What changed in KORU Medical Systems, Inc.'s 10-K — 2022 vs 2023
vs
Paragraph-level year-over-year comparison of KORU Medical Systems, Inc.'s 2022 and 2023 10-K annual filings, covering the Business, Risk Factors, Legal Proceedings, Cybersecurity, MD&A and Market Risk sections. Every new, removed and edited paragraph is highlighted side-by-side so you can see exactly what management changed in the 2023 report.
+167 added−161 removedSource: 10-K (2024-03-13) vs 10-K (2023-03-08)
Top changes in KORU Medical Systems, Inc.'s 2023 10-K
167 paragraphs added · 161 removed · 125 edited across 5 sections
- Item 7. Management's Discussion & Analysis+54 / −53 · 35 edited
- Item 1A. Risk Factors+54 / −54 · 42 edited
- Item 1. Business+57 / −51 · 46 edited
- Item 2. Properties+1 / −2 · 1 edited
- Item 5. Market for Registrant's Common Equity+1 / −1 · 1 edited
Item 1. Business
Business — how the company describes what it does
46 edited+11 added−5 removed45 unchanged
Item 1. Business
Business — how the company describes what it does
46 edited+11 added−5 removed45 unchanged
2022 filing
2023 filing
Biggest changeOur product development team along with outside engineering resources are engaged in continuously improving existing product performance and researching new product opportunities to enhance our product portfolio. We spent $5.0 million and $2.5 million on research and development for the years ended December 31, 2022 and 2021, respectively.
Biggest changeRESEARCH AND DEVELOPMENT We recognize the importance of innovation to our long-term success and are committed to research and new product development activities. Our product development team along with outside engineering resources are continuously engaged in improving existing product performance and innovating on new product opportunities to enhance our product portfolio.
In addition, the government may assert that a claim including items or services resulting from a violation of the federal Anti-Kickback Statute constitutes a false or fraudulent claim for purposes of the False Claims Act; - 5 - Table of Contents • the federal Civil Monetary Penalties Law, which prohibits, among other things, offering or transferring remuneration to a federal healthcare beneficiary that a person knows or should know is likely to influence the beneficiary’s decision to order or receive items or services reimbursable by the government from a particular provider or supplier; • federal criminal laws that prohibit executing a scheme to defraud any federal healthcare benefit program or making false statements relating to healthcare matters; • the federal Health Insurance Portability and Accountability Act of 1996 (“HIPAA”), as amended by the Health Information Technology for Economic and Clinical Health Act, which governs the conduct of certain electronic healthcare transactions and protects the security and privacy of protected health information; • the federal Physician Payment Sunshine Act, which requires manufacturers of drugs, devices, biologics and medical supplies for which payment is available under Medicare, Medicaid or the Children’s Health Insurance Program (with certain exceptions) to report annually to the Centers for Medicare & Medicaid Services (“CMS”) information related to payments or other “transfers of value” made to physicians (defined to include doctors, dentists, optometrists, podiatrists and chiropractors), certain health care professionals beginning in 2022, and teaching hospitals and ownership and investment interests held by the physicians described above and their immediate family members, and payments or other “transfers of value” to such physician owners; and • analogous state and foreign law equivalents of each of the above federal laws, such as anti-kickback and false claims laws which may apply to items or services reimbursed by any third-party payor, including commercial insurers; state laws that require pharmaceutical and device companies to comply with the industry’s voluntary compliance guidelines and the applicable compliance guidance promulgated by the federal government or otherwise restrict payments that may be made to healthcare providers and other potential referral sources; state laws that require device manufacturers to track and report information related to payments and other “transfers of value” to physicians and other healthcare providers or pricing, marketing expenditures and information; and state laws governing the privacy and security of health information in certain circumstances, many of which differ from each other in significant ways and may not have the same effect, thus complicating compliance efforts.
In addition, the government may assert that a claim including items or services resulting from a violation of the federal Anti-Kickback Statute constitutes a false or fraudulent claim for purposes of the False Claims Act; • the federal Civil Monetary Penalties Law, which prohibits, among other things, offering or transferring remuneration to a federal healthcare beneficiary that a person knows or should know is likely to influence the beneficiary’s decision to order or receive items or services reimbursable by the government from a particular provider or supplier; • federal criminal laws that prohibit executing a scheme to defraud any federal healthcare benefit program or making false statements relating to healthcare matters; • the federal Health Insurance Portability and Accountability Act of 1996 (“HIPAA”), as amended by the Health Information Technology for Economic and Clinical Health Act, which governs the conduct of certain electronic healthcare transactions and protects the security and privacy of protected health information; - 5 - Table of Contents • the federal Physician Payment Sunshine Act, which requires manufacturers of drugs, devices, biologics and medical supplies for which payment is available under Medicare, Medicaid or the Children’s Health Insurance Program (with certain exceptions) to report annually to the Centers for Medicare & Medicaid Services (“CMS”) information related to payments or other “transfers of value” made to physicians (defined to include doctors, dentists, optometrists, podiatrists and chiropractors), certain health care professionals beginning in 2022, and teaching hospitals and ownership and investment interests held by the physicians described above and their immediate family members, and payments or other “transfers of value” to such physician owners; and • analogous state and foreign law equivalents of each of the above federal laws, such as anti-kickback and false claims laws which may apply to items or services reimbursed by any third-party payor, including commercial insurers; state laws that require pharmaceutical and device companies to comply with the industry’s voluntary compliance guidelines and the applicable compliance guidance promulgated by the federal government or otherwise restrict payments that may be made to healthcare providers and other potential referral sources; state laws that require device manufacturers to track and report information related to payments and other “transfers of value” to physicians and other healthcare providers or pricing, marketing expenditures and information; and state laws governing the privacy and security of health information in certain circumstances, many of which differ from each other in significant ways and may not have the same effect, thus complicating compliance efforts.
Adams spent 10 years at Integra Life Sciences in various leadership positions in Finance and Accounting Controllership with most recent position as Senior Director of Finance. In this role, Mr. Adams was the head of finance for Integra’s Tissue Technology Business where he served a leading role in supporting a $500 million business unit to high growth and profitability.
Adams spent 10 years at Integra Life Sciences in various leadership positions in Finance and Accounting Controllership with his most recent position as Senior Director of Finance. In this role, Mr. Adams was the head of finance for Integra’s Tissue Technology Business where he served a leading role in supporting a $500 million business unit to high growth and profitability.
The use of the FREEDOM System for SCIg drug delivery continues to increase, and it remains the market leading delivery system in the U.S. for these treatments. In recent years Hizentra® has received an expanded indication for treatment of CIDP in the United States and multiple SCIg drugs have received indications for CIDP and SID outside of the United States.
The use of the FREEDOM System for SCIg drug delivery continues to increase, and it remains the market leading delivery system in the U.S. for these treatments. In recent years Hizentra® and HyQvia® has received an expanded indication for treatment of CIDP in the United States. Multiple SCIg drugs have received indications for SID outside of the United States.
COMPETITION AND THE MARKET Competition for the FREEDOM System includes electronic (volumetric) pumps, elastomeric (infuser) pumps, and fully mechanical pumps as well as other types of pumps. Safety, ease of use, familiarity, cost effectiveness, and accuracy are the principal driving influencers of pump selection. Electronic pumps deliver drugs at a programmed flow rate.
COMPETITION AND THE MARKET Competition for the FREEDOM System includes electronic (volumetric) pumps, elastomeric (infuser) pumps, and fully mechanical pumps as well as other types of pumps. Safety, ease of use, familiarity, cost effectiveness, accuracy, and sustainability are the principal driving influencers of pump selection. Electronic pumps deliver drugs at a programmed flow rate.
Tharby spent the last 24 years working in various roles of increased responsibility at Becton Dickinson (“BD”). Ms. Tharby was a member of the Executive Leadership team of BD that transformed the company from an $8 billion medical supplies company to an $18 billion global medical technology company. Ms.
Tharby spent 24 years working in various roles of increased responsibility at Becton Dickinson (“BD”). Ms. Tharby was a member of the Executive Leadership team of BD that transformed the company from an $8 billion medical supplies company to an $18 billion global medical technology company. Ms.
Device Classification and Clearance Except where an exemption applies, each new or significantly modified medical device we seek to commercially distribute in the U.S. will require either a premarket notification to the FDA requesting permission for commercial distribution under Section 510(k) of the Federal Food, Drug and Cosmetic Act (“FFDCA”), also known as a 510(k) clearance, approval of a pre-market approval (“PMA”) application, or as part of a drug-device combination product through a Biologics License Application (“BLA”) or New Drug Application (“NDA”).
Device Classification and Clearance Except where an exemption applies, each new or significantly modified medical device we seek to commercially distribute in the U.S. will require either a premarket notification to the FDA requesting permission for commercial distribution under Section 510(k) of the Federal Food, Drug and Cosmetic Act (“FFDCA”), also known as a 510(k) clearance, approval of a pre-market approval (“ra”) application, or as part of a drug-device combination product through a Biologics License Application (“BLA”) or New Drug Application (“NDA”).
They are easy to use from the patient point of view but can be more costly and time consuming to fill, are temperature sensitive and have larger residual volumes than other delivery systems. - 6 - Table of Contents Competition for infusion devices for new drugs includes a variety of technologies and companies.
They are easy to use from the patient point of view but can be more costly and time consuming to fill, are temperature sensitive and have larger residual volumes than other delivery systems. Competition for infusion devices for new drugs includes a variety of technologies and companies.
Our core domestic and international revenues consist of sales of our syringe drivers, tubing and needles (“Product Revenue”) for the delivery of subcutaneous drugs that are FDA cleared for use with the Freedom Infusion Systems, with the primary delivery for immunoglobulin to treat Primary Immunodeficiency Diseases (“PIDD”) and Chronic Inflammatory Demyelinating Polyneuropathy (“CIDP”).
Our core domestic and international revenues consist of sales of our syringe drivers, tubing and needles (“Product Revenue”) for the delivery of subcutaneous drugs that are FDA cleared for use with the FREEDOM System, with the primary delivery for immunoglobulin to treat Primary Immunodeficiency Diseases (“PIDD”) and Chronic Inflammatory Demyelinating Polyneuropathy (“CIDP”).
Adams joined KORU Medical Systems in November 2021 as Vice President of Financial Planning and Analysis and was appointed Interim- Chief Financial Officer in July 2022. Mr. Adams has an extensive background in financial planning, corporate finance, commercial and supply chain finance, and mergers and acquisitions (M&A). Prior to joining KORU, Mr.
Adams joined KORU Medical in November 2021 as Vice President of Financial Planning and Analysis, was appointed Interim-Chief Financial Officer in July 2022 and Chief Financial Officer in August 2023. Mr. Adams has an extensive background in financial planning, corporate finance, commercial and supply chain finance, and mergers and acquisitions (M&A). Prior to joining KORU Medical, Mr.
Tharby’s last role was as Chief Customer Experience Officer from July 2018 through December 2020. Prior to that she served as BD’s Chief Human Resources Officer, from October 2016 through July 2018.
Tharby’s last role at BD was as Chief Customer Experience Officer from July 2018 through December 2020. Prior to that she served as BD’s Chief Human Resources Officer, from October 2016 through July 2018.
Case joined KORU Medical Systems in April 2022 as Chief Technology Officer. Mr. Case brings over 20 years of research and development experience working with a combination of large and small medical device companies. For the 16 years prior to joining KORU, Mr.
