WATERMARK GROUP, INC. (OTCMKTS:WMHH) Files An 8-K Entry into a Material Definitive Agreement
Item 1.01 Entry into a Material Definitive Agreement.
The disclosure in Item 2.01 below is incorporated by reference
herein.
Item 2.01 Completion of Acquisition or Disposition of Assets.
On October 13, 2016, we entered into an exclusive license
agreement (the “License Agreement”) with Co-Diagnostics, Inc.,
a Utah corporation (“Co-Diagnostics” or the “Parent”), which
we closed on October 14, 2016, and by the acquisition of rights
under the License Agreement ceased to be a “shell company” as
such term is defined in Rule 12b-2 under the Securities Exchange
Act of 1934. Item 2.01(f) of Form 8-K states that if a registrant
was a shell company immediately before the transaction, as we
were immediately before the acquisition of the rights to the
License Agreement, then the registrant must disclose the
information that would be required if the registrant were filing,
upon consummation of the transaction, a general form for
registration of securities on Form 10 under the Securities
Exchange Act of 1934 reflecting all classes of the registrant’s
securities subject to the reporting requirements of Section 13 or
Section 15(d) of the Securities Exchange Act of 1934.
Accordingly, we are providing below the information that would be
included in a general form for registration of securities on Form
10 under the Securities Exchange Act of 1934.
Item 1. BUSINESS
The Company
The Company, Watermark Group, Inc., a Nevada corporation
headquartered in Salt Lake City, Utah, prior to consummation of
the License Agreement, was a development stage company that was a
“shell company” as that term is defined in Rule 12b-2 under the
Securities Exchange Act of 1934. On October 13, 2016, the Company
entered into the License Agreement with the Parent, which closed
on October 14, 2016. On October 12, 2016, the Parent entered into
a stock purchase agreement to purchase a controlling interest in
the Company in anticipation of entering into the License
Agreement, which closed on October 19, 2016.
The Company intends to respond to the 2016 outbreak of the Zika
virus by providing state of the art diagnostics tools to the
medical community primarily in developing nations where the
outbreak is most severe. to the License Agreement, the Company
has licensed molecular diagnostics technology from the Parent and
plans to market a panel of diagnostics tests developed using the
licensed technology. The Company plans to respond to the
international crises surrounding the spread of the Zika virus
that has become acute in the last six months. to the License
Agreement, we have licensed the exclusive rights to make, use,
manufacture, sell and license polymerase chain reaction (“PCR”)
tests using the Parent’s patented technology for detecting the
Zika virus as well as other mosquito-borne flaviviruses, which
include dengue, yellow fever, West Nile virus and Japanese
encephalitis, as well as the alphavirus chikungunya. to the
License Agreement, we have also licensed the non-exclusive right
to sell the Parent’s malaria test. The tests to be distributed
by the Company include a multiplex test for all of these
flaviviruses plus chikungunya, differentiating among the viruses
to rapidly diagnose the specific infection, as all these viruses
exhibit similar symptoms, but require different treatments.
The Licensed Technology
The Parent developed and patented a molecular diagnostics
platform system that enables rapid, low-cost, sophisticated
molecular testing for organisms and genetic diseases by greatly
automating historically complex procedures in both the
development and administration of tests. One of the Parent’s
newest technical advances involves a novel approach to PCR
primer design (cooperative primers) that eliminates one of the
key vexing issues of PCR amplification, the exponential growth
of primer-dimer pairs (false positives or false negatives)
which adversely interfere with identification of the target
DNA. In addition, the Parent’s scientists have enhanced the
understanding of the mathematics of DNA test design, so as to
“engineer” a DNA test and automate algorithms to screen
millions of possible designs to find the optimum DNA test
design. The Parent’s proprietary platform of Co-Dx
technologies integrates and streamlines these steps as it
analyzes biological samples. The Company entered into an
exclusive license to make, use, sell and licensed PCR tests
using Co-Dx technology, but only for the Zika virus and certain
other flaviviruses and alphaviruses, including dengue,
chikungunya, yellow fever, West Nile virus and Japanese
encephalitis and on a non-exclusive basis, malaria. Together
these tests are referred to as the “Licensed Tests,” and the
technology to design, make, use, sell and license the tests is
referred to as the “Licensed Technology.”
