ITEM 1. BUSINESS
Cautionary Note Regarding Forward-Looking
Statements
This Annual Report on Form 10-K contains “forward-looking
statements,” which include information relating to future events, future financial performance, financial projections, strategies,
expectations, competitive environment and regulation. Words such as “may,” “should,” “could,”
“would,” “predicts,” “potential,” “continue,” “expects,” “anticipates,”
“future,” “intends,” “plans,” “believes,” “estimates,” and similar
expressions, as well as statements in future tense, identify forward-looking statements. Forward-looking statements should not
be read as a guarantee of future performance or results and may not be accurate indications of when such performance or results
will be achieved. Forward-looking statements are based on information we have when those statements are made or management’s
good faith belief as of that time with respect to future events, and are subject to risks and uncertainties that could cause actual
performance or results to differ materially from those expressed in or suggested by the forward-looking statements. Important
factors that could cause such differences include, but are not limited to:
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Our ability to continue as a going concern.
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The
timing of clinical studies and eventual U.S. Food and Drug Administration approval of
WoundShield™ and our other product candidates.
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Regulatory actions that could adversely affect the price of or demand for our approved products.
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Market acceptance of existing and new products.
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Favorable or unfavorable decisions about our products from government regulators, insurance
companies or other third-party payers.
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Our intellectual property portfolio.
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Our ability to recruit and retain qualified regulatory and research and development personnel.
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Unforeseen changes in healthcare reimbursement for any of our approved products.
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Lack of financial resources to adequately support our operations.
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Difficulties in maintaining commercial scale manufacturing capacity and capability.
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Our ability to generate internal growth.
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Changes in our relationship with key collaborators.
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Changes in the market valuation or earnings of our competitors or companies viewed as similar
to us.
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Our failure to comply with regulatory guidelines.
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Uncertainty in industry demand and patient wellness behavior.
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General economic conditions and market conditions in the medical device industry.
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Future sales of large blocks of our common stock, which may adversely impact our stock price.
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Depth of the trading market in our common stock.
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The foregoing does not represent an exhaustive
list of matters that may be covered by the forward-looking statements contained herein or risk factors that we are faced with
that may cause our actual results to differ from those anticipated in our forward-looking statements. Please see “Item 1A.
Risk Factors” for additional risks which could adversely impact our business and financial performance. Moreover, new risks
regularly emerge and it is not possible for us to predict or articulate all risks we face, nor can we assess the impact of all
risks on our business or the extent to which any risk, or combination of risks, may cause actual results to differ from those
contained in any forward-looking statements. All forward-looking statements included in this Form 10-K are based on information
available to us on the date hereof. Except to the extent required by applicable laws or rules, we undertake no obligation to publicly
update or revise any forward-looking statement, whether as a result of new information, future events or otherwise.
Unless the context otherwise indicates or requires,
the terms “we,” “our,” “us,” “NanoVibronix,” and the “Company,” as
used in this Annual Report on Form 10-K, refer to NanoVibronix, Inc. and its subsidiaries as a combined entity, except where otherwise
stated or where it is clear that the terms mean only NanoVibronix, Inc. exclusive of its subsidiaries.
Overview
We were organized as a Delaware corporation
in October 2003. Through our wholly-owned subsidiary, NanoVibronix Ltd., a private company incorporated under the laws of the
State of Israel, we focus on noninvasive biological response-activating devices that target wound healing and pain therapy and
can be administered at home, without the assistance of medical professionals. Our primary products currently consist of:
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WoundShield™,
a patch-based therapeutic ultrasound device intended to facilitate tissue regeneration
and wound healing by using ultrasound to increase local capillary perfusion and tissue
oxygenation;
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PainShield™, a disposable patch-based therapeutic ultrasound technology to treat pain,
muscle spasm and joint contractures by delivering a localized ultrasound effect to treat pain and induce soft tissue healing
in a targeted area; and
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UroShield™, an ultrasound-based product that is designed to prevent bacterial colonization
and biofilm in urinary catheters, increase antibiotic efficacy and decrease pain and discomfort associated with urinary catheter
use.
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Each of our PainShield, UroShield, and WoundShield
products employs a small, disposable transducer that transmits low frequency, low intensity ultrasound acoustic waves that seek
to repair and regenerate tissue, musculoskeletal and vascular structures and increase antibiotic efficacy. Through their size,
effectiveness and ease of use, these products are intended to eliminate the need for technicians and medical personnel to manually
administer ultrasound treatment through large transducers, thereby promoting patient independence and enabling more cost-effective
home-based care.
PainShield is
currently cleared for marketing in the
United States of America (“U.S.” or “United
States”) by the U.S. Food and Drug Administration and all three of our products have CE Mark approval in the European Union,
a Canadian medical device license and a certificate allowing us to sell PainShield, UroShield and WoundShield in Israel.We are
able to sell PainShield, UroShield and WoundShield in India and Ecuador based on our CE Mark. We generally apply, through our
distributor, for approval in a particular country for a particular product only when we have a distributor in place with respect
to such product.
In the United States, PainShield requires a
prescription from a licensed physician or a physical therapist. If U.S. Food and Drug Administration clearance is obtained, we
anticipate that WoundShield will require a prescription from a licensed physician in the United States. UroShield will also need
a prescription if U.S. Food and Drug Administration clearance is obtained. We anticipate that UroShield will be sold directly
to health care facilities and therefore will not require a prescription for these venues. However in other countries in which
we sell them, PainShield, UroShield and WoundShield are eligible for sale without a prescription.
In addition to the need to obtain regulatory
approvals, we anticipate that sales volumes and prices of our WoundShield and PainShield products will depend in large part on
the availability of insurance coverage and reimbursement for self-administered use from third party payers. Third party payers
include governmental programs such as Medicare and Medicaid in the U.S., private insurance plans and workers’ compensation
plans. We do not currently have reimbursement codes for self-administered use or clinical use of WoundShield in any of the markets
in which we have regulatory authority to sell WoundShield. Of the markets in which we have regulatory authority to sell PainShield,
we have reimbursement codes in the United States (i.e., Current Procedural Terminology codes or “CPT codes”) for clinical
use only, but do not have such reimbursement codes for self-administered use of the product, although the product is marketed
and sold for such use. With respect to UroShield, which will be used in a clinical and home setting, we do not currently have
reimbursement codes in any of the markets in which we have regulatory authority to sell UroShield. We anticipate that we will
begin to seek reimbursement codes for self-administered and clinical use of our products in the markets in which we have regulatory
authority to sell such products, however, there is no guarantee that we will be successful in obtaining such codes quickly, or
at all.
We are currently conducting a double
blind clinical trial for UroShield in the U.S. in order to obtain 510(k) clearance from the U.S. Food and Drug
Administration. In addition, we are currently ramping up our marketing efforts in North America with respect to PainShield.
We anticipate that these efforts will include recruiting indirect sales personnel and representatives, making in-office calls
to physicians and attending trade shows and conferences. We have also identified a market for PainShield in the professional
sports industry where in many cases reimbursement is either available from sports organizations or by self-pay from wealthy
sports figures. In order to pursue this market we are exhibiting at sports trainers meetings and advertising in their media.
The PainShield device is offered for sale to practitioners with a pre-formatted rental program at their discretion under a
program which was implemented in January 2017. The program will provide for an extension of treatment for patients who may
benefit from such therapies. The PainShield product was modified and enhanced through various accessories which allow its use
within the equine community. This market is currently being pursued through prominent equine clinicians and independent sales
representatives. Early adopters in the use of PainShield in this area have reported positive results. We believe there is an
attractive opportunity in this segment due to the lack of an expectation for reimbursement and the opportunity to sell at a
premium price point.
Ultrasound Technology and Our Products
As noted above, our primary products are based
on the use of low frequency ultrasound, which delivers energy through mechanical vibrations in the form of sound waves. Ultrasound
has long been used in physical therapy, physical medicine, rehabilitation and sports medicine. Moreover, there is a growing body
of research that supports the positive biological effects of ultrasound. A 2002 study ago indicates that low frequency ultrasound
increases nerve regeneration (Crisci AR, Ferreira AL, “Low-intensity pulsed ultrasound accelerates the regeneration of the
sciatic nerve after neurotomy in rats”, Ultrasound Med. Biol. 2002 October; 28(10):1335-41). According to Atland, et. al.,
low frequency ultrasound also has important therapeutic metabolic effects (Altland OD, Dalecki D, Suchkova VN, Francis CW, “Low-intensity
ultrasound increases endothelial cell nitric oxide synthase activity and nitric oxide synthesis”, J. Thromb. Haemost. 2004
April; 2(4):637-43). In addition, there is evidence that ultrasound increases the healing of fractures (Warden SJ, Favaloro JM,
Bennell KL, McMeeken JM, Ng KW, Zajac JD, Wark JD, “Low-intensity pulsed ultrasound stimulates the bone-forming response
in UMR-106 cells”, Biochem. Biophys. Res. Commun. 2001 August 24; 286(3):443-50 and Warden SJ, Bennell KL, McMeeken JM,
Wark JD, “Acceleration of fresh fracture repair using the sonic accelerated fracture healing system (SAFHS)”, Calcif.
Tissue Int. 2000 February; 66(2):157-63).
Research has further shown that ultrasound
therapy has resulted in increased collagen repair (Da Cunha A, Parizotto NA, Vidal BC, “The effect of therapeutic ultrasound
on repair of the achilles tendon (tendo calcaneus) of the rat”, Ultrasound Med. Biol. 2001 December; 27(12):1691-6), improved
resolution of inflammation (Young SR, Dyson M, “Macrophage responsiveness to therapeutic ultrasound”, Ultrasound Med.
Biol. 1990; 16(8):809-16) and increased tissue healing (Young SR, Dyson M, “Effect of therapeutic ultrasound on the healing
of full-thickness excised skin lesions”, Ultrasonics. 1990 May; 28(3):175-80), which are all important factors in the wound
healing process. Furthermore, research has shown that ultrasound therapy can contribute to increased membrane permeability (Sundaram
J, Mellein BR, Mitragotri S, “An experimental and theoretical analysis of ultrasound-induced permeabilization of cell membranes,”
Biophys. J. 2003 May; 84(5):3087-101) and accelerated fibrinolysis, a process that prevents blood clots from growing and becoming
problematic (Harpaz D, “Ultrasound enhancement of thrombolytic therapy: observations and mechanisms”, Int. J. Cardiovasc
Intervent. 2000 June; 3(2):81-89), which collectively improve the tissue regeneration process and healing of wounds. Sonophoresis,
a process that increases the absorption of semisolid topical compounds, including medications, into the skin, is an additional
significant effect of ultrasound therapy (Tezel A, Paliwal S, Shen Z, Mitragotri S, “Low-frequency ultrasound as a transcutaneous
immunization adjuvant”, Vaccine 2005 May 31; 23(29):3800-7).
In general, ultrasound causes the benefits
cited above by increasing local blood circulation, increasing vascular wall permeability, promoting protein secretion,
promoting enzymatic reactions, accelerating nitric oxide production, promoting angiogenesis (the formation of new blood
vessels from pre-existing vessels) and promoting fibroblast proliferation (fibroblasts are a type of cell that play
a critical role in wound healing). We believe that the body of evidence, and the positive therapeutic effect that ultrasound
has for various indications, potentially provides for future product development opportunities for us.
Our proprietary technology consists of a small,
thin (1 millimeter) transducer that is capable of transmitting ultrasonic acoustic waves onto treatment surfaces with a radius
of up to 10 centimeters. This technology allows us to treat wounds by implanting our transducers into a small, portable self-adhering
acoustic patch, thereby eliminating the need for technicians and medical personnel to manually administer ultrasound therapy,
which should reduce the cost of therapy. Moreover, we believe that the delivery of ultrasound through our portable devices is
more effective than existing products, as our technology is better positioned to target the affected areas of the body.
While there are currently a number of
products on the market that treat pain through ultrasound therapy, we believe that our products differentiate themselves
because they are portable, without the requirement to be plugged into an outlet and they have a frequency of 100kHz (in
contrast to other devices, which have a frequency of 1MHz), which means they do not produce heat that can damage tissue. Our
products can therefore (i) be self-administered by the patient without the need to be moved about the treated area by the
patient or a clinician, (ii) be applied for a significantly longer period without the risk of tissue damage and (iii) do not
require the use of gel. We are aware of one competitive product with similar ultrasound technology. However, we understand
that this product does not generate surface acoustic waves as our products do, the treatment area is generally limited to
that of the transducer’s diameter (see the diagram below), that the use of transmission gel is still required and that
the transducer thickness is significantly greater than ours (approximately 1.5cm). The device only provides a battery life of
4 hours and is continuous therapy versus intermittent therapy. We are also aware of a small clinical study, for which results
were reported in August 2013, in which a small ultrasound device showed positive results in the treatment of venous ulcers, a
type of chronic wound. This product is sold under the name of SAM® Sport4 by a company called Zetroz Systems LLC, aka
Zetroz, Inc.
Traditional ultrasound
device and our portable ultrasound patch-based device and a comparison of their energy distribution, where the X-axis represents
treatment surface and the Y-axis represents ultrasound energy penetration depth within tissue.
In a comparison of a traditional ultrasound
device and our portable ultrasound patch-based device, the bulk wave conventional ultrasound machines with handheld transducers
distribute the energy deeply into the body, as shown above in diagram (A) on the left. In comparison, our device distributes the
energy on the surface, as shown in diagram (B), thereby meaningfully increasing the treatment area. Our transducers may also be
incorporated into treatment patches, including patches that are designed to deliver medicine and other compounds through the skin.
The generation and delivery of low frequency ultrasound over a period of time to a specific area has been termed “targeted
slow-release ultrasound”. We believe that this delivery method of ultrasound may be comparable to that of slow release medication
in the pharmaceutical industry. This “targeted slow-release” capability is intended to allow for more frequent targeting
of the intended treatment area and thus may result in a more effective therapeutic response.
Micro Vibrations Technology and Our Products
It is well established that increasing blood
flow to the wound and peri-wound area helps accelerate the healing of ischemic wounds. Micro-vibrations applied on the skin tissue
increase local blood flow and oxygen delivery to the wound area and stimulate angiogenesis and growth factors that are helpful
for the wound healing process. Vibration therapy has been found to stimulate blood flow due to mechanical stresses of endothelial
cells resulting in increased production of nitric oxide and vasodilation, as well as increase soft tissue and skin circulation
(Maloney-Hinds et al., “The Role of Nitric Oxide in Skin Blood Flow Increases due to vibration in healthy adults and adults
with type 2 diabetes,” School of Medicine, Loma Linda University. Ca. Diabetes Technology & Therapeutics, 2009 p. 39-43).
In addition, micro vibrations induce skin surface nerve axon reflex and type IIa muscle fibers contraction rates, resulting in
vasodilation (Nakagami et al., " Effect of vibration on skin blood flow in an in vivo microcirculatory model", The University
of Tokyo, Bio-Science Trends 2007; 1 (3): 161-166). Ten minutes of vibration therapy with laser doppler revealed a consistent
increase in blood supply (TJ Ryan et al.," The effect of mechanical forces (vibration or external compression) on the dermal
water content of the upper dermis and epidermis, assessed by high frequency ultrasound", Oxford Wound Healing Institute,
Journal of Tissue Viability, 2001. In another study, mean blood flow increase was higher in the vibration group than the placebo
group. Improvements in local blood flow may be beneficial in the therapeutic alleviation of pain or other symptoms resulting from
acute or chronic injuries (C. Button et al., "The effect of multidirectional mechanical vibration on peripheral circulation
of humans", University of Otago New Zealand,Clinical Physiology and functional Imaging, 2007 27, p211-216). A study on the
effect of whole body vibration on lower extremity skin blood flow suggests, that short duration vibration alone significantly
increases lower extremity skin blood flow, doubling skin blood for a minimum of 10 minutes following treatment (Lohman et al.,
" The effect of whole body vibration on lower extremity skin blood flow in normal subjects", Department of Physical
Therapy, Loma Linda university, USA, Med Sci Monit, 2007; 13(2) 71-76). Vibration has also been shown to stimulate angiogenesis
and growth factors such as vascular endothelial growth factor (Suhr F et al., " Effects of short-term vibration and hypoxia
during high intensity cycling exercise on circulating level of angiogenic regulators in humans", J Appl Physiol, 2007, 103:474-483,.
