EXHIBIT 99
CAUTIONARY STATEMENT FOR PURPOSES OF THE
"SAFE HARBOR" PROVISIONS OF THE PRIVATE
SECURITIES LITIGATION REFORM ACT OF 1995
Innovasive Devices, Inc. (the "Company") desires to take advantage of the "safe
harbor" provisions of the Private Securities Litigation Reform Act of 1995 (the
"Act"). Except for the Conference Report, no official interpretations of the
Act's provisions have been published. All of the following important factors
discussed below have been discussed in the Company's Registration on Form S-1,
File No. 333-3368 under the Securities Act of 1933, which was declared effective
by the Securities Exchange Commission (the "Commission") on June 5, 1996.
Forward Looking Statements; Cautionary Statement. When used anywhere in future
filings by the Company with the Securities and Exchange Commission, in the
Company's press releases and in oral statements made with the approval of an
authorized executive officer of the Company, the words or phrases "will likely
result", "are expected to", "will continue", "is anticipated", "project", or
"outlook" or similar expressions (including confirmations by an authorized
executive officer of the Company of any such expressions made by a third party
with respect to the Company) are intended to identify "forward-looking
statements" within the meaning of the Private Securities Litigation Reform Act
of 1995. The Company wishes to caution readers not to place undue reliance on
any such forward-looking statements, which speak only as of the date made. Such
statements are subject to certain risks and uncertainties that could cause
actual results to differ materially from historical earnings and those presently
anticipated or projected. These risk factors are described below. The Company
specifically declines any obligation to publicly release the result of any
revisions which may be made to any forward-looking statements to reflect
anticipated or unanticipated events or circumstances occurring after the date of
such statements.
The Company wishes to caution readers that the following important factors,
among others, in some cases have affected, and in the future could affect, the
Company's actual results and could cause the Company's actual consolidated
results for the Company's current quarter and beyond, to differ materially from
those expressed in any forward-looking statements made by, or on behalf of, the
Company:
History of Losses; Probability of Substantial Additional Future Losses;
Uncertainty of Future Results; Seasonality of Sales. The Company has incurred
substantial operating losses since its inception and, as of December 31, 1997,
had an accumulated deficit of $35.2 million. These losses have resulted
principally from expenses associated with research and development efforts,
expenses associated with obtaining United States Food and Drug Administration
("FDA") clearance and the establishment of the Company's sales and marketing
organization. The Company expects to generate additional losses as it continues
to expend substantial resources in research and product development, funding of
clinical trials in support of obtaining necessary regulatory clearances or
approvals and expanding its manufacturing capabilities and marketing and sales
activities. Results of operations may fluctuate significantly from quarter to
quarter due to the timing of such expenditures, absence of a backlog of orders,
timing of the receipt of orders, promotional discounts of the Company's
products, timing of regulatory actions, introduction of new products by
competitors of the Company, pricing of competitive products and the cost and
effect of promotional and marketing programs. In addition, the Company
anticipates some seasonality due to the fact that generally fewer surgical
procedures are performed during the third quarter. The seasonal pattern may
cause fluctuations in the Company's results of operations. It is difficult to
predict the impact that this seasonality will have on the
Company's results of operations because of its limited operating history. The
Company's revenue and profitability will be critically dependent on expanding
applications for its current product lines both within arthroscopy and in other
clinical specialties. In addition, the Company's profitability could be
adversely affected if it is required to sell its products at reduced prices.
There can be no assurance that significant revenues or profitability will ever
be achieved.
Potential Volatility of Stock Price. The stock market has from time to time
experienced significant price and volume fluctuations that are unrelated to the
operating performance of particular companies. These broad market fluctuations
may adversely affect the market price of the Company's Common Stock. In
addition, the market price of the shares of Common Stock is likely to be highly
volatile. Factors such as fluctuations in the Company's operating results,
announcements of technological innovations or new products by the Company or its
competitors, FDA and international regulatory actions, actions with respect to
reimbursement matters, developments with respect to patents or proprietary
rights, mergers or acquisitions involving competitors, public concern as to the
safety of products developed by the Company or others, changes in health care
policy in the United States and internationally, changes in stock market analyst
recommendations regarding the Company, other medical device companies or the
medical device industry generally and general market conditions may have a
significant effect on the market price of the Common Stock.
