| ANIKA THERAPEUTICS INC ITEM 1A RISK FACTORS Our operating results and financial condition have varied in the past and could in the future vary significantly depending on a number of factors |
| From time to time, information provided by us or statements made by our employees contain “forward-looking” information that involves risks and uncertainties |
| In particular, statements contained in this Form 10-K, and in the documents incorporated by reference into this Form 10-K, that are not historical facts, including, but not limited to statements concerning new products, product development and offerings, product and price competition, competition and strategy, customer diversification, product price and inventory, contingent consideration payments, deferred revenues, economic and market conditions, potential government regulation, seasonal factors, international expansion, revenue recognition, profits, growth of revenues, composition of revenues, cost of revenues, operating expenses, sales, marketing and support expenses, general and administrative expenses, product gross profit, interest income, anticipated operating and capital expenditure requirements, cash inflows, contractual obligations, tax rates, SFAS 123R, leasing and subleasing activities, acquisitions, liquidity, litigation matters, intellectual property matters, distribution channels, stock price, third party licenses and potential debt or equity financings constitute forward-looking statements and are made under the safe harbor provisions of Section 27 of the Securities Act of 1933 as amended, and Section 21E of the Securities Exchange Act of 1934, as amended |
| These statements are neither promises nor guarantees |
| Our actual results of operations and financial condition have varied and could in the future vary significantly from those stated in any forward-looking statements |
| The following factors, among others, could cause actual results to differ materially from those contained in forward-looking statements made in this Form 10-K, in the documents incorporated by reference into this Form 10-K or presented elsewhere by our management from time to time |
| Such factors, among others, could have a material adverse effect upon our business, results of operations and financial condition |
| Our business is subject to comprehensive and varied government regulation and, as a result, failure to obtain FDA or other governmental approvals for our products may materially adversely affect our business, results of operations and financial condition |
| Product development and approval within the FDA framework takes a number of years and involves the expenditure of substantial resources |
| There can be no assurance that the FDA will grant approval for our new products on a timely basis if at all, or that FDA review will not involve delays that will adversely affect our ability to commercialize additional products or expand permitted uses of existing products, or that the regulatory framework will not change, or that additional regulation will not arise at any stage of our product development process which may adversely affect approval of or delay an application or require additional expenditures by us |
| In the event our future products are regulated as human drugs or biologics, the FDA’s review process of such products typically would be substantially longer and more expensive than the review process to which they are currently subject as devices |
| Our HA products under development, including a product for the cosmetic tissue augmentation market (CTA), and INCERT®, a product designed to prevent surgical adhesions, have not obtained US regulatory approval for commercial marketing and sale |
| We received Conformite Europeenne marking (CE marking), a foreign regulatory approval for commercial marketing and sale, for INCERT in the third quarter of 2004 |
| In addition, we filed a pre-market approval application in September 2005 for our CTA product |
| We cannot assure you that: · we will begin or successfully complete US clinical trials for these products; · the clinical data will support the efficacy of these products; · we will be able to successfully complete the FDA or foreign regulatory approval process, where required; or 11 ______________________________________________________________________ · additional clinical trials will support a PMA application and/or FDA approval or other foreign regulatory approvals, where required, in a timely manner or at all |
| We also cannot assure you that any delay in receiving FDA approvals will not adversely affect our competitive position |
| Furthermore, even if we do receive FDA approval: · the approval may include significant limitations on the indications and other claims sought for use for which the products may be marketed; · the approval may include other significant conditions of approval such as post-market testing, tracking, or surveillance requirements; and · meaningful sales may never be achieved |
| Once obtained, marketing approval can be withdrawn by the FDA for a number of reasons, including, among others, the failure to comply with regulatory standards, or the occurrence of unforeseen problems following initial approval |
| We may be required to make further filings with the FDA under certain circumstances |
| The FDA’s regulations require a PMA supplement for certain changes if they affect the safety and effectiveness of an approved device, including, but not limited to, new indications for use, labeling changes, the use of a different facility to manufacture, process or package the device, and changes in performance or design specifications |
| Changes in manufacturing procedures or methods of manufacturing that may affect safety and effectiveness may be deemed approved after a 30-day notice unless the FDA requests a 135-day supplement |