PCR Market Opportunity
The molecular diagnostics market is the fastest growing portion
of the $33 billion US in vitro (test tube based, controlled
environment) diagnostics market. In vitro diagnostics is
expected to grow to a $75 billion industry in 2020. Given the
advantages of molecular tests over other forms of diagnostic
testing, which include higher sensitivities, the ability to
perform multiplex tests and the ability to test for drug
resistance or individual genes, this segment of the market
remains the fastest growing. The molecular diagnostics market
specifically is expected to aggregate $9.3 billion by 2020 from
$5.9 billion in 2015, at a growth rate of 9.3% from 2015 to
2020.
Competitive Business Conditions
The molecular diagnostics industry is extremely competitive.
There are many firms that provide some or all of the products
we provide and provide many diagnostic tests that we have yet
to develop. Many of these competitors are larger than we are
and have significantly greater financial resources. Because we
are not established, many of our competitors have a competitive
advantage in the diagnostic testing industry because they also
have other lines of business in the diagnostics and
pharmaceutical industries from which they derive revenues and
for which they are well known and respected in the medical
profession. We will need to overcome the disadvantage of being
a start up with no history of success and not being well known
in the testing industry. In the diagnostics testing industry,
we compete with such companies as BioMerieux, Siemans, Qiagen
and Cepheid and with such pharmaceutical companies as Abbott
Laboratories, Becton Dickinson and Johnson and Johnson.
Many of these competitors already have an established customer
base with industry standard technology, which we must penetrate
to be successful.
Market Strategy
The Company anticipates generating revenue from co-ventures
with in-country test manufacturing partners, from sublicensing
agreements and from shared-revenue contracts with biotech
companies (speed-to-market test development, companion
diagnostics) and diagnostics product distributors. Our market
strategy is focused on the following goals:
1) Provide affordable and accurate Zika and other
flavivirus/alphavirus PCR tests worldwide
2) Sell to multiple prospective markets in the US Gulf States,
in the Caribbean, in Latin America and elsewhere
a) Through molecular diagnostics manufacturers and
distributors: labs, private organizations and government
agencies addressing healthcare needs in developed and
developing nations,
b) To clinical reference labs as an affordable test development
alternative in creating their own DNA-based tests internally or
outsourcing development to the Company
c) To pharmaceutical companies looking for accurate companion
diagnostics as they introduce new vaccines or therapeutics to
the market
3) Seek strategic partnerships with medium-to-large-cap biotech
companies that can provide broader distribution and a potential
merger or acquisition opportunity
Product Offering
Current: The Company has an exclusive license to a
panel of tests developed on the Parent’s proprietary
analytical systems, currently addressing the Licensed
Tests, which are Zika, dengue, chikungunya, yellow
fever, West Nile virus and Japanese encephalitis and on
a non-exclusive basis and not included in the testing
panel, malaria.
Near Future: The Company will continue to enhance its
existing tests and as its distribution channels
develop, it will seek to license other tests to sell
through its distributors. Likewise, the Parent has a
vested interest in continuing to iterate and improve
the designs of the Licensed Tests and will continue to
do so, all subsequent versions of which are licensed
under the License Agreement.
Competitive Advantages of Licensed Tests
Affordability – Much lower-cost test kits – a
fraction of competitors’ pricing (50%-90%
reductions).
Flexibility – The Licensed Tests can run on many
vendors’ DNA diagnostic testing machines. They are
particularly well suited to the new generation of
“lab-on-a-chip” and “point-of-care” (“LOC and
POC”), highly portable analysis machinery for field,
clinic and office applications.
Speed – Rapid assay development and time to results.
Sophistication – Tests are built on PCR technology,
taking advantage of one of the most advanced
diagnostic testing platforms.
Accuracy – Tests are more accurate than competitors’
and can detect more strains of viruses.
Exclusivity – The Parent licensor (Co-Diagnostics,
Inc.) owns all patents and intellectual property, and
we have acquired some exclusive and non-exclusive
rights as described above.
Broad Footprint – With a dynamic technology that
encompasses markets worldwide, the Company can
identify the best target markets, not only in highly
burdened developing countries but also in developed
nations.
Growth Industry Category – DNA testing is the
fastest-growing segment of in-vitro diagnostic
testing.
