EXHIBIT 99.1
CAUTIONARY STATEMENT
Integ Incorporated ("Integ" or the "Company"), or persons acting on behalf of
the Company, or outside reviewers retained by the Company making statements on
behalf of the Company, or underwriters, from time to time, may make, in writing
or orally, "forward-looking statements" as defined under the Private Securities
Litigation Reform Act of 1995 (the "Act"). This Cautionary Statement is for the
purpose of qualifying for the "safe harbor" provisions of the Act and is
intended to be a readily available written document that contains factors which
could cause results to differ materially from those projected in such forward-
looking statements. These factors are in addition to any other cautionary
statements, written or oral, which may be made or referred to in connection with
any such forward-looking statement.
The following matters, among others, may have a material adverse effect on the
business, financial condition, liquidity, results of operations or prospects,
financial or otherwise, of the Company. Reference to this Cautionary Statement
in the context of a forward-looking statement shall be deemed to be a statement
that any one or more of the following factors may cause actual results to differ
materially from those which might be projected, forecast, estimated or budgeted
by the Company in such forward-looking statement or statements:
DEVELOPMENT OF NEW TECHNOLOGY; DEPENDENCE ON THE LIFEGUIDE SYSTEM; UNCERTAINTY
OF MARKET ACCEPTANCE
The Company's future success is entirely dependent upon the successful
development, commercialization and market acceptance of the LifeGuide System,
the development of which is ongoing and the complete efficacy of which has not
yet been demonstrated. The Company has tested benchtop prototypes and commercial
prototypes of the LifeGuide Meter and the LifeGuide Key. The Company has
experienced significant delays in completing the development of the LifeGuide
Meter. There can be no assurance that the Company will not experience continuing
delays in this development effort. Also, there can be no assurance that
additional unforeseen problems will not occur in research and development,
clinical testing, regulatory submissions and approval, product manufacturing and
commercial scale up, marketing or product distribution. Any such occurrence
could materially delay the commercialization of the LifeGuide System or prevent
its market introduction entirely. Further, even if successfully developed, the
commercial success of the LifeGuide System will depend upon its acceptance as an
accurate, reliable and cost-effective alternative to existing blood glucose
monitoring techniques. The glucose monitoring industry is currently dominated by
several companies with established markets and distribution channels. Because
the proposed LifeGuide System will represent a new practice in the monitoring of
glucose levels, the Company is unable to predict how quickly, if at all, its
products will be accepted by members of the medical community and people with
diabetes. There is no assurance that the Company will ever derive substantial
revenues from the sale of the LifeGuide System.
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HISTORY OF OPERATING LOSSES; ACCUMULATED DEFICIT; EXPECTATION OF FUTURE LOSSES
The Company has generated no revenue and has sustained significant operating
losses each year since its inception. As of September 30, 1998, the Company had
an accumulated deficit of $39.5 million. The Company expects such losses to
continue for the next several years. The Company may never generate substantial
operating revenue or achieve profitability. The Company's ability to generate
revenue from operations and achieve profitability is dependent upon successful
development, regulatory approval and commercialization of the LifeGuide System
and the Company's successful transition from a development stage company to a
fully operating company.
LIMITED CLINICAL TESTING EXPERIENCE; UNCERTAINTY OF OBTAINING FDA CLEARANCES
Testing of the LifeGuide System has been performed on benchtop prototypes and
hand-held prototypes solely by Company personnel under controlled circumstances.
After the Company has completed the design of the LifeGuide System and
demonstrated the efficacy of the product, the Company expects to make commercial
prototypes of the LifeGuide System available for clinical testing by people with
diabetes and to use the data derived from this testing to support a 510(k)
notification with the Food and Drug Administration ("FDA") to permit
commercialization of the LifeGuide System. There can be no assurance that the
Company will not encounter problems in clinical testing that will cause the
Company to further delay commercialization of the LifeGuide System, and there
can be no assurance that the LifeGuide System will prove to be accurate and
reliable on a consistent basis. Even if accurate and reliable, there can be no
assurance that such testing will show the Company's product to be safe or
effective. There can also be no assurance that the required FDA clearances will
be obtained on a timely basis or at all. The Company believes and has confirmed
with the FDA that the LifeGuide System will be eligible for a 510(k) clearance
from the FDA. Still, there can be no assurance that the required FDA clearances
or approvals will be obtained on a timely basis or at all or that the FDA would
change its criteria and apply the more stringent PMA (pre-market approval)
process to the LifeGuide System. The Company has no experience in obtaining
regulatory approval.
