| BIOJECT MEDICAL TECHNOLOGIES INC ITEM 1A RISK FACTORS If our products are not accepted by the market, our business could fail |
| Our success will depend on market acceptance of our needle-free injection drug delivery systems, the Biojector^® 2000 system and the Vitajet^® system and on market acceptance of other products under development |
| If our products do not achieve market acceptance, our business could fail |
| Currently, the dominant technology used for intramuscular and subcutaneous injections is the hollow-needle syringe, which have a cost per injection that is significantly lower than those of our products |
| The Biojector^® 2000, the Iject^® system, the Vitajet^® system or any of our products under development may be unable to compete successfully with needle-syringes |
| We may be unable to enter into additional strategic corporate licensing and distribution agreements or maintain existing agreements, which could cause our business to suffer |
| A key component of our sales and marketing strategy is to enter into licensing and supply arrangements with leading pharmaceutical and biotechnology companies for whose products our technology provides either increased medical effectiveness or a higher degree of market acceptance |
| If we cannot enter into these agreements on terms favorable to us or at all, our business may suffer |
| In prior years, several agreements, including those with Hoffman La Roche Pharmaceuticals, Merck & Co |
| and Amgen, have been canceled by our partners prior to completion |
| These agreements were canceled for various reasons, including costs related to obtaining regulatory approval, unsuccessful pre-clinical vaccine studies, changes in vaccine development and changes in business development strategies |
| These agreements resulted in significant short-term revenue |
| However, none of these agreements developed into the long-term revenue stream anticipated by our strategic partnering strategy |
| No revenue resulted from any of the canceled agreements in 2005, 2004 or 2003 |
| We may be unable to enter into future licensing or supply agreements with major pharmaceutical or biotechnology companies |
| Even if we enter into these agreements, they may not result in sustainable long-term revenues which, when combined with revenues from product sales, could be sufficient for us to operate profitably |
| Since our formation in 1985, we have incurred significant annual operating losses and negative cash flow |
| At December 31, 2005, we had an accumulated deficit of dlra106dtta0 million |
| We may never be profitable, which could have a negative effect on our stock price |
| Our revenues are derived from licensing and technology fees and from product sales |
| We sell our products to strategic partners, who market our products under their brand name and to end-users such as public health clinics for vaccinations and nursing organizations for flu immunizations |
| We have not attained profitability at these sales levels |
| We may never be able to generate significant revenues or achieve profitability |
| In the future, we are likely to require substantial additional financing |
| Such financing may not be available on terms acceptable to us, or at all, which would have a material adverse effect on our business |
| Any future equity financing could result in significant dilution to shareholders |
| We will need additional funding to support our operations during 2006; sufficient funding is subject to conditions and may not be available to us, and the unavailability of funding could adversely affect our business |
| As of December 31, 2005, we had net working capital of dlra2dtta1 million |
| Due to our limited amount of additional committed capital, recurring losses, negative cash flows and accumulated deficit, the report of our independent registered public accounting firm dated March 13, 2006 expressed substantial doubt about our ability to continue as a going concern |
| Our ability to continue operations through 2006 is dependent on our obtaining additional debt and/or equity financing |
| While we believe our proposed dlra4dtta5 million Series E preferred stock financing and our dlra1dtta25 million convertible debt financing will enable us to continue operations until at least March 2007, the Series E preferred stock financing is subject to customary and other closing conditions, including shareholder approval |
| Similarly, our dlra1dtta25 million convertible debt financing will be payable upon demand by the lender if shareholders do not approve the conversion feature |
| These two transactions are described in Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations |
| ” Accordingly, we cannot assure you that we will receive the funds we anticipate or that we may not have to repay the dlra1dtta25 million debt 17 ______________________________________________________________________ sooner than would otherwise be the case, either of which will have a material adverse effect on our ability to fund our continuing operations during 2006 and beyond |
| We have a small sales force and may be unable to penetrate targeted market segments |
| We have a small sales force and may be unable to penetrate targeted market segments |
| Our sales force consists of a Vice President of Customer Relations who is focused on specifically targeted market segments |
| Our small sales force may not have sufficient resources to adequately penetrate one or more of the targeted market segments |
