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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-K/A
Amendment No. 1
X ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
----- EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 1998.
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES ACT
----- OF 1934.
FOR THE TRANSITION PERIOD TO .
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Commission File Number: 0-20727
Novoste Corporation
(Exact Name of Registrant as Specified in Its Charter)
Florida 59-2787476
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
3890 Steve Reynolds Blvd., Norcross, GA 30093
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone, including area code: (770) 717-0904
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the
Act:
Common Stock, $.01 par value
(Title of Class)
Rights to Purchase Preferred Shares
(Title of Class)
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
requirements for the past 90 days. Yes X No
--- ---
Indicate by check mark if disclosures of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K (X).
As of February 1, 1999, there were 10,703,587 shares of Common Stock
outstanding. The aggregate market value of voting stock held by non-affiliates
of the Registrant was approximately $213,406,248 based upon the closing sales
price of the Common Stock on February 1, 1999 on the NASDAQ National Market.
Shares of Common Stock held by each officer, director, and holder of five
percent or more of the Common Stock outstanding as of February 1, 1999 have been
excluded in that such persons may be deemed to be affiliates. This determination
of affiliate status is not necessarily conclusive.
DOCUMENTS INCORPORATED BY REFERENCE
None.
Information note:
This Form 10-K/A is being filed to amend and restate Item 1 of Part I to read
in its entirety as set forth below.
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PART I
Item 1. BUSINESS
In this Form 10-K, "Novoste," the "company," "we," "us" and "our" refer to
Novoste Corporation. Novoste(R), Beta-Cath(TM) and the Novoste(R) logo are
trademarks of the company.
The statements contained in this Form 10-K that are not historical are
forward-looking statements within the meaning of Section 27A of the Securities
Act of 1933 and Section 21E of the Securities Exchange Act of 1934, including
statements regarding the expectations, beliefs, intentions or strategies
regarding the future. We intend that all forward-looking statements be subject
to the safe-harbor provisions of the Private Securities Litigation Reform Act of
1995. These forward-looking statements reflect our views as of the date they are
made with respect to future events and financial performance, but are subject to
many uncertainties and risks which could cause our actual results to differ
materially from any future results expressed or implied by such forward-looking
statements. Examples of such uncertainties and risks include, but are not
limited to, whether the Beta-Cath System, our primary product in development,
will prove safe and effective; the speed of patient enrollment in our clinical
trials; whether and when we will obtain approval of the Beta-Cath System from
the United States Food and Drug Administration (FDA) and corresponding foreign
agencies; our need to achieve manufacturing scale-up in a timely manner, and our
need to provide for the efficient manufacturing of sufficient quantities of the
Beta-Cath System; our dependence on the Beta-Cath System as the primary source
of future revenue; the lack of an alternative source of supply for the radiation
source materials used in the Beta-Cath System; our patent and intellectual
property position; our need to develop the marketing, distribution, customer
service and technical support and other functions critical to the success of our
business plan; the effectiveness and ultimate market acceptance of the Beta-Cath
System; limitations on third party reimbursement; and competition with rival
developers of restenosis reduction products. These risks are discussed under
"Item 1 - Business" and "Item 7 - Management's Discussion and Analysis of
Financial Condition and Results of Operations." Additional risk factors include
those that may be set forth in reports filed by the Company from time to time on
Forms 10-Q and 8-K. We do not undertake any obligation to update any
forward-looking statements.
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GENERAL
Novoste has developed the Beta-Cath System, a hand-held device designed to
deliver beta, or low penetration, radiation to the site of a treated blockage in
a coronary artery to decrease the likelihood of restenosis. Restenosis, the
renarrowing of a previously treated artery, is the major limitation of
percutaneous transluminal coronary angioplasty or PTCA, a procedure used by
interventional cardiologists to open blocked coronary arteries. We are currently
conducting pivotal clinical trials of the Beta-Cath System and, assuming
positive results, intend to file an initial pre-market approval application with
the FDA in the first quarter of 2000. In August 1998, we qualified to apply CE
marking to the Beta-Cath System, a requirement to sell our device in most of
Western Europe.
In 1998, physicians performed approximately 650,000 PTCA procedures in the
United States and approximately 500,000 PTCA procedures abroad. Studies have
shown that 30% to 50% of patients experience restenosis within six months after
PTCA. Restenosis often requires one or more additional revascularization
procedures to reopen blocked vessels. These procedures include PTCA, which has
an average cost of $20,000 in the United States, and coronary artery bypass
graft surgery, or CABG, which has an average cost of $45,000 in the United
States. It is estimated that more than $3.0 billion is spent annually in the
United States on revascularization procedures.
In response to the high rates of restenosis following PTCA, the placement
of coronary stents, metal implants that prop open a coronary artery, has grown
rapidly. In 1998, stents were used in approximately 60% of all PTCA procedures
performed worldwide and on average added over $2,000 to the cost of each PTCA
procedure. However, studies have shown that restenosis still occurs in
approximately 20% to 30% of the patients who receive stents. This is commonly
referred to as "in-stent" restenosis. Patients with "in-stent" restenosis often
experience recurrent restenosis and as a result are prone to multiple
revascularization procedures. We believe that the Beta-Cath System may be
effective in reducing the incidence of restenosis following PTCA and stent
placement and in treating "in-stent" restenosis, thereby reducing the need for
additional costly hospital procedures.
INDUSTRY OVERVIEW
Coronary Artery Disease. Coronary artery disease is the leading cause of
death in the United States. More than 13 million people in the United States
currently suffer from coronary artery disease, which is generally characterized
by the progressive accumulation of plaque as a result of the deposit of
cholesterol and other fatty materials on the walls of the arteries. The
accumulation of plaque leads to a narrowing of the interior passage, or lumen,
of the arteries, thereby reducing blood flow to the heart muscle. When blood
flow to the heart muscle becomes insufficient, oxygen supply is restricted and a
heart attack and death may result. Depending on the severity of the disease and
other variables, patients will be treated either surgically with CABG or less
invasively with a PTCA procedure.
Coronary Artery Bypass Graft Surgery. Coronary artery bypass graft
surgery, or CABG, was introduced as a treatment for coronary artery disease in
the 1950's. CABG is a highly invasive, open surgical procedure in which blood
vessel grafts are used to bypass the site of a blocked artery, thereby restoring
blood flow. CABG, still considered the most durable treatment for coronary
artery disease, is generally the primary treatment for severe coronary artery
disease involving multiple vessels. In addition, CABG is often a treatment of
last resort for patients who have undergone other less invasive procedures like
PTCA but require revascularization. However, CABG has significant limitations,
including medical complications such as stroke, multiple organ dysfunction,
inflammatory response, respiratory failure and post-operative bleeding, each of
which may result in death. In addition, CABG is a very expensive procedure and
requires a long recovery period. In the United States, the average cost of
undergoing CABG, including hospital stay, is approximately $45,000; and the
average recuperation period following discharge from the hospital is at least
four to six weeks. In 1998, approximately 400,000 CABG procedures were performed
in the United States. Several new minimally invasive surgical techniques have
been commercialized which attempt to lessen the cost and trauma of CABG
procedures while maintaining efficacy.
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PTCA. Since its introduction in the late 1970s, PTCA has emerged as the
principal less invasive alternative to CABG. PTCA is a procedure performed in a
cath lab by an interventional cardiologist. During PTCA, a guidewire is inserted
into a blood vessel through a puncture in the leg (or arm, in some cases) and
guided through the vasculature to a diseased site in the coronary artery. A
balloon-tipped catheter is then guided over the wire to the deposit of plaque or
lesion occluding the artery. Once the balloon is positioned across the lesion
inside the vessel, the balloon is inflated and deflated several times.
Frequently, successively larger balloons are inflated at the lesion site,
requiring the use of multiple balloon catheters. The inflation of the balloon
cracks or reshapes the plaque and the arterial wall, thereby expanding the
arterial lumen and increasing blood flow. However, the inflation of the balloon
typically results in injury to the arterial wall. In 1998, it is estimated that
more than 650,000 PTCA procedures were performed in the United States and
approximately 500,000 procedures were performed outside the United States. The
average cost of each PTCA procedure in the United States is approximately
$20,000, or less than one-half of the average cost of CABG. The length of stay
and recuperation period are substantially less than those required for CABG.
Though PTCA has grown rapidly as a highly effective, less invasive therapy
to treat coronary artery disease, the principal limitation of PTCA is the high
rate of restenosis, the renarrowing of a treated artery, which often requires
reintervention. Studies have indicated that, within six months after PTCA,
between 30% and 50% of PTCA patients experience restenosis.
Pathology of Restenosis. Restenosis is typically defined as the
renarrowing of a treated coronary artery within six months of a
revascularization procedure such as PTCA to less than 50% of its normal size.
Restenosis is a vascular response to the arterial trauma caused by PTCA. Due to
multiple mechanisms controlling vascular repair, restenosis may occur within a
short period after a revascularization procedure or may develop over the course
of months or years.
Restenosis that occurs within a day of a revascularization procedure is
usually attributed to elastic recoil (acute loss of diameter) of the artery.
Restenosis also may result from hyperplasia, which is the excessive
proliferation of cells at the treatment site, or from vascular remodeling of the
arterial segment, which is a slow contraction of a vessel wall. Hyperplasia is a
physiological response to injury, similar to scarring, which occurs in wound
healing. Vascular remodeling is a contraction of the vessel caused by a
thickening of the outside wall of the artery. In response to an arterial injury
from revascularization, the body sets off a biochemical response to repair the
injured site and protect it from further harm. This response will include a
signal to adjacent cells of the arterial wall to multiply. Often this cell
proliferation goes unchecked, resulting in a much thicker and inelastic arterial
wall and in reduced blood flow. Hyperplasia and vascular remodeling are the
primary causes of restenosis.
Coronary Stenting. Coronary stents are expandable, implantable metal
devices permanently deployed at a lesion site. Stents maintain increased lumen
diameter by mechanically supporting the diseased site in a coronary artery. Of
all the non-surgical treatments seeking to improve upon PTCA, stents have been
the most successful in improving the outcome immediately following the procedure
and reducing the incidence of restenosis. In a typical stent procedure, the
artery is pre-dilated at the lesion site with a balloon catheter, and the stent
is delivered to the site of the lesion and deployed with the use of a second
balloon catheter which expands the stent and firmly positions it in place. This
positioning may be followed by a third expansion, using a high-pressure balloon
to fully deploy and secure the stent. Once placed, stents exert radial force
against the walls of the coronary artery to enable the artery to remain open and
functional.
