ITEM 1. BUSINESS
Overview
We are a late-stage pre-revenue
company focused on improving patient outcomes through a more cost efficient, rapid, near patient product for triage, diagnosis and monitoring
of disease progression. We believe there is a market need for an on-site and rapid diagnostic system that can be employed for testing
and monitoring. Our diagnostic system, which we refer to as “Symphony,” is an exclusively licensed, patented, low-cost, system
that consists of a small footprint instrument and single-use indication specific test cartridges, that we believe, if cleared, authorized,
or approved by the U.S. Food and Drug Administration (“FDA”), can provide a solution to this market need rapidly and with
laboratory quality results in approximately 24 minutes, in the clinic, Intensive Care Unit (“ICU”), Emergency Room (“ER”)
and in other hospital and clinical setting settings where rapid and reliable results are required. Currently, testing is generally performed
in a laboratory, and the transportation and logistics of transporting the samples to the lab and obtaining the result takes between 8-48 hours.
Our platform is a sample-to-result system that has been shown in a clinical study to provide results in approximately 24 minutes. Our
business model is to generate revenue from the sale of the table-top Symphony instrument, and from the sale of single-use indication specific
cartridges that are used by the Symphony instrument for the diagnostic test. Once the test material (generally a small volume blood sample)
is transferred to a single-use indication specific Symphony cartridge, no additional sample preparation or pre-processing is required.
Based on the results of the clinical study described below, we believe Symphony may be able to eliminate the time required for transportation
and logistics, and may be able to eliminate the number of operational ‘touch-points’ from ‘sample-to-result’ from
six to two.
Our technology is the result of more than 12 years of development by
our development partner and investor, Toray Industries, Inc. (“Toray”). For the past three years, Toray has used the technology
successfully in Japan by selected clinical institutions for measurement of Interleukin-6 (“IL-6”) in rheumatoid arthritis
to monitor disease progression. Based in part on this extensive development, we believe we are now positioned to complete the last stages
of development needed for commercialization in the US.
In a 2016 study conducted in
Japan (the “Japan Study”), which was sponsored by Toray, it was shown that the Symphony system (known as the RAY-FAST system
in Japan) can provide accurate results within 24 minutes. The Japan Study was conducted at the University of Yamanashi Hospital in Yamanashi,
Japan to evaluate the accuracy and efficacy of the Symphony system in rheumatoid arthritis patients. The results of the study were published
in Cytokine, “Development of a quick serum IL-6 measuring system in rheumatoid arthritis” (Volume 95. July 2017). In the Japan
Study, 150 blood samples were collected from 76 rheumatoid arthritis patients, of which 16 samples were lower than the detection limit
of the Symphony system. The Japan Study then examined the correlation between the results from the Symphony system and the chemiluminescent
enzyme immunoassay (CLEIA) method. The serum IL-6 concentrations measured by the Symphony system were positively correlated with those
measured by the CLEIA method. The correlation between the Symphony system and CLEIA method for IL-6 was r = 0.941 (the closer the r-value
is to 1, the more closely the two variables are related). As such, the Japan Study concluded that the Symphony system was as accurate
as CLEIA methods. In addition, the Japan Study confirmed the time required for the measurement of the IL-6 concentration to be 24 minutes.
Our first diagnostic test in
development is for triage of sepsis in patients utilizing IL-6 as the target biomarker. According to a report by Market Data Forecast
(February 2020), the total market for IL-6 testing for sepsis triage was $934 million in 2020 and is estimated to reach $1.4 billion by
2025 growing at a CAGR of 8.5%. IL-6 has important roles in both innate and adaptive immunity. It is an inflammatory biomarker, also considered
as a ‘first-responder,’ that is elevated in patients with infection, sepsis, and septicemia. Reports have shown IL-6 concentrations
correlate with severity of sepsis, progression of cancer, rheumatoid arthritis and many other severe conditions as defined by clinical
and laboratory parameters. IL-6 is a clinically established biomarker for assessment of severity of infection and inflammation across
many disease indications. IL-6 appears early in the blood circulation as a ‘first responder’ during infection or inflammation.
One factor that is a challenge for healthcare professionals to overcome is the amount of time it takes to determine if a patient is septic.
It usually takes about several hours to receive the lab results of a patient who may be in a very critical state, and the risk of dying
increases every hour a patient is not treated for sepsis. We believe early measurement of IL-6 can enable physicians to make better therapeutic
and treatment decisions. Due to its clinical significance hospital systems and centralized testing labs routinely utilize IL-6 testing.
The importance of IL-6 testing has been further highlighted during
the COVID-19 pandemic, and IL-6 concentrations in blood have been found to be elevated in patients with COVID-19-associated systemic inflammation
and hypoxic respiratory failure.
We are further developing a
pipeline of diagnostic tests for Symphony including triage of myocardial infarction (“MI”), congestive heart failure (“CHF”),
neutropenic sepsis in cancer, and other disease diagnostic indications using the same Symphony platform. We intend to pursue the general
diagnostic marketplace following a sufficient clinical trial to support a 510(k) submission with the FDA, with the initial indication
as a general diagnostic test for sepsis in triage of patients. We do not currently have any regulatory clearance for our Symphony products
and our Symphony products will need to receive regulatory authorization from FDA, in order to be marketed as a diagnostic product in the
United States.
Our operations to date have
been funded primarily through sales of preferred stock and convertible notes. We expect to incur increasing expenses over the next two
years to develop additional diagnostic tests, to expand our sales and marketing infrastructure, and our research and development activities.
We believe the proceeds from our Initial Public Offering (“IPO”) on November 10, 2021 will be sufficient to reach commercialization.
We were incorporated under
the laws of Delaware on March 20, 2015. Our headquarters are located in Acton, Massachusetts.
Symphony Advantages
We believe there is a fast-growing
market for near-patient, low-cost diagnostic platforms that are used for time-sensitive patient testing in life-threatening situation
in hospitals, Long-Term Acute Care facilities (“LTACs”), intensive-care units (“ICUs”) and clinics to replace
legacy testing formats and processes. We believe our platform is well positioned to meet this need. Based on the results of the Japan
Study, we believe Symphony may be able to provide results within approximately 24 minutes. In addition, based on the results of the Japan
Study, we believe Symphony may be able to reduce test result time from days to minutes and to provide results that appear to be as accurate
as those performed in a laboratory, allowing for more frequent testing, which we believe may lead to shortened hospital stays and improved
patient outcomes, all of which also leads to reduced patient care costs.
Symphony is an automated diagnostic
system, consisting of a fluorescence immuno-analyzer which uses a single-use diagnostic test cartridge with reagents integrated in the
cartridge. Symphony utilizes a ‘sample-to-result’ format, which means that once a specimen is taken from the patient, it is
placed in the cartridge and then the cartridge is placed inside the analyzer where the test is run without further technician intervention
or additional reagent. This reduces test complexity and eliminates the need for highly trained and expensive laboratory technicians to
run the tests. Our platform is designed to enable simple, rapid, and cost-effective analysis from a single clinical sample, which will
allow LTACs, hospitals and clinics that traditionally could not afford more expensive or complex diagnostic testing platforms to modernize
their laboratory testing and provide better patient testing at an affordable cost in time sensitive, life-threatening situations. We believe
our on-site testing may also help avoid potential penalties often imposed on LTACs by insurance companies for failure to monitor for potential
sepsis.
Based on the results of the
Japan Study, we believe Symphony IL-6 can make a significant impact with turn-around time. As the whole blood samples do not need to be
pre-processed, this medical device can be run at the patient’s bedside, effectively eliminating the extended turn-around time for
lab results.
If incorporated in the hospital
workflow, this medical device can provide assistance with monitoring patients post-surgery, and monitoring patients admitted in the emergency
room who are suspected to have acute symptoms of sepsis.
We believe our technology can
provide the following advantages over traditional diagnostic systems:
| ● | Ease of Use. Symphony is a sample-to-results system.
No sample preparation or pre-processing is required. Once the samples are placed inside the cartridge and the cartridge is placed in
the analyzer, the technician does not need to monitor the test and can complete other unrelated tasks. |
| ● | Cost Savings. We believe that the Symphony system and
our expected pricing strategy will make it possible for LTACs, clinics and many types of hospitals that have cost constraints to adopt
in-house testing. Our customers will be able to either purchase the analyzer or lease it at an affordable price through a third-party
leasing company. A typical Symphony test would cost approximately $80 (the cost of the single-use cartridge to the health-care facility)
compared to the approximately $275 per test charged by a third-party lab, excluding overhead and transportation cost. |
| ● | Time Savings. Saving pre-processing time for samples
reduces time to test results by approximately 1-2 hours depending on the pre-processing required for a particular assay system.
