ITEM 1. B
USINESS
Cautionary
Note Regarding Forward-Looking Statements
This
Annual Report on Form 10-K contains “forward-looking statements,” which include information relating to future events,
future financial performance, financial projections, strategies, expectations, competitive environment and regulation. Words such
as “may,” “should,” “could,” “would,” “predicts,” “potential,”
“continue,” “expects,” “anticipates,” “future,” “intends,” “plans,”
“believes,” “estimates,” and similar expressions, as well as statements in future tense, identify forward-looking
statements. Forward-looking statements should not be read as a guarantee of future performance or results and may not be accurate
indications of when such performance or results will be achieved. Forward-looking statements are based on information we have
when those statements are made or management’s good faith belief as of that time with respect to future events, and are
subject to risks and uncertainties that could cause actual performance or results to differ materially from those expressed in
or suggested by the forward-looking statements. Important factors that could cause such differences include, but are not limited
to:
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Our
ability to continue as a going concern.
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The
delisting of our common stock from the NASDAQ Capital Market.
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The
timing of clinical studies and eventual U.S. Food and Drug Administration approval of
our product candidates.
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Regulatory
actions that could adversely affect the price of or demand for our approved products.
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Market
acceptance of existing and new products.
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Favorable
or unfavorable decisions about our products from government regulators, insurance companies
or other third-party payers.
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Our
intellectual property portfolio.
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Our
ability to recruit and retain qualified regulatory and research and development personnel.
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Unforeseen
changes in healthcare reimbursement for any of our approved products.
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Lack
of financial resources to adequately support our operations.
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Difficulties
in maintaining commercial scale manufacturing capacity and capability.
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Our
ability to generate internal growth.
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Changes
in our relationship with key collaborators.
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Changes
in the market valuation or earnings of our competitors or companies viewed as similar
to us.
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Our
failure to comply with regulatory guidelines.
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Uncertainty
in industry demand and patient wellness behavior.
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General
economic conditions and market conditions in the medical device industry.
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Future
sales of large blocks of our common stock, which may adversely impact our stock price.
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Depth
of the trading market in our common stock.
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The
foregoing does not represent an exhaustive list of matters that may be covered by the forward-looking statements contained herein
or risk factors that we are faced with that may cause our actual results to differ from those anticipated in our forward-looking
statements. Please see “Item 1A. Risk Factors” for additional risks which could adversely impact our business and
financial performance. Moreover, new risks regularly emerge and it is not possible for us to predict or articulate all risks we
face, nor can we assess the impact of all risks on our business or the extent to which any risk, or combination of risks, may
cause actual results to differ from those contained in any forward-looking statements. All forward-looking statements included
in this Form 10-K are based on information available to us on the date hereof. Except to the extent required by applicable laws
or rules, we undertake no obligation to publicly update or revise any forward-looking statement, whether as a result of new information,
future events or otherwise.
Unless
the context otherwise indicates or requires, the terms “we,” “our,” “us,” “NanoVibronix,”
and the “Company,” as used in this Annual Report on Form 10-K, refer to NanoVibronix, Inc. and its subsidiaries as
a combined entity, except where otherwise stated or where it is clear that the terms mean only NanoVibronix, Inc. exclusive of
its subsidiaries.
Overview
We were organized as a Delaware corporation
in October 2003. Through our wholly-owned subsidiary, NanoVibronix Ltd., a private company incorporated under the laws of the State
of Israel, we focus on noninvasive biological response-activating devices that target biofilm prevention, wound healing and pain
therapy and can be administered at home, without the assistance of medical professionals. Our primary products, which are in various
stages of clinical and market development, currently consist of:
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UroShield™, an ultrasound-based product that is designed to prevent bacterial colonization and biofilm in urinary catheters, increase antibiotic efficacy and decrease pain and discomfort associated with urinary catheter use.
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PainShield™, a patch-based therapeutic ultrasound technology to treat pain, muscle spasm and joint contractures by delivering a localized ultrasound effect to treat pain and induce soft tissue healing in a targeted area; and
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WoundShield™, a patch-based therapeutic ultrasound device intended to facilitate tissue regeneration and wound healing by using ultrasound to increase local capillary perfusion and tissue oxygenation.
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Each of our PainShield, UroShield, and WoundShield
products employs a small, disposable transducer that transmits low frequency, low intensity ultrasound acoustic waves that seek
to repair and regenerate tissue, musculoskeletal and vascular structures, and decrease biofilm formation on urinary catheters and
associated urinary tract infections. Through their size, effectiveness and ease of use, these products are intended to eliminate
the need for technicians and medical personnel to manually administer ultrasound treatment through large transducers, thereby promoting
patient independence and enabling more cost-effective home-based care.
PainShield is currently cleared
for marketing in the United States by the U.S. Food and Drug Administration although to date there has not been a significant
sales and marketing effort. All three of our products have CE Mark approval in the European Union, and a certificate allowing
us to sell PainShield, UroShield and WoundShield in Israel. We are able to sell PainShield, UroShield and WoundShield in
India and Ecuador based on our CE Mark. We have consummated sales of PainShield and UroShield in the relevant markets,
although to date sales have been minimal; WoundShield has not generated significant revenue to date. Outside of the United
States we generally apply, through our distributor, for approval in a particular country for a particular product only when
we have a distributor in place with respect to such product.
In the United States, PainShield requires
a prescription from a licensed healthcare practitioner. If U.S. Food and Drug Administration clearance is obtained, we anticipate
that WoundShield and UroShield will require a prescription from a licensed healthcare practitioner in the United States. We anticipate
that UroShield will be sold directly to health care facilities and therefore will not require a prescription for these venues.
However, in other countries in which we sell PainShield, UroShield, and WoundShield, such products are eligible for sale without
a prescription. We are working toward a new PainShield 510(k) submission which would potentially remove the requirement
for a prescription.
In addition to the need to obtain regulatory
approvals, we anticipate that sales volumes and prices of our UroShield, PainShield, and WoundShield products will depend in large
part on the availability of insurance coverage and reimbursement from third party payers. Third party payers include governmental
programs such as Medicare and Medicaid in the United States, private insurance plans and workers’ compensation plans. We
do not currently have reimbursement codes for use of WoundShield in any of the markets in which we have regulatory authority to
sell WoundShield. Of the markets in which we have regulatory authority to sell PainShield, we have reimbursement codes in the United
States (i.e., CPT codes) for clinical use only, but do not have such reimbursement codes for at-home use of the product, although
the product is marketed and sold for such use. With respect to UroShield, which may be used in a clinical and home setting, we
do not currently have reimbursement codes in any of the markets in which we have regulatory authority to sell UroShield. We anticipate
that we will begin to seek reimbursement codes for use of our products in the markets in which we have regulatory authority to
sell such products; however, additional clinical data will be required in order to obtain such reimbursement codes. Our current
ongoing research and planned research may facilitate our ability to obtain reimbursement codes and there is no guarantee that we
will be successful in obtaining such codes quickly, or at all. We have engaged a reimbursement expert, Redemption Revenue Cycle Solutions, LLC, to help facilitate private
insurance reimbursement.
We
have completed six separate clinical studies with UroShield that together evaluated approximately 194 patients with
urinary catheters. In patients where the UroShield product was used there were no serious adverse events reported, while a
variety of clinical beneficial observations were seen including: catheter biofilm reduction, reduction in catheter associated
pain, reduction in urinary tract infections, and a significant decrease in bacteriuria rates. We recently completed a double
blind clinical trial for UroShield in the United States. The results of the study, entitled “The Effect of Surface
Acoustic Waves on Bacterial Load and Preventing Catheter-Associated Urinary Tract Infections (CAUTI) in Long Term
Indwelling Catheters,” were published in the December 2018 issue of Medical & Surgical Urology, a peer-reviewed
journal in the field of urology. In the study, 55 patients in a skilled nursing facility chain treated with long term
indwelling catheters were evaluated. There was a significant difference between the treated group and the placebo group in
the number of colony forming units (“CFU”) present upon evaluation, as well as on the number of treated urinary
tract infections (“UTI”), and the effect lasted beyond the time of active treatment. The study concluded that the
UroShield™ device was shown to be effective in significantly reducing the number of CFUs in patients with indwelling
catheters. The study also concluded that the UroShield™ device was shown to be effective in reducing the number of
treated UTIs in this patient population, and surface acoustic waves in the form of the UroShield™ device is an
effective tool in the prevention of catheter-associated UTI and while further evaluation is encouraged, can be safely
utilized with a high likelihood of success. In July 2017, we engaged Idonea Solutions, Inc., an FDA consultant, to assist in
our efforts to obtain 510(K) clearance. If we are successful, we intend to pursue obtaining
reimbursement codes and to target completion of partnerships with leading catheter product companies for sales and marketing
efforts in the United States. The Company has entered into recent distribution partnerships for UroShield in the United
States, U.K., Switzerland, Israel and India.
In addition, we are currently ramping
up our clinical development and marketing efforts in North America with respect to PainShield. In February 2018, we completed
a clinical trial to evaluate the effect of PainShield in patients with trigeminal neuralgia. The double blinded, crossover
trial was conducted across the United States and included 59 patients with a diagnosis of unilateral trigeminal neuralgia.
Among the 59 patients, 30 were in the active treatment group and 29 were in the control group. The values which were assessed
include Visual Analog Scale (“VAS”) pain score, both baseline prior to trial and VAS pain score at the end of the
study. The study also assessed breakthrough medications per week at the start of the trial and breakthrough medications per
week at the end of the trial, with a particular focus on the use of opioids. Breakthrough medications are used for chronic
pain directly related to the pre-existing trigeminal neuralgia condition. There was a significant difference in the outcomes
of the two groups relative to pain, quality of life, and breakthrough medications taken, which was directly correlated to
pain experienced during treatment. Specifically, the control group saw an improvement in baseline scores of 2.3% versus the
treatment group, which saw a 55.2% improvement in baseline scores. Additionally, the control group saw a reduction in
breakthrough pain medication of 1.5% versus the treatment group, which saw a 46.4% reduction in breakthrough pain
medication.
The
Company is beginning a study which is intended to assess the PainShield’s ability to effectively treat Lateral
Epicondylitis (Tennis Elbow). This is a double blinded, randomized control trial. The study in ongoing, but intended to
enroll 24 patients.
The Company has entered into recent distribution partnerships for PainShield in the United States, Israel,
India, Italy, United Kingdom, and Switzerland.
WoundShield has been evaluated in two published
clinical studies done to-date that suggest improved localized blood flow and oxygenation, and improved topical oxygen saturation
(Morykwas M, “Oxygen Therapy with Surface Acoustic Waveform Sonication,” European Wound Management Association 2011;
Covington S, “Ultrasound-Mediated Oxygen Delivery to Lower Extremity Wounds,” Wounds 2012; 24(8))). We supplied devices
for these studies but had no further involvement with them. We are pursuing licensing opportunities to develop commercial markets
for the WoundShield product.
Business Model
All of our products consist of a reusable
controller device and a disposable component, or transducer. The controllers have a life expectancy of up to three years, while
the disposable transducer has a life expectancy of up to a month and must be replaced to provide the intended therapy. The components
are purchased by either the distributor or end user for use in any of the intended applications. Once the controller is purchased
by the end user, recurring revenue will be realized by purchases of replacement transducers to the extent that the end user continues
treatment with our product.
Our products are intended to be distributed both by independent distributors
as well as by potential licensees. Distributor cost is discounted to account for their intended margins, based upon purchase volumes
and/or periodic purchase commitments, with the disposable transducer sold and distributed in the same fashion. We currently have
an established distributor network and are implementing certain criteria within such network to ensure the appropriate assignment
of a distributor or licensee. We also intend to add additional distributors to our network.
Ultrasound Technology and Our Products
As noted above, our primary products are
based on the use of low frequency ultrasound, which delivers energy through mechanical vibrations in the form of sound waves. Ultrasound
has long been used in physical therapy, physical medicine, rehabilitation and sports medicine.
Our proprietary technology consists of a
small, thin (1 millimeter) transducer that is capable of transmitting ultrasonic acoustic waves onto treatment surfaces with a
radius of up to 10 centimeters beyond the transducer. This technology allows us to treat wounds by implanting our transducers into
a small, portable self-adhering acoustic patch, thereby eliminating the need for technicians and medical personnel to manually
administer ultrasound therapy, which should reduce the cost of therapy. Moreover, we believe that, based upon the body of evidence,
the delivery of ultrasound through our portable devices is equal to or more effective than existing competitive products, as our
technology is better positioned to target the affected areas of the body.
While there are currently a number of products
on the market that treat pain through ultrasound therapy, we believe that our products differentiate themselves because they are
portable, without the requirement to be plugged into an outlet and they have a frequency of 100kHz (in contrast to other devices,
which have a frequency of 1MHz), which means our products do not produce heat that can damage tissue. Our products can therefore
(i) be self-administered by the patient without the need to be moved about the treated area by the patient or a clinician, (ii)
be applied for a significantly longer period without the risk of tissue damage and (iii) do not require the use of gel. We are
aware of one competitive product with similar ultrasound technology, the SAM® Sport4 by a company called Zetroz Systems LLC,
aka ZetrOz, Inc. However, it is our belief that this product does not generate surface acoustic waves as our products do, the
treatment area is generally limited to that of the transducer’s diameter, the use of transmission gel is still required
and the transducer thickness is significantly greater than ours (approximately 1.5cm). To our knowledge, the device only provides
a battery life of 4 hours and is continuous therapy versus intermittent therapy. We are also aware of a small clinical study,
for which results were reported in August 2013, in which the SAM® Sport4 showed positive results in the treatment of venous
ulcers, a type of chronic wound.
Research has further shown that ultrasound
therapy has resulted in increased collagen repair (Da Cunha A, Parizotto NA, Vidal BC, “The effect of therapeutic ultrasound
on repair of the achilles tendon (tendo calcaneus) of the rat”, Ultrasound Med. Biol. 2001 December; 27(12):1691-6), improved
resolution of inflammation (Young SR, Dyson M, “Macrophage responsiveness to therapeutic ultrasound”, Ultrasound Med.
Biol. 1990; 16(8):809-16) and increased tissue healing (Young SR, Dyson M, “Effect of therapeutic ultrasound on the healing
of full-thickness excised skin lesions”, Ultrasonics. 1990 May; 28(3):175-80), which are all important factors in the wound
healing process. Furthermore, research has shown that ultrasound therapy can contribute to increased membrane permeability (Sundaram
J, Mellein BR, Mitragotri S, “An experimental and theoretical analysis of ultrasound-induced permeabilization of cell membranes,”
Biophys. J. 2003 May; 84(5):3087-101) and accelerated fibrinolysis, a process that prevents blood clots from growing and becoming
problematic (Harpaz D, “Ultrasound enhancement of thrombolytic therapy: observations and mechanisms”, Int. J. Cardiovasc
Intervent. 2000 June; 3(2):81-89), which collectively improve the tissue regeneration process and healing of wounds. Sonophoresis,
a process that increases the absorption of semisolid topical compounds, including medications, into the skin, is an additional
significant effect of ultrasound therapy (Tezel A, Paliwal S, Shen Z, Mitragotri S, “Low-frequency ultrasound as a transcutaneous
immunization adjuvant”, Vaccine 2005 May 31; 23(29):3800-7).
In general, ultrasound offers the benefits
cited above by increasing local blood circulation, increasing vascular wall permeability, promoting protein secretion, promoting
enzymatic reactions, accelerating nitric oxide production, promoting angiogenesis (the formation of new blood vessels from pre-existing
vessels) and promoting fibroblast proliferation (fibroblasts are a type of cell that play a critical role in wound healing). We
believe that the body of evidence, and the positive therapeutic effect that ultrasound has for various indications, potentially
provides for future product development opportunities for us.
Our proprietary technology consists of
a small, thin (1 millimeter) transducer that is capable of transmitting ultrasonic acoustic waves onto treatment surfaces with
a radius of up to 10 centimeters beyond the transducer. This technology allows us to treat wounds by implanting our transducers
into a small, portable self-adhering acoustic patch, thereby eliminating the need for technicians and medical personnel to manually
administer ultrasound therapy, which should reduce the cost of therapy. Moreover, we believe that, based upon the body of evidence,
the delivery of ultrasound through our portable devices is equal to or more effective than existing competitive products, as our
technology is better positioned to target the affected areas of the body.
While
there are currently a number of products on the market that treat pain through ultrasound therapy, we believe that our products
differentiate themselves because they are portable, without the requirement to be plugged into an outlet and they operate with
a frequency of 100kHz (in contrast to other devices, which have a frequency of 1MHz), which means our products do not produce
heat that can damage tissue. Our products can therefore (i) be self-administered by the patient without the need to be moved about
the treated area by the patient or a clinician, (ii) be applied for a significantly longer period without the risk of tissue damage
and (iii) do not require the use of gel. We are aware of one competitive product with similar ultrasound technology, the SAM®
Sport4 by a company called Zetroz Systems LLC, aka ZetrOz, Inc. However, it is our belief that this product does not generate
surface acoustic waves as our products do, the treatment area is generally limited to that of the transducer’s diameter,
the use of transmission gel is still required and the transducer thickness is significantly greater than ours (approximately 1.5cm).
To our knowledge, the device only provides a battery life of -four hours and is continuous therapy versus intermittent therapy.
We are also aware of a small clinical study, for which results were reported in August 2013, in which the SAM® Sport4 showed
positive results in the treatment of venous ulcers, a type of chronic wound.
Traditional ultrasound device and our
portable ultrasound patch-based device and a comparison of their energy distribution, where the X-axis represents treatment surface
and the Y-axis represents ultrasound energy penetration depth within tissue.
In a comparison of a traditional ultrasound device and our portable
ultrasound patch-based device, the bulk wave conventional ultrasound machines with handheld transducers distribute the energy deeply
into the body, as shown above in diagram (A) on the left. In comparison, our device distributes the energy on the surface, as shown
in diagram (B), thereby meaningfully increasing the treatment area. Our transducers may also be incorporated into treatment patches,
including patches that are designed to deliver medicine and other compounds through the skin. The generation and delivery of low
frequency ultrasound over a period of time to a specific area has been termed “targeted slow-release ultrasound”. We
believe that this delivery method of ultrasound may be comparable to that of slow release medication in the pharmaceutical industry.
This “targeted slow-release” capability is intended to allow for more frequent targeting of the intended treatment
area and thus may result in a more effective therapeutic response.
Micro Vibrations Technology and Our
Products
It is well established that increasing blood flow to the wound
and peri-wound area helps accelerate the healing of ischemic wounds. Micro-vibrations applied on the skin tissue increase local
blood flow and oxygen delivery to the wound area and stimulate angiogenesis and growth factors that are helpful for the wound healing
process. Vibration therapy has been found to stimulate blood flow due to mechanical stresses of endothelial cells resulting in
increased production of nitric oxide and vasodilation, as well as increase soft tissue and skin circulation. (Maloney-Hinds et
al., “The Role of Nitric Oxide in Skin Blood Flow Increases due to vibration in healthy adults and adults with type 2 diabetes,”
School of Medicine, Loma Linda University. Ca. Diabetes Technology & Therapeutics, 2009 p. 39-43). In addition, micro vibrations
induce skin surface nerve axon reflex and type IIa muscle fibers contraction rates, resulting in vasodilation (Nakagami et al.,
“Effect of vibration on skin blood flow in an in vivo microcirculatory model”, The University of Tokyo, Bio-Science
Trends 2007; 1 (3): 161-166). Ten minutes of vibration therapy with laser doppler revealed a consistent increase in water content
of the upper dermis (TJ Ryan et al., “The effect of mechanical forces (vibration or external compression) on the dermal water
content of the upper dermis and epidermis, assessed by high frequency ultrasound”, Oxford Wound Healing Institute, Journal
of Tissue Viability, 2001. In another study, mean blood flow increase was higher in the vibration group than the placebo group.