Case joined KORU Medical in April 2022 as Chief Technology Officer. Mr. Case has over 20 years of research and development experience working with a combination of large and small medical device companies. For the 16 years prior to joining KORU Medical, Mr.
Novel therapies consist of Product Revenue for feasibility/clinical trials (pre-clinical studies, Phase I, Phase II, Phase III, ) of biopharmaceutical companies in the drug development process as well as non-recurring engineering services (“NRE”) revenues (including testing and registration services) received from biopharmaceutical companies to ready or customize the FREEDOM System for clinical and commercial use.
Novel therapies revenues consist of Product Revenue for feasibility/clinical trials (pre-clinical studies, Phase I, Phase II, Phase III) of biopharmaceutical companies in the drug development process as well as non-recurring engineering services (“NRE”) revenues (including product innovation, testing and registration services) received from biopharmaceutical companies to ready or customize the FREEDOM System for clinical and commercial use across multiple drug categories.
We intend to make additional investments in research and development over the next twelve months to support adding research and development capability to develop a “next-generation” infusion pump and consumable system. - 3 - Table of Contents REGULATORY Our medical devices and technologies, as well as our business activities, are subject to a complex set of regulations and rigorous enforcement, principally by the FDA, and numerous other federal, state, and non-U.S. governmental authorities.
We intend to make additional investments in research and development over the next twelve months to support completing research and development for a “next-generation” infusion pump and consumable system. - 3 - Table of Contents REGULATORY Our medical devices and technologies, as well as our business activities, are subject to a complex set of regulations and rigorous enforcement, principally by the FDA, and numerous other federal, state, and non-U.S. governmental authorities.
PATENTS AND INTELLECTUAL PROPERTY We have patents and other intellectual property that we believe protect the FREEDOM System, and we continue to file patent applications in connection with our research and development activities. As of December 31, 2022, we own 14 U.S. Patents and 60 foreign patents.
PATENTS AND INTELLECTUAL PROPERTY We have patents and other intellectual property that we believe protect the FREEDOM System, and we continue to file patent applications in connection with our research and development activities. As of December 31, 2023, we own 15 U.S. Patents and 60 foreign patents.
Our FREEDOM System is cleared for the most on-label subcutaneous indications including specific FDA clearance for: delivery of specific medications through subcutaneous and intravenous routes, including specific clearance for leading immune globulins Cutaquig ®, Cuvitru®, Hizentra®, Xembify, Empaveli® (branded Aspaveli® outside the United States), Gammagard Liquid®, and a variety of antibiotics.
Our FREEDOM System is cleared for several on-label subcutaneous indications including specific FDA clearance for: delivery of specific medications through subcutaneous and intravenous routes, including specific clearance for leading immune globulins Cutaquig ®, Cuvitru®, Hizentra®, Xembify, Empaveli® (branded Aspaveli® outside the United States), Gammagard Liquid®, and selected intravenously administered antibiotics.
By improving our products, establishing thought leadership in subcutaneous therapy, partnering with drug manufacturers, expanding geographically, and executing commercially, we intend to increase our overall global share position and the number of patients prescribed SCIg over intravenous Ig. Furthermore, we plan to expand into new therapies outside of SCIg.
By improving our products, establishing thought leadership in subcutaneous therapy, partnering with drug manufacturers, expanding geographically, and executing commercially, we intend to increase our overall global share position and the number of patients prescribed SCIg over intravenous Ig.
In addition, we have 5 pending U.S. patent applications and 11 foreign patent applications. The fundamental patents protecting our drug delivery systems extend until 2034 and beyond.
In addition, we have 12 pending U.S. patent applications and 13 foreign patent applications. The fundamental patents protecting our drug delivery systems extend until 2039 and beyond.
The SCIg products delivered by the FREEDOM System are indicated for a variety of conditions, including PIDD and CIDP in the United States and PIDD, CIDP and Secondary Immunodeficiency Disease (“SIDD”) in Europe. Empaveli® is indicated for Paroxysmal Nocturnal Hemoglobinuria (“PNH”).
The SCIg products administered with delivered by the FREEDOM System are indicated for a variety of conditions, including Primary Immunodeficiency (PIDD ) and Chronic Inflammatory Demelinating Polyneuropathy (CIDP) in the United States and PIDD, CIDP and Secondary Immunodeficiency Disease (“SIDD”) outside of the United States. Empaveli® is indicated for Paroxysmal Nocturnal Hemoglobinuria (“PNH”).
EXECUTIVE OFFICERS The following table sets forth certain information with respect to our executive officers as of March 8, 2023: Name Age Position / Held Since Linda Tharby 54 Chief Executive Officer and President (since April 2021) Tom Adams 50 Interim Chief Financial Officer, Secretary and Treasurer (since July 2022) Brian Case 50 Chief Technology Officer (since April 2022) Executive officers hold office at the discretion of the Board of Directors. - 7 - Table of Contents Ms.
EXECUTIVE OFFICERS The following table sets forth certain information with respect to our executive officers as of March 13, 2024: Name Age Position / Held Since Linda Tharby 55 Chief Executive Officer and President (since April 2021) Tom Adams 51 Chief Financial Officer, Secretary and Treasurer (since August 2023) Brian Case 51 Chief Technology Officer (since April 2022) Ken Miller 55 Chief Commercial Officer (since November 2023) Executive officers hold office at the discretion of the Board of Directors. - 7 - Table of Contents Ms.
Our revenues are derived from three business sources: (i) domestic core, (ii) international core, and (iii) novel therapies.
Our revenues are derived from three business sources: (i) domestic core (which consists of US and Canada), (ii) international core, and (iii) novel therapies.
The Company uses single-source suppliers in part due to governmental approval and validation requirements. A change in supplier, or the use of multiple suppliers of the same materials, often would necessitate additional approvals and validations, which the Company seeks to avoid unless and until the need arises.
A change in supplier, or the use of multiple suppliers of the same materials, often would necessitate additional approvals and validations, which the Company seeks to avoid unless and until the need arises.
ITEM 1. BUSINESS OUR BUSINESS KORU Medical develops, manufactures and markets proprietary portable and innovative medical devices primarily for the subcutaneous drug delivery market as governed by the United States Food and Drug Administration (the “FDA”) quality and regulatory system and international standards for quality system management.
ITEM 1. BUSINESS OUR BUSINESS KORU Medical develops, manufactures and commercializes innovative and patient-centric large volume subcutaneous infusion solutions primarily for the subcutaneous drug delivery market as governed by the United States Food and Drug Administration (the “FDA”) quality and regulatory system and international standards for quality system management.
We estimate that at least 100 large-volume drugs are in clinical development utilizing subcutaneous infusion. The pipeline is driven by the need to deliver high therapeutic doses, difficulty in formulating large molecules into small volumes, nursing shortage, pharmaceutical companies shifting development programs toward at-home subcutaneous therapy, and other factors. Biopharmaceutical manufacturers seek device partners during the drug development process.
The pipeline is driven by the need to deliver high therapeutic doses, difficulty in formulating large molecules into small volumes, nursing shortage, pharmaceutical companies shifting development programs toward at-home subcutaneous therapy, and patient preference. Biopharmaceutical manufacturers seek device partners during the drug development process.
OUR MISSION Our mission is to improve the quality of life of patients around the world by delivering innovative, effective, and easy-to-use drug delivery systems that can be used at home or alternate site settings, for patient self-administration of drug therapy. - 1 - Table of Contents OUR STRATEGY We plan to become a leading provider of solutions for subcutaneous large-volume infusions defined as greater than 10ml.
OUR MISSION Our mission is to improve the quality of life of patients around the world by delivering innovative, effective, and easy-to-use drug delivery systems that can be used at home or alternate site settings, for patient self-administration of drug therapy. - 1 - Table of Contents OUR STRATEGY Our goal is to expand our position as a leading provider of large volume subcutaneous infusion systems (>10ml) self-administered in the home by the patient and/or delivered in an ambulatory infusion center by a healthcare professional. .
Case received his Master of Science in Engineering Management from Rose-Hulman Institute of Technology, and his Bachelor of Science in Engineering Mechanics, from University of Illinois.
Case received his Master of Science in Engineering Management from Rose-Hulman Institute of Technology, and his Bachelor of Science in Engineering Mechanics, from University of Illinois. Mr. Miller joined KORU Medical in November 2023 as Chief Commercial Officer. Mr.
For drugs requiring infusion volumes over 3 ml, the segment most similar to the SCIg drugs currently delivered by the FREEDOM System, the most relevant approaches include mechanical pumps, on-body wearable devices, and simple electronic pumps. Challenges to their successful commercialization include high costs per infusion, increased environmental impact, complexity for users, and complex mechanisms with multiple failure modes.
For drugs requiring infusion volumes over 3 ml, the segment most similar to the SCIg drugs currently delivered by the FREEDOM System, the most relevant approaches include mechanical pumps, on-body wearable devices, and simple electronic pumps.
Post-Approval Regulation Even after a device is cleared or approved by FDA for marketing, numerous regulatory requirements continue to apply. The FDA and other worldwide regulatory agencies and competent authorities actively monitor compliance to local laws and regulations through review and inspection of design and manufacturing practices, record-keeping, reporting of adverse events, labeling and promotional practices.
The FDA and other worldwide regulatory agencies and competent authorities actively monitor compliance to local laws and regulations through review and inspection of design and manufacturing practices, record-keeping, reporting of adverse events, labeling and promotional practices.
We intend to partner with them during clinical development—generating services revenues to prepare and customize our products for clinical use and regulatory clearance, as well as, product revenues post commercialization.
We intend to partner with them during clinical development—generating non-recurring services revenues to prepare and customize our products for use during the clinical trial process and to obtain regulatory clearance for use with their drug.
The PMA process is generally more detailed, lengthier and more expensive than the 510(k) process, though both processes can be expensive and lengthy, and requires payment of significant user fees, unless an exemption is available. Under the NDA and BLA application process, the applicant must demonstrate that the drug or drug-device combination is safe and effective for its intended use.
The PMA process is generally more detailed, lengthier and more expensive than the 510(k) process, though both processes can be expensive and lengthy, and requires payment of significant user fees, unless an exemption is available.
Specialty pharmacies, home infusion providers, and distributors are our primary sales contacts, although we provide education and training materials to clinicians, patients and patient advocates both in the field and online.
As of December 31, 2023, these five distributors comprised approximately 74% of our net revenues with one of our U.S. distributors contributing approximately 41%. Specialty pharmacies, home infusion providers, and distributors are our primary sales contacts, although we provide education and training materials to clinicians, patients, and patient advocates both in the field and online.
Our ability to meet customer demand depends, in part, on our ability to obtain timely and adequate delivery of components for our products. All of the components that go into the manufacturing of our products and accessories are sourced from third-party suppliers on a single source basis.
All of the components that go into the manufacturing of our products and accessories are sourced from third-party suppliers on a single source basis. The Company uses single-source suppliers in part due to governmental approval and validation requirements.
Many countries that previously did not have medical device regulations, or had minimal regulations, are now introducing them. - 4 - Table of Contents International sales of medical devices manufactured in the U.S. that are not approved by the FDA for use in the U.S., or that are banned or deviate from lawful performance standards, are subject to FDA export requirements.
