SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
Current Report Pursuant to Section 13 or 15(d) of
The Securities Exchange Act of 1934
Innovasive Devices, Inc.
(Exact name of registrant as specified in its charter)
Massachusetts
(State of incorporation or organization)
0-28492 04-3132641
(Commission File Number) (I.R.S. Employer
Identification No.)
734 Forest Street, Marlborough, Massachusetts 01752-3032
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code: (508) 460-8229
Item 5. Other Events.
In connection with the "safe harbor" provisions of the Private
Securities Litigation Reform Act of 1995, Innovasive Devices, Inc. (the
"Company") is hereby filing a cautionary statement identifying important
factors that could cause the Company's actual results to differ materially
from those projected in forward looking statements of the Company made by, or
on behalf of, the Company.
Item 7. Financial Statements and Exhibits.
(c) Exhibits.
Exhibit 99 -- Cautionary Statement for Purposes of
the "Safe Harbor" Provisions of the
Private Securities Litigation Reform
Act of 1995.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
INNOVASIVE DEVICES, INC.
Date: July 23, 1996 By: /s/ James V. Barrile
James V. Barrile
Vice President and Chief
Financial Officer
EXHIBIT INDEX
Exhibit Document
99 Cautionary Statement for Purposes of the "Safe Harbor"
Provisions of the Private Securities Litigation Reform
Act of 1995.
Exhibit 99
CAUTIONARY STATEMENT FOR PURPOSES OF THE
"SAFE HARBOR" PROVISIONS OF THE PRIVATE
SECURITIES LITIGATION REFORM ACT OF 1995
Innovasive Devices, Inc. (the "Company") desires to take advantage of
the new "safe harbor" provisions of the Private Securities Litigation Reform
Act of 1995 (the "Act") and is filing this Form 8-K in order to do so. Except
for the Conference Report, no official interpretations of the Act's provisions
have been published. All of the following important factors discussed below
have been discussed in the Company's Registration on Form S-1, File No. 333-
3368 under the Securities Act of 1933, which was declared effective by the
Securities Exchange Commission (the "Commission") on June 5, 1996.
Forward Looking Statements; Cautionary Statement. When used anywhere in
future filings by the Company with the Securities and Exchange Commission, in
the Company's press releases and in oral statements made with the approval of
an authorized executive officer of the Company, the words or phrases "will
likely result", "are expected to", "will continue", "is anticipated",
"project", or "outlook" or similar expressions (including confirmations by an
authorized executive officer of the Company of any such expressions made by a
third party with respect to the Company) are intended to identify "forward-
looking statements" within the meaning of the Private Securities Litigation
Reform Act of 1995. The Company wishes to caution readers not to place undue
reliance on any such forward-looking statements, which speak only as of the
date made. Such statements are subject to certain risks and uncertainties
that could cause actual results to differ materially from historical earnings
and those presently anticipated or projected. These risk factors are
described below. The Company specifically declines any obligation to publicly
release the result of any revisions which may be made to any forward-looking
statements to reflect anticipated or unanticipated events or circumstances
occurring after the date of such statements.
The Company wishes to caution readers that the following important
factors, among others, in some cases have affected, and in the future could
affect, the Company's actual results and could cause the Company's actual
consolidated results for the Company's current quarter and beyond, to differ
materially from those expressed in any forward-looking statements made by, or
on behalf of, the Company:
History of Losses; Probability of Substantial Additional Future Losses;
Uncertainty of Future Results; Seasonality of Sales. The Company has incurred
substantial operating losses since its inception and, as of March 31, 1996,
had an accumulated deficit of $13.1 million. These losses have resulted
principally from expenses associated with research and development efforts,
expenses associated with obtaining United States Food and Drug Administration
("FDA") clearance and the establishment of the Company's sales and marketing
organization. The Company expects to generate substantial additional losses
for at least the next several years as it continues to expend substantial
resources in research and product development, funding of clinical trials in
support of obtaining necessary regulatory clearances or approvals and
expanding its manufacturing capabilities and marketing and sales activities.
