<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
For the quarterly period ended March 31, 1997
Commission file number 000-23266
UroMed Corporation
-------------------
(Exact name of registrant as specified in its charter)
Massachusetts 04--3104185
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
64 A Street, Needham, Massachusetts 02194
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(Address of principal executive offices)
(617) 433-0033
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(Registrant's telephone number, including area code)
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 filing requirements for the past 90 days.
YES X NO
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Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date:
26,548,608 shares of Common stock, no par value, outstanding at April 30, 1997
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UROMED CORPORATION
FORM 10-Q
For the quarterly period ended March 31, 1997
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE NO.
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Part I--FINANCIAL INFORMATION
Item 1. Financial Statements
Balance Sheet at March 31, 1997 and December 31, 1996 3
Statement of Operations for the three months ended March 31, 1997 and 1996 4
Statement of Cash Flows for the three months ended March 31, 1997 and 1996 5
Notes to Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 7-10
Part II--OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 10
Signatures 11
</TABLE>
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Part I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
UROMED CORPORATION
BALANCE SHEET
(In thousands, except share data)
(unaudited)
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1997 1996
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<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents $ 39,545 $ 45,556
Short-term investments 54,096 56,082
Accounts receivable, net 1 70
Inventories 666 587
Prepaid expenses and other assets 1,224 1,254
--------- ------------
Total current assets 95,532 103,549
Fixed assets, net 6,324 3,962
Other assets 2,878 2,977
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$104,734 $110,488
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---------- ------------
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable $ 2,098 $ 713
Accrued expenses 5,691 4,216
Deferred revenue 357 607
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Total current liabilities 8,146 5,536
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Convertible subordinated notes 69,000 69,000
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Stockholders' equity:
Preferred stock, $.01 par value; 500,000 shares authorized;
none issued -- --
Common stock, no par value; 50,000,000 shares authorized;
26,493,367 and 26,446,257 shares issued and outstanding
at March 31, 1997 and December 31, 1996, respectively 106,739 106,739
Additional paid-in capital 769 753
Net unrealized gain (loss) on investments available-for-sale (95) (31)
Deferred compensation (200) (215)
Accumulated deficit (79,625) (71,294)
--------- ------------
Total stockholders' equity 27,588 35,952
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$104,734 $110,488
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</TABLE>
The accompanying notes are an integral part of the financial statements.
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ITEM 1. FINANCIAL STATEMENTS (CONTINUED)
UROMED CORPORATION
STATEMENT OF OPERATIONS
(In thousands, except per share data)
(unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
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1997 1996
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<S> <C> <C>
Revenues................................................................. $ 263 $ 658
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Costs and expenses:
Cost of revenues....................................................... 1,001 1,330
Research and development............................................... 2,308 1,759
Marketing and sales.................................................... 4,136 1,008
General and administrative............................................. 1,416 540
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Total costs and expenses............................................. 8,861 4,637
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Loss from operations..................................................... (8,598) (3,979)
Interest income.......................................................... 1,302 840
Interest expense......................................................... (1,035) --
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Net loss................................................................. $ (8,331) $ (3,139)
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Net loss per share....................................................... $ (.31) $ (.13)
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Weighted average common shares outstanding............................... 26,489 23,981
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</TABLE>
The accompanying notes are an integral part of the financial statements.
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Item 1. Financial Statements (continued)
UROMED CORPORATION
STATEMENT OF CASH FLOWS
(In thousands)
(unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
-----------------------------------
1997 1996
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INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS
- ------------------------------------
<S> <C> <C>
Cash flows from operating activities:
Net loss.......................................... $(8,331) $ (3,139)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization................... 434 147
Issuance of stock options for services.......... 15 --
Changes in assets and liabilities:
Decrease (increase) in accounts receivable.... 69 (55)
Increase in inventories....................... (79) (257)
Decrease (increase) in prepaid expenses and
other assets................................ 30 (478)
Increase in accounts payable and accrued
expenses.................................... 2,860 793
Decrease in deferred revenue.................. (250) (125)
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Net cash used in operating activities....... (5,252) (3,114)
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Cash flows from investing activities:
Sales (purchases) of short-term investments,
net.............................................. 1,923 (8,255)
Purchases of fixed assets......................... (2,682) (496)
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Net cash used in investing activities....... (759) (8,751)
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Cash flows from financing activities:
Principal payments on capital lease
obligations...................................... -- (6)
Proceeds from issuance of common stock, net of
issuance costs................................... -- 29
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Net cash provided by financing activities... 0 23
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Net decrease in cash and cash equivalents........... (6,011) (11,842)
Cash and cash equivalents, beginning of
period............................................ 45,556 18,165
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Cash and cash equivalents, end of period............ $39,545 $ 6,323
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Supplemental disclosure of cash flow information:
Interest paid................................. $ -- $ --
</TABLE>
The accompanying notes are an integral part of the financial statements.
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ITEM 1. FINANCIAL STATEMENTS (CONTINUED)
UROMED CORPORATION
NOTES TO FINANCIAL STATEMENTS
(unaudited)
1. NATURE OF BUSINESS
UroMed Corporation (the "Company"), a Massachusetts corporation, was
incorporated in October 1990 to develop, manufacture and market products for
the management of urological and gynecological disorders.
2. BASIS OF PRESENTATION
The balance sheet at March 31, 1997 and statements of operations and of cash
flows for the three months ended March 31, 1997 and 1996 are unaudited. In
the opinion of management, all adjustments necessary for a fair presentation
of these financial statements have been included. Such adjustments consisted
only of normal recurring items. Interim results are not necessarily
indicative of results for a full year.
The financial statements should be read in conjunction with the Company's
audited financial statements and related notes for the year ended December
31, 1996 which may be found in the Company's 1996 Annual Report on Form 10K.
3. INVENTORIES
Inventories are stated at the lower of cost or market, cost being determined
using the first-in, first-out method. At March 31, 1997, inventories
consisted of the following (in thousands):
Raw materials....................................... $ 366
Work in process..................................... 86
Finished goods...................................... 214
-----------
$ 666
-----------
-----------
4. NET LOSS PER SHARE
Net loss per share is determined by dividing net loss by the weighted average
number of common shares outstanding during the period. All common stock
equivalent shares from stock options have been excluded from the calculation
of weighted average number of common shares outstanding since their inclusion
would be antidilutive.
5. RECENTLY ENACTED ACCOUNTING STANDARDS
In February 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 128, "Earnings Per Share". The
provisions of this statement are required to be adopted by the Company during
the fourth quarter of 1997. The adoption of this statement will not have any
effect on earnings per share.