| Our failure to receive approval of a PMA supplement regarding the use of a different manufacturing facility or any other change affecting the safety or effectiveness of an approved device on a timely basis, or at all, may have a material adverse effect on our business, financial condition, and results of operations |
| The FDA could also limit or prevent the manufacture or distribution of our products and has the power to require the recall of such products |
| Significant delay or cost in obtaining, or failure to obtain FDA approval to market products, any FDA limitations on the use of our products, or any withdrawal or suspension of approval or rescission of approval by the FDA could have a material adverse effect on our business, financial condition, and results of operations |
| In addition, all FDA approved or cleared products manufactured by us must be manufactured in compliance with the FDA’s Good Manufacturing Practices (GMP) regulations and, for medical devices, the FDA’s Quality System Regulations (QSR) |
| Ongoing compliance with QSR and other applicable regulatory requirements is enforced through periodic inspection by state and federal agencies, including the FDA The FDA may inspect us and our facilities from time to time to determine whether we are in compliance with regulations relating to medical device and manufacturing companies, including regulations concerning manufacturing, testing, quality control and product labeling practices |
| We cannot assure you that we will be able to comply with current or future FDA requirements applicable to the manufacture of products |
| FDA regulations depend heavily on administrative interpretation and we cannot assure you that the future interpretations made by the FDA or other regulatory bodies, with possible retroactive effect, will not adversely affect us |
| In addition, changes in the existing regulations or adoption of new governmental regulations or policies could prevent or delay regulatory approval of our products |
| Failure to comply with applicable regulatory requirements could result in, among other things, warning letters, fines, injunctions, civil penalties, recall or seizure of products, total or partial suspension of production, refusal of the FDA to grant pre-market clearance or pre-market approval for devices, withdrawal of approvals and criminal prosecution |
| In addition to regulations enforced by the FDA, we are subject to other existing and future federal, state, local and foreign regulations |
| International regulatory bodies often establish regulations governing 12 ______________________________________________________________________ product standards, packing requirements, labeling requirements, import restrictions, tariff regulations, duties and tax requirements |
| We cannot assure you that we will be able to achieve and/or maintain compliance required for CE marking or other foreign regulatory approvals for any or all of our products or that we will be able to produce our products in a timely and profitable manner while complying with applicable requirements |
| Federal, state, local and foreign regulations regarding the manufacture and sale of medical products are subject to change |
| We cannot predict what impact, if any, such changes might have on our business |
| The process of obtaining approvals from the FDA and other regulatory authorities can be costly, time consuming, and subject to unanticipated delays |
| We cannot assure you that approvals or clearances of our products will be granted or that we will have the necessary funds to develop certain of our products |
| Any failure to obtain, or delay in obtaining such approvals or clearances, could adversely affect our ability to market our products |
| Substantial competition could materially affect our financial performance |
| We compete with many companies, including, among others, large pharmaceutical companies and specialized medical products companies |
| Many of these companies have substantially greater financial and other resources, larger research and development staffs, more extensive marketing and manufacturing organizations and more experience in the regulatory process than us |
| We also compete with academic institutions, governmental agencies and other research organizations that may be involved in research, development and commercialization of products |
| Because a number of companies are developing or have developed HA products for similar applications and have received FDA approval, the successful commercialization of a particular product will depend in part upon our ability to complete clinical studies and obtain FDA marketing and foreign regulatory approvals prior to our competitors, or, if regulatory approval is not obtained prior to competitors, to identify markets for our products that may be sufficient to permit meaningful sales of our products |
| For example, we are aware of several companies that are developing and/or marketing products utilizing HA for a variety of human applications |
| In some cases, competitors have already obtained product approvals, submitted applications for approval or have commenced human clinical studies, either in the US or in certain foreign countries |
| There exist major competing products for the use of HA in ophthalmic surgery |
| In addition, certain HA products for the treatment of osteoarthritis in the knee have received FDA approval before us and have been marketed in the US since 1997, as well as select markets in Canada, Europe and other countries |
| In early 2004 the FDA approved two HA products for the treatment of facial wrinkles which has been marketed internationally since 1996 |
| There can be no assurance that we will be able to compete against current or future competitors or that competition will not have a material adverse effect on our business, financial condition and results of operations |
| We are uncertain regarding the success of our clinical trials |