Results of operations may fluctuate significantly from quarter to quarter due
to the timing of such expenditures, absence of a backlog of orders, timing of
the receipt of orders, promotional discounts of the Company's products, timing
of regulatory actions, introduction of new products by competitors of the
Company, pricing of competitive products and the cost and effect of
promotional and marketing programs. In addition, the Company anticipates some
seasonality due to the fact that generally fewer surgical procedures are
performed during the third quarter. The seasonal pattern may cause
fluctuations in the Company's results of operations. It is difficult to
predict the impact that this seasonality will have on the Company's results of
operations because of its limited operating history. The Company's revenue
and profitability will be critically dependent on expanding applications for
its current product lines both within arthroscopy and in other clinical
specialties. In addition, the Company's profitability could be adversely
affected if it is required to sell its products at reduced prices. There can
be no assurance that significant revenues or profitability will ever be
achieved.
Potential Volatility of Stock Price. The stock market has from time to
time experienced significant price and volume fluctuations that are unrelated
to the operating performance of particular companies. These broad market
fluctuations may adversely affect the market price of the Company's Common
Stock. In addition, the market price of the shares of Common Stock is likely
to be highly volatile. Factors such as fluctuations in the Company's
operating results, announcements of technological innovations or new products
by the Company or its competitors, FDA and international regulatory actions,
actions with respect to reimbursement matters, developments with respect to
patents or proprietary rights, mergers or acquisitions involving competitors,
public concern as to the safety of products developed by the Company or
others, changes in health care policy in the United States and
internationally, changes in stock market analyst recommendations regarding the
Company, other medical device companies or the medical device industry
generally and general market conditions may have a significant effect on the
market price of the Common Stock.
Uncertainty of Market Acceptance. The Company's future prospects depend
significantly on increasing penetration of existing markets, acceptance of the
Company's products in new markets, and the development of new products for its
existing and future markets. There can be no assurance that any of the
Company's existing or future products will gain market acceptance among
physicians, patients or healthcare payors, even if reimbursement and necessary
regulatory approvals are obtained. To date, the Company's marketing efforts
have been directed solely to the sports medicine segment of the orthopedic
market for tissue-to-bone fixation applications. The Company has no
experience in establishing marketing or distribution channels in other
clinical areas. With respect to its current products, the Company was not the
first to market devices for the attachment of soft tissue to bone and
therefore, to succeed must both take market share away from its existing
competitors and create new demand for its products. The size of the market
for the Company's products will depend in part on the Company's ability to
persuade physicians that its products offer clinical and other advantages over
existing means of attaching soft tissue structures to tissue or bone and that
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its fixation devices could be used for a wider variety of clinical
applications, such as repair of tears in the meniscus cartilage of the knee,
or repair of ligament or tendon damage in the fingers or toes. In addition,
the Company will need to demonstrate that its products are cost-effective and
convenient to use and that the techniques for their use are relatively
straightforward and simple. There can be no assurance that the market for the
Company's products will continue to grow or that they will be accepted for
orthopedic procedures not currently using fixation devices and in markets
outside of the sports medicine segment of the orthopedic market.
Limited Product Line. A substantial portion of the Company's sales to
date have derived from the Company's ROC tissue fixation products for use in
open shoulder repair applications and related instruments. As of the date
hereof, the use of the ROC 3.5mm and 2.8mm fasteners have been cleared by the
FDA for applications involving the shoulder, knee and ankle, and the Company's
ROC XS fastener has been cleared by the FDA for applications involving soft
bone. The Company, however, has relatively little clinical experience with
joints other than the shoulder. In addition, while the Company's future
prospects depend in part on the use of its products in arthroscopic and
laparascopic procedures, most of the clinical experience involving the
Company's products has been in open surgery procedures. For the fiscal years
ended December 31, 1994 and 1995, the ROC fastener and related instruments
accounted for approximately 66.7% and 92.7%, respectively, of the Company's
sales. The Company expects that most of its revenue in the foreseeable future
will continue to be derived from sales of its ROC products. Failure of ROC to
maintain and gain market acceptance would have a material adverse affect on
the Company's business, financial condition and results of operations.
