DTHR Dthera Sciences (GM)

Item 1A. Ri sk Factors

See “Item 1A – Risk Factors” as disclosed in Form 10-K as filed with the Commission on April 2, 2018.

Additional risk factors:

We are a development-stage company and will need to make additions to senior management in order to successfully execute our business plan.

We will need to identify and recruit additional prospective executives and other employees with experience in the digital therapeutic and neurocognitive disorder industries, specifically candidates who have managed and completed FDA-required regulatory affairs and clinical studies concerning new products. Edward Cox, our Chief Executive Officer, is one of our founders and has agreed to serve in that capacity in the interim. Although his primary background involves biosciences, healthcare, life sciences, and technology, he has experience in development-stage companies and venture-level investments and early stage capital formation for emerging growth companies. Our inability to recruit and retain executives with proven experience in these fields could delay or negatively affect our ability to execute on our business plan, which would have a material adverse effect on our financial condition and results of operation.

Our business is subject to government regulation, which may have a negative impact on our ability to develop and implement our business strategy and bring new products to market, and our ability to continue operations.

The digital health sector is relatively new and untested, and impacts of regulations and general market conditions could have a negative impact on our business. The digital health sector may be impacted by economic volatility, consumer spending patterns and market share gains of competitors’ branded products. Overall the digital health market is largely new and untested; the uptake of products may not meet uptake projections as there is little to no prior data. In addition, the United States healthcare industry is highly regulated and subject to frequent and substantial changes. Digital health is an evolving industry within the United States healthcare industry, and is particularly susceptible to these changes. The impacts of these regulations and the general market conditions could have a negative impact on our business and operations.

Research, development, and commercialization of medical devices are inherently risky. The cost and time needed to obtain regulatory clearance or approval are uncertain. We cannot give any assurance that we will receive or maintain regulatory clearance or approval of DTHR-ALZ or potentially other products.

DTHR-ALZ is a medical device that will be subject to FDA regulation. Therefore, FDA clearance or approval will be required before marketing DTHR-ALZ. As a company, we have no experience in obtaining regulatory clearance or approval of a medical device. Likewise, we have no experience in the commercialization or marketing of a medical device. Although DTHR-ALZ has been granted Breakthrough Device designation, such a designation does not guarantee that a device will be approved by the FDA. In addition, Breakthrough Device designation does not guarantee faster development, regulatory review or approval. The FDA has acknowledged that review times may take longer for some Breakthrough Devices than for other devices because of the novel scientific issues Breakthrough Devices may raise. The FDA may also withdraw Breakthrough Device designation after it is granted if the device is no longer eligible or if the request for Breakthrough Designation contained untrue statements of material fact or omitted material information. To receive FDA clearance or approval, we must provide reasonable assurance of the safety and effectiveness of DTHR-ALZ. To provide such assurance, we may be required to conduct clinical studies or other analyses. The cost and length of time needed to complete such studies or analyses are uncertain. As a company, we have no experience in conducting the types of clinical studies or analyses required to receive FDA clearance or approval of a medical device. If we are unable to successfully complete required clinical studies or other analyses, we will not receive FDA clearance or approval. Following FDA clearance or approval, if received, we will be subject to ongoing regulatory requirements around the continued development, commercialization, and marketing of DTHR-ALZ. If we do not comply with such requirements, FDA may withdraw its clearance or approval and may direct us to remove DTHR-ALZ from the market.

Our management plans to seek Medicare, Medicaid and/or private payor reimbursement for this and potential other products, but there is no guarantee that we will be successful in these efforts. If FDA disagrees with our analysis that ReminX is a general wellness device exempt from FDA regulations and decides to exercise regulatory authority over ReminX, if we are unable to obtain FDA clearance or approval for our DTHR-ALZ product and potential other products, or if we are unsuccessful in obtaining Medicare, Medicaid or private payor reimbursement for DTHR-ALZ and potential other products, our ability to develop and implement our business strategy could be delayed, limited, or unsuccessful. Even if we are successful in obtaining Medicare, Medicaid, or private payor reimbursement for this and potentially other products, such products may become subject to unfavorable pricing regulations, third party reimbursement practices, or healthcare reform initiatives, which would harm our business.

