UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
10-K
| ☒ | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
FOR THE FISCAL YEAR ENDED SEPTEMBER 30, 2019.2021.
| ☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
FOR THE TRANSITION PERIOD FROM
TO
Commission File
No.
0-14902
MERIDIAN BIOSCIENCE, INC.
3471 River Hills Drive
Cincinnati, Ohio 45244
IRS Employer ID
No.
31-0888197
State of Incorporation
Phone: (513)
271-3700
Securities Registered Pursuantregistered pursuant to Section 12(b) of the Act:
Title of each class | Trading Symbol | Name of each exchange on which registered | ||
Common Shares, No Par Value | VIVO | The NASDAQ Stock Market LLC | ||
(NASDAQ Global Select Market) |
Securities Registered Pursuantregistered pursuant to Section 12(g) of the Act:
None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. YES
☒
NO ☐
☐
NO ☒
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.YES
☒
NO ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation
S-T
(§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).YES ☒
NO ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a
non-accelerated
filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule12b-2
of the Exchange Act.| Large accelerated filer | ☒ | Accelerated filer | ☐ | |||
☐ | ||||||
| Emerging growth company | ||||||
☐ | ||||||
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☒
Indicate by check mark whether the registrant is a shell company (as defined in Exchange Act Rule
12b-2). YES ☐ NO ☒
The aggregate market value of Common Shares held by20192021 was $743,730,984$1,132,216,391 based on a closing sale price of $17.61$26.25 per share on March 31, 2019.2021. As of October 31, 2019, 42,741,7212021, 43,364,448 shares of Common Stock, no par value, Common Shares were issued and outstanding.
non-affiliates
as of March 31, DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Proxy Statement for the 20202022 Annual Meeting of Shareholders, which will be filed within one hundred and twenty days of the fiscal year ended September 30, 2019 (20202021 (2022 Proxy Statement), are incorporated by reference into Part III of this report to the extent described herein.
MERIDIAN BIOSCIENCE, INC.
INDEX TO ANNUAL REPORT
ON FORM
10-K
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NOTE ABOUT FORWARD-LOOKING STATEMENTS
This report includes estimates, projections, statements relating to our business plans, objectives, and expected operating results that are “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933, and Section 21E of the Securities Exchange Act of 1934. Forward-looking statements may appear throughout this report, including the following sections: “Business” (Part I, Item 1 of this Form
10-K),
“Risk Factors” (Part I, Item 1A of this Form10-K),
and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” (Part II, Item 7 of this Form10-K).
These forward-looking statements generally are identified by the words “believe,” “project,” “expect,” “anticipate,” “estimate,” “intend,” “strategy,” “future,” “opportunity,” “plan,” “may,” “should,” “will,” “would,” “will be,” “will continue,” “will likely result,” and similar expressions. Forward-looking statements are based on current expectations and assumptions that are subject to risks and uncertainties that may cause actual results to differ materially. We describe risks and uncertainties that could cause actual results and events to differ materially in “Risk Factors,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” “Quantitative and Qualitative Disclosures about Market Risk” (Part II, Item 7A of this Form10-K)
and elsewhere in this Form10-K.
Readers are cautioned not to place undue reliance on forward-looking statements, which speak only as of the date they are made. We undertake no obligation to update or revise publicly any forward-looking statements, whether because of new information, future events, the novel coronavirus(“COVID-19”)
pandemic, or otherwise.Unless the context requires otherwise, references in this Annual Report on 10-K10-K”)to “Meridian,” “we,” “us,” “our,” “Company,” or “our company” refer to Meridian Bioscience, Inc. and its subsidiaries.
Form 10-K
(“FormIn the discussion that follows, all dollar amounts and share amounts are in thousands (both tables and text), except per share data.
This Annual Report on Form™, BreathID, BreathTek, Curian™, HpSA, ImmunoSTAT!, LeadCare, MyTaq, PediaStat™, PREMIER, revogene™and SensiFAST, which are protected under applicable intellectual property laws and are our property. Solely for convenience, our trademarks and tradenames referred to in this Formorsymbols, but such references are not intended to indicate in any way that we will not assert, to the fullest extent under applicable law, our rights to these trademarks and tradenames. Our molecular diagnostic test platform formerly known under the tradenamesand, has been rebranded under the tradename Alethia. References to Alethia throughout this Annual Report on Formandbrands. Such references are not intended to indicate, in any way, that we will not assert, to the fullest extent permitted by law, our rights to our trademarks.
10-K
refers to trademarks such as Alethia®
®
®
®
®
, ImmunoCard
®
Card
®
®
™
®
®
™
10-K
may appear without the®
™
illumi
gene
illumi
pro
10-K
refer to our molecular diagnostic tests and instrumentation formerly marketed and sold under theillumi
gene
illumi
pro
WEBSITE AND SOCIAL MEDIA DISCLOSURE
We use our website (
www.meridianbioscience.com
) and our corporate Facebook, Instagram, LinkedIn, Twitter, Vimeo and YouTube accounts as channels of distribution of company information. The information we post through these channels may be deemed material. Accordingly, investors should monitor these channels, in addition to following our press releases, Securities and Exchange Commission (“SEC”) filings and public conference calls and webcasts. The contents of our website and social media channels are not, however, a part of this report.MARKET AND INDUSTRY INFORMATION
Market data used throughout this Form
10-K
is based on management’s knowledge of the industry and good faith estimates of management. All of management’s estimates presented herein are based on industry sources, including analyst reports and management’s knowledge. We also relied, to the extent available, upon management’s review of independent industry surveys and publications prepared by a number of sources and other publicly available information. We are responsible for all of the disclosures in this Form10-K
and while we believe that each of the publications, studies and surveys used throughout this Form10-K
are prepared by reputable sources, we have not independently verified market and industry data from third-party sources.All of the market data used in this Form
10-K
involves a number of assumptions and limitations, and you are cautioned not to give undue weight to such estimates. While we believe the estimated market position, market opportunity and market size information included in this Form10-K
is generally reliable, such information, which in part is derived from management’s estimates and beliefs, is inherently uncertain and imprecise and has not been verified by any independent source. Projections, assumptions and estimates of our future performance and the future performance of the industry in which we operate are subject to a high degree of uncertainty and risk due to a variety of factors, including those described in “Item 1A. Risk Factors” of Part I of this Form10-K
and elsewhere in this Form10-K.
These and other factors could cause results to differ materially from those expressed in our estimates and beliefs and in the estimates prepared by independent parties.- 4 -
PART I.
ITEM 1.
BUSINESS
Overview
Meridian is a fully-integrated life science company with principal businesses in: (i) the development, manufacture, sale and distribution of diagnostic testtesting systems and kits, primarily for certain gastrointestinal and respiratory infectious diseases, and elevated blood lead levels; and (ii) the manufacture and distribution of bulk antigens, antibodies, PCR/qPCRimmunoassay blocking reagents, nucleotides,specialized Polymerase Chain Reaction (“PCR”) master mixes, and bioresearch reagents used by IVDother diagnostic test manufacturers and researchers in immunological and molecular tests for human, animal, plant and environmental applications. The Company was incorporated in Ohio in 1976. Our principal corporate offices are located near Cincinnati, Ohio, USA.
Our website is. We make available our Annual Reports on FormSecurities and Exchange Commission (“SEC”).SEC. The SEC maintains an internet site containing these filings and other information regarding Meridian at. The information on our website is not and should not be considered part of this Annual Report on Form
www.meridianbioscience.com
10-K,
Quarterly Reports on Form10-Q,
Current Reports on Form8-K,
Proxy Statements and any amendments thereto, free of charge through this website, as soon as reasonably practicable after such material has been electronically filed with or furnished to the www.sec.gov
10-K.
Reportable Segments
Our reportable segments are Diagnostics and Life Science, both of which are headquartered in Cincinnati, Ohio. Detailed information related to theWe describe these reportable segments can be found in the followingthis “Business” section and in other locations withinin this Annual Report on Form10-K:report:
Type of Segment Information | Location within 10-K | ||
Physical locations and activities | Item 2. “Properties” | ||
Revenue by geographic region | Item 7. “Management’s Discussion and Analysis of Financial Condition & Results of Operations” (hereafter “MD&A”) | ||
Financial information | |||
Diagnostics Segment
Prior to the onset of theiswas clinical diagnostic products, withhistorically representing approximatelyproviding 68%provided 40% of consolidated net revenues for fiscal 2019. As2021, following 48% of September 30, 2019,consolidated net revenues for fiscal 2020. In 2022, we expect our Diagnostics segment hadto contribute approximately 485 employees in ten countries.
50% of our consolidated net revenues.COVID-19
pandemic early in 2020, our largest source of net revenues two-thirds
of our consolidated net revenues. However, primarily due to the effects of theCOVID-19
pandemic, our Diagnostics segment Our clinical diagnostic products provide accuracy, simplicity and speed; enable early diagnosis and treatment of common, acute medical conditions; and provide for better patient outcomes at reduced costs. We target diagnostics for disease states that: (i) are conditions where rapid diagnosis impacts patient outcomes; (ii) have opportunistic demographic and disease profiles; (iii) are underserved by current diagnostic products; and/or (iv) have difficult sample handling requirements (e.g., stool). This approach has allowed us to establish meaningful market share in our target disease states, gastrointestinal and respiratory illnesses, and tests for elevated lead levels in blood.
Our product portfolio includes over 140just under 200 diagnostic tests and transport media, and is marketed to acute care hospitals, reference laboratories, outpatient clinics and physician office laboratories in over 70 countries around the world. Our testing platforms include: Real-time PCR Amplification (Revogene brand); Isothermal DNA Amplification (Alethia brand); Lateral Flow Immunoassay using fluorescent chemistry (Curian brand); Rapid Immunoassay (Immunoand ImmunoSTAT! brands);(BreathID and BreathTek brands).
Card
Card
Enzyme-linked
Immunoassay (PREMIER brand); Anodic Stripping Voltammetry (LeadCare brands); and urea breath testing forH. pylori
- 5 -
Our currentdiagnostic assay research and development pipelineprograms are focused on menu expansion for immunoassay products includes a newour Curian and Revogene instrument that utilizes fluorescent chemistry, which improves workflowplatforms, with disease targets in the gastrointestinal and test result readability. As noted above, this new platformrespiratory areas, as well as next generation blood-chemistry testing. Currently pending clearance at the U.S. Food and Drug Administration (“FDA”) is being branded under the “Curian” name. At the end of fiscal 2019, we submitted a 510(k) application for the Curian Campylobacter assay. Our current new product development pipeline includes gastrointestinal and respiratory multi-plex assays on our Revogene instrument platform, and EHEC Shiga Toxin andcombo common antigen and Toxins A and B on our Curian instrument platform. In addition, we have other assays on both platforms moving through our upstream marketing assessment processes that are expected to add to the FDA for an HpSA rapid immunoassay test for use with the Curian instrument, whichdevelopment pipeline. For our BreathID platform, we are expectingactively looking at the feasibility of combining Urea and Citrica into a single sachet or pouch, which would meaningfully improve our cost of manufacturing BreathID assays. We are also pursuing opportunities to introduce to the market during the second quarter of fiscal 2020. We expect to develop additional rapid immunoassay tests for use with the Curian instrument in 2020 and beyond.
C. difficile
The April 2020 acquisition of Exalenz Bioscience Ltd. (“Exalenz”) and the BreathID system, along with the July 2021 acquisition of the BreathTek business, strengthened our Revogene platform includes, among others, a gastrointestinal (“GI”) panel and a respiratory illness (“RI”) panel. We expect the 510(k) applications for the GI and RI panels to be submitted to the FDAposition in the latter part of fiscal 2020 and first half of fiscal 2021, respectively.testing, as these products provide an alternative
H. pylori
non-invasive
testing approach versus stool antigen testing.Market Trends
Despite the effects of theTheCOVID-19pandemic and the intense focus ontesting, we believe the global market for infectious disease tests continues to expand as new disease states are identified, new therapies become available, and worldwide standards of living and access to health care improve. More importantly, within this market, thereThere is a continuing shift from conventional testing which requires highly trained personnel and lengthy turnaround times for test results, to more technologically advanced testing, which can be performed by less highly trained personnel and completed in minutes or hours.