Rapid Technological Change and New Product Innovation. The medical
device market is subject to rapid technological change and new product
introductions and enhancements. The Company's ability to remain competitive
in this market will depend in significant part on its ability to develop and
introduce new products and enhancements on a timely and cost effective basis.
The ability of the Company to develop new and enhanced tissue fixation devices
depends on a number of factors, including product selection, timely and
efficient completion of product design, development of new materials and
manufacturing processes, timely regulatory approval, implementation of
manufacturing and assembly processes and effective sales and marketing and
there is no assurance that the Company will be successful in developing such
products. If the Company experiences quality or reliability problems with new
products, reductions in orders, higher manufacturing costs and additional
warranty expenses may result. Because new product development commitments
must be made well in advance of sales, new product decisions must anticipate
both future demand and the availability of technology to satisfy that demand.
In the meantime, competitors may achieve technological advances which provide
a competitive advantage over the Company's products. In addition, advances or
developments in other fixation technologies, including those relating to
bioabsorbable materials or biomaterials, could render the Company's products
obsolete or less desirable. There can be no assurance that the Company will
successfully develop and introduce new products and enhancements or that such
products will achieve market acceptance.
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Reliance on Patents and Proprietary Technology. The Company relies on
proprietary technology which it seeks to protect primarily through patents,
trade secrets and proprietary know-how. The Company currently holds four
patents and has 40 United States and foreign patent applications pending which
cover certain aspects of its technology. With respect to the patent
applications, however, the breadth of the claims that will be covered by the
issued patents cannot be known until they are issued. Moreover, the degree of
protection against competing devices afforded by the Company's patents is
subject to uncertainties. There can be no assurance that others will not be
successful in challenging, invalidating or circumventing the Company's patents
or that the Company's patents and intellectual property rights will confer a
competitive advantage on the Company. In addition, there can be no assurance
that the Company will be able to obtain patents on future products, or that
the Company's products will not infringe the patents and proprietary rights of
third parties. The medical device industry has been characterized by
extensive litigation involving patents and other intellectual property rights,
and certain companies in the medical device industry have employed
intellectual property litigation to gain a competitive advantage. The Company
has received a notice alleging that instruments based on one of its patents
may infringe the patent of a third party. the only products currently
manufactured by the Company using the Company's patent are its knot pusher and
laparascopic scissors. The Company may not be able to successfully defend
against a claimed infringement and there can be no assurance that the Company
will not become subject to patent infringement claims or litigation or
interference proceedings. Litigation may be necessary to enforce patents
issued to the Company or to protect its trade secrets and other intellectual
property rights. Any litigation or interference proceedings will result in
substantial expense to the Company and a significant diversion of effort by
its employees, and, if adversely determined to the Company, could result in
significant liabilities to third parties and limitations on the manufacture,
distribution or sale of the Company's products or on the use of certain
technologies in the Company's products.
Future Capital Needs; Uncertainty of Additional Funding. There can be
no assurance that additional equity or debt financing will not be required
prior to the time, if ever, the Company achieves and sustains profitability.
The Company may require additional financing to fund its operations. The
Company's future capital requirements will depend on many factors, including
the progress of the Company's research and development, the scope and results
of preclinical studies and clinical trials, the cost, timing and outcome of
regulatory reviews, the rate of technological advances, the market acceptance
of any of the Company's products, administrative and legal expenses,
competitive products, and manufacturing and marketing arrangements. Any
additional equity financing may result in dilution to the Company's
stockholders. There can be no assurance that funds will be available on
favorable terms, if at all. If adequate funds are not available, the Company
may be required to cut back or discontinue one or more of its product
development programs, or obtain funds through strategic alliances that may
require the Company to relinquish rights to certain of its technologies or
products.