If our efforts to sell to Direct-Response Consumer Health (DRCH) companies and other sales channels are not successful, our revenues may be materially affected.

We intend to generate substantially all of our revenues initially through sales of the ReminX Product to the Direct-Response Consumer Health (DRCH) channel. We also plan to initiate sales through a number of channels. We must develop these sales channels, which we seek to do in part by investing in our product platform and new services and technologies. If our efforts to grow these sales channels are not successful, our revenues would be adversely affected. We intend to rely on our marketing and advertising efforts to attract new clients and subscribers. If we are unable to effectively attract new clients and subscribers, our business, financial condition and results of operations would be materially adversely affected.

If we fail to comply with healthcare laws, we could face substantial penalties and our business, operations, and financial conditions could be adversely affected.

Our future arrangements with payors and customers may expose us to broadly applicable fraud and abuse and other healthcare laws and regulations that may constrain the business or financial arrangements and relationships through which we market, sell and distribute any products. Federal and state healthcare laws and regulations pertaining to fraud and abuse and patients’ rights will be applicable to our business. Restrictions under applicable federal, state and foreign healthcare laws and regulations may affect our ability to operate and expose us to areas of risk, including:

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, despite our efforts to comply, be subject to challenge under one or more of such laws. Efforts to ensure that our business arrangements will comply with applicable healthcare laws may involve substantial costs. It is possible that governmental and enforcement authorities will conclude that our business practices may not comply with current or future statutes, regulations or case law interpreting applicable fraud and abuse or other healthcare laws and regulations. If any such actions are instituted against us, and we are not successful in defending ourselves or asserting our rights, those actions could have a significant impact on our business, including the imposition of civil, criminal and administrative penalties, damages, disgorgement, monetary fines, possible exclusion from participation in Medicare, Medicaid and other federal healthcare programs, contractual damages, reputational harm, diminished profits and future earnings, and curtailment of our operations, any of which could adversely affect our ability to operate our business and our results of operations. In addition, the approval and commercialization of any of our product candidates outside the United States will also likely subject us to foreign equivalents of the healthcare laws mentioned above, among other foreign laws.

Digital Therapeutics, and particularly Digital Therapeutics based on Reminiscence Therapy, is relatively new and unproven in the healthcare market, and our products may experience slow or limited growth, which would adversely affect our ability to fully realize the potential of our products.

Our products combine elements of Reminiscence Therapy and Digital Therapeutics to improve the lives of seniors and individuals suffering from social isolation and dementia, as well as those who care for them . This approach is relatively new, and evaluating the size and scope of the market is subject to a number of risks and uncertainties. We believe that our future success will depend in large part on the growth of this market. Our management anticipates that DTHR-ALZ will be the first non-pharmacological prescription treatment for the symptoms of agitation and depression associated with major neurocognitive disorder of the Alzheimer’s type, and it is expected be used primarily in the senior living, skilled nursing, and/or home care/home health sectors. These markets and market participants may not recognize the need for, or benefits of, our products. Even if this market does grow, our ability to expand our business and extend our market position depends upon a number of factors, including the cost, performance and perceived value of our products and the applications we develop for them. The perceived value of our products and the applications we develop for them may be a function of estimated cost savings by healthcare providers using our products, which may be difficult to accurately predict. Market opportunity and cost saving estimates are subject to significant uncertainty and are based on assumptions and estimates, including our internal analysis and industry experience. Assessing the market for our solutions in each of the markets we are planning to compete in is particularly difficult due to a number of factors, including limited available information and rapid evolution of the market. The market for our products may fail to grow significantly or be unable to meet the level of growth we expect. As a result of these and other factors, we may experience lower-than-expected demand for our products and services due to lack of channel partner, hospital and/or physician acceptance, technological challenges, competing products and services, decreases in spending by current and prospective customers, weakening economic conditions and other causes. If our market does not experience significant growth, or if demand for our products does not increase in line with our projections, then our business, results of operations and financial condition will be adversely affected.

To the extent our business model depends on government payors, and those payors fail to provide coverage or adequate reimbursement for the services in which our products are used, our revenue and prospects for profitability would be harmed.