SARS-CoV-2
The growing global pressures to contain total health care costs have accelerated the increased use of diagnostic testing. With rapid and accurate diagnoses of infectious diseases, physicians can pinpoint appropriate therapies quickly, leading to faster recovery, shorter hospital stays and lower overall treatment cost. IDNsIntegrated Delivery Networks (“IDNs”) in our U.S. market have the goal of increasing the efficiency of health care delivery, reducing spending and improving clinical outcomes. We believe our product portfolio positions us competitively with IDNs and health care systems that are transitioning fromcompensation models to value-based reimbursement. OurC. difficile, Group BStreptococcus, Group AStreptococcusandH. pyloriproducts are all examples of how a highly accurate diagnostic test on the front end can mitigate or reduce down-stream costs of antibiotic use, symptom-relieving drugs and hospital stays.
fee-for-service
We also continue to see aggregation of buying power in our U.S. market via multi-hospital group purchasing organizations and IDNs, consolidation among reference laboratories, hospital laboratories being operated by large reference laboratories, and acquisition of physician practices by hospitals, health systems and
for-profit
specialty health care companies.Cost containment pressures have also affected health care systems outside the U.S., particularly in Europe, where the health care systems are generally
government-run.
The level of government budget deficits can have an adverse effect on the amount of government health care spend.Sales, Marketing and Distribution
Our Diagnostics segment’ssegment relies on direct sales personnel and independent distribution network consists of the following for each of the broad geographic regions we serve:
certain major markets in the EMEA
end-users.
We have two independent distribution customers and a reference laboratory customer that together comprised 33% of Diagnostics segment net revenues in Competition
Our major competitors in molecular diagnostics are Cepheid (a Danaher business) and Becton Dickinson, both of which have systems with multiple-assay menus. We also face competition in molecular diagnostics, but to a lesser degree, from companies such as Abbott (former Alere business) and Quidel.
- 6 -
Our major competitors in rapid immunoassay diagnostics are primarily Abbott (former Alere business) and Quidel. In recent years, companies such as bioMerieux have captured market share in our gastrointestinal category via its BioFire multi-plex panel tests. However, since their introduction to the market, payors have raised concerns over reimbursement levels relative to clinical utility, particularly for panels with 12 or more targets.
For blood lead testing, we believe we have the onlytest available commercially. Other blood lead testing systems in use, marketed by our competitors, include Graphite Furnace Atomic Absorption Spectroscopy, which requires a highly-skilledhighly skilled technician and larger laboratory space to operate, in addition to not being portable or suitable foruse. We believe that with the breadth and depth of ourSee product portfolio, we are well positioned for the clinical laboratory.recall discussion included in “Lead Testing Matters” beginning on page 29 within MD&A.
FDA-cleared,
CLIA-waivedpoint-of-care
point-of-care
Research and Development
Our Diagnostics segment’s research and development personnel are organized into threetrials.trials across all threeexpansion across our Curian, Revogene and PediaStat instrument platforms.expansion. Research and development efforts may occurproduct family and blood lead testing family were developed solelyin-house,or substantially so. See “Operating Expenses” section within MD&A on page 28.
pre-clinical
teams: immunoassay,PCR-based
molecular and blood-chemistry. We have a separate team responsible for execution of clinical pre-clinical
programs. Our research and development activities are focused on new product and new technology development, new applications for our existing technologies, and improvements to existing products, including assay-menu in-house
or with collaborative partners. We believe that new product development is a key source for sustaining revenue growth. The products within our Revogene and Alethia molecular platforms,H. pylori
Manufacturing
Our diagnostics products are manufactured at four principal sites in Billerica, Massachusetts (blood-chemistry); Cincinnati, Ohio (immunoassays and molecular tests); Modi’in, Israel, (urea breath tests for); and Quebec City, Quebec, Canada (molecular tests). Our immunoassay and molecular assay products require the production of highly specialized reagents, primers and enzymes.enzymes, and our BreathID and BreathTek products require the production of urea in pharmaceutical-grade form. We produce the vast majority of our own immunoassay requirements. Reagents, primers and enzymes for our Revogene molecular assay products, as well as primers for our Alethia molecular assay products, and urea for our BreathID and BreathTek systems are purchased from outside vendors. Our blood lead testing products require the production of electrical chemical sensors, which we manufacture using critical raw materials purchased from outside vendors. We believe that we have sufficient manufacturing and sourcing capacity for anticipated growth over the next several years, taking into consideration that we have the ability to add labor shifts and/or production lines as needed.
H. pylori
Intellectual Property, Patents and Licenses
We own or license U.S. and foreign patents, most of which are for select products manufactured by our Diagnostics segment. These patents are used in our manufacturing processes for select products (e.g., method patents) or may relate to the design of the test device technology format (e.g., design patents). In the absence of patent protection, we may be vulnerable to competitors who successfully replicate our production and manufacturing technologies and processes. Our employees are required to sign confidentiality and
non-disclosure
agreements designed to protect our proprietary products.The patents forapplicable to our Alethia products, which represented 13%4%, 16%7% and 17%12% of consolidated net revenues for fiscal 2021, 2020 and 2019, 2018respectively, have been and 2017, respectively, arecontinue to be licensed from a third party, Eiken Chemical Co., Ltd., under aand expire between 2020 and 2022. These patents were issued in the U.S., European Union and other countries. The term of our license agreement runs untilwith the last remaining U.S. patent expiresexpiring in 2022, at which point we will be free to practice the patents without any restriction or royalty obligation.2022.
non-exclusive
license agreement, The patents for the Revogene platform and related products acquired as part of the GenePOC business are either wholly owned or licensed from atwo third party,parties, Laval University and The Regents of California, under an exclusive license agreement. These patents are issued in the U.S., European Union (“EU”) and other countries. The term of our exclusive license agreement and the related patents currently runs until 2036,through June 15, 2034, after which we will be free to practice the patents without any restriction or royalty obligation. ForIn September 2021, the U.S. Patent and Trademark Office granted to Meridian Bioscience Canada Inc. (a wholly owned subsidiary) and Laval University a descriptionpatent for our current Revogene test device and its microfluidic use in our Revogene instrument.
The patents for the BreathID system and related urea breath test forare either wholly owned or licensed from a third party, Oridion Medical 1987 Ltd., under an exclusive, royalty free, license agreement. The licensed and wholly owned patents are issued in the U.S., EU, Israel, Japan, Australia and China. The wholly owned patents have varying expiration dates, with the last being in 2033.
H. pylori
- 7 -
The patents for our stool antigenproducts, owned by us and which represented approximately 16%7%, 16%9% and 15%17% of consolidated net revenues for fiscal 2019, 20182021, 2020 and 2017,2019, respectively, expired in May 2016 in the U.S. and in May 2017 in countries outside the U.S. We expectAs a result, competition with respect to our stool antigenproducts to continue to increase, and such competition may have an adverse impact onhas increased, adversely impacting our selling prices for these products, and/or our ability to retain business at prices acceptable to us,us. To mitigate certain of the pricing and consequently, adversely affect our future results of operations and liquidity, including revenues and gross profit. We have executed on a number of measures to address competitivevolume pressures in coming off patent. In October 2018, we entered intoface within the gastrointestinal product category, we have: (i) operated under a strategic collaboration agreement with DiaSorin to selltests, one of only three other companies that marketFDA-clearedtests to detectH. pyloriantigen in stool samples in the U.S. market. We have executed multi-year supply agreements with our two largest reference laboratory customers forH. pyloriteststests; (ii) adjusted selling prices to secure volume, albeit at lower selling prices. In the first half of fiscalvolume; and (iii) upon FDA clearance in March 2020, we expect to launchlaunched Curian HpSA, our first assay on the new Curian platform, for which the 510(k) application was submitted to the FDA in September 2019. Wewe expect that this product will help us protect our existing rapid assay accountscustomer base using lateral flow tests. We also expect the advantages of the Curian analyzer. However, weBreathID and BreathTek products to mitigate competitive pressures, as these products provide an alternative
H. pylori
H. pylori
H. pylori
non-invasive
option to stool antigen testing. We are unable to provide assurances that we will be successful with any strategy or that any strategy will prevent an adverse effect on our future results of operations and liquidity, including net revenues and gross profit.Government Regulation
Our diagnostic products are regulated by the FDA as “devices” pursuant to the Federal Food, Drug, and Cosmetic Act (“FDCA”). Under the FDCA, medical devices are classified into one of three classes (i.e., Class I, II or III). Class I and II devices are not expressly approved by the FDA, but, instead, are “cleared” for marketing. Class III devices generally must receivein Cincinnati and Billerica are subject to periodic inspection by the FDA. See page 2529 within MD&A for discussion regarding the FDA’s inspection of our Billerica facility.
“pre-market
approval” (“PMA”) from the FDA as to safety and effectiveness. Our diagnostics manufacturing facilities Each of the diagnostic products currently marketed by usMeridian in the United StatesU.S. has been cleared, approved or authorized for use by the FDA or are exempt from such requirements. The majority of such products have been cleared by the FDA pursuant to theits 510(k) clearance process, with our BreathTek product having been approved under the FDA’s PMA process. In the case of our Revogenetest, it has not been FDA cleared or is exempt from such requirements.approved but rather has been authorized by the FDA for emergency use under its Emergency Use Authorization (“EUA”) process. We believe that most but not all, products under development will be classified as Class I or II medical devices and, in the case of most of our Class I and all Class II devices, will be eligible for 510(k) clearance; however, we can make no assurances in this regard. Our urea breath test foron the BreathID system was cleared as a Class I medical device since the urea drug component was approved by the FDA separately via the New Drug Application process. Our urea breath test foron the BreathTek system was approved by the FDA via the PMA process in 2012. Ourtest on the Revogene platform was submitted to the FDA under its EUA program on June 25, 2021, with EUA being granted on November 9, 2021.
SARS-CoV-2
H. pylori
H. pylori
SARS-CoV-2
Sales of our diagnostic products in foreign countries are subject to foreign government regulation, which is similar to that of the FDA.
Our Diagnostics segment facilities are certified to ISO 13485:2016.13485.
Life Science Segment
Our Life Science segment focuses on the development, manufacture, saledevelops, manufactures, sells and distribution ofdistributes bulk antigens, antibodies, PCR/qPCRimmunoassay blocking reagents, specialized PCR master mixes, isothermal reagents, enzymes, nucleotides, and bioresearch reagents used predominantly by researchers,agri-bioin vitro device (“IVD”) manufacturing companies, and IVD manufacturing companies. As of September 30, 2019, our Life Science segment had approximately 175 employees in six countries.to a lesser degree, by researchers andMost ofCOVID-19pandemic has provided the revenuesopportunity for our Life Science segment currently come fromto showcase the manufacture, salebreadth of its reagent products across not onlytesting platforms (molecular, rapid antigen and distribution of bulk antigens, antibodies, PCR/qPCR reagents, nucleotides,serology), but also RNA and bioresearch reagents used by IVD manufacturing companies focused on the development of immunoassay andDNA based molecular assay tests. Approximately 80%tests for nearly any infectious disease. For fiscal 2021, approximately 87% of Life Science segment net revenues arewere generated from the industrial market, defined as IVD manufacturers. This continues to be an increasing focusmanufacturers, and reagents for our molecular reagent products, which historically have been marketed to the academic/research customers that comprise the remaining 20%use intests contributed approximately $111,900 of Life Science revenues.net revenues, following $71,500 in fiscal 2020. We utilizeengage direct sales teams in key countries such as the U.S., the United Kingdom (“U.K.”), France, Germany, China and Australia. In order to further pursue revenue opportunities in Asia, and China in particular, during fiscal 2017 we established a wholly foreign owned enterprise (“WFOE”) location in Beijing, China, after having operated a representative office there since fiscal 2015. The WFOE employs a business development staff and imports product for sale to customers in China. We utilize a network of distributors in other major countries. During fiscal 2019, 24%2021, 22% of third-partynet revenues for this segment were from twothree IVD manufacturing customers.
non-human
clinical customers such as veterinary, food and environmental. TheSARS-CoV-2
SARS-CoV-2
- 8 -
Our Life Science segment products are marketed to IVD manufacturing customers as a source of raw materials for their immunoassay products,human clinical diagnostics tests, or as an outsourced step in their manufacturing processes. For example,Selectively, we supply a number of major IVD manufacturers with proteins used to detect hepatitis A virusseek and rubella virus. Sales efforts are focused onmaintain multi-year supply arrangements in order to provide stability in volumes and pricing. We believe this benefits both us andIndependent distributors market our customers.
Market Trends
Competition
The market for bulk biomedical reagents is highly competitive. Important competitive factors includewith respect to product quality, price, customer service and reputation. We faceOur competitors, many of whichsuch as Thermo Fisher, often have greater financial, research and development, sales and marketing, and manufacturing resources, and where sole-source supply arrangements do not exist.resources. Customers also may choose to manufacture their biomedical reagentsoutside vendors such as Meridian.
in-house
rather than purchase from Research and Development
air-dryable
and lyophilization-ready forms, and isothermal reagents in bothair-dryable
and lyophilization-ready forms. We also have enzyme development programs that meet the EU Registration, Evaluation, Authorization, and Restriction of Manufacturing and Government Regulation
Our Life Science segment facilities are ISO 13485:2016 certified. Additionally,13485 certified, and where appropriate, our Life Science segment facilities comply with Regulation EC 1069:2009.