6. SUBSEQUENT EVENT
On April 7, 1997, the Company acquired the product line, all associated
license rights and all other rights of Johnson & Johnson Medical, Inc. and
certain of its affiliates to the INTROL-Registered Trademark- Bladder Neck
Support Prosthesis. The INTROL Bladder Neck Support Prosthesis is a patented
intravaginal device which is designed to elevate the bladder neck to its
normal anatomical position, simulating the effect of bladder neck suspension
surgery.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
The Company is focused on the development, manufacture and marketing of
products for the management of urological and gynecological disorders. The
Company's first three products, the Reliance-Registered Trademark- Insert,
the Impress-TM- Softpatch and the recently acquired INTROL-Registered
Trademark- Bladder Neck Support Prosthesis are intended for the management of
certain types of female urinary incontinence ("UI").
The Reliance Insert was cleared by the U.S. Food and Drug Administration
("FDA") for marketing in the United States in August 1996. The Reliance
Insert is a small, prescription, balloon-tipped, single-use plug designed to
be inserted in the urethra and inflated to block the flow of urine from the
bladder to the urethra. The Company has completed its manufacturing and
marketing scale-up and began the first phase of the commercial launch of the
Reliance Insert in the United States in November 1996. The Company expects
commercialization of the Reliance Insert to continue in 1997. The Reliance
Insert is also commercially available through the Company's European
distributors in Germany, the United Kingdom, Finland, Norway, Sweden,
Denmark, France and The Netherlands.
The Impress Softpatch was cleared by the FDA for marketing in the United
States in May 1996. The Impress Softpatch is a small, prescription,
disposable adhesive patch designed to be placed externally against the
urinary opening to block the leakage of urine in mild to moderate UI
patients. The Company is developing the commercial manufacturing process for
the Impress Softpatch and also developing a marketing plan for the commercial
launch of the Impress Softpatch in the United States, which is currently
expected to occur in late 1997 or early 1998.
On April 7, 1997, the Company acquired the product line, all associated
license rights and all other rights of Johnson & Johnson Medical, Inc. and
certain of its affiliates to the INTROL Bladder Neck Support Prosthesis. The
INTROL Bladder Neck Support Prosthesis, cleared for marketing in the U.S. by
the FDA in May of 1995, is a patented intravaginal device which is designed
to elevate the bladder neck to its normal anatomical position, simulating the
effect of bladder neck suspension surgery. The Company's initial priority
will be to service the small group of physicians who have been trained and
were involved in the limited post-clearance work on INTROL. The Company
expects that this phase will be followed by a broader launch to healthcare
practitioners which is currently expected to occur later in 1997. In the
short term, the Company expects a modest financial contribution by adding
INTROL to its product line.
RESULTS OF OPERATIONS
The Company's revenues decreased by 57% to $0.3 million from $0.7 million in
the first quarter of 1997 compared to the first quarter of 1996. This net
decrease consisted primarily of a decrease of $0.5 million in stocking
shipments of the Reliance Insert product to the Company's European
distributors, partially offset by an increase of $0.1 million in recognition
of deferred revenue from a portion of the advance payments received upon the
signing of European distributorship agreements and a minimal amount of U.S.
sales of the Reliance Insert.
The Company had no sales of the Reliance Insert to its European distributors
in the first quarter of 1997 due to their having adequate initial stocking
levels already in place. The Company expects that international sales of the
Reliance Insert will be minimal for the remainder of 1997 due to
distributors' expected sales volume in relation to their inventory levels.
The Company believes that international revenue will not be more than 10-15%
of expected 1997 revenue.
Sales of the Reliance Insert in the U.S. in the first quarter were minimal
due to a more modest than expected ramp-up of prescriptions by U.S.
urologists and due to the early stage of the Company's U.S. gynecology launch
phase. As of March 31, 1997 the Company had more than 1,500 physicians
trained to prescribe the Reliance Insert. In late February 1997, the Company
commenced the gynecological training phase and initiated a public relations
campaign to patients and physicians. With this start, the Company believes
that its patient numbers will increase and will contribute to product revenue
growth. Since the Company believes that demand for the Reliance Insert will
be patient driven, it believes that sales of the Reliance Insert in the U.S.
will be immaterial until execution of this phase has been completed. The
Company believes that results to date illustrate the importance of continuing
with its plans for (1) training gynecologists, (2) reaching consumers, (3)
achieving reimbursement and (4) offering physicians, patients and managed
care providers a wider range of expanded treatment options. The Company
believes that each of these elements will be important to the success of its
continence care program, and it believes that it will see progress on these
fronts over the course of 1997, which, if such progress occurs, the Company
believes will position the Company to begin generating greater revenues in the
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second half of 1997 and substantially greater revenues in 1998. There can be
no assurance that these plans will continue to be the most effective strategy
to attain product revenue growth.
Cost of revenues decreased by 23% to $1.0 million from $1.3 million in the
first quarter of 1997 compared to the first quarter of 1996. This decrease
was due to significantly lower variable product cost due to lower sales
during the first quarter of 1997, but approximately the same level of
manufacturing related overhead costs in the first quarter of 1997 as in the
1996 period. Cost of revenues significantly exceeded product revenue for the
1996 and 1997 periods due to the current level of variable product costs as
well as the Company's manufacturing-related overhead costs, relative to the
low start-up volume of production in the periods. The Company expects
negative or low gross margins for the near term and, accordingly, has
considered this in its valuation of inventory. There can be no assurance that
the Company will ever realize sufficient production volumes or otherwise
reduce its manufacturing costs in order to raise gross margins. The Company
anticipates increased expenditures in manufacturing and research and
development as it continues with the process development and scale-up for the
Impress Softpatch. In addition, the Company expects to increase future
facilities spending in order to accommodate changes in, as well as increases
to, its manufacturing space for the Reliance Insert, the Impress Softpatch
and the INTROL Bladder Neck Support Prosthesis.
Research and development expenses increased by 28% to $2.3 million for the
first quarter of 1997 as compared to $1.8 million for the first quarter of
1996. The increase in research and development costs was primarily due to
additional engineering personnel and research projects, clinical study costs,
outside consulting services and prototype expenses incurred in the research
and development of the Impress Softpatch and potential new products for the
management of UI and other urological and gynecological disorders. For the
remainder of 1997, the Company anticipates it will continue to increase
research and development spending relating to its existing products and
potential new products, including development and clinical testing of other
urological and gynecological products as well as potential in-licensing
opportunities. In order to drive the Company's continence care efforts
forward, while continuing to strongly pursue important non-continence male
and female healthcare initiatives, the Company added to and restructured its
senior management team in 1996.