Furthermore, as current tests can only be performed in a laboratory, the transportation and logistics of transporting the samples to
the lab and obtaining the result takes between 8-48 hours. Based on the results of the Japan Study, we believe Symphony may be able
to eliminate the time required for transportation and logistics and may be able to eliminate the number of operational ‘touch-points’
from ‘sample-to-result’ from six to two. |
| ● | Space Savings. Symphony’s significantly smaller
tabletop design (14.5 inches by 10.5 inches), compared to the 100-200 square feet of space required by other diagnostic systems, will
make it possible for many healthcare providers to perform in-house testing where there is limited available laboratory space. |
| ● | Versatile Platform with the Capability to Deliver a Broad
Test Menu. Our Symphony platform has the potential for broad application across a number of areas in near-patient diagnostic testing.
The same analyzer can be utilized for all of our planned future diagnostic tests. |
| ● | Throughput and Multiple Testing Capability. Our platform
has been designed to provide the ability to analyze up to six distinct targets or six different patient samples simultaneously within
approximately 24 minutes. This functionality will allow any organization to run multiple tests or panels on a single analyzer. |
Our Market
According to research published
by Allied Market Research (Global Invitro Diagnostics Market, 2020-2027), the global in vitro diagnostics market was $67.1 billion in
2019; projected to reach $91.1 billion by 2027, a compound annual growth rate (“CAGR”) of 4.8% over 7 years driven by prevalence
of chronic diseases including cancer, autoimmune diseases, and other inflammatory conditions. We believe the Symphony sample-to-result
platform is well suited to address a subset of this market, including sepsis, cardio-metabolic diseases, cancer and other diseases that
require time-sensitive, near-patient testing.
According to a report by Market
Data Forecast (February 2020), the total market for IL-6 testing for sepsis triage was $934 million in 2020 and is estimated to reach
$1.4 billion by 2025 growing at a CAGR of 8.51%. Our platform is designed to provide on-site and rapid test results, with no pre-processing
of the blood, and as such, we intend to pursue the following markets for triage:
| ● | Sepsis Triage using IL-6. According to the CDC, each
year, at least 1.7 million adults in America develop sepsis and nearly 270,000 Americans die as a result of sepsis. In the United States,
1 in 3 patients who dies in a hospital has sepsis. In addition, in 2016, according to the National Center for Health Statistics, 8.3
million people were served by LTACs. A major responsibility of these LTAC facilities is to monitor sepsis. We estimate the potential
total market for sepsis triage testing in LTACs is approximately $2–$3 billion annually. Septic shock and multi-organ failure were
the most common cause of death in COVID-19 patients, often due to suppurative pulmonary infection. |
| ● | Chest Pain Triage using hsTNT and NT-proBNP. According
to a Washington Post article in April 2019, there are 7.6 million people in the United States each year who visit or are admitted to
the hospital with chest pain. Research suggests that about 50% of those patients are admitted for further observation and care of potential
heart disease, and that approximately 3.6 million people annually needed cardiac triage. Two major biomarkers that are assessed to diagnose
and monitor cardiac irregularities are hsTNT and NT-proBNP. These clinically established biomarkers generated approximately $4.6 billion
in revenue in 2019 and will continue to grow with a CAGR of 11.2% through 2027. We are developing diagnostic tests for triage situations,
using these cardiac biomarkers (hsTNT and NT pro-BNP), which were approximately a $3.6 billion market in 2020 and are estimated to be
$5.5 billion by 2025, a CAGR of 8.9% (report by Markets and Markets, January 2021). |
The CDC National Center for
Health Statistics estimates that the market for the diagnostic cardiac triage tests will increase by more than 20% per year over
the next several years. Many factors are driving the growth of these markets, particularly the accelerating adoption of near-patient testing
inside hospitals, LTACs and ICUs. According to the 2021 edition of American Hospital Association Hospital Statistics, there were approximately
6,090 hospitals in the United States in 2019, approximately 5,000 of which are considered community hospitals. According to outside research,
fewer than half of these facilities have the capabilities, technology and products for near-patient diagnoses for triage of either sepsis
or cardiac conditions. We believe these facilities are candidates for our diagnostic platform.
Our Business Model
Our goal is to become a leading
provider of sample-to-result, ‘near-patient’ diagnostic testing in infectious, inflammatory and metabolic diseases by leveraging
the strengths of our Symphony platform. We intend to market the use of Symphony by targeting our sales and marketing to LTACs, clinics,
and community hospitals in the United States. We believe that the format of our low-cost, ‘near-patient’ platform will be
attractive to these institutions which may not otherwise have the financial resources, laboratory space, or trained personnel to justify
the purchase of a diagnostic solution. Our business model relies on the following:
| ● | Attractive Financing Model. We intend to provide our
customers the ability to lease our analyzer at an affordable cost through third-party financial institutions. As such, our business model
will not require a significant capital outlay by health care facility customers and, by moving testing in-house, will create a profit
center for the facility. |
| ● | Recurring Revenue. We intend to sell our customers disposable,
single-use diagnostic test cartridges. Our single-use test cartridges will create a growing and recurring revenue stream for us as we
sell more systems, as adoption and utilization increase, and as we develop tests for additional indications. We expect the sale of test
cartridges to generate the majority of our revenue. |
| ● | Expand our Menu of Diagnostic Products. If adoption increases,
we believe the average customer use of the Symphony platform will begin to increase. As we expand our test menu, we believe we will be
able to increase our annual revenue per customer through the resulting increase in utilization. To that end, we are in development on
a broad menu of diagnostic tests that we believe will satisfy growing medical needs and present attractive commercial opportunities. |
| ● | Increase our revenue and reduce our cost of sales through
a ‘waterfall’ sales strategy. Our proprietary test cartridges and Symphony analyzers are manufactured through our agreements
with Toray and Sanyoseiko Co., Ltd. (“Sanyoseiko”), thus reducing the manufacturing cost structure. They currently build
our Symphony system and test cartridges and currently purchase materials at high per unit cost due to low purchase volumes. We believe
that by focusing our initial sales efforts on multi-location institutions, increased adoption and utilization of Symphony may lead to
increasing sales within a relatively small customer base. We believe sales within those institutions may lower our salesforce costs.
We believe the increased unit sales of our Symphony and cartridges will not only increase revenue, but will also allow us to reduce manufacturing
costs and improve gross margins enhancing our ability to provide a lower cost solution to customers. |
Our Symphony Platform
Symphony
The Symphony platform is an
innovative and proprietary technology platform that in the Japan Study appeared to provide rapid and accurate measurements of key diagnostic
biomarkers found in whole blood. Symphony is compact and portable as compared with current laboratory diagnostic platforms that we believe,
based on the Japan Study, provide comparable sensitivity. In the Japan Study, Symphony appeared to provide lab-quality results in a near-patient
setting. Symphony is designed for usability; all sample preparation and reagents are integrated into the disposable Symphony Cartridges.
Symphony only needs a few hundred femtograms (10-10 grams) of the target to provide quantitation directly from whole blood.
Therefore, Symphony only requires a few drops of blood to generate a result in approximately 24 minutes.
Symphony is comprised of the
Symphony Fluorescence Immuno-analyzer and the Symphony Cartridge Library, shown in Figure 1. The Symphony analyzer orchestrates whole
blood processing, biomarker isolation, and immunoassay preparation using non-contact centrifugal force. All necessary reagents and components
are integrated into the Symphony Cartridges. Utilizing precision microchannel technology and high specificity antibodies, whole blood
is processed, and the biomarker is isolated within the Symphony Cartridge. Intermitted centrifugation cycles enable complex fluid movements,
enabling sequential reagent additions and independent reaction steps inside the hermitically sealed Symphony Cartridge. At the conclusion
of the test, the Symphony analyzer measures the fluorescence signature correlating to a highly sensitive quantitation of the biomarker.
Figure 1. Photograph of the Symphony Fluorescence
Immuno-analyzer and a Symphony IL-6 Cartridge. Barcode reader (not pictured) is included to streamline clinical workflow.