Improvements in local blood flow may be beneficial in the therapeutic alleviation of pain or other symptoms resulting from acute
or chronic injuries (C. Button et al., “The effect of multidirectional mechanical vibration on peripheral circulation of
humans”, University of Otago New Zealand, Clinical Physiology and functional Imaging, 2007 27, p211-216). A study on the
effect of whole body vibration on lower extremity skin blood flow suggests, that short duration vibration alone significantly increases
lower extremity skin blood flow, doubling skin blood for a minimum of 10 minutes following treatment (Lohman et al., “The
effect of whole body vibration on lower extremity skin blood flow in normal subjects”, Department of Physical Therapy, Loma
Linda university, USA, Med Sci Monit, 2007; 13(2) 71-76). Vibration has also been shown to stimulate angiogenesis and growth factors
such as vascular endothelial growth factor (Suhr F et al., “Effects of short-term vibration and hypoxia during high intensity
cycling exercise on circulating level of angiogenic regulators in humans”, J Appl Physiol, 2007, 103:474-483,. Yue Z. et
al., “On the cardiovascular effects of whole-body vibration I. Longitudinal effects: hydrodynamic analysis”, Studies
Appl Math, 2007, 119:95-109). Of import with respect to diabetic wounds, in which a prolonged inflammatory phase occurs, vibration
vasodilation has generated an indirect anti-inflammatory action, mainly by suppression of nuclear factor-kβ, the key gene
for inflammatory mediators (Sackner, M.A., “Nitric Oxide is released into circulation with whole-body, periodic acceleration”,
Chest 2005;127;30-39).
Urinary catheter usage is associated with
pain and discomfort caused by the friction between the catheter surface and the urethral tissue. Generally, this friction is treated
by applying lubricating gels and low friction catheter coatings. These methods are effective for a short term during the catheter
insertion as the lubricating gel is quickly absorbed into the surrounding tissue and loses its effect and the catheter coatings
lose their lubricity within a few days, as the coating is covered by a thin film of mucous.
Our UroShield product provides vibrations
along the surface of the urinary catheter that is in contact with urethral tissue. We believe that these vibrations create a continuous
acoustic lubrication effect along the surface of the indwelling catheter that is in contact with the surrounding tissue, thus reducing
catheter-tissue contact time, which may lessen trauma from urethra abrasion and adhesion. We have also shown in animals and in
humans that the micro-vibration technology can reduce the level of biofilm formation on urinary catheters.
Our Products
Product Design, Packaging, Identity
All products have been redesigned with
an updated look and improved performance. These new designs were coupled with new branding, packaging, instructional manuals, and
marketing materials.
UroShield
UroShield is intended to prevent bacterial colonization and
biofilm formation, increase antibiotic efficacy in the catheter lumen and decrease pain and discomfort associated with urinary
catheter use. It is designed to be used with any type of indwelling urinary catheter regardless of the material or coating. We
believe that if it is approved for marketing, UroShield could be the first medical device on the market that attempts to simultaneously
address all of the aforementioned catheter-related issues. UroShield is similar in design to WoundShield and PainShield, in that
it uses a driver unit that produces low frequency, low intensity ultrasound. The driver unit connects to a disposable transducer
that is clipped onto the external portion of the catheter to deliver ultrasound therapy to all catheter surfaces as well as the
tissue surrounding the catheter.
Picture of UroShield with actuator
We
believe the UroShield system has the following advantageous effects:
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Prevention or Reduction of Biofilm.
The low frequency ultrasound generated by UroShield has been shown to decrease adherence of bacteria to catheter surfaces, thereby reducing biofilm. Biofilm is the complex matrix required for bacteria to grow and cause infection. See the discussion of our Heidelberg 1 trial below.
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Decreased Catheter Associated Pain and Discomfort.
We believe that UroShield creates an acoustic envelope on the surfaces of the catheter, which decreases friction and tissue trauma, pain and discomfort caused by the catheter. In addition, in vivo (rabbit) studies have shown the tissue in contact with the catheter remains healthier and less traumatized as a result of the application of low frequency and low intensity ultrasound (Applebaum I, et.al., “The Effect of Acoustic Energy Induced By UroShield on Foley Catheter Related Trauma and Inflammation in a Rabbit Model” Department of Urology, Shaarey Zedek Medical Center and the Hadassah Hebrew University Medical School).
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Acoustically Augmented Antibiotic Therapy.
Antibiotic resistance in biofilm bacteria is a well-known phenomenon. Although it has been known that ultrasound can increase antibiotic efficacy in in-vitro models, we do not believe that there has been a practical ultrasound-based medical device that was able to augment antibiotic efficacy in the clinical setting. In a clinical study, UroShield technology has been shown to eradicate biofilm-residing bacteria by greater than 85% when applied simultaneously with an antibiotic in three clinically relevant species, escherichia coli, staphylococcus epidermidis and pseudomonas aeruginosa (Banin E, et al., “Surface acoustic waves increase the susceptibility of Pseudomonas aeruginosa biofilms to antibiotic treatment,” Biofouling, August 2011; we supplied devices for this study, but had no further involvement with it).
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Preservation of the Patency of Catheters.
We believe that low frequency ultrasound applied to catheters will add an anti-clogging effect and will preserve patency of catheters. This effect is achieved by ultrasound waves creating an acoustic layer on the inner lumen of the urinary catheter, thereby preventing adherence of biological material and biofilm formation. We believe that this anti-clogging benefit will help prevent local infection and sepsis secondary to catheter obstruction.
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UroShield has undergone a number of clinical trials. The Heidelberg
1 trial, which we sponsored, was a 22 patient randomized, double blind, sham-controlled, independent trial that tested UroShield’s
safety and ability to prevent biofilm in patients with an indwelling Foley catheter. The trial demonstrated that UroShield prevented
biofilm in all patients with the active device as compared to biofilm being found in seven of eleven of the control patients. In
addition, there was a marked decrease in pain, discomfort and spasm in the active UroShield patients, as evidenced by a statistically
significant decrease in the requirement for the medications required to treat urinary catheter associated pain and discomfort (Ikinger
U, “Biofilm Prevention by Surface Acoustic Nanowaves: A New Approach to Urinary Tract Infections?,” 25th World Congress
of Endourology and SWL, Cancun, Mexico, October 2007).
In a subsequent physician-sponsored trial known as Heidelberg
2, 40 patients who underwent radical prostatectomies were divided into two groups, with the active group receiving one intra-operative
dose of antibiotics and UroShield and the control group receiving one intra-operative dose of antibiotics and then five subsequent
doses over three days. At the end of the trial, the control group had four cases of bacteriuria, as compared to one in the active
group. In a third trial, a physician-sponsored open label trial, 10 patients who received emergency placement of a urinary catheter
due to acute obstruction were given a UroShield device and followed with regard to their pain, discomfort, spasm and overall well-being.
Within 24 hours, all patients showed improvement and increased toleration of the catheter (Zillich S., Ikinger U, “Biofilmprävention
durch akustische Nanowellen: Ein neuer Aspekt bei katheterassoziierten Harnwegsinfektionen?,” Gesellschaft für Urologie,
Heilbronn, Germany, May 2008). We supplied devices for this trial, but had no further involvement with it.
Market for UroShield
Approximately 25% of patients who are admitted to a hospital
will have an indwelling catheter at some point during their stay and 7% of nursing home residents are managed by long term catheterization.
Catheter acquired urinary tract infection (CAUTI) is the most
common nosocomial infection in hospitals and nursing homes, representing over 40% of all hospital-acquired infections (HAIs) and
20% of intensive care unit HAIs (Maki, P and Tambyah, D. Engineering Out the Risk for Infection with Urinary Catheters., Emerging
Infectious Diseases., Vol. 7, No. 2, March–April 2001). In addition, CAUTIs are the source for approximately 20% of healthcare
acquired bacteremia in acute care and 50% in long-term care facilities (Nicolle, Lindsay E. “Catheter Associated Urinary
Tract Infections.” Antimicrobial Resistance and Infection Control 3 (2014). The risk of acquiring CAUTI depends on the method
and duration of catheterization and patient susceptibility. Patients requiring a urinary catheter have a daily risk of approximately
five percent of developing bacteriuria and approximately 25% of patients develop nosocomial bacteriuria or candiduria over one
week (Maki, P and Tambyah, D. Engineering Out the Risk for Infection with Urinary Catheters., Emerging Infectious Diseases., Vol.
7, No. 2, March–April 2001). Virtually all patients requiring indwelling urinary catheters for longer than a month become
bacteriuric.
CAUTI occurs because urethral catheters inoculate organisms
into the bladder and promote colonization by providing a surface for bacterial adhesion and causing mucosal irritation. The presence
of a urinary catheter is the most important risk factor for bacteriuria. Once a catheter is placed, the daily incidence of bacteriuria
is 3-10%. Between 10% and 30% of patients who undergo short-term catheterization (i.e., 2-4 days) develop bacteriuria and are asymptomatic.
Between 90% and 100% of patients who undergo long-term catheterization develop bacteriuria. About 80% of nosocomial UTIs are related
to urethral catheterization; only 5-10% are related to genitourinary manipulation. (John L. Brusch, Catheter-Related Urinary Tract
Infection, Medscape, August 18, 2015).
According to a report by Zion Market Research, the global catheter
market totaled approximately $26.6 billion in 2015 and is estimated to grow at a CAGR of 9.7% through 2021. In the United States
there are 25 million Foley catheters sold annually and there are 75 million catheters sold elsewhere yielding a total global Foley
catheter market of 100 million units worldwide. The cost to treat a simple CAUTI has been estimated at $675 per case, and the cost
of treating bacteremia has been estimated at $3,800 per case, yielding a total healthcare burden of $830 million per year. While
there are currently both antibiotic and silver coated catheters in the market, they often sell for approximately $10 above the
non-antimicrobial equivalent.
In addition, as of October 1, 2008, Medicare stopped authorizing
its payment to hospitals in which patients have developed a catheter-associated urinary tract infection that was not present on
admission. This provides hospitals in the United States with a substantial financial incentive to reduce the occurrence of such
infections through the use of products such as UroShield, which help prevent infections hospitals would otherwise have to treat
without reimbursement. In addition, it has been noted that the Centers for Medicare & Medicaid Services may fine hospitals
in the future when their patients develop CAUTI, which will likely increase the incentive of hospitals to invest in technologies
that may prevent this complication (Brown J, et al. “Never Events: Not Every Hospital-Acquired Infection Is Preventable,
Clinical Infectious Diseases, 2009, 49 (5)).
Competition for UroShield
Several types of products have been introduced to address the
growing problem of catheter-acquired infection and biofilm formation on catheter surfaces. Manufacturers offer antibiotic-coated
and antiseptic-impregnated catheters. In addition, manufacturers have produced silver-coated catheters, which have been shown in
small studies to delay bacteriuria for about two to four days. However, larger studies did not corroborate this result; on the
contrary, silver hydrogel was associated with overgrowth of gram positive bacteria in the urine (Riley DK, Classen DC, “A
large randomized clinical trial of a silver-impregnated urinary catheter: lack of efficacy and staphylococcal superinfection,”
Am. J. Med. 1995 April; 98(4):349-56).
UroShield has been designed to be added to any type of catheter,
including Foley catheters and silver-coated catheters, to improve a catheter’s infection prevention performance. UroShield
is not intended to replace any existing products or technologies, but instead is intended to assist these existing products or
technologies in preventing catheter-acquired urinary injury and catheter associated complications. UroShield may be unable to successfully
compete in this market due to an inability to obtain clearance from the U.S. Food and Drug Administration and failure to be adopted
by health care practitioners and facilities.
Regulatory Strategy
UroShield
received CE Mark approval in September 2007 and was also approved for sale by the Israeli Ministry of Health in 2008. We are able
to sell UroShield in India and Ecuador based on our CE Mark. UroShield was granted a Canadian medical device license in September
2016, although, due to a modification of regulatory standards in Canada, we have lost our Canadian license. We are working toward
reinstatement of our Canadian license.
In the European Union, UroShield has been marketed for the prevention
of biofilm, decreased pain and discomfort associated with urinary catheters and increased antibiotic efficacy.
In the United States, we intend to seek clearance
from the U.S. Food and Drug Administration through the de novo classification process for UroShield. We submitted our application
for 510(k) clearance on January 3, 2011. On March 11, 2011, we received a response from the U.S. Food and Drug Administration
proposing that the approval go through the de novo route, which will require clinical trials with proposed study protocols to
be pre-cleared by the U.S. Food and Drug Administration. We are currently seeking a strategic partner that is active in the urology
market to coincide with the U.S. Food and Drug Administration clearance. We have not made any further submissions to the U.S.
Food and Drug Administration related to UroShield, but we recently completed a more robust study conducted at 5 different nursing
facilities in the United States. This study was approved by the institutional review board, or “IRB”. In November
2017, we announced interim results of this study.
NanoVibronix filed a request for a teleconference with FDA reviewers to understand
the suitability of determining the medical device accessory classification via a de novo petition and to understand the expectations
in order to establish safety and efficacy of UroShield. In the FDA’s written response and also during the teleconference,
the FDA reviewers stated that they were particularly concerned with local tissue response (in urethra and potentially bladder)
due to the extended use (up to 30 days) of a urinary catheter with UroShield attached to it. The areas of concern were primarily
the physical interaction of ultrasound that is being propagated along the walls of the catheter and any leachables from the urinary
catheter that would be over and above the leachables from a urinary catheter without UroShield attached to it. FDA reviewers were
also concerned about the appropriateness and quality of safety test data that was previously submitted May 2012.
Studies being conducted to establish safety
of UroShield for human use:
A large animal model (female sheep) study
will be conducted to establish local tissue response from a urinary catheter with UroShield attached as compared to a control group
of animals with a urinary catheter with no UroShield attached.
A comparative study of leachables from a
urinary catheter with and without UroShield attached will be performed to demonstrate that the leachables with UroShield attached
do not exceed toxicological safe limits allowed for a medical device.
Sales and Marketing
We believe the business opportunity for UroShield
is in the hundreds of millions in U.S. dollars to the extent that UroShield obtains 510(k) clearance from the U.S. Food and
Drug Administration, is recognized as effective and becomes widely adopted for use in catheters. To that end, we are exploring
sales distribution models in the United States through a distributor network and direct sales. In order to have a distribution
network in place if UroShield receives clearance from the U.S. Food and Drug Administration, we are currently identifying distributors
through several vehicles, including our sales staff, commissionable representation, and independent contractors. We have recently
appointed distributors for UroShield in the United Kingdom and, and an outside management organization, Morulaa Health, to assist
with regulatory matters and distribution of UroShield in India. Each of these distributors is paid a small retainer and will be
paid a commission between 10 to 20% of sales going forward.
From time to time we have had interest from strategic companies
in the catheter market to partner, license or acquire the UroShield technology. These strategic partners are active in the urology
market and may be interested in integrating UroShield as an accessory, into its range of products. Discussions with these partners
are ongoing.
Clinical Trials
To date, we have conducted the clinical trials set forth below:
Purpose
|
|
Doctor/Location
|
|
Time,
subjects
|
|
Objectives
|
|
Results
|
To assess the safety of the UroShield Double Blind, Comparative,
Randomized Study for the Safety Evaluation of the UroShield System (HD1)
|
|
Dr. U. Ikinger, Salem Academic Hospital, University of Heidelberg, Germany
|
|
2005-2006
22 patients
|
|
To demonstrate that the use of the UroShield is safe and that
the device is well tolerated by the patients and user friendly to the medical staff.
Efficacy objectives were to demonstrate that the UroShield
helps in prevention of biofilm formation in comparison with the urinary catheter alone, as well as bacteriuria.
|
|
UroShield was both safe and well tolerated.
UroShield proved efficacious in prevention of biofilm.
Subjects required significantly less medications than the control group for catheter related pain and discomfort.
|
|
|
|
|
|
|
|
|
|
Double Blind, Comparative, Randomized Study for the Safety Evaluation
of the UroShield System (HD2
)
Physician initiated
|
|
Dr. U. Ikinger, Salem Academic Hospital, University of Heidelberg, Germany
|
|
2007
40 patients
|
|
To demonstrate that the use of the UroShield is safe and helps in prevention of biofilm formation and UTI in comparison with the urinary catheter alone, as well as decrease antibiotic use.
|
|
In this trial, only 1/20 patients in UroShield device (no antibiotics) group developed urinary tract infection compared to 4/20 patients within control group treated with the antibiotic prophylaxis alone.
|
|
|
|
|
|
|
|
|
|
The Effect of UroShield on Pain and Discomfort in Patients Released
from the Emergency Room with Urinary Catheter Due to Urine Incontinence
Physician initiated
|
|
Shaare Zedek Medical Center Jerusalem, Israel.
|
|
2007
10 patients
|
|
The study aimed to assess the effectiveness of the UroShield in reducing pain and discomfort levels and improve the well-being of the subjects. Efficacy objectives included reduction of pain, spasm, burning and itching sensation levels of the subjects.
|
|
The results demonstrated a reduction in pain, itching, burning and spasm levels. Additionally, the well-being of the subjects showed a significant increase.
|
|
|
|
|
|
|
|
|
|
The Use of the UroShield Device in Patients with Indwelling Urinary Catheters Open labeled, comparative, randomized study
|
|
Dr. Shenfeld
Shaare Zedek Medical Center Jerusalem, Israel.
|
|
2007-2009
40 patients
|
|
Patient complaints related to catheter regarding pain according
to VAS scale and discomfort according to 0-10 scale
Presence of Clinically Significant UTI
Presence of Bacteriuria
Presence of Biofilm
Use of medication
|
|
UroShield device was effective in reducing postoperative catheter related pain discomfort and bladder spasms. There was also a notable trend towards reduction of bacteriuria.
|
|
|
|
|
|
|
|
|
|
Evaluation of the UroShield in urinary and nephrostomies to
reduce bacteriuria Physician initiated
|
|
Prof. P.Tenke,
Hungary
|
|
2010-2011
27 patients
|
|
● Pain, disability and QOL
● Catheter patency
● Bacteriuria / UTI
● Hospitalization period
● Analgesics and Antibiotics intake
|
|
Showed reduction in pain and significant decrease in bacteriuria rate.
|
Double Blind, Randomized Control Study for Prevention of Bacterial Colonization and UTI associated with Indwelling Urinary Catheters
|
|
Dr. Shira Markowitz
Buffalo, NY
|
|
2017
55 patients
|
|
To demonstrate the use of the UroShield reduces bacterial colonization on the urinary catheter
|
|
Final
results entitled “The Effect of Surface Acoustic Waves on Bacterial Load and Preventing Catheter-Associated Urinary Tract
Infections (CAUTI) in Long Term Indwelling Catheters,” which was published in the December 2018 issue of Medical & Surgical
Urology, a leading peer-reviewed journal in the field of urology.
Mean
improvement advantage in treatment vs control was 87.2K CFU, (t (53) 18.1, p<0.001) at thirty days. At 60 days the mean improvement
advantage in treatment vs control was 87.5K CFU, (t (53) 18.1, p<0.001). At 90 days the mean improvement advantage in treatment
vs control was 79.3K CFU, (t (53) 12.4, p<0.001).
