ITEM
1. BUSINESS
Cautionary
Note Regarding Forward-Looking Statements
This
Annual Report on Form 10-K contains “forward-looking statements,” which include information relating to future events,
future financial performance, financial projections, strategies, expectations, competitive environment and regulation. Words such
as “may,” “should,” “could,” “would,” “predicts,” “potential,”
“continue,” “expects,” “anticipates,” “future,” “intends,” “plans,”
“believes,” “estimates,” and similar expressions, as well as statements in future tense, identify forward-looking
statements. Forward-looking statements should not be read as a guarantee of future performance or results and may not be accurate
indications of when such performance or results will be achieved. Forward-looking statements are based on information we have
when those statements are made or management’s good faith belief as of that time with respect to future events, and are
subject to risks and uncertainties that could cause actual performance or results to differ materially from those expressed in
or suggested by the forward-looking statements. Important factors that could cause such differences include, but are not limited
to:
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Our
ability to continue as a going concern.
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The
delisting of our common stock from the NASDAQ Capital Market.
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The
geographic, social and economic impact of COVID-19 on the Company’s business operations.
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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, prior to January 2020, we only had reimbursement codes in the United States
(i.e., CPT codes) for clinical use only. Effective as of January 2020, the U.S. Centers for Medicare and Medicaid Services (CMS)
approved our PainShield™ for reimbursement for Medicare beneficiaries on a national basis. We
were notified on March 30, 2020 that our Medicare Enrollment Application was approved, and we are now an approved Medicare Supplier
for Durable Medical Equipment, or DME, through the National Supplier Clearinghouse, Palmetto-GBA as well as Noridian Administrative
Services, LLC, the two Medicare Administrative Contractors that handle DME reimbursement nationwide. PainShield is currently
available for Medicare reimbursement on a national level under new HCPCS (Healthcare Common Procedure Coding System) code K1004.
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 continue to expand 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.
In
2019, the Company has completed a study which was intended
to assess the PainShield’s ability to effectively treat Lateral Epicondylitis (Tennis Elbow). This is a double blinded,
randomized control trial. The study has been completed and awaiting submission to an appropriate journal. The interim results
were reported as follows:
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70%
of patients using PainShield experienced complete resolution or significant improvement in symptoms without the use of opioids;
and
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PainShield
had no adverse events or complications and was deemed both safe and effective.
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The
Company has entered into 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.
The
Company executed a license agreement for WoundShield® with Sanuwave Health, Inc. (“Sanuwave”) for
the manufacture and delivery of its WoundShield® technology. The agreement was executed on March 27th, 2020.
Under
the terms of the agreement, NanoVibronix will receive 100,000 warrants of Sanuwave stock, a $250,000 milestone payment based on
FDA approval, and 10% royalty on Sanuwave’s gross revenues from sales or rentals of WoundShield. In return, Sanuwave has
received the worldwide, exclusive rights to the Company’s WoundShield product and technology. In addition, Sanuwave
will bear the costs and clinical validation responsibilities associated with obtaining approval for WoundShield from the U.S.
Food and Drug Administration and other regulatory agencies around the world.
Recent
Developments
Effective as of January
2020, the U.S. CMS has approved our PainShield™ for reimbursement for Medicare beneficiaries on a national basis. We
were notified on March 30, 2020 that our Medicare Enrollment Application was approved, and we are now an approved Medicare Supplier
for DME through the National Supplier Clearinghouse, Palmetto-GBA as well as Noridian Administrative Services, LLC, the two Medicare
Administrative Contractors that handle DME reimbursement nationwide. PainShield is currently available for Medicare reimbursement
on a national level under new HCPCS (Healthcare Common Procedure Coding System) code K1004, as discussed above.
In March 2020, we signed a license agreement
with Sanuwave Health, Inc. for the manufacture and delivery of our WoundShield technology. Under the terms of the agreement, we
will receive warrants to purchase 100,000 shares of Sanuwave stock, a $250,000 milestone payment based on receipt of U.S. Food
and Drug Administration approval, and 10% royalty on Sanuwave’s gross revenues from sales or rentals of WoundShield. In
return, Sanuwave has received the worldwide, exclusive rights to our WoundShield product and technology. In addition, Sanuwave
will bear the costs and clinical validation responsibilities associated with obtaining approval for WoundShield from the U.S.
