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Item 1A. Risk Factors

2020-09-25 compared with 2019-09-27 · 93 added, 76 removed, 420 unchanged (29% of the section changed)

9 unchanged sentences

the clinical outcomes of the patients treated;

the effectiveness of our sales and marketing efforts or those of our distributors in the United States, the Russian Federation, and Peru;

the effectiveness of our sales and marketing efforts or those of our distributors in the United States, the Russian Federation, India, and Peru;

any unfavorable publicity concerning our product or similar products;

7 unchanged sentences

Because of our reliance on this product as the sole source of our revenue, any material adverse developments with respect to the commercialization of this product may cause us to continue to incur losses rather than profits in the future.

We Rely Heavily On One Supplier For Our Cesium-131 and Limited Suppliers for Other Components We Require.

Our Only Supplier Is In Russia And We Periodically Must Rely Solely On Only One Nuclear Reactor From Time to Time.

Beginning in the third quarter of fiscal year 2019, all of our Cesium-131 is now supplied through JSC Isotope from two reactors located in Russia.

Our current contract terminates on December 31, 2021.

Management will seek to negotiate favorable pricing at each contract extension but there is no assurance as to the outcome of these negotiations.

On August 25, 2017, the Company executed a consignment inventory agreement with MedikorPharma-Ural LLC (“Medikor”) to process the Company’s enriched barium at a specific nuclear reactor in Russia beginning in November 2017.

The term of the consignment agreement is 10 years.

Our source of supply of Cesium-131 from Russia is historically produced using one of two nuclear reactors which supply the irradiation needed for Cesium-131 production.

One of the Russian nuclear reactors was shut down from December 2017 until August 2018, and the other Russian nuclear reactor was shut down for much of 2019 and 2020.

As a result of these scheduled shutdowns, only one of the Company’s historic nuclear reactor sources was available during these periods.

The consignment agreement with Medikor permits the Company to periodically rely on a second nuclear reactor for supply when it is operating.

Previously, about twenty percent (20%) of our isotope supply came from the domestic MURR facility.

In early fiscal 2019, the Company terminated its supply agreement with MURR thereby eliminating all domestic suppliers of this critical component of its product.

This decision means that the Company has no domestic supply capabilities for Cesium-131.

Management believes that with sufficient notice it may still obtain a supply of Cesium-131 from MURR but there is no assurance as to the availability and timing of fulfillment if needed.

Even if Cesium-131 was supplied by MURR, MURR cannot manufacture enough supply to meet the Company’s increasing needs and requires additional cost in processing to meet the Company’s isotope specifications.

Reliance on any single supplier increases the risks associated with concentrating isotope production at a single reactor facility which can be subject to unanticipated shutdowns and political or civil unrest.

Failure to obtain deliveries of Cesium-131 from multiple sources could have a material adverse effect on seed production and there may be a delay before we could locate alternative suppliers beyond the two reactors we currently use and one which is currently available.

We may not be able to locate additional suppliers outside of Russia capable of producing the level of output of Cesium at the quality standards we require.

Additional factors that could cause interruptions or delays in our source of materials include sanctions placed on financial transactions with Russian banking institutions;

limitations on the availability of raw materials or manufacturing performance experienced by our suppliers;

or a breakdown in our commercial relations with one or more suppliers.

Some of these factors may be completely out of our and our supplier’s control.

While we work closely with suppliers to assure continuity of supply and maintain high quality and reliability, these efforts may not be successful.

Manufacturing disruptions experienced by our suppliers may jeopardize our supply of components.

The loss or disruption of our relationships with outside vendors could subject us to substantial delays in the delivery of our product to customers.

Significant delays in the delivery of our product could result in possible cancellation of orders and the loss of customers.

Due to the stringent regulations and requirements of the FDA and similar non-U.S.

regulatory agencies regarding the manufacture of our product, we may not be able to quickly establish additional or replacement sources for certain components or materials.

A change in suppliers could require significant effort or investment in circumstances where the items supplied are integral to product performance or incorporate unique technology.

A reduction or interruption in manufacturing, or an inability to secure alternative sources of raw materials or components, could have a material adverse effect on our business, results of operations, financial condition and cash flows.

Any casualty, natural disaster or other significant disruption of any of our suppliers’ operations, or any unexpected loss of any existing exclusive supply contract could have a material adverse effect on our business.