After
cessation of treatment in the active group at 30 days, there was a minimal increase in CFU count at both 60 and 90 days. In the
same group, there was no statistical difference in the decrease of CFU count from 30 to 60 days after treatment, t (28)=1. p=
.326, however there was a marginally significant increase in CFU from 60 to 90 days for the active group (28)=1.7 p= 0.09.
At
baseline, every enrolled patient had been treated for infection during the 90 days prior to enrollment. Compared to baseline,
the treatment group showed significant statistical and clinical improvement (100%) at 30 days relative to the sham control (73%).
There were no reported infections in the Treatment Group while in the control group there were seven reported infections.
At
90 days after treatment, the treatment group showed a significantly stronger improvement (89.7%) compared to the sham control
(46.2%). There were three reported infection in the Treatment group, while in the control group there were fourteen reported infections
requiring antimicrobial therapy. (logistic regression B=2.3, Wald Chi-Square (df=1) =10.1, p=0.001.)
|
Current, Ongoing and Planned Clinical Trial
UroShield
Randomized Control trial (Completed)-A 56 patient trial was completed in January 2018, with compelling results, proving a decrease
in both bacterial colonization and the incidence of Urinary Tract Infection. As issued in a press release depicting interim results,
the following was noted:
“The trial was conducted at 5 different
nursing facilities, in which 51 subjects were evaluated with 26 in the active/treatment group and 25 in the control group. All
patients had been treated for at least one incident of a catheter-acquired urinary tract infection (CAUTI) requiring antibiotics
in the preceding 6 months prior to trial initiation.
At the 90-day evaluation, 13 of 25 subjects
(52%) in the control group developed a CAUTI requiring systemic antibiotics while only 1 of 26 patients (4%) in the UroShield™
group required antibiotics.
All study subjects had an initial colony
count of greater than 100,000 CFU cultured from their urinary tract. At thirty days, all subjects within the control group showed
no change in the number of their bacteria count which was greater than 100,000 CFU, while those in the treatment group showed a
reduction to 10,000 CFU in 15 of 26 subjects and only 1,000 CFU in 10 of 26 subjects.”
According to the Centers for Disease Control
and Prevention, urinary tract infection (UTI) is an infection involving any part of the urinary system, including urethra, bladder,
ureters, and kidney. UTIs are the most common type of healthcare-associated infection reported to the National Healthcare Safety
Network (NHSN). Among UTIs acquired in the hospital, approximately 75% are associated with a urinary catheter, which is a tube
inserted into the bladder through the urethra to drain urine. Between 15-25% of hospitalized patients receive urinary catheters
during their hospital stay. The most important risk factor for developing a CAUTI is prolonged use of the urinary catheter.
This study was written up in the December
2018 issue of “Medical & Surgical Urology”, a leading peer-reviewed journal in the field of urology.
A 23 patient trial was completed recently
in Norwich, United Kingdom. The trial was initiated to satisfy the requirements for adoption within the UK National Health Service.
Results of the trial are not yet known.
An economic impact study was performed in
York, United Kingdom to determine the cost savings related to prevention of urinary tract infection. The study resulted in an economic
impact “model” which will demonstrate cost savings to prevention of patients contracting UTI. The trial was initiated
to satisfy the requirements for adoption within the UK National Health Service.
An In vitro study was performed at Southampton
University, Southampton, United Kingdom, to determine the effect of UroShield on bacterial colonization in a laboratory setting.
The trial was initiated to satisfy the requirements for adoption within the UK National Health Service. This trial will also be
helpful to fulfill a requirement of the FDA. Interim results revealed relatively positive results to all others studied in the
same laboratory. Awaiting formal, final results.
UroShield-In vivo study is proposed by Dr.
Blayne Welk MD MSc, Dr. Jeremy Burton MSc PhD-The study, entitled “Low energy surface waves to prevent urinary infections
and catheter associated symptoms among patients with neurogenic bladder dysfunction”. The intent is to conduct a pilot study
to determine if the UroShield device can reduce catheter symptoms, improve urinary quality of life, and reduce catheter biofilm
formation and bacteriuria among patients with neurogenic bladder dysfunction and an indwelling catheter.
Patients with neurogenic bladder dysfunction
(spinal cord injury, or multiple sclerosis) have significant urinary morbidity. While intermittent catheterization is the preferred
management method with there is a need to supplement bladder emptying, up to 30-50% use indwelling catheters due to their convenience
and due to limitations around the performance of CIC. Urinary tract infections are common, and a defined source of mortality in
this population. Patients with neurogenic bladder are unique compared to the general population in that they often have intrinsic
bladder dysfunction (impaired compliance, impaired innate immunity, and neurogenic detrusor overactivity) and colonization with
atypical and pathogenic bacteria. Additional urinary symptoms related to the indwelling catheter can include bladder discomfort,
sediment and catheter bypassing, and systematic symptoms (autonomic dysreflexia among patients with spinal cord injury). There
are limited management options for patients with indwelling catheters and bladder symptoms or frequent UTIs and there is a need
for additional therapies that can mitigate these symptoms.
This study will be done without cost to
NanoVibronix and is expected to be presented at the International Neurology Meeting in Zurich in January, or worst case, American
Urologic Association in the fall.
If we are able to locate a strategic partner or otherwise obtain sufficient funding, we anticipate
conducting the following clinical trial:
Trial
|
|
Place
|
|
Start Date/Timing
|
|
Objectives
|
UroShield U.S. Food and Drug Administration trial 80 patient trial
|
|
To be determined
|
|
To be determined
|
|
Safety and efficacy of UroShield in urinary catheter related
pain and infection and biofilm formation.
The results of previous clinical trials may not be predictive
of future results, and the results of our planned clinical trial, if we are able to locate a strategic partner or otherwise obtain
sufficient funding, may not satisfy the requirements of the FDA
|
PainShield®
PainShield is an ultrasound device, consisting of a reusable
driver unit and a disposable patch, which contains our proprietary therapeutic transducer. It delivers a localized ultrasound effect
to treat pain and induce soft tissue healing in a targeted area, while keeping the level of ultrasound energy at a safe and consistent
level of 0.4 watts. We believe that PainShield is the smallest and most portable therapeutic ultrasound device on the market and
the only product in which the ultrasound transducer is integrated in a therapeutic disposable application patch.
The existing ultrasound therapy devices being used for pain
reduction are primarily large devices used exclusively by clinicians in medical settings. PainShield is able to deliver ultrasound
therapy without being located in a health care facility or clinic because it is portable, due to it being lightweight and battery
operated. Because it is patch based and easy to apply, PainShield does not require medical personnel to apply ultrasound therapy
to the patient. The patient benefits include ease of application and use, faster recovery time, high compliance, and increased
safety and efficacy over existing devices that rely on higher-frequency ultrasound (Adahan M, et al, “A Sound Solution to
Tendonitis: Healing Tendon Tears With a Novel Low-Intensity, Low-Frequency Surface Acoustic Ultrasound Patch,” American Academy
of Physical Medicine and Rehabilitation Vol. 2, 685-687, July 2010). PainShield can be used by patients at home or work or in a
clinical setting and can be used even while the patient is sleeping. Its range of applications includes acute and chronic pain
reduction and anti-inflammatory treatment.
Picture of PainShield with Patch
PainShield is used to treat tendon disease and trigeminal neuralgia
(a chronic pain condition that affects the trigeminal or 5th cranial nerve, one of the most widely distributed nerves in the head);
previously, the therapeutic options for these disorders have been very limited. PainShield has also been used to treat pelvic and
abdominal pain. To date, to the best of our knowledge, the only treatment options for these conditions are pain medication and
surgery. Several additional causes of pain, and the treatment of that pain with the PainShield product, can be explored through
clinical trials.
Market for PainShield
Pain-related complaints are one of the most common reasons patients
seek treatment from physicians (Prince V, “Pain Management in Patients with Substance-Use Disorders,” Pain Management,
PSAP-VII, Chronic Illnesses). According to Landro L, “New Ways to Treat Pain: Tricking the Brain, Blocking the Nerves in
Patients When all Else Has Failed,” Wall Street Journal, May 11, 2010, approximately 26% of adult Americans, or approximately
76.5 million people, suffer from chronic pain. The National Center for Health Statistics has estimated that approximately 54% of
the adult population experiences musculoskeletal pain. Studies have shown that low-frequency ultrasound treatment has yielded positive
results for a variety of indications, including tendon injuries and short-term pain relief (Warden SJ, “A new direction for
ultrasound therapy in sports medicine,” Sports Med. 2003; 33 (2):95-107), chronic low back pain (Ansari NN, Ebadi S, Talebian
S, Naghdi S, Mazaheri H, Olyaei G, Jalaie SA, “Randomized, single blind placebo controlled clinical trial on the effect of
continuous ultrasound on low back pain,” Electromyogr Clin Neurophysiol. 2006 Nov; 46(6):329-36) and sinusitis (Ansari NN,
Naghdi S, Farhadi M, Jalaie S, “A preliminary study into the effect of low-intensity pulsed ultrasound on chronic maxillary
and frontal sinusitis,” Physiother Theory Pract. 2007 Jul-Aug; 23(4):211-8). We believe that PainShield’s technology,
portability and ease of use may result in it becoming an attractive product in the pain management and therapy field.
Competition
There are numerous products and approaches currently utilized
to treat chronic pain. The pharmacological approach, which may be the most common, focuses on drug-related treatments with the
over-the-counter internal analgesic market estimated at $3.8 billion in 2013. Alternatively, there are a large number of non-pharmacological
pain treatment options available, such as ultrasound, transcutaneous electrical nerve stimulation, or TENS, laser therapy and pulsed
electromagnetic treatment. In addition, there are some technologies and devices in the market that utilize low frequency ultrasound
or patch technology. Many patients are initially prescribed anti-pain medication; however, ongoing use of drugs may cause substantial
side effects and lead to addiction. Therefore, patients and clinicians have shown increased interest in alternative pain therapy
using medical devices that do not carry these side effects.
The currently available ultrasound treatments for chronic pain
have generally been accepted by the medical community as standard treatment for pain management. However, the traditional ultrasound
treatments, such as those manufactured or distributed by Mettler Electronics Corp, Metron USA and Zimmer MedizinSysteme, are stationary
devices found only in clinics and other health care facilities that need to be administered to patients by health care professionals.
We are aware of three companies that market smaller ultrasound devices capable of certain self-administered use for the treatment
of pain: Koalaty Products, Inc., Sun-Rain System Corp. and PhysioTEC. These devices generally function in the same manner, at
the same frequency and with the same administration and safety requirements and limitations as traditional, larger ultrasound
devices. We are also aware of one product, which has recently received U.S. Food and Drug Administration approval and also has
CE Mark approval, marketed by ZetrOZ, Inc., that we understand may eliminate certain of these requirements and limitations, namely
the requirement to be plugged in, the need for movement around the treated area and the relatively short safe treatment period.
However, we understand that this product does not generate surface acoustic waves as our products do, which means that the treatment
area is generally limited to that under the transducer, that the use of transmission gel is still required and that the transducer
thickness is significantly greater than ours (approximately 1.5cm). It is also our understanding that the U.S. Food and Drug Administration
has prohibited the manufacturer from labeling or promoting this product for use directly over bone that is near the skin surface.
In addition, there are other patch-based methods of pain treatment, such as TENS therapy. TENS therapy may be painful and irritating
for the patient due to the muscle contractions resulting from the electrical pulses. PainShield combines the efficacy of ultrasound
treatment for pain with the ease of use and portability of a patch-based system. PainShield also may be self-administered by the
patient, including while the patient is sleeping. However, if we are unable to obtain widespread insurance coverage and reimbursement
for PainShield, its acceptance as a pain management treatment would likely be hindered, as patients may be reluctant to pay for
the product out-of-pocket.
Regulatory Strategy
PainShield received 510(k) clearance from the U.S.
Food and Drug Administration in August 2008 for treatment of pain relief. PainShield received CE Mark approval in July 2008 and
was also approved for sale by the Israeli Ministry of Health in 2010. We are able to sell PainShield in India and Ecuador based
on our CE Mark. We are in discussions with distributors in Southeast Asia, and, if a distributor is engaged, intend to seek regulatory
approvals for PainShield in Southeast Asia through such distributor.
In the United States, a prescription from a licensed healthcare
practitioner is required for the use of PainShield. We have engaged a consultant to assist us in the process of reclassifying the
PainShield device to remove the prescription requirement for the use of PainShield. We believe that such reclassification will
open up mass market opportunities which are currently not available to us due to the prescription requirement. However, there is
no assurance that we will be able to remove the prescription requirement for the use of PainShield or that, even if we accomplish
such reclassification and the use of PainShield no longer requires a prescription, PainShield will be successful commercially in
the mass market or we will be able to generate significant revenues from the mass market opportunities, if any.
In order to eliminate the requirement for a physician prescription,
proof of safety and consumer “usability” must be established. With no adverse events reported on the PainShield device,
we have a high degree of confidence that we will achieve the desired outcome. We have engaged User-View, Inc to facilitate our
Usability study. The product packaging and all instruction documents have been modified to meet OTC standards. That study is currently
in process.
In the United States, PainShield falls under the diathermy classification
for the treatment of pain for initial reimbursement purposes. The permitted reimbursement codes can be used in the outpatient supervised
medical setting. We intend to coordinate with the Centers for Medicare and Medicaid Services and private insurers so that reimbursement
can be extended to cover the administration of PainShield outside of health care facilities and clinics. In addition, we intend
to conduct clinical trials in order to effectively market PainShield for a larger range of indications. The targeted reimbursement
would be based upon specific indications, where study data serves as justification for payment.
Sales and Marketing
PainShield was introduced in 2009 as a
treatment for pain, such as tendonitis, sports injuries, pelvic pain and neurologic pain and we have sold approximately 1,700
units and 15,000 treatment patches since its introduction. We have entered into distribution agreements in United States, Europe,
Asia and India for the distribution of PainShield. We intend to seek additional distribution opportunities in Europe, East
Asia and Ecuador. In addition, we sell PainShield directly to patients through our website. We are currently ramping up our
marketing efforts in the US market and throughout the world. We anticipate that these efforts will include recruiting
additional sales personnel and representatives, making in-office calls to physicians and attending trade shows and
conferences. We intend to pursue the veterinary market with our equine PainShield device.
We have identified a unique and effective application for PainShield,
the treatment of a severe facial nerve pain called Trigeminal Neuralgia, otherwise known as tic douloureux. Two studies were performed
in Israel, “a randomized control trial examining the efficacy of low intensity low frequency Surface Acoustic wave ultrasound
in trigeminal neuralgia pain”, and “A sound solution for Trigeminal Neuralgia”. Two trials which enrolled a total
of 16 and 15 patients respectively, both conducted at the Sheba Medical Center in Israel, concluded that this study supports the
hypothesis that the application of Low Intensity Low Frequency Surface Acoustic Wave Ultrasound (LILF/SAW) may be associated with
a clinically significant reduction of pain severity among patients suffering from trigeminal neuralgia disease. One of the studies
showed a reduction in pain among 73% of the participants. We believe this to be an ideal market to address with the PainShield.
With few existing treatment alternatives, we believe the PainShield’s effectiveness is a practical and safe alternative.
A broader RCT, targeting 60 patients suffering from unilateral trigeminal neuralgia, was recently completed. The article will be
completed and ready for submission within 90 days.
GlobalData’s epidemiological analysis forecasts that the
total prevalent cases of trigeminal neuralgia in the seven major markets (United States, France, Germany, Italy, Spain, U.K and
Japan) will grow at 15% between 2012 and 2022. According to an estimate by Ronald Brisman, M.D., in 2013 the prevalence of trigeminal
neuralgia in the U.S. may have been as high as approximately 280,000 patients. With the favorable results from our current, ongoing
study (explained in detail below), we plan to aggressively pursue this market through direct marketing efforts and distributor
relationships.
We have also identified a market for PainShield in the professional
sports industry, where in some cases, reimbursement may be available from sports alumni organizations or, more likely, self-pay.
In order to pursue this market we are exhibiting at sports trainers meetings, pursuing alumni associations, advertising in their
media, and have recently engaged a national distributor in the United States. Discussions and ongoing negotiations continue with
other appropriate distributors in these various market segments.
Recently
Completed Research
A
double-blind randomized control trial of a PainShield Surface Acoustic Wave Patch, the patch used in conjunction with the PainShield
device, was completed in the first quarter of 2018.
After
the enrollment and lead-in period, subjects were given a sham device to sleep with every night for a month. They were asked to
fill out their pain and analgesic use logs, and undergo the bi weekly assessments. After a month they were crossed over to an
active “PainShield SAW patch device” and continued to complete their pain and analgesic use logs as well as undergo
biweekly assessments for months two and three of the study.
In
the first quarter of 2019, the double blinded, crossover trial was conducted across the US and included 59 patients with a diagnosis
of unilateral trigeminal neuralgia. Among the 59 patients, 30 were in the active treatment group and 29 were in the control group.
The values that were assessed include Visual Analog Scale (VAS) pain score, both baseline prior to trial and VAS pain score at
the end of the study. The study also assessed breakthrough medications per week at the start of the trial and breakthrough medications
per week at the end of the trial, with a particular focus on the use of opioids. Breakthrough medications are used for chronic
pain directly related to the pre-existing Trigeminal Neuralgia condition.
There
was a significant difference in the outcomes of the two groups relative to pain, quality of life, and breakthrough medications
taken, which was directly correlated to pain experienced during treatment. Specifically, the treatment group experienced a 55.2%
improvement in baseline pain scores versus 2.3% for the control group. The treatment group experienced a 46.4% reduction in breakthrough
pain medication versus 1.5% for the control group. In addition to measurable differences in all aforementioned measurement categories,
there was a general improvement in uninterrupted sleep.
Clinical
Trials
To
date, we have conducted or are in the process of conducting the clinical trials set forth below:
Purpose
|
|
Doctor/Location
|
|
Time,
subjects
|
|
Objectives
|
|
Results
|
A
sound solution for Trigeminal Neuralgia Physician initiated
|
|
Dr.
Ch. Adahan
Sheba
Medical Center
|
|
2009
15
patients
|
|
●Reduction
in pain
●Reduction
in disability
●Improvement
of function and quality of life
●Accelerating
of healing
|
|
73%
of the subjects experienced complete or near complete relief.
|
|
|
|
|
|
|
|
|
|
Randomized
control trial examining the efficacy of low intensity low frequency Surface Acoustic wave ultrasound in trigeminal neuralgia
pain For Ph.D., Funded by Israeli Ministry of Health
|
|
Dr.
M. Zwecker
Chaim
Sheba Medical Center, Tel Hashomer, Israel
|
|
2012-2012
16
patients
|
|
●Reduction
in pain
●Reduction
in disability
●Improvement
of function and quality of life
●Accelerating
of healing
|
|
In
conclusion this study supports the hypothesis that the application of Low Intensity Low Frequency Surface Acoustic Wave Ultrasound
(LILF/SAW) may be associated with a clinically significant reduction of pain severity among patients suffering from trigeminal
neuralgia disease.
|
|
|
|
|
|
|
|
|
|
Treating
Rutgers university athletic injuries with bandaid sized ultrasound unit PainShield
|
|
R.
Monaco,
G.
Sherman,
Rutgers
University Athletic, Rutgers, New Jersey
|
|
2011
35
patients
|
|
●To
assess the pain, functional capacity and discomfort of the subject
●To
assess the subject’s quality of life
●To
assess the injury status
●To
assess the efficacy of the treatment
●To
assess compliance factors
|
|
Active
group:
74%
had improvement, 26% no change
Sham
group:
56%
no change, 44% had improvement
This
is an indication of the effectiveness of the device.