Our current go-to-market strategy for our ReminX product does not contemplate or rely upon governmental or third party payor reimbursement. As noted, DTHR-ALZ is a development-stage medical device that has been granted Breakthrough Device designation by the FDA for the mitigation of the symptoms of agitation and depression associated with major neurocognitive disorder of the Alzheimer's type. Our management plans to seek Medicare, Medicaid and/or private payor reimbursement for this and potentially other products, but there is no guarantee that we will be successful in these efforts. To the extent that we adopt a market strategy which is in whole or in part reliant on third party reimbursement, commercial sales of our DTHR-ALZ product will depend in part on the availability of reimbursement from such third-party payors, including government health administrative authorities, managed care providers, private health insurers and other organizations. Each third-party payor may have its own policy regarding what products it will cover, the conditions under which it will cover such products, and how much it will pay for such products. Third-party payors are increasingly examining the medical necessity and cost effectiveness of medical products and services in addition to safety and efficacy and, accordingly, significant uncertainty exists as to the reimbursement status of newly approved devices.

Risks Related to Regulatory Matters

Breakthrough Device designation by the FDA does not guarantee clearance or approval and may not actually lead to a faster development or regulatory review or approval process.

DTHR-ALZ was granted Breakthrough Device designation by the FDA on August 20, 2018, for the mitigation of the symptoms of agitation and depression associated with major neurocognitive disorder of the Alzheimer's type. Under the Breakthrough Devices program, a provision of the 21st Century Cures Act, the FDA works with medical device developers to expedite development assessment and review in order to give patients more timely access to diagnostic and therapeutic medical devices. According to the FDA, a “Breakthrough Device” is a medical device that may be more effective at treating or diagnosing a life-threatening or irreversibly debilitating disease or condition compared to the current standard of care and represents a breakthrough technology (1) for which no approved or cleared alternatives exist, (2) offers significant advantages over existing approved or cleared alternatives, or (3) the availability of the device is in the best interests of patients.

There is no assurance we will receive similar designations for any of our future products. Further, even though we have received Breakthrough Device designation for DTHR-ALZ, we may not experience a faster development process, review or clearance/approval compared to conventional FDA procedures, or may not receive clearance or approval at all. The FDA may withdraw Breakthrough Device designation for DTHR-ALZ or any other device designated as a Breakthrough Device if it believes that such designation is no longer supported by data from our clinical development program.

As we develop our DTHR-ALZ product and other potential products that are regulated by the FDA, we will be subject to costly and complex laws and governmental regulations and any adverse regulatory action may materially adversely affect our financial condition and business operations.

As noted, DTHR-ALZ is a development-stage medical device that has been granted Breakthrough Device designation by the FDA for the mitigation of the symptoms of agitation and depression associated with major neurocognitive disorder of the Alzheimer's type. As we develop DTHR-ALZ and other potential products that are regulated by the FDA, we will be subject to regulation by numerous government agencies, including the FDA and comparable agencies outside the United States. To varying degrees, each of these agencies requires us to comply with laws and regulations governing the development, testing, manufacturing, labeling, marketing, and distribution of our products.

We cannot guarantee that we will be able to obtain or maintain marketing clearance or approval for our medical device products or enhancements or modifications to existing products. We have no FDA cleared or approved products, and we may not receive further clearances or approvals on a timely basis, if at all. The failure to maintain or obtain approval or clearance for new products or functions could have a material adverse effect on our business, results of operations, financial conditions and cash flows. Even if we are able to obtain such approval or clearance, it may:

Further, if the FDA or other applicable regulatory authorities approve or clear a similar product that competes with our product or products, it could decrease our expected sales. Both before and after a product is commercially released, we have ongoing responsibilities under FDA regulations. Many of our facilities and procedures and those of our suppliers are also subject to periodic inspections by the FDA to determine compliance with the FDA’s requirements, including primarily the quality system regulations and medical device reporting regulations. The results of these inspections can include inspectional observations on FDA’s Form-483, warning letters, or other forms of enforcement. If the FDA were to conclude that we are not in compliance with applicable laws or regulations, or that any of our products are ineffective or pose an unreasonable health risk, the FDA could prohibit us from marketing such products, detain or seize adulterated or misbranded products, order a recall, repair, replacement, or refund of such devices, refuse to grant pending pre-market clearance or approval applications or require certificates of non-U.S. governments for exports, or require us to notify health professionals and others that the devices present unreasonable risks of substantial harm to the public health. The FDA may also assess civil or criminal penalties against us, our officers or employees and impose restrictions on a company-wide basis, or enjoin or restrain certain conduct resulting in violations of applicable law. The FDA may also recommend prosecution to the U.S. Department of Justice. Any adverse regulatory action, depending on its magnitude, may restrict us from effectively marketing and selling our products and limit our ability to obtain future pre-market clearances or approvals, and could result in a substantial modification to our business practices and operations.