Although our first commercial
offering will be focused on the detection and quantitation of IL-6, we believe the flexibility of our technology will allow us to deploy
new biomarkers for additional indications. Every Symphony Cartridge inserted in the analyzer has a unique code which programs the Symphony
to perform the specific test. This unique feature will enable the release of new tests without the need for system redesigns or updates.
Furthermore, this automated feature will eliminate the need for system recalibrations for every product lot, further streamlining the
clinical workflow and enhancing usability.
The Symphony IL-6 test principle
employs direct sandwich Enzyme Linked Immunosorbent Assay (“ELISA”) for the quantitation of human IL-6 by fluorescence enzyme
immunoassay (“FEIA”), as shown in Figure 2. Within the single-use Symphony IL-6 Cartridge, the assay separates plasma from
whole blood and forms complexes through reaction of any IL-6 present in the sample with highly specific IL-6 binding antibodies. After
the IL-6 sandwich is formed, a fluorescent substrate is enzymatically decomposed to generate fluorescent molecules. The fluorescence intensity
is measured and converted to IL-6 concentration, and the entire process is enclosed within the Symphony IL-6 Cartridge and is controlled
and measured by the Symphony Fluorescence Immuno-analyzer.
Figure 2. Overview of the Symphony IL-6 test principle.
The Symphony Test Cartridge
To perform a Symphony test,
the test operator adds three drops of blood to the Symphony Cartridge. The volume does not have to be precise because the cartridge is
able to work with a range of 0.1 — 0.2 cc, which can be visualized with a fill-gauge on the Symphony Cartridge as shown in Figure
3. After scanning in the patient ID, the Symphony Cartridge is inserted into the Symphony and the test proceeds automatically. Up to six
Symphony Cartridges can be tested simultaneously, enabling up to six different patients or six different biomarkers to be tested at once
on a single machine. In approximately 24 minutes, the measurement results are produced, and a clinical decision can be made.
The disposable cartridge contains
the reagents required to run the applicable test. The three steps of the test (sample preparation, chemical reaction, and detection) are
performed in chambers present on the cartridge. All waste is collected in a chamber in the cartridge significantly reducing the risk of
lab contamination that is often cited as a concern of molecular diagnostic testing. After the test is completed and the result is obtained,
the cartridge is disposed of with the hospital’s other medical waste.
Figure 3. Photograph of the Symphony IL-6 Cartridge
loaded with a whole blood specimen.
Manufacturing
We plan to manufacture both
our devices and cartridges through Contract Manufacturing Organizations (“CMOs”). We have contracts with Toray to manufacture
our cartridges and Sanyoseiko to manufacture both our devices and cartridges. Pursuant to our agreement with Toray, we are required to
use Toray to manufacture test cartridges for a period of three years. We believe both companies are well-known and well-established global
manufacturing companies with capabilities to scale up, re-design and supply our devices and cartridges globally when needed. Therefore,
we believe we will have the capability to supply globally, when required. Both Toray and Sanyoseiko facilities are located in Japan.
We outsource our manufacturing
due to a number of factors; including,
| ● | The cost of initiating and scaling in-house manufacturing is
capital intensive, |
| ● | It would take significant time to establish our own manufacturing
facilities, |
| ● | It would take significant time to obtain necessary certifications
by regulatory authorities; and |
| ● | There would be a significant personnel and maintenance costs
to maintain production in compliance with regulations. |
In the first quarter of 2021,
we established Sanyoseiko as our large-scale contract manufacturing organization. Toray will continue to develop, validate and manufacture
our current IL-6 cartridges and other cartridges in our product pipeline as our pilot-manufacturing partner.
Regulatory Strategy
We license the technology for
Symphony from Toray. Our license grants us exclusive world-wide use with the exception of Japan. Toray started developing the Symphony
(known as RAY-FAST in Japan) to complement one of its sepsis related products for blood purification during sepsis. Development of RAY-FAST
begin in 2006. For the past 3-4 years, RAY-FAST has been used successfully in Japan by selected clinical institutions for measurement
of IL-6 in rheumatoid arthritis to monitor disease progression for the purpose of clinical validation, efficacy, monitoring potential
adverse conditions reporting, robustness, durability and customer feedback on usability.
Our initial regulatory pathway is to label and distribute Symphony
as an Research Use Only, or RUO product in the U.S. An RUO product is an in-vitro diagnostic device that is in the laboratory research
phase of development. RUO devices are not authorized for use in clinical or diagnostic applications. However, it is possible that certain
laboratories may choose to independently utilize the RUO Symphony as part of their own Laboratory Developed Test, or LDT. An LDT is a
type of in vitro diagnostic test that is designed, manufactured and used within a single laboratory. In parallel, we are pursuing
510(k) clearance from FDA to use Symphony for in vitro diagnostic use.
Symphony IL-6
Our Symphony IL-6 product candidate
is intended for early and rapid identification of sepsis during Emergency Department (“ED”), critical care triage, and neutropenic
sepsis in oncology patients. Our Symphony IL-6 product candidate is also intended for monitoring disease progression during such treatment
regimen.
We are conducting a multi-center
clinical study at The University of Texas, Southwestern Medical Center (William P. Clements Jr. University Hospital (CUH) and Zale Lipshy
Pavilion Hospital) and Parkland Memorial Hospital under a single protocol. Our clinical study will involve:
| ● | A reference range study. For the reference range study,
120 subjects will be enrolled to achieve at a minimum 100 qualified data points for the statistical analysis. The reference range (2.5th
to 97.5th centile) will be estimated using parametric methods. Parametric methods will be used to calculate the 95%
confidence intervals for the reference limits. Nonparametric estimates of the reference limits with confidence intervals will be computed
as a sensitivity analysis. |
| ● | A cutoff value study. For the cutoff value study, 96
subjects will be enrolled to achieve at a minimum 80 qualified data points for the statistical analysis. For the cutoff value study,
the Receiver Operating Characteristic (“ROC”) curve will be estimated. The ideal cutoff, which gives a point on the ROC curve
that is closest to the (0.1) point, will be selected based on the results from this study. |
|
● |
A cutoff validation study. For the cutoff validation study, 48 patients will be enrolled into the study to achieve at a minimum 40 qualified data points. Clinical sensitivity, clinical specificity, positive predictive value, negative predictive value, and corresponding 95% confidence intervals will be calculated using the cutoff value determined from the cutoff value study. |
In parallel to these studies,
we intend to capture the necessary analytical data required for FDA submission. These studies will be performed using patient samples
with natural IL-6 and will be performed in accordance with the Clinical & Laboratory Standards Institute (“CLSI”)
guidelines.
We plan to start clinical studies
at other clinical sites to support additional indications and possibly additional FDA premarket submissions. In addition to ICUs, we plan
to add both adult and pediatric oncology patients. We plan to perform blood collections by both venipuncture and capillary collection,
which includes both finger stick and heel stick, in our studies so we can support these indications for use.
Blood collection for pediatric
patients is often faced with many challenges due to their limited supply of blood and the difficulty of performing venipuncture collections.
We believe the small amount of blood needed for Symphony will be very attractive for pediatric healthcare. Furthermore, we have planned
in our clinical studies to include finger stick and heel stick blood collection to further reduce the clinical burden of performing tests
in pediatric patients.
We submitted a pre-submission
application to the FDA presenting our study design and the data from our first set of studies. We will use their feedback, if necessary,
to modify the ongoing studies and to construct the FDA clearance application. We plan to submit our FDA clearance application at the end
of the third quarter of 2022.
The importance of IL-6 testing
has been further highlighted during the COVID-19 pandemic, and IL-6 concentrations in blood have been found to be heightened in patients
with COVID-19-associated systemic inflammation and hypoxic respiratory failure. If clinical studies are successful, our Symphony IL-6
product candidate could also be used with confirmed COVID-19 illness to aid in determining the risk of intubation with mechanical ventilation,
in conjunction with clinical findings and the results of other laboratory testing. In our ongoing clinical studies, we have performed
prospective Symphony IL-6 tests on the whole blood of 90 subjects admitted to either William P. Clements Jr. University Hospital, Zale
Lipshy Pavilion Hospital, or Parkland Memorial Hospital with confirmed COVID-19, confirmed by an FDA Emergency Use Authorization, or EUA
PCR SARS-CoV-2 test. Once completed, we believe our planned study design can be used to apply for an EUA for use with confirmed COVID-19
illness to aid in determining the risk of intubation with mechanical ventilation, in conjunction with clinical findings and the results
of other laboratory testing. There is no assurance that we will be successful in obtaining EUA for this indication.
