370 ◾ The Guide to Entrepreneurship: How to Create Wealth for Your Company
RISKS RELATED TO THE MARKETS WE COMPETE IN
The Medical Device Industry Is Very Competitive
The medical device industry in general, and the market for products for
use in cardiovascular surgery in particular, is intensely competitive. Clients
have numerous choices in terms of rms that produce prototypes or test
products for medical devices, and most of our competitors have longer
operating histories and signicantly greater nancial, technical, research,
marketing, sales, distribution and other resources than we do. There can
be no assurance that our current competitors or potential future competi-
tors will not succeed in developing or marketing technologies and prod-
ucts that are more effective or commercially attractive than those that have
been and are being developed by us, or that such companies will not suc-
ceed in obtaining regulatory approval for, introducing or commercializing
any such products prior to us. Any of the above competitive developments
could have a material adverse effect on our business, nancial condition
and results of operations.
The Cardiothoracic Surgery Market Is Undergoing
Constant Technological Change
The cardiothoracic surgery market for our products is characterized by:
◾ changing technologies;
◾ changing customer needs;
◾ frequent new product introductions and enhancements;
◾ increased integration with other functions; and
◾ product obsolescence.
To develop new products and designs for our cardiothoracic market, we
must develop, gain access to and use leading technologies in a cost effective
and timely manner and continue to expand our technical and design exper-
tise. Failure to do so could cause us to lose our competitive position and
seriously impact our future revenues.
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New Product Development in the Medical Device
Industry Is Both Costly and Labor Intensive With Very
Low Success Rates for Successful Commercialization
Our success is dependent in part on the design and development of new
products in the medical device industry. The product development process
is time-consuming and costly, and there can be no assurance that prod-
uct development will be successfully completed, that necessary regulatory
clearances or approvals will be granted by the FDA on a timely basis, or at
all, or that the potential products will achieve market acceptance. Failure to
develop, obtain necessary regulatory clearances or approvals for, or success-
fully market potential new products could have a material adverse effect on
our nancial condition and results of operations.
RISKS RELATING TO OUR PRODUCTS
AND TECHNOLOGY
There Is a Risk of a Market Withdrawal or Product
Recall in the Medical Device Industry
Complex medical devices, such as many of our products, can experience
performance problems in the eld that require review and possible correc-
tive action by the manufacturer. We periodically receive reports from users
of our products relating to performance difculties they have encountered.
We expect that we will continue to receive customer reports regarding
the performance and use of our products. Furthermore, there can be no
assurance that component failures, manufacturing errors or design defects
that could result in an unsafe condition or injury to the patient will not
occur. If any such failures or defects were deemed serious, we could be
required to withdraw or recall products, which could result in signicant
costs. There can be no assurance that market withdrawals or product
recalls will not occur in the future. Any future product problems could
result in market withdrawals or recalls of products, which could have a
material adverse effect on our business, nancial condition, and results of
operations.
372 ◾ The Guide to Entrepreneurship: How to Create Wealth for Your Company
We Are Exposed to Product Liability, Clinical and
Preclinical Liability Risks, Which Could Place a Substantial
Financial Burden Upon Us, Should We Be Sued. We
Maintain a Minimal Level of Product Liability Insurance
Above and Beyond Our General Insurance Coverage.
The manufacture and sale of medical products entail signicant risk of prod-
uct liability claims. Such claims may be asserted against us. In addition, in
our clinical trials, we may use medical products that our potential collabo-
rators may develop, and the subsequent sale of these products by us or by
our potential collaborators may cause us to bear a portion of or all product
liability risks associated with those products. A successful liability claim or
series of claims brought against us could have a material adverse effect on
our business, nancial condition and results of operations.
We do not currently have any product liability insurance relating to clini-
cal trials. We may not be able to obtain or maintain adequate product liabil-
ity insurance on acceptable terms, if at all. Furthermore, our current and
potential future may not be willing to indemnify us against these types of
liabilities and may not themselves be sufciently insured or have a net worth
sufcient to satisfy any product liability claims.