Yue Z. et al., " On the cardiovascular effects of whole-body vibration I. Longitudinal effects: hydrodynamic analysis",
Studies Appl Math, 2007, 119:95-109). Of import with respect to diabetic wounds, in which a prolonged inflammatory phase occurs,
vibration vasodilation has generated an indirect anti-inflammatory action, mainly by suppression of nuclear factor-kβ, the
key gene for inflammatory mediators (Marvin A., " Nitric Oxide is released into circulation with whole-body, periodic acceleration",
Chest 2005;127;30-39).
We believe that the WoundShield Micro Therapy
is the first patch device that provides micro vibrations (hertz range vibrations) to the healthy tissue adjacent to the wound
in order to stimulate these biological effects, which we believe will lead to faster healing.
Urinary catheter usage is associated with pain
and discomfort caused by the friction between the catheter surface and the urethral tissue. Generally, this friction is treated
by applying lubricating gels and low friction catheter coatings. These methods are effective for a short term during the catheter
insertion as the lubricating gel is quickly absorbed into the surrounding tissue and loses its effect and the catheter coatings
lose their lubricity within a few days, as the coating is covered by a thin film of mucous.
Our product provides vibrations along the surface
of the urinary catheter that is in contact with urethral tissue. We believe that these vibrations create a continuous acoustic
lubrication effect along the surface of the indwelling catheter that is in contact with the surrounding tissue, thus reducing
catheter-tissue contact time, which may lessen trauma from urethra abrasion and adhesion.
Our Products
WoundShield®
Our WoundShield product is intended to treat
acute and chronic wounds with a disposable treatment patch that delivers localized therapeutic low frequency ultrasound. The WoundShield
patch has two configurations: one that is placed adjacent to the wound and another, called the instillation patch,that is placed
on the wound to enable instillation through sonophoresis, a process that increases the absorption of semisolid topical compounds,
including medications, into the skin. Based on studies conducted by BIO-EC Microbiology Laboratory and Rosenblum, we believe that
our WoundShield product possesses significant potential for the treatment of, among other things, diabetic foot ulcers and burns
(Gasser P, Study Report delivered by BIO-EC Microbiology Laboratory, Dec 2007, which we ordered, paid for, and provided devices
for; Rosenblum J, “Surface Acoustic Wave Patch Diathermy Generates Healing In Hard To Heal Wounds,” European Wound
Management Association 2011, for which we supplied devices but had no further involvement).
Picture of WoundShield Driver and Instillation
Patch
WoundShield delivers surface acoustic waves
to the location of the wound. Surface acoustic waves move laterally across the surface of the wound, which enables the transfer
of the acoustic energy of the waves along the entire wound surface in a continuous and consistent mode, providing access to the
waves’ benefits for a longer treatment period than conventional ultrasound without the need for supervision or a treatment
session by a clinician.
This device has been found to have a positive
effect on the epithelialization (healing by the growth of epithelial cells) of diabetic wounds, as well as on the stimulation
of the precursors of dermal and epidermal (skin) growth. As such, it is a useful adjunct to wound care by increasing dermal and
epidermal growth, including glycosaminoglycans, or GAGs (which bind to extracellular proteins like collagen, fibronectin, laminin,
etc. and retain considerable amounts of water, thus preserving the skin structure) as well as the amount of collagen (a protein
that helps skin heal) and decreasing the number of cells in mitosis (a type of cell division) (Gasser P, Study Report delivered
by BIO-EC Microbiology Laboratory, Dec 2007, which we ordered, paid for, and provided devices for; Rosenblum J, “Surface
Acoustic Wave Patch Diathermy Generates Healing In Hard To Heal Wounds,” European Wound Management Association 2011, for
which we supplied devices but had no further involvement). In addition, the WoundShield instillation patch allows for administration
of therapeutic agents into the wound area through a sonophoresis effect.
Many key processes in wound healing are dependent
upon an adequate supply of oxygen. Diabetic foot ulcers are particularly in need of an adequate oxygen supply because the disease
often results from poor perfusion (blood flow) and decreased oxygen tension. Oxygen is also important for the immune system to
combat bacteria, synthesize collagen, help with fibroblast proliferation (fibroblasts are a type of cell that play a critical
role in wound healing), form oxidative (taking place in the presence of oxygen) pathways for adenosine triphosphate, or ATP, formation
(ATP transports chemical energy within cells for metabolism), and the nitric oxide dependent signaling pathways. It is generally
believed that a lack of available oxygen is a basic contributing factor in the perpetuation of these wounds. Recently, wound healing
experts have developed a technique of perfusing ischemic wounds (which occur when blood flow is blocked) with hyper-oxygenated
saline, while the wound is being treated with ultrasound, also known as sonication. This localized oxygenation therapy has many
advantages over the use of hyperbaric chambers (large chambers in which the oxygen pressure is above normal), a common method
for delivering oxygen to wounds, as it is more cost-effective, can be done at the patient’s bedside and can be administered
more frequently. The WoundShield instillation patch was tested as a potential ultrasound technology for this localized oxygen
therapy and we believe that its performance would exceed the performance of the other ultrasound technologies. In one study (Morykwas
M, “Oxygen Therapy with Surface Acoustic Waveform Sonication,” European Wound Management Association 2011; we supplied
devices for this study, but had no further involvement with it), oxygen sensors were placed in the wound bed to directly measure
partial pressure of oxygen in an ischemic wound bed on a pig. The wound was perfused with hyperbaric oxygen and sonicated using
the WoundShield instillation patch. With surface acoustic wave ultrasound technology, tissue oxygen levels (partial pressure of
oxygen in the blood, or PaO2) were raised from a range of 20 mmHg (millimeters of mercury) to 60 mmHg in peripheral (periwound)
areas, a 3 centimeter distance away from the transducer, and from 40 mmHg to greater than 100 mmHg in the central wound bed lying
below the WoundShield instillation patch (see table below). The results of this study illustrated that the WoundShield instillation
patch allowed oxygen to directly enter into the wound. The direct entry of the oxygen increased the amount of oxygen reaching
the wound, which has been shown to advance the healing process. In addition, we believe that WoundShield’s small size, lower
cost and ease of use makes localized oxygen treatment commercially viable.
In 2012, results were published of a human
feasibility trial for the WoundShield instillation patch that was performed at Duke University in North Carolina. Seven patients
were treated with the WoundShield instillation patch for their wounds and average tissue oxygen levels (PaO2) increased by an
average of 58% over baseline (Covington S, “Ultrasound-Mediated Oxygen Delivery to Lower Extremity Wounds,” Wounds
2012; 24(8)). We supplied devices for this trial, but had no further involvement with it. Based upon the results of this trial,
we are planning a series of clinical trials with an end point claim that our WoundShield product enhances perfusion in chronic
wounds.
WoundShield Micro Therapy
WoundShield Micro Therapy Patch placed next
to the wound
The WoundShield Micro Therapy device consists
of a small electronic driver and a treatment patch. The patch is placed on the healthy skin next to the wound and the incorporated
actuator vibrates in the hertz range and provides gentle vibrations to the surrounding tissue. The novelty of this technology
is that the vibration effect is produced due to bending vibrations of the actuator (piezo element) and not by means of a motor.
These micro vibrations applied on the skin tissue increase local blood flow, vasodilation
,
nitric oxide production and
oxygen delivery to the wound area and stimulate angiogenesis and growth factors that help the healing process.
In October 2014, Rosenblum et.al. published
in Wounds Journal a study entitled “Surface Acoustic Wave Patch Therapy Affects Tissue Oxygenation in Ischemic Feet.”
In this study, the WoundShield Micro Therapy device was found to significantly increase oxygen saturation level in the ischemic
tissue in all patients by an average of more than 50%. The rate of the drop off after usage varied, but no patient’s value
returned to pre-device usage levels.
Market for Wound-Healing
Devices
The global wound care device market
totaled $24,482.9 million in 2015 and it is expected to grow at a compound annual growth rate (“CAGR”) of 6.7%
during 2016-2022 (as reported by P&S Global Research in January 2017). According to a report entitled “Advances in
Wound Closure Technology” by Frost and Sullivan (2005), approximately 25% of all patients with diabetes develop a foot
or leg ulceration at some time during the course of their disease. Approximately 3.5 million individuals globally suffer from
diabetes related foot or leg ulcerations each year. In addition, according to the National Hospital Ambulatory Medical Survey
(2000-2004), approximately 500,000 patients receive medical treatment annually for burn injuries in the U.S., with the global
number estimated at 1 million. There are also policy-based factors that may increase the size of the wound care market. We
anticipate that reimbursement decisions with respect to hospital acquired wounds may create a large market opportunity for
wound care products, including WoundShield. Furthermore, in 2009, the Centers for Medicare and Medicaid Services announced
that they would stop reimbursements for treatment of certain complications that they believed were preventable with proper
care. One such complication was surgical site infections after certain elective procedures, including some orthopedic
surgeries and bariatric surgery. We believe that such developments incentivize medical care providers to invest in reducing
the risk of infection through the use of wound care products, including WoundShield.
Competition for WoundShield
and WoundShield Micro Therapy
The market for advanced wound
care includes a large number of competitors, such as Kinetic Concepts, Inc., or KCI, Smith and Nephew plc and Convatec Inc.,
all of whom market wound-healing medical devices. Due to their size, in general these companies may have significant
advantages over us. These competitors have their own distribution networks for their products, which gives them an advantage
over us in reaching potential customers. In addition, they are vertically-integrated, which may allow them to maximize
efficiencies that we cannot achieve with our third-party suppliers and distributors. Finally, because of their significantly
greater resources, they could potentially choose to focus on research and development of technology similar to ours, more
than we are able to. In general, we believe that these competitors have, and will continue to have, substantially greater
financial, technological, research and development, regulatory and clinical, manufacturing, marketing and sales, distribution
and personnel resources than we do. However, we believe that our products differentiate us from these competitors, and we
will be competitive on the basis of our advantageous technology. However, we believe that the strength of these competitors
may create an opportunity through strategic partnerships.
At present, ultrasound treatment for wounds
is limited only to wound debridement (removal of damaged tissue or foreign objects from a wound) and such products are marketed
by Misonix Inc., which produces SonicOne products, and Alliqua Biomedical, Inc., which produces the MIST Therapy System. Due to
their size, in general these companies may have the same advantages over us discussed with respect to our competitors in the paragraph
above. However, both of these ultrasound devices are indicated for use only in medical clinics and require an operator to deliver
their treatment, thus limiting their use and application. The MIST Therapy System is a non-contact ultrasound device that delivers
ultrasound through a mist that is applied directly on the wound.
We believe that these therapies are less advantageous
than WoundShield because they require an operator to deliver the treatment and the removal of bandages to target the wound bed.
In contrast, the WoundShield patch sits on normal skin bordering the open wound and no manipulation of the wound bandage is required.
Moreover, WoundShield can be self-administered, without an operator, in both clinics and home settings. We also believe that WoundShield
will be able to provide superior wound care therapy at a lower price than the existing products being used by medical practitioners.
As such, we believe that facilities that are reimbursed based upon diagnosis-related groups will be more inclined to adopt WoundShield
because it will provide the same therapeutic results at a significantly lower cost than traditional ultrasound therapies.
We are also aware of a small clinical study,
for which results were reported in August 2013, in which a small ultrasound device showed positive results in the treatment of
venous ulcers, a type of chronic wound. Based upon currently available information about this device, we believe it will be at
least five years before this device is available on the market. We understand that this product does not generate surface acoustic
waves as our products do, which means that the treatment area is generally limited to that of the transducer’s diameter.
We believe our products would have certain other advantages over this potential device, if developed, including that our products
weigh less and are thinner. However, given the early stage of development of this potential device, we cannot say with certainty
how our products would compare.
The most common method of oxygen administration
for wound healing is hyperbaric oxygen therapy, especially to treat specific ulcerations in diabetic patients. Hyperbaric oxygen
therapy has been shown to increase vascular endothelial growth factor expression, which measures the creation of new blood vessels
(Fok TC, at el, "Hyperbaric oxygen results in increased vascular endothelial growth factor (VEGF) protein expression in rabbit
calvarial critical-sized defects", Schulich School of Medicine and Dentistry, University of Western Ontario, Canada). The
activation of endothelial cells by VEGF sets in motion a series of steps toward the creation of new blood vessels (J Lewis et
al, National Cancer Institute, Understanding Cancer and Related Topics, Understanding Angiogenesis). We believe that the WoundShield
instillation patch, which can be used as an oxygen instillation system, will be complementary to, or in some cases an alternative,
to the use of hyperbaric chamber therapy. This complementary treatment option will allow the treating physician greater therapeutic
versatility in treating wounds. For a certain populace of patients, we believe that the WoundShield instillation patch could provide
physicians with an alternative to hyperbaric oxygen therapy because it provides the same benefits as hyperbaric oxygen therapy
at a lower cost to the patient. There are a number of competitors in the hyperbaric chamber therapy market, including over twelve
companies in the U.S. Due to their size, in general these companies may have the same advantages over us discussed with respect
to our competitors in the first paragraph of this section. However, we believe that the WoundShield instillation patch possesses
certain advantages over the existing hyperbaric chamber therapy, including lower cost and greater ease of use. In addition, we
do not believe that the WoundShield instillation patch will necessarily compete with hyperbaric chamber therapy, but rather will
often complement such therapy.
While we believe that WoundShield is well positioned
to capture a share of the wound care market, WoundShield may be unable to achieve its anticipated place in the wound care market
due to a number of factors, including, but not limited to, an inability to obtain the approval of the U.S. Food and Drug Administration,
for which it is indicated and its failure to be adopted by health care practitioners and facilities or patients because of its
status as a new product in a market that relies on patient-focused initiative to treat wounds.
We are aware of one product that may be competitive
with WoundShield Micro Therapy. The Vibro-Pulse is a large, vibrating surface that is placed under the patient’s limb that
provides massaging vibration. It is marketed for the repair and regeneration of soft tissue and vascular structures primarily
for stimulating wound healing. We believe that our product has the advantage of being smaller and capable of targeting a specific
wound area in comparison to this product. In addition, the WoundShield Micro Therapy’s patch-based configuration allows
a longer treatment period without limiting the patient to a stationary position.
Regulatory Strategy
For a general discussion of the U.S. Food and
Drug Administration approval process with respect to our products, and regulation of our products in general, see “–Government
Regulation” below.
Our general regulatory strategy for WoundShield
is focused on seeking U.S. Food and Drug Administration approval for a variety of indications. WoundShield obtained CE Mark approval
in November 2012, and obtained Canadian License approval in November 2016, both for use in wound healing.
Following preliminary clinical studies that
demonstrated WoundShield’s ability to enhance blood perfusion, in June 2014, we started a clinical trial for WoundShield
with an end point of enhanced perfusion in chronic wounds at REX hospital in North Carolina. To date, only two patients have been
recruited for this study, therefore we terminated this trial. We have not resumed it at another facility.