International Markets
International markets are an important source of net revenues and future growth opportunities for both of our reportable segments. For both reportable segments combined, net revenues from customers located outside of the United StatesU.S. and its territories approximated $76,000$173,000 or 38%55% of consolidated fiscal 20192021 net revenues, $73,000$122,000 or 34%48% of consolidated fiscal 20182020 net revenues, and $67,000$74,000 or 33%37% of consolidated 2019 net revenues. Since the outbreak of the2017 revenues. We2020 and throughout fiscal 2021, a significantly higher percentage of our Life Science segment’s net revenues have been generated from international markets, and we expect to continue to look to key European and Asian markets as a source of revenue growth in the future for both business units.growth. For the Life Science segment, we have also focusedcontinue to focus resources on IVD manufacturing customers in China.China, India, Japan and Korea. To date, we have not experienced any adverse effects from the trade tensions between the United StatesU.S. and China, but we cannot be sure that we will not experience any adverse effects in the future.
COVID-19
pandemic in fiscal Fluctuations in foreign currency exchange rates sincein fiscal 20182021 compared to fiscal 2020 had an approximate $2,200$9,200 favorable impact on consolidated 2021 net revenues; $1,300 within the Diagnostics segment and $7,900 within the Life Science segment. This compares tocurrency exchange rates having an approximate $1,250 unfavorable impact on consolidated net revenues in 2020; $150 within the Diagnostics segment and $1,100 within the Life Science segment. In fiscal 2019, revenues;the unfavorable effect on net revenues totaled $2,200; $1,150 within the Diagnostics segment and $1,050 within the Life Science segment. This compares to
year-to-year
- 9 -
Environmental
We are in compliance with applicable portions of the federal and state hazardous waste regulations and have never been a party to any environmental proceeding.
Human Capital
As of September 30, 2021, our Diagnostics segment had approximately 560 employees in ten countries, our Life Science segment had approximately 200 employees in seven countries, and Corporate had five employees, all in the U.S. Approximately 55% of our employees are women. In addition, of our U.S. based employees, which represents approximately 60% of our total worldwide workforce, approximately 25% are ethnically diverse.
Below is additional demographic information about our current employee base as of September 30, 2021.
Meridian Employees | 2021 | |||
Salaried workforce | 543 | |||
Managers and above | 159 | |||
Part-time employees | 27 | |||
Average age | 43 | |||
Average length of service in years | 7 | |||
Employee turnover rate (voluntary) | 19 | % | ||
Fiscal 2021 net revenues per employee (in thousands) | $ | 415 | ||
Equal Employment Opportunity Table (by number of employees) U.S. Employee Diversity as of September 30, 2021 | ||||||||||||||||||||||||||||||
Job category | Gender | White | Black/African American | Hispanic/Latino | Asian | American Indian/Alaskan Native | Two or more races | Total | ||||||||||||||||||||||
Executive/senior level officials and managers | Male | 12 | — | — | — | — | — | 12 | ||||||||||||||||||||||
| Female | 3 | — | 1 | — | — | — | 4 | |||||||||||||||||||||||
First/mid-level officials and managers | Male | 41 | 4 | 2 | 3 | — | — | 50 | ||||||||||||||||||||||
| Female | 36 | 4 | — | 4 | — | 1 | 45 | |||||||||||||||||||||||
Professionals | Male | 60 | 4 | 4 | 5 | — | 1 | 74 | ||||||||||||||||||||||
| Female | 71 | 9 | 5 | 9 | — | 2 | 96 | |||||||||||||||||||||||
All other | Male | 59 | 11 | 8 | 5 | — | 1 | 84 | ||||||||||||||||||||||
| Female | 83 | 18 | 7 | 8 | — | 2 | 118 | |||||||||||||||||||||||
Total | Male | 172 | 19 | 14 | 13 | — | 2 | 220 | ||||||||||||||||||||||
| Female | 193 | 31 | 13 | 21 | — | 5 | 263 | |||||||||||||||||||||||
We believe that developing a diverse, equitable and inclusive culture is critical to continuing to attract and retain the top talent necessary to deliver on our growth strategy. As such, we continue to invest in the creation of a work environment where our employees can feel inspired to deliver their workplace best every day. We continue to expand our Human Resources Information System (“HRIS”) and other systems to track key human capital metrics, including workforce demographics, diversity, turnover, engagement, and training data.
Diversity, Equity and Inclusion
In 2020, we initiated the “One Meridian Inclusion Diversity and Equity Team,” which is comprised of a group of employees around the world and led by Dr. Lourdes Weltzien, Executive Vice President, Life Science. This team has developed a mission statement and promotes awareness so we can encourage and support an environment in which all employees feel included and empowered to achieve their best.
- 10 -
Compensation and Benefits
We strive to provide pay, benefits, and services that are competitive to market and create incentives to attract and retain employees globally. Our compensation packages include market-competitive pay, cash bonuses, health care and retirement benefits, paid time off, and family leave, among others, depending upon locale. We are focused on pay equity globally and are striving to close the gap in pay among similar roles and responsibilities in certain locations within our organization, after accounting for legitimate business factors that can explain differences, such as performance, time at grade level, and tenure. We intend to conduct market surveys every two years to assess market compensation levels from a total compensation perspective. We also continue to advance transparency in our pay and representation data by complying with all applicable statutory filing requirements.
Communication and Engagement
We strongly believe that Meridian’s success depends on employees understanding how their work contributes to the Company’s overall strategy. To this end, we utilize a variety of channels to facilitate open and direct communication, including: (i) One Meridian Company-wide intranet; (ii) quarterly CEO update videos; (iii) open forums or town hall meetings with executives; (iv) regular ongoing update communications; and (v) employee engagement surveys.
Health, Wellness and Safety
We are committed to the safety of our employees and communities, from operations to product development to supplier partnerships. Our ultimate goal is to achieve zero serious injuries through continued investment in, and focus on, our core safety programs and injury-reduction initiatives. We provide access to a variety of innovative, flexible, and convenient health and wellness tools.
ITEM 1A.
RISK FACTORS
In addition to the other information set forth in this report, you should carefully consider the following factors, which could materially affect our business, financial condition, cash flows or future results. Any one of these factors could cause our actual results to vary materially from recent results or from anticipated future results. The risks described below are not the only risks facing our company. Additional risks and uncertainties not currently known to us, or that we currently deem to be immaterial, also may materially adversely affect our business, financial condition and/or operating results.
Risk Factors Summary
Risks Affecting GrowthRelated to Our Strategy
Our financial condition, results of operations and Profitabilitycash flows could be adversely affected by the ongoing and evolving
COVID-19
pandemic.Net revenues for our Diagnostics segment may be impacted by our reliance upon large customers in North America, seasonal factors and sporadic outbreaks, and changing diagnostic market conditions.
Net revenues for our Life Science segment may be impacted by customer concentrations and buying patterns.
Intense competition could adversely affect our profitability and operating results.
We expect to continue to face increased competition resulting from the expiration of our Businesspatents.
H. pylori
Risks Related to our Intellectual Property
We may be unable to protect or obtain adequate patent protection for intellectual property that we utilize or intend to utilize.
Product infringement claims by other companies could result in costly disputes and could limit our ability to sell our products.
Risks Related to our Operations
We may be unable to develop new products or acquire products on favorable terms.
- 11 -
We may be unable to successfully integrate operations or to achieve expected cost savings from acquisitions we make.
The effective tax rate of the Company may be negatively impacted by changes in the mix of earnings as well as future changes to tax laws in global jurisdictions in which we operate.
Significant interruptions in production at our principal manufacturing facilities and/or third-party manufacturing facilities could adversely affect our business and operating results.
We depend on sole-source suppliers for certain critical raw materials, components and finished products. A supply interruption could adversely affect our business.
Our ability to meet future customer demand for selected products is dependent upon our ability to successfully manage our manufacturing capacity and supply chains.
Increased prices for, poor quality of, or extended inability to source raw materials or services used in our products, and supply chain disruptions, could adversely affect profitability.
Risks Related to Legal, Regulatory and International Matters
We are subject to comprehensive regulation, and our ability to earn profits may be restricted by these regulations.
If we or our third-party vendors fail to comply with FDA regulations relating to the manufacturing of our products or any component part, we may be subject to fines, injunctions and penalties, and our ability to commercially distribute and sell our products may be negatively impacted.
We incur costs and demands upon management as a result of complying with the laws and regulations affecting public companies in the U.S., and failure to comply with these laws could harm our business and the price of our common stock.
We could be adversely affected by health care reform legislation.
Efforts to reduce the U.S. federal deficit could adversely affect our results of operations.
Global market, political, environmental, and economic conditions, including those related to the financial markets, could have a material adverse effect on our operating results, financial condition, and liquidity.
We depend on international net revenues, and our operating results may be adversely impacted by foreign currency, regulatory or other developments affecting international markets.
New tariffs and other trade measures could adversely affect our operating results.
If product liability lawsuits are successfully brought against us, we may incur substantial liabilities and may have to limit or cease sales of our products.
Risks Related to Our Common Stock
The market price of our common stock may be volatile and fluctuate significantly, which could result in substantial losses for stockholders and subject us to litigation.
Our business could be negatively impacted as a result of shareholder activism, an unsolicited takeover proposal or a proxy contest.
The authority of our board to issue preferred stock and the effects of certain provisions of Ohio corporation law may discourage takeover bids.
General Risk Factors
One or more cybersecurity incidents may adversely impact our financial condition, results of operations and reputation.
Our business could be negatively affected if we are unable to attract, hire and retain key personnel.
Our bank credit agreement imposes restrictions with respect to our operations, which could adversely impact our business.
Risks Related to Our Strategy
Our financial condition, results of operations and cash flows could be adversely affected by the ongoing and evolving
COVID-19
pandemic.Any outbreak of contagious diseases, such as
COVID-19,
or other adverse public health developments, could have material and adverse effects on our business operations. Such adverse effects could include diversion or prioritization of health care resources away from the conduct of diagnostic testing, disruptions of or restrictions on the ability of laboratories to process our tests, and delays with respect to or difficulties in patients accessing our tests, including those resulting from an inability to travel as a result of quarantines or other restrictions resulting fromCOVID-19.
AsCOVID-19
continues to affect individuals and businesses around the globe, we may experience disruptions that could severely impact our business, including:- 12 -
decreased volume of testing and related sales of certain of our Diagnostics segment products as a result of disruptions to health care providers and limitations on the ability of providers to administer tests;
disruptions or restrictions on the ability of the Company’s, our collaborators’, or our suppliers’ personnel to travel, and temporary closures of our facilities, or the facilities of our collaborators or suppliers;
limitations on employee resources that would otherwise be focused on the development of our products, the processing of our diagnostic tests, and/or the conduct of our clinical trials, because of illness of employees or their families, or requirements imposed on employees to avoid contact with large groups of people; and
delays in necessary interactions with local regulators, ethics committees, and other important agencies and contractors due to limitations in employee resources or forced furlough of government employees.
In addition, the continued spread of
COVID-19
globally could adversely affect our manufacturing and supply chains. Parts of our direct and indirect supply chains are located overseas, including in China, and may accordingly be subject to disruption. Additionally, our results of operations could be adversely affected to the extent thatCOVID-19
or any other epidemic harms our business or the economy in general either domestically or in any other region in which we do business. The extent to whichCOVID-19
affects our operations will depend on future developments, which are highly uncertain and cannot be predicted with confidence, including the duration of the outbreak, new information that may emerge concerning the severity ofCOVID-19,
and the actions to containCOVID-19
or treat its impact, among others, which could have an adverse effect on our business, results of operations and financial condition. Over the course of theCOVID-19
pandemic, we have generally seen a slowing of our assay instrument placements and sales of related test kits, as diagnostic testing sites turned their attention to critical care testing. We are unable to predict when expected sales volume levels for our instruments and related test kits will return. Also, as a result of theCOVID-19
pandemic, certain clinical trials related to our products which were underway or scheduled to begin have been temporarily placed on hold. Such delays will impact our timing for filing applications for product clearances with the FDA, as well as related timing of FDA clearances of such filings. Additionally, theCOVID-19
pandemic could slow down our efforts to expand our product portfolio through acquisition opportunities, impacting the speed with which we are able to bring additional products to market.Net revenues for our Diagnostics segment may be impacted by our reliance upon large customers in North America, seasonal factors and sporadic outbreaks, and changing diagnostic market conditions.
