| NMT MEDICAL INC ITEM 1A RISK FACTORS The following important factors, among others, could cause actual results to differ materially from those contained in forward-looking statements made in this Annual Report on Form 10-K and presented elsewhere by us from time to time |
| WE MAY FACE UNCERTAINTIES WITH RESPECT TO THE EXECUTION, COST AND ULTIMATE OUTCOME OF MIST In November 2004, we received approval to initiate our MIST clinical study in the United Kingdom |
| This study is designed to evaluate the effectiveness of transcatheter closure of a PFO in the treatment and prevention 16 ______________________________________________________________________ [47]Table of Contents of migraine headaches |
| Patient enrollment was completed in early July 2005, with follow-up evaluations over a six-month period |
| We currently estimate the total costs of MIST, including third party contracts, agreements with clinical sites and other service providers, to be approximately dlra4dtta0 to dlra4dtta5 million |
| We cannot be certain that this prospective, randomized, controlled study will confirm clinical relevance between PFO and migraine headaches or that it will demonstrate the effectiveness of our proprietary technology in treating this condition |
| Even if we achieve positive results, we cannot be certain of the timing or the costs of obtaining required FDA approvals in order to market our STARFlex^® technology in the US to treat migraines |
| SUBSTANTIALLY ALL OF OUR REVENUES ARE DERIVED FROM SALES OF ONE PRODUCT LINE We derive a substantial portion of our ongoing revenues from sales of our CardioSEAL^® and STARFlex^® products |
| In the United States, the FDA limits sales under our existing PFO HDE to 4cmam000 CardioSEAL^® implant units per year |
| As demand for, and costs associated with, these products fluctuates, including the potential impact of our non-revenue producing PFO IDE clinical trials on product sales, our financial results on a quarterly or annual basis may be significantly impacted |
| Accordingly, events or circumstances adversely affecting the sales of either of these products would directly and adversely impact our business |
| These events or circumstances may include reduced demand for our products, lack of regulatory approvals, product liability claims and/or increased competition |
| CIRCUMSTANCES COULD CAUSE THE LOSS OF OUR HDE APPROVAL FOR USE OF CARDIOSEAL^® IN TREATING PFO PATIENTS All of our US commercial sales of CardioSEAL^® are made pursuant to either: (a) the PMA granted by the FDA in December 2001 covering the VSD indication or (b) the HDE granted by the FDA in February 2000 covering the PFO indication |
| In 2005, approximately 50prca of our US implant sales were made under the PFO HDE If our PFO HDE were to be deactivated by the FDA, whether due to issuance of a PMA to one of our competitors or otherwise, such a loss of our PFO HDE would potentially cause a very material reduction in US sales, resulting in significant operating losses based upon our current operational structure |
| Under these circumstances, and in the absence of substantial sources of new financing, our future prospects would be severely limited, including our ability to complete the CLOSURE I clinical trial that is required to apply for a PFO PMA to treat cardiac sources of stroke |
| AS A RESULT OF GOVERNMENT REGULATIONS, WE MAY EXPERIENCE LOWER SALES AND EARNINGS The manufacture and sale of medical devices intended for commercial distribution are subject to extensive governmental regulations in the United States and abroad |
| Medical devices generally require pre-market clearance or pre-market approval prior to commercial distribution |
| Certain material changes or modifications to medical devices are also subject to regulatory review and clearance or approval |
| The regulatory approval process is expensive, uncertain and lengthy |
| If granted, the approval may include significant limitations on the indicated uses for which a product may be marketed |
| In addition, any products that we manufacture or distribute are subject to continuing regulation by the FDA We cannot be certain that we will be able to obtain necessary regulatory approvals or clearances for our products on a timely basis or at all |
| The occurrence of any of the following events could have a material adverse effect on our business, financial condition and results of operations: • delays in receipt of, or failure to receive, regulatory approvals or clearances; • the loss of previously received approvals or clearances, including our PFO HDE; • limitations on the intended use of a device imposed as a condition of regulatory approvals or clearances; or • our failure to comply with existing or future regulatory requirements |
