In
this report, “Stereotaxis”, the “Company”, “Registrant”, “we”, “us”, and
“our” refer to Stereotaxis, Inc. and its wholly owned subsidiaries. Genesis RMN®, Niobe®, Navigant®,
Odyssey®, Odyssey Cinema™, Vdrive®, Vdrive Duo™, V-CAS™,
V-Loop™, V-Sono™, QuikCAS™ and Cardiodrive® are trademarks of Stereotaxis,
Inc. All other trademarks that appear in this report are the property of their respective owners.
FORWARD-LOOKING
STATEMENTS
This
annual report on Form 10-K, including the sections entitled “Business” and “Management’s Discussion and Analysis
of Financial Condition and Results of Operations,” contains forward-looking statements. These statements relate to, among other
things:
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our
business, operating, sales and marketing, and regulatory strategies; |
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our
value proposition; |
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the
impact of the coronavirus (“COVID-19”) pandemic and our responses to it; |
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our
overall liquidity and our ability to fund operations; |
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our
ability to convert backlog to revenue; |
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the
ability of physicians to perform certain medical procedures with our products safely, effectively and efficiently; |
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the
adoption of our products by hospitals and physicians; |
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the
market opportunity for our products, including expected demand for our products; |
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the
timing and prospects for regulatory approval of our additional disposable interventional devices; |
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the
success of our business partnerships and strategic relationships; |
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our
industry generally, and overall economic conditions; |
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our
estimates regarding our capital requirements; |
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our
plans for hiring additional personnel; and |
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any
of our other plans, objectives, expectations and intentions contained in this annual report that are not historical facts. |
These
statements relate to future events or future financial performance, and involve known and unknown risks, uncertainties, and other factors
that may cause our actual results, levels of activity, performance or achievements to be materially different from any future results,
levels of activity, performance or achievements expressed or implied by such forward-looking statements. In some cases, you can identify
forward-looking statements by terminology such as “may”, “will”, “should”, “could”, “expects”,
“plans”, “intends”, “anticipates”, “believes”, “estimates”, “predicts”,
“potential”, or “continue”, or the negative of such terms or other comparable terminology. Although we believe
that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity,
performance, or achievements. These statements are only predictions.
Factors
that may cause our actual results to differ materially from our forward-looking statements include, among others, changes in general
economic and business conditions and the risks and other factors set forth in “Item 1A—Risk Factors” and elsewhere
in this annual report on Form 10-K.
Our
actual results may be materially different from what we expect. We undertake no duty to update these forward-looking statements after
the date of this annual report, even though our situation may change in the future. We qualify all of our forward-looking statements
by these cautionary statements.
OVERVIEW
Stereotaxis
is a pioneer and global leader in surgical robotics for minimally invasive endovascular intervention. We design, manufacture and market
robotic systems, instruments and information systems for the interventional laboratory. Our proprietary robotic technology, Robotic Magnetic
Navigation, fundamentally transforms endovascular interventions using precise computer-controlled magnetic fields to directly control
the tip of flexible interventional catheters or devices. Direct control of the tip of an interventional device, in contrast to all manual
hand-held devices that are controlled from their handle, can improve the precision, stability, reach and safety of these devices during
procedures.
Our
primary clinical focus has been electrophysiology, specifically cardiac ablation procedures for the treatment of arrhythmias. Cardiac
ablation has become a well-accepted therapy for arrhythmias and a multi-billion-dollar medical device market with expectations for substantial
long-term growth. We have shared our aspiration and a product strategy to expand the clinical focus of our technology to several additional
endovascular indications including coronary, neuro, and peripheral interventions.
There
is substantial real-world evidence and clinical literature for Robotic Magnetic Navigation in electrophysiology. Hundreds of electrophysiologists
at over one hundred hospitals globally have treated over 100,000 arrhythmia patients with our robotic technology. Clinical use of our
technology has been documented in over 400 clinical publications. Robotic Magnetic Navigation is designed to enable physicians to complete
more complex interventional procedures with greater success and safety by providing image-guided delivery of catheters through the blood
vessels and chambers of the heart to treatment sites. This is achieved using externally applied computer-controlled magnetic fields that
govern the motion of the working tip of the catheter, resulting in improved navigation. The more flexible atraumatic design of catheters
driven using magnetic fields may reduce the risk of patient harm and other adverse events. Performing the procedure from a control cockpit
enables physicians to complete procedures in a safe location protected from x-ray exposure, with greater ergonomics, and improved efficiency.
We believe these benefits can be applicable in other endovascular indications where navigation through complex vasculature is often challenging
or unsuccessful and generates significant x-ray exposure.
Our
primary products include the Genesis RMN System, the Odyssey Solution, and other related devices. We also offer to our
customers the Stereotaxis Imaging Model S x-ray System and other accessory devices.
The
Genesis RMN System is designed to enable physicians to complete more complex interventional procedures by providing image-guided
delivery of catheters through the blood vessels and chambers of the heart to treatment sites. This is achieved using externally applied
magnetic fields that govern the motion of the working tip of the catheter, resulting in improved navigation, efficient procedures, and
reduced x-ray exposure.
The
Odyssey Solution consolidates lab information onto one large integrated display, enabling physicians to view and control all the
key information in the operating room. This is designed to improve lab layout and procedure efficiency. The system also features a remote
viewing and recording capability called Odyssey Cinema, which is an innovative solution that delivers synchronized content for
optimized workflow, advanced care, and improved productivity. This tool includes an archiving capability that allows clinicians to store
and replay entire procedures or segments of procedures. This information can be accessed from locations throughout the hospital local
area network and over the global Odyssey Network providing physicians with a tool for clinical collaboration, remote consultation, and
training.
We
promote our full suite of products in a typical hospital implementation, subject to regulatory approvals or clearances. This implementation
requires a hospital to agree to an upfront capital payment and recurring payments. The upfront capital payment typically includes equipment
and installation charges. The recurring payments typically include disposable costs for each procedure, equipment service costs beyond
the warranty period, and ongoing software updates. In hospitals where our full suite of products has not been implemented, equipment
upgrade or expansion can be implemented upon purchasing of the necessary upgrade or expansion.
We
have received regulatory clearances and registration necessary for us to market the Genesis RMN System in the U.S. and Europe,
and we are in the process of obtaining necessary registrations for extending our markets in other countries. Our prior generation robotic
magnetic navigation system, the Niobe System, and the Odyssey Solution, Cardiodrive, and various disposable interventional
devices have received regulatory clearance in the U.S., Europe, Canada, China, Japan and various other countries. We have received the
regulatory clearance, licensing and/or CE Mark approvals that allow us to market the Vdrive and Vdrive Duo Systems with
the V-CAS, V-Loop and V-Sono devices in the U.S., Canada and Europe. The Stereotaxis Imaging Model S x-ray System
is CE marked and cleared by the FDA.
Not
all products have and/or require regulatory clearance in all of the markets we serve. Please refer to “Regulatory Approval”
in Item 1 for a description of the regulatory clearance, licensing, and/or approvals we currently have or are pursuing.
As
of December 31, 2021, we had approximately $10.1 million of backlog, consisting of outstanding purchase orders and other commitments
for these systems. Of the December 31, 2021 backlog, we expect approximately 78% to be recognized as revenue over the course of 2022.
We had backlog of approximately $6.9 million as of December 31, 2020. There can be no assurance that we will recognize such revenue in
any particular period or at all because some of our purchase orders and other commitments are subject to contingencies that are outside
our control. These orders and commitments may be revised, modified or canceled, either by their express terms, as a result of negotiations
or by project changes or delays. In addition, the sales cycle for the robotic magnetic navigation system is lengthy and generally involves
construction or renovation activities at customer sites. Consequently, revenues and/or orders resulting from sales of our robotic magnetic
navigation system can vary significantly from one reporting period to the next.
We
have strategic relationships with technology leaders and innovators in the global interventional market. Through these strategic relationships
we provide compatibility between our robotic magnetic navigation system and digital imaging and 3D catheter location sensing technology,
as well as disposable interventional devices. The maintenance of these strategic relationships, or the establishment of equivalent alternatives,
is critical to our commercialization efforts. There are no guarantees that any existing strategic relationships will continue, and efforts
are ongoing to ensure the availability of integrated systems and devices and/or equivalent alternatives. We cannot provide assurance
as to the timeline of the ongoing availability of such compatible systems or our ability to obtain equivalent alternatives on competitive
terms or at all.
We
were incorporated in Delaware in June, 1990 as Stereotaxis, Inc. Our principal executive offices are located at 710 North Tucker Boulevard,
Suite 110, St. Louis, Missouri 63101, and our telephone number is (314) 678-6100.
THE
STEREOTAXIS VALUE PROPOSITION
Although
great strides have been made in manual interventional devices and techniques, significant challenges remain that reduce interventional
productivity and limit both the number of complex procedures and the types of diseases that can be treated manually. These challenges
primarily involve the inherent mechanical limitations of manual instrument control and the lack of integration of the information systems
used by physicians in the interventional lab as well as a significant amount of training and experience required to ensure proficiency.
As a result, many complex cases in electrophysiology are treated with palliative drug therapy, and many procedures are still performed
as invasive surgeries rather than as minimally invasive endovascular interventions.
Our
systems address the current challenges in the interventional lab by providing precise computerized control of the working tip of the
interventional instrument and by integrating this control with the visualization technology and information systems used during electrophysiology
and endovascular interventional procedures, on a cost-justified basis.
We
believe that our technology can:
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Improve
patient outcomes by optimizing therapy. Difficulty in controlling the working tip of disposable interventional devices can lead
to sub-optimal results in many procedures. Conversely, the precise control of multiple complex diagnostic and therapeutic devices
by a single physician can lead to better outcomes for the patient. Precise instrument control is necessary for treating a number
of cardiac and other endovascular conditions. To treat arrhythmias, precise placement of an ablation catheter against a beating inner
heart wall is necessary. Maintaining this precision and contact can be very challenging, especially in the most complex procedures.
For endovascular navigation, precise and safe navigation through complex vasculature may also have a significant impact on procedure
outcomes, efficiency, and cost. We believe our robotic technology can enhance procedure results by improving navigation of disposable
interventional devices to treatment sites, and by affecting more precise and safe treatments once these sites are reached. |
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Expand
the market by enabling minimally invasive endovascular intervention. Treatment of a number of major diseases, including ventricular
tachycardia, atrial fibrillation, congenital heart diseases, stroke, peripheral vascular disease, and coronary vascular disease,
is highly challenging using conventional wire and/or catheter-based techniques. These patients may therefore be referred to more
invasive or less curative therapies because of the difficulty in precisely and safely controlling the working tip of disposable interventional
devices used to treat these complex cases interventionally. Because our robotic technology provides precise, computerized control
of the working tip of disposable interventional devices, we believe that it will potentially enable difficult diseases to be treated
interventionally on a much broader scale than today. |
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Enhance
patient and physician safety. The clinical value of our technology has been demonstrated in over 400 publications and in the
real-world experience of more than 100,000 procedures. The clinical literature as well as other available data suggests meaningful
reductions in major complications and patient exposure to radiation during procedures utilizing our robotic technology. This may
be driven by the softer a-traumatic design of an interventional device navigated using magnetic fields. These safety benefits to
patients are complemented by improved occupational safety for the physicians and nursing staff who are performing the procedures.
Healthcare professionals face significant orthopedic and radiation exposure risks. Studies have documented that 49% of interventional
cardiologists suffer orthopedic injury and 85% of brain tumors in these physicians present on the left side of the brain which is
the side typically exposed to radiation when performing a manual procedure. Our robotic technology improves physician safety and
reduces physician fatigue by enabling them to conduct procedures remotely from an adjacent control room, which reduces their exposure
to harmful radiation, and the orthopedic burden of wearing lead. |
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Improve
clinical workflow and information management. Complex ablation procedures involve several sources of information, which conventionally
require a physician to mentally integrate and process large quantities of information from different sources in real time, often
from separate user interfaces. Sources of information include real time x-ray and/or ultrasound images, real time location sensing
systems providing the 3-D location of a catheter tip, pre-operative map of the electrical activity of the heart, real time recording
of electrical activity of the heart, and temperature feedback from an ablation catheter. The Odyssey Solution improves clinical
workflow and information management efficiency by integrating and synchronizing the multiple sources of diagnostic and imaging information
found in the interventional labs into a large-screen user interface with single mouse and keyboard control. |
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Enhance
hospital efficiency by reducing and standardizing procedure times, disposables utilization and staffing needs. Conventional interventional
procedure times currently range from several minutes to many hours as physicians often engage in repetitive, “trial and error”
maneuvers due to difficulties with manually controlling the working tip of disposable interventional devices. By reducing both navigation
time and the time needed to carry out therapy at the target site, we believe that our robotic technology can reduce procedure times
compared to manual procedures, especially in the most complex procedures such as the treatment of ventricular tachycardia. We believe
the robotic magnetic navigation system can also reduce the variability in procedure times compared to manual methods. Greater standardization
of procedure times allows for more efficient scheduling of interventional cases including staff requirements. We also believe that
additional cost savings from robotics can result from decreased use of multiple catheters, high-end deflectable sheaths, and contrast
media in procedures compared with manual methods further enhancing the rate of return to hospitals. |
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Improve
physician skill levels in order to improve the efficacy of complex cardiology procedures. Training required for physicians to
safely and effectively carry out manual interventional procedures typically takes years, over and above the training required to
become a specialist in cardiology. This has led to a shortage of physicians who are skilled in performing more complex procedures.
We believe that our robotic technology can allow procedures that previously required the highest levels of manual dexterity and skill
to be performed effectively by a broader range of interventional physicians, with more standardized outcomes. In addition, interventional
physicians can learn to use robotic systems in a relatively short period of time. The robotic magnetic navigation system can also
be programmed to carry out sequences of complex navigation automatically further enhancing ease of use. We believe the Odyssey
Solution can allow advanced training online thereby accelerating learning. |
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Help
hospitals recruit physicians and attract patients. Due to the clinical benefits of our products, we believe hospitals will realize
significant operational benefits when recruiting physicians to work in a safer procedure environment, while attracting patients who
desire to have safer procedures that lead to better long-term outcomes. |
PRODUCTS
Robotic
Magnetic Navigation
Our
proprietary robotic magnetic navigation systems (“RMN”) include the Genesis RMN and the prior generation Niobe
Systems. These systems are designed to enable physicians to complete more complex interventional procedures by providing image-guided
delivery of catheters and guidewires through the blood vessels and chambers of the heart to treatment sites. This is achieved using externally
applied magnetic fields that govern the motion of the working tip of the catheter or guidewire, resulting in improved navigation, efficient
procedures and reduced x-ray exposure. Our systems provide physicians with precise remote digital instrument control in combination with
sophisticated image integration. It can be operated either from an adjacent room and outside the x-ray fluoroscopy field or beside the
patient table, as in traditional interventional procedures. The RMN system allows the operator to navigate disposable interventional
devices to the treatment site through complex paths in the blood vessels and chambers of the heart to deliver treatment by using computer
controlled, externally applied magnetic fields to directly govern the motion of the working tip of these devices, each of which has a
magnetically sensitive tip that predictably responds to magnetic fields generated by our system. Because the working tip of the disposable
interventional device is directly controlled by these external magnetic fields, the physician has the same degree of control regardless
of the number or type of turns, or the distance traveled by the working tip to arrive at its position in the blood vessels or chambers
of the heart. This results in highly precise digital control of the working tip of the disposable interventional device while still giving
the physician the option to manually advance the device.
Through
our arrangements with fluoroscopy system manufacturers and providers of catheters and electrophysiology mapping systems, we provide compatibility
between the robotic magnetic navigation system and the visualization and information systems used during electrophysiology and endovascular
procedures in order to provide the physician with a comprehensive information and instrument control system. In addition, we have integrated
the robotic magnetic navigation system with 3D catheter location sensing technology to provide accurate real-time information as to the
3D location of the working tip of the instrument.
The
components of the robotic magnetic navigation system
are identified and described below:
Robotic
Magnetic Navigation System. Our robotic magnetic navigation systems utilize two permanent magnets mounted on articulating and pivoting
arms with one magnet on either side of the patient table. These magnets generate magnetic navigation fields that are less than the strength
of fields typically generated by MRI equipment and therefore require significantly less shielding, and cause significantly less interference,
than MRI equipment. The robotic magnetic navigation system is indicated for use in cardiac, peripheral and neurovascular applications.
