| CURON MEDICAL INC Item 1A Risk Factors We have limited capital resources and we will need to raise additional funds if we want to continue our current level of operations, which we may not be able to do |
| As of December 31, 2005, we had cash and cash equivalents on hand of dlra3dtta3 million and working capital of dlra4dtta1 million |
| To continue operations, we must raise additional funds through the issuance of equity or debt securities in the public or private markets, or sell certain of our assets |
| No assurance can be given that we will be successful in obtaining funds from any of these transactions on acceptable terms, if at all, or if secured, that such funding would be sufficient to continue our operations |
| Any future equity financing could result in substantial dilution to our stockholders |
| If we raise additional funds by issuing debt, we may be subject to limitations on our operations, through debt covenants or other restrictions |
| In the absence of funding, we will be required to scale back or terminate operations |
| We believe that our cash balances will not be sufficient to fund planned expenditures in the third quarter of 2006 |
| This raises substantial doubt about our ability to continue as a going concern |
| We are not in compliance with the minimum bid price requirement of the Nasdaq Capital Market |
| We may consequently be delisted in the near future |
| This may adversely affect trading in our stock and our ability to raise capital |
| We have failed to comply with the minimum dlra1dtta00 per share bid price requirement for continued listing |
| The Nasdaq staff has notified us that we have until May 11, 2006 to demonstrate compliance with the minimum bid price requirement, or the Nasdaq staff will provide notification that our stock will be delisted |
| To achieve compliance with the minimum bid price requirement, our stockholders have authorized up to a 1-for-4 reverse stock split on our stock |
| Should we implement a reverse stock split, the number of our shares being traded will be reduced and volatility in the trading of our stock may increase |
| Further, there are no assurances that a reverse stock split will ensure compliance with the minimum bid price requirement |
| There are also no assurances that our stock price after a reverse stock split will be above dlra1dtta00 per share at all (which would be the case if, prior to the split, our stock price is below dlra0dtta25 per share), nor that it will maintain a dlra1dtta00 per share price for at least ten consecutive trading days—the requirement to remedy the minimum bid price deficiency |
| To achieve compliance with the stockholders’ equity requirement, we must either raise additional funds through the issuance of equity or debt securities in the public or private markets, sell certain of our assets, or otherwise increase stockholders’ equity through operations |
| If we receive a notice of delisting, we may appeal the decision but there are no assurances that we will be successful in remaining listed |
| If we are ultimately delisted, trading in our common stock could be subject to the so-called “penny stock” rules that impose additional sales practice and market making requirements on broker-dealers who sell and/or make a market in those securities |
| Consequently, removal from the Nasdaq Capital Market, if it were to occur, could affect the ability or willingness of broker-dealers to sell and/or make a market on our common stock and the ability of purchasers of our common stock to sell their securities in the secondary market |
| These rules could further limit the market liquidity of our common stock |
| If we are delisted from the Nasdaq Capital Market, our stock price is likely to decline significantly |
| If we fail to comply with Nasdaq’s stockholders’ equity requirement, our stock will be subject to delisting |
| We have recently failed to comply with the minimum dlra2dtta5 million stockholders’ equity requirement of the Nasdaq Capital Market |
| Due to this deficiency, the Nasdaq staff notified us that it was reviewing our eligibility for continued listing on the Nasdaq Capital Market |
| To remedy this deficiency, we sold certain of our unutilized intellectual property assets for dlra3 million to increase our stockholders’ equity |
| While we believe that our actions were sufficient to remedy our deficiency, there are no assurances that our stockholders’ equity will remain above Nasdaq’s dlra2dtta5 million minimum |
| If we continue to operate our business in the same manner as we had done prior to our sale of assets, we will either have to raise our stockholders equity, for example, by selling more assets or 15 ______________________________________________________________________ equity, or we will fall below Nasdaq’s requirement and our stock will once again be subject to delisting |
| Furthermore, if we fail to comply with this requirement upon the filing of our Form 10-Q for the quarter ending March 31, 2006, our stock will be immediately delisted |
| We may never achieve or maintain significant revenues or profitability |
| We have only a limited operating history upon which you can evaluate our business |
| We have incurred losses every year since we began operations |
| As of December 31, 2005, we had an accumulated deficit of approximately dlra105dtta6 million |
| Our revenues are, and will be, derived from the sale of radiofrequency generators and our disposable devices, such as the Stretta Catheter and Secca Handpiece |