Symphony hsTNT/I and NT-proBNP
We have two other product candidates
that are in development: (i) hsTNT/I for myocardial injury or myocardial infarction (MI) and (ii) NT-proBNP for cardiac heart failure
(“CHF”). These product candidates will follow a similar regulatory pathway as identified for our Symphony IL-6 product candidate
which we believe will result in obtaining 510(k) clearance for diagnostic use.
For the clinical trial, we
plan to have both retrospective samples and prospective subjects to power the study to have a statistically significant result. For retrospectively
collected samples, we will utilize clinical information recorded during the original sample collection. For prospectively collected samples,
clinical information will be collected initially during admission or ER triage, and will be considered as baseline samples. Clinical information
will also be collected on discharge, shift or admission to ICU. Our clinical plan also allows us to monitor ER or admitted patients during
their treatment regimen.
Sales and Marketing
Initially, we plan to have
four major sales territories; Northeast, Northwest, Central (South central and North central) and West (North west and South west). These
territories will be served and supported by territory sales managers and technical sales support managers. A centralized sales and technical
support team will support the regional groups. We intend to focus our initial sales efforts on the large institutions, hospitals, and
LTACs that operate multiple facilities and therefore might purchase multiple units. This ‘Waterfall’ strategy, focusing on
sales within those institutions, may lower salesforce costs.
Our sales representatives will
typically have experience in molecular diagnostic testing and a network of customer contacts within their respective territories. We will
utilize our teams’ knowledge along with market research databases to target and qualify our customers. We intend to execute a variety
of sales campaigns and strategies to meet the buying criteria of the different customer segments we intend to pursue.
In the United States, our sales
cycle will typically include customer evaluations, a decision to use our platform and then validation of our platform. Upon successful
validation a hospital or reference lab may choose to become a customer. The analyzer will be available to the customer by purchase or
third-party lease for their use with our diagnostic test. The customer will buy our proprietary test cartridge from us and utilize one
disposable test cartridge each time they run a diagnostic test.
We have deployed the Symphony
and test cartridges in the United States in selected medical institutions and LTAC facilities for evaluation. Our goal is to convert these
facilities into paying customers if we receive FDA authorization.
Customers
Our initial focus is on the
following types of customers:
Medical Institution and
Hospitals with Intensive Care Unit (ICUs): ICUs treat patients with severe or life-threatening illnesses and
injuries, which require constant care, close supervision from life support equipment and medication to ensure normal bodily functions.
ICUs are staffed by highly trained physicians, nurses and respiratory therapists who specialize in caring for critically ill patients.
ICUs are also distinguished from general hospital wards by a higher staff-to-patient ratio and access to advanced medical resources and
equipment that is not routinely available elsewhere. The types of patients typically seen in ICUs are those with acute and advanced respiratory
distress syndrome, septic shock, and patients requiring support for an acute reversible failure of one or more organs.
Long-term Acute Care facilities
(LTACs): LTACs are facilities that specialize in the treatment of patients with serious medical conditions
that require care on an on-going basis but no longer require intensive care or extensive diagnostic procedures. These patients are typically
discharged from the intensive care units and require more care than they can receive in a rehabilitation center, skilled nursing facility,
or at home. The types of patients typically seen in LTACs include those requiring prolonged ventilator use or weaning, ongoing dialysis
for chronic renal failure, intensive respiratory care, multiple IV medications or transfusions, and complex wound care/care for burns.
Outpatient Clinics: A
clinic (or outpatient or ambulatory care clinic) is a health care facility that is primarily focused on the care of outpatients. Clinics
can be privately operated or publicly managed and funded. They typically cover the primary care needs of populations in local communities.
Typical large outpatient clinics house general medical practitioners such as doctors and nurses to provide ambulatory care and some acute
care services including patient triage for sepsis and cardiac patients. The types of patient care they perform include blood tests, triage
with chest pain complaints, triage with septic shock, biopsies, chemotherapy, colonoscopy, CT scan, mammograms, minor surgical procedures,
radiation treatments, ultrasound imaging and x-rays.
License Agreement
We have an exclusive license
with Toray for the entire world, excluding Japan, to use their patents and know-how related to Symphony and the detection cartridges for
the manufacturing, marketing and sale of the products (as defined in the agreement). We also have a nonexclusive license for the same
purposes in Japan. The term of this license agreement extends until the expiration of all the patents associated with the licensed patent
rights, which are between 2029 and 2036. If we do not generate commercial sales within five years of the date of the license, Toray has
the right to terminate the agreement or make it non-exclusive. In addition, we are required to make commercially reasonable efforts to
obtain market approval for the products in the United States and the European Union by October 2023. Pursuant to the agreement, we are
required to use Toray to manufacture the sample cartridges. The agreement terminates upon expiration of the last of the patents included
in the license.
In connection with entering
into the agreement, we paid Toray $240,000 in licensing fees. We are required to pay a 15% royalty fee for the period that any underlying
patents exist or for 5 years after the first sale for the licensing of this technology based on a percentage of our “Net Sales”
of products using these technologies (as defined in the license agreement) with a minimum royalty of $60,000 for the initial year that
royalties are payable increasing to a minimum of $100,000 thereafter.
Intellectual Property, Proprietary Technology
We do not currently hold any
patents directly. We rely on a combination either directly or through our license agreement with Toray of patent, copyright, trade secret,
trademark, confidentiality agreements, and contractual protection to establish and protect our proprietary rights. We have licensed U.S.
Patent Nos. 8,409,447 (“the ‘447 patent”) and 8,821,813 (“the ‘813 patent”). The ‘447 patent
is valid through at least February 2029 and is generally directed to a separation chip and a method for separating an insoluble component
from a suspension with the separation chip. The ‘813 patent is valid through at least March 2028 and is generally directed to a
liquid-feeding chip, a liquid feeding method and analysis method. We have also licensed use or process patents covering the inventions
and/or subject matter of the ‘447 and ‘813 patents in various international territories including Japan, Canada, China, Europe
and South Korea, which are valid through at least February 2027.
These measures may not be adequate
to safeguard the technology underlying our products. For example, employees, consultants and others who participate in the development
of our products may breach their agreements with us regarding our intellectual property, and we may not have adequate remedies for the
breach. We also may not be able to effectively protect our intellectual property rights in some foreign countries, as many countries do
not offer the same level of legal protection for intellectual property as the United States. Furthermore, for a variety of reasons, we
may decide not to file for patent, copyright or trademark protection outside of the United States. Our trade secrets could become known
through other unforeseen means. Notwithstanding our efforts to protect our intellectual property, our competitors may independently develop
similar or alternative technologies or products that are equal or superior to our technology. Our competitors may also develop similar
products without infringing on any of our intellectual property rights or design around our proprietary technologies. Furthermore,
any efforts to enforce our proprietary rights could result in disputes and legal proceedings that could be costly and divert attention
from our business. We could also be subject to third-party claims that we require additional licenses for our products, and such claims
could interfere with our business. If our products infringe the intellectual property rights of others, we could face costly litigation,
which could cause us to pay substantial damages and limit our ability to sell some or all of our products. Even if our products were determined
not to infringe the intellectual property rights of others, we could incur substantial costs in defending any such claims.
Competition
Our primary competition is
laboratory size equipment including the Roche Cobas®, Siemens ADVIA Centaur® and Beckman Coulter Access
2®.
Our competitors have substantially
greater financial, technical, research and other resources and larger, more established marketing, sales and distribution organizations
than we do. Our competitors also offer broader product lines and have greater brand recognition than we do. Moreover, our existing and
new competitors may make rapid technological developments that may result in our technologies and products becoming obsolete before we
recover the expenses incurred to develop them or before they generate significant revenue. We may encounter potential customers that,
due to existing relationships with our competitors, are committed to or prefer the products offered by these competitors. There can be
no assurance that competitors, many of which have made substantial investments in competing technologies, will not prevent, limit or interfere
with our ability to make, use or sell our products either in the United States or in international markets.
Government Regulation
The design, development, manufacture,
testing and sale of our diagnostic products are subject to regulation by numerous governmental authorities, principally the FDA, and corresponding
state and foreign regulatory agencies.