| Several of our products will require clinical trials to determine their safety and efficacy for US and international marketing approval by regulatory bodies, including the FDA We completed a pilot human clinical trial in Europe for INCERT-S in December 2005 and completed a pivotal clinical trial for our product for CTA in October 2005 |
| There can be no assurance that we will be able to successfully complete the US regulatory approval process for either INCERT-S or our CTA product |
| In addition, there can be no assurance that we will not encounter additional problems that will cause us to delay, suspend or terminate the clinical trials |
| In addition, we cannot make any assurance that such clinical trials, if completed, will ultimately demonstrate these products to be safe and efficacious |
| 13 ______________________________________________________________________ We are dependent upon marketing and distribution partners and the failure to maintain strategic alliances on acceptable terms will have a material adverse effect on our business, financial condition and results of operations |
| Our success will be dependent, in part, upon the efforts of our marketing partners and the terms and conditions of our relationships with such marketing partners |
| We cannot assure you that such marketing partners will not seek to renegotiate their current agreements on terms less favorable to us |
| Under the terms of the 2004 B&L Agreement, effective December 15, 2004, we will continue to be Bausch & Lomb’s exclusive global supplier (other than with respect to Japan) of AMVISC and AMVISC Plus ophthalmic viscoelastic products |
| The B&L Agreement expires December 31, 2010, and superseded an existing supply contract with Bausch & Lomb that was set to expire December 31, 2007 |
| The new contract also provides us with a right to negotiate to manufacture future surgical ophthalmic viscoelastic products developed by Bausch & Lomb, while Bausch & Lomb has been granted rights to commercialize certain future surgical ophthalmic viscoelastic products developed by us |
| In addition, under certain circumstances, Bausch & Lomb has the right to terminate the agreement, and/or the agreement may revert to a non-exclusive basis; in each case, we cannot make any assurances that such circumstances will not occur |
| For the years ended December 31, 2005 and 2004, sales of AMVISC products to Bausch & Lomb accounted for 31prca and 32prca of total revenues, respectively |
| Our distributor for CoEase, Advanced Medical Optics, completed its previously announced acquisition of the surgical ophthalmology business of Pfizer, Inc |
| in June 2004, which includes a competing line of viscoelastic products for use in ocular surgery |
| As a result, our agreement with Advanced Medical Optics was not renewed and terminated in June 2005 upon its expiration |
| Sales to Advanced Medical Optics were less than 1prca of total revenue for 2005 compared to 8prca of total revenue for 2004 or approximately dlra2dtta2 million |
| As a result, in the future we may not be able to sustain current product revenue levels in our ophthalmic business |
| We have entered into various agreements for the distribution of ORTHOVISC internationally which are subject to termination under certain circumstances |
| We are continuing to seek to establish long-term distribution relationships in regions not covered by existing agreements, but can make no assurances that we will be successful in doing so |
| There can be no assurance that we will be able to identify or engage appropriate distribution or collaboration partners or effectively transition to any such partners |
| There can be no assurance that we will obtain European or other reimbursement approvals or, if such approvals are obtained, they will be obtained on a timely basis or at a satisfactory level of reimbursement |
| In December 2003 we entered into a ten-year licensing and supply agreement with Ortho Biotech Products, LP, a member of the Johnson & Johnson family of companies, to market ORTHOVISC in the US and Mexico |
| This agreement was assigned to DePuy Mitek, Inc |
| Under this Agreement, DePuy Mitek performs sales, marketing and distribution functions |
| Additionally, DePuy Mitek has the right under certain circumstances, to further develop and commercialize ORTHOVISC as well as other new products for the treatment of pain associated with osteoarthritis based on our viscosupplementation technology |
| We cannot assure you that Depuy Mitek will be able to market ORTHOVISC effectively or to establish sales levels to the extent that Anika and Depuy Mitek believe are possible in the timeframes expected, or at all, nor can we assure you that we will be able to achieve the performance- and sales- based milestones provided in the JNJ Agreement |
| For the year ended December 31, 2004, sales of ORTHOVISC to Depuy Mitek and royalties tied to end-user sales accounted for 18prca of total revenue |
| Furthermore, we cannot predict whether the license granted to Depuy Mitek in the JNJ Agreement to further develop and commercialize ORTHOVISC products for the treatment of pain associated with osteoarthritis based on our viscosupplementation technology will result in any new products or indications for use |
| On July 26, 2004, we announced the signing of an exclusive worldwide development and commercialization partnership with OrthoNeutrogena a division of Ortho-McNeil Pharmaceuticals, Inc, an affiliate of Johnson & Johnson, for our CTA therapy products |
| On September 1, 2005, the Company 14 ______________________________________________________________________ announced that it had mutually agreed with OrthoNeutrogena to terminate its development and commercialization agreement, and that we were seeking a new worldwide distribution partner |
| Also on September 1, 2005, we announced we had filed our PMA with the FDA seeking approval to market and sell our CTA product in the United States |
| There can be no assurance that we will successfully complete the FDA approval process |