Combination Product Offering The Licensed Tests are
ultra-sensitive and are the perfect match for a new
generation of more affordable molecular diagnostic
devices now entering the market. Used together, these
affordable tests devices will revolutionize the
molecular diagnostics industry in cost, mobility,
speed of test results and simplification.
Market for Goods and Services
Severity of the Problem
“On January 22, 2016, the Center for Disease Control
(‘CDC’) activated its Incident Management System and,
working through the Emergency Operations Center (EOC),
centralized its response to the outbreaks of Zika occurring
in the Americas and increased reports of birth defects and
Guillain-Barr syndrome in areas affected by Zika. On February
1, 2016, the World Health Organization declared a Public
Health Emergency of International Concern (PHEIC) because of
clusters of microcephaly and other neurological disorders in
some areas affected by Zika. On February 8, 2016, CDC
elevated its response efforts to a Level 1 activation, the
highest response level at the agency.”
Source: http://www.cdc.gov/zika/geo/
“The Zika virus ‘is now spreading explosively’ in the
Americas, the head of the World Health Organization said
Thursday, with another official estimating between 3 million
to 4 million infections in the region over a 12-month period.
The lack of any immunity to Zika and the fact that mosquitoes
spreading the virus can be found most ‘everywhere in the
Americas’ — from Argentina to the southern United States —
explains the speed of its transmission, said Dr. Sylvain
Aldighieri, an official with the WHO and Pan American Health
Organization.
Aldighieri gave the estimate for Zika infections (including
people who do not report clinical symptoms) based on data
regarding the spread of a different mosquito-borne virus —
dengue. He acknowledged the virus is circulating with ‘very
high intensity.’
Some 80% of those infected with the Zika virus don’t even
feel sick, and most who do have relatively mild symptoms such
as a fever, rash, joint pain or pink eye. But there are major
worries about the dangers pregnant women and their babies
face.
Chan said that, where the virus has arrived, there’s been a
corresponding ‘steep increase in the birth of babies with
abnormally small heads and in cases of Guillain-Barre
syndrome.’ Having small heads can cause severe developmental
issues and sometimes death. Guillain-Barre is a rare
autoimmune disorder that can lead to life-threatening
paralysis.
Health authorities began to suspect a connection between Zika
and neurological ailments, especially in fetuses and
newborns. Brazil alone has reported more than 4,000 cases of
microcephaly — a neurological disorder resulting in the
births of babies with small heads — in infants born to women
infected with Zika while pregnant.”
Source:
http://www.cnn.com/2016/01/28/health/zika-virus-global-response/
“The more researchers learn about the Zika virus, the
scarier it appears, federal health officials said Monday as
they urged more money for mosquito control and to develop
vaccines and treatments. Scientists increasingly believe the
Zika virus sweeping through Latin America and the Caribbean
causes devastating defects in fetal brains if women become
infected during pregnancy. ‘Everything we look at with this
virus seems to be a bit scarier than we initially thought,’
Dr. Anne Schuchat of the Centers for Disease Control and
Prevention said at a White House briefing.”
Source:
http://.cbsnews.com/news/officials-zika-virus-scarier-than-we-thought/
Zika virus has been identified in 31 countries as of March
2016, including the US southern states. For the most recent
recorded year, there were over 8.3 million births in
Central and South America, in Cabo Verde in Africa and in
affected regions of Polynesia. There were an additional
900,000 births in the US Gulf States and Hawaii.
Based on current research, it appears that the Zika virus
passes through the placenta of some mothers who have an
active strain of the virus during the first trimester of
their pregnancies. It is estimated that the infection
remains active rather than latent for up to 10 days. A
pregnant woman ideally should be tested every 10 days
during the first trimester, or 9 times. To date, over 4,000
cases of birth defects from Zika have been identified in
the Brazilian states Rio de Janeiro and Bahia. Thus the
potential market for a highly accurate, affordable PCR
diagnostic test could be approximately 9.2 million X 9
tests, or over 80 million tests.
Note: Zika does not always manifest acute symptoms,
therefore a broad test initiative will have to be
implemented.
The WHO recently announced that the incidence of sexual
transmission of the Zika virus is higher than earlier
analyses indicated. Thus the market for a Zika screening
test may be double the numbers listed above. Zika is a
flavivirus, all of which are transmitted by the Aedes
aegypti mosquito. They include Zika virus, dengue, yellow
fever, West Nile virus and Japanese encephalitis.