HIGHLY COMPETITIVE MARKETS; RISK OF TECHNOLOGICAL OBSOLESCENCE
The glucose monitoring industry is characterized by continuously evolving
technology and intense competition, and the market is currently dominated by
several companies with established products and distribution channels. In
addition, other companies are attempting to develop minimally- or non-invasive
glucose monitoring products competitive with the proposed LifeGuide System.
There can be no assurance that the Company's competitors and potential
competitors will not succeed in developing or marketing technologies and
products that will be more accepted in the marketplace than the proposed
LifeGuide System or that would render the Company's technology and proposed
device obsolete or noncompetitive. In addition, numerous researchers are
investigating alternative treatments or cures for diabetes. If any of these
efforts are successful in reducing the complications associated with diabetes
and can be cost-effectively provided to people with diabetes, the need for the
Company's products could be mitigated or become entirely nonexistent.
Most of the Company's competitors and potential competitors have substantially
greater capital resources, research and development staffs and facilities than
the Company. In addition, most of the Company's competitors and potential
competitors have substantially greater experience than the
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Company in research and new product development, obtaining regulatory approvals
and manufacturing and marketing medical devices. Many of the Company's potential
competitors have already entered into distribution and marketing agreements with
major marketing partners. Competition within the glucose monitoring industry
could also result in reductions of the prices of the Company's products and the
use of purchase incentive programs that could adversely affect the Company's
revenues and profitability.
LACK OF MANUFACTURING CAPABILITY; DEPENDENCE ON CONTRACT MANUFACTURERS AND
SUPPLIERS
The Company's LifeGuide System is still in development and the Company has not
yet created or manufactured a commercial prototype of its device. To be
successful, the Company must manufacture the LifeGuide System in compliance with
regulatory requirements, in a timely manner and in sufficient quantities while
maintaining product quality and acceptable manufacturing costs. The LifeGuide
Meter will be manufactured for the Company by an outside vendor from primarily
off-the-shelf components. The LifeGuide Key will be assembled by the Company
from components to be purchased from outside suppliers. The Company installed
the initial automated manufacturing line for the LifeGuide Key in the second
quarter of 1998 and is currently producing LifeGuide Keys for development trials
from this line. Manufacturers often encounter difficulties in scaling up
production of new products, including problems involving production yields,
quality control and assurance, component supplies and shortages of personnel.
There can be no assurance, however, that the Company will be able to install and
qualify subsequent commercial production lines on a timely basis or at all.
There also can be no assurance that the Company will be able to achieve and
maintain product quality and reliability when producing the LifeGuide System in
the quantities required for commercial operations or within a period that will
permit the Company to introduce its products in a timely fashion, or that the
Company will be able to assemble and manufacture its products at an acceptable
cost.
DEPENDENCE ON PATENTS AND PROPRIETARY TECHNOLOGY
The Company's success will depend in part on its ability to obtain patent
protection for its proposed products and processes, to preserve its trade
secrets and to operate without infringing the proprietary rights of third
parties. As of the date of this Form 10-Q, the Company has five issued United
States patents relating to its ISF collection technology, and two additional
United States Patent Applications directed toward various aspects of the
technologies underlying the LifeGuide System. There can be no assurance,
however, that any additional patents will be issued, that the scope of any
patent protection granted to the Company will prevent competitors from
introducing products competitive with the LifeGuide System or that any of the
Company's patents will be held valid or enforceable if subsequently challenged.