| If we are able to successfully complete the FDA approval process for our CTA product, we cannot assure you that we will be able to successfully find a distribution partner and commercialize our CTA product effectively, or at all |
| We may need to obtain the assistance of additional marketing partners to bring new and existing products to market and to replace certain marketing partners |
| The failure to establish strategic partnerships for the marketing and distribution of our products on acceptable terms will have a material adverse effect on our business, financial condition, and results of operations |
| Our success will depend in part upon the acceptance of our existing and future products by the medical community, hospitals and physicians and other health care providers, and third-party payers |
| Such acceptance may depend upon the extent to which the medical community perceives our products as safer, more effective or cost-competitive than other similar products |
| Ultimately, for our new products to gain general market acceptance, it may also be necessary for us to develop marketing partners for the distribution of our products |
| There can be no assurance that our new products will achieve significant market acceptance on a timely basis, or at all |
| Failure of some or all of our future products to achieve significant market acceptance could have a material adverse effect on our business, financial condition, and results of operations |
| We may be unable to adequately protect our intellectual property rights |
| Our success will depend, in part, on our ability to obtain and enforce patents, protect trade secrets, obtain licenses to technology owned by third parties when necessary, and conduct our business without infringing on the proprietary rights of others |
| The patent positions of pharmaceutical, medical products and biotechnology firms, including ours, can be uncertain and involve complex legal and factual questions |
| There can be no assurance that any patent applications will result in the issuance of patents or, if any patents are issued, whether they will provide significant proprietary protection or commercial advantage, or will not be circumvented by others |
| In the event a third party has also filed one or more patent applications for any of its inventions, we may have to participate in interference proceedings declared by the United States Patent and Trademark Office (PTO) to determine priority of invention, which could result in failure to obtain, or the loss of, patent protection for the inventions and the loss of any right to use the inventions |
| Even if the eventual outcome is favorable to us, such interference proceedings could result in substantial cost to us, and diversion of management’s attention away from our operations |
| Filing and prosecution of patent applications, litigation to establish the validity and scope of patents, assertion of patent infringement claims against others and the defense of patent infringement claims by others can be expensive and time consuming |
| There can be no assurance that in the event that any claims with respect to any of our patents, if issued, are challenged by one or more third parties, that any court or patent authority ruling on such challenge will determine that such patent claims are valid and enforceable |
| An adverse outcome in such litigation could cause us to lose exclusivity covered by the disputed rights |
| If a third party is found to have rights covering products or processes used by us, we could be forced to cease using the technologies or marketing the products covered by such rights, could be subject to significant liabilities to such third party, and could be required to license technologies from such third party |
| Furthermore, even if our patents are determined to be valid, enforceable, and broad in scope, there can be no assurance that competitors will not be able to design around such patents and compete with us using the resulting alternative technology |
| 15 ______________________________________________________________________ We have a policy of seeking patent protection for patentable aspects of our proprietary technology |
| We intend to seek patent protection with respect to products and processes developed in the course of our activities when we believe such protection is in our best interest and when the cost of seeking such protection is not inordinate |
| However, no assurance can be given that any patent application will be filed, that any filed applications will result in issued patents or that any issued patents will provide us with a competitive advantage or will not be successfully challenged by third parties |
| The protections afforded by patents will depend upon their scope and validity, and others may be able to design around our patents |
| Other entities have filed patent applications for or have been issued patents concerning various aspects of HA-related products or processes |
| There can be no assurance that the products or processes developed by us will not infringe on the patent rights of others in the future |
| Any such infringement may have a material adverse effect on our business, financial condition, and results of operations |
| In particular, we received notice from the PTO in 1995 that a third party was attempting to provoke a patent interference with respect to one of our co-owned patents covering the use of INCERT for post-surgical adhesion prevention |
| It is unclear whether an interference will be declared |
| If an interference is declared it is not possible at this time to determine the merits of the interference or the effect, if any, the interference will have on our marketing of INCERT for this use |
| No assurance can be given that we would be successful in any such interference proceeding |
