REPRO-MED Systems (KRMD) Risk Factors

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, numerous other federal, state, and non-U.S. governmental authorities and equivalent regulatory bodies of other countries.  To varying degrees, each of these agencies requires us to comply with laws and regulations governing the design, development, and manufacturing; testing, labeling, content and language of instructions for use and storage; clinical trials; product safety; establishment registration and device listing; marketing, promotion, and distribution of our products; premarket clearance and approval; record keeping procedures; advertising and promotion; recalls and field safety corrective actions; post-market surveillance, including reporting of deaths or serious injuries and malfunctions that, if they were to recur, could lead to death or serious injury; post-market approval studies; and product import and export. In the U.S., our device products are subject to clearance or approval by FDA under the FFDCA.  Before we can market a new medical device, or a new use of, new claim for, or significant modification to, an existing product, we must first receive either 510(k) clearance or approval of a PMA application from the FDA, unless an exemption applies.  Under the 510(k) process, the manufacturer must submit to the FDA a premarket notification, demonstrating that the device is "substantially equivalent," as defined in the statute, to a legally marketed predicate device.  To be "substantially equivalent," the proposed device must have the same intended use as the predicate device, and either have the same technological characteristics as the predicate device or have different technological characteristics and not raise different questions of safety or effectiveness than the predicate device.  If the manufacturer is unable to demonstrate substantial equivalence to FDA's satisfaction, or if there is no available predicate device, then the manufacturer may be required to seek approval through the PMA application process, which is generally more costly and time consuming than the 510(k) process.  Through the PMA application process, the applicant must submit data and information demonstrating reasonable assurance of the safety and effectiveness of the device for its intended use.  Accordingly, a PMA application typically includes, but is not limited to, extensive technical information regarding device design and development, pre-clinical and clinical trial data, manufacturing information, labeling and financial disclosure information for the clinical investigators in device studies. In the future our device products may be approved as part of a drug submission under a combination product regulatory pathway. Under the combination product approval process, our device would typically be submitted as part of a drug application, typically a BLA or NDA in the United States. The proof required for approval as a combination product is similar to that required for a 510(k), but may differ in material ways. In addition, the regulatory approval is held by the pharmaceutical manufacturer, not KORU. 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. 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. 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.  The results of these inspections can include inspectional observations on the FDA's Form 483, warning letters, or other forms of enforcement.  If the FDA or any state or foreign regulatory authorities were to conclude that we are not in compliance with any applicable laws or regulations, or that any of our medical products are ineffective or pose an unreasonable health risk, they could deem our products adulterated or misbranded, and take enforcement action against us.  FDA and state and foreign regulatory authorities have broad enforcement powers.  Possible enforcement actions include, but are not limited to:  temporarily or permanently suspending the sale and/or distribution of such medical products; detaining or seizing all adulterated or misbranded medical products; ordering recall, repair, replacement, or refund of such products; refusing to grant pending pre-market approval or 510(k) clearance applications; and/or requiring us to notify health professionals and others that the devices present unreasonable risks of substantial harm to the public health.  In addition, the FDA prohibits device manufacturers from promoting their products for uses and indications other than those set forth in the approved product labeling, and failure to comply with this prohibition could subject us to significant civil or criminal exposure, administrative obligations and costs, and/or other potential penalties from, and/or agreements with, the federal government.  The FDA and other non-U.S. government agencies may also assess civil or criminal penalties against us, our officers or employees and impose operating restrictions on a company-wide basis.  The FDA may also recommend prosecution to the U.S. Department of Justice.  Any adverse regulatory action, depending on its magnitude, may restrict us from effectively marketing and selling our products and limit our ability to obtain future pre-market clearances or approvals, and could result in a substantial modification to our business practices and operations. Regulations regarding the development, manufacture and sale of medical devices are evolving and subject to future change and have tended to become more stringent over time.  Regulatory changes could result in restrictions on our ability to continue or expand our operations, higher than anticipated costs, or lower than anticipated sales. We cannot predict what impact, if any, those changes might have on our business; however, failure to comply with applicable regulatory requirements could have a material adverse effect on our business, financial condition, and results of operations.  Later discovery of previously unknown problems with a product or manufacturer could result in fines, delays or suspensions of regulatory clearances or approvals, seizures or recalls of products, physician advisories or other field actions, operating restrictions and/or criminal prosecution.  We may also initiate field actions as a result of a failure to strictly comply with our internal quality policies.  The failure to receive product approval clearance on a timely basis, suspensions of regulatory clearances, seizures or recalls of products, physician advisories or other field actions, or the withdrawal of product approval by the FDA or by comparable agencies in foreign countries could have a material adverse effect on our business, financial condition or results of operations. Governmental regulations outside the U.S. have also, and may continue to, become increasingly stringent and common.  Penalties for regulatory non-compliance could be severe, including fines and revocation or suspension of a company's EU device approval, ability to distribute products and criminal sanctions.  Future foreign governmental laws and regulations may have a material adverse effect on us. In addition, 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.  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, such as China for example, require approval in the country of origin or legal manufacturer first.  Most countries outside of the U.S. require that product approvals be renewed or recertified on a regular basis, generally every four to five years.  The renewal or recertification process requires that we evaluate any device changes and any new regulations or standards relevant to the device and conduct appropriate testing to document continued compliance.  Where renewal or recertification applications are required, they may need to be renewed and/or approved in order to continue selling our products in those countries.  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. 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.  Several countries that did not have regulatory requirements for medical devices have established such requirements in recent years and other countries have expanded on existing regulations.  Certain regulators are exhibiting less flexibility and are requiring local preclinical and clinical data in addition to global data.  While harmonization of global regulations has been pursued, requirements continue to differ significantly among countries.  In the United Kingdom, for example, the Medicines and Healthcare products Regulatory Agency (MHRA) is responsible for regulating the UK medical device market.  With recent changes in the United Kingdom's membership with the European Union, the MHRA has and will continue to impose new regulatory obligations becoming effective in 2021 through 2023, for medical device manufacturers.  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.