Cardiodrive®
Automated Catheter Advancement System. As the physician conducts the procedure from the adjacent control room, the Cardiodrive
Automated Catheter Advancement System (“Cardiodrive”) in conjunction with the QuikCAS automated catheter advancement
system is used to remotely advance and retract the electrophysiology catheter in the patient’s heart while the robotic magnetic
navigation system magnets precisely steer the working tip of the device.
Odyssey®
Solution
The
Odyssey Solution offers a fully integrated, real-time information solution to manage, control, record and share procedures across
networks or around the world. We believe that the Odyssey Solution enhances the physician workflow in interventional labs through
a consolidated user interface of multiple systems on a single display to enable greater focus on the case and improve the efficiency
of the lab. Through the use of a single mouse and keyboard, the Odyssey Solution allows the user to command multiple systems in
the lab from a single point of control. In addition, the Odyssey Solution acquires a real-time, remote view of the lab, capturing
synchronized procedure data for review of important events during cases. The Odyssey Solution enables physicians to access recorded
cases and create snapshots following procedures for enhanced clinical reporting, auditing and presentation. The Odyssey Solution
enables physicians to establish a comprehensive master archive of procedures performed in the lab providing an excellent tool for training
new staff on the standard practices. The Odyssey Solution further enables procedures to be observed remotely around the world
with high speed Internet access over a hospital VPN, even wirelessly using a standard laptop or Windows tablet computer.
Stereotaxis
Imaging Model S X-ray System
Developed
in collaboration with Omega Medical Imaging, and designed to be specifically available with RMN Systems, the Stereotaxis Imaging Model
S provides an integrated complete solution for a robotic interventional operating room. It is a single-plane, full-power x-ray system
and includes the c-arm, powered table, motorized boom, and large high-definition monitors. Stereotaxis Imaging Model S incorporates modern
fluoroscopy technology to support high quality imaging while minimizing radiation exposure for patients and physicians. The combination
of RMN Systems with Stereotaxis Imaging Model S is designed to reduce the cost of acquisition, the ongoing cost of ownership, and the
complexity of installation of a robotic electrophysiology practice.
Disposables
and Other Accessories
Our
robotic magnetic navigation systems are designed to use a toolkit of proprietary disposable interventional devices. The toolkit currently
consists of:
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Our
QuikCAS automated catheter advancement disposables designed to provide precise remote advancement of proprietary electrophysiology
catheters; and |
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Biosense
Webster’s CARTO® RMT navigation and ablation system, CELSIUS® RMT, NAVISTAR® RMT, NAVISTAR® RMT DS, NAVISTAR®
RMT THERMOCOOL® and CELSIUS® RMT THERMOCOOL® Irrigated Tip Diagnostic/Ablation Steerable Tip Catheters co-developed by
Biosense Webster and Stereotaxis, as described below, with sales of such magnetically-enabled catheters generating royalty payable
from Biosense Webster to Stereotaxis. |
Revenue
from sales of disposable products is recognized when control is transferred to the customers, which generally occurs at the time of shipment,
but can also occur at the time of delivery depending on the customer arrangement. Disposable products are covered by an assurance type
warranty that provides for the return of defective products. Warranty costs were not material for the periods presented.
We
also manufacture and market various disposable (the V-Loop, V-Sono, and V-CAS) components which can be manipulated
by our Vdrive™ Robotic Navigation System a complimentary product that provides navigation and stability for diagnostic and therapeutic
devices designed to improve interventional procedures. In addition, we also market and distribute other disposable and related devices
that can be use with our robotic magnetic navigation systems.
Other
Recurring Revenue
Other
recurring revenue includes revenue from product maintenance plans, other post warranty maintenance, and the implied obligation to provide
software enhancements if and when available for a specified period, typically one year following installation of our systems. Revenue
from services and software enhancements is deferred and amortized over the service or update period, which is typically one year. Revenue
related to services performed on a time-and-materials basis is recognized when performed.
Regulatory
Approval
We
have received regulatory clearance, licensing and/or CE Mark approvals necessary for us to market the Genesis RMN System in the
U.S. and Europe, and we are in the process of obtaining necessary registrations for extending our markets in other countries.
We
have received regulatory clearance, licensing and/or CE Mark approvals necessary for us to market the Niobe System, Cardiodrive,
and various disposable devices in the U.S., Canada, Europe, China, Japan, and various other countries.
We
have received regulatory clearance, licensing and/or CE Mark approvals necessary for us to market the Vdrive and Vdrive Duo
Systems with the V-CAS, V-Loop and V-Sono devices in the U.S., Canada and Europe.
Biosense
Webster has received FDA approval, and CE Mark for the CARTO® RMT navigation system for use with the Niobe System,
the 4mm CELSIUS® RMT Diagnostic/Ablation Steerable Tip Catheter, the 4mm NAVISTAR® RMT Diagnostic/Ablation
Steerable Tip Catheter, the 8mm Navistar RMT DS Diagnostic/Ablation Steerable Tip Catheter, and the 3.5mm NAVISTAR® RMT
THERMOCOOL® Irrigated Tip Catheter. In addition, Biosense Webster has received FDA approval and CE Mark for the 3.5mm
CELSIUS® RMT THERMOCOOL® Irrigated Tip Catheter. Biosense Webster also received China CFDA approval and
Japan PMDA approval for the CARTO® RMT navigation system for use with the Niobe System, and the 3.5mm NAVISTAR®
RMT THERMOCOOL® Irrigated Tip Catheter. Our strategic relationship with Biosense Webster provides for co-development
of catheters that can be navigated with our system, both with and without Biosense Webster’s 3D catheter location sensing technology.
In addition, we can utilize technology which allows our system to recognize specific disposable interventional devices in order to prevent
unauthorized use of our system. See “Strategic Relationships” below for a description of our arrangements with Biosense Webster.
FINANCIAL
INFORMATION ABOUT CUSTOMERS
No
single customer accounted for more than 10% of total revenue for the years ended December 31, 2021 and 2020. Revenue from customers in
China accounted for $3.7 million, or 10% of total revenue for the year ended December 31, 2021 and revenue from customers in Finland
accounted for $2.7 million, or 10%, of total revenue for the year ended December 31, 2020. No other single country, other than the U.S.,
accounted for more than 10% of total revenue for the years ended December 31, 2021 and 2020.
CLINICAL
APPLICATIONS
We
have focused our clinical and commercial efforts on applications of our products primarily in electrophysiology procedures for the treatment
of arrhythmias and secondarily in complex interventional cardiology procedures for the treatment of coronary artery disease. Our system
potentially has broad applicability in other areas, such as structural heart repair, interventional neurosurgery, interventional neuroradiology,
peripheral vascular, renal denervation, pulmonology, urology, gynecology and gastrointestinal medicine, and some of our patents may be
applicable in these areas as well.
Electrophysiology
The
rhythmic beating of the heart results from the transmission of electrical impulses. When these electrical impulses are mistimed or uncoordinated,
the heart fails to function properly, resulting in symptoms that can range from fatigue to stroke or death. Over 5.0 million people in
the U.S. currently suffer from abnormal heart rhythms, which are known as arrhythmias. The prevalence of arrhythmias is expected to continue
to rise as the population ages, life expectancy increases, and lifestyle factors such as obesity become more prevalent. Arrhythmias are
a major physical and economic burden and are associated with stroke, heart failure, and adverse symptoms causing patients to be motivated
to seek treatment. The combination of symptoms, prevalence and comorbidities make arrhythmias a major economic factor in healthcare.
Drug
therapies for arrhythmias often have limited efficacy, poor compliance, and side effects. Consequently, physicians have increasingly
sought more permanent, non-pharmacological, solutions for arrhythmias. The most common interventional treatment for arrhythmias is an
ablation procedure in which the diseased tissue giving rise to the arrhythmia is isolated or destroyed. Prior to performing an electrophysiology
ablation, a physician typically performs a diagnostic procedure in which the electrical signal patterns of the heart wall are “mapped”
to identify the heart tissue generating the aberrant electrical signals. Following the mapping, the physician may then use an ablation
catheter to eliminate the aberrant signal or signal path, restoring the heart to its normal rhythm. These procedures may be performed
separately but are more commonly performed at the same time.
We
believe more than 5,000 interventional labs around the world are currently conducting over one million cardiac ablation procedures annually.
The market has grown rapidly over the last decade with annualized procedure growth of approximately 10%.
We
believe that Robotic Magnetic Navigation is particularly well-suited for these electrophysiology procedures which are time consuming,
or which can only be performed by highly experienced physicians. These procedures include:
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Ventricular
Tachycardia. Ventricular tachycardia is a malignant, potentially lethal arrhythmia that is extremely difficult and time consuming
to treat. The magnetic catheter has been characterized as the ideal tool for this application. These arrhythmias can often be modified
or interrupted by the pressure of a conventional catheter making it very difficult to identify the appropriate location for the ablation,
whereas magnetic catheters produce fewer extra beats and provide for easier and more efficient mapping of the diseased tissue. Successful
ablation of ventricular tachycardia can extend the useful life of an implantable defibrillator, reduce shocks to the patient, reduce
the need for antiarrhythmic drugs or, in some cases, obviate the need for an expensive implantable device and its associated follow-up.
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Atrial
Fibrillation. The most commonly diagnosed abnormal heart rhythm, atrial fibrillation, is a particular type of arrhythmia characterized
by rapid, disorganized contractions of the heart’s upper chambers, the atria, which lead to ineffective heart pumping and blood
flow and can be a major risk factor for stroke. This chaotic electrical activity of the top chambers of the heart is estimated to
be present in three million people in the United States and over seven million people worldwide. The number of potential patients
for manual catheter-based procedures for atrial fibrillation has been limited because the procedures are extremely complex and are
performed by only the most highly skilled electrophysiologists. They also typically have much longer procedure times than general
ablation cases and the success rates have been lower and more variable. We believe that our system can allow these procedures to
be performed by a broader range of electrophysiologists and, by automating some of the more complex catheter maneuvers, can standardize
and reduce procedure times and significantly improve outcomes. |
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General
Mapping and Ablations. For the more routine mapping and ablation procedures, our system offers the unique benefit of precise
catheter movement and consistent heart wall contact. Additionally, the system can control the procedure and direct catheter movement
from the control room, saving the physician time and helping to avoid unnecessary exposure to high doses of radiation. |
We
believe that our system can address the current challenges in electrophysiology by permitting the physician to remotely navigate disposable
interventional devices from a control room outside the x-ray field. Additionally, we believe that our system allows for more predictable
and efficient navigation of these devices to the treatment site and enables catheter contact to be consistently maintained to efficiently
apply energy on the wall of the beating heart. We also believe that our system will significantly lower the skill barriers required for
physicians to perform complex electrophysiology procedures and, additionally, improve interventional lab efficiency and reduce disposable
interventional device utilization.
Interventional
Cardiology
More
than half a million people die annually from coronary artery disease, a condition in which the formation of plaque in the coronary arteries
obstructs the supply of blood to the heart, making this the leading cause of death in the U.S. Despite various attempts to reduce risk
factors, each year over one million patients undergo interventional procedures in an attempt to open blocked vessels and another one
half million patients undergo open heart surgery to bypass blocked coronary arteries.
Blockages
within a coronary artery, often called lesions, are categorized by degree of obstruction as partial occlusions, non-chronic total occlusions
and chronic total occlusions. Lesions are also categorized by the degree of difficulty with which they can be opened as simple or complex.
Complex lesions, such as chronic total occlusions, longer lesions, and lesions located within smaller diameter vessels, are often very
difficult or time consuming to open with manual interventional techniques.
We
believe approximately 11,000 interventional labs worldwide are currently capable of conducting interventional cardiology. Over 4 million
interventional cardiology procedures are performed annually in the U.S. alone. We estimate that approximately 10-15% of these interventional
cardiology procedures currently being performed are complex and therefore require longer procedure times and may have sub-optimal outcomes.
We believe that our system can substantially benefit this subset of complex interventional cardiology procedures.
Interventional
Neuroradiology, Neurosurgery and Other Interventional Applications
Physicians
used a predecessor to our Niobe System to conduct a number of procedures for the treatment of brain aneurysms, a condition in
which a portion of a blood vessel wall balloons and which can result in debilitating or fatal bleeding and strokes. We believe the robotic
magnetic navigation system also has a range of potential applications in minimally invasive neurosurgery, including biopsies and the
treatment of tumors, treatment of vascular malformations and fetal interventions.
STRATEGIC
RELATIONSHIPS
We
have entered into business arrangements with technology leaders in the global interventional market, including manufacturers of fluoroscopy
systems, ablation catheters, and electrophysiology mapping systems, that we believe aid us in commercializing our robotic magnetic navigation
system. These arrangements are important to us as they provide for the integration of our system with digital imaging and 3D catheter
location sensing technology, as well as catheters compatible with our system.
Imaging
We
have successfully integrated our robotic magnetic navigation system with digital fluoroscopy systems to provide advanced interventional
lab visualization and instrument control through user-friendly computerized interfaces. The maintenance of these arrangements, or the
establishment of equivalent alternatives, is critical to our commercialization efforts. There are no guarantees that any existing strategic
relationships will continue, and efforts are ongoing to ensure the availability of integrated next generation systems and/or equivalent
alternatives. We cannot provide assurance as to the timeline of the ongoing availability of such compatible systems or our ability to
obtain equivalent alternatives on competitive terms or at all.
Disposables
Devices
We
have entered into strategic relationships and successfully integrated with diagnostic mapping technologies to provide a robust open ecosystem
where physicians and patients benefit from the broad integration of procedure data.
With
Biosense Webster, we have jointly developed associated location and non-location sensing electrophysiology mapping and ablation catheters
that are navigable with our robotic magnetic navigation system. We believe that these products provide physicians with the elements required
for effective complex electrophysiology procedures: highly accurate information as to the exact location of the catheter in the body
and highly precise control over the working tip of the catheter.
The
co-developed catheters are manufactured and distributed by Biosense Webster, and both of the parties agreed to contribute to the resources
required for their development. We are entitled to royalty payments from Biosense Webster, payable quarterly based on net revenues from
sales of the co-developed catheters. Royalty revenue from the co-developed catheters represented 7% and 8% of revenue for the years ended
December 31, 2021 and 2020, respectively.
Biosense
Webster’s distribution rights for co-developed catheters are nonexclusive until December 31, 2022. Upon the expiration or termination
of the agreement, other than due to a change of control of Stereotaxis, the agreement provides for a continuation of supply by Biosense
Webster of the co-developed catheters to us or our customers for three years. The agreement provides an opportunity to expand the product
offering covered by the agreement to include a next generation irrigated magnetic catheter, subject to mutually agreeable terms including
exclusive distribution rights.
Under
the agreements with Biosense Webster, we granted Biosense Webster certain notice and discussion rights for product development activities
we undertake relating to localization of magnetically enabled interventional disposable devices in fields outside of electrophysiology
and mapping.
Either
party may terminate this agreement in certain specified “change of control” situations, although the termination would not
be effective until one year after the change of control and then would be subject to a wind-down period during which Biosense Webster
would continue to supply co-developed catheters to us or to our customers for three years (or, for non-location sensing mapping and ablation
catheters, until our first sale of a competitive product after a change of control, if earlier than three years). If either party terminates
the agreement under this provision, we must pay a termination fee to Biosense Webster equal to 5% of our total equity value in the change
of control transaction, up to a maximum of $10 million. If a change of control of Stereotaxis occurs after Biosense Webster has received
approval from the U.S. FDA for atrial fibrillation indication for the NAVISTAR® RMT THERMOCOOL® catheter,
we would be required to pay an additional $10 million fee to Biosense Webster, and termination of the agreement by either party would
not be effective until two years after the change of control. We also agreed to notify Biosense Webster if we reasonably believe that
we are engaged in substantive discussions with respect to the sale of the Company or substantially all of our assets.
Additionally,
we have entered into a broad strategic collaboration with Osypka AG. This collaboration includes the development of a next-generation
magnetic ablation catheter to be navigated using Stereotaxis’ robotic technology. Stereotaxis is funding the development and will
be the sole owner of the catheter.
The
maintenance of these arrangements, or the establishment of equivalent alternatives, is critical to our commercialization efforts. There
are no guarantees that any existing strategic relationships or collaborations will continue.
RESEARCH
AND DEVELOPMENT
We
have assembled an experienced group of engineers and physicists with recognized expertise in magnetics, software, control algorithms,
mechanics, electronics, systems integration and disposable interventional device design.