International sales of medical devices manufactured in the U.S. that are not approved by the FDA for use in the U.S., or that are banned or deviate from lawful performance standards, are subject to FDA export requirements. Additionally, exported devices are subject to the regulatory requirements of each country to which the device is exported.
None of our employees are represented by a collective bargaining agreement. To help drive consistent execution of our business strategy, including our customer focused philosophy, and support their development, we provide training opportunities to our employees that align with their responsibilities over their career with us.
To help drive consistent execution of our business strategy, including our customer focused philosophy, and support their development, we provide training opportunities to our employees that align with their responsibilities over their career with us. We maintain a dedicated Internet-based learning platform with a broad portfolio of written, audio-visual and interactive enterprise-wide and discipline-specific policy and training materials.
Frequently, regulatory approval may first be obtained in a foreign country prior to application in the U.S. due to differing regulatory requirements; however, other countries require approval in the country of origin first. Most countries outside of the U.S. require that product approvals be recertified on a regular basis, generally every five years.
Some countries do not have medical device regulations, but in most foreign countries, medical devices are regulated. Frequently, regulatory approval may first be obtained in a foreign country prior to application in the U.S. due to differing regulatory requirements; however, other countries require approval in the country of origin first.
The needle sets are available in 26- and 24-gauge sizes and feature unique design elements specific to subcutaneous self-administration. One such feature includes a back-cut needle designed for more comfort and less tissue damage with flexible wings to minimize patient discomfort over prior needle set offerings. Precision Flow Rate Tubing is designed for repeatable flow rates without allowing unrestricted flow.
The needle sets are available in 26- and 24-gauge sizes and feature unique design elements specific to subcutaneous self-administration. Precision Flow Rate Tubing is designed for repeatable flow rates without allowing unrestricted flow. The tubing regulates the flow rate and infusion time for various applications when used with the FREEDOM System.
We maintain a dedicated Internet-based learning platform with a broad portfolio of written, audio-visual and interactive enterprise-wide and discipline-specific policy and training materials. This platform includes a library of self-directed courses and virtual, instructor-led programs for employees at all levels of our organization. Managers and supervisors are provided training to help their employees progress in their professional development.
This platform includes a library of self-directed courses and virtual, instructor-led programs for employees at all levels of our organization. Managers and supervisors are provided training to help their employees progress in their professional development. We believe our employees are key to achieving our business objectives. Our key human capital measures include employee safety, turnover, absenteeism and production.
SALES AND DISTRIBUTION The FREEDOM System is sold through both direct sales and medical device distributors to pharmaceutical companies, specialty pharmacy customers and home infusion providers. Our products are sold principally through a small number of distributors so our specialty pharmacy customers receive the benefit of remote inventory management and one-stop shopping.
Our products are sold principally through a small number of distributors so our specialty pharmacy customers receive the benefit of remote inventory management and one-stop shopping. We sell the majority of our products through three distributors in the U.S. and two distributors outside the U.S.
The tubing regulates the flow rate and infusion time for various applications when used with the FREEDOM System. Each tubing set provides a different level of flow restriction and consistently delivers medication with low residual volume to minimize drug waste.
Each tubing set provides a different level of flow restriction and consistently delivers medication with low residual volume to minimize drug waste. SALES AND DISTRIBUTION The FREEDOM System is sold through both direct sales and medical device distributors to pharmaceutical companies, specialty pharmacy customers and home infusion providers.
The NDA and BLA processes involve considerable expense associated with data collection and analysis and other expenses. We are also required to comply with the regulations of every other country where we commercialize products before we can launch or maintain new products on the market.
We are also required to comply with the regulations of every other country where we commercialize products before we can launch or maintain new products on the market. Many countries that previously did not have medical device regulations, or had minimal regulations, are now introducing them.
The recertification process requires that we evaluate any device changes and any new regulations or standards relevant to the device and, where needed, conduct appropriate testing to document continued compliance. Where recertification applications are required, they must be approved in order to continue selling our products in those countries.
Most countries outside of the U.S. require that product approvals be recertified on a regular basis, generally every five years. The recertification process requires that we evaluate any device changes and any new regulations or standards relevant to the device and, where needed, conduct appropriate testing to document continued compliance.
The Company does not have any contracts with suppliers that impose material binding obligations on the Company or provide the Company with any material rights or benefits, other than the agreement with Command. RESEARCH AND DEVELOPMENT We recognize the importance of innovation to our long-term success and are committed to research and new product development activities.
The Company does not have any contracts with suppliers that impose material binding obligations on the Company or provide the Company with any material rights or benefits, other than the Company’s agreement with Command. Command currently stores our finished goods in their warehouse located in Miami Florida once the products are released and shipped from Nicaragua.
The FREEDOM System is the only infusion system specifically cleared for SCIg delivery with a prefilled syringe, the Hizentra® 20ml prefilled syringe. - 2 - Table of Contents Ambulatory infusion systems are most prevalent in the home care and alternate site markets.
Outside of the U.S. our indications for use also include treatments for hydration and iron chelation. - 2 - Table of Contents Ambulatory infusion systems such as the FREEDOM System are most prevalent in the home care and alternate infusion site markets.
We intend to accomplish this objective by increasing penetration of our core subcutaneous immunoglobulin (“SCIg”) market and extending into new subcutaneous drug therapies. We have identified multiple factors we believe are driving growth of the SCIg market.
We intend to accomplish this objective by increasing our leadership position and penetration in our domestic and international core subcutaneous immunoglobulin (“SCIg”) market and extending this position into novel subcutaneous drug therapies. Both the Ig and novel therapy drugs, will use our Freedom Infusion system and new innovations that are in development for the Freedom Infusion system platform.
MANUFACTURING AND RAW MATERIALS We currently perform product assembly, calibration, pre- and post-assembly quality control inspection and testing, and final packaging at our Chester, NY facility and have been transitioning those activities to our leased facility in Mahwah, NJ. We expect to transition all remaining activities to Mahwah, NJ in March 2023.
MANUFACTURING AND RAW MATERIALS We currently manufacture, assemble and package all of our pump products, assemble and complete final packaging of our consumables (which consist of needle and tubing sets), and perform calibration, pre- and post-assembly quality control inspection and testing at our Mahwah, NJ facility. Command Medical Products, Inc.
HUMAN CAPITAL RESOURCES As of December 31, 2022, we had 85 full time employees and 1 part time employee. As of December 31, 2022, approximately 53% of the Company’s workforce was female and approximately 43% of the Company’s employees in managerial roles were female. Approximately 41% were minorities (non-White) in the Company workforce as of December 31, 2022.
As of December 31, 2023, approximately 51% of the Company’s workforce was female and approximately 37% of the Company’s employees in managerial roles were female. Approximately 39% were minorities (non-White) in the Company workforce as of December 31, 2023. None of our employees are represented by a collective bargaining agreement.
Removed
We sell the majority of our products through three distributors in the U.S. and two distributors outside the U.S. As of December 31, 2022, these five distributors comprised approximately 72% of our net revenues with one of our U.S. distributors contributing approximately 41%.
Added
In the goal of increasing our leadership position in SCIg, we have identified multiple factors that we believe are driving growth of the SCIg market.
Removed
We have entered into an agreement with Command Medical Products, Inc. (“Command”), to manufacture and supply substantially all of the Company’s subassemblies, needle sets and tubing products for supply continuity and cost savings. We expect the transition to Command to be completed no later than the second quarter of 2023.
Added
In our goal to expand into novel therapies outside of SCIg, we estimate that at least 100 large-volume drugs are in clinical development utilizing subcutaneous infusion, with approximately 30% greater than 10ml.
Removed
Various FDA reviewers will provide written evaluations in their areas of expertise which are consolidated and provided to FDA senior staff for final evaluation. FDA then provides the application sponsor approval or a deficiency letter. In the case of a deficiency letter, the sponsor must submit an adequate response to continue the review process.
Added
Post launch, we intend to commercialize our products for use with these drugs, working with our pharmaceutical partners, our distributors and our specialty pharmacy partners who distribute and train patients on the use of these products both in the home and in ambulatory infusion centers.
Removed
Additionally, exported devices are subject to the regulatory requirements of each country to which the device is exported. Some countries do not have medical device regulations, but in most foreign countries, medical devices are regulated.
Added
(“Command”), a contract manufacturing organization with operations in Nicaragua, currently provides subassemblies, and manufactures, assembles and packages approximately 80% of our consumables.. Our ability to meet customer demand depends, in part, on our ability to obtain timely and adequate delivery of components for our products.
Removed
We believe our employees are key to achieving our business objectives. We have COVID-19 prevention protocols in place to minimize the spread of COVID-19 in our workplace. Our key human capital measures include employee safety, turnover, absenteeism and production.
Added
We spent $5.7 million and $5.0 million on research and development for the years ended December 31, 2023 and 2022, respectively.
Added
Where recertification applications are required, they must be approved in order to continue selling our products in those countries. - 4 - Table of Contents Post-Approval Regulation Even after a device is cleared or approved by FDA for marketing, numerous regulatory requirements continue to apply.
Added
Challenges to their successful commercialization include high costs per infusion, increased environmental impact, complexity for users, and complex mechanisms with multiple failure modes. - 6 - Table of Contents HUMAN CAPITAL RESOURCES As of December 31, 2023, we had 82 full time employees, including 3 international employees.
Added
Miller has over 30 years of extensive expertise and experience in leading high-performing teams in commercialization and marketing strategy, international expansion, and driving sustainable growth and profitability. As Chief Commercial Officer, Mr. Miller has oversight of the global commercial function, including U.S. and International sales and marketing organizations.
Added
He was President & CEO of NASCO HealthCare from October 2018 through January 2023. At NASCO, he transformed sales & marketing, and led the consolidation of NASCO’s manufacturing footprint which delivered year-over-year double digit revenue and EBITDA growth.
Added
Prior to NASCO, Ken spent 7 years at BD with his last role as the Worldwide President Diabetes Care where he led the transition from a product focus to a full-service diabetes management solution provider. Ken also held leadership roles in marketing, sales, and business development with Novo Nordisk, Adams Respiratory Therapeutics, and Roche Laboratories.
Added
He earned his Bachelor of Arts in Business Management from State University of New York at Albany and his Master of Business Administration from The University of Chicago, Booth School of Business.
Item 1A. Risk Factors
Risk Factors — what could go wrong, per management
42 edited+12 added−12 removed213 unchanged
Item 1A. Risk Factors
Risk Factors — what could go wrong, per management
42 edited+12 added−12 removed213 unchanged
2022 filing
2023 filing
Biggest changeIf we fail to comply with our reporting obligations, the FDA could take action, including warning letters, untitled letters, administrative actions, criminal prosecution, imposition of civil monetary penalties, revocation of our device clearances or approvals, seizure of our products, or delay in clearance or approval of future products.
Biggest changeIf we fail to comply with our reporting obligations, the FDA could take action, including warning letters, untitled letters, administrative actions, criminal prosecution, imposition of civil monetary penalties, revocation of our device clearances or approvals, seizure of our products, or delay in clearance or approval of future products. - 13 - Table of Contents These adverse events could also lead to safety alerts relating to our products or recalls (either voluntary or as required by the FDA or similar governmental authorities in other countries), and could result, in certain cases, in the removal of a product from the market.
The MDR will change multiple aspects of the existing regulatory framework for CE marking, such as increased clinical evidence requirements and other new requirements, including Unique Device Identification (“UDI”) as well as many other post-market obligations.