We currently maintain product liability insurance for our Gish subsidiary,
but there can be no assurance that Gish’s existing annual insurance cover-
age limits of $3million per occurrence and $3million in the aggregate will
be adequate to protect us from any liabilities that we might incur in con-
nection with the clinical trials or sales of Gish’s products. In addition, we
may require increased product liability coverage if and when our products
under development are successfully commercialized. Such insurance is
expensive and in the future may not be available to us on acceptable terms,
or at all. A successful product liability claim or series of claims brought
against us or one of our subsidiaries in excess of its insurance coverage
could have a material adverse effect on our business, nancial condition
and results of operations.
We May Not Be Able to Protect Our
Intellectual Property Rights Adequately
Our ability to compete is dependent upon our ability to protect our intel-
lectual property rights. We rely on a combination of patents, trademarks,
Harvesting ◾ 373
copyrights, trade secrets, condentiality procedures and non-disclosure
and licensing arrangements to protect our intellectual property rights.
Despite these efforts, we cannot be certain that the steps we take to
protect our proprietary information will be adequate to prevent misap-
propriation of our technology, or that our competitors will not indepen-
dently develop technology that is substantially similar or superior to our
technology. More specically, we cannot assure you that any future appli-
cations will be approved, or that any issued patents will provide us with
any competitive advantages or will not be challenged by third parties.
We cannot assure you that, if challenged, our patents will be found to be
valid or enforceable, or that the patents of others will not have an adverse
effect on our ability to do business. Furthermore, others may indepen-
dently develop similar products or processes, duplicate our products or
processes, or design their own products around any patents that may be
issued to us.
We Could Be Harmed by Litigation Involving Patents
and Other Intellectual Property Rights
None of our patents or other intellectual property rights has been success-
fully challenged to date. However, in the future, we could be accused of
infringing the intellectual property rights of other third parties. We also
have certain indemnication obligations to certain customers with respect
to the infringement of third party intellectual property rights by our prod-
ucts. No assurance can be provided that any future infringement claims by
third parties or claims for indemnication by our customers or end users
of our products resulting from infringement claims will not be asserted
or that assertions of infringement, if proven to be true, will not harm our
business.
In the event of any adverse ruling in any intellectual property litigation,
we could be required to pay substantial damages, cease the manufacturing,
use and sale of infringing products, discontinue the use of certain processes
or obtain a license from the third party claiming infringement with royalty
payment obligations by us. Any litigation relating to the intellectual property
rights of third parties, whether or not determined in our favor or settled by
us, would be costly and may divert the efforts and attention of our manage-
ment and technical personnel.
374 ◾ The Guide to Entrepreneurship: How to Create Wealth for Your Company
REGULATORY RISKS
The Failure to Complete Development of Our Medical
Technology, Obtain Government Approvals, Including
Required FDA Approvals, or to Comply With Ongoing
Governmental Regulations Could Delay or Limit Introduction
of Our Proposed Products and Result in Failure to
Achieve Revenues or Maintain Our Ongoing Business
Our research and development activities, and the manufacture and market-
ing of our products, including our intended coronary artery bypass graft
product, is subject to extensive regulation for safety, efcacy and qual-
ity by numerous government authorities in the United States and abroad.
Before receiving clearance from the Food and Drug Administration (“FDA”)
to market our proposed graft, we will have to demonstrate that our grafts
are safe and effective on the patient population. While we have done some
preliminary animal trials and have seen acceptable results, there can be no
assurance that acceptable results will be obtained in human trials. Clinical
trials and manufacturing and marketing of medical devices are subject to the
rigorous testing and approval processes of the FDA and equivalent foreign
regulatory authorities. The Federal Food, Drug and Cosmetic Act and other
federal, state and foreign statutes and regulations govern and inuence the
testing, manufacture, labeling, advertising, distribution and promotion of
drugs and medical devices. As a result, clinical trials and regulatory approval
of the coronary artery bypass graft can take a number of years or longer to
accomplish and will require the expenditure of substantial nancial, mana-
gerial and other resources.
In order to be commercially viable, we must successfully research,
develop, obtain regulatory approval for, manufacture, introduce, market, and
distribute our grafts. We must successfully meet a number of critical devel-
opmental milestones, including:
◾ demonstrate benet from the use of our grafts in various contexts such
as coronary artery bypass surgery;
◾ demonstrate through pre-clinical and clinical trials that our grafts are
safe and effective; and
◾ establish a viable good manufacturing process capable of potential
scale-up.
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