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Regulatory Risks. The manufacturing, labeling, distribution and
marketing of the Company's products are subject to extensive and rigorous
governmental regulation in the United States and certain other countries where
the process of obtaining and maintaining required regulatory approvals is
lengthy, expensive and uncertain. In order initially to market its products
for clinical use in the United States, the Company must obtain clearance from
the FDA either through a procedure known as 510(k) pre-market notification or
must receive approval by a lengthier and more difficult procedure known as
pre-market approval ("PMA"). Although all of the Company's current products
have been cleared using the 510 (k) procedure, there can be no assurance that
the Company's future products or modifications to the Company's existing
products will be cleared by the FDA using the 510(k) process rather than the
more arduous and lengthy procedures required for a PMA application, which may
include extensive clinical studies, manufacturing information and review by a
panel of experts outside the FDA. For example, to the Company's knowledge,
the closest predicate device for a collagen-based fastener required PMA
approval. If the FDA were to require the Company to obtain pre-market
approval for the sale of its future products using the PMA process, the time
from development to marketing of those products could be significantly
extended, with a concomitant negative impact on the Company's financial
performance. The Company may market its products only for indications that
have been cleared by the FDA. The Company has no control over the use of its
devices by physicians. There can be no assurance that the Company will not
become subject to FDA actions resulting from physician use of its products for
non-approved indications. FDA regulations for the commercial sale of products
is subject to interpretation. Failure to comply with FDA requirements could
result in the FDA's refusal to accept clinical data from the Company or the
imposition of regulatory sanctions. In addition, there can be no assurance
that the FDA will not place significant limitations upon the intended use of
the Company's products as a condition to 510(k) clearance or PMA approval.
Failure to receive, or delays in receipt of, FDA clearances or approvals,
including the need for clinical trials or additional data as a prerequisite to
clearance or approval, or any FDA limitations on the intended use of the
Company's products, could have a material adverse effect on the Company's
business, financial condition and results of operations.
The Company has obtained regulatory approval to permit sales of its
products in Japan. The Company has not obtained regulatory approval in any
other foreign country to date. Starting in mid-1998, the Company will be
required to obtain ISO 9001 certification and receive "CE" market
certification, which is an international symbol of quality and compliance with
applicable European medical device directives, in order for it to sell its
products in Europe. There can be no assurance that the Company will be able
to obtain the proper certification. If the Company obtains regulatory
approval to sell its products in foreign countries, it would rely on
independent distributors to comply with certain of the foreign regulatory
requirements. The inability or failure of the Company's independent
distributors to comply with applicable regulatory requirements could
5
materially and adversely affect the Company's business, financial condition
and results of operations.
The Company and its contract manufacturers will be required to adhere to
"Good Manufacturing Practices" of the FDA and similar requirements in other
countries, which include testing, control and documentation requirements.
Ongoing compliance with good manufacturing practices ("GMP") and other
applicable regulatory requirements will be monitored through periodic
inspections by state and federal agencies, including the FDA, and by
comparable foreign agencies. 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 government to grant clearance or
approval to the marketing of devices, withdrawals of approvals and criminal
prosecution. The restriction, suspension or revocation of regulatory
approvals or any other failure to comply with regulatory requirements could
have a material adverse effect on the Company.
Limited Manufacturing Experience. The Company has been manufacturing
and assembling its ROC suture fastener products since 1994, but has yet to
manufacture the volumes necessary for the Company to achieve profitability.
There can be no assurance that reliable, high-volume manufacturing can be
achieved at a commercially reasonable cost. The Company intends to expand its
manufacturing capabilities to include bioabsorbable products and biomaterials,
and if the Company encounters difficulties in scaling up production of new
products, including problems involving production yields, quality control and
assurance, component supply and shortages of qualified personnel, such
problems could have a material adverse effect on the Company's business,
financial condition and results of operations.
Reliance on Sole or Limited Sources of Supply. The Company's handles
and suture fasteners are manufactured from molded polymers. The Company owns
only one set of molds for each of its products requiring a molding
manufacturing process. In the event that the molds are damaged, approximately
12 to 16 weeks would be required for the manufacture of new molds. Should the
Company's manufacturing process be disrupted, there can be no assurance that
the Company would be able to meet its commitments to customers. The failure
of the Company to meet its commitments could have a material adverse effect on
the Company's business, financial condition and results of operations.
