EXHIBIT 99.1
RISK FACTORS
An investment in Possis Medical's common stock involves a number of risks.
You should consider carefully the following risk factors, together with the
other information in this 10-K, before buying any shares. You also should be
aware that this filing contains forward-looking statements that are not related
to historical results. These forward-looking statements, such as statements
concerning our strategies, plans, objectives, expectations and intentions,
involve risks and uncertainties. Our actual results could differ materially from
those anticipated in these forward-looking statements. Factors that could cause
or contribute to such differences include, but are not limited to, the following
risk factors.
We have had a history of operating losses and a limited history of
profitable operations.
As of July 31, 2002, we had accumulated a deficit of $45.5 million. We
incurred an operating loss of $11.2 million for the year ended July 31, 2000,
and an operating loss of $3.8 million for the year ended July 31, 2001.
We became profitable on a quarterly basis in the third quarter of fiscal
2001 and earned a profit for the full year for fiscal 2002. To maintain
profitability, we must continue to achieve significant sales in the United
States. We must convince health care professionals, third-party payors and the
general public of the medical and economic benefits of the AngioJet(R)
Rheolytic(TM) Thrombectomy System. We cannot assure you that we will succeed in
marketing this product and continue to achieve significant sales. Even if we
accomplish this goal, we cannot assure you that we will operate profitably on a
consistent basis.
Our products are subject to extensive governmental regulation.
Our products and manufacturing activities are subject to extensive and
rigorous federal and state regulation in the United States and various
regulatory requirements in other countries, including Japan. Current United
States Food and Drug Administration (FDA) enforcement policy strictly prohibits
the marketing of approved medical devices for unapproved uses. Therefore, even
if our products receive regulatory approval, regulators may significantly limit
the uses for which our products may be marketed. In addition, the process of
obtaining and maintaining required regulatory approvals can be lengthy and
expensive, and the outcome of the process can be uncertain. Moreover, regulatory
approvals may be withdrawn if we fail to comply with regulatory standards or if
unforeseen problems arise following the initial marketing of a product.
Additionally, we are required to adhere to Quality System Regulations
promulgated by the FDA relating to product design, development, manufacturing,
servicing, testing and documentation. Failure to comply with applicable Quality
System Regulations or other regulatory requirements may result in fines, delays
or suspensions of approvals, injunctions against further distribution of our
products, seizures or recalls of products, operating restrictions, criminal
prosecutions or other sanctions, in addition to adverse publicity. The adoption
of new regulations or changes in existing regulations could prevent us from
obtaining, or affect the timing of, future regulatory approvals and could
adversely affect the marketing of our existing products. We cannot assure you
that we will be able to obtain necessary regulatory approvals on a timely basis
or at all. Delays in our receipt of or failure to receive regulatory approvals,
the loss of previously received approvals or our failure to comply with
regulatory requirements would have a material adverse effect on our business,
financial condition and results of operations.
We are a one product/single product-line Company.
We have focused our resources on the continued development and refinement
of our AngioJet System. If we fail to obtain additional regulatory approvals, or
the medical community rejects the use of the AngioJet System for multiple
purposes, our business, financial condition and results of operations would be
materially and adversely affected.
The industry in which we compete is characterized by rapid technological
change and intense competition.
The medical products market is characterized by rapidly evolving technology
and intense competition. Our future success depends on our ability to keep pace
with advancing technology and competitive innovations. Potential competitors
have developed or are in the process of developing technologies that are, or in
the future may be, the basis for competitive products, some of which may
accomplish desired therapeutic effects through entirely different methods than
the products we are developing. We believe our AngioJet System will face intense
competition from a variety of treatments for the removal of blood clots,
including clot-dissolving (thrombolytic) drug therapies, surgical intervention,
balloon embolectomy, mechanical and laser thrombectomy devices, ultrasound
ablators, and other thrombectomy devices based on waterjet systems that are
currently being developed by other companies. Many of the companies developing
competing devices have substantially greater capital and substantially greater
resources for and experience in research and development, regulatory matters,
manufacturing and marketing than we have. These companies will be serious
competitors for us and may succeed in developing products that are more
effective and/or less costly than the AngioJet System. Furthermore, these
companies may be more successful than we are in manufacturing and marketing
their products. Our competitors or others may develop technologies, products or
procedures that are more effective than any we are developing or that may render
our technology and products obsolete or noncompetitive. The advent of new
devices, procedures or new pharmaceutical agents could hinder our ability to
compete effectively and could have a material adverse effect on our business,
financial condition and results of operations.