| 17 ______________________________________________________________________ [48]Table of Contents In addition, sales of medical device products outside the United States are subject to foreign regulatory requirements that vary widely from country to country |
| Failure to comply with foreign regulatory requirements also could have a material adverse effect on our business, financial condition and results of operations |
| WE MAY FACE UNCERTAINTIES WITH RESPECT TO THE EXECUTION, COST AND ULTIMATE OUTCOME OF MIST II In September 2005, we received conditional approval from the FDA of an IDE to initiate enrollment in our pivotal PFO/migraine clinical study, named MIST II Patient enrollment, which commenced in January 2006, is currently estimated to be completed in early 2007, with patient follow-up over a one year period |
| We currently project the costs of this clinical study to be in the range of dlra16 to dlra20 million through 2008 |
| We cannot be certain that this study will confirm clinical relevance between PFO and migraine headaches or that it will demonstrate the effectiveness of our proprietary technology in treating this condition |
| We cannot be certain that our preliminary cost estimates for MIST II will not need to be adjusted upwards significantly |
| Furthermore, we cannot be certain that we will ultimately obtain a PMA from the FDA based upon the final results of this study or whether further studies might be required by the FDA before consideration of a PMA In addition, if patient enrollment were to progress as rapidly as we experienced for our MIST UK study, we cannot be certain of the effect, if any, on the level of commercial sales of our CardioSEAL^® products in the United States during the enrollment period |
| WE MAY FACE UNCERTAINTIES WITH RESPECT TO THE EXECUTION, COST AND ULTIMATE OUTCOME OF BEST In June 2005, we received approval to initiate our BEST clinical study in the United Kingdom |
| We currently estimate total costs of this study, including third party contracts and agreements with clinical sites and other service providers, to be in the range of dlra1dtta2 to dlra1dtta5 million through early 2006 |
| We cannot be certain that the projected costs of BEST will not need to be adjusted upwards |
| Furthermore, we cannot be certain that we will secure European commercial approval for our BioSTAR^™ technology through the CE Mark process |
| WE MAY FACE UNCERTAINTIES WITH RESPECT TO THE EXECUTION, COST AND ULTIMATE OUTCOME OF CLOSURE I Upon receipt of final FDA approval, we commenced CLOSURE I in June 2003 |
| During the two years ended December 31, 2005, the rate of patient enrollment has been disappointing |
| At the present time, we are working with our consultants, regulatory bodies and investigators to develop a course of action designed to enable us to complete the CLOSURE I enrollment |
| We now believe that study changes, acceptable to the FDA, the investigators and us, are necessary in order to successfully complete this study |
| Until these changes are approved and implemented, it is difficult to estimate the completion date |
| It is currently anticipated that when completed, study data from CLOSURE I will be used to support a PFO PMA application |
| We currently estimate the total costs of CLOSURE I to be approximately dlra24 million through completion of the clinical trial and submission to the FDA We have no direct experience conducting a clinical trial of this magnitude |
| We cannot be certain that patient enrollment will be completed at all |
| We cannot be certain that the projected costs of CLOSURE I will not need to be adjusted upwards, primarily related to the extended enrollment period |
| Furthermore, we cannot be certain that we will obtain a PMA from the FDA based upon the final results of the trial |
| If CLOSURE I does not result in a PMA, we may face uncertainties and/or limitations as to the continued growth of revenues of our CardioSEAL^® and STARFlex^® products, which may impact our profitability |
| WE MAY NEED TO RAISE DEBT OR EQUITY FUNDS IN THE FUTURE In the future, considering our anticipated significant spending on clinical trials, we may require additional funds for our research and product development programs, regulatory processes, preclinical and clinical testing, sales, marketing and manufacturing infrastructure and programs and potential licenses and acquisitions |
| Any additional equity financing may be dilutive to our stockholders, and additional debt financing, if available, may involve restrictive covenants |
| Our capital requirements will depend on numerous factors, including the level of 18 ______________________________________________________________________ [49]Table of Contents sales of our products, the progress of our research and development programs, the progress of clinical testing, the time and cost involved in obtaining regulatory approvals, the cost of filing, prosecuting, defending and enforcing any patent claims and other intellectual property rights, competing technological and market developments, developments and changes in our existing research, licensing and other relationships and the terms of any collaborative, licensing and other similar arrangements that we may establish |