| Further, if the sales force is successful in penetrating one or more of the targeted market segments, we are unable to assure that our products will be accepted in those segments or that product acceptance will result in product revenues which, together with revenues from corporate licensing and supply agreements, will be sufficient for us to operate profitably |
| We have limited manufacturing experience, and may be unable to produce our products at the unit costs necessary for the products to be competitive in the market, which could cause our financial condition to suffer |
| We have limited experience manufacturing our products in commercially viable quantities |
| We have increased our production capacity for the Biojector^® 2000 system and the Vitajet^® product line through automation of, and changes in, production methods, in order to achieve savings through higher volumes of production |
| If we are unable to achieve these savings, our results of operations and financial condition could suffer |
| The current cost per injection of the Biojector^® 2000 system and Vitajet^® product line is substantially higher than that of traditional needle-syringes, our principal competition |
| In order to reduce costs, a key element of our business strategy has been to reduce the overall manufacturing cost through automating production and packaging |
| There can be no assurance that we will achieve sales and manufacturing volumes necessary to realize cost savings from volume production at levels necessary to result in significant unit manufacturing cost reductions |
| Failure to do so will continue to make competing with needle-syringes on the basis of cost very difficult and will adversely affect our financial condition and results of operations |
| We may be unable to successfully manufacture devices at a unit cost that will allow the product to be sold profitably |
| Failure to do so would adversely affect our financial condition and results of operations |
| We are subject to extensive government regulation and must continue to comply with these regulations or our business could suffer |
| Our products and manufacturing operations are subject to extensive government regulation in both the US and abroad |
| If we cannot comply with these regulations, we may be unable to distribute our products, which could cause our business to suffer or fail |
| In the US, the development, manufacture, marketing and promotion of medical devices are regulated by the Food and Drug Administration (“FDA”) under the Federal Food, Drug, and Cosmetic Act (“FFDCA”) |
| In 1987, we received clearance from the FDA under Section 510(k) of the FFDCA to market a hand-held CO[2]-powered needle-free injection system |
| The FFDCA provides that new pre-market notifications under Section 510(k) of the FFDCA are required to be filed when, among other things, there is a major change or modification in the intended use of a device or a change or modification to a legally marketed device that could significantly affect its safety or effectiveness |
| A device manufacturer is expected to make the initial determination as to whether the change to its device or its intended use is of a kind that would necessitate the filing of a new 510(k) notification |
| Although the Biojector^® 2000 system incorporates changes from the system with respect to which our 1987 510(k) marketing clearance was received and expands its intended use, we made the determination that these were not major changes or modifications in intended use or changes in the device that could significantly affect the safety or effectiveness of the device |
| Accordingly, we further concluded that the 1987 510(k) clearance permitted us to market the Biojector^® 2000 system in the US In June 1994, we received clearance from the FDA under 510(k) to market a version of our Biojector^® 2000 system in a configuration targeted at high volume injection applications |
| In October 1996, we received 510(k) clearance for a needle-free disposable Vial Adapter device |
| In March 1997, we received additional 510(k) clearance for certain enhancements to our Biojector^® 2000 system |
| The FDA may not concur with our determination that our current and future products can be qualified by means of a 510(k) submission |
| 18 ______________________________________________________________________ Future changes to manufacturing procedures could require that we file a new 510(k) notification |
| Also, future products, product enhancements or changes, or changes in product use may require clearance under Section 510(k), or they may require FDA pre-market approval (“PMA”) or other regulatory clearances |
| PMAs and regulatory clearances other than 510(k) clearance generally involve more extensive prefiling testing than a 510(k) clearance and a longer FDA review process |
| It is current FDA policy that such pre-filled syringes are evaluated by the FDA by submitting a Request for Designation (“RFD”) to the Office of Combination Products (“OCP”) |
| The pharmaceutical or biotechnology company with which we partner is responsible for the submission to the OCP A pre-filled syringe meets the FDA’s definition of a combination product, or a product comprised of two or more regulated components, ie drug/device |
| The OCP will assign a center with primary jurisdiction for a combination product (CDER, CDRH) to ensure the timely and effective pre-market review of the product |
| Depending on the circumstances, drug and combination drug/device regulation can be much more extensive and time consuming than device regulation |
| FDA regulatory processes are time consuming and expensive |