Studies have concluded that the rate of restenosis in patients receiving
coronary stents following PTCA is approximately 30% lower than in patients
treated only by PTCA. Since their commercial introduction in the United States
in 1994, the use of stents has grown rapidly, and it is estimated that they were
utilized in approximately 60% of the approximately 1.1 million PTCA procedures
performed in 1998.
Despite their rapid adoption, stents have certain drawbacks. The use of
stents increases the cost of a PTCA procedure, especially when, as is often the
case, two or more stents are used. In addition, studies have shown that
restenosis still occurs in approximately 20% to 30% of the patients who receive
stents following PTCA. This is commonly referred to as "in-stent" restenosis.
Studies have shown that patients with "in-stent" restenosis often experience
recurrent restenosis and as a result are prone to multiple revascularization
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procedures. Stents are also permanent implants which may result in unforeseen,
long-term adverse effects, and cannot be used in cases where the coronary
arteries are too tortuous or too narrow. Further, stents appear to be effective
in reducing the frequency of restenosis resulting from elastic recoil and
vascular remodeling, but they increase the degree of hyperplasia.
THE NOVOSTE SOLUTION
We have designed the Beta-Cath System to reduce the incidence of restenosis
following PTCA by delivering localized beta radiation to the treatment site in a
coronary artery. We believe that the administration of localized beta radiation
is likely to reduce coronary artery restenosis rates by inhibiting hyperplasia
and vascular remodeling. Radiation has been used therapeutically in medicine for
more than 50 years in the treatment of proliferative cell disorders, such as
cancer. Cancer therapy has primarily involved the use of gamma radiation, which
is highly penetrating and may be hazardous unless handled and used with great
care. By contrast, beta radiation is far less penetrating and easier to use and
shield than gamma radiation while still delivering a sufficient dose to the
treated coronary arteries. We view beta radiation as well-suited for
intracoronary use following PTCA, where the objective is to treat the coronary
artery with minimal exposure to adjacent tissues.
The Beta-Cath System is a hand-held device that hydraulically delivers beta
radiation sources through a closed-end catheter to the area of the coronary
artery injured by the immediately preceding PTCA procedure. To facilitate easy
placement of the catheter, it is advanced over the same guidewire used in the
PTCA procedure. After the administration of the prescribed radiation dose to a
lesion site, which takes less than five minutes per lesion, the radiation
sources are hydraulically returned to the hand-held transfer device. We expect
to be able to reuse the radiation isotopes for up to a year due to the long
half-life of the sources.
The Beta-Cath System is designed to be safe and cost-effective and to fit
well with techniques currently used by interventional cardiologists in the cath
lab. The Beta-Cath System is designed to target the primary causes of restenosis
by inhibiting hyperplasia and vascular remodeling. The Company believes the
Beta-Cath System may provide significant cost savings by reducing (1) the need
for revascularization often required following PTCA and coronary stenting and
(2) the number of coronary stents used as a primary therapy.
OUR BUSINESS STRATEGY
Our objective is to become the leader in the commercialization of vascular
brachytherapy devices. Elements of our strategy include:
- Achieving First-to-Market Position and a Leading Market Share in the
United States and Europe. We intend to be the first-to-market in the
United States with a vascular brachytherapy device. We intend to seek
approvals to use the Beta-Cath System to address a wide range of
indications, including reduction of the incidence of restenosis following
PTCA and stent placement and treatment of "in-stent" restenosis. We
believe this broad label will enable us to achieve a leading market share
of vascular brachytherapy devices. We received CE marking certification
in August 1998, becoming the first company with approval to market a
vascular brachytherapy device in Europe.
- Establishing the Beta-Cath System as the Standard of Care. Our strategy
is to introduce the Beta-Cath System into the cath lab as the standard of
care to reduce the incidence of restenosis. In addition, we intend to
conduct intensive physician-training seminars to familiarize
interventional cardiologists and radiation oncologists with the use of
the Beta-Cath System.
- Selling Directly. We intend to market the Beta-Cath System in the United
States through a direct sales force. We plan to focus our marketing
efforts on the top tier of approximately 200 high-volume hospitals and on
leading interventional cardiologists and radiation oncologists at those
institutions. The interventional cardiologists at these hospitals perform
a large portion of the PTCA procedures in the United States and tend to
adopt new cardiovascular technologies and devices quickly. We also
believe we can leverage the reputation of these early adopters in the
clinical community to generate wider demand. In addition, we believe
these hospitals have or will be able to obtain relatively quickly the
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necessary licenses to store and use beta radiation and are likely to have
radiation oncologists with the appropriate credentials to use the
Beta-Cath System's radiation sources. We have commenced marketing the
Beta-Cath System in Europe through a direct sales force in larger
markets, which we intend to supplement with independent distributors in
other markets.
- Investigating the Beta-Cath System for Other Vascular
Applications. Restenosis is also common after revascularization of
peripheral or non-coronary arteries. In addition, a similar phenomena
frequently occurs in veins adjacent to an arterial-venous shunt used for
patients undergoing hemodialysis for end-stage renal disease. We intend
to leverage our core catheter and localized vascular brachytherapy
technologies to expand our product offerings to other vascular markets
where cell proliferation is of clinical significance and radiation
results in improved clinical efficacy.
- Protecting and Enhancing our Proprietary Technology. We believe that our
patent position may offer a competitive advantage. On November 4, 1997 we
were issued United States Patent No. 5,683,345 on the Beta-Cath System.
We have also filed a related United States continuation-in-part
application (which is jointly owned by us and Emory University), and have
additional United States applications pending covering aspects of our
Beta-Cath System. With respect to our United States filings, we have
filed, or will file in due course, counterpart applications in the
European Patent Office and certain other countries. We intend to obtain
further protection of our proprietary technology and to defend our
intellectual property rights against infringement.
BETA-CATH SYSTEM DESIGN AND ADVANTAGES
The primary components of the Beta-Cath System are:
Radiation Source Train. The beta radiation administered by the Beta-Cath
System emanates from a "train" of several miniature sealed sources containing
Strontium 90 (Strontium/Yttrium), a beta-emitting radioisotope. We currently
manufacture trains in both 30mm and 40mm lengths, with the longer length
intended for use on longer lesions. The use of beta, rather than gamma,
radiation is intended to make the Beta-Cath System safer and easier to use in
the cath lab environment. In addition, due to the long half-life (approximately
28 years) of Strontium 90, and because the source train will not come into
contact with a patient's blood or tissue, the radiation sources are expected to
be reused for up to one year. Beta radiation from the Strontium 90 source is
easily shielded from health care workers by the use of approximately
one-half-inch-thick quartz in the transfer device.
Transfer Device. The transfer device is a multiple-use, hand-held
instrument used to deliver, retrieve and then store the radiation sources when
not in use. The transfer device:
- transfers the radiation sources to and from the delivery catheter via a
proprietary hydraulic delivery system;
- contains a radiation source sensing system which is interlocked with a
gating system to prevent the radiation sources from exiting the transfer
device until the delivery catheter is locked in place and to prevent
removal of the delivery catheter prior to the return of the radiation
sources to the transfer device; and
- completely shields the beta radiation energy from health care workers
when the radiation source train is housed inside it.
Delivery Catheter. The delivery catheter is a single-use, multi-lumen
catheter that provides a pathway for the radiation sources to be rapidly
delivered and retrieved from the coronary arterial segment to be treated. The
delivery catheter is positioned by advancing it over the same guidewire used
during the immediately preceding PTCA procedure. The radiation sources are
delivered and retrieved through a dual-lumen closed hydraulic circuit, which
uses a fluid-filled standard syringe to create the hydraulic pressure. We
currently intend to sell a version of the catheter in the United States that
fits over most of the length of the guidewire used in the PTCA procedure,
commonly known as an "over the wire" catheter, and to have our European
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subsidiaries sell a version that fits over the guidewire for only a small
portion of the catheter at its far end, commonly known as a "rapid exchange"
catheter.
The Beta-Cath System is intended to be used in a cath lab by an
interventional cardiologist in conjunction with a radiation oncologist. The
cardiologist places the delivery catheter into the patient's vasculature until
the catheter reaches the targeted site. The radiation oncologist operates the
transfer device to deliver the radiation source train hydraulically to the end
of the catheter in a matter of seconds. The radiation sources remain at the
targeted site for less than five minutes to deliver a predetermined dose of
radiation. The radiation sources are then returned by the use of positive
hydraulic pressure applied through the delivery catheter. Upon completion of
each procedure, the train of radiation sources is stored safely inside the
transfer device. At the end of the day, the transfer device is delivered to a
designated radiation storage site within the hospital for safekeeping. While the
need for a cardiologist and a radiation oncologist is expected to result in
incremental physician fees, we believe the Beta-Cath System will be
cost-effective, principally by reducing (1) the need for costly
revascularization procedures often required following PTCA and coronary stenting
and (2) the number of coronary stents used as a primary therapy.
We believe the Beta-Cath System has the following advantages:
- Site-specific Therapy. The Beta-Cath System is designed to confine
radiation exposure to the targeted intervention area.
- Short Procedure Times. The Beta-Cath System is designed to enhance
patient safety and comfort, as well as to promote productivity in the cath
lab, by delivering the recommended dosage in less than five minutes of
radiation exposure per lesion.
- Utilization of Existing PTCA Techniques. Although intracoronary
radiation is a new concept in coronary artery disease treatment, the
hand-held Beta-Cath System is designed to be easily adopted and used by
the interventional cardiologist. The Beta-Cath System is very similar to
other catheter-based tools used by the cardiologist. In addition, our
system does not require the purchase or acquisition of capital equipment
by the hospital, which often requires a separate and lengthy purchase
approval.
- Multiple-Use System. The radiation source train can be reused for
numerous patients, due to the long half-life of the isotope and because
the source train does not come into contact with the patient's blood. As
a result, inventory planning will be very straightforward, procedure
costs will be attractive and last minute treatment decisions can be made.
- Ease of Use and Accuracy of Dosing. The Beta-Cath System is a hand-held
device that is easy to operate. Because of the long half-life of our
radiation source, prescribed treatment times will remain constant over
the approved shelf life of the isotope. Vascular brachytherapy systems
that utilize short half-life isotopes are likely to require complex
case-by-case dose calculations based on the current decay state of the
isotope. In addition, they require frequent inventory replacement due to
their short half-lives.
- Designed for Safety. The Beta-Cath System utilizes localized beta
radiation, which results in total body radiation exposure significantly
less than that received during routine x-ray during PTCA or during
treatment with a gamma radiation vascular brachytherapy device. Other
safety mechanisms include: a closed-source train lumen, special locking
mechanisms to connect the delivery catheter to the transfer device and
sufficient shielding in the transfer device to protect health care
workers from beta radiation exposure. In addition, the beta radiation
sources are delivered and, following the administration of the prescribed
dose, retrieved hydraulically in a matter of seconds, thereby minimizing
exposure to adjacent tissue.