In addition, certain suppliers may terminate sales of certain materials
to companies that manufacture medical devices in an attempt to limit their
potential product liability exposure. If the polymers which are used to
manufacture the Company's ROC suture fasteners became unavailable, the Company
would be required to identify a new polymer material for the suture fasteners
and certify the quality and suitability of the new material. In additional, a
new 510(k) clearance would have to be obtained to market products manufactured
from the new materials. This process could take a substantial period of time
and there is no assurance that the Company would be able to identify, certify
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or obtain clearance for the new polymer-based fasteners. The Company The
Company is attempting to develop new tissue fixation devices from
bioabsorbable materials and biomaterials, particularly collagen. The Company
believes that there are only a few sources of bioabsorbable materials with the
ability and expertise to manufacture bioabsorbable materials for the Company's
products. The Company believes that even fewer sources of supply for collagen
materials currently exist. While the Company is currently working with two
companies on development efforts relating to bioabsorbable polymers, the
Company has no long-term contractual or exclusive arrangements with them. The
Company has entered into a research and development and a manufacturing and
supply agreement with Collagen Corporation in connection with a program to
develop tissue fixation devices from collagen, but there are provisions in
those agreements that would enable either party to terminate the arrangements
in certain circumstances. If the Company were unable to obtain sources of
bioabsorbable materials or biomaterials to produce the next generation of its
products, the Company's future prospects and opportunities would be
substantially reduced, resulting in a material adverse effect on its business,
financial condition and results of operations.
Reliance on International Distributors. The Company has no sales
employees outside the United States. Accordingly, the Company depends
entirely on outside independent sales representatives and distributors for its
international sales. None of the Company's foreign representatives are
subject to any long-term commitments to the Company, and all of them represent
a number of manufacturers and sell a broad range of products in addition to
those offered by the Company. The revenues that such representatives are
likely to receive from the promotion and sale of other products may be
substantially greater than the compensation they may receive from the sale of
the Company's products, and it may be difficult for the Company to provide
incentives to such representatives in order to cause them to devote
substantial attention to marketing and selling the Company's products.
International sales accounted for 15.2% of the Company's revenues in 1995.
The Company expects international sales to comprise a significant percentage
of its sales in the foreseeable future. The failure of the Company's foreign
independent representatives to generate substantial sales for the Company
could have a material adverse effect on the Company's business, financial
condition and results of operations. The loss of such sales representatives
or distributors or the inability of the Company to develop and maintain an
alternative foreign distribution network could have a material adverse impact
on the Company's international sales. The Company will depend in part on its
international sales representatives to obtain needed regulatory approval for
the sale of the Company's products in overseas markets. The failure of its
international sales representatives to obtain or maintain the necessary
approvals could have a material adverse effect on the Company's business,
financial condition and results of operations.
Certain risks are inherent in international operations, including
changes in demand resulting in fluctuations in exchange rates, the risk of
government financed or subsidized competition, changes in trade policies and
7
tariff regulations. Although the Company's international sales are denominated
in dollars, fluctuations in foreign currencies can impact the prices quoted by
the Company to prospective customers and thereby affect the Company's ability
to obtain orders from foreign customers.
Product Liability Risk. The development, manufacture and sale of
medical devices entail significant risks of product liability claims. There
can be no assurance that the amount of the Company's insurance coverage will
be adequate to protect it from product liability claims, that the Company will
be able to obtain adequate coverage at competitive rates in the future, or
that the Company's product liability experience in the future will enable it
to obtain insurance coverage in the future. Product liability insurance is
expensive, and may not be available on acceptable terms, if at all, in the
future. A successful product liability suit not covered by such insurance
would have a material adverse effect on the Company's business, financial
condition and results of operations.