| If the third-party interference were to be decided adversely to us, involved claims of our patent would be cancelled, our marketing of the INCERT product may be materially and adversely affected and the third party may enforce patent rights against us which could prohibit the sale and use of INCERT products, which could have a material adverse effect on our future operating results |
| We also rely upon trade secrets and proprietary know-how for certain non-patented aspects of our technology |
| To protect such information, we require all employees, consultants and licensees to enter into confidentiality agreements limiting the disclosure and use of such information |
| There can be no assurance that these agreements provide meaningful protection or that they will not be breached, that we would have adequate remedies for any such breach, or that our trade secrets, proprietary know-how, and our technological advances will not otherwise become known to others |
| In addition, there can be no assurance that, despite precautions taken by us, others have not and will not obtain access to our proprietary technology |
| Further, there can be no assurance that third parties will not independently develop substantially equivalent or better technology |
| Pursuant to the 2004 B&L Agreement, we have agreed to transfer to Bausch & Lomb, upon expiration of the term of the 2004 B&L agreement on December 31, 2010, or in connection with earlier termination in certain circumstances, our manufacturing process, know-how and technical information, which relate to only AMVISC products |
| Upon expiration of the 2004 B&L Agreement, there can be no assurance that Bausch & Lomb will continue to use us to manufacture AMVISC and AMVISC Plus |
| If Bausch & Lomb discontinues the use of us as a manufacturer after such time, our business, financial condition, and results of operations would likely be materially and adversely affected |
| Our manufacturing processes involve inherent risks and disruption could materially adversely affect our business, financial condition and results of operations |
| Our results of operations are dependent upon the continued operation of our manufacturing facility in Woburn, Massachusetts |
| The operation of biomedical manufacturing plants involves many risks, including the risks of breakdown, failure or substandard performance of equipment, the occurrence of natural and other disasters, and the need to comply with the requirements of directives of government agencies, including the FDA In addition, we rely on a single supplier for syringes and a small number of suppliers for a number of other materials required for the manufacturing and delivery of our HA products |
| Although we believe that alternative sources for many of these and other components and raw materials that we use in our manufacturing processes are available, any supply interruption could harm our ability to 16 ______________________________________________________________________ manufacture our products until a new source of supply is identified and qualified |
| We may not be able to find a sufficient alternative supplier in a reasonable time period, or on commercially reasonable terms, if at all, and our ability to produce and supply our products could be impaired |
| Furthermore, our manufacturing processes and research and development efforts involve animals and products derived from animals |
| We procure our animal-derived raw materials from qualified vendors, control for contamination and have processes that effectively inactivate infectious agents; however, we cannot assure you that we can completely eliminate the risk of transmission of infectious agents and in the future regulatory authorities could impose restrictions on the use of animal-derived raw materials that could impact our business |
| The utilization of animals in research and development and product commercialization is subject to increasing focus by animal rights activists |
| The activities of animal rights groups and other organizations that have protested animal based research and development programs or boycotted the products resulting from such programs could cause an interruption in our manufacturing processes and research and development efforts |
| The occurrence of material operational problems, including but not limited to the events described above, could have a material adverse effect on our business, financial condition, and results of operations during the period of such operational difficulties |
| Our financial performance depends on the continued growth and demand for our products and we may not be able to successfully manage the expansion of our operations Our future success depends on substantial growth in product sales |
| There can be no assurance that such growth can be achieved or, if achieved, can be sustained |
| There can be no assurance that even if substantial growth in product sales and the demand for our products is achieved, we will be able to: · develop the necessary manufacturing capabilities; · obtain the assistance of additional marketing partners; · attract, retain and integrate the required key personnel; · implement the financial, accounting and management systems needed to manage growing demand for our products |
| Our failure to successfully manage future growth could have a material adverse effect on our business, financial condition, and results of operations |
| If we engage in any acquisition as a part our growth strategy, we will incur a variety of costs, and may never realize the anticipated benefits of the acquisition |
| Our business strategy may include the future acquisition of businesses, technologies, services or products that we believe are a strategic fit with our business |
| If we undertake any acquisition, the process of integrating an acquired business, technology, service or product may result in unforeseen operating difficulties and expenditures and may absorb significant management attention that would otherwise be available for ongoing development of our business |
| Moreover, we may fail to realize the anticipated benefits of any acquisition as rapidly as expected or at all |