CLINICAL TRIALS
We are currently conducting two pivotal clinical trials of the Beta-Cath
System: the Beta-Cath System Trial and the START Trial. These trials are
intended to support pre-market approval applications to the FDA
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to market our device in the United States to reduce the incidence of coronary
restenosis following PTCA, stent placement and the treatment of "in-stent"
restenosis. We have also completed the BERT Trial, a feasibility study of the
Beta-Cath System that was not placebo-controlled. The results of two placebo-
controlled clinical trials of vascular brachytherapy devices using gamma
radiation have been reported recently. The data from our BERT Trial, together
with the results of the two gamma trials, suggest that vascular brachytherapy
may be an effective treatment for coronary restenosis.
Novoste Trials
The BERT Trial. In August 1998, we reported results from a feasibility
trial of our Beta-Cath System, known as the Beta Energy Restenosis Trial, or
BERT Trial. The BERT Trial was conducted at two United States medical centers
under an investigational device exemption granted by the FDA and at a Canadian
and a European site. The purpose of the BERT Trial was to evaluate the safety
and clinical feasibility of the Beta-Cath System in administering vascular
brachytherapy following PTCA to patients having single-vessel de novo
(previously untreated) lesions. To examine the safety of different radiation
doses, we randomly assigned patients to receive a dose of 12, 14 or 16 gray. The
patient follow-up dictated by the study protocol consisted of: (1) monthly
telephone calls for the first six months, (2) a diagnostic angiogram at six
months, and (3) future telephone follow-up at one and two years after treatment.
As a feasibility study, the BERT Trial was not intended to generate
statistically significant results.
Of the 85 patients enrolled in the BERT Trial, 78 returned for an angiogram
six months after the procedure and these patients exhibited a restenosis rate at
the lesion site of 17% (13 patients). This represents a greater than 50%
reduction in the occurrence of restenosis in patients who received treatment
with the Beta-Cath System when compared to the historical control group, from
the Lovastatin Restenosis Trial published in 1994, who received PTCA only and
had been selected based upon inclusion and exclusion criteria similar to those
utilized by us in the BERT Trial. Additionally, the data revealed a greater than
75% improvement in the "late loss index" when compared to that control group.
The late loss index is a measure of how much of the artery enlargement achieved
by PTCA is lost within six months of the procedure. No patients in the BERT
Trial reported any complications associated with the use of the Beta-Cath
System.
In addition to the 13 patients who exhibited restenosis at the lesion site,
an additional six patients exhibited vessel narrowing outside of the lesion
site. In these patients, the narrowing occurred in an area at the extreme edges
of the location of the radiation source train during treatment. The PTCA
balloons used to treat three of these patients were longer than were allowed by
the trial protocol. Two other patients appeared to experience normal disease
progression in lesions, located at the edges of the radiation treatment area,
that the initial PTCA procedure did not treat. The sixth patient received
treatment in accordance with the protocol and experienced narrowing outside the
treated lesion.
The protocol of the BERT Trial did not include the elective use of coronary
stents, but did permit the use of stents, if medically indicated, following
PTCA. A subgroup of 13 patients received stents and only one patient experienced
restenosis at the lesion site.
While the results of the BERT Trial encouraged us to commence our current
pivotal trials, any valid conclusion as to the safety and efficacy of the
Beta-Cath System can only be drawn from larger statistically powered,
placebo-controlled trials such as our current pivotal trials.
The Beta-Cath System Trial. On July 30, 1997 we initiated our Beta-Cath
System Trial, a randomized, triple-masked, placebo-controlled, multicenter human
clinical trial under an investigational device exemption granted by the FDA. The
Beta-Cath System Trial seeks to determine the clinical safety and effectiveness
of the Beta-Cath System in reducing coronary restenosis following PTCA or stent
placement. We expect to enroll approximately 1,100 patients in the trial at up
to 55 clinical sites, principally located in the United States. The protocol
contemplates that patients will be divided into two approximately equal
subgroups, one receiving PTCA alone and one receiving coronary stents in
addition to PTCA. At February 18, 1999, we had enrolled 1,026 of the
approximately 1,100 patients we anticipate enrolling in the Beta-Cath System
Trial at 52 clinical sites, principally located in the United States.
Approximately 60% of the patients enrolled at that date were in the subgroup
receiving stents in addition to PTCA. In light of the greater than contemplated
enrollment in the subgroup receiving stents, we may enroll up to approximately
100 additional patients beyond the 1,100 patients contemplated by the protocol
in order to increase the total number treated following PTCA without stent
placement. Patients in each subgroup of the trial receive, determined on a
random basis, either vascular brachytherapy through the Beta-Cath System using a
30mm radiation source train or no vascular brachytherapy through a placebo
version of the Beta-Cath System. In both subgroups, patients who receive the
beta radiation receive dosages of 14 gray for vessels ranging from 2.70 to
3.35mm and 18 gray for vessels ranging from 3.36 to 4.00mm. A telephone
follow-up with patients 30 days after treatment and a follow-up angiogram eight
months after the initial treatment is performed.
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The primary endpoint of the trial is the incidence of additional
revascularization procedures. The secondary endpoints of the trial include a
determination of the incidence of restenosis, a measurement of the late loss
index and the frequency of major, adverse cardiac events.
As is typical for patients receiving stent placement, the patients in the
stent subgroup of the Beta-Cath Trial receive anti-platelet therapy to prevent
stent thrombosis, a condition which can lead to acute closure of the treated
artery. Stent thrombosis typically occurs within 30 days of treatment in a
small percentage of patients receiving stent placement. There have been reported
incidences of stent thrombosis in the Beta-Cath System Trial. While the
incidence of stent thrombosis reported was within a normal range, we noted that
these patients developed the condition later following their treatment than is
normally observed. As a result, in October 1998, we modified the trial protocol
for the stent subgroup to extend the anti-platelet therapy from two weeks to 60
days and to provide for additional follow-up contact with these patients in the
second, third and fourth months after treatment. Given that the trial is
triple-masked, we will not be able to draw any conclusions from this experience
until the trial is complete.
We anticipate completion of the patient follow-up in our Beta-Cath System
Trial for the approximately 1,100 patients in the fourth quarter of 1999. If we
enroll additional patients, we would anticipate completion of their follow-up
angiograms by the end of the first quarter of 2000. If the trial yields positive
results, we intend to file during the first quarter of 2000 an application to
the FDA to obtain pre-market approval to sell the Beta-Cath System in the United
States. We anticipate that the application will include data from either both
subgroups of the Beta-Cath System Trial or only the subgroup of patients
receiving stent placement. In the latter case, we would need to obtain FDA
permission to exclude the data from the PTCA only subgroup and amend the
application with that data later. Failure to obtain FDA permission to exclude
that data could delay the filing of our pre-market approval application pending
completion and analysis of the follow-up angiograms on the up to 100 additional
patients we may treat.
The START Trial. On September 21, 1998, we initiated the "Stents And
Radiation Trial" or START Trial, a randomized, triple-masked,
placebo-controlled, multicenter human clinical trial, under an investigational
device exemption granted by the FDA. The primary endpoint of this trial is the
incidence of additional revascularization procedures in the previously treated
artery within eight months of treatment. The START Trial seeks to determine the
safety and effectiveness of the Beta-Cath System in treating "in-stent"
restenosis. We expect to enroll 386 patients at up to 55 clinical sites,
principally located in the United States. We are dividing patients into two
approximately equal subgroups, one receiving vascular brachytherapy through the
Beta-Cath System and the other receiving no vascular brachytherapy through a
placebo version of the Beta-Cath System. Patients who receive the beta
radiation will receive dosages of 16 gray for vessels ranging from 2.70 to
3.35mm and 20 gray for vessels ranging from 3.36 to 4.00mm, slightly higher
doses than those used in our Beta-Cath System Trial because of radiation
shielding from stents previously implanted in a procedure unrelated to this
trial. Through January 1999, the patients receiving beta radiation were treated
with 30mm source trains. We are now also utilizing a 40mm source train in
conjunction with longer angioplasty balloons for patients with longer lesions. A
follow-up angiogram eight months after the initial treatment will be performed
to observe the treated artery. The angiograms will be analyzed to determine
whether there has been an incidence of restenosis and to measure the late loss
index. As of February 18, 1999, we had enrolled a total of 235 patients at 36
clinical sites.
We anticipate completion of the enrollment in the approximately 386 patient
START Trial in the second quarter of 1999. After we receive the results of the
follow-up angiograms on the patients, and provided the trial is successful we
intend to file with the FDA an application to obtain pre-market approval to sell
the Beta-Cath System in the United States to treat "in-stent" restenosis in
coronary arteries.
The trials are administered by our clinical and regulatory staff of
seventeen people. We use consultants to monitor the clinical sites and to assist
in training. We also have engaged an independent contract research organization
and consultants to compile data from the trials and to perform statistical and
reimbursement analyses.
Various factors, including difficulties in enrolling patients and
performing follow-up examinations on patients could delay completion of the
trials for an indeterminate amount of time. The data from these trials, if
completed, may not demonstrate safety and effectiveness and may not be adequate
to support our application to the FDA for pre-market approval of the Beta-Cath
System. If the Beta-Cath System does not prove to be safe and effective in
clinical trials, our business, financial condition and results of operations
will be materially adversely affected and it could result in cessation of our
business. In addition, the clinical trials may identify significant technical or
other obstacles to obtaining necessary regulatory approvals.
Vascular Brachytherapy Trials Using Gamma Radiation
To our knowledge, third parties have completed two clinical trials of
vascular brachytherapy devices to date. These trials were randomized,
double-blinded, placebo-controlled trials. While these trials were not pivotal,
their results provide some preliminary validation of the effectiveness of
vascular brachytherapy devices in reducing the incidence of coronary restenosis
following PTCA.
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The SCRIPPS Trial. The SCRIPPS trial was the first such study and the
results were published in the New England Journal of Medicine in June 1997. In
this trial, Dr. Paul Teirstein et al. studied the safety and efficacy of
catheter-based intracoronary gamma radiation plus stenting to reduce the
incidence of coronary restenosis in patients with previous restenosis.
Fifty-five patients were enrolled into the study at the Scripps Clinic and
received stent placement; 26 were assigned to the radiation (Iridium-192) group
and 29 were assigned to the placebo group. The patients receiving radiation
exhibited a restenosis rate of 17% compared to 54% in the placebo control group,
or an improvement of approximately 68%. Additionally, the late loss index in the
radiation group was 12% compared to 60% in the control group.
