Item 1A. Risk Factors
Item 1A. Risk Factors
Our business is subject to various risks, including those described in Part I, Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2022. There have been no material changes to the risk factors set forth in our Annual Report on Form 10-K for the year ended December 31, 2022 under "Item 1A - Risk Factors" except as noted below.
We may fail to realize the anticipated benefits of the Evoqua Acquisition, including an improved financial position, and those benefits may take longer to realize than expected.
On July 10, 2023, we completed our acquisition of the hemodialysis concentrates business (the “Evoqua Acquisition”) from Evoqua Water Technologies LLC (“Evoqua”). Our ability to realize the anticipated benefits of the Evoqua Acquisition, including an improved financial position, expanded geographic footprint, customer base and product offerings, and increased manufacturing capacity, will depend in part on the integration of Evoqua’s business with ours. There can be no assurance that we will be able to operate Evoqua’s business profitably or integrate it successfully into our operations in a timely fashion, or at all.
Following the Evoqua Acquisition, the size of the combined company’s business is significantly larger than our business prior to the Evoqua Acquisition. Our future success as a combined company depends, in part, upon our ability to manage this expanded business, which will pose substantial challenges for our management, including challenges related to the management and monitoring of new operations and associated increased costs and complexity. The dedication of management resources to this integration could detract attention from our current day-to-day business, and we cannot assure stockholders that there will not be substantial costs associated with the transition process or other negative consequences as a result of these integration efforts.
Because we have limited financial resources, by investing in the Evoqua Acquisition, we may forgo or delay pursuit of other opportunities that may have proven to have greater commercial potential. Also, we now possess certain liabilities and obligations, including contractual liabilities and obligations, that were assumed by us upon closing of the Evoqua Acquisition. Further, it is possible that undisclosed, contingent, or other liabilities, problems or obligations may arise in the future of which we were previously unaware. These disclosed and undisclosed liabilities could have an adverse effect on our business, financial condition and results of operations.
These factors, including incurring unexpected costs or delays in connection with integration of the two businesses, or the failure of the combined company to perform as expected, could decrease or delay the expected accretive effect of the Evoqua Acquisition, negatively affect our stock price and harm our financial condition, results of operations or business prospects. As a result, it cannot be assured that the Evoqua Acquisition will result in the full realization of the benefits anticipated from the Evoqua Acquisition or in the anticipated time frames or at all.
A few customers account for a substantial portion of the end user sales of our concentrate products. The loss of any of these customers could have a material and adverse effect on our business, results of operations, financial position and cash flows.
Sales of our medical device products are highly concentrated in a few customers. One customer accounted for nearly half of our sales in each of the last three years and for a substantial number of the clinics we serve. We experienced further concentration with regard to that customer and an additional customer through the Evoqua Acquisition. The loss of any of these significant customers could have a material adverse effect on our business, results of operations, financial position and cash flows.
Our agreement with our largest customer in our concentrates business is set to expire on December 31, 2023 and our inability to negotiate a new agreement would have a material and adverse effect on our financial condition and results of operations.
Our Products Purchase Agreement with DaVita is set to expire on December 31, 2023. The Products Purchase Agreement is a fixed price agreement that contains a number of limitations on our ability to raise prices. In April 2022, we amended our Products Purchase Agreement to raise our prices in light of inflationary pressures. However, rising costs and declining volumes ordered by DaVita since April 2022 have had and could continue to have a negative impact on our business. The Products Purchase Agreement requires 90 days’ notice of non-renewal upon expiration. If we are unable to reach an agreement with DaVita on new terms that make economic sense for us, we do not expect to enter into a new agreement. This would result in the loss of approximately one-half of our current volume of concentrates products and would have a material and adverse effect on our financial condition and results of operations and would likely lead to the implementation of cost saving measures that would negatively impact our activities. In addition, DaVita is a customer of the business that was the subject of the Evoqua Acquisition and the contract with that business is also set to expire on December 31, 2023. Our failure to renegotiate that contract could also result in lost business.
We depend on a third party to manufacture products for the business that was the subject of the Evoqua Acquisition. If this organization are unable or unwilling to manufacture our newly acquired concentrates products, or if the organization fails to comply with applicable regulations or otherwise fails to meet our requirements, our business will be harmed.
We rely on a contract manufacturing organization ("CMO") to manufacture our newly acquired concentrates products. If that CMO is unable to manufacture those products in sufficient quantities and on a consistent basis, or if it becomes unwilling to produce the products for us, we may not be able to fulfill our contractual requirements or sell those products while we look for an alternative. We currently have a single-source supplier, and our supply contract expires in mid-2024. If we were to experience a supply disruption, it could take an extended period of time to find and qualify an alternate supplier or to take over the manufacturing ourselves. The manufacturing facilities and processes used by our CMO must be approved by the FDA before the products manufactured by such CMO can be sold. After approval, our CMO must meet certain ongoing regulatory requirements for product testing and stability of commercially marketed products. We do not control the manufacturing processes of our CMO and depend on it to comply with current good manufacturing practices (“cGMP”) and obtain and maintain regulatory approval. If approval for a CMO is not received or ongoing testing does not continue to meet approved standards and approval is withdrawn, the CMO’s production would be delayed or suspended, which could adversely affect our business. If that was to happen, we may be forced to find another capable CMO or take over production ourselves. Any such circumstance could significantly hamper our ability to supply our customers in a timely manner, which may have a material adverse effect on our financial condition and results of operations.
The market price of our common stock has fluctuated in the past, and is likely to continue to be volatile, which could subject us to litigation.
The market price of our common stock has fluctuated and is likely to be subject to further wide fluctuations in response to numerous factors, many of which are beyond our control, such as those in this “Risk Factors” section and others including:
• the reporting of sales, operating results and cash resources;
• announcements by commercial partners or competitors of new commercial products, clinical progress or the lack thereof, significant contracts, commercial relationships or capital commitments;
• the entry into, or termination of, key agreements, including key commercial partner agreements and acquisition agreements;
• changes in the structure of healthcare payment systems;
• the loss of key employees;
• changes in estimates or recommendations by securities analysts, if any, who cover our common stock;
• our ability to obtain regulatory approvals for our product candidates, and delays or failures to obtain such approvals;
• failure of any of our product candidates, if approved, to achieve commercial success;
• issues in manufacturing our device products or product candidates;
• the results of any future clinical trials of our product candidates;
• the initiation of, material developments in, or conclusion of litigation to enforce or defend any of our intellectual property rights or defend against the intellectual property rights of others; and
• the introduction of technological innovations or new therapies that compete with our products or product candidates.
In addition, third parties may engage in trading strategies that result in intentional volatility to and control over our stock price. We recently experienced a steep reduction in our stock price which may have been due to an article that negatively portrayed the Company. Moreover, the stock markets in general have experienced substantial volatility that has often been unrelated to the operating performance of individual companies. These broad market fluctuations may also adversely affect the trading price of our common stock.
In the past, following periods of volatility in the market price of a company’s securities, stockholders have often instituted class action securities litigation against those companies. Such litigation, if instituted, could result in substantial costs and diversion of management attention and resources, which could significantly harm our profitability and reputation.
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Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
None.
Item 3. Defaults Upon Senior Securities.
None.
Item 4. Mine Safety Disclosures.
Not applicable.