Patenting medical devices involves complex legal and factual questions, and
there is no consistent policy regarding the breadth of claims which issue
pertaining to such technologies. The Company also relies upon unpatented trade
secrets, and no assurance can be given that others will not independently
develop or otherwise acquire unpatented technologies substantially equivalent to
those of the Company. In addition, even if the patents for which the Company has
applied are ultimately issued, other parties may hold or receive patents that
contain claims covering the LifeGuide System and which may delay or prevent the
sale of the LifeGuide System or require licenses resulting in the payment of
fees or royalties by the Company in order for the Company to carry on its
business. There can be no assurance that needed or potentially useful licenses
will be available in the future on acceptable terms or at all.
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There has been substantial litigation regarding patent and other intellectual
property rights in the medical device industry. Litigation could result in
substantial costs to and a diversion of effort by the Company, but may be
necessary to enforce any patents issued to the Company, protect trade secrets or
know-how owned by the Company, defend the Company against claimed infringement
of the rights of others or determine the scope and validity of the proprietary
rights of others. The Company is not currently a party to any patent or other
litigation. The Company routinely monitors patent issuances by others in its
industry, and as a result became aware in 1996 of a patent that may relate to a
feature of the LifeGuide System. The Company engaged outside patent counsel,
Moore & Hansen, to review the patent, and such counsel rendered its opinion to
the Company that the patent is not infringed by the Company's technology. In
addition, such counsel advised the Company that if the patent was challenged,
those claims which the Company believes may apply to the LifeGuide System would
be likely to be held invalid based on the existence of prior art not cited by
the patent examiner. There can be no assurance, however, that the holder of the
patent will not pursue litigation which could be costly to the Company. An
adverse determination in any litigation, including any litigation commenced by
the holder of the patent referred to above, could subject the Company to
significant liabilities to third parties, require the Company to seek licenses
from or pay royalties to third parties or prevent the Company from
manufacturing, selling or using its proposed products, any of which could have a
material adverse effect on the Company's business and prospects.
GOVERNMENT REGULATION; NEED FOR ADDITIONAL GOVERNMENT CLEARANCES
Government regulation in the United States and other countries is a significant
factor in the Company's business. The Company's products will be regulated by
the FDA under a number of statutes including the Federal Food, Drug and Cosmetic
Act, as amended (the "FDC Act"), and the Safe Medical Devices Act of 1990 (the
"SMDA"), and the FDA Modernization Act (the "FDAMA"). Manufacturers of medical
devices must comply with applicable provisions of the FDC Act, the SMDA, the
FDAMA and certain associated regulations governing the development, testing,
manufacturing, labeling, marketing and distribution of medical devices and the
reporting of certain information regarding their safety. The FDC Act, the SMDA,
and the FDAMA require certain clearances from the FDA before medical devices,
such as the Company's proposed LifeGuide System, can be marketed.
The Company has not obtained FDA clearance to market the LifeGuide System. The
regulatory process may delay the marketing of new products for lengthy periods,
impose substantial additional costs and provide an advantage to those of the
Company's competitors who have greater financial resources. FDA marketing
clearance regulations depend heavily on administrative interpretation. There can
be no assurance that interpretations made by the FDA or other regulatory bodies,
with possible retroactive effect, will not adversely affect the Company. There
can be no assurance that any such clearance will be obtained in a timely manner,
or at all. In addition, even if obtained, FDA clearances are subject to
continual review, and if the FDA believes that the Company is not in compliance
with the FDC Act, the SMDA, the FDAMA or their associated regulations, it can
institute proceedings to detain or seize the Company's products, require a
recall, enjoin future violations and assess civil and criminal penalties against
the Company, its directors, officers or employees. The FDA may also withdraw
market approval for the Company's products or require the Company to repair,
replace or refund the cost of any device manufactured or distributed by the
Company.
The FDC Act will regulate the Company's development, quality control and
manufacturing procedures by requiring the Company to demonstrate compliance with
current Good Manufacturing Practices. The FDA monitors compliance with these
requirements by requiring manufacturers to register with the
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FDA, which subjects them to periodic FDA inspections of their manufacturing
facilities. In order to ensure compliance with these requirements, the Company
will be required to expend time, resources and effort in the areas of production
and quality control. If violations of the applicable regulations are noted
during FDA inspections, the continued marketing of any products manufactured by
the Company may be halted or adversely affected.