The WRIST Trial. In the Washington Radiation for In-Stent restenosis Trial
(WRIST), 130 patients with "in-stent" restenosis were randomized to receive
treatment with either gamma radiation (Iridium-192) or non-radioactive placebo.
The results of the WRIST trial have not yet been published but were announced by
Ron Waksman, M.D., the principal investigator of the trial, at a cardiology
conference held in November 1998. This trial was initiated at the Washington
Hospital Center in February 1997 and completed enrollment with 100 patients with
native coronary arteries and 30 patients with saphenous vein grafts from
previous bypass surgeries. Angiographic follow-up at six months revealed about a
67% lower incidence of restenosis in patients receiving radiation (16%) than
those who did not (48%). Similarly, the late loss index was improved from 90% in
the non-irradiated group to 36% in the radiation treatment group.
The principal investigators of these trials are investigators in Novoste's
current pivotal trials.
We were not involved in the SCRIPPS trial or WRIST trial and the
information set forth above is based solely on the results reported by the
principal investigators of those trials. We cannot be sure that the reported
results are accurate or complete or that results from gamma vascular
brachytherapy devices will bear any correlation to results of trials using beta
vascular brachytherapy devices, including the results from our current pivotal
trials.
PRODUCT DEVELOPMENT
Research and development activities are performed by a 20-person
product-development team. We have also retained consultants to assist in many
research and development activities, including design and manufacture of the
Beta-Cath System, monitoring the clinical trials relating to the Beta-Cath
System and advising in key aspects of radiation health physics and dosimetry.
The focus of our current development efforts is the design of future
generation components of the Beta-Cath System. We intend to introduce a delivery
catheter with a smaller outer diameter so that arteries smaller than 2.70mm can
be treated, thereby expanding our market opportunity into smaller coronary
vessels. Likewise, we anticipate modifying the transfer device to have a more
ergonomic design and to incorporate additional features. Additional future
development efforts will focus on modifying the Beta-Cath System for use in
peripheral applications, such as arterial-venous shunts and the femoral
arteries. In addition, the capability of further modifying the length of the
radiation-source trains to correspond with varying lesion lengths, and the
corresponding injury lengths caused by varying length balloons used during PTCA,
is potentially a desired feature of future systems. There can be no assurance
that we will be successful in developing these or other products.
Research and development expenses for the years ended December 31, 1998,
1997, and 1996 were approximately $21.1 million, $12.9 million, and $4.6
million, respectively.
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MARKETING AND DISTRIBUTION
We anticipate marketing the Beta-Cath System through a direct sales force
in the United States and in the larger European markets and to use distributors
in other markets. We believe such a combination of direct sales force and
distributors will be cost effective, can be implemented quickly, and will enable
us to capitalize on local marketing expertise in each country.
If marketing approval in the United States is obtained, we initially plan
to focus our marketing efforts on the top tier of approximately 200 high-volume
hospitals and on leading interventional cardiologists and radiation oncologists
at those institutions. Through this effort we will initially aim to identify
well-respected clinical supporters for the Beta-Cath System and to leverage
their reputation in the clinical community to generate wider utilization. We
will also conduct seminars to educate and train physicians about the Beta-Cath
System, which we believe, will be a key factor in encouraging physicians to use
our products. We believe that we can market the Beta-Cath System to these
hospitals and cardiologists and radiation oncologists with a moderately-sized,
focused direct-sales organization, initially consisting of approximately 18 to
24 sales representatives, augmented by clinical specialists.
We qualified in August 1998 to apply CE marking to the Beta-Cath System, a
requirement to sell our device in most of Western Europe, and recorded our first
sale there in December 1998. We believe that we are the only company that has
qualified to apply CE marking to an intracoronary radiation device. We are
actively recruiting a direct sales force for the larger European markets as well
as independent distributors for other international markets. We will operate
under written distribution agreements with our distributors. Distributors
generally will have the exclusive right to sell our products within a defined
territory. These distributors also typically market other medical products,
although we will seek to obtain covenants from our distributors prohibiting them
from marketing medical devices that compete directly with the Beta-Cath System.
Our distributors will purchase our products at a discount from the end user list
price and resell the products to hospitals and clinics. The distributor and
end-user prices vary from country to country. We currently have nine employees
based in Europe directly involved with developing sales in Europe. We also are
currently conducting a 200 patient multicenter trial in Europe intended to
enhance market acceptance of the Beta-Cath System among physicians and to
collect additional clinical data.
For each geographic market, we intend to select an established market
leader in the radio isotope business to calibrate, test, inventory and deliver
the radiation sources and to provide related licensing assistance, customer
support and disposal services to the purchasing hospital. There can be no
assurance that we will be able to secure arrangements with international
distributors or radio isotope providers on satisfactory terms, or at all. See
"Government Regulation."
MANUFACTURING, SOURCES OF SUPPLY AND SCALE-UP
Our manufacturing operations are required to comply with the FDA's quality
systems regulations, which will include an inspection of our manufacturing
facilities prior to pre-market approval. In addition, certain international
markets have quality assurance and manufacturing requirements that may be more
or less rigorous than those in the United States. Specifically, we are subject
to the compliance requirements of ISO 9001 certification and CE mark directives
in order to produce products for sale in Europe. We received ISO 9001/EN 46001
certification from our European notified body in April 1998. We are subject to
periodic inspections by regulatory authorities to ensure such compliance. See
"Government Regulation."
We conduct quality audits of suppliers and we are establishing a vendor
certification program. All suppliers of components must also be in compliance
with Novoste's and the FDA's quality systems regulations.
We have no experience manufacturing our products in the volumes that will
be necessary for us to achieve significant commercial sales. We may not be
successful in establishing or maintaining reliable, high volume manufacturing
capacity at commercially reasonable costs. If we received FDA clearance or
approval for the Beta-Cath System, we will need to expend significant capital
resources and develop manufacturing expertise to establish large scale
manufacturing capabilities. Manufacturers often encounter difficulties in
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scaling up production of new products, including problems involving production
yields, quality control and assurance, component supply shortages, shortages of
qualified personnel, compliance with FDA regulations and the need for further
FDA approval of new manufacturing processes. In addition, we believe that
substantial cost reductions in our manufacturing operations will be required for
us to commercialize our catheters and system on a profitable basis. Our
inability to establish and maintain large scale manufacturing capabilities would
have a material adverse effect on our business, financial condition and results
of operations.
Single-Source Supplier of Beta Radiation Source Trains
We have obtained all of our requirements for our beta radioactive sources
to date pursuant to an agreement with a single supplier, Bebig Isotopentechnik
und Umweltdiagnostik GmbH, a German corporation and a related option agreement
to purchase assets. Under the supply agreement, we advanced Bebig a monthly
investment grant of 100,000 Deutsche Marks (approximately $60,000) for a period
of 15 months from November 1996 through January 1998 to equip a new production
line for the exclusive production of radioactive sources for us. These grants
totaled 1.5 million DM (approximately $900,000). In June 1997 we also made a
milestone payment of 617,000 DM (approximately $360,000) and a further payment
of 737,000 DM (approximately $430,000) in March 1998 upon Bebig meeting certain
production milestones. In addition, we made a 700,000 DM (approximately
$414,000) payment in November 1998 and are obligated to make a final 300,000 DM
(approximately $178,000) payment in March 1999, which has been accrued at
December 31, 1998, relating to cost overruns on the new production line, which
became operational in October 1998. All payments to Bebig have been expensed as
research and development.
Our supply agreement with Bebig has an initial term ending in November
2000. Under the supply agreement, Bebig has agreed not to sell, lease, license
or otherwise transfer radioactive Strontium 90 sources to any other party for
use in treatment of restenosis. We, in turn, have agreed not to purchase, lease,
or otherwise acquire directly or indirectly more than 30% of our annual
requirement for radioactive sources of "like" isotope for use in the treatment
of restenosis from any other party. Bebig is required to comply with various
regulatory requirements with respect to the supply of radiation sources. Bebig
has agreed to manufacture radioactive sources at an agreed-upon base price.
Bebig also has agreed to grant us an exclusive, worldwide, fully-paid license to
use inventions, improvements or discoveries Bebig may make relating to vascular
brachytherapy devices. We, in turn, have agreed to grant a similar license to
Bebig relating to any inventions, improvements or discoveries we may make
relating to sealed radioactive sources, provided Bebig does not use those
inventions, improvements or discoveries for vascular brachytherapy applications.
In view of the technical expertise and capital investment required to
manufacture the radioactive sources and the limited number of manufacturers of
Strontium 90, it would be difficult to find an alternate source of supply
without significant lead time. Our business, results of operations and financial
condition could be materially adversely affected by Bebig's failure to provide
us with beta isotopes on a timely basis during the term of the agreement or by
our inability to obtain an alternative source of supply on a timely basis and on
terms satisfactory to us following any termination of the agreement. In
addition, portions of the process used to manufacture the materials may be
proprietary to Bebig.
On July 23, 1998, we executed a further amendment to our agreements with
Bebig, whereby we received a lien on all tangible and intangible assets used by
Bebig in the design and manufacture of the Strontium 90 radioactive sources. In
addition, under that amendment, we have exercised our option to purchase the
tangible assets, and obtain a fully paid license to all intellectual property
used in the manufacture of the radioactive sources, for $4,019,400. The purchase
price is payable in the form of a license fee payable on a per train basis over
four years commencing in 1998, though we have no obligation to purchase any
units after the expiration or termination of the supply agreement. These license
payments aggregated $30,800 in 1998 and have been recorded as inventory costs.
In the event we do not pay the full purchase price for the assets before
September 1, 2002, Bebig will have no obligation to make any of its know-how or
technology available to us or any other source of supply. We are also obligated
to pay Bebig the cost (not to exceed 500,000 DM, or approximately $300,000) to
decontaminate its Strontium 90 line assets under certain circumstances.
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Supply of Other Components by Third Parties
We currently rely on third party manufacturers for the supply of the
hand-held transfer device, the catheter and other components of our Beta-Cath
System. The supply of these components requires a long lead time. In addition,
we could not establish quickly additional or replacement suppliers or internal
manufacturing capabilities for these components. An existing vendor's failure to
supply components in a timely manner or our inability to obtain these components
on a timely basis from another supplier could have a material adverse effect on
our ability to manufacture the Beta-Cath System and, therefore, on our ability
to market the Beta-Cath System.