Chikungunya, an alphavirus, is likewise transmitted by the
Aedes aegypti mosquito. Many have similar symptoms. The
Company’s next product after a Zika screening will be a
PCR multiplex test to differentiate among these viruses in
the patient. There are over a million cases of dengue in
Brazil alone, and its symptoms are very similar to those of
Zika.
Compliance with Government Regulation
We will be regulated by the U.S. Federal Drug
Administration, and our products must be approved by the
FDA before we will be allowed to sell our tests in the
United States unless we sell to clinical research labs who
are allowed to use our tests under their general umbrella
of testing for diseases without applying for FDA approval
to service the general public. Because our Parent’s lab is
ISO 9001 and ISO 13485 certified, it is well prepared to
obtain a self-certified CE-IVD marking for its products,
which will allow us to sell our tests in most developed
countries in Europe and Asia as well as in most developing
nations, which are our initial target markets. Each country
will have its individual registration and regulatory
requirements, which will need to be met as well.
Research and Development
We will have no responsibility to perform additional
research and development, as our License Agreement with our
Parent puts the responsibility to complete the development
of all of the Licensed Tests on the Parent. Further the
License Agreement gives us the right to new innovations
discovered and developed by our Parent in the course of its
development activities, including further development of
the Tests using the Parent’s unique technology.
Corporate Office
We maintain offices currently at 8160 S. Highland Drive,
Salt Lake City, Utah 84093, which includes two offices
comprising approximately 1,000 square feet leased on a
month to month basis for $750.00 per month. We are seeking
a different location, which may include relocating with or
moving adjacent to our Parent’s corporate offices in Salt
Lake City.
Employees
We currently have five employees, two of which are
part-time. All are located at our corporate offices.
Legal Proceedings
We are not aware of any material pending legal proceedings
to which we are a party or of which our property is the
subject. We also know of no proceedings to which any of our
directors, officers or affiliates, or any registered or
beneficial holders of more than 5% of any class of our
securities, or any associate of any such director, officer,
affiliate or security holder, are an adverse party or have
a material interest adverse to us.
Item 1A. RISK FACTORS
An investment in our securities involves a high degree of
risk. You should consider carefully the following risks,
along with all of the other information included in this
report, before deciding to buy our common stock. Additional
risks and uncertainties not currently known to us or that
we currently deem to be immaterial may also impair our
business operations. If we are unable to prevent events
that have a negative effect from occurring, then our
business may suffer.
Risks Related to Our Company
We have a limited commercial history upon which to base our
prospects, have not generated revenues or profits and do
not expect to generate profits for the foreseeable future.
We may never achieve or sustain profitability.
We have not earned any revenue to date and do not
expect to earn significant revenue in the near future.
We had a net loss of $ 23,636, $50,735, and $37,906, in
the three-month period ending July 31, 2016, the
twelve-month period ending April 30, 2016 and the
twelve-month period ending April 30, 2015,
respectively. Our accumulated deficit was $239,831 and
$215,745 as of July 31, 2016 and April 30, 2016,
respectively. Potential investors should be aware of
the difficulties normally encountered by a new
enterprise, many of which are beyond our control,
including substantial risks and expenses in the course
of developing new diagnostic tests, establishing or
entering new markets, organizing operations and
marketing procedures. The likelihood of our success
must be considered in light of these risks, expenses,
complications and delays, and the competitive
environment in which we operate. There is, therefore,
nothing at this time upon which to base an assumption
that our business plan will prove successful, and we
may not be able to generate significant revenue, raise
additional capital or operate profitably. We will
continue to encounter risks and difficulties frequently
experienced by early commercial stage companies,
including scaling up our infrastructure and headcount,
and may encounter unforeseen expenses, difficulties or
delays in connection with our growth. In addition, as a
result of the start-up nature of our business, we can
be expected to continue to sustain substantial
operating expenses without generating sufficient
revenues to cover expenditures. As discussed in Note 2
to our audited financial statements, our recurring
operating losses and our need for additional sources of
capital to fund our ongoing operations raise
substantial doubt about our ability to continue as a
going concern. Any investment in our company is
therefore highly speculative and could result in the
loss of your entire investment.