Marketing and sales expenses increased by 310% to $4.1 million in the first
quarter of 1997 as compared to $1.0 million in the first
quarter of 1996. This increase was the result of expenditures incurred in
connection with both the ramp-up for the U.S. launch of the Reliance Insert,
the first phase of which began in the fourth quarter of 1996, and to the
commencement of the second phase of the U.S. launch which began in February
1997 and which involves calling on gynecologists and initiating a public
relations campaign to patients and physicians. Increases relate specifically
to hiring marketing and sales personnel, costs to initiate an advertising and
public relations campaign, sales training and market research. The Company
anticipates increased expenditures on sales and marketing in 1997 as it
continues with the commercialization of the Reliance Insert in the United
States and Europe and begins commercialization activities for the Impress
Softpatch and the INTROL Bladder Neck Support Prosthesis.
General and administrative expenses increased by 180% to $1.4 million in the
first quarter of 1997 as compared to $0.5 million in the
first quarter of 1996. This increase was primarily to support the U.S. launch
of the Reliance Insert, including hiring additional administrative personnel,
increased systems and consulting expenses and amortization of deferred
financing costs. The Company anticipates increased expenditures on general
and administrative expenditures in 1997 to support increased administrative
and systems requirements for the launch of the Reliance Insert, the Impress
Softpatch and the INTROL Bladder Neck Support Prosthesis.
Interest income increased by 63% to $1.3 million for the first quarter of
1997, as compared to $0.8 million for the first quarter of
1996. The increase was attributable to the significant increase in the
Company's interest-bearing cash equivalents and
short-term investments as a result of the issuance of the Company's 6%
Convertible Subordinated Notes due October 15, 2003
(the "Convertible Notes") in the fourth quarter of 1996, partially offset by
lower interest rates on investments in 1997.
Interest expense increased to $1.0 million in the first quarter of 1997 as a
result of the issuance of the Convertible Notes in October 1996.
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LIQUIDITY AND CAPITAL RESOURCES
At March 31, 1997, the Company had cash, cash equivalents and short-term
investments totaling $93.6 million, a decrease of $8.0 million,
or 7.9%, from $101.6 million at December 31, 1996. At March 31, 1997, the
Company's funds were invested in U.S. government obligations,
corporate debt obligations and money market funds.
Net cash used in operating activities of $5.3 million during the three months
ended March 31, 1997 was primarily a result of the net loss for
the period which was partially offset by non-cash expenses of $0.5 million.
In addition, accounts receivable decreased by $0.1
million due to minimal sales in the quarter ended March 31, 1997. Inventories
increased by $0.1 million due to the U.S. launch of the Reliance
Insert in November 1996. Prepaid expenses and other current assets did not
change significantly during the period. Accounts payable and related
accrued expenses together increased by $2.9 million primarily
as a result of interest accrued on the Convertible Notes,
conducting clinical studies and expenses incurred in the launch of the
Reliance Insert product. Deferred revenue decreased by $0.3 million due
to the recognition of revenue from a portion of the
advanced payments received upon the signing of European
distributorship agreements.
Net cash used in investing activities was $0.8 million during the three
months ended March 31, 1997. Short-term investments
decreased by $1.9 million due to a shift into investments with
shorter maturities. Fixed assets increased by $2.7 million as a result
of purchases of additional automated assembly and packaging equipment,
production molds and purchases of other machinery and equipment. At March 31,
1997, the Company has outstanding commitments of approximately $5.0 million
for the purchase of automated assembly and
packaging equipment for the Impress Softpatch and other machinery and
equipment, against which advance and milestone payments of $1.6 million have
already been made.
The Company believes that available cash, cash equivalents and short term
investments will be sufficient to meet the Company's operating expenses and
capital requirements for the foreseeable future. The Company's future
liquidity and capital requirements depend on numerous factors, including, but
not limited to, development of the Company's marketing capability, market
acceptance of the Reliance Insert, the Impress Softpatch and the INTROL
Bladder Neck Support Prosthesis, the uncertainty of medical reimbursement,
development of the Company's manufacturing capability and achieving
acceptable cost of production, the uncertain protection afforded the Company
by its intellectual property rights and/or patents relating to the Reliance
Insert, the Impress Softpatch and the INTROL Bladder Neck Support Prosthesis,
the development status of other potential products, potential acquisitions
and other potential strategic product opportunities. There can be no
assurance that the Company will not require additional financing or that, if
required, such financing will be available on terms acceptable to the Company.
FORWARD-LOOKING STATEMENTS AND ASSOCIATED RISKS
Certain statements contained in this Quarterly Report may be considered
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 (i) the planned progression of the
Company's commercialization strategies for the Reliance Insert, the Impress
Softpatch and the INTROL Bladder Neck Support Prosthesis, including the
timing and extent of initial or other sales in the United States and abroad,
(ii) the planned increases in manufacturing capacity for the Reliance Insert
and the Impress Softpatch, including the timing and extent of expenditures
needed for capital equipment and inventory production, (iii) consumer
acceptance of the use of the Reliance Insert, the Impress Softpatch and the
INTROL Bladder Neck Support Prosthesis as strategies for the self-care of UI
and the size and accessibility of the Company's target markets, (iv) the
Company's expectations regarding its research and development and
in-licensing activities, (v) the Company's planned uses for its cash and
other liquid resources and (vi) the extent of future revenues, expenses and
results of operations and the sufficiency of the Company's financial
resources to meet planned operational costs and other expenditure needs.
These forward-looking statements are based largely on the Company's
expectations and are subject to a number of risks and uncertainties, many of
which are beyond the Company's control. Actual results could differ
materially from these forward-looking statements as a result of certain
factors, including those described below:
--The uncertainty that the Reliance Insert, the Impress Softpatch and the
INTROL Bladder Neck Support Prosthesis will gain market acceptance either
among physicians or UI sufferers in the United States or in Europe and the
risk that the adverse effects experienced by some of the parties enrolled in
clinical trials of the Company's Reliance Insert, the Impress Softpatch and
the INTROL Bladder Neck Support Prosthesis will be more prevalent in
widespread consumer use of such products and that such effects will affect
the market acceptance of these products.
--The uncertainty that physicians will prescribe the Reliance Insert in
significant numbers.
- --The uncertainty that patients using the Reliance Insert will develop into
long term users of the product.
--The dependence by the Company on the success of two products, the
Reliance Insert, and the Impress Softpatch, none of which have been widely
marketed.
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--The uncertainty that the Company will be able to develop the ability to
produce commercial quantities of its products and produce such quantities at
an acceptable cost.
--The uncertainty that the Company will be able to develop an effective
sales force and implement a successful marketing plan for the Reliance
Insert, the Impress Softpatch and the INTROL Bladder Neck Support Prosthesis
in the United States.
--The Company's dependence on others for raw materials and certain
components of its products, including certain materials available only from
single sources.
--The effect of competing products and surgical and non-surgical alternative
treatments for incontinence.