Our ability to generate product revenue from DTHR-ALZ is dependent on the success of our development of DTHR-ALZ, for human therapeutic use, specifically for the mitigation of the symptoms of agitation and depression associated with major neurocognitive disorder of the Alzheimer's type . We are in the early stage of developing DTHR-ALZ. FDA clearance may require significant additional development efforts, preclinical testing and studies, as well as applicable regulatory guidance for preclinical and clinical studies from the FDA and other regulatory authorities before we can seek regulatory clearance and begin commercial sales of any potential products. The design and execution of clinical studies to support FDA clearance of DTHR-ALZ is subject to substantial risk and uncertainty. Clinical development is a lengthy and expensive process with an uncertain outcome, and results of earlier studies and trials may not be predictive of future trial results. Clinical failure can occur at any stage of clinical development. We likely will rely on third parties to conduct our clinical studies. If these third parties do not successfully carry out their contractual duties or meet expected deadlines, or if they terminate their agreement with us, we may not be able to obtain regulatory clearance for or commercialize our products.

The regulatory clearance processes of the FDA are lengthy, time consuming and inherently unpredictable, and if we are ultimately unable to obtain regulatory clearance for our products, our business will be substantially harmed.

In addition, the marketing license for any product is limited by the FDA to those specific indications and conditions for which clinical safety and efficacy have been demonstrated. The FDA has taken the position that device manufacturers are prohibited from promoting their products other than for the uses and indications set forth in the approved product labeling. The U.S. government has initiated a number of enforcement actions against manufacturers that promote products for “off-label” uses, including actions alleging that federal health care program reimbursement of products promoted for “off-label” uses (or services in which such products are utilized) constitute false and fraudulent claims to the government. The failure to comply with “off-label” promotion restrictions can result in significant civil or criminal exposure, administrative obligations and costs, or other potential penalties from, or agreements with, the federal government.

FDA may disagree with our assessment that ReminX is a general wellness device, or may decide in the future to exercise regulatory authority over some or all general wellness devices.

We have assessed the regulatory status of ReminX under the law and FDA regulations and guidance documents. We have concluded that for certain of its intended uses, broadly summarized as alleviating social isolation in people who may or may not have a particular disease state, ReminX is a consumer health product that does not make medical claims. Under the 21 ^st Century Cures Act of 2016, “a software function that is intended … for maintaining or encouraging a healthy lifestyle and is unrelated to the diagnosis, cure, mitigation, prevention, or treatment of a disease or condition” is not a device under the Federal Food, Drug, and Cosmetic Act and thus is not subject to FDA regulation. For its other intended uses, to help people live well with Alzheimer’s and other forms of dementia, we have concluded that ReminX is a device under Federal Food, Drug, and Cosmetic Act but meets the definition of a “general wellness” device under an FDA guidance document published in 2016. In that guidance, FDA states that it will not exercise regulatory authority over general wellness devices, and therefore such devices are not required to comply with otherwise applicable FDA requirements for premarket review and approval or clearance and post-market regulatory requirements for devices, including, but not limited to: registration and listing and premarket notification requirements, labeling requirements, good manufacturing practice requirements, and Medical Device Reporting.

There is no guarantee that the FDA will agree with our assessment that ReminX is not a device for some of its intended uses and a general wellness device for other intended uses. In the event that the FDA were to disagree with our assessment we may be subject to FDA enforcement actions, including but not limited to seizure and recall of our products, injunctions and civil and criminal penalties. We may also be forced to alter some of the claims that we make for ReminX.