Our
research and development efforts are focused in the following areas:
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development
and enhancement of Robotic Magnetic Navigation Systems; |
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designing
new proprietary disposable interventional devices for use in Electrophysiology and other clinical specialties with our robotic systems;
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software
and other engineering efforts to enhance imaging integrations, user interface, automated navigation, and operating room connectivity. |
Our
research and development team collaborates with strategic third parties to integrate our robotic magnetic navigation system’s open
architecture platform with key imaging, location sensing and information systems in the interventional lab. We have also collaborated
with a number of highly regarded interventional physicians in key clinical areas and have entered into agreements with a number of universities
and teaching hospitals, which serve to increase our access to world class physicians and to expand our name recognition in the medical
community.
CUSTOMER
SERVICE AND SUPPORT
We
provide worldwide maintenance and support services to our customers for our integrated products directly or with the assistance of outsourced
product and service representatives. By utilizing these relationships, we provide direct, on-site technical support activities, including
call center, customer support engineers and service parts logistics and delivery. In certain situations, we use these third parties as
a single point of contact for the customer, allowing us to focus on providing installation, training, and back-up technical support.
Our
back-up technical support includes a combination of on-line, telephone and on-site technical assistance services 24 hours a day, seven
days a week. We employ service and support engineers with networking and medical equipment expertise and outsource a portion of our installation
and support services. We offer different levels of support to our customers, including basic hardware and software maintenance, extended
product maintenance, and rapid response capability for both parts and service.
We
have established a call center in our St. Louis facilities, which provides real-time clinical and technical support to our customers
worldwide.
MANUFACTURING
Robotic
Magnetic Navigation Systems and Odyssey Solution
Our
manufacturing strategy for our Robotic Magnetic Navigation Systems and Odyssey Solution is to sub-contract the manufacture
of major subassemblies of our systems to maximize manufacturing flexibility and lower fixed costs. We maintain quality control for all
of our systems by completing final system assembly and inspection in-house.
We
purchase both custom and off-the-shelf components from a large number of suppliers and subject them to quality specifications and processes.
Some of the components necessary for the assembly of our products are currently provided to us by sole-sourced suppliers (the only recognized
supply source available to us) or single-sourced suppliers (the only approved supply source for us among other sources). We purchase
the majority of our components and major assemblies through purchase orders rather than long-term supply agreements and generally do
not maintain large volumes of finished goods.
Disposable
Interventional Devices
Our
manufacturing strategy for disposable interventional devices is to outsource their manufacture through subcontracting and to expand partnerships
for other interventional devices. We work closely with our contract manufacturers and have strong relationships with component suppliers.
We have entered into manufacturing agreements to provide high volume capability for devices other than catheters.
Software
The
software components of the robotic magnetic navigation system and Odyssey Solution, including control and application software,
are developed both internally and with integrated modules we purchase or license. We perform final testing of software products in-house
prior to their commercial release.
General
Our
manufacturing facility operates under processes that meet the FDA’s requirements under the Quality System Regulation (QSR). Our
ISO registrar and European notified British Standard Institution (BSI) has audited our facility annually since 2001 and found the facility
to be in compliance with relevant requirements. The most recent ISO 13485 and MDSAP Certificate of Registration were issued in 2019 and
2020, respectively and are valid through September 2022.
SALES
AND MARKETING
We
market our products in the U.S and internationally through a direct sales force of senior sales specialists, distributors and sales agents,
supported by account managers and clinical specialists who provide training, clinical support, and other services to our customers. In
addition, Biosense Webster distributes magnetically-enabled electrophysiology mapping and ablation catheters, co-developed pursuant to
our agreement with them.
Our
sales and marketing efforts include two important elements: (1) selling robotic magnetic systems, Odyssey Solutions, Stereotaxis
Imaging Model S x-ray Systems, and Vdrive systems directly and through distributors; and (2) leveraging our installed base of
systems to drive recurring sales of disposable interventional devices, software and service.
REIMBURSEMENT
We
believe that substantially all of the procedures, whether commercial or in clinical trials, conducted in the U.S. with the Niobe System
have been reimbursed to date. We expect that third-party payors will reimburse, under existing billing codes, procedures in which compatible
ablation catheters are used. We expect healthcare facilities in the U.S. to bill various third-party payors, such as Medicare, Medicaid,
other government programs and private insurers, for services performed with our products. We believe that procedures performed using
our products, or targeted for use by products that do not yet have regulatory clearance or approval, are generally already reimbursable
under government programs and most private plans. Accordingly, we believe providers in the U.S. will generally not be required to obtain
new billing authorizations or codes in order to be compensated for performing medically necessary procedures using our products on insured
patients. We cannot guarantee that reimbursement policies of third-party payors will not change in the future with respect to some or
all of the procedures using the robotic magnetic navigation system.
In
countries outside the United States, reimbursement is obtained from various sources, including governmental authorities, private health
insurance plans, and labor unions. In most foreign countries, private insurance systems may also offer payments for some therapies. Additionally,
health maintenance organizations are emerging in certain European countries. In Europe, we believe that substantially all of the procedures,
whether commercial or in clinical trials, conducted with the Niobe System have been reimbursed to date. In Japan, the Ministry
of Health, Labor and Welfare (MHLW) has classified the Niobe System as a C2 medical device (the highest reimbursement category)
and has established a “technical fee” of Japanese Yen 50,000 per procedure. In other foreign countries, we may need to seek
international reimbursement approvals, and we do not know if these required approvals will be obtained in a timely manner or at all.
See
“Item 1A—Risk Factors” for a discussion of various risks associated with reimbursement from third-party payors.
INTELLECTUAL
PROPERTY
The
proprietary nature of, and protection for, our products, processes and know-how are important to our business. We seek patent protection
in the United States and internationally for our systems and other technology where available and when appropriate.
We
have an extensive patent portfolio that we believe protects the fundamental scope of our technology and systems, including our robotic
magnetic technology, navigational methods, mapping system and procedural workflows, 3D integration technology, and disposable interventional
devices. As of December 31, 2021, we had 80 issued U.S. patents and 4 pending U.S. patent applications. In addition, we had 54 issued
foreign patents and 15 pending foreign patent applications. The key patents that protect our technology and systems extend until 2028
and beyond.
We
also have a number of invention disclosures under consideration and several applications that are being prepared for filing. We cannot
be certain that any patents will be issued from any of our pending patent applications, nor can we be certain that any of our existing
patents or any patents that may be granted in the future will provide us with protection.
It
would be technically difficult and costly to reverse engineer our robotic magnetic navigation system, which contains numerous complex
algorithms that control our disposable devices inside the magnetic fields generated by the robotic magnetic navigation system. We further
believe that our patent portfolio is broad enough in scope to enable us to obtain legal relief if any entity not licensed by us attempted
to market disposable devices in the U.S. that can be navigated by the robotic magnetic navigation system. We can also utilize security
keys, such as embedded smart chips or associated software that could allow our system to recognize specific disposable interventional
devices in order to prevent unauthorized use of our system.
We
have also developed substantial expertise in magnet design, magnet physics and magnetic instrument control that was developed in connection
with the development of the robotic magnetic navigation system, which we maintain as trade secrets. This expertise centers around our
proprietary magnet design, which is a critical aspect of our ability to design, manufacture and install a cost-effective magnetic navigation
system that is small enough to be installed in a standard interventional lab. Our Odyssey Solution contains numerous complex algorithms
and proprietary software and hardware configurations, and requires substantial knowledge to design and assemble, which we maintain as
trade secrets. This proprietary software and hardware, some of which is owned by Stereotaxis, and some of which is licensed to Stereotaxis,
is a material aspect of the ability to design, manufacture and install a cost-effective and efficient information integration, storage,
and delivery platform.
In
addition, we seek to protect our proprietary information by entering into confidentiality, assignment of invention or license agreements
with our employees, consultants, contractors, advisers and other third parties. However, we believe that these measures afford only limited
protection.
COMPETITION
The
markets for medical devices are intensely competitive and are characterized by rapid technological advances, frequent new product introductions,
evolving industry standards and price erosion.
In
electrophysiology we consider the primary competition to our robotic magnetic navigation system to be traditional catheter-based electrophysiology
ablation approaches including RF (radiofrequency) ablation and non-RF therapies. To our knowledge, we are the only company that has commercialized
remote, digital and direct control of the working tip of catheters for use in RF ablation procedures. Our success depends in part on
convincing hospitals and physicians to convert traditional interventional procedures to procedures using our robotic magnetic navigation
system.
We
face competition from companies that are developing and marketing new products for use in electrophysiology. These products include next
generation mapping systems and RF ablation devices with which our robotic magnetic navigation system is not currently compatible, as
well as non-RF ablation devices including single-shot cryoablation devices and other new products, such as pulse field ablation, for
use in other interventional therapies. Some of these products are marketed by companies that may have an established presence in the
field of electrophysiology, including major imaging, capital equipment and disposables companies that are currently selling products
in the interventional lab. In addition, we face competition from companies that currently market or are developing drugs, gene or cellular
therapies to treat the conditions for which our products are intended.
We
also face competition from companies that are developing robotic technologies for electrophysiology and non-electrophysiology interventional
procedures. We are aware of three companies that commercialized endovascular catheter navigation systems which have been cleared by the
FDA for electrophysiology procedures as well as two companies with electromagnetic catheter navigation systems that received CE Mark
approval in Europe. None of these companies seem to be active with any current commercial activities. Outside of electrophysiology, there
are at least two companies that have commercialized robotic systems for guidewire manipulation and can be viewed as potential competitors
as we look to address additional clinical applications.
We
face direct competition to certain products in our Odyssey Solution. These competitors include established imaging companies as
well as dedicated solution providers. We expect to continue to face competitive pressure in this market in the future, based on the rapid
pace of advancements with this technology.
We
believe that the primary competitive factors in the market we address are capability, safety, efficacy, ease of use, price, quality,
reliability and effective sales, support, training and service. The length of time required for products to be developed and to receive
regulatory and reimbursement approval is also an important competitive factor. See “Item 1A—Risk Factors” for a discussion
of other competitive risks facing our business.
GOVERNMENT
REGULATION
Our
products are medical devices that are subject to extensive regulation in the U.S. and in foreign countries where we do business. The
U.S. FDA regulates the development, testing, manufacturing, labeling, storage, recordkeeping, promotion, marketing, distribution and
service of medical devices in the U.S. to ensure that medical products distributed domestically are safe and effective for their intended
uses. In addition, the FDA regulates the export of medical devices manufactured in the U.S. to international markets and the importation
of medical devices manufactured abroad.
In
many foreign countries in which we market our products, we are subject to regulations affecting, among other things, product standards,
packaging requirements, labeling requirements, import restrictions, tariff regulations, duties and tax requirements. Many of these regulations
are similar to those of the FDA or other U.S. regulations. In addition, our products must meet the requirements of a large and growing
body of international standards which govern the design, manufacture, materials content and sourcing, testing, certification, packaging,
installation, use and disposal of our products. Failure to meet these standards could limit the ability to market our products in those
regions which require compliance to such standards. Examples of groups of such standards are electrical safety standards such as those
of the International Electrotechnical Commission and composition standards such as the Reduction of Hazardous Substances (“RoHS”)
and Waste Electrical and Electronic Equipment (“WEEE”) Directives.
U.S.
Food and Drug Administration
Unless
an exemption applies, each medical device we wish to commercially market in the United States will require 510(k) clearance, de novo
approval, or pre-market approval from the FDA. The FDA classifies medical devices into one of three classes. Devices deemed to pose lower
risks are placed in either Class I or II, which requires the manufacturer to submit to the FDA a pre-market notification requesting permission
to commercially distribute the device, known as 510(k) clearance. Some low-risk devices are exempted from this requirement. Devices deemed
by the FDA to pose the greatest risks, such as life-sustaining, or life-supporting, or devices deemed not substantially equivalent to
a previously cleared 510(k) device, are placed in Class III, requiring pre-market approval, or PMA. The majority of our current products
are Class II devices requiring 510(k) clearances. Biosense Webster’s compatible catheters used with our magnetic navigation system
are Class III therapeutic devices and are subject to the PMA process.
If
U.S. clinical data are needed to support clearance, approval or a marketing application for our devices, generally, an investigational
device exemption, or IDE, is assembled and submitted to the FDA. The FDA reviews and must approve the IDE before the study can begin.
In addition, the study must be approved by an Institutional Review Board covering each clinical site involved in the study. When all
approvals are obtained, we initiate a clinical study to evaluate the device. Following completion of the study, we collect, analyze and
present the data in an appropriate submission to the FDA (i.e., in support of a 510(k), de novo, or PMA).
When
a 510(k) clearance is required, we must submit a pre-market notification demonstrating that our proposed device is substantially equivalent
to a previously cleared and legally marketed 510(k) device, de novo approved device, or a device that was in commercial distribution
before May 28, 1976, for which the FDA has not yet called for the submission of pre-market approval applications. To establish substantial
equivalence, the applicant must show that the new device has the same intended use as the predicate device, and it either has the same
technological characteristics or has been shown to be equally safe and effective and does not raise different questions of safety and
effectiveness as compared to the predicate device. The FDA may require further information, including clinical trial results or product
test data, to make a determination regarding substantial equivalence. The FDA’s 510(k) clearance process usually takes from four
to 12 months but can take longer.
If
a device is not eligible for the 510(k) clearance process, but the product is low or moderate risk, we may be able to obtain de novo
review. The de novo process allows FDA to classify a low- to moderate-risk device not previously classified into Class I or II. If the
device is not eligible for either the 510(k) or de novo processes, a PMA must be submitted to the FDA. A PMA must be supported by extensive
data, including but not limited to, technical, preclinical, clinical trials, manufacturing and labeling to demonstrate reasonable evidence
of the device’s safety and efficacy to the FDA’s satisfaction. The PMA process is much more costly, lengthy and uncertain
than the 510(k) clearance process, and it generally takes from one to three years, but can take longer. We cannot be sure that the FDA
will ever grant 510(k) clearance, de novo approval or pre-market approval for any product we propose to market in the United States.
After
a device receives 510(k) clearance or de novo approval, any modification that could significantly affect its safety or effectiveness,
or that would constitute a significant change in its intended use, will require a new clearance. Modification to a PMA approved device
or its labeling may require either a new PMA or PMA supplement approval, which could be a costly and lengthy process.
After
a device is placed on the market, numerous regulatory requirements apply. These include for example:
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The
Quality System Regulation, or QSR, which requires manufacturers, including third-party manufacturers, to follow stringent design,
testing, documentation and other quality assurance procedures during product design and throughout the manufacturing process; |
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Labeling
requirements and the FDA prohibitions against promoting products for uncleared, unapproved or “off-label” uses; |
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Medical
device reporting regulations, which require that manufacturers report to the FDA if their device may have caused or contributed to
a death or serious injury or malfunctioned in a way that would likely cause or contribute to a death or serious injury if the malfunction
were to recur; and |
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Reports
of Corrections and Removals regulation, which requires manufacturers to report recalls and field actions to the FDA if initiated
to reduce a risk to health posed by the device or to remedy a violation of the FD&C Act. |
The
FDA has broad post-market and regulatory enforcement powers. We are subject to unannounced inspections by the FDA to determine our compliance
with the QSR and other regulations. If we fail to comply with the QSR or other regulatory requirements, we may receive a warning or untitled
letter from the FDA or be subject to other enforcement actions, including fines, injunctions, civil penalties, seizures, operating restrictions,
partial suspension or total shutdown of production, refusing requests for 510(k) clearance, de novo petitions, or PMA approval of new
products, withdrawing 510(k) clearance, de novo approvals, or PMA approvals already granted, and criminal prosecution. The FDA also has
the authority to require us to repair, replace or refund the cost of any medical device that we have manufactured or distributed if there
is a reasonable probability that the device would cause serious, adverse health consequences or death.
International
Regulation
In
order for us to market our products in other countries, we must obtain regulatory approvals and comply with extensive safety and quality
regulations in other countries. These regulations, including the requirements for approvals or clearance and the time required for regulatory
review, vary from country to country and can involve additional product testing and additional administrative review periods. The time
required to obtain approval in other countries may differ from that required to obtain FDA clearance or approval.
The
primary regulatory environment in Europe is that of the European Union, which encompasses most of the major countries in Europe. The
European Union, along with other member countries of the European Economic Area, or EEA, requires that manufacturers of medical products
obtain the right to affix the CE Mark to their products before selling them in member countries of the EEA. The CE Mark is an international
symbol of adherence to quality assurance standards and compliance with applicable directives. In order to obtain the right to affix the
CE Mark to products, a manufacturer must obtain certification that its processes meet certain quality standards. Compliance with the
Medical Device Directive, as certified by a recognized European Notified Body, permits the medical device manufacturer to affix the CE
Mark on its products and commercially distribute those products throughout the EEA. We are subject to annual surveillance audits and
periodic re-certification audits in order to maintain our CE Mark permissions.