--The uncertainty that the Company will be able to develop an effective
distribution network and implement a successful distribution strategy for the
Company's products in the United States, Europe and elsewhere.
--The uncertain protection afforded the Company by its patents and/or other
intellectual property rights relating to the Reliance Insert, the Impress
Softpatch and the INTROL Bladder Neck Support Prosthesis.
--The uncertainty whether the Company will be able to achieve medical
reimbursement for the Reliance Insert, the Impress Softpatch or the INTROL
Bladder Neck Support Prosthesis in the United States or in all the European
markets targeted for the Company's products.
--The uncertainty whether the Company will be able to manufacture, market
and sell its products at prices that permit it to achieve satisfactory
margins in the production and marketing of its products.
--Risks relating to FDA or other governmental oversight of the Company's
operations, including the possibility that the FDA could impose costly
additional labeling requirements on, or restrict the marketing of, the
Company's products, or suspend operations at one or more of the Company's
facilities.
Other relevant risks are described in the Company's Annual Report on Form
10-K, for the year ended December 31, 1996 under the headings
"Forward-Looking Statements and Associated Risks" and "Risk Factors" and in
Exhibit 99.1 to this Quarterly Report, which are incorporated herein by
reference.
Part II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
27 Financial Data Schedule
99.1 Updated Risk Factors
(b) Reports on Form 8-K
1. On January 31, 1997, the Company filed a current report on
Form 8-K updating certain information relating to the description
of the business of the Company.
2. On February 27, 1997, the Company filed a current report on
Form 8-K disclosing that on February 20, 1997 the Company had
issued a press release reporting the Company's results for the
fiscal quarter and year ended December 31, 1996.
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SIGNATURES
----------
Pursuant to requirements 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.
UroMed Corporation
Date: May 12, 1997 /s/ John G. Simon
------------------- ----------------------------------
John G. Simon, President and
Chief Executive Officer
Date: May 12, 1997 /s/ Paul J. Murphy
------------------- ---------------------------------
Paul J. Murphy, Treasurer
and Chief Financial Officer (Principal
Financial and Accounting Officer)
Page 11
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION FROM THE BALANCE SHEET AND
THE STATEMENT OF OPERATIONS FILED AS PART OF THE QUARTERLY REPORT ON FORM 10Q
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH QUARTERLY REPORT ON FROM
10Q.
</LEGEND>
<CIK> 0000917821
<NAME> UroMed-Corp.
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<CASH> 39,545
<SECURITIES> 54,096
<RECEIVABLES> 1
<ALLOWANCES> 0
<INVENTORY> 666
<CURRENT-ASSETS> 95,532
<PP&E> 8,047
<DEPRECIATION> 1,723
<TOTAL-ASSETS> 104,734
<CURRENT-LIABILITIES> 8,146
<BONDS> 69,000
0
0
<COMMON> 106,739
<OTHER-SE> (79,151)
<TOTAL-LIABILITY-AND-EQUITY> 104,734
<SALES> 263
<TOTAL-REVENUES> 263
<CGS> 1,001
<TOTAL-COSTS> 8,861
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (1,035)
<INCOME-PRETAX> (8,331)
<INCOME-TAX> 0
<INCOME-CONTINUING> (8,331)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (8,331)
<EPS-PRIMARY> (0.31)
<EPS-DILUTED> (0.31)
</TABLE>
<PAGE>
Exhibit 99.1
RISK FACTORS
UNCERTAINTY OF MARKET ACCEPTANCE OF THE RELIANCE INSERT, IMPRESS SOFTPATCH
AND INTROL DEVICE
Each of the Reliance Insert, the Impress Softpatch and the Introl Device
represents a new approach to managing certain types of female UI, and there
can be no assurance that any of such products will gain any significant
degree of market acceptance. The Company believes that recommendations by
physicians will be essential for market acceptance of the Reliance Insert,
the Impress Softpatch and the Introl Device, which will be marketed on a
prescription basis, and there can be no assurance that any such
recommendations, if such recommendations are forthcoming, will be followed.
_____________________________
(1)Reliance-R- is a registered trademark for the Company's balloon-tipped
device.
(2)Introl-R- is a registered trademark for the Company's intravaginal device.
-1-
<PAGE>
In addition, there can be no assurance that the Reliance Insert, the Impress
Softpatch or the Introl Device will be accepted by female UI sufferers in the
United States or abroad. The Reliance Insert must be inserted into the
urethra. Accordingly, some female UI sufferers may not be willing to use the
device. Furthermore, the Reliance Insert and the Introl Device and, to a
lesser degree, the Impress Softpatch may not be appropriate for use by UI
patients who lack sufficient dexterity or who suffer from other physical or
mental conditions that could have an impact on the safe and efficacious use of
the devices. Certain transitory adverse effects such as hematuria (incidence
of blood in the urine), urinary tract infection, device migration and
anatomical findings such as irritation of the mucosa, were evident in varying
degrees in the Company's clinical trials of the Reliance Insert. The
observation of such adverse effects in patients, or the perception that the
product could cause any such adverse effects, could have the effect of
discouraging some potential users of the Reliance Insert. The Reliance Insert,
the Impress Softpatch and the Introl Device are each patient-managed therapies
and as such patients may at any time decide to discontinue their use. During
the course of the Company's clinical trials of the Reliance Insert, a
considerable number of the patients enrolled in the trials chose to
discontinue use of the Reliance Insert prior to the end of a complete year for
a variety of reasons, including discomfort and, in some cases, urinary tract
infections, experienced while using the device. The Company expects that
patients will experience a foreign-body sensation, and in some cases,
discomfort, during acclimation and use of the product. Results of the clinical
trials of the Impress Softpatch indicated that some patients experienced
slight tissue irritation after use of that device and that 48% of the patients
were unable to report that they were completely dry when using the device.
Although the safety and efficacy of the Reliance Insert, the Impress Softpatch
and the Introl Device were each deemed to be sufficient for clearance by the
FDA, there can be no assurance that any of such products will continue to
prove to be safe and effective over the long-term and after wider use.
Finally, the pricing of the Reliance Insert, the Impress Softpatch and the
Introl Device in the United States and in many foreign markets has not yet
been finally determined, and the pricing policies of the Company and its
European distributors could adversely impact market acceptance of these
products as compared to competing products and treatments.
Any of the foregoing factors, or other factors, including the
availability or non-availability of third-party reimbursement, could limit or
detract from market acceptance of the Company's products in the United States
and abroad. Insufficient market acceptance of the Reliance Insert, the
Impress Softpatch or the Introl Device owuld have a material adverse effect
on the Company's business, financial condition and results of operations.