Lack
of funding for statistical analysis has stopped this trial prior to fulfillment.
|
|
|
|
|
|
|
|
|
|
Reduction
of chronic abdominal and pelvic pain, urological and GI symptoms using wearable device delivering low frequency ultrasound
|
|
D.
Wiseman,
Synechion
Institute for Pelvic Pain
|
|
2011
19
patients
|
|
●To
assess the efficacy of PainShield for pelvic and related pain
|
|
Improvement
in pain related symptoms noted for all symptoms.
|
|
|
|
|
|
|
|
|
|
PainShield
for Trigeminal Neuralgia
|
|
Shira
Markowitz, MD, New York, NY
|
|
Early
2018
60 patients
|
|
●To
assess the efficacy of PainShield for treating trigeminal neuralgia
|
|
Interim
results released in the fourth quarter of 2017, which reported improvement in pain and quality of life; final results expected
to be reported in the second quarter of 2018
|
If
we are able to obtain sufficient funding, we anticipate conducting the following clinical trials:
Trial
|
|
Place
|
|
Start
Date/Timing
|
|
Objectives
|
PainShield
for Pelvic Pain
200
patient trial
|
|
To
be determined
|
|
To
be determined
|
|
Safety
and Efficacy of PainShield in Chronic Pelvic Pain
|
We
announced interim results of a study entitled, “The Effects of the NanoVibronix’s PainShield® Surface Acoustic
Waves on the Symptoms of Lateral Epicondylitis.” The clinical study was conducted by Dr. David Lemak, a leading orthopedic
surgeon with Birmingham Orthopedic and Sports Specialists.
The trial was a randomized, double blinded study for 30 days that evaluated
the effectiveness and safety of PainShield™ Surface Acoustic Wave (SAW) technology on patients suffering from pain and discomfort,
as well as limited mobility caused by the effects of chronic or acute lateral epicondylitis (LE) (“tennis elbow”).
A total of 24 patients were enrolled, half of whom were treated with the PainShield™ device plus physical therapy and the
other half were treated with a placebo device plus physical therapy. Two of the patients did not complete the trial. Patients
were not allowed to use opioids during the trial, nor were they allowed to have any type of injections (cortisone or any other)
at any time during the study or within the last 30 days. Patients were allowed to take standard over-the-counter anti-inflammatory
medication such as ibuprofen.
While
the study is ongoing with additional patients enrolling, based on the initial results, seven out of ten patients (70.0%) who completed
the study using PainShield plus physical therapy had complete resolution or significant improvement in pain. Among the placebo
group plus physical therapy, five out of twelve patients (41.7%) experienced complete resolution or significant improvement in
pain. Upon completion of the trial, the Company will have full results, which it expects to publish later this year.
WoundShield®
Our
WoundShield product was granted the European Wound Closure Customer Value Leadership Award, Ultrasound Therapy – Wound Closure
in 2014. WoundShield is intended to treat acute and chronic wounds with a disposable treatment patch that delivers localized therapeutic
low frequency ultrasound. The WoundShield patch has two configurations: one that is placed adjacent to the wound and another,
called the instillation patch, that is placed on the wound to enable instillation through sonophoresis, a process that increases
the absorption of semisolid topical compounds, including medications, into the skin. Based on studies conducted by BIO-EC Microbiology
Laboratory and Rosenblum, we believe that our WoundShield product possesses significant potential for the treatment of, among
other things, diabetic foot ulcers and burns (Gasser P, Study Report delivered by BIO-EC Microbiology Laboratory, Dec 2007, which
we ordered, paid for, and provided devices for; Rosenblum J, “Surface Acoustic Wave Patch Diathermy Generates Healing In
Hard To Heal Wounds,” European Wound Management Association 2011, for which we supplied devices but had no further involvement).
Picture
of WoundShield Driver and Instillation Patch
WoundShield
delivers surface acoustic waves to the location of the wound. Surface acoustic waves move laterally across the surface of the
wound, which enables the transfer of the acoustic energy of the waves along the entire wound surface in a continuous and consistent
mode, providing access to the waves’ benefits for a longer treatment period than conventional ultrasound without the need
for supervision or a treatment session by a clinician.
The
technology has been found to have a positive effect on the epithelialization (healing by the growth of epithelial cells) of diabetic
wounds, as well as on the stimulation of the precursors of dermal and epidermal (skin) growth. As such, it is a useful adjunct
to wound care by increasing dermal and epidermal growth, including glycosaminoglycans, or GAGs (which bind to extracellular proteins
like collagen, fibronectin, laminin, etc. and retain considerable amounts of water, thus preserving the skin structure) as well
as the amount of collagen (a protein that helps skin heal) and decreasing the number of cells in mitosis (a type of cell division)
(Rosenblum J, “Surface Acoustic Wave Patch Diathermy Generates Healing In Hard To Heal Wounds,” European Wound Management
Association 2011, for which we supplied devices which were precursors to WoundShield, but had no further involvement). In addition,
the WoundShield instillation patch allows for administration of therapeutic agents into the wound area through a sonophoresis
effect.
Many
key processes in wound healing are dependent upon an adequate supply of oxygen. Diabetic foot ulcers are particularly in need
of an adequate oxygen supply because the disease often results from poor perfusion (blood flow) and decreased oxygen tension.
Oxygen is also important for the immune system to combat bacteria, synthesize collagen, help with fibroblast proliferation (fibroblasts
are a type of cell that play a critical role in wound healing), form oxidative (taking place in the presence of oxygen) pathways
for adenosine triphosphate, or ATP, formation (ATP transports chemical energy within cells for metabolism), and the nitric oxide
dependent signaling pathways. It is generally believed that a lack of available oxygen is a basic contributing factor in the perpetuation
of these wounds. Recently, wound healing experts have developed a technique of perfusing ischemic wounds (which occur when blood
flow is blocked) with hyper-oxygenated saline, while the wound is being treated with ultrasound, also known as sonication. This
localized oxygenation therapy has many advantages over the use of hyperbaric chambers (large chambers in which the oxygen pressure
is above normal), a common method for delivering oxygen to wounds, as it is more cost-effective, can be done at the patient’s
bedside and can be administered more frequently. The WoundShield instillation patch was tested as a potential ultrasound technology
for this localized oxygen therapy. In one study (Morykwas M, “Oxygen Therapy with Surface Acoustic Waveform Sonication,”
European Wound Management Association 2011; we supplied devices for this study, but had no further involvement with it), oxygen
sensors were placed in the wound bed to directly measure partial pressure of oxygen in an ischemic wound bed on a pig. The wound
was perfused with hyperbaric oxygen and sonicated using the WoundShield instillation patch. With surface acoustic wave ultrasound
technology, tissue oxygen levels (partial pressure of oxygen in the blood, or PaO2) were raised from a range of 20 mmHg (millimeters
of mercury) to 60 mmHg in peripheral (periwound) areas, a 3 centimeter distance away from the transducer, and from 40 mmHg to
greater than 100 mmHg in the central wound bed lying below the WoundShield instillation patch (see table below). The results of
this study illustrated that the WoundShield instillation patch allowed oxygen to directly enter into the wound. The direct entry
of the oxygen increased the amount of oxygen reaching the wound, which has been shown to advance the healing process. In addition,
we believe that WoundShield’s small size, lower cost and ease of use makes localized oxygen treatment commercially viable.
In
2012, results were published of a human feasibility trial for the WoundShield instillation patch that was performed at Duke University
in North Carolina. Seven patients were treated with the WoundShield instillation patch for their wounds and average tissue oxygen
levels (PaO2) increased by an average of 58% over baseline (Covington S, “Ultrasound-Mediated Oxygen Delivery to Lower Extremity
Wounds,” Wounds 2012; 24(8)). We supplied devices for this trial, but had no further involvement with it.
Market
for Wound-Healing Devices
The
global wound care device market totaled approximately $24 billion in 2015 and it is expected to grow at a CAGR of 6.7% during
2016-2022 (as reported by P&S Global Research in January 2017). According to the Global Report on Diabetes produced by the
World Health Organization in 2016, globally, an estimated 422 million adults were living with diabetes in 2014, compared to 108
million in 1980. According to a report entitled “Advances in Wound Closure Technology” by Frost and Sullivan (2005),
foot complexities are the most frequent causes for patients with diabetes to get hospitalized, with complications usually starting
with the formation of skin ulcers. In addition, according to the American Burn Association, approximately 486,000 patients received
medical treatment annually for burn injuries in 2016 in the United States. There are also policy-based factors that may increase
the size of the wound care market. We anticipate that reimbursement decisions with respect to hospital acquired wounds may create
a large market opportunity for wound care products, including WoundShield. Furthermore, in 2009, the Centers for Medicare and
Medicaid Services announced that they would stop reimbursements for treatment of certain complications that they believed were
preventable with proper care. One such complication was surgical site infections after certain elective procedures, including
some orthopedic surgeries and bariatric surgery. We believe that such developments incentivize medical care providers to invest
in reducing the risk of infection through the use of wound care products, including WoundShield.
Competition
for WoundShield
The
market for advanced wound care includes a number of competitors, such as Kinetic Concepts, Inc., or KCI, Smith and Nephew plc
and Convatec Inc., all of whom market wound-healing medical devices. Due to their size, in general these companies may have significant
advantages over us. These competitors have their own distribution networks for their products, which gives them an advantage over
us in reaching potential customers. In addition, they are vertically-integrated, which may allow them to maximize efficiencies
that we cannot achieve with our third-party suppliers and distributors. Finally, because of their significantly greater resources,
they could potentially choose to focus on research and development of technology similar to ours, more than we are able to. In
general, we believe that these competitors have, and will continue to have, substantially greater financial, technological, research
and development, regulatory and clinical, manufacturing, marketing and sales, distribution and personnel resources than we do.
However, we believe that our products differentiate us from these competitors, and we will be competitive on the basis of our
technology. We believe that the strength of these competitors may create an opportunity through strategic partnerships.
At
present, ultrasound treatment for wounds is limited only to wound debridement (removal of damaged tissue or foreign objects from
a wound) and such products are marketed by Arobella Medical, LLC, which produces the Qoustic Wound Therapy System, Misonix Inc.,
which produces SonicOne products, and Alliqua Biomedical, Inc., which produces the MIST Therapy System. Due to their size, in
general these companies may have the same advantages over us as discussed with respect to our competitors in the paragraph above.
However, these ultrasound devices are indicated for use only in medical clinics and require an operator to deliver their treatment,
thus limiting their use and application. The MIST Therapy System and Quostic Therapy System are a non-contact ultrasound device
that delivers ultrasound through a mist that is applied directly on the wound.
We
believe that these therapies are less advantageous than WoundShield because they require an operator to deliver the treatment
and the removal of bandages to target the wound bed. In contrast, the WoundShield patch sits on normal skin bordering the open
wound and no manipulation of the wound bandage is required. Moreover, WoundShield can be self-administered, without an operator,
in both clinics and home settings. We also believe that WoundShield will prove to be an effective alternative to treating chronic
wounds at a lower price than the existing products being used by medical practitioners. As such, we believe that facilities that
are reimbursed based upon diagnosis-related groups will be more inclined to adopt WoundShield because it will provide the same
therapeutic results at a significantly lower cost than traditional ultrasound therapies.
We
are also aware of a small clinical study, for which results were reported in August 2013, in which a small ultrasound device showed
positive results in the treatment of venous ulcers, a type of chronic wound. Based upon currently available information about
this device, we believe it will be at least 2018 before this device is available on the market for treatment of venous ulcers.
We understand that this product does not generate surface acoustic waves as our products do, which means that the treatment area
is generally limited to that of the transducer’s diameter. We believe our products would have certain other advantages over
this potential device, if developed, including that our products weigh less and are thinner. However, given the early stage of
development of this potential device, we cannot say with certainty how our products would compare.
The
most common method of oxygen administration for wound healing is hyperbaric oxygen therapy, especially to treat specific ulcerations
in diabetic patients. Hyperbaric oxygen therapy has been shown to increase vascular endothelial growth factor expression, which
measures the creation of new blood vessels (Fok TC, at el, “Hyperbaric oxygen results in increased vascular endothelial
growth factor (VEGF) protein expression in rabbit calvarial critical-sized defects”, Schulich School of Medicine and Dentistry,
University of Western Ontario, Canada). The activation of endothelial cells by VEGF sets in motion a series of steps toward the
creation of new blood vessels (J Lewis et al, National Cancer Institute, Understanding Cancer and Related Topics, Understanding
Angiogenesis). We believe that the WoundShield instillation patch, which can be used as an oxygen instillation system, will be
complementary to, or in some cases an alternative, to the use of hyperbaric chamber therapy. This complementary treatment option
will allow the treating physician greater therapeutic versatility in treating wounds. For a certain populace of patients, we believe
that the WoundShield instillation patch could provide physicians with an alternative to hyperbaric oxygen therapy because it provides
the same benefits as hyperbaric oxygen therapy at a lower cost to the patient. There are a number of competitors in the hyperbaric
chamber therapy market, including approximately eight companies in the United States. Due to their size, in general these companies
may have the same advantages over us discussed with respect to our competitors in the first paragraph of this section. However,
we believe that the WoundShield instillation patch possesses certain advantages over the existing hyperbaric chamber therapy,
including lower cost and greater ease of use. In addition, we do not believe that the WoundShield instillation patch will necessarily
compete with hyperbaric chamber therapy, but rather will often complement such therapy.
While
we believe that WoundShield is well positioned to capture a share of the wound care market, WoundShield may be unable to achieve
its anticipated place in the wound care market due to a number of factors, including, but not limited to, an inability to obtain
the approval of the U.S. Food and Drug Administration, for which it is indicated and its failure to be adopted by health care
practitioners and facilities or patients because of its status as a new product in a market that relies on patient-focused initiative
to treat wounds.
Regulatory
Strategy
For
a general discussion of the U.S. Food and Drug Administration approval process with respect to our products, and regulation of
our products in general, see “– Government Regulation” below.
Our
general regulatory strategy for WoundShield is focused on seeking U.S. Food and Drug Administration approval for a variety of
indications. WoundShield obtained CE Mark approval in November 2012.
Sales
and Marketing
WoundShield
has generated minimal revenues to date. We intend to market WoundShield in Europe and pursue the necessary approvals
to commence marketing in the United States and Canada. Our strategy for selling WoundShield in the United States is to find a
strategic partner in the wound care market. We are actively pursuing this strategy. WoundShield could be an effective adjunct
to existing wound treatment devices or a stand-alone wound treatment modality.
Clinical
Trials
With
respect to WoundShield, to date, we have conducted the following evaluation studies:
Purpose
|
|
Doctor/Location
|
|
Time,
subjects
|
|
Objectives
|
|
Results
|
Clinical
evaluation
Physician
initiated
|
|
Dr.
J. Rosenblum,
Shaare
Zedek
Medical
Center
|
|
2008
8
patients
|
|
To
evaluate novel technology on wound healing in diabetic foot ulcers.
|
|
Therapy
showed significant changes in wound, wound size was reduced, patients felt less pain, necrotic tissue was less adhesive, necrotic
tissue decreased in size. The duration of the trial was one week.
|
|
|
|
|
|
|
|
|
|
Clinical
evaluation
Physician
initiated
|
|
Dr.
J. Rosenblum,
Shaare
Zedek
Medical
Center
|
|
2010
8
patients
|
|
To
evaluate novel technology on wound healing in diabetic foot ulcers.
|
|
The
device, a precursor device to WoundShield using the same technology as WoundShield, had a positive effect on both epithelization
of diabetic wounds and stimulating the precursors of dermal and epidermal growth. The duration of the trial was one week.
|
|
|
|
|
|
|
|
|
|
Clinical
evaluation
Physician
initiated
|
|
Dr.
S. Covington
|
|
2010
7
patients
|
|
The
study aimed to determine if hyper oxygenated saline delivered by surface acoustic waves improves tissue oxygenation in lower
extremity wounds.
|
|
Surface
acoustic wave technology in conjunction with oxygenated saline can increase interstitial oxygen in wound bed. This trial to
validate proof of concept was put on hold due to financial constraints. The duration of the trial was two weeks.
|
Third
Party Reimbursement
NanoVibronix
has entered into an agreement with Redemption Revenue Cycle Solutions LLC, beginning on January 1
, 2019. RRCS has
an expertise in establishing reimbursement at a reasonable rate, and facilitating the billing for both NanoVibronix and its distributors.
We
anticipate that sales volumes and prices of the products we commercialize will depend in large part on the availability of coverage
and reimbursement from third party payers. Third party payers include governmental programs such as Medicare and Medicaid, private
insurance plans and workers’ compensation plans, among others. These third party payers may deny coverage and reimbursement
for a product or therapy, in whole or in part, if they determine that the product or therapy was not medically appropriate or
necessary. The third party payers also may place limitations on the types of physicians or clinicians that can perform specific
types of procedures. In addition, third party payers are increasingly challenging the prices charged for medical products and
services. Some third party payers must also pre-approve coverage for new or innovative devices or therapies before they will reimburse
health care providers who use the products or therapies. Even though a new product may have been approved or cleared by the U.S.
Food and Drug Administration for commercial distribution, we may find limited demand for the device until adequate reimbursement
has been obtained from governmental and private third party payers.
In
international markets, reimbursement and healthcare payment systems vary significantly by country, and many countries have instituted
price ceilings on specific product lines and procedures. There can be no assurance that procedures using our products will be
considered medically reasonable and necessary for a specific indication, that our products will be considered cost-effective by
third party payers, that an adequate level of reimbursement will be available or that the third party payers’ reimbursement
policies will not adversely affect our ability to sell our products profitably.
In
the United States, some insured individuals are receiving their medical care through managed care programs, which monitor and
often require pre-approval of the services that a member will receive. Some managed care programs are paying their providers on
a per capita basis, which puts the providers at financial risk for the services provided to their patients by paying these providers
a predetermined payment per member per month, and consequently, may limit the willingness of these providers to use certain products,
including ours.
One
of the components in the reimbursement decision by most private insurers and governmental payers, including the Centers for Medicare
and Medicaid Services, which administers Medicare, is the assignment of a billing code. Billing codes are used to identify the
procedures performed when providers submit claims to third party payers for reimbursement for medical services. They also generally
form the basis for payment amounts.
Obtaining
reimbursement approval for a product from any government or other third party payer is a time-consuming and costly process that
could require us or our distributors to provide supporting scientific, clinical and cost-effectiveness data for the use of our
product to each payer. Even if a code is obtained for a product, a third party payer must still make coverage and payment determinations.
When a payer determines that a product that is eligible for reimbursement, the payer may impose coverage limitations that preclude
payment for some uses that are approved by the FDA or other foreign regulatory authorities. We believe that the overall escalating
costs of medical products and services has led to, and will continue to lead to, increased pressures on the health care industry
to reduce the costs of products and services. In addition, recent health care reform measures, as well as legislative and regulatory
initiatives at the federal and state levels, create significant additional uncertainties. There can be no assurance that third
party coverage and reimbursement will be available or adequate, or that future legislation, regulation, or reimbursement policies
of third party payers will not adversely affect the demand for our products or our ability to sell these products on a profitable
basis. The unavailability or inadequacy of third party payer coverage or reimbursement would have a material adverse effect on
our business, operating results and financial condition.
UroShield.
We expect these products to be used in inpatient settings and therefore reimbursed under the DRG or per diem reimbursement
system. In addition, in an outpatient or home setting, we anticipate that these products will initially be purchased privately
until a reimbursement code is obtained. However, we believe that if we can empirically demonstrate UroShield’s efficacy
in preventing recurrent hospitals admission in chronic Foley catheter patients and reducing overall per-patient cost, third party
payers may accelerate the reimbursement approval process since the device could reduce their overall per-patient cost. We believe
the natural progression of the adoption of this technology will allow for use in the home setting. We intend pursue reimbursement
in the Medicare Part B code to support the use for long term catheter use and infection prevention in the home.