To
be sold in Japan, most medical devices must undergo thorough safety examinations and demonstrate medical efficacy before they receive
regulatory (“Shonin”) approval. We are subject to additional regulations in other foreign countries, including, but not limited
to, Canada, Taiwan, China, Korea, and Russia, in order to sell our products. We intend that either we or our distributors will receive
any necessary approvals or clearance prior to marketing our products in these international markets.
Please
refer to “Regulatory Approval” in Item 1 of this annual report for a description of the regulatory clearance, licensing and/or
approvals we currently have or are pursuing.
Anti-Kickback
and False Claims Laws
We
are subject to various federal and state laws relating to healthcare fraud and abuse, including anti-kickback and false claims laws.
The U.S. federal healthcare program Anti-Kickback Statute prohibits persons from knowingly and willfully soliciting, offering, receiving
or providing remuneration, directly or indirectly, in exchange for or to induce either the referral of an individual, or furnishing or
arranging for a good or service, for which payment may be made under a federal healthcare program such as the Medicare and Medicaid programs.
The definition of “remuneration” has been broadly interpreted to include anything of value, including for example, gifts,
discounts, the furnishing of supplies or equipment, credit arrangements, payments of cash and waivers of payments, and providing anything
of value at less than fair market value. Penalties for violations include criminal penalties and civil sanctions such as fines, imprisonment
and possible exclusion from Medicare, Medicaid and other federal healthcare programs. Federal false claims laws prohibit any person from
knowingly presenting, or causing to be presented, a false claim for payment to the federal government, or knowingly making, or causing
to be made, a false statement to have a false claim paid. Recently, several healthcare companies have been prosecuted under these laws
for allegedly providing free product to customers with the expectation that the customers would bill federal programs for the product.
In addition, certain marketing practices, including off-label promotion, may also violate false claims laws.
Many
states have adopted laws similar to the federal healthcare program Anti-Kickback Statute and the federal false claims laws. Some of these
state prohibitions apply to healthcare items or services reimbursed by any source, not only the Medicare and Medicaid programs.
Transparency
Laws
Under
the Physician Payments Sunshine Act, or the Sunshine Act, which was enacted by Congress as part of the Patient Protection and Affordable
Care Act, we are required to track and report to the federal government on an annual basis, subject to certain exceptions, all payments
and other transfers of value to U.S. physicians and teaching hospitals, as well as ownership interests held by physicians. Such data
are made available by the government on a publicly searchable website. In addition, we are subject to similar state laws related to the
tracking and reporting of certain payments and other transfers of value to healthcare professionals.
HIPAA
and Other Privacy Laws
We
are subject to laws and regulations protecting the privacy and integrity of patient medical information, including the Health Insurance
Portability and Accountability Act of 1996, or HIPAA, which imposes certain requirements relating to the privacy, security and transmission
of individually identifiable health information, and the applicable Privacy and Security Standards of HITECH, the Health Information
Technology for Economic and Clinical Health Act. HIPAA also prohibits executing a scheme to defraud any healthcare benefit program or
making false statements relating to healthcare matters.
In
addition to federal regulations issued under HIPAA, some states and foreign countries have enacted privacy and security statutes or regulations
that, in some cases, are more stringent than those issued under HIPAA. For example, the General Data Protection Regulation (the “GDPR”),
which is in effect across the European Economic Area (the “EEA”), imposes several stringent requirements for controllers
and processors of personal data and increased our obligations, for example, by imposing higher standards when obtaining consent from
individuals to process their personal data, requiring more robust disclosures to individuals, strengthening individual data rights, shortening
timelines for data breach notifications, limiting retention periods and secondary use of information, increasing requirements pertaining
to health data as well as pseudonymised data, and imposing additional obligations when we contract third-party processors in connection
with the processing of personal data. The GDPR provides that EU member states may make their own further laws and regulations limiting
the processing of genetic, biometric, or health data. Failure to comply with the requirements of the GDPR and the applicable national
data protection laws of the EU member states may result in fines of up to 4% of the total worldwide annual turnover of the preceding
financial year and other administrative penalties.
In
addition, effective January 1, 2020, California passed the California Consumer Privacy Act (the “CCPA”),
which is considered by many to be the most far-reaching data privacy law introduced in the US to date and which introduces new compliance
burdens on many organizations doing business in California who collect Personal Information about California residents. The CCPA’s
definition of Personal Information is very broad and specifically includes biometric information. The CCPA took effect in 2020 and will
allow for significant fines by the state attorney general, as well as a private right of action from individuals in relation to certain
security breaches. The enactment of the CCPA is prompting a wave of similar legislative developments in other US states and creating
the potential for a patchwork of overlapping but different state laws. Additionally, a new California ballot initiative, the California
Privacy Rights Act (the “CPRA”) recently passed in California. The CPRA will impose additional data protection obligations
on companies doing business in California. The majority of the provisions will go into effect on January 1, 2023, and additional compliance
investment and potential business process changes may be required.
As
a result of any of the foregoing, it may be necessary to modify our operations and procedures to comply with the more stringent state
and foreign laws, which may entail significant and costly changes for us.
Certificate
of Need Laws
In
a number of states in the U.S., a certificate of need or similar regulatory approval is required prior to the acquisition of high-cost
capital items or various types of advanced medical equipment, such as our robotic magnetic navigation system. Many of the states in which
we sell robotic magnetic navigation systems have laws that require institutions located in those states to obtain a certificate of need
in connection with the purchase of our system, and some of our purchase orders are conditioned upon our customer’s receipt of necessary
certificate of need approval.
Human
Capital
Given
the highly competitive nature of the medical device industry, the future success of our company depends on our ability to attract, retain,
and further develop top talent. We value the diversity of each of our employees and the contributions they make in helping us achieve
our mission to discover, develop and deliver robotic systems, instruments, and information solutions for the interventional laboratory.
We are committed to attracting, developing, and retaining the best talent reflecting a diversity of ideas, backgrounds, and perspectives.
As
of December 31, 2021, we had 130 employees, 38 of whom were engaged directly in research and development, 52 in sales and marketing activities,
21 in manufacturing and service, and 19 in general administrative activities including finance, information systems, legal and general
management. A significant majority of our employees are not covered by a collective bargaining agreement, and we consider our relationship
with our employees to be positive. We also engage the services of independent contractors and consultants as needed for special or temporary
projects or specific expertise.
As
of December 31, 2021, our employees were based in 9 different countries around the world. Our global workforce consists of diverse, highly
skilled talent at all levels.
Diversity,
Equity & Inclusion
Diversity,
equity and inclusion are integral parts of our culture. We strongly believe in a diverse workplace where all employees can thrive in
an inclusive environment free from discrimination, harassment, bias and prejudice. We strive to foster a culture where mutual respect,
inclusive behavior, and dignity are core to our individual expectations.
Our
employees represent a broad range of backgrounds and bring a wide array of perspectives and experiences that have helped us achieve our
global leadership in innovative robotic technologies designed to enhance the treatment of arrhythmias and perform endovascular procedures.
Health,
Safety, and Wellness
Employee
safety and well-being is of utmost importance to us and has been of particular focus due to the COVID-19 pandemic. In response to the
pandemic, we implemented significant changes that we determined were in the best interest of our employees, as well as the communities
in which we operate, in compliance with government regulations. This included having a significant portion of our employee base work
from home, while implementing additional safety measures for operation-critical development and manufacturing employees that worked on-site.
In addition, despite the challenges and disruptions inflicted by COVID-19, we continued to support patients and physicians that rely
on our technology, while protecting our sales and service employees, with the broad deployment of TeleRobotic support, leveraging proprietary
connectivity technology to enable remote clinical and technical support of robotic electrophysiology practices.
Compensation
and Benefits
We
strive to provide our employees with what we believe is a very competitive and comprehensive total rewards package of compensation, benefits
and services. In addition to base compensation, these packages, which vary by country and region, can include annual bonuses, sales commissions,
401(k) and/or pension plans, healthcare and insurance benefits for employees and family members, health savings and flexible spending
accounts, paid time off, family leave, and flexible work schedules. In addition, we offer employees the benefit of equity ownership in
the company through stock option grants and/or restricted stock units. Eligible employees have the opportunity to participate in an employee
stock purchase plan, which offers the opportunity to purchase our common stock at a discount of 5%.
Training
and Development
We
recognize the importance of furthering education and development of our employees through the various stages of their careers. We
are dedicated to promoting individual, leader, team, and organizational development through a number of tools and services. We offer
a variety of professional development courses for our employees and support employee continuing education. In addition, our employees
are required to complete compliance training applicable to our industry. We also have an annual global performance review process for
reviewing all employees’ performance and pay.
Availability
of Information
We
make certain filings with the SEC, including our annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form
8-K, and all amendments and exhibits to those reports, available free of charge in the Investors section of our website, http://www.stereotaxis.com,
as soon as reasonably practicable after they are filed with the SEC. Further, these filings are available on the Internet at http://www.sec.gov.
Information contained on our website is not part of this report and such information is not incorporated by reference into this report.
Executive
Officers
See
Part III – Item 10 for information about our Executive Officers.
The
following uncertainties and factors, among others, could affect future performance and cause actual results to differ materially from
those expressed or implied by forward looking statements.
RISK
FACTORS SUMMARY
Risks
Related to Our Business and Business Operations
|
● |
We
may not generate cash from operations or be able to raise the necessary capital to continue operations. |
|
● |
A
pandemic, epidemic or outbreak of infectious disease could have an adverse effect our business, operating results or financial condition. |
|
● |
We
may not be able to fund our business operations in the same manner as we have done historically if we do not improve the operating
performance of the Company or raise additional capital. |
|
● |
Hospital
decision-makers may not purchase our Robotic Magnetic Navigation Systems or related products or may think that such systems and products
are too expensive. |
|
● |
If
we are unable to fulfill our current purchase orders and other commitments on a timely basis or at all, we may not be able to achieve
future sales growth. |
|
● |
We
will likely experience long and variable sales and installation cycles, which could result in substantial fluctuations in our quarterly
results of operations. |
|
● |
Physicians
may not use our products if they do not believe they are safe, efficient and effective. |
|
● |
Our
collaborations with fluoroscopy system manufacturers and providers of catheters and electrophysiology mapping systems or other parties
may fail, or we may not be able to enter into additional collaborations in the future. |
|
● |
The
complexity associated with selling, marketing, and distributing products could impair our ability to increase revenue. |
|
● |
Our
marketing strategy is dependent on collaboration with physician “thought leaders.” |
|
● |
Physicians
may not commit enough time to sufficiently learn our system. |
|
● |
Customers
may choose to purchase competing products and not ours. |
|
● |
If
the magnetic fields generated by our system are not compatible with, or interfere with, other widely used equipment in the interventional
labs, sales of our products would be negatively affected. |
|
● |
The
use of our products could result in product liability claims that could be expensive, divert management’s attention, and harm
our reputation and business. |
|
● |
We
have incurred substantial losses in the past and may not be profitable in the future. |
|
● |
Our
reliance on contract manufacturers and on suppliers, and in some cases, a single supplier, could harm our ability to meet demand
for our products in a timely manner or within budget. |
|
● |
Risks
associated with international manufacturing and trade could negatively impact the availability and cost of our products because materials
used to manufacture our magnets, one of our key system components, are sourced from overseas. |
|
● |
We
may encounter problems at our manufacturing facilities or those of our subcontractors or otherwise experience manufacturing delays
that could result in lost revenue. |
|
● |
Our
growth may place a significant strain on our resources, and if we fail to manage our growth, our ability to develop, market, and
sell our products will be harmed. |
Risks
Relating to Technology and Intellectual Property Matters
|
● |
The
rate of technological innovation of our products might not keep pace with the rest of the market. |
|
● |
Security
breaches and other disruptions to our information technology infrastructure could interfere with our operations, compromise confidential
information, and expose us to liability which could materially adversely impact our business and reputation. |
|
● |
We
may be unable to protect our technology from use by third parties. |
|
● |
Third
parties may assert that we are infringing their intellectual property rights. |
|
● |
Expensive
intellectual property litigation is frequent in the medical device industry. |
|
● |
We
may not be able to maintain all the licenses or rights from third parties necessary for the development, manufacture, or marketing
of new and existing products. |
|
● |
Our
products and related technologies can be applied in different medical applications, and we may fail to focus on the most profitable
areas. |
|
● |
We
may be subject to damages resulting from claims that our employees or we have wrongfully used or disclosed alleged trade secrets
of their former employers. |
|
● |
Software
errors or other defects may be discovered in our products. |
Risks
Relating to Regulatory and Legal Matters
|
● |
If
we or the parties in our strategic collaborations fail to obtain or maintain necessary FDA clearances or approvals for our medical
device products, or if such clearances or approvals are delayed, we will be unable to continue to commercially distribute and market
our products. |
|
● |
If
our strategic collaborations elect not to or we fail to obtain regulatory approvals in other countries for products under development,
we will not be able to commercialize these products in those countries. |
|
● |
We
may fail to comply with continuing regulatory requirements of the FDA and other authorities and become subject to enforcement action,
which may include substantial penalties. |
|
● |
Our
suppliers, subcontractors, or we may fail to comply with the FDA quality system regulation or other quality standards. |
|
● |
If
we fail to comply with health care regulations, we could face substantial penalties and our business, operations and financial condition
could be adversely affected. |
|
● |
Healthcare
policy changes, including the potential repeal or amendment of any existing legislation, may have a material adverse effect on us. |
|
● |
The
application of state certificate of need regulations and compliance by our customers with federal and state licensing or other international
requirements could substantially limit our ability to sell our products and grow our business. |
|
● |
Hospitals
or physicians may be unable to obtain reimbursement from third-party payors for procedures using our products, or reimbursement for
procedures may be insufficient to recoup the costs of purchasing our products. |
|
● |
Our
costs could substantially increase if we receive a significant number of warranty claims or have other significant, uninsured liabilities. |
Risks
Related to Our Common Stock
|
● |
Our
principal stockholders continue to own a large percentage of our voting stock, and they have the ability to substantially influence
matters requiring stockholder approval. |
|
● |
Future
issuances of our securities could dilute current stockholders’ ownership. |
|
● |
We
have never paid dividends on our common stock, and we do not anticipate paying any cash dividends in the foreseeable future. |
|
● |
Our
certificate of incorporation and bylaws, Delaware law, and one of our collaboration agreements contain provisions that could discourage
a takeover. |
|
● |
Evolving
regulation of corporate governance and public disclosure may result in additional expenses and continuing uncertainty. |
|
● |
Our
future operating results may be below securities analysts’ or investors’ expectations, which could cause our stock price
to decline. |
|
● |
We
expect that the price of our common stock could fluctuate substantially, possibly resulting in class action securities litigation. |
|
● |
If
we fail to continue to meet all applicable NYSE American Market requirements and the NYSE American determines to delist our common
stock, the delisting could adversely affect the market liquidity of our common stock, which would impair the value of your investment
and ultimately harm our business by limiting our access to equity markets for capital raising. |
Risks
Related to the February 2021 CEO Performance Stock Unit Grant
|
● |
We
will incur significant additional stock-based compensation expense over the term of the CEO Performance Award regardless of whether
or not any of the milestones are achieved. |
|
● |
Our
stockholders may experience substantial dilution upon payout of shares under the CEO Performance Award. |
|
● |
Certain
provisions in the PSU Agreement may discourage a change in control of the Company even if such a transaction would otherwise be beneficial
to our stockholders. |
|
● |
We
are highly dependent on the services of Mr. Fischel, and our compensation package, including the CEO Performance Award, may fail
to retain him. |
Summary
of General Risk Factors
|
● |
General
economic conditions could materially adversely impact us. |
|
● |
We
may lose key personnel or fail to attract and retain replacement or additional personnel. |
|
● |
We
face currency and other risks associated with international operations. |
Risks
Related to Our Business and Business Operations
We
may not generate cash from operations or be able to raise the necessary capital to continue operations.
We
may require additional funds to meet our operational, working capital and capital expenditure needs in the future. We cannot be certain
that we will be able to obtain additional funds on favorable terms or at all. If we cannot raise capital on acceptable terms, we will
not be able to, among other things:
|
● |
maintain
customer and vendor relationships; |
|
● |
hire,
train and retain employees; |
|
● |
maintain
or expand our operations; |
|
● |
enhance
our existing products or develop new ones; |
|
● |
respond
to competitive pressures; or |
|
● |
service
our debt obligations and meet our financial covenants. |
Our
failure to do any of these things could result in lower revenue and adversely affect our financial condition and results of operations,
and we may have to curtail or cease operations.