PATENTS AND PROPRIETARY TECHNOLOGY
Our policy is to protect our proprietary position by, among other methods,
filing United States and foreign patent applications. On November 4, 1997 we
were issued United States Patent No. 5,683,345 on the Beta-Cath System. We also
have filed a related United States continuation-in-part application (which is
jointly owned by us and Emory University), and have additional United States
applications pending covering aspects of our Beta-Cath System. The United States
Patent and Trademark Office has indicated that certain claims pending in the
United States continuation-in-part application and in another application are
allowable. With respect to United States Patent No. 5,683,345, the
continuation-in-part and our other pending United States patent applications, we
have filed, or will file in due course, counterpart applications in the European
Patent Office and certain other countries.
Like other firms that engage in the development of medical devices, we must
address issues and risks relating to patents and trade secrets. United States
Patent No. 5,683,345 may not offer any protection to us because competitors may
be able to design functionally equivalent devices that do not infringe this
patent. It may also be reexamined, invalidated or circumvented. In addition,
claims under our other pending applications may not be allowed, or if allowed,
may not offer any protection or may be reexamined, invalidated or circumvented.
In addition, competitors may have or may obtain patents that will prevent, limit
or interfere with our ability to make, use or sell our products in either the
United States or international markets.
We received a letter from NeoCardia, L.L.C., dated July 7, 1995, in which
NeoCardia notified us that it was the exclusive licensee of United States Patent
No. 5,199,939, or the Dake patent, and requested that we confirm that our
products did not infringe the claims of the Dake patent. On August 22, 1995 our
patent counsel responded on our behalf that we did not infringe the Dake patent.
The United States Patent and Trademark Office later reexamined the Dake
patent. In the reexamination proceeding some of the patent claims were amended
and new claims were added. We have concluded, based upon advice of patent
counsel, that our Beta-Cath System would not infringe any claim of the Dake
patent as reexamined.
In May 1997 Guidant acquired NeoCardia together with the rights under the
Dake patent. Guidant is attempting to develop and commercialize products that
may compete with the Beta-Cath System and has significantly greater capital
resources than the company. Guidant may sue for patent infringement in an
attempt to obtain damages from us and/or injunctive relief restraining us from
commercializing the Beta-Cath System in the United States. If Guidant were
successful in any such litigation, we might be required to obtain a license from
Guidant under the Dake patent to market the Beta-Cath System in the United
States, if such license were available, or be prohibited from selling the
Beta-Cath System in the United States. Any of these actions could have a
material adverse effect on our business, financial condition and results of
operations, or could result in cessation of our business.
We have two versions of our delivery catheter: a "rapid exchange" catheter
and an "over the wire" catheter. As a result of certain United States patents
held by other device manufacturers covering "rapid exchange" catheters, we
currently intend to sell the "over the wire" version of our delivery catheter in
the United States. If further investigation reveals that we may sell a "rapid
exchange" version in the United States without infringing the valid patent
rights of others, we might decide to do so in the future. However, we cannot
assure that we will be able to sell a "rapid exchange" version in the United
States without a license of third party patent rights or that such a license
would be available to us on favorable terms or at all.
The medical device industry has been characterized by extensive litigation
regarding patents and other intellectual property rights. Companies in the
medical device industry have employed intellectual property
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litigation to gain a competitive advantage. There can be no assurance that we
will not become subject to patent-infringement claims or litigation or
interference proceedings declared by the United States Patent and Trademark
Office to determine the priority of inventions. The defense and prosecution of
intellectual property suits, or interference proceedings and related legal and
administrative proceedings are both costly and time-consuming. Litigation may be
necessary to enforce our patents, to protect our trade secrets or know-how or to
determine the enforceability, scope and validity of the proprietary rights of
others. Any litigation or interference proceedings will result in substantial
expense to us and significant diversion of effort by our technical and
management personnel. An adverse determination in litigation or interference
proceedings to which we may become a party could subject us to significant
liabilities to third parties, require us to seek licenses from third parties,
require us to redesign our products or processes to avoid infringement or
prevent us from selling our products in certain markets, if at all. Although
patent and intellectual property disputes regarding medical devices have often
been settled through licensing or similar arrangements, costs associated with
such arrangements may be substantial and could include significant ongoing
royalties. Furthermore, there can be no assurance that the necessary licenses
would be available to us on satisfactory terms, if at all, or that we could
redesign our products or processes to avoid infringement. Any adverse
determination in a judicial or administrative proceeding or failure to obtain
necessary licenses could prevent us from manufacturing and selling our products,
which would have a material adverse effect on our business, financial condition
and results of operations.
Patent applications in the United States are maintained in secrecy until
patents issue, and patent applications in foreign countries are maintained in
secrecy for a period after filing. Publication of discoveries in the scientific
or patent literature tends to lag behind actual discoveries and the filing of
related patent applications. Patents issued and patent applications filed
relating to medical devices are numerous. Accordingly, there can be no assurance
that current and potential competitors, many of which have substantial resources
and have made substantial investments in competing technologies, or other third
parties have not or will not file applications for, or have not or will not
receive, patents and will not obtain additional proprietary rights relating to
products made, used or sold or processes used or proposed to be used by us.
We have developed certain of our patent and proprietary rights relating to
the Beta-Cath System in conjunction with Emory University Hospital, a leader in
the research of intravascular radiation therapy. To obtain the exclusive rights
to commercialize the Beta-Cath System for the treatment of restenosis, we
entered into a license agreement with Emory. Under this agreement, Emory
assigned to us all of Emory's rights to one pending United States patent
application and exclusively licensed to us its rights under another United
States application and related technology. Emory made no representation or
warranty with respect to its ownership of the assigned patent application, and
made only limited representations as to its ownership of the licensed patent
application and related technology. Under the agreement Emory will be entitled
to royalty payments based upon net sales of the Beta-Cath System. The term of
the agreement runs through the later of (i) the date the last patent covered by
the agreement expires or (ii) January 2016 (unless earlier terminated as
provided in the agreement). Any inventions developed jointly by our personnel
and Emory during the term of the license agreement are owned jointly by Emory
and us. If Emory terminated the agreement as a result of our failure to pay such
royalties or any other breach of our obligations under such agreement, our
rights to use jointly owned patents (including any patent issuing from the
continuation-in-part application which has been filed) would become
non-exclusive and we would have no rights to use future patents owned
exclusively by Emory. In addition, if we breach our obligations under the
license agreement, we could be required by Emory to cooperate in licensing the
pending jointly-owned United States patent application and our foreign
counterparts to third parties so that they would be able to commercialize and
sell the Beta-Cath System.
All of the physicians on staff at Emory who were involved in the
development of the Beta-Cath System, including Spencer B. King III, M.D., have
assigned their rights in the technology, if any, to Emory and/or us. In
addition, we have entered into a license agreement with Dr. King. Under the
terms of this agreement, Dr. King is entitled to receive a royalty on the net
sales of the Beta-Cath System (excluding consideration paid for the radioactive
isotope), subject to a maximum of $5,000,000.
We employ a full time manager of intellectual property to prepare invention
records and to coordinate the prosecution of new intellectual property. We
typically obtain confidentiality and invention assignment
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agreements in connection with employment, consulting and advisory relationships.
These agreements generally provide that all confidential information developed
or made known to the individual by us during the course of the individual's
relationship with us, is to be kept confidential and not disclosed to third
parties, except in specific circumstances. There can be no assurance, however,
that these agreements will provide meaningful protection or adequate remedies
for us in the event of unauthorized use, transfer or disclosure of such
information or inventions.
Furthermore, no assurance can be given that competitors will not
independently develop substantially equivalent proprietary information and
techniques, or otherwise gain access to our proprietary technology, or that we
can meaningfully protect our rights in unpatented proprietary technology.
COMPETITION; RAPID TECHNOLOGICAL CHANGE
Competition in the medical device industry, and specifically the markets
for cardiovascular devices, is intense and characterized by extensive research
and development efforts and rapidly advancing technology. New developments in
technology could render vascular brachytherapy generally or the Beta-Cath System
in particular noncompetitive or obsolete.
Vascular brachytherapy may compete with other treatment methods designed to
improve outcomes from coronary artery procedures that are well established in
the medical community, such as coronary stents. Stents are the predominant
treatment currently utilized to reduce the incidence of coronary restenosis
following PTCA and were used in approximately 60% of all PTCA procedures
performed worldwide in 1998. Manufacturers of stents include Johnson & Johnson,
Medtronic, Inc., Guidant Corporation and Boston Scientific Corporation. Stent
manufacturers often sell many products used in the cath lab and, as discussed
below, certain of these companies are developing vascular brachytherapy devices.
Other devices under development that use vascular brachytherapy, include:
- a radioactive-tipped guidewire;
- a radioactive stent; and
- a radioactive fluid-filled balloon.
In addition, the radiation sources being developed by our competition vary
between gamma, beta and x-ray.
The most advanced competitive approach is represented by the radioactive
guidewire, as we are aware of three companies which are in the pivotal clinical
trial stage in the United States. Johnson & Johnson has completed patient
enrollment into its trial, the Gamma One trial, whose purpose is to assess the
use of Best Medical International's manually advanced gamma wire in treating
"in-stent" restenosis. The U.S. Surgical division of Tyco International Ltd. is
investigating its gamma wire/afterloader system in an "in-stent" restenosis
trial called the ARTISTIC Trial. Lastly, Guidant is currently evaluating its
beta wire/afterloader system in the INHIBIT Trial, also for "in-stent"
restenosis. Boston Scientific, through its Schneider AG subsidiary, is also
developing a beta wire/afterloader system which is under investigation in Europe
and in a pilot study in the United States.
Most of the radioactive guidewires are used in conjunction with an
afterloader, a specialized piece of equipment that is typically computer
controlled. It is used to automatically calculate treatment times, control
movement of the guidewire, and to store and shield the guidewire when not in
use. This equipment is large, complex, and expensive. Guidewires with
gamma-emitting radioactive tips have been used for some time in cancer therapy.
Gamma radiation is significantly more penetrating and therefore more hazardous
to use than beta radiation. For example, health care workers must leave the cath
lab during administration of gamma radiation to ensure their safety by limiting
their ongoing exposure to gamma radiation. In addition, gamma radiation impacts
patient tissue beyond the treatment site.
We are also aware of one company, Isostent, Inc., which is developing a
radioactive stent. In theory, such a stent would address hyperplasia in addition
to elastic recoil and vascular remodeling. However, feasibility clinical studies
published to date have not demonstrated improvements in coronary restenosis. The
issues
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appear to be the inability of the stent to effectively treat areas of the artery
beyond the ends of the stent and the difficulty in optimizing the dose of a
short half-life device which is permanently implanted. From a logistical
perspective, hospitals may have difficulty in keeping an inventory of stents
that have sufficient radioactivity at the time of implant due to the short shelf
life of stents impregnated with short half-life isotopes.