The MDR will change multiple aspects of the existing regulatory framework for CE marking, such as increased clinical evidence requirements and other new requirements, including Unique Device Identification (“UDI”) as well as many other post-market obligations.
If we are unable to obtain sufficient insurance coverage at an acceptable cost or otherwise, or if the amount of any claim against us exceeds the coverage under our policies, we may face significant expenses. Rising inflation increases economic uncertainty and may require us to need to raise prices in order to maintain our operating margins.
If we are unable to obtain sufficient insurance coverage at an acceptable cost or otherwise, or if the amount of any claim against us exceeds the coverage under our policies, we may face significant expenses. Rising inflation increases economic uncertainty and may require us to raise prices in order to maintain our operating margins.
The failure to attract, integrate, motivate, and retain additional skilled and qualified personnel could have a material adverse effect on our business. We compete for such personnel against numerous companies, including larger, more established companies with significantly greater financial resources than we possess.
The failure to attract, integrate, motivate, and retain skilled and qualified personnel could have a material adverse effect on our business. We compete for such personnel against numerous companies, including larger, more established companies with significantly greater financial resources than we possess.
Any corrective action, whether voluntary or involuntary, as well as defending ourselves in a lawsuit, will require the dedication of our time and capital, distract management from operating our business and may harm our reputation and financial results. - 13 - Table of Contents Personal injuries relating to the use of our products can also result in significant product liability claims being brought against us.
Any corrective action, whether voluntary or involuntary, as well as defending ourselves in a lawsuit, will require the dedication of our time and capital, distract management from operating our business and may harm our reputation and financial results. Personal injuries relating to the use of our products can also result in significant product liability claims being brought against us.
Loss or damage to our manufacturing and storage sites due to weather, vandalism, terrorism, a natural disaster, issues in our manufacturing process, equipment failure or other factors, could adversely affect our ability to manufacture sufficient quantities of products or otherwise deliver products to meet customer demand or contractual requirements which may result in a loss of revenue and other adverse business consequences, including damage to our relationship with customers.
Loss or damage to our manufacturing or contract manufacturing and storage site due to weather, vandalism, terrorism, a natural disaster, issues in our manufacturing process, equipment failure or other factors, could adversely affect our ability to manufacture sufficient quantities of products or otherwise deliver products to meet customer demand or contractual requirements which may result in a loss of revenue and other adverse business consequences, including damage to our relationship with customers.
Therefore, we must be compliant with applicable legislation in order to identify our devices with the UKCA mark and continue to market and sell our devices in Great Britain beyond July 1, 2024. We could be adversely affected, directly or indirectly, by the effects of an increased focus on environmental, social and governance issues.
Therefore, we must be compliant with applicable legislation in order to identify our devices with the UKCA mark and continue to market and sell our devices in Great Britain beyond December 31, 2024. We could be adversely affected, directly or indirectly, by the effects of an increased focus on environmental, social and governance issues.
Most of our components and raw materials are sourced from single suppliers. If we are unable to obtain sufficient components or raw materials on a timely basis or for a cost-effective price, or if we experience other supply difficulties, our business and results of operations may be adversely affected.
Most of our components and raw materials, including all of our consumables subassemblies, are sourced from single suppliers. If we are unable to obtain sufficient components or raw materials on a timely basis or for a cost-effective price, or if we experience other supply difficulties, our business and results of operations may be adversely affected.
A failure to identify and address manufacturing problems prior to the release of products to our customers may also result in a quality or safety issue that could result in a recall or other inability to sell our products. Our products are currently manufactured and stored at our corporate headquarters and manufacturing facilities.
A failure to identify and address manufacturing problems prior to the release of products to our customers may also result in a quality or safety issue that could result in a recall or other inability to sell our products. Our products are currently manufactured in Nicaragua and Mahwah, NJ, and stored at our corporate headquarters in Mahwah, NJ.
In addition, former employees may develop products that are competitive with ours or capitalize on customer relationships developed while employed with us, subject to their continuing obligations under confidentiality agreements and other restrictive covenants that may survive their employment.
In addition, former employees may develop products that are competitive with ours or capitalize on customer relationships developed while employed with us, subject to their continuing obligations under confidentiality agreements and - 10 - Table of Contents other restrictive covenants that may survive their employment.
Our ability to meet customer demand depends, in part, on our ability to obtain timely and adequate delivery of raw materials and components for our products. A majority of the materials and components that go into the manufacturing of our products are single-sourced from third-party suppliers.
Our ability to meet customer demand depends, in part, on our ability to obtain timely and adequate delivery of raw materials and components for our products. A majority of the materials and components that go into the manufacturing of our products, including all of our consumables subassemblies. are single-sourced from third-party suppliers.
We sell most of our products through a small number of distributors, three in the U.S. and two outside the U.S. As of December 31, 2022, these five distributors comprised approximately 72% of our net revenues with one U.S. distributor contributing 41%.
We sell most of our products through a small number of distributors, three in the U.S. and two outside the U.S. As of December 31, 2023, these five distributors comprised approximately 74% of our net revenues with one U.S. distributor contributing 41%.
Regardless of whether an active and liquid public market exists, negative fluctuations in our actual or anticipated operating results will likely cause the market price of our common stock to fall, making it more difficult for you to sell our common stock at a favorable price, or at all. - 23 - Table of Contents ITEM 1B.
Regardless of whether an active and liquid public market exists, negative fluctuations in our actual or anticipated operating results will likely cause the market price of our common stock to fall, making it more difficult for you to sell our common stock at a favorable price, or at all.
Our ability to compete effectively depends upon our ability to attract and retain executives and other key employees, including people in technical, marketing, sales, research and development, quality assurance and regulatory compliance positions.
We need to attract and retain key employees to be competitive. Our ability to compete effectively depends upon our ability to attract and retain executives and other key employees, including people in technical, marketing, sales, research and development, quality assurance and regulatory compliance positions.
Approximately 15% of our net revenues in the year ended December 31, 2022, came from our operations outside the U.S., and we intend to continue to pursue growth opportunities in foreign markets.
Approximately 17% of our net revenues in the year ended December 31, 2023, came from our operations outside the U.S., and we intend to continue to pursue growth opportunities in foreign markets.
Higher level of inflation not only reduces the real value of the profits we generate from our business (and in turn our returns to investors), but it also increases the costs of goods and services that we need to run our business.
Higher level of inflation not only reduces the real value of the profits we generate from our business (and in turn our returns to investors), but it also increases the costs of goods and services, including those from our single-source suppliers, that we need to run our business.
Our foreign operations subject us to certain risks, including, among others, the effects of fluctuations in foreign currency exchange, uncertainties with respect to local economic and political conditions, competition from local companies, trade protectionism and restrictions on the transfer of goods across borders, U.S. diplomatic and trade relations with the governments of the foreign countries in which we operate, foreign regulatory requirements or changes in such requirements, local product preferences and product requirements, longer payment terms for accounts receivable than we experience in the U.S., difficulty in establishing, staffing and managing foreign operations, changes to international trade agreements and treaties, changes in tax laws, weakening or loss of the protection of intellectual property rights in some countries, and import or export licensing requirements. - 19 - Table of Contents We are dependent on information technology systems and subject to privacy and security laws, and our systems and infrastructure face certain risks, including from cyber security breaches and data leakage.
Our foreign operations subject us to certain risks, including, among others, the effects of fluctuations in foreign currency exchange, uncertainties with respect to local economic and political - 19 - Table of Contents conditions, competition from local companies, trade protectionism and restrictions on the transfer of goods across borders, U.S. diplomatic and trade relations with the governments of the foreign countries in which we operate, foreign regulatory requirements or changes in such requirements, local product preferences and product requirements, longer payment terms for accounts receivable than we experience in the U.S., difficulty in establishing, staffing and managing foreign operations, changes to international trade agreements and treaties, changes in tax laws, weakening or loss of the protection of intellectual property rights in some countries, and import or export licensing requirements.
Additionally, all medical devices will require a UK Conformity Assessment mark (“UKCA”) by July 1, 2024. CE marks issued by Notified Bodies will remain valid until this time.
Additionally, all medical devices will require a UK Conformity Assessment mark (“UKCA”) by December 31, 2024. CE marks issued by Notified Bodies will remain valid until this time.
Risks Related to Ownership of Our Common Stock There may be circumstances in which the interests of our significant stockholders could be in conflict with your interests as a stockholder. Three stockholders, together with their respective affiliates, beneficially own approximately 23%, 14%, and 6% of our outstanding common stock, respectively.
Risks Related to Ownership of Our Common Stock There may be circumstances in which the interests of our significant stockholders could be in conflict with your interests as a stockholder. Three stockholders, together with their respective affiliates, beneficially own approximately 17%, 11%, and 7% of our outstanding common stock, respectively.
If we cannot successfully introduce new products or adapt to changing technologies, our products may become obsolete, and our revenue and profitability could suffer. - 8 - Table of Contents Our business depends on an adequate supply of drugs to be administered by our products. Demand for our products depends on the availability of drugs to be administered by them.
If we cannot successfully introduce new products or adapt to changing technologies, our products may become obsolete, and our revenue and profitability could suffer. Our business depends on an adequate supply of drugs to be administered by our products. Demand for our products depends on the availability of drugs to be administered through our delivery system..
We cannot guarantee that we will be able to obtain or maintain FDA 510(k) clearance or premarket approval for our new products or enhancements or modifications to existing products (including the use of our FREEDOM System with therapies not covered by the existing FDA clearance), and the failure to maintain approvals or clearances, or obtain approval or clearance could have a material adverse effect on our business, results of operations, financial condition and cash flows.
In addition, the regulatory approval is held by the pharmaceutical manufacturer, not KORU. - 11 - Table of Contents We cannot guarantee that we will be able to obtain or maintain FDA 510(k) clearance or premarket approval for our new products or enhancements or modifications to existing products (including the use of our FREEDOM System with therapies not covered by the existing FDA clearance), and the failure to maintain approvals or clearances, or obtain approval or clearance could have a material adverse effect on our business, results of operations, financial condition and cash flows.
A significant element of our strategy is to increase revenue growth by investing in innovation and new product development, which will require substantial resources.
We need to successfully introduce new products to achieve our strategic business objectives. A significant element of our strategy is to increase revenue growth by investing in innovation and new product development, which will require substantial resources.
While we have invested to protect our intellectual property, confidential information and other data, and continue to work diligently in this area, there can be no assurance that our precautionary measures will prevent breakdowns, breaches, cyber incidents or other events. Such events could have a material adverse effect on our reputation, business, financial condition or results of operations.
While we have invested to protect our intellectual property, confidential information and other data, and continue to work diligently in this area, there can be no assurance that our precautionary measures will prevent breakdowns, breaches, cyber incidents or other events.
The price and supply of materials and components for our products may be impacted or disrupted for reasons beyond our control. While we work with suppliers to ensure continuity of supply, no assurance can be given that these efforts will be successful.
The price and supply of materials and components for our products may be impacted or disrupted for reasons beyond our control. A significant price increase from a single-source supplier could have a material impact on our financial results. While we work with suppliers to ensure continuity of supply, no assurance can be given that these efforts will be successful.
S. and non-U.S. government agencies regulate our manufacturing operations, which includes product assembly, calibration, pre- and post-assembly quality control inspection and testing, and final packaging for all of our products. Variations in the manufacturing process may result in production failures which could lead to launch delays, product shortage, unanticipated costs, lost revenues and damage to our reputation.