Our success depends on our ability to maintain patents and other
proprietary rights.
Our success depends and will continue to depend in part on our ability to
maintain patent protection for our products and processes, to preserve our trade
secrets and to operate without infringing the proprietary rights of third
parties. We attempt to protect our technology by filing patent applications for
technology that we consider important to the development of our business, among
other measures described below. We currently hold eleven United States patents
relating to the AngioJet System, and we have fourteen United States and 22
foreign and four foreign patent applications pending relating to the AngioJet
System. Claims relating to medical technology patents involve complex legal and
factual questions. Therefore, their outcomes are highly uncertain. We cannot
assure you that our pending applications will result in patents being issued to
us or that either our new patents or our existing patents will give us a
competitive advantage. Moreover, our competitors may design around any patents
issued to us, third parties may receive patent protection on their own waterjet
devices, and others may hold or receive patents containing claims that may cover
products developed by us.
We require all our employees to execute non-disclosure agreements when they
join Possis Medical. These agreements generally provide that all confidential
information developed or made known to the employee by us during the course of
his or her employment with Possis Medical must be kept confidential and not
disclosed to third parties. We cannot assure you, however, that these
non-disclosure agreements and other safeguards will protect our proprietary
information and know-how, or that they will provide us adequate remedies in the
event of unauthorized use or disclosure of confidential information. We also
cannot assure you that others will be unable to develop such information
independently.
We also rely on unpatented proprietary technology and trade secrets that we
seek to protect in part through confidentiality agreements with employees and
other parties. We cannot assure you that the employees and other parties will
comply with these agreements, that we will have adequate remedies for any breach
or that we can meaningfully protect our rights to unpatented proprietary
technology in any other way. We also cannot assure you that others will be
unable independently to develop or otherwise acquire substantially equivalent
proprietary technology and trade secrets, or that they will keep the technology
secret. The disclosure of this type of information could have a material adverse
effect on our business, financial condition and results of operations.
The medical device industry has seen much litigation with respect to patent
and other intellectual property rights. Litigation may be necessary for us to
enforce our patents, to protect our trade secrets and know-how, to defend
against claimed infringement of others' rights or to determine the ownership,
scope or validity of the proprietary rights of Possis Medical and others.
However, litigation also could be extremely costly to us and could divert our
resources and efforts away from our products and day-to-day business matters. If
the litigation had an adverse outcome, it could subject us to substantial
liabilities to third parties, require us to seek licenses from third parties and
prevent us from manufacturing, selling or using our products. Any of these
results could have a material adverse effect on our business, financial
condition and results of operations.
Acceptance of our products and our profits may be limited by changes in
third-party reimbursements.
Health care providers (such as hospitals and physicians) that purchase
medical devices like the AngioJet System for the treatment of patients generally
rely on third-party payors like Medicare, Medicaid and private insurance plans
to reimburse all or part of the costs associated with the health care services
they provide. In certain foreign markets, the pricing of and profits generated
by health care products are subject to government control. In some states,
Medicare and Medicaid payors reimburse hospitals for inpatient medical
procedures at a pre-determined rate based on diagnosis-related groups.
Currently, we do not believe that U.S. reimbursement rates are a material
impediment to adoption of our therapy. If these rates do not include, and
third-party payors do not otherwise provide, adequate reimbursement to health
care providers for the cost of our products, our products will not gain wide
market acceptance and our financial results will suffer.
The Health Care Financing Administration (HCFA) is the federal agency
responsible for administering the Medicare system. HCFA has prohibited Medicare
from paying for certain new procedures that are still under investigation or
that are not deemed safe and effective for the condition being treated.
Therefore, even if a device has FDA approval, Medicare payors may deny
reimbursement if they conclude that the device is experimental or that it will
not improve the condition being treated.
The market for our products also could be adversely affected by future
legislation to reform the nation's health care system or by changes in industry
practices regarding reimbursement. We cannot assure you that the reimbursement
rates of third-party payors will allow us to price our products at levels
sufficient to realize an appropriate return on our investment in product
development.