| We have generated limited revenues, and it is possible that we will never generate significant revenue from product sales |
| Even if we do achieve significant revenues from our product sales, we expect to incur significant net losses over the next several years and these losses may increase |
| It is possible that we will never achieve profitable operations |
| We have recently undergone a restructuring, which could adversely impact our business |
| In order to reduce our operating costs, we have recently implemented a restructuring initiative primarily to implement the outsourcing of our disposable component manufacturing |
| This resulted in a significant reduction in employee headcount from 71 to 32 |
| We entered into a contract for the outsourced manufacturing of our disposable products |
| These actions significantly change our operations and could have adverse results, including: • Potential customers may choose not to purchase our products due to concerns over the stability of our organization; • We may encounter difficulties in retaining key employees; and • The reduction of our operating costs may not achieve the goal of producing materially stronger financial results than we have historically experienced |
| We have outsourced the manufacturing of our disposable products to a single contract manufacturer, and if that manufacturer is unable or unwilling to produce our product requirements in quality and quantity to our satisfaction, our business will be harmed |
| We now rely on a single contract manufacturer to manufacture our disposable products |
| We have no prior history with this supplier and cannot predict how well they will perform in meeting our quality and quantity requirements |
| We believe that this shift away from direct manufacturing will reduce our operating expenses, but unforeseeable difficulties in the outsourced manufacturing could negatively impact operating expense reduction expectations |
| Our reliance on this single contract manufacturer subjects us to a number of risks outside of our control that could impact our ability to meet demand for our disposable products and harm our business, including: • Inability of our contract manufacturer to manufacture the product at the quality and quantity levels we require; • Delays or interruption of production due to production problems; and • Unanticipated delays in delivery by our contract manufacturer due to changes in demand from us or their other customers |
| We have yet to identify an alternate contract manufacturer to manufacture our disposable products |
| Identifying and qualifying additional or replacement contract manufacturers, if required, may not be accomplished quickly or at all and could involve significant additional costs |
| Any interruption from our existing contract manufacturer would limit our ability to manufacture our disposable products and could therefore have a material adverse effect on our business, financial condition and results of operations |
| 16 ______________________________________________________________________ Our internal controls may not be sufficient to ensure timely and reliable financial information |
| We restated our financial results for the quarter ended March 31, 2004 to reflect adjustments to our previously reported financial information |
| The restatements arose, in part, out of an internal investigation by the Audit Committee |
| As a result of the investigation, management and the Audit Committee determined that certain sales employees had improperly offered rights of return and exchange in violation of our revenue recognition policy, and a manufacturer’s representative had not actually made sales that it had reported to us |
| As a result of this investigation, we were also unable to timely file the Form 10-Q for the quarter ended June 30, 2004 |
| In connection with the restatement of our financial results for the quarter ended March 31, 2004, our independent registered public accounting firm identified material weaknesses in our internal controls and procedures |
| Our Audit Committee, with the assistance of independent legal and accounting advisors, evaluated the effectiveness of our disclosure controls and procedures |
| As a result of this evaluation, our Board of Directors directed management to implement and management implemented additional measures designed to ensure that information required to be disclosed in our periodic reports is recorded, processed, summarized and reported accurately |
| These measures include the adoption of a Disclosure Committee Charter, the adoption of a written revenue recognition policy, further controls on shipment of products for revenue transactions, and additional training of our sales and marketing staff to minimize the risk of revenue recognition errors |
| Given the additional measures adopted by us, we believe that our disclosure controls and procedures are now effectively designed to ensure that information we are required to disclose in reports that we file or submit to the SEC is recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission rules and forms |
| However, the effectiveness of our controls and procedures are still limited by a variety of factors including: • Faulty human judgment and simple errors, omissions or mistakes; • Fraudulent action of an individual or collusion of two or more people; • Inappropriate management override of procedures; and • The possibility that our enhanced controls and procedures may still not be adequate to assure timely and accurate financial information |