There is also no guarantee that the FDA will continue to decline to exercise its regulatory authority over general wellness devices. If FDA alters its approach to these products, we may have to alter the intended uses of ReminX and/or seek regulatory clearance or approval for some of its intended uses.

We make our FDA regulated products under extensive FDA and foreign regulatory quality and manufacturing requirements and may face future regulatory difficulties under these requirements.

The FDA and other regulatory authorities require that our FDA-regulated devices be manufactured in compliance with Quality System Regulations, or QSR, and similar standards in foreign markets where we intend to sell our products. Any failure by us or our third-party manufacturers to comply with QSR or failure to scale up manufacturing processes as needed, including any failure to deliver sufficient quantities of products in a timely manner, could have a material adverse effect on our business, financial condition, operating results and cash flows. In addition, such failure could be the basis for action by the FDA to withdraw clearance for products previously granted to us and for other regulatory action. Compliance with quality standards is further complicated by the fact that the FDA’s guidance and expectations for software quality systems is evolving. Thus, changes to current product quality and manufacturing standards, guidance and regulations may impact the timeline and resources required to develop and make our products.

Our industry is experiencing greater scrutiny and regulation by governmental authorities, which may lead to greater regulation in the future.

Our medical devices and technologies and our business activities are subject to a complex regime of regulations and enforcement environment, including regulations promulgated by the FDA, the U.S. Department of Justice, the Office of Inspector General of the Department of Health and Human Services, the Federal Trade Commission (FTC), and numerous other federal, state, and non-U.S. governmental authorities. In addition, certain state governments and the federal government have enacted legislation aimed at increasing transparency of our interactions with health care providers. As a result, if our devices and solutions (or the procedures in which they are used) are reimbursed by Federal Healthcare programs such as Medicare or Medicaid, we are required by law to disclose payments and other transfers of value to health care providers licensed by certain states and to all U.S. physicians and U.S. teaching hospitals at the federal level. Any failure to comply with these legal and regulatory requirements could impact our business. In addition, we will continue to devote substantial additional time and financial resources to further develop and implement policies, systems, and processes to comply with enhanced legal and regulatory requirements, which may also impact our business. We anticipate that governmental authorities will continue to scrutinize our industry closely, and that additional regulation may increase compliance and legal costs, exposure to litigation, and other adverse effects to our operations.

If we fail to comply with applicable health information privacy and security laws and other state and federal privacy and security laws, we may be subject to significant liabilities, reputational harm and other negative consequences, including decreasing the willingness of current and potential customers to work with us.

DTHR-ALZ may be subject to data privacy and security regulation by both the federal government and the states in which we conduct our business. The Health Insurance Portability and Accountability Act of 1996, or HIPAA, established uniform federal standards for “covered entities,” which include certain healthcare providers, healthcare clearinghouses, and health plans, governing the conduct of specified electronic healthcare transactions and protecting the security and privacy of protected health information, or PHI. The Health Information Technology for Economic and Clinical Health Act, or HITECH Act, which became effective on February 17, 2010, makes HIPAA’s security standards directly applicable to “business associates,” which are independent contractors or agents of covered entities that create, receive, maintain, or transmit PHI in connection with providing a service for or on behalf of a covered entity. The HITECH Act also increased the civil and criminal penalties that may be imposed against covered entities, business associates and certain other persons, and gave state attorneys general new authority to file civil actions for damages or injunctions in federal courts to enforce HIPAA’s requirements and seek attorney’s fees and costs associated with pursuing federal civil actions.

A portion of the data that we obtain and handle for or on behalf of certain of our clients may be considered PHI, subject to HIPAA. If so, we would also be required to maintain similar business associate agreements with our subcontractors that have access to PHI of our customers in rendering services to us or on our behalf. Under HIPAA and our contractual agreements with our HIPAA-covered entity health plan customers, we would be considered a “business associate” to those customers, and would be required to maintain the privacy and security of PHI in accordance with HIPAA and the terms of our business associate agreements with our clients, including by implementing HIPAA-required administrative, technical and physical safeguards. We would incur significant costs to establish and maintain these safeguards and, if additional safeguards are required to comply with HIPAA regulations or our clients’ requirements, our costs could increase further, which would negatively affect our operating results. Furthermore, we cannot guarantee that such safeguards have been and will continue to be adequate. If we fail to maintain adequate safeguards, or we or our agents or subcontractors use or disclose PHI in a manner prohibited or not permitted by HIPAA, our subcontractor business associate agreements, or our business associate agreements with our customers, or if the privacy or security of PHI that we obtain and handle is otherwise compromised, we could be subject to significant liabilities and consequences, including, without limitation:

