Overview
We are a leading global
Digital Therapeutics (“DTx”) company revolutionizing the way people manage their health across the chronic condition
spectrum to live a better and healthier life. Our mission is to transform how affected individuals manage their health and chronic
conditions by empowering our customers to easily manage their conditions and take steps to improve their overall health. Most chronic
conditions are driven by personal behaviors and the individual actions that are or are not taken. We believe that changing these
behaviors can dramatically improve our customers’ overall health and substantially reduce unnecessary health spending. However,
behavioral change and habit formation are difficult, especially in managing chronic disease and related conditions. Our digital
therapeutics endeavor to produce lasting behavior changes in our customers by applying a novel combination of artificial intelligence
(“AI”)-driven dynamic personalization and behavioral science at scale. This allows us to engage and support our customers,
and offer them a complete virtual care solution, ideally resulting in improved health outcomes and reduced total cost of care.
Our
principal operating subsidiary, LabStyle Innovation Ltd., is an Israeli company with its headquarters in
Caesarea, Israel. We were formed on August 11, 2011, as a Delaware corporation with the name LabStyle Innovations
Corp. On July 28, 2016, we changed our name to DarioHealth Corp. We began our sales in the direct-to-consumer space,
solving first for what we deemed the most difficult problems: how to engage users and support behavior change to improve
clinical outcomes in diabetes. Our most developed AI tools leverage the direct-to-consumer experience from over 150,000
members to drive superior engagement and outcomes. In early 2020, we broadened our solutions to include other medical
conditions in addition to diabetes, and to serve business customers who seek to improve the health of their stakeholders.
Presently, we have deployed solutions for diabetes, hypertension, and pre-diabetes, and through our acquisition of Upright
Technologies Ltd. (“Upright”), we now offer solutions for musculoskeletal (“MSK”) conditions. We are currently
delivering B2B2C solutions for providers, employers, and pharmaceutical companies, and we plan to develop a full-risk health
plan business, which we expect will provide our AI driven, remote patient monitoring (“RPM”) and coaching
for a variety of chronic conditions, across a range of customer product lines in 2021.
Upright Technologies
Ltd., which we acquired in February 2021, is a leading digital MSK health company focused on preventing and treating the most
common MSK conditions through behavioral science, biofeedback, coaching, and wearable tech. Upright has over 90,000 active users
and its clinically validated solution is recommended by more than 500 clinics worldwide.
In-market first-generation
digital health solutions offer static or nominal personalization at best, integrating signals to customize nudges or personalize
communications in a manner that does not significantly adapt to changing user needs over time, while user journey’s, or experiences,
remain fairly static. First generation solutions generally lack user experience benefit of insight from tens of thousands of direct-to-consumer
engagements over years that adaptively personalize user journeys for high engagement and outcomes. These solutions are often described
as “fingerprinted,” but while fingerprints don’t change over time, users do. As a result, any static or minimally
dynamic approaches are not sufficiently customized to address user needs.
Market intelligence
confirms that enterprise customers are frustrated by existing solutions with static user journeys, limited transparency, inability
to integrate with existing technologies and workflows, low engagement and retention and challenges with flexible deployments. Some
customers want a single solution for most-major chronic conditions, others wish to deploy piecemeal solutions or may have already
invested in solutions for a portion of their populations. Health systems and health plans have invested significantly in their
technology and digital strategy and require solutions that interoperate with their existing and planned deployments. First generation
digital health solutions that have piloted with complex customers such as health plans have been forced to pivot their business
strategies to employers and others owing to enrollment, integration, return on investment and reporting challenges. Our solutions
are designed from the ground-up for integration, can be deployed for single or multiple conditions, deliver behavioral-science
informed dynamically personalized and integrated user journeys, deliver clear returns on investment in required time horizons and
allow for real-time granulated customer reporting.
Unlike other digital
health solutions, we also personalize user experience beyond nudges. Healthcare journeys and pathways must be individualized, informed
by behavioral science, and dynamically responsive to drive engagement and outcomes. Customized, dynamic user journeys are delivered
by our AI-driven journey engine, the “Dario Loop” (formerly called Dario Intelligence), which personalizes user experience
across a range of factors including timing, tone, channel, content, frequency, and intervention. We believe that our dynamic personalized
approach ensures superior engagement and retention, reduced costs, and ultimately, improved user health. This is reflected in our
user experience feedback, with an unparalleled 4.9 out of 5 stars across more than 15 thousand reviews in the Apple App Store,
a best-in-class net promoter score of 76, and industry-leading, published improvements in clinical metrics such as estimated glucose
monitoring (“HbA1c”), hypertension (“HTN”), pain and health-related quality of life.
Our Solutions
We offer a customized,
user-centric, modular platform integrating digital therapeutics, coaching, devices, and care providers. Our suite of offerings
includes Dario Tools, which are devices that integrate with applications on a user’s smartphone, DarioEngage, a population
health management platform (“DarioEngage”), and the Dario Loop, our AI-driven journey engine.
Dario Tools
Our platform is designed
for integration across a range of devices including partner devices. Our digital architecture and user experience can easily integrate
with partnered devices such as continuous glucose monitor (“CGM”) and other remote patient monitoring devices. For
example, we recently partnered with one of the “big 4” diabetes companies to integrate their meter as well in certain
commercial deployments. Our native devices include:
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All-in-one smart glucose meter
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Bluetooth connected blood pressure cuff
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Upright MSK training device
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Because of the widespread
and growing use of smartphones and the evolution of user preferences, our primary device is the user’s smartphone. Our connected
device strategy has been to develop or acquire devices when existing market requirements are not adequately met (for example, our
smart glucometer and Upright’s MSK device), and to partner with best-in-class devices for the remaining applications (including,
for example, our digital scale, blood pressure cuff, and CGM).
DarioEngage
Dario targets conditions
for which behaviors drive a significant portion of the outcomes, and which conditions bear a substantial cost burden to our users.
We combine our “Dario Tools” with our software, by which we offer RPM of their conditions and progress. Dario divides
its solutions into metabolic and non-metabolic categories:
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Metabolic conditions currently deployed include diabetes
(primarily type I and type II), hypertension and obesity/pre-diabetes.
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Non-Metabolic conditions currently deployed include MSK
conditions.
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We present our users
with a digital center of excellence - a low friction integrated experience from contracting through onboarding, data exchange,
enrollment, outcomes, and reporting. Regardless of which conditions or populations our customers select, and independent of whether
they choose to deploy portions of their strategy through other partners, we present a unified application experience that simplifies
deployments, creates market-leading transparency, and accelerates and broadens user engagement.
The Dario Loop
Users vary significantly
in their interests and preferences, and unique user preferences also vary over time, insofar as optimal timing, tone, content,
channel, frequency, and intervention required to produce sustained behavior change. Users interactions with devices, smartphones,
coaches, providers, and third-party solutions must be personalized along these axes to ensure optimal engagement, retention, and
outcomes. To engage and sustain user interest and participation, and to drive outcomes, platforms must be dynamically responsive.
Because of a lack of responsiveness to these types of variances, many digital health platforms that achieve high initial engagement
often fail to retain users over time.
Key to our ability
to accommodate user behavioral changes is our mature AI-driven user journey engine, the “Dario Loop.” While several
in-market solutions now integrate health signals across a range of categories to apply limited, nominal personalization, primarily
in the form of nudges, our solution is informed by years of user experience data from over 150,000 users, enabling us to continually
personalize and adapt user journeys over time. The Dario Loop journey engine drives our multichannel targeted outreach and enrollment
campaigns, informs specific recommendations around a range of categories such as diet, physical activity, self-care, coaching interventions,
and provider engagement, and evolves in real time in response to the data exhaust from a user’s interaction with the care
ecosystem.
The Dario Loop combines
complex behavioral science insights with data from tens of thousands of users over several years to recommend AI-driven initial
and updated care journeys in response to a user’s engagement with the platform. Most digital health solutions consist primarily
of tracking, content, and nudges. These are often perceived by users as non-rewarding work, and often do not feel relevant to their
concerns, particularly as they evolve over time. We believe that current in-market solutions trivialize within person changes over
time and do not appropriately respond to dynamically evolving interests of users. This results in reduced engagement and impaired
outcomes. The Dario Loop adapts user journeys’ to drive engagement, retention, and clinical outcomes by optimizing timing,
tone, channel, content, frequency and intervention to deliver dynamically personalized user journeys that are more likely to result
in the behavior changes needed to drive improved outcomes across a range of conditions. As we partner with solutions in additional
conditions or categories, we “loop them in” to our solution, enhancing the engagement and efficacy of these partnered
solutions to deliver additional value to our users. The engine is designed for integration and scale; as we add populations and
conditions for which behaviors are primary drivers of outcomes, our engine becomes more adept at customizing a user’s preferences
and needs.
Our Growth Strategies
Add
customers across a range of channels. Due to our unique ability to deploy flexibly and interoperability, and since we
cover the range of chronic conditions of common concern to health plans, providers and employers, we are experiencing increased
interest in our behavior change platform for chronic diseases. We have already engaged with several large providers and one fortune
500 company subsidiary, and are in late stage negotiations to enter contracts with several health plans on their fully insured
businesses. We anticipate continued growth and demand in these channels as we acquire customers. Each additional contract not only
increases revenues, but also the likelihood of attracting additional new customers as they recognize our solutions being adopted
and trusted by peers and competitors.
Increase
the eligible populations within customers. Initially, Dario’s solutions were deployed for type I and type II diabetes.
Since that time, we have added HTN, MSK. Each new condition added increases our ability to cover larger portions of our customers’
populations, thereby reducing the need for our customers to engage multiple vendors, and reducing their costs as compared to the
alternative of partnering with multiple solutions to cover the conditions and categories that we cover on one single platform.
Drive
Engagement. Our business model is predominantly a subscription model, where we charge per user engaged on the platform.
As our AI matures and as we deploy increasingly dynamic and adaptive personalization, we intend to engage a large portion of eligible
populations, potentially driving increased revenue. A user is considered as an engaged user if (i) the user is measuring high
blood glucose and/or blood pressure using our app and our connected devices, (ii) a user is interacting with our coach via
one of the communication channels such as chat, SMS, email or phone call, or (iii) a user who is performing one of the following
activities on his application such as: reading messages of articles sent to him over the app, setting or updating goal on his application,
updating his profile, tagging meals, recording intake of drugs and other activities available on our application.
Optimize
solutions for value. Our customers primarily engage for 3 key reasons: (1) the opportunity for cost savings; (2) our
competitive advantage in breadth of conditions serviced and our AI technology; and (3) revenue opportunities from our digital
center of excellence. Our pricing strategy is designed to deliver return on investment to our customers soon after engagement,
and steadily over time. As we evolve our solutions to deliver increased value to our users, we can offer customers value-based
pricing models that can lead to greater revenue.
Acquisitions
and Partnerships. In early 2021, as part of our plan to expand our suite of offerings to provide a wider range of solutions
to our potential customers, we acquired Upright, and we are now planning to deploy a comprehensive MSK virtual
clinic in the second half of 2021.
Post-COVID
Rebalancing: The COVID-19 pandemic has had a major impact on health. Our members and eligible members were disproportionately
affected as researched showed that chronic condition comorbidities increased the risk of hospitalization and death from COVID-19.
In 2020, telehealth and digital care spiked significantly, as health plans and providers sought to deliver solutions virtually.
Across the industry, telehealth use spiked in 2020 and has since withdrawn some, albeit to still more than 50x pre-pandemic levels.
However, telehealth as delivered today is not appreciably different from how it was delivered 30 years ago, with largely telephone
only visits, and even where video is present, remote monitoring, real-time data and device integration remain mostly absent. Our
customers and potential customers recognize the tremendous potential of building on the shift to telehealth with the evolution
of more complete virtual care models as they see the limitations of pure telehealth-based care for chronic conditions.
Sales and Marketing
Our initial marketing
efforts in the United States were focused on the early adopter users who have diabetes and who are paying out of pocket for their
monitoring tools to manage their chronic condition, and we have concentrated our efforts in gaining market share and brand awareness
through direct-to-consumer marketing efforts.
In 2018, we began to
expand our marketing efforts to the insured population by offering our DarioEngage platform to a variety of healthcare providers
who are supporting and coaching individuals with diabetes. We believe this will help us to diversify our revenues, from only selling
our Dario Blood Glucose Monitoring System and its consumables to revenues generated from providing online real-time monitoring,
supervising and coaching capabilities to all relevant healthcare providers who support individuals with diabetes and hypertension,
and in the longer terms also other chronic conditions. As part of these efforts, during 2019 we announced our planned cooperation
with Attain Health, Giant Eagle, BestBuy, and Better Living Now (BLN).
On the marketing side,
we primarily utilize online marketing in order to create awareness of Dario. Rather than solely rely on an online advertisement,
we will also consider revenue sharing with affiliate networks and a variety of other pay-for-performance methods commonly used
in online commerce.
We also expect to collaborate
with the medical community to showcase what we expect will be the Dario Smart Diabetes Management Solution’s clinical equivalence
and usability superiority through DarioEngage and Dario Loop.
As part of transforming
our offering from the direct-to-consumer market to the (B2B2C and payors market, in the beginning of 2020, we hired a President
and General Manager for North America who is leading our sales and marketing organization in the United States aimed to offer
our digital solution to health plans, employers, hospital, clinics, and remote patient monitoring centers. We expect this organization
to grow as we enter into service agreements with such payors. In that regard, in 2020, we announced a variety of agreements expanding
our sales in the B2B2C market including: (i) in January 2021, our announcement that we entered into an agreement to
provide its digital therapeutics solution to eligible employees of a subsidiary of a U.S. based Fortune 500 technology and engineering
company, which was obtained through our partnership with the Vitality Group (“Vitality”); (ii) in December 2020,
we announced that we entered into an agreement to provide our RPM solution to Presbyterian
Medical Services, one of the largest integrated healthcare systems in the State of New Mexico, effective January 1,
2021; (iii) in November 2020, we announced that we entered into an agreement to provide our digital therapeutics solution
to eligible employees of a U.S.-based Fortune 500 technology company; (iv) in October 2020, we announced our
inclusion in Vitality’s Gateway Flex offering, allowing our digital therapeutics platform to be marketed to Vitality's vast
employer base that provides benefits solutions to 20 million people, (v) in September 2020, we announced our partnership
with HMC Healthworks, that extends our reach into HMC's vast multi-employer client base through which HMC is currently managing
more than one million members; (vi) in July 2020, we announced that we entered the U.K. RPM market through an agreement
with Williams Medical, making our platform available to healthcare professionals throughout the U.K. and Ireland; and (vii) in
June 2020, we announced two RPM agreements in the U.S., allowing healthcare providers to monitor patients between office
visits while utilizing new CMS reimbursement codes, an added source of revenue.
Manufacturing
As we do not directly
manufacture our products ourselves, we have supply agreements with manufacturers for the Dario Blood Glucose Monitoring System,
glucose test strips, lancing devices, lancets, blood pressure monitor and weight scale. We have arrangements in place
with commercial-scale manufacturers for both the Dario Blood Glucose Monitoring System, for our test strips and the other
devices. As a result of investments, we have made over the past several years, we own the specialized equipment used to manufacture Dario
Blood Glucose Monitoring System.
During 2015, we commenced
the manufacturing of our Dario Blood Glucose Monitoring System with a Chinese manufacturer as part of our efforts to further reduce
manufacturing cost. At the beginning of 2016, we transitioned our manufacturing to a new Chinese manufacturer as part of our effort
to increase our manufacturing capacity and improve cost savings.
Our primary
product offering is primarily subscription based software and services which do not require manufacturing, and which are
developed by us.
Clinical Studies and Outcomes
Our platform is planned
to target different chronic conditions. Our initial focus has been on diabetes because that is a condition in which we believe
there is the biggest opportunity to make a meaningful impact and improve healthcare outcomes and lower costs. It is also a condition
that is associated with multiple different comorbidities, each of which represents a significant health and economic burden. The
majority of our end-users are individuals with type 2 diabetes. Most people with type 2 diabetes are diagnosed after age 45 and
have at least two co-existing chronic conditions. The most common chronic condition in people living with type 2 diabetes include
hypertension (73.6%), overweight/obesity (87.5%), hyperlipidemia (75.2%), chronic kidney disease (36.5%), and cardiovascular disease
(32.2%). Typically, the health of people with type 2 diabetes is managed by a primary care physician, although few may also be
seen by an endocrinologist.