| If we fail to have effective internal control over financial reporting in place, we could be unable to provide timely and accurate financial information and be subject to delisting, and civil or criminal sanctions |
| If health care providers are not adequately reimbursed for the procedures, in which our products are used, or for the products themselves, we may never achieve significant revenues |
| Our physician customers continue to encounter difficulties in readily obtaining reimbursement for the Stretta procedure on a case-by-case basis, and this continues to impact our ability to generate revenue |
| We have not been successful at addressing these difficulties with our strategies of pursuing state-by-state and also selected national reimbursement coverage, focusing on promoting repeat catheter sales and incorporating technical improvements to our systems to reduce treatment times |
| Physicians, hospitals and other health care providers are unlikely to purchase our products if they are not adequately reimbursed for the Stretta procedure or the products |
| For 2006, the new national payment rate for the Stretta procedure is set at dlra1cmam431dtta39 |
| This translates to a range of actual reimbursement amounts, depending on the geographic adjustments, of between dlra1cmam047dtta49 and dlra2cmam768dtta74 |
| Even with this amount it may still be difficult to convince hospitals and other health care providers to offer the Stretta procedure to their patients |
| Some private payers may refuse adequate reimbursement even though significant peer-reviewed data has been published |
| If users of our products cannot obtain sufficient reimbursement from health care payers for the Stretta procedure or the Stretta System disposables, then it is unlikely that our products will ever achieve increased market acceptance |
| 17 ______________________________________________________________________ Although the Secca procedure has been awarded an APC code by the CMS, it has not received a CPT code and there is little data yet regarding the willingness of third-party health care payers to reimburse the costs of the procedure |
| While we believe that a Level 1CPT code will be issued for the Secca procedure effective either from January 1, 2007, or January 1, 2008, depending upon the timing of meeting of the necessary pre-conditions we cannot assure you that the procedure will ever be reimbursed, or that in the event there is reimbursement, that such reimbursement will be adequate |
| Failure to achieve adequate reimbursement may have a serious negative effect on our ability to grow our revenues |
| Reimbursement from third-party health care payers is uncertain due to factors beyond our control and changes in third-party health care payers’ policies could adversely affect our sales growth |
| Even if third-party payers provide adequate reimbursement for the Stretta procedure, adverse changes in third-party payers’ policies toward reimbursement could preclude market acceptance for our products and have a material adverse effect on our sales and revenue growth |
| We are unable to predict what changes will be made in the reimbursement methods used by third-party health care payers |
| For example, some health care payers are moving toward a managed care system in which providers contract to provide comprehensive health care for a fixed cost per person |
| We cannot assure you that in a prospective payment system, which is used in many managed care systems, the cost of our products will be incorporated into the overall payment for the procedure or that there will be adequate reimbursement for our products separate from reimbursement for the procedure |
| Internationally, market acceptance of our products will be dependent upon the availability of adequate reimbursement within prevailing health care payment systems |
| Reimbursement and health care payment systems in international markets vary significantly by country and include both government-sponsored health care and private insurance |
| Although we are seeking international reimbursement approvals, we cannot assure you that any such approvals will be obtained in a timely manner or at all |
| If foreign third-party payers do not adequately reimburse providers for the Stretta procedure and the products used with it, then our sales and revenue growth may be limited |
| If physicians do not adopt our products, we will not achieve future sales growth |
| To achieve increasing sales, our products must continue to gain recognition and adoption by physicians who treat gastrointestinal disorders |
| Our products represent a significant departure from conventional treatment methods |
| We believe that physicians will not increase rates of adoption of our systems unless they determine, based on published peer-reviewed journal articles, long-term clinical data and their professional experience, that our systems provide an effective and attractive alternative to conventional means of treatment |
| Currently, there are over 30 peer-reviewed journal articles on the Stretta procedure, including the results of our Stretta randomized trial, and six peer-reviewed journal articles on the Secca procedure |
| Some physicians also may be slow to adopt our products because of perceived liability risks and inadequacy of third-party reimbursement |
| Future adverse events or recalls could also impact future acceptance rates |
| Additionally, some of our customers and potential customers also find the 30-45 minutes necessary to perform a Stretta procedure to be a limiting issue, as their endoscopy unit schedule is typically dominated by short diagnostic procedures |