S. and non-U.S. government agencies regulate our manufacturing and contract manufacturing operations for all of our products. Variations in our or Command’s manufacturing process may result in production failures which could lead to launch delays, product shortage, unanticipated costs, lost revenues and damage to our reputation.
Consolidation in the medical industry could have a negative impact with payor and provider relationships and distributor relationships, as we could lose market share as consolidation occurs. - 10 - Table of Contents Technological developments by others may disrupt our business and negatively impact our revenues.
Consolidation in the medical industry could have a negative impact with payor and provider relationships and distributor relationships, as we could lose market share as consolidation occurs. Technological developments by others may disrupt our business and negatively impact our revenues. The medical device industry is subject to rapid technological change and discovery and frequent product introductions.
The medical device industry is subject to rapid technological change and discovery and frequent product introductions. The development of new or improved products, processes or technologies by other companies that provide better features, pricing or clinical outcomes or economic value may render our products or proposed products obsolete or less competitive.
The development of new or improved products, processes or technologies by other companies that provide better features, pricing or clinical outcomes or economic value may render our products or proposed products obsolete or less competitive.
If adequate funds are not available from the foregoing sources, we may consider additional strategic financing options, or we may be required to delay, reduce the scope of, or eliminate our research or development and/or some of our commercialization efforts. - 18 - Table of Contents We may experience difficulties resulting from our relatively new and evolving management structure and executive team.
If adequate funds are not available from the foregoing sources, we may consider additional strategic financing options, or we may be required to delay, reduce the scope of, or eliminate our research or development and/or some of our commercialization efforts. - 18 - Table of Contents We are required to comply with certain financial and operating covenants under our credit facility.
If we are unable to comply with the MDR by December 2028, we will not be able to sell our products in the EU, which will materially impact our net revenues. Interruption of our manufacturing operations, including due to transitioning to our new facility, could adversely affect our future revenues and operating income. The FDA and other U.
If we are unable to comply with the MDR by December 2028, we will not be able to sell our products in the EU, which will materially impact our net revenues. - 9 - Table of Contents Interruption of our manufacturing or our contract manufacturing operations could adversely affect our business.
Even if we are able to obtain approval or clearance, it may: • take a significant amount of time • require the expenditure of substantial resources • involve stringent clinical and pre-clinical testing, as well as increased post-market surveillance • involve modifications, repairs, or replacements of our products, and • limit the proposed uses of our products. - 11 - Table of Contents Both before and after a product is commercially released, we have ongoing responsibilities under the FDA and other applicable non-U.S. government agency laws and regulations.
Even if we are able to obtain approval or clearance, it may: • take a significant amount of time • require the expenditure of substantial resources • involve stringent clinical and pre-clinical testing, as well as increased post-market surveillance • involve modifications, repairs, or replacements of our products, and • limit the proposed uses of our products.
Misappropriation or other loss of our intellectual property from any of the foregoing would have an adverse effect on our competitive position and may cause us to incur substantial litigation costs. - 14 - Table of Contents We need to attract and retain key employees to be competitive.
Such events could have a material adverse effect on our reputation, business, financial condition or results of operations. - 14 - Table of Contents Misappropriation or other loss of our intellectual property from any of the foregoing would have an adverse effect on our competitive position and may cause us to incur substantial litigation costs.
An affiliate of Horton Freedom, L.P. currently serves on our Board of Directors.
An affiliate of Horton Capital Management LLP. currently serves on our Board of Directors.
Due to regulatory requirements relating to the qualification of suppliers, we are not likely to be able to establish additional or replacement sources on a timely basis or without excessive cost.
We do not have long-term agreements in place with any of our suppliers, with the exception of a five- year agreement with Command which we entered in 2020. Due to regulatory requirements relating to the qualification of suppliers, we are not likely to be able to establish additional or replacement sources on a timely basis or without excessive cost.
Risks Related to Our Business If we are unable to successfully introduce new products or fail to keep pace with advances in technology, our business, financial condition and results of operations could be adversely affected. We need to successfully introduce new products to achieve our strategic business objectives.
Please note that additional risks not currently known to us or that we currently deem immaterial also may adversely affect our business, operations, results of operations, financial condition and prospects. - 8 - Table of Contents Risks Related to Our Business If we are unable to successfully introduce new products or fail to keep pace with advances in technology, our business, financial condition and results of operations could be adversely affected.
Such transactions are inherently risky, and the integration of any newly acquired business requires significant effort and management attention. The success of any acquisition, investment or alliance may be affected by a number of factors, including our ability to properly assess and value the potential business opportunity or to successfully integrate any business we may acquire into our existing business.
The success of any acquisition, investment or alliance may be affected by a number of factors, including our ability to properly assess and value the potential business opportunity or to successfully integrate any business we may acquire into our existing business. There can be no assurance that any past or future transaction will be successful.
There can be no assurance that any past or future transaction will be successful. Our operating results and financial condition may fluctuate. Our operating results and financial condition may fluctuate from quarter to quarter and year to year for a number of reasons.
Our operating results and financial condition may fluctuate. Our operating results and financial condition may fluctuate from quarter to quarter and year to year for a number of reasons.
There can be no assurance that we will receive the required approvals for new products or modifications to existing products on a timely basis or that any approval will not be subsequently withdrawn or conditioned upon extensive post market study requirements.
There can be no assurance that we will receive the required approvals for new products or modifications to existing products on a timely basis or that any approval will not be subsequently withdrawn or conditioned upon extensive post market study requirements. - 12 - Table of Contents Our global regulatory environment is becoming increasingly stringent and unpredictable, which could increase the time, cost and complexity of obtaining regulatory approvals for our products, as well as the clinical and regulatory costs of supporting those approvals.
We expect this global regulatory environment will continue to evolve, which could impact our ability to obtain future approvals for our products or could increase the cost and time to obtain such approvals in the future. - 12 - Table of Contents Our business and financial results may be materially adversely affected if our facility is not ready for manufacturing when the lease on our current facility expires on March 31, 2023.
We expect this global regulatory environment will continue to evolve, which could impact our ability to obtain future approvals for our products or could increase the cost and time to obtain such approvals in the future. If our EU device approval is suspended, it could have a material adverse effect on our business and financial results.
Our insurance may not cover our losses in any particular case. In addition, regardless of the level of insurance coverage, damage to our facilities may harm our business, financial condition and operating results. Public health crises, such as the COVID-19 pandemic, have had, and could in the future have, a negative effect on our business.
Public health crises, such as the COVID-19 pandemic, have had, and could in the future have, a negative effect on our business.
The FDA and other worldwide regulatory agencies actively monitor compliance with local laws and regulations through review and inspection of design and manufacturing practices, recordkeeping, reporting of adverse events, labeling and promotional practices. The results of these inspections can include inspectional observations on the FDA’s Form 483, warning letters, or other forms of enforcement.
The results of these inspections can include inspectional observations on the FDA’s Form 483, warning letters, or other forms of enforcement.
Additionally, Command manufactures and supplies the Company’s subassemblies, needle sets and tubing products in Nicaragua. There could be a delay in providing the products timely due to their climate and international boundaries. - 9 - Table of Contents We take precautions to safeguard our facilities, including acquiring insurance, adopting health and safety protocols and utilizing off-site storage of computer data.
Additionally, because Command manufactures and supplies the Company’s subassemblies and finished goods for needle sets and tubing products in Nicaragua, there could be a delay in providing the products timely due to their climate and international boundaries. Command currently stores our finished goods in their warehouse located in Miami Florida once the products are released from Nicaragua.
Furthermore, failure to adhere to good cybersecurity practices with regards to medical devices could result in enforcement action by the FDA including warning letters or other forms of enforcement. We cannot guarantee that any of our strategic acquisitions, investments or alliances will be successful. We may seek to supplement our internal growth through strategic acquisitions, investments and alliances.
We cannot guarantee that any of our strategic acquisitions, investments or alliances will be successful. We may seek to supplement our internal growth through strategic acquisitions, investments and alliances. Such transactions are inherently risky, and the integration of any newly acquired business requires significant effort and management attention.
Removed
Please note that additional risks not currently known to us or that we currently deem immaterial also may adversely affect our business, operations, results of operations, financial condition and prospects.
Added
Command currently provides subassemblies for all of our consumables (needle and tubing sets), and manufactures, assembles and packages approximately substantially all of our consumables.
Removed
The COVID-19 pandemic has negatively impacted the collection of plasma, the source of the active ingredient of SCIg medications, which may limit the supply of these drugs.
Added
In the event of any interruption in Command’s operations or supply of goods, the Company may have to seek alternative sources of subassemblies, which may be not be readily available on commercially reasonable terms or at all, and increase its capacity for manufacturing finished goods in Mahwah, NJ, which could be time-consuming and costly. The FDA and other U.
Removed
In addition, the regulatory approval is held by the pharmaceutical manufacturer, not KORU.
Added
We take precautions to safeguard our facility, including acquiring insurance, adopting health and safety protocols and utilizing off-site storage of computer data. Our insurance may not cover our losses in any particular case. In addition, regardless of the level of insurance coverage, damage to our facility may harm our business, financial condition and operating results.
Removed
Our global regulatory environment is becoming increasingly stringent and unpredictable, which could increase the time, cost and complexity of obtaining regulatory approvals for our products, as well as the clinical and regulatory costs of supporting those approvals.
Added
Both before and after a product is commercially released, we have ongoing responsibilities under the FDA and other applicable non-U.S. government agency laws and regulations. The FDA and other worldwide regulatory agencies actively monitor compliance with local laws and regulations through review and inspection of design and manufacturing practices, recordkeeping, reporting of adverse events, labeling and promotional practices.
Removed
The lease on our current corporate headquarters and manufacturing facility expires on March 31, 2023. We have entered into a lease for a new facility for our operations, and we expect to complete our move into that facility in the first quarter of 2023.
Added
The Company’s products are currently certified by its notified body, BSI, for sale in the EU. In March 2024, the Company received an assessment report from BSI stating that, following BSI’s review of technical documentation submitted by the Company in connection with a prior audit nonconformance, a recommendation for continued certification cannot be made.
Removed
If we are unable to establish continuous manufacturing operations in our new facility before our existing lease expires, our revenues will suffer.
Added
The Company has filed an appeal to this determination. If the Company’s appeal is denied, then its EU certification may be suspended with respect to some or all of the Company’s products. Any such suspension would affect the Company’s EU revenues, which effect could be material depending on the extent of the suspension.
Removed
We may not be able to establish such operations before our existing lease expires due to a number of factors, including delays in construction caused by raw materials, labor shortages and unforeseen complications; delays in receiving necessary regulatory approvals from U.S. and international authorities; unexpected manufacturing quality issues; inability to hire or retain necessary personnel; and other unforeseen circumstances.
Added
Failure to comply with these covenants would prevent us from drawing on our facility and, once drawn, could cause amounts borrowed to become immediately due and payable.
Removed
We have begun building our product inventory and expect to continue to do so through the first quarter of 2023, in order to ensure we can continue to service our customers in the event we are unable to maintain continuous manufacturing operations.
Added
If we want to draw on our credit facility, we must comply with specified financial and operating covenants under our credit facility and make payments, limiting our ability to operate our business as we otherwise might.