Although we expect our suppliers to comply with our contract terms, we do not have control over these suppliers.

Our inability to provide a product that meets delivery schedules could have a material adverse effect on our reputation in the industry, which could have a material adverse effect on our financial condition and results of operations.

Further, any single source suppliers or contract manufacturers may operate through a single facility.

If an event occurred that resulted in material damage to this manufacturing facility or our supplier/manufacturing contractor lacked sufficient labor to fully operate the facility, we may be unable to transfer the manufacture of our product or supply of the component to another facility or location in a cost-effective or timely manner, if at all.

This potential inability to transfer production could occur for a number of reasons, including but not limited to a lack of necessary relevant manufacturing capability at another facility, or the regulatory requirements of the FDA or other governmental regulatory bodies.

Even if there are many qualified suppliers or contract manufacturers available around the country and our product or its components are relatively easy to manufacture, such an event could have a material adverse effect on our financial condition and results of operations.

We Are Subject To Uncertainties Regarding Reimbursement For Use Of Our Product.

2 unchanged sentences

Clinics and physicians performing procedures in a free-standing center are reimbursed at the actual cost of the seeds.

In 2019, CMS proposed a significant change to the way Medicare currently pays for radiation services.

If this change proposed by CMS is enacted, the Radiation Oncology Alternative Payment Method (RO APM) would provide for a single, bundled payment for a 90-day episode of radiation therapy including LDR brachytherapy, IMRT, SBRT, proton therapy, and HDR brachytherapy.

The RO APM proposal would apply the same payment levels to services provided in physician offices, free-standing centers, and hospital outpatients and would be mandatory for approximately forty percent of the facilities in the United States.

In addition, certain surgical codes are included in the bundled payment such as those for gynecological treatments.

This CMS proposal for a revised payment structure includes brachytherapy sources which contradicts the current Congressional mandate to provide separate payment for these brachytherapy sources.

The final rule could become effective for part or all of calendar year 2020.

In July 2019, CMS proposed a significant change to the way Medicare currently pays for radiation services in an out-patient setting.

The Radiation Oncology Alternative Payment Method (RO APM) proposed a single, bundled payment for a 90-day episode of radiation therapy including LDR brachytherapy, IMRT, SBRT, proton therapy, and HDR brachytherapy.

The RO APM proposal applied the same payment levels to services provided in physician offices, free-standing centers, and hospital outpatients.

In addition, certain surgical codes were proposed to be included in the bundled payment such as those for gynecological treatments.

This CMS proposal for a revised payment included brachytherapy sources.

All comments regarding the RO APM were due to CMS by mid-September 2019 and the Company submitted its comments prior to the deadline.

The final rule was published on September 18, 2020 with an effective date of January 1, 2021.

As published, the rule is effective for randomly selected Core-Based Statistical Areas (CBSAs) and the participating zip codes are included in the final rule.

The selected zip codes include approximately thirty percent of all eligible Medicare fee-for-service (FFS) radiotherapy episodes nationally.

The RO APM could prove beneficial to the Company if clinics and physicians transition to brachytherapy options and away from more expensive IMRT and other non-brachytherapy options.

However, if clinics and physicians determine to use less costly iodine brachytherapy this would have a negative impact on the Company as the costs of our Cesium-131 seeds are higher than iodine seeds.

Management does not know what effect the RO APM once implemented may have on our business, financial condition, or results of operations as the proposed RO APM reimbursement structure may be revised before it is adopted and if not revised it is difficult to determine the impact on our Company until our customers determine how they intend to proceed.

Management is currently evaluating the impact the final rule may have on our business, financial condition, or results of operations, but it is uncertain whether this rule will have a favorable or unfavorable impact on our business.

Brachytherapy seeds have two CMS codes – one code for loose seeds and a second code for stranded seeds.

5 unchanged sentences

Hospitals are less receptive to treatments which require out of pocket costs such as procedures we use for certain non-prostate applications.

Certain of our DRG reimbursement amounts coupled with out-of-pocket costs imposed on hospitals make some of our non-prostate procedures not financially viable.

Certain of our DRG reimbursement amounts coupled with out-of-pocket costs imposed on hospitals make some of our surgical, in-patient procedures not financially viable.

We rely on our reimbursement consultant to assist us to improve the rate of reimbursement so that our product reimbursement will create greater incentives to be used.