PainShield.
Although it is a minimal amount, PainShield is presently reimbursed in the United States by many private insurers under the
national umbrella for diathermy service, CPT code 97024, for use of the ultrasound device in a supervised medical setting and
is reimbursed in 15-minute increments for up to an hour a day, 5 hours a week and 20 hours a month. The current reimbursement
mechanism is inadequate to support the end user or distributor cost of the device. If the device is efficacious in the treatment
of the patient’s condition, the treatment period can be extended in some cases for months. Presently, when used in an outpatient
setting, such as by a clinic, PainShield is typically purchased by the clinic that then can bill the existing reimbursement codes.
PainShield is not currently reimbursed for therapy in the home setting. When we have sufficient funding, we intend to work to
obtain reimbursement in the home setting as well as codes that would allow for reimbursement for use of the non-disposable and
disposable components of the PainShield device. Our anticipated clinical trials for PainShield would support this effort. In the
United States, PainShield requires a prescription from a physician.
WoundShield.
We believe that the initial usage of these products will be in the hospital setting. Reimbursement in the hospital setting
is typically governed by the Diagnosis Related Group system, or DRG system, which is a prospective payment methodology that assigns
a predetermined, fixed amount based on the patient’s diagnoses. In parallel to introducing these devices to hospitals, we
intend to apply for reimbursement codes for outpatient use. Although obtaining these codes can take years and may require extensive
clinical data, we believe that the desirable characteristics of these products may serve as an incentive to insurance companies
to grant these codes more quickly.
New
Products Under Development
Renooskin
In
2016, we started developing a device for the facial rejuvenation market called Renooskin. Previous in vitro studies on human
skin were done showing that the SAW technology provided skin rejuvenation comparable to Retinol A which is a well-accepted
anti-aging cream. We have developed a head band like applicator for the PainShield SAW treatment and are in the process of
arranging for a pilot trial with a cosmetic dermatologist and/or plastic surgeon. We believe that, subject to proof of
efficacy of the Renooskin and receiving regulatory approval, the device can be sold in a non-reimbursement market since
cosmetic devices are private pay. The product is pending evaluation and we are considering several paths towards commercialization.
LungShield
A
pilot study, adapting the UroShield technology to endotracheal tubes, is currently underway at Shaare Zedek Medical Center. The
purpose of this study is to examine the effect of a device which generates low energy ultrasound waves like the UroShield product.
The endpoint of the study is to show its effect on development of bacterial colonies on endotracheal tubes, in patient receiving
mechanical ventilation, and to determine whether this effect lowers the rate of bacterial resistance to antibiotics. Results of
this study are not known at this time, and is still ongoing.
Research
and Development Expenses
During
the years ended December 31, 2018 and 2017, we spent approximately $614,000 and $693,000, respectively, on research and development
activities. None of the cost of such activities is borne directly by our customers
.
Intellectual
Property
Patents
We
have rights to six patents in the United States. Granted U.S. Patent No. 7,393,501 (having the following foreign counter-parts:
China ZL03818327.7; Israel 165422; Japan 4504183; India 246351; Australia 2003231892; European Union 1511414 B), “Method,
apparatus and system for treating biofilms associated with catheters” and granted U.S. Patent No. 7,829,029 (having the
following foreign counter-parts: China ZL200780019732.3 and European Union 1998834), “Acoustic add-on device for biofilm
prevention in urinary catheter,” both relate to the use of surface acoustic waves to prevent biofilm formation on indwelling
catheters. These granted U.S. patents expire on December 19, 2023 and October 27, 2025, respectively. Granted U.S Patent No. 9,028,748,
“System and method for surface acoustic wave treatment of medical devices,” relate to methods of generating surface
acoustic waves on medical device surfaces on both indwelling medical devices and implants to prevent biofilm formation This U.S.
patent expires on July 11, 2030. Granted U.S. Patent No. 9,585,977 (having the following foreign counter-parts: China ZL200780014875.5,
European Union, and allowed Israel application), “System and method for surface acoustic waves treatment of skin,”
relates to methods of using surface acoustic waves for treatment of skin for the purpose of wound-healing, reducing infection,
pain reduction and cosmetic enhancements. This U.S. patent expires August 20, 2033.
We
also license two in-force patents pursuant to a license agreement with Piezo-Top Ltd and PMG Medica Ltd., U.S. Patent No. 6,454,716
B1, “System and method for detection of fetal heartbeat,” and U.S. Patent No. 6,964,640 B2, “System and method
for detection of motion,” which incorporate certain technology related to detecting in-vivo motion relating to biological
parameters such as, for example, blood flow detection, heartbeat monitoring, fetal motion monitoring, fetal heartbeat monitoring,
etc.. The configuration allows for an optimal scanning range at an unlimited number of angles. These patents expire on May 23,
2020 and January 22, 2023, respectively.
We
believe the granted patents, patent applications and license agreement (described below) collectively cover our existing products
to the extent necessary, and may be useful for protecting our future technology developments. We intend to continue patenting
new technology as it is developed, and to actively pursue any infringement of any of our patents.
To
date, we are not aware of other companies that have patent rights to a comparable system and method for surface acoustic wave
treatment for skin.
Trademarks
We
believe that our product brand names are an important factor in establishing and maintaining brand recognition. We have the following
trademark registrations in the United States: NanoVibronix®, WoundShield®, PainShield®, and UroShield®. We intend
to re-file and pursue our previously acquired trademark registration “Curing though prevention”®, which expired
in July 2015. Generally, the protection afforded for trademarks is perpetual, if they are renewed on a timely basis, if registered,
and continue to be used properly as trademarks.
Government
Regulation
U.S.
Food and Drug Administration Regulation
Each
of our products must be approved, cleared by, or registered with the U.S. Food and Drug Administration before it is marketed in
the United States. Before and after approval or clearance in the United States, our products, approved or cleared products and
product candidates, are subject to extensive regulation by the U.S. Food and Drug Administration under the Federal Food, Drug,
and Cosmetic Act and/or the Public Health Service Act, as well as by other regulatory bodies. The U.S. Food and Drug Administration
regulations govern, among other things, the development, testing, manufacturing, labeling, safety, storage, record-keeping, market
clearance or approval, advertising and promotion, import and export, marketing and sales, and distribution of medical devices
and pharmaceutical products. PainShield has already obtained 510(k) marketing approval by the U.S. Food and Drug Administration.
U.S.
Food and Drug Administration Approval or Clearance of Medical Devices
In
the United States, medical devices are subject to varying degrees of regulatory control and are classified in one of three classes
depending on the extent of controls the U.S. Food and Drug Administration determines are necessary to reasonably ensure their
safety and efficacy:
|
●
|
Class
I: general controls, such as labeling and adherence to quality system regulations, and a pre-market notification (510(k))
unless exempt;
|
|
●
|
Class
II: special controls, pre-market notification (510(k)) unless exempt, specific controls such as performance standards, patient
registries and post-market surveillance and additional controls such as labeling and adherence to quality system regulations;
and
|
|
●
|
Class
III: special controls and approval of a Pre-Market Approval, or PMA, application.
|
WoundShield
and PainShield are classified as Class II medical devices and require U.S. Food and Drug Administration authorization prior to
marketing, by means of 510(k) clearance, except for our UroShield product, which we intend to seek clearance from the U.S. Food
and Drug Administration through the de novo classification process, described below.
To
request marketing authorization by means of a 510(k) clearance, we must submit a pre-market notification demonstrating that the
proposed device is substantially equivalent to another legally marketed medical device, has the same intended use, and is as safe
and effective as a legally marketed device and does not raise different questions of safety and effectiveness than a legally marketed
device. 510(k) submissions generally include, among other things, a description of the device and its manufacturing, device labeling,
medical devices to which the device is substantially equivalent, safety and biocompatibility information and the results of performance
testing. In some cases, a 510(k) submission must include data from human clinical studies. Marketing may commence only when the
U.S. Food and Drug Administration issues a clearance letter finding substantial equivalence. The typical duration to receive 510(k)
approval is approximately nine months from the date of the initial 510(k) submission, although there is no guaranty that the timing
will not be longer.
The
U.S. Food and Drug Administration may require us to perform clinical studies to show a product candidate’s safety and efficacy
in addition to technological equivalence in support of our filed 510(k). No matter which regulatory pathway we may take in the
future towards marketing products in the United States, we believe we will be required to provide clinical proof of device effectiveness
and safety.
After
a device receives 510(k) clearance, any product modification that could significantly affect the safety or effectiveness of the
product, or that would constitute a significant change in intended use, requires a new 510(k) clearance or, if the device would
no longer be substantially equivalent, would require a PMA. If the U.S. Food and Drug Administration determines that the product
does not qualify for 510(k) clearance, then a company must submit and the U.S. Food and Drug Administration must approve a PMA
before marketing can begin.
A
PMA application must provide a demonstration of safety and effectiveness, which generally requires extensive nonclinical and clinical
trial data. Information about the device and its components, device design, manufacturing and labeling, among other information,
must also be included in the PMA. As part of the PMA review, the U.S. Food and Drug Administration will inspect the manufacturer’s
facilities for compliance with quality system regulation requirements, which govern testing, control, documentation and other
aspects of quality assurance with respect to manufacturing. If the U.S. Food and Drug Administration determines the application
or manufacturing facilities are not acceptable, the U.S. Food and Drug Administration may outline the deficiencies in the submission
and often will request additional testing or information. Notwithstanding the submission of any requested additional information,
the U.S. Food and Drug Administration ultimately may decide that the application does not satisfy the regulatory criteria for
approval. During the review period, a U.S. Food and Drug Administration advisory committee, typically a panel of clinicians and
statisticians, is likely to be convened to review the application and recommend to the U.S. Food and Drug Administration whether,
or upon what conditions, the device should be approved. The U.S. Food and Drug Administration is not bound by the advisory panel
decision. While the U.S. Food and Drug Administration often follows the panel’s recommendation, there have been instances
where the U.S. Food and Drug Administration has not. If the U.S. Food and Drug Administration finds the information satisfactory,
it will approve the PMA. The PMA approval can include post-approval conditions, including, among other things, restrictions on
labeling, promotion, sale and distribution, or requirements to do additional clinical studies post-approval. Even after approval
of a PMA, a new PMA or PMA supplement is required to authorize certain modifications to the device, its labeling or its manufacturing
process. Supplements to a PMA often require the submission of the same type of information required for an original PMA, except
that the supplement is generally limited to that information needed to support the proposed change from the product covered by
the original PMA. The typical duration to receive PMA approval is approximately two years from the date of submission of the initial
PMA application, although there is no guarantee that the timing will not be longer.
As
described above, we anticipate that our UroShield product will receive a de novo review from the U.S. Food and Drug Administration.
De novo review is a two-step process that requires a company to submit a 510(k) and complete a standard review, including an analysis
of the risk to the patient and operator associated with the use of the device and the substantial equivalence rationale. Once
that has been accomplished, and the medical device in question has been determined to be not substantially equivalent to another
approved device, the product is automatically classified as a Class III device. The manufacturer can then submit a request for
an evaluation to have the product reclassified from Class III into Class I or Class II. The U.S. Food and Drug Administration
will review the device classification proposal and either recommend special controls to create a new Class I or II device classification
or determine that the product is a Class III device. If the U.S. Food and Drug Administration determines that the level of risk
associated with the use of the device is appropriate for a Class II or Class I designation, then the product can be cleared as
a 510(k) and the U.S. Food and Drug Administration will issue a new classification regulation and product code. If the device
is not approved through de novo review, then it must go through the standard PMA process for Class III devices.
Clinical
Trials of Medical Devices
One
or more clinical trials are generally required to support a PMA application and more recently are becoming necessary to support
a 510(k) submission. Clinical studies of unapproved or uncleared medical devices or devices being studied for uses for which they
are not approved or cleared (investigational devices) must be conducted in compliance with U.S. Food and Drug Administration requirements.
If an investigational device could pose a significant risk to patients, the sponsor company must submit an investigational device
exemption application to the U.S. Food and Drug Administration prior to initiation of the clinical study. An investigational device
exemption application must be supported by appropriate data, such as animal and laboratory test results, showing that it is safe
to test the device on humans and that the testing protocol is scientifically sound. The investigational device exemption will
automatically become effective 30 days after receipt by the U.S. Food and Drug Administration unless the U.S. Food and Drug Administration
notifies the company that the investigation may not begin. Clinical studies of investigational devices may not begin until an
institutional review board has approved the study.
During
the study, the sponsor must comply with the U.S. Food and Drug Administration’s investigational device exemption requirements.
These requirements include investigator selection, trial monitoring, adverse event reporting, and record keeping. The investigators
must obtain patient informed consent, rigorously follow the investigational plan and study protocol, control the disposition of
investigational devices, and comply with reporting and record keeping requirements. The sponsor, the U.S. Food and Drug Administration,
or the institutional review board at each institution at which a clinical trial is being conducted may suspend a clinical trial
at any time for various reasons, including a belief that the subjects are being exposed to an unacceptable risk. During the approval
or clearance process, the U.S. Food and Drug Administration typically inspects the records relating to the conduct of one or more
investigational sites participating in the study supporting the application.
Post-Approval
Regulation of Medical Devices
After
a device is cleared or approved for marketing, numerous and pervasive regulatory requirements continue to apply. These include:
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the
U.S. Food and Drug Administration quality systems regulation, which governs, among other things, how manufacturers design,
test, manufacture, exercise quality control over, and document manufacturing of their products;
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labeling
and claims regulations, which prohibit the promotion of products for unapproved or “off-label” uses and impose
other restrictions on labeling; and
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the
Medical Device Reporting regulation, which requires reporting to the U.S. Food and Drug Administration of certain adverse
experiences associated with use of the product.
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Good
Manufacturing Practices Requirements
Manufacturers
of medical devices are required to comply with the good manufacturing practices set forth in the quality system regulations promulgated
under section 520 of the Food, Drug and Cosmetic Act as further set forth in the Code of Federal Regulations as 21 CFR Part 820.
Current good manufacturing practices (“cGMP”) regulations require, among other things, quality control and quality
assurance as well as the corresponding maintenance of records and documentation. The manufacturing facility for an approved product
must meet current good manufacturing practices requirements to the satisfaction of the U.S. Food and Drug Administration pursuant
to a pre-PMA approval inspection before the facility can be used. Manufacturers, including third party contract manufacturers,
are also subject to periodic inspections by the U.S. Food and Drug Administration and other authorities to assess compliance with
applicable regulations. Failure to comply with statutory and regulatory requirements subjects a manufacturer, and possibly us,
to possible legal or regulatory action, including the seizure or recall of products, injunctions, consent decrees placing significant
restrictions on or suspending manufacturing operations, and civil and criminal penalties. Adverse experiences with the product
must be reported to the U.S. Food and Drug Administration and could result in the imposition of marketing restrictions through
labeling changes or in product withdrawal. Product approvals may be withdrawn if compliance with regulatory requirements is not
maintained or if problems concerning safety or efficacy of the product occur following the approval.
International
Regulation
We
are subject to regulations and product registration requirements in many foreign countries in which we may sell our products,
including in the areas of product standards, packaging requirements, labeling requirements, import and export restrictions and
tariff regulations, duties and tax requirements. The time required to obtain clearance required by foreign countries may be longer
or shorter than that required for U.S. Food and Drug Administration clearance, and requirements for licensing a product in a foreign
country may differ significantly from U.S. Food and Drug Administration requirements.
The
primary regulatory environment in Europe is the European Union, which consists of 25 member states and 42 competent authorities
encompassing most of the major countries in Europe. In the European Union, the European Medicines Agency and the European Union
Commission determined that PainShield, UroShield, and WoundShield are to be regulated as medical device products. These products
are classified as Class II devices. These devices are CE Marked and as such can be marketed and distributed within the European
Economic Area. We are required to be recertified each year for CE by Intertek, which conducts an annual audit. The audit procedure,
which includes on-site visits at our facility, requires us to provide Intertek with information and documentation concerning our
management system and all applicable documents, policies, procedures, manuals, and other information.
The primary regulatory bodies and paths in Asia,
Australia, and Latin America are determined by the requisite country authority. In most cases, establishment registration and
device licensing are applied for at the applicable Ministry of Health through a local intermediary. The requirements placed on
the manufacturer are typically the same as those contained in ISO 9001 or ISO 13485, requirements for quality management systems
published by the International Organization of Standardization. In some countries outside Europe, we are or will be able to sell
on the basis of our CE Mark. We have the Health for PainShield, WoundShield and UroShield, a certificate by the Israel Ministry
of Health allowing us to sell PainShield, WoundShield and UroShield in Israel, a certificate allowing us to sell PainShield in
Australia, and we are able to sell PainShield, WoundShield and UroShield in India and Ecuador based on our CE Mark. In addition,
our distributor in Korea has applied for approval to sell PainShield and UroShield. We generally apply, through our distributor,
for approval in a particular country for a particular product only when we have a distributor in place with respect to such product.
European
Good Manufacturing Practices
In
the European Union, the manufacture of medical devices is subject to good manufacturing practice, as set forth in the relevant
laws and guidelines of the European Union and its member states. Compliance with good manufacturing practice is generally assessed
by the competent regulatory authorities. Typically, quality system evaluation is performed by a notified body, which also recommends
to the relevant competent authority for the European Community CE Marking of a device. The competent authority may conduct inspections
of relevant facilities, and review manufacturing procedures, operating systems and personnel qualifications. In addition to obtaining
approval for each product, in many cases each device manufacturing facility must be audited on a periodic basis by the notified
body. Further inspections may occur over the life of the product.
U.S.
Fraud and Abuse and Other Health Care Laws
In
the United States, federal and state fraud and abuse laws prohibit the payment or receipt of kickbacks, bribes or other remuneration
intended to induce the purchase or recommendation of health care products and services. Other provisions of federal and state
laws prohibit presenting, or causing to be presented, to third party payers for reimbursement, claims that are false or fraudulent,
or which are for items or services that were not provided as claimed. In addition, other health care laws and regulations may
apply, such as transparency and reporting requirements, and privacy and security requirements. Violations of these laws can lead
to civil and criminal penalties, including exclusion from participation in federal and state health care programs. These laws
are potentially applicable to manufacturers of products regulated by the U.S. Food and Drug Administration as medical devices,
such as us, and hospitals, physicians and other potential purchasers of such products. The health care laws that may be applicable
to our business or operations include:
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The federal Anti-Kickback Statute, which prohibits the offer, payment, solicitation or receipt of any form of remuneration in
return for referring, ordering, leasing, purchasing or arranging for, or recommending the ordering, purchasing or leasing of,
items or services payable by Medicare, Medicaid or any other federal health care program.
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Federal false claims laws and civil monetary penalty laws, including the False Claims Act, that prohibit, among other things,
individuals or entities from knowingly presenting, or causing to be presented, claims for payment from Medicare, Medicaid or other
government health care programs that are false or fraudulent, or making a false statement to avoid, decrease or conceal an obligation
to pay money to the federal government.
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The federal Health Insurance Portability and Accountability Act of 1996, or HIPAA, which prohibits knowingly and willfully executing,
or attempting to execute, a scheme to defraud any healthcare benefit program or obtain, by means of false or fraudulent pretenses,
representations, or promises, any of the money or property owned by, or under the custody or control of, any health care benefit
program, and for knowingly and willfully falsifying, concealing or covering up a material fact or making any materially false
statements in connection with the delivery of or payment for health care benefits, items or services.