On average, people
with type 2 diabetes see a physician more than five times per year. While there are a number of metrics that physicians use to
track the health of these patients, the most common is hemoglobin A1c, or HbA1c, which measures the average 90-day glycemic (blood
glucose) level in red blood cells. Clinical guidelines published by the ADA suggest that a reasonable HbA1c target for many non-pregnant
adults is less than 7%, or 154 milligrams per deciliter. A higher HbA1c has been associated with increased health risk and associated
costs. The ADA estimates that annual healthcare costs for a person with diabetes cost an average of $16,750 compared to $7,151
for a healthy individual. Research published by Oxford University in the United Kingdom suggests that a 1% reduction in HbA1c levels
leads to a 21% reduction in death from diabetes, a 14% reduction in heart attacks and a 43% reduction in peripheral vascular disease.
Monitoring HbA1c levels is typically done through routine blood work in a clinical laboratory with a physician order. Treatment
can involve a range of therapies, the most common of which is lifestyle management such as nutrition, physical activity and medication.
Physicians will also employ various strategies to manage diabetes-associated comorbidities.
We believe that patients
using a digital diabetes management platform have the potential to promote behavioral modification and sustain adherence to diabetes
management, demonstrating better glycemic control. Our sophisticated customer-focused solutions provide significant, meaningful
improvements in the measurable clinical outcomes of our members.
Clinical Studies
The system accuracy and user performance
of our product has been evaluated in several studies that we have performed, in over 1,300 diabetic patients from 2015 through
2017, and was found compliant with the most stringent current requirements of FDA guidelines and international standards then in
effect.
Clinical validation
of our product was performed with 350 diabetic patients for each product type, namely the meter with the audio jack and the meter
with the lightning connector, and the results that were achieved were as follows:
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Dario BGMS (Android): For all subject's samples 96.6% within ±15% and 100% within ±20% of the medical laboratory values at the entire glucose concentrations range
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Dario LC BGMS (iPhone, Lightning connector): For all subject’s samples 96.3% within ±15% and 99.4% within ±20% of the medical laboratory values at the entire glucose concentrations range.
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Published Clinical Data
Since 2017, we have
conducted numerous real-world-data studies through analyzing the clinical data of our user’s utilizing the rapidly increasing
database that is stored on our data cloud.
Several scientific
studies were published by us between 2017 and through 2020 in leading diabetes conferences such as the ADA, AADE and ATTD.
Main Highlights
In all of the below
studies, we believe that the results show a trend of continued improvement, demonstrating a direct correlation between using the
Dario Blood Glucose Monitoring System and app and improving clinical parameters. The combination of Dario’s Blood Glucose
Monitoring System and app may promote behavioral modification and enhanced adherence to diabetes management, demonstrating improvement
in glycemic outcomes and sustainment for a long period of time.
Dario reported
an Average Reduction in Estimated HbA1C of 1.4% for High-Risk type 2 Diabetes Users.
Dario presented at
the 77th ADA session a study that was titled “Reducing A1C Levels in Individuals with High-Risk Diabetes Using
the Mobile Glucose Meter Technology.” In the study Dario reported an average reduction in estimated HbA1C of 1.4% for high-risk
type 2 Diabetes users.
At the ADA 2018 session, Dario presented
three real-world-data analysis studies, as detailed below.
Type 2 Diabetes Users
of Dario Digital Diabetes Management System Experience a Shift from Greater than 180 mg/dL to Normal Glucose Levels with Sustainable
Results
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Reduction of 19.3% in high glucose readings within 12 months
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Increase of 11.3% in in-range readings within 12 months
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Method:
A retrospective data evaluation study was performed on the DarioTM cloud database. A population of all active Type 2
Diabetic (T2D) users that took measurements with DarioTM BGMS on average of 20 measurements per month during 2017. The
study assessed the ratio of all high blood glucose readings (180-400 mg/dL) and the ratio of all normal blood glucose readings
(80-120 mg/dL) in their first month of use to their last month of use during 2017 as recorded in the database.
Results:
For 17,156 T2D users activated during 2017 the average ratio of high events (180-400 mg/dL) was reduced by 19.3% (from 28.4% to
22.9% of the entire measurements). While at the same time, the ratio of normal range readings (80-120 mg/dL) was increased by 11.3%
(from 25.6% to 28.5% of the entire measurements). The most significant shift occurred after one month of usage (14% decrease) and
maintained stability over the following months throughout the full year. |
Updated
Analysis combining 2017 and 2018 data totals 38,838 Type 2 Diabetes active users and 3,318,014 measurements show
14.3% decrease in high readings (180-400 mg/dL) and 9.2 % increase in In-range (80-120 mg/dL) readings
A decrease in High Readings
and Severe Hyperglycemic Events for People with T2D over the Full Year of 2017 in Users Monitoring with Dario Digital Diabetes
Management System
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Reduction of 20% of High events (180-400 mg/dL) in T2D sustained within 12 months
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Reduction of 58% of Hyper events (>400mg/dL) in T2D within 12 months
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Method:
A retrospective data evaluation study was performed on the DarioTM cloud database. A population of active Type 2 Diabetic
(T2D) users that continuously measured their blood glucose using DarioTM BGMS during the full year of 2017 was evaluated.
The study assessed the ratio of high (180-400 mg/dL) and hyperglycemic (>400mg/dL) blood glucose readings during full year of
2017 as recorded in the database. The average of high and hyperglycemic glucose readings were calculated in periods of 30-60, 60-90,
90-120, 120-150, 150-180, 180-210, 210-240, 240-270, 270-300, 300-330, 330-360 days and compared to first 30 days as a starting
point of analysis.
Results:
For 225 T2D active users the ratio of high events (180-400 mg/dL) was reduced gradually in 19.6% (from 23.4% to 18.8% of the entire
measurements) from baseline compared to the 12th month of the year. Moreover, the ratio of severe hyperglycemia events
(>400 mg/dL) was decreased in 57.8% (from 0.90% to 0.38% of the entire measurements) at the same period.
Continuous Reduction of
Blood Glucose Average during One Year of Glucose Monitoring Using Dario Digital Monitoring System in a High-Risk Population
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Reduction of 14% Blood Glucose average was observed in T2D within 12 months
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76% of the population showed 24% improvement in Blood glucose average within 12 months
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Methods:
An exploratory data analysis study reviewed a population of high risk active type 2 Diabetic users with initial 30 days glucose
average above 180 mg/dL during a full calendar year. The study assessed the average blood glucose readings along a year of usage.
The average of glucose readings was calculated per user in periods of 30 days intervals from 30-60 to 330-360 days and compared
to the first 30 days as the starting point baseline of analysis.
Results:
Overall of 238 highly engaged T2D users (more than one daily measurement in average) whose average blood glucose
level was above 180mg/dL in the first 30 days of measurements (225±45 mg/dL) showed continuous reduction in glucose level
average vs. baseline. Reduction in blood glucose average level was demonstrated gradually, in the succeeding 3, 6 and 12 months
showing average decrease of 7%, 11% and 14% vs. baseline, respectively. Furthermore, 76% of the entire population (180 out of 238
users) improved their average blood glucose level over a year. Those 180 users (average blood glucose 228±46) showed an
average decrease of 10%, 16% and 24% in their glucose average following 3, 6 and 12 months, respectively.
At the American Association
of Diabetes Educators (AADE) 2018 Dario presented a study titled “Decrease in Estimated A1C for people in High-risk over
a full year of users monitoring with a digital Diabetes management system.”
A reduction of 1.4%
in estimated HbA1C in Type 2 Diabetes high risk users from baseline after one year of the Dario system use.
Method:
A retrospective data evaluation study was performed on the DarioTM cloud database. A population of high-risk (with baseline
A1C > 7.5 percent), active users that continuously measured their blood glucose using DarioTM BGMS during a full
year was evaluated. The study assessed estimated A1C values based on blood glucose readings during a full year as recorded in the
database. The estimated A1C values were calculated in periods of 3, 6, 9 and 12 months and compared to first 30 days as a starting
point of analysis.
Results:
A group of 363 high-risk Dario BGMS users (A1C>7.5) with greater than two blood glucose measurements taken per day in the first
30 days and in the 12th month of the year was selected. Estimated A1C was improved by -0.7, -0.8 and -1 percent from
baseline to 3, 6 and 9 months respectively, and remained -1 percent lower following 12 months of usage (8.65±0.96 vs.7.65±1.0).
Moreover, subgroup analyses by diabetes type revealed substantial estimated A1C improvement among people with T2D showing improvement
of -1 percent from baseline to 3, 6 months and 1.4 percent following 12 months (8.5 ± 0.91% vs. 7.14% ±
0.98%).
An additional study
evaluated on the potential improvement in glycemic variability in Type 2 diabetes over six months in patients monitoring with Dario
Digital Diabetes Management System. Dario presented the study results at the Advance Technologies and Treatment for Diabetes (ATTD)
conference in February 2019 in Berlin. We presented two additional studies outcomes at ADA 2019 conference.
Decrease in Glycemic Variability
for T2D over Six Months in Patients Monitoring with Dario Digital Diabetes Management System
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Reduction of 14%-18% in measurements variability was observed in T2D within 6 months
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Hypo events (<70 mg/dL) remained <1 event on average
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Method:
A retrospective data evaluation study was performed on the DarioTM database. A population of T2D high-risk
patients (blood glucose measurements average (GMavg) >180 mg/dL) measuring more than 20 times in the first 30 days
(analysis baseline) was evaluated on days 60-90 (3 months) and 150-180 days (6 months). Standard deviation (SD) and GMavg
were calculated and compared to the baseline.
Results:
A group of 698 T2D high-risk DarioTM users was selected. GV was reduced by 10% and 14% from baseline through 3 and 6
months, respectively (SD of 55.7, 58.4 vs.65.0). GMavg was reduced by 8% and 12% from baseline through 3 and 6 months,
respectively (201.1±25.57, 192.8±54.3 vs. 219.5±38.5) while patient’s hypoglycemic event (<70mg/dL)
was in average, less than one (<1) during this period. Subgroup analyses (355 patients) revealed substantial GV improvement
among non-Insulin T2D patients. The GV was reduced by 14% and 18% from baseline through 3 and 6 months, respectively (SD of 52.8,
50.7 vs.61.7).
T2D Users of Dario Digital
Diabetes Management System Experience an Increase of in-range Glucose Levels Linked to App Engagement
Relative Increase
of 10 % In-range linked to App engagement
Method:
A retrospective data evaluation study was performed on the DarioTM cloud database. A population of active Type 2 Diabetic
(T2D) users (>15 measurements per month on average) was evaluated. The study assessed the ratio of in-range blood glucose readings
(70-140 mg/dL) as a function of App engagement level for 6 months as recorded in the database compared to first 30 days as a starting
point of analysis.
Results:
A population of 4917 T2D non-insulin users measuring more than 15 times per month on average during 6 months in a row was evaluated.
The ratio of in-range (70-140 mg/dL) readings was increased following 3 months in correlation to the level of tagging meal reference/carbs/physical
activity occurrences (4.0%, 9.1% and 11.9% for tagging 0-1, 1-2 and >2 times per day on average, respectively) and sustained
for 6 months (3.1%, 7.0% and 12.2%, respectively). In subgroup analysis focusing on users entering their meal reference, high correlation
was observed following 3 months with an increase of in-range measurements in 4.6%, 8.4% and 12.0% for 0-1, 1-2 and >2 meal reference
tagging per day on average, respectively, and maintained stability over 6 months period (3.2%, 7.4%, and 12.5%, respectively).
Reduction of Blood Glucose
Average Less than 140mg/dL in People with Type2 Diabetes Using Dario Digital Diabetes Management System
30-40% of T2D Dario
users experienced Reduction of Blood Glucose Average below 140 mg/dL
Method:
A retrospective data evaluation study was performed on the DarioTM cloud database. A population of
active T2D users that continuously measured for 6 months was evaluated. The study assessed their BG avg and estimated A1C (eA1C)
values based on blood glucose readings as recorded in the database. Values were calculated in periods of 3 and 6 months and compared
to their first 30 days as a starting point analysis.
Results:
A group of 1248 Dario BGMS T2D active users (1.98 measurements per day on average during 6 months in a row) with
BG avg >140mg/dL (eA1C>6.5) was evaluated.100% reduced their BG avg along 6 months on average.
A group of 31% (387)
achieved BG avg of <140 mg/dL (eA1C<6.5) following 3 months showing 19% reduction on average from baseline (132.38±13.36
vs.162.79±25.41 mg/dL and eA1C 6.24±0.46 vs 7.3±0.88) and sustained their glycemic control during a 6 months
period (131.57±13.86 mg/dL and eA1C 6.21±0.48).
Subgroup analyses
of 568 non-insulin users revealed that 40% (226) achieved a BG avg <140 mg/dL following 3 months (131.95±13.21 vs.161.67±24.18
mg/dL and eA1C 6.22±0.46 vs 7.26±0.84) and sustained for 6 months period (131.03±13.70 mg/dL and eA1C 6.19±0.47).
Along the 6 months period, hypo events (<50mg/dL) per user per month on average remained stable.
In August 2019
another study was presented at the AADE 2019 in Atlanta. The study evaluated the “Impact of Digital Intervention on In-range
Glucose Levels in Users with Diabetes.” The study results showed 6% improvement in average blood glucose levels over 3 months
intervention program for a group of 162 users. A 39% increase in the in-range measurements was observed in a subgroup of 101 patients
who started with average blood glucose levels of over 140mg/dL.
In February 2020,
we presented an additional clinical study at the Advanced Technologies & Treatments for Diabetes (“ATTD”)
conference in Madrid, Spain. The presented data shows the Dario digital therapeutics platform successfully assists insulin dependent
patients with diabetes in reducing hypoglycemic events.
Decrease in Hypoglycemia Events Over Two Years
in Patients Monitoring with Dario’s Digital Diabetes Management System
Method:
A retrospective data analysis was performed on the Dario real-world database. Insulin dependent of users with type 1
or type 2 diabetes population was evaluated for two year of continuous system use. Average numbers of level 1 hypoglycemia (<70mg/dL)
and level 2 hypoglycemia (<54 mg/dL) events were calculated monthly and compared to baseline (first month).
Results:
For 1481 type 1 and type 2 insulin dependent users, average of level 1 hypoglycemia events and level 2 were reduced
by 24% and by 17% after 6 months and by 50% and 57% after 2 years vs. baseline respectively. Users with type 1 diabetes (N=363)
reduced level 1 hypoglycemia events by 50% and Level 2 by 55% after 2 years. Moreover, a 40% reduction in high blood glucose readings
was observed as well after 2 years.
In November 2020,
we presented additional clinical study data at the Virtual Diabetes Technology Society (DTS) meeting. The presented data indicated
the potential for a digital diabetes management solution to effect and sustain glycemic control improvements and demonstrated long
term reduction of blood glucose average (eA1c) and glycemic variability in type 2 diabetes over two years. The system assists users
through a variety of mechanisms including behavior modification in diabetes self-management and in long-term routines for self-care.
The Effect of a Digital Therapeutic Platform on Glycemic Control in Adults above Age 65 with Type 2 Diabetes.
Reduction of 13% blood glucose average in age group ≥65 (N=298) at six months by 13% sustained for 12 months.
Reduction of 38.1% in high readings ratio (>250 mg/dL) in the ≥65 age group at six months and by 41.5% at 12 months.
Method:
A retrospective study of high-risk users (BG avg >180 mg/dL equivalent to e A1c 8.0) 2 with type 2 diabetes that measured their
blood glucose using the Dario® platform database over two consecutive years was performed. The minimum engagement level for
inclusion was at least two blood glucose measurements per day on average taken in Month 1 and Month 24. Actual blood glucose readings
were taken by the Dario meter and loaded into the cloud database. These were evaluated for the blood glucose average (BGavg), estimated
A1c (eA1c)values and glycemic variability (by Standard Deviation; SD) following 24 months compared to the first month (baseline).
Results:
368 high-risk, T2D active and engaged users for at least consecutive 2 years were identified and assessed for their risk-level
and insulin usage. A group of 148 T2D, non-Insulin users that started with a blood glucose average (BG avg) >180 mg/dl (equivalent
to eA1c>8.0) consistently reduced their BG avg by 18% on average and sustained these values (179±45 vs. 219±56
mg/dL) following 2 years on the Dario platform. Glycemic variability was reduced over two years by 20% on average (SD:45 vs. 56)
. Substantial reductions were observed for higher risk groups (insulin and non-insulin treated). The subset that started with average
BG levels > 212 mg/dL (eA1c >9.0) and average BG levels >240 mg/dL (eA1c>10) reduced their average BG by 22.5% and
25.7% respectively on average over two years. The equivalent reductions in eA1c were 1.95% and 2.42%
In August 2020, we
presented an additional clinical study at the Virtual Association of Diabetes Care & Education Specialists (ADCES) conference.