We will need to raise additional capital, which may not
be available on favorable terms, if at all, and which
may cause dilution to stockholders, restrict our
operations or adversely affect our ability to operate
our business.
As of April 30, 2016, our cash balance was $1,191 and
our working capital deficit was $13,712. At our current
rate of expenditures, we estimate that our existing
capital resources will fund our operations for twelve
months. Accordingly, we will need to raise additional
funds through public or private debt or equity
financing or through other means in order to sustain
our operations and current business strategy. We may be
unable to obtain adequate financing on favorable terms,
or at all, and any additional financings could result
in additional dilution to our then-existing
stockholders or restrict our operations or adversely
affect our ability to operate our business. If we are
unable to obtain needed financing on acceptable terms,
we may not be able to implement our business plan,
which could have a material adverse effect on our
business, financial condition and results of
operations. We may not be able to meet our business
objectives, our equity value may decrease and investors
may lose some or all of their investment. If we raise
funds by issuing equity securities, the percentage
ownership of our then stockholders will be reduced. If
we raise funds by issuing debt, the ability of our
stockholders to receive earnings or distributions may
be adversely affected and we may be subject to
additional covenants and restrictions.
The best efforts structure of this offering may yield
insufficient gross proceeds to execute on our business
plan.
The underwriters are offering the Shares on a
best-efforts basis. The underwriters are not required
to sell any specific number or dollar amount of Shares,
but will use their best efforts to sell the Shares
offered. As a “best-efforts” offering, there can be
no assurance that the offering contemplated hereby will
ultimately be consummated or will result in any
proceeds being made to us. The success of this offering
will impact our ability to cover expenses and finance
operations over the next 12 months. If no Shares are
sold in this offering, or if we sell only a minimum
number of Shares yielding insufficient gross proceeds,
we may be unable to cover our expenses, successfully
fund operations, or execute on our business plan. This
would result in a material adverse effect on our
business, prospects, financial condition, and results
of operations.
Our near-term success is dependent upon our ability to
commence sales of our tests.
Our success will depend, in part, upon our ability to
commence sales of our tests. Attracting new customers
requires substantial time and expense. Any failure to
initiate sales of our tests to validate our platform
would adversely affect our operating results. Many
factors could affect the market acceptance and
commercial success of our diagnostic tests, including:
our ability to convince our potential customers of
the advantages and economic value of our tests over
competing technologies and diagnostic tests;
the breadth of our test menu relative to
competitors;
changes to policies, procedures or currently
accepted best practices in clinical diagnostic
testing;
the extent and success of our marketing and sales
efforts;
our ability to manufacture our commercial
diagnostic tests and meet demand in a timely
fashion.
If we cannot successfully develop, obtain regulatory
approvals for and commercialize new diagnostic tests,
our financial results will be harmed and our ability to
compete will be harmed.
Our financial performance depends in part upon our
ability to successfully develop and market new tests in
a rapidly changing technological and economic
environment. If we fail to successfully introduce new
diagnostic tests, we could lose customers and market
share. We could also lose market share if our
competitors introduce new diagnostic tests or
technologies that render our diagnostic tests less
competitive or obsolete. In addition, delays in the
introduction of new diagnostic tests due to regulatory,
developmental or other obstacles could negatively
impact our revenue and market share, as well as our
earnings. Factors that can influence our ability to
introduce new diagnostic tests, the timing associated
with new product approvals and commercial success of
these diagnostic tests include:
the scope of and progress made in our research
and development activities;
our ability to successfully initiate and complete
clinical trial studies;
timely expansion of our menu of tests;
the results of clinical trials needed to support
any regulatory approvals of our tests;
our ability to obtain requisite FDA or other
regulatory clearances or approvals for our tests
under development on a timely basis;
demand for the new diagnostic tests we introduce;
product offerings from our competitors; and
the functionality of new diagnostic tests that
address market requirements and customer demands.
We are subject to many laws and governmental
regulations and any adverse regulatory action may
materially adversely affect our financial condition
and business operations.
Our diagnostic tests are subject to regulation by
numerous government agencies, including the FDA and
comparable foreign agencies. To varying degrees each
of these agencies requires us to comply with laws and
regulations governing the development, testing,
manufacturing, labeling, marketing and distribution
of our diagnostic tests. In the clinical market, our
diagnostic tests are regulated by the FDA and
comparable agencies of other countries. In
particular, FDA regulations govern activities such as
product development, product testing, product
labeling, product storage, premarket clearance or
approval, manufacturing, advertising, promotion,
product sales, reporting of certain product failures
and distribution. Our diagnostic tests will require
510(k) clearance from the FDA prior to marketing in
the United States. Clinical trials are required to
support a 510(k) submission.