WoundShield Micro Therapy is a Class I device
that does not require a premarket notification application or U.S. Food and Drug Administration clearance before it can be marketed
in the U.S. We have listed it with the U.S. Food and Drug Administration.
Sales and Marketing
We have sold limited numbers of our WoundShield
products through our website. We intend to aggressively market WoundShield in Europe and Canada, and pursue the necessary approvals
to commence marketing in the United States. Our strategy for selling Woundshield in the U.S. is to find a strategic partner in
the wound care market . We are actively pursuing this strategy.
Clinical Trials
With respect to WoundShield, to date, we have
conducted the following evaluation studies:
Purpose
|
|
Doctor/Location
|
|
Time,
subjects
|
|
Objectives
|
|
Results
|
Clinical evaluation
Physician initiated
|
|
Dr. J. Rosenblum,
Shaare Zedek
Medical Center
|
|
2008
8 patients
|
|
To evaluate novel technology on wound healing in diabetic foot ulcers.
|
|
Therapy showed significant changes in wound, wound size was reduced, patients felt less
pain, necrotic tissue was less adhesive, necrotic tissue decreased in size. The duration of the trial was one week.
|
|
|
|
|
|
|
|
|
|
Clinical evaluation
Physician initiated
|
|
Dr. J. Rosenblum,
Shaare Zedek
Medical Center
|
|
2010
8 patients
|
|
To evaluate novel technology on wound healing in diabetic foot ulcers.
|
|
The device had a positive effect on both epitheliazation of diabetic wounds as and stimulating
the precursors of dermal and epidermal growth. The duration of the trial was 20 days.
|
|
|
|
|
|
|
|
|
|
Clinical evaluation
Physician initiated
|
|
Dr. S. Covington
|
|
2010
7 patients
|
|
The study aimed to determine if hyper oxygenated saline delivered by surface acoustic waves
improves tissue oxygenation in lower extremity wounds.
|
|
Surface acoustic wave technology in conjunction with oxygenated saline can increase interstitial
oxygen in wound bed. This trial to validate proof of concept was put on hold due to financial constraints. The duration of
the trial was two weeks.
|
PainShield®
PainShield is an ultrasound diathermy device
(diathermy is the production of heat in a part of the body by high-frequency electric currents), consisting of a driver unit and
a disposable patch, which contains our proprietary therapeutic transducer. It delivers a localized ultrasound effect to treat
pain and induce soft tissue healing in a targeted area, while keeping the level of ultrasound energy at a safe and consistent
level of 0.4 watts. We believe that PainShield is the smallest and most portable therapeutic ultrasound device on the market and
the only product in which the ultrasound transducer is integrated in a therapeutic disposable application patch.
The existing ultrasound therapy devices being
used for pain reduction are primarily large devices used exclusively by clinicians in medical settings. PainShield is able to
deliver ultrasound therapy without being located in a health care facility or clinic because it is portable, due to it being lightweight
and battery operated. Because it is patch based and easy to apply, PainShield does not require medical personnel to apply ultrasound
therapy to the patient. The patient benefits include ease of application and use, faster recovery time, high compliance, and increased
safety and efficacy (Adahan M, et al, “A Sound Solution to Tendonitis: Healing Tendon Tears With a Novel Low-Intensity,
Low-Frequency Surface Acoustic Ultrasound Patch,” American Academy of Physical Medicine and Rehabilitation Vol. 2, 685-687,
July 2010). PainShield can be used by patients at home or work or in clinical setting and can be used even while the patient is
sleeping. Its range of applications includes acute and chronic pain reduction and anti-inflammatory treatment.
Picture of PainShield with Patch
PainShield is used to treat tendon disease
and trigeminal neuralgia (a chronic pain condition that affects the trigeminal or 5th cranial nerve, one of the most widely
distributed nerves in the head); previously, the therapeutic options for these disorders have been very limited. PainShield
has also been used to treat pelvic and abdominal pain. To date, to the best of our knowledge, the only treatment options for
these conditions are pain medication and surgery.
Market for PainShield
Pain is one of
the most common conditions that
regularly hinders the quality of life of a vast patient population.
Pain-related complaints are the most common reason patients seek treatment from physicians (Prince V, “Pain Management in
Patients with Substance-Use Disorders,” Pain Management, PSAP-VII, Chronic Illnesses). According to Bonica’s Management
of Pain (2001), a work considered current in the industry based on available industry data, and Landro L, “New Ways to Treat
Pain: Tricking the Brain, Blocking the Nerves in Patients When all Else Has Failed,” Wall Street Journal, May 11, 2010,
approximately 25% of the U.S. population, or approximately 75 million people, suffer from chronic pain. We estimate that approximately
150 million individuals globally suffer from chronic pain. Studies have shown that low-frequency ultrasound treatment has yielded
positive results for a variety of indications, including tendon injuries and short-term pain relief (Warden SJ, “A new direction
for ultrasound therapy in sports medicine,” Sports Med. 2003; 33 (2):95-107), chronic low back pain (Ansari NN, Ebadi S,
Talebian S, Naghdi S, Mazaheri H, Olyaei G, Jalaie SA, “Randomized, single blind placebo controlled clinical trial on the
effect of continuous ultrasound on low back pain,” Electromyogr Clin Neurophysiol. 2006 Nov; 46(6):329-36) and sinusitis
(Ansari NN, Naghdi S, Farhadi M, Jalaie S, “A preliminary study into the effect of low-intensity pulsed ultrasound on chronic
maxillary and frontal sinusitis,” Physiother Theory Pract. 2007 Jul-Aug; 23(4):211-8). We believe that PainShield’s
technology, portability and ease of use may result in it becoming an attractive product in the pain management and therapy field.
Competition
There are numerous products and approaches
currently utilized to treat chronic pain. The pharmacological approach, which may be the most common, focuses on drug-related
treatments. Alternatively, there are a large number of non-pharmacological pain treatment options available, such as ultrasound,
transcutaneous electrical nerve stimulation, or TENS, laser therapy and pulsed electromagnetic treatment. In addition, there are
some technologies and devices in the market that utilize low frequency ultrasound or patch technology. Many patients are initially
prescribed anti-pain medication; however, ongoing use of drugs may cause substantial side effects and lead to addiction. Therefore,
patients and clinicians have shown increased interest in alternative pain therapy using medical devices that do not carry these
side effects.
The currently available ultrasound treatments
for chronic pain have generally been accepted by the medical community as standard treatment for pain management. However, the
traditional ultrasound treatments, such as those manufactured or distributed by Mettler Electronics Corp, Metron USA and Zimmer
MedizinSysteme, are stationary devices found only in clinics and other health care facilities that need to be administered to
patients by health care professionals. We are aware of three companies that market smaller ultrasound devices capable of certain
self-administered use for the treatment of pain: Koalaty Products, Inc., Sun-Rain System Corp. and PhysioTEC. These devices generally
function in the same manner, at the same frequency and with the same administration and safety requirements and limitations as
traditional, larger ultrasound devices. We are also aware of one product, which has recently received U.S. Food and Drug Administration
approval and also has CE Mark approval, marketed by ZetrOZ, Inc., that we understand may eliminate certain of these requirements
and limitations, namely the requirement to be plugged in, the need for movement around the treated area and the relatively short
safe treatment period. However, we understand that this product does not generate surface acoustic waves as our products do, which
means that the treatment area is generally limited to that under the transducer, that the use of transmission gel is still required
and that the transducer thickness is significantly greater than ours (approximately 1.5cm). It is also our understanding that
the U.S. Food and Drug Administration has prohibited the manufacturer from labeling or promoting this product for use directly
over bone that is near the skin surface. In addition, there are other patch-based methods of pain treatment, such as TENS therapy.
TENS therapy is generally not supported by widespread clinical evidence of its efficacy. In addition, TENS therapy may be painful
and irritating for the patient due to the muscle contractions resulting from the electrical pulses. PainShield combines the efficacy
of ultrasound treatment for pain with the ease of use and portability of a patch-based system. PainShield also may be self-administered
by the patient, including while the patient is sleeping. However, if we are unable to obtain widespread insurance coverage and
reimbursement for PainShield, its acceptance as a pain management treatment would likely be hindered, as patients may be reluctant
to pay for the product out-of-pocket.
Regulatory Strategy
PainShield received 510(k) clearance from the
U.S. Food and Drug Administration in August 2008 for treatment of selected medical conditions such as relief of pain, muscle spasms
and joint contraction. PainShield received CE Mark approval in July 2008 and was also approved for sale by the Israeli Ministry
of Health in 2010. We have a Canadian medical device license for PainShield and we are able to sell PainShield in India and Ecuador
based on our CE Mark.
In the U.S., PainShield falls under the diathermy
classification for the treatment of pain for initial reimbursement purposes. The permitted reimbursement codes can be used in
the outpatient supervised medical setting. We intend to coordinate with the Centers for Medicare and Medicaid Services and private
insurers so that reimbursement can be extended to cover the administration of PainShield outside of health care facilities and
clinics. In addition, we intend to conduct clinical trials in order to effectively market PainShield for a larger range of indications.
The targeted reimbursement would be based upon specific indications, where study data serves as justification for payment.
Sales and Marketing
PainShield was introduced in 2009 as a treatment
for pain and other clinical problems, such as tendonitis, sports injuries, pelvic pain and neurologic pain and we have sold approximately
1,500 units and 8,000 treatment patches since its introduction. We have entered into distribution agreements in North America,
Europe, Asia and the Middle East for the distribution of PainShield. We intend to seek additional distribution opportunities in
Europe, East Asia and South America. In addition, we sell PainShield directly to patients through our website. We are currently
ramping up our marketing efforts in North America. We anticipate that these efforts will include recruiting additional sales personnel
and representatives, making in-office calls to physicians and attending trade shows and conferences. We intend to pursue the veterinary
market with our equine PainShield device.
We have also identified a market for PainShield
in the professional sports industry where in many cases reimbursement is either available from sports organizations or by self
pay from wealthy sports figures. In order to pursue this market we are exhibiting at sports trainers meetings and advertising
in their media.
Research
A double blind randomized control trial of
a Surface Acoustic Wave Patch device is currently enrolling for the treatment of trigeminal neuralgia. This is a crossover
study for the group that receives the sham device. Subjects will be monitored for subjective criteria of pain and quality of
life, as well as objective measurement of analgesic usage. This study’s target enrollment is expected to be 60 patients.
Enrollment began in November 2016. The study should be finalized by the
fall of 2017.
After the enrollment and lead-in period, subjects
will be given a sham device to sleep with every night for a month. They will be asked to fill out their pain and analgesic use
logs, and undergo the bi weekly assessments. After a month they will be crossed over to an active "Painshield SAW patch device"
and will continue to complete their pain and analgesic use logs as well as undergo biweekly assessments for months two and three
of the study.
Clinical Trials
To date, we have conducted the clinical trials
set forth below:
Purpose
|
|
Doctor/Location
|
|
Time,
subjects
|
|
Objectives
|
|
Results
|
A sound solution for Trigerminal Neuralgia
Physician initiated
|
|
Dr. Ch. Adahan
Shiba medical Center
|
|
2009
15 patients
|
|
·
Reduction in pain
·
Reduction in disability
·
Improvement of function and quality of life
·
Accelerating of healing
|
|
73% of the subjects experienced complete or near complete relief.
|
|
|
|
|
|
|
|
|
|
Randomized control trial examining the efficacy of low
intensity low frequency Surface Acoustic wave ultrasound in trigerminal neuralgia pain
For Ph.D., Funded by Israeli Ministry of Health
|
|
Dr. M. Zwecker
Chaim Sheba Medical Center, Tel Hashomer, Israel
|
|
2012-2012
19 patients
|
|
·
Reduction in pain
·
Reduction in disability
·
Improvement of function and quality of life
·
Accelerating of healing
|
|
In conclusion this study supports the hypothesis that the application of Low Intensity Low
Frequency Surface Acoustic Wave Ultrasound (LILF/SAW) may be associated with a clinically significant reduction of pain severity
among patients suffering from trigerminal neuralgia disease.
|
|
|
|
|
|
|
|
|
|
Treating Rutgers university athletic injuries with bandaid sized ultrasound unit PainShield
|
|
R. Monaco,
G. Sherman,
Rutgers University Athletic, Rutgers, New Jersey
|
|
2011
40 patients
|
|
·
To assess the pain, functional capacity and discomfort of the subject
·
To assess the subject’s quality of life
·
To assess the injury status
·
To assess the efficacy of the treatment
·
To assess compliance factors
|
|
Preliminary results:
Active group:
70% had improvement, 30% no change
Sham group:
70% no change, 30% had improvement
This is a really good indication of the effectiveness of
the device.
Lack of funding for statistical analysis has stopped this
trial prior to fulfillment.
|
|
|
|
|
|
|
|
|
|
Reduction of chronic abdominal and pelvic pain, urological and GI symptoms using wearable
device delivering low frequency ultrasound
|
|
D. Wiseman,
Synechion Institute for Pelvic Pain
|
|
2011
19 patients
|
|
·
To assess the efficacy of PainShield for pelvic and related pain
|
|
Improvement in pain related symptoms noted for all symptoms.
|
If we are able to obtain sufficient funding,
we anticipate conducting the following clinical trials:
Trial
|
|
Place
|
|
Start Date/Timing
|
|
Objectives
|
PainShield for Trigeminal Neuralgia 80 patient trial
|
|
To be determined
|
|
To be determined
|
|
Safety and Efficacy of PainShield in Trigeminal Neuralgia
|
|
|
|
|
|
|
|
PainShield for Pelvic Pain
200 patient trial
|
|
To be determined
|
|
To be determined
|
|
Safety and Efficacy of PainShield in Chronic Pelvic Pain
|
UroShield
UroShield is intended to prevent bacterial
colonization and biofilm formation, increase antibiotic efficacy in the catheter lumen and decrease pain and discomfort associated
with urinary catheter use. It is designed to be used with any type of indwelling urinary catheter regardless of the material or
coating. We believe UroShield is the first medical device on the market that attempts to simultaneously address all of the aforementioned
catheter-related issues. UroShield is similar in design to WoundShield and PainShield, in that it uses a driver unit that produces
low frequency, low intensity ultrasound. The driver unit connects to a disposable transducer that is clipped onto the external
portion of the catheter to deliver ultrasound therapy to all catheter surfaces as well as the tissue surrounding the catheter.
Picture of UroShield with actuator
The UroShield system has the following advantageous
effects:
|
·
|
Prevention
or Reduction of Biofilm.
The low frequency ultrasound generated by UroShield has
been shown to decrease adherence of bacteria to catheter surfaces, thereby reducing biofilm.
Biofilm is the complex matrix required for bacteria to grow and cause infection. See
the discussion of our Heidelberg 1 trial below.
|
|
·
|
Decreased Catheter Associated Pain and Discomfort.
We believe that UroShield creates
an acoustic envelope on the surfaces of the catheter, which decreases friction and tissue trauma, pain and discomfort caused
by the catheter. In addition, the tissue in contact with the catheter remains healthier and less traumatized as a result of
the application of low frequency and low intensity ultrasound (Tenke P, “The effectiveness of acoustic energy induced
by UroShield in the prevention of bacteriuria and the reduction of patients’ complaints related to long-term indwelling
urinary catheters,” 26th Annual Congress of the European Association of Urology (EAU) Congress, Vienna, March 2011;
we supplied devices for this study and paid for electron microscopy analysis, but had no further involvement with it).
|
|
·
|
Acoustically Augmented Antibiotic Therapy.