Food and Drug Administration and other regulatory agencies around the world, as discussed above.
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.
In August 2019, we
established our first license agreement with Medisana, Inc. (“Medisana”) with a total of 1,500 devices that was
shipped to Medisana directly from China, in April 2020. The devices were designed to carry the product labeling specific to
the Medisana brand, with the product name of PT100. The product labeling includes the words, “PAINSHIELD Ultrasonic
therapy, Medisana”. All instructions for use and packaging are specific to Medisana.
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.
There has been an article published in 2019 on SAM® Sport4 regarding
clinical evidence demonstrating that ultrasound dose timing (i.e. daily treatment) and duration significantly impact benefits and
treatment results, we are aware of a prospective randomized, double-blinded, placebo-controlled study on the effects of the long-duration
low-intensity ultrasound treatment using SAM® Sport4 suggesting that ultrasound may be used as a conservative non-pharmaceutical
and non-invasive treatment option for patients with knee osteoarthritis.
In
general, ultrasound offers the benefits 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.
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. Beginning in the fourth quarter of 2019, our manufacturers in China
have commenced producing the redesigned products for distribution and delivered their first completed units in April 2020.
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 by the FDA 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
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.
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).
The
global catheter market size was valued at USD 37.3 billion in 2018 and is expected to witness a CAGR of 9.7% through 2026. Rising
prevalence of chronic disorders leading to hospitalization has fueled the growth of this market. Presence of multi-national manufacturers,
improving medical facilities, supportive insurance policies are also some of the key factors propelling the market growth. North
America is the largest regional market due to the presence of multi-national manufacturers and sophisticated healthcare infrastructure
along with high product awareness levels. Asia Pacific is projected to expand at the maximum CAGR of 10.4%, over the study period.
According to a Grandview research report, there are 25 million Foley catheters sold annually in the United States and 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 $13,793 per case (AHRQ), and the cost of treating
bacteremia has been estimated at $8,355 (NIH) 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 FDA 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. To that extent, we recently passed an audit with a notified body and we are waiting
on a certificate.
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 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. The study has since been published in the
Journal of Medical and Surgical Urology, November 20, 2018. The title of the article is “The Effect of Surface Acoustic
Waves on Bacterial Load and Preventing Catheter- associated Urinary Tract Infections (CAUTI) in Long Term Indwelling Catheters”.
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
completed to establish safety of UroShield for human use:
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●
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A large animal model (female sheep) study has been 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.
The
pre-clinical animal study was intended to demonstrate safety of UroShield device when used for 30-days with a urinary catheter.
The study compared local tissue and organ response in two groups of 4 (female) sheep where one group was catheterized (urethral)
using an uncoated silicone Foley catheter (only) and the other group was catheterized using an uncoated silicone Foley catheter
with UroShield device attached to it. All catheters were identical in their size, material composition and manufacturer.
After
30 days the animals were euthanized and local tissue and organs were examined. The results showed the group with UroShield device
had fewer observations of swelling, redness or discharge at the vulva as compared to the group without UroShield. The animals
did not exhibit signs of discomfort or pain during study period (of 30 days). The gross and histopathology findings were also
very similar between the two groups.
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●
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A comparative study of leachables from a urinary catheter with and without UroShield attached has been performed to demonstrate that the leachables with UroShield attached do not exceed toxicological safe limits allowed for a medical device.
The chemical characterization of leachables
was intended to demonstrate safety for UroShield device for 30-day use with a urinary catheter. The study compared leachables
from a group consisting of 3 uncoated silicone catheter with leachables from a group consisting of 3 uncoated silicone catheter
with UroShield attached to it. All catheters were identical in their size, material composition and manufacturer.
The exhaustive extractions were performed
with non-polar, polar and aqueous solvents. An additional simulated use extraction using Saline and Ethanol was performed. Overall
the extractables from both groups were comparable and toxicological evaluation showed that all compounds from extraction with
UroShield were below the tolerable exposure limits. Most of compounds had a margin of safety greater than 10 and 4 compounds had
margin of safety between 1.5 and 10. Overall, the toxicological risk for using UroShield with a urinary catheter is similar and
at even lower as compared to a catheter without UroShield attached.
|
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 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. Total payments to these distributors
totaled approximately $24,000 in 2019.