FDA Regulation
Research Use Only Technologies
Symphony will initially be
commercialized as an RUO tool in the United States. RUO products belong to a separate regulatory classification under a long-standing
FDA regulation. From an FDA perspective, products that are intended for research use only and are labeled as RUO are not regulated by
the FDA as in vitro diagnostic devices and are therefore not subject to the regulatory requirements discussed below for
clinical diagnostic products. Thus, RUO products may be used or distributed for research use without first obtaining FDA clearance, authorization
or approval. The products must bear the statement: “For Research Use Only. Not for Use in Diagnostic Procedures.” RUO products
cannot make any claims related to safety, effectiveness or diagnostic utility, and they cannot be intended by the manufacturer for human
clinical diagnostic use. Accordingly, a product labeled RUO but intended or promoted for clinical diagnostic use may be viewed by the
FDA as false or misleading and thereby adulterated and misbranded products under the Federal Food, Drug, and Cosmetic Act (“FDCA”)
and subject to FDA enforcement action. The FDA’s 2013 Guidance for Industry and Food and Drug Administration Staff on “Distribution
of In Vitro Diagnostic Products Labeled for Research Use Only or Investigational Use Only,” explains that the FDA will
consider the totality of the circumstances surrounding distribution and use of an RUO product, including how the product is marketed and
to whom, when determining its intended use. Merely including a labeling statement that a product is intended for research use only will
not necessarily exempt the device from the FDA’s 510(k) clearance, premarket approval, or other requirements, if the circumstances
surrounding the distribution of the product indicate that the manufacturer intends its product to be used for clinical diagnostic use.
These circumstances may include written or verbal marketing claims or links to articles regarding a product’s performance in clinical
applications, a manufacturer’s provision of technical support for clinical validation or clinical applications, or solicitation
of business from clinical laboratories, all of which could be considered evidence of intended uses that conflict with RUO labeling. If
the FDA disagrees with a company’s RUO status for its product, the company may be subject to FDA enforcement activities, including,
without limitation, removal of the product, or requiring the company to seek clearance, authorization or approval for the products.
Medical Devices
Generally, in vitro diagnostic
products we develop must be cleared by the FDA before they are marketed in the United States. Before and after approval, authorization,
or clearance in the United States, our products are subject to extensive regulation by the FDA, as well as by other regulatory bodies.
FDA regulations govern, among other things, the development, testing, manufacturing, labeling, safety, storage, recordkeeping, market
clearance, authorization or approval, advertising and promotion, import and export, marketing and sales, and distribution of medical devices,
including in vitro diagnostic devices (“IVDs”). IVDs are a type of medical device and include reagents and instruments
used in the diagnosis or detection of diseases, conditions or infections, including, without limitation, the presence of certain chemicals
or other biomarkers. Predictive, prognostic and screening tests can also be IVDs.
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 FDA determines are necessary to reasonably ensure their safety and effectiveness:
| ● | Class I: general controls, such as labeling and adherence to
quality system regulations; |
| ● | Class II: special controls, premarket notification (often referred
to as a 510(k)), specific controls such as performance standards, patient registries, post-market surveillance, additional controls such
as labeling and adherence to quality system regulations; and |
| ● | Class III: special controls and approval of a premarket approval
(“PMA”) application. |
After a medical device is placed
on the market, numerous regulatory requirements apply. These include:
| ● | compliance with the FDA’s QSR, which requires manufacturers
to follow stringent design, testing, control, documentation, record maintenance, including maintenance of complaint and related investigation
files, and other quality assurance controls during the manufacturing process; |
| ● | labeling regulations, which prohibit the promotion of products
for uncleared, or unapproved uses, or “off-label” uses, and impose other restrictions on labeling; and |
| ● | obligations to investigate and report to the FDA adverse events,
including deaths, or serious injuries that may have been or were caused by a medical device and malfunctions in the device that would
likely cause or contribute to a death or serious injury if it were to recur. |
Failure to comply with applicable
regulatory requirements can result in enforcement action by the FDA, which may include sanctions, including but not limited to, warning
letters; fines, injunctions, and civil penalties; recall or seizure of the device; operating restrictions, partial suspension or total
shutdown of production; refusal to grant 510(k) clearance, de novo authorization, or approval of a PMA application for new devices;
withdrawal of clearance, authorization, or approval; and civil or criminal prosecution.
Premarket Authorization and Notification
While most Class I and some
Class II devices can be marketed without prior FDA authorization, most medical devices can be legally sold within the U.S. only if the
FDA has: (i) approved a PMA application prior to marketing, generally applicable to Class III devices; or (ii) cleared the device in response
to a premarket notification, or 510(k) submission, generally applicable to Class II and some Class I devices. Some devices that have been
classified as Class III are regulated pursuant to the 510(k) requirements because FDA has not yet called for PMAs for these devices. Other
less common regulatory pathways to market medical devices include Emergency Use Authorization or the EUA process which is only available
during public health emergencies, humanitarian device exception (“HDE”) or a product development protocol (“PDP”).
510(k) Notification
Product development in the
U.S. for most Class II and limited Class I devices typically follows a 510(k) pathway. To obtain 510(k) clearance, a manufacturer must
submit a premarket notification demonstrating that the proposed device is substantially equivalent to a legally marketed device, referred
to as the predicate device. A predicate device may be a previously 510(k) cleared device or a device that was in commercial distribution
before May 28, 1976 for which the FDA has not yet called for submission of PMA applications. The manufacturer must show that the proposed
device has the same intended use as the predicate device, and it either has the same technological characteristics, or it is shown to
be equally safe and effective and does not raise different questions of safety and effectiveness as compared to the predicate device.
There are three types of 510(k)s:
traditional; special, for devices that are modified and the modification needs a new 510(k) but the modification does not affect the intended
use or alter the fundamental scientific technology of the device; and abbreviated, for devices that conform to a recognized standard.
The special and abbreviated 510(k)s are intended to streamline review. The FDA intends to process special 510(k)s within 30 FDA days of
receipt, and abbreviated 510(k)s within 90 FDA days of receipt. The clearance pathway for traditional 510(k)s can, however, take from
four to 12 months, or even longer if FDA has questions during the review.
After a device receives 510(k)
clearance, any modification that could significantly affect its safety or effectiveness, or that would constitute a major change in its
intended use, requires a new 510(k) clearance or could require a de novo authorization approval of a PMA application. The FDA requires
each manufacturer to make this determination in the first instance, but the FDA can review any such decision. If the FDA disagrees with
a manufacturer’s decision not to seek a new 510(k) clearance, the agency may retroactively require the manufacturer to seek 510(k)
clearance, de novo authorization, or PMA approval. The FDA also can require the manufacturer to cease marketing and/or recall the
modified device until 510(k) clearance, de novo authorization, or PMA approval is obtained.
During the review of a 510(k)
submission, the FDA may request more information or additional studies and may decide the indications for which we seek clearance should
be limited. In addition, laws and regulations and the interpretation of those laws and regulations by the FDA may change in the future.
We cannot foresee what effect, if any, such changes may have on us.
De Novo Classification
Devices of a new type that
FDA has not previously classified based on risk are automatically classified into Class III by operation of section 513(f)(1) of the FDCA,
regardless of the level of risk they pose. To avoid requiring PMA review of low- to moderate-risk devices classified in Class III by operation
of law, Congress enacted section 513(f)(2) of the FDCA. This provision allows FDA to classify a low- to moderate-risk device not previously
classified into Class I or II. After de novo authorization, an authorized device may be used as a predicate for future devices
going through the 510(k) process.
PMA Application
A product not eligible for
510(k) clearance or de novo authorization must follow the PMA approval pathway, which requires proof of the safety and effectiveness of
the device to the FDA’s satisfaction.
Results from adequate and well-controlled
clinical trials are required to establish the safety and effectiveness of a Class III PMA device for each indication for which FDA approval
is sought. After completion of the required clinical testing, a PMA including the results of all preclinical, clinical, and other testing,
and information relating to the product’s marketing history, design, labeling, manufacture, and controls, is prepared and submitted
to the FDA.
The PMA approval process is
generally more expensive, rigorous, lengthy, and uncertain than the 510(k) premarket notification process and requires proof of the safety
and effectiveness of the device to the FDA’s satisfaction. As part of the PMA review, the FDA will typically inspect the manufacturer’s
facilities for compliance with the QSR requirements, which impose elaborate testing, control, documentation and other quality assurance
procedures. The FDA’s review of a PMA application typically takes one to three years, but may last longer. If the FDA’s evaluation
of the PMA application is favorable, the FDA will issue a PMA for the approved indications, which can be more limited than those originally
sought by the manufacturer. The PMA can include post-approval conditions that the FDA believes necessary to ensure the safety and effectiveness
of the device including, among other things, restrictions on labeling, promotion, sale and distribution. Failure to comply with the conditions
of approval can result in material adverse enforcement action, including the loss or withdrawal of the approval and/or placement of restrictions
on the sale of the device until the conditions are satisfied.