Since 2009 the FDA has significantly increased its
oversight of companies subject to its regulations,
including medical device companies, by hiring new
investigators and stepping up inspections of
manufacturing facilities. The FDA has recently also
significantly increased the number of warning letters
issued to companies. If the FDA were to conclude that
we are not in compliance with applicable laws or
regulations, the FDA could refuse to grant pre-market
approval applications or require certificates of
foreign governments for exports, and/or require us to
notify health professionals and others. Any adverse
regulatory action, depending on its magnitude, may
restrict us from effectively marketing and selling
our diagnostic tests.
Foreign governmental regulations have become
increasingly stringent and more common, and we may
become subject to more rigorous regulation by foreign
governmental authorities in the future. Penalties for
a company’s non-compliance with foreign governmental
regulation could be severe, including revocation or
suspension of a company’s business license and
criminal sanctions. Any domestic or foreign
governmental law or regulation imposed in the future
may have a material adverse effect on us.
Our current and potential customers in the United
States and elsewhere may also be subject, directly or
indirectly, to applicable anti-kickback, fraud and
abuse, false claims, transparency, health information
privacy and security and other healthcare laws and
regulations, which could expose us to criminal
sanctions, civil penalties, contractual damages,
reputational harm, administrative burdens and
diminished profits and future earnings.
The life sciences industry is highly competitive and
subject to rapid technological change. If our
competitors and potential competitors develop
superior diagnostic tests and technologies, our
competitive position and results of operations would
suffer.
We face intense competition from a number of
companies that offer diagnostic tests in our target
markets, many of which have substantially greater
financial resources and larger, more established
marketing, sales and service organizations than we
do. The life sciences industry is characterized by
rapid and continuous technological innovation. We may
need to develop new technologies for our diagnostic
tests to remain competitive. One or more of our
current or future competitors could render our
present or future diagnostic tests obsolete or
uneconomical by technological advances. We may also
encounter other problems in the process of delivering
new diagnostic tests to the marketplace, such as
problems related to design, development or
manufacturing of such diagnostic tests, and as a
result we may be unsuccessful in selling such
diagnostic tests. Our future success depends on our
ability to compete effectively against current
technologies, as well as to respond effectively to
technological advances by developing and marketing
diagnostic tests that are competitive in the
continually changing technological landscape.
If our diagnostic tests do not perform as expected or
the reliability of the technology on which our
diagnostic tests are based is questioned, we could
experience delayed or reduced market acceptance of
our diagnostic tests, increased costs and damage to
our reputation.
Our success depends on the market’s confidence
that we can provide reliable, high-quality
diagnostic tests. We believe that customers in our
target markets are likely to be particularly
sensitive to product defects and errors. Our
reputation and the public image of our diagnostic
tests or technologies may be impaired if our
diagnostic tests fail to perform as expected or our
diagnostic tests are perceived as difficult to use.
Despite quality control testing, defects or errors
could occur in our diagnostic tests or
technologies.
In the future if our diagnostic tests experience a
material defect or error, this could result in loss
or delay of revenues, delayed market acceptance,
damaged reputation, diversion of development
resources, legal claims, increased insurance costs
or increased service and warranty costs, any of
which could harm our business. Such defects or
errors could also prompt us to amend certain
warning labels or narrow the scope of the use of
our diagnostic tests, either of which could hinder
our success in the market. Even after any
underlying concerns or problems are resolved, any
widespread concerns regarding our technology or any
manufacturing defects or performance errors in our
diagnostic tests could result in lost revenue,
delayed market acceptance, damaged reputation,
increased service and warranty costs and claims
against us.
If our international distributor relationships are
not successful, our ability to market and sell our
diagnostic tests will be harmed and our financial
performance will be adversely affected.