| If we cannot achieve increasing physician adoption rates of our products, we may never achieve significant revenues or profitability |
| If the effectiveness and safety of our products are not supported by long-term data, our sales could decline and we could be subject to liability |
| We received clearance from the FDA for the use of the Secca System to treat bowel incontinence, for patients who have failed more conservative treatments such as diet modification or biofeedback |
| This clearance was based upon the study of 50 patients |
| Safety and efficacy data presented to the FDA for the Secca System was 18 ______________________________________________________________________ based on six-month follow-up studies on these patients |
| However, if longer-term patient studies or clinical experience indicate that treatment with the Secca System does not provide patients with sustained benefits or that treatment with our product is less effective or less safe than our current data suggests, our sales could decline and we could be subject to significant liability |
| Further, we may find that our data is not substantiated in studies involving more patients, in which case we may never achieve significant revenues or profitability |
| If patient studies or clinical experience do not meet our expectations regarding the benefits of the Secca System, our expected revenues from this product may never materialize |
| Failure in our physician education efforts could significantly reduce product sales |
| It is important to the success of our sales efforts to educate physicians in the techniques of using our products |
| We rely on physicians to spend their time and money to attend pre-sale educational sessions |
| Positive results using the Stretta and Secca Systems are highly dependent upon proper physician technique |
| If physicians use either system improperly, they may have unsatisfactory patient outcomes or cause patient injury, which may give rise to negative publicity or lawsuits against us, any of which could have a material adverse effect on our sales and profitability |
| We face competition from more established GERD treatments and from competitors with greater resources, which will make it difficult for us to achieve significant market penetration |
| Companies that have well-established products, reputations and resources dominate the market for the treatment of GERD Our primary competitors are large medical device manufacturers such as Ethicon Endo Surgery and United States Surgical, manufacturers of instrumentation for anti-reflux surgery and NDO Surgical, which manufactures an endoscopic sewing device for treating GERD Other competitive devices may be developed |
| Some of these competitors are larger companies that enjoy several competitive advantages over us, which may include: • Existing anti-reflux surgical procedures and devices for the treatment of GERD; • Established reputations within the surgical and gastroenterological community; • Established distribution networks that permit these companies to introduce new products and have such products accepted by the physician community promptly; • Established relationships with health care providers and payers that can be used to facilitate reimbursement for new treatments; and • Greater resources for product development and sales and marketing |
| We do not feel that we compete with large pharmaceutical companies, such as AstraZeneca, Takeda Abbott Pharmaceutical, Wyeth Laboratories and Eisai, because candidate patients for Stretta are intolerant to drug therapy or have failed, or only partially responded to, drug therapy |
| However, these companies have an established relationship with the gastroenterology community and generate over dlra12 billion in annual US revenues from the proton pump inhibitor drug class |
| We could be adversely affected if one or more pharmaceutical companies elects to market aggressively against our product, or if a new, more effective, pharmaceutical product is developed |
| We have limited sales and marketing resources, and failure to manage our sales force or to market and distribute our products effectively will hurt our revenues |
| We have limited sales and marketing resources |
| Currently we rely on a limited number of direct sales representatives for the sale of our products in the United States |
| We also deploy an indirect sales channel of a limited number of manufacturers representatives firms who we use to cover, in general, less populated areas of 19 ______________________________________________________________________ the United States |
| The success of this channel will depend upon a number of factors, many of which are beyond our control |
| These factors include, but are not limited to, the willingness of such representatives to prioritize the sale of our products and their effectiveness in such sales efforts |
| There are significant risks involved in building and managing our sales force and marketing our products, including our: • Inability to gain market acceptance of our products and technology; • Inability to hire a sufficient number of qualified sales people with the skills and understanding to sell the Stretta and Secca Systems effectively; • Failure to adequately train our sales force in the use and benefits of our products, making them less effective promoters; and • Failure to accurately price our products as attractive alternatives to conventional treatments |
