infringement is found to be willful, and royalties and could be prevented from selling our products
unless we obtain a license or are able to redesign our products to avoid infringement. We may not be able to obtain a license enabling
us to sell our products on reasonable terms, or at all, and there can be no assurance that we would be able to redesign our products
in a way that would not infringe those patents. If we fail to obtain any required licenses or make any necessary changes to our technologies
or the products that incorporate them, we may be unable to commercialize one or more of our products or may have to withdraw products
from the market, all of which would have a material adverse effect on our business, financial condition and results of operations.
In
addition, in order to further our product development efforts, we have entered into agreements with orthopedic surgeons to help us design
and develop new products, and we expect to enter into similar agreements in the future. In certain instances, we have agreed to pay such
surgeons royalties on sales of products which incorporate their product development contributions. There can be no assurance that surgeons
with whom we have entered into such arrangements will not claim to be entitled to a royalty even if we do not believe that such products
were developed by cooperative involvement between us and such surgeons. In addition, some of our surgeon advisors are employed by academic
or medical institutions or have agreements with other orthopedic companies pursuant to which they have agreed to assign or are under
an obligation to assign to those other companies or institutions their rights in inventions which they conceive or develop or help conceive
or develop.
There
can be no assurance that one or more of these orthopedic companies or institutions will not claim ownership rights to an invention we
develop in collaboration with our surgeon advisors or consultants on the basis that an agreement with such orthopedic company or institution
gives it ownership rights in the invention or that our surgeon advisors on consultants otherwise have an obligation to assign such inventions
to such company or institution. Any such claim against us, even without merit, may cause us to incur substantial costs, and would place
a significant strain on our financial resources, divert the attention of management from our core business and harm our reputation.
We
may be subject to damages resulting from claims that we have wrongfully used or disclosed alleged trade secrets of our competitors or
are in breach of non-competition agreements with our competitors or non-solicitation agreements.
Some
of our employees were previously employed at other medical device or ceramic companies, including our competitors and potential competitors.
Many of our former distributors and potential distributors sell, or in the past have sold, products of our competitors. We may be subject
to claims that either we, or these employees or distributors, have inadvertently or otherwise used or disclosed the trade secrets or
other proprietary information of our competitors. In addition, we have been and may in the future be subject to claims that we caused
an employee or sales agent to break the terms of his or her non-competition agreement or non-solicitation agreement. Litigation may be
necessary to defend against these claims. Even if we are successful in defending against these claims, litigation could result in substantial
costs and be a distraction to management. If we fail in defending such claims, in addition to paying money damages, we may lose valuable
intellectual property rights or personnel. A loss of key personnel or their work product could hamper or prevent our ability to commercialize
products, which could have an adverse effect on our business, financial condition and results of operations.
If
our advanced ceramic products or our product candidates conflict with the rights of others, we may not be able to manufacture or market
our products or product candidates, which could have a material and adverse effect on us.
Our
commercial success will depend in part on not infringing the patents or violating the other proprietary rights of third parties. Issued
patents held by others may limit our ability to develop commercial products. All issued patents are entitled to a presumption of validity
under the laws of the United States. If we need suitable licenses to such patents to permit us to develop or market our product candidates,
we may be required to pay significant fees or royalties and we cannot be certain that we would even be able to obtain such licenses.
Competitors or third parties may obtain patents that may cover subject matter we use in developing the technology required to bring our
products to market, that we use in producing our products, or that we use in treating patients with our products. We know that others
have filed patent applications in various jurisdictions that relate to several areas in which we are developing products. Some of these
patent applications have already resulted in patents and some are still pending. If we were found to infringe any of these issued patents
or any of the pending patent applications, when and if issued, we may be required to alter our processes or product candidates, pay licensing
fees or cease activities. If use of technology incorporated into or used to produce our product candidates is challenged, or if our processes
or product candidates conflict with patent rights of others, third parties could bring legal actions against us, in Europe, the United
States and elsewhere, claiming damages and seeking to enjoin manufacturing and marketing of the affected products. Additionally, it is
not possible to predict with certainty what patent claims may issue from pending applications. In the United States, for example, patent
prosecution can proceed in secret prior to issuance of a patent, provided such application is not filed in foreign jurisdiction. For
U.S. patent applications that are also filed in foreign jurisdictions, such patent applications will not publish until 18 months from
the filing date of the application. As a result, third parties may be able to obtain patents with claims relating to our product candidates
which they could attempt to assert against us. Further, as we develop our products, third parties may assert that we infringe the patents
currently held or licensed by them, and we cannot predict the outcome of any such action.