Even after approval of a PMA,
a new PMA or PMA supplement is required in the event of a modification 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.
EUA Process
The program for authorizations
of products through an Emergency Use Authorization (“EUA”) is established when the Secretary of Health and Human Services
declares a public health emergency. This process remains in effect only as long the declared public health emergency is in effect. An
EUA authorization is granted by FDA using similar analytical and clinical validation metrics similar to what may be required for 510(k),
PMA or de novo authorizations but are based on a reduced amount of data. The process to obtain an EUA typically consists of two phases,
an initial Pre-EUA submission that is used to identify and resolve any significant problems that would preclude issuance of an EUA and
a final EUA submission. The final EUA submission addresses the details that the FDA will require to demonstrate that the Symphony IL-6
test will have acceptable analytical and clinical performance. FDA has granted EUA for the Roche Elecsys IL-6 test, the Siemens ADVIA
Centaur IL-6 test and the Beckman Coulter Access IL-6 test. FDA publishes summaries of the testing performed to support these EUAs, which
will serve as guidance as we prepare our EUA. There are no required timelines for review and authorization of an EUA. Moreover, FDA has
prioritized those IVD EUA that the agency will review to include molecular and antigen tests that may be used at the POC or completely
at home; the manufacturer has the capacity to scale up to a production of >500,00 tests per week within 3 months of authorization;
or tests that are from or supported by US government stakeholder, e.g. BARDA or NIH’s RADx program. For serology tests, FDA intends to
focus on quantitative and neutralizing antibody tests. There is no guarantee that the Symphony IL-6 assay will be a priority for FDA
review.
Clinical Trials of Medical Devices
Clinical trials are almost
always required to support a PMA, are often required for a de novo authorization, and are sometimes required for 510(k) clearance. Clinical
trials may also be conducted or continued to satisfy post-approval requirements for devices with PMAs. 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 FDA requirements. If an investigational device could pose a significant risk to patients, the sponsor
company must submit an Investigational Device Exemption (“IDE”) application to the FDA prior to initiation of the clinical
study. An IDE application must be supported by appropriate data, such as animal and laboratory test results, showing it is safe to test
the device on humans and the testing protocol is scientifically sound. The IDE will automatically become effective 30 days after receipt
by the FDA unless the FDA notifies the company the investigation may not begin. Clinical studies of investigational devices may not begin
until an institutional review board (“IRB”) has approved the study.
During any study, the sponsor
must comply with the applicable portions of FDA’s IDE 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.
A nonsignificant risk device
does not require FDA approval of an IDE; however, the clinical trial must still be conducted in compliance with various requirements of
FDA’s IDE regulations and be approved by an IRB at the clinical trials sites. We, the FDA, or the IRB 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 the subjects are
being exposed to an unacceptable risk. During the approval, authorization, or clearance process, the FDA may inspect the records relating
to the conduct of one or more investigational sites participating in the study supporting the application.
Even if a trial is completed,
the results of clinical testing may not demonstrate the safety and effectiveness of the device, may be equivocal or may otherwise not
be sufficient to obtain approval, authorization, or clearance of the product.
Sponsors of applicable clinical
trials of devices are required to register with www.clinicaltrials.gov, a public database of clinical trial information. Information
related to the device, patient population, phase of investigation, study sites and investigators and other aspects of the clinical trial
is made public as part of the registration.
Although the QSR does not fully
apply to investigational devices, the requirement for controls on design and development does apply. The sponsor also must manufacture
the investigational device in conformity with the quality controls described in the IDE application and any conditions of IDE approval
that the FDA may impose with respect to manufacturing.
Post-Approval Regulation of Medical Devices
After a device is cleared,
authorized, or approved for marketing, numerous and pervasive regulatory requirements continue to apply. These include:
| ● | the FDA QSR, which applies to manufacturers, developers, and
contract manufacturers, and governs, among other things, how manufacturers design, test manufacture, exercise quality control over, and
document manufacturing of their products; |
| ● | establishment registration and device listing |
| ● | corrections and removal reporting regulations, which require
that manufactures report to FDA field corrections or removals if undertaken to reduce a risk to health posed by a device or to remedy
a violation of the FDCA that may present a risk to health; |
| ● | labeling and claims regulations, which prohibit the promotion
of products for unapproved or “off-label” uses and impose other restrictions on labeling; and |
| ● | the Medical Device Reporting regulation, which requires reporting
to the FDA of certain adverse experience associated with use of the product. |
We will continue to be subject
to inspection by the FDA to determine our compliance with regulatory requirements. If the FDA finds a violation, it can institute a wide
variety of enforcement actions, ranging from a public warning letter to more severe sanctions such as:
| ● | fines, injunctions, and civil penalties; |
| ● | recall or seizure of products; |
| ● | operating restrictions, partial suspension or total shutdown
of production; |
| ● | refusing requests for 510(k) clearance or PMA approval of new
products; |
| ● | withdrawing 510(k) clearance or PMA approvals already granted;
and |
QSR Requirements
Manufacturers of medical devices
are required to comply with FDA quality system requirements set forth the QSR. The QSR requires, among other things, establishment of
a quality system and processes for design and development and manufacturing controls as well as the corresponding maintenance of records
and documentation. Certain adverse events and malfunctions with the product must be reported to the FDA and could result in the imposition
of marketing restrictions through labeling changes or in product withdrawal. Product approvals, authorizations, or clearances may be withdrawn
if compliance with regulatory requirements is not maintained or if problems concerning safety or effectiveness of the product occurs following
the approval, authorization, or clearance. We will use contract manufacturers to manufacture our products for the foreseeable future.
We will, therefore, be dependent on their compliance with these requirements to market our products. We work closely with our contract
manufacturers to assure our products are in strict compliance with these regulations.
Export Regulations
Medical devices that are legally
marketed in the United States may be exported anywhere in the world without prior FDA notification or approval. Devices that have not
been approved or cleared in the United States must follow the export provisions of the FDCA. Depending on which section of the FDCA we
may export under, we may need to request an export permit letter or export certificate, or we may need to submit a simple notification.
Export certificates may be requested by foreign customers or foreign governments to provide proof of the products’ status as regulated
by the FDA. The export certificate is prepared by FDA and contains information about a product’s regulatory or marketing status
in the United States.
Clinical Laboratory Improvement Amendments
of 1988
The use of our products is
also affected by the Clinical Laboratory Improvement Amendments of 1988 (“CLIA”) and related federal and state regulations,
which provide for regulation of laboratory testing. Any customers using our products for clinical use in the United States will be regulated
under CLIA, which establishes quality standards for all laboratory testing to ensure the accuracy, reliability and timeliness of patient
test results regardless of where the test was performed. In particular, these regulations mandate that clinical laboratories must be certified
by the federal government or a federally approved accreditation agency, or must be located in a state that has been deemed exempt from
CLIA requirements because the state has in effect laws that provide for requirements equal to or more stringent than CLIA requirements.
Moreover, these laboratories must meet quality assurance, quality control and personnel standards, and they must undergo proficiency testing
and inspections. The CLIA standards applicable to clinical laboratories are based on the complexity of the method of testing performed
by the laboratory, which range from “waived” to “moderate complexity” to “high complexity.”
Laboratory-developed tests.
The FDA considers LDTs to be
tests that are designed, developed, validated and used within a single laboratory. The FDA historically has taken the position that it
has the authority to regulate such tests as medical devices under the FDC Act but has for the most part exercised enforcement discretion
and has not required clearance, authorization, or approval of LDTs prior to marketing. Rather, in place of premarket clearance or approval
and other medical device general and special controls, the agency has relied on the certification of the laboratory under CLIA to ensure
the quality and validity of the tests.