Key Distributors
Our Diagnostics segment’s net revenues from sales through three customers, including two key distributors, were approximately 33%, 32% and 31% of the Diagnostics segment’s total net revenues for 2021, 2020 and 2019, respectively, or approximately 13%, 15% and 21%, respectively, of each year’s consolidated net revenues. The loss of any one of these customers could negatively impact our net revenues and results of operations unless suitable alternatives were timely found or in the case of distributor customers, lost sales to one distributor were absorbed by another distributor. Finding a suitable alternative on satisfactory terms may pose challenges in our industry’s competitive environment. As an alternative, we could expand our efforts to distribute and market our products directly. This alternative, however, would require substantial investment in additional sales, marketing and logistics resources, including hiring additional sales and customer service personnel, which would significantly increase our future selling, general and administrative expenses.
In addition, buying patterns of these customers may fluctuate from quarter to quarter, potentially leading to uneven concentration levels on a quarterly basis.
Seasonal Factors and Sporadic Outbreaks
Our principal business is the sale of a broad range of diagnostic test kits for common gastrointestinal and respiratory infectious diseases, and elevated blood lead levels. Certain infectious diseases may be seasonal in nature, while others may be associated with sporadic outbreaks, such as foodborne illnesses or pandemics such as an influenza outbreak or the
COVID-19
pandemic. While we believe that the breadth of our Diagnostics segment product lines normally reduces the risk that infections subject to seasonality and sporadic outbreaks will cause significant variability in Diagnostics segment net revenues, theCOVID-19
pandemic has had a significant adverse impact on our Diagnostics segment net revenues since it began in fiscal 2020. Accordingly, we can make no assurance that net revenues will not be negatively impacted period over period by such factors.- 13 -
Changing Diagnostic Market Conditions
Changes in the U.S. health care delivery system have resulted in consolidation among reference laboratories, hospital laboratories being operated by large reference laboratories, and the formation of multi-hospital alliances, reducing the number of institutional customers for diagnostic test products. Consolidation in the U.S. health care industry has also led to the creation of group purchasing organizations (“GPOs”) and IDNs that aggregate buying power for hospital groups and put pressure on our selling prices. Due to such consolidation, we may not be able to enter into and/or sustain contractual or other marketing or distribution arrangements on a satisfactory commercial basis with institutional customers, GPOs and/or IDNs, which could adversely affect our results of operations.
Net revenues for our Life Science segment may be impacted by customer concentrations and buying patterns.
Our Life Science segment’s net revenues from three diagnostic manufacturing customers were 22%, 30% and 27% of the Life Science segment’s total net revenues for 2021, 2020 and 2019, respectively. Sales to these three diagnostic manufacturing customers comprised 13%, 16% and 9% of consolidated net revenues for 2021, 2020 and 2019, respectively. In addition, in excess of 10% of the Life Science segment’s total net revenues has historically been concentrated among a number of other significant customers. Any significant alteration of buying patterns from these customers resulting from the decline in
COVID-19
related demand, or otherwise, could adversely affect our period over period net revenues and results of operations.Intense competition could adversely affect our profitability and operating results.
The markets for our products and services are characterized by substantial competition and rapid change. Hundreds of companies around the world supply diagnostic tests and immunoassay and molecular reagents. These companies range from multinational health care entities, for which diagnostics is one line of business, to small
start-up
companies. Many of our competitors have significantly greater financial, technical, manufacturing and marketing resources than we do. We cannot provide assurance that our products and services will be able to compete successfully with the products and services of our competitors.We expect to continue to face increased competition resulting from the expiration of our H. pylori patents.
The patents for our stool antigenproducts, owned by us, expired in May 2016 in the U.S. and in May 2017 in countries outside the U.S. As a result, competition with respect to our stool antigenproducts, high margin products which represent approximately 7% of our total net revenues has increased, adversely impacting our selling prices for these products, and/or our ability to retain business at prices acceptable to us. To mitigate certain of the pricing and volume pressures we face within the gastrointestinal product category, we have: (i) operated under a strategic collaboration agreement with DiaSorin to selltests; (ii) adjusted selling prices to secure volume; and (iii) upon FDA clearance in March 2020, launched Curian HpSA, our first assay on the Curian platform, which we expect will help protect our existing customer base using lateral flow tests. We also expect the BreathID and BreathTek products to mitigate competitive pressures, as these systems provide an alternative
H. pylori
H. pylori
H. pylori
non-invasive
option to stool antigen testing. We are unable to provide assurances that we will be successful with any strategy or that any strategy will prevent an adverse effect on our future results of operations and liquidity, including net revenues and gross profit.Risks Related to Our Intellectual Property
We may be unable to protect or obtain adequate patent protection for intellectual property that we utilize or intend to utilize.
In developing and manufacturing our products, we employ a variety of proprietary and patented technologies. In addition, we have licensed, and expect to continue to license, various complementary technologies and methods from academic institutions and public and private companies. We cannot provide assurance that the technologies that we own or license provide protection from competitive threats or from challenges to our intellectual property. In addition, we cannot provide assurances that we will be successful in obtaining and retaining licenses, or proprietary or patented technologies, in the future.
- 14 -
Product infringement claims by other companies could result in costly disputes and could limit our ability to sell our products.
Litigation over intellectual property rights is prevalent in the life science and diagnostic industries. As the market for diagnostics continues to grow and the number of participants in the market increases, we may increasingly be subject to patent infringement claims. It is possible that a third party may claim infringement against us. If found to infringe, we may attempt to obtain a license to such intellectual property; however, we may be unable to do so on favorable terms, or at all. Additionally, if our products are found to infringe on third-party intellectual property, we may be required to pay damages for past infringement and lose the ability to sell certain products, causing our revenues to decrease. Any substantial loss resulting from such a claim could have a material adverse effect on our profitability, and the damage to our reputation in the industry could have a material adverse effect on our future results of operations and liquidity, including net revenues and gross profit.
Risks Related to Our Operations
We may be unable to develop new products and services or acquire products and services on favorable terms.
The medical diagnostic and life science industries are characterized by ongoing technological developments and changing customer requirements. As such, our results of operations and continued growth depend, in part, on our ability in a timely manner to develop or acquire rights to, and successfully introduce into the marketplace, enhancements of existing products and services, or new products and services that incorporate technological advances, meet customer requirements, and/or respond to products developed by our competition. We cannot provide any assurance that we will be successful in developing or acquiring such rights to products and services on a timely basis, or that such products and services will adequately address the changing needs of the marketplace, either of which could adversely affect our results of operations.
In addition, we must regularly allocate considerable resources to research and development of new or acquired products, services and technologies, and protecting intellectual property. The research and development process generally takes a significant amount of time from research to product launch. This process is conducted in various stages. During each stage, there is a risk that we will not achieve our goals on a timely basis, or at all, and we may have to abandon a productproject in which we have invested substantial resources, any of which could adversely affect our results of operations.
We may be unable to successfully integrate operations or to achieve expected cost savings from acquisitions we make.
One of our growth strategies is the acquisition of companies and/or products. Although additional acquisitions of companies and products may enhance the opportunity to increase net earnings over time, such acquisitions could result in greater administrative burdens, increased exposure to the uncertainties inherent in marketing new products, financial risks of additional operating costs, disrupted operations, challenges in employee retention, and increased risk of asset impairments if future net revenues and cash flows are deficient. The principal benefits expected to result from any acquisitions we make will not be achieved fully unless we are able to successfully integrate the operations of the acquired entities with our operations and realize the anticipated synergies, cost savings and growth opportunities from integrating these businesses into our existing businesses. We cannot provide assurance that we will be able to identify and complete additional acquisitions on terms we consider favorable or that, if completed, will be successfully integrated into our operations. Furthermore, we cannot predict the outcome of goodwill impairment testing and the impact of goodwill impairments on the Company’s net earnings and financial results.
The effective tax rate of the Company may be negatively impacted by changes in the mix of earnings as well as future changes to tax laws in global jurisdictions in which we operate.
We are subject to income taxes in the U.S. and various other global jurisdictions. Our effective tax rate could be adversely affected by health care reform legislation.
- 1215 -
Significant interruptions in production at our principal manufacturing facilities and/or third-party manufacturing facilities would adversely affect our business and operating results.
Products and services manufactured at facilities we own or lease comprised a majority of our net revenues. Our global supply of these products and services is dependent on the uninterrupted and efficient operation of these facilities. In addition, we currently rely on a small number of third-party manufacturers to produce certain of our diagnostic products and product components. The operations of our facilities or these third-party manufacturing facilities could be adversely affected by power failures, or natural or other disasters such as earthquakes, floods, tornadoes or terrorist threats. Although we carry insurance to protect against certain business interruptions at our facilities, there can be no assurance that such coverage will be adequate or that such coverage will continue to remain available on acceptable terms, if at all. Any significant interruption in the Company’s or a third-party supplier’s manufacturing capabilities, including interruptions that have resulted from product recall activities like those currently being experienced in our Billerica facility (see “Lead Testing Matters” beginning on page 29 within MD&A) could materially and adversely affect our operating results.results of operations.
We depend on sole-source suppliers for certain critical raw materials, components and finished products. A supply interruption could adversely affect our business.
Risks Related to Our diagnostic products are made from a wide variety of raw materials that are biological or chemical in nature, and that generally are available from multiple sources of supply. We sole-source certain raw materials and components, which makes it time consuming and costly to switch raw materials and components inFDA-clearedproducts. If certain suppliers fail to supply required raw materials or components, we will need to secure other sources which may require us to conduct additional development and testing and obtain regulatory approval. These activities require significant time and resources, and there is no assurance that new sources will be secured or regulatory approvals, if necessary, will be obtained.
Our business could be negatively impacted as a result of shareholder activism, an unsolicited takeover proposal or a proxy contest.
The authority of our board to issue preferred stock and the manufacturing foreffects of certain finished diagnostic productsprovisions of Ohio corporation law may discourage takeover bids.
General Risk Factors
One or more cybersecurity incidents may adversely impact our financial condition, results of operations and reputation.
Our business could be negatively affected if we are unable to third parties. A disruption inattract, hire and retain key personnel.
Our bank credit agreement imposes restrictions with respect to our operations, which could adversely impact our business.
Risks Related to Our Strategy
Our financial condition, results of operations and cash flows could be adversely affected by the supplyongoing and evolving
COVID-19
pandemic.Any outbreak of these finished productscontagious diseases, such asa material and adverse effecteffects on our business untiloperations. Such adverse effects could include diversion or prioritization of health care resources away from the conduct of diagnostic testing, disruptions of or restrictions on the ability of laboratories to process our tests, and delays with respect to or difficulties in patients accessing our tests, including those resulting from an inability to travel as a result of quarantines or other restrictions resulting fromfind another supplier or bring manufacturingin-house.
COVID-19,
or other adverse public health developments, could have COVID-19.
AsCOVID-19
continues to affect individuals and businesses around the globe, we may experience disruptions that could severely impact our business, including:
- 1612 -
disruptions or restrictions on the ability of the Company’s, our anticipated future growth effectively, it may becomecollaborators’, or our suppliers’ personnel to travel, and temporary closures of our facilities, or the facilities of our collaborators or suppliers;
limitations on employee resources that would otherwise be focused on the development of our products, the processing of our diagnostic tests, and/or the conduct of our clinical trials, because of illness of employees or their families, or requirements imposed on employees to avoid contact with large groups of people; and
delays in necessary for usinteractions with local regulators, ethics committees, and other important agencies and contractors due to enhancelimitations in employee resources or forced furlough of government employees.
In addition, the continued spread ofchain capabilities, infrastructurechains. Parts of our direct and operations, information technology infrastructure,indirect supply chains are located overseas, including in China, and financial and accounting systems and controls. Organizational growth andscale-upmay accordingly be subject to disruption. Additionally, our results of operations could strainbe adversely affected to the extent thatexisting managerial, operational,business or the economy in general either domestically or in any other region in which we do business. The extent to whichother resources. If our management issales of related test kits, as diagnostic testing sites turned their attention to critical care testing. We are unable to effectively preparepredict when expected sales volume levels for our expectedinstruments and related test kits will return. Also, as a result of the
COVID-19
globally could adversely affect our manufacturing and supply COVID-19
or any other epidemic harms our COVID-19
affects our operations will depend on future developments, which are highly uncertain and cannot be predicted with confidence, including the duration of the outbreak, new information that may emerge concerning the severity ofCOVID-19,
and the actions to containCOVID-19
or treat its impact, among others, which could have an adverse effect on our business, results of operations and financial condition. Over the course of theCOVID-19
pandemic, we have generally seen a slowing of our assay instrument placements and COVID-19
pandemic, certain clinical trials related to our products which were underway or scheduled to begin have been temporarily placed on hold. Such delays will impact our timing for filing applications for product clearances with the FDA, as well as related timing of FDA clearances of such filings. Additionally, theCOVID-19
pandemic could slow down our efforts to expand our product portfolio through acquisition opportunities, impacting the speed with which we are able to bring additional products to market.Net revenues for our Diagnostics segment may be impacted by our reliance upon large customers in North America, seasonal factors and sporadic outbreaks, and changing diagnostic market conditions.