| Future acquisitions could reduce stockholders’ ownership, cause us to incur debt, expose us to future liabilities and result in amortization expenses related to intangible assets with definite lives |
| In addition, acquisitions involve other risks, including diversion of management resources otherwise available for ongoing development of our business and risks associated with entering new markets with which we have limited experience or where experienced distribution alliances are not available |
| Our future profitability may depend in part upon our ability to develop further our resources to adapt to these new products or business areas and to identify and enter into satisfactory 17 ______________________________________________________________________ distribution networks |
| We may not be able to identify suitable acquisition candidates in the future or consummate future acquisitions |
| Sales of our products are largely dependent upon third party reimbursement and our performance may be harmed by health care cost containment initiatives |
| In the US and other markets, health care providers, such as hospitals and physicians, that purchase health care products, such as our products, generally rely on third party payers, including Medicare, Medicaid and other health insurance and managed care plans, to reimburse all or part of the cost of the health care product |
| We depend upon the distributors for our products to secure reimbursement and reimbursement approvals |
| Reimbursement by third party payers may depend on a number of factors, including the payer’s determination that the use of our products is clinically useful and cost-effective, medically necessary and not experimental or investigational |
| Since reimbursement approval is required from each payer individually, seeking such approvals can be a time consuming and costly process which, in the future, could require us or our marketing partners to provide supporting scientific, clinical and cost-effectiveness data for the use of our products to each payer separately |
| Significant uncertainty exists as to the reimbursement status of newly approved health care products, and any failure or delay in obtaining reimbursement approvals can negatively impact sales or our new products |
| In addition, third party payers are increasingly attempting to contain the costs of health care products and services by limiting both coverage and the level of reimbursement for new therapeutic products and by refusing in some cases to provide coverage for uses of approved products for disease indications for which the FDA has not granted marketing approval |
| Also, Congress and certain state legislatures have considered reforms that may affect current reimbursement practices, including controls on health care spending through limitations on the growth of Medicare and Medicaid spending |
| There can be no assurance that third party reimbursement coverage will be available or adequate for any products or services developed by us |
| Outside the US, the success of our products is also dependent in part upon the availability of reimbursement and health care payment systems |
| Lack of adequate coverage and reimbursement provided by governments and other third party payers for our products and services, including continued classification by CMS of ORTHOVISC under a miscellaneous J-code for Medicare/Medicaid reimbursement, could have a material adverse effect on our business, financial condition, and results of operations |
| We may seek financing in the future, which could be difficult to obtain and which could dilute your ownership interest or the value of your shares |
| We had cash and cash equivalents of approximately dlra44dtta7 million at December 31, 2005 |
| Our future capital requirements and the adequacy of available funds will depend, however, on numerous factors, including: · market acceptance of our existing and future products; · the success and sales of ORTHOVISC under the JNJ Agreement; · the successful commercialization of products in development; · progress in our product development efforts; · the magnitude and scope of such product development efforts; · progress with preclinical studies, clinical trials and product clearances by the FDA and other agencies; · the cost and timing of our efforts to manage our manufacturing capabilities and related costs; · the cost of filing, prosecuting, defending and enforcing patent claims and other intellectual property rights; 18 ______________________________________________________________________ · competing technological and market developments; · the development of strategic alliances for the marketing of certain of our products; · the terms of such strategic alliances, including provisions (and our ability to satisfy such provisions) that provide upfront and/or milestone payments to us; and · the cost of maintaining adequate inventory levels to meet current and future product demands |
| To the extent that funds generated from our operations, together with our existing capital resources are insufficient to meet future requirements, we will be required to obtain additional funds through equity or debt financings, strategic alliances with corporate partners and others, or through other sources |
| The terms of any future equity financings may be dilutive to you and the terms of any debt financings may contain restrictive covenants, which limit our ability to pursue certain courses of action |
| Our ability to obtain financing is dependent on the status of our future business prospects as well as conditions prevailing in the relevant capital markets |
| No assurance can be given that any additional financing will be made available to us or will be available on acceptable terms should such a need arise |
| We could become subject to product liability claims, which, if successful, could materially adversely affect our business, financial condition and results of operations |