Antibiotic resistance in biofilm bacteria
is a well-known phenomenon. Although it has been known that ultrasound can increase antibiotic efficacy in in-vitro models,
we do not believe that there has been a practical ultrasound-based medical device that was able to augment antibiotic efficacy
in the clinical setting. UroShield technology has been shown to eradicate biofilm-residing bacteria by greater than 85% when
applied simultaneously with an antibiotic in three clinically relevant species, escherichia coli, staphylococcus epidermidis
and pseudomonas aeruginosa (Banin E, et al., “Surface acoustic waves increase the susceptibility of Pseudomonas aeruginosa
biofilms to antibiotic treatment,” Biofouling, August 2011; we supplied devices for this study, but had no further involvement
with it).
|
|
·
|
Preservation of the Patency of Catheters.
We believe that low frequency ultrasound
applied to catheters will add an anti-clogging effect and will preserve patency of catheters. This effect is achieved by ultrasound
waves creating an acoustic layer on the inner lumen of the urinary catheter, thereby preventing adherence of biological material
and bilofilm formation. We believe that this anti-clogging benefit will help prevent local infection and sepsis secondary
to catheter obstruction.
|
UroShield has undergone a number of clinical
trials. The Heidelberg 1 trial, which we sponsored, was a 22 patient randomized, double blind, sham-controlled, independent trial
that tested UroShield’s safety and ability to prevent biofilm in patients with an indwelling Foley catheter. The trial demonstrated
that UroShield prevented biofilm in all patients with the active device as compared to biofilm being found in seven of eleven
of the control patients. In addition, there was a marked decrease in pain, discomfort and spasm in the active UroShield patients,
as evidenced by a statistically significant decrease in the requirement for the medications required to treat urinary catheter
associated pain and discomfort (Ikinger U, “Biofilm Prevention by Surface Acoustic Nanowaves: A New Approach to Urinary
Tract Infections?,” 25th World Congress of Endourology and SWL, Cancun, Mexico, October 2007).
In a subsequent physician-sponsored trial known
as Heidelberg 2, 40 patients who underwent radical prostatectomies were divided into two groups, with the active group receiving
one intra-operative dose of antibiotics and UroShield and the control group receiving one intra-operative dose of antibiotics
and then five subsequent doses over three days. At the end of the trial, the control group had four cases of bacteruria, as compared
to one in the active group. In a third trial, a physician-sponsored open label trial, ten patients who received emergency placement
of a urinary catheter due to acute obstruction were given a UroShield device and followed with regard to their pain, discomfort,
spasm and overall well-being. Within 24 hours, all patients showed improvement and increased toleration of the catheter (Zillich
S., Ikinger U, “Biofilmprävention durch akustische Nanowellen: Ein neuer Aspekt bei katheterassoziierten Harnwegsinfektionen?,”
Gesellschaft für Urologie, Heilbronn, Germany, May 2008). We supplied devices for this trial, but had no further involvement
with it.
Market for UroShield
According to State of the Globe: Catheterizations
Continue to Cultivate Urinary Infections – Journal of Global Infectious Diseases May-Aug 2010 , over 55 million indwelling
urinary catheters are consumed annually worldwide. In addition, as of October 1, 2008, Medicare stopped authorizing its payment
to hospitals in which patients have developed a catheter-associated urinary tract infection that was not present on admission.
This provides hospitals in the U.S. with a substantial financial incentive to reduce the occurrence of such infections through
the use of products such as UroShield, which help prevent infections hospitals would otherwise have to treat without reimbursement.
In addition, it has been noted that the Centers for Medicare & Medicaid Services may fine hospitals in the future when their
patients develop catheter acquired urinary tract infection, which will likely increase the incentive of hospitals to invest in
technologies that may prevent this complication (Brown J, et al. “Never Events: Not Every Hospital-Acquired Infection Is
Preventable, Clinical Infectious Diseases, 2009, 49 (5)).
Every day approximately five percent of catheterized
patients develop bacteriuria and up to 50% of patients develop bacteriuria over one week. Virtually all patients requiring indwelling
urinary catheters for longer than a month become bacteriuric.
Most episodes of bacteriuria associated with short-term
catheters are asymptomatic. As the catheter remains in place the bacteriuria becomes complex, polymicrobial, and dynamic.
70
Escherichia coli is the dominant pathogen accounting for most urinary tract infections (“UTI”) followed by S.
epidermidis, S. saprophyticus, and Enterococcus species. Less common organisms, such as Gardnerella vaginalis, Mycoplasma species,
and Ureaplasma urealyticum may also infect patients with intermittent or indwelling catheters.
Constitutional symptoms
suggestive of UTI occur in a third of catheterized patients, though less than five percent develop bacteremia (the presence of
bacteria in the blood).
Competition for UroShield
Several types of products have been introduced
to address the growing problem of catheter-acquired infection and biofilm formation on catheter surfaces. Manufacturers offer
antibiotic-coated and antiseptic-impregnated catheters. In addition, manufacturers have produced silver-coated catheters, which
have been shown in small studies to delay bacteruria for about two to four days. However, larger studies did not corroborate this
result; on the contrary, silver hydrogel was associated with overgrowth of gram positive bacteria in the urine (Riley DK, Classen
DC, “A large randomized clinical trial of a silver-impregnated urinary catheter: lack of efficacy and staphylococcal superinfection,”
Am. J. Med. 1995 April; 98(4):349-56).
UroShield has been designed to be added to
any type of catheter, including Foley catheters and silver-coated catheters, to improve a catheter’s infection prevention
performance. UroShield is not intended to replace any existing products or technologies, but instead is intended to assist these
existing products or technologies in preventing catheter-acquired urinary injury and catheter associated complications. UroShield
may be unable to achieve its anticipated catheter market share due to a number of factors, including, but not limited to, an inability
to obtain approval of the U.S. Food and Drug Administration and failure to be adopted by health care practitioners and facilities
because of its status as a new product in the market, without an established niche.
Regulatory Strategy
UroShield received CE Mark approval in September
2007 and was also approved for sale by the Israeli Ministry of Health in 2008. We are able to sell UroShield in India and Ecuador
based on our CE Mark. UroShield was granted a Canadian medical device license in September 2016.
In
the European Union, UroShield has been marketed for the prevention of biofilm, decreased pain and discomfort associated
with urinary catheters and increased antibiotic efficacy. In the U.S., we intend to seek clearance from the U.S. Food and
Drug Administration through the de novo classification process for UroShield. We submitted our application for 510(k)
approval on January 3, 2011. On March 11, 2011, we received a response from the U.S. Food and Drug Administration proposing
that the approval go through the de novo route, which will require clinical trials with proposed study protocols to be
pre-cleared by the U.S. Food and Drug Administration. We are currently seeking a strategic partner that is active in the
urology market to coincide with the U.S. Food and Drug Administration clearance. We have not made any further submissions to
the U.S. Food and Drug Administration related to UroShield. A more robust study is currently underway which is intended to
enroll 63 patients in a randomized controlled trial. This ongoing study has been approved by the
institutional review
board (“IRB”)
and is currently enrolling patients within two nursing home in
upstate New York. The trial is a double blind, randomized control trial with a projected endpoint of pain reduction and
reduction of bacterial colonization on the urinary catheter. We intend to submit for approval to the U.S. Food and Drug
Administration after completion of this ongoing study.
Sales and Marketing
We believe the business opportunity for Uroshield is in the hundreds
of millions in USD. To that end we are exploring sales distribution models in the U.S. through a distributor network and direct
sales. We are currently identifying distributors through several vehicles, including our sales staff, commissionable representation,
and independent contractors. The clinical study underway may provide the evidence to prevent, and treat the formation of biofilm
colonies which we believe will result in significant improved patient outcomes, and the savings to the healthcare system from
treating patients with UTI’s and the re-hospitalization of outpatients.
From time to time we have had interest from strategic companies
in the catheter market to partner, license or acquire the UroShield technology. These strategic partners are active in the urology
market and may be interested in integrating UroShield into its range of products. Discussions with these partners are ongoing.
Clinical Trials
To date, we have conducted the clinical trials
set forth below:
Purpose
|
|
Doctor/Location
|
|
Time,
subjects
|
|
Objectives
|
|
Results
|
To assess the safety of the UroShield
Double Blind, Comparative, Randomized Study for the Safety
Evaluation of the UroShield System (HD1)
|
|
Dr. U. Ikinger, Salem Academic Hospital, University of Heidelberg, Germany
|
|
2005-2006
40 patients
|
|
To demonstrate that the use of the UroShield is safe and
that the device is well tolerated by the patients and user friendly to the medical staff.
Efficacy objectives were to demonstrate that the UroShield
helps in prevention of biofilm formation in comparison with the urinary catheter alone, as well as bacteriuria.
|
|
UroShield was both safe and well tolerated.
UroShield proved markedly efficacious in prevention of
biofilm. Subjects required significantly less medications than the control group for catheter related pain and discomfort.
|
|
|
|
|
|
|
|
|
|
Double Blind, Comparative, Randomized Study for the Safety
Evaluation of the UroShield System (HD2
)
Physician initiated
|
|
Dr. U. Ikinger, Salem Academic Hospital, University of Heidelberg, Germany
|
|
2007
40 patients
|
|
To demonstrate that the use of the UroShield is safe and helps in prevention of biofilm
formation and UTI in comparison with the urinary catheter alone, as well as decrease antibiotic use.
|
|
In this trial, only 1/20 patients in UroShield device (no antibiotics) group developed urinary
tract infection compared to 4/20 patients within control group treated with the antibiotic prophylaxis alone.
|
|
|
|
|
|
|
|
|
|
The Effect of UroShield on Pain and Discomfort in Patients
Released from the Emergency Room with Urinary Catheter Due to Urine Incontinence
Physician initiated
|
|
Shaare Zedek Medical Center Jerusalem, Israel.
|
|
2007
10 patients
|
|
The study aimed to assess the effectiveness of the UroShield in reducing pain and discomfort
levels and improve the well-being of the subjects. Efficacy objectives included reduction of pain, spasm, burning and itching
sensation levels of the subjects.
|
|
The results demonstrated a reduction in pain, itching, burning and spasm levels. Additionally,
the well-being of the subjects showed a significant increase.
|
The Use of the UroShield Device in Patients with Indwelling
Urinary Catheters
Open labeled, comparative, randomized study
|
|
Dr. Shenfeld
Shaare Zedek Medical Center Jerusalem, Israel.
|
|
2007-2009
40 patients
|
|
Patient complaints related to catheter regarding pain according
to VAS scale and discomfort according to 0-10 scale
Presence of Clinically Significant UTI
Presence of Bacteriuria
Presence of Biofilm
Use of medication
|
|
UroShield device was effective in reducing postoperative catheter related
pain discomfort and bladder spasms. There was also a notable trend towards reduction of bacteriuria.
|
|
|
|
|
|
|
|
|
|
Evaluation of the UroShield in urinary and nephrostomies
to reduce bacteruria
Physician initiated
|
|
Prof. P.Tenke,
Hungary
|
|
2010-2011
26 patients
|
|
·
Pain, disability and QOL
·
Catheter patency
·
Bacteriuria / UTI
·
Hospitalization period
·
Analgesics and Antibiotics intake
|
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Showed reduction in pain and significant decrease in bacteriuria rate.
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If we are able to locate a strategic partner
or otherwise obtain sufficient funding, we anticipate conducting the following clinical trial:
Trial
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Place
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Start Date/Timing
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Objectives
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UroShield U.S. Food and Drug Administration trial 80 patient trial
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To be determined
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To be determined
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Safety and efficacy of UroShield in urinary catheter related pain and infection
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Third Party Reimbursement
We anticipate that sales volumes and prices
of the products we commercialize will depend in large part on the availability of coverage and reimbursement from third party
payers. Third party payers include governmental programs such as Medicare and Medicaid, private insurance plans and workers’
compensation plans. These third party payers may deny coverage and reimbursement for a product or therapy, in whole or in part,
if they determine that the product or therapy was not medically appropriate or necessary. The third party payers also may place
limitations on the types of physicians or clinicians that can perform specific types of procedures. In addition, third party payers
are increasingly challenging the prices charged for medical products and services. Some third party payers must also pre-approve
coverage for new or innovative devices or therapies before they will reimburse healthcare providers who use the products or therapies.
Even though a new product may have been approved or cleared by the U.S. Food and Drug Administration for commercial distribution,
we may find limited demand for the device until adequate reimbursement has been obtained from governmental and private third party
payers.
In international markets, reimbursement and
healthcare payment systems vary significantly by country, and many countries have instituted price ceilings on specific product
lines and procedures. There can be no assurance that procedures using our products will be considered medically reasonable and
necessary for a specific indication, that our products will be considered cost-effective by third party payers, that an adequate
level of reimbursement will be available or that the third party payers’ reimbursement policies will not adversely affect
our ability to sell our products profitably.
In the U.S., some insured individuals are receiving
their medical care through managed care programs, which monitor and often require pre-approval of the services that a member will
receive. Some managed care programs are paying their providers on a per capita basis, which puts the providers at financial risk
for the services provided to their patients by paying these providers a predetermined payment per member per month, and consequently,
may limit the willingness of these providers to use products, including ours.
One of the components in the reimbursement
decision by most private insurers and governmental payers, including the Centers for Medicare & Medicaid Services, which administers
Medicare, is the assignment of a billing code. Billing codes are used to identify the procedures performed when providers submit
claims to third party payers for reimbursement for medical services. They also generally form the basis for payment amounts. We
anticipate that our distributors will be responsible for the process for obtaining billing codes for our products.
The initial phase of establishing a professional
billing code for a medical service typically includes applying for a Current Procedural Terminology, or CPT, Category III code.
This is a tracking code without relative value assigned that allows third party payers to identify and monitor the service as
well as establish value if deemed medically necessary. The process includes CPT application submission, clinical discussion with
Medical Professional Society CPT advisors as well as American Medical Association CPT Editorial Panel review. A new CPT Category
III code will be assigned if the American Medical Association CPT Editorial Panel committee deems it meets the applicable criteria
and is appropriate.
The secondary phase in the CPT billing code
process includes the establishment of a permanent CPT Category I code in which relative value is analyzed and established by the
American Medical Association. The approval of this code is based on, among other criteria, widespread usage and established clinical
efficacy of the medical service.
We believe that the overall escalating costs
of medical products and services has led to, and will continue to lead to, increased pressures on the healthcare industry to reduce
the costs of products and services. In addition, recent healthcare reform measures, as well as legislative and regulatory initiatives
at the federal and state levels, create significant additional uncertainties. There can be no assurance that third party coverage
and reimbursement will be available or adequate, or that future legislation, regulation, or reimbursement policies of third party
payers will not adversely affect the demand for our products or our ability to sell these products on a profitable basis. The
unavailability or inadequacy of third party payer coverage or reimbursement would have a material adverse effect on our business,
operating results and financial condition.
The Diagnosis Related Group System, or DRG,
is the system of reimbursement that is used in the United States for hospitalized patients as well as patients who are cared for
in skilled nursing facilities and long term care facilities. These facilities are not subject to the same reimbursement codes
as described above. In the DRG system, each patient admitted to the hospital or facility is assigned a code based on his or her
diagnosis. That code is known to be associated with an average hospital stay and the health care facility is reimbursed for the
amount of days as defined by the DRG code, regardless of how many days the patient is in the facility. This system gives a strong
incentive for these health care facilities to deliver efficient care and to complete the needed treatment as quickly as possible.
For example, if the patient has a wound that requires healing before discharge and they succeed in treating the wound in less
hospital days than allowed by the DRG code for this diagnosis, the facility will be rewarded by being paid more for more days
than the patient was actually in the hospital for. Conversely, if the treatment takes longer, the facility would actually lose
income, as they will be paid for the DRG code only. This system serves as a stimulus for these facilities to purchase and utilize
devices and technologies that allow more efficient therapy.