Key Distributors
Our Diagnostics segment’s net revenues from sales through three customers, including two key distributors, were approximately 33%, 32% and 31% of the Diagnostics segment’s total net revenues for 2021, 2020 and 2019, respectively, or approximately 13%, 15% and 21%, respectively, of each year’s consolidated net revenues. The loss of any one of these customers could negatively impact our net revenues and results of operations unless suitable alternatives were timely found or in the case of distributor customers, lost sales to one distributor were absorbed by another distributor. Finding a suitable alternative on satisfactory terms may pose challenges in our industry’s competitive environment. As an alternative, we could expand our efforts to distribute and market our products directly. This alternative, however, would require substantial investment in additional sales, marketing and logistics resources, including hiring additional sales and customer service personnel, which would significantly increase our future growth,selling, general and administrative expenses.
In addition, buying patterns of these customers may fluctuate from quarter to quarter, potentially leading to uneven concentration levels on a quarterly basis.
Seasonal Factors and Sporadic Outbreaks
Our principal business is the sale of a broad range of diagnostic test kits for common gastrointestinal and respiratory infectious diseases, and elevated blood lead levels. Certain infectious diseases may be seasonal in nature, while others may be associated with sporadic outbreaks, such as foodborne illnesses or pandemics such as an influenza outbreak or theexpenses may increase more than anticipated,Diagnostics segment product lines normally reduces the risk that infections subject to seasonality and sporadic outbreaks will cause significant variability in Diagnostics segment net revenues, therevenue could grow more slowly than expected,Diagnostics segment net revenues since it began in fiscal 2020. Accordingly, we can make no assurance that net revenues will not be negatively impacted period over period by such factors.
COVID-19
pandemic. While we believe that the breadth of our COVID-19
pandemic has had a significant adverse impact on our - 13 -
Changing Diagnostic Market Conditions
Changes in the U.S. health care delivery system have resulted in consolidation among reference laboratories, hospital laboratories being operated by large reference laboratories, and the formation of multi-hospital alliances, reducing the number of institutional customers for diagnostic test products. Consolidation in the U.S. health care industry has also led to the creation of group purchasing organizations (“GPOs”) and IDNs that aggregate buying power for hospital groups and put pressure on our selling prices. Due to such consolidation, we may not be able to achieveenter into and/or sustain contractual or other marketing or distribution arrangements on a satisfactory commercial basis with institutional customers, GPOs and/or IDNs, which could adversely affect our commercialization, profitability, or product development goals. Our failure to effectively implement the necessary processes and procedures and otherwise prepareresults of operations.
Net revenues for our anticipated growthLife Science segment may be impacted by customer concentrations and buying patterns.
Our Life Science segment’s net revenues from three diagnostic manufacturing customers were 22%, 30% and 27% of the Life Science segment’s total net revenues for 2021, 2020 and 2019, respectively. Sales to these three diagnostic manufacturing customers comprised 13%, 16% and 9% of consolidated net revenues for 2021, 2020 and 2019, respectively. In addition, in excess of 10% of the Life Science segment’s total net revenues has historically been concentrated among a number of other significant customers. Any significant alteration of buying patterns from these customers resulting from the decline in
COVID-19
related demand, or otherwise, could adversely affect our period over period net revenues and results of operations.Intense competition could adversely affect our profitability and operating results.
The markets for our products and services are characterized by substantial competition and rapid change. Hundreds of companies around the world supply diagnostic tests and immunoassay and molecular reagents. These companies range from multinational health care entities, for which diagnostics is one line of business, to small
start-up
companies. Many of our competitors have significantly greater financial, technical, manufacturing and marketing resources than we do. We cannot provide assurance that our products and services will be able to compete successfully with the products and services of our competitors.We expect to continue to face increased competition resulting from the expiration of our H. pylori patents.
The patents for our stool antigenproducts, owned by us, expired in May 2016 in the U.S. and in May 2017 in countries outside the U.S. As a materialresult, competition with respect to our stool antigenproducts, high margin products which represent approximately 7% of our total net revenues has increased, adversely impacting our selling prices for these products, and/or our ability to retain business at prices acceptable to us. To mitigate certain of the pricing and volume pressures we face within the gastrointestinal product category, we have: (i) operated under a strategic collaboration agreement with DiaSorin to selltests; (ii) adjusted selling prices to secure volume; and (iii) upon FDA clearance in March 2020, launched Curian HpSA, our first assay on the Curian platform, which we expect will help protect our existing customer base using lateral flow tests. We also expect the BreathID and BreathTek products to mitigate competitive pressures, as these systems provide an alternativefinancial results of operations and condition.liquidity, including net revenues and gross profit.
H. pylori
H. pylori
H. pylori
non-invasive
option to stool antigen testing. We are unable to provide assurances that we will be successful with any strategy or that any strategy will prevent an adverse effect on our future Risks Related to Our Intellectual Property and Product Liability
We may be unable to protect or obtain proprietary rightsadequate patent protection for intellectual property that we utilize or intend to utilize.
In developing and manufacturing our products, we employ a variety of proprietary and patented technologies. In addition, we have licensed, and expect to continue to license, various complementary technologies and methods from academic institutions and public and private companies. We cannot provide assurance that the technologies that we own or license provide protection from competitive threats or from challenges to our intellectual property. In addition, we cannot provide assurances that we will be successful in obtaining and retaining licenses, or proprietary or patented technologies, in the future.
- 14 -
Product infringement claims by other companies could result in costly disputes and could limit our ability to sell our products.
Litigation over intellectual property rights is prevalent in the life science and diagnostic industry.industries. As the market for diagnostics continues to grow and the number of participants in the market increases, we may increasingly be subject to patent infringement claims. It is possible that a third party may claim infringement against us. If found to infringe, we may attempt to obtain a license to such intellectual property; however, we may be unable to do so on favorable terms, or at all. Additionally, if our products are found to infringe on third-party intellectual property, we may be required to pay damages for past infringement and lose the ability to sell certain products, causing our revenues to decrease. Any substantial loss resulting from such a claim could have a material adverse effect on our profitability, and the damage to our reputation in the industry could have a material adverse effect on our business.future results of operations and liquidity, including net revenues and gross profit.
Risks Related to Our Operations
The testing, manufacturing and marketing of medical diagnostic and life science industries are characterized by ongoing technological developments and changing customer requirements. As such, our results of operations and continued growth depend, in part, on our ability in a timely manner to develop or acquire rights to, and successfully introduce into the marketplace, enhancements of existing products involves anand services, or new products and services that incorporate technological advances, meet customer requirements, and/or respond to products developed by our competition. We cannot provide any assurance that we will be successful in developing or acquiring such rights to products and services on a timely basis, or that such products and services will adequately address the changing needs of the marketplace, either of which could adversely affect our results of operations.
In addition, we must regularly allocate considerable resources to research and development of new or acquired products, services and technologies, and protecting intellectual property. The research and development process generally takes a significant amount of time from research to product launch. This process is conducted in various stages. During each stage, there is a risk that we will not achieve our goals on a timely basis, or at all, and we may have to abandon a project in which we have invested substantial resources, any of which could adversely affect our results of operations.
We may be unable to successfully integrate operations or to achieve expected cost savings from acquisitions we make.
One of our growth strategies is the acquisition of companies and/or products. Although additional acquisitions of companies and products may enhance the opportunity to increase net earnings over time, such acquisitions could result in greater administrative burdens, increased exposure to the uncertainties inherent in marketing new products, financial risks of additional operating costs, disrupted operations, challenges in employee retention, and increased risk of product liability claims.asset impairments if future net revenues and cash flows are deficient. The principal benefits expected to result from any acquisitions we make will not be achieved fully unless we are able to successfully integrate the operations of the acquired entities with our operations and realize the anticipated synergies, cost savings and growth opportunities from integrating these businesses into our existing businesses. We cannot provide assurance that we will be able to identify and complete additional acquisitions on terms we consider favorable or that, if completed, will be successfully integrated into our operations. Furthermore, we cannot predict the outcome of goodwill impairment testing and the impact of goodwill impairments on the Company’s net earnings and results of operations.
The effective tax rate of the Company may be negatively impacted by changes in the mix of earnings as well as future changes to tax laws in global jurisdictions in which we operate.
We are subject to income taxes in the U.S. and various other global jurisdictions. Our effective tax rate could be adversely affected by changes in the mix of earnings by jurisdiction and the valuation of deferred tax assets and liabilities. Recently, the current U.S. presidential administration committed to tax reform, and if enacted, the impact could be material to our tax provision and value of deferred tax assets and liabilities. We recognize deferred tax assets and liabilities based on the differences between the consolidated financial statement carrying amounts and the tax basis of assets and liabilities. Significant judgment is required in determining our provision for income taxes. We regularly review our deferred tax assets for recoverability and establish a valuation allowance if it is more likely than not that some portion or all of a deferred tax asset will not be realized. If we cannot successfully defend ourselves against product liability claims,are unable to generate sufficient future taxable income, if there is a material change in the actual effective tax rates, or if there is a change to the time period within which the underlying temporary differences become taxable or deductible, we may incur substantial liabilities orcould be required to limit or cease sales ofincrease our products. We currently carry product liability insurance at a level we believe is commercially reasonable, although there is no assurance that it will be adequate to cover claims that may arise. In certain customer contracts, we indemnify third parties for certain product liability claims related tovaluation allowance against our products. These indemnification obligations may cause us to pay significant sums of money for claims that are covered by these indemnifications. In addition, a defectdeferred tax assets, which could result in the design or manufacture of our products could have a material adverse effect onincrease in our reputation in the industry and subject us to claims of liability for injury and otherwise. Any substantial underinsured loss resulting from such a claim could have a material adverse effect on our profitability, and the damage to our reputation in the industry could have a material adverse effect on our business.effective tax rate.
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Changes in tax laws or tax rulings could have a material impact on our effective tax rate. Many countries in the EU, as well as several other countries and organizations such as the Organization for Economic Cooperation and Development, are actively considering changes to existing tax laws. Certain proposals could include recommendations that could increase our tax obligations in those countries where we do business. Any changes in the taxation of our activities in such jurisdictions may result in a material increase in our effective tax rate.
Significant interruptions in production at our principal manufacturing facilities and/or third-party manufacturing facilities would adversely affect our business and operating results.
Products and services manufactured at facilities we own or lease comprised a majority of our net revenues. Our Business
global supply of these products and services is dependent on the uninterrupted and efficient operation of these facilities. In addition, we currently rely on a small number of third-party manufacturers to produce certain of our diagnostic products and product components. The operations of our facilities or these third-party manufacturing facilities could be adversely affected by power failures, or natural or other disasters such as earthquakes, floods, tornadoes or terrorist threats. Although we carry insurance to protect against certain business interruptions at our facilities, there can be no assurance that such coverage will be adequate or that such coverage will continue to remain available on acceptable terms, if at all. Any significant interruption in the Company’s or a third-party supplier’s manufacturing capabilities, including interruptions that have resulted from product recall activities like those currently being experienced in our Billerica facility (see “Lead Testing Matters” beginning on page 29 within MD&A) could materially and adversely affect our results of operations.We incur costsdepend on sole-source suppliers for certain critical raw materials, components and demands upon management as a result of complying with the laws and regulations affecting public companies in the United States, and failure to comply with these laws could harm our business and the price of our common stock.
Risks Related to Our Common Stock
Our business could be negatively impacted as a result of shareholder activism, an unsolicited takeover proposal or a proxy contest.
The authority of our board to issue preferred stock and the effects of certain provisions of Ohio corporation law may discourage takeover bids.
General Risk Factors
One or more cybersecurity incidents may adversely impact our financial condition, results of operations and reputation.
Our business could be negatively affected if we are unable to attract, hire and retain key personnel.
Our bank credit agreement imposes restrictions with respect to our operations, which could adversely impact our business.
Risks Related to Our Strategy
Our financial condition, results of operations and cash flows could be adversely affected by the ongoing and evolving
COVID-19
pandemic.Any outbreak of contagious diseases, such as
COVID-19,
or other adverse public health developments, could have material and adverse effects on our business operations. Such adverse effects could include diversion or prioritization of health care resources away from the conduct of diagnostic testing, disruptions of or restrictions on the ability of laboratories to process our tests, and delays with respect to or difficulties in patients accessing our tests, including those resulting from an inability to travel as a result of quarantines or other restrictions resulting fromCOVID-19.