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HIPAA, as amended by the Health Information Technology for Economic and Clinical Health Act of 2009, and its implementing regulations,
which also impose obligations and requirements on health care providers, health plans, and healthcare clearinghouses as well as
their respective business associates that perform certain services for them that involve the use or disclosure of individually
identifiable health information, with respect to safeguarding the privacy and security of certain individually identifiable health
information.
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The federal transparency requirements under the Affordable Care Act, including the provision commonly referred to as the Physician
Payments Sunshine Act, which requires certain manufacturers of drugs, devices, biologics and medical supplies that are reimbursable
under Medicare, Medicaid or Children’s Health Insurance Program to report annually to Centers for Medicare and Medicaid
Services, or CMS, information related to payments and other transfers of value to physicians and teaching hospitals, and ownership
and investment interests held by physicians and their immediate family members.
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Analogous state and foreign laws and regulations, such as state anti-kickback and false claims laws, which may be broader in scope
and apply to referrals and items or services reimbursed by both governmental and non-governmental third-party payers, including
private insurers, many of which differ from each other in significant ways and often are not preempted by federal law, thus complicating
compliance efforts.
Customers
We currently sell our products both through our
website and distribution agreements, with approximately 55% of our sales coming through distributors in 2018. We expect that percentage
to grow significantly as we enter into additional distribution agreements. We have exclusive and non-exclusive distribution agreements
for our products with medical product distributors based in the United States, various countries throughout Europe, India, and
Asia.
We are currently in discussions with a number of
distribution companies in the United States, Europe, and Asia, as well as a distributor which will allow access into Veterans
Administration facilities. Our current agreements stipulate that distributors will be responsible for carrying out local marketing
activities and sales. We are responsible for training, providing marketing guidance, marketing materials, and technical guidance.
In addition, in most cases, all sales costs, including sales representatives, incentive programs, and marketing trials, will be
borne by the distributor. We expect any future distribution agreements to contain substantially similar stipulations. Under our
current agreements, distributors purchase our products from us at a fixed price. Our current agreements with distributors are
generally for a term of approximately two to three years and automatically renew for an additional annual terms unless modified
by either party.
Manufacturing
and Suppliers
We
have traditionally assembled our products in-house at our facilities in Nesher, Israel. All of the component parts of our products
are readily available from a number of manufacturers and suppliers. We order component parts on an as-needed basis, generally
from the manufacturer that provides us with the most competitive pricing. Our most significant suppliers are APC International,
Ltd., R&D Medical Products, DI-EL Tack Ltd., Rotel Product Engineering Ltd. and Afinity. We do not have written agreements
with any of these suppliers, but we believe anyone could be easily replaced if necessary.
In
December 2018, we announced we appointed Quasar as contract manufacturer for the PainShield®,
UroShield®, WoundShield® as well as other devices. Quasar (http://www.quasar-med.com/) is a medical device
manufacturer with over 30 years of experience, serving major brands worldwide, with complex catheters, disposables, and U.S. Food and Drug Administration regulated assemblies. Quasar delivers a full lifecycle array of engineering services, including design-to-cost, jigs and
tool design, as well as unique production process-design services that allow for the highest levels of efficiency and
productivity. Quasar is ISO9001 and ISO13485 certified, as well as U.S. Food and Drug Administration registered.
Recent Developments
In
January, 2019, we began
collaborating with the Fritz Clinic, which has been at
the forefront of tackling the opioid epidemic. As a leader in the field of opioid addiction, the Company supports Dr. Fritz’
approach in aiding patients with opioid dependence and providing them with alternative treatments to address the underlying cause
of pain, rather than simply masking it with pain killers.
In
February, 2019, we announced the publication of an independent study entitled, “The Effect of a Surface Acoustic
Wave (SAW) Device on the Symptomatology of Trigeminal Neuralgia,” which was published in the January 2019 issue of Journal
of Anesthesiology and Pain Research, a leading peer-reviewed journal in the field of anesthesiology. The double blinded, crossover
trial was conducted across the U.S. and included 59 patients with a diagnosis of Unilateral Trigeminal Neuralgia.
There
was a significant difference in the outcomes of the two groups relative to pain, quality of life, and breakthrough medications
taken, which was directly correlated to pain experienced during treatment. Specifically, the treatment group experienced a 55.2%
improvement in baseline pain scores versus 2.3% for the control group. The treatment group experienced a 46.4% reduction in breakthrough
pain medication versus 1.5% for the control group. In addition to measurable differences in all aforementioned measurement categories,
there was a general improvement in uninterrupted sleep.
In
March, 2019, the Company announced results of a study entitled, “The Effects of the NanoVibronix’s PainShield®
Surface Acoustic Waves on the Symptoms of Lateral Epicondylitis” ( Tennis Elbow). While the study is ongoing with additional
patients enrolling, based on the initial results, seven out of ten patients (70.0%) who completed the study using PainShield plus
physical therapy had complete resolution or significant improvement in pain. Among the placebo group plus physical therapy, five
out of twelve patients (41.7%) experienced complete resolution or significant improvement in pain. Upon completion of the trial,
the Company will have full results, which it expects to publish later this year
Customers
We currently sell
our products both directly, through our website, and indirectly via distribution agreements, with approximately 55% of our sales
coming through distributors in 2018. We expect that percentage to grow significantly as we enter into additional distribution
agreements. We have exclusive and non-exclusive distribution agreements for our products with medical product distributors based
in the United States, in the United Kingdom and various countries throughout Europe, India, Canada and Asia.
We
are currently in discussions with several distribution companies in
the United States, Europe, and
Asia, as well as a distributor which will allow access into Veterans Administration facilities. Our current agreements stipulate
that distributors will be responsible for carrying out local marketing activities and sales. We are responsible for training,
providing marketing guidance, marketing materials, and technical guidance. In addition, in most cases, all sales costs, including
sales representatives, incentive programs, and marketing trials, will be borne by the distributor. We expect any future distribution
agreements to contain substantially similar stipulations. Under our current agreements, distributors purchase our products from
us at a fixed price. Our current agreements with distributors are generally for a term of approximately two to three years and
automatically renew for an additional annual terms unless modified by either party.
Manufacturing
and Suppliers
We assemble our products in-house at our facilities in Nesher, Israel.
All of the component parts of our products are readily available from a number of manufacturers and suppliers. We order component
parts on an as-needed basis, generally from the manufacturer that provides us with the most competitive pricing. Our most significant
suppliers are APC International, Ltd.,
Tamuz Electronics,
DI-EL Tack Ltd., Rotel Product Engineering Ltd. and Sinpro Electronics Co., Ltd. We do not have written agreements with any of
these suppliers, but we believe anyone could be easily replaced if necessary.
Employees
At
December 31, 2018, we had 10 full-time employees and four contract employees. In addition, we employ several consultants on an
as needed basis, to provide a cost efficient alternative to a larger infrastructure to support the Company.
Available
Information
The
Company’s Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, and amendments thereto,
are filed with the SEC. The Company is subject to the informational requirements of the Securities Exchange Act of 1934, as amended
(the “Exchange Act”) and files or furnishes reports, proxy statements and other information with the SEC. Such reports
and other information filed by the Company with the SEC are available free of charge on the Company’s website at nanovibronix.com,
as soon as reasonably practicable after we have electronically filed with, or furnished to, the SEC. The public may read and copy
any materials filed by the Company with the SEC at the SEC’s Public Reference Room at 100 F Street, NE, Room 1580, Washington,
DC 20549. The public may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330.
The SEC maintains an internet site that contains reports, proxy and information statements and other information regarding issuers
that file electronically with the SEC at www.sec.gov. The contents of these websites are not incorporated into this filing. Further,
the Company’s references to website URLs are intended to be inactive textual references only.
ITEM
1A. RISK FACTORS
Risks
Related to Our Business
We
have a history of losses and we expect to continue to incur losses and may not achieve or maintain profitability.
For
the fiscal year ended December 31, 2018 we had a net loss of approximately $4.2 million, with revenues of approximately $318,000.
As of December 31, 2018, we had an accumulated deficit of approximately $32.5 million. We expect to incur losses for at least
the next year, as we continue to incur expenses related to seeking U.S. Food and Drug Administration approval for UroShield and
WoundShield, and market acceptance and reclassification of PainShield, which will require costly additional clinical trials and
research, further product development and professional fees associated with regulatory compliance.
These conditions coupled with our current liquidity
position raise substantial doubt about our ability to continue as a going concern. Even if we succeed in commercializing our new
products, we may not be able to generate sufficient revenues to cover our expenses and achieve sustained profitability or be able
to maintain profitability. If we are unable to raise additional capital, we may be forced to cease operations.
The
report of our independent registered public accounting firm expresses substantial doubt about the Company’s ability to continue
as a going concern. Such “going concern” opinion could impair our ability to obtain financing.
Our
auditors, Marcum LLP, have indicated in their report on the Company’s financial statements for the fiscal year ended December
31, 2018 that conditions exist that raise substantial doubt about our ability to continue as a going concern due to our recurring
losses from operations. A “going concern” opinion could impair our ability to finance our operations through the sale
of equity, incurring debt, or other financing alternatives. Our ability to continue as a going concern will depend upon the availability
and terms of future funding. If we are unable to achieve this goal, our business would be jeopardized and the Company may not
be able to continue. If we ceased operations, it is likely that all of our investors would lose their investment.
If
we are unable to raise additional capital, our clinical trials and product development will be limited and our long-term viability
will be threatened; however, if we do raise additional capital, your percentage ownership as a stockholder could decrease and
constraints could be placed on the operations of our business.
We
have experienced negative operating cash flows since our inception and have funded our operations primarily from proceeds of the
sale of our securities, with only limited revenue being generated from our product sales. In order to fully realize our business
objectives, we may need to raise additional capital. We willseek to raise such additional funds through equity or debt financings,
or strategic alliances with third parties, either alone or in combination with equity financings. These financings could result
in substantial dilution to the holders of our common stock, or require contractual or other restrictions on our operations or
on alternatives that may be available to us. If we raise additional funds by issuing debt securities, these debt securities could
impose significant restrictions on our operations through the imposition of restrictive covenants and requiring us to pledge assets
in order to secure repayment. In addition, if we raise funds through the sale of equity, we may issue equity securities with rights
superior to our common stock, including voting rights, rights to proceeds upon our liquidation or sale, rights to dividends and
rights to appoint board members. There can be no assurance that we will be able to complete a required financing on acceptable
terms or at all. If such financing is not available on satisfactory terms, or is not available in sufficient amounts, we may be
required to delay, limit or eliminate the development of business opportunities. The failure to procure such required financing
could have a material adverse effect on our business, financial condition and results of operations, or threaten our ability to
continue as a going concern.
A
variety of factors could impact the timing and amount of any required financings, including, without limitation:
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unforeseen
developments during our clinical trials;
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delays
in our receipt of required regulatory approvals;
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delayed
market acceptance of our products;
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unanticipated
expenditures in our acquisition and defense of intellectual property rights, and/or the loss of those rights;
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the
failure to develop strategic alliances for the marketing of some of our product candidates;
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unforeseen
changes in healthcare reimbursement for any of our approved products;
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lack
of financial resources to adequately support our operations;
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difficulties
in maintaining commercial scale manufacturing capacity and capability;
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unanticipated
difficulties in operating in international markets;
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unanticipated
financial resources needed to respond to technological changes and increased competition;
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unforeseen
problems in attracting and retaining qualified personnel;
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enactment
of new legislation or administrative regulations;
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the
application to our business of new regulatory interpretations;
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claims
that might be brought in excess of our insurance coverage;
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the
failure to comply with regulatory guidelines; and
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the
uncertainty in industry demand.
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Any
required financing efforts may divert our management from their day-to-day activities, which may adversely affect its ability
to develop and commercialize our products Moreover, if we complete additional fianncings by issuing equity securities, the percentage
ownership of its existing stockholders may be reduced, and accordingly these stockholders may experience substantial dilution.
Given our need for cash and that equity issuances are the most common type of fundraising for similarly situated companies, the
risk of dilution is particularly significant for our stockholders.
In
addition, although we have no present commitments or understandings to do so, we may seek to expand our operations and product
lines through acquisitions or joint ventures. Any acquisition or joint venture would likely increase our capital requirements.
If
we fail to obtain an adequate level of reimbursement for our approved products by third party payers, there may be no commercially
viable markets for our approved products or the markets may be much smaller than expected.
The
availability and levels of reimbursement by governmental and other third party payers affect the market for our approved products.
The efficacy, safety, performance and cost-effectiveness of our product and product candidates, and of any competing products,
will determine the availability and level of reimbursement. Reimbursement and healthcare payment systems vary significantly by
country, and include both government sponsored healthcare and private insurance. To obtain reimbursement or pricing approval in
some countries, we may be required to produce clinical data, which may involve one or more clinical trials, that compares the
cost-effectiveness of our approved products to other available therapies. We may not obtain reimbursement or pricing approvals
in markets we seek to enter in a timely manner, if at all. Our failure to receive reimbursement or pricing approvals in target
markets would negatively impact market acceptance of our products in these jurisdictions, placing us at a material cost disadvantage
to our competitors.
Even
if we obtain reimbursement approvals for our products, we believe that, in the future, reimbursement for any of our products or
product candidates may be subject to increased restrictions both in the United States and in international markets. Future legislation,
regulation or policies of third party payers that limit reimbursement may adversely affect the demand for our products currently
under development and our ability to sell our products on a profitable basis. In addition, third party payers continually attempt
to contain or reduce the costs of healthcare by challenging the prices charged for healthcare products and services.
In
the United States, specifically, health care providers, such as hospitals and clinics, and individual patients, generally rely
on third-party payers. Third-party reimbursement is dependent upon decisions by the Centers for Medicare and Medicaid Services,
contracted Medicare carriers or intermediaries, individual managed care organizations, private insurers, other governmental health
programs and other payers of health care costs. Failure to receive or maintain favorable coding, coverage and reimbursement determinations
for our products by these organizations could discourage medical practitioners from using or prescribing our products due to their
costs. In addition, with recent federal and state government initiatives directed at lowering the total cost of health care, the
U.S. Congress and state legislatures will likely continue to focus on health care reform including the reform of the Medicare
and Medicaid programs, and on the cost of medical products and services, which could limit reimbursement. Additionally, third-party
payers are increasingly challenging the prices charged for medical products and services, and imposing conditions on payment.
We may be unable to sell our products on a profitable basis if third-party payers deny coverage, provide low reimbursement rates
or reduce their current levels of reimbursement.
The
medical device and therapeutic product industries are highly competitive and subject to rapid technological change. If our competitors
are better able to develop and market products that are safer and more effective than any products we may develop, our commercial
opportunities will be reduced or eliminated.
Our
success depends, in part, upon our ability to maintain a competitive position in the development of technologies and products.
We face competition from established medical device companies, such as Neurometrix Inc., Zetrox, Kinetic Concepts, Inc. and Smith
& Nephew plc, manufacturers of certain portable ultrasound devices capable of self-administered use, as well as from academic
institutions, government agencies, and private and public research institutions in the United States and abroad. Most, if not
all, of our principal competitors have significantly greater financial resources and expertise than we do in research and development,
manufacturing, pre-clinical testing, conducting clinical trials, obtaining regulatory approvals, marketing approved products,
protecting and defending their intellectual property rights and designing around the intellectual property rights of others. Other
small or early-stage companies may also prove to be significant competitors, particularly through collaborative arrangements,
or mergers with, or acquisitions by, large and established companies, or through the development of novel products and technologies.
The
industry in which we operate has undergone, and we expect it to continue to undergo, rapid and significant technological change,
and we expect competition to intensify as technological advances are made. Our competitors may be able to respond to changes in
technology or the marketplace faster than us. Our competitors may develop and commercialize medical devices that are safer or
more effective or are less expensive than any products that we may develop. We also compete with our competitors in recruiting
and retaining qualified scientific and management personnel, in establishing clinical trial sites and patient registration for
clinical trials, and in acquiring technologies complementary to our programs or advantageous to our business. Given our small
size and lack of resources, we are often at a disadvantage with our competitors in all of these areas, which could limit or eliminate
our commercial opportunities.
We
face the risk of product liability claims and may not be able to obtain insurance.
Our
business exposes us to the risk of product liability claims that are inherent in the development of medical devices and products.
If the use of one or more of our products harms people, we may be subject to costly and damaging product liability claims brought
against us by clinical trial participants, consumers, health care providers, pharmaceutical companies or others selling our products.
We currently carry clinical trial and product liability insurance for the products we sell. However, we cannot predict all of
the possible harms or side effects that may result and, therefore, the amount of insurance coverage we hold may not be adequate
to cover all liabilities we might incur. We intend to expand our insurance coverage to include the sale of additional commercial
products as we obtain marketing approval for our product candidates in development and as our sales expand, but we may be unable
to obtain commercially reasonable product liability insurance for such products. If we are unable to obtain insurance at an acceptable
cost or otherwise protect against potential product liability claims and we continue to make sales, or if our coverages turns
out to be insufficient, we may be exposed to significant liabilities, which may materially and adversely affect our business and
financial position. If we are sued for any injury allegedly caused by our products and do not have sufficient insurance coverage,
our liability could exceed our total assets and our ability to pay the liability. A product liability claim or series of claims
brought against us would decrease our cash and could reduce our value or marketability.
Our
product candidates may not be developed or commercialized successfully.
Our
product candidates are based on a technology that has not been used previously in the manner we propose and must compete with
more established treatments currently accepted as the standards of care. Market acceptance of our products will largely depend
on our ability to demonstrate their relative safety, efficacy, cost-effectiveness and ease of use.
We
are subject to the risks that:
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the
U.S. Food and Drug Administration or a foreign regulatory authority finds our product candidates ineffective or unsafe;
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we
do not receive necessary regulatory approvals;
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the
regulatory review and approval process may take much longer than anticipated, requiring additional time, effort and expense
to respond to regulatory comments and/or directives;
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we
are unable to get our product candidates in commercial quantities at reasonable costs; and
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the
patient and physician community does not accept our product candidates.
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In
addition, our product development program may be curtailed, redirected, eliminated or delayed at any time for many reasons, including:
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adverse
or ambiguous results;
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undesirable
side effects that delay or extend the trials;
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the
inability to locate, recruit, qualify and retain a sufficient number of clinical investigators or patients for our trials;
and
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regulatory
delays or other regulatory actions.
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Additionally,
we currently have limited experience in marketing or selling our products, and we have a limited marketing and sales staff and
distribution capabilities. Developing a marketing and sales force is time-consuming and will involve the investment of significant
amounts of financial and management resources, and could delay the launch of new products or expansion of existing product sales.
In addition, we compete with many companies that currently have extensive and well-funded marketing and sales operations. If we
fail to establish successful marketing and sales capabilities or fail to enter into successful marketing arrangements with third
parties, our ability to generate revenues will suffer.
Furthermore,
even if we enter into marketing and distributing arrangements with third parties, we may have limited or no control over the sales,
marketing and distribution activities of these third parties, and these third parties may not be successful or effective in selling
and marketing our products. If we fail to create successful and effective marketing and distribution channels, our ability to
generate revenue and achieve our anticipated growth could be adversely affected. If these distributors experience financial or
other difficulties, sales of our products could be reduced, and our business, financial condition and results of operations could
be harmed.
We
cannot predict whether we will successfully develop and commercialize our product candidates. If we fail to do so, we will not
be able to generate substantial revenues, if any.
If
we fail to retain our key management, or to attract and keep additional key personnel, we may be unable to successfully execute
our business plan.