Removed
These adverse events could also lead to safety alerts relating to our products or recalls (either voluntary or as required by the FDA or similar governmental authorities in other countries), and could result, in certain cases, in the removal of a product from the market.
Added
Our failure to comply with any of these covenants or to meet any debt payment obligations could result in an event of default which, if not cured or waived, would result in any amounts outstanding, including any accrued interest and/or unpaid fees, becoming immediately due and payable.
Removed
We do not have long-term agreements in place with any of our suppliers, with the exception of a long-term agreement with our needle and tubing set subassembly supplier which we entered in 2020.
Added
We might not have sufficient working capital or liquidity to satisfy any repayment obligations in the event of an acceleration of those obligations. In addition, if we are not in compliance with the financial and operating covenants under the credit facility at the time we wish to borrow funds, we will be unable to borrow funds.
Removed
Additionally, such disruptions and security breaches, when there is a risk of patient harm, may require devices changes to fix vulnerabilities and strengthen cybersecurity.
Added
The financial and operating covenants under the credit facility may limit our ability to borrow funds or capital, including for general corporate purposes and strategic acquisitions. We may experience difficulties resulting from our relatively new and evolving management structure and executive team.
Removed
Such changes could, in some cases, require reporting to and approval by the FDA prior to implementation, which could cause a delay in the continued marketing of the underlying product that will result in a loss of revenues to us.
Added
We are dependent on information technology systems and subject to privacy and security laws, and our systems and infrastructure face certain risks, including from cyber security breaches and data leakage.
Item 2. Properties
Properties — owned and leased real estate
1 edited+0 added−1 removed0 unchanged
Item 2. Properties
Properties — owned and leased real estate
1 edited+0 added−1 removed0 unchanged
2022 filing
2023 filing
Biggest changeITEM 2. PROPERTIES We currently rent 43,975 square feet of a building located at 100 Corporate Drive, Mahwah, New Jersey with the lease having commenced on March 1, 2022 and expiring August 31, 2032. This facility is used as our headquarters and for our manufacturing operations.
Biggest changeITEM 2. PROPERTIES We currently rent 43,975 square feet of a building located at 100 Corporate Drive, Mahwah, New Jersey with the lease having commenced on March 1, 2022 and expiring August 31, 2032. This facility is used as our headquarters and for our in-house manufacturing operations. ITEM 3. LEGAL PROCEEDINGS None. ITEM 4. MINE SAFETY DISCLOSURES Not applicable.
Removed
The Company’s existing lease at 24 Carpenter Road, Chester New York, from which the Company is transitioning manufacturing operations to Mahwah, NJ, expires March 31, 2023. ITEM 3. LEGAL PROCEEDINGS None. ITEM 4. MINE SAFETY DISCLOSURES Not applicable. PART II
Item 5. Market for Registrant's Common Equity
Market for Common Equity — stock, dividends, buybacks
1 edited+0 added−0 removed2 unchanged
Item 5. Market for Registrant's Common Equity
Market for Common Equity — stock, dividends, buybacks
1 edited+0 added−0 removed2 unchanged
2022 filing
2023 filing
Biggest changeAs of March 8, 2023, 45,519,164 shares of our common stock were issued and outstanding held by approximately 516 stockholders of record. There were no shares of preferred stock issued and outstanding. ITEM 6. SELECTED FINANCIAL DATA Not applicable.
Biggest changeAs of March 13, 2024, 45,669,362 shares of our common stock were issued and outstanding held by approximately 471 stockholders of record. There were no shares of preferred stock issued and outstanding.
Item 7. Management's Discussion & Analysis
Management's Discussion & Analysis (MD&A) — revenue / margin commentary
35 edited+19 added−18 removed10 unchanged
Item 7. Management's Discussion & Analysis
Management's Discussion & Analysis (MD&A) — revenue / margin commentary
35 edited+19 added−18 removed10 unchanged
2022 filing
2023 filing
Biggest changePartially offsetting these declines was an increase in average selling prices. - 25 - Table of Contents Selling, general and administrative and Research and development Our selling, general and administrative and research and development costs for the years ended December 31, 2022, and 2021 are as follows: Years Ended December 31, Change from Prior Year 2022 2021 $ % Selling, general and administrative $ 20,606,507 $ 17,862,314 $ 2,744,193 15.4% Research and development 4,956,215 2,473,669 2,482,546 100.4% $ 25,562,722 $ 20,335,983 $ 5,226,739 25.7% Stated as a Percentage of Net Revenues 91.6% 86.6% Selling, general and administrative expenses increased $2.7 million, or 15.4%, during the year ended December 31, 2022 compared to the same period last year, primarily due to $2.5 million in compensation and benefits related mostly to new hires in sales, quality and regulatory to support our strategic growth initiatives, $0.8 million in executive severance, $0.4 million in building related expense, $0.3 million in travel related costs and $0.2 million in stock compensation, which was partially offset by lower restructuring costs of $1.2 million, marketing research of $0.3 million, and recruiting costs of $0.2 million.
Biggest changeOperating Expenses Our selling, general and administrative, research and development and depreciation and amortization costs for the years ended December 31, 2023, and 2022 are as follows: Years Ended December 31, Change from Prior Year 2023 2022 $ % Selling, general and administrative $ 20,365,617 $ 20,606,507 $ (240,890 ) (1.2%) Research and development 5,742,254 4,956,215 786,039 15.9% Depreciation and amortization 870,390 587,137 283,253 48.2% Total Operating Expense $ 26,978,261 $ 26,149,859 $ 828,402 3.2% Selling, general and administrative expenses decreased $0.2 million, or 1.2%, during the year ended December 31, 2023 compared with the same period last year, primarily due to a $0.4 million decrease in compensation and benefits related to executive management restructuring costs that took place in the prior year, and a decrease in stock compensation costs of $0.2 million, partially offset by $0.4 million increase in compensation costs related to business development and medical affairs new hires.
Our domestic core and international core revenues consist of sales of our products for the delivery of subcutaneous drugs that are FDA cleared for use with the Freedom Infusion System, with the primary use being for the delivery for immunoglobulin to treat Primary Immunodeficiency Diseases (“PIDD”) and Chronic Inflammatory Demyelinating Polyneuropathy (“CIDP”).
Our domestic core and international core revenues consist of sales of our products for the delivery of subcutaneous drugs that are FDA cleared for use with the FREEDOM Infusion System, with the primary delivery for immunoglobulin to treat Primary Immunodeficiency Diseases (“PIDD”) and Chronic Inflammatory Demyelinating Polyneuropathy (“CIDP”).
Novel therapies consist of Product Revenue for feasibility/clinical trials (pre-clinical studies, Phase I, Phase II, Phase III) of biopharmaceutical companies in the drug development process as well as non-recurring engineering services (“NRE”) revenues (including testing and registration services) received from biopharmaceutical companies to ready or customize the FREEDOM System for clinical and commercial use.
Novel therapies consist of Product Revenue for feasibility/clinical trials (pre-clinical studies, Phase I, Phase II, Phase III) of biopharmaceutical companies in the drug development process as well as non-recurring engineering services (“NRE”) revenues (including testing and registration services) received from biopharmaceutical companies to ready or customize the FREEDOM System for clinical and commercial use across multiple drug categories.
We recognize NRE revenue under an input method, which recognizes revenue on the basis of our efforts or inputs (for example, resources consumed, labor hours expended, costs incurred, or time elapsed) to the satisfaction of a performance obligation relative to the total expected inputs to the satisfaction of that performance obligation (ie completion milestone).
We recognize NRE revenue under an input method, which recognizes revenue on the basis of our efforts or inputs (for example, resources consumed, labor hours expended, costs incurred, or time elapsed) to the satisfaction of a performance obligation relative to the total expected inputs to the satisfaction of that performance obligation (i.e. completion milestone).
Debt and Borrowing Capacity Refer to “NOTE 10 — DEBT OBLIGATIONS” in the accompanying “Notes to Financial Statements” appearing in this Annual Report on Form 10-K for further details regarding debt. COMMITMENTS AND CONTRACTUAL OBLIGATIONS Lease Commitments We have finance and operating leases for our corporate office and certain office and computer equipment.
Debt and Borrowing Capacity Refer to “NOTE 10 — DEBT OBLIGATIONS” and “NOTE 11 — SUBSEQUENT EVENT” in the accompanying “Notes to Financial Statements” appearing in this Annual Report on Form 10-K for further details regarding debt and borrowing capacity. Lease Commitments We have finance and operating leases for our corporate office and certain office and computer equipment.
Continued execution on our longer-term strategic plan may require the Company to take on additional debt or raise capital through issuance of equity, or a combination of both.
Continued execution on our longer-term strategic plan may require the Company to draw on our new credit facility, take on additional debt or raise capital through issuance of equity, or a combination of both.
To the extent that current and anticipated future sources of liquidity are or are expected to be insufficient to fund our future business activities and requirements, we may be required to seek additional equity or debt financing sooner.
To the extent that current and anticipated future sources of liquidity are or are expected to be insufficient to fund our future business activities and requirements, we may be required to draw on our existing credit facility, seek additional equity or debt financing sooner.
For Product Revenues, we recognize revenues when shipment occurs, and at which point the customer obtains control and ownership of the goods. Shipping costs generally are billed to customers and are included in sales. The Company generally does not accept return of goods shipped unless it is a Company error. The only credits provided to customers are for defective merchandise.
For Product Revenue, we recognize revenues when shipment occurs, and at which point the customer obtains control and ownership of the goods. Shipping costs generally are billed to customers and are included in Product Revenue. The Company generally does not accept return of goods shipped unless it is a Company error.
In addition, rebates are provided to customers for meeting growth targets. Provisions for both distributor pricing and customer growth rebates are variable consideration and are recorded as a reduction of revenue in the same period the related sales are recorded or when it is probable the growth target will be achieved.
Provisions for both distributor pricing and customer growth rebates are variable consideration and are recorded as a reduction of revenue in the same period the related sales are recorded or when it is probable the growth target will be achieved.
Investing Activities Net cash used in investing activities of $2.8 million for the year ending December 31, 2022, was for capital expenditures for manufacturing and office equipment for our corporate office and manufacturing facilities move.
Net cash used in investing activities of $2.8 million for the year ended December 31, 2022, was for capital expenditures for manufacturing space, research and development laboratories and office equipment for our corporate office and manufacturing facilities move.
Actual results may differ significantly from these estimates under different assumptions, judgments, or conditions. Revenue Recognition Our revenues are derived from three business sources: (i) domestic core, (ii) international core, and (iii) novel therapies.
Actual results may differ significantly from these estimates under different assumptions, judgments, or conditions. - 28 - Table of Contents Revenue Recognition Our revenues are derived from three business sources: (i) domestic core (which consists of US and Canada), (ii) international core, and (iii) novel therapies.
During the quarter ended June 30, 2022, the Company completed the first phase of the move, the headquarters and office staff to the new location, and expects to complete the move of manufacturing before the end of the first quarter 2023.
During the quarter ended June 30, 2022, the Company completed the first phase of the move, the headquarters and office staff to the new location, and completed the move of its manufacturing facility at the end of the first quarter 2023.
Gross profit, for the year ended December 31, 2022, was $15.4 million, an increase of 11.6% from the same period last year, and stated as a percentage of net revenues was 55.1%, a decline from 58.6% in the prior year period.