The presented observational study data demonstrated better glycemic and blood pressure control. Patients using an integrated chronic
disease management digital platform have the potential to improve user activation which may assist to better manage their blood
glucose and blood pressure levels and sustain behavioral change.
Impact of Digital Management on Clinical Outcome in Patients with Chronic Conditions: Diabetes and
Hypertension.
Hypertension: Increase in normal level % measurements from 6% to 12% while hypertension stage
2 measurements decreased from 53% to 45%. 70% of the users (243 out of 345) improved their blood pressure levels by 8.4 mmHg Systolic
and 6.2 mmHg on average.
Glucose levels: A reduction of 33% in
high readings (>250 mg/dL) and 67% in severe events (>400 mg/dL) was observed over six months.
Methods:
A retrospective data evaluation study was performed on the DarioTM cloud database. A population of active
users that measured both blood pressure and blood glucose for at least 3 months was observed. Blood pressure and blood glucose
levels were evaluated. First month measuring on Dario platform was used as study baseline. Clinical outcomes examined were blood
pressure values, percentage of blood pressure categories, average blood glucose (BGavg) and high blood glucose readings (>250
mg/dL, >400 mg/dL) ratios.
Results:
A group of 345 active users started at baseline with Hypertension stage 1, 2 or hypertensive crisis levels and measured
following 3 months was evaluated.
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Normal levels increased from 6% to 12% and percentage of users with hypertension stage 2 decreased
from 53% to 45%
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70% of the users (243 out of 345) improved their blood pressure levels in 8.4 mmHg Systolic and
6.2 mmHg on average (Systolic 134.2±12 vs.142.6±14; Diastolic 89.9 ±11 vs.83.7 ±8.7)
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A group of 345 users measured with Dario their blood glucose in addition to blood pressure, 89%
are type 2 and pre-diabetes - average age is 60.4.
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For the group of 345 users a reduction of 33% (5.4% vs.8.0%) in high readings ratio (>250 mg/dL)
and 67% (0.3%vs.0.9%) in severe events ratio (>400 mg/dL) was observed following six months on average.
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A subset of 114 users
with diabetes in higher risk started with BG average >160 mg/dL improved their average blood glucose by 14% (207±47 vs.177±50
mg/dL) following six months.
In June 2020, we presented
two clinical studies at the ADA Virtual conference. The presented data from these studies showed:
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The use of a digital diabetes platform resulted in a large population are consistent with previous
studies and show the potential to promote behavior modification in users with T2D. The study demonstrated that digital management
platforms may assist user to better control their blood glucose levels and sustain behavioral change. This observational data presented
an improvement in high glycemia readings ratios, and an increase in prediabetes fasting blood glucose levels sustained over one
year.
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The additional study confirmed the potential of digital diabetes solutions to sustain glycemic
achievements in users with type 2 diabetes over two years. The system may assist the users to experience an actual behavior modification
in their diabetes self-management as well as in their long-term routine for self-care.
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Users with type 2 diabetes using a digital platform experienced
sustained improvement in blood glucose levels.
Method:
A retrospective data evaluation (Q1:2018-2019) was performed on the Dario® data base. A population of active
users (18 measurements per month with the Dario® System on average) with T2D, non-Insulin treated was evaluated
over a full year. High blood glucose readings (180-400 mg/dL, >250 mg/dL), fasting readings (<126 mg/dL) and post-meal readings
(<180mg/dL) ratios were assessed in their first month of use until the 12th month.
Results:
For 9,200 users with T2D, non-Insulin users, the average ratio of high glycemia events (180-400 mg/dL) from entire set of measurements
was reduced by 26% (18.62% vs. 23.43%) while readings of >250mg/dL were reduced by 33% (4.65% vs. 6.93%) over a year. Fasting
measurements analysis revealed an increase of 16% in ratios of readings <126 mg/dL per entire set of fasting measurements (40.59%
vs. 34.92%) on average. Post-meal readings ratio of <180 mg/dL per entire post-meal measurements increased by 5% (73.75% vs.
70.42%) on average over a year.
Estimated A1C Reduction in High-Risk Patients over Two
Years of Using a Digital Diabetes Management Platform
Method:
A retrospective data evaluation study was performed on high-risk users with type 2 diabetes that measured their blood glucose using
Dario® platform database for two consecutive years. The study assessed BGavg, estimated A1c (eA1c) values and
glycemic variability following 24 months compared to the first month (baseline).
Results:
A group of 148 high-risk users with type 2 diabetes, non-Insulin treated was evaluated. Their BGavg was of >180mg/dL (eA1c>8.0)
for users taking ∼2 blood glucose measurements per day in the
first month and in the 24th month on average. Their BGavg was consistently reduced by 18% and sustained (179±45
vs. 219±56 mg/dL) and eA1c was reduced by 1.5 percentage points (9.26±1.3 vs. 7.86±1.8). Glycemic variability
was reduced by 20% (SD: 45 vs. 56) at the end of 2 years. Additional analysis of 220 users with type 2 diabetes,147 started with
eA1c >9.0% and 73 started with eA1c >10%, revealed substantial eA1c reduction of 2.0 percentage points (10.31 ± 1.8%
vs. 8.36 ± 1.2%) and 2.4 percentage points (11.15 ± 1.2% vs. 8.73% ± 2.1%) from baseline after 2 years, respectively.
Glycemic variability was reduced by 20% for both (SD: 55 vs. 69 and 59 vs. 74, respectively).
Government Regulation
The principal markets
that we have initially targeted for Dario are the United States, Canada, the European Union, Australia, and New Zealand. The
following is an overview of the regulatory regimes in these jurisdictions.
United States Regulation
Generally
In the United States,
devices are subject to varying levels of regulatory control, the most comprehensive of which requires that a clinical evaluation
is conducted before a device receives clearance for commercial distribution. Under Section 201(h) of the Food,
Drug, and Cosmetic Act, a medical device is an article, which, among other things, is intended for use in the diagnosis of disease
or other conditions, or in the cure, mitigation, treatment or prevention of disease, in man or other animals. The Dario
Blood Glucose Monitoring System is classified as a medical device and subject to regulation by numerous agencies and legislative
bodies, including the FDA and its foreign counterparts. FDA regulations govern product design and development, pre-clinical
and clinical testing, manufacturing, labeling, storage, pre-market clearance or approval, advertising and promotion, and sales
and distribution. Specifically, the FDA classifies medical devices into one of three classes. Class I devices
are relatively simple and can be manufactured and distributed with general controls. Class II devices are somewhat
more complex and require greater scrutiny. Class III devices are new and frequently help sustain life.
Unless an exemption
applies, each medical device commercially distributed in the United States will require a 510(k) clearance, 510(k)+ “de-novo”
clearance, or pre-market approval (or PMA) from the FDA.
510(k) Clearance
Process. After a device receives 510(k) clearance, any modification that could significantly affect
its safety or effectiveness, or that would constitute a major change in its intended use, requires a new 510(k) clearance
or could even require a premarket application approval. The FDA requires each manufacturer to make this determination
in the first instance, but the FDA can review any such decision. If the FDA disagrees with the determination, the agency
may retroactively require the manufacturer to seek 510(k) clearance or premarket application approval. The FDA
also can require the manufacturer to cease marketing and/or recall the modified device until 510(k) clearance or premarket
application approval is obtained.
De
Novo Classification. If the FDA denies 510(k) clearance of a device because it is novel and an
adequate predicate device does not exist, the “de novo classification” procedure can be invoked based upon a reasonable
assurance that the device is safe and effective for its intended use. This procedure approximates the level of scrutiny
in the 510(k) process but may add several months to the clearance process. If the FDA grants the request, the device is permitted
to enter commercial distribution in the same manner as if 510(k) clearance had been granted.
Premarket
Application Approval Process. After approval of a premarket application, a new premarket application or
premarket application supplement is required in the event of a modification to the device, its labeling or its manufacturing process. The
premarket application approval pathway is much more costly, lengthy and uncertain. It generally takes from one to three
years or longer.
European and Non-European
Regulation Generally
Sales of medical devices
outside the United States are subject to foreign regulatory requirements that vary widely from country to country. These laws and
regulations range from simple product registration requirements in some countries to complex clearance and production controls
in others. As a result, the processes and time periods required to obtain foreign marketing clearance may be longer
or shorter than those necessary to obtain FDA clearance.
The commercialization
of medical devices in Europe is regulated by the European Union. The European Union presently requires that all medical products
bore the CE mark, an international symbol of adherence to quality assurance standards and demonstrated clinical effectiveness. Compliance
with the Medical Device Directive (MDD) or the Active Implantable Medical Device Directive (AIMD) or the In Vitro Diagnostic Medical
Device Directive (IVDD) as audited by a notified body and certified by a recognized European Competent Authority, permits the manufacturer
to affix the CE mark on its products.
In September 2013,
we obtained ISO 13485 certification for our quality management system and CE Mark certification to market Dario, and
in May 2015 Dario was cleared to fulfill the criteria according to EN ISO 15197:2013 The granting of the CE Mark allows Dario to
be marketed and sold in 32 countries across Europe as well as in certain other countries worldwide. On November 21, 2014,
MDSS, our European Authorized Representative, completed the registration of the Dario Blood Glucose Monitoring System with the
German Authority as required by Article 10 of Directive 98/79/EC on in vitro diagnostic medical devices. We commenced an initial
soft launch of the product in Europe in 2014, created initial demand for the product and established brand awareness and marketing
techniques to reach our target market with a goal to continue expansion to new markets and territories.
We achieved regulatory
clearance to market Dario in other countries that do not rely on the CE Mark. To date, the non-CE Mark jurisdictions which we have
begun to market Dario include the United States, New Zealand, Canada, and Australia.
To the extent that
we seek to market our product in other non-CE Mark countries in the future, we will be required to comply with the applicable regulatory
requirements in each such country. Such regulatory requirements vary by country and may be tedious. As a
result, no assurance can be given that we will be able to satisfy the regulatory requirements to sell our products in any such
country.
Clinical Studies
Even when a clinical
study has an approved Investigational Device Exemption (IDE) from the FDA under significant risk (SR) determination, has been approved
by an Institutional Review Board (IRB) under non-significant risk (NSR) determination and/or has been approved by local or regional
Ethics Committee, the study is subject to factors beyond a manufacturer’s control, including, but not limited
to the fact that the institutional review board at a given clinical site might not approve the study, might decline to renew approval
which is required annually, or might suspend or terminate the study before the study has been completed. There is no assurance
that a clinical study at any given site will progress as anticipated; the interim results of a study may not be satisfactory leading
the sponsor or others to terminate the study, there may be an insufficient number of patients who qualify for the study or who
agree to participate in the study or the investigator at the site may have priorities other than the study. Also, there
can be no assurance that the clinical study will provide sufficient evidence to assure regulatory authorities that the product
is safe, effective and performs as intended as a prerequisite for granting market clearance. See “Clinical Trials”
above for clinical trials performed to date.
Post-Clearance Matters
Even if the FDA or
other non-US regulatory authorities approve or clear a device, they may limit its intended uses in such a way that manufacturing
and distributing the device may not be commercially feasible. After clearance or approval to market is given, the FDA and foreign
regulatory agencies, upon the occurrence of certain events, are authorized under various circumstances to withdraw the clearance
or approval or require changes to a device, its manufacturing process or its labeling or additional proof that regulatory requirements
have been met.
A manufacturer of a
device approved through the premarket approval application process is not permitted to make changes to the device which
affects its safety or effectiveness without first submitting a supplement application to its premarket approval application
and obtaining FDA clearance for that supplement. In some instances, the FDA may require a clinical trial to support
a supplement application. A manufacturer of a device cleared through a 510(k) submission or a 510(k)+ “de-novo”
submission must submit another premarket notification if it intends to make a change or modification in the device that could significantly
affect the safety or effectiveness of the device, such as a significant change or modification in design, material, chemical composition,
energy source or manufacturing process. Any change in the intended uses of a premarket approval application device
or a 510(k) device requires an approval supplement or cleared premarket notification. Exported devices are subject
to the regulatory requirements of each country to which the device is exported, as well as certain FDA export requirements.
Mobile Medical Applications Guidance
On September 23,
2013, the FDA issued final guidance for developers of mobile medical applications, or apps, which are software programs that run
on mobile communication devices and perform the same functions as traditional medical devices. The guidance outlines
the FDA’s tailored approach to mobile apps. The FDA plans to exercise enforcement discretion (meaning it will not enforce
requirements under the Federal Food, Drug & Cosmetic Act) for the majority of mobile apps as they pose minimal risk to
consumers. The FDA plans to focus its regulatory oversight on a subset of mobile medical apps that present a greater
risk to patients if they do not work as intended. The FDA is focusing its oversight on mobile medical apps that:
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are intended to be used as an accessory to a regulated medical device – for example, an application that allows a health care professional to make a specific diagnosis by viewing a medical image from a picture archiving and communication system (PACS) on a smart mobile device or a mobile tablet; or
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transform a mobile platform into a regulated medical device – for example, an application that turns a smart mobile device into an electrocardiography (ECG) machine to detect abnormal heart rhythms or determine if a patient is experiencing a heart attack.
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Ongoing Regulation by FDA
Even after a device
receives clearance or approval and is placed on the market, numerous regulatory requirements apply. These include:
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establishment registration and device listing;
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quality system regulation, which requires manufacturers, including third-party manufacturers, to follow stringent design, testing, control, documentation, and other quality assurance procedures during all phases of the product life-cycle;
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labeling regulations and FDA prohibitions against the promotion of products for uncleared, unapproved or “off-label” uses, and other requirements related to promotional activities;
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medical device reporting regulations, which require that manufacturers report to the FDA if their device may have caused or contributed to a death or serious injury or malfunctioned in a way that would likely cause or contribute to a death or serious injury if the malfunction were to recur;
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corrections and removals reporting regulations, which require that manufacturers report to the FDA field corrections and product recalls or removals if undertaken to reduce a risk to health posed by the device or to remedy a violation of the Federal Food, Drug and Cosmetic Act that may present a risk to health; and
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post-market surveillance regulations, which apply when necessary to protect the public health or to provide additional safety and effectiveness data for the device.
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Failure to comply with
applicable regulatory requirements can result in enforcement action by the FDA, which may include any of the following sanctions:
fines, injunctions, civil or criminal penalties, recall or seizure of our current or future products, operating restrictions, partial
suspension or total shutdown of production, refusing our request for 510(k) clearance or PMA approval of new products, rescinding
previously granted 510(k) clearances or withdrawing previously granted PMA approvals.
We may be subject to
announced and unannounced inspections by the FDA, and these inspections may include the manufacturing facilities of our subcontractors.
If, as a result of these inspections, the FDA determines that our or our subcontractor’s equipment, facilities, laboratories
or processes do not comply with applicable FDA regulations and conditions of product clearance, the FDA may seek civil, criminal
or administrative sanctions and/or remedies against us, including the suspension of our manufacturing and selling operations.
Ongoing Regulation
by International Regulators
International sales
of medical devices are subject to foreign government regulations, which may vary substantially from country to country.
In order to maintain
the right to affix the CE Mark to sell medical devices in the European Union, an annual surveillance audit in the company premises
and, if needed, at major subcontractors’ premises needs to be carried out by the notified body. Additionally,
European Directives dictate the following requirements:
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Vigilance system, which requires the manufacturer to immediately notify the relevant Competent Authority when a company product has been involved in an incident that led to a death; led to a serious injury or serious deterioration in the state of health of a patient, user or another person; or might have led to death, serious injury or serious deterioration in health; and
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Post-market surveillance including a documented procedure to review experience gained from devices on the market and to implement any necessary corrective action, commensurate with nature and risks involved with the product.
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Failure to comply with
applicable regulatory requirements can result in enforcement action by the regulatory agency, which may include any of the following
sanctions: fines, injunctions, civil or criminal penalties, recall or seizure of our current or future products, operating restrictions,
partial suspension or total shutdown of production, refusing our request for renewing clearance and/or registration of our products
or granting clearance/registration for new products.
State Licensure
Requirements
Several states require
that Durable Medical Equipment (“DME”) providers be licensed in order to sell products to patients in that state. Certain
of these states require that DME providers maintain an in-state location. If these rules are determined to be applicable to
us and if we were found to be noncompliant, we could lose our licensure in that state, which could prohibit us from selling our
current or future products to patients in that state.