Our
success depends on our ability to attract, retain and motivate highly qualified management and personnel. As a small company with
ten full-time employees and four contract employees, our success depends on the continuing contributions of our management team
and qualified personnel and on our ability to attract and retain highly qualified personnel. We face intense competition in our
hiring efforts from other medical device companies, as well as from universities and nonprofit research organizations, and we
may have to pay higher salaries to attract and retain qualified personnel. We are also at a disadvantage in recruiting and retaining
key personnel as our small size and limited resources may be viewed as providing a less stable environment, with fewer opportunities
than would be the case at one of our larger competitors. The loss of one or more of these individuals, or our inability to attract
additional qualified personnel, could substantially impair our ability to implement our business plan. In addition, the replacement
of key personnel likely would involve significant time and costs, and may significantly delay or prevent the achievement of our
business objectives.
Our
need to increase the size of our organization and may not successfully manage our growth.
We
are a clinical-stage company with a small number of planned employees, and our management systems currently in place are not likely
to be adequate to support our future growth plans. Ouyr ability to grow and to manage its growth effectively will require us to
hire, train, retain, manage and motivate additional employees and to implement and improve its operational, financial and management
systems. These demands also may require the hiring of additional senior management personnel or the development of additional
expertise by our senior management personnel. Hiring a significant number of additional employees, particularly those at the management
level, would increase our expenses significantly. Moreover, if we fail to expand and enhance its operational, financial and management
systems in conjunction with its potential future growth, such failure could have a material adverse effect on our business, financial
condition and results of operations.
Our
failure to protect our intellectual property rights could diminish the value of our solutions, weaken our competitive position
and reduce our revenue.
We
regard the protection of our intellectual property, which includes patents and patent applications, trade secrets, trademarks
and domain names, as critical to our success. We strive to protect our intellectual property rights by relying on federal, state
and common law rights, as well as contractual restrictions. We enter into confidentiality and invention assignment agreements
with our employees, consultants and contractors, and confidentiality agreements with parties with whom we conduct business in
order to limit access to, and disclosure and use of, our proprietary information. However, these contractual arrangements and
the other steps we have taken to protect our intellectual property may not prevent the misappropriation of our proprietary information
or deter independent development of similar technologies by others.
We
have obtained patents and we have patent applications pending in both the United States and foreign jurisdictions. There can be
no assurance that our patent applications will be approved, that any patents issued will adequately protect our intellectual property,
or that these patents will not be challenged by third parties or found to be invalid or unenforceable. We have also obtained trademark
registration in the United States and in foreign jurisdictions. Effective trade secret, trademark and patent protection is expensive
to develop and maintain, both in terms of initial and ongoing registration requirements and the costs of defending our rights.
We may be required to protect our intellectual property in an increasing number of jurisdictions, a process that is expensive
and may not be successful or which we may not pursue in every location. We may, over time, increase our investment in protecting
our intellectual property through additional patent filings that could be expensive and time-consuming.
Monitoring
unauthorized use of our intellectual property is difficult and costly. Our efforts to protect our proprietary rights may not be
adequate to prevent misappropriation of our intellectual property. We may not be able to detect unauthorized use of, or take appropriate
steps to enforce, our intellectual property rights. Further, our competitors may independently develop technologies that are similar
to ours but which avoid the scope of our intellectual property rights. Further, the laws in the United States and elsewhere change
rapidly, and any future changes could adversely affect us and our intellectual property. Our failure to meaningfully protect our
intellectual property could result in competitors offering solutions that incorporate our most technologically advanced features,
which could seriously reduce demand for our products. In addition, we may in the future need to initiate infringement claims or
litigation. Litigation, whether we are a plaintiff or a defendant, can be expensive, time-consuming and may divert the efforts
of our technical staff and managerial personnel, which could harm our business, whether or not the litigation results in a determination
that is unfavorable to us. In addition, litigation is inherently uncertain, and thus we may not be able to stop our competitors
from infringing our intellectual property rights.
We
could incur substantial costs and disruption to our business as a result of any dispute related to, or claim of infringement of
another party’s intellectual property rights, which could harm our business and operating results.
In
recent years, there has been significant litigation in the United States over patents and other intellectual property rights.
From time to time, we may face allegations that we or customers who use our products have infringed the trademarks, copyrights,
patents and other intellectual property rights of third parties, including allegations made by our competitors or by non-practicing
entities, or that we or our customers have misappropriated the intellectual property rights of such third parties. We cannot predict
whether assertions of third party intellectual property rights or claims arising from these assertions will substantially harm
our business and operating results. If we are forced to defend any infringement or misappropriation claims or attacks on the validity
of our intellectual property rights, whether they are with or without merit or are ultimately determined in our favor, we may
face costly litigation and diversion of technical and management personnel. Most of our competitors have substantially greater
resources than we do and are able to sustain the cost of complex intellectual property litigation to a greater extent and for
longer periods of time than we could. Furthermore, an adverse outcome of a dispute may require us, among other things: to pay
damages, potentially including treble damages and attorneys’ fees, if we are found to have willfully infringed a party’s
patent or other intellectual property rights; to cease making, licensing or using products that are alleged to incorporate or
make use of the intellectual property of others; to expend additional development resources to redesign our products; and to enter
into potentially unfavorable royalty or license agreements in order to obtain the rights to use necessary technologies. Royalty
or licensing agreements, if required, may be unavailable on terms acceptable to us, or at all. In any event, we may need to license
intellectual property which would require us to pay royalties or make one-time payments. Even if these matters do not result in
litigation or are resolved in our favor or without significant cash settlements, the time and resources necessary to resolve them
could harm our business, operating results, financial condition and reputation.
Risks
Related to the Regulation of Our Products
We
are subject to extensive governmental regulation, including the requirement of U.S. Food and Drug Administration approval or clearance,
before our product candidates may be marketed.
The
process of obtaining U.S. Food and Drug Administration approval is lengthy, expensive and uncertain, and we cannot be sure that
our additional product candidates will be approved in a timely fashion, or at all. If the U.S. Food and Drug Administration does
not approve or clear our product candidates in a timely fashion, or at all, our business and financial condition would likely
be adversely affected.
Both
before and after approval or clearance of our product candidates, we, our product candidates, our suppliers and our contract manufacturers
are subject to extensive regulation by governmental authorities in the United States and other countries. Failure to comply with
applicable requirements could result in, among other things, any of the following actions:
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FDA
issuance of Form 483 or Warning Letters, which may be made public and may lead to further regulatory or enforcement actions,
or similar letters by other regulatory authorities;
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fines
and other monetary penalties;
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unanticipated
expenditures;
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delays
in U.S. Food and Drug Administration approval and clearance, or U.S. Food and Drug Administration refusal to approve or clear
a product candidate;
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product
recall or seizure;
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interruption
of manufacturing or clinical trials;
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operating
restrictions;
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injunction
or other restrictions imposed on our operations, including closing our facilities or our contract manufacturers’ facilities;
or
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criminal
prosecutions.
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In
addition to the approval and clearance requirements, numerous other regulatory requirements apply, both before and after approval
or clearance, to us, our products and product candidates, and our suppliers and contract manufacturers. These include requirements
related to the following:
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testing
and quality control;
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manufacturing;
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quality
assurance
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labeling;
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advertising;
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promotion;
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distribution;
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export;
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reporting
to the U.S. Food and Drug Administration certain adverse experiences associated with the use of the products; and
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obtaining
additional approvals or clearances for certain modifications to the products or their labeling or claims.
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We
are also subject to inspection by the U.S. Food and Drug Administration to determine our compliance with regulatory requirements,
as are our suppliers and contract manufacturers, and we cannot be sure that the U.S. Food and Drug Administration will not identify
compliance issues that may disrupt production or distribution, or require substantial resources to correct.
The
U.S. Food and Drug Administration’s requirements may change and additional government regulations may be promulgated that
could affect us, our product candidates, and our suppliers and contract manufacturers. We cannot predict the likelihood, nature
or extent of government regulation that may arise from future legislation or administrative action. There can be no assurance
that we will not be required to incur significant costs to comply with such laws and regulations in the future, or that such laws
or regulations will not have a material adverse effect upon our business.
Failure
to obtain regulatory approval in foreign jurisdictions will prevent us from marketing our products abroad.
International
sales of our products and any of our product candidates that we commercialize are subject to the regulatory requirements of each
country in which the products are sold. Accordingly, the introduction of our product candidates in markets outside the United
States where we do not already possess regulatory approval will be subject to regulatory approvals in those jurisdictions. The
regulatory review process varies from country to country. Many countries impose product standards, packaging and labeling requirements,
and import restrictions on medical devices. In addition, each country has its own tariff regulations, duties and tax requirements,
as well as reimbursement and healthcare payment systems. The approval by foreign government authorities is unpredictable and uncertain,
and can be expensive. We may be required to perform additional pre-clinical, clinical or post-approval studies even if U.S. Food
and Drug Administration approval has been obtained. Our ability to market our approved products could be substantially limited
due to delays in receipt of, or failure to receive, the necessary approvals or clearances.
We
are uncertain regarding the success of our clinical trials for our products in development.
We
believe that all of our products in development, which consist of LungShield and RenooSkin, will require clinical trials to determine
their safety and efficacy by regulatory bodies in their target markets, including the U.S. Food and Drug Administration and various
foreign regulators. There can be no assurance that we will be able to successfully complete the U.S. and foreign regulatory approval
processes for products in development. In addition, there can be no assurance that we will not encounter additional problems that
will cause us to delay, suspend or terminate our clinical trials. In addition, we cannot make any assurance that clinical trials
will be deemed sufficient in size and scope to satisfy regulatory approval requirements, or, if completed, will ultimately demonstrate
our products to be safe and efficacious.
The
adoption of health policy changes and health care reform in the United States may adversely affect our business and financial
results.
On
March 23, 2010, President Obama signed into law major health care reform legislation under the Patient Protection and Affordable
Care Act of 2010, commonly referred to as the Affordable Care Act, which was modified on March 30, 2010, by the enactment of the
Health Care and Education Reconciliation Act of 2010. The Affordable Care Act contains numerous regulations regarding the payment
for and provision of health care, including provisions aimed at improving quality, extending health care coverage to tens of millions
of individuals, enhancing remedies for fraud and abuse, adding transparency requirements and conditions to reimbursement, and
decreasing health care costs. The Affordable Care Act also includes significant provisions that encourage state and federal law
enforcement agencies to increase activities related to preventing, detecting and prosecuting those who commit fraud, waste and
abuse in federal healthcare programs, including Medicare, Medicaid and Tricare. This legislation is one of the most comprehensive
and significant reforms ever experienced by the United States health care industry and has significantly changed the way health
care is financed by both governmental and private insurers. Extending health care coverage to those who previously lacked coverage
will likely result in substantial cost to the United States federal government, which may force additional changes to the health
care system in the United States. Much of the funding for expanded health care coverage may be sought through cost savings. While
some of these savings may come from realizing greater efficiencies in delivering care, improving the effectiveness of preventive
care and enhancing the overall quality of care, much of the cost savings may come from reducing the cost of health care and increased
enforcement activities. The cost of health care could be reduced by decreasing the level of reimbursement for medical services
or products (including products we may sell or market), or by restricting coverage of medical services or products. A reduction
in the use of or reimbursement for products we may sell in the United States could materially adversely affect our business and
results of operations.
Some
of the provisions of the Affordable Care Act have not yet been fully implemented and the effect of the legislation is difficult
to predict. The Affordable Care Act continues to be implemented through regulation and government activity, and is subject to
possible additional implementing regulations and interpretive guidelines. Further, the Affordable Care Act has been subject to
judicial and Congressional challenges, and legislative initiatives to modify, limit, or repeal the Affordable Care Act continue.
It remains to be seen, however, precisely what new health care reform legislation will be enacted, if any, and what impact it
will have on the availability of health care and containing or lowering the cost of health care. The manner in which the Affordable
Care Act continues to evolve could materially affect the extent to which and the amount at which health care products and services
are reimbursed by government programs such as Medicare, Medicaid and Tricare. We cannot predict all impacts the Affordable Care
Act or other health care reform legislation may have on our products, but it may result in our products being chosen less frequently
or the pricing being substantially lowered.
In
addition, other health care reform proposals have emerged at the federal and state levels, including those aimed at reducing health
care costs and increasing transparency. We cannot predict the effect these newly enacted laws or any future legislation or regulation
will have on us. However, the implementation of new legislation and regulation may lower reimbursements for our products, increase
our compliance and other costs, and adversely affect our business.
We
cannot predict what additional healthcare reform initiatives may be adopted in the future or how federal and state legislative
and regulatory developments are likely to evolve, but we expect ongoing initiatives in the United States to increase pressure
on pricing for health care products and services. Such reforms could have an adverse effect on the pricing and market for our
products.
If
we fail to comply with the U.S. federal and state fraud and abuse and other health care laws and regulations, we could be subject
to criminal and civil penalties and exclusion from the Medicare and Medicaid programs, which would have a material adverse effect
on our business and results of operations.
All
of our financial relationships with health care providers and others who provide products or services to federal health care program
beneficiaries are potentially governed by the federal and state fraud and abuse laws, and other health care laws and regulations
may be or become applicable to our business and operations and expose us to risk. For example:
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The federal Anti-Kickback Statute, which prohibits the offer, payment, solicitation or receipt of any form of remuneration in
return for referring, ordering, leasing, purchasing or arranging for, or recommending the ordering, purchasing or leasing of,
items or services payable by Medicare, Medicaid or any other federal health care program.
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Federal false claims laws and civil monetary penalty laws, including the False Claims Act, that prohibit, among other things,
individuals or entities from knowingly presenting, or causing to be presented, claims for payment from Medicare, Medicaid or other
government health care programs that are false or fraudulent, or making a false statement to avoid, decrease or conceal an obligation
to pay money to the federal government.
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The federal Health Insurance Portability and Accountability Act of 1996, or HIPAA, which prohibits knowingly and willfully executing,
or attempting to execute, a scheme to defraud any healthcare benefit program or obtain, by means of false or fraudulent pretenses,
representations, or promises, any of the money or property owned by, or under the custody or control of, any health care benefit
program, and for knowingly and willfully falsifying, concealing or covering up a material fact or making any materially false
statements in connection with the delivery of or payment for health care benefits, items or services.
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HIPAA, as amended by the Health Information Technology for Economic and Clinical Health Act of 2009, and its implementing regulations,
which also impose obligations and requirements on health care providers, health plans, and healthcare clearinghouses as well as
their respective business associates that perform certain services for them that involve the use or disclosure of individually
identifiable health information, with respect to safeguarding the privacy and security of certain individually identifiable health
information.
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The federal transparency requirements under the Affordable Care Act, including the provision commonly referred to as the Physician
Payments Sunshine Act, which requires certain manufacturers of drugs, devices, biologics and medical supplies that are reimbursable
under Medicare, Medicaid or Children’s Health Insurance Program to report annually to Centers for Medicare and Medicaid
Services, or CMS, information related to payments and other transfers of value to physicians and teaching hospitals, and ownership
and investment interests held by physicians and their immediate family members.
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Analogous state and foreign laws and regulations, such as state anti-kickback and false claims laws, which may be broader in scope
and apply to referrals and items or services reimbursed by both governmental and non-governmental third-party payers, including
private insurers, many of which differ from each other in significant ways and often are not preempted by federal law, thus complicating
compliance efforts.
Because
of the breadth of these laws and the narrowness of the statutory exceptions and safe harbors available, it is possible that some
of our business activities could be subject to challenge under one or more of such laws. In addition, recent health care reform
legislation has strengthened these laws. Efforts to ensure that our business arrangements with third parties and our operations
are compliant with applicable health care laws and regulations will involve the expenditure of appropriate, and possibly significant,
resources. If we are found to be in violation of any current or future statutes or regulations involving applicable fraud and
abuse or other health care laws and regulations, we may be subject to significant civil, criminal and administrative penalties,
damages, fines, disgorgement, imprisonment, exclusion from government funded health care programs, such as Medicare and Medicaid,
contractual damages, reputational harm, diminished profits and future earnings, which could have a material adverse effect on
our business, results of operations and financial condition. If any physicians or other health care providers or entities with
whom we expect to do business are found to not be in compliance with applicable laws, they may be subject to criminal, civil or
administrative sanctions, including exclusions from government funded health care programs, which could adversely affect our ability
to operate our business and our results of operations.
Risks
Related to our Operations in Israel
We
conduct our operations in Israel and therefore our results may be adversely affected by political, economic and military instability
in Israel and its region.
Our
principal offices and manufacturing facilities are located in Israel and most of our officers and employees are residents of Israel.
Accordingly, political, economic and military conditions in Israel and the surrounding region may directly affect our business.
Since the establishment of the State of Israel in 1948, a number of armed conflicts have taken place between Israel and its Arab
neighbors. Any hostilities involving Israel or the interruption or curtailment of trade within Israel or between Israel and its
trading partners could adversely affect our operations and results of operations and could make it more difficult for us to raise
capital. During the summer of 2014, Israel was engaged in an armed conflict with Hamas in Gaza, which involved missile strikes
against civilian targets in various parts of Israel and negatively affected business conditions in Israel. In addition, recent
political uprisings and conflicts in various countries in the Middle East, including Egypt and Syria, are affecting the political
stability of those countries. It is not clear how this instability will develop and how it will affect the political and security
situation in the Middle East. This instability has raised concerns regarding security in the region and the potential for armed
conflict. In addition, it is widely believed that Iran, which has previously threatened to attack Israel, has been stepping up
its efforts to achieve nuclear capability. Iran is also believed to have a strong influence among extremist groups in the region,
such as Hamas in Gaza and Hezbollah in Lebanon. Additionally, the Islamic State of Iraq and Levant (“ISIL”), a violent
jihadist group, is involved in hostilities in Iraq and Syria. 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.
The tension between Israel and Iran and/or these groups may escalate in the future and turn violent, which could affect the Israeli
economy in general and us in particular. Any armed conflicts, terrorist activities or political instability in the region could
adversely affect business conditions and could harm our results of operations. For example, any major escalation in hostilities
in the region could result in a portion of our employees being called up to perform military duty for an extended period of time.
Parties with whom we do business have sometimes declined to travel to Israel during periods of heightened unrest or tension, forcing
us to make alternative arrangements when necessary. 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.
Our
commercial insurance does not cover losses that may occur as a result of events associated with the security situation in the
Middle East. Although the Israeli government currently covers the reinstatement value of direct damages that are caused by terrorist
attacks or acts of war, we cannot assure you that this government coverage will be maintained. Any losses or damages incurred
by us could have a material adverse effect on our business. Any armed conflicts or political instability in the region would likely
negatively affect business conditions and could harm our results of operations.
Further,
in the past, the State of Israel and Israeli companies have been subjected to an economic boycott. Several countries still restrict
business and trade activity with the State of Israel and with Israeli companies. These restrictive laws and policies may have
an adverse impact on our operating results, financial condition or the expansion of our business.
Our
operations may be disrupted as a result of the obligation of management or personnel to perform military service.
Many
of our male employees in Israel, including members of our senior management, perform up to one month, and in some cases more,
of annual military reserve duty until they reach the age of 45 or older and, in the event of a military conflict, may be called
to active duty. There have also been periods of significant call-ups of military reservists, and it is possible that there will
be military reserve duty call-ups in the future. Our operations could be disrupted by the absence of a significant number of our
employees. Such disruption could materially adversely affect our business, financial condition and results of operations.
Because
a certain portion of our expenses is incurred in currencies other than the U.S. dollar, our results of operations may be harmed
by currency fluctuations and inflation.