A
pandemic, epidemic or outbreak of infectious disease could have an adverse effect our business, operating results or financial condition.
The
novel coronavirus COVID-19 (“COVID-19”) pandemic has resulted, and is likely to continue to result, in significant disruptions
to the economy, as well as business and capital markets around the world. The full extent of the impact of the COVID-19 pandemic on our
business, results of operations and financial condition will depend on numerous evolving factors that we may not be able to accurately
predict.
As
a result of the COVID-19 outbreak, we have experienced business disruptions, including travel restrictions on us and our third-party
distributors, which have negatively affected our complex sales, marketing, installation, distribution and service network relating to
our products and services. The COVID-19 pandemic may continue to negatively affect demand for both our systems and our disposable products
by limiting the ability of our sales personnel to maintain their customary contacts with customers as governmental authorities institute
prolonged quarantines, travel restrictions, and shelter-in-place orders, or as our customers impose limitations on contacts and in-person
meetings that go beyond those imposed by governmental authorities.
In
addition, many of our hospital customers, for whom the purchase of our system involves a significant capital purchase which may be part
of a larger construction project at the customer site (typically the construction of a new building), may themselves be under economic
pressures. This may cause delays or cancellations of current purchase orders and other commitments, and may exacerbate the long and variable
sales and installation cycles for our robotic magnetic navigation systems. We may also experience significant reductions in demand for
our disposable products as our healthcare customers (physicians and hospitals) continue to re-prioritize the treatment of patients and
divert resources away from non-coronavirus areas, which we anticipate will lead to the performance of fewer procedures in which our disposable
products are used. In addition, patients may consider foregoing or deferring procedures utilizing our products, even if physicians and
hospitals are willing to perform them, which could also reduce demand for, and sales of, our disposable products.
As
of the date of the filing of this Annual Report on Form 10-K, we believe our manufacturing operations and supply chains have been manageably
impacted, but we cannot guarantee that they will not be impacted more severely in the future. If our manufacturing operations or supply
chains are materially interrupted, it may not be possible for us to timely manufacture relevant products at required levels, or at all.
Changes in economic conditions and supply chain constraints could lead to higher inflation than
previously experienced or expected, which could, in turn, lead to an increase in costs. We may be unable to raise the prices of our products
sufficiently to keep up with the rate of inflation. A material reduction or interruption to any of our manufacturing processes
or a substantial increase in costs would have a material adverse effect on our business, operating results, and financial condition.
As
governmental authorities around the world continue to institute prolonged mandatory closures, social distancing protocols and shelter-in-place
orders, or as private parties on whom we rely to operate our business put in place their own protocols that go beyond those instituted
by relevant governmental authorities, our ability to adequately staff and maintain our operations or further our product development
could be negatively impacted.
Any
disruption to the capital markets could negatively impact our ability to raise capital. If the capital markets are disrupted for an extended
period of time and we need to raise additional capital, such capital may not be available on acceptable terms, or at all. Continued disruptions
to the capital markets and other financing sources could also negatively impact our hospital customers’ ability to raise capital
or otherwise obtain financing to fund their operations and capital projects. Such could result in delayed spending on current projects,
a longer sales cycle for new projects where a large capital commitment is required, and decreased demand for our disposable products
as well as an increased risk of customer defaults or delays in payments for our systems installation, service contracts and disposable
products.
We
continue to evaluate and, where appropriate, take actions to reduce costs and spending across our organization. We will continue to actively
monitor the situation and may take further actions that alter our business operations that may be required by federal, state, or local
governmental authorities that may be implemented by our vendors, supplier or customers, or that we determine are in the best interests
of our employees, customers, suppliers and stockholders.
We
may not be able to fund our business operations in the same manner as we have done historically if we do not improve the operating performance
of the Company or raise additional capital.
The
Company has sustained operating losses throughout its corporate history and expects that its 2022 operating expenses will exceed its
2022 gross margin. The Company expects to continue to incur operating losses and negative cash flows until revenues reach a level sufficient
to support ongoing operations or expense reductions are in place. The Company’s liquidity needs will be largely determined by the
success of clinical adoption within the installed base of our robotic magnetic navigation system as well as by new placements of capital
systems. The Company’s plans for improving the liquidity conditions primarily include its ability to control the timing and spending
of its operating expenses and raising additional funds through debt or equity financing.
There
can be no assurance that any of our plans will be successful or that additional capital will be available to us on reasonable terms,
or at all, when needed. If we are unable to improve the operating performance of the Company or if we are unable to obtain sufficient
additional capital, it may impair our ability to obtain new customers or hire and retain employees, any of which could force us to substantially
revise our business plan or cease operations, which may reduce or negate the value of your investment.
Hospital
decision-makers may not purchase our Robotic Magnetic Navigation Systems or related products or may think that such systems and products
are too expensive.
To
achieve and grow sales, hospitals must purchase our products, and in particular, our robotic magnetic navigation system. The robotic
magnetic navigation system is a novel device, and hospitals and physicians are traditionally slow to adopt new products and treatment
practices. In addition, hospitals may delay their purchase or installation decision for the robotic magnetic navigation system based
on the disposable interventional devices that have received regulatory clearance or approval. Moreover, the robotic magnetic navigation
system is an expensive piece of capital equipment, representing a significant portion of the cost of a new or replacement interventional
lab. Although priced significantly below a robotic magnetic navigation system, the Odyssey Solution is still an expensive product.
If hospitals do not widely adopt our systems, or if they decide that they are too expensive, we may never become profitable. Any failure
to sell as many systems as our business plan requires could also have a seriously detrimental impact on our results of operations, financial
condition, liquidity position, and cash flow.
If
we are unable to fulfill our current purchase orders and other commitments on a timely basis or at all, we may not be able to achieve
future sales growth.
Our
backlog, which consists of purchase orders and other commitments, is considered by some investors to be a significant indicator of future
performance. Consequently, negative changes to this backlog or its failure to grow commensurate with expectations could negatively impact
our future operating results or our share price. Our backlog includes those outstanding purchase orders and other commitments that management
believes will result in recognition of revenue upon delivery or installation of our systems. We cannot assure you that we will recognize
revenue in any particular period or at all because some of our purchase orders and other commitments are subject to contingencies that
are outside our control. In addition, these orders and commitments may be revised, modified or cancelled, either by their express terms,
as a result of negotiations or by project changes or delays. System installation is, by its nature, subject to the interventional lab
construction or renovation process which comprises multiple stages, all of which are outside of our control. Although the actual installation
of our robotic magnetic navigation system requires only a few weeks and can be accomplished by either our staff or by subcontractors,
successful installation of our system can be subjected to delays related to the overall construction or renovation process. If we experience
any failures or delays in completing the installation of these systems, our reputation would suffer and we may not be able to sell additional
systems. We have experienced situations in which our purchase orders and other commitments did not result in recognizing revenue from
placement of a system with a customer. In addition to construction delays, there are risks that an institution will attempt to cancel
a purchase order as a result of subsequent project review by the institution or the departure from the institution of physicians or physician
groups who have expressed an interest in purchasing our products.
Decreases
in our backlog have occurred in the past and could occur in the future, causing delays in revenue recognition or even removal of orders
and other commitments from our backlog. Such events would have a negative effect on our revenue and results of operations.
We
will likely experience long and variable sales and installation cycles, which could result in substantial fluctuations in our quarterly
results of operations.
We
anticipate that our robotic magnetic navigation system will continue to have a lengthy sales cycle because it consists of a relatively
expensive piece of capital equipment, the purchase of which requires the approval of senior management at hospitals, inclusion in the
hospitals’ interventional lab budget process for capital expenditures, and, in some instances, a certificate of need from the state
or other regulatory approval. In addition, historically the majority of our products have been delivered less than one year after the
receipt of a purchase order from a hospital, with the timing being dependent on the construction cycle for the new or replacement interventional
suite in which the equipment will be installed. In some cases, this time frame has been extended further because the interventional suite
construction is part of a larger construction project at the customer site (typically the construction of a new building), which may
occur with our existing and future purchase orders. We cannot assure you that the time from purchase order to delivery for systems to
be delivered in the future will be consistent with our historical experience. Moreover, a global economic slowdown may cause our customers
to further delay construction or significant capital purchases, which could further lengthen our sales cycle. This may contribute to
substantial fluctuations in our quarterly operating results. As a result, in future quarters our operating results could fall below the
expectations of securities analysts or investors, in which event our stock price would likely decrease.
Physicians
may not use our products if they do not believe they are safe, efficient and effective.
We
believe that physicians will not use our products unless they determine that our products provide a safe, effective and preferable alternative
to interventional methods in general use today. If longer-term patient studies or clinical experience indicate that treatment with our
system or products is less effective, less efficient or less safe than our current data suggest, our sales would be harmed, and we could
be subject to significant liability. Further, unsatisfactory patient outcomes or patient injury could cause negative publicity for our
products, particularly in the early phases of product introduction. In addition, physicians may be slow to adopt our products if they
perceive liability risks arising from the use of these new products. It is also possible that as our products become more widely used,
latent defects could be identified, creating negative publicity and liability problems for us and adversely affecting demand for our
products. If physicians do not use our products, we likely will not become profitable or generate sufficient cash to fund company operations
going forward.
Our
collaborations with fluoroscopy system manufacturers and providers of catheters and electrophysiology mapping systems or other parties
may fail, or we may not be able to enter into additional collaborations in the future.
We
have collaborated with and are continuing to collaborate with fluoroscopy system manufacturers and providers of catheters and electrophysiology
mapping systems and other parties to make our instrument control technology compatible with their respective imaging products or disposable
interventional devices and to co-develop additional disposable interventional devices for use with our products. A significant portion
of our revenue from system sales is derived from these integrated products. The maintenance of these collaborations, or the establishment
of equivalent alternatives, is critical to our commercialization efforts.
There
are no guarantees that any existing strategic relationships will continue, and efforts are ongoing to ensure the availability of integrated
next generation systems and/or equivalent alternatives. We cannot provide assurance as to the timeline of the ongoing availability of
such compatible systems or our ability to obtain equivalent alternatives on competitive terms or at all.
Our
product commercialization plans could be disrupted, leading to lower than expected revenue and a material and adverse impact on our results
of operations and cash flow, if:
|
● |
we
fail to or are unable to maintain adequate compatibility of our products with the most prevalent imaging products or disposable interventional
devices expected by our customers for their clinical practice; |
|
● |
any
of our collaboration partners delays or fails in the integration of its technology or new products with our robotic magnetic navigation
system; |
|
● |
any
of our collaboration partners fails to develop or commercialize the integrated products in a timely manner; or |
|
● |
we
become involved in disputes with one or more of our collaboration partners regarding our collaborations. |
Some
of our collaborators are large, global organizations with diverse product lines and interests
that may diverge from our interests in commercializing our products. Accordingly, our collaborators may not devote adequate resources
to our products, or may experience financial difficulties, change their business strategy or undergo a business combination that may
affect their willingness or ability to fulfill their obligations to us.
The
failure of one or more of our collaborations could have a material adverse effect on our financial condition, results of operations and
cash flow. In addition, if we are unable to enter into additional collaborations in the future, or if these collaborations fail, our
ability to develop and commercialize products could be impacted negatively and our revenue could be adversely affected.
The
complexity associated with selling, marketing, and distributing products could impair our ability to increase revenue.
We
currently market our products in the U.S., Europe and the rest of the world through a direct sales force of senior sales specialists,
distributors and sales agents, supported by account managers and clinical specialists who provide training, clinical support, and other
services to our customers. If we are unable to effectively utilize our existing sales force or increase our existing sales force in the
foreseeable future, we may be unable to generate the revenue we have projected in our business plan. Factors that may inhibit our sales
and marketing efforts include:
|
● |
our
inability to recruit and retain adequate numbers of qualified sales and marketing personnel; |
|
● |
our
inability to accurately forecast future product sales and utilize resources accordingly; |
|
● |
the
inability of sales personnel to obtain access to or persuade adequate numbers of hospitals and physicians to purchase and use our
products; and |
|
● |
unforeseen
costs associated with maintaining and expanding an independent sales and marketing organization. |
In
addition, if we fail to effectively use distributors or contract sales agents for distribution of our products where appropriate, our
revenue and profitability would be adversely affected.
Our
marketing strategy is dependent on collaboration with physician “thought leaders.”
Our
research and development efforts and our marketing strategy depend heavily on obtaining support, physician training assistance, and collaboration
from highly regarded physicians at leading commercial and research hospitals, particularly in the U.S. and Europe. If we are unable to
gain and/or maintain such support, training services, and collaboration or if the reputation or standing of these physicians is impaired
or otherwise adversely affected, our ability to market our products and, as a result, our financial condition, results of operations
and cash flow could be materially and adversely affected.
Physicians
may not commit enough time to sufficiently learn our system.
In
order for physicians to learn to use the robotic magnetic navigation system, they must attend structured training sessions in order to
familiarize themselves with a sophisticated user interface and they must be committed to learning the technology. Further, physicians
must utilize the technology on a regular basis to ensure they maintain the skill set necessary to use the interface. Continued market
acceptance could be delayed by lack of physician willingness to attend training sessions, by the time required to complete this training,
or by state or institutional restrictions on our ability to provide training. An inability to train a sufficient number of physicians
to generate adequate demand for our products could have a material adverse impact on our financial condition and cash flow.
Customers
may choose to purchase competing products and not ours.
Our
products must compete with traditional interventional methods. These methods are widely accepted in the medical community, have a long
history of use and do not require the purchase of an additional expensive piece of capital equipment. In addition, many of the medical
conditions that can be treated using our products can also be treated with pharmaceuticals or other medical devices and procedures. Many
of these alternative treatments are also widely accepted in the medical community and have a long history of use.
We
also face competition from companies that are developing robotic technologies for electrophysiology and non-electrophysiology interventional
procedures. We are aware of three companies that commercialized endovascular catheter navigation systems which have been cleared by the
FDA for electrophysiology procedures as well as two companies with electromagnetic catheter navigation systems that received CE Mark
approval in Europe. None of these companies seem to be active with any current commercial activities. Outside of electrophysiology, there
are at least two companies that have commercialized robotic systems for guidewire manipulation and can be viewed as potential competitors
as we look to address additional clinical applications.
We
face competition from companies that are developing drugs, gene or cellular therapies or other medical devices or procedures to treat
the conditions for which our products are intended. The medical device and pharmaceutical industries make significant investments in
research and development, and innovation is rapid and continuous. Other companies in the medical device industry continue to develop
new devices and technologies for traditional interventional methods.
If
these or other new products or technologies emerge that provide the same or superior benefits as our products at equal or lesser cost,
it could render our products obsolete or unmarketable. In addition, the presence of other competitors may cause potential customers to
delay their purchasing decisions, resulting in a longer than expected sales cycle, even if they do not choose our competitors’
products. We cannot be certain that physicians will use our products to replace or supplement established treatments or that our products
will be competitive with current or future products and technologies.
Many
of our other competitors also have longer operating histories, significantly greater financial, technical, marketing and other resources,
greater name recognition and a larger base of customers than we do. In addition, as the markets for medical devices develop, additional
competitors could enter the market. We cannot assure you that we will be able to compete successfully against existing or new competitors.
Our revenue would be reduced or eliminated if our competitors develop and market products that are more effective and less expensive
than our products.
If
the magnetic fields generated by our system are not compatible with, or interfere with, other widely used equipment in the interventional
labs, sales of our products would be negatively affected.
Our
robotic magnetic navigation system generates magnetic fields that directly govern the motion of the internal, or working, tip of disposable
interventional devices. If other equipment in the interventional labs or elsewhere in a hospital is incompatible with the magnetic fields
generated by our system, or if our system interferes with such equipment, we may be required to install additional shielding, which may
be expensive and which may not solve the problem. If magnetic interference becomes a significant issue at targeted institutions, it would
increase our installation costs at those institutions and could limit the number of hospitals that would be willing to purchase and install
our systems, either of which would adversely affect our financial condition, results of operations and cash flow.
The
use of our products could result in product liability claims that could be expensive, divert management’s attention, and harm our
reputation and business.