Further, we publish statements to end users of our services that describe how we handle and protect personal information. If federal or state regulatory authorities or private litigants consider any portion of these statements to be untrue, we may be subject to claims of deceptive practices, which could lead to significant liabilities and consequences, including, without limitation, damage to our reputation and costs of responding to investigations, defending against litigation, settling claims and complying with regulatory or court orders.

Recent legal developments in Europe have created compliance uncertainty regarding certain transfers of personal data from Europe to the United States. For example, the General Data Protection Regulation (GDPR), which came into application in the European Union (EU) on May 25, 2018, applies to all of our activities conducted from an establishment in the EU or related to products and services that we offer to EU users. The GDPR created a range of new compliance obligations which may cause us to change our business practices, and significantly increased financial penalties for noncompliance (including possible fines of up to 4% of global annual turnover for the preceding financial year or €20 million (whichever is higher) for the most serious infringements). 

Federal or state governmental authorities may impose additional data security standards or additional privacy or other restrictions on the collection, use, maintenance, transmission and other disclosures of health information. Legislation has been proposed at various times at both the federal and the state level that would limit, forbid or regulate the use or transmission of medical information outside of the United States. Such legislation, if adopted, may render our use of off-shore partners for work related to such data impracticable or substantially more expensive. Alternative processing of such information within the United States may involve substantial delay in implementation and increased cost.

If we fail to comply with federal and state healthcare laws and regulations, including those governing submission of false or fraudulent claims to government healthcare programs and financial relationships among healthcare providers, we may be subject to civil and criminal penalties or loss of eligibility to participate in government healthcare programs.

We may be subject to certain federal and state laws and regulations designed to protect patients, governmental healthcare programs, and private health plans from fraudulent and abusive activities. These laws include anti-kickback restrictions and laws prohibiting the submission of false or fraudulent claims. These laws are complex and their application to our specific products, services and relationships may not be clear and may be applied to our business in ways that we do not anticipate. Federal and state regulatory and law enforcement authorities have recently increased enforcement activities with respect to Medicare and Medicaid fraud and abuse regulations and other reimbursement laws and rules. From time to time in the future, we may receive inquiries or subpoenas to produce documents in connection with such activities. We could be required to expend significant time and resources to comply with these requests, and the attention of our management team could be diverted to these efforts. If we are found to be in violation of any federal or state fraud and abuse laws, we could be subject to civil and criminal penalties, and we could be excluded from participating in federal and state healthcare programs such as Medicare and Medicaid. The occurrence of any of these events could significantly harm our business and financial condition.

Provisions in Title XI of the Social Security Act, commonly referred to as the federal Anti-Kickback Statute, prohibit the knowing and willful offer, payment, solicitation or receipt of remuneration, directly or indirectly, in cash or in kind, in return for or to induce either the referral of an individual or arranging for the referral of an individual for items or services for which payment may be made in whole or in part by a federal health care program, or the purchasing, leasing, ordering, or arranging for or recommending the purchasing, leasing, or ordering of items, services, goods, or facilities for which payment may be made, in whole or in part, by a federal healthcare program, including but not limited to Medicare or Medicaid. The definition of “remuneration” has been broadly interpreted to include anything of value such as gifts, discounts, rebates, waiver of payments or providing anything at less than its fair market value. Many states have adopted similar prohibitions against kickbacks and other practices that are intended to induce referrals which are applicable to all patients regardless of whether the patient is covered under a governmental health program or private health plan. We attempt to scrutinize our business relationships and activities to comply with the federal Anti-Kickback Statute and similar laws and we generally attempt to structure our sales and group purchasing arrangements in a manner that is consistent with the requirements of applicable safe harbors to these laws. We cannot assure you, however, that our arrangements will be protected by such safe harbors or that such increased enforcement activities will not directly or indirectly have an adverse effect on our business, financial condition or results of operations. Any determination by a state or federal agency that any of our activities or those of our vendors or customers violate any of these laws could subject us to civil or criminal penalties, monetary fines, disgorgement, individual imprisonment, contractual damages, reputational harm, diminished profits and future earnings and curtailment of our operations, could require us to change or terminate some portions of operations or business, could disqualify us from providing services to healthcare providers doing business with government programs and, thus, could have an adverse effect on our business.