The design, manufacture and marketing of medical devices involve certain inherent risks.  Manufacturing or design defects, component failures, unapproved or improper use of our products, or inadequate disclosure of risks or other information relating to the use of our products can lead to injury or other serious adverse events.  We are subject to the FDA's medical device reporting regulations and similar foreign regulations, which require us to report to the FDA when we receive or become aware of information that reasonably suggests that one or more of our products may have caused or contributed to a death or serious injury or malfunctioned in a way that, if the malfunction were to recur, it could cause or contribute to a death or serious injury.  The timing of our obligation to report is triggered by the date we become aware of the adverse event as well as the nature of the event.  If 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. 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.  A recall could result in significant costs and lost sales and customers, enforcement actions and/or investigations by state and federal governments or other enforcement bodies, as well as negative publicity and damage to our reputation that could reduce future demand for our products.  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.  A product liability claim, regardless of its merit or outcome, could not only result in significant legal defense costs, but also have a material adverse effect on our business and reputation and ability to attract and retain customers for our products.  In some circumstances, adverse events could also cause delays in regulatory approval of new products or the imposition of post-market approval requirements.

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. 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.  Although we do carry strategic inventory and maintain insurance to help mitigate the potential risk related to any supply disruption, there can be no assurance that such measures will be sufficient or effective.  The termination, reduction or interruption in supply of raw materials and components and an inability to quickly develop acceptable alternative sources for such supply, could adversely impact our ability to manufacture and sell our products in a timely or cost-effective manner. 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.  We are in the process of establishing alternative sources of supply for our raw materials and components, but there can be no assurance we will be able to do so. Additionally, volatility in our cost of energy, raw materials, components, subassemblies, transportation/freight, and manufacturing and distribution could adversely affect our results of operations.  Climate change (including laws or regulations passed in response to it) could increase our costs, in particular our costs of supply, energy and transportation/freight.  Material or sustained increases in the price of oil and natural gas could have an adverse impact on the cost of many of the plastic materials we use to make and package our products, as well as our transportation/freight costs.  These outcomes may in turn result in customers transitioning to available competitive products, loss of market share, negative publicity, reputational damage, loss of customer confidence or other negative consequences (including a decline in stock price).