There
has been extensive litigation in the medical devices industry over patents and other proprietary rights. If we become involved in any
litigation, it could consume a substantial portion of our resources, regardless of the outcome of the litigation. If these legal actions
are successful, in addition to any potential liability for damages, we could be required to obtain a license, grant cross-licenses and
pay substantial royalties in order to continue to manufacture or market the affected products.
We
cannot assure you that we would prevail in any legal action or that any license required under a third-party patent would be made available
on acceptable terms, or at all. Ultimately, we could be prevented from commercializing a product, or forced to cease some aspect of our
business operations, as a result of claims of patent infringement or violation of other intellectual property rights, which could have
a material and adverse effect on our business, financial condition and results of operations.
Risks
Related to Potential Litigation from Operating Our Business
We
may become subject to potential product liability claims, and we may be required to pay damages that exceed our insurance coverage.
Our
business exposes us to potential product liability claims that are inherent in the design, testing, manufacture, sale and distribution
of our currently marketed products and each of our product candidates that we are seeking to introduce to the market. The use of orthopedic
medical devices can involve significant risks of serious complications, including bleeding, nerve injury, paralysis, infection, and even
death. Any product liability claim brought against us, with or without merit, could result in the increase of our product liability insurance
rates or in our inability to secure coverage in the future on commercially reasonable terms, if at all. In addition, if our product liability
insurance proves to be inadequate to pay a damage award, we may have to pay the excess of this award out of our cash reserves, which
could significantly harm our financial condition. If longer-term patient results and experience indicate that our products or any component
of a product causes tissue damage, motor impairment or other adverse effects, we could be subject to significant liability. A product
liability claim, even one without merit, could harm our reputation in the industry, lead to significant legal fees, and result in the
diversion of management’s attention from managing our business.
Any
claims relating to our improper handling, storage or disposal of biological or hazardous materials could be time consuming and costly.
Although
we do not believe that the manufacture of our silicon nitride or non-silicon nitride products will involve the use of hazardous materials,
it is possible that regulatory authorities may disagree or that changes to our manufacturing processes may result in such use. Our business
and facilities and those of our suppliers and future suppliers may therefore be subject to foreign, federal, state and local laws and
regulations governing the use, manufacture, storage, handling and disposal of hazardous materials and waste products. We may incur significant
expenses in the future relating to any failure to comply with environmental laws. Any such future expenses or liability could have a
significant negative impact on our business, financial condition and results of operations.
General
Risk Factors
The
price of our common stock is volatile and is likely to continue to fluctuate due to reasons beyond our control.
The
volatility of publicly traded company stocks, including shares of our common stock, often do not correlate to the operating performance
of the companies represented by such stocks or our operating performance. Some of the factors that may cause the market price of our
common stock to fluctuate include:
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sentiment of retail investors (including as may be expressed on financial trading and other social media sites and online forums); |
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direct access by retail investors to broadly available trading platforms; |
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the
amount and status of short interest in our securities; |
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access
to margin debt; |
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trading
in options and other derivatives on our common stock and any related hedging; |
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CTL’s
ability to sell silicon nitride based spinal fusion products and our cost of manufacturing such products for CTL; |
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our
ability to develop, obtain regulatory clearances or approvals for, and market new and enhanced product candidates on a timely basis; |
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our
ability to enter into OEM and private label partnership agreements and the terms of those agreements; |
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our
ability to develop products that are effective in inactivating the SARS-CoV-2 virus; |
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changes
in governmental regulations or in the status of our regulatory approvals, clearances or future applications; |
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our
announcements or our competitors’ announcements regarding new products, product enhancements, significant contracts, number
and productivity of distributors, number of hospitals and surgeons using products, acquisitions or strategic investments; |
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announcements
of technological or medical innovations for the treatment of orthopedic pathology; |
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delays
or other problems with the manufacturing of our products, product candidates and related instrumentation; |
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volume
and timing of orders for our products and our product candidates, if and when commercialized; |
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changes
in the availability of third-party reimbursement in the United States and other countries; |
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quarterly
variations in our or our competitors’ results of operations; |
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changes
in earnings estimates or recommendations by securities analysts, if any, who cover our common stock; |
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failure
to meet estimates or recommendations by securities analysts, if any, who cover our stock; |
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changes
in the fair value of our derivative liabilities resulting from changes in the market price of our common stock, which may result
in significant fluctuations in our quarterly and annual operating results; |
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changes
in healthcare policy in the United States and internationally; |
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product
liability claims or other litigation involving us; |
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sales
of a substantial aggregate number of shares of our common stock; |
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sales
of large blocks of our common stock, including sales by our executive officers, directors and significant stockholders; |
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disputes
or other developments with respect to intellectual property rights; |
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changes
in accounting principles; |
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changes
to tax policy; 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. |
These
and other external factors may cause the market price and demand for our common stock to fluctuate substantially, which may limit or
prevent our stockholders from readily selling their shares of our common stock and may otherwise negatively affect the liquidity of our
common stock. In addition, in the past, when the market price of a stock has been volatile, holders of that stock have sometimes instituted
securities class action litigation against the company that issued the stock. If our stockholders brought a lawsuit against us, we could
incur substantial costs defending the lawsuit regardless of the merits of the case or the eventual outcome. Such a lawsuit also would
divert the time and attention of our management from running our company.