PainShield.
PainShield is presently reimbursed in the U.S. by many private insurers for use of the ultrasound device
in a supervised medical setting and is reimbursed in 15-minute increments for up to an hour a day, 5 hours a week and 20 hours
a month. If the device is efficacious in the treatment of the patient’s condition, the treatment period can be extended in
some cases for months. Presently, when purchased by a clinic, PainShield is typically purchased by the clinic that then bills the
existing reimbursement codes. PainShield is not reimbursed for therapy in the home setting. When we have sufficient funding, we
intend to work to obtain reimbursement in the home setting as well as codes that would allow for reimbursement for use of the non-disposable
and disposable components of the PainShield device. Our anticipated clinical trials for PainShield would support this effort.
WoundShield
We believe that the initial
usage of these products will be in the hospital setting. Reimbursement in the hospital setting is governed by the diagnosis-related
group system, which does not require specific reimbursement codes. In parallel to introducing these devices to hospitals, we intend
to apply for reimbursement codes for outpatient use. Although obtaining these codes can take two to five years and may require
extensive clinical data, we believe that the desirable characteristics of these products may serve as an incentive to insurance
companies to grant these codes more quickly.
UroShield.
We expect these products
to be used in hospital settings and therefore reimbursed under the diagnosis-related group reimbursement system. In addition,
we anticipate that these products will initially be purchased privately until a reimbursement code is obtained. However, we believe
that if we can empirically demonstrate UroShield’s efficacy in preventing recurrent hospitals admission in chronic Foley
catheter patients and reducing overall per-patient cost, third party payers may accelerate the reimbursement approval process
since the device could reduce their overall per-patient cost.
New Products Under Development
Renooskin
We have started developing a device for
the facial rejuvenation market called Renooskin in 2016. Previous in vitro clinical studies on human skin were done showing
that the SAW technology provided skin rejuvenation comparable to Retinol A which is a well-accepted anti-aging cream. The
Company has developed a head band like applicator for the SAW treatment and is in the process of arranging for a pilot trial
with a cosmetic dermatologist and/or plastic surgeon. The Company believes that, subject to proof of efficacy of
the Renooskin and receiving regulatory approval, the device can be sold in a non-reimbursement market since cosmetic devices
are private pay. We expect the first articles to test in the second quarter of 2017.
Lungshield
A pilot study, adapting the UroShield technology to endotracheal tubes, is currently underway at Shaare
Zedek Medical Center, under Reuveen Friedmann as the Principle Investigator. The purpose of this study is to examine the effect
of a device which generates low energy ultrasound waves like the UroShield product. The endpoint of the study
is to show its effect on development of bacterial colonies on endotracheal tubes, in patient receiving mechanical ventilation,
and to determine whether this effect lowers the rate of bacterial resistance to antibiotics. The interim results of the study are
likely to be published prior to the completion of the study. The targeted completion for the study is fall 2017.
Research and Development Expenses
During the years
ended December 31, 2016 and 2015 we spent approximately $584,000 and 399,000, respectively, on research and development activities.
None of the cost of such activities is borne directly by our customers
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Intellectual Property
Patents
We believe that our patent portfolio provides
us with sufficient protection of our patentable intellectual property. We have six patents in the U.S. and three filed applications.
Granted U.S. Patent No. 7,393,501 (having the following foreign counter-parts: China ZL03818327.7; Israel 165422; Japan 4504183;
India 246351; Australia 2003231892; European Union 1511414 B), “Method, apparatus and system for treating biofilms associated
with catheters” and granted U.S. Patent No. 7,829,029 (having the following foreign counter-parts: China ZL200780019732.3
and European Union 1998834), “Acoustic add-on device for biofilm prevention in urinary catheter,” both relate to the
use of surface acoustic waves to prevent biofilm formation on indwelling catheters. These granted U.S. patents expire on December
19, 2023 and October 27, 2025, respectively. Granted U.S. Patent No. 7,892,191 (having the following foreign counter-parts: Russia
2419395 and Australia 2005331251), “Nanovibration coating process for medical devices using multi vibration modes of a thin
piezo element” and granted U.S Patent Patent No. 9,028,748 , “System and method for surface acoustic wave treatment
of medical devices,” relate to methods of generating surface acoustic waves on medical device surfaces on both indwelling
medical devices and implants to prevent biofilm formation. These U.S. patents expire on December 19, 2023 and February 26, 2027,
respectively. U.S. Patent Application No. 11/710,615 (having the following foreign counter-parts: China ZL200780014875.5;, European
Union, and allowed Israel application), “System and method for surface acoustic waves treatment of skin,” relates
to methods of using surface acoustic waves for treatment of skin for the purpose of wound-healing, reducing infection, pain reduction
and cosmetic enhancements.
We also license three patents pursuant to a
license agreement with Piezo-Top Ltd and PMG Medica Ltd., U.S. Patent No. 6,454,716 B1, “A system and method for detection
of fetal heartbeat,” and U.S. Patent No. 6,964,640 B2, “A system and method for detection of motion,” which
incorporate certain technology related to biofilm prevention for medical purposes, including biofilm prevention in indwelling
catheters, biofilm prevention in dialysis and respiratory assist devices and is based on unique configuration of piezoelectric
elements in cooperative configuration with series of oscillators that are able to transmit and receive ultrasonic waves simultaneously.
The configuration allows for an optimal scanning range at an unlimited number of angles.
These patents expire on May 23, 2020 and January
22, 2023, respectively. U.S. Patent No. 7,431,892 B2, “Apparatus for sterilizing a liquid with focused acoustic standing
waves,” relates to our original work introducing multiple modes of power into an ultrasonic transducer for purpose of sterilizing
liquids. This patent has been the genesis of the more practical patents described above. This patent expires on July 29, 2024.
See “—License Agreements” below.
Just recently, the Company has been granted
a patent by the United States Patent and Trademark Office entitled, “
System and Method for Surface Acoustic Wave Treatment
of Skin
,” with a term through 2033, which does not include regulatory extensions.
We believe the granted patents, patent applications
and license agreement (described below) collectively cover our existing products to the extent necessary, and may be useful for
protecting our future technology developments. We intend to continue patenting new technology as it is developed, and to actively
pursue any infringement of any of our patents.
To date, we are not aware of other companies
that have patent rights to a system and method for surface acoustic wave treatment.
Trademarks
We believe that our product brand names are
an important factor in establishing and maintaining brand recognition. We have the following trademark registrations in the U.S.:
NanoVibronix®, WoundShield®, PainShield®, UroShield® and “Curing though prevention”®. Generally,
the protection afforded for trademarks is perpetual, if they are renewed on a timely basis, if registered, and continue to be
used properly as trademarks.
License Agreement
In October 2003, we entered into a license
agreement with Piezo-Top Ltd and PMG Medica Ltd, pursuant to which we were granted an exclusive, worldwide license for the duration
of the patent life of U.S. Patent No. 6,454,716 B1, U.S. Patent No. 6,964,640 B2 and U.S. Patent No. 7,431,892 B2 (see “—Patents”
above). In exchange for the license, we paid Piezo-Top Ltd and PMG Medica Ltd payments of (i) $5,000 each after the first round
of investment in us, (ii) $7,500 each after the second round of investment in us, and (iii) $25,000 each after either the third
round of investment, the purchase of at least 40% of our stock or our initial public offering. We have made all three of the required
payments under this agreement.
Government Regulation
U.S. Food and Drug
Administration Regulation
Each of our products must be approved, cleared by or registered with the U.S. Food and Drug Administration
before it is marketed in the U.S. Before and after approval or clearance in the U.S., our product candidates are subject to extensive
regulation by the U.S. Food and Drug Administration under the Federal Food, Drug, and Cosmetic Act and/or the Public Health Service
Act, as well as by other regulatory bodies. The U.S. Food and Drug Administration regulations govern, among other things, the development,
testing, manufacturing, labeling, safety, storage, record-keeping, market clearance or approval, advertising and promotion, import
and export, marketing and sales, and distribution of medical devices and pharmaceutical products. PainShield has already obtained
510(k) marketing approval by the U.S. Food and Drug Administration. WoundShield and Micro Therapy are Class I devices and will
not need a premarket notification application or U.S. Food and Drug Administration clearance before they can be marketed in the
U.S. However, we have listed them with the U.S. Food and Drug Administration.
U.S. Food and Drug
Administration Approval or Clearance of Medical Devices
In the U.S., medical devices are subject to
varying degrees of regulatory control and are classified in one of three classes depending on the extent of controls the U.S.
Food and Drug Administration determines are necessary to reasonably ensure their safety and efficacy:
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Class
I: general controls, such as labeling and adherence to quality system regulations;
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Class II: special controls, pre-market notification (510(k)), specific controls such as
performance standards, patient registries and post-market surveillance and additional controls such as labeling and adherence
to quality system regulations; and
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Class III: special controls and approval of a pre-market approval, or PMA, application.
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WoundShield and PainShield are classified
as Class II medical devices and require U.S. Food and Drug Administration authorization prior to marketing, by means of 510(k)
clearance, except for our UroShield product, which we intend to seek clearance from the U.S. Food and Drug Administration through
the de novo classification process, described below. WoundShield and Micro Therapy are classified as Class I medical devices,
and do not require any additional authorization from the U.S. Food and Drug Administration. However, we have listed them with
the U.S. Food and Drug Administration.
To request marketing authorization by means
of a 510(k) clearance, we must submit a pre-market notification demonstrating that the proposed device is substantially equivalent
to another legally marketed medical device, has the same intended use, and is as safe and effective as a legally marketed device
and does not raise different questions of safety and effectiveness than a legally marketed device. 510(k) submissions generally
include, among other things, a description of the device and its manufacturing, device labeling, medical devices to which the
device is substantially equivalent, safety and biocompatibility information and the results of performance testing. In some cases,
a 510(k) submission must include data from human clinical studies. Marketing may commence only when the U.S. Food and Drug Administration
issues a clearance letter finding substantial equivalence. The typical duration to receive 510(k) approval is approximately nine
months from the date of the initial 510(k) submission, although there is no guaranty that the timing will not be longer.
In the past, the 510(k) pathway for product
marketing required only the proof of significant equivalence in technology for a given indication with a previously cleared device.
Currently, there has been a trend of the U.S. Food and Drug Administration requiring additional clinical work to prove efficacy
in addition to technological equivalence. Thus, no matter which regulatory pathway we may take in the future towards marketing
products in the U.S., we believe we will be required to provide clinical proof of device effectiveness.
After a device receives 510(k) clearance, any
product modification that could significantly affect the safety or effectiveness of the product, or that would constitute a significant
change in intended use, requires a new 510(k) clearance or, if the device would no longer be substantially equivalent, would require
a PMA. If the U.S. Food and Drug Administration determines that the product does not qualify for 510(k) clearance, then a company
must submit and the U.S. Food and Drug Administration must approve a PMA before marketing can begin.
A PMA application must provide a demonstration
of safety and effectiveness, which generally requires extensive pre-clinical and clinical trial data. Information about the device
and its components, device design, manufacturing and labeling, among other information, must also be included in the PMA. As part
of the PMA review, the U.S. Food and Drug Administration will inspect the manufacturer’s facilities for compliance with
quality system regulation requirements, which govern testing, control, documentation and other aspects of quality assurance with
respect to manufacturing. If the U.S. Food and Drug Administration determines the application or manufacturing facilities are
not acceptable, the U.S. Food and Drug Administration may outline the deficiencies in the submission and often will request additional
testing or information. Notwithstanding the submission of any requested additional information, the U.S. Food and Drug Administration
ultimately may decide that the application does not satisfy the regulatory criteria for approval. During the review period, a
U.S. Food and Drug Administration advisory committee, typically a panel of clinicians and statisticians, is likely to be convened
to review the application and recommend to the U.S. Food and Drug Administration whether, or upon what conditions, the device
should be approved. The U.S. Food and Drug Administration is not bound by the advisory panel decision. While the U.S. Food and
Drug Administration often follows the panel’s recommendation, there have been instances where the U.S. Food and Drug Administration
has not. If the U.S. Food and Drug Administration finds the information satisfactory, it will approve the PMA. The PMA approval
can include post-approval conditions, including, among other things, restrictions on labeling, promotion, sale and distribution,
or requirements to do additional clinical studies post-approval. Even after approval of a PMA, a new PMA or PMA supplement is
required to authorize certain modifications to the device, its labeling or its manufacturing process. Supplements to a PMA often
require the submission of the same type of information required for an original PMA, except that the supplement is generally limited
to that information needed to support the proposed change from the product covered by the original PMA. The typical duration to
receive PMA approval is approximately two years from the date of submission of the initial PMA application, although there is
no guaranty that the timing will not be longer.
As described above, we anticipate that our
UroShield product will receive a de novo review from the U.S. Food and Drug Administration. De novo is a two-step process that
requires a company to submit a 510(k) and complete a standard review, including an analysis of the risk to the patient and operator
associated with the use of the device and the substantial equivalence rationale. Once that has been accomplished, and the medical
device in question has been determined to be not substantially equivalent to another approved device, the product is automatically
classified as a Class III device. The manufacturer can then submit a request for an evaluation to have the product reclassified
from Class III into Class I or Class II. The U.S. Food and Drug Administration will review the device classification proposal
and either recommend special controls to create a new Class I or II device classification or determine that the product is a Class
III device. If the U.S. Food and Drug Administration determines that the level of risk associated with the use of the device is
appropriate for a Class II or Class I designation, then the product can be cleared as a 510(k) and the U.S. Food and Drug Administration
will issue a new classification regulation and product code. If the device is not approved through de novo review, then it must
go through the standard PMA process for Class III devices.
Clinical Trials
of Medical Devices
One or more clinical trials are generally required
to support a PMA application and more recently are becoming necessary to support a 510(k) submission. Clinical studies of unapproved
or uncleared medical devices or devices being studied for uses for which they are not approved or cleared (investigational devices)
must be conducted in compliance with U.S. Food and Drug Administration requirements. If an investigational device could pose a
significant risk to patients, the sponsor company must submit an investigational device exemption application to the U.S. Food
and Drug Administration prior to initiation of the clinical study. An investigational device exemption application must be supported
by appropriate data, such as animal and laboratory test results, showing that it is safe to test the device on humans and that
the testing protocol is scientifically sound. The investigational device exemption will automatically become effective 30 days
after receipt by the U.S. Food and Drug Administration unless the U.S. Food and Drug Administration notifies the company that
the investigation may not begin. Clinical studies of investigational devices may not begin until an institutional review board
has approved the study.
During the study, the sponsor must comply with
the U.S. Food and Drug Administration’s investigational device exemption requirements. These requirements include investigator
selection, trial monitoring, adverse event reporting, and record keeping. The investigators must obtain patient informed consent,
rigorously follow the investigational plan and study protocol, control the disposition of investigational devices, and comply
with reporting and record keeping requirements. The sponsor, the U.S. Food and Drug Administration, or the institutional review
board at each institution at which a clinical trial is being conducted may suspend a clinical trial at any time for various reasons,
including a belief that the subjects are being exposed to an unacceptable risk. During the approval or clearance process, the
U.S. Food and Drug Administration typically inspects the records relating to the conduct of one or more investigational sites
participating in the study supporting the application.