Radioactive fluid filled balloon catheters have been investigated in small
pilot clinical studies, and very little clinical data is currently available.
Mallinckrodt, Inc., Tyco International Ltd., and Guidant are known to have
active development projects in this area. This approach would involve injecting
a short half-life radioactive liquid down a catheter to inflate a balloon. The
disadvantages of this approach include the risks of fluid leaks inside the cath
lab, balloon rupture, the need to fractionate dosing to prevent ischemia, and
the disposal of the catheter which has been contaminated with radioactive
material.
Many of our competitors and potential competitors have substantially
greater capital resources than we do and also have greater resources and
expertise in the areas of research and development, obtaining regulatory
approvals, manufacturing and marketing. We cannot assure you that competitors
and potential competitors will not succeed in developing, marketing and
distributing technologies and products that are more effective than those we
will develop and market or that would render our technology and products
obsolete or noncompetitive. Additionally, many of the competitors have the
capability to bundle a wide variety of products in sales to cath labs. We may be
unable to compete effectively against such competitors and other potential
competitors in terms of manufacturing, marketing and sales.
Any product we develop that gains regulatory clearance or approval will
have to compete for market acceptance and market share. An important factor in
such competition may be the timing of market introduction of competitive
products. Accordingly, we expect the relative speed with which we can develop
products, gain regulatory approval and reimbursement acceptance and supply
commercial quantities of the product to the market to be an important
competitive factor. In addition, we believe that the primary competitive factors
for products addressing restenosis include safety, efficacy, ease of use,
reliability, suitability for use in cath labs, service and price. We also
believe that physician relationships, especially relationships with leaders in
the interventional cardiology community, are important competitive factors.
Although we believe that we are the first in the United States to have initiated
an FDA-approved human clinical trial of a radiation system for reducing the
incidence of restenosis, we may not be the first to market such a system in the
United States or to market such a system effectively.
Government Regulation
United States
Our Beta-Cath System is regulated in the United States as a medical device.
As such, we are subject to extensive regulation by the FDA, by other federal,
state and local authorities and by foreign governments. The FDA regulates the
clinical testing, manufacture, packaging, labeling, storage, distribution and
promotion of medical devices. Noncompliance with applicable requirements can
result in, among other things, fines, injunctions, civil penalties, recall or
seizure of products, total or partial suspension of production, failure of the
government to grant pre-market clearance or pre-market approval for devices,
withdrawal of marketing approvals, a recommendation by the FDA that we not be
permitted to enter into government contracts, and criminal prosecution. The FDA
also has the authority to request repair, replacement or refund of the cost of
any device manufactured or distributed.
In the United States, medical devices are classified into one of three
classes (Class I, II or III) on the basis of the controls deemed necessary by
the FDA to reasonably assure their safety and effectiveness. Under FDA
regulations Class I devices are subject to general controls (for example,
labeling, pre-market notification and adherence to good manufacturing practices
or quality systems regulations) and Class II devices are subject to general and
special controls (for example, performance standards, postmarket surveillance,
patient registries, and FDA guidelines). Class III is the most stringent
regulatory category for medical devices. Generally, Class III devices
are those that must receive pre-market approval by the FDA after evaluation of
their safety and effectiveness (for example, life-sustaining, life-supporting
or| implantable devices, or new devices that have not been found substantially
equivalent to other Class II legally marketed devices). The Beta-Cath System
is a Class III device, which will require the FDA's pre-market approval prior
to its commercialization.
A pre-market approval application must be supported by valid scientific
evidence, which typically includes extensive data, including preclinical and
human clinical trial data to demonstrate safety and effectiveness of the device.
If human clinical trials of a device are required and the device trial presents
a "significant risk," the sponsor of the trial, usually the manufacturer or the
distributor of the device, is required to file an investigational device
exemption application with the FDA and obtain FDA approval prior to commencing
human clinical trials. The investigational device exemption application must be
supported by data, typically including the results of animal and laboratory
testing. If the investigational device exemption application is approved by the
FDA and one or more appropriate Institutional Review Boards, or "IRBs," human
clinical trials may begin at a specific number of investigational sites with a
specific number of patients, as approved by the FDA.
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The pre-market approval application must also contain the results of all
relevant bench tests, laboratory and animal studies, a complete description of
the device and its components, and a detailed description of the methods,
facilities and controls used to manufacture the device. In addition, the
submission should include the proposed labeling, advertising literature and
training methods (if required). Upon receipt of a pre-market approval
application, the FDA makes a threshold determination as to whether the
application is sufficiently complete to permit a substantive review. If the FDA
determines that the pre-market approval application is sufficiently complete to
permit a substantive review, the FDA will accept the application for filing and
begin an in-depth review of the pre-market approval application. An FDA review
of a pre-market approval application generally takes one to two years from the
date the pre-market approval application is accepted for filing, but may take
significantly longer. The review time is often significantly extended by the FDA
asking for more information or clarification of information previously
submitted. During the review period an advisory committee, primarily comprised
of clinicians, will likely be convened to review and evaluate the application
and provide recommendations to the FDA as to whether the device should be
approved. The FDA is not bound by those recommendations. During the review
process of the pre-market approval application, the FDA generally will conduct
an inspection of the manufacturer's facilities to ensure that the facilities are
in compliance with the applicable good manufacturing practices requirements or
quality systems regulations. To date, the FDA has not inspected our current
compliance with quality systems regulations with respect to the Beta-Cath
System.
If the FDA's evaluation of the pre-market approval application is
favorable, the FDA will either issue an approval letter or an "approvable
letter," containing a number of conditions which must be satisfied in order to
secure the final approval of the pre-market approval application. When and if
those conditions have been fulfilled to the satisfaction of the FDA, the agency
will issue a letter approving a pre-market approval application authorizing
commercial marketing of the device for certain indications. If the FDA's
evaluation of the pre-market approval application or manufacturing facilities is
not favorable, the FDA will deny approval of the pre-market approval application
or issue a "not approvable letter." The FDA may also determine that additional
clinical trials are necessary, in which case approval of the pre-market approval
application could be delayed for several years while additional clinical trials
are conducted and submitted in an amendment to the pre-market approval
application.
We are currently conducting two pivotal trials of the Beta-Cath System
under an investigational device exemption granted by the FDA. There can be no
assurance as to when, or if, we will complete the enrollment for our current
pivotal clinical trials or that data from such trials, if completed, will be
adequate to support approval of a pre-market approval application.
The process of obtaining a pre-market approval and other required
regulatory approvals can be expensive, uncertain and lengthy, and there can be
no assurance that we will ever obtain such approvals. At the earliest, we do not
anticipate filing pre-market approval applications for the Beta-Cath System
until the first quarter of 2000, and do not anticipate receiving a pre-market
approval for the system until at least one year after such pre-market approval
application is accepted for filing, if at all. There can be no assurance that
the FDA will act favorably or quickly on any of our submissions to the FDA. We
may encounter significant difficulties and costs in our efforts to obtain FDA
approval that could delay or preclude us from selling our products in the United
States. Furthermore, the FDA may request additional data or require that we
conduct further clinical studies, causing us to incur substantial cost and
delay. In addition, the FDA may impose strict labeling requirements, onerous
operator training requirements or other requirements as a condition of our
pre-market approval, any of which could limit our ability to market our systems.
Labeling and marketing activities are subject to scrutiny by the FDA and, in
certain circumstances, by the Federal Trade Commission. FDA enforcement policy
strictly prohibits the marketing of FDA cleared or approved medical devices for
unapproved uses. Further, if a company wishes to modify a product after FDA
approval of a pre-market approval, including any changes that could affect
safety or effectiveness, additional approvals will be required by the FDA. Such
changes include, but are not limited to: new indications for use, the use of a
different facility to manufacture, changes to process or package the device,
changes in vendors to supply components, changes in manufacturing methods,
changes in design specifications and certain labeling changes. Failure to
receive or delays in receipt of FDA approvals, including the need for additional
clinical trials or data as a prerequisite to approval, or any FDA conditions
that limit our ability to market our systems, could have a material adverse
effect on our business, financial condition and results of operations.
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Any products we manufacture or distribute pursuant to FDA approvals are
subject to pervasive and continuing regulation by the FDA, including
record-keeping requirements and reporting of adverse experiences with the
use of the device. Device manufacturers are required to register their
establishments and list their devices with the FDA and certain state agencies,
and are subject to periodic inspections by the FDA and those state agencies.
The Food, Drug and Cosmetic Act requires device manufacturers to comply with
good manufacturing practices regulations. A new set of regulations, called
the quality systems regulations, went into effect June 1, 1997. The
regulations require that medical device manufacturers comply with various
quality control requirements pertaining to design controls, purchasing
contracts, organization and personnel; device and manufacturing process design;
buildings, environmental control, cleaning and sanitation; equipment and
calibration of equipment; medical device components; manufacturing
specifications and processes; reprocessing of devices; labeling and
packaging; in-process and finished device inspection and acceptance; device
failure investigations; and recordkeeping requirements including compliance
files. The FDA enforces these requirements through periodic inspections of
medical device manufacturing facilities. In addition, a set of regulations known
as the medical device reporting regulations obligates manufacturers to inform
the FDA whenever information reasonably suggests that one of its devices may
have caused or contributed to a death or serious injury, or when one of its
devices malfunctions and, if the malfunction were to recur, the device would be
likely to cause or contribute to a death or serious injury.
Labeling and promotional activities are also subject to scrutiny by the
FDA. Among other things, labeling violates law if it is false or misleading in
any respect or it fails to contain adequate directions for use. Moreover, any
labeling claims that exceed the representations approved by the FDA will
violate the Food, Drug and Cosmetic Act.
Our product advertising is also subject to regulation by the Federal Trade
Commission under the Federal Trade Commission Act, which prohibits unfair
methods of competition and unfair or deceptive acts or practices in or affecting
commerce, including the dissemination of any false advertisement pertaining to
medical devices. Under the Federal Trade Commission's "substantiation
doctrine," an advertiser is required to have a "reasonable basis" for all
product claims at the time claims are first used in advertising or other
promotions.
Our business involves the import, manufacture, distribution, use and
disposal of Strontium 90 (Strontium/Yttrium), the beta-emitting radioisotope
utilized in the Beta-Cath System's radiation source train. Accordingly,
manufacture, distribution, use and disposal of the Beta-Cath System will also be
subject to federal, state and/or local laws and regulations relating to the use
and handling of radioactive materials. Specifically, we must obtain approval
from the State of Georgia Department of Natural Resources to commercially
distribute our radiation sources to licensed recipients in the United States. We
and/or our supplier of radiation sources must also comply with NRC and United
States Department of Transportation regulations on the labeling and packaging
requirements for shipment of radiation sources to hospitals or other users of
the Beta-Cath System. Further, hospitals and/or physicians in the United States
may be required to amend their radiation licenses to hold, handle and use
Strontium 90 prior to receiving and using our Beta-Cath System.