| Product applications submitted by us may not be cleared or approved by the FDA In addition, our products must be manufactured in compliance with Good Manufacturing Practices, as specified in regulations under the FFDCA The FDA has broad discretion in enforcing the FFDCA, and noncompliance with the FFDCA could result in a variety of regulatory actions ranging from product detentions, device alerts or field corrections, to mandatory recalls, seizures, injunctive actions and civil or criminal penalties |
| Sales of our Iject^® pre-filled syringe product are dependent on regulatory approval being obtained for the product’s use with a given drug to treat a specific condition |
| It is the responsibility of the strategic partner producing the drug to obtain this approval |
| The failure of a partner to obtain regulatory approval or to comply with government regulations after approval has been received could harm our business |
| In order for a strategic partner to sell our Iject^® pre-filled device for delivery of its drug to treat a specific condition, the partner must first obtain government approval |
| This process is subject to extensive government regulation both in the US and abroad |
| As a result, sales of the Iject^® product to any strategic partner are dependent on that partner’s ability to obtain regulatory approval |
| Accordingly, failure of a partner to obtain that approval could cause our financial results to suffer |
| In addition, if a partner fails to comply with governmental regulations after initial regulatory approval has been obtained, sales of Iject^® product to that partner may cease, which could cause our financial results to suffer |
| The Iject^® is still in development and has not yet been sold commercially |
| If we cannot meet international product standards, we will be unable to distribute our products outside of the United States, which could cause our business to suffer |
| Distribution of our products in countries other than the US may be subject to regulation in those countries |
| Failure to satisfy these regulations would impact our ability to sell our products in these countries and could cause our business to suffer |
| Bioject has received the following certifications from Underwriters Laboratories or T [g22391ba01i001 |
| jpg] V Product Services that products and quality system meet the applicable requirements which allows us to label our products with the CE Mark and sell them in the European Community and non European countries |
| Certificate Dated ISO 13485:2003 and CMDCAS (Underwriters Laboratories) February 2006 Annex V of the Directive 93/42/EEC on Medical Devices (TUV) October 2004 Re-certification Audit February 2006 Annex II, section 3 of the Directive 93/42/EEC on Medical Devices (TUV) October 2004 Re-certification Audit February 2006 We may be unable to continue to meet the standards of ISO 9001 or CE Mark certification, which could have a material adverse effect on our business and cause our financial results to suffer |
| 19 ______________________________________________________________________ If the healthcare industry limits coverage or reimbursement levels, the acceptance of our products could suffer |
| The price of our products exceeds the price of needle-syringes and, if coverage or reimbursement levels are reduced, market acceptance of our products could be harmed |
| The healthcare industry is subject to changing political, economic and regulatory influences that may affect the procurement practices and operations of healthcare facilities |
| During the past several years, the healthcare industry has been subject to increased government regulation of reimbursement rates and capital expenditures |
| Among other things, third party payers are increasingly attempting to contain or reduce healthcare costs by limiting both coverage and levels of reimbursement for healthcare products and procedures |
| Because the price of the Biojector^® 2000 system and Vitajet^® product line exceeds the price of a needle-syringe, cost control policies of third party payers, including government agencies, may adversely affect acceptance and use of the Biojector^® 2000 system and Vitajet^® product line |
| We depend on outside suppliers for manufacturing |
| Our current manufacturing processes for the Biojector^® 2000 jet injector and disposable syringes as well as manufacturing processes to produce the Vitajet^® consist primarily of assembling component parts supplied by outside suppliers |
| Some of these components are currently obtained from single sources, with some components requiring significant production lead times |
| In the past, we have experienced delays in the delivery of certain components |
| To date, such delays have not had a material adverse effect on our operations |
| We may experience delays in the future, and these delays could have a material adverse effect on our financial condition and results of operations |
| If we are unable to manage our growth, our results of operations could suffer |
| If our products achieve market acceptance or if we are successful in entering into product supply agreements with major pharmaceutical or biotechnology companies, we expect to experience rapid growth |
| Such growth would require expanded customer service and support, increased personnel, expanded operational and financial systems, and implementing new and expanded control procedures |
| We may be unable to attract sufficient qualified personnel or successfully manage expanded operations |
| As we expand, we may periodically experience constraints that would adversely affect our ability to satisfy customer demand in a timely fashion |
| Failure to manage growth effectively could adversely affect our financial condition and results of operations |
| We may be unable to compete in the medical equipment field, which could cause our business to fail |