DEPENDENCE ON TWO PRODUCTS
The Company expects to derive substantially all of its revenues for
the next several years from sales of the Reliance Insert and the Impress
Softpatch. The Company's failure to commercialize successfully both of these
products would have a material adverse effect on the Company's business,
financial condition and results of operations. The Company does not expect
that commercialization of other new products will be feasible without a
substantial, continuing commitment to research and development for an
extended period of time or acquisitions of new properties, or both. Also, the
development of any new products may require that such products will be
subject to clinical trials and regulatory clearance or approval before
commercialization. There can be no assurance as to whether or when
commercialization of other products might begin or as to the likelihood that
any such initiative would be successful.
LIMITED MANUFACTURING CAPABILITY AND EXPERIENCE
The Company has limited experience in manufacturing commercial
quantities of its Reliance Insert and has not manufactured significant
quantities of any other products, including the Impress Softpatch and has not
yet manufactured the Introl Device. In addition, the Company is currently
unable, due in part to the current volume of production, to manufacture
Reliance Inserts at a cost below the price at which such products are
currently being sold to the Company's European distributors and domestic
customers. In order to successfully commercialize the Reliance Insert in the
United States and abroad, the Company will have to reduce per-unit
manufacturing costs while maintaining the extremely high quality standards
required. In addition, the Company may have to increase its manufacturing
capacity to support expected demand for the Reliance Insert generated by
sales to direct customers in the United States and sales to the Company's
distributors in Europe during the second half of 1997. Moreover, in the event
that demand for the Reliance Insert is greater than expected, the Company may
not be able to develop additional manufacturing capacity to produce
quantities of the Reliance Insert sufficient to supply such requirements in a
timely fashion. In the event that the Company's planned expansion of its
manufacturing capacity is delayed for any reason due to problems encountered
during such expansion, the Company may be unable to produce quantities of the
Reliance Insert to fulfill its commitments to its European distributors or
the demand of the United States market. The Company has not yet developed any
capacity to manufacture the Impress Softpatch or the Introl Device, and has
not yet been able to demonstrate that it will be able to manufacture the
Impress Softpatch or the Introl Device or to develop such capacity on a
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cost-effective basis. Even if the Company does develop such capacity, it may
not be able to develop sufficient capacity to produce the quantities of the
Impress Softpatch or the Introl Device that may be required to support sales
of either. In order to develop sufficient additional manufacturing capacity,
the Company will have to make substantial capital expenditures on additional
units of the Company's automated assembly equipment for the Reliance Insert
and new equipment to manufacture the Impress Softpatch, and expand the
Company's existing manufacturing facility into space currently used for other
functions, or acquire additional manufacturing space at other locations. In
the event that the Company is unable to manufacture sufficient quantities of
the Reliance Insert, the Impress Softpatch or the Introl Device to support
its obligations under its European marketing and sales agreements and
ultimately to support sales in the United States, the Company may be required
to enter into arrangements with third parties to manufacture these products.
These other manufacturers may not be able to manufacture the Reliance Insert,
Impress Softpatch or the Introl Device on commercially acceptable terms or in
quantities sufficient to permit the successful commercialization of such
products.
DEPENDENCE ON OTHERS FOR COMPONENTS AND RAW MATERIALS
Certain of the raw materials for the manufacture of the Reliance Insert
and the Impress Softpatch are available only from single sources, and certain
of the components of the Reliance Insert are manufactured by third parties.
Interruptions in supplies of raw materials or components of the Reliance
Insert may occur as a result of business risks particular to such suppliers
or the failure of the Company and any such supplier to agree on satisfactory
terms. Such sources may also decide for reasons beyond the control of the
Company, such as concerns about potential medical product liability risk in
general, to cease supplying such materials or components for use in medical
devices generally. In the event of such an interruption, alternative sources
of raw materials or components may be limited. The Company is currently a
party to supply agreements with only some of its key suppliers and may not be
able to obtain agreements with some of its suppliers of raw materials or
components if it so desires. In the event that the Company replaces its
current raw materials used in the Reliance Insert or Impress Softpatch with
alternative materials, such product, as modified, may require new FDA and
other regulatory approvals, and additional clinical and other testing may be
required in order to obtain such approvals. Any interruption in the supply of
raw materials currently used by the Company or any components incorporated in
the Reliance Insert, or the usage of any alternative raw materials, would
have a material adverse effect on the Company's business, financial condition
and results of operations.
LACK OF MARKETING AND SALES EXPERIENCE; DEPENDENCE ON EUROPEAN MARKETING
AND SALES AGREEMENTS
Although the FDA has cleared the Reliance Insert, the Impress Softpatch
and the Introl Device for marketing in the United States, the Company has sold
only limited amounts of the Reliance Insert in the United States and has not
sold the Impress Softpatch or the Introl Device. The Company developed a
direct marketing and sales group in the United States for its products and has
begun to commercialize the Reliance Insert internationally through marketing
and sales agreements. However, there can be no assurance that the Company has
built an effective sales force, will be able to continue to attract and retain
a qualified marketing and sales group in the United States, or otherwise
design and implement an effective marketing and sales strategy for the
Reliance Insert, the Impress Softpatch, the Introl Device or any future
product developed by the Company.
The Company believes that a portion of its future product revenue will
be derived from certain European markets including Germany, France, The
Netherlands, the United Kingdom, Sweden, Norway, Denmark and Finland. The
Company has entered into marketing and sales agreements with several European
companies providing for the marketing and sale of the Reliance Insert in
these countries on an exclusive basis. In general, pursuant to these
agreements, the Company is required to provide sufficient quantities of
Reliance Inserts for sale by its European distributors, and the Company's
European distributors are permitted to market and sell the Reliance Insert in
such countries at prices and in a manner determined by such companies. There
can be no assurance that the Company's European distributors will be able to
successfully market and sell the Reliance Insert in their respective
countries, that they will devote sufficient resources to support the market
launch of the Reliance Insert in those countries, or that they will market
the Reliance Insert at prices that will permit it to gain market acceptance
in their respective territories. In addition, these agreements impose certain
obligations upon the Company relating to delivery of commercial quantities of
the Reliance Insert, the maintenance of product liability insurance and the
clinical performance of the Reliance Insert. Failure or inability of the
Company to comply with any of these obligations under these agreements could
permit the Company's distributors to terminate their respective agreements.
In addition, there can be no assurance that each or any of these distributors
will perform its obligations under its respective agreement with the Company.