| We do not currently have any existing line of credit arrangements, and we may not be able to obtain any such credit facilities on acceptable terms, if at all |
| WE MAY FACE UNCERTAINTIES WITH RESPECT TO COMMERCIALIZATION, PRODUCT DEVELOPMENT AND MARKET ACCEPTANCE OF OUR PRODUCTS We cannot be certain that our current products, or products currently under development, will achieve or maintain market acceptance |
| Certain of the medical indications that can be treated by our devices can also be treated by surgery, drugs or other medical devices |
| Currently, the medical community widely accepts many alternative treatments, and these other treatments have a long history of use |
| We cannot be certain that our devices and procedures will be able to replace such established treatments or that either physicians or the medical community, in general, will accept and utilize our devices or any other medical products that we may develop |
| In addition, our future success depends, in part, on our ability to develop new and improved implant technology products |
| Even if we determine that a product candidate has medical benefits, the cost of commercializing that product candidate may be too high to justify development |
| In addition, competitors may develop products that are more effective, cost less or are ready for commercial introduction before our products |
| If we are unable to develop additional, commercially viable products, our future prospects will be limited |
| WE MAY FACE CHALLENGES IN EXECUTING OUR FOCUSED BUSINESS STRATEGY As a result of the 2001 sale of our vena cava filter product line and the 2002 sale of our neurosciences business unit, we have focused our business growth strategy to concentrate on the manufacturing, marketing and selling of our cardiac septal repair implant devices |
| Our future sales growth and financial results depend almost exclusively upon the growth of sales of this product line |
| CardioSEAL^® and STARFlex^® product sales may not grow as quickly as we expect for various reasons, including, but not limited to, delays in receiving further FDA approvals for additional indications and product enhancements, difficulties in recruiting additional experienced sales and marketing personnel and increased competition |
| This focus has placed significant demands on our senior management team and other resources |
| Our future success will depend on our ability to manage and implement our focused business strategy effectively, including by: • achieving successful migraine and stroke-related clinical trials; • developing next generation product lines; • improving our sales and marketing capabilities, including expansion in Europe; • expanding our production capabilities; • improving our ability to successfully manage inventory as we expand production; • continuing to train, motivate and manage our employees; and • developing and improving our operational, financial and other internal systems |
| WE MAY BE UNABLE TO PROTECT OUR INTELLECTUAL PROPERTY RIGHTS AND MAY FACE INTELLECTUAL PROPERTY INFRINGEMENT CLAIMS Our success will depend, in part, on our ability to obtain patents, maintain trade secret protection and operate without infringing the proprietary rights of third parties |
| We cannot be certain that: • any of our pending patent applications or any future patent applications will result in issued patents; • the scope of our patent protection will exclude competitors or provide competitive advantages to us; 19 ______________________________________________________________________ [50]Table of Contents • any of our patents will be held valid if subsequently challenged; or • others will not claim rights in or ownership of the patents and other proprietary rights held by us |
| Furthermore, we cannot be certain that others have not or will not develop similar products, duplicate any of our products or design around any patents issued, or that may be issued, in the future to us or to our licensors |
| Whether or not patents are issued to us or to our licensors, others may hold or receive patents which contain claims having a scope that covers products developed by us |
| We could incur substantial costs in defending any patent infringement suits or in asserting any patent rights, including those granted by third parties |
| In addition, we may be required to obtain licenses to patents or proprietary rights from third parties |
| There can be no assurance that such licenses will be available on acceptable terms, if at all |
| Our issued US patents, and corresponding foreign patents, expire at various dates ranging from 2011 to 2021 |