| The medical equipment market is highly competitive and competition is likely to intensify |
| If we cannot compete, our business will fail |
| Our products compete primarily with traditional needle-syringes, “safety syringes” and also with other alternative drug delivery systems |
| In addition, manufacturers of needle-syringes, as well as other companies, may develop new products that compete directly or indirectly with our products |
| There can be no assurance that we will be able to compete successfully in this market |
| A variety of new technologies (for example, transdermal patches) are being developed as alternatives to injection for drug delivery |
| While we do not believe such technologies have significantly affected the use of injection for drug delivery to date, there can be no assurance that they will not do so in the future |
| Many of our competitors have longer operating histories as well as substantially greater financial, technical, marketing and customer support resources |
| We are dependent on a single technology, and if it cannot compete or find market acceptance, our business will suffer |
| Our strategy has been to focus our development and marketing efforts on our needle-free injection technology |
| Focus on this single technology leaves us vulnerable to competing products and alternative drug delivery systems |
| If our technology cannot find market acceptance or cannot compete against other technologies, business will suffer |
| We perceive that healthcare providers’ desire to minimize the use of the traditional needle-syringe has stimulated development of a variety of alternative drug delivery systems such as “safety syringes,” jet injection systems, nasal delivery systems and transdermal diffusion “patches |
| ” In addition, pharmaceutical companies frequently attempt to develop drugs for oral delivery instead of injection |
| While we believe that for the foreseeable future there will continue to be a significant need for injections, alternative drug delivery methods may be developed which are preferable to injection |
| 20 ______________________________________________________________________ We rely on patents and proprietary rights to protect our proprietary technology |
| We rely on a combination of trade secrets, confidentiality agreements and procedures and patents to protect our proprietary technologies |
| We have been granted a number of patents in the US and several patents in other countries covering certain technology embodied in our current jet injection system and certain manufacturing processes |
| Additional patent applications are pending in the US and certain foreign countries |
| The claims contained in any patent application may not be allowed, or any patent or our patents collectively may not provide adequate protection for our products and technology |
| In the absence of patent protection, we may be vulnerable to competitors who attempt to copy our products or gain access to our trade secrets and know-how |
| In addition, the laws of foreign countries may not protect our proprietary rights to this technology to the same extent as the laws of the US We believe we have independently developed our technology and attempt to ensure that our products do not infringe the proprietary rights of others |
| We know of no such infringement claims |
| However, any claims could have a material adverse effect on our financial condition and results of operations |
| If our products fail or cause harm, we could be subject to substantial product liability, which could cause our business to suffer |
| Producers of medical devices may face substantial liability for damages in the event of product failure or if it is alleged the product caused harm |
| We currently maintain product liability insurance and, to date, have experienced only one product liability claim |
| There can be no assurance, however, that we will not be subject to a number of such claims, that our product liability insurance would cover such claims, or that adequate insurance will continue to be available to us on acceptable terms in the future |
| Our business could be adversely affected by product liability claims or by the cost of insuring against such claims |
| We must retain qualified personnel in a competitive marketplace, or we may not be able to grow our business |
| Our success depends upon the personal efforts and abilities of our senior management |
| We may be unable to retain our key employees, namely our management team, or to attract, assimilate or retain other highly qualified employees |
| John Gandolfo, our Chief Financial Officer and Vice President of Finance, will be departing Bioject in May 2006 as part of the restructuring we announced in March 2006 |
| Although we have implemented workforce reductions, there remains substantial competition for highly skilled employees |
| Our key employees are not bound by agreements that could prevent them from terminating their employment at any time |
| If we fail to attract and retain key employees, our business could be harmed |
| There are a large number of shares eligible for sale into the public market in the near future, which may reduce the price of our common stock |
| The market price of our common stock could decline as a result of sales of a large number of shares of our common stock in the market, or the perception that such sales could occur |
| We have a large number of shares of common stock outstanding and available for resale beginning at various points in time in the future |
| These sales also might make it more difficult for us to sell equity securities in the future at a time and at a price that we deem appropriate |