| The testing, marketing and sale of human health care products entail an inherent risk of allegations of product liability, and there can be no assurance that substantial product liability claims will not be asserted against us |
| Although we have not received any material product liability claims to date and have an insurance policy of dlra5cmam000cmam000 per occurrence and dlra5cmam000cmam000 in the aggregate to cover such claims should they arise, there can be no assurance that material claims will not arise in the future or that our insurance will be adequate to cover all situations |
| Moreover, there can be no assurance that such insurance, or additional insurance, if required, will be available in the future or, if available, will be available on commercially reasonable terms |
| Any product liability claim, if successful, could have a material adverse effect on our business, financial condition and results of operations |
| Our business is dependent upon hiring and retaining qualified management and scientific personnel |
| We are highly dependent on the members of our management and scientific staff, the loss of one or more of whom could have a material adverse effect on us |
| We experienced a number of management changes in 2004 and 2005 |
| There can be no assurances that such management changes will not adversely affect our business |
| We believe that our future success will depend in large part upon our ability to attract and retain highly skilled, scientific, managerial and manufacturing personnel |
| We face significant competition for such personnel from other companies, research and academic institutions, government entities and other organizations |
| The failure to hire and retain such personnel could have a material adverse effect on our business, financial condition and results of operations |
| We are subject to environmental regulation and any failure to comply with applicable laws could subject us to significant liabilities and harm our business |
| We are subject to a variety of local, state and federal government regulations relating to the storage, discharge, handling, emission, generation, manufacture and disposal of toxic, or other hazardous substances used in the manufacture of our products |
| Any failure by us to control the use, disposal, removal or storage of hazardous chemicals or toxic substances could subject us to significant liabilities, which could have a material adverse effect on our business, financial condition, and results of operations |
| 19 ______________________________________________________________________ Our future operating results may be harmed by economic, political and other risks relating to international sales |
| During the years ended December 31, 2005 and 2004, approximately, 43prca and 30prca, respectively, of our product sales were to international distributors |
| Our representatives, agents and distributors who sell products in international markets are subject to the laws and regulations of the foreign jurisdictions in which they operate and in which our products are sold |
| A number of risks are inherent in international sales and operations |
| For example, the volume of international sales may be limited by the imposition of government controls, export license requirements, political and/or economic instability, trade restrictions, changes in tariffs, difficulties in managing international operations, import restrictions and fluctuations in foreign currency exchange rates |
| Such changes in the volume of sales may have a material adverse effect on our business, financial condition, and results of operations |
| Our stock price has been and may remain highly volatile, and we cannot assure you that market making in our common stock will continue |
| The market price of shares of our common stock may be highly volatile |
| Factors such as announcements of new commercial products or technological innovations by us or our competitors, disclosure of results of clinical testing or regulatory proceedings, governmental regulation and approvals, developments in patent or other proprietary rights, public concern as to the safety of products developed by us and general market conditions may have a significant effect on the market price of our common stock |
| The trading price of our common stock could be subject to wide fluctuations in response to quarter-to-quarter variations in our operating results, material announcements by us or our competitors, governmental regulatory action, conditions in the health care industry generally or in the medical products industry specifically, or other events or factors, many of which are beyond our control |
| In addition, the stock market has experienced extreme price and volume fluctuations which have particularly affected the market prices of many medical products companies and which often have been unrelated to the operating performance of such companies |
| Our operating results in future quarters may be below the expectations of equity research analysts and investors |
| In such event, the price of our common stock would likely decline, perhaps substantially |
| No person is under any obligation to make a market in the common stock or to publish research reports on us, and any person making a market in the common stock or publishing research reports on us may discontinue market making or publishing such reports at any time without notice |
| There can be no assurance that an active public market in our common stock will be sustained |
| Our charter documents contain anti-takeover provisions that may prevent or delay an acquisition of us |
| Certain provisions of our Restated Articles of Organization and Amended and Restated By-laws could have the effect of discouraging a third party from pursuing a non-negotiated takeover of us and preventing certain changes in control |