Federal Anti-Kickback
and Self-Referral Laws
The Federal Anti-Kickback
Statute prohibits the knowing and willful offer, payment, solicitation or receipt of any form of remuneration in return for, or
to induce the:
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furnishing or arranging for the furnishing of items or services reimbursable under Medicare, Medicaid or other governmental programs; or
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purchase, lease, or order of, or the arrangement or recommendation of the purchasing, leasing, or ordering of any item or service reimbursable under Medicare, Medicaid or other governmental programs.
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To the extent we are
required to comply with these regulations, it is possible that regulatory authorities could allege that we have not complied, which
could subject us to sanction. Noncompliance with the federal anti-kickback legislation can result in exclusion from
Medicare, Medicaid or other governmental programs, restrictions on our ability to operate in certain jurisdictions, as well as
civil and criminal penalties, any of which could have an adverse effect on our business and results of operations.
Federal law also includes
a provision commonly known as the “Stark Law,” which prohibits a physician from referring Medicare or Medicaid patients
to an entity providing “designated health services,” including a company that furnishes durable medical equipment,
in which the physician has an ownership or investment interest or with which the physician has entered into a compensation arrangement.
Violation of the Stark Law could result in denial of payment, disgorgement of reimbursements received under a noncompliant arrangement,
civil penalties, and exclusion from Medicare, Medicaid or other governmental programs.
Federal False Claims
Act
The Federal False Claims
Act provides, in part, that the federal government may bring a lawsuit against any person whom it believes has knowingly presented,
or caused to be presented, a false or fraudulent request for payment from the federal government, or who has made a false statement
or used a false record to get a claim approved. In addition, amendments in 1986 to the Federal False Claims Act have
made it easier for private parties to bring “qui tam” whistleblower lawsuits against companies. Penalties
include fines ranging from $5,500 to $11,000 for each false claim, plus three times the number of damages that the federal government
sustained because of the act of that person.
Civil Monetary Penalties
Law
The Federal Civil Monetary
Penalties Law prohibits the offering or transferring of remuneration to a Medicare or Medicaid beneficiary that the person knows
or should know likely to influence the beneficiary’s selection of a particular supplier of Medicare or Medicaid payable items
or services. Noncompliance can result in civil money penalties of up to $10,000 for each wrongful act, assessment of three times
the amount claimed for each item or service and exclusion from the Federal healthcare programs.
State Fraud and Abuse Provisions
Many states have also
adopted some form of anti-kickback and anti-referral laws and false claims acts. A determination of liability under such laws could
result in fines and penalties and restrictions on our ability to operate in these jurisdictions.
Administrative Simplification
of the Health Insurance Portability and Accountability Act of 1996
The Health Insurance
Portability and Accountability Act of 1996, or HIPAA, mandated the adoption of standards for the exchange of electronic health
information in an effort to encourage overall administrative simplification and enhance the effectiveness and efficiency of the
healthcare industry. Ensuring the privacy and security of patient information is one of the key factors driving the legislation.
Intellectual Property
Patent applications
On May 8, 2011,
certain of our founders filed a Patent Cooperation Treaty (PCT) Application No. PCT/IL2011/000369, titled “Fluids Testing
Apparatus and Methods of Use.” This PCT claimed priority from two preceding U.S. provisional applications filed
by our founders, with the earliest priority date being May 9, 2010. The PCT application was transferred to us by our founders
on October 27, 2011.
This application covers
the novel blood glucose measurement device, comprising the glucose meter; and an adaptor that connects the glucose meter to a smart-phone
to receive power supply and data display, storage, and analysis. A PCT search report and written opinion on patentability
that we received from World Intellectual Property Organization (known as WIPO) that included only two “Y” citations
and one additional non-relevant reference. Corresponding national applications of our PCT were filed in the U.S., Europe,
Japan, China, Australia and Israel.
On May 1, 2014,
we announced the receipt of a U.S. Notice of Allowance for a key patent relating to how the Dario Blood Glucose Monitoring System
draws power from and transmits data to a smartphone via the audio jack port. This patent was issued as U.S. Patent No. 8,797,180
in August 2014, and in August2015, we received U.S. patent (No. 9,125,549) that broadened our registered patent No. 8,797,180
to include testing of other bodily fluids through an audio jack connection. We believe these early patents represent critical intellectual
property recognition and a significant initial validation of our intellectual property efforts. Further, a corresponding European
patent was granted to us in May 2016, as European patent No. 2569622 for testing of fluids through an audio jack connection.
An additional corresponding patent was granted in Israel in April 2016. In February 2016 we were granted U.S. patent
No. 9,257,038, which is a further Continuation application connected to the U.S. patent No. 8,797,180, this new patent
enhanced the way the Dario Blood Glucose Monitoring System communicates with the end user’s smartphone devices.
In November 11,
2017, U.S. patent No. 9,832,301 titled “Systems and methods for adjusting power levels on a monitoring device”
was granted. This patent enhances the way the Dario Blood Glucose Monitoring System communicates with users’ smartphone devices.
This family includes a corresponding pending application in China.
Additionally, we recently
received U.S. patent No. 10,445,072 that enables optical communication between the Dario Blood Glucose Monitoring System and
the end user’s smartphone devices.
Additional patent applications
are in the process of being discussed and developed, and we believe that we have a rich potential pipeline of future technologies
that we intend to develop.
For example, we are
further seeking to develop and protect new intellectual property around future generations of our hardware and software with the
goal of achieving enhanced functionality, user interface, data usability, cyber protection, and artificial intelligence enhancement.
Design patents and
patent applications on the Dario Blood Glucose Monitoring System
To further protect
our market distinction and branding for the Dario Blood Glucose Monitoring System, three U.S. Design Applications have been filed
and granted covering the glucose meter, the cartridge, and connection dongle. At least some of these applications were granted
and registered in the United States, as well as Brazil, Canada, China, Europe, and Hong Kong.
Trademark applications
We have also filed
several families of trademark applications covering the “Dario” name (wordmark), the Dario name and logo (logo), the
Dario logo alone (logo), the DARIO-LITE wordmark, the LABSTYLE INNOVATIONS wordmark, the DARIOHEALTH wordmark, and the DARIOHEALTH
logo. In particular, the “Dario” wordmark is registered as a trademark in the Australia, Canada, China,
Costa Rica, United States, Israel, China, Canada, Hong Kong, South Africa, Japan, Costa Rica, Europe, Israel, Japan,
Korea, Mexico, New Zealand, Panama, Russia, South Africa, and the USA. The “DARIOHEALTH” wordmark is registered as
a trademark in the United States, Canada, China and India.
Utility Models
We have been granted
Utility Models for our core invention in Japan and Germany.
Other intangible
assets
As the number of Dario
users grows, an ever-growing amount of data is being collected from diabetic patients, including their blood sugar levels, meal
compositions, routines, physical exercise (intensity and duration) as well as many other factors, and lately also blood pressure
data, which are all useful for creating meaningful correlations between these factors and insulin use. We expect that
this database will be highly valuable and may be capitalized in many ways. The accumulation of this type of know-how and related
algorithms are protected as trade secrets using specialized confidentiality protocols.
Competition
In recent years, a
number of digitally supported solutions have emerged to manage diabetes and other chronic conditions. Competitors are developing
new technologies rapidly and, in some cases, are also expanding to manage other chronic conditions. In this crowded field, our
success is predicated on our flexibility to adapt to evolving customer requirements in digital health and superior execution in
engagement, retention and clinical outcomes in a manner that delivers clear return on investment in required time-horizons and
in complex, highly regulated business environments. We expect new entrants in the field and the emergence of novel technologies,
as well as competition from larger technology platform players such as Amazon, Apple and Google. Dario’s competitors vary
by intervention (devices, applications, coaching and analytics), by channel (health plan, pharma, provider, employer) and by condition
(including, for example, diabetes, MSK, HTN, and others). Certain of our competitors offer this integrated approach in varying
degrees, including, among others, Hinge Health, Inc., Livongo Health Inc. (acquired by Teladoc Health Inc.), Omada Health, Inc.,
Vida Health, Inc., Virta Health Corp., Informed Data Systems Inc. (OneDrop), Glooko, Inc., and OnDuo LLC. We believe
that our competitors are comparatively disadvantaged along several axes:
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Our competitors offer point solutions for a single condition (which model is unattractive to enterprise
customers needing to manage multiple vendor relationships);
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Our competitors fail to share member-level data or granular reporting with partners, which prevents
these partners from leveraging their own assets to support care;
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Competitor applications have limited or minimal levels of personalization, where communications
(or “nudge”) from the application may be somewhat personalized, but actual user experiences are heavily templated,
and not personalized or dynamic;
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Competitor applications are supported only by short term outcome data, as compared to our studies
which cover a 2-year period and offer 7 years of direct-to-consumer data;
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Failure of any one of our competitors to successfully engage and retain a substantial portion of
the base population, as none has the direct-to-consumer experience or data required, resulting in frustrated customers who cannot
realize promised cost savings;
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Customers of our competitors suffer an inadequate user experience, as evidenced by few app store
reviews and low scores in Apple, Google and Amazon stores;
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Our competitors offer medical device-oriented approaches with delayed product update cadences,
rather than our more agile, software-driven approaches that push out new products every few weeks;
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Our competitors have slowed their improvements in the area of clinical metrics (including, for
example, blood pressure, HbA1c, and pain), which decreases the solution’s return on investment;
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Our competitors often utilize cumbersome form factors and alternative connected devices, which
are not easily portable or that otherwise require significant user effort for connectivity. By contrast, our diabetes solution,
for example, utilizes lancets, strips and a dongle held in a lipstick-sized device that physically connects to a user’s phone
and doesn’t require independent charging. As another example, our MSK device is small and easily attaches to body parts for
convenient and easy use;
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Our competitors’ applications experience limited interoperability and connectivity, such
that they are unable to integrate with third party devices, electronic health records or partnered solutions; and
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Our competitors have higher costs; our solutions are priced 30-50% lower than current comparable
in-market solutions.
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Employees
As of March 1, 2021,
we had 127 full-time employees and 12 part-time employees. We have employment agreements with our five executive officers. See
“Management – Employment Agreements.”
Investing in our
securities is highly speculative and involves a high degree of risk. You should carefully consider the following factors and other
information in this Annual Report and our other SEC filings before making a decision to invest in our securities. Additional risks
and uncertainties that we are unaware of may become important factors that affect us. If any of the following events occur, our
business, financial conditions and operating results may be materially and adversely affected. In that event, the trading price
of our common stock and warrants may decline, and you could lose all or part of your investment.
Summary of Risk Factors
Our business is subject to a number of
risks, including risks that may adversely affect our business, financial condition and results of operations. These risks are discussed
more fully below and include, but are not limited to, risks related to:
Risks Related to Our Financial Position
and Capital Requirements
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Risks associated with our relatively new business;
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our future capital needs and their potential impact on our existing stockholders;
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our history of losses and stockholder’s inability to rely upon our historical operating performance;
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Risks Related to Our Business
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the acceptance of our products in the market and our exposure to market trends;
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the impact of COVID-19 on our operations;
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our risks of basing our business on the sale of our principal technology;
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our reliance on manufacturers and distributors;
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the impact of a failure of our digital marketing efforts;
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our reliance on the Apple App Store and Google’s Android platform;
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the risks associated with conducting business internationally;
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potential errors in our business processes and product offerings;
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our reliance on the performance of key members of our management team and our need to attract highly
skilled personnel;
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the integration of Upright’s business;
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Risks Related to Product Development and Regulatory Approval
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the expense and time required to obtain regulatory clearance of our products;
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our limited clinical studies and the susceptibility to varying interpretations of such studies;
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our ability to complete clinical trials;
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the failure to comply with the FDA’s Quality System Regulation or any applicable state equivalent;
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our reliance on third parties to conduct clinical trial work;
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the impact of legislation and federal, state and foreign laws on our business, including protecting
the confidentiality of patient health information;
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the potential impact of product liability suits;
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Risks Related to Our Intellectual Property
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the risks relating to obtaining or maintaining our intellectual property;
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potential litigation relating to the protection of our intellectual property;
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our limited foreign intellectual property rights;
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Our reliance on confidentiality agreements and the difficulty in enforcing such agreements;
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Risks Related to Our Industry
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the intense competition we face in the markets we operate;
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our need to respond quickly to technological developments;
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the risks relating to obtaining or maintaining our intellectual property;
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the risks relating to third-party payors not providing for adequate coverage and reimbursement
for our products;
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Risks Related to Our Operations in Israel
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the risks relating to the political, economic and military instability that may exist in Israel;
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the potential for operations to be disrupted as a result of obligations of Israeli citizens to
perform military service;
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the difficulty in enforcing judgements against us or certain of our executive officers and directors;
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Risks Related to the Ownership of Our Common Stock and Warrants
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the ability for our officers, directors and founding stockholders to exert influence over our affairs;
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the potential lack of liquidity, or volatility, of our common stock and warrants;
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the impact of analysts not publishing research or reports about us;
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the expense relating to our requirements as a U.S. public company;
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the potential failure to maintain effective internal controls over financial reporting;
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the existence of anti-takeover provisions in our charter documents and Delaware law; and
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that we do not intend to pay dividends on our common stock.
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Risks Related to Our Financial Position
and Capital Requirements
We were formed in August 2011 and are thus subject
to the risks associated with new businesses.
We were formed in August 2011
as a new business and, commencing from 2015, we entered the commercialization stage of our technology. As such, this limited operating
history may not be adequate to enable you to fully assess our ability to develop and commercialize the Dario Smart Diabetes Management
Solution, achieve market acceptance of the Dario Smart Diabetes Management Solution, develop other products and respond to competition.
We commenced a commercial launch of the free Dario Smart Diabetes Management application in the United Kingdom in late 2013 and
commenced an initial soft launch of the full Dario Smart Diabetes Management Solution (including the app and the Dario Blood Glucose
Monitoring System) in selected jurisdictions in March 2014 with the goal of collecting customer feedback to refine our longer-term
roll-out strategy and continued to scale up launch during 2014 in the United Kingdom, the Netherlands and New Zealand, in 2015
in Australia, Israel and Canada and in 2016 in the United States. These efforts have not generated sufficient revenues, and
we will need to generate additional revenues over the next years. Therefore, we are, and expect for the foreseeable future to be,
subject to all the risks and uncertainties, inherent in a new business and the development and sale of new medical devices and
related software applications. As a result, we may be unable to fully develop, obtain regulatory approval for, commercialize, manufacture,
market, sell and derive material revenues in the timeframes we project, if at all, and our inability to do so would materially
and adversely impact our viability as a company. In addition, we still must establish many functions necessary to operate a business,
including finalizing our managerial and administrative structure, continuing product and technology development, assessing and
commencing our marketing activities, implementing financial systems and controls and personnel recruitment.
Accordingly, you should
consider our prospects in light of the costs, uncertainties, delays and difficulties frequently encountered by companies in their
initial revenue generating stages, particularly those in the medical device and mobile health fields. In particular, potential
investors should consider that there is a significant risk that we will not be able to:
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implement or execute our current business plan, or that our business plan is sound;
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maintain our management team and the Company’s board of directors (the “Board of Directors”);
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raise sufficient funds in the capital markets or otherwise to effectuate our business plan;
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determine that our technologies that we have developed are commercially viable; and/or
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attract, enter into or maintain contracts with, and retain customers.
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In the event that we
do not successfully address these risks, our business, prospects, financial condition, and results of operations could be materially
and adversely affected.
Given our limited revenue and lack
of positive cash flow, we will need to raise additional capital, which may be unavailable to us or, even if consummated, may cause
dilution or place significant restrictions on our ability to operate.
According to our management’s
estimates, based on our current cash on hand and further based on our budget and the assumption that initial commercial sales
will commence during our anticipated timeframes, we believe that we will have sufficient resources to continue our activities
through 2023.
Since we might be unable
to generate sufficient revenue or cash flow to fund our operations for the foreseeable future, we will need to seek additional
equity or debt financing to provide the capital required to maintain or expand our operations. We may also need additional funding
for developing products and services, increasing our sales and marketing capabilities, and promoting brand identity, as well as
for working capital requirements and other operating and general corporate purposes. Moreover, the regulatory compliance arising
out of being a publicly registered company has dramatically increased our costs.
We do not currently
have any arrangements or credit facilities in place as a source of funds, and there can be no assurance that we will be able to
raise sufficient additional capital on acceptable terms, or at all. If such financing is not available on satisfactory terms, or
is not available at all, we may be required to delay, scale back or eliminate the development of business opportunities and our
operations and financial condition may be materially adversely affected.
If we raise additional
capital by issuing equity securities, the percentage ownership of our existing stockholders may be reduced, and accordingly these
stockholders may experience substantial dilution. We may also issue equity securities that provide for rights, preferences and
privileges senior to those of our common stock. Given our need for cash and that equity raising is the most common type of fundraising
for companies like ours, the risk of dilution is particularly significant for stockholders of our company.