| 520cmam088 shares of our common stock currently outstanding are eligible for sale without registration pursuant to Rule 144 under the Securities Act, subject to certain conditions of Rule 144 |
| The holder of these shares also has certain demand and piggyback registration rights enabling it to register its shares under the Securities Act for sale |
| We have registered approximately 15dtta4 million shares for resale on Form S-3 registration statements, including approximately 2dtta5 million shares issuable upon exercise of warrants |
| In addition, we have 799cmam000 shares of common stock reserved for future issuance under our stock incentive plan |
| As of December 31, 2005, options to purchase approximately 2dtta2 million shares of common stock were outstanding and will be eligible for sale in the public market from time to time subject to vesting |
| In March 2006, we issued warrants to purchase 656cmam934 shares of our common stock |
| At that time, we also agreed to sell approximately 3dtta3 million shares of Series E preferred stock, subject to shareholder approval |
| Each share of Series E preferred stock will be convertible into one share of our common stock, subject to adjustment in certain circumstances |
| Also in March 2006, we entered into a dlra1dtta25 million convertible note financing |
| If we prepay this debt, we have agreed to issue the lender a warrant to purchase an equivalent number of shares to what it would receive on conversion |
| We have agreed to register for resale the shares of common stock underlying the warrants, the Series E preferred stock and the convertible note |
| 21 ______________________________________________________________________ Our stock price may be highly volatile, which increases the risk of securities litigation |
| The market for our common stock and for the securities of other early-stage, small market-capitalization companies has been highly volatile in recent years |
| This increases the risk of securities litigation relating to such volatility |
| We believe that factors such as quarter-to-quarter fluctuations in financial results, new product introductions by us or our competition, public announcements, changing regulatory environments, sales of common stock by certain existing shareholders, substantial product orders and announcement of licensing or product supply agreements with major pharmaceutical or biotechnology companies could contribute to the volatility of the price of our common stock, causing it to fluctuate dramatically |
| General economic trends such as recessionary cycles and changing interest rates may also adversely affect the market price of our common stock |
| We may not be able to effectively implement our restructuring activities, and our restructuring activities may not result in the expected benefits, which would negatively impact our future results of operations |
| In March 2006, we restructured our operations, which included reducing the size of our workforce |
| Despite our restructuring efforts, we cannot assure you that we will achieve all of the operating expense reductions and improvements in operating margins and cash flows currently anticipated from these restructuring activities in the periods contemplated, or at all |
| Our inability to realize these benefits, and our failure to appropriately structure our business to meet market conditions, could negatively impact our results of operations |
| As part of our recent restructuring activities, we have reduced the workforce in certain portions of our business |
| This reduction in staffing levels could require us to forego certain future opportunities due to resource limitations, which could negatively affect our long-term revenues |
| In addition, these workforce reductions could result in a lack of focus and reduced productivity by remaining employees due to changes in responsibilities or concern about future prospects, which in turn may negatively affect our future revenues |
| Further, we believe our future success depends, in large part, on our ability to attract and retain highly skilled personnel |
| Our restructuring activities could negatively affect our ability to attract such personnel as a result of perceived risk of future workforce reductions |
| We cannot assure you that we will not be required to implement further restructuring activities or reductions in our workforce based on changes in the markets and industries in which we compete or that any future restructuring efforts will be successful |
| Concentration of ownership could delay or prevent a change in control or otherwise influence or control most matters submitted to our shareholders |
| Certain funds affiliated with Life Sciences Opportunities Fund II (Institutional), LP and its affiliates (collectively, the “LOF Funds”) currently own shares of Series D preferred stock and warrants to purchase common stock representing in aggregate approximately 19prca of our outstanding voting power (assuming exercise of the warrants) |
| At our 2006 annual meeting, shareholders will be asked to approve a proposed preferred stock financing with the LOF Funds and their affiliates |
| If this transaction is approved, the LOF Funds and their affiliates could own shares of preferred stock and warrants representing as much as approximately one third of our outstanding voting power (assuming exercise of all of the warrants held by the LOF Funds and their affiliates) |
| As a result, the LOF Funds and their affiliates potentially could control matters submitted to a vote of shareholders, including a change of control transaction, which could prevent or delay such a transaction |