Our
business exposes us to significant risks of product liability claims. The medical device industry has historically been litigious, and
we could face product liability claims if the use of our products were to cause injury or death. The coverage limits of our product liability
insurance policies may not be adequate to cover future claims, and we may be unable to maintain product liability insurance in the future
at satisfactory rates or adequate amounts. A product liability claim, regardless of its merit or eventual outcome, could divert management’s
attention, and result in significant legal defense costs, significant harm to our reputation and a decline in revenue.
We
have incurred substantial losses in the past and may not be profitable in the future.
We
have incurred substantial net losses since inception, including incurring an accumulated deficit of $498.7 million as of December 31,
2021, and we expect to incur losses into the future as we continue the commercialization of our products. Moreover, the extent of our
future losses and the timing of profitability are highly uncertain. Although we have achieved operating profitability during certain
quarters, we may not achieve profitable operations on an annual basis, and if we achieve profitable operations, we may not sustain or
increase profitability on a quarterly or annual basis. If we require more time than we expect to generate significant revenue and achieve
annual profitability, or if we are unable to sustain profitability once achieved, we may not be able to continue our operations. Our
failure to achieve annual profitability or sustain profitability on an annual or quarterly basis could negatively impact the market price
of our common stock. Furthermore, even if we achieve significant revenue, we may choose to pursue a strategy of increasing market penetration
and presence or expand or accelerate new product development or clinical research activities at the expense of profitability.
Our
reliance on contract manufacturers and on suppliers, and in some cases, a single supplier, could harm our ability to meet demand for
our products in a timely manner or within budget.
We
depend on contract manufacturers to produce and assemble certain of the components of our systems and other products such as our electrophysiology
catheter advancement device and other disposable devices. We also depend on various third-party suppliers for the magnets we use in our
robotic magnetic navigation system and certain components of our Odyssey Solution. In addition, some of the components necessary
for the assembly of our products are currently provided to us by a single supplier, including the magnets for our robotic magnetic navigation
system and certain components of our Odyssey Solution, and we generally do not maintain large volumes of inventory. Our reliance
on these third parties involves a number of risks, including, among other things, the risk that:
|
● |
we
may not be able to control the quality and cost of our system or respond to unanticipated changes and increases in customer orders;
|
|
● |
we
may lose access to critical services, materials, or components, resulting in an interruption in the manufacture, assembly and shipment
of our systems; and |
|
● |
we
may not be able to find new or alternative components for our use or reconfigure our system and manufacturing processes in a timely
manner if the components necessary for our system become unavailable. |
If
any of these risks materialize, it could significantly increase our costs and impair product delivery.
Lead
times for materials and components ordered by us and our contract manufacturers vary and depend on factors such as the specific supplier,
contract terms and demand for a component at a given time. We, and our contract manufacturers, acquire materials, complete standard subassemblies
and assemble fully configured systems based on sales forecasts. If orders do not match forecasts, we, as well as our contract manufacturers,
may have excess or inadequate inventory of materials and components.
In
addition, if these manufacturers or suppliers stop providing us with the components or services necessary for the operation of our business,
we may not be able to identify alternate sources in a timely fashion. Any transition to alternate manufacturers or suppliers would likely
result in operational problems and increased expenses and could delay the shipment of or limit our ability to provide our products. We
cannot assure you that we would be able to enter into agreements with new manufacturers or suppliers on commercially reasonable terms
or at all. Additionally, obtaining components from a new supplier may require a new or supplemental filing with applicable regulatory
authorities and clearance or approval of the filing before we could resume product sales. Any disruptions in product flow may harm our
ability to generate revenue, lead to customer dissatisfaction, damage our reputation and result in additional costs or cancellation of
orders by our customers.
We
also rely on Biosense Webster and other parties to manufacture a number of disposable interventional devices for use with our robotic
magnetic navigation system. If these parties cannot manufacture sufficient quantities of disposable interventional devices to meet customer
demand, or if their manufacturing processes are disrupted, our revenue and profitability would be adversely affected.
Risks
associated with international manufacturing and trade could negatively impact the availability and cost of our products because materials
used to manufacture our magnets, one of our key system components, are sourced from overseas.
We
purchase the permanent magnets for our robotic magnetic system from a manufacturer that uses material produced in Japan, and we anticipate
that a certain amount of the production work for these magnets will be performed for this manufacturer in China. Given the complex relationships
between China and the U.S., political, diplomatic, military, or other events could result in business disruptions, including increased
regulatory enforcement against companies, tariffs, trade embargoes, and export restrictions relating to this production work. For example,
in 2020, the U.S. government amended the Entity List rules to expand the requirement to obtain a license prior to the export of certain
technologies. In addition, in 2020, a new U.S. regulation seeks to prohibit the U.S. government from contracting with companies who use
the products or services of certain Chinese companies. While we believe that these regulations do not materially impact our business
at this time, we cannot predict the impact that additional regulatory changes may have on our business in the future, which could adversely
affect our business operations in China, or may otherwise limit our ability to offer our products and services in China and other parts
of the world. In addition, our subcontractor may purchase magnets for our disposable interventional devices directly from a manufacturer
in Japan. The relationships with these manufacturers and suppliers are generally on a purchase order basis and do not provide a contractual
obligation to provide adequate supply or acceptable pricing on a long-term basis. These vendors could discontinue sourcing or supplying
these magnets at any time. If any of our significant vendors were to discontinue their relationship with us or with our subcontractor,
or if the factories were to suffer a disruption in their production, we may be unable to replace the vendors in a timely manner, which
could result in short-term disruption to our supply of magnets as we transition our orders to new vendors or factories which could, in
turn, cause a significant increase in price or a disruption of imports, including the imposition of import restrictions, could adversely
affect our business, financial condition and results of operations. The flow of components from our vendors could also be adversely affected
by financial or political instability or travel restrictions or bans in any of the countries in which the goods we purchase are manufactured,
if the instability or restriction affects the production or export of product components from those countries. Trade restrictions in
the form of tariffs or quotas, or both, could also affect the importation of those product components and could increase the cost and
reduce the supply of products available to us. For example, the previous administration implemented, or was considering the imposition
of, tariffs on certain foreign goods, and we cannot predict the ongoing status of tariffs or any further potential legislation or actions
taken by the U.S. federal government that restrict trade, such as additional tariffs, trade barriers, and other protectionist or retaliatory
measures taken by governments in Europe, Asia, and other countries, could adversely impact our ability to sell products and services,
which could increase the cost of our products and the components and raw materials that go into making them. Countries may also adopt
other protectionist measures that could limit our ability to offer our products and services. In addition, decreases in the value of
the U.S. dollar against foreign currencies, or significant price increase from these suppliers, could increase the cost of products we
purchase from overseas vendors.
We
may encounter problems at our manufacturing facilities or those of our subcontractors or otherwise experience manufacturing delays that
could result in lost revenue.
We
subcontract all or part of the manufacture and assembly of components of our products and devices. The products we design may not satisfy
all of the performance requirements of our customers and we may need to improve or modify the design or ask our subcontractors to modify
their production process in order to do so. In addition, we, or our subcontractors, may experience quality problems, substantial costs
and unexpected delays related to efforts to upgrade and expand manufacturing, assembly and testing capabilities. If we incur delays due
to quality problems or other unexpected events, our revenue may be impacted.
Our
growth may place a significant strain on our resources, and if we fail to manage our growth, our ability to develop, market, and sell
our products will be harmed.
Our
business plan contemplates a period of substantial growth and business activity. This growth and activity will likely result in new and
increased responsibilities for management personnel and place significant strain upon our operating and financial systems and resources.
To accommodate our growth and compete effectively, we will be required to improve our information systems, create additional procedures
and controls and expand, train, motivate and manage our work force. We cannot be certain that our personnel, systems, procedures, and
controls will be adequate to support our future operations. Any failure to effectively manage our growth could impede our ability to
successfully develop, market, and sell our products.
Risks
Relating to Technology and Intellectual Property Matters
The
rate of technological innovation of our products might not keep pace with the rest of the market.
The
rate of innovation for the market in which our products compete is fast-paced and requires significant resources and innovation. If other
products and technologies are developed that compete with, or may compete with, our products, it could be difficult for us to maintain
our advantages associated with being an early developer of this technology. Likewise, the innovation and development cycle of competitors
may impact our research and development efforts and ultimately, commercial adoption of viable research and development efforts. In addition,
connectivity with other devices in the electrophysiology lab is a key driver of value. If the Company is not able to continue to commit
sufficient resources to ensure that its products are compatible with other products within the electrophysiology lab, this could have
a negative impact on revenue.
Security
breaches and other disruptions to our information technology infrastructure could interfere with our operations, compromise confidential
information, and expose us to liability which could materially adversely impact our business and reputation.
Security
breaches and other disruptions to our information technology infrastructure could interfere with our operations; compromise information
belonging to us, our employees, customers, and suppliers; and expose us to liability which could adversely impact our business and reputation.
In the ordinary course of business, we rely on information technology networks and systems, some of which are managed by third parties,
to process, transmit, and store electronic information, and to manage or support a variety of business processes and activities. Additionally,
we collect and store certain data, including proprietary business information and customer and employee data, and may have access to
confidential or personal information in certain of our businesses that is subject to privacy and security laws, regulations, and customer-imposed
controls. Despite our cyber security measures (including employee and third-party training, use of user names and passwords for access
to information technology systems, monitoring of networks and systems, and maintenance of backup and protective systems) which are continuously
reviewed and upgraded, our information technology networks and infrastructure may still be vulnerable to damage, disruptions, or shutdowns
due to attack by hackers, breaches, employee error or malfeasance, power outages, computer viruses, telecommunication or utility failures,
systems failures, war or other military conflicts, natural disasters, or other catastrophic events. We have programs in place
to detect, contain, and respond to data security incidents, and we continually make improvements to our networks and systems in order
to minimize or eliminate vulnerabilities. However, because the techniques used to exploit systems change frequently and can be difficult
to detect, we may not be able to prevent these intrusions or mitigate them when and if they occur. Additionally, we rely on some information
technology networks and systems managed by third parties, and we rely on these third parties to deploy appropriate measures to protect
their systems and networks. Vulnerabilities in their systems could compromise the security of our own infrastructure. Any such events
could result in legal claims or proceedings, liability or penalties under privacy laws, disruption in operations, and damage to our reputation,
which could materially adversely affect our business. While we have experienced, and expect to continue to experience, these types of
threats to our information technology networks and infrastructure, to date none of these threats has had a material impact on our business
or operations.
We
may be unable to protect our technology from use by third parties, which may allow them to compete with us and harm our business.
Our
commercial success depends in part on obtaining patent and other intellectual property right protection for the technologies contained
in our products and on successfully defending these rights against third party challenges. The patent positions of medical device companies,
including ours, can be highly uncertain and involve complex and evolving legal and factual questions. We cannot assure you that we will
obtain the patent protection we seek, that any protection we do obtain will be found valid and enforceable if challenged or that it will
confer any significant commercial advantage. U.S. patents and patent applications may also be subject to interference proceedings and
U.S. patents may be subject to re-examination proceedings in the U.S. Patent and Trademark Office, and foreign patents may be subject
to opposition or comparable proceedings in the corresponding foreign patent office, which proceedings could result in either loss of
the patent, or denial of the patent application, or loss or reduction in the scope of one or more of the claims of the patent or patent
application. In addition, such interference, re-examination, and opposition proceedings may be costly. Thus, any patents that we own
or license from others may not provide any protection against competitors. Our pending patent applications, those we may file in the
future, or those we may license from third parties may not result in patents being issued and certain foreign patent applications for
medical related devices and methods may be found unpatentable. If issued, they may not provide us with proprietary protection or competitive
advantages against competitors with similar technology.
Some
of our technology was developed in conjunction with third parties, and thus there is a risk that a third party may claim rights in our
intellectual property. Outside the U.S., we rely on third-party payment services for the payment of foreign patent annuities and other
fees. Non-payment or delay in payment of such fees, whether intentional or unintentional, may result in loss of patents or patent rights
important to our business. Many countries, including certain countries in Europe, have compulsory licensing laws under which a patent
owner may be compelled to grant licenses to third parties (for example, the patent owner has failed to “work” the invention
in that country, or the third party has patented improvements). In addition, many countries limit the enforceability of patents against
government agencies or government contractors. In these countries, the patent owner may have limited remedies, which could materially
diminish the value of the patent. We also cannot assure you that we will be able to develop additional patentable technologies. If we
fail to obtain adequate patent protection for our technology, or if any protection we obtain becomes limited or invalidated, others may
be able to make and sell competing products, impairing our competitive position.
Our
trade secrets, nondisclosure agreements and other contractual provisions to protect unpatented technology provide only limited and possibly
inadequate protection of our rights. As a result, third parties may be able to use our unpatented technology, and our ability to compete
in the market would be reduced. In addition, employees, consultants and others who participate in developing our products or in commercial
relationships with us may breach their agreements with us regarding our intellectual property, and we may not have adequate remedies
for the breach.
Our
competitors may independently develop similar or alternative technologies or products that are equal or superior to our technology and
products without infringing any of our patent or other intellectual property rights, or may design around our proprietary technologies.
Our competitors may acquire similar or even the same technology components that are utilized in our current offering eroding some differentiation
in the marketplace. In addition, the laws of some foreign countries do not protect intellectual property rights to the same extent, as
do the laws of the U.S., particularly in the field of medical products and procedures.
Third
parties may assert that we are infringing their intellectual property rights, and any defense of such assertions may be unsuccessful
and expensive, even if we are successful.
Successfully
commercializing our products depends in part on not infringing patents held by third parties. It is possible that one or more of our
products, including those that we have developed in conjunction with third parties, infringes existing patents. We may also be liable
for patent infringement by third parties whose products we use or combine with our own and for which we have no right to indemnification.
In addition, because patent applications are maintained under conditions of confidentiality and can take many years to issue, there may
be applications now pending of which we are unaware and which may later result in issued patents that our products infringe. Determining
whether a product infringes a patent involves complex legal and factual issues and may not become clear until finally determined by a
court in litigation. Our competitors may assert that our products infringe patents held by them. Moreover, as the number of competitors
in our market grows the possibility of a patent infringement claim against us increases. If we were unsuccessful in obtaining a license
or redesigning our products, we could be subject to litigation. If we lose in this kind of litigation, a court could require us to pay
substantial damages or prohibit us from using technologies essential to our products covered by third-party patents. An inability to
use technologies essential to our products would have a material adverse effect on our financial condition, results of operations and
cash flow and could undermine our ability to continue our current business operations.
Expensive
intellectual property litigation is frequent in the medical device industry and may cause to incur substantial expenses to defend.
Infringement
actions, validity challenges and other intellectual property claims and proceedings, whether with or without merit, can be expensive
and time-consuming and would divert management’s attention from our business. We have incurred, and expect to continue to incur,
substantial costs in obtaining patents and may have to incur substantial costs defending our proprietary rights. Incurring such costs
could have a material adverse effect on our financial condition, results of operations and cash flow.
We
may not be able to maintain all the licenses or rights from third parties necessary for the development, manufacture, or marketing of
new and existing products.
As
we develop additional products and improve or maintain existing products, we may find it advisable or necessary to seek licenses or otherwise
make payments in exchange for rights from third parties who hold patents covering certain technology. If we cannot obtain or maintain
the desired licenses or rights for any of our products, we could be forced to try to design around those patents at additional cost or
abandon the product altogether, which could adversely affect revenue and results of operations. If we have to abandon a product, our
ability to develop and grow our business in new directions and markets would be adversely affected.
Our
products and related technologies can be applied in different medical applications, and we may fail to focus on the most profitable areas.
The
robotic magnetic navigation system is designed to have the potential for expanded applications beyond electrophysiology and interventional
cardiology, including congestive heart failure, structural heart repair, interventional neurosurgery, interventional neuroradiology,
peripheral vascular, pulmonology, urology, gynecology and gastrointestinal medicine. However, we have limited financial and managerial
resources and, therefore, may be required to focus on products in selected industries and sites and to forego efforts with regard to
other products and industries. Our decisions may not produce viable commercial products and may divert our resources from more profitable
market opportunities. Moreover, we may devote resources to developing products in these additional areas but may be unable to justify
the value proposition or otherwise develop a commercial market for products we develop in these areas, if any. In that case, the return
on investment in these additional areas may be limited, which could negatively affect our results of operations.
We
may be subject to damages resulting from claims that our employees or we have wrongfully used or disclosed alleged trade secrets of their
former employers.