Debt financing, if
obtained, may involve agreements that include liens on our assets, covenants limiting or restricting our ability to take specific
actions, such as incurring additional debt, could increase our expenses and require that our assets be provided as a security for
such debt. Debt financing would also be required to be repaid regardless of our operating results.
If we raise additional
funds through collaborations and licensing arrangements, we may be required to relinquish some rights to our technologies or candidate
products, or to grant licenses on terms that are not favorable to us.
Funding from any source
may be unavailable to us on acceptable terms, or at all. If we do not have sufficient capital to fund our operations and expenses,
we may not be able to achieve or maintain competitiveness, which could lead to the failure of our business and the loss of your
investment.
We have incurred significant losses
since inception. As such, you cannot rely upon our historical operating performance to make an investment decision regarding our
company.
Since our inception,
we have engaged primarily in research and development activities and in 2015 entered the commercialization stage. We have financed
our operations primarily through private placements and public offerings of common stock and have incurred losses in each year
since inception including net losses of $29,445,000 and $17,736,000 in 2020 and 2019, respectively.
Our accumulated deficit at December 31, 2020 was approximately $143,248,000. We do not know whether or when we will become profitable.
Our ability to generate revenue and achieve profitability depends upon our ability, alone or with others, to launch Dario in additional
European countries, and elsewhere and manufacture, market and sell Dario where approved. We may be unable to achieve any or all
of these goals.
We may be subject to claims for rescission
or damages in connection with certain sales of shares of our securities.
In March 2016,
the Securities and Exchange Commission declared effective a registration statement that we filed to cover 66,667 shares 76,667
warrants to purchase common stock, 76,667 shares of common stock underlying such warrants, and underwriters’ warrants to
purchase up to 7,172 shares of common stock. Sales of approximately 2,778 shares of common stock, approximately 12,778 shares of
common stock underlying warrants and approximately 1,278 shares of common stock underlying underwriters’ warrants may not
have been made in accordance with Section 5 of the Securities Act of 1933, as amended. Accordingly, the purchasers of those
securities may have rescission rights or be entitled to damages. The amount of such liability, if any, is uncertain. In the event
that we are required to make payments to investors as a result of these unregistered sales of securities, our liquidity could be
negatively impacted.
Risks Related to Our Business
We only recently began commercializing
Dario, and our success will depend on the acceptance of Dario in the healthcare market.
Dario
has been CE marked since 2013, enabling us to commercialize in 32 countries across Europe as well as in certain other countries
worldwide. It was also approved by the regulatory authorities in Australia, New Zealand,
Canada, Israel and South Africa, and most recently in December 2015, we received FDA clearance. As a result, we have
a limited history of commercializing Dario and commenced selling Dario in the United States in 2016. We have limited experience
engaging in commercial activities and limited established relationships with physicians and hospitals as well as third-party suppliers
on whom we depend for the manufacture of our product. We are faced with the risk that the marketplace will not be receptive
to Dario over competing products and that we will be unable to compete effectively. Factors that could affect our ability to establish
Dario or any potential future product include:
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the development of products or devices which could result in a shift of customer preferences away from our device and services and significantly decrease revenue;
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the increased use of improved diabetes drugs that could encourage certain diabetics to test less often, resulting in less usage of a self-monitoring test device for certain types of diabetics;
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the challenges of developing (or acquiring externally-developed) technology solutions that are adequate and competitive in meeting the requirements of next-generation design challenges, including interoperability with various electronic health records;
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the significant number of current competitors in the BGMS market who have significantly greater brand recognition and more recognizable trademarks and who have established relationships with healthcare providers and payors; and
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intense competition to attract acquisition targets, which may make it more difficult for us to acquire companies or technologies at an acceptable price or at all.
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We cannot assure you
that Dario or any future product will gain broad market acceptance. If the market for Dario or any future product fails to develop
or develops more slowly than expected, or if any of the technology and standards supported by us do not achieve or sustain market
acceptance, our business and operating results would be materially and adversely affected.
There is no assurance that our DarioEngage
software platform will succeed or be adopted by healthcare providers.
Our product offering
consists of our DarioEngage software platform, where we digitally engage with Dario users, assist them in monitoring their chronic
illnesses and provide them with coaching, support, digital communications, and real-time alerts, trends and pattern analysis. We
expect that the DarioEngage software platform may be leveraged by our potential partners, such as clinics, health care service
providers, employers, and payers for scalable monitoring of people with diabetes in a cost-effective manner, which we expect will
open for us additional revenue streams. However, the success of our DarioEngage software platform will depend entirely on our potential
partners’ adoption of the platform and we cannot assure you that our potential partners will do so, or, if adopted, that
they will continue to use the platform continually and for an extended period of time. If we cannot encourage potential partners
to utilize our DarioEngage software platform we may not succeed in marketing the product to our potential partners, the failure
of which may materially and adversely affect our business and operating results.
A pandemic, epidemic or outbreak
of an infectious disease in the United States, Israel or elsewhere may adversely affect our business.
A regional or global
health pandemic, including COVID-19, could severely affect our business, results of operations and financial condition. A regional
or global health pandemic, depending upon its duration and severity, could have a material adverse effect on our business. For
example, the COVID-19 pandemic has had numerous effects on the global economy and governmental authorities around the world have
implemented measures to reduce the spread of COVID-19. These measures, including shutdowns and “shelter-in-place” orders
suggested or mandated by governmental authorities or otherwise elected by companies as a preventive measure, have adversely affected
workforces, customers, consumer sentiment, economies and financial markets, and, along with decreased consumer spending, have led
to an economic downturn in many of our markets.
As a result of the
COVID-19 pandemic, as near-term measures, we have transitioned many of our employees to remote working arrangements. The transition
has had little impact on our employee productivity and has not caused any interruption to our business. Due to the uncertainty
of COVID-19, we will continue to assess the situation, including abiding by any government-imposed restrictions, market by market.
As a result of the
COVID-19 pandemic, many of our personnel are working remotely, and it is possible that this could have a negative impact on the
execution of our business plans and operations. If a natural disaster, power outage, connectivity issue, or other event occurred
that impacted our employees’ ability to work remotely, it may be difficult or, in certain cases, impossible, for us to continue
our business for a substantial period of time. The increase in remote working may also result in consumer privacy, IT security
and fraud concerns as well as increase our exposure to potential wage and hour issues.
We are unable to accurately
predict the impact that COVID-19 will have on our operations going forward due to uncertainties that will be dictated by the length
of time that the pandemic and related disruptions continue, the impact of governmental regulations that might be imposed in response
to the pandemic and overall changes in consumer behavior. Numerous state and local jurisdictions have imposed, and others in the
future may impose, “shelter-in-place” orders, quarantines, executive orders and similar government orders and restrictions
for their residents to control the spread of COVID-19. For example, Israel, federal and state governments in the United States,
and various governments in Europe, continue to impose limitations on gatherings, social distancing measures and restrictions on
movement, only allowing essential businesses to remain open. Such orders or restrictions have and are continuing to result in temporary
store closures, work stoppages, slowdowns and delays, travel restrictions and cancellation of events, among other effects, any
of which may negatively impact workforces, customers, consumer sentiment and the economies in many of our markets, and as a result,
may adversely affect our operations.
At this point in time, there is significant
uncertainty relating to the potential effect of COVID-19 on our business. As infections may continue to become more widespread,
we could experience a severe negative impact on our business, financial condition and results of operations. To the extent the
COVID-19 pandemic adversely affects our business and financial results, it may also have the effect of heightening many of the
other risks described in this “Risk factors” section.
We may not be successful in launching
Dario Loop and even if we are successful in doing so, there is no assurance that we will be successful in marketing and/or selling
our product in the marketplace.
We intend to launch
our Dario Loop program, which will utilize a large amount of data collected on our servers to develop predictive models and artificial
intelligence algorithms to meet the potential demand of intelligence-driven analytics that healthcare providers may be looking
for to improve their services. However, the launch of Dario Loop will require significant financial and technical resources. There
is no assurance that we will successfully develop or launch Dario Loop. Even if we are successful in doing so, there is no assurance
that the marketplace will accept or adopt the usage of Dario Loop. If we cannot successfully develop Dario Loop, or encourage the
use and adoption of Dario Loop by market participants, our business and operating results may be materially and adversely affected.
We cannot accurately predict the
volume or timing of any future sales, making the timing of any revenues difficult to predict.
We may be faced with
lengthy customer evaluation and approval processes associated with Dario. Consequently, we may incur substantial expenses and devote
significant management effort and expense in developing customer adoption of Dario which may not result in revenue generation.
We must also obtain regulatory approvals of Dario in certain jurisdictions as well as approval for insurance reimbursement in order
to initiate sales of Dario, each of which is subject to risk and potential delays, and neither of which may actually occur. As
such, we cannot accurately predict the volume or timing of any future sales.
If Dario fails to satisfy current
or future customer requirements, we may be required to make significant expenditures to redesign the product, and we may have insufficient
resources to do so.
Dario is being designed
to address an evolving marketplace and must comply with current and evolving customer requirements in order to gain market acceptance.
There is a risk that Dario will not meet anticipated customer requirements or desires. If we are required to redesign our products
to address customer demands or otherwise modify our business model, we may incur significant unanticipated expenses and losses,
and we may be left with insufficient resources to engage in such activities. If we are unable to redesign our products, develop
new products or modify our business model to meet customer desires or any other customer requirements that may emerge, our operating
results would be materially adversely affected, and our business might fail.
We expect to derive substantially
all of our revenues from our principal technology, which leaves us subject to the risk of reliance on such technology.
We expect to derive
substantially all of our revenues from sales of products derived from our principal technology. Our initial product utilizing this
technology is Dario. As such, any factor adversely affecting sales of Dario, including the product release cycles, regulatory issues,
market acceptance, product competition, performance and reliability, reputation, price competition and economic and market conditions,
would likely harm our operating results. We may be unable to develop other products utilizing our technology, which would likely
lead to the failure of our business. Moreover, in spite of our efforts related to the registration of our technology, if patent
protection is not available for our principal technology, the viability of Dario and any other products that may be derived from
such technology would likely be adversely impacted to a significant degree, which would materially impair our prospects.
We
are dependent upon third-party manufacturers and suppliers making us vulnerable to supply shortages and problems and price fluctuations,
which could harm our business.
We
do not own or operate manufacturing facilities for clinical or commercial production of the Dario Blood Glucose Monitoring System,
and we lack the resources and the capability to manufacture the Dario Blood Glucose Monitoring System on a commercial scale. Therefore,
we rely on a limited number of suppliers who manufacture and assemble certain components of the Dario Blood Glucose Monitoring
System. Our suppliers may encounter problems during manufacturing for a variety of reasons, including, for example, failure to
follow specific protocols and procedures, failure to comply with applicable legal and regulatory requirements, equipment malfunction
and environmental factors, failure to properly conduct their own business affairs, and infringement of third-party intellectual
property rights, any of which could delay or impede their ability to meet our requirements. Our reliance on these third-party suppliers
also subjects us to other risks that could harm our business, including:
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we are not a major customer of many of our suppliers, and these suppliers may therefore give other customers’ needs higher priority than ours;
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third parties may threaten or enforce their intellectual property rights against our suppliers, which may cause disruptions or delays in shipment, or may force our suppliers to cease conducting business with us;
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we may not be able to obtain an adequate supply in a timely manner or on commercially reasonable terms;
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our suppliers, especially new suppliers, may make errors in manufacturing that could negatively affect the efficacy or safety of the Dario Blood Glucose Monitoring System or cause delays in shipment;
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we may have difficulty locating and qualifying alternative suppliers;
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switching components or suppliers may require product redesign and possibly submission to FDA, European Economic Area Notified Bodies, or other foreign regulatory bodies, which could significantly impede or delay our commercial activities;
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one or more of our sole- or single-source suppliers may be unwilling or unable to supply components of the Dario Blood Glucose Monitoring System;
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other customers may use fair or unfair negotiation tactics and/or pressures to impede our use of the supplier;
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the occurrence of a fire, natural disaster or other catastrophe impacting one or more of our suppliers may affect their ability to deliver products to us in a timely manner; and
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our suppliers may encounter financial or other business hardships unrelated to our demand, which could inhibit their ability to fulfill our orders and meet our requirements.
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We
may not be able to quickly establish additional or alternative suppliers if necessary, in part because we may need to undertake
additional activities to establish such suppliers as required by the regulatory approval process. Any interruption or delay in
obtaining products from our third-party suppliers, or our inability to obtain products from qualified alternate sources at acceptable
prices in a timely manner, could impair our ability to meet the demand of our customers and cause them to switch to competing products.
Given our reliance on certain single-source suppliers, we are especially susceptible to supply shortages because we do not have
alternate suppliers currently available.
We rely in part on a small group
of third-party distributors to effectively distribute our products.
We
depend in part on medical device distributors for the marketing and selling of our products in certain territories in which we
have launched product sales. We depend on these distributors’ efforts to market our products, yet we are unable to control
their efforts completely. These distributors typically sell a variety of other, non-competing products that may limit the resources
they dedicate to selling Dario. In addition, we are unable to ensure that our distributors comply with all applicable laws regarding
the sale of our products. If our distributors fail to effectively market and sell Dario, in full compliance with applicable laws,
our operating results and business may suffer. Recruiting and retaining qualified third-party distributors and training them in
our technology and product offering requires significant time and resources. To develop and expand our distribution, we must continue
to scale and improve our processes and procedures that support our distributors. Further, if our relationship with a successful
distributor terminates, we may be unable to replace that distributor without disruption to our business. If we fail to maintain
positive relationships with our distributors, fail to develop new relationships with other distributors, including in new markets,
fail to manage, train or incentivize existing distributors effectively, or fail to provide distributors with competitive products
on attractive terms, or if these distributors are not successful in their sales efforts, our revenue may decrease and our operating
results, reputation and business may be harmed.
Failure in our online and digital
marketing efforts could significantly impact our ability to generate sales.
In several of our principal
target markets, we utilize online and digital marketing in order to create awareness to Dario. Our management believes that using
online advertisement through affiliate networks and a variety of other pay-for-performance methods will be superior for marketing
and generating sales of Dario rather than utilizing traditional, expensive retail channels. However, there is a risk that our marketing
strategy could fail. Because we plan to use non-traditional retail sales tools and to rely on healthcare providers to educate our
customers about Dario, we cannot predict the level of success, if any, that we may achieve by marketing Dario via the internet.
The failure of our online marketing efforts would significantly and negatively impact our ability to generate sales.
Our Dario Smart Diabetes Management
application, which is a key to our business model, is available via Apple’s App Store and via Google’s Android platforms
and maybe in the future via additional platforms. If we are unable to achieve or maintain a good relationship with each of Apple
and Google or similar platforms, or if the Apple App Store or the Google Play Store or any other applicable platform were unavailable
for any prolonged period of time, our business will suffer.
A key component of
the Dario Smart Diabetes Management Solution is an iPhone or Android application which includes tools to help diabetic patients
manage their disease. This application is compatible with Apple’s iOS and with Google’s Android platforms and may in
the future become compatible via additional platforms. If we are unable to make our Dario Smart Diabetes Management application
compatible with these platforms, or if there is any deterioration in our relationship with either Apple or Google or others after
our application is available, our business would be materially harmed.
We are subject to each
of Apple’s and Google’s standard terms and conditions for application developers, which govern the promotion, distribution,
and operation of games and other applications on their respective storefronts. Each of Apple and Google has broad discretion to
change its standard terms and conditions, including changes which could require us to pay to have our Dario Smart Diabetes Management
application available for downloading. In addition, these standard terms and conditions can be vague and subject to changing interpretations
by Apple or Google. We may not receive any advance warning of such changes. In addition, each of Apple and Google has the right
to prohibit a developer from distributing its applications on its storefront if the developer violates its standard terms and conditions.
In the event that either Apple or Google ever determines that we are in violation of its standard terms and conditions, including
by a new interpretation, and prohibits us from distributing our Dario Smart Diabetes Management application on its storefront,
it would materially harm our business.
Additionally, we will
rely on the continued function of the Apple App Store and the Google Play Store as digital storefronts where our Dario Smart Diabetes
Management application may be obtained. There have been occasions in the past when these digital storefronts were unavailable for
short periods of time or where there have been issues with the in-app purchasing functionality within the storefront. In the event
that either the Apple App Store or the Google Play Store is unavailable or if in-app purchasing functionality within the storefront
is non-operational for a prolonged period of time, it would have a material adverse effect on the ability of our customers to secure
the Dario Smart Diabetes Management application, which would materially harm our business.