Gross profit, for the year ended December 31, 2023, was $16.7 million, an increase of 8.7% or $1.3 million from the same period last year, and stated as a percentage of net revenues was 58.6%, an increase from 55.1% in the prior year.
Our core domestic and international revenues consist of sales of our syringe drivers, tubing and needles (“Product Revenue”) for the delivery of subcutaneous drugs that are FDA cleared for use with the FREEDOM Infusion System, with the primary delivery for immunoglobulin to treat PIDD and CIDP.
Our core domestic and international revenues consist of sales of our syringe drivers, tubing and needles (“Product Revenue”) for the delivery of subcutaneous drugs that are FDA cleared for use with the KORU Medical infusion system, with the primary delivery for immunoglobulin to treat Primary Immunodeficiency Diseases (“PIDD”) and Chronic Inflammatory Demyelinating Polyneuropathy (“CIDP”).
Cash Flows The following table summarizes our cash flows: Year Ended December 31, 2022 Year Ended December 31, 2021 Net cash used in operating activities $ (5,404,549 ) $ (4,319,510 ) Net cash used in investing activities $ (2,801,568 ) $ (366,169 ) Net cash provided by financing activities $ 279,485 $ 2,705,282 Operating Activities Net cash used in operating activities of $5.4 million for the year ended December 31, 2022 was primarily due to the net loss of $8.7 million, working capital changes which included an increase in inventory of $0.3 million, an increase in accrued expenses of $0.2 million, an increase in accrued payroll of $0.4 million and an increase in accounts payable and other liabilities of $1.3 million.
Net cash used in operating activities of $5.4 million for the year ended December 31, 2022 was primarily due to the net loss of $8.7 million, working capital changes which included an increase in accounts payable and other liabilities of $1.3 million, an increase in accrued payroll of $0.4 million increase in inventory of $0.3 million, an increase in accrued expenses of $0.2 million.
Our two finance leases, one commenced in June and the other in October, have remaining lease terms of 4.4 and 4.8 years, respectively. Refer to “NOTE 5 – LEASES” in the accompanying “Notes to Financial Statements” appearing in this Annual Report on Form 10-K for further details regarding our operating and finance leases.
Refer to “NOTE 5 — LEASES” in the accompanying “Notes to Financial Statements” appearing in this Annual Report on Form 10-K for further details regarding our operating and finance leases.
The Company warrants the syringe driver from defects in materials and workmanship under normal use and the warranty does not include a performance obligation. The costs under the warranty are expensed as incurred. - 28 - Table of Contents Rebates are provided to distributors for the difference in selling price to distributor and pricing specified to select customers.
The only credits provided to customers are for defective merchandise. The Company warrants the syringe driver from defects in materials and workmanship under normal use and the warranty does not include a performance obligation. The costs under the warranty are expensed as incurred.
Gross Profit Our gross profit for the years ended December 31, 2022, and 2021 is as follows: Years Ended December 31, Change from Prior Year 2022 2021 $ % Gross Profit $ 15,368,986 $ 13,769,578 $ 1,599,408 11.6% Stated as a Percentage of Net Revenues 55.1% 58.6% Gross profit increased $1.6 million or 11.6% for the year ended December 31, 2022, compared to the same period in 2021.
Gross Profit Our gross profit for the years ended December 31, 2023, and 2022 is as follows: Years Ended December 31, Change from Prior Year 2023 2022 $ % Gross Profit $ 16,708,282 $ 15,368,986 $ 1,339,296 8.7% Stated as a Percentage of Net Revenues 58.6% 55.1% Gross profit increased $1.3 million or 8.7% in the year ended December 31, 2023, compared to the same period in 2022 driven by the increase in net revenues of $0.6 million coupled with a favorable cost of goods sold impact of $0.7 million.
Novel therapies consist of product revenues from our infusion system (syringe drivers, tubing and needles) for feasibility/clinical trials (pre-clinical studies, Phase I, Phase II, Phase III) of biopharmaceutical companies in the drug development process as well as non-recurring engineering services revenues (“NRE”) received from biopharmaceutical companies to ready or customize the FREEDOM System for clinical and commercial use. - 24 - Table of Contents The Company continued its transition of substantially all finished goods manufacturing of its needle and tubing sets to Command Medical Products, a third-party contract manufacturing organization, which began in 2021, and expects to complete the transition no later than the second quarter of 2023.
Novel therapies revenues consist of product revenues from our infusion system (syringe drivers, tubing and needles) for feasibility/clinical trials (pre-clinical studies, Phase I, Phase II, Phase III) of biopharmaceutical companies in the drug development process as well as non-recurring engineering services revenues (“NRE”) received from biopharmaceutical companies to ready or customize the FREEDOM System for clinical and commercial use.
Financing Activities The $0.3 million provided by financing activities for the year ended December 31, 2022, is from $0.4 million in option exercises offset by $0.08 million in net borrowings on our indebtedness for a note payable for insurance premium financing and $0.05 million in net equipment financing. - 27 - Table of Contents The $2.7 million provided by financing activities for the year ended December 31, 2021 is attributed to cash received for options exercised of $1.3 million, the issuance of common stock as settlement for litigation of $0.9 million, and $0.5 million on borrowings from indebtedness.
The $0.3 million provided by financing activities for the year ended December 31, 2022, was from $0.4 million in option exercises offset by $0.08 million in net borrowings on our indebtedness for a note payable for insurance premium financing and $0.05 million in equipment financing.
Further contributing were deferred tax assets of $2.0 million increased for book to tax differences related to stock option expense. Offsetting these were primarily non-cash charges for stock-based compensation of $3.1 million, and depreciation and amortization of $0.6 million.
Further contributing were deferred tax assets of $2.0 million increased for book to tax differences related to stock option expense.
We maintain reserves for excess and obsolete inventory resulting from the potential inability to sell certain products at prices in excess of current carrying costs. We make estimates regarding the future recoverability of the costs of these products and record provisions based on historical experience, expiration of sterilization dates and expected future trends.
We make estimates regarding the future recoverability of the costs of these products and record provisions based on historical experience, expiration of sterilization dates and expected future trends.
Operating expenses for the year ended December 31, 2022, were $26.2 million, up from $20.8 million for the same period last year, driven primarily by research and development, and selling, general and administrative for new hires to support commercialization, business development, quality, and regulatory capabilities.
Operating expenses for the year ended December 31, 2023, were $27 million, up from $26.1 million for the same period last year, the increase was driven primarily by research and development and depreciation, partially offset by selling, general and administrative expenses.
RESULTS OF OPERATIONS Year Ended December 31, 2022 compared to Year Ended December 31, 2021 Net Revenues The following table summarizes our net revenues for the years ended December 31, 2022 and 2021: Years Ended December 31, Change from Prior Year % of Net Revenues 2022 2021 $ % 2022 2021 Net Revenues Domestic Core $ 21,205,204 $ 19,045,512 $ 2,159,692 11.3% 76.0% 81.1% International Core 4,164,714 3,856,972 307,742 8.0% 14.9% 16.4% Novel Therapies 2,526,119 587,691 1,938,428 329.8% 9.1% 2.5% Total $ 27,896,037 $ 23,490,175 $ 4,405,862 18.8% Total net revenues increased $4.4 million, or 18.8%, for the year ended December 31, 2022, as compared with the same period last year.
RESULTS OF OPERATIONS Year Ended December 31, 2023 compared to Year Ended December 31, 2022 Net Revenues The following table summarizes our net revenues for the years ended December 31, 2023 and 2022: Years Ended December 31, Change from Prior Year % of Net Revenues 2023 2022 $ % 2023 2022 Net Revenues Domestic Core $ 22,446,519 $ 21,205,204 $ 1,241,315 5.9% 78.7% 76.0% International Core 4,596,097 4,164,714 431,383 10.4% 16.1% 14.9% Novel Therapies 1,475,050 2,526,119 (1,051,069 ) (41.6% ) 5.2% 9.1% Total $ 28,517,666 $ 27,896,037 $ 621,629 2.2% - 25 - Table of Contents Total net revenues increased $0.6 million, or 2.2%, for the year ended December 31, 2023, as compared with the same period last year.
OVERVIEW The Company develops, manufactures and markets proprietary portable and innovative medical devices primarily for the subcutaneous drug delivery market as governed by the United States Food and Drug Administration (the “FDA”) quality and regulatory system and international standards for quality system management. Our revenues derive from three business sources: (i) domestic core, (ii) international core, and (iii) novel therapies.
OVERVIEW The Company develops, manufactures and commercializes innovative patient-centric large volume subcutaneous solutions primarily for the subcutaneous drug delivery market as governed by the United States Food and Drug Administration (the “FDA”) quality and regulatory system and international standards for quality system management.
The Company ended the 2022 fiscal year with $27.9 million in net revenues, a 18.8% increase compared with $23.5 million in the same period last year driven by growth in all three of our business sources.
The Company ended the 2023 fiscal year with $28.5 million in net revenues, a 2.2% increase compared with $27.9 million in the same period last year driven by volume growth in our core domestic and international business of 5.9% and 10.4% respectively, offset by a 41.6% decline in our novel therapies business.
If actual product life cycles, product demand or acceptance of new product introductions are less favorable than projected by management, additional inventory write downs may be required, which could unfavorably affect future operating results.
If actual product life cycles, product demand or acceptance of new product introductions are less favorable than projected by management, additional inventory write downs may be required, which could unfavorably affect future operating results. - 29 - Table of Contents ACCOUNTING PRONOUNCEMENTS RECENTLY ADOPTED Refer to “NOTE 1 — NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES” in the accompanying “Notes to Financial Statements” appearing in this Annual Report on Form 10-K.
Research and development expenses increased $2.5 million, or 100.4%, during the year ended December 31, 2022 compared with the same period last year primarily due to $1.4 million in consulting spend primarily related to new product development, $1.1 million in compensation and benefits for new hires to support product development for novel therapies and $0.2 million in stock compensation, which was partially offset by $0.2 million in testing material expense.
Research and development expenses increased $0.8 million, or 15.9% during the year ended December 31, 2023 compared with the same period last year, primarily due to $0.5 million in compensation and benefits, $0.1 million in stock compensation and $0.1 million in expenses, to support acceleration and insourcing of our innovation efforts.
The input method that we use is based on costs incurred. Inventory Inventories of raw materials are stated at the lower of standard cost, which approximates average cost, or market value including allocable overhead. Work-in-process and finished goods are stated at the lower of standard cost or market value and include direct labor and allocable overhead.
Work-in-process and finished goods are stated at the lower of standard cost or market value and include direct labor and allocable overhead. We maintain reserves for excess and obsolete inventory resulting from the potential inability to sell certain products at prices in excess of current carrying costs.
Our net cash used in investing activities of $0.4 million for the year ended December 31, 2021, was primarily for capital expenditures for manufacturing equipment and computers for new hires and replacement of retired computers.
Offsetting these were primarily non-cash charges for stock-based compensation of $3.1 million, and depreciation and amortization of $0.6 million. - 27 - Table of Contents Investing Activities Net cash used in investing activities of $0.8 million for the year ended December 31, 2023, was for capital expenditures for research and development and manufacturing equipment.
This increase was driven by increased volume and an increased average selling price in net revenues of $4.4 million as described above. Gross profit as a percent of sales decreased to 55.1% compared to 58.6% from the prior year.