AsCOVID-19
continues to affect individuals and businesses around the globe, we may experience disruptions that could severely impact our business, including:- 12 -
decreased volume of testing and related sales of certain of our Diagnostics segment products as a result of disruptions to health care providers and limitations on the ability of providers to administer tests;
disruptions or restrictions on the ability of the Company’s, our collaborators’, or our suppliers’ personnel to travel, and temporary closures of our facilities, or the facilities of our collaborators or suppliers;
limitations on employee resources that would otherwise be focused on the development of our products, the processing of our diagnostic tests, and/or the conduct of our clinical trials, because of illness of employees or their families, or requirements imposed on employees to avoid contact with large groups of people; and
delays in necessary interactions with local regulators, ethics committees, and other important agencies and contractors due to limitations in employee resources or forced furlough of government employees.
In addition, the continued spread of
COVID-19
globally could adversely affect our manufacturing and supply chains. Parts of our direct and indirect supply chains are located overseas, including in China, and may accordingly be subject to disruption. Additionally, our results of operations could be adversely affected to the extent thatCOVID-19
or any other epidemic harms our business or the economy in general either domestically or in any other region in which we do business. The extent to whichCOVID-19
affects our operations will depend on future developments, which are highly uncertain and cannot be predicted with confidence, including the duration of the outbreak, new information that may emerge concerning the severity ofCOVID-19,
and the actions to containCOVID-19
or treat its impact, among others, which could have an adverse effect on our business, results of operations and financial condition. Over the course of theCOVID-19
pandemic, we have generally seen a slowing of our assay instrument placements and sales of related test kits, as diagnostic testing sites turned their attention to critical care testing. We are unable to predict when expected sales volume levels for our instruments and related test kits will return. Also, as a result of theCOVID-19
pandemic, certain clinical trials related to our products which were underway or scheduled to begin have been temporarily placed on hold. Such delays will impact our timing for filing applications for product clearances with the FDA, as well as related timing of FDA clearances of such filings. Additionally, theCOVID-19
pandemic could slow down our efforts to expand our product portfolio through acquisition opportunities, impacting the speed with which we are able to bring additional products to market.Net revenues for our Diagnostics segment may be impacted by our reliance upon large customers in North America, seasonal factors and sporadic outbreaks, and changing diagnostic market conditions.
Key Distributors
Our boardDiagnostics segment’s net revenues from sales through three customers, including two key distributors, were approximately 33%, 32% and 31% of directorsthe Diagnostics segment’s total net revenues for 2021, 2020 and 2019, respectively, or approximately 13%, 15% and 21%, respectively, of each year’s consolidated net revenues. The loss of any one of these customers could negatively impact our net revenues and results of operations unless suitable alternatives were timely found or in the case of distributor customers, lost sales to one distributor were absorbed by another distributor. Finding a suitable alternative on satisfactory terms may pose challenges in our industry’s competitive environment. As an alternative, we could expand our efforts to distribute and market our products directly. This alternative, however, would require substantial investment in additional sales, marketing and logistics resources, including hiring additional sales and customer service personnel, which would significantly increase our future selling, general and administrative expenses.
In addition, buying patterns of these customers may fluctuate from quarter to quarter, potentially leading to uneven concentration levels on a quarterly basis.
Seasonal Factors and Sporadic Outbreaks
Our principal business is the sale of a broad range of diagnostic test kits for common gastrointestinal and respiratory infectious diseases, and elevated blood lead levels. Certain infectious diseases may be seasonal in nature, while others may be associated with sporadic outbreaks, such as foodborne illnesses or pandemics such as an influenza outbreak or the
COVID-19
pandemic. While we believe that the breadth of our Diagnostics segment product lines normally reduces the risk that infections subject to seasonality and sporadic outbreaks will cause significant variability in Diagnostics segment net revenues, theCOVID-19
pandemic has had a significant adverse impact on our Diagnostics segment net revenues since it began in fiscal 2020. Accordingly, we can make no assurance that net revenues will not be negatively impacted period over period by such factors.- 13 -
Changing Diagnostic Market Conditions
Changes in the U.S. health care delivery system have resulted in consolidation among reference laboratories, hospital laboratories being operated by large reference laboratories, and the formation of multi-hospital alliances, reducing the number of institutional customers for diagnostic test products. Consolidation in the U.S. health care industry has also led to the creation of group purchasing organizations (“GPOs”) and IDNs that aggregate buying power for hospital groups and put pressure on our selling prices. Due to such consolidation, we may not be able to enter into and/or sustain contractual or other marketing or distribution arrangements on a satisfactory commercial basis with institutional customers, GPOs and/or IDNs, which could adversely affect our results of operations.
Net revenues for our Life Science segment may be impacted by customer concentrations and buying patterns.
Our Life Science segment’s net revenues from three diagnostic manufacturing customers were 22%, 30% and 27% of the Life Science segment’s total net revenues for 2021, 2020 and 2019, respectively. Sales to these three diagnostic manufacturing customers comprised 13%, 16% and 9% of consolidated net revenues for 2021, 2020 and 2019, respectively. In addition, in excess of 10% of the Life Science segment’s total net revenues has historically been concentrated among a number of other significant customers. Any significant alteration of buying patterns from these customers resulting from the decline in
COVID-19
related demand, or otherwise, could adversely affect our period over period net revenues and results of operations.Intense competition could adversely affect our profitability and operating results.
The markets for our products and services are characterized by substantial competition and rapid change. Hundreds of companies around the world supply diagnostic tests and immunoassay and molecular reagents. These companies range from multinational health care entities, for which diagnostics is one line of business, to small
start-up
companies. Many of our competitors have significantly greater financial, technical, manufacturing and marketing resources than we do. We cannot provide assurance that our products and services will be able to compete successfully with the products and services of our competitors.We expect to continue to face increased competition resulting from the expiration of our H. pylori patents.
The patents for our stool antigenproducts, owned by us, expired in May 2016 in the U.S. and in May 2017 in countries outside the U.S. As a result, competition with respect to our stool antigenproducts, high margin products which represent approximately 7% of our total net revenues has increased, adversely impacting our selling prices for these products, and/or our ability to retain business at prices acceptable to us. To mitigate certain of the pricing and volume pressures we face within the gastrointestinal product category, we have: (i) operated under a strategic collaboration agreement with DiaSorin to selltests; (ii) adjusted selling prices to secure volume; and (iii) upon FDA clearance in March 2020, launched Curian HpSA, our first assay on the Curian platform, which we expect will help protect our existing customer base using lateral flow tests. We also expect the BreathID and BreathTek products to mitigate competitive pressures, as these systems provide an alternative
H. pylori
H. pylori
H. pylori
non-invasive
option to stool antigen testing. We are unable to provide assurances that we will be successful with any strategy or that any strategy will prevent an adverse effect on our future results of operations and liquidity, including net revenues and gross profit.Risks Related to Our Intellectual Property
We may be unable to protect or obtain adequate patent protection for intellectual property that we utilize or intend to utilize.
In developing and manufacturing our products, we employ a variety of proprietary and patented technologies. In addition, we have licensed, and expect to continue to license, various complementary technologies and methods from academic institutions and public and private companies. We cannot provide assurance that the technologies that we own or license provide protection from competitive threats or from challenges to our intellectual property. In addition, we cannot provide assurances that we will be successful in obtaining and retaining licenses, or proprietary or patented technologies, in the future.
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Product infringement claims by other companies could result in costly disputes and could limit our ability to sell our products.
Litigation over intellectual property rights is prevalent in the life science and diagnostic industries. As the market for diagnostics continues to grow and the number of participants in the market increases, we may increasingly be subject to patent infringement claims. It is possible that a third party may claim infringement against us. If found to infringe, we may attempt to obtain a license to such intellectual property; however, we may be unable to do so on favorable terms, or at all. Additionally, if our products are found to infringe on third-party intellectual property, we may be required to pay damages for past infringement and lose the ability to sell certain products, causing our revenues to decrease. Any substantial loss resulting from such a claim could have a material adverse effect on our profitability, and the damage to our reputation in the industry could have a material adverse effect on our future results of operations and liquidity, including net revenues and gross profit.
Risks Related to Our Operations
We may be unable to develop new products or acquire products on favorable terms.
The medical diagnostic and life science industries are characterized by ongoing technological developments and changing customer requirements. As such, our results of operations and continued growth depend, in part, on our ability in a timely manner to develop or acquire rights to, and successfully introduce into the marketplace, enhancements of existing products and services, or new products and services that incorporate technological advances, meet customer requirements, and/or respond to products developed by our competition. We cannot provide any assurance that we will be successful in developing or acquiring such rights to products and services on a timely basis, or that such products and services will adequately address the changing needs of the marketplace, either of which could adversely affect our results of operations.
In addition, we must regularly allocate considerable resources to research and development of new or acquired products, services and technologies, and protecting intellectual property. The research and development process generally takes a significant amount of time from research to product launch. This process is conducted in various stages. During each stage, there is a risk that we will not achieve our goals on a timely basis, or at all, and we may have to abandon a project in which we have invested substantial resources, any of which could adversely affect our results of operations.
We may be unable to successfully integrate operations or to achieve expected cost savings from acquisitions we make.
One of our growth strategies is the acquisition of companies and/or products. Although additional acquisitions of companies and products may enhance the opportunity to increase net earnings over time, such acquisitions could result in greater administrative burdens, increased exposure to the uncertainties inherent in marketing new products, financial risks of additional operating costs, disrupted operations, challenges in employee retention, and increased risk of asset impairments if future net revenues and cash flows are deficient. The principal benefits expected to result from any acquisitions we make will not be achieved fully unless we are able to successfully integrate the operations of the acquired entities with our operations and realize the anticipated synergies, cost savings and growth opportunities from integrating these businesses into our existing businesses. We cannot provide assurance that we will be able to identify and complete additional acquisitions on terms we consider favorable or that, if completed, will be successfully integrated into our operations. Furthermore, we cannot predict the outcome of goodwill impairment testing and the impact of goodwill impairments on the Company’s net earnings and results of operations.
The effective tax rate of the Company may be negatively impacted by changes in the mix of earnings as well as future changes to tax laws in global jurisdictions in which we operate.
We are subject to income taxes in the U.S. and various other global jurisdictions. Our effective tax rate could be adversely affected by changes in the mix of earnings by jurisdiction and the valuation of deferred tax assets and liabilities. Recently, the current U.S. presidential administration committed to tax reform, and if enacted, the impact could be material to our tax provision and value of deferred tax assets and liabilities. We recognize deferred tax assets and liabilities based on the differences between the consolidated financial statement carrying amounts and the tax basis of assets and liabilities. Significant judgment is required in determining our provision for income taxes. We regularly review our deferred tax assets for recoverability and establish a valuation allowance if it is more likely than not that some portion or all of a deferred tax asset will not be realized. If we are unable to generate sufficient future taxable income, if there is a material change in the actual effective tax rates, or if there is a change to the time period within which the underlying temporary differences become taxable or deductible, we could be required to increase our valuation allowance against our deferred tax assets, which could result in a material increase in our effective tax rate.
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Changes in tax laws or tax rulings could have a material impact on our effective tax rate. Many countries in the EU, as well as several other countries and organizations such as the Organization for Economic Cooperation and Development, are actively considering changes to existing tax laws. Certain proposals could include recommendations that could increase our tax obligations in those countries where we do business. Any changes in the taxation of our activities in such jurisdictions may result in a material increase in our effective tax rate.
Significant interruptions in production at our principal manufacturing facilities and/or third-party manufacturing facilities would adversely affect our business and operating results.
Products and services manufactured at facilities we own or lease comprised a majority of our net revenues. Our global supply of these products and services is dependent on the uninterrupted and efficient operation of these facilities. In addition, we currently rely on a small number of third-party manufacturers to produce certain of our diagnostic products and product components. The operations of our facilities or these third-party manufacturing facilities could be adversely affected by power failures, or natural or other disasters such as earthquakes, floods, tornadoes or terrorist threats. Although we carry insurance to protect against certain business interruptions at our facilities, there can be no assurance that such coverage will be adequate or that such coverage will continue to remain available on acceptable terms, if at all. Any significant interruption in the Company’s or a third-party supplier’s manufacturing capabilities, including interruptions that have resulted from product recall activities like those currently being experienced in our Billerica facility (see “Lead Testing Matters” beginning on page 29 within MD&A) could materially and adversely affect our results of operations.
We depend on sole-source suppliers for certain critical raw materials, components and finished products. A supply interruption could adversely affect our business.