Our products are subject to technological
changes which may impact their use.
Our Dario Blood Glucose
Monitoring System is currently designed to be plugged into the Lighting jack for Apple devices or the USB-C jack for other mobile
devices. As a result, our products are subject to future technological changes to mobile devices that may occur in the future.
If we are unable to modify our products to keep pace with such technological changes, it would have a material adverse effect the
ability of our customers to use our products, which would materially harm our business.
As we conduct business internationally,
we are susceptible to risks associated with international relationships.
Outside of the United
States, we operate our business internationally, presently in Europe, Australia and Canada. The international operation of our
business requires significant management attention, which could negatively affect our business if it diverts their attention from
their other responsibilities. In the event that we are unable to manage the complications associated with international operations,
our business prospects could be materially and adversely affected. In addition, doing business with foreign customers subjects
us to additional risks that we do not generally face in the United States. These risks and uncertainties include:
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management, communication and integration problems resulting from cultural differences and geographic dispersion;
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localization of products and services, including translation of foreign languages;
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delivery, logistics and storage costs;
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longer accounts receivable payment cycles and difficulties in collecting accounts receivable;
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difficulties supporting international operations;
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difficulties supporting customer services;
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changes in economic and political conditions;
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impact of trade protection measures;
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complying with import or export licensing requirements;
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exchange rate fluctuations;
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competition from companies with international operations, including large international competitors and entrenched local companies;
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potentially adverse tax consequences, including foreign tax systems and restrictions on the repatriation of earnings;
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maintaining and servicing computer hardware in distant locations;
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keeping current and complying with a wide variety of foreign laws and legal standards, including local labor laws;
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securing or maintaining protection for our intellectual property; and
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reduced or varied protection for intellectual property rights, including the ability to transfer such rights to third parties, in some countries.
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The occurrence of any
or all of these risks could adversely affect our international business and, consequently, our results of operations and financial
condition.
We expect to be exposed to fluctuations
in currency exchange rates, which could adversely affect our results of operations.
Because we expect
to conduct a material portion of our business outside of the United States but report our financial results in U.S. Dollars, we
face exposure to adverse movements in currency exchange rates. Our foreign operations will be exposed to foreign exchange rate
fluctuations as the financial results are translated from the local currency into U.S. Dollars upon consolidation. Specifically,
the U.S. Dollar cost of our operations in Israel is influenced by any movements in the currency exchange rate of the New Israeli
Shekel (NIS). Such movements in the currency exchange rate may have a negative effect on our financial results. If the U.S. Dollar
weakens against foreign currencies, the translation of these foreign currencies denominated transactions will result in increased
revenue, operating expenses and net income. Similarly, if the U.S. Dollar strengthens against foreign currencies, the translation
of these foreign currencies denominated transactions will result in decreased revenue, operating expenses and net income. As exchange
rates vary, sales and other operating results, when translated, may differ materially from our or the capital market’s expectations.
Non-U.S. governments often impose
strict price controls, which may adversely affect our future profitability.
We intend to seek approval
to market Dario and any future product in both the U.S. and in non-U.S. jurisdictions. If we obtain approval in one or more non-U.S.
jurisdictions, we will be subject to rules and regulations in those jurisdictions relating to our products. In some countries,
particularly countries of the European Union, each of which has developed its own rules and regulations, pricing may be subject
to governmental control under certain circumstances. In these countries, pricing negotiations with governmental authorities can
take considerable time after the receipt of marketing approval for a medical device candidate. To obtain reimbursement or pricing
approval in some countries, we may be required to conduct a clinical trial that compares the cost-effectiveness of our product
to other available products. If reimbursement of our product candidates is unavailable or limited in scope or amount,
or if pricing is set at unsatisfactory levels, we may be unable to achieve or sustain profitability.
Our Dario Smart Diabetes Management
Solution and associated business processes may contain undetected errors, which could limit our ability to provide our services
and diminish the attractiveness of our service offerings.
The Dario Smart Diabetes
Management Solution may contain undetected errors, defects or bugs. As a result, our customers or end users may discover errors
or defects in our products, software or the systems we design, or the products or systems incorporating our designs and intellectual
property may not operate as expected. We may discover significant errors or defects in the future that we may not be able to fix.
Our inability to fix any of those errors could limit our ability to provide our products, impair the reputation of our brand and
diminish the attractiveness of our product offerings to our customers.
In addition, we may
utilize third-party technology or components in our products, and we rely on those third parties to provide support services to
us. Failure of those third parties to provide necessary support services could materially adversely impact our business.
Our future performance will depend
on the continued engagement of key members of our management team.
Our future performance
depends to a large extent on the continued services of members of our current management including, in particular, Erez Raphael,
our Chief Executive Officer and a member of our Board of Directors and Zvi Ben David, our Chief Financial Officer, Treasurer and
Secretary, Dror Bacher, our Chief Operating Officer, and Richard Anderson, our President and General Manager for North America.
In the event that we lose the continued services of such key personnel for any reason, this could have a material adverse effect
on our business, operations, and prospects.
If we are not able to attract and
retain highly skilled managerial, scientific and technical personnel, we may not be able to implement our business model successfully.
We believe that our
management team must be able to act decisively to apply and adapt our business model in the rapidly changing markets in which we
will compete. In addition, we will rely upon technical and scientific employees or third-party contractors to effectively establish,
manage and grow our business. Consequently, we believe that our future viability will depend largely on our ability to attract
and retain highly skilled managerial, sales, scientific and technical personnel. In order to do so, we may need to pay higher compensation
or fees to our employees or consultants than we currently expect, and such higher compensation payments would have a negative effect
on our operating results. Competition for experienced, high-quality personnel is intense and we cannot assure that we will be able
to recruit and retain such personnel. We may not be able to hire or retain the necessary personnel to implement our business strategy.
Our failure to hire and retain such personnel could impair our ability to develop new products and manage our business effectively.
We may not generate the expected
benefits of our recent acquisition of Upright, and the integration of Upright could disrupt our ongoing business, distract our
management and increase our expenses.
Through
our recent acquisitions of Upright, we expanded our product offering to include solutions for MSK conditions. We believe
that the successful integration of Upright’s business into our operations is important for our future financial performance.
This will require that we integrate more closely the companies’ product offerings and research and development capabilities,
retain key employees, assimilate diverse corporate cultures, further integrate management information systems and consolidate the
acquired operations, each of which could pose significant challenges. The difficulty of combining Upright with our company may
be increased by the need to integrate personnel, and changes effected in the combination may cause key employees to leave.
It is possible that
the integration process could take longer than anticipated and could result in the loss of valuable employees, additional and unforeseen
expenses, the disruption of our ongoing business, processes and systems, or inconsistencies in standards, controls, procedures,
practices, policies and compensation arrangements, any of which could adversely affect our ability to achieve the anticipated benefits
of the acquisitions. The diversion of the attention of management created by the integration process, any disruptions or other
difficulties encountered in the integration process, and unforeseen liabilities or unanticipated problems with the acquired businesses
could have a material adverse effect on our business, operating results and financial condition. There can be no assurance that
these acquisitions will provide the benefits we expect or that we will be able to integrate and develop the operations of Upright
successfully. Any failure to do so could have a material adverse effect on our business, operating results and financial condition.
Risks Related to Product Development
and Regulatory Approval
The
regulatory clearance process which we must navigate is expensive, time-consuming, and uncertain and may prevent us from obtaining
clearance for the commercialization of Dario or our any future product.
We are not permitted
to market Dario until we receive regulatory clearance. To date, we have received regulatory clearance in Australia, Canada, Israel, Italy,
the Netherlands, New Zealand, the United Kingdom, and the United States.
The research, design,
testing, manufacturing, labeling, selling, marketing and distribution of medical devices are subject to extensive regulation by
the FDA and non-U.S. regulatory authorities, which regulations differ from country to country. There
can be no assurance that even after such time and expenditures, we will be able to obtain necessary regulatory approvals for clinical
testing or for the manufacturing or marketing of any products. In addition, during the regulatory process, other companies
may develop other technologies with the same intended use as our products.
We are also subject
to numerous post-marketing regulatory requirements, which include labeling regulations and medical device reporting regulations,
which may require us to report to different regulatory agencies if our device causes or contributes to a death or serious injury,
or malfunctions in a way that would likely cause or contribute to a death or serious injury. In addition, these regulatory requirements
may change in the future in a way that adversely affects us. If we fail to comply with present or future regulatory requirements
that are applicable to us, we may be subject to enforcement action by regulatory agencies, which may include, among others, any
of the following sanctions:
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untitled letters, warning letters, fines, injunctions, consent decrees, and civil penalties;
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customer notification, or orders for repair, replacement or refunds;
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voluntary or mandatory recall or seizure of our current or future products;
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imposing operating restrictions, suspension or shutdown of production;
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refusing our requests for 510(k) clearance or pre-market approval of new products, new intended uses or modifications to Dario or future products;
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rescinding 510(k) clearance or suspending or withdrawing pre-market approvals that have already been granted; and
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The occurrence of any
of these events may have a material adverse effect on our business, financial condition and results of operations.
In addition, on September 23,
2013, the FDA issued final guidance (which we refer to herein as the Guidance) for developers of mobile medical applications, or
apps, which are software programs that run on mobile communication devices and perform the same functions as traditional medical
devices. The Guidance outlines the FDA’s tailored approach to mobile apps. The FDA plans to exercise enforcement discretion
(meaning it will not enforce requirements under the Federal Food, Drug and Cosmetic Act) for the majority of mobile apps as they
pose minimal risk to consumers. The FDA plans to focus its regulatory oversight on a subset of mobile medical apps that present
a greater risk to patients if they do not work as intended. We anticipate that the Dario Smart Diabetes Management application
will be subject to FDA regulation as a “mobile medical app.”
We
have conducted limited clinical studies of Dario. Clinical and pre-clinical data is susceptible to varying interpretations, which
could delay, limit or prevent additional regulatory clearances.
To
date, we have conducted limited clinical studies on Dario. There can be no assurance that we will successfully complete
additional clinical studies necessary to receive additional regulatory approvals in certain jurisdictions. While studies conducted
by us have produced results we believe to be encouraging and indicative of the potential efficacy of Dario, data already obtained,
or in the future obtained, from pre-clinical studies and clinical studies do not necessarily predict the results that will be obtained
from later pre-clinical studies and clinical studies. Moreover, pre-clinical and clinical data are susceptible to varying interpretations,
which could delay, limit or prevent additional regulatory approvals. A number of companies in the medical device and pharmaceutical
industries have suffered significant setbacks in advanced clinical studies, even after promising results in earlier studies. The
failure to adequately demonstrate the safety and effectiveness of an intended product under development could delay or prevent
regulatory clearance of the device, resulting in delays to commercialization, and could materially harm our business. Even
though we have received CE mark and FDA clearance of Dario, there can be no assurance that we will be able to receive approval
for other potential applications of our principal technology, or that we will receive regulatory clearances from other targeted
regions or countries.
We may be unable to complete required
clinical trials, or we may experience significant delays in completing such clinical trials, which could significantly delay our
targeted product launch timeframe and impair our viability and business plan.
The completion of any
future clinical trials for Dario or other trials that we may be required to undertake in the future could be delayed, suspended
or terminated for several reasons, including:
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our failure or inability to conduct the clinical trial in accordance with regulatory requirements;
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sites participating in the trial may drop out of the trial, which may require us to engage new sites for an expansion of the number of sites that are permitted to be involved in the trial;
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delays that we may experience in enrollment, or completion of certain trials, as a result of COVID-19;
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patients may not enroll in, remain in or complete, the clinical trial at the rates we expect; and
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clinical investigators may not perform our clinical trial on our anticipated schedule or consistent with the clinical trial protocol and good clinical practices.
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If our clinical trial
is delayed it will take us longer to further commercialize Dario and generate additional revenues. Moreover, our development costs
will increase if we have material delays in our clinical trial or if we need to perform more or larger clinical trials than planned.
We may be faced with similar risks in connection with future trials we conduct. See “Business - Clinical Trials” for
a description of our clinical trials performed to date.
If we or our manufacturers fail to
comply with the FDA’s Quality System Regulation or any applicable state equivalent, our operations could be interrupted, and
our operating results could suffer.
We, our manufacturers
and suppliers must, unless specifically exempt by regulation, follow the FDA’s Quality System Regulation (QSR) and are also
subject to the regulations of foreign jurisdictions regarding the manufacturing process. If our affiliates, our manufacturers or
suppliers are found to be in significant non-compliance or fail to take satisfactory corrective action in response to adverse QSR
inspectional findings, the FDA could take enforcement actions against us and our manufacturers which could impair our ability to
produce our products in a cost-effective and timely manner in order to meet our customers’ demands. Accordingly, our operating
results could suffer.
We are subject to the risk of reliance
on third parties to conduct our clinical trial work.
We depend on independent
clinical investigators to conduct our clinical trials. Contract research organizations may also assist us in the collection and
analysis of data. These investigators and contract research organizations will not be our employees and we will not be able to
control, other than by contract, the number of resources, including the time that they devote to products that we develop. If independent
investigators fail to devote sufficient resources to our clinical trials, or if their performance is substandard, it will delay
the approval or clearance and commercialization of any products that we develop. Further, the FDA and other regulatory bodies around
the world require that we comply with standards, commonly referred to as good clinical practice, for conducting, recording and
reporting clinical trials to assure that data and reported results are credible and accurate and that the rights, integrity, and
confidentiality of trial subjects are protected. If our independent clinical investigators and contract research organizations
fail to comply with good clinical practice, the results of our clinical trials could be called into question and the clinical development
of our product candidates could be delayed. Failure of clinical investigators or contract research organizations to meet their
obligations to us or comply with federal regulations could adversely affect the clinical development of our product candidates
and harm our business. Moreover, we intend to have several clinical trials in order to support our marketing efforts and business
development purposes. Such clinical trials will be conducted by third parties as well. Failure of such clinical trials to meet
their primary endpoints could adversely affect our marketing efforts.
Legislative
reforms to the United States healthcare system may adversely affect our revenues and business.
From
time to time, legislative reform measures are proposed or adopted that would impact healthcare expenditures for medical services,
including the medical devices used to provide those services. For example, in March 2010, U.S. President Barack Obama signed
the Patient Protection and Affordable Care Act, as amended by the Health Care and Education Reconciliation Act, collectively referred
to as the Affordable Care Act. The Affordable Care Act made a number of substantial changes in the way health care is financed
by both governmental and private insurers and the way that Medicare providers are reimbursed. Among other things, the Affordable
Care Act requires certain medical device manufacturers and importers to pay an excise tax equal to 2.3% of the price for which
such medical devices are sold, beginning January 1, 2013.
In
addition, other legislative changes have been proposed and adopted since the Affordable Care Act was enacted. On August 2,
2011, the President signed into law the Budget Control Act of 2011, which, among other things, created the Joint Select Committee
on Deficit Reduction to recommend to Congress proposals in spending reductions. The Joint Select Committee did not achieve a targeted
deficit reduction of at least $1.2 trillion for the years 2013 through 2021, triggering the legislation’s automatic reduction
to several government programs. This includes reductions to Medicare payments to providers of 2.0% per fiscal year. On January 2,
2013, President Obama signed into law the American Taxpayer Relief Act of 2012, or the ATRA, which delayed for another two months
the budget cuts mandated by these sequestration provisions of the Budget Control Act of 2011. On March 1, 2013, the President
signed an executive order implementing sequestration, and on April 1, 2013, the 2% Medicare payment reductions went into effect.
The Bipartisan Budget Act of 2013, enacted on December 26, 2013, extends these cuts to 2023. The ATRA also, among other things,
reduced Medicare payments to several providers, including hospitals, imaging centers, and cancer treatment centers, and increased
the statute of limitations period for the government to recover overpayments to providers from three to five years. In December 2014,
Congress passed an omnibus funding bill (the Consolidated and Further Continuing Appropriations Act, 2015) and a tax extenders
bill, both of which may negatively impact coverage and reimbursement of healthcare items and services. We expect that additional
state and federal healthcare reform measures will be adopted in the future, any of which could limit the amounts that federal and
state governments will pay for healthcare products and services, which could result in reduced demand for our products or additional
pricing pressure. For example, former U.S. President Donald Trump publicly indicated an intent to lower healthcare costs through
various potential initiatives. In addition, former President Trump and other U.S. lawmakers have made statements about potentially
repealing and/or replacing the Affordable Care Act, although specific legislation for such repeal or replacement has not yet been
introduced. While we are unable to predict what changes may ultimately be enacted, to the extent that future changes affect how
our products are paid for and reimbursed by government and private payers our business could be adversely impacted.