Effective October 1, 2020, new codes will take effect and now CMS will be able to track the additional cost of the Cesium-131 seed itself and be able to reimburse the hospital through the DRG payment system for this additional costs when an in-patient brachytherapy procedure is performed.

There is no assurance we will obtain the increase necessary to keep certain procedures viable and improve the margins of others.

13 unchanged sentences

Although Cleared To Treat Any Malignant Tissue, Our Product Is Primarily Used To Treat A Single Type Of Cancer Which Is In A Flat Market.

Currently, the Cesium-131 seed is used almost exclusively for the treatment of prostate cancer (approximately eighty-nine percent of our sales).

We have been treating brain cancer which amounted to approximately six percent of our sales, gynecological cancer which amounted to approximately one percent of our sales, head and neck cancer which amounted to approximately one percent of our sales, lung cancer which amounted to approximately one percent of our sales, and other cancers including pelvic cancer and colorectal cancer that combined constituted approximately one percent of our sales in fiscal year 2019.

Currently, the Cesium-131 seed is used almost exclusively for the treatment of prostate cancer (approximately eighty-six percent of our sales).

We have been treating brain cancer which amounted to approximately nine percent of our sales, gynecological cancer which amounted to approximately one percent of our sales, head and neck cancer which amounted to approximately one percent of our sales, lung cancer which amounted to approximately one percent of our sales, and other cancers including pelvic cancer and colorectal cancer that combined constituted approximately two percent of our sales in fiscal year 2020.

Management believes the Cesium-131 brachytherapy seed will continue to be used to treat other types of cancers as the Company identifies existing delivery systems that can be utilized or develops new delivery methods for the product, however these delivery systems may not prove as effective as anticipated.

Management believes that clinical data gathered by select groups of physicians under treatment protocols specific to other organs will be needed prior to widespread acceptance of our product for treating other cancer sites.

If our current and future products do not become accepted in treating cancers of other sites, our sales will continue to depend primarily on treatment of prostate cancer, a market with increasing competition and ongoing loss of market share by all brachytherapy products.

If our current and future products do not become accepted in treating cancers of other sites, our sales will continue to depend primarily on the treatment of prostate cancer, a market with increasing competition and ongoing loss of market share by all brachytherapy products.

Unfavorable Industry Trends In The Prostate Market.

12 unchanged sentences

We Rely Heavily On Three Customers.

Approximately thirty-five percent (35%) of the Company’s revenues are dependent on three customers and approximately twenty-two percent (22%) on one customer.

Approximately forty-one percent (41%) of the Company’s revenues are dependent on three customers and approximately twenty-seven percent (27%) on one customer.

The loss of any of these customers would have a material adverse effect on the Company’s revenues which may not be replaced by other customers particularly as these customers are in the prostate sector which is facing substantial competition from other treatments.

We Rely Heavily On A Limited Number Of Suppliers.

Our Most Critical Suppliers Are In Russia And We Periodically Must Rely Solely On One Supplier From Time to Time .

Some materials used in our product are currently available only from a limited number of suppliers.

Beginning in the third quarter of fiscal year 2019, all of our Cesium-131 was supplied through JSC Isotope from a reactor located in Russia.

Our current contract terminates on December 31, 2020.

Management will seek to negotiate favorable pricing at each contract extension but there is no assurance as to the outcome of these negotiations.

On August 25, 2017, the Company executed a consignment inventory agreement with MedikorPharma-Ural LLC (“Medikor”) to process the Company’s enriched barium at another nuclear reactor in Russia beginning in November 2017.

The term of the consignment agreement is 10 years.

Our source of supply of Cesium-131 from Russia is historically produced using one of two nuclear reactors which supply the irradiation needed for Cesium-131 production.

One of the Russian nuclear reactors was shut down from December 2017 till August 2018, and the other Russian nuclear reactor is scheduled to be shut down for much of 2019 into early 2020.

As a result of these scheduled shutdowns, only one of the Company’s historic Russian suppliers of Cesium-131 will be available during these periods.

Medikor, located in Russia, is using the barium carbonite consigned by the Company to contract with a third-party manufacturer to produce and supply Cesium-131 to the Company.

This arrangement has the effect of minimizing the impact on the Company of the planned temporary shutdown of the nuclear reactors that serve as its sources of Cesium-131 from Russia.