| When each of our patents expires, competitors may develop and sell products based on the same or similar technologies as those covered by the expired patent |
| We have invested in significant new patent applications, and we cannot be certain that any of these applications will result in an issued patent to enhance our intellectual property rights |
| For the year ended 2004, net royalty income increased approximately 200prca compared to the year ended 2003 |
| As a percentage of our total revenues, net royalty income has increased from approximately 6dtta0prca for fiscal year 2003 to approximately 19dtta5prca and 19dtta2prca for the fiscal years ended 2004 and 2005, respectively |
| These increases have been directly attributable to higher sales by Bard of its RNF product, for which Bard received FDA approval for commercial sales and use as of December 31, 2002 |
| We cannot be certain that the recent trend of Bard’s RNF sales can be sustained or even maintained at its current level |
| Furthermore, these sales levels could fluctuate on a quarter-to-quarter basis |
| We incur virtually no operating expenses related to our net royalty income and, therefore, future increases or decreases, if any, in the level of Bard’s RNF sales could have a material effect on net income (loss) in future periods |
| In addition, commencing in 2008, the royalty rate earned on Bard’s RNF sales will decrease substantially from its current rate |
| OUR LIMITED MANUFACTURING HISTORY AND THE POSSIBILITY OF NON-COMPLIANCE WITH MANUFACTURING REGULATIONS RAISE UNCERTAINTIES WITH RESPECT TO OUR ABILITY TO COMMERCIALIZE FUTURE PRODUCTS We have a limited history in manufacturing our products, including our CardioSEAL^® and STARFlex^® cardiac septal repair implant devices, and we may face difficulties as the commercialization of our products and the medical device industry changes |
| Increases in our manufacturing costs, or significant delays in our manufacturing process, could have a material adverse effect on our business, financial condition and results of operations |
| The FDA and other regulatory authorities require that our products be manufactured according to rigorous standards including, but not limited to, Good Manufacturing Practices and International Standards Organization (“ISO”) standards |
| These regulatory requirements may significantly increase our production or purchasing costs and may even prevent us from making or obtaining our products in amounts sufficient to meet market demand |
| If we or a third-party manufacturer change our approved manufacturing process, the FDA will require a new approval before that process could be used |
| Failure to develop our manufacturing capabilities may mean that, even if we develop promising new products, we may not be able to produce them profitably, as a result of delays and additional capital investment costs |
| 20 ______________________________________________________________________ [51]Table of Contents WE MAY BE UNABLE TO SUCCESSFULLY GROW OUR PRODUCT REVENUES OR EXPAND GEOGRAPHICALLY DUE TO LIMITED MARKETING AND SALES EXPERIENCE Our cardiac septal repair implant devices are marketed primarily through our direct sales force |
| Due to our relatively new sales staff, and because we had marketed our initial products, such as stents and vena cava filters, through third parties, we have limited experience marketing our products directly |
| We are uncertain that we can successfully expand geographically in Europe or other potential markets for our products |
| In order to market directly the CardioSEAL^® and STARFlex^® septal implants and any related products, we will have to continue to develop a marketing and sales organization with technical expertise and distribution capabilities |
| WE MAY BE UNABLE TO COMPETE SUCCESSFULLY BECAUSE OF INTENSE COMPETITION AND RAPID TECHNOLOGICAL CHANGE IN OUR INDUSTRY The medical device industry is characterized by rapidly evolving technology and intense competition |
| Existing and future products, therapies, technological approaches and delivery systems will continue to compete directly with our products |
| Many of our competitors have substantially greater capital resources, greater research and development, manufacturing and marketing resources and experience and greater name recognition than we do |
| In addition, new surgical procedures and medications could be developed that replace or reduce the importance of current or future procedures that utilize our products |
| As a result, any products that we develop may become obsolete before we recover any expenses incurred in connection with development of these products |
| AN ADVERSE OUTCOME IN ANY LITIGATION WE ARE CURRENTLY INVOLVED IN COULD AFFECT OUR FINANCIAL CONDITION We are currently involved in the litigation of disputes as described in |