Post-Approval Regulation
of Medical Devices
After a device is cleared or approved for marketing,
numerous and pervasive regulatory requirements continue to apply. These include:
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the U.S. Food and Drug Administration quality systems regulation, which governs, among other
things, how manufacturers design, test, manufacture, exercise quality control over, and document manufacturing of their products;
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labeling and claims regulations, which prohibit the promotion of products for unapproved
or “off-label” uses and impose other restrictions on labeling; and
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the Medical Device Reporting regulation, which requires reporting to the U.S. Food and Drug
Administration of certain adverse experiences associated with use of the product.
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Good Manufacturing
Practices Requirements
Manufacturers of medical devices are required
to comply with the good manufacturing practices set forth in the quality system regulations promulgated under section 520 of the
Food, Drug and Cosmetic Act. Current good manufacturing practices regulations require, among other things, quality control and
quality assurance as well as the corresponding maintenance of records and documentation. The manufacturing facility for an approved
product must meet current good manufacturing practices requirements to the satisfaction of the U.S. Food and Drug Administration
pursuant to a pre-PMA approval inspection before the facility can be used. Manufacturers, including third party contract manufacturers,
are also subject to periodic inspections by the U.S. Food and Drug Administration and other authorities to assess compliance with
applicable regulations. Failure to comply with statutory and regulatory requirements subjects a manufacturer to possible legal
or regulatory action, including the seizure or recall of products, injunctions, consent decrees placing significant restrictions
on or suspending manufacturing operations, and civil and criminal penalties. Adverse experiences with the product must be reported
to the U.S. Food and Drug Administration and could result in the imposition of marketing restrictions through labeling changes
or in product withdrawal. Product approvals may be withdrawn if compliance with regulatory requirements is not maintained or if
problems concerning safety or efficacy of the product occur following the approval.
International Regulation
We are subject to regulations and product registration
requirements in many foreign countries in which we may sell our products, including in the areas of product standards, packaging
requirements, labeling requirements, import and export restrictions and tariff regulations, duties and tax requirements. The time
required to obtain clearance required by foreign countries may be longer or shorter than that required for U.S. Food and Drug
Administration clearance, and requirements for licensing a product in a foreign country may differ significantly from U.S. Food
and Drug Administration requirements.
The primary regulatory environment in Europe
is the European Union, which consists of 25 member states and 42 competent authorities encompassing most of the major countries
in Europe. In the European Union, the European Medicines Agency and the European Union Commission determined that PainShield,
UroShield, and WoundShield are to be regulated as medical device products. These products are classified as Class II devices.
These devices are CE Marked and as such can be marketed and distributed within the European Economic Area. We are required to
be recertified each year for CE by Intertek, which conducts an annual audit. The audit procedure, which includes on-site visits
at our facility, requires us to provide Intertek with information and documentation concerning our management system and all applicable
documents, policies, procedures, manuals, and other information.
The primary regulatory bodies and paths in
Asia, Australia, Canada and Latin America are determined by the requisite country authority. In most cases, establishment registration
and device licensing are applied for at the applicable Ministry of Health through a local intermediary. The requirements placed
on the manufacturer are typically the same as those contained in ISO 9001 or ISO 13485, requirements for quality management systems
published by the International Organization of Standardization. In some countries outside Europe, we are or will be able to sell
on the basis of our CE Mark. We have the Health Canada medical device license for PainShield, a certificate by the Israel Ministry
of Health allowing us to sell PainShield, WoundShield and UroShield in Israel, a certificate allowing us to sell PainShield in
Australia, and we are able to sell PainShield, WoundShield and UroShield in India and Ecuador based on our CE Mark. In addition,
our distributor in Korea has applied for approval to sell PainShield and UroShield. We generally apply, through our distributor,
for approval in a particular country for a particular product only when we have a distributor in place with respect to such product.
European Good Manufacturing
Practices
In the European Union, the manufacture of medical
devices is subject to good manufacturing practice, as set forth in the relevant laws and guidelines of the European Union and
its member states. Compliance with good manufacturing practice is generally assessed by the competent regulatory authorities.
Typically, quality system evaluation is performed by a notified body, which also recommends to the relevant competent authority
for the European Community CE Marking of a device. The competent authority may conduct inspections of relevant facilities, and
review manufacturing procedures, operating systems and personnel qualifications. In addition to obtaining approval for each product,
in many cases each device manufacturing facility must be audited on a periodic basis by the notified body. Further inspections
may occur over the life of the product.
U.S. Anti-Kickback
and False Claims Laws
In the U.S., there are federal and state anti-kickback
laws that prohibit the payment or receipt of kickbacks, bribes or other remuneration intended to induce the purchase or recommendation
of healthcare products and services. Violations of these laws can lead to civil and criminal penalties, including exclusion from
participation in federal healthcare programs. These laws are potentially applicable to manufacturers of products regulated by
the U.S. Food and Drug Administration as medical devices, such as us, and hospitals, physicians and other potential purchasers
of such products. Other provisions of federal and state laws provide civil and criminal penalties for presenting, or causing to
be presented, to third-party payers for reimbursement, claims that are false or fraudulent, or which are for items or services
that were not provided as claimed. In addition, certain states have implemented regulations requiring medical device and pharmaceutical
companies to report all gifts and payments over $50 to medical practitioners. This requirement does not apply to instances involving
clinical trials.
Customers
We currently sell our products both through
our website and distribution agreements, with approximately 30% of our sales coming through distributors in 2016. We have exclusive
distribution agreements for our products with medical product distributors based in the U.S. (for PainShield for abdominal and
pelvic pain since 2012, Italy (since 2013), India (since 2012), United Kingdom (since 2010) and Israel (since 2012).
We are currently in discussions with a number
of distribution companies in Europe, Asia, and Latin America. Our current agreements stipulate that, while we are responsible
for training, providing marketing guidance, marketing materials, and technical guidance, distributors will be responsible for
carrying out local marketing activities and sales. In addition, in most cases, all sales costs, including sales representatives,
incentive programs, and marketing trials, will be borne by the distributor. We expect any future distribution agreements to contain
substantially similar stipulations. Under our current agreements, distributors purchase our products from us at a fixed price.
Our current agreements with distributors are generally for a term of approximately two to three years and automatically renew
for an additional annual terms unless modified by either party.
Manufacturing and Suppliers
We assemble our products in-house at our facilities
in Nesher, Israel. All of the component parts of our products are readily available from a number of manufacturers and suppliers.
We order component parts on an as-needed basis, generally from the manufacturer that provides us with the most competitive pricing.
Our most significant suppliers are APC International, Ltd., Rotel Product Engineering Ltd. and Amit Industries L.T.D (AmiCell).
We do not have written agreements with any of these suppliers, but we believe anyone could be easily replaced if necessary.
Employees
As of December 31, 2016, we had eight full-time
employees and two contract employees. There are no part-time employees. Our employees are not party to any collective bargaining
agreements. We consider our relations with our employees to be good. We believe that our future success will depend, in part,
on our continued ability to attract, hire and retain qualified personnel.
ITEM 1A. RISK FACTORS
You should carefully consider the risks described below
together with the other information set forth in this Annual Report on Form 10-K, before purchasing our securities which
could materially affect our business, financial condition and future results. The risks described below are not the only
risks facing our company. 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 operating results. If any of the following risks are
realized, our financial condition, results of operations and prospects could be materially and adversely affected. In that
event, the trading price of our common stock could decline.
Risks Related to our Business
We have a history of losses and we expect to continue to
incur losses and may not achieve or maintain profitability.
For the fiscal year ended December 31, 2016,
we had a net loss of $2,831,000, with revenues of $229,000. As of December 31, 2016, we had an accumulated deficit of $22,576,000
and a total stockholders’ deficit of $2,499,000. We expect to incur losses for at least the next year, as we continue to
incur expenses related to seeking U.S. Food and Drug Administration approval for UroShield and WoundShield, and market acceptance
of PainShield, which will require costly clinical trials and research, further product development and professional fees associated
with regulatory compliance. These conditions coupled with our current liquidity position raise substantial doubt about our ability
to continue as a going concern. Even if we succeed in commercializing our new products, we may not be able to generate sufficient
revenues to cover our expenses and achieve sustained profitability or be able to maintain profitability. If we are unable to raise
additional capital, we may be forced to cease operations.
If we are unable to raise additional capital, our clinical
trials and product development will be limited and our long-term viability will be threatened; however, if we do raise additional
capital, your percentage ownership as a stockholder could decrease and constraints could be placed on the operations of our business.
We have experienced negative operating cash
flows since our inception and have funded our operations primarily from proceeds of the sale of our securities, with only limited
revenue being generated from our product sales. We will seek to obtain additional funds in the future through equity or debt financings,
or strategic alliances with third parties, either alone or in combination with equity financings. These financings could result
in substantial dilution to the holders of our common stock, or require contractual or other restrictions on our operations or
on alternatives that may be available to us. If we raise additional funds by issuing debt securities, these debt securities could
impose significant restrictions on our operations through the imposition of restrictive covenants and requiring us to pledge assets
in order to secure repayment. In addition, if we raise funds through the sale of equity, we may issue equity securities with rights
superior to our common stock, including voting rights, rights to proceeds upon our liquidation or sale, rights to dividends and
rights to appoint board members. Any such required financing may not be available in amounts or on terms acceptable to us, and
the failure to procure such required financing could have a material adverse effect on our business, financial condition and results
of operations, or threaten our ability to continue as a going concern.
A variety of factors could impact the timing
and amount of any required financings, including, without limitation:
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unforeseen developments during our clinical trials;
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delays in our receipt of required regulatory approvals;
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delayed market acceptance of our products;
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unanticipated expenditures in our acquisition and defense of intellectual property rights,
and/or the loss of those rights;
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the failure to develop strategic alliances for the marketing of some of our product candidates;
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unforeseen changes in healthcare reimbursement for any of our approved products;
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lack of financial resources to adequately support our operations;
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difficulties in maintaining commercial scale manufacturing capacity and capability;
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unanticipated difficulties in operating in international markets;
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unanticipated financial resources needed to respond to technological changes and increased
competition;
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unforeseen problems in attracting and retaining qualified personnel;
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enactment of new legislation or administrative regulations;
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the application to our business of new regulatory interpretations;
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claims that might be brought in excess of our insurance coverage;
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the failure to comply with regulatory guidelines; and
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the uncertainty in industry demand.
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In addition, although we have no present commitments
or understandings to do so, we may seek to expand our operations and product line through acquisitions or joint ventures. Any
acquisition or joint venture would likely increase our capital requirements.
If we fail to obtain an adequate level of reimbursement for
our approved products by third party payers, there may be no commercially viable markets for our approved products or the markets
may be much smaller than expected.
The availability and levels of reimbursement
by governmental and other third party payers affect the market for our approved products. The efficacy, safety, performance and
cost-effectiveness of our product and product candidates, and of any competing products, will determine the availability and level
of reimbursement. Reimbursement and healthcare payment systems vary significantly by country, and include both government sponsored
healthcare and private insurance. To obtain reimbursement or pricing approval in some countries, we may be required to produce
clinical data, which may involve one or more clinical trials, that compares the cost-effectiveness of our approved products to
other available therapies. We may not obtain reimbursement or pricing approvals in markets we seek to enter in a timely manner,
if at all. Our failure to receive reimbursement or pricing approvals in target markets would negatively impact market acceptance
of our products in these jurisdictions, placing us at a material cost disadvantage to our competitors.
Even if we obtain reimbursement approvals for
our products, we believe that, in the future, reimbursement for any of our products or product candidates may be subject to increased
restrictions both in the U.S. and in international markets. Future legislation, regulation or policies of third party payers that
limit reimbursement may adversely affect the demand for our products currently under development and our ability to sell our products
on a profitable basis. In addition, third party payers continually attempt to contain or reduce the costs of healthcare by challenging
the prices charged for healthcare products and services.
In the U.S., specifically, health care providers,
such as hospitals and clinics, and individual patients, generally rely on third-party payers. Third-party reimbursement is dependent
upon decisions by the Centers for Medicare and Medicaid Services, contracted Medicare carriers or intermediaries, individual managed
care organizations, private insurers, foreign governmental health programs and other payers of health care costs. Failure to receive
or maintain favorable coding, coverage and reimbursement determinations for our products by these organizations could discourage
medical practitioners from using or prescribing our products due to their costs. In addition, with recent federal and state government
initiatives directed at lowering the total cost of health care, the U.S. Congress and state legislatures will likely continue
to focus on health care reform including the reform of the Medicare and Medicaid entitlement programs, and on the cost of medical
products and services, which could limit reimbursement. Additionally, third-party payers are increasingly challenging the prices
charged for medical products and services. We may be unable to sell our products on a profitable basis if third-party payers deny
coverage, provide low reimbursement rates or reduce their current levels of reimbursement.
The medical device and therapeutic product industries are
highly competitive and subject to rapid technological change. If our competitors are better able to develop and market products
that are safer and more effective than any products we may develop, our commercial opportunities will be reduced or eliminated.
Our success depends, in part, upon our ability
to maintain a competitive position in the development of technologies and products. We face competition from established medical
device companies, such as Neurometrix Inc, Zetrox, Kinetic Concepts, Inc. and Smith & Nephew plc, manufacturers of certain
portable ultrasound devices capable of self-administered use, as well as from academic institutions, government agencies, and
private and public research institutions in the U.S. and abroad. Most, if not all, of our principal competitors have significantly
greater financial resources and expertise than we do in research and development, manufacturing, pre-clinical testing, conducting
clinical trials, obtaining regulatory approvals, marketing approved products, protecting and defending their intellectual property
rights and designing around the intellectual property rights of others. Other small or early-stage companies may also prove to
be significant competitors, particularly through collaborative arrangements, or mergers with, or acquisitions by, large and established
companies, or through the development of novel products and technologies.
The industry in which we operate has undergone,
and we expect it to continue to undergo, rapid and significant technological change, and we expect competition to intensify as
technological advances are made. Our competitors may be able to respond to changes in technology or the marketplace faster than
us. Our competitors may develop and commercialize medical devices that are safer or more effective or are less expensive than
any products that we may develop. We also compete with our competitors in recruiting and retaining qualified scientific and management
personnel, in establishing clinical trial sites and patient registration for clinical trials, and in acquiring technologies complementary
to our programs or advantageous to our business. Given our small size and lack of resources, we are often at a disadvantage with
our competitors in all of these areas, which could limit or eliminate our commercial opportunities.
We face the risk of product liability claims and may not
be able to obtain insurance.
Our business exposes us to the risk of product
liability claims that are inherent in the development of medical devices and products. If the use of one or more of our products
harms people, we may be subject to costly and damaging product liability claims brought against us by clinical trial participants,
consumers, health care providers, pharmaceutical companies or others selling our products. We currently carry clinical trial and
product liability insurance for the products we sell. However, we cannot predict all of the possible harms or side effects that
may result and, therefore, the amount of insurance coverage we hold may not be adequate to cover all liabilities we might incur.
We intend to expand our insurance coverage to include the sale of additional commercial products as we obtain marketing approval
for our product candidates in development and as our sales expand, but we may be unable to obtain commercially reasonable product
liability insurance for such products. If we are unable to obtain insurance at an acceptable cost or otherwise protect against
potential product liability claims and we continue to make sales, or if our coverages turns out to be insufficient, we may be
exposed to significant liabilities, which may materially and adversely affect our business and financial position. If we are sued
for any injury allegedly caused by our or our collaborators’ products and do not have sufficient insurance coverage, our
liability could exceed our total assets and our ability to pay the liability. A product liability claim or series of claims brought
against us would decrease our cash and could reduce our value or marketability.
Our product candidates may not be developed or commercialized
successfully.
Our product candidates are based on a technology
that has not been used previously in the manner we propose and must compete with more established treatments currently accepted
as the standards of care. Market acceptance of our products will largely depend on our ability to demonstrate their relative safety,
efficacy, cost-effectiveness and ease of use.