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.)
|
UroShield
Randomized Control trial
|
|
5 different nursing facilities
|
|
2017 - 2018
51 subjects
|
|
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 antibiotic. 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, proving a decrease in both
bacterial colonization and the incidence of Urinary Tract Infection.
|
Recently
Completed, Current, Ongoing and Planned Clinical Trial
In
July 2019, a 23 patient trial was completed in Norwich, United Kingdom. The trial was initiated to satisfy the requirements
for adoption within the UK National Health Service. Results of the trial have not been published. The hospital that completed
the patient trial continues to use the Uroshield device.
In
September 2019, an economic impact study was performed completed by York Health Economic Consortium, 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.
In
April 2019, 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. Results revealed positive results to all others studied in the same laboratory.
UroShield-In
vivo study is being conducted by Dr. Blayne Welk MD MSc and 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. The study is ongoing and is expected to be completed before the end of this year.
This
study is being done without cost to NanoVibronix and is expected to be presented at the 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 $19 billion in 2019. 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, the SAM® Sport4, 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.
The CMS has approved PainShield for reimbursement for Medicare beneficiaries
on a national basis effective January 2020.
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 next generation of PainShield devices 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 was completed in 2019 with positive results.
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 U.S. market and throughout the world to establish licensing and private label partnerships
as well.
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 was published on January 22, 2019, in the Journal of Anesthesiology
and Pain Research, under the title “The Effect of a Surface Acoustic Wave (SAW) Device on the Symptomatology of Trigeminal
Neuralgia”.
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 continue to 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.
Completed
Research
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.
|
|
|
|
|
|
|
|
|
|
The
Effects of the NanoVibronix’s PainShield® Surface Acoustic Waves on the Symptoms
of Lateral Epicondylitis
|
|
Dr.
David Lemak, a leading orthopedic surgeon with Birmingham Orthopedic and Sports Specialists.
|
|
2019,
24 patients
|
|
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”).
|
|
We
expect to publish results later this year.
|
|
|
|
|
|
|
|
|
|
The
Effect of a Surface Acoustic Wave (SAW) Device on the Symptomatology of Trigeminal Neuralgia
|
|
Shira
Markowitz, MD, New York, NY
|
|
Early
2018
59 patients
|
|
To
measure pain scores, quality of life, and breakthrough drug use of 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.
|
The
Effects of the NanoVibronix’s PainShield® Surface Acoustic Waves on the Symptoms of Lateral Epicondylitis
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
|
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).
In March 2020 we signed a license agreement with Sanuwave Health, Inc. for the manufacture and delivery of our WoundShield
technology. Under the terms of the agreement, NanoVibronix will receive 100,000 warrants of Sanuwave stock, a $250,000 milestone
payment based on FDA approval, and 10% royalty on Sanuwave’s gross revenues from sales or rentals of WoundShield. In return,
Sanuwave has received the worldwide, exclusive rights to the company’s WoundShield product and technology. In addition,
Sanuwave will bear the costs and clinical validation responsibilities associated with obtaining approval for WoundShield from
the U.S. Food and Drug Administration and other regulatory agencies around the world.
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. 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 (“WHO”) 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. (a subsidiary of the 3M Company),
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. 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 believe that the WoundShield instillation patch will not
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). In March 2020 we signed a license agreement with Sanuwave Health, Inc. for the manufacture
and delivery of our WoundShield technology.
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, 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 to pursue reimbursement
in the Medicare Part B code to support the use for long term catheter use and infection prevention in the home.
PainShield.
Recently, CMS approval for Medicare reimbursement was added through code K1004. The value of the reimbursement has not yet
been confirmed.
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. Such reimbursement will be sought by Sanuwave Health
Inc. as the licensee of this technology.
New
Product 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.
We are still considering several paths towards commercialization.
Intellectual
Property
Patents
We
have rights to five patents in the United States. Granted U.S. Patent No. 7,393,501 (having the following foreign counterparts:
China 100482171; Israel 165422; Japan 4504183; India 246351; Australia 2003231892; European Union 1511414 B) directed
to “Method, apparatus and system for treating biofilms associated with catheters” and granted U.S.