Securities
analysts may not continue to provide coverage of our common stock or may issue negative reports, which may have a negative impact on
the market price of our common stock.
Since
completing our initial public offering of shares of our common stock in February 2014, a limited number of securities analysts have been
providing research coverage of our common stock. If securities analysts do not continue to cover our common stock, the lack of research
coverage may cause the market price of our common stock to decline. The trading market for our common stock may be affected in part by
the research and reports that industry or financial analysts publish about our business. If one or more of the analysts who elect to
cover us downgrade our stock, our stock price would likely decline rapidly. If one or more of these analysts cease coverage of us, we
could lose visibility in the market, which in turn could cause our stock price to decline. In addition, under the Sarbanes-Oxley Act
of 2002, or the Sarbanes-Oxley Act, and a global settlement among the Securities and Exchange Commission, or the SEC, other regulatory
agencies and a number of investment banks, which was reached in 2003, many investment banking firms are required to contract with independent
financial analysts for their stock research. It may be difficult for a company such as ours, with a smaller market capitalization, to
attract independent financial analysts that will cover our common stock. This could have a negative effect on the market price of our
stock.
Anti-takeover
provisions in our organizational documents and Delaware law may discourage or prevent a change in control, even if an acquisition would
be beneficial to our stockholders, which could affect our stock price adversely and prevent attempts by our stockholders to replace or
remove our current management.
Our
restated certificate of incorporation and restated bylaws contain provisions that could discourage, delay or prevent a merger, acquisition
or other change in control of our company or changes in our board of directors that our stockholders might consider favorable, including
transactions in which you might receive a premium for your shares. These provisions also could limit the price that investors might be
willing to pay in the future for shares of our common stock, thereby depressing the market price of our common stock. Stockholders who
wish to participate in these transactions may not have the opportunity to do so. Furthermore, these provisions could prevent or frustrate
attempts by our stockholders to replace or remove management. These provisions:
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allow
the authorized number of directors to be changed only by resolution of our board of directors; |
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provide
for a classified board of directors, such that not all members of our board will be elected at one time; |
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prohibit
our stockholders from filling board vacancies, limit who may call stockholder meetings, and prohibit the taking of stockholder action
by written consent; |
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prohibit
our stockholders from making certain changes to our restated certificate of incorporation or restated bylaws except with the approval
of holders of 75% of the outstanding shares of our capital stock entitled to vote; |
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require
advance written notice of stockholder proposals that can be acted upon at stockholders’ meetings and of director nominations
to our board of directors; and |
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authorize
our board of directors to create and issue, without prior stockholder approval, preferred stock that may have rights senior to those
of our common stock and that, if issued, could operate as a “poison pill” to dilute the stock ownership of a potential
hostile acquirer to prevent an acquisition that is not approved by our board of directors. |
In
addition, we are subject to the provisions of Section 203 of the Delaware General Corporation Law, which may prohibit certain business
combinations with stockholders owning 15% or more of our outstanding voting stock. Any delay or prevention of a change in control transaction
or changes in our board of directors could cause the market price of our common stock to decline.
We
do not intend to pay cash dividends.
We
have never declared or paid cash dividends on our capital stock and we do not anticipate paying any cash dividends in the foreseeable
future. We currently intend to retain all available funds and any future earnings for debt service and use in the operation and expansion
of our business. In addition, the terms of any future debt or credit facility may preclude us from paying any dividends.
Our
outstanding shares of Series B Convertible Preferred Stock and Series C Convertible Preferred Stock and our outstanding common stock
warrants are convertible and exercisable into shares of our common stock and when converted or exercised, the issuance of additional
shares of common stock may result in downward pressure on the trading price of our common shares.