Government
and private sector initiatives to limit the growth of health care costs, including price regulation, competitive pricing, coverage
and payment policies, comparative effectiveness reviews of therapies, technology assessments, and managed-care arrangements, are
continuing. Government programs, including Medicare and Medicaid, private health care insurance and managed-care plans have attempted
to control costs by limiting the amount of reimbursement they will pay for particular procedures or treatments, tying reimbursement
to outcomes, and other mechanisms designed to constrain utilization and contain costs, including delivery reforms such as expanded
bundling of services. Hospitals are also seeking to reduce costs through a variety of mechanisms, which may increase price sensitivity
among customers for our products, and adversely affect sales, pricing, and utilization of our products. Some third-party payors
must also approve coverage for new or innovative devices or therapies before they will reimburse health care providers who use
medical devices or therapies. We cannot predict the potential impact of cost-containment trends on future operating results.
We may be subject to federal, state
and foreign healthcare fraud and abuse laws and regulations.
Many federal, state
and foreign healthcare laws and regulations apply to the BGMS business and medical devices. We may be subject to certain federal
and state regulations, including the federal healthcare programs’ Anti-Kickback Law, the federal Health Insurance Portability
and Accountability Act of 1996, and other federal and state false claims laws. The medical device industry has been under heightened
scrutiny as the subject of government investigations and enforcement actions involving manufacturers who allegedly offered unlawful
inducements to potential or existing customers in an attempt to procure their business, including arrangements with physician consultants.
If our operations or arrangements are found to be in violation of such governmental regulations, we may be subject to civil and
criminal penalties, damages, fines, exclusion from the Medicare and Medicaid programs and the curtailment of our operations. All
of these penalties could adversely affect our ability to operate our business and our financial results.
Product liability suits, whether
or not meritorious, could be brought against us due to an alleged defective product or for the misuse of Dario or our potential
future products. These suits could result in expensive and time-consuming litigation, payment of substantial damages, and an increase
in our insurance rates.
If Dario or any of
our future products are defectively designed or manufactured contain defective components or are misused, or if someone claims
any of the foregoing, whether or not meritorious, we may become subject to substantial and costly litigation. Misusing our device
or failing to adhere to the operating guidelines or the device producing inaccurate meter readings could cause significant harm
to patients, including death. In addition, if our operating guidelines are found to be inadequate, we may be subject to liability.
Product liability claims could divert management’s attention from our core business, be expensive to defend and result in
sizable damage awards against us. While we maintain product liability insurance, we may not have sufficient insurance coverage
for all future claims. Any product liability claims brought against us, with or without merit, could increase our product liability
insurance rates or prevent us from securing continuing coverage, could harm our reputation in the industry and could reduce revenue.
Product liability claims in excess of our insurance coverage would be paid out of cash reserves harming our financial condition
and adversely affecting our results of operations.
If we are found to have violated
laws protecting the confidentiality of patient health information, we could be subject to civil or criminal penalties, which could
increase our liabilities and harm our reputation or our business.
Part of our business
plan includes the storage and potential monetization of medical data of users of Dario. There are a number of federal and state
laws protecting the confidentiality of certain patient health information, including patient records, and restricting the use and
disclosure of that protected information. In particular, the U.S. Department of Health and Human Services promulgated patient
privacy rules under the Health Insurance Portability and Accountability Act of 1996 (which we refer to as HIPAA). These privacy
rules protect medical records and other personal health information by limiting their use and disclosure, giving individuals
the right to access, amend and seek accounting of their own health information and limiting most use and disclosures of health
information to the minimum amount reasonably necessary to accomplish the intended purpose. We may face difficulties in holding
such information in compliance with applicable law. If we are found to be in violation of the privacy rules under HIPAA, we
could be subject to civil or criminal penalties, which could increase our liabilities, harm our reputation and have a material
adverse effect on our business, financial condition and results of operations.
Risks Related to Our Intellectual Property
The failure to obtain or maintain
patents, licensing agreements and other intellectual property could materially impact our ability to compete effectively.
In order for our business
to be viable and to compete effectively, we need to develop and maintain, and we will heavily rely on, our proprietary position
with respect to our technologies and intellectual property. We filed a Patent Cooperation Treaty (or PCT) application for a “Fluids
Testing Apparatus and Methods of Use” in May 2011 which incorporates two U.S. provisional applications submitted in
the preceding year. The PCT covers the specific processes related to blood glucose level measurement as well as more general methods
of rapid tests of body fluids and has subsequently been converted into several national phase patent applications. We have also
filed patent applications for other aspects of the Dario Blood Glucose Monitoring Solution. We have also obtained numerous Web
domains.
However, to date, we
have only been issued four patents (three of which were issued in the United States) relating to how the Dario Blood Glucose Monitoring
System draws power from and transmits data to a smartphone via the audio jack port. None of our other patents have been granted
by a patent office. In addition, there are significant risks associated with our actual or proposed intellectual property. The
risks and uncertainties that we face with respect to our pending patent and other proprietary rights principally include the following:
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pending patent applications we have filed or will file may not result in issued patents or may take longer than we expect to result in issued patents;
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we may be subject to interference proceedings;
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we may be subject to opposition proceedings in foreign countries;
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any patents that are issued to us may not provide meaningful protection;
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we may not be able to develop additional proprietary technologies that are patentable;
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other companies may challenge patents licensed or issued to us;
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other companies may have independently developed and/or patented (or may in the future independently develop and patent) similar or alternative technologies, or duplicate our technologies;
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other companies may design their technologies around technologies we have licensed or developed; and
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enforcement of patents is complex, uncertain and very expensive.
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We cannot be certain
that patents will be issued as a result of any of our pending or future applications, or that any of our patents, once issued,
will provide us with adequate protection from competing products. For example, issued patents may be circumvented or challenged,
declared invalid or unenforceable, or narrowed in scope. In addition, since the publication of discoveries in scientific or patent
literature often lags behind actual discoveries, we cannot be certain that we were the first to make our inventions or to file
patent applications covering those inventions.
It is also possible
that others may have or may obtain issued patents that could prevent us from commercializing our products or require us to obtain
licenses requiring the payment of significant fees or royalties in order to enable us to conduct our business. As to those patents
that we have licensed, our rights depend on maintaining our obligations to the licensor under the applicable license agreement,
and we may be unable to do so.
Costly litigation may be necessary
to protect our intellectual property rights and we may be subject to claims alleging the violation of the intellectual property
rights of others.
We may face significant
expense and liability as a result of litigation or other proceedings relating to patents and intellectual property rights of others.
In the event that another party has also filed a patent application or been issued a patent relating to an invention or technology
claimed by us in pending applications, we may be required to participate in an interference proceeding declared by the United States
Patent and Trademark Office to determine priority of invention, which could result in substantial uncertainties and costs for us,
even if the eventual outcome was favorable to us. We, or our licensors, also could be required to participate in interference proceedings
involving issued patents and pending applications of another entity. An adverse outcome in an interference proceeding could require
us to cease using the technology, substantially modify it or to license rights from prevailing third parties.
The cost to us of any
patent litigation or other proceeding relating to our licensed patents or patent applications, even if resolved in our favor, could
be substantial, especially given our early stage of development. Our ability to enforce our patent protection could be limited
by our financial resources and may be subject to lengthy delays. A third party may claim that we are using inventions claimed by
their patents and may go to court to stop us from engaging in our normal operations and activities, such as research, development
and the sale of any future products. Such lawsuits are expensive and would consume significant time and other resources. There
is a risk that a court will decide that we are infringing the third party’s patents and will order us to stop the activities
claimed by the patents. In addition, there is a risk that a court will order us to pay the other party damages for having infringed
their patents.
Moreover, there is
no guarantee that any prevailing patent owner would offer us a license so that we could continue to engage in activities claimed
by the patent, or that such a license if made available to us, could be acquired on commercially acceptable terms. In addition,
third parties may, in the future, assert other intellectual property infringement claims against us with respect to our services,
technologies or other matters.
We have limited foreign intellectual
property rights and may not be able to protect our intellectual property rights throughout the world.
We have limited intellectual
property rights outside the United States. Filing, prosecuting and defending patents on devices in all countries throughout the
world would be prohibitively expensive, and our intellectual property rights in some countries outside the United States can be
less extensive than those in the United States. In addition, the laws of some foreign countries do not protect intellectual property
to the same extent as laws in the United States. Consequently, we may not be able to prevent third parties from practicing our
inventions in all countries outside the United States, or from selling or importing products made using our inventions in and into
the United States or other jurisdictions. Competitors may use our technologies in jurisdictions where we have not obtained patents
to develop their own products and further, may export otherwise infringing products to territories where we have patents, but enforcement
is not as strong as that in the United States.
Many companies have
encountered significant problems in protecting and defending intellectual property in foreign jurisdictions. The legal systems
of certain countries, particularly China and certain other developing countries, do not favor the enforcement of patents, trade
secrets and other intellectual property, particularly those relating to medical devices and biopharmaceutical products, which could
make it difficult for us to stop the infringement of our patents or marketing of competing products in violation of our proprietary
rights generally. To date, we have not sought to enforce any issued patents in these foreign jurisdictions. Proceedings to enforce
our patent rights in foreign jurisdictions could result in substantial costs and divert our efforts and attention from other aspects
of our business could put our patents at risk of being invalidated or interpreted narrowly and our patent applications at risk
of not issuing and could provoke third parties to assert claims against us. We may not prevail in any lawsuits that we initiate
and the damages or other remedies awarded, if any, may not be commercially meaningful. The requirements for patentability may differ
in certain countries, particularly developing countries. Certain countries in Europe and developing countries, including China
and India, have compulsory licensing laws under which a patent owner may be compelled to grant licenses to third parties. In those
countries, we and our licensors may have limited remedies if patents are infringed or if we or our licensors are compelled to grant
a license to a third party, which could materially diminish the value of those patents. This could limit our potential revenue
opportunities. Accordingly, our efforts to enforce our intellectual property rights around the world may be inadequate to obtain
a significant commercial advantage from the intellectual property that we develop or license.
We rely on confidentiality agreements
that could be breached and may be difficult to enforce, which could result in third parties using our intellectual property to
compete against us.
Although we believe
that we take reasonable steps to protect our intellectual property, including the use of agreements relating to the non-disclosure
of confidential information to third parties, as well as agreements that purport to require the disclosure and assignment to us
of the rights to the ideas, developments, discoveries and inventions of our employees and consultants while we employ them, the
agreements can be difficult and costly to enforce. Although we seek to enter into these types of agreements with our contractors,
consultants, advisors and research collaborators, to the extent that employees and consultants utilize or independently develop
intellectual property in connection with any of our projects, disputes may arise as to the intellectual property rights associated
with our technology. If a dispute arises, a court may determine that the right belongs to a third party. In addition, enforcement
of our rights can be costly and unpredictable. We also rely on trade secrets and proprietary know-how that we seek to protect in
part by confidentiality agreements with our employees, contractors, consultants, advisors or others. Despite the protective measures
we employ, we still face the risk that:
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these agreements may be breached;
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these agreements may not provide adequate remedies for the applicable type of breach;
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our proprietary know-how will otherwise become known; or
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our competitors will independently develop similar technology or proprietary information.
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We may be subject to claims challenging
the inventorship of our patents and other intellectual property.
We may be subject to
claims that former employees, collaborators or other third parties have an interest in our patents or other intellectual property
as an inventor or co-inventor. For example, we may have inventorship disputes arise from conflicting obligations of consultants
or others who are involved in developing our product candidates. Litigation may be necessary to defend against these and other
claims challenging inventorship. If we fail in defending any such claims, in addition to paying monetary damages, we may lose valuable
intellectual property rights, such as exclusive ownership of, or right to use, valuable intellectual property. Such an outcome
could have a material adverse effect on our business. Even if we are successful in defending against such claims, litigation could
result in substantial costs and be a distraction to management and other employees. In addition, the Israeli Supreme Court ruled
in 2012 that an employee who receives a patent or contributes to an invention during his employment may be allowed to seek compensation
for such contributions from his or her employer, even if the employee’s contract of employment specifically states otherwise
and the employee has transferred all intellectual property rights to the employer. The Israeli Supreme Court ruled that the fact
that a contract revokes an employee’s right for royalties and compensation, does not rule out the right of the employee
to claim their right for royalties. As a result, it is unclear whether and, if so, to what extent our employees may be able to
claim compensation with respect to our future revenue. We may receive less revenue from future products if any of our employees
successfully claim for compensation for their work in developing our intellectual property, which in turn could impact our future
profitability.
Risks Related to Our Industry
We face intense competition in the
digital support solution and the self-monitoring of blood glucose market, and as a result we may be unable to effectively compete
in our industry.
In recent years, a
number of digitally supported solutions have emerged to manage diabetes and other chronic conditions. Competitors are developing
new technologies rapidly and, in some cases, are also expanding to manage other chronic conditions. With our first product, Dario,
we compete directly and primarily with large pharmaceutical and medical device companies such as Abbott Laboratories, Asensia (formerly
Bayer Diabetes Care), Johnson & Johnson LifeScan, Roche Diagnostics and Sanofi. The first four of these companies has
a combined majority market share of the BGMS business and strong research and development capacity for next-generation products.
Their dominant market position since the late 1990s, and significant control over the market could significantly limit our ability
to introduce Dario or effectively market and generate sales of the product. We will also compete with numerous second-tier and
third-tier competitors.
In addition, we only
recently transformed our business to primarily focus on the sale of our digital support solution, which joins a crowded field of
competitors such as Amazon, Apple and Google. Our competitors vary by intervention (devices, applications, coaching and analytics),
by channel (health plan, pharma, provider, employer) and by condition (including, for example, diabetes, MSK, blood hypertension,
and others). Certain of our competitors offer this integrated approach in varying degrees, including, among others, , Hinge Health, Inc.,
Livongo Health Inc. (acquired by Teladoc Health Inc.), Omada Health, Inc., Vida Health, Inc., Virta Health Corp., Informed
Data Systems Inc. (OneDrop), Glooko, Inc., and OnDuo LLC .
We only recently commenced
sales of our products, and most of our competitors have long histories and strong reputations within the industry. They have significantly
greater brand recognition, financial and human resources than we do. They also have more experience and capabilities in researching
and developing testing devices, obtaining and maintaining regulatory clearances and other requirements, manufacturing and marketing
those products than we do. There is a significant risk that we may be unable to overcome the advantages held by our competition,
and our inability to do so could lead to the failure of our business and the loss of your investment.
Competition in the
digitally supported solutions market and BGMS market is extremely intense, which can lead to, among other things, price reductions,
longer selling cycles, lower product margins, loss of market share and additional working capital requirements. To succeed, we
must, among other critical matters, gain consumer acceptance for Dario and potential future devices incorporating our principal
technology and offer better strategic concepts, technical solutions, prices and response time, or a combination of these factors,
than those of other competitors. If our competitors offer significant discounts on certain products, we may need to lower our prices
or offer other favorable terms in order to compete successfully. Moreover, any broad-based changes to our prices and pricing policies
could make it difficult to generate revenues or cause our revenues, if established, to decline. Some of our competitors may bundle
certain software products offering competing applications for diabetes management at low prices for promotional purposes or as
a long-term pricing strategy. These practices could significantly reduce demand for Dario or potential future products or constrain
prices we can charge. Moreover, if our competitors develop and commercialize products that are more effective or desirable than
Dario or the other products that we may develop, we may not convince our customers to use our products. Any such changes would
likely reduce our commercial opportunity and revenue potential and could materially adversely impact our operating results.
If we fail to respond quickly to
technological developments our products may become uncompetitive and obsolete.
The BGMS market and
other markets in which we plan to compete experience rapid technological developments, changes in industry standards, changes in
customer requirements and frequent new product introductions and improvements. If we are unable to respond quickly to these developments,
we may lose competitive position, and Dario or any other device or technology may become uncompetitive or obsolete, causing revenues
and operating results to suffer. In order to compete, we must develop or acquire new devices and improve our existing device on
a schedule that keeps pace with technological developments and the requirements for products addressing a broad spectrum and designers
and designer expertise in our industries. We must also be able to support a range of changing customer preferences. For instance,
as non-invasive technologies become more readily available in the market, we may be required to adopt our platform to accommodate
the use of non-invasive or continuous blood glucose sensors. We cannot guarantee that we will be successful in any manner in these
efforts.
If
third-party payors do not provide adequate coverage and reimbursement for the use of our products and
services, our revenue will be negatively impacted.