Patent No. 7,829,029 (having the following foreign counterparts: China 101616707 and European Union 1998834) directed
to “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 directed to “System and method
for surface acoustic wave treatment of medical devices,” relates 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 counterparts: China 101431940,
European Union 1991129, and Israel 193600) directed to “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 on August 20,
2033. In addition, pursuant to a license agreement with PIzo-Top Ltd. and P.M.G. Medica Ltd., we license U.S.
Patent No. 6,964.640 directed to “System and method for detection of fetal heartbeat,” which covers
certain technology related to detecting in-vivo motion with respect to biological parameters, such as, e.g., blood flow detection,
heartbeat monitoring, fetal motion monitoring, and fetal heartbeat monitoring. This patent expires on May 23,
2020.
Furthermore,
on September 3, 2019, we filed U.S. Provisional Patent Application No. 62/895,392 directed to “Transdermal patch
of a portable ultrasound-generating system for improved transdermal delivery of cannabis drugs and associated methods of treatment,” which
expires on September 3, 2020. We intend to file and pursue a non-provisional application by the expiration date in order
to protect the disclosed technology relating to possible new applications of our existing technology.
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 and patent applications 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 systems and methods 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 currently have
the following trademark registrations: NanoVibronix® (in the U.S. and Canada), WoundShield® (in the U.S.
and Canada), PainShield® (in the U.S. and Canada), and UroShield® (in the U.S.). We also have pending
trademark applications in the U.S. and Canada for “PainShield CBD,” which we filed in anticipation of the specific technology
covered by the provisional application referenced above. Finally, we intend to re-file and pursue our previously acquired
trademark registration for “Curing though prevention”®, which expired in July 2015. Generally,
the protection afforded by trademarks is perpetual, subject to paying timely renewals and continuing proper use
in commerce.
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:
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Class
I: general controls, such as labeling and adherence to quality system regulations, and a pre-market notification (510(k))
unless exempt;
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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
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Class
III: special controls and approval of a Pre-Market Approval, or PMA, application.
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WoundShield
and PainShield are classified as Class II medical devices and require U.S. Food and Drug Administration authorization prior to
marketing, by means of 510(k) clearance, except for our UroShield product, which we intend to seek clearance from the U.S. Food
and Drug Administration through the de novo classification process, described below.
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.
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Manufacturing
and Suppliers
For
most of 2019 we 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., 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.
In
December 2018, we announced we appointed Quasar Engineering Ltd, as contract manufacturer for the PainShield®, UroShield®,
WoundShield® as well as other devices. Quasar (http://www.quasar-med.com/) is a medical device manufacturer, located in
China, with over 30 years of experience, serving major brands worldwide, with complex catheters, disposables, and U.S. Food
and Drug Administration regulated assemblies. Starting in the fourth quarter of 2019, we started using Quasar to manufacture
all of our newly redesigned products. Quasar temporarily shut down for sixty days in early 2020, due to the COVID-19
outbreak which lead to a significant delay in the production of goods needed to fulfill our sales orders, and became fully operational
in April 2020. Presently, we are no longer experiencing delays in the production of our products.
Customers
We
currently sell our products both directly, through our website, and indirectly via distribution agreements, with approximately
70% of our sales coming through distributors in 2019. 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 with access to various markets in the United States, Europe,
and Asia, as well as 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.
Compliance with Environmental
Laws
Compliance with applicable
environmental requirements during the years ended December 31, 2019 and 2018 and subsequently has not had a material effect upon
our capital expenditures, earnings or competitive position.
Employees
At
December 31, 2019, 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 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, 2019 we had a net loss of approximately $5.8 million, with revenues of approximately $530,000. As of
December 31, 2019, we had an accumulated deficit of approximately $38.3 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 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
recent coronavirus outbreak may adversely affect our business.