Under present FDA enforcement
discretion, most LDTs currently do not require premarket clearance or approval. Instead, LDTs are generally subject to CLIA regulations, provided that:
| 1. | the tests must be developed and validated by a laboratory certified by CLIA as capable of performing high
complexity tests; |
| 2. | the developed LDT may be requested only on the order of a physician or other licensed health care provider; |
| 3. | the technological characteristics of the LDT are not so complex or potentially misunderstood by users
such that the technology alone creates a significant health risk to patients; |
| 4. | the LDT is not marketed directly to consumers; and |
| 5. | the LDT does not present a specific patient or population risk
such that FDA determines that enforcement discretion is not warranted or appropriate. |
Foreign Government Regulation
We intend to market our products
in European and other select international markets. The regulatory pre-market requirements for molecular devices vary from country to
country. Some countries impose product standards, packaging requirements, labeling requirements and import restrictions on devices. Each
country has its own tariff regulations, duties and tax requirements. Failure to comply with applicable foreign regulatory requirements
may subject us to fines, suspension or withdrawal of regulatory approvals, product recalls, seizure of products, operating restrictions
and criminal prosecution. For products sold in the European Economic Area, we have self-declared a Declaration of Conformity under the
relevant sections of the applicable European Community standards and other normative documents.
Fraud and Abuse Regulations
We are subject to numerous
federal and state health care anti-fraud laws, including the federal anti-kickback statute and False Claims Act that are intended to reduce
waste, fraud and abuse in the health care industry. These laws are broad and subject to evolving interpretations. They prohibit many arrangements
and practices that are lawful in industries other than health care, including certain payments for consulting and other personal services,
some discounting arrangements, the provision of gifts and business courtesies, the furnishing of free supplies and services, and waivers
of payments. In addition, many states have enacted or are considering laws that limit arrangements between medical device manufacturers
and physicians and other health care providers and require significant public disclosure concerning permitted arrangements. These laws
are vigorously enforced against medical device manufacturers and have resulted in manufacturers paying significant fines and penalties
and being subject to stringent corrective action plans and reporting obligations. If we are ever accused of violating them, we could be
forced to expend significant resources on investigation, remediation and monetary penalties.
Patient Protection and Affordable Care Act
Our operations will be affected
by the federal Patient Protection and Affordable Care Act of 2010, as modified by the Health Care and Education Reconciliation Act of
2010, which we refer to as the Health Care Act. Among other things, the Health Care Act requires manufacturers to report to HHS detailed
information about financial arrangements with physicians, teaching hospitals and certain other categories of health care providers. These
reporting provisions preempt state laws that require reporting of the same information, but not those that require reports of different
or additional information. Failure to comply subjects the manufacturer to significant civil monetary penalties.
Health Insurance Coverage and Reimbursement
Our ability to successfully
commercialize our product candidates will depend in part on the extent to which governmental authorities, private health insurers and
other third-party payors provide coverage for and establish adequate reimbursement levels for our product candidates.
In the United States, third-party
payors continue to implement initiatives that restrict the use of certain technologies to those that meet certain clinical evidentiary
requirements. In addition to uncertainties surrounding coverage policies, there are periodic changes to reimbursement. Third-party payors
regularly update reimbursement amounts and also from time to time revise the methodologies used to determine reimbursement amounts. This
includes annual updates to payments to physicians, hospitals and ambulatory surgery centers for procedures during which our products are
used.
Employees
As of December 31, 2021, we
have nine full-time employees. We also contract with several consultants and contractors performing public relations, investor relations,
and accounting functions. None of our employees are represented by labor unions or covered by collective bargaining agreements.
Available Information
Our principal executive offices
are located at 360 Massachusetts Avenue, Suite 203, Acton, MA 01720 and our telephone number is (844) 327-7078. Our website address is
www.bluejaydx.com. We make available free of charge through the Investors Relations section of our website our Annual Reports on Form
10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and all amendments to those reports as soon as reasonably practicable
after such material is electronically filed with or furnished to the U.S. Securities and Exchange Commission. We include our website address
in this report only as an inactive textual reference and do not intend it to be an active link to our website. The contents of our website
are not incorporated into this report.
ITEM 1A. RISK FACTORS
Risk Factor Summary
The following summary highlights the material risks
that may affect our business, operating results, financial condition and prospects, as more fully described in the pages that follow this
summary.
Risks Related to Our Financial Condition and Capital Requirements
We are subject to the risks associated with
new businesses.
We entered into a license agreement
with Toray in October 2020 and are effectively a new business with a plan to commercialize our licensed technology. Our limited operating
history may not be adequate to enable you to fully assess our ability to develop and market our Symphony platform and test cartridges,
assuming we receive regulatory clearances for which there is no assurance, and respond to competition. Our efforts to date have related
to the organization and formation of our company, research and development and preparation for commencing regulatory trials. We have no
approved products, have not yet generated revenue, and we cannot guarantee we will ever be able to generate revenues. Therefore, we are,
and expect for the foreseeable future to be, subject to all the risks and uncertainties, inherent in a new business focused on the development
and sale of new medical devices. As a result, we may be unable to further develop, obtain regulatory approval for, manufacture, market,
sell and derive revenues from our Symphony platform and test cartridges and the other product candidates in our pipeline, and our inability
to do so would materially and adversely impact our viability. In addition, we still must optimize many functions necessary to operate
a business, including expanding our managerial, personnel and administrative structure, continuing product research and development, and
assessing and commencing our marketing activities.
Accordingly, you should consider
our prospects in light of the costs, uncertainties, delays and difficulties frequently encountered by companies that have not yet commercialized
their products, particularly those in the medical device field. In particular, potential investors should consider that there is a significant
risk that we will not be able to:
| ● | implement or execute our current business plan, or that our
business plan is sound; |
| ● | maintain our management team and Board of Directors; |
| ● | determine that the technologies that have been developed are
commercially viable; |
| ● | attract, enter into or maintain contracts with, and retain customers;
and |
| ● | raise any necessary additional funds in the capital markets
or otherwise to effectuate our business plan. |
In the event that we do not
successfully address these risks, our business, prospects, financial condition, and results of operations could be materially and adversely
affected.
We have incurred significant losses since
inception and may not be able to achieve significant revenues or profitability.
Since our inception, we have
engaged primarily in development activities. We have funded our operations primarily through debt and equity financings, and have incurred
losses since inception, including a net loss of $3.5 million and $1.2 million for the years ended December 31, 2021 and 2020, respectively.
We do not know whether or when we will become profitable. Our ability to generate revenue and achieve profitability depends upon our
ability, alone or with others, to complete the development process of our product candidates, including regulatory approvals, and thereafter
achieve substantial acceptance in the marketplace for our products. We may be unable to achieve any or all of these goals.
We will require substantial additional
funding, which may not be available to us on acceptable terms, or at all, and, if not so available, may require us to delay, limit, reduce
or cease our operations.
To date, we have relied primarily
on private debt and equity financing to carry on our business. We have limited financial resources, negative cash flow from operations
and no assurance that sufficient funding will be available to us to fund our operating expenses and to further our product development
efforts and pursue clinical trials for FDA approval. We expect that our current cash position will enable us to fund our operating expenses
and capital expenditure requirements for at least the next twelve months. Thereafter, unless we achieve profitability, we anticipate
that we will need to raise additional capital to fund our operations while we implement and execute our business plan. We currently do
not have any contracts or commitments for additional financing. In addition, any additional equity financing may involve substantial
dilution to our existing shareholders. There can be no assurance that such additional capital will be available on a timely basis or
on terms that will be acceptable to us. Failure to obtain such additional financing could result in delay or indefinite postponement
of operations or the further development of our business with the possible loss of such properties or assets. If adequate funds are not
available or are not available on acceptable terms, we may not be able to fund our business or the expansion thereof, take advantage
of strategic acquisitions or investment opportunities or respond to competitive pressures. Such inability to obtain additional financing
when needed could have a material adverse effect on our business, results of operations, cash flow, financial condition and prospects.
Risks Related to Our Business
The license agreement with Toray, which
covers the license of the core technology used in our Symphony platform and test cartridge product candidates, contains significant risks
that may threaten our viability or otherwise have a material adverse effect on us and our business, assets and its prospects.