| Our failure to adequately address these risks will harm our ability to sell our products |
| Internationally, we rely on third-party distributors to sell our products, and we cannot assure you that these distributors will commit the necessary resources to effectively market and sell our products |
| Internationally, we rely on a network of distributors to sell our products |
| We depend on these distributors in such markets and we will need to attract additional distributors to grow our business and expand the territories into which we sell our products |
| Distributors may not commit the necessary resources to market and sell our products to the level of our expectations |
| If current or future distributors do not perform adequately, we may not realize expected international revenue growth |
| We depend on the suppliers who provide the materials and components used in our products, and if we lose our relationship with any individual suppliers, we will face regulatory requirements with regard to replacement suppliers that could delay the manufacture of our products |
| Third-party suppliers provide materials and components used in our products, some of which are the single and/or sole source for the components they provide |
| If any of our suppliers become unwilling or unable to supply us with our requirements, replacement or alternative sources might not be readily obtainable due to regulatory requirements applicable to our manufacturing operations |
| Obtaining components from a new supplier may require a new or supplemental filing with applicable regulatory authorities and clearance or approval of the filing before we could resume product sales |
| This process may take a substantial period of time, and we cannot assure you that we would be able to obtain the necessary regulatory clearance or approval |
| This could create supply disruptions that would reduce our product sales and revenue |
| If we, or our suppliers, fail to comply with the FDA Quality System Regulation, manufacturing operations could be delayed and our business could be harmed |
| Our manufacturing processes are required to comply with the Quality System Regulation, or QSR, which covers the methods and documentation of the design, testing, production, control, quality assurance, labeling, packaging and shipping of our products |
| The FDA enforces the QSR through inspections |
| There were no significant findings from either inspection |
| If we fail any future QSR inspections, our operations could be disrupted and our manufacturing delayed |
| Failure to take appropriate corrective action in response to a QSR inspection could force a shut-down of our manufacturing operations, a recall of our products, and potentially a revocation of the FDA 510(k) clearance of our products, which would have a material adverse effect on our product sales, revenues, expected revenues and profitability |
| Furthermore, we cannot assure you that our key component suppliers are, or will continue to be, in compliance with applicable regulatory requirements, will not encounter any manufacturing difficulties, or will be able to maintain compliance with regulatory requirements |
| Any such event could have a material adverse effect on our available inventory and product sales |
| 20 ______________________________________________________________________ Our failure to obtain or maintain necessary FDA clearances or approvals could hurt our ability to commercially distribute and market our products in the United States |
| Our products are medical devices and are therefore subject to extensive regulation in the United States and in foreign countries where we intend to do business |
| Unless an exemption applies, each new Class II or III medical device that we wish to market in the United States must first receive either 510(k) clearance or premarket approval from the FDA Either process can be lengthy and expensive |
| The FDA’s 510(k) clearance process usually takes from four to twelve months, but may take longer |
| The premarket application, or PMA, approval process is much more costly, lengthy and uncertain |
| It generally takes from one to three years or even longer |
| Delays in obtaining regulatory clearance or approval will adversely affect our ability to generate revenues and profitability from new products |
| We cannot assure you that the FDA will ever grant 510(k) clearance or premarket approval for any new product we propose to market |
| If the FDA withdraws or refuses to grant approvals, we will be unable to market such products in the United States |
| If we market our products for uses that the FDA has not approved, we could be subject to FDA enforcement action |
| Our Stretta and Secca Systems are cleared by the FDA, the Stretta System for the treatment of GERD and the Secca System for the treatment of bowel incontinence in patients who have failed more conservative therapies such as diet modification and biofeedback |
| FDA regulations prohibit us from promoting or advertising either system, or any future cleared or approved devices, for uses not within the scope of our clearances or approvals |
| These determinations can be subjective, and the FDA may disagree with our promotional claims |
| If the FDA requires us to revise our promotional claims or takes enforcement action against us based upon our labeling and promotional materials, our sales could be delayed, our profitability could be harmed and we could be required to pay significant fines or penalties |