During the course of our Beta-Cath System Trial, there were two incidents
in which there was a delay in retrieval of the radiation source train from the
target site. In one incident, an over-tightened valve on the catheter delayed
return of the source train and in the other incident there was insufficient
fluid left in the syringe to power the hydraulic retrieval of the radiation
source train. In March 1998, the NRC notified medical licensees of these
incidents, but required no specific action or written response by us or any
other third party. While the NRC made recommendations in this notice, Novoste
believes that substantially all of these recommendations had already been
incorporated into the trial protocol.
We are also subject to numerous federal, state and local laws relating to
such matters as safe working conditions, manufacturing practices, environmental
protection, fire-hazard control and disposal of hazardous or potentially
hazardous substances. There can be no assurance that we will not be required to
incur significant costs to comply with such laws and regulations now or in the
future, or that such laws or regulations will not have a material adverse effect
upon our ability to do business.
Changes in existing requirements or adoption of new requirements or
policies could adversely affect our ability to comply with regulatory
requirements. Our failure to comply with regulatory requirements could have a
material adverse effect on our business, financial condition or results of
operations. There can be no assurance that we will not be required to incur
significant costs to comply with laws and regulations in the future or that laws
and regulations will not have a material adverse effect upon our business,
financial condition or results of operations.
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International
In order for us to market the Beta-Cath System in Europe, Japan and certain
other foreign jurisdictions, we must obtain and retain required regulatory
approvals and clearances and otherwise comply with extensive regulations
regarding safety and manufacturing processes and quality. These regulations,
including the requirements for approvals or clearance to market and the time
required for regulatory review, vary from country to country, and in some
instances within a country. There can be no assurance that we will obtain
regulatory approvals in such countries or that we will not be required to incur
significant costs in obtaining or maintaining our foreign regulatory approvals.
Delays in receipt of approvals to market our products, failure to receive these
approvals or future loss of previously received approvals could have a material
adverse effect on our business, financial condition, and results of operations.
The time required to obtain approval for sale in foreign countries may be
longer or shorter than that required for FDA approval, and the requirements may
differ. The European Union has promulgated rules requiring that medical devices
placed on the market after June 14, 1998 bear CE marking, a legal symbol
attesting to compliance with the appropriate directive which, in our case, is
the medical devices directive. We qualified to apply CE marking to the Beta-Cath
System in August 1998, which allows us to sell the device in the 18 countries of
the European Economic Area, or EEA, and Switzerland. Although the medical
devices directive is intended to ensure free movement within the EEA of
medical devices that bear the CE marking, many countries in the EEA have imposed
additional requirements, such as labeling in the national language and
notification of placing the device on the market. In addition, regulatory
authorities in European countries can demand evidence on which conformity
assessments for CE-marked devices are based and in certain circumstances can
prohibit the marketing of products that bear the CE marking. Many European
countries maintain systems to control the purchase and reimbursement of medical
equipment under national health care programs, and the CE marking does not
affect these systems. The Company's products have not received regulatory
approval in Japan nor have they been approved for government reimbursement in
Japan.
In addition, there are generally foreign regulatory barriers other than
pre-market approval (including separate regulations concerning the distribution,
use, handling and storage of radiation sources), and the export of devices must
be in compliance with FDA regulations. The distribution and use of the Beta-Cath
System outside the United States is subject to radiation regulatory requirements
that vary from country to country and sometimes vary within a given country.
Generally, each country has a national regulatory agency responsible for
regulating the safe practice and use of radiation in its jurisdiction. In
addition, each hospital desiring to use the Beta-Cath System is generally
required to amend its radiation license to hold, handle and use the Strontium 90
sources in our device. Generally, these licenses are specific to the amount and
type of radioactivity utilized. In addition, generally the use of a radiation
source by a physician, either for a diagnostic or therapeutic application, also
requires a license, which again is specific to the isotope and the clinical
application.
Obtaining any of the foregoing radiation-related approvals and licenses can
be complicated and time consuming. If we or any hospital or physician is
significantly delayed in obtaining any of the foregoing approvals or any of
those approvals are not obtained, our business, financial condition and results
of operations could be materially adversely affected. Third-Party Reimbursement
THIRD PARTY REIMBURSEMENT
We expect that our sales volumes and prices of our products will be heavily
dependent on the availability of reimbursement from third-party payors and that
individuals may not be willing or able to pay directly for the costs associated
with the use of our products. Our products typically are purchased by clinics
and hospitals, which bill various third-party payors, such as governmental
programs and private insurance plans, for the healthcare services provided to
their patients. Third-party payors carefully review and increasingly challenge
the prices charged for medical products and services. Reimbursement rates from
private companies vary depending on the procedure performed, the third-party
payor, the insurance plan, and other factors. Medicare reimburses hospitals a
prospectively determined fixed amount for the costs associated with an
in-patient hospitalization based on the patient's discharge diagnosis, and
reimburses physicians a prospectively determined fixed amount based on the
procedure performed, regardless of the actual costs incurred by the hospital or
physician in furnishing the care and unrelated to the specific devices used in
that procedure. Medical and other third-party payors are increasingly
scrutinizing whether to cover new products and the level of reimbursement for
covered products.
The FDA has classified the Beta-Cath System as an experimental device and
accordingly its use in the human clinical trials in the United States is not
reimbursable under the Medicare program or by private insurers until after the
pre-market approval is achieved, if ever. The classification of the Beta-Cath
System as experimental has materially increased the costs of conducting clinical
trials in the United States, and such costs have had a material effect on our
business, financial condition and results of operations.
In international markets, market acceptance of the Beta-Cath System may be
dependent in part upon the availability of reimbursement within the prevailing
healthcare payment systems. Reimbursement systems vary significantly by country,
and by region within some countries, and reimbursement approvals must be
obtained on a country-by-country basis. In foreign markets, reimbursement is
obtained from a variety of sources, including government sponsored healthcare
and private health insurance plans. In some countries the healthcare systems are
centrally organized, but in most cases there is a degree of regional autonomy
either in deciding whether to pay for a particular procedure or in setting the
reimbursement level. The way in which new devices enter the healthcare system
depends on the system: there may be a national appraisal process leading to a
new procedure or product coding, or it may be a local decision made by the
relevant hospital department. The latter is particularly the case where |a
global payment is made that does not detail specific technologies used in the
treatment of a patient. In most foreign countries there are also private
insurance plans that may offer reimbursement for alternative therapies.
Although not as prevalent as in the United States, managed care is gaining
prevalence in certain European countries. We will seek international
reimbursement approvals, although there can be no assurance that any such
approvals will be obtained in a timely manner or at all. Failure to receive
international reimbursement approvals could have an adverse effect on market
acceptance of our products in the international markets in which such approvals
are sought.
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We believe that reimbursement in the future will be subject to increased
restrictions such as those described above, both in the United States and in
foreign markets. We believe that the overall escalating cost of medical products
and services has led to and will continue to lead to increased pressures on the
health care industry, both foreign and domestic, to reduce the cost of products
and services, including products we offer. There can be no assurance as to
either United States or foreign markets that third-party reimbursement and
coverage will be available or adequate, that current reimbursement amounts will
not be decreased in the future or that future legislation, regulation, or
reimbursement policies of third-party payors will not otherwise adversely affect
the demand for our products or our ability to sell our products on a profitable
basis, particularly if our system is more expensive than competing products or
procedures. If third-party payor coverage or reimbursement is unavailable or
inadequate, our business, financial condition, and results of operations could
be materially adversely affected.
PRODUCT LIABILITY AND INSURANCE
Our business entails the risk of product liability claims. Although we have
not experienced any product liability claims to date, there can be no assurance
that such claims will not be asserted or that we will have sufficient resources
to satisfy any liability resulting from such claims. The Company maintains
product liability insurance with coverage of an annual aggregate maximum of $8
million. There can be no assurance that product liability claims will not exceed
such insurance coverage limits, that such insurance will continue to be
available on commercially reasonable terms or at all, or that a product
liability claim would not materially adversely affect our business, financial
condition or results of operations.
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EMPLOYEES AND CONSULTANTS
As of December 31, 1998 we directly employed 89 full-time individuals. Most
of our employees have prior experience with medical device or pharmaceutical
companies. We believe that we maintain good relations with our employees. None
of our employees is represented by a union or covered by a collective bargaining
agreement. Our success will depend in large part upon our ability to attract and
retain qualified employees. We face competition in this regard from other
companies, research and academic institutions and other organizations.
We maintain continuing relationships with a number of independent
consultants that have contributed to the development of our products and work on
specific development projects. These relationships are integral to our continued
success and the generation of new products from the research and development
departments.
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ADDITIONAL RISK FACTORS
DEPENDENCE ON THE SUCCESSFUL DEVELOPMENT AND COMMERCIALIZATION OF THE BETA-CATH
SYSTEM
We have not yet successfully commercialized any product in the United
States and have only recently started to sell the Beta-Cath System in Europe. We
anticipate that for the foreseeable future we will be solely dependent on the
successful development and commercialization of the Beta-Cath System. Our
failure to commercialize the Beta-Cath System would have a material adverse
effect on our business, financial condition and results of operations.
The Beta-Cath System will require further development and clinical testing,
as well as regulatory approval, before we can market it in the United States.
Our development efforts and clinical testing may not be successful. In addition,
we may be unable to:
- Show the safety and effectiveness of the Beta-Cath System in
placebo-controlled human clinical trials;
- Obtain regulatory approval of the Beta-Cath System;
- Manufacture the Beta-Cath System in commercial quantities at
acceptable costs;
- Gain any significant degree of market acceptance of the Beta-Cath
System among physicians, patients and health care payors; or
- Demonstrate that the Beta-Cath System is an attractive and
cost-effective alternative or complement to other procedures,
including coronary stents and competing vascular brachytherapy
devices.
Commercialization of the Beta-Cath System in Europe is subject to certain
additional risks. Physicians in Europe are generally less receptive to and
slower to adopt new medical devices and technologies than physicians in the
United States due to various factors, including the influence of national health
care policies and reimbursement strategies of health care payors. We may never
achieve significant revenue from sales in Europe or ever achieve or sustain
profitability in our European operations.
Because the Beta-Cath System is our sole near-term product focus, we could
be required to cease operations if it is not successfully developed or
commercialized.