| These provisions include a classified Board of Directors, advance notice to the Board of Directors of stockholder proposals, limitations on the ability of stockholders to remove directors and to call stockholder meetings, the provision that vacancies on the Board of Directors be filled by vote of a majority of the remaining directors |
| In addition, the Board of Directors adopted a Shareholders Rights Plan in April 1998 |
| We are also subject to Chapter 110F of the Massachusetts General Laws which, subject to certain exceptions, prohibits a Massachusetts corporation from engaging in any of a broad range of business combinations with any “interested stockholder” for a period of three years following the date that such stockholder became an interested stockholder |
| These provisions could discourage a third party from pursuing a takeover of us at a price considered attractive by many stockholders, since such provisions could have the effect of preventing or delaying a potential acquirer from acquiring control of us and our Board of Directors |
| 20 ______________________________________________________________________ Our revenues are derived from a small number of customers, the loss of which could materially adversely affect our business, financial condition and results of operations |
| We have historically derived the majority of our revenues from a small number of customers, most of whom resell our products to end users and most of whom are significantly larger companies than us |
| For the year ended December 31, 2005, three customers accounted for 78prca of product revenue |
| While it is expected that our ability to market ORTHOVISC in the US will reduce our dependence on revenues from Bausch & Lomb, historically our largest customer, we will still be dependent on a small number of large customers for the majority of our revenues |
| Our failure to generate as much revenue as expected from these customers or the failure of these customers to purchase our products would seriously harm our business |
| In addition, if present and future customers terminate their purchasing arrangements with us, significantly reduce or delay their orders, or seek to renegotiate their agreements on terms less favorable to us, our business, financial condition, and results of operations will be adversely affected |
| If we accept terms less favorable than the terms of the current agreement, such renegotiations may have a material adverse effect on our business, financial condition, and/or results of operations |
| Furthermore, we may be subject to the perceived or actual leverage the customers may have given their relative size and importance to us in any future negotiations |
| Any termination, change, reduction or delay in orders could seriously harm our business, financial condition, and results of operations |
| Accordingly, unless and until we diversify and expand our customer base, our future success will significantly depend upon the timing and size of future purchases by our largest customers and the financial and operational success of these customers |
| The loss of any one of our major customers or the delay of significant orders from such customers, even if only temporary, could reduce or delay our recognition of revenues, harm our reputation in the industry, and reduce our ability to accurately predict cash flow, and, as a consequence, could seriously harm our business, financial condition, and results of operations |
| Additional costs for complying with recent and proposed future changes in Securities and Exchange Commission, Nasdaq Stock Market and accounting rules could adversely affect our profits |
| Recent and future changes in the Securities and Exchange Commission and Nasdaq rules, as well as changes in accounting rules, will cause us to incur additional costs including professional fees, as well as additional personnel costs, in order to keep informed of the changes and operate in a compliant manner |
| In addition, we have and continue to expect to incur general and administrative expense as we maintain compliance with Section 404 of the Sarbanes-Oxley Act of 2002, which requires management to report on, and our independent registered public accounting firm to attest to, our internal controls |
| These costs may be significant enough to cause our financial position and results of operations to be negatively impacted |
| In addition, compliance with these new rules could also result in continued diversion of management’s time and attention, which could prove to be disruptive to our normal business operations |
| Failure to comply with any of the new laws and regulations could adversely impact market perception of our company, which could make it difficult to access the capital markets or otherwise finance our operations in the future |
| With new rules, including the Sarbanes-Oxley Act of 2002, we may have difficulty in retaining or attracting directors for the board and various sub-committees thereof or officers |
| The recent changes in SEC and Nasdaq rules, including those resulting from the Sarbanes-Oxley Act of 2002, may result in our being unable to attract and retain the necessary board directors and members of sub-committees thereof or officers, to effectively provide for our management |
| The perceived increased personal risk associated with these recent changes may deter qualified individuals from wanting to participate in these roles |
| 21 ______________________________________________________________________ We may have difficulty obtaining adequate directors and officers insurance and the cost for coverage may significantly increase |
| We may have difficulty in obtaining adequate directors’ and officers’ insurance to protect us and our directors and officers from claims made against them |
| Additionally, even if adequate coverage is available, the costs for such coverage may be significantly greater than current costs |
| This additional cost may have a significant effect on our profits and as a consequence our results of operations may be adversely affected |