| Modifications to our marketed devices may require new 510(k) clearances or PMA approvals or require us to cease marketing or recall the modified devices until such clearances are obtained |
| Any modification to an FDA 510(k)-cleared device that could significantly affect its safety or effectiveness, or that would constitute a major change in its intended use, requires a new FDA 510(k) clearance or, possibly, PMA approval |
| The FDA requires every manufacturer to make this determination in the first instance, but the FDA can review any such decision |
| We have modified aspects of our products, but we believe that new 510(k) clearances are not required |
| We may modify future products after they have received clearance or approval, and, in appropriate circumstances, we may determine that new clearance or approval is unnecessary |
| Though we believe these changes fall within the acceptable scope of changes allowed for Class II devices, we cannot assure you that the FDA would agree with any of our decisions not to seek new clearance or approval |
| If the FDA requires us to seek 510(k) clearance or PMA approval for any modification to a previously cleared product, we also may be required to cease marketing or recall the modified device until we obtain such clearance or approval |
| Also, in such circumstances, we may be subject to significant regulatory fines or penalties |
| We face risks related to our international operations, including the need to obtain necessary foreign regulatory approvals |
| To date we have international distribution agreements for various countries around the world |
| While we have obtained regulatory clearance to market the Stretta and Secca Systems in some of the countries, or others regulatory approval is pending |
| We cannot assure you that we will be able to obtain or maintain such approvals |
| Furthermore, although contracts already signed with European distributors specify payment in US dollars, future international sales may be made in currencies other than the US dollar |
| As a result, currency fluctuations may impact the demand for our products in countries where the US dollar has increased compared to the local currency |
| Engaging in international business involves the following additional risks: • Export restrictions, tariff and trade regulations, and foreign tax laws; • Customs duties, export quotas or other trade restrictions; 21 ______________________________________________________________________ • Economic or political instability; • Shipping delays; and • Longer payment cycles |
| In addition, contracts may be difficult to enforce and receivables difficult to collect through a foreign country’s legal system, and the protection of intellectual property in foreign countries may be more difficult to enforce |
| Any of these factors could cause our international sales to decline, which would impact our expected sales and growth rates |
| Product liability suits against us may result in expensive and time-consuming litigation, payment of substantial damages and an increase in our insurance rates |
| The development, manufacture and sale of medical products involves a significant risk of product liability claims |
| The use of any of our products may expose us to liability claims, which could divert management’s attention from our core business, could be expensive to defend, and could result in substantial damage awards against us |
| For example, we are currently a party to a product liability lawsuit where there are allegations that our products are defectively designed and that we were negligent in manufacturing our products |
| We maintain product liability insurance at coverage levels we believe to be commercially acceptable, and we re-evaluate annually whether we need to obtain additional product liability insurance |
| However there can be no assurance that product liability or other claims will not exceed such insurance coverage limits or that such insurance will continue to be available on the same or substantially similar terms, or at all |
| We have limited protection for our intellectual property |
| If our intellectual property does not sufficiently protect our products, third parties will be able to compete against us more directly and more effectively |
| We rely on patent, copyright, trade secret and trademark laws to protect our products, including our Stretta Catheter, our Secca Handpiece and our Curon Control Module, from being duplicated by competitors |
| However, these laws afford only limited protection |
| Our patent applications and the notices of allowance we have received may not issue as patents or, if issued, may not issue in a form that will be advantageous to us |
| Patents we have obtained and may obtain in the future may be challenged, invalidated or legally circumvented by third parties |
| We may not be able to prevent the unauthorized disclosure or use of our technical knowledge or other trade secrets by consultants, vendors, former employees or current employees, despite the existence of nondisclosure and confidentiality agreements and other contractual restrictions |
| Furthermore, the laws of foreign countries may not protect our intellectual property rights to the same extent as the laws of the United States |
| If our intellectual property rights do not adequately protect our commercial products, our competitors could develop new products or enhance existing products to compete more directly and effectively with us and harm our product sales and market position |