Any such termination or non-performance, or any failure by the Company's
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European distributors to effectively market the Reliance Insert in their
respective territories, will have a material adverse impact on the Company's
ability to market and sell the Reliance Insert in these territories, and
perhaps other territories, including the United States. The Company has not
entered into any distribution arrangements with respect to the Impress
Softpatch or the Introl Device for the European market or elsewhere, and does
not currently have a marketing strategy that would enable it to undertake
commercialization of the Impress Softpatch or the Introl Device in Europe on
a unilateral basis. In the event that the Company is successful in developing
satisfactory distribution arrangements in one or more European markets for
the Impress Softpatch or the Introl Device, such distribution arrangements
will be subject to risks and uncertainties similar to those of the Company's
existing relationships with respect to the Reliance Insert.
LIMITED OPERATING HISTORY; HISTORY OF LOSSES; PROFITABILITY UNCERTAIN
Since inception in October 1990, the Company has been primarily engaged
in research and development of the Reliance Insert. The Company acquired the
Impress Softpatch technology in May 1996 and acquired the product line and
associated license rights to the Introl Device in April 1997. The Company has
experienced significant operating losses since inception and, as of March
31, 1997, had an accumulated deficit of $79.6 million, including $30.2
million relating to the acquisition of the Impress Softpatch technology and
related expenses. In addition, the development and commercialization by the
Company of the Reliance Insert, the Impress Softpatch, the Introl Device and
other new products, if any, will require substantial product development
expenditures for the foreseeable future. The Company's future profitability
is dependent upon its ability to successfully commercialize these products.
There can be no assurance that the Company will generate sufficient revenue
to pay interest and principal on the Notes or to achieve continued
profitability. The Company expects its operating losses to increase over the
foreseeable future and there can be no assurance that the Company will be
profitable in the future or that the Company's existing capital resources and
any funds provided by future operations will be sufficient to fund the
Company's needs, or that other sources of funding will be available.
LACK OF DISTRIBUTION EXPERIENCE; UNCONVENTIONAL DISTRIBUTION SYSTEM
The Company has limited experience in distributing units of its products
to its ultimate consumers. In Europe, where nearly all of the sales of the
Company's products have been made to date, the Company relies on the
distribution systems of third party distributors. In addition, the
distribution system that the Company has developed in the United States is
designed as a direct-to-consumer system in which the Company expects that
most of its sales will be made over the telephone during calls originating
with the consumer, rather than in sales directly to pharmacies. These orders
would be filled directly by the Company. The Company is aware of no other
medical device manufacturer who has employed such a distribution strategy in
the United States. There can be no assurance that the Company's distribution
system, will be successful in filling orders made by the Company's customers
on a timely, accurate and cost-effective basis, or that the Company's
consumers will be willing to telephone orders to the Company directly. In
addition, as a licensed pharmacy, the Company's fulfillment center in Nashua,
New Hampshire is subject to state and federal regulation of its operations.
Any significant failure by the Company to fulfill orders for its products on
an accurate and timely basis, or otherwise to meet ongoing licensing
requirements, could result in a suspension or loss of its license and
interruption of its distribution activities, which in turn would have a
material adverse effect on the Company's business, financial condition and
results of operations.
COMPETITION AND TECHNOLOGICAL ADVANCES
The incontinence product industry is highly competitive. The Company's
ability to compete in the UI management field will depend primarily upon
physician and consumer acceptance of the Reliance Insert, the Impress
Softpatch and the Introl Device, consistency of product quality and delivery,
price, technical capability and the training of health care professionals and
consumers. Other factors within and outside the Company's control will also
affect its ability to compete, including its product development and
innovation capabilities, its ability to obtain required regulatory
clearances, its ability to protect the proprietary technology included in its
products, its manufacturing, marketing and distribution capabilities and its
ability to attract and retain skilled employees. Certain of the Company's
competitors have significantly greater financial, technical, research,
marketing, sales, distribution and other resources.
RISKS RELATING TO FDA OVERSIGHT AND OTHER GOVERNMENT REGULATION
The medical devices currently being manufactured, or proposed to be
manufactured, by the Company, including the Reliance Insert, the Impress
Softpatch and the Introl Device, and the facilities at which the Company
manufactures its products, are subject to regulation by the FDA and, in many
instances, by comparable agencies in the foreign countries in which these
devices are
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distributed and sold. Although approval to market the Reliance Insert and
clearance to market the Impress Softpatch and the Introl Device in the United
States has been granted by the FDA, the process of obtaining regulatory
approvals for the marketing and sale of any additional products, or the
modification of existing products, by the Company could be costly and
time-consuming and there can be no assurance that such approvals will be
granted on a timely basis, if at all. The regulatory process may delay the
marketing of new products for lengthy periods, impose substantial additional
costs and furnish an advantage to competitors who have greater financial
resources. Moreover, regulatory approvals for new or modified products, if
granted, may include significant limitations on the indicated uses for which
a product is marketed. In addition, the extent of potentially adverse
governmental regulations that might arise from future legislative,
administrative or judicial action cannot be determined. The final approval
granted by the FDA for marketing the Reliance Insert in the United States was
conditioned upon final labeling review, which has been completed, and an
undertaking to complete a five-year post-marketing study covering 150
patients designed to determine (i) the degree of urinary tract infection
associated with use of the device, including type and frequency of
symptomatic bacteriuria, and (ii) the long-term effect of use of the device
on urethral integrity. If the FDA were to believe that the Company is not in
compliance with applicable law and regulations, the FDA could take one or
more of the following actions: withdraw previously approved applications;
require notification to users regarding newly found, unreasonable risks;
request the repair, refund or replacement of faulty devices; request
corrective advertisements, formal recalls or temporary marketing suspension;
refuse to review or clear applications to market any of the Company's future
products in the United States or to allow the Company to enter into
government supply contracts; or institute legal proceedings to detain or
seize products, enjoin future violations or assess criminal penalties against
the Company, its officers or employees. Civil penalties for Food, Drug and
Cosmetic Act violations may be assessed by the FDA in lieu of or in addition
to instituting legal action. Any such action by the FDA could result in
disruption of the Company's operations for an indeterminate period of time.
The Company's manufacturing facility in Needham, Massachusetts, the
operations conducted there, and any future manufacturing facilities developed
or acquired by the Company and any operations conducted there are subject to
on-going inspections by the FDA. The Company registered the facility with the
FDA in connection with its Pre-Market Approval application for the Reliance
Insert and FDA representatives inspected the facility and operations prior to
granting approval of such application. Although the Company's facility passed
inspection in connection with this approval, as a registered manufacturing
facility subject to "Good Manufacturing Practices" ("GMP"), this facility is
subject to future inspections no less frequently than once every two years.
Any revocation of the Company's approval for marketing either the Reliance
Insert, the Impress Softpatch or the Introl Device, or any material product
recall or loss of certification of the Company's manufacturing facility,
would have a material adverse effect on the Company's business, financial
condition and results of operations. The Company is also subject to
regulation under federal, state and local regulations regarding maintenance
of a licensed pharmacy, work place safety, environmental protection and
hazardous and controlled substance controls, among others. The Company
cannot predict the extent of government regulations or impact of new
government regulations which might have an adverse effect on the production
and marketing of the Company's products.