In
December 2019, a strain of coronavirus (“COVID-19”) was reported to have surfaced in Wuhan, China, and has reached
multiple other countries, resulting in government-imposed quarantines, travel restrictions and other public health safety measures
in China and other affected countries. The continued outbreak and spreading of the coronavirus has and may continue to adversely
impact our business, as our operations are based in and rely on third parties located in countries affected by the outbreak. Our
third-party manufacturer, which is based in China, temporarily shut down for sixty days due to the outbreak and only recently
became fully operational which lead to a significant delay in the production of goods needed to fulfill our sales orders. Additionally,
the notified regulatory body we rely on to obtain European CE approval is located in Italy and has been shut down for over a month,
which delayed our submission for CE mark approval for the year 2020. The various precautionary measures taken by many governmental
authorities around the world in order to limit the spread of the coronavirus has had and may continue to have an adverse effect
on the global markets and global economy, including on the availability and pricing of employees, resources, materials, manufacturing
and delivery efforts and other aspects of the global economy. The financial downturn has compelled us to furlough or reduce working
hours for much of our operating staff, and has forced remaining staff as well as third-party contractors, and our clients may
encounter cash-flow issues that will delay their payments to us. In addition, remaining staff members have been forced to operate
remotely from their homes resulting in delays in obtaining certain financial records. We also rely on third-party professionals
to provide services such as the preparation of our financial statements and to conduct audits, and many of these parties have
been affected by government-imposed precautionary measures, thereby delaying our receipt of these services. Therefore, the coronavirus
has and could continue to disrupt production and cause delays in the supply and delivery of our products, may continue to affect
our operation, may further divert the attention and efforts of the medical community to coping with the coronavirus and disrupt
the marketplace in which we operate and may have a material adverse effect on our operations. The extent to which the coronavirus
impacts our results will depend on future developments, which are highly uncertain and cannot be predicted, including new information
which may emerge concerning the severity of the coronavirus and the actions to contain the coronavirus or treat its impact, among
others. The development of the coronavirus outbreak could materially disrupt our business and operations, hamper our ability to
raise additional funds or sell or securities, continue to slow down the overall economy, curtail consumer spending, interrupt
our sources of supply, and make it hard to adequately staff our 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, 2019 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 will seek 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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the
delisting of our common stock from the NASDAQ Capital Market; and
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the geographic, social and economic impact of COVID-19 on the Company’s
business operations.
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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 financing 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., (a
subsidiary of the 3M Company) 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. Our 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.
We
face risks associated with litigation and claims.
We
may, in the future, be involved in one or more lawsuits, claims or other proceedings. These suits could concern issues including
contract disputes, employment actions, employee benefits, taxes, environmental, health and safety, fraud and abuse, personal injury
and product liability matters.
We are subject to a lawsuit filed by our
former officer and director, Jona Zumeris, in December 2019, seeking damages of approximately $900,000 for breach of contract,
which matter has proceeded to settle in medication schedule to begin in late May 2020. In addition, the court has ordered the
company to reserve approximately $350,000 of its cash reserves to be available until this matter is adjudicated. See “Part
I, Item 3 — Legal Proceedings”. While we believe that a major part of the allegations included in the suit are
without merit, due to the uncertainties of litigation or mediation, however, we can give no assurance that we will be able to
reach reasonable settlement, or if it were to proceed in court, prevail on the claims made against us in such lawsuit. Also, we
can give no assurance that any other lawsuits or claims brought in the future will not have an adverse effect on our financial
condition, liquidity or operating results. Adverse outcomes in some or all of these claims may result in significant monetary
damages that could adversely affect our ability to conduct our business.
Our
business and operations would suffer in the event of computer system failures, cyber-attacks or deficiencies in our cyber-security.
In
the ordinary course of our business, we collect and store sensitive data, including intellectual property, research data, our
proprietary business information and that of our suppliers, technical information about our products, clinical trial plans and
employee records. Similarly, our third-party providers possess certain of our sensitive data and confidential information. The
secure maintenance of this information is critical to our operations and business strategy. Despite the implementation of security
measures, our internal computer systems, and those of third parties on which we rely, are vulnerable to damage from computer viruses,
malware, ransomware, cyber fraud, natural disasters, terrorism, war, telecommunication and electrical failures, cyber-attacks
or cyber-intrusions over the Internet, attachments to emails, persons inside our organization, or persons with access to systems
inside our organization. The risk of a security breach or disruption, particularly through cyber-attacks or cyber intrusion, including
by computer hackers, foreign governments, and cyber terrorists, has generally increased as the number, intensity and sophistication
of attempted attacks and intrusions from around the world have increased. Any such breach could compromise our networks and the
information stored there could be accessed, publicly disclosed, encrypted, lost or stolen. Any such access, inappropriate disclosure
of confidential or proprietary information or other loss of information, including our data being breached at third-party providers,
could result in legal claims or proceedings, liability or financial loss under laws that protect the privacy of personal information,
disruption of our operations or our product development programs and damage to our reputation, which could adversely affect our
business.