Uncertainty of Market Acceptance. The Company's future prospects depend
significantly on increasing penetration of existing markets, acceptance of the
Company's products in new markets, and the development of new products for its
existing and future markets. There can be no assurance that any of the
Company's existing or future products will gain market acceptance among
physicians, patients or healthcare payors, even if reimbursement and necessary
regulatory approvals are obtained. To date, the Company's marketing efforts
have been directed primarily to the sports medicine segment of the orthopedic
market for tissue-to-bone fixation applications. The Company has no experience
in establishing marketing or distribution channels in other clinical areas.
With respect to its current products, the Company was not the first to market
devices for the attachment of soft tissue to bone and therefore, to succeed must
both take market share away from its existing competitors and create new demand
for its products. The size of the market for the Company's products will
depend in part on the Company's ability to persuade physicians that its products
offer clinical and other advantages over existing means of attaching soft tissue
structures to tissue or bone and that its fixation devices could be used for a
wider variety of clinical applications, such as repair of tears in the meniscus
cartilage of the knee, or repair of ligament or tendon damage in the fingers or
toes. In addition, the Company will need to demonstrate that its products are
cost-effective and convenient to use and that the techniques for their use are
relatively straightforward and simple. There can be no assurance that the
market for the Company's products will continue to grow or that they will be
accepted for orthopedic procedures not currently using fixation devices and in
markets outside of the sports medicine segment of the orthopedic market.
Limited Product Line. A substantial portion of the Company's sales to date
have derived from the Company's suture fasteners and related instruments. The
Company now markets a broader line of products within four product platforms:
suture fasteners, suturing systems, cartilage repair products and anterior
cruciate ligament ("ACL") reconstruction products. The Company's clinical
experience has been primarily in open surgery shoulder procedures. The
Company's future prospects depend in part on its ability to broaden its clinical
expertise to include arthroscopic procedures in the shoulder and knee. The
Company must also develop and train its distribution channels to market and sell
the expanded product offerings. For the fiscal years ended December 31, 1997
and 1996, suture fasteners and related instruments accounted for approximately
68% and 95%, respectively, of the Company's sales. The Company expects that a
significant portion of its revenue in the foreseeable future will continue to be
derived from sales of its suture fasteners and related instruments. If the
Company is unable to maintain and gain market acceptance for each of its product
platforms there would be a material adverse effect on the Company's business,
financial condition and results of operations.
Rapid Technological Change and New Product Innovation. The medical device
market is subject to rapid technological change and new product introductions
and enhancements. The Company's ability to remain competitive in this market
will depend in significant part on its ability to develop and introduce new
products and enhancements on a timely and cost effective basis. The ability of
the Company to develop new and enhanced tissue fixation devices depends on a
number of factors, including product selection, timely and efficient completion
of product design, development of new materials and manufacturing processes,
timely regulatory approval, implementation of manufacturing and assembly
processes and effective sales and marketing and there is no assurance that the
Company will be successful in developing such products. If the Company
experiences quality or reliability problems with new products, reductions in
orders, higher manufacturing costs and additional warranty expenses may result.
Because new product development commitments must be made well in advance of
sales, new product decisions must anticipate both future demand and the
availability of technology to satisfy that demand. In the meantime, competitors
may achieve technological advances which provide a competitive advantage over
the Company's products. In addition, advances or developments in other fixation
technologies, including those relating to bioabsorbable materials or
biomaterials, could render the Company's products obsolete or less desirable.
There can be no assurance that the Company will successfully develop and
introduce new products and enhancements or that such products will achieve
market acceptance.
Reliance on Patents and Proprietary Technology. The Company relies on
proprietary technology which it seeks to protect primarily through patents,
trade secrets and proprietary know-how. The Company currently holds twenty
patents and more than seventy United States and foreign patent applications
pending which cover certain aspects of its technology. With respect to the
patent applications, however, the breadth of the claims that will be covered by
the issued patents cannot be known until they are issued. Moreover, the degree
of protection against competing devices afforded by the Company's patents is
subject to uncertainties. There can be no assurance that others will not be
successful in challenging, invalidating or circumventing the Company's patents
or that the Company's patents and intellectual property rights will confer a
competitive advantage on the Company. In addition, there can be no assurance
that the Company will be able to obtain patents on future products, or that the
Company's products will not infringe the patents and proprietary rights of third
parties. The medical device industry has been characterized by extensive
litigation involving patents and other intellectual property rights, and certain
companies in the medical device industry have employed intellectual property
litigation to gain a competitive advantage. The Company may not be able to
successfully defend against a claimed infringement and there can be no assurance
that the Company will not become subject to patent infringement claims or
litigation or interference proceedings. Litigation may be necessary to enforce
patents issued to the Company or to protect its trade secrets and other
intellectual property rights. Any litigation or interference proceedings will
result in substantial expense to the Company and a significant diversion of
effort by its employees, and, if adversely determined to the Company, could
result in significant liabilities to third parties and limitations on the
manufacture, distribution or sale of the Company's products or on the use of
certain technologies in the Company's products.
Future Capital Needs; Uncertainty of Additional Funding. There can be no
assurance that additional equity or debt financing will not be required prior to
the time, if ever, the Company achieves and sustains profitability. The Company
may require additional financing to fund its operations. The Company's future
capital requirements will depend on many factors, including the progress of the
Company's research and development, the scope and results of preclinical studies
and clinical trials, the cost, timing and outcome of regulatory reviews, the
rate of technological advances, the market acceptance of any of the Company's
products, administrative and legal expenses, competitive products, and
manufacturing and marketing arrangements. Any additional equity financing may
result
in dilution to the Company's stockholders. There can be no assurance that funds
will be available on favorable terms, if at all. If adequate funds are not
available, the Company may be required to cut back or discontinue one or more of
its product development programs, or obtain funds through strategic alliances
that may require the Company to relinquish rights to certain of its technologies
or products.
Regulatory Risks. The manufacturing, labeling, distribution and marketing of
the Company's products are subject to extensive and rigorous governmental
regulation in the United States and certain other countries where the process of
obtaining and maintaining required regulatory approvals is lengthy, expensive
and uncertain. In order initially to market its products for clinical use in
the United States, the Company must obtain clearance from the FDA either through
a procedure known as 510(k) pre-market notification or must receive approval by
a lengthier and more difficult procedure known as pre-market approval ("PMA").
Although all of the Company's current products have been cleared using the 510
(k) procedure, there can be no assurance that the Company's future products or
modifications to the Company's existing products will be cleared by the FDA
using the 510(k) process rather than the more arduous and lengthy procedures
required for a PMA application, which may include extensive clinical studies,
manufacturing information and review by a panel of experts outside the FDA. For
example, to the Company's knowledge, the closest predicate device for a
collagen-based fastener required PMA approval. If the FDA were to require the
Company to obtain pre-market approval for the sale of its future products using
the PMA process, the time from development to marketing of those products could
be significantly extended, with a concomitant negative impact on the Company's
financial performance. The Company may market its products only for indications
that have been cleared by the FDA. The Company has no control over the use of
its devices by physicians. There can be no assurance that the Company will not
become subject to FDA actions resulting from physician use of its products for
non-approved indications. FDA regulations for the commercial sale of products
is subject to interpretation. Failure to comply with FDA requirements could
result in the FDA's refusal to accept clinical data from the Company or the
imposition of regulatory sanctions. In addition, there can be no assurance that
the FDA will not place significant limitations upon the intended use of the
Company's products as a condition to 510(k) clearance or PMA approval. Failure
to receive, or delays in receipt of, FDA clearances or approvals, including the
need for clinical trials or additional data as a prerequisite to clearance or
approval, or any FDA limitations on the intended use of the Company's products,
could have a material adverse effect on the Company's business, financial
condition and results of operations.
The Company has not obtained regulatory approval in all foreign countries for
all products which it plans to sell product. Starting in mid-1998, the Company
will be required to obtain "CE" mark certification, which is an international
symbol of quality and compliance with applicable European medical device
directives, in order for it to sell its products in Europe. There can be no
assurance that the Company will be able to obtain the proper certification. If
the Company obtains regulatory approval to sell its products in foreign
countries, it would rely on independent distributors to comply with certain of
the foreign regulatory requirements. The inability or failure of the Company's
independent distributors to comply with applicable regulatory requirements could
materially and adversely affect the Company's business, financial condition and
results of operations.
The Company and its contract manufacturers will be required to adhere to "Good
Manufacturing Practices" of the FDA and similar requirements in other countries,
which include testing, control and documentation requirements. Ongoing
compliance with good manufacturing practices ("GMP") and other applicable
regulatory requirements will be monitored through periodic inspections by state
and federal agencies, including the FDA, and by comparable foreign agencies.
Failure to comply with applicable regulatory requirements could result in, among
other things, warning letters, fines, injunctions, civil penalties, recall or
seizure of products, total or partial suspension of production, refusal of the
government to grant clearance or approval to the marketing of devices,
withdrawals of
approvals and criminal prosecution. The restriction, suspension or revocation of
regulatory approvals or any other failure to comply with regulatory requirements
could have a material adverse effect on the Company.
Limited Manufacturing Experience. The Company manufactures and assembles its
suture fastener, suture systems, COR systems and ACL repair products, but has
yet to manufacture the volumes necessary for the Company to achieve
profitability. There can be no assurance that reliable, high-volume
manufacturing can be achieved at a commercially reasonable cost. The Company
intends to expand its manufacturing capabilities to include bioabsorbable
products and biomaterials, and if the Company encounters difficulties in scaling
up production of new products, including problems involving production yields,
quality control and assurance, component supply and shortages of qualified
personnel, such problems could have a material adverse effect on the Company's
business, financial condition and results of operations.
Reliance on Sole or Limited Sources of Supply. The Company's suture fasteners
are manufactured from molded polymers. The Company owns only one set of molds
for each of its products requiring a molding manufacturing process. In the
event that the molds are damaged, approximately 12 to 16 weeks would be
required for the manufacture of new molds. Should the Company's manufacturing
process be disrupted, there can be no assurance that the Company would be able
to meet its commitments to customers. The failure of the Company to meet its
commitments could have a material adverse effect on the Company's business,
financial condition and results of operations.
In addition, certain suppliers may terminate sales of certain materials to
companies that manufacture medical devices in an attempt to limit their
potential product liability exposure. If the polymers which are used to
manufacture the Company's ROC suture fasteners became unavailable, the Company
would be required to identify a new polymer material for the suture fasteners
and certify the quality and suitability of the new material. In additional, a
new 510(k) clearance would have to be obtained to market products manufactured
from the new materials. This process could take a substantial period of time
and there is no assurance that the Company would be able to identify, certify or
obtain clearance for the new polymer-based fasteners. The Company is attempting
to develop new tissue fixation devices from bioabsorbable materials and
biomaterials, particularly collagen. The Company believes that there are only a
few sources of bioabsorbable materials with the ability and expertise to
manufacture bioabsorbable materials for the Company's products. The Company
believes that even fewer sources of supply for collagen materials currently
exist. The Company has entered into a research and development and a
manufacturing and supply agreement with Collagen Corporation in connection with
a program to develop tissue fixation devices from collagen, but there are
provisions in those agreements that would enable either party to terminate the
arrangements in certain circumstances. If the Company were unable to obtain
sources of bioabsorbable materials or biomaterials to produce the next
generation of its products, the Company's future prospects and opportunities
would be substantially reduced, resulting in a material adverse effect on its
business, financial condition and results of operations.
Reliance on International Distributors. The Company depends primarily on outside
independent sales representatives and distributors for its international sales.
None of the Company's foreign representatives are subject to any long-term
commitments to the Company, and all of them represent a number of manufacturers
and sell a broad range of products in addition to those offered by the Company.
The revenues that such representatives are likely to receive from the promotion
and sale of other products may be substantially greater than the compensation
they may receive from the sale of the Company's products, and it may be
difficult for the Company to provide incentives to such representatives in order
to cause them to devote substantial attention to marketing and selling the
Company's products. International sales accounted for 15% of the Company's
revenues in 1997. The failure of the Company's foreign independent
representatives to generate substantial sales for the
Company could have a material adverse effect on the Company's business,
financial condition and results of operations. The loss of such sales
representatives or distributors or the inability of the Company to develop and
maintain an alternative foreign distribution network could have a material
adverse impact on the Company's international sales. The Company will depend in
part on its international sales representatives to obtain needed regulatory
approval for the sale of the Company's products in overseas markets. The failure
of its international sales representatives to obtain or maintain the necessary
approvals could have a material adverse effect on the Company's business,
financial condition and results of operations.
Certain risks are inherent in international operations, including changes in
demand resulting from fluctuations in exchange rates, the risk of government
financed or subsidized competition, changes in trade policies and tariff
regulations. Although the Company's international sales are denominated in
dollars, fluctuations in foreign currencies can impact the prices quoted by the
Company to prospective customers and thereby affect the Company's ability to
obtain orders from foreign customers.
Product Liability Risk. The development, manufacture and sale of medical
devices entail significant risks of product liability claims. There can be no
assurance that the amount of the Company's insurance coverage will be adequate
to protect it from product liability claims, that the Company will be able to
obtain adequate coverage at competitive rates in the future, or that the
Company's product liability experience in the future will enable it to obtain
insurance coverage in the future. Product liability insurance is expensive, and
may not be available on acceptable terms, if at all, in the future. A successful
product liability suit not covered by such insurance would have a material
adverse effect on the Company's business, financial condition and results of
operations.
Influence of Collagen Corporation. An important part of the Company's long-term
strategy is to develop and sell products manufactured from collagen. Collagen
Corporation holds approximately 9.2% of the Company's Common Stock. Collagen
Corporation is entitled to designate one member of the Company's Board of
Directors so long as it holds at least five percent of the Company's Common
Stock on a fully-diluted basis and a representative of Collagen Corporation
currently serves on the Board of Directors of the Company. In addition, the
Company and Collagen Corporation are parties to a research and development
agreement, a manufacturing and supply agreement and a distribution agreement
with respect to tissue fixation devices manufactured from collagen-based
materials using Collagen Corporation's proprietary technology. Pursuant to
those agreements, certain of the Company's products under development will be
based upon patents and intellectual property owned by Collagen Corporation.
Accordingly, Collagen Corporation may be able to exercise influence over the
business and financial affairs of the Company. If Collagen Corporation's
licensed technology is invalidated or challenged, the Company's ability to sell
products based on such technology could be severely limited. In the event that
the Company materially breaches any of the terms of its agreements with Collagen
Corporation, Collagen Corporation could terminate the Company's license to
develop, manufacture and sell products using Collagen Corporation's technology,
which could have a material adverse effect on the Company's business, financial
condition and results of operations.
Risk of Intense Competition. The medical device industry is highly competitive
and characterized by innovation and rapid technological change. Among the
Company's principal competitors are Mitek Surgical Products, Inc. ("Mitek"), a
division of Johnson & Johnson, the Zimmer and Linvatec divisions of Bristol-
Meyers Squibb Company and ConMed Inc. respectively, Smith & Nephew Endoscopy,
("Dyonics" and "Acufex"), a subsidiary of Smith & Nephew, Inc., Arthrotek Inc.,
a division of Biomet, Inc. and Arthrex, Inc. Each of these competitors has
significantly greater financial, manufacturing, marketing, distribution and
technical resources than the Company and a greater share of the tissue fixation
market than the Company. In addition, a number of smaller companies are
entering or have entered the tissue fixation market. Dyonics, Inc. and Mitek
have already released to the market a
number of bioabsorbable products. Many of the Company's competitors have large
existing sales organizations devoted to a wide variety of orthopedic products.
These companies are well capitalized and may be able to withstand price
pressures and deep discounting better than the Company. The Company has a small
number of sales employees and independent sales representatives focused on
tissue fixation devices in the sports medicine market and with relatively little
experience selling the Company's products. There can be no assurance that the
Company's competitors will not succeed in developing technologies and products
that are more effective or less costly than any which have been developed or may
be developed by the Company or that would render the Company's products obsolete
or not competitive.
Price Pressure Resulting From Consolidation of Health Care Industry. The health
care industry is undergoing rapid change and consolidation as health care
systems merge to effect cost savings and operating efficiencies. In addition, a
number of large, national buying consortiums have formed to engage in group
purchasing of medical supplies and services in an effort at cost containment for
member hospital systems and health care providers. These consolidated systems
and large purchasing organizations are likely to apply pressure to manufacturers
and distributors of medical devices to reduce the purchase prices of their
goods. Manufacturers such as the Company may be forced to lower prices in
response to those pressures in order for their products to be approved for
purchase by those organizations, which could have a material adverse effect on
the Company's business, financial condition and results of operations.
Possible Limitations on Third-Party Reimbursement. The Company's products are
generally purchased directly by hospitals and other health care providers, which
in turn bill third-party payors such as Medicare, Medicaid and private insurance
companies. Many of these payors are attempting to control health care costs by
authorizing fewer surgical procedures and by limiting reimbursement for
procedures to fixed amounts. The Company's strategy includes the expansion of
its market by encouraging physicians to use its tissue fixation devices for
procedures that are not routinely performed, or if performed, are performed
without the use of tissue fasteners. Failure by physicians, hospitals and other
users of the Company's products to obtain sufficient reimbursement from third-
party payors for procedures in which the Company's products are used, or adverse
changes in government and private third-party payors' policies toward
reimbursement for such procedures, could have a material adverse effect on the
Company's business, financial condition and results of operations.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
INNOVASIVE DEVICES, INC,
DATE: MARCH 31, 1998 BY:/S/ RICHARD D. RANDALL
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RICHARD D. RANDALL
PRESIDENT, CHIEF EXECUTIVE OFFICER
AND DIRECTOR
(PRINCIPAL EXECUTIVE OFFICER)
DATE: MARCH 31, 1998 BY:/S/ JAMES V. BARRILE
---------------------------------------
JAMES V. BARRILE
EXECUTIVE VICE PRESIDENT OF FINANCE,
CHIEF FINANCIAL OFFICER AND TREASURER
(PRINCIPAL FINANCIAL OFFICER)