We
have outstanding shares of Series B Convertible Preferred Stock and Series C Convertible Preferred Stock that are each convertible into
shares of common stock. We believe that as such holders convert their preferred shares into common shares, they will immediately sell
their shares of common stock. The sale of such shares of common stock may result in downward pressure on the trading price of our common
stock resulting in a lower stock price. Additionally, we have outstanding warrants to purchase shares of common stock. Many of these
warrants have a cashless exercise provision that if exercised may also result in downward pressure on the trading price of our common
stock and cause such price to decline.
Risks
Related to Public Companies
We
are a “smaller reporting company” and the reduced disclosure requirements applicable to smaller reporting companies may make
our common stock less attractive to investors.
We
are currently a “smaller reporting company” as defined in the Securities Exchange Act of 1934. Smaller reporting companies
are able to provide simplified executive compensation disclosures in their filings, are exempt from the provisions of Section 404(b)
of the Sarbanes-Oxley Act requiring that independent registered public accounting firms provide an attestation report on the effectiveness
of internal control over financial reporting, and have certain other decreased disclosure obligations in their SEC filings, including,
among other things, only being required to provide two years of audited financial statements in annual reports. We cannot predict whether
investors will find our common stock less attractive because of our reliance on any of these exemptions. If some investors find our common
stock less attractive as a result, there may be a less active trading market for our common stock and our stock price may be more volatile.
We
could be delisted from Nasdaq, which could seriously harm the liquidity of our stock and our ability to raise capital.
On
January 3, 2022, we received a notice from the Nasdaq Listing Qualifications Department (the “Staff”) of the Nasdaq Stock
Market LLC (“Nasdaq”) stating that the bid price of the Company’s common stock for the last 30 consecutive trading
days had closed below the minimum $1.00 per share required for continued listing under Listing Rule 5550(a)(2). If the Company does not
regain compliance with Rule 5550(a)(2) by July 5, 2022, the Company may be afforded a second 180 calendar day period to regain compliance.
To qualify, the Company would be required to meet the continued listing requirement for market value of publicly held shares and all
other initial listing standards for The Nasdaq Capital Market, except for the minimum bid price requirement. In addition, the Company
would be required to notify Nasdaq of its intent to cure the deficiency during the second compliance period, which may include, if necessary,
implementing a reverse stock split. However, if it appears to Staff that the Company will not be able to cure the deficiency, or if the
Company is otherwise not eligible, the Staff will provide notice that its securities will be subject to delisting. There can be no assurance
that the Company will be able to regain compliance with Nasdaq requirements or will otherwise be in compliance with other Nasdaq listing
criteria.
If
we cease to be eligible to trade on the Nasdaq Capital Market:
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We
may have to pursue trading on a less recognized or accepted market, such as the OTC Bulletin Board or the “pink sheets.” |
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The
trading price of our common stock could suffer, including an increased spread between the “bid” and “asked”
prices quoted by market makers. |
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Shares
of our common stock could be less liquid and marketable, thereby reducing the ability of stockholders to purchase or sell our shares
as quickly and as inexpensively as they have done historically. If our stock is traded as a “penny stock,” transactions
in our stock would be more difficult and cumbersome. |
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We
may be unable to access capital on favorable terms or at all, as companies trading on alternative markets may be viewed as less attractive
investments with higher associated risks, such that existing or prospective institutional investors may be less interested in, or
prohibited from, investing in our common stock. This may also cause the market price of our common stock to decline. |
We
incur substantial costs as a result of being a public company and our management expects to devote substantial time to public company
compliance programs.
As
a public company, we incur significant legal, insurance, accounting and other expenses, including costs associated with public company
reporting. We intend to invest resources to comply with evolving laws, regulations and standards, and this investment will result in
increased general and administrative expenses and may divert management’s time and attention from product development and commercialization
activities. If our efforts to comply with new laws, regulations and standards differ from the activities intended by regulatory or governing
bodies due to ambiguities related to practice, regulatory authorities may initiate legal proceedings against us, and our business may
be harmed. These laws and regulations could make it more difficult and costlier for us to obtain director and officer liability insurance
for our directors and officers, and we may be required to accept reduced coverage or incur substantially higher costs to obtain coverage.
These factors could also make it more difficult for us to attract and retain qualified executive officers and qualified members of our
board of directors, particularly to serve on our audit and compensation committees. In addition, if we are unable to continue to meet
the legal, regulatory and other requirements related to being a public company, we may not be able to maintain the listing of our common
stock on The NASDAQ Capital Market, which would likely have a material adverse effect on the trading price of our common stock.