Our business may also be subject to numerous federal and state laws regarding submission of false or fraudulent claims, including without limitation the civil False Claims Act, which forbids knowingly presenting or “causing to be presented” false or fraudulent claims for payment to a federal health care program. Analogous state laws and regulations may apply to our arrangements and our customers’ claims involving healthcare items or services reimbursed by non-governmental third-party payors. Additionally, HIPAA also imposes criminal and civil liability for, among other things, executing a scheme to defraud any healthcare benefit program or making false statements relating to healthcare matters.

These laws and regulations may change rapidly, and it is frequently unclear how they apply to our business. Errors created by our products that relate to entry, formatting, preparation or transmission of claim or cost report information may be determined or alleged to be in violation of these laws and regulations. Any failure of our products or services to comply with these laws and regulations could result in substantial civil or criminal liability, monetary fines, disgorgement, individual imprisonment, contractual damages, reputational harm, diminished profits and future earnings and curtailment of our operations, could adversely affect demand for our one or more of our offerings, could invalidate all or portions of some of our customer contracts, could require us to change or terminate some portions of our business, could require us to refund certain amounts collected, could cause us to be disqualified from serving clients doing business with government payors and could have an adverse effect on our business.

Our activities are also subject to state and federal self-referral laws, including the federal Physician Self-referral Law, commonly known as the Stark Law, which prohibits physicians from referring patients to an entity for Medicare-covered “designated health services” if the physician, or a member of the physician’s immediate family, has a financial relationship with the entity, unless a statutory or regulatory exception applies. Many states have similar laws that may apply regardless of payor. In addition, our activities may also implicate state laboratory licensure laws, as well as the corporate practice of medicine prohibition in certain states that maintain such laws or regulations. Our failure to abide by these state and federal laws could expose us to criminal, civil and administrative sanctions, reputational harm, and could harm our results of operations and financial conditions.

We may encounter substantial delays in completing our clinical studies which in turn will require additional costs, or we may fail to demonstrate adequate safety and efficacy to the satisfaction of applicable regulatory authorities.

It is impossible to predict if or when DTHR-ALZ will be deemed to be effective for the mitigation of the symptoms of agitation and depression associated with major neurocognitive disorder of the Alzheimer's type . Before obtaining marketing clearance or approval from regulatory authorities for the sale and marketing of DTHR-ALZ or future FDA regulated products, we may be required to conduct clinical studies to demonstrate their safety and efficacy. Clinical testing is expensive, time-consuming and uncertain as to outcome. We cannot guarantee that any clinical studies will be conducted as planned or completed on schedule, if at all. A failure of one or more clinical studies can occur at any stage of testing. Events that may prevent successful or timely completion of clinical development include:

We could also encounter delays if a clinical study is suspended or terminated by us, by the IRBs or ECs of the institutions or partners with which such trials are being conducted, by an independent Safety Review Board (“SRB”) for such study or by the FDA or other regulatory authorities. Such authorities may suspend or terminate a clinical study due to a number of factors, including failure to conduct the clinical study in accordance with regulatory requirements or our clinical protocols, inspection of the clinical study operations or trial site by the FDA or other regulatory authorities resulting in the imposition of a clinical hold, unforeseen safety issues or adverse side effects, failure to demonstrate a benefit from using a device, changes in governmental regulations or administrative actions or lack of adequate funding to continue the clinical study .

Any inability to successfully complete preclinical and clinical development could result in additional costs to us or impair our ability to generate revenues from product sales, regulatory and commercialization milestones and royalties. In addition, if we make manufacturing or software changes to our product candidates, we may need to conduct additional studies to prove the efficacy of DTHR-ALZ or our future FDA regulated products.