RISK OF INADEQUATE FUNDING; FUTURE CAPITAL FUNDING
The Company plans to continue to expend substantial funds on expansion
of its manufacturing facilities or acquisition of additional manufacturing
facilities, marketing and distribution of its products, research and product
development and pursuit of regulatory approvals. The Company also intends to
invest in additional equipment in order to establish sufficient manufacturing
capabilities to supply commercial volumes of its Reliance Insert and
Impress Softpatch in the United States and abroad. Changes in technology or
sales growth beyond currently contemplated manufacturing capabilities will
require further capital investment. There can be no assurance that the
Company's existing capital resources and any funds generated from future
operations will be sufficient to finance any required investment or pay
interest and principal of the Notes or that other sources of funding will be
available. In addition, future sales of substantial amounts of the Company's
securities in the public market could adversely affect prevailing market
prices and could impair the Company's future ability to raise capital through
the sale of its securities.
UNCERTAINTY REGARDING PATENTS AND PROTECTION OF PROPRIETARY TECHNOLOGY
The Company's ability to compete effectively will depend, in part, on
its ability to develop and maintain proprietary aspects of its technology.
There can be no assurance as to the validity of the United States patents
held by the Company with respect to the technology underlying the Reliance
Insert, the validity of the United States patents with respect to the
technology underlying the Impress Softpatch, or as to the degree of protection
offered by these patents. There can be no assurance that the Company's
patents will not be challenged, invalidated or circumvented in the future. In
addition, there can be no assurance that competitors, many of which have
substantial resources and have made substantial investments in
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competing technologies, will not seek to apply for and obtain patents that
will prevent, limit or interfere with the Company's ability to make, use and
sell its products either inside or outside the United States. The defense and
prosecution of patent litigation or other legal or administrative proceedings
related to patents is both costly and time-consuming, even if the outcome is
favorable to the Company. During the pendency of any such proceedings, the
Company may be restrained, enjoined or otherwise limited in its ability to
make, use or sell a product incorporating the patents or technology that are
the subject of such claim, which would have a material adverse effect on the
Company's business, financial condition and results of operations. An adverse
outcome in any such proceeding could subject the Company to significant
liabilities to third parties, require disputed rights to be licensed from
others or require the Company to cease making, using or selling any products.
There can be no assurance that any licenses required under any patents or
proprietary rights would be made available on terms acceptable to the
Company, if at all.
The Company also relies on unpatented proprietary technology and there
can be no assurance that others may not independently develop the same or
similar technology or otherwise obtain access to the Company's unpatented
proprietary technology. In addition, the Company cannot be certain that
others will not independently develop substantially equivalent or superseding
proprietary technology, or that an equivalent product will not be marketed in
competition with the Company's products, thereby substantially reducing the
value of the Company's proprietary rights. There can be no assurance that any
confidentiality agreements between the Company and its employees or
consultants will provide meaningful protection for the Company's trade
secrets, know-how or other proprietary information in the event of any
unauthorized use or disclosure of such trade secrets, know-how or other
proprietary information. Finally, there can be no assurance that the
Company's Reliance trademark, the Company's Introl trademark or any
trademarks registered for the Impress Softpatch will provide meaningful
protection.
PRODUCT LIABILITY RISK; LIMITED INSURANCE COVERAGE
The manufacture and sale of medical products and the conduct of clinical
trials using new technology entail the risk of product liability claims.
There can be no assurance that the Company's existing insurance coverage
limits are adequate to protect the Company from any liabilities which it
might incur in connection with the clinical trials of the Company's Reliance
Insert, the commercialization of the Reliance Insert in the United States and
in Europe or the contemplated commercialization of the Impress Softpatch or
the Introl Device. Such insurance is expensive and in the future may not be
available on acceptable terms, if at all. A successful product liability
claim or series of product liability claims brought against the Company in
excess of its insurance coverage would have a material adverse effect on the
Company's business, financial condition and results of operations. In
addition, any claims, even if not ultimately successful, could adversely
affect the market acceptance of the Company's products.
DEPENDENCE ON KEY PERSONNEL
The Company is dependent upon a number of key scientific and management
personnel (most of whom do not have employment agreements providing for a
fixed term of employment). The loss of the services of one or more key
individuals would have a material adverse effect on the Company's business,
financial condition and results of operations. The Company's success will
also depend on its ability to attract and retain other highly qualified
scientific and management personnel. The Company faces competition for such
personnel and there can be no assurance that the Company will be able to
attract or retain such personnel.
UNCERTAINTY RELATING TO THIRD-PARTY REIMBURSEMENT
In the United States and many foreign countries, third-party
reimbursement is currently generally available for surgical procedures for
incontinence, but generally unavailable for patient-managed products such as
diapers and pads. As part of its near-term marketing plan in the United
States, the Company does not believe it will obtain government or private
insurance reimbursement for its Reliance Insert, Impress Softpatch or Introl
Device and that the prospect of substantial third-party reimbursement for any
of such devices in the United States may be difficult. In Europe, the Company
and its European distributors have agreed to adopt a strategy of pursuing
reimbursement for the use of the Reliance Insert in each of their respective
territories where it is appropriate. The availability of third-party
reimbursement for the Reliance Insert in Europe varies from country to
country. While the Company has received notice that full reimbursement for
the use of the Reliance Insert will be provided by the relevant German,
Swedish and Norwegian governmental authorities and by certain authorities
covering
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much of Denmark and Finland, it is unclear whether reimbursement will be
available for the Reliance Insert in the remainder of Denmark or Finland, or
whether reimbursement will be available for the Reliance Insert in France,
The Netherlands or the United Kingdom. It is also unclear whether or not such
reimbursement approvals that the Company has received may at some point in
the future be reversed. The Company has not yet established a strategy with
respect to seeking reimbursement for the Impress Softpatch outside of the
United States. In addition, the Company has not yet established a strategy
with respect to seeking reimbursement for the Introl Device inside or outside
of the United States. If third-party reimbursement is unavailable in the
relevant European country or in the United States, consumers will have to pay
for the Reliance Insert, Impress Softpatch or Introl Device themselves,
resulting in greater relative out-of-pocket cost of such therapies as
compared to surgical procedures and other management options for which
third-party reimbursement is available. Changes in the availability of
third-party reimbursement for the Reliance Insert, Impress Softpatch or
Introl Device, for products of the Company's competitors or for surgical
procedures may affect the pricing of the Company's products or the relative
cost to the consumer. The Company is not able to predict the effect that the
availability or unavailability of third-party reimbursement for the Reliance
Insert, Impress Softpatch or Introl Device may have on the commercialization
of such products abroad or in the United States.