We work with pharmaceutical and biotechnology companies who are targeting the use of our products with a variety of injectable therapies.  When we collaborate with pharmaceutical developers, they may engage us in a variety of ways, including in vitro feasibility testing, product customization and validation ("development"), non-interventional user testing of our devices, animal or human clinical research using our devices, regulatory submissions, manufacturing development, and commercialization. Certain of those injectable therapies are not FDA approved and are in various phases of clinical development.  The clinical development of these pipeline therapies can be terminated by their developers at any stage.  Our biopharma customers may choose to continue their drug program without use of our devices. Use in one stage of work does not guarantee use in a future development stage or in commercialization. Furthermore, these pharmaceutical companies could obtain regulatory approval for their injectable therapies and decide for business reasons not to require or encourage utilization of our device.  Prior investments we have made in manufacturing capacity or research and development will then not result in the generation of revenue that would have previously been anticipated.

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.  If our competitors respond more quickly to new or emerging technologies and changes in customer requirements or we do not introduce new versions or upgrades to our product portfolio in response to those requirements, our products may not be marketable.  If competitors develop more effective or affordable products or achieve earlier patent protection or product commercialization for new products than we do, our operations will likely be adversely affected.

Deterioration in the global economic environment, particularly in countries with government-sponsored healthcare systems, may cause decreased demand for our products and increased competition, which could result in lower sales volume and downward pressure on the prices for our products, longer sales cycles, and slower adoption of new technologies.  A weakening of economic conditions in the U.S. and/or abroad may also adversely affect our suppliers, which could result in interruptions in supply.

Natural disasters (including pandemics), war, terrorism, labor disruptions and international conflicts, and actions taken by the U.S. and other governments or by our customers or suppliers in response to such events, could cause significant economic disruption and political and social instability in the U.S. and areas outside of the U.S. in which we operate.  Most of our products are assembled and packaged in Nicaragua, where there is currently civil unrest whose outcome cannot be predicted.  This and similar events could increase the costs for or cause interruptions in the supply of materials, result in decreased demand for our products or adversely affect our manufacturing and distribution capabilities.

We operate in a single market – ambulatory infusion – and are dependent upon our success in that market. We face competition in our market from a wide range of international and domestic companies, including those that deliver electronic volumetric pumps, elastomeric infuser pumps, other mechanical devices, novel drug delivery devices and methodologies, and devices and formulation technologies that allow drugs to be delivered in volumes smaller than the FREEDOM System is designed to deliver.  These include large medical device companies with multiple product lines, some of which may have greater financial and marketing resources than we do.  We also face competition from companies that are even more specialized than ours with respect to particular markets or product lines.  Some of those companies have greater financial and sales and marketing resources than we do or offer products at a lower price point than ours.  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.  We face competition on the basis of product features, clinical or economic outcomes, product quality, availability, price, services, technological innovation and other factors.  In addition, we face changing customer preferences and requirements, changes in the ways health care services are delivered, including the transition of high-acuity care to lower-acuity, and non-acute care settings. Competition may increase further as additional companies begin to enter our market or modify their existing products to compete directly with ours.  If we are forced to reduce our prices due to increased competition, our business could suffer. The medical technology industry has also experienced a significant amount of consolidation, resulting in larger companies with greater access to markets.  Pharmaceutical manufacturers, health care systems, other health care companies and even retail pharmacies are also consolidating, resulting in greater purchasing power for these companies.  As a result, competition among medical device suppliers to provide goods and services has increased.  Group purchasing organizations and integrated health delivery networks have also served to concentrate purchasing decisions for some customers, which has led to downward pricing pressure for medical device suppliers.  Further consolidation in the industry could intensify competition among medical device suppliers and exert additional pressure on the prices of our products. 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.

Most of our customers prefer to purchase our products through distributors, rather than directly from us, because of "one-stop shopping" convenience and their ability to ship directly to patients.  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%.  Purchasing patterns by these distributors cannot always be predicted and fluctuate from quarter to quarter and year to year based on, among other things, their expectations of customer demand.  Any decline in business with the distributors outside the U.S. could have an adverse impact on our business.  If we were unable to sell through the distributors outside the U.S., we would have to find other distributors or broaden our customer base and expand direct relationships with customers.  Other distributors may not be available or may not agree to arrangements that are commercially reasonable.  In the U.S. we could transition to direct customer purchase; however, customers may not want to purchase directly from us and may decide to purchase competitors' products through their distributors.  Moreover, a transition from distributors to direct customer purchase would be time consuming and costly.