Many
of our employees were previously employed at hospitals, universities or other medical device companies, including our competitors or
potential competitors. We could, in the future, be subject to claims that these employees or we have used or disclosed trade secrets
or other proprietary information of their former employers. Litigation may be necessary to defend against these claims. If we fail in
defending such claims, in addition to paying monetary damages, we may lose valuable intellectual property rights or personnel. Even if
we are successful in defending against these claims, litigation could result in substantial costs and be a distraction to management.
Incurring such costs could have a material adverse effect on our financial condition, results of operations and cash flow.
Software
errors or other defects may be discovered in our products and the resulting performance issues may damage our business and our reputation
in the industry in which we operate.
Our
products incorporate many components, including sophisticated computer software. Complex software frequently contains errors, especially
when first introduced. Because our products are designed to be used to perform complex interventional procedures, we expect that physicians
and hospitals will have an increased sensitivity to the potential for software defects. We cannot assure you that our software or other
components will not experience errors or performance problems in the future. If we experience software errors or performance problems,
we would likely also experience:
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loss
of revenue; |
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delay
in market acceptance of our products; |
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damage
to our reputation; |
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additional
regulatory filings; |
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product
recalls; |
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increased
service or warranty costs; and/or |
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product
liability claims relating to the software defects. |
Risks
Related to Regulatory and Legal Matters
If
we or the parties in our strategic collaborations fail to obtain or maintain necessary FDA clearances or approvals for our medical device
products, or if such clearances or approvals are delayed, we will be unable to continue to commercially distribute and market our products.
Our
products are medical devices that are subject to extensive regulation in the U.S. and in foreign countries where we do business. Each
medical device that we wish to market in the U.S. must be designated as exempt from premarket approval or notification, or first receive
either a 510(k) clearance, de novo approval, or a pre-market approval, or PMA, from the U.S. FDA pursuant to the Federal Food, Drug,
and Cosmetic Act, or FD&C Act. The FDA’s 510(k) clearance process usually takes from four to 12 months, but it can take longer.
The process of obtaining PMA approval is much more costly, lengthy, and uncertain, generally taking from one to three years or even longer.
Although we have 510(k) clearance for many of our products, including disposable interventional devices, and we are able to market these
products commercially in the U.S., our business model relies significantly on revenue from new disposable interventional devices, some
of which may not achieve FDA clearance or approval. We cannot assure you that any of our devices will not be required to undergo the
lengthier and more burdensome PMA process. We cannot commercially market any disposable interventional devices in the U.S. until the
necessary clearances or approvals from the FDA have been received. In addition, we are working with third parties to co-develop disposable
products. In some cases, these companies are responsible for obtaining appropriate regulatory clearance or approval to market these disposable
devices. If these clearances or approvals are not received or are substantially delayed or if we are not able to offer a sufficient array
of approved disposable interventional devices, we may not be able to successfully market our system to as many institutions as we currently
expect, which could have a material adverse impact on our financial condition, results of operations and cash flow.
Furthermore,
obtaining 510(k) clearances, de novo approvals, PMAs or PMA supplement approvals, from the FDA could result in unexpected and significant
costs for us and consume management’s time and other resources. The FDA could ask us to supplement our submissions, collect non-clinical
data, conduct clinical trials or engage in other time-consuming actions, or it could simply deny our applications. In addition, even
if we obtain a 510(k) clearance, de novo approvals, or PMA or PMA supplement approval, the clearance or approval could be revoked or
other restrictions imposed if post-market data demonstrates safety issues or lack of effectiveness. We cannot predict with certainty
how, or when, the FDA will act on our marketing applications. If we are unable to obtain the necessary regulatory approvals, our financial
condition and cash flow may be adversely affected. Also, a failure to obtain approvals may limit our ability to grow domestically and
internationally.
If
our strategic collaborations elect not to or we fail to obtain regulatory approvals in other countries for products under development,
we will not be able to commercialize these products in those countries.
In
order to market our products outside of the U.S., we and our strategic collaborations or distributors must establish and comply with
numerous and varying regulatory requirements of other countries regarding safety and efficacy. Approval procedures vary among countries
and can involve additional product testing and additional administrative review periods. The time required to obtain approval in other
countries might differ from that required to obtain FDA approval. The regulatory approval process in other countries may include all
of the risks detailed above regarding FDA approval in the U.S. Regulatory approval in one country does not ensure regulatory approval
in another, but a failure or delay in obtaining regulatory approval in one country may negatively impact the regulatory process in others.
Failure to obtain regulatory approval in other countries or any delay or setback in obtaining such approval could have the same adverse
effects described above regarding FDA approval in the U.S. In addition, we may rely on our distributors and strategic collaborations,
in some instances, to assist us in this regulatory approval process in countries outside the U.S. and Europe, for example, in Japan.
We
may fail to comply with continuing regulatory requirements of the FDA and other authorities and become subject to enforcement action,
which may include substantial penalties.
Even
after product clearance or approval, we must comply with continuing regulation by the FDA and other authorities, including the FDA’s
Quality System Regulation, or QSR, requirements, labeling and promotional requirements and medical device adverse event and other reporting
requirements. Any failure to comply with continuing regulation by the FDA or other authorities could result in enforcement action that
may include suspension or withdrawal of regulatory approvals, recalling products, ceasing product manufacture and/or marketing, seizure
and detention of products, paying significant fines and penalties, criminal prosecution and similar actions that could limit product
sales, delay product shipment and harm our profitability. Congress could amend the FD&C Act, and the FDA could modify its regulations
promulgated under this law or its policies in a way to make ongoing regulatory compliance more burdensome and difficult.
Additionally,
any modification to an FDA 510(k) cleared or de novo-approved device that could significantly affect its safety or effectiveness, or
that would constitute a major change in its intended use, requires a new 510(k) clearance. Modifications to a PMA approved device or
its labeling may require either a new PMA or PMA supplement approval, which could be a costly and lengthy process. In addition, if we
are unable to obtain approval for key applications, we may face product market adoption barriers that we cannot overcome. In the future,
we may modify our products after they have received clearance or approval, and we may determine that new clearance or approval is unnecessary.
We cannot assure you that the FDA would agree with any of our decisions not to seek new clearance or approval. If the FDA requires us
to seek clearance or approval for any modification that we determined to not require clearance or approval in the first instance, we
could be subject to enforcement sanctions and we also may be required to cease marketing or recall the modified product until we obtain
FDA clearance or approval which could also limit product sales, delay product shipment and harm our profitability.
In
many foreign countries in which we market our products, we are subject to regulations affecting, among other things, product standards,
packaging requirements, labeling requirements, import restrictions, tariff regulations, duties and tax requirements. Many of these regulations
are similar to those of the FDA or other U.S. regulations. In addition, in many countries the national health or social security organizations
require our products to be qualified before procedures performed using our products become eligible for reimbursement. Failure to receive,
or delays in the receipt of, relevant foreign qualifications could have a material adverse effect on our business, financial condition
and results of operations. Due to the movement toward harmonization of standards in Europe, we expect a changing regulatory environment
characterized by a shift from a country-by-country regulatory system to a Europe-wide single regulatory system. We cannot predict the
timing of this harmonization and its effect on us. Adapting our business to changing regulatory systems could have a material adverse
effect on our business, financial condition, and results of operations. If we fail to comply with applicable foreign regulatory requirements,
we may be subject to fines, suspension, or withdrawal of regulatory approvals, product recalls, seizure of products, operating restrictions
and criminal prosecution.
In
addition, we are subject to the U.S. Foreign Corrupt Practices Act, anti-bribery, antitrust and anti-competition laws, and similar laws
in foreign countries. Any violation of these laws by our distributors or agents or by us could create a substantial liability for us
and also cause a loss of reputation in the market. From time to time, we may face audits or investigations by one or more government
agencies, compliance with which could be costly and time-consuming, and could divert our management and key personnel from our business
operations. An adverse outcome under any such investigation or audit could subject us to fines or other penalties, which could adversely
affect our business and financial results.
Our
suppliers, subcontractors, or we may fail to comply with the FDA quality system regulation or other quality standards.
Our
manufacturing processes must comply with the FDA’s QSR, which covers the methods and documentation of the design, testing, production,
control, quality assurance, labeling, packaging and shipping of our products. The FDA enforces the QSR through inspections. We cannot
assure you that we or our suppliers or subcontractors would pass such an inspection. The European Union recently adopted new EN ISO 13485:2016
standards, and we have been certified to these standards. If we or our suppliers or subcontractors fail to comply with the FDA regulation
or EN ISO 13485:2016 standards, we or they may be required to cease all or part of our operations for some period of time until we or
they can demonstrate that appropriate steps have been taken to comply with such standards or face other enforcement action, such as a
public warning letter, untitled letter, fines, injunctions, civil penalties, seizures, operating restrictions, partial suspension or
total shutdown of production, refusing requests for 510(k) clearance, de novo petitions, or PMA approval of new products, withdrawing
510(k) clearance, de novo approvals, or PMA approvals already granted, and/or criminal prosecution. We cannot be certain that our facilities
or those of our suppliers or subcontractors will comply with the FDA or EN ISO 13485:2016 standards in future audits by regulatory authorities.
Failure to pass such an inspection could force a shutdown of manufacturing operations, a recall of our products or the imposition of
other enforcement sanctions, which would significantly harm our revenue and profitability. Further, we cannot assure you that our key
component suppliers are or will continue to be in compliance with applicable regulatory requirements and quality standards and will not
encounter any manufacturing difficulties. Any failure to comply with the FDA’s QSR or EN ISO 13485:2016, by us or our suppliers,
could significantly harm our available inventory and product sales. Further, any failure to comply with FDA’s QSR, by us or our
suppliers, could result in the FDA refusing requests for and/or delays in 510(k) clearance, de novo approval, or PMA approval of new
products.
If
we fail to comply with health care regulations, we could face substantial penalties and our business, operations and financial condition
could be adversely affected.
While
we do not control referrals of health care services or bill directly to Medicare, Medicaid or other third-party payors, many health care
laws and regulations apply to our business. We are subject to health care fraud and patient privacy regulation by the federal government,
the states in which we conduct our business, and internationally. The regulations that may affect our ability to operate include:
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the
federal healthcare program Anti-Kickback Statute, which prohibits, among other things, persons from soliciting, receiving or providing
remuneration, directly or indirectly, to induce either the referral of an individual, for an item or service or the purchasing or
ordering of a good or service, for which payment may be made under federal health care programs such as the Medicare and Medicaid
programs; |
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federal
false claims laws which prohibit, among other things, individuals or entities from knowingly presenting, or causing to be presented,
claims for payment from Medicare, Medicaid, or other third-party payors that are false or fraudulent, and which may apply to entities
like us if we provide coding and billing advice to customers; |
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the
federal Health Insurance Portability and Accountability Act of 1996, or HIPAA, which prohibits executing a scheme to defraud any
health care benefit program or making false statements relating to health care matters and which also imposes certain requirements
relating to the privacy, security and transmission of individually identifiable health information; and the applicable Privacy and
Security Standards of HITECH, the Health Information Technology for Economic and Clinical Health Act, which is Title XIII of the
American Recovery and Reinvestment Act; |
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state
law equivalents of each of the above federal laws, such as anti-kickback and false claims laws which may apply to items or services
reimbursed by any third-party payor, including commercial insurers, and state laws governing the privacy of health information in
certain circumstances, many of which differ from each other in significant ways and often are not preempted by HIPAA, thus complicating
compliance efforts, including the California Consumer Privacy Act, or CCPA, which is introduces new and far-reaching law data privacy
compliance burdens on many organizations doing business in California who collect personal information about California residents; |
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the
General Data Protection Regulation, or GDPR, which imposes requirements for controllers and processors of personal data and is in
effect across the European Economic Area, or EEA, such as imposing higher standards when obtaining consent from individuals to process
their personal data, requiring more robust disclosures to individuals, strengthening individual data rights, shortening timelines
for data breach notifications, limiting retention periods and secondary use of information, increasing requirements pertaining to
health data as well as pseudonymised data, and imposing additional obligations when we contract third-party processors in connection
with the processing of personal data; |
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federal
self-referral laws, such as the Stark Anti-Referral Law, which prohibits a physician from making a referral to a provider of certain
health services with which the physician or the physician’s family member has a financial interest; |
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federal
and state Sunshine laws, which require manufacturers of certain medical devices to collect and report information on payments or
transfers of value to physicians and teaching hospitals, as well as investment interests held by physicians and their immediate family
members; and |
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regulations
pertaining to receipt of CE mark for our products marketed outside of the United States and submission to periodic regulatory audits
in order to maintain these regulatory approvals. |
If
our operations are found to be in violation of any of the laws described above or any other governmental laws or regulations that apply
to us, we may be subject to penalties, including civil and criminal penalties, damages, fines, loss of reimbursement for our products
under federal or state government health programs such as Medicare and Medicaid and the curtailment or restructuring of our operations.
Any penalties, damages, fines, curtailment, or restructuring of our operations could adversely affect our ability to operate our business
and our financial results. The risk of our being found in violation of these laws is increased by the fact that many of them have not
been fully interpreted by the regulatory authorities or the courts, and their provisions are open to a variety of interpretations. Any
action against us for violation of these laws, even if we successfully defend against it, could cause us to incur significant legal expense
and divert our management’s attention from the operation of our business. Moreover, to achieve compliance with applicable federal
and state privacy, security, and electronic transaction laws, we may be required to modify our operations with respect to the handling
of patient information. Implementing these modifications may prove costly. At this time, we are not able to determine the full consequences
to us, including the total cost of compliance, of these various federal and state laws.
Healthcare
policy changes, including the potential repeal or amendment of any existing legislation, may have a material adverse effect on us.
In
response to perceived increases in health care costs in recent years, there have been and continues to be proposals by the federal administration,
members of Congress, state governments, regulators and third-party payors to control these costs and, more generally, to reform the U.S.
healthcare system.
Decisions
by both the federal and state governments on funding priorities for various healthcare programs impact the finances of our customers
on an ongoing and recurring basis. Such decisions may impact purchasing decisions of a customer.
Changes
to, or repeal of, the 2010 Patient Protection and Affordable Care Act (PPACA), which different administrations and certain members of
Congress have affirmatively indicated that they will pursue, could materially and adversely affect our business and financial position,
and results of operations. Even if the PPACA is not amended or repealed, the administration could propose changes impacting implementation
of the PPACA, which could materially and adversely affect our financial position or operations. However, we cannot currently predict
the content, timing or impact that any such future legislation will have on our business.
The
application of state certificate of need regulations and compliance by our customers with federal and state licensing or other international
requirements could substantially limit our ability to sell our products and grow our business.
Some
states require health care providers to obtain a certificate of need or similar regulatory approval prior to the acquisition of high-cost
capital items such as our products. In many cases, a limited number of these certificates are available. As a result of this limited
availability, hospitals and other health care providers may be unable to obtain a certificate of need for the purchase of our systems.
Further, the sales and installation cycle of our robotic magnetic navigation systems may be longer in certificate of need states due
to the time it takes our customers to obtain the required approvals. In addition, our customers must meet various federal and state regulatory
and/or accreditation requirements in order to receive payments from government-sponsored health care programs such as Medicare and Medicaid,
receive full reimbursement from third party payors, and maintain their customers. Our international customers may be required to meet
similar or other requirements. Any lapse by our customers in maintaining appropriate licensure, certification or accreditation, or the
failure of our customers to satisfy the other necessary requirements under government-sponsored health care programs or other requirements
could cause our sales to decline.
Hospitals
or physicians may be unable to obtain reimbursement from third-party payors for procedures using our products, or reimbursement for procedures
may be insufficient to recoup the costs of purchasing our products.
We
expect that U.S. hospitals will continue to bill various third-party payors, such as Medicare, Medicaid and other government programs
and private insurance plans, for procedures performed with our products, including the costs of the disposable interventional devices
used in these procedures. If, in the future, our disposable interventional devices do not fall within U.S. reimbursement categories and
our procedures are not reimbursed, or if the reimbursement is insufficient to cover the costs of purchasing our system and related disposable
interventional devices, the adoption of our systems and products would be significantly slowed or halted, and we may be unable to generate
sufficient sales to support our business. Our success in international markets also depends upon the eligibility of our products for
reimbursement through government-sponsored health care payment systems and third-party payors. In both the U.S. and foreign markets,
health care cost-containment efforts are prevalent and are expected to continue. These efforts could reduce levels of reimbursement available
for procedures involving our products and, therefore, reduce overall demand for our products as well. A failure to generate sufficient
sales could have a material adverse impact on our financial condition, results of operations and cash flow.
Our
costs could substantially increase if we receive a significant number of warranty claims or have other significant, uninsured liabilities.