Clinical study delays could also shorten any periods during which we are able to commercialize DTHR-ALZ or allow our competitors to bring a competing product to market before we do, which could impair our ability to successfully commercialize DTHR-ALZ. In addition, any delays in completing our clinical studies will increase our costs, slow down the development and approval or clearance process for DTHR-ALZ and jeopardize our ability to commence product sales and generate revenues. Any of these occurrences may significantly harm our business, financial condition and prospects. In addition, many of the factors that cause, or lead to, a delay in the commencement or completion of clinical studies may also ultimately lead to the denial of regulatory approval or clearance of DTHR-ALZ or our future FDA regulated products.

The outcome of preclinical studies and early clinical studies may not be predictive of the success of later clinical studies, and interim results of a clinical study do not necessarily predict final results. Further, preclinical and clinical data are often susceptible to various interpretations and analyses, and many companies that have believed their product candidates performed satisfactorily in preclinical studies and clinical studies have nonetheless failed to obtain marketing approval or clearance. If the results of our clinical studies are inconclusive or if there are concerns or adverse events associated with DTHR-ALZ or our future FDA regulated products, we may:

Additionally, use of DTHR-ALZ could potentially cause other adverse events that have not yet been predicted. As described above, any of these events could prevent us from achieving or maintaining market acceptance of DTHR-ALZ and impair our ability to commercialize DTHR-ALZ and other products.

Conducting successful clinical studies may require the enrollment of large numbers of patients, and suitable patients may be difficult to identify and recruit.

Patient enrollment in clinical studies and completion of patient participation and follow-up depends on many factors, including the size of the patient population; the nature of the trial protocol; the attractiveness of, or the discomforts and risks associated with, the treatments received by enrolled subjects; the availability of appropriate clinical study investigators; support staff; and proximity of patients to clinical sites and ability to comply with the eligibility and exclusion criteria for participation in the clinical study and patient compliance. For example, patients may be discouraged from enrolling in our clinical studies if the trial protocol requires them to undergo extensive post-treatment procedures or follow-up to assess the effectiveness of our products or if they determine that the uses and results of DTHR-ALZ under the trial protocols are not attractive. Patients may also not participate in our clinical studies if they choose to participate in contemporaneous clinical studies of competitive products.

If the third parties on which we rely to conduct our clinical studies and to assist us with preclinical development do not perform as contractually required or expected, we may not be able to obtain regulatory approval for or commercialize our products.

We do not have the ability to independently conduct our pre-clinical and clinical studies for our products and we must rely on third parties, such as contract research organizations, pharmaceutical companies, medical institutions, clinical investigators and contract laboratories to conduct such studies. If these third parties do not successfully carry out their contractual duties or regulatory obligations, meet expected deadlines or need to be replaced, or if the quality or accuracy of the data they obtain is compromised due to the failure to adhere to our clinical protocols or regulatory requirements or for other reasons, our pre-clinical development activities or clinical studies may be extended, delayed, suspended or terminated, and we may not be able to obtain regulatory approval or clearance for, or successfully commercialize, our products on a timely basis, if at all. Furthermore, our third-party clinical study investigators may be delayed in conducting our clinical studies for reasons outside of their control. The occurrence of any of the foregoing may adversely affect our business, operating results and prospects.

The future results of our current or future clinical studies may not support our product candidate claims or may result in the discovery of unexpected adverse side effects.

Even if our clinical studies are completed as planned, we cannot be certain that their results will support the claims for which DTHR-ALZ has received Breakthrough Device Designation, or that the FDA or foreign authorities will agree with our conclusions regarding them. Success in preclinical studies and early clinical studies does not ensure that later clinical studies will be successful, and we cannot be sure that the later trials will replicate the results of prior trials and preclinical studies. The clinical study process may fail to demonstrate that DTHR-ALZ is safe and effective for the proposed indicated uses. If the FDA concludes that the clinical studies for DTHR-ALZ, or any other product for which we might seek clearance in the future, has failed to demonstrate safety and effectiveness, we would not receive FDA clearance to market that product in the United States for the indications sought.

In addition, such an outcome could cause us to abandon DTHR-ALZ and might delay development of others. Any delay or termination of our clinical studies will delay the filing of any product submissions with the FDA and, ultimately, our ability to commercialize DTHR-ALZ and our future products and generate revenues.