Outside of the United States, we depend on
relationships with distributors for the marketing
and sales of our diagnostic tests in various
geographic regions, and we have a limited ability
to influence their efforts. Relying on distributors
for our sales and marketing could harm our business
for various reasons, including:
agreements with distributors may terminate
prematurely due to disagreements or may result
in litigation between the partners;
our distributors may not devote sufficient
resources to the sale of diagnostic tests;
our distributors may be unsuccessful in
marketing our diagnostic tests; and
we may not be able to negotiate future
distributor agreements on acceptable terms.
If we become subject to claims relating to improper
handling, storage or disposal of hazardous
materials, we could incur significant cost and time
to comply.
Our research and development processes involve the
controlled storage, use and disposal of hazardous
materials, including biological hazardous
materials. We are subject to foreign, federal,
state and local regulations governing the use,
manufacture, storage, handling and disposal of
materials and waste products. We may incur
significant costs complying with both existing and
future environmental laws and regulations. In
particular, we are subject to regulation by the
Occupational Safety and Health Administration, or
OSHA, and the Environmental Protection Agency, or
EPA, and to regulation under the Toxic Substances
Control Act and the Resource Conservation and
Recovery Act in the United States. OSHA or the EPA
may adopt additional regulations in the future that
may affect our research and development programs.
The risk of accidental contamination or injury from
hazardous materials cannot be eliminated
completely. In the event of an accident, we could
be held liable for any damages that result, and any
liability could exceed the limits or fall outside
the coverage of our workers’ compensation
insurance. We may not be able to maintain insurance
on acceptable terms, if at all.
Our diagnostic tests have not been manufactured on
a high volume scale and are subject to unforeseen
scale-up risks.
While we have developed a process to manufacture
diagnostic tests, there can be no assurance that we
can manufacture our diagnostic tests at a scale
that is adequate for our future commercial needs.
We may face significant or unforeseen difficulties
in manufacturing our diagnostic tests, including
but not limited to:
technical issues relating to manufacturing
components of our diagnostic test cartridges on
a high volume commercial scale at reasonable
cost, and in a reasonable time frame;
difficulty meeting demand or timing
requirements for orders due to excessive costs
or lack of capacity for part or all of an
operation or process;
changes in government regulations or in quality
or other requirements that lead to additional
manufacturing costs or an inability to supply
product in a timely manner, if at all; and
increases in raw material or component supply
cost or an inability to obtain supplies of
certain critical supplies needed to complete
our manufacturing processes.
These and other difficulties may only become
apparent when scaling up to the manufacturing
process of our diagnostic tests to a more
substantive commercial scale. In the event our
diagnostic tests cannot be manufactured in
sufficient commercial quantities or manufacturing
is delayed, our future prospects could be
significantly impacted and our financial prospects
would be materially harmed.
We or our suppliers may experience development or
manufacturing problems or delays that could limit
the growth of our revenue or increase our
losses.
We may encounter unforeseen situations in the
manufacturing of our diagnostic tests that could
result in delays or shortfalls in our production.
Our suppliers may also face similar delays or
shortfalls. In addition, our or our suppliers’
production processes may have to change to
accommodate any significant future expansion of
our manufacturing capacity, which may increase
our or our suppliers’ manufacturing costs, delay
production of our diagnostic tests, reduce our
product gross margin and adversely impact our
business. If we are unable to keep up with demand
for our diagnostic tests by successfully
manufacturing and shipping our diagnostic tests
in a timely manner, our revenue could be
impaired, market acceptance for our diagnostic
tests could be adversely affected and our
customers might instead purchase our
competitors’ diagnostic tests. In addition,
developing manufacturing procedures for new
diagnostic tests may require developing specific
production processes for those diagnostic tests.
Developing such processes could be time consuming
and any unexpected difficulty in doing so can
delay the introduction of a product.
We expect to rely on third parties to conduct
studies of our diagnostic tests that will be
required by the FDA or other regulatory
authorities and those third parties may not
perform satisfactorily.
We do not have the ability to independently
conduct the field trial studies or other studies
that may be required to obtain FDA and other
regulatory clearances or approvals for our
diagnostic tests. Accordingly, we expect to rely
on third parties, such as independent testing
laboratories and hospitals, to conduct such
studies. Our reliance on these third parties will
reduce our control over these activities. These
third-party contractors may not complete
activities on schedule or conduct studies in
accordance with regulatory requirements or our
study design. We cannot control whether they
devote sufficient time, skill and resources to
our studies. Our reliance on third parties that
we do not control will not relieve us of any
applicable requirement to prepare, and ensure
compliance with, various procedures required
under good clinical practices. If these third
parties do not successfully carry out their
contractual duties or regulatory obligations or
meet expected deadlines, if the third parties
need to be replaced or if the quality or accuracy
of the data they obtain is compromised due to
their failure to adhere to our clinical protocols
or regulatory requirements or for other reasons,
our studies may be extended, delayed, suspended
or terminated, and we may not be able to obtain
regulatory approval for additional diagnostic
tests.