We
expect our revenues from future licensing agreements to be denominated mainly in U.S. dollars or in Euros. We pay a substantial
portion of our expenses in U.S. dollars; however, a portion of our expenses, related to salaries of the employees in Israel and
payment to part of the service providers in Israel and other territories, are paid in New Israeli Shekels, or NIS, and in other
currencies. In addition, a portion of our financial assets is held in NIS and in other currencies. As a result, we are exposed
to the currency fluctuation risks, and we do not attempt to hedge against such risks. For example, if the NIS strengthens against
the U.S. dollar, our reported expenses in U.S. dollars may be higher than anticipated. In addition, if the NIS weakens against
the U.S. dollar, the U.S. dollar value of our financial assets held in NIS will decline.
It
may be difficult for investors in the United States to enforce any judgments obtained against us or any of our directors or officers.
Almost
all of our assets are located outside the United States, although we do maintain a permanent place of business within the United
States. In addition, some of our officers and directors are nationals and/or residents of countries other than the United States,
and all or a substantial portion of such persons’ assets are located outside the United States. As a result, it may be difficult
for investors to enforce within the United States any judgments obtained against us or any of our non-U.S. directors or officers,
including judgments predicated upon the civil liability provisions of the securities laws of the United States or any state thereof.
Additionally, it may be difficult to assert U.S. securities law claims in actions originally instituted outside of the United
States. Israeli courts may refuse to hear a U.S. securities law claim because Israeli courts may not be the most appropriate forums
in which to bring such a claim. Even if an Israeli court agrees to hear a claim, it may determine that the Israeli law, and not
U.S. law, is applicable to the claim. Further, if U.S. law is found to be applicable, certain content of applicable U.S. law must
be proved as a fact, which can be a time-consuming and costly process, and certain matters of procedure would still be governed
by the Israeli law. Consequently, you may be effectively prevented from pursuing remedies under U.S. federal and state securities
laws against us or any of our non-U.S. directors or officers.
Risks
Related to Our Organization and Our Securities
The
price of our securities may be volatile, and the market price of our securities may drop below the price you pay.
We
expect that the price of our securities will fluctuate significantly. Market prices for securities of early-stage medical device
companies have historically been particularly volatile. In addition to the factors discussed in this “Risk Factors”
section and elsewhere in this report, these factors include:
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progress,
or lack of progress, in developing and commercializing our products;
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favorable
or unfavorable decisions about our products or intellectual property from government regulators, insurance companies or other
third-party payers;
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our
ability to recruit and retain qualified regulatory and research and development personnel;
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changes
in investors’ and securities analysts’ perception of the business risks and conditions of our business;
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changes
in our relationship with key collaborators;
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changes
in the market valuation or earnings of our competitors or companies viewed as similar to us;
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changes
in key personnel;
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depth
of the trading market in our common stock;
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changes
in our capital structure, such as future issuances of securities or the incurrence of additional debt;
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the
granting or exercise of employee stock options or other equity awards;
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realization
of any of the risks described under this section entitled “Risk Factors”; and
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general
market and economic conditions.
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In
recent years, the stock markets, in general, have experienced extreme price and volume fluctuations especially in the biotechnology
sector. Broad market and industry factors may materially harm the market price of shares of our common stock. In the past, following
periods of volatility in the market price of a company’s securities, securities class action litigation has often been instituted
against that company. If we were involved in any similar litigation, we could incur substantial costs and our management’s
attention and resources could be diverted.
We
have a significant number of warrants and options, and future sales of our common stock upon exercise of these options or warrants,
or the perception that future sales may occur, may cause the market price of our common stock to decline, even if our business
is doing well.
Sales
of a significant number of shares of our common stock in the public market could harm the market price of our common stock and
make it more difficult for us to raise funds through future offerings of common stock. Our stockholders and the holders of our
outstanding warrants and options, upon exercise of these options or warrants, may sell substantial amounts of our common stock
in the public market. The availability of these shares of our common stock for resale in the public market has the potential to
cause the supply of our common stock to exceed investor demand, thereby decreasing the price of our common stock.
In
addition, the fact that our stockholders and holders of our warrants and options can sell substantial amounts of our common stock
in the public market, whether or not sales have occurred or are occurring, could make it more difficult for us to raise additional
financing through the sale of equity or equity-related securities in the future at a time and price that we deem reasonable or
appropriate.
Although
our shares of common stock are now listed on the NASDAQ Capital Market, we currently have a limited trading volume, which results
in higher price volatility for, and reduced liquidity of, our common stock.
Although
our shares of common stock are now listed on the NASDAQ Capital Market under the symbol “NAOV,” trading volume in
our common stock has been limited and an active trading market for our shares of common stock may never develop or be maintained.
The absence of an active trading market increases price volatility and reduces the liquidity of our common stock. As long as this
condition continues, the sale of a significant number of shares of common stock at any particular time could be difficult to achieve
at the market prices prevailing immediately before such shares are offered.
If
we fail to comply with the continued listing requirements of the NASDAQ Capital Market, our common stock may be delisted and the
price of our common stock and our ability to access the capital markets could be negatively impacted.
Our
common stock is currently listed for trading on the NASDAQ Capital Market. We must satisfy NASDAQ’s continued listing requirements,
including, among other things, a minimum stockholders’ equity of $2.5 million or risk delisting, which would have
a material adverse effect on our business. A delisting of our common stock from the NASDAQ Capital Market could materially reduce
the liquidity of our common stock and result in a corresponding material reduction in the price of our common stock. In addition,
delisting could harm our ability to raise capital through alternative financing sources on terms acceptable to us, or at all,
and may result in the potential loss of confidence by investors, suppliers, customers and employees and fewer business development
opportunities.
On
September 14, 2018, we received a letter from the Listing Qualifications Staff (the “Staff”) of The Nasdaq Stock Market
LLC notifying the Company that it was no longer in compliance with the minimum stockholders’ equity requirement for continued
listing on the NASDAQ Capital Market. On October 26, 2018, November 23, 2018 and January 9, 2019, we submitted a plan and supporting
documentation to regain compliance with the minimum stockholders’ equity requirement and was granted an extension through
March 13, 2019 to comply with this requirement.
The
Staff notified us by letter dated March 14, 2019 that it determined that we did not meet the terms of the extension because we
were unable to complete an equity financing and evidence compliance with the minimum $2.5 million stockholders’ equity requirement
for continued listing on the NASDAQ Capital Market by March 13, 2019, and our common stock would be subject to delisting from
the NASDAQ Capital Market unless the Company timely requests a hearing before the Nasdaq Hearings Panel (the “Panel”).
We
timely requested a hearing before the Panel, which request stayed any delisting action by the Staff at least until the hearing
process concludes and any extension granted by the Panel expires. At the hearing, we will present its plan to evidence compliance
with the minimum stockholders’ equity requirement for continued listing on the NASDAQ Capital Market, and request an extension
of time within which to do so. The hearing has been scheduled for May 2, 2019. If we do not receive a positive ruling on May 2,
2019, or if we fail to satisfy another NASDAQ requirement for continued listing, Staff could provide notice that our common stock
will become subject to delisting.
If
our common stock were delisted from NASDAQ, trading of our common stock would most likely take place on an over-the-counter market
established for unlisted securities, such as the OTCQB or the Pink Market maintained by OTC Markets Group Inc. An investor would
likely find it less convenient to sell, or to obtain accurate quotations in seeking to buy, our common stock on an over-the-counter
market, and many investors would likely not buy or sell our common stock due to difficulty in accessing over-the-counter markets,
policies preventing them from trading in securities not listed on a national exchange or other reasons. In addition, as a delisted
security, our common stock would be subject to SEC rules as a “penny stock,” which impose additional disclosure requirements
on broker-dealers. The regulations relating to penny stocks, coupled with the typically higher cost per trade to the investor
of penny stocks due to factors such as broker commissions generally representing a higher percentage of the price of a penny stock
than of a higher-priced stock, would further limit the ability of investors to trade in our common stock. For these reasons and
others, delisting would adversely affect the liquidity, trading volume and price of our common stock, causing the value of an
investment in us to decrease and having an adverse effect on our business, financial condition and results of operations, including
our ability to attract and retain qualified employees and to raise capital.
Complying
with the laws and regulations affecting public companies has increased and will increase our costs and the demands on management
and could harm our operating results.
As
a public company, we will continue to incur significant legal, accounting and other expenses that we did not incur as a private
company, including costs associated with public company reporting requirements. We also anticipate that we will incur costs associated
with relatively recently adopted corporate governance requirements, including requirements of the Securities Exchange Commission
and the NASDAQ Stock Market. We expect these rules and regulations to increase our legal and financial compliance costs and to
make some activities more time-consuming and costly. We also expect that these rules and regulations may make it more difficult
and more expensive for us to obtain director and officer liability insurance and we may be required to accept reduced policy limits
and coverage or incur substantially higher costs to obtain the same or similar coverage. As a result, it may be more difficult
for us to attract and retain qualified individuals to serve on our board of directors or as executive officers. We are currently
evaluating and monitoring developments with respect to these rules, and we cannot predict or estimate the amount of additional
costs we may incur or the timing of such costs.
For
example, the Sarbanes-Oxley Act requires, among other things, that we assess the effectiveness of our internal control over financial
reporting annually and the effectiveness of our disclosure controls and procedures quarterly. Section 404 of the Sarbanes-Oxley
Act (“Section 404”) requires us to perform system and process evaluation and testing of our internal control over
financial reporting to allow management to report on, and our independent registered public accounting firm potentially to attest
to, the effectiveness of our internal control over financial reporting. Our compliance with applicable provisions of Section 404,
including the requirement that our independent registered public accounting firm undertake an assessment of our internal control
over financial reporting, will require that we incur substantial accounting expense and expend significant management time on
compliance-related issues as we implement additional corporate governance practices and comply with reporting requirements. Moreover,
if we are not able to comply with the requirements of Section 404 applicable to us in a timely manner, or if we or our independent
registered public accounting firm identifies deficiencies in our internal control over financial reporting that are deemed to
be material weaknesses, the market price of our stock could decline and we could be subject to sanctions or investigations by
the Securities Exchange Commission or other regulatory authorities, which would require additional financial and management resources.
Furthermore, investor perceptions of our company may suffer if deficiencies are found, and this could cause a decline in the market
price of our stock. Irrespective of compliance with Section 404, any failure of our internal control over financial reporting
could have a material adverse effect on our stated operating results and harm our reputation. If we are unable to implement these
requirements effectively or efficiently, it could harm our operations, financial reporting, or financial results and could result
in an adverse opinion on our internal control over financial reporting from our independent registered public accounting firm.
If
we fail to maintain effective internal control over financial reporting, the market price of our securities may be adversely affected.
As
a public reporting company, we are required to establish and maintain effective internal control over financial reporting. Failure
to establish such internal control, or any failure of such internal control once established, could adversely impact our public
disclosures regarding our business, financial condition or results of operations. Any failure of our internal control over financial
reporting could also prevent us from maintaining accurate accounting records and discovering accounting errors and financial frauds.
Rules
adopted by the Securities and Exchange Commission pursuant to Section 404 require annual assessment of our internal control over
financial reporting. The standards that must be met for management to assess the internal control over financial reporting as
effective are complex, and require significant documentation, testing and possible remediation to meet the detailed standards.
We may encounter problems or delays in completing activities necessary to make an assessment of our internal control over financial
reporting. If we cannot assess our internal control over financial reporting as effective, investor confidence and share value
may be negatively impacted. 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 (including those weaknesses identified in our periodic reports), or disclosure of management’s
assessment of our internal control over financial reporting may have an adverse impact on the price of our securities.
While
we currently qualify as an “emerging growth company” under the Jumpstart of Business Startups Act of 2012, or the
JOBS Act, we could lose that status, which may increase the costs and demands placed upon our management.
We
are an “emerging growth company,” as defined in the Jumpstart Our Business Startups Act, and would continue to be
an emerging growth company until December 31, 2022, or until the earliest of (i) the last day of the fiscal year during which
we had total annual gross revenues of $1.07 billion (as indexed for inflation); (ii) the date on which we have, during the previous
3-year period, issued more than $1 billion in non-convertible debt; or (iii) the date on which we are deemed to be a ‘large
accelerated filer,’ as defined by the Securities and Exchange Commission, which would generally occur upon our attaining
a public float of at least $700 million. Once we lose emerging growth company status, we expect the costs and demands placed upon
our management to increase, as we would have to comply with additional disclosure and accounting requirements, particularly if
we would also no longer qualify as a smaller reporting company.
We
are an “emerging growth company” and we cannot be certain that the reduced disclosure requirements applicable to emerging
growth companies will make our common stock less attractive to investors.
The
JOBS Act permits “emerging growth companies” like us to rely on some of the reduced disclosure requirements that are
already available to smaller reporting companies. As long as we qualify as an emerging growth company or a smaller reporting company,
we would be permitted to omit an auditor’s attestation on internal control over financial reporting that would otherwise
be required by the Sarbanes-Oxley Act, and are also exempt from the requirement to submit “say-on-pay”, “say-on-pay
frequency” and “say-on-parachute” votes to our stockholders and may avail ourselves of reduced executive compensation
disclosure that is already available to smaller reporting companies.
In
addition, Section 107 of the JOBS Act also provides that an emerging growth company can take advantage of the exemption from complying
with new or revised accounting standards provided in Section 7(a)(2)(B) of the Securities Act of 1933, as amended, as long as
we are an emerging growth company. An emerging growth company can therefore delay the adoption of certain accounting standards
until those standards would otherwise apply to private companies. We have elected to take advantage of the benefits of this until
we are no longer an emerging growth company or until we affirmatively and irrevocably opt out of this exemption. Our financial
statements may therefore not be comparable to those of companies that comply with such new or revised accounting standards.
We
will cease to be an emerging growth company at such time as described in the risk factor immediately above. Until such time, however,
we cannot predict if investors will find our common stock less attractive because we may rely on these exemptions. If some investors
find our common stock less attractive as a result, there may be a less active trading market for our common stock and our stock
price may be more volatile and could cause our stock price to decline.
Anti-takeover
provisions of our certificate of incorporation, our bylaws and Delaware law could make an acquisition of us, which may be beneficial
to our stockholders, more difficult and may prevent attempts by our stockholders to replace or remove the current members of our
board and management.
Certain
provisions of our amended and restated certificate of incorporation and bylaws could discourage, delay or prevent a merger, acquisition
or other change of control that stockholders may consider favorable, including transactions in which you might otherwise receive
a premium for your shares. Furthermore, these provisions could prevent or frustrate attempts by our stockholders to replace or
remove members of our board of directors. These provisions also could limit the price that investors might be willing to pay in
the future for our securities, thereby depressing the market price of our securities. Stockholders who wish to participate in
these transactions may not have the opportunity to do so. These provisions, among other things:
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allow
the authorized number of directors to be changed only by resolution of our board of directors;
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authorize
our board of directors to issue, without stockholder approval, preferred stock, the rights of which will be determined at
the discretion of the board of directors and that, if issued, could operate as a “poison pill” to dilute the stock
ownership of a potential hostile acquirer to prevent an acquisition that our board of directors does not approve;
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establish
advance notice requirements for stockholder nominations to our board of directors or for stockholder proposals that can be
acted on at stockholder meetings; and
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limit
who may call a stockholder meeting.
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In
addition, we are governed by the provisions of Section 203 of the Delaware General Corporation Law that may, unless certain criteria
are met, prohibit large stockholders, in particular those owning 15% or more of the voting rights on our common stock, from merging
or combining with us for a prescribed period of time.
If
securities or industry analysts do not publish research or reports or publish unfavorable research about our business, the price
of our securities and their trading volume could decline.
The
trading market for our securities will depend in part on the research and reports that securities or industry analysts publish
about us or our business. We do not currently have and may never obtain research coverage by securities and industry analysts.
If no securities or industry analysts commence coverage of us the trading price for our securities would be negatively affected.
In the event we obtain securities or industry analyst coverage, if one or more of the analysts who covers us downgrades our securities,
the price of our securities would likely decline. If one or more of these analysts ceases to cover us or fails to publish regular
reports on us, interest in the purchase of our securities could decrease, which could cause the price of our securities and their
trading volume to decline.
We
may be subject to ongoing restrictions related to grants from the Israeli Office of the Chief Scientist.
Through
our Israeli subsidiary, as of December 31, 2017, we received grants of $437,000 from the Office of the Chief Scientist of the
Israeli Ministry of Industry, Trade and Labor, or the Office of the Chief Scientist, for research and development programs related
to products that we are not currently commercializing or marketing. Because we are no longer developing the product to which the
grants relate, we do not believe that we are subject to any material conditions with respect to the grants, except for the restrictions
on our ability to make certain transfers of the technology or intellectual property related to these grants described below. We
could in the future determine to apply for further grants. If we receive any such grants, we would have to comply with specified
conditions, including paying royalties with respect to grants received. If we fail to comply with these conditions in the future,
sanctions might be imposed on us, such as grants could be cancelled and we could be required to refund any payments previously
received under these programs.
Pursuant
to the Israeli Encouragement of Industrial Research and Development Law, any products developed with grants from the Office of
the Chief Scientist are required to be manufactured in Israel and certain payments may be required in connection with the change
of control of the grant recipient and the financing, mortgaging, production, exportation, licensing and transfer or sale of its
technology and intellectual property to third parties, which will require the Office of the Chief Scientist’s prior consent
and, in case such a third party is outside of Israel, extended royalties and/or other fees. This could have a material adverse
effect on and significant cash flow consequences to us if, and when, any technologies, intellectual property or manufacturing
rights are exported, transferred or licensed to third parties outside Israel. If the Office of the Chief Scientist does not wish
to give its consent in any required situation or transaction, we would need to negotiate a resolution with the Office of the Chief
Scientist. In any event, such a transaction, assuming it was approved by the Office of the Chief Scientist, would involve monetary
payments, such as royalties or fees, of not less than the applicable funding received from the Office of the Chief Scientist plus
interest, not to exceed, in aggregate, six times the applicable funding received from the Office of the Chief Scientist.
Because
we do not expect to pay cash dividends for the foreseeable future, you must rely on appreciation of our common stock price for
any return on your investment. Even if we change that policy, we may be restricted from paying dividends on our common stock.
We
do not intend to pay cash dividends on shares of our common stock for the foreseeable future. Any determination to pay dividends
in the future will be at the discretion of our board of directors and will depend upon results of operations, financial performance,
contractual restrictions, restrictions imposed by applicable law and other factors our board of directors deems relevant. Accordingly,
you will have to rely on capital appreciation, if any, to earn a return on your investment in our common stock. Investors seeking
cash dividends in the foreseeable future should not purchase our common stock.
Our
ability to use our net operating loss carry forwards and certain other tax attributes may be limited.
Our
ability to utilize our federal net operating loss, carryforwards and federal tax credit may be limited under Sections 382 and
383 of the Internal Revenue Code of 1986, as amended. The limitations apply if an “ownership change,” as defined by
Section 382, occurs. Generally, an ownership change occurs if the percentage of the value of the stock that is owned by one or
more direct or indirect “five percent shareholders” increases by more than 50% over their lowest ownership percentage
at any time during the applicable testing period (typically three years). If we have experienced an “ownership change”
at any time since our formation, we may already be subject to limitations on our ability to utilize our existing net operating
losses and other tax attributes to offset taxable income. In addition, future changes in our stock ownership, which may be outside
of our control, may trigger an “ownership change” and, consequently, Section 382 and 383 limitations. As a result,
if we earn net taxable income, our ability to use our pre-change net operating loss carryforwards and other tax attributes to
offset U.S. federal taxable income may be subject to limitations, which could potentially result in increased future tax liability
to us.