The Company also plans to eventually distribute its products in several foreign
countries. The Company's products will be subject to a wide variety of laws and
regulations in these markets. Generally, the extent and complexity of the
regulation of medical devices is increasing worldwide, with regulations in some
countries already nearly as exhaustive as those applicable in the United States.
This trend may continue and the cost and time required to obtain marketing
approval in any given country may increase. There can be no assurance that any
foreign approvals will be allowed on a timely basis or at all.
LACK OF COMMERCIAL SALES OR MARKETING EXPERIENCE
The Company has no experience in marketing the LifeGuide System and has not yet
entered into any marketing or distribution arrangements for its proposed
LifeGuide System. In addition, many of the Company's potential competitors have
already entered into distribution and marketing agreements with major marketing
partners. There can be no assurance that the Company will be able to build a
suitable sales force or enter into satisfactory marketing arrangements with
third parties when commercial potential develops, if ever, or that its sales and
marketing efforts will be successful.
DEPENDENCE ON KEY PERSONNEL; NEED FOR ADDITIONAL PERSONNEL
The success of the Company is dependent in large part upon the ability of the
Company to attract and retain key management and operating personnel. Qualified
individuals are in high demand and are often subject to competing offers. In the
future, the Company will also need to add additional skilled personnel in the
areas of research and development, sales, marketing and manufacturing. There can
be no assurance that the Company will be able to attract and retain the
qualified personnel needed for its business. The loss of the services of
additional members of the Company's research, manufacturing or management group
or the inability to hire additional personnel as needed would likely have a
material adverse effect on the Company's business and prospects.
FUTURE CAPITAL REQUIREMENTS; NO ASSURANCE FUTURE CAPITAL WILL BE AVAILABLE
The Company believes that at its current rate of spending, the Company's
existing cash, when combined with the unused portion of its equipment loan
agreement, will be sufficient to fund the Company's operations until sometime in
mid 2000. The Company will require substantial additional funds to meet its
working capital requirements for a full-scale commercial introduction of its
proposed LifeGuide System. In order to meet its needs beyond this period, the
Company may be required to raise additional funds through public or private
financings, including equity financings. Adequate funds for the Company's
operations, whether from financial markets or from other sources, may not be
available when needed on terms attractive to the Company or at all. Insufficient
funds may require the Company to delay, scale back or eliminate some or all of
its programs designed to facilitate the commercial introduction of the LifeGuide
System or prevent such commercial introduction altogether.
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UNCERTAINTY OF THIRD PARTY REIMBURSEMENT
Sales of the Company's proposed products in certain markets will be dependent in
part on availability of adequate reimbursement for personal glucose monitoring
products from third-party healthcare payors, such as government and private
insurance plans, health maintenance organizations and preferred provider
organizations. Third party payors are increasingly challenging the pricing of
medical products and services. There can be no assurance that adequate levels of
reimbursement will be available to enable the Company to achieve market
acceptance of the LifeGuide System or maintain price levels sufficient to
realize an appropriate return on its investment in the development or
manufacture of its proposed LifeGuide System. Without adequate support from
third-party payors, the market for the Company's LifeGuide System may be
limited.
PRODUCT LIABILITY RISK; LIMITED INSURANCE COVERAGE
The Company faces an inherent business risk of exposure to product liability
claims in the event that an end-user is adversely affected by its prospective
products. The Company currently carries a product liability insurance policy
covering the Company's clinical testing with an aggregate limit of $1.0 million.
Although the Company expects to obtain product liability insurance coverage in
connection with the commercialization of the LifeGuide System, there can be no
assurance that such insurance will be available on commercially reasonable
terms, or at all, or that such insurance, even if obtained, would adequately
cover any product liability claim. A product liability or other claim with
respect to uninsured liabilities or in excess of insured liabilities could have
a material adverse effect on the business and prospects of the Company.
The foregoing review of factors pursuant to the Act should not be construed as
exhaustive or as any admission regarding the adequacy of disclosures made by the
Company prior to the effective date of the Act.
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