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EXHIBIT 99.1
AUTOCYTE, INC.
IMPORTANT FACTORS REGARDING FORWARD-LOOKING STATEMENTS
March 1998
From time to time, AutoCyte through its management may make forward-looking
public statements, such as statements concerning then expected future revenues
or earnings or concerning projected plans, performance, product development and
commercialization as well as other estimates relating to future operations.
Forward-looking statements may be in reports filed under the Securities Exchange
Act of 1934, as amended, in press releases or in oral statements made with the
approval of an authorized executive officer. The words or phrases "will likely
result," "are expected to," "will continue," "is anticipated," "estimate,"
"project," or similar expressions are intended to identify "forward-looking
statements" within the meaning of Section 21E of the Securities Exchange Act of
1934 and Section 27A of the Securities Act of 1933, as enacted by the Private
Securities Litigation Reform Act of 1995.
The Company wishes to caution readers not to place undue reliance on these
forward-looking statements that speak only as of the date on which they are
made. In addition, the Company wishes to advise readers that the factors listed
below, as well as other factors not currently identified by management, could
affect the Company's financial or other performance and could cause the
Company's actual results for future periods to differ materially from any
opinions or statements expressed with respect to future periods or events in any
current statement.
The Company will not undertake and specifically declines any obligation to
publicly release the result of any revisions that may be made to any
forward-looking statements to reflect events or circumstances after the date of
such statements or to reflect the occurrence of anticipated or unanticipated
events that may cause management to re-evaluate such forward-looking statements.
In connection with the "safe harbor" provisions of the Private Securities
Litigation Reform Act of 1995, the Company is hereby filing cautionary
statements identifying important factors that could cause the Company's actual
results to differ materially form those projected in forward-looking statements
of the Company made by or on behalf of the Company.
EARLY STAGE OF DEVELOPMENT; LIMITED SALES TO DATE
Neither of the Company's two principal products, PREP or SCREEN, has
received FDA approval for its principal intended use. No significant revenues
have been generated from sales of those products, and the Company's Pathology
Workstation has produced only limited revenues. Since beginning operations in
November 1996, the Company has financed its operations through the private
placement and public sales of equity securities and limited product sales. To
achieve profitable operations, the Company, alone or with others, must
successfully develop, obtain regulatory approval for, introduce, market and sell
products. There can be no assurance that the required regulatory approvals will
be obtained in a timely manner or at all, that the Company's product candidates
can be manufactured at an acceptable cost and with acceptable quality, that any
approved products can be successfully marketed or that the Company can
successfully establish suitable internal financial controls and other
infrastructure necessary to support substantial commercial operations. The
Company's failure to successfully market and sell its products would have a
material adverse effect on the Company's future revenues and profitability.
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UNCERTAINTIES REGARDING FDA APPROVAL
The Company must obtain approval of PMAs by the FDA before the Company's
principal products may be marketed in the United States for their primary
intended use. None of the Company's principal products has yet received such
approval. A failure or delay in receiving any such approval would have a
material adverse effect on the Company's business, financial condition and
results of operations. In addition to obtaining approval of the initial PMA, the
FDA's regulations require agency approval of a PMA supplement for certain
changes if they affect the safety and effectiveness of the device, including,
but not limited to: new indications for use; the use of a different facility or
establishment to manufacture, process or package the device; changes in
manufacturing methods or quality control systems; changes in vendors used to
supply components of the device; changes in performance or design
specifications, and certain labeling changes.