Raw Materials and Components
Our diagnostic products are made from a wide variety of raw materials that are biological or chemical in nature, and that generally are available from multiple sources of supply. We sole-source certain raw materials and components, which makes it time consuming and costly to switch raw materials and components in
FDA-cleared
products. If certain suppliers fail to supply required raw materials or components, we will need to secure other sources which may require us to conduct additional development and testing and obtain regulatory approval. These activities require significant time and resources, and there is no assurance that new sources will be secured or regulatory approvals, if necessary, will be obtained.We utilize third-party manufacturers for certain of our instrumentation. One third party manufactures our proprietary Alethia Incubator/Reader (instrument), a component of our Alethia molecular system, and an additional third party manufactures our Curian instrument. These instruments are manufactured exclusively for Meridian according to our specifications. While other manufacturers for these types of instruments are available, we source each instrument solely from one manufacturer to limit the costs involved in clearing the system for marketing in the U.S. If these third-party manufacturers fail to supply us with instruments, we will need to secure another manufacturer, and it may take as long as 12 months to transfer instrument manufacturing. An interruption in the manufacturing of these instruments could have a material adverse effect on our results of operations.
Additionally, one third party manufactures a certain reagent for use with our Alethia assays. While alternative suppliers exist, we elect to utilize this third party exclusively in order to maintain consistency in our materials, which is critical in complying with FDA regulatory requirements. An interruption in the manufacturing of these reagents could have a material adverse effect on our results of operations.
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Finished Products
We outsource the manufacturing for certain finished diagnostic products to third parties. A disruption in the supply of these finished products could have a material adverse effect on our business until we find another supplier or bring manufacturing
in-house.
Four products manufactured exclusively for us by two separate and independent companies accounted for 6%, 7% and 11% of consolidated net revenues in 2021, 2020 and 2019, respectively. Meridian owns all rights and title to the FDA 510(k) clearances for these products.
Activities undertaken by Meridian to reduce the risk of these sole-supplier arrangements include maintaining adequate inventory levels, supplier qualification procedures, supplier audits, site visits, and frequent communication. Additionally, we have identified potential alternate suppliers.
Our ability to meet future customer demand for selected products is dependent upon our ability to successfully manage our manufacturing capacity and supply chains.
To manage our anticipated future growth effectively, it may become necessary for us to enhance our manufacturing and supply chain capabilities, infrastructure and operations, information technology infrastructure, and financial and accounting systems and controls. Organizational growth and
scale-up
of operations could strain our existing managerial, operational, financial, and other resources. If our management is unable to effectively prepare for our expected future growth, our expenses may increase more than anticipated, our net revenues could grow more slowly than expected, and we may not be able to achieve our commercialization, profitability, or product development goals. Our failure to effectively implement the necessary processes and procedures and otherwise prepare for our anticipated growth could have a material adverse effect on our future consolidated financial condition and results of operations.Increased prices for, poor quality of, or extended inability to source raw materials or services used in our products, and supply chain disruptions, could adversely affect profitability.
Our profitability is affected by the prices of the raw materials used in the manufacture of our products. These prices fluctuate based on a number of factors beyond our control, including changes in supply and demand, general economic conditions, labor costs, fuel-related delivery costs, competition, import duties, tariffs, currency exchange rates, and, in some cases, government regulation. Significant increases in the prices of raw materials, similar to the inflationary increases we have experienced in the second half of 2021, that cannot be recovered through increases in the price of our products and/or offset by savings in other areas, could adversely affect our results of operations and cash flows.
We cannot guarantee that the prices we are paying for raw materials today will continue in the future, or that the marketplace will continue to support current prices for our products, or that such prices can be adjusted to fully or partially offset raw material price increases in the future. Any increases in prices resulting from a tightening supply of these or other commodities could adversely affect our profitability. We do not engage in hedging transactions for raw material purchases, but we do enter into some fixed-price supply contracts.
Our dependency upon regular deliveries of supplies and the quality of those supplies upon delivery from particular suppliers means that interruptions, stoppages, or deterioration of quality in such deliveries could adversely affect our operations until arrangements with alternate suppliers could be made. Several of the raw materials used in the manufacture of our products currently are procured from a single source. In some cases, we also outsource certain services to suppliers, including but not limited to, engineering, assembly, shipping, and commissioning services. If a supplier were unable to deliver these materials or services, or if the quality of these materials or services declined, for an extended period of time as a result of financial difficulties, catastrophic events affecting their facilities, or other factors, including recent supply chain disruptions we have experienced, or if we were unable to negotiate acceptable terms for the supply of materials or services with these suppliers, our business could be adversely affected. We may not be able to find acceptable alternatives, and any such alternatives could result in increased costs. Extended inability to source a necessary raw material or service could cause us to cease manufacturing one or more products for a period of time, which could also lead to loss of customers, as well as reputational, competitive, or business harm, which could have a material adverse effect on our business, consolidated financial condition, and results of operations.
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Risks Related to Legal, Regulatory and International Matters
We are subject to comprehensive regulation, and our ability to earn profits may be restricted by these regulations.
Medical device diagnostics is a highly regulated industry. We cannot provide assurance that we will be able to obtain necessary governmental clearances or approvals, or timely clearances or approvals, to market future products in the U.S. and other countries. Costs and difficulties in complying with laws and regulations administered by the FDA, the U.S. Department of Agriculture, the U.S. Department of Commerce, the U.S. Drug Enforcement Agency, the Centers for Disease Control and Prevention (“CDC”), or other regulators can result in unanticipated expenses and delays, and interruptions to the sale of new and existing products.
Regulatory approval can be a lengthy, expensive and uncertain process, making the timing and cost of approvals difficult to predict. Failure to comply with these regulations can result in delays in obtaining authorization to sell products, seizure or recall of products, suspension or revocation of authority to issue upmanufacture or sell products, and other civil or criminal sanctions.
If we or our third-party vendors fail to 1,000 sharescomply with FDA regulations relating to the manufacturing of undesignated preferred stockour products or any component part, we may be subject to fines, injunctions and penalties, and our ability to commercially distribute and sell our products may be negatively impacted.
Our diagnostics manufacturing facilities, and the manufacturing facilities of any of our third-party diagnostic component manufacturers or critical suppliers, are required to comply with the FDA’s Quality System Regulation (“QSR”), which sets forth minimum standards for the procedures, execution and documentation of the design, testing, production, control, quality assurance, labeling, packaging, sterilization, storage, and shipping of the products we sell, and related regulations, including Medical Device Reporting (“MDR”) regulations regarding reporting of certain malfunctions and adverse events potentially associated with our products. The FDA may evaluate our compliance with the QSR, MDR and other regulations, among other ways, through periodic announced or unannounced inspections which could disrupt our operations and interrupt our manufacturing. If in conducting an inspection of our manufacturing facilities, or the manufacturing facilities of any of our third-party component manufacturers or critical suppliers, an FDA investigator observes conditions or practices believed to violate the QSR, the investigator may document their observations on a Form FDA 483 that is issued at the conclusion of the inspection. A manufacturer that receives an FDA 483 may respond in writing and explain any corrective actions taken in response to the inspectional observations. The FDA will typically review the facility’s written response and mayrights, preferences, privilegesfacility’s compliance with the QSR and restrictions,other applicable regulatory requirements. Failure to take adequate and timely corrective actions to remedy objectionable conditions listed on an FDA 483 could result in the FDA taking administrative or enforcement actions. Among these may be the FDA’s issuance of a Warning Letter to a manufacturer, which informs it that the FDA considers the observed violations to be of “regulatory significance” that, if not corrected, could result in further enforcement action.
re-inspect
to determine the FDA enforcement actions, which include seizure, injunction, criminal prosecution, and civil penalties, could result in total or partial suspension of a facility’s production and/or distribution, product recalls, fines, suspension of the FDA’s review of product applications, and/or the FDA’s issuance of adverse publicity. Thus, an adverse inspection could force a shutdown of our manufacturing operations or a recall of our products. Adverse inspections could also delay FDA approval of our products and could have an adverse effect on our production, net revenues and profitability.
We and any of our third-party vendors may also encounter other problems during manufacturing including voting rights,failure to follow specific protocols and procedures, equipment malfunction, and environmental factors, any of such shares withoutwhich could delay or impede our ability to meet demand. The manufacture of our product also subjects us to risks that could harm our business, including problems relating to our facilities and errors in manufacturing components that could negatively affect the efficacy or safety of our products or cause delays in shipment of our products. Any interruption or delay in the manufacture of the product, or any future voteof its components, could impair our ability to meet the demand of our customers and cause them to cancel orders or switch to competitive products, which could, therefore, have a material adverse effect on our business, consolidated financial condition and results of operations.
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As described in Item 3. “Legal Proceedings”, on April 17, 2018, the Company’s wholly owned subsidiary Magellan received a subpoena from the U.S. Department of Justice (“DOJ”) regarding its LeadCare product line. The subpoena outlines documents to be produced, and the Company is cooperating with the DOJ in this matter. The Company maintains rigorous policies and procedures to promote compliance with applicable regulatory agencies and requirements and is working with the DOJ to promptly respond to the subpoena, including responding to additional information requests that have followed receipt of the subpoena in April 2018. The Company has executed tolling agreements to extend the statute of limitations. In March and April 2021, DOJ issued two subpoenas calling for witnesses to testify before a federal grand jury related to this matter. The March 2021 subpoena was issued to a former employee of Magellan, and the April subpoena was issued to a current employee of Magellan. In September and October 2021, DOJ issued additional subpoenas to individuals seeking testimony and documents in connection with its ongoing investigation. The Company cannot predict when the investigation will be resolved, the outcome of the investigation, or its potential impact on the Company. Approximately $2,803, $2,035 and $1,585 of expense for attorneys’ fees related to this matter is included within the Consolidated Statements of Operations for the years ended September 30, 2021, 2020 and 2019, respectively.
Magellan submitted 510(k) applications in December 2018, seeking to reinstate venous blood sample-types for its LeadCare II, LeadCare Plus and LeadCare Ultra testing systems. In February 2019 the FDA informed Magellan that each of these 510(k) applications had been put on Additional Information hold. On July 15, 2019, we provided responses to the FDA’s requests for Additional Information. These 510(k) applications have since expired and are no longer under FDA review. Further, while Magellan’s LeadCare testing systems remain cleared for marketing by the FDA and permitted for use with capillary blood samples, the FDA advised that it has commissioned a third-party study of the Company’s LeadCare testing systems using both venous and capillary blood samples. According to the FDA, the results of the field study will be used in conjunction with other information to determine whether further action by the shareholders.FDA or the CDC is necessary to protect the public health. The issuance of preferred stock under certain circumstances could have the effect of delaying or preventing a change in control of our company. Ohio corporation law contains provisions that may discourage takeover bids for our company that have not been negotiatedCompany intends to fully cooperate with the boardFDA or CDC on any
follow-up
based on the third-party study.During October 2019, the FDA performed adirectors. Such provisions could limitMagellan’s manufacturing facility. The FDA issued five Form FDA 483 observations. On March 18, 2020, we participated in a regulatory meeting with the price that investors might be willingFDA at the FDA’s request to payfurther discuss the Form FDA 483 observations and our remediation efforts. Since the inspection, we have submitted a number of written responses to the FDA regarding the five Form FDA 483 observations issued in the October 2019 inspection, and have worked diligently to execute a remediation plan. During October 2020, the FDA issued Establishment Inspection Reports which closed out the inspections from June 2017 and October 2019 under 21 C.F.R.20.64(d)(3).
follow-up
inspection of During June 2021, the FDA performed an inspection of Magellan’s manufacturing facility. As a result of this inspection, the FDA issued one Form 483 observation. On August 3, 2021, FDA sent Magellan afor sharesFDA inspections of Magellan and regulatory activities will further assess the adequacy and sustainability of Magellan’s corrections.
close-out
letter for the Warning Letter that FDA issued to Magellan on October 23, 2017. The FDA’sclose-out
letter notified Magellan that FDA has completed an evaluation of Magellan’s corrective actions in response to FDA’s Warning Letter, and based on FDA’s evaluation, Magellan has addressed the issues identified in the Warning Letter. FDA’sclose-out
letter also stated that future We incur costs and demands upon management as a result of complying with the laws and regulations affecting public companies in the U.S., and failure to comply with these laws could harm our business and the price of our common stock.
As a public company listed in the U.S., we incur significant legal, accounting and other expenses. In addition, saleschanging laws, regulations and standards relating to corporate governance and public disclosure, including regulations implemented by the SEC, the Public Company Accounting Oversight Board (“PCAOB”) and the NASDAQ Global Select Market, may increase our legal and financial compliance costs and/or make some activities more time consuming. These laws, regulations and standards are subject to varying interpretations and, as a result, their application in practice may evolve over time as new guidance is provided by regulatory and governing bodies. We intend to invest resources to comply with evolving laws, regulations and standards, and this investment may result in increased general and administrative expenses and a diversion of substantial amountsmanagement’s time and attention from revenue-generating activities to compliance activities. If we fail to comply with new laws, regulations and standards, regulatory authorities may initiate legal proceedings against us, and our business may be harmed.