We have an exclusive license
with Toray for the entire world, excluding Japan, to use their patents and know-how related to our Symphony platform and test cartridges
for the manufacturing, marketing and sale of such products. We also have a nonexclusive license for the same
purposes in Japan. We have no contractual rights to the intellectual property covered in the license agreement other than as expressly
set forth therein. Our plans, business, prospects and viability are substantially dependent on that intellectual property and subject
to the limitations relating thereto as set forth in the license agreement:
| ● | After the receipt of regulatory approval in a country, we are
required to pay Toray a minimum royalty of $60,000 for the initial year that royalties are payable increasing to a minimum of $100,000
thereafter, regardless of the actual amount of sales by us of licensed products. Accordingly, we could be obligated to pay royalties
even though we have generated no or limited revenue. Such payments could materially and adversely affect our profitability and could
limit our investment in our business. |
| ● | For a period of three years, we are required to purchase test
cartridges from Toray. Accordingly, we will not have unfettered right to select our suppliers, regardless of whether an unauthorized
supplier could provide products on better pricing, delivery, quality or other terms, thus potentially materially and adversely impacting
those aspects of our business, economies, profitability and prospects. |
| ● | The license is non-assignable and non-sublicensable (to third
parties). These restrictions may limit our flexibility to structure our operations in the most advantageous manner. |
| ● | At our sole expense, we must file for, prosecute the application
for, and obtain all regulatory approvals for the licensed products and obtain all legal permits necessary for promoting, marketing, offering
or selling each licensed product. The regulatory approval process can be expensive and time consuming, and there can be no assurances
that we will be able to obtain or maintain any or all required permits. |
| ● | We are required to obtain market approval for the products in
the United States and the European Union by October 2023 or the license agreement could be terminated by Toray. |
| ● | If we do not generate commercial sales within five years of
the date of the license, Toray has the right to terminate the agreement or make it non-exclusive. |
| ● | Except with respect to Toray’s ownership of all intellectual
property rights in respect of the licensed property, Toray provides no, and disclaims all, representations, warranties or covenants relating
to the licensed intellectual property or any other matters under the license agreement and in particular disclaims any fitness of the
property for any purpose or any warranty against infringement of any third party patent. These provisions limit our recourse in the event
that the licensed intellectual property is flawed, defective, inadequate, incomplete, uncommercial, wrongly described or otherwise not
useful for our purposes. We have not independently verified any of the technical, scientific, commercial, legal, medical or other circumstances
or nature of the licensed intellectual property and therefore there can be no assurances that any of the foregoing risks have been reduced
or eliminated. These provisions represent a significant risk of a material adverse impact on us, our business and our prospects. |
In addition, see the risks
in “Risks Related to Our Intellectual Property” below. These risks are not the only risks inherent in the license agreement.
You are encouraged to read the complete text of the license agreement, which is filed as an exhibit to this annual report.
We have not yet launched any products and
the ability to do so will depend on the acceptance of our Symphony platform in the healthcare market.
We have not yet launched or
received regulatory approvals in any country or territory for our Symphony platform or test cartridges. Even if we receive regulatory
approvals, we are faced with the risk that our Symphony platform will not be accepted over competing products and that we will be unable
to enter the marketplace or compete effectively. We cannot assure you that our Symphony platform or test cartridges will gain market acceptance.
If the market for our future products fails to develop or develops more slowly than expected, or if any of the technology and standards
supported by us do not achieve or sustain market acceptance, our business and operating results would be materially and adversely affected.
We cannot accurately predict the volume
or timing of any sales, making the timing of any revenues difficult to predict.
We may be faced with lengthy
and unpredictable customer evaluation and approval processes associated with our Symphony platform. Consequently, we may incur substantial
expenses and devote significant management effort and expense in developing customer adoption of our Symphony platform, which may not
result in revenue generation. We must also obtain regulatory approvals of our Symphony platform and test cartridges in jurisdictions in
which we pursue approvals, which is subject to risk and potential delays. The same risks apply to other tests we may develop based on
our Symphony platform. As such, we cannot accurately predict the volume, if any, or timing of any future sales.
If third-party payors do not provide coverage
and reimbursement for the use of our platform, our business and prospects may be negatively impacted.
Third-party payors, whether
governmental or commercial, are developing increasingly sophisticated methods of controlling healthcare costs. In addition, in certain
countries, no uniform policy of coverage and reimbursement for medical device products and services exists among third-party payors. Therefore,
coverage and reimbursement for medical device products and services can differ significantly from payor to payor. In addition, payors
continually review new technologies for possible coverage and can, without notice, deny coverage for these new products and procedures.
As a result, the coverage determination process is often a time-consuming and costly process that will require us to provide scientific
and clinical support for the use of our products to each payor separately, with no assurance that coverage and adequate reimbursement
will be obtained.
Our Symphony platform, including its software
and systems, may contain undetected errors, which could limit our ability to provide our products and diminish the attractiveness of our
offerings.
Our Symphony platform may contain
undetected errors, defects, or bugs. As a result, our customers or end users may discover errors or defects in our products, software
or systems, or our products, software or systems may not operate as expected. We may discover significant errors or defects in the future
that we may not be able to fix. Our inability to fix any of those errors could limit our ability to provide our products and services,
impair the reputation of our brand and diminish the attractiveness of our product and service offerings to our customers.
In addition, we may utilize
third party technology or components in our products, and we rely on those third parties to provide support services to us. The existence
of errors, defects, or bugs in third party technology or components, or the failure of those third parties to provide necessary support
services to us, could materially adversely impact our business.
We will rely on the proper function, security
and availability of our information technology systems and data to operate our business, and a breach, cyber-attack or other disruption
to these systems or data could materially and adversely affect our business, results of operations, financial condition, cash flows, reputation,
or competitive position.
We will depend on sophisticated
software and other information technology systems to operate our business, including to process, transmit and store sensitive data, and
our future products and services may include information technology systems that collect data regarding patients. We could experience
attempted or actual interference with the integrity of, and interruptions in, our technology systems, as well as data breaches, such as
cyber-attacks, malicious intrusions, breakdowns, interference with the integrity of our products and data or other significant disruptions.
Furthermore, we may rely on third-party vendors to supply and/or support certain aspects of our information technology systems. These
third-party systems could also become vulnerable to cyber-attack, malicious intrusions, breakdowns, interference, or other significant
disruptions, and may contain defects in design or manufacture or other problems that could result in system disruption or compromise the
information security of our own systems.
If in the future we pursue
foreign jurisdictions, such international operations will mean that we are subject to laws and regulations, including data protection
and cybersecurity laws and regulations, in many jurisdictions. Furthermore, there has been a developing trend of civil lawsuits and class
actions relating to breaches of consumer data held by large companies or incidents arising from other cyber-attacks. Any data security
breaches, cyber-attacks, malicious intrusions or significant disruptions could result in actions by regulatory bodies and/or civil litigation,
any of which could materially and adversely affect our business, results of operations, financial condition, cash flows, reputation, or
competitive position.
In addition, our information
technology systems require an ongoing commitment of significant resources to maintain, protect, and enhance existing systems and develop
new systems to keep pace with continuing changes in information processing technology, evolving legal and regulatory standards, the increasing
need to protect patient and customer information, changes in the techniques used to obtain unauthorized access to data and information
systems, and the information technology needs associated any new products and services. There can be no assurance that our process of
consolidating, protecting, upgrading and expanding our systems and capabilities, continuing to build security into the design of our products,
and developing new systems to keep pace with continuing changes in information processing technology will be successful or that additional
systems issues will not arise in the future.
If our information technology systems, products
or services or sensitive data are compromised, patients or employees could be exposed to financial or medical identity theft or suffer
a loss of product functionality, and we could lose existing customers, have difficulty attracting new customers, have difficulty preventing,
detecting, and controlling fraud, be exposed to the loss or misuse of confidential information, have disputes with customers, physicians,
and other health care professionals, suffer regulatory sanctions or penalties, experience increases in operating expenses or an impairment
in our ability to conduct our operations, incur expenses or lose revenues as a result of a data privacy breach, product failure, information
technology outages or disruptions, or suffer other adverse consequences including lawsuits or other legal action and damage to our reputation.
Our future performance will depend on the
continued engagement of key members of our management team.
Our future performance depends
to a large extent on the continued services of members of our current management. In the event that we lose the continued services of
such key personnel for any reason, this could have a material adverse effect on our business, operations and prospects.
If we are not able to attract and retain
highly skilled managerial, scientific and technical personnel, we may not be able to implement our business model successfully.
We believe that our management
team must be able to act decisively to apply and adapt our business model in the markets in which we will compete. In addition, we will
rely upon technical and scientific employees or third-party contractors to effectively establish, manage and grow our business. Consequently,
we believe that our future viability will depend largely on our ability to attract and retain highly skilled managerial, sales, scientific
and technical personnel. In order to do