We are subject to the risks that:
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the U.S. Food and Drug Administration or a foreign regulatory authority finds our product
candidates ineffective or unsafe;
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we do not receive necessary regulatory approvals;
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the regulatory review and approval process may take much longer than anticipated, requiring
additional time, effort and expense to respond to regulatory comments and/or directives;
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we are unable to get our product candidates in commercial quantities at reasonable costs;
and
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the patient and physician community does not accept our product candidates.
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In addition, our product development program
may be curtailed, redirected, eliminated or delayed at any time for many reasons, including:
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adverse or ambiguous results;
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undesirable side effects that delay or extend the trials;
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the inability to locate, recruit, qualify and retain a sufficient number of clinical investigators
or patients for our trials; and
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regulatory delays or other regulatory actions.
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Additionally, we currently have limited experience
in marketing or selling our products, and we have a limited marketing and sales staff and distribution capabilities. Developing
a marketing and sales force is time-consuming and will involve the investment of significant amounts of financial and management
resources, and could delay the launch of new products or expansion of existing product sales. In addition, we compete with many
companies that currently have extensive and well-funded marketing and sales operations. If we fail to establish successful marketing
and sales capabilities or fail to enter into successful marketing arrangements with third parties, our ability to generate revenues
will suffer.
Furthermore, even if we enter into marketing
and distributing arrangements with third parties, we may have limited or no control over the sales, marketing and distribution
activities of these third parties, and these third parties may not be successful or effective in selling and marketing our products.
If we fail to create successful and effective marketing and distribution channels, our ability to generate revenue and achieve
our anticipated growth could be adversely affected. If these distributors experience financial or other difficulties, sales of
our products could be reduced, and our business, financial condition and results of operations could be harmed.
We cannot predict whether we will successfully
develop and commercialize our product candidates. If we fail to do so, we will not be able to generate substantial revenues, if
any.
The loss of our key management would likely hinder our ability
to execute our business plan.
As a small company with eight full-time employees
and three contract employees, our success depends on the continuing contributions of our management team and qualified personnel
and on our ability to attract and retain highly qualified personnel. We face intense competition in our hiring efforts from other
medical device companies, as well as from universities and nonprofit research organizations, and we may have to pay higher salaries
to attract and retain qualified personnel. We are also at a disadvantage in recruiting and retaining key personnel as our small
size and limited resources may be viewed as providing a less stable environment, with fewer opportunities than would be the case
at one of our larger competitors. The loss of one or more of these individuals, or our inability to attract additional qualified
personnel, could substantially impair our ability to implement our business plan.
Our failure to protect our intellectual property rights could
diminish the value of our solutions, weaken our competitive position and reduce our revenue.
We regard the protection of our intellectual
property, which includes patents and patent applications, trade secrets, trademarks and domain names, as critical to our success.
We strive to protect our intellectual property rights by relying on federal, state and common law rights, as well as contractual
restrictions. We enter into confidentiality and invention assignment agreements with our employees, consultants and contractors,
and confidentiality agreements with parties with whom we conduct business in order to limit access to, and disclosure and use
of, our proprietary information. However, these contractual arrangements and the other steps we have taken to protect our intellectual
property may not prevent the misappropriation of our proprietary information or deter independent development of similar technologies
by others.
We have obtained patents and we have patent
applications pending in both the U.S. and foreign jurisdictions. There can be no assurance that our patent applications will be
approved, that any patents issued will adequately protect our intellectual property, or that these patents will not be challenged
by third parties or found to be invalid or unenforceable. We have also obtained trademark registration in the U.S. and in foreign
jurisdictions. Effective trade secret, trademark and patent protection is expensive to develop and maintain, both in terms of
initial and ongoing registration requirements and the costs of defending our rights. We may be required to protect our intellectual
property in an increasing number of jurisdictions, a process that is expensive and may not be successful or which we may not pursue
in every location. We may, over time, increase our investment in protecting our intellectual property through additional patent
filings that could be expensive and time-consuming.
Monitoring unauthorized use of our intellectual
property is difficult and costly. Our efforts to protect our proprietary rights may not be adequate to prevent misappropriation
of our intellectual property. We may not be able to detect unauthorized use of, or take appropriate steps to enforce, our intellectual
property rights. Further, our competitors may independently develop technologies that are similar to ours but which avoid the
scope of our intellectual property rights. Further, the laws in the U.S. and elsewhere change rapidly, and any future changes
could adversely affect us and our intellectual property. Our failure to meaningfully protect our intellectual property could result
in competitors offering solutions that incorporate our most technologically advanced features, which could seriously reduce demand
for our products. In addition, we may in the future need to initiate infringement claims or litigation. Litigation, whether we
are a plaintiff or a defendant, can be expensive, time-consuming and may divert the efforts of our technical staff and managerial
personnel, which could harm our business, whether or not the litigation results in a determination that is unfavorable to us.
In addition, litigation is inherently uncertain, and thus we may not be able to stop our competitors from infringing our intellectual
property rights.
We could incur substantial costs and disruption to our business
as a result of any claim of infringement of another party’s intellectual property rights, which could harm our business
and operating results.
In recent years, there has been significant
litigation in the U.S. over patents and other intellectual property rights. From time to time, we may face allegations that we
or customers who use our products have infringed the trademarks, copyrights, patents and other intellectual property rights of
third parties, including allegations made by our competitors or by non-practicing entities. We cannot predict whether assertions
of third party intellectual property rights or claims arising from these assertions will substantially harm our business and operating
results. If we are forced to defend any infringement claims, whether they are with or without merit or are ultimately determined
in our favor, we may face costly litigation and diversion of technical and management personnel. Most of our competitors have
substantially greater resources than we do and are able to sustain the cost of complex intellectual property litigation to a greater
extent and for longer periods of time than we could. Furthermore, an adverse outcome of a dispute may require us, among other
things: to pay damages, potentially including treble damages and attorneys’ fees, if we are found to have willfully infringed
a party’s patent or other intellectual property rights; to cease making, licensing or using products that are alleged to
incorporate or make use of the intellectual property of others; to expend additional development resources to redesign our products;
and to enter into potentially unfavorable royalty or license agreements in order to obtain the rights to use necessary technologies.
Royalty or licensing agreements, if required, may be unavailable on terms acceptable to us, or at all. In any event, we may need
to license intellectual property which would require us to pay royalties or make one-time payments. Even if these matters do not
result in litigation or are resolved in our favor or without significant cash settlements, the time and resources necessary to
resolve them could harm our business, operating results, financial condition and reputation.
Risks Related to the Regulation of Our Products
We are subject to extensive governmental regulation, including
the requirement of U.S. Food and Drug Administration approval or clearance, before our product candidates may be marketed.
The process of obtaining U.S. Food and Drug
Administration approval is lengthy, expensive and uncertain, and we cannot be sure that our product candidates will be approved
in a timely fashion, or at all. If the U.S. Food and Drug Administration does not approve or clear our product candidates in a
timely fashion, or at all, our business and financial condition would likely be adversely affected.
Both before and after approval or clearance
of our product candidates, we, our product candidates, our suppliers and our contract manufacturers are subject to extensive regulation
by governmental authorities in the U.S. and other countries. Failure to comply with applicable requirements could result in, among
other things, any of the following actions:
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fines and other monetary penalties;
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unanticipated expenditures;
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delays in U.S. Food and Drug Administration approval and clearance, or U.S. Food and Drug
Administration refusal to approve or clear a product candidate;
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product recall or seizure;
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interruption of manufacturing or clinical trials;
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operating restrictions;
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In addition to the approval and clearance requirements,
numerous other regulatory requirements apply, both before and after approval or clearance, to us, our products and product candidates,
and our suppliers and contract manufacturers. These include requirements related to the following:
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reporting to the U.S. Food and Drug Administration certain adverse experiences associated
with the use of the products; and
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obtaining additional approvals or clearances for certain modifications to the products or
their labeling or claims.
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We are also subject to inspection by the U.S.
Food and Drug Administration to determine our compliance with regulatory requirements, as are our suppliers and contract manufacturers,
and we cannot be sure that the U.S. Food and Drug Administration will not identify compliance issues that may disrupt production
or distribution, or require substantial resources to correct.
The U.S. Food and Drug Administration’s
requirements may change and additional government regulations may be promulgated that could affect us, our product candidates,
and our suppliers and contract manufacturers. We cannot predict the likelihood, nature or extent of government regulation that
may arise from future legislation or administrative action. There can be no assurance that we will not be required to incur significant
costs to comply with such laws and regulations in the future, or that such laws or regulations will not have a material adverse
effect upon our business.
Failure to obtain regulatory approval in foreign jurisdictions
will prevent us from marketing our products abroad.
International sales of our products and any
of our product candidates that we commercialize are subject to the regulatory requirements of each country in which the products
are sold. Accordingly, the introduction of our product candidates in markets outside the U.S. where we do not already possess
regulatory approval will be subject to regulatory approvals in those jurisdictions. The regulatory review process varies from
country to country. Many countries impose product standards, packaging and labeling requirements, and import restrictions on medical
devices. In addition, each country has its own tariff regulations, duties and tax requirements, as well as reimbursement and healthcare
payment systems. The approval by foreign government authorities is unpredictable and uncertain, and can be expensive. We may be
required to perform additional pre-clinical, clinical or post-approval studies even if U.S. Food and Drug Administration approval
has been obtained. Our ability to market our approved products could be substantially limited due to delays in receipt of, or
failure to receive, the necessary approvals or clearances.
We are uncertain regarding the success of our clinical trials
for our products in development.
We believe that all of our products in development
will require clinical trials to determine their safety and efficacy by regulatory bodies in their target markets, including the
U.S. Food and Drug Administration and various foreign regulators. There can be no assurance that we will be able to successfully
complete the U.S. and foreign regulatory approval processes for products in development. In addition, there can be no assurance
that we will not encounter additional problems that will cause us to delay, suspend or terminate our clinical trials. In addition,
we cannot make any assurance that clinical trials will be deemed sufficient in size and scope to satisfy regulatory approval requirements,
or, if completed, will ultimately demonstrate our products to be safe and efficacious.
The adoption of healthcare reform in the U.S. may adversely
affect our business and financial results.
On March 23, 2010, President Obama signed into
law major healthcare reform legislation under the Patient Protection and Affordable Care Act of 2010, or the PPACA, which was
modified on March 30, 2010 by the enactment of the Health Care and Education Reconciliation Act of 2010. Under the PPACA, it is
expected that expanded healthcare coverage will be made available to an additional 30 million Americans. The increased costs to
the U.S. government from the PPACA are expected to be funded through a combination of payment reductions for providers over time
and several new taxes. We will also need to assess whether we are subject to it with respect to other products when they are approved
for sale in the U.S. The PPACA also provides for the establishment of an Independent Medicare Advisory Board that could recommend
changes in payment for physicians under certain circumstances beginning in 2014. In addition, the PPACA authorizes certain voluntary
demonstration projects beginning no later than 2013 around development of bundling payments for acute, inpatient hospital services,
physician services, and post-acute services for episodes of hospital care. The PPACA increases fraud and abuse penalties and expands
the scope and reach of the Federal Civil False Claims Act and government enforcement tools, which may adversely impact healthcare
companies.
If we fail to comply with the U.S. federal Anti-Kickback
Statute and similar state laws, we could be subject to criminal and civil penalties and exclusion from the Medicare and Medicaid
programs, which would have a material adverse effect on our business and results of operations.
A provision of the Social Security Act, commonly
referred to as the federal Anti-Kickback Statute, prohibits the offer, payment, solicitation or receipt of any form of remuneration
in return for referring, ordering, leasing, purchasing or arranging for, or recommending the ordering, purchasing or leasing of,
items or services payable by Medicare, Medicaid or any other federal healthcare program. The federal Anti-Kickback Statute is
very broad in scope and many of its provisions have not been uniformly or definitively interpreted by existing case law or regulations.
In addition, most of the states have adopted laws similar to the federal Anti-Kickback Statute, and some of these laws are even
broader than the federal Anti-Kickback Statute in that their prohibitions are not limited to items or services paid for by federal
healthcare programs, but instead apply regardless of the source of payment. Violations of the federal Anti-Kickback Statute may
result in substantial civil or criminal penalties and exclusion from participation in federal healthcare programs.
All of our financial relationships with healthcare
providers and others who provide products or services to federal healthcare program beneficiaries are potentially governed by
the federal Anti-Kickback Statute and similar state laws. We believe our operations are in compliance with the federal Anti-Kickback
Statute and similar state laws. However, we cannot be certain that we will not be subject to investigations or litigation alleging
violations of these laws, which could be time-consuming and costly to us and could divert management’s attention from operating
our business, which in turn could have a material adverse effect on our business. In addition, if our arrangements were found
to violate the federal Anti-Kickback Statute or similar state laws, the consequences of such violations would likely have a material
adverse effect on our business, results of operations and financial condition.
Risks Related to Our Organization and Our Securities
We are currently controlled by our executive officers, directors
and principal stockholders, and our executive officers, directors and principal stockholders have significant influence regarding
all matters submitted to our stockholders for approval.
As of March 31, 2017, our directors, executive
officers and 5% or greater stockholders beneficially owned approximately 70.8% of our voting capital stock. As a result, if these
stockholders were to choose to act together, they would be able to exercise significant influence with respect to all matters
submitted to our stockholders for approval, as well as our management and affairs. For example, these persons, if they choose
to act together, will exercise significant influence with respect to the election of directors and approval of any merger, consolidation,
sale of all or substantially all of our assets or other business combination or reorganization. This concentration of voting power
could delay or prevent an acquisition of us on terms that other stockholders may desire. The interests of this group of stockholders
may not always coincide with your interests or the interests of other stockholders, and they may act in a manner that advances
their best interests and not necessarily those of other stockholders, and might affect the prevailing market price for our securities.
The price of our securities may be volatile, and the market
price of our securities may drop below the price you pay.
We expect that the price of our securities
will fluctuate significantly.
Market prices for securities of early-stage
medical device companies have historically been particularly volatile. In addition to the factors discussed in this “Risk
Factors” section and elsewhere in this report, these factors include:
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progress, or lack of progress, in developing and commercializing our products;
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favorable or unfavorable decisions about our products or intellectual property from government
regulators, insurance companies or other third-party payers;
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our ability to recruit and retain qualified regulatory and research and development personnel;
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changes in investors’ and securities analysts’ perception of the business risks
and conditions of our business;
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changes in our relationship with key collaborators;
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changes in the market valuation or earnings of our competitors or companies viewed as similar
to us;
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changes in key personnel;
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depth of the trading market in our common stock;
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changes in our capital structure, such as future issuances of securities or the incurrence
of additional debt;
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the granting or exercise of employee stock options or other equity awards;
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realization of any of the risks described under this section entitled “Item 1A. Risk
Factors”; and
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general market and economic conditions.
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In recent years, the stock markets, in general,
have experienced extreme price and volume fluctuations especially in the biotechnology sector. Broad market and industry factors
may materially harm the market price of shares of our common stock. In the past, following periods of volatility in the market
price of a company’s securities, securities class action litigation has often been instituted against that company. If we
were involved in any similar litigation, we could incur substantial costs and our management’s attention and resources could
be diverted.
Future sales of our common stock, or the perception that
future sales may occur, may cause the market price of our common stock to decline, even if our business is doing well.
Sales of a significant number of shares of
our common stock in the public market could harm the market price of our common stock and make it more difficult for us to raise
funds through future offerings of common stock. Our stockholders and the holders of our options and warrants may sell substantial
amounts of our common stock in the public market. The availability of these shares of our common stock for resale in the public
market has the potential to cause the supply of our common stock to exceed investor demand, thereby decreasing the price of our
common stock.