| Because, in the United States, patent applications are secret unless and until issued as patents, or corresponding applications are published in other countries, and because publication of discoveries in the scientific or patent literature often lags behind actual discoveries, we cannot be certain that we were the first to file patent applications for such inventions |
| Litigation or regulatory proceedings, which could result in substantial cost and uncertainty, may also be necessary to enforce patent or other intellectual property rights or to determine the scope and validity of other parties’ proprietary rights |
| There can be no assurance that we will have the financial resources to defend our patents from infringement or claims of invalidity |
| Because of our reliance on unique technology to develop and manufacture innovative products, we depend on our ability to operate without infringing or misappropriating the proprietary rights of others |
| There is a substantial amount of litigation over patent and other intellectual property rights in the medical device industry |
| Because we rely on unique technology to develop and manufacture innovative products, we are 22 ______________________________________________________________________ especially sensitive to the risk of infringing intellectual property rights |
| While we attempt to ensure that our products do not infringe other parties’ patents and proprietary rights, our competitors may assert that our products and the methods they employ may be covered by patents held by them or invented by them before they were invented by us |
| Although we may seek to obtain a license or other agreement under a third party’s intellectual property rights to bring an end to certain claims or actions asserted against us, we may not be able to obtain such an agreement on reasonable terms or at all |
| If we were not successful in obtaining a license or redesigning our products, our product sales and profitability could suffer, and we could be subject to litigation and potentially substantial damage awards |
| Also, one or more of our products may now be infringing inadvertently on existing patents |
| As the number of competitors in our markets grows, the possibility of a patent infringement claim against us increases |
| Whether a product infringes a patent involves complex legal and factual issues, the determination of which is often uncertain |
| Infringement and other intellectual property claims, with or without merit, can be expensive and time-consuming to litigate and divert management’s attention from our core business |
| If we lose in this kind of litigation, a court could require us to pay substantial damages or grant royalties, and prohibit us from using technologies essential to our products |
| This kind of litigation is expensive to all parties and consumes large amounts of management’s time and attention |
| In addition, because patent applications can take many years to issue, there may be applications now pending of which we are unaware and which may later result in issued patents that our products may infringe |
| If we lose our rights to intellectual property that we have licensed we may be forced to develop new technology and we may not be able to develop that technology or may experience delays in manufacturing as a result |
| Our license with Gyrus Group PLC, a public company incorporated and existing under the laws of England and Wales, allows us to manufacture and sell our products using their radiofrequency generator technology |
| In addition, the University of Kansas license allows us to apply radiofrequency energy to tissue |
| To the extent these license interests become jeopardized through termination or material breach of the license agreements, our operations may be harmed |
| We may have to develop new technology or license other technology |
| We cannot provide any assurance that we will be able to develop such technology or that other technology will be available for license |
| Even if such technology is available, we may experience delays in our manufacturing as we transition to a different technology |
| Our stockholder rights plan, certificate of incorporation, bylaws and Delaware law contain provisions that could discourage a takeover |
| In November 2001, we adopted a stockholder rights plan |
| The purpose of the plan is to assure fair value in the event of a future unsolicited business combination or similar transaction involving Curon |
| If an individual or entity accumulates 15prca of our stock, or 20prca in the case of certain existing stockholders, the rights become exercisable for additional shares of our common stock or, if followed by a merger or other business combination where Curon does not survive, additional shares of the acquirer’s common stock |
| The intent of these rights is to force a potential acquirer to negotiate with the Board to increase the consideration paid for our stock |
| The existence of this plan, however, may deter a potential acquirer, which could negatively impact shareholder value |
| In addition, our basic corporate documents and Delaware law contain provisions that might enable our management to resist a takeover |
| Any of the above provisions might discourage, delay or prevent a change in the control of our company or a change in our management |
| The existence of these provisions could adversely affect the voting power of holders of common stock and limit the price that investors might be willing to pay in the future for shares of our common stock |