Gross profit as a percentage of net revenues increased to 58.6% in the year ended 2023 compared to 55.1% for the year ended 2022 primarily driven by increased manufacturing productivity and product mix versus the prior year.
Our principal cash outflows relate to the purchase and production of inventory, funding of research and development, and selling, general and administrative expenses. To develop new products, support future growth, achieve operating efficiencies, and maintain product quality, we are continuing to invest in research and development, manufacturing technologies, facilities and equipment.
Our principal source of operating cash inflows is from sales of our products and NRE services to customers. Our principal cash outflows relate to the purchase and production of inventory, funding of research and development, and selling, general and administrative expenses.
As of December 31, 2022, the credit has not been received. We expect that our cash on hand, cash flows from operations and available financing sources will be sufficient to meet our requirements at least through December 31, 2023.
In October 2023, the Company received a payroll tax credit under the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) of $0.7 million. This credit was previously recorded as a receivable.. We expect that our cash on hand and cash flows from operations will be sufficient to meet our requirements at least through the next twelve months.
Net Loss Years Ended December 31, Change from Prior Year 2022 2021 $ % Net Loss $ (8,661,142 ) $ (4,562,823 ) $ (4,098,319 ) (89.8%) Stated as a Percentage of Net Revenues (31.0% ) (19.4% ) Our net loss for the year ended December 31, 2022 was $8.7 million compared to net loss of $4.6 million for the same period last year driven by higher selling, general and administrative and research and development expenses.
Net Loss Years Ended December 31, Change from Prior Year 2023 2022 $ % Net Loss $ (13,741,062 ) $ (8,661,142 ) $ 5,079,920 58.7% Stated as a Percentage of Net Revenues (48.2% ) (31.0% ) Our net loss increased $5.1 million in the year ended December 31, 2023 compared with the same period last year mostly driven by the establishment of an allowance for the nonrealization of deferred tax assets of $6.0 million offset by a higher gross profit of $1.3 million, an increase in other income of $0.4 million due to higher interest and dividend income from our treasury bill investments, which was partially offset by higher operating expenses of $0.8 million. - 26 - Table of Contents LIQUIDITY AND CAPITAL RESOURCES Our principal source of liquidity is our cash on hand of $11.5 million as of December 31, 2023.
Depreciation and amortization For the year ended December 31, 2022, depreciation and amortization expense increased $0.1 million, or 26.8%, compared with the same period last year due to investment in our new corporate office and manufacturing site.
Depreciation and amortization expense increased by 48.2% to $0.9 million in the year ended December 31, 2023 compared with $0.6 million in the year ended December 31, 2022 resulting from prior year investments in our Mahwah, NJ facility which includes our corporate office, in-house manufacturing, and research and development labs and the associated annualized depreciation impact.
Removed
Double digit sales growth was achieved in our domestic core and novel therapies businesses. Domestic core growth was primarily driven by increased volume attributed to SCIg market growth and new label indications including prefill syringes and increases in average selling prices.
Added
Our revenues derive from three business sources: (i) domestic core (which consists of US and Canada), (ii) international core, and (iii) novel therapies.
Removed
Novel therapies sales grew by 329.8% for the year ended 2022 related to services performed on an NRE innovation development agreement for a pharmaceutical customer and increases in clinical trial product sales for several pharmaceutical customers. Sales growth in our international core business was driven by volume growth in several EU markets compared with prior year.
Added
The Company completed its transition of substantially all finished goods manufacturing of its needle and tubing sets to Command Medical Products, a third-party contract manufacturing organization which also provides subassemblies for all of the Company’s products, in the second quarter of 2023.
Removed
The decline in the gross profit percent was primarily caused by higher manufacturing costs associated with labor and materials, production rework, and scrap related to our manufacturing transition. Product mix had a negative impact in our domestic core business and NRE service revenue mix contributed to a lower gross profit percent.
Added
Domestic core growth of 5.9% was primarily driven by volume growth in pumps and consumables attributed to overall SCIG market growth and new account share gains. International core growth of 10.4% was driven by increased volume across several EU markets and the entry into multiple new geographic markets.
Removed
The current year loss includes an income tax benefit of approximately $2.0 million. LIQUIDITY AND CAPITAL RESOURCES Our principal source of liquidity is our cash on hand of $17.4 million as of December 31, 2022. Our principal source of operating cash inflows is from sales of our products and NRE services to customers.
Added
Novel therapies net revenues declined by 41.6% driven primarily by lower NRE revenue of $0.9 million and fewer clinical trial supply shipments of $0.2 million than in the prior year.
Removed
Operating expenses for the 2022 fiscal year were $26.1 million. Our 2022 capital investments for manufacturing and leasehold improvements for our new facility in Mahwah, NJ were $2.0 million, net of pre-approved financing arrangements and leasehold improvement credits totaling $0.5 million and $0.2 million, respectively.
Added
To develop new products, support future growth, achieve operating efficiencies, and maintain product quality, we are continuing to invest in research and development, innovation, and equipment. Operating expenses for the 2023 fiscal year were $27.0 million. Our inventory position was $3.5 million at December 31, 2023, which reflected a decrease of $2.9 million from December 31, 2022.
Removed
Our inventory position was $6.4 million at December 31, 2022, which reflected an increase of $0.3 million from December 31, 2021.
Added
Cash Flows The following table summarizes our cash flows: Year Ended December 31, 2023 Year Ended December 31, 2022 Net cash (used in) operating activities $ (4,892,553 ) $ (5,404,549 ) Net cash (used in) investing activities $ (814,597 ) $ (2,801,568 ) Net cash (used in)/ provided by financing activities $ (218,867 ) $ 279,485 Operating Activities Net cash used in operating activities was $4.9 million for the year ended December 31, 2023.
Removed
We expect to reduce our inventory position in 2023 following completion of the transition of substantially all our manufacturing operations to Command, which we expect to be completed no later than the second quarter of 2023. - 26 - Table of Contents On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) was signed into law.
Added
This net cash usage was primarily due to the net loss of $13.7, plus cash flows used to reduce accrued expenses of $1.2 million primarily from the payment of 2023 employee bonuses, and a decrease in accounts payable of $1.4 million.
Removed
The CARES Act contains a provision known as the Employee Retention Credit (“ERC”), a refundable payroll tax credit for qualified wages paid to retained full-time employees between March 13, 2020, and December 31, 2020.
Added
Partially offsetting these increases were cash flows generated from a decrease in inventory of $2.9 million, a decrease in accounts receivable of $0.5 million, and changes in working capital of $0.4 million.
Removed
The Consolidations Appropriations Act (CAA), signed into law on December 27, 2020, significantly modified and expanded the provisions of the ERC to include wages paid in 2021.
Added
Further contributing to this change were non-cash items including a deferred tax asset increase of $2.0 million partially offset by the establishment of an allowance for non-realization of deferred tax assets of $6.0 million, stock-based compensation expense of $2.8 million, depreciation and amortization expense of $0.9 million and a loss on disposal of fixed assets of $0.1 million.
Removed
For 2021, the ERC provides employers a refundable federal tax credit equal to 70% of the first $10,000 of qualified wages and benefits paid to retained employees between January 1, 2021, and December 31, 2021. Credits may be claimed immediately by reducing payroll taxes sent to the Internal Revenue Service.
Added
Financing Activities Net cash used in financing activities for the year ended December 31, 2023 of $0.2 million, was from a net between borrowings and payments on our note payable for insurance premium financing of $0.1 million, and $0.1 million for payments on our finance leases.
Removed
To the extent that the credit exceeds employment withholdings, the employer may request a refund of prior taxes paid. The Company determined that it qualified for this credit and anticipated utilizing benefits under this act to aid its liquidity position and as a result recorded a receivable of $0.7 million as of December 31, 2021.
Added
Our two operating leases have remaining lease terms of 8.6 years and 5 years, respectively. Our three finance leases have remaining lease terms of 3.4 years, 3 years, and 4.75 years, respectively.
Removed
Operating cash outflows were $4.3 million for the year ended December 31, 2021 and were mostly attributable to net loss adjusted for non-cash charges of $3.2 million, an increase in accounts receivable of $1.0 million due to higher sales in the fourth quarter of 2022 compared with prior year, an increase in other receivables of $0.7 million for the ERC refund and an increase in prepaids of $0.8 million related to raw materials in transit, all partially offset by a decrease in inventory of $0.7 million and an increase in accounts payable of $0.6 million.
Added
Subsequent Event In March 2024, the Company received an assessment report from its notified body in the EU, BSI, stating that, following BSI’s review of technical documentation submitted by the Company in connection with a prior audit nonconformance, a recommendation for continued certification cannot be made. The Company has filed an appeal to this determination.
Removed
We expect that our cash on hand, cash flows from operations, and our fully available credit facility will be sufficient to meet our requirements at least through the next 12 months See “NOTE 10 — DEBT OBLIGATIONS” for further detail regarding the promissory note and loan agreement in the accompanying “Notes to Financial Statements” appearing in this Annual Report on Form 10-K.
Added
If the Company’s appeal is denied, then its EU certification may be suspended with respect to some or all of the Company’s products as determined by a BSI review panel. Management believes that the Company’s appeal will be successful in limiting the scope of the suspension to have minimal impact on the Company’s revenues, if any.
Removed
Our two operating leases have remaining lease terms of 9.7 years and 3 months, respectively. On September 29, 2022, we extended our existing lease at 24 Carpenter Road, in Chester NY, through March 31, 2023 with the same payment terms.
Added
Rebates are provided to distributors for the difference in selling price to distributor and pricing specified to select customers. In addition, rebates are provided to customers for meeting growth targets.
Removed
We moved our administrative offices in June 2022 from this building into 43,975 square feet of a building located at 100 Corporate Drive, Mahwah, New Jersey. The new lease commenced on March 1, 2022 and expires August 31, 2032.
Added
The input method that we use is based on costs incurred. Contracts are often modified to account for changes in contract specifications and requirements. Contract modifications exist when the modification either creates new, or changes existing, enforceable rights and obligations.
Removed
Our novel therapies revenues can fluctuate and may not be consistent from period to period. Engineering work performed on our product may be specialized and tailored to the specific needs of each independent clinical trial and not uniform in nature.
Added
Generally, when contract modifications create new performance obligations, the modification is considered to be a separate contract and revenue is recognized prospectively.
Removed
The clinical trial size and scope of protocols may also range greatly from customer to customer, and there is no expectation of repeat customers on a consistent basis compared to our core business.
Added
When contract modifications change existing performance obligations, the impact on the existing transaction price and measure of progress for the performance obligation to which it relates is generally recognized as an adjustment to revenue (either as an increase in or a reduction of revenue) on a cumulative catch-up basis.
Removed
ACCOUNTING PRONOUNCEMENTS RECENTLY ADOPTED Refer to “NOTE 1 — NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES” in the accompanying “Notes to Financial Statements” appearing in this Annual Report on Form 10-K.
Added
Contract assets primarily represent revenue earnings over time that are not yet billable based on the terms of the contracts. Contract liabilities (i.e., deferred revenue) consist of fees invoiced or paid by the Company’s customers for which the associated performance obligations have not been satisfied and revenue has not been recognized based on the Company’s revenue recognition criteria described above.
Added
As of December 31, 2023, the Company has recognized a contract asset of zero which is included in other accounts receivable in the accompanying balance sheet. Inventory Inventories of raw materials are stated at the lower of standard cost, which approximates average cost, or market value including allocable overhead.