INTERNATIONAL SALES AND OPERATIONS RISKS
The Reliance Insert is currently being marketed and sold by the
Company's European distributors in Germany, Sweden, Denmark, Norway, The
Netherlands, the United Kingdom and Finland and the Company intends to sell
the Reliance Insert in France through its French distributor. International
sales and operations may be limited or disrupted by the imposition of
government controls, export license requirements, political instability,
trade restrictions, changes in tariffs or difficulties in staffing and
managing international operations. Foreign regulatory agencies often
establish product standards different from those in the United States and any
inability to obtain foreign regulatory approvals on a timely basis would have
an adverse effect on the Company's international business and its financial
condition and results of operations. Additionally, the Company's business,
financial condition and results of operations may be adversely affected by
fluctuations in currency exchange rates as well as increases in duty rates
and difficulties in obtaining export licenses. International sales of the
Reliance Insert in the fourth quarter of 1996 were lower than expected and
the Company expects that international sales of the Reliance Insert will be
minimal for at least the first half of 1997. There can be no assurance that
the Company will be able to successfully commercialize the Reliance Insert,
the Impress Softpatch or Introl Device or any future product in any foreign
market.
VOLATILITY OF MARKET PRICES
The market price of the Common Stock and Notes may be highly volatile.
Factors such as quarter-to-quarter variations in the Company's operations or
financial performance and announcements of technological innovations or new
products, results of clinical trials or other regulatory or reimbursement
events by the Company or its competitors or any of its or their regulators
could cause the market price of the Common Stock or Notes to fluctuate
significantly. In addition, in recent years the stock markets in general, and
the market prices for medical technology companies in particular, have
experienced significant volatility, which often may have been unrelated to
the operating performance of the affected companies. Such volatility may
adversely affect the market price of the Common Stock or Notes.
CERTAIN CHARTER AND BY-LAW PROVISIONS MAY AFFECT MARKET PRICES
The Company's Restated Articles of Organization and the Company's
Amended and Restated By-Laws contain provisions that may have the effect of
making it more difficult for a third party to acquire control of, or of
discouraging acquisition bids for, the Company. This could limit the price
that certain investors might be willing to pay in the future for shares of
Common Stock or the Notes. See "Description of Capital Stock."
CERTAIN MASSACHUSETTS LAWS MAY AFFECT MARKET PRICES
Certain Massachusetts laws contain provisions that may have the effect
of making it more difficult for a third party to acquire control of, or of
discouraging acquisition bids for, the Company. These laws include Chapter
110F of the Massachusetts General Laws, which prohibits certain "business
combinations" with "interested stockholders," and Chapter 110D, entitled
"Regulation of Control Share Acquisitions." These provisions could limit the
price that certain investors might be willing to pay in the future for shares
of Common Stock or the Notes. See "Description of Capital Stock."
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EFFECT OF ISSUANCE OF PREFERRED STOCK
Shares of preferred stock may be issued in the future without further
stockholder approval and upon such terms and conditions, and having such
rights, privileges and preferences, as the Board of Directors may determine.
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 preferred stock that
may be issued in the future. In addition, the issuance of preferred stock
could have the effect of making it more difficult for a third party to
acquire control of, or of discouraging acquisition bids for, the Company.
This could limit the price that certain investors might be willing to pay in
the future for shares of Common Stock or the Notes. See "Description of
Capital Stock."
ABSENCE OF TRADING MARKET; TRANSFER RESTRICTIONS
There is no existing trading market for the Notes and there can be no
assurance as to the liquidity of any such market that may develop, the
ability of the holders of Notes to sell such securities, the price at which
the holders of Notes would be able to sell such securities or whether a
trading market, if it develops, will continue. If such a market were to
exist, the Notes could trade at prices higher or lower than their principal
amount depending on many factors, including prevailing interest rates, the
market for similar securities and the operating results of the Company. Each
purchaser of Notes offered hereby in making its purchase will be deemed to
have made certain acknowledgments, representations and agreements. Transfers
of Notes and Common Stock issuable upon conversion of the Notes are subject
to certain restrictions.
CONCENTRATION OF OWNERSHIP
As of December 31, 1996, directors and officers of the Company and their
affiliates owned approximately 24% of the outstanding Common Stock
(including options to purchase Common Stock exercisable within 60 days of
such date). As a result, such persons have the ability to assert significant
influence over the Company and the direction of its affairs and business.
ABSENCE OF DIVIDENDS
The Company has not paid cash dividends and does not anticipate doing so
for the foreseeable future. See "Price Range of Common Stock and Dividend
Policy."
SHARES AVAILABLE FOR FUTURE SALE
The future sale of shares of the Company's Common Stock could have an
adverse effect on the market price of the Common Stock or the Notes. Not
including the registration statement related to this Prospectus, the Company
currently has two effective registration statements on file with the
Securities and Exchange Commission initially covering the resale of up to an
aggregate of 8,519,538 shares of Common Stock held by certain current
shareholders of the Company. Of these 8,519,538 shares, 6,184,512 shares are
covered by a registration statement which was declared effective in October
1995 registering shares of Common Stock held by 73 holders. These shares,
representing shares of Common Stock issued upon the conversion of the
Company's previously outstanding convertible preferred stock, were registered
at the request of the holders of such shares. All of these shares, with the
exception of 1,641,257 shares held by an affiliate of the Company, may be sold
currently under Rule 144(k) under the Securities Act without regard to volume
or other limitations. The remaining 2,335,026 shares, which were issued to the
former shareholders of Advanced Surgical Intervention, Inc. in connection with
the acquisition of the Impress Softpatch technology in May 1996, are covered
by a registration statement which was declared effective in June 1996. These
shares are held by approximately 273 holders, with the largest number of
shares held by any single holder thereunder being approximately 252,000
shares. The Company believes that many of the shares covered by these
registration statements have been sold in the open market prior to the date
hereof. All of the shares covered by these registration statements are freely
tradeable in the open market without volume limitations. As of December 31,
1996 the Company also had options outstanding to purchase an aggregate of
1,546,858 shares of Common Stock and had an additional 1,064,720 shares of
Common Stock reserved for issuance of options which may be granted and
exercised under the Company's existing employee benefit plans. Any shares of
Common Stock issued upon the exercise of such outstanding options or any
options granted in the future will be, upon issuance, freely tradeable on the
open market, subject in some cases to the volume limitations imposed by Rule
144 under the Securities Act. As of December 31, 1996, the Company had
reserved 5,195,391 shares of Common Stock for issuance upon conversion of the
Notes.
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