Influence of Collagen Corporation. An important part of the Company's
long-term strategy is to develop and sell products manufactured from collagen.
Collagen Corporation holds approximately 11.6% of the Company's Common Stock.
Collagen Corporation is entitled to designate one member of the Company's
Board of Directors so long as it holds at least five percent of the Company's
Common Stock on a fully-diluted basis and a representative of Collagen
Corporation currently serves on the Board of Directors of the Company. In
addition, the Company and Collagen Corporation are parties to a research and
development agreement, a manufacturing and supply agreement and a distribution
agreement with respect to tissue fixation devices manufactured from collagen-
based materials using Collagen Corporation's proprietary technology. Pursuant
to those agreements, certain of the Company's products under development will
be based upon patents and intellectual property owned by Collagen Corporation.
Accordingly, Collagen Corporation may be able to exercise influence over the
business and financial affairs of the Company. If Collagen Corporation's
licensed technology is invalidated or challenged, the Company's ability to
sell products based on such technology could be severely limited. In the
event that the Company materially breaches any of the terms of its agreements
with Collagen Corporation, Collagen Corporation could terminate the Company's
license to develop, manufacture and sell products using Collagen Corporation's
technology, which could have a material adverse effect on the Company's
business, financial condition and results of operations.
Risk of Intense Competition. The medical device industry is highly
competitive and characterized by innovation and rapid technological change.
Among the Company's principal competitors are Mitek Surgical Products, Inc., a
division of Johnson & Johnson; the Zimmer and Linvatec divisions of Bristol-
Myers Squibb Company; Dyonics, Inc., a subsidiary of Smith & Nephew, Inc.,
Arthrotek Inc., a division of Biomet, Inc. and U.S. Surgical Inc. Each of
these competitors has significantly greater financial, manufacturing,
marketing, distribution and technical resources than the Company and a greater
share of the tissue fixation market than the Company. In addition, a number
8
of smaller companies are entering or have entered the tissue fixation market.
Dyonics, Inc. had already released to the market a number of bioabsorbable
products. Many of the Company's competitors have large existing sales
organizations devoted to a wide variety of orthopedic products. These
companies are well capitalized and may be able to withstand price pressures
and deep discounting better than the Company. The Company has a small number
of sales employees and independent sales representatives focused on tissue
fixation devices in the sports medicine market and with relatively little
experience selling the Company's products. There can be no assurance that the
Company's competitors will not succeed in developing technologies and products
that are more effective or less costly than any which have been developed or
may be developed by the Company or that would render the Company's products
obsolete or not competitive.
Price Pressure Resulting From Consolidation of Health Care Industry.
The health care industry is undergoing rapid change and consolidation as
health care systems merge to effect cost savings and operating efficiencies.
In addition, a number of large, national buying consortiums have formed to
engage in group purchasing of medical supplies and services in an effort at
cost containment for member hospital systems and health care providers.
These consolidated systems and large purchasing organizations are likely to
apply pressure to manufacturers and distributors of medical devices to reduce
the purchase prices of their goods. Manufacturers such as the Company may be
forced to lower prices in response to those pressures in order for their
products to be approved for purchase by those organizations, which could have
a material adverse effect on the Company's business, financial condition and
results of operations.
Possible Limitations on Third-Party Reimbursement. The Company's
products are generally purchased directly by hospitals and other health care
providers, which in turn bill third-party payors such as Medicare, Medicaid
and private insurance companies. Many of these payors are attempting to
control health care costs by authorizing fewer surgical procedures and by
limiting reimbursement for procedures to fixed amounts. The Company's
strategy includes the expansion of its market by encouraging physicians to use
its tissue fixation devices for procedures that are not routinely performed,
or if performed, are performed without the use of tissue fasteners. Failure by
physicians, hospitals and other users of the Company's products to obtain
sufficient reimbursement from third-party payors for procedures in which the
Company's products are used, or adverse changes in government and private
third-party payors' policies toward reimbursement for such procedures, could
have a material adverse effect on the Company's business, financial condition
and results of operations.
ds1 272797.1
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