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 currently consists of only 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.
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.
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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. Since the Gaza Strip’s 2007 coup, by which the terrorist organization Hamas seized control, there have been a number
of armed conflicts between Hamas and Israel – in December-January 2008-9, November 2012, July-August 2014 and as recently
as May 2019 – in all of which conflicts, rockets were fired from Gaza into Israeli civilian population centers. During the
summer of 2006, Israel was engaged in an armed conflict with Hezbollah, a Lebanese Islamist Shiite militia group and political
party backed by Iran and controlling large swathes of Lebanon. These conflicts involved missile strikes against civilian targets
in various parts of Israel, including areas in which our Rehovot facilities, employees and some of our consultants are located,
and negatively affected business conditions in Israel. Civil unrest and political turbulence has occurred in other countries in
the region, including Syria which shares a common border with Israel, and is affecting the political stability of those countries.
Since April 2011, a civil war that has been ongoing in Syria has escalated, and evidence indicates that chemical weapons have
been used in the region. This instability and any intervention may lead to additional conflicts in the region. In addition, Iran
has threatened to attack Israel and is widely believed to be developing nuclear weapons. Iran also has a strong influence among
extremist groups in the region, such as Hamas in Gaza, Hezbollah in Lebanon, and both the Allawite regime and various rebel militia
groups in Syria. These situations may potentially escalate in the future to more violent events which may affect Israel and us.
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. On March 12, 2020, the WHO declared COVID-19 to be a pandemic,
and the COVID-19 pandemic has resulted in significant financial market volatility and uncertainty in recent weeks. A continuation
or worsening of the levels of market disruption and volatility seen in the recent past could have an adverse effect on our ability
to access capital, on our business, results of operations and financial condition, and on the market price of our common shares.
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 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 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. The hearing occurred on May
2, 2019. At the hearing, we presented our 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.
By
letter dated May 20, 2019, we received notice that the Panel granted our request for continued listing on the NASDAQ Capital Market.
Assuming our compliance plan is executed and compliance with the $2.5 million stockholder equity requirement is demonstrated,
the Panel will maintain jurisdiction thereafter for the balance of the 180-day discretionary period and imposed certain conditions
and reporting requirements during that period. The Panel determined to continue the listing of our shares of common stock on the
NASDAQ Capital Market, partially based upon our assurances that it had a high level of confidence that it will receive the funding
needed. The Panel will maintain a panel Monitor on the Company until September 2020.
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 publicly traded company, we incur significant additional legal, accounting and other expenses. The obligations of being a public
reporting company require significant expenditures, including costs resulting from public company reporting obligations under
the Exchange Act, and the rules and regulations regarding corporate governance practices, including those under the Sarbanes-Oxley
Act of 2002 (the “Sarbanes-Oxley Act”), the Dodd-Frank Wall Street Reform and Consumer Protection Act, and the Nasdaq
Stock Market. These rules require the establishment and maintenance of effective disclosure and financial controls and procedures,
internal control over financial reporting and corporate governance practices, among many other complex rules that are often difficult,
and time consuming to implement, monitor and maintain compliance with. Moreover, despite recent reforms made possible by the Jumpstart
Our Business Startups Act of 2012 (the “JOBS Act”), the reporting requirements, rules, and regulations will make some
activities more time-consuming and costly, particularly after we are no longer an “emerging growth company.” In addition,
these rules and regulations make it more difficult and more expensive for us to obtain director and officer liability insurance.
Compliance with such requirements also places demands on management’s time and attention.
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. Currently there is only one research
coverage by a securities and industry analyst. 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.