In addition, the fact that our stockholders,
option holders and warrant holders can sell substantial amounts of our common stock in the public market, whether or not sales
have occurred or are occurring, could make it more difficult for us to raise additional financing through the sale of equity or
equity-related securities in the future at a time and price that we deem reasonable or appropriate.
Financial reporting obligations of being a public
company in the United States are expensive and time-consuming, and our management may be required to devote substantial time
to compliance matters.
As a public company, we incur
significant legal, accounting and other expenses that we did not incur as a private company. The Sarbanes-Oxley Act of 2002,
as well as rules subsequently implemented by the Securities and Exchange Commission and The Nasdaq Stock Market, have imposed
various requirements on public companies, including requiring establishment and maintenance of effective disclosure and
financial controls and changes in corporate governance practices. Our management and other personnel may need to devote a
substantial amount of time to these compliance matters. Moreover, these rules and regulations may increase our legal
and financial compliance costs and may make some activities more time consuming and costly.
Changes in the laws and regulations affecting
public companies will result in increased costs to us as we respond to their requirements. These laws and regulations could make
it more difficult or costly for us to obtain certain types of insurance, including director and officer liability insurance, and
we may be forced to accept reduced policy limits and coverage or incur substantially higher costs to obtain the same or similar
coverage. The impact of these requirements could also make it more difficult for us to attract and retain qualified persons to
serve on our board of directors, our board committees or as executive officers. We cannot predict or estimate the amount or timing
of additional costs we may incur in order to comply with such requirements.
We are subject to financial reporting and other requirements
that place significant demands on our resources.
We are subject to reporting and other obligations
under the Securities Exchange Act of 1934, as amended, including the requirements of Section 404 of the Sarbanes-Oxley Act of
2002. Section 404 requires us to conduct an annual management assessment of the effectiveness of our internal controls over financial
reporting. These reporting and other obligations place significant demands on our management, administrative, operational, internal
audit and accounting resources. Any failure to maintain effective internal controls could have a material adverse effect on our
business, operating results and stock price. Moreover, effective internal control is necessary for us to provide reliable financial
reports and prevent fraud. If we cannot provide reliable financial reports or prevent fraud, we may not be able to manage our
business as effectively as we would if an effective control environment existed, and our business and reputation with investors
may be harmed.
While we currently qualify as an “emerging growth company”
under the Jumpstart of Business Startups Act of 2012, or the JOBS Act, we could lose that status, which may increase the costs
and demands placed upon our management.
We will continue to be deemed an emerging growth
company until the earliest of (i) the last day of the fiscal year during which we had total annual gross revenues of $1 billion
(as indexed for inflation); (ii) the last day of the fiscal year following the fifth anniversary of the date of the first sale
of common stock in an offering registered under the Securities Act of 1933, as amended; (iii) the date on which we have, during
the previous 3-year period, issued more than $1 billion in non-convertible debt; or (iv) the date on which we are deemed to be
a ‘large accelerated filer,’ as defined by the Securities and Exchange Commission, which would generally occur upon
our attaining a public float of at least $700 million. Once we lose emerging growth company status, we expect the costs and demands
placed upon our management to increase, as we would have to comply with additional disclosure and accounting requirements, particularly
if we would also no longer qualify as a smaller reporting company.
We are an “emerging growth company” and we cannot
be certain that the reduced disclosure requirements applicable to emerging growth companies will make our common stock less attractive
to investors.
The JOBS Act permits “emerging growth
companies” like us to rely on some of the reduced disclosure requirements that are already available to smaller reporting
companies. As long as we qualify as an emerging growth company or a smaller reporting company, we would be permitted to omit the
auditor’s attestation on internal control over financial reporting that would otherwise be required by the Sarbanes-Oxley
Act, as described above and are also exempt from the requirement to submit “say-on-pay”, “say-on-pay frequency”
and “say-on-parachute” votes to our stockholders and may avail ourselves of reduced executive compensation disclosure
that is already available to smaller reporting companies.
In addition, Section 107 of the JOBS Act also
provides that an emerging growth company can take advantage of the exemption from complying with new or revised accounting standards
provided in Section 7(a)(2)(B) of the Securities Act of 1933, as amended, as long as we are an emerging growth company. An emerging
growth company can therefore delay the adoption of certain accounting standards until those standards would otherwise apply to
private companies. We have elected to take advantage of the benefits of this until we are no longer an emerging growth company
or until we affirmatively and irrevocably opt out of this exemption. Our financial statements may therefore not be comparable
to those of companies that comply with such new or revised accounting standards.
We will cease to be an emerging growth company
at such time as described in the risk factor immediately above. Until such time, however, we cannot predict if investors will
find our common stock less attractive because we may rely on these exemptions. If some investors find our common stock less attractive
as a result, there may be a less active trading market for our common stock and our stock price may be more volatile and could
cause our stock price to decline.
Anti-takeover provisions of our certificate of incorporation,
our bylaws and Delaware law could make an acquisition of us, which may be beneficial to our stockholders, more difficult and may
prevent attempts by our stockholders to replace or remove the current members of our board and management.
Certain provisions of our amended and restated
certificate of incorporation and bylaws could discourage, delay or prevent a merger, acquisition or other change of control that
stockholders may consider favorable, including transactions in which you might otherwise receive a premium for your shares. Furthermore,
these provisions could prevent or frustrate attempts by our stockholders to replace or remove members of our board of directors.
These provisions also could limit the price that investors might be willing to pay in the future for our securities, thereby depressing
the market price of our securities. Stockholders who wish to participate in these transactions may not have the opportunity to
do so. These provisions, among other things:
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allow the authorized number of directors to be changed only by resolution of our board of
directors;
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authorize our board of directors to issue, without stockholder approval, preferred stock,
the rights of which will be determined at the discretion of the board of directors and that, if issued, could operate as a
“poison pill” to dilute the stock ownership of a potential hostile acquirer to prevent an acquisition that our
board of directors does not approve;
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establish advance notice requirements for stockholder nominations to our board of directors
or for stockholder proposals that can be acted on at stockholder meetings; and
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limit who may call a stockholder meeting.
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In addition, we are governed by the provisions
of Section 203 of the Delaware General Corporation Law that may, unless certain criteria are met, prohibit large stockholders,
in particular those owning 15% or more of the voting rights on our common stock, from merging or combining with us for a prescribed
period of time.
If securities or industry analysts do not publish research
or reports or publish unfavorable research about our business, the price of our securities and their trading volume could decline.
The trading market for our securities will
depend in part on the research and reports that securities or industry analysts publish about us or our business. We do not currently
have and may never obtain research coverage by securities and industry analysts. If no securities or industry analysts commence
coverage of us the trading price for our securities would be negatively affected. In the event we obtain securities or industry
analyst coverage, if one or more of the analysts who covers us downgrades our securities, the price of our securities would likely
decline. If one or more of these analysts ceases to cover us or fails to publish regular reports on us, interest in the purchase
of our securities could decrease, which could cause the price of our securities and their trading volume to decline.
We may be subject to ongoing restrictions related to grants
from the Israeli Office of the Chief Scientist.
Through our Israeli subsidiary, we received
grants of $436,815 from the Office of the Chief Scientist of the Israeli Ministry of Industry, Trade and Labor, or the Office
of the Chief Scientist, for research and development programs related to products that we are not currently commercializing or
marketing. Because we are no longer developing the product to which the grants relate, we do not believe that we are subject to
any material conditions with respect to the grants, except for the restrictions on our ability to make certain transfers of the
technology or intellectual property related to these grants described below. We could in the future determine to apply for further
grants. If we receive any such grants, we would have to comply with specified conditions, including paying royalties with respect
to grants received. If we fail to comply with these conditions in the future, sanctions might be imposed on us, such as grants
could be cancelled and we could be required to refund any payments previously received under these programs.
Pursuant to the Israeli Encouragement of Industrial
Research and Development Law, any products developed with grants from the Office of the Chief Scientist are required to be manufactured
in Israel and certain payments may be required in connection with the change of control of the grant recipient and the financing,
mortgaging, production, exportation, licensing and transfer or sale of its technology and intellectual property to third parties,
which will require the Office of the Chief Scientist’s prior consent and, in case such a third party is outside of Israel,
extended royalties and/or other fees. This could have a material adverse effect on and significant cash flow consequences to us
if, and when, any technologies, intellectual property or manufacturing rights are exported, transferred or licensed to third parties
outside Israel. If the Office of the Chief Scientist does not wish to give its consent in any required situation or transaction,
we would need to negotiate a resolution with the Office of the Chief Scientist. In any event, such a transaction, assuming it
was approved by the Office of the Chief Scientist, would involve monetary payments, such as royalties or fees, of not less than
the applicable funding received from the Office of the Chief Scientist plus interest, not to exceed, in aggregate, six times the
applicable funding received from the Office of the Chief Scientist.
Because we do not expect to pay cash dividends for the foreseeable
future, you must rely on appreciation of our common stock price for any return on your investment. Even if we change that policy,
we may be restricted from paying dividends on our common stock.
We do not intend to pay cash dividends on shares
of our common stock for the foreseeable future. Any determination to pay dividends in the future will be at the discretion of
our board of directors and will depend upon results of operations, financial performance, contractual restrictions, restrictions
imposed by applicable law and other factors our board of directors deems relevant. Accordingly, you will have to rely on capital
appreciation, if any, to earn a return on your investment in our common stock. Investors seeking cash dividends in the foreseeable
future should not purchase our common stock.
Our ability to use our net operating loss carry forwards
and certain other tax attributes may be limited.
Our ability to utilize our federal net operating
loss, carryforwards and federal tax credit may be limited under Sections 382 and 383 of the Internal Revenue Code of 1986, as
amended. The limitations apply if an “ownership change,” as defined by Section 382, occurs. Generally, an ownership
change occurs if the percentage of the value of the stock that is owned by one or more direct or indirect “five percent
shareholders” increases by more than 50% over their lowest ownership percentage at any time during the applicable testing
period (typically three years). If we have experienced an “ownership change” at any time since our formation, we may
already be subject to limitations on our ability to utilize our existing net operating losses and other tax attributes to offset
taxable income. In addition, future changes in our stock ownership, which may be outside of our control, may trigger an “ownership
change” and, consequently, Section 382 and 383 limitations. As a result, if we earn net taxable income, our ability to use
our pre-change net operating loss carryforwards and other tax attributes to offset U.S. federal taxable income may be subject
to limitations, which could potentially result in increased future tax liability to us.
Risks Related to our Operations in Israel
We conduct our operations in Israel and therefore our results
may be adversely affected by political, economic and military instability in Israel and its region.
Our principal offices are located in Israel
and most of our officers, employees and directors are residents of Israel. Accordingly, political, economic and military conditions
in Israel and the surrounding region may directly affect our business. Since the establishment of the State of Israel in 1948,
a number of armed conflicts have taken place between Israel and its Arab neighbors. Any hostilities involving Israel or the interruption
or curtailment of trade within Israel or between Israel and its trading partners could adversely affect our operations and results
of operations and could make it more difficult for us to raise capital. During the winter of 2012, Israel was engaged in an armed
conflict with Hamas, a militia group and political party operating in the Gaza Strip. This conflict involved missile strikes against
civilian targets in various parts of Israel and negatively affected business conditions in Israel. Recent political uprisings
and civil resistance demonstrations in various countries in the Middle East, including Egypt and Syria, are affecting the political
stability of those countries. It is not clear how this instability, or the Arab Spring in general, will develop and how it will
affect the political and security situation in the Middle East. This instability may lead to deterioration of the political relationships
that exist between Israel and these countries, and have raised concerns regarding security in the region and the potential for
armed conflict. In addition, it is widely believed that Iran, which has previously threatened to attack Israel, has been stepping
up its efforts to achieve nuclear capability. Iran is also believed to have a strong influence among extremist groups in the region,
such as Hamas in Gaza and Hezbollah in Lebanon. The tension between Israel and Iran and/or these groups may escalate in the future
and turn violent, which could affect the Israeli economy generally and us in particular. Any armed conflicts, terrorist activities
or political instability in the region could adversely affect business conditions and could harm our results of operations. For
example, any major escalation in hostilities in the region could result in a portion of our employees being called up to perform
military duty for an extended period of time. Parties with whom we do business have sometimes declined to travel to Israel during
periods of heightened unrest or tension, forcing us to make alternative arrangements when necessary.
Our commercial insurance does not cover losses
that may occur as a result of events associated with the security situation in the Middle East. Although the Israeli government
currently covers the reinstatement value of direct damages that are caused by terrorist attacks or acts of war, we cannot assure
you that this government coverage will be maintained. Any losses or damages incurred by us could have a material adverse effect
on our business. Any armed conflicts or political instability in the region would likely negatively affect business conditions
and could harm our results of operations.
Further, in the past, the State of Israel and
Israeli companies have been subjected to an economic boycott. Several countries still restrict business and trade activity with
the State of Israel and with Israeli companies. These restrictive laws and policies may have an adverse impact on our operating
results, financial condition or the expansion of our business.
Our operations may be disrupted as a result of the obligation
of management or personnel to perform military service.
Many of our male employees in Israel, including
members of our senior management, perform up to one month, and in some cases more, of annual military reserve duty until they
reach the age of 45 or older and, in the event of a military conflict, may be called to active duty. There have also been periods
of significant call-ups of military reservists, and it is possible that there will be military reserve duty call-ups in the future.
Our operations could be disrupted by the absence of a significant number of our employees. Such disruption could materially adversely
affect our business, financial condition and results of operations.
Because a certain portion of our expenses is incurred in
currencies other than the U.S. dollar, our results of operations may be harmed by currency fluctuations and inflation.
We expect our revenues from future licensing
agreements to be denominated mainly in U.S. dollars or in Euros. We pay a substantial portion of our expenses in U.S. dollars;
however, a portion of our expenses, related to salaries of the employees in Israel and payment to part of the service providers
in Israel and other territories, are paid in New Israeli Shekels, or NIS, and in other currencies. In addition, a portion of our
financial assets is held in NIS and in other currencies. As a result, we are exposed to the currency fluctuation risks. For example,
if the NIS strengthens against the U.S. dollar, our reported expenses in U.S. dollars may be higher than anticipated. In addition,
if the NIS weakens against the U.S. dollar, the U.S. dollar value of our financial assets held in NIS will decline.
It may be difficult for investors in the U.S. to enforce
any judgments obtained against us or any of our directors or officers.
Almost all of our assets are located outside
the U.S., although we do maintain a permanent place of business within the U.S. In addition, all of our officers and some of our
directors are nationals and/or residents of countries other than the U.S., and all or a substantial portion of such persons’
assets are located outside the U.S. As a result, it may be difficult for investors to enforce within the U.S. any judgments obtained
against us or any of our non-U.S. directors or officers, including judgments predicated upon the civil liability provisions of
the securities laws of the U.S. or any state thereof. Additionally, it may be difficult to assert U.S. securities law claims in
actions originally instituted outside of the U.S. Israeli courts may refuse to hear a U.S. securities law claim because Israeli
courts may not be the most appropriate forums in which to bring such a claim. Even if an Israeli court agrees to hear a claim,
it may determine that the Israeli law, and not U.S. law, is applicable to the claim. Further, if U.S. law is found to be applicable,
certain content of applicable U.S. law must be proved as a fact, which can be a time-consuming and costly process, and certain
matters of procedure would still be governed by the Israeli law. Consequently, you may be effectively prevented from pursuing
remedies under U.S. federal and state securities laws against us or any of our non-U.S. directors or officers.