We depend on key personnel.
We depend greatly on a limited number of key management and technical
personnel. Moreover, because of the highly technical nature of our business, our
ability to continue our technological developments and to market our
products-and thereby develop a competitive edge in the marketplace-depends in
large part on our ability to attract and retain qualified technical and key
management personnel. Competition for qualified personnel is intense, and we
cannot assure you that we will be able to attract and retain the individuals we
need. The loss of key personnel, or our inability to hire or retain qualified
personnel, could have a material adverse effect on our business, financial
condition and results of operations.
We may be subject to product liability claims, for which insurance coverage
may be insufficient.
The manufacture and sale of our products may subject us to product
liability claims. The United States Supreme Court has held that, despite a
company's compliance with FDA regulations, it may not be shielded from
common-law negligent-design claims or manufacturing and labeling claims based on
state laws. Product liability insurance is expensive and in the future may not
be available on acceptable terms, if at all. We cannot assure you that the
coverage limits of our product liability insurance policies will be adequate if
a product liability claim is brought against us. A successful claim or series of
claims against us that exceeds our insurance coverage could have a material
adverse effect on our business, financial condition and results of operations.
Moreover, whether or not successful, product liability litigation would likely
divert the attention of our key personnel and could adversely affect our
reputation and the marketability of our technology and products. Consequently,
any product liability litigation could have a material adverse effect on our
business, financial condition and results of operations.
It is uncertain whether we will be able to obtain funding sufficient to
meet our future capital needs.
We anticipate that cash on hand, the interest expected to be earned on such
cash and expected revenues will be sufficient to finance our operations for at
least the next twelve to eighteen months. However, we cannot assure you that
additional capital will not be needed sooner. Depending on the level of product
sales we may need to raise additional funds in the future. We cannot assure you
that additional capital will be available to us or that it will be available on
satisfactory terms. Raising additional capital through equity financing may
dilute the equity interests of the shareholders of the company, and debt
financing may involve restrictive covenants. Failure to secure additional
financing if and when needed could have a material adverse effect on our
business, financial condition and results of operations.
The securities market is volatile, and our common stock price may fluctuate
widely.
The market price of our stock has in the past been subject to significant
fluctuations. Moreover, the markets for equity securities in general, and for
those of smaller medical device manufacturers in particular, have been volatile
in the past, and the price of our common stock in the future could be subject to
wide fluctuations in response to quarterly variations in operating results, news
and product announcements, trading volume, general market trends and other
factors. We cannot assure you that our common stock will trade in the future at
market prices in excess of its current market price.
We have in place certain protections against takeover attempts.
Of the 100 million shares of capital stock authorized by our amended and
restated articles of incorporation, 78 million shares are undesignated. Our
board of directors may issue the undesignated shares on terms and with the
rights, preferences and designations determined by the board without shareholder
action. In addition, we have adopted a shareholder rights plan that provides for
the exercise of preferred share purchase rights when a person becomes the
beneficial owner of 15% or more of our outstanding common stock (subject to
certain exceptions). We also are subject to provisions of the Minnesota Business
Corporation Act that limit the voting rights of shares acquired in specified
types of acquisitions and that restrict specified types of business
combinations. The existence or issuance of "blank check" stock, the existence of
our shareholder rights plan and the effect of anti-takeover provisions under
Minnesota law, individually or in the aggregate, may discourage potential
takeover attempts and delay, deter or prevent a change in control. They also may
make the removal of management more difficult, which could deprive our
shareholders of opportunities to sell their shares at prices higher than
prevailing market prices.
We depend on single-source suppliers.
We depend on single-source suppliers for some of the raw materials used in
the manufacture of our products. If we cannot obtain key raw materials from our
suppliers, we cannot assure you that the materials will be available from other
suppliers, that other suppliers will agree to supply the materials to us, or
that our use of the other suppliers would be approved by the FDA. Although we
believe our supply of raw materials currently is adequate for the needs of our
business, we cannot assure you that new sources of supply will be available when
needed. Any interruption in our supply of raw materials could have a material
adverse effect on our ability to manufacture our products until a new source of
supply is located and, therefore, could have a material adverse effect on our
business, financial condition and results of operations.