In
the United States and other jurisdictions such as Germany and England, we expect that our products and services should generally
be available for full or partial patient reimbursement by third-party payers. Our success in marketing our services depend
and will depend in large part on whether U.S. and international government health administrative authorities, private health insurers
and other organizations adequately cover and reimburse customers for the cost of our products and services.
In
the United States, we expect to derive nearly all our sales from sales directly to consumers as well as retail pharmacy and DME
distributors who typically bill various third-party payors, including Medicare, Medicaid, private commercial insurance companies,
health maintenance organizations, health plans and other healthcare-related organizations, to cover all or a portion of the costs
and fees associated with our products and services and bill patients for any applicable deductibles or co-payments. Access to adequate
coverage and reimbursement for Center for Medicare and Medicaid Services (CMS) procedures using our products and services (and
our other products and services in development) by third-party payors is essential to the acceptance of our products by our customers.
Third-party
payors, whether foreign or domestic, or governmental or commercial, are developing increasingly sophisticated methods of controlling
healthcare costs. In addition, in the United States, no uniform policy of coverage and reimbursement for medical device products
and services exists among third-party payors. Therefore, coverage and reimbursement for medical device products and services can
differ significantly from payor to payor. In addition, payors continually review new technologies for possible coverage and can,
without notice, deny coverage for these new products and procedures. As a result, the coverage determination process is often a
time-consuming and costly process that will require us to provide scientific and clinical support for the use of our products to
each payor separately, with no assurance that coverage and adequate reimbursement will be obtained, or maintained if obtained.
Reimbursement
systems in international markets vary significantly by country and by region within some countries, and reimbursement approvals
must be obtained on a country-by-country basis. In many international markets, a product must be approved for reimbursement before
it can be approved for sale in that country. Further, many international markets have government-managed healthcare systems that
control reimbursement for new devices and procedures. For example, the government healthcare system in the Netherlands, New Zealand
and Israel have not yet approved reimbursement of Dario. In most markets, there are private insurance systems as well as government-managed
systems. If sufficient coverage and reimbursement are not available for our current or future products, in either the United States
or internationally, the demand for our products and our revenues will be adversely affected.
Risks Related to Our Operations in Israel
Potential political, economic and
military instability in the State of Israel, where our management team and our research and development facilities are located,
may adversely affect our results of operations.
Our operating subsidiary,
along with our management team and our research and development facilities, is located in Israel. Accordingly, political, economic
and military conditions in Israel and the surrounding region may directly affect our business and operations. Since the establishment
of the State of Israel in 1948, a number of armed conflicts have taken place between Israel and its neighboring countries. Any
hostilities involving Israel or the interruption or curtailment of trade between Israel and its trading partners could adversely
affect our operations and results of operations. The hostilities involved missile strikes against civilian targets in various parts
of Israel, including areas in which our employees and some of our consultants are located, and negatively affected business conditions
in Israel. Our offices, located in Caesarea, Israel, are within the range of the missiles and rockets that have been fired
at Israeli cities and towns from Gaza sporadically since 2006, with escalations in violence (such as the recent escalation in July 2014)
during which there were a substantially larger number of rocket and missile attacks aimed at Israel. In addition, since February 2011,
Egypt has experienced political turbulence and an increase in terrorist activity in the Sinai Peninsula. Such political turbulence
and violence may damage peaceful and diplomatic relations between Israel and Egypt, and could affect the region as a whole. Similar
civil unrest and political turbulence has occurred in other countries in the region, including Syria which shares a common border
with Israel, and is affecting the political stability of those countries. This instability and any outside intervention may lead
to deterioration of the political and economic relationships that exist between the State of Israel and some of these countries,
and may have the potential for causing additional conflicts in the region. In addition, Iran has threatened to attack Israel
and is widely believed to be developing nuclear weapons. Iran is also believed to have a strong influence among extremist groups
in the region, such as Hamas in Gaza, Hezbollah in Lebanon, and various rebel militia groups in Syria. Additionally, a violent
jihadist group named Islamic State of Iraq and Levant (ISIL) is involved in hostilities in Iraq and Syria and have been growing
in influence. Although ISIL’s activities have not directly affected the political and economic conditions in Israel, ISIL’s
stated purpose is to take control of the Middle East, including Israel. These situations may potentially escalate in the future
to more violent events which may affect Israel and us. Any armed conflicts, terrorist activities or political instability in the
region could adversely affect business conditions and could harm our results of operations and could make it more difficult for
us to raise capital. Parties with whom we do business may decline to travel to Israel during periods of heightened unrest or tension,
forcing us to make alternative arrangements when necessary in order to meet our business partners face to face. In addition, the
political and security situation in Israel may result in parties with whom we have agreements involving performance in Israel claiming
that they are not obligated to perform their commitments under those agreements pursuant to force majeure provisions in such agreements.
Further, in the past, the State of Israel and Israeli companies have been subjected to economic boycotts. Several countries still
restrict business 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 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, the State
of Israel and Israeli companies have been subjected to an economic boycott. Several countries still restrict business 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 Israeli citizens to perform military service.
Many Israeli citizens
are obligated to perform several days, and in some cases more, of annual military reserve duty each year until they reach the age
of 40 (or older, for reservists who are military officers or who have certain occupations) and, in the event of a military conflict,
may be called to active duty. In response to increases in terrorist activity, there have been periods of significant call-ups of
military reservists. It is possible that there will be military reserve duty call-ups in the future. Our operations could be disrupted
by such call-ups, which may include the call-up of members of our management. Such disruption could materially adversely affect
our business, financial condition and results of operations.
Investors may have difficulties enforcing
a U.S. judgment, including judgments based upon the civil liability provisions of the U.S. federal securities laws, against us,
or our executive officers and directors or asserting U.S. securities laws claims in Israel.
Certain of our directors
and officers are not residents of the United States and whose assets may be located outside the United States. Service of process
upon us or our non-U.S. resident directors and officers and enforcement of judgments obtained in the United States against us or
our non-U.S. our directors and executive officers may be difficult to obtain within the United States. We have been informed by
our legal counsel in Israel that it may be difficult to assert claims under U.S. securities laws in original actions instituted
in Israel or obtain a judgment based on the civil liability provisions of U.S. federal securities laws. Israeli courts may refuse
to hear a claim based on a violation of U.S. securities laws against us or our officers and directors because Israel may not be
the most appropriate forum to bring such a claim. In addition, even if an Israeli court agrees to hear a claim, it may determine
that Israeli law and not U.S. law is applicable to the claim. If U.S. law is found to be applicable, the content of applicable
U.S. law must be proved as a fact, which can be a time-consuming and costly process. Certain matters of procedure will also be
governed by Israeli law. There is little binding case law in Israel addressing the matters described above. Israeli courts might
not enforce judgments rendered outside Israel, which may make it difficult to collect on judgments rendered against us or our officers
and directors.
Moreover, among other
reasons, including but not limited to, fraud or absence of due process, or the existence of a judgment which is at variance with
another judgment that was given in the same matter if a suit in the same matter between the same parties was pending before a court
or tribunal in Israel, an Israeli court will not enforce a foreign judgment if it was given in a state whose laws do not provide
for the enforcement of judgments of Israeli courts (subject to exceptional cases) or if its enforcement is likely to prejudice
the sovereignty or security of the State of Israel.
Risks Related to the Ownership of Our
Common Stock and Warrants
Our officers, directors and founding
stockholders may exert significant influence over our affairs, including the outcome of matters requiring stockholder approval.
As of the date of this
Annual Report, our officers, directors and affiliated stockholders collectively have a beneficial ownership interest of approximately
19.8% of our Company. As a result, such individuals will have the ability, acting together, to control the election of our directors
and the outcome of corporate actions requiring stockholder approval, such as: (i) a merger or a sale of our company, (ii) a
sale of all or substantially all of our assets, and (iii) amendments to our certificate of incorporation and bylaws. This
concentration of voting power and control could have a significant effect in delaying, deferring or preventing an action that might
otherwise be beneficial to our other stockholders and be disadvantageous to our stockholders with interests different from those
individuals. Certain of these individuals also have significant control over our business, policies and affairs as officers or
directors of our company. Therefore, you should not invest in reliance on your ability to have any control over our company.
Our common stock has less liquidity
than many other stocks listed on the Nasdaq Capital Market.
Historically, the trading
volume of our common stock has been relatively low when compared to larger companies listed on the Nasdaq Capital Market or other
stock exchanges. While we have experienced increased liquidity in our stock during the year ended December 31, 2020, we cannot
say with certainty that a more active and liquid trading market for our common stock will continue to develop. Because of this,
it may be more difficult for shareholders to sell a substantial number of shares for the same price at which shareholders could
sell a smaller number of shares.
If securities or industry analysts
do not publish or cease publishing research or reports about us, our business or our market, or if they change their recommendations
regarding our common stock or warrants adversely, the price of our common stock or warrants and trading volume could decline.
The trading market
for our common stock or warrants may be influenced by the research and reports that securities or industry analysts may publish
about us, our business, our market or our competitors. If any of the analysts who may cover us change their recommendation regarding
our common stock or warrants adversely, or provide more favorable relative recommendations about our competitors, the price of
our common stock or warrants would likely decline. If any analyst who may cover us were to cease coverage of our company or fail
to regularly publish reports on us, we could lose visibility in the financial markets, which in turn could cause the price of our
common stock or warrants or trading volume to decline.
The market price of our common stock
and warrants may be significantly volatile.
The market price for
our common stock and warrants may be significantly volatile and subject to wide fluctuations in response to factors including the
following:
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actual or anticipated fluctuations in our quarterly or annual operating results;
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changes in financial or operational estimates or projections;
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conditions in markets generally;
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changes in the economic performance or market valuations of companies similar to ours; and
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general economic or political conditions in the United States or elsewhere.
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In particular, the
market prices for securities of mHealth and medical device have historically been particularly volatile. Some of the factors that
may cause the market price of our common stock and warrants to fluctuate include:
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any delay in or the results of our clinical trials;
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any delay in manufacturing of our products;
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any delay with the approval for reimbursement for the patients from their insurance companies;
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our failure to comply with regulatory requirements;
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the announcements of clinical trial data, and the investment community’s perception of and reaction to those data;
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the results of clinical trials conducted by others on products that would compete with ours;
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any delay or failure to receive clearance or approval from regulatory agencies or bodies;
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our inability to commercially launch products or market and generate sales of our products, including Dario;
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failure of Dario or any other products, even if approved for marketing, to achieve any level of commercial success;
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our failure to obtain patent protection for any of our technologies and products (including those related to Dario) or the issuance of third-party patents that cover our proposed technologies or products;
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developments or disputes concerning our product’s intellectual property rights;
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our or our competitors’ technological innovations;
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general and industry-specific economic conditions that may affect our expenditures;
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changes in market valuations of similar companies;
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announcements by us or our competitors of significant contracts, acquisitions, strategic partnerships, joint ventures, capital commitments, new technologies, or patents;
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future sales of our common stock or other securities, including shares issuable upon the exercise of outstanding warrants or otherwise issued pursuant to certain contractual rights;
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period-to-period fluctuations in our financial results; and
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low or high trading volume of our common stock due to many factors, including the terms of our financing arrangements.
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In addition, if we
fail to reach important research, development or commercialization milestone or result by a publicly expected deadline, even if
by only a small margin, there could be a significant impact on the market price of our common stock and warrants. Additionally,
as we approach the announcement of anticipated significant information and as we announce such information, we expect the price
of our common stock and warrants to be particularly volatile, and negative results would have a substantial negative impact on
the price of our common stock and warrants.
In some cases, following
periods of volatility in the market price of a company’s securities, stockholders have often instituted class action securities
litigation against those companies. Such litigation, if instituted, could result in substantial costs and diversion of management
attention and resources, which could significantly harm our business operations and reputation.
Shares eligible for future sale may
adversely affect the market for our common stock and warrants.
From time to time,
certain of our stockholders may be eligible to sell all or some of their shares of common stock by means of ordinary brokerage
transactions in the open market pursuant to Rule 144, promulgated under the Securities Act, subject to certain limitations.
In general, pursuant to Rule 144, after satisfying a six month holding period: (i) affiliated stockholder (or stockholders
whose shares are aggregated) may, under certain circumstances, sell within any three month period a number of securities which
does not exceed the greater of 1% of the then outstanding shares of common stock or the average weekly trading volume of the class
during the four calendar weeks prior to such sale and (ii) non-affiliated stockholders may sell without such limitations,
provided we are current in our public reporting obligations. Rule 144 also permits the sale of securities by non-affiliates
that have satisfied a one year holding period without any limitation or restriction. Any substantial sale of our common stock pursuant
to Rule 144 or pursuant to any resale report may have a material adverse effect on the market price of our securities.
Our compliance with complicated U.S.
regulations concerning corporate governance and public disclosure is expensive. Moreover, our ability to comply with all applicable
laws, rules and regulations is uncertain given our management’s relative inexperience with operating U.S. public companies.
As a publicly reporting
company, we are faced with expensive and complicated and evolving disclosure, governance and compliance laws, regulations and standards
relating to corporate governance and public disclosure, including the Sarbanes-Oxley Act and the Dodd-Frank Act, and, to the extent
we complete our anticipated public offering, the rules of the Nasdaq Stock Market. New or changing laws, regulations and standards
are subject to varying interpretations in many cases due to their lack of specificity, and, as a result, their application in practice
may evolve over time as new guidance is provided by regulatory and governing bodies, which could result in continuing uncertainty
regarding compliance matters and higher costs necessitated by ongoing revisions to disclosure and governance practices. As a result,
our efforts to comply with evolving laws, regulations and standards of a U.S. public company are likely to continue to result in
increased general and administrative expenses and a diversion of management time and attention from revenue-generating activities
to compliance activities.
Moreover, our executive
officers have little experience in operating a U.S. public company, which makes our ability to comply with applicable laws, rules and
regulations uncertain. Our failure to company with all laws, rules and regulations applicable to U.S. public companies could
subject us or our management to regulatory scrutiny or sanction, which could harm our reputation and stock price.
If we fail to maintain effective
internal control over financial reporting, the price of our common stock may be adversely affected.
Our internal control
over financial reporting may have weaknesses and conditions that could require correction or remediation, the disclosure of which
may have an adverse impact on the price of our common stock. We are required to establish and maintain appropriate internal
control over financial reporting. Failure to establish those controls, or any failure of those controls once established,
could adversely affect our public disclosures regarding our business, prospects, financial condition or results of operations.
In addition, management’s assessment of internal control over financial reporting may identify weaknesses and conditions
that need to be addressed in our internal control over financial reporting or other matters that may raise concerns for investors.
Any actual or perceived weaknesses and conditions that need to be addressed in our internal control over financial reporting or
disclosure of management’s assessment of our internal control over financial reporting may have an adverse impact on the
price of our common stock.
Anti-takeover provisions in our charter
documents and Delaware law could discourage, delay or prevent a change in control of our company and may affect the trading price
of our common stock and warrants.
We are a Delaware corporation
and the anti-takeover provisions of the Delaware General Corporation Law may discourage, delay or prevent a change in control by
prohibiting us from engaging in a business combination with an interested stockholder for a period of three years after the person
becomes an interested stockholder, even if a change in control would be beneficial to our existing stockholders. In addition, our
certificate of incorporation and bylaws may discourage, delay or prevent a change in our management or control over us that stockholders
may consider favorable. Our certificate of incorporation and bylaws:
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authorize the issuance of “blank check” preferred stock that could be issued by our Board of Directors to thwart a takeover attempt;
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provide that vacancies on our Board of Directors, including newly created directorships, may be filled only by a majority vote of directors then in office;
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provide that special meetings of stockholders may only be called by our Chairman, Chief Executive Officer and/or President or other executive officer, our Board of Directors or a super-majority (66 2/3%) of our stockholders;
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place restrictive requirements (including advance notification of stockholder nominations and proposals) on how special meetings of stockholders may be called by our stockholders;
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do not provide stockholders with the ability to cumulate their votes; and
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provide that our Board of Directors or a super-majority of our stockholders (66 2/3%) may amend our bylaws.
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We do not currently intend to pay
dividends on our common stock in the foreseeable future, and consequently, your ability to achieve a return on your investment
will depend on appreciation in the price of our common stock.
We have never declared
or paid cash dividends on our common stock and do not anticipate paying any cash dividends to holders of our common stock in the
foreseeable future. Consequently, investors must rely on sales of their common stock after price appreciation, which may never
occur, as the only way to realize any future gains on their investments. There is no guarantee that shares of our common stock
will appreciate in value or even maintain the price at which our stockholders have purchased their shares.