We
generally warrant each of our products against defects in materials and workmanship for a period of 12 months following the installation
of our system. If product returns or warranty claims increase, we could incur unanticipated additional expenditures for parts and service.
In addition, our reputation and goodwill in the interventional lab market could be damaged. Unforeseen warranty exposure in excess of
our established reserves for liabilities associated with product warranties could materially and adversely affect our financial condition,
results of operations and cash flow.
Moreover,
for certain risks, we do not maintain insurance coverage because of cost and/or availability. In addition, in the future, we may not
continue to maintain certain existing insurance coverage or adequate levels of coverage. Premiums for many types of insurance have increased
significantly in recent years and, depending on market conditions and our circumstances, in the future, certain types of insurance, such
as directors’ and officers’ insurance, may not be available on acceptable terms or at all. Because we retain some portion
of our insurable risks and, in some cases, we are entirely self-insured, unforeseen or catastrophic losses in excess of insurance coverage
could require us to pay substantial amounts, which may have a material adverse impact on our business, financial condition, results of
operations, or cash flows.
Risks
Related to Our Common Stock
Our
principal stockholders continue to own a large percentage of our voting stock, and they have the ability to substantially influence matters
requiring stockholder approval.
Certain
of our directors and individuals or entities affiliated with them as well as other principal stockholders beneficially own or control
a substantial percentage of the outstanding shares of our common stock. Accordingly, these stockholders acting as a group, will have
substantial influence over the outcome of corporate actions requiring stockholder approval, including the election of directors, any
merger, consolidation or sale of all or substantially all of our assets or any other significant corporate transaction. These stockholders
may also delay or prevent a change of control, even if such a change of control would benefit our other stockholders. This significant
concentration of stock ownership may adversely affect the trading price of our common stock due to investors’ perception that conflicts
of interest may exist or arise.
Future
issuances of our securities could dilute current stockholders’ ownership.
As
of December 31, 2021, we had 5.6 million shares of our common stock issuable upon conversion of our Series B Convertible Preferred Stock
and 45.3 million shares of our common stock issuable upon conversion of our Series A Convertible Preferred Stock. Our Series A Convertible
Preferred Stock bears dividends at a rate of six percent (6.0%) per annum, which are cumulative and accrue daily from the date of issuance
on the $1,000 stated value. Such dividends will not be paid in cash, except in connection with any liquidation, dissolution or winding
up of the Company or any redemption of the Series A Convertible Preferred Stock. Instead, the value of the accrued dividends is added
to the liquidation preference of the Series A Convertible Preferred Stock and will increase the number of shares of common stock issuable
upon conversion, which will dilute the ownership of our common stockholders.
In
addition, a significant number of shares of our common stock are subject to issuance under our existing stock incentive plans
and we may request the ability to issue additional such securities. We may also decide to raise additional funds through public or private
debt or equity financing to fund our operations. While we cannot predict the effect, if any, that future sales of debt, our common stock,
other equity securities or securities exercisable for or convertible into our common stock or other equity securities or the availability
of any of the foregoing for future sale, will have on the market price of our common stock, it is likely that sales of substantial amounts
of our common stock (including shares issued upon the exercise of stock options and stock appreciation rights, the vesting
of the CEO Performance Share Unit Award and restricted stock units, or the conversion of any convertible securities outstanding now
or in the future, including the Series A and Series B Convertible Preferred Shares), will dilute the ownership of our existing stockholders
and that the perception that such sales could occur, will adversely affect prevailing market prices for our common stock.
Further,
the Series A Convertible Preferred Stock rank senior to our common stock as to distributions and payments upon the liquidation, dissolution
and winding up of the Company. No such distributions or payments upon the liquidation, dissolution and winding up of the Company may
be made to holders of common stock unless and until the holders of the Series A Convertible Preferred Shares have received the stated
value of $1,000 per share plus any accrued and unpaid dividends. Until all Series A Convertible Preferred Shares have been converted
or redeemed, no dividends may be paid on the common stock without the express written consent of the holders of a majority of the outstanding
Series A Convertible Preferred Shares. In the event that dividends or other distributions of assets are made or paid by the Company to
the holders of the common stock, the holders of Series A Convertible Preferred Shares are entitled to participate in such dividend or
distribution on an as-converted basis. Any such distributions or payments upon the liquidation, dissolution or winding up of the Company
may dilute the ownership interests of our existing stockholders.
We
have never paid dividends on our common stock, and we do not anticipate paying any cash dividends in the foreseeable future.
We
have paid no cash dividends on any of our classes of common stock to date and we currently intend to retain our future earnings to fund
the development and growth of our business. As a result, capital appreciation, if any, of our common stock will be an investor’s
sole source of gain for the foreseeable future.
Our
certificate of incorporation and bylaws, Delaware law, and one of our collaboration agreements contain provisions that could discourage
a takeover.
Our
certificate of incorporation and bylaws and Delaware law contain provisions that might enable our management to resist a takeover. These
provisions may:
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discourage,
delay or prevent a change in the control of our company or a change in our management; |
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adversely
affect the voting power of holders of common stock; and |
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limit
the price that investors might be willing to pay in the future for shares of our common stock. |
In
addition, our collaboration agreement with Biosense Webster contains provisions that may similarly discourage a takeover and negatively
affect our share price as described above under “Business-Strategic Relationships”.
Evolving
regulation of corporate governance and public disclosure may result in additional expenses and continuing uncertainty.
Changing
laws, regulations and standards relating to corporate governance and public disclosure, including SEC regulations such as the Dodd-Frank
Wall Street Reform and Consumer Protection Act have in the past created uncertainty for public companies. We continue to evaluate and
monitor developments with respect to new and proposed rules and cannot predict or estimate the amount of the additional compliance costs
we may incur or the timing of such costs. These new or changed laws, regulations and standards are subject to varying interpretations,
in many cases due to their lack of specificity, and as a result, their application in practice may evolve over time as new guidance is
provided by courts and regulatory and governing bodies. This could result in uncertainty regarding compliance matters and higher costs
necessitated by ongoing revisions to disclosure and governance practices. Maintaining appropriate standards of corporate governance and
public disclosure may result in increased general and administrative expense and a diversion of management time and attention from revenue-generating
activities to compliance activities. In addition, if we fail to comply with new or changed laws, regulations and standards, regulatory
authorities may initiate legal proceedings against us and our business and reputation may be harmed.
Our
future operating results may be below securities analysts’ or investors’ expectations, which could cause our stock price
to decline.
The
revenue and income potential of our products and our business model are unproven, and we may be unable to generate significant revenue
or grow at the rate expected by securities analysts or investors. In addition, our costs may be higher than we, securities analysts,
or investors expect. If we fail to generate sufficient revenue or our costs are higher than we expect, our results of operations will
suffer, which in turn could cause our stock price to decline. Our results of operations will depend upon numerous factors, including:
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demand
for our products; |
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the
performance of third-party contract manufacturers and component suppliers; |
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our
ability to develop sales and marketing capabilities; |
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the
success of our strategic relationships with two multinational fluoroscopy system manufacturers and one provider of catheters and
electrophysiology mapping systems; |
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● |
our
ability to develop, introduce and market integrated next generation systems and/or alternatives to our current strategic relationships
with fluoroscopy system manufacturers and the catheter and electrophysiology mapping system provider on a timely basis; |
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● |
our
ability to develop, introduce and market new or enhanced versions of our products on a timely basis; |
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our
ability to obtain regulatory clearances or approvals for our new products; and |
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our
ability to obtain and protect proprietary rights. |
Our
operating results in any particular period may not be a reliable indication of our future performance. In some future quarters, our operating
results may be below the expectations of securities analysts or investors. If this occurs the price of our common stock will likely decline.
We
expect that the price of our common stock could fluctuate substantially, possibly resulting in class action securities litigation.
While
our common stock is traded on the NYSE American Market, trading volume may be limited or sporadic. The market price of our common stock
has experienced, and may continue to experience, substantial volatility. During 2021, our common stock traded between $4.31 and $10.30
per share, on trading volume ranging from approximately 93,800 to 4.5 million shares per day. The market price of our common stock will
be affected by a number of factors, including:
|
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actual
or anticipated variations in our results of operations or those of our competitors; |
|
● |
the
receipt or denial of regulatory approvals; |
|
● |
announcements
of new products, technological innovations or product advancements by us or our competitors; |
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● |
developments
with respect to patents and other intellectual property rights; |
|
● |
changes
in earnings estimates or recommendations by securities analysts or our failure to achieve analyst earnings estimates; |
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● |
developments
in our industry; and |
|
● |
participants
in the market for our common stock may take short positions with respect to our common stock. |
These
factors, as well as general economic, credit, political and market conditions, may materially adversely affect the market price of our
common stock. As with the stock of many other public companies, the market price of our common stock has been particularly volatile during
the recent period of upheaval in the capital markets and world economy. This excessive volatility may continue for an extended period
of time following the filing date of this report. Furthermore, the stock prices of many companies in the medical device industry have
experienced wide fluctuations that have often been unrelated to the operating performance of these companies. Volatility in the price
of our common stock on the NYSE American Market may depress the trading price of our common stock, which could, among other things, allow
a potential acquirer of the Company to purchase a significant amount of our common stock at low prices. In addition, the volatility of
our stock price could lead to class action securities litigation being filed against us, which could result in substantial costs and
a diversion of our management resources, which could significantly harm our business.
If
we fail to continue to meet all applicable NYSE American Market requirements and the NYSE American determines to delist our common stock,
the delisting could adversely affect the market liquidity of our common stock, which would impair the value of your investment and ultimately
harm our business by limiting our access to equity markets for capital raising.
Our
common stock is currently listed on the NYSE American Market. We currently meet the continued listing standards of NYSE American. However,
we cannot guarantee that we will be able to continue to comply with the required standards in order to maintain a listing of our common
stock on the NYSE American. If we fail to continue to meet all applicable NYSE American requirements in the future and the NYSE American
determines to delist our common stock, the delisting could adversely affect the market liquidity of our common stock, which would adversely
affect our ability to obtain financing for the continuation of our operations, as a result, harming our business. This delisting could
also impair the value of your investment.
Risks
Related to the February 2021 CEO Performance Stock Unit Grant
We
will incur significant additional stock-based compensation expense over the term of the CEO Performance Award regardless of whether or
not any of the milestones are achieved.
As
described in Note 9 of the accompanying notes to the consolidated financial statements in Part II, Item 8 of this Form 10-K, on February
23, 2021, the Company`s Board of Directors, upon recommendation of the Compensation Committee, approved the grant of the Performance
Share Unit Award (“CEO Performance Award”) pursuant to the CEO Performance Share Unit Award Agreement (the “PSU Agreement”),
to David L. Fischel, the Company’s Chief Executive Officer. Under the terms of the PSU Agreement, we will incur significant additional
stock-based compensation expense over the term of the award regardless of whether or not any of the milestones are achieved as the probability
of meeting the ten market capitalization milestones is not considered in determining the timing of expense recognition. The expense will
be recognized on an accelerated basis through 2030. Total stock-based compensation recorded as operating expense for the CEO Performance
Award was $6.1 million for the year ended December 31, 2021. As of December 31, 2021, the Company had approximately $51.3 million of
total unrecognized stock-based compensation expense remaining under the CEO Performance Award if Mr. Fischel continues to serve as CEO,
or in a similar capacity, through 2030. This additional stock-based compensation expense, incurred regardless of whether or not any milestones
are achieved, increases the difficulty for the Company to achieve a profitable position as measured by generally accepted accounting
principles.
Our
stockholders may experience substantial dilution upon payout of shares under the CEO Performance Award.
If
Mr. Fischel achieves all the milestones specified in the CEO Performance Award, by increasing the Company’s market capitalization
to $5.5 billion for the specified period, he will receive 13,000,000 shares of common stock subject to the vesting requirements in the
agreement. If (i) all 13,000,000 shares of common stock subject to the PSU Agreement were to become fully vested, outstanding and held
by Mr. Fischel; (ii) all other shares of common stock and stock units held by Mr. Fischel were fully vested and were outstanding; (iii)
estimated dilution as a result of potential exercises or conversions from existing grants to employees and non-employee directors and
the outstanding convertible preferred stock were to be considered; and (iv) there were no other dilutive events of any kind, Mr. Fischel
would beneficially own approximately 10% of the outstanding shares of Stereotaxis common stock after the dilutive events described above
and without considering the impact of any other potential future dilutive events or the potential sale of stock required to pay taxes
upon the vesting of the restricted stock units.
Certain
provisions in the PSU Agreement may discourage a change in control of the Company even if such a transaction would otherwise be beneficial
to our stockholders.
Under
the terms of the CEO Performance Award, in the event of a change in control of the Company, the market capitalization formula will be
modified to equal the total amount of consideration paid to all equity holders of the Company, with the number of shares to be issued
pursuant to the CEO Performance Grant giving effect to such valuation. For all valuations above $1.0 billion in connection with a change
in control, partial credit for the next following tranche shall be allocated pro rata based on the market capitalization in such change
in control. Any vested shares upon such a change in control will vest and be paid at the time of the consummation of the change in control,
and the service component of the CEO Performance Award will otherwise be disregarded. These terms may discourage potential business partners
from pursuing a merger or acquisition, even if the merger or acquisition would be viewed favorably by, or be beneficial to, our other
stockholders.
We
are highly dependent on the services of Mr. Fischel, and our compensation package, including the CEO Performance Award, may fail to retain
him.
Since
assuming the role of CEO in February 2017, Mr. Fischel has revitalized the Company’s commercial capabilities, strengthened its
financial position, and led the development of a robust innovation strategy, and stockholders have benefited substantially, with Stereotaxis’
stock appreciating substantially. However, between February 2017 and December 2020, Mr. Fischel served as CEO without drawing a salary
or any other form of cash or equity compensation for his work as CEO, and currently his only compensation is an annual salary of $60,000,
which is substantially below market. While the Board believes that the CEO Performance Award provides substantial future benefit to all
its stockholders and incentivizes Mr. Fischel to serve as CEO for the long term, there is no assurance that Mr. Fischel will continue
as CEO.
General
Risk Factors
General
economic conditions could materially adversely impact us.
Our
operating performance is dependent upon economic conditions in the United States and in other countries in which we operate. Uncertainty
about current global economic conditions and future global economic conditions may cause customers to delay purchasing or installation
decisions or cancel existing orders. The robotic magnetic navigation systems and Odyssey Solution are typically purchased as part
of a larger overall capital project and an economic downturn or the lack of a robust recovery might make it more difficult for our customers,
including distributors, to obtain adequate financing to support the project or to obtain requisite approvals. Any delay in purchasing
decisions or cancellation of purchasing commitments may result in a decrease in our revenues. A credit crisis could further affect our
business if key suppliers are unable to obtain financing to manufacture our products or become insolvent and we are unable to manufacture
product to meet customer demand. If the United States and global economy becomes sluggish or deteriorates for a longer period than we
anticipate, we may experience a material negative decrease on the demand for our products which may, in turn, have a material adverse
effect on our revenue, profitability, financial condition, ability to raise additional capital and the market price of our stock.
We
may lose key personnel or fail to attract and retain replacement or additional personnel.
We
are highly dependent on the principal members of our management, as well as our scientific and sales staff. Attracting and retaining
qualified personnel will be critical to our success, and competition for qualified personnel is intense. We may not be able to attract
and retain personnel on acceptable terms given the competition for qualified personnel among technology and healthcare companies and
universities. The loss of personnel or our inability to attract and retain other qualified personnel could harm our business and our
ability to compete. In addition, the loss of members of our scientific staff may significantly delay or prevent product development and
other business objectives. A loss of key sales personnel could result in a reduction of revenue. In addition, if we outsource certain
employee functions that were formerly handled in-house, our personnel costs could increase.
We
face currency and other risks associated with international operations.
We
intend to continue to devote significant efforts to marketing our systems and products outside of the U.S. This strategy will expose
us to numerous risks associated with international operations, which could adversely affect our results of operations and financial condition,
including the following:
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currency
fluctuations that could impact the demand for our products or result in currency exchange losses; |
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export
restrictions, tariff and trade regulations and foreign tax laws; |
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customs
duties, export quotas or other trade restrictions; |
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travel
restrictions or bans; |
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economic
and political instability; |
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war or other military conflicts, such as the current
hostilities between Russia and Ukraine, and any related impact on macroeconomic conditions as a result of such conflict; and |
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shipping
delays. |
In
addition, contracts may be difficult to enforce and receivables may be difficult to collect through a foreign country’s legal system.