Product liability claims could adversely impact
our financial condition and our earnings and
impair our reputation.
Inadequate disclosure of product-related risks or
product-related information with respect to our
diagnostic tests could result in an unsafe
condition, injury to, or death of, a patient. The
occurrence of such a problem could result in
product liability claims, or safety alert
relating to, one or more of our diagnostic tests.
Product liability claims, regardless of their
ultimate outcome, could have a material adverse
effect on our business and reputation and on our
ability to attract and retain customers for our
diagnostic tests.
Health care policy changes, including U.S. health
care reform legislation signed in 2010, may have
a material adverse effect on us.
In March 2010 the Patient Protection and
Affordable Care Act and the Health Care and
Education Affordability Reconciliation Act of
2010 were signed into law. Elements of this
legislation, such as comparative effectiveness
research, an independent payment advisory board,
payment system reforms, including shared savings
pilots, and other provisions, could meaningfully
change the way health care is developed and
delivered, and may materially impact numerous
aspects of our business.
Consolidation in the health care industry could
have an adverse effect on our revenues and
results of operations.
Many health care industry companies, including
health care systems, are consolidating to create
new companies with greater market power. As the
health care industry consolidates, competition to
provide goods and services to industry
participants will become more intense. These
industry participants may try to use their market
power to negotiate price concessions or
reductions for diagnostic tests. If we are forced
to reduce our prices because of consolidation in
the health care industry, our projected revenues
would decrease and our earnings, financial
condition, and/or cash flows would suffer.
Our ability to compete depends on our ability to
attract and retain talented employees.
Our future success depends on our ability to
identify, attract, train, integrate and retain
highly qualified technical, development, sales
and marketing, managerial and administrative
personnel. Competition for highly skilled
individuals is extremely intense and we face
difficulty identifying and hiring qualified
personnel in many areas of our business. We may
not be able to hire and retain such personnel at
compensation levels consistent with our existing
compensation and salary structure. Many of the
companies with which we compete for hiring
experienced employees have greater resources than
we have. If we fail to identify, attract, train,
integrate and retain highly qualified and
motivated personnel, our reputation could suffer
and our business, financial condition and results
of operations could be adversely affected.
Our future success also depends on the continued
service and performance of our senior management
team. The replacement of members of our senior
management team likely would involve significant
time and costs, and the loss of any these
individuals may delay or prevent the achievement
of our business objectives.
Changes in tax laws or exposure to additional
income tax liabilities could have a material
impact on our financial condition and results of
operations.
We are subject to income taxes as well as
non-income based taxes, in both the United
States and various foreign jurisdictions.
Changes in existing tax laws, treaties,
regulations or policies or the interpretation
or enforcement thereof, or the enactment or
adoption of new tax laws, treaties, regulations
or policies could materially impact our
effective tax rate.
If we do not achieve, sustain or successfully
manage our anticipated growth, our business and
prospects will be harmed.
If we are unable to obtain or sustain adequate
revenue growth, our financial results could
suffer. Furthermore, significant growth will
place strains on our management and our
operational and financial systems and processes
and our operating costs may escalate even
faster than planned. If we cannot effectively
manage our expanding operations and our costs,
we may not be able to grow effectively or we
may grow at a slower pace. Additionally, if we
do not successfully forecast the timing of
regulatory authorization for our additional
tests, marketing and subsequent demand for our
diagnostic tests or manage our anticipated
expenses accordingly, our operating results
will be harmed.
Other companies or institutions have
commercial diagnostic tests or may develop
and market novel or improved methods for
infectious disease diagnostic testing, which
may make our diagnostic platform less
competitive or obsolete.
The market for diagnostic testing is large
and established, and our competitors may
possess significantly greater financial
resources and have larger development and
commercialization capabilities than we do. We
may be unable to compete effectively against