LIMITED OPERATING HISTORY; HISTORY OF LOSSES AND EXPECTATION OF FUTURE
LOSSES THROUGH AT LEAST THE YEAR 2000
We have a limited history of operations. Since our inception in May 1992,
we have been primarily engaged in developing and testing our Beta-Cath System.
We have generated only limited revenue and do not have experience in
manufacturing, marketing or selling our products in quantities necessary for
achieving profitability.
At December 31, 1998, we had accumulated a deficit of approximately $52.3
million since our inception in 1992. The commercialization of the Beta-Cath
System and other new products, if any, will require substantial additional
development, clinical, regulatory, manufacturing, sales and marketing and other
expenditures. We expect our operating losses to continue through at least 2000
as we continue to expand our product development, clinical trials and marketing
efforts. We may never commercialize the Beta-Cath System or any other product or
achieve profitability.
EARLY STAGE OF CLINICAL TESTING OF BETA-CATH SYSTEM; NO ASSURANCE OF ITS SAFETY
AND EFFICACY
The safety and effectiveness of the Beta-Cath System or of any vascular
brachytherapy device has not been determined in a placebo-controlled, pivotal
trial. We are currently conducting multi-center human clinical trials of the
Beta-Cath System to determine its safety and effectiveness. At February 18,
1999, we had enrolled 1,026 of the approximately 1,100 patients we anticipate
enrolling in the Beta-Cath System Trial and 235 of the approximately 386
patients we anticipate enrolling in the START Trial. These multi-center trials
require follow-up examinations with patients after eight months. We anticipate
completion of the follow-up angiograms on the approximately 1,100 patients by
the end of 1999. We may enroll up to approximately 100 additional patients in
the Beta-Cath System Trial beyond the 1,100 patients contemplated by the
protocol in order to increase the total number treated following PTCA without
stent placement, and would expect completion of the follow-up on these
additional patients by the end of the first quarter of 2000. It is only after
analysis of a statistically significant number of patients in one of these
trials that we would apply for the regulatory approvals required to commence
marketing the Beta-Cath System in the United States. Various factors, including
difficulties in enrolling patients and performing follow-up examinations on
patients could delay completion of either trial for an indeterminate amount of
time. The data from these trials, if completed, may not demonstrate the safety
and effectiveness of the Beta-Cath System and may not
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be adequate to support our application to the FDA for pre-market approval. If
the Beta-Cath System does not prove to be safe and effective in clinical trials,
our business, financial condition and results of operations will be materially
adversely affected and we could be required to cease our operations. In
addition, the clinical trials may identify significant technical or other
obstacles to obtaining necessary regulatory approvals. Because vascular
brachytherapy in human coronary arteries is a relatively new treatment, the
long-term effects on patients are not known and likely will not be known for
several years. As a result, even if our current clinical trials indicate the
Beta-Cath System is safe and effective over an eight-month period, we cannot be
sure that the Beta-Cath System will be safe and effective over the long term.
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UNCERTAINTY OF MARKET ACCEPTANCE OF VASCULAR BRACHYTHERAPY AND THE BETA-CATH
SYSTEM
Even if we obtain regulatory approvals and reimbursement from third party
payors for the use of the Beta-Cath System, our device may not gain any
significant degree of market acceptance among physicians and patients. Vascular
brachytherapy is a new treatment method and has not been used to any significant
extent by physicians outside the context of clinical trials. We believe that
physicians' acceptance of vascular brachytherapy generally and the Beta-Cath
System in particular will be essential for our operations and we may not obtain
this acceptance. Even if we establish clinical efficacy of the Beta-Cath System,
cardiologists, radiation oncologists and other physicians may elect not to
recommend vascular brachytherapy generally or the Beta-Cath System in
particular. Even if recommended, physicians may not utilize the Beta-Cath System
in a sufficient number of procedures to generate significant revenues or to
enable us to operate profitably. In addition, market acceptance of our device
could be hindered because using the Beta-Cath System currently requires the
participation not only of an interventional cardiologist, but also a radiation
oncologist appropriately credentialed to administer our beta radiation source
train.
LIMITED SALES, MARKETING AND DISTRIBUTION EXPERIENCE
At present we have limited sales and marketing capability. We intend to
sell our products directly in the United States and the larger markets in Europe
and through international distributors in other markets. We may not be able to
recruit and train adequate sales and marketing personnel to successfully
commercialize the Beta-Cath System in the United States and internationally. The
inability to recruit or retain suitable international distributors could also
have a material adverse effect on our business, financial condition and results
of operations. We intend to contract with one or more established market leaders
in the radioisotope business to inventory, calibrate, test and deliver the
radiation sources and to provide related licensing assistance, customer support
and recovery services to hospitals in both the United States and international
markets. If we are unable to enter into and maintain such distribution
agreements with suitable international distributors on acceptable terms, our
business, financial condition and results of operations could be materially
adversely affected.
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LIMITED MANUFACTURING EXPERIENCE; SCALE-UP RISK
To date, we have not yet successfully commercialized the Beta-Cath System,
and our manufacturing activities have consisted of producing small quantities of
our products for use in clinical trials and our initial product launch in
Europe. To achieve profitability, the Beta-Cath System must be manufactured in
commercial quantities in compliance with regulatory requirements and at
acceptable costs. Production in commercial quantities will require us to expand
our manufacturing capabilities and to hire and train additional personnel. We
have no experience in manufacturing our products in commercial quantities. We
may encounter difficulties in scaling up production, including problems
involving production yields, quality control and assurance, component supply and
shortages of qualified personnel. Difficulties encountered in manufacturing
scale up could have a material adverse effect on our business, financial
condition and results of operations. We cannot assure that future manufacturing
difficulties, which could have a material adverse effect on our business,
financial condition and results of operations, will not occur.
RISK OF INADEQUATE FUNDING
We anticipate that our losses will continue through at least the year 2000
as we expend substantial resources to fund clinical trials in support of
regulatory approvals, continue development of the Beta-Cath System and launch
our product first in Europe and then in the United States. Our future liquidity
and capital requirements will depend upon numerous factors, including:
- the progress of our clinical research and product development programs;
- the receipt of and the time required to obtain regulatory approvals and
clearances;
- the resources required to gain approvals;
- the resources we devote to the development, manufacture and marketing of
the Beta-Cath System;
- the resources required to hire and develop a direct sales force in the
United States and the key markets in Europe and develop distributors in
other markets;
- the resources needed to expand manufacturing capacity and facilities
requirements; and
- market acceptance and demand for the Beta-Cath System.
We may in the future seek to raise additional funds through bank
facilities, debt or equity offerings or other sources of capital. We believe
that our existing capital resources will be sufficient to fund the company
through 1999, but those resources may prove insufficient. We cannot assure that
additional financing, if required, will be available on satisfactory terms, or
at all.
DEPENDENCE ON KEY PERSONNEL
Our business and future operating results depend in significant part upon
the continued contributions of our key technical personnel and senior
management, many of whom would be difficult to replace. Our business and future
operating results also depend in significant part upon our ability to attract
and retain qualified management, manufacturing, technical, marketing, sales and
support personnel for our operations. Competition for such personnel is intense,
and we may not succeed in attracting or retaining such personnel. The loss of
key employees, the failure of any key employee to perform adequately or our
inability to attract and retain skilled employees, as needed, could materially
adversely affect our business, financial condition and results of operations.
ISSUANCE OF PREFERRED STOCK MAY ADVERSELY AFFECT RIGHTS OF COMMON
SHAREHOLDERS OR DISCOURAGE A TAKEOVER
Under our amended and restated articles of incorporation, our board of
directors has the authority to issue up to 5,000,000 shares of preferred stock
and to determine the price, rights, preferences and privileges of those shares
without any further vote or action by our shareholders. The rights of the
holders of common stock will be subject to, and may be adversely affected by,
the rights of the holders of any shares of preferred stock that may be issued in
the future.
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In October 1996 our board of directors authorized 1,000,000 shares of
Series A Participating Preferred Stock in connection with its adoption of a
shareholder rights plan, under which we issued rights to purchase Series A
Participating Preferred Stock to holders of the common stock. Upon certain
triggering events, such rights become exercisable to purchase common stock (or,
in the discretion of our board of directors, Series A Participating Preferred
Stock) at a price substantially discounted from the then current market price of
the common stock. Our shareholder rights plan could generally discourage a
merger or tender offer involving our securities that is not approved by our
board of directors by increasing the cost of effecting any such transaction and,
accordingly, could have an adverse impact on shareholders who might want to vote
in favor of such merger or participate in such tender offer.
While we have no present intention to authorize any additional series of
preferred stock, such issuance, while providing desirable flexibility in
connection with possible acquisitions and other corporate purposes, could also
have the effect of making it more difficult for a third party to acquire a
majority of our outstanding voting stock. The preferred stock may have other
rights, including economic rights senior to the common stock, and, as a result,
the issuance thereof could have a material adverse effect on the market value of
the common stock.
OTHER PROVISIONS DISCOURAGING A TAKEOVER
The amended and restated articles of incorporation provide for a classified
board of directors, the existence of which could discourage attempts to acquire
us. Furthermore, we are subject to the anti-takeover provisions of the Florida
Business Corporation Act, the application of which would also have the effect of
delaying or preventing a merger, takeover or other change of control of the
company and therefore could discourage attempts to acquire the company.
PRICE VOLATILITY AND FLUCTUATIONS IN OPERATING RESULTS
The market price of our common stock could decline below the public
offering price. Specific factors relating to our business or broad market
fluctuations may materially adversely affect 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 operating results,
announcements of technological innovations, new products or clinical data
announced by us or our competitors, governmental regulatory action, developments
with respect to patents or proprietary rights, general conditions in the medical
device or cardiovascular device industries, changes in earnings estimates by
securities analysts, 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
device companies and which have often been unrelated to the operating
performance of such companies. Our revenue or operating results in future
quarters may be below the expectations of securities analysts and investors. In
such an event, the price of our common stock would likely decline, perhaps
substantially. During the twelve month period ended February 8, 1999, the
closing price of our common stock ranged from a high of $31.81 per share to a
low of $11.00 per share and ended that period at $23.69 per share.
In addition, our results of operations may fluctuate significantly from
quarter to quarter and will depend upon numerous factors, including product
development efforts, actions relating to regulatory and reimbursement matters,
progress and costs related to clinical trials, the extent to which our products
gain market acceptance, and competition. These factors may cause the price of
our stock to fluctuate, perhaps substantially.
27
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SIGNATURES
Pursuant to the requirements of Section 13 or 15 (d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized, on February 22, 1999.
NOVOSTE CORPORATION
By: /s/ David N. Gill
-----------------------
David N. Gill
Chief Operating Officer and Chief
Financial Officer (Principal Financial
and Accounting Officer)