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We could be adversely affected by health care reform legislation.
Third-party payers for medical products and services, including state, federal and foreign governments, are increasingly concerned about escalating health care costs and can indirectly affect the pricing or the relative attractiveness of our products by regulating the maximum amount of reimbursement they will provide for diagnostic testing services. Following years of increasing pressure, during 2010 the U.S. government enacted comprehensive health care reform with the enactment of the Patient Protection and Affordable Care Act, as amended by the Health Care and Education Reconciliation Act, which made changes that significantly impact the pharmaceutical and medical device industries. The Protecting Access to Medicare Act of 2014 requires applicable laboratories to report all private payor reimbursement rates and the volumes for each test they perform. The statute requires that Medicare establish reimbursement rates based on the weighted median of private insurance reimbursement rates effective January 1, 2017. The new Medicare rates would be subject to a maximum reduction of 10% a year for the initial three-year period and a maximum of 15% a year for the subsequent three-year period. There is no limit on the amount of potential rate increases. As a result, some of our customers in the U.S. may experience lower Medicare reimbursement rates for our products, which may adversely affect our business, financial condition and results of operations. We are seeing some effect on the reimbursement rates for our products. If reimbursement amounts for diagnostic testing services decrease further in the future, such decreases may reduce the amount that will be reimbursed to hospitals or physicians for such services and consequently, could place constraints on the levels of overall pricing, which could have a material effect on our net revenues and results of operations.
Additional state and federal health care reform measures may be adopted in the future, any of which could have a material adverse effect on our ability to successfully commercialize our products and on our industry in general. For example, the U.S. government has in the past considered, is currently considering, and may in the future consider, health care policies and proposals intended to curb rising health care costs, including those that could significantly affect both private and public marketreimbursement for health care services. Further, state and local governments, as well as a number of foreign governments, are also considering or have adopted similar types of policies. Future significant changes in the health care system in the U.S. or elsewhere, and current uncertainty about whether and how changes may be implemented, could have a negative impact on the demand for our products. We are unable to predict whether health care policies, including policies stemming from legislation or regulations affecting our business, may be proposed or enacted in the future, what effect such policies would have on our business, or the effect that ongoing uncertainty about these matters will have on the purchasing decisions of our customers.
Efforts to reduce the U.S. federal deficit could adversely affect our results of operations.
Any reductions in government health care spending or research funding in an effort to reduce the U.S. federal deficit could result in reduced demand for our products or additional pricing pressure. Further, there is ongoing uncertainty regarding the federal budget and federal spending levels, including the possible impacts of a failure to increase the “debt ceiling.” Any U.S. government default on its debt could have broad macroeconomic effects that could, among other things, raise our borrowing costs. Any future shutdown of the federal government or failure to enact annual appropriations could also have a material adverse impact on our consolidated financial condition, and results of operations.
Global market, political, environmental, and economic conditions, including those related to the financial markets, could have a material adverse effect on our operating results, financial condition, and liquidity.
Our business is sensitive to changes in general economic, political and environmental conditions, both inside and outside the U.S. Conditions such as the following, among others, may create additional risk to our results of operations: (i) continuing uncertainties in the eurozone; (ii) the effects of climate change regulation; (iii) the global effects of the ongoing
COVID-19
pandemic, including the Emergency Temporary Standard (“ETS”)COVID-19
workplace vaccination and testing mandate from the Occupational Safety and Health Administration (“OSHA”); (iv) unanticipated implications from the voluntary exit of the U.K. from the EU; and (v) uncertainties in China and emerging markets.Instability in the global economy and financial markets can adversely affect our business in several ways, including limiting our customers’ ability to obtain sufficient credit or pay for our products within the terms of sale. Competition could further intensify among the manufacturers and distributors with whom we compete for volume and market share, resulting in lower net revenue due to steeper discounts and product
mix-down. In
particular, if certain key or sole suppliers were to become capacity constrained or insolvent, it could result in a reduction or interruption in supplies or a significant increase in the price of supplies.- 20 -
The U.K. left the EU on January 31, 2020. While all EU rules and laws continued to apply to the U.K. through the transition period, which ended December 31, 2020, the U.K. and the EU reached a free trade agreement on December 24, 2020, which was ratified on April 28, 2021 and went into effect on May 1, 2021. The agreement includes regulatory and customs cooperation mechanisms, as well as provisions supporting open and fair competition. Under the trade agreement, the U.K. is free to set its own trade policy and can negotiate with other countries that do not currently have free trade deals with the EU. Although the full impact of the trade agreement is uncertain, it is possible that the recent changes to the trading relationship between the U.K. and the EU due to the trade agreement could result in increased cost of goods imported into and exported from the U.K., which may decrease the profitability of our common stockoperations. Additional currency volatility could drive a weaker British pound, which could increase the cost of goods imported into the U.K. and may decrease the profitability of our operations. A weaker British pound versus the U.S. dollar may also cause local currency results of our operations to be translated into fewer U.S. dollars during a reporting period. Given the lack of comparable precedent, it is unclear what financial, trade, regulatory and legal implications the trade agreement will have on our business; however, Brexit and its related effects could potentially have an adverse impact on our consolidated financial condition, and results of operations.
We depend on international net revenues, and our operating results may be adversely impacted by foreign currency, regulatory or other developments affecting international markets.
We sell products and services into approximately 70 countries. For fiscal 2021, approximately 40% of our consolidated net revenues were transacted in currencies other than the U.S. dollar. We are subject to the risks associated with fluctuations in the exchange rates for the Australian dollar, British pound, Canadian dollar, Chinese yuan, Euro, and New Israeli shekel. In addition, we have manufacturing operations, suppliers, and employees located outside the U.S. Since our growth strategy depends in part on our ability to raise additional capitalfurther penetrate markets outside the U.S., we expect to continue to increase our revenue and presence outside the U.S., including in emerging markets.
Our international business is subject to risks that are often encountered in
non-U.S.
operations, including:interruption in the transportation of materials to us and finished goods to our customers, including conditions where recovery from natural disasters may be delayed due to country-specific infrastructure and resources;
differences in terms of sale, including payment terms;
local product preferences and product requirements;
changes in a country’s or region’s political or economic condition, including with respect to safety and health issues;
trade protection measures and import or export licensing requirements;
unexpected changes in laws or regulatory requirements, including unfavorable changes with respect to tax, trade or sanctions compliance matters;
limitations on ownership and on repatriation of earnings and cash;
difficulty in staffing and managing widespread operations;
differing labor regulations;
difficulties in enforcing contract and property rights under local law;
difficulties in implementing restructuring actions on a timely or comprehensive basis; and
differing protection of intellectual property.
Such risks may be more likely or pronounced in emerging markets, where our operations may be subject to greater uncertainty due to increased volatility associated with the developing nature of their economic, legal, and governmental systems.
If we are unable to successfully manage the risks associated with expanding our global business or to adequately manage operational fluctuations, it could adversely affect our business, financial condition, or results of operations.
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New tariffs and other trade measures could adversely affect our operating results.
The current U.S. administration has expressed strong concerns about imports from countries that it perceives as engaging in unfair trade practices, and it is possible the administration could impose import duties or other restrictions on products, components or raw materials sourced from those countries, which may include countries from which we import components or raw materials. We are currently not aware of any new import duties imposed on our products. Any such new import duties or restrictions could have a material adverse effect on our business, results of operations or financial condition. Moreover, these new tariffs, or other changes in U.S. trade policy, could trigger retaliatory actions by affected countries. Certain foreign governments have instituted or are considering imposing trade sanctions on certain U.S. goods.
Other foreign governments are considering the imposition of sanctions that will deny U.S. companies access to critical raw materials. A “trade war” of this nature or other governmental actions related to tariffs or international trade agreements or policies has the potential to adversely impact demand for our products, our costs, customers, manufacturers, suppliers and/or the economic environments in which we operate and, thus may adversely impact our businesses. In addition, there may be changes to existing trade agreements, like the North American Free Trade Agreement (“NAFTA”) and its anticipated successor agreement, the U.S.-Mexico-Canada Agreement (“USMCA”), which is still subject to approval by the U.S., Mexico and Canada, greater restrictions on free trade generally, and significant increases in tariffs on goods imported into the U.S., particularly tariffs on products manufactured in Mexico, among other possible changes. It remains unclear what the U.S. administration or foreign governments will or will not do with respect to tariffs, NAFTA, USMCA or other international trade agreements and policies. Any changes to NAFTA (or subsequent trade agreements) could impact our operations in countries where we manufacture or sell products, or source components or materials, which could adversely affect our business and results of operations.
If product liability lawsuits are successfully brought against us, we may incur substantial liabilities and may have to limit or cease sales of our products.
The testing, manufacturing and marketing of medical diagnostic products involves an inherent risk of product liability claims. If we cannot successfully defend ourselves against product liability claims, we may incur substantial liabilities or be required to limit or cease sales of our products. We currently carry product liability insurance at a price favorablelevel we believe is commercially reasonable, although there is no assurance that it will be adequate to us.cover claims that may arise. In certain customer contracts, we indemnify third parties for certain product liability claims related to our products. These indemnification obligations may cause us to pay significant sums of money for claims that are covered by these indemnifications. In addition, a defect in the design or manufacture of our products could have a material adverse effect on our reputation in the industry and subject us to claims of liability for injury and otherwise. Any substantial underinsured loss resulting from such a claim could have a material adverse effect on our profitability, and the damage to our reputation in the industry could have a material adverse effect on our results of operations.
Risks Related to Our Common Stock
The market price of our common stock may be volatile and fluctuate significantly, which could result in substantial losses for stockholders and subject us to litigation.
The market price of our common stock may be subject to significant fluctuations due to numerous factors, including but not limited to the risks described in this “Risk Factors” section. In addition, the stock market in general, the NASDAQ Global Market and the market for diagnostics companies in particular may experience a loss of investor confidence. A loss of investor confidence may result in extreme price and volume fluctuations in our common stock that are unrelated or disproportionate to the operating performance of our business, financial condition or results of operations. These broad market and industry factors may materially harm the market price of our common stock and expose us to securities class-action litigation. Class-action litigation, even if unsuccessful, could be costly to defend and divert management’s attention and resources, which could further materially harm our consolidated financial condition and results of operations.
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Our business could be negatively impacted as a result of shareholder activism, an unsolicited takeover proposal or a proxy contest.
In recent years, proxy contests and other forms of stockholder activism have been directed against numerous public companies. If a proxy contest or an unsolicited takeover proposal is made with respect to us, we could incur significant costs in defending our company, which would have an adverse effect on our financial results. Shareholder activists may also seek to involve themselves in the governance, strategic direction and operations of our company. Such proposals may disrupt our business and divert the attention of our management and employees, and any perceived uncertainties as to our future direction resulting from such a situation could result in the loss of potential business opportunities, be exploited by our competitors, cause concern to our current or potential customers, and make it more difficult to attract and retain qualified personnel and business partners, all of which could adversely affect our business. In addition, actions of activist stockholders may cause significant fluctuations in our stock price based on temporary or speculative market perceptions or other factors that do not necessarily reflect the underlying fundamentals and prospects of our business.
Our board of directors has the authority to issue up to 1,000 shares of undesignated preferred stock and to determine the rights, preferences, privileges and restrictions, including voting rights, of such shares without any future vote or action by the shareholders. The issuance of preferred stock under certain circumstances could have the effect of delaying or preventing a change in control of our company. Ohio corporation law contains provisions that may discourage takeover bids for our company that have not been negotiated with the board of directors. Such provisions could limit the price that investors might be willing to pay in the future for shares of our common stock. In addition, sales of substantial amounts of shares in the public market could adversely affect the market price of our common stock and our ability to raise additional capital at a price favorable to us.
General Risk Factors
One or more cybersecurity incidents may adversely impact our financial condition, results of operations and reputation.
Our operations involve the use of multiple systems that process, store and transmit sensitive information about our customers, suppliers, employees, financial position, operating results and strategies. We face global cybersecurity risks and threats on a continual and ongoing basis, which include, but are not limited to, attempts to access systems and information, computer viruses, orattacks. These risks and threats range from uncoordinated individual attempts to sophisticated and targeted measures. While we are not aware of any material cyber-attacks or breaches of our systems to date, we have and continue to implement measures to safeguard our systems and information and mitigate potential risks, including employee training around phishing, malware and other cyber risks, but there is no assurance that wesuch actions will resume the paymentbe sufficient to prevent cyber-attacks or security breaches that manipulate or improperly use our systems, compromise sensitive information, destroy or corrupt data, or otherwise disrupt our operations. The occurrence of dividends.
denial-of-service
Our business could be negatively affected if we are unable to attract, hire and retain key personnel.
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