The process of obtaining FDA approvals of PMAs for medical devices such as
the Company's products can be time-consuming, expensive and uncertain,
frequently requiring as much as five to seven years or more from the
commencement of clinical trials to the receipt of PMA approval. The Company has
only limited experience in submitting or pursuing applications necessary to gain
FDA approval of a PMA. The Company may encounter unanticipated delays or
significant unanticipated costs in its efforts to secure necessary approvals,
and there can be no assurance that FDA approval of a PMA will ever be obtained
for any of the Company's principal products for any use or that, if obtained,
the claims for which the Company is seeking approval will be allowed. The
Company's analysis of data obtained from preclinical and clinical studies is
subject to confirmation and interpretation by the FDA. The FDA's statistical
analyses of the Company's data may yield different results, including results
that do not show statistical significance in the FDA's opinion. Such conclusions
by the FDA could delay, limit or prevent approval of a PMA. The studies are also
subject to evaluation by the FDA for compliance with its Good Clinical Practice
("GCP") requirements. The Company has monitored and audited these studies for
compliance with GCP requirements in anticipation of the inspections that the FDA
will conduct prior to any approval of the PMA. The audits identified potential
issues which the Company addressed by adding additional documentation to its GCP
file. There can be no assurance, however, that the FDA will find the clinical
studies to be in sufficient compliance with its GCP requirements and acceptable
to support approval of the PMA for PREP. In addition, United States legislative
or administrative actions also could prevent or delay approval of PMAs for the
Company's products. Even if FDA approval of a PMA is obtained, such approval may
include significant limitations on the indicated uses for which a product may be
marketed. A marketed product also is subject to continual FDA and other
regulatory agency review and regulation. Subsequent discovery of previously
unknown problems or failure to comply with the applicable regulatory
requirements can result in, among other things, fines; the refusal of the FDA to
approve PMAs; suspensions or withdrawals of approvals; product recalls;
operating restrictions, including total or partial suspension of production,
distribution, sales and marketing; injunctions; civil penalties; product
seizures and criminal prosecution of the Company, its officers and its
employees. The Company's failure to obtain or maintain FDA regulatory approval
for its products in a timely manner, or at all, would have a material adverse
effect on the Company's business, financial condition and results of operations.
UNCERTAINTY OF MARKET ACCEPTANCE OF THE COMPANY'S PRINCIPAL PRODUCTS
The Company's success and growth will depend primarily on market acceptance
of PREP and SCREEN for their primary intended use in cervical cancer screening
by clinical laboratories, third-party payors and health care providers. Market
acceptance will depend on the Company's ability to demonstrate to these parties
that there are limitations in the conventional Pap smear process of sample
collection, slide preparation and screening, and that AutoCyte's products can
substantially overcome these shortcomings. There can be no assurance that the
Company will be able to successfully demonstrate that use of its products is
cost competitive compared to the use of the conventional Pap smear process.
Recently, other companies have introduced systems for screening conventional Pap
smear slides that such companies claim will substantially improve the likelihood
of an accurate diagnosis. The widespread adoption of such systems could impair
the Company's ability to market the Company's products and could have a material
adverse effect on the Company's business, financial condition and results of
operations. There can be no assurance that clinical laboratories, third-party
payors, and
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health care providers will choose to accept the Company's products as a
replacement to conventional Pap smear collection and slide preparation practices
or alternative cervical cancer screening systems. Even if the Company's products
were to gain market acceptance, sales of the Company's products would depend to
a large extent on the availability and level of reimbursement from third-party
payors, such as private insurance plans, managed care organizations and Medicare
and Medicaid.
COMPETITION; TECHNOLOGICAL CHANGE
The cervical cancer diagnostic market is comprised of the widely used
conventional Pap smear procedure and alternative technologies, some of which
have already received FDA approval and are, in certain cases, considered
superior to the conventional Pap smear. The Company faces direct competition
from a number of publicly-traded and privately-held companies, including other
manufacturers of monolayer slide preparation and automated screen imaging
systems. The Company competes on the basis of a number of factors in areas in
which the Company currently has limited experience, including manufacturing
efficiency, marketing and sales capabilities and customer service and support.
The Company's products could be rendered obsolete or uneconomical by
technological advances of the Company's current or future competitors, the
introduction and market acceptance of competing products or by other approaches.
Many of the Company's existing and potential competitors have substantially
greater financial, marketing, sales, distribution and technical resources than
the Company, and more experience in research and development, clinical trials,
regulatory matters, customer support, manufacturing and marketing. In addition,
several of these competitors have received third-party reimbursement for their
products.
HISTORY OF OPERATING LOSSES; ACCUMULATED DEFICIT; UNCERTAINTY OF FUTURE
PROFITABILITY
The Company and its predecessor have incurred substantial losses. The
Company's accumulated deficit from inception has resulted primarily from
expenses associated with research and development activities, coordination of
clinical trials, preparation and submission of the PMA for PREP and general and
administrative expenses. The Company anticipates that its research and
development and marketing and sales expenses will increase significantly in the
future, and it expects to incur substantial losses over the next several years.
There can be no assurance that the Company will ever be able to generate
significant revenues from the sale of products. Moreover, even if the Company
generates significant product revenues, there can be no assurance that the
Company will be able to achieve or sustain profitability.
DEPENDENCE ON A LIMITED NUMBER OF PRODUCTS
The Company anticipates that sales and rentals of PREP and SCREEN for
cervical cancer screening will account for the substantial majority of the
Company's revenues if and when FDA approvals are obtained. The Company's
long-term success will depend, in significant part, on its ability to obtain
regulatory approval and achieve market acceptance of PREP and SCREEN in the
United States for cervical cancer screening. There can be no assurance that the
Company will obtain such regulatory approval and achieve market acceptance for
PREP and SCREEN, and the failure to do so would have a material adverse effect
on the Company's business, financial condition and results of operations.
FUTURE CAPITAL NEEDS AND UNCERTAINTY OF AVAILABILITY OF ADDITIONAL FINANCING
Prior to being able to sustain its operations from the sale of its products,
the Company believes that it may require additional funds, through lease
arrangements, debt or equity financings, strategic alliances or otherwise, to
manufacture a sufficient inventory of PREP and SCREEN, finance the placement of
PREP and SCREEN instruments at customer sites, build the sales and marketing
force necessary for market penetration of PREP and SCREEN and other expenses.
The Company's future liquidity and capital requirements will depend upon
numerous factors, including the progress and scope of clinical trials; the
timing and costs of filing future regulatory submissions; the timing and costs
required to receive both United States and foreign governmental approvals; the
cost of filing, prosecuting, defending and enforcing patent claims and other
intellectual property rights; the extent to which the Company's products gain
market acceptance; the timing and costs of product
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introductions; the extent of the Company's ongoing research and development
programs; the costs of training laboratory personnel to become proficient with
the use of the Company's products; and, if necessary once regulatory approvals
are received, the costs of developing marketing and distribution capabilities
and manufacturing sufficient inventories of PREP. There can be no assurance that
additional financing will be available on terms acceptable to the Company, or at
all. The Company's inability to fund its capital requirements would have a
material adverse effect on the Company's business, financial condition and
results of operations. To the extent that additional capital is raised through
the sale of equity or securities convertible into equity, the issuance of such
securities could result in dilution to the Company's existing stockholders.
DEPENDENCE ON PATENTS, COPYRIGHTS, LICENSES AND PROPRIETARY RIGHTS; RISK OF
THIRD-PARTY CLAIMS OF INFRINGEMENT
The Company relies on a combination of patents, trade secrets, copyrights
and confidentiality agreements to protect its proprietary technology, rights and
know-how. The Company holds four issued United States patents and corresponding
foreign patent applications and has one United States patent application
pending, relating to various aspects of the Company's products. There can be no
assurance, however, that pending patent applications will ultimately issue as
patents or that the claims allowed in any of the Company's existing or future
patents will provide competitive advantages for the Company's products or will
not be successfully challenged or circumvented by competitors. The Company
cannot be sure that its products or technologies do not infringe patents that
may be granted in the future pursuant to pending patent applications or that its
products do not infringe any patents or proprietary rights of third parties.
There can be no assurance that a court would rule that the Company's products do
not infringe such third-party patents or would invalidate such third-party
patents. In the event that any relevant claims of third-party patents are upheld
as valid and enforceable, the Company could be prevented from selling its
products or could be required to obtain licenses from the owners of such patents
or be required to redesign its products to avoid infringement. There can be no
assurance that such licenses would be available or, if available, would be on
terms acceptable to the Company or that the Company would be successful in any
attempt to redesign its products or processes to avoid infringement. The
Company's failure to obtain these licenses or to redesign its products would
have a material adverse effect on the Company's business, financial condition
and results of operations.
EXTENSIVE GOVERNMENT REGULATION
The Company's medical device products and manufacturing facilities are
subject to stringent regulation by the FDA and by comparable authorities in
other countries. Pursuant to the Federal Food, Drug and Cosmetic Act (the "FDC
Act") and the regulations promulgated thereunder, the FDA regulates the
preclinical and clinical testing, manufacture, labeling, distribution, sale,
marketing, advertising and promotion of medical devices. There can be no
assurance that the Company will be able to obtain necessary regulatory approvals
or comply with regulatory requirements applicable to the Company's products in
the United States or internationally on a timely basis, or at all. The FDC Act
strictly prohibits the promotion by a company and any of its distributors of
approved medical devices for unapproved uses. Manufacturers of medical devices
are subject to strict federal regulations regarding validation and the quality
of manufacturing, including compliance with Quality System ("QS," formerly
current Good Manufacturing Practice or "GMP") regulations relating to design,
testing, control and documentation, among other things. The Company's existing
and future manufacturing facilities and manufacturing processes for the
Company's products for cervical cancer screening or other applications will be
required to comply with these and all other applicable FDA regulations, and with
regulations imposed by other governments. Failure to comply with applicable
United States and international regulatory requirements can result in the
refusal of the relevant government agency to grant premarket approval for
devices, suspension or withdrawal of approval, total or partial suspension of
production, distribution, sales and marketing, fines, injunctions, civil
penalties, recall or seizure of products, and criminal prosecution of a company
and of its officers and employees. Furthermore, changes in existing regulations
or adoption of new regulations or policies could prevent the Company from
obtaining, or affect the cost and timing of, future regulatory approvals or
clearances.
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The Company has only limited experience in complying with regulations
governing its products and manufacturing facilities. Monitoring and maintaining
compliance with government regulations will require substantial resources of the
Company and may, at times, divert the attention of employees of the Company from
other functions of the Company's operations. Even a temporary suspension of
production, distribution, sales or marketing imposed by regulatory authorities
could have a material adverse effect on the Company as a result of the loss of
business during the period of such suspension and potential damage to the
Company's reputation with its direct customers, third-party payors, the medical
community at large and regulatory authorities. The withdrawal of regulatory
approval to market any of the Company's products would have a material adverse
effect on the Company's business, financial condition and results of operations.
DEPENDENCE ON THIRD-PARTY REIMBURSEMENT
Sales of the Company's products for cervical cancer screening in the United
States and other countries will depend on the availability of adequate
reimbursement from third-party payors such as private insurance plans, managed
care organizations and Medicare and Medicaid. There is significant uncertainty
concerning third-party reimbursement for the use of any medical device
incorporating new technology. There can be no assurance that third-party payors
will provide such coverage, that reimbursement levels will be adequate, or that
health care providers or clinical laboratories will use the Company's products
for cervical cancer screening in lieu of the conventional Pap smear.
Reimbursement by a third-party payor depends on a number of factors, including
the level of demand by physicians and the payor's determination that the
Company's products represent clinical advances compared to current technology,
and are safe and effective, medically necessary, appropriate for specific
patient populations and cost-effective. Because the up-front, direct costs of
using the Company's products will initially be greater than the cost of the
conventional Pap smear, the Company will need to convince third-party payors
that the overall cost savings to the health care system, resulting from earlier
detection of cervical cancer and reduction of unnecessary biopsies and
colposcopies through improved specimen adequacy and otherwise, will more than
offset the cost of the Company's products. Since reimbursement approval is
required from each payor individually, seeking such approvals is a
time-consuming and costly process which requires the Company to provide
scientific and clinical data to support the use of the Company's products to
each payor separately. There can be no assurance that third-party reimbursement
will be available for PREP or SCREEN or any other products that may be developed
by the Company, or that such third-party reimbursement, if obtained, will be
adequate.
INTERNATIONAL SALES AND OPERATIONS RISKS
The Company is currently selling its products to customers in Australia,
Asia and Europe and intends to substantially expand its international sales in
the future. While the Company is evaluating marketing and sales channels abroad,
including contract sales organizations, distributors and marketing partners, the
Company has very limited foreign sales channels in place. There can be no
assurance that the Company will successfully develop significant international
sales capabilities or that, if the Company establishes such capabilities, the
Company will be successful in obtaining reimbursement or any regulatory
approvals required in foreign countries. International sales and operations may
be limited or disrupted by the imposition of government controls, export license
requirements, political instability, trade restrictions, changes in tariffs,
difficulties in staffing and managing international operations, changes in
applicable laws, less favorable intellectual property laws, longer payment
cycles, difficulties in collecting accounts receivable, fluctuations in currency
exchange rates and potential adverse tax consequences. Foreign regulatory
agencies often establish product standards different from those in the United
States and any inability to obtain foreign regulatory approvals on a timely
basis, if at all, could have a material adverse effect on the Company's
international business operations. Additionally, if significant international
sales occur, the Company's business, financial condition and results of
operations could be adversely affected by fluctuations in currency exchange
rates as well as increases in duty rates. There can be no assurance that the
Company will be able to successfully commercialize its products or any future
products in any foreign market.
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LIMITED MARKETING AND SALES RESOURCES
The Company currently has a limited marketing and sales force. In order to
effectively market the Company's products, the Company will need to
substantially increase its direct sales force. No assurance can be given that
the Company's direct sales force will succeed in promoting the Company's
products to clinical laboratories, health care providers or third-party payors,
or that additional marketing and sales channels will be successfully
established. In addition, due to limited market awareness of the Company's
products, the Company will be required to educate health care providers and
third-party payors regarding the clinical benefits and cost-effectiveness of the
Company's products. There can be no assurance that the Company will be able to
recruit and retain skilled marketing, sales, service or support personnel or
foreign distributors, or that the Company's marketing and sales efforts will be
successful. Failure to successfully expand its marketing and sales capabilities
in the United States and establish its marketing and sales organization
internationally would have a material adverse effect on the Company's business,
financial condition and results of operations. The Company's marketing success
in the United States and abroad will depend on whether it can obtain required
regulatory approvals, successfully demonstrate the cost-effectiveness of the
Company's products, further develop its direct sales capabilities and establish
arrangements with contract sales organizations, distributors and marketing
partners. Failure by the Company to successfully market its products would have
a material adverse effect on the Company's business, financial condition and
results of operations.
LIMITED NUMBER OF CUSTOMERS
Due in part to a recent trend toward consolidation of clinical laboratories,
the Company expects that the number of potential domestic customers for its
products will decrease and, therefore, it is likely that a significant portion
of the Company's product sales will be concentrated among a small number of
large clinical laboratories. The Company will need to foster an awareness of and
acceptance by these potential customers of the Company's products and the
benefits of those products over the conventional and other alternative methods
of sample collection, slide preparation and cervical cancer screening.
Furthermore, in order to generate demand for the Company's products among
clinical laboratories, the Company will be required to educate physicians and
health care providers regarding the clinical benefits and cost-effectiveness of
the Company's products as well as to demonstrate to such parties that adequate
levels of reimbursement will be available for the Company's products. The
Company's dependence on sales to large laboratories may strengthen the
purchasing leverage of these potential customers. While Roche and its affiliates
(including LabCorp) have been customers for the Company's products, there are no
commitments, agreements or understandings in this regard between the Company and
Roche or any of its affiliates. There can be no assurance that the Company will
be successful in selling its products to large laboratories or that any such
sales will result in sufficient revenue to allow the Company to become
profitable.
LIMITED MANUFACTURING EXPERIENCE AND CAPACITY
The Company intends to manufacture its CytoRich(R) line of reagents and
stains and assemble or customize certain other components of its PREP, SCREEN
and Pathology Workstation products. The Company has limited commercial scale
manufacturing experience and capabilities and the Company anticipates it will be
required to substantially scale up its manufacturing capabilities and acquire or
rent additional manufacturing facilities. There can be no assurance that the
Company will be able to recruit and retain skilled manufacturing personnel to
establish sufficient manufacturing capability and capacity or manufacture the
Company's products in a timely manner, at a cost or in quantities necessary to
make them commercially viable, in conformance with QS requirements, or in a
manner which otherwise ensures product quality. The Company also anticipates
that it will require additional manufacturing capacity for reagents used in its
PREP system by the end of 1999. An inability by the Company to increase its
manufacturing capacity when required, or to contract with third parties for the
manufacture of its products on commercially viable terms, would adversely effect
the Company's business, financial condition, and results of operations.
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DEPENDENCE ON SINGLE OR LIMITED SOURCE SUPPLIERS
Certain components of PREP and SCREEN are currently provided to the Company
on a single source basis from certain suppliers. In the event that the Company
is unable to obtain sufficient quantities of components manufactured by single
or limited source suppliers on commercially reasonable terms, or in a timely
manner, the Company would not be able to manufacture its products on a timely
and cost-competitive basis which would have a material adverse effect on the
Company's business, financial condition and results of operations. In addition,
if any of the components of PREP and SCREEN are no longer available in the
marketplace, the Company may be forced to further develop its technology to
incorporate alternate components. Subject to any contractual limitations on the
ability to do so, the Company may seek to establish relationships with
additional suppliers or vendors for components of its products, although there
can be no assurance that it will be successful in doing so. The incorporation of
new components, or replacement components from alternative suppliers, into the
Company's products may require the Company to submit PMA supplements to, and
obtain further regulatory approvals from, the FDA before marketing the products
with the new or replacement components. There can be no assurance that such
development to incorporate alternative components would be successful or that,
if developed by the Company or licensed from third parties, such alternative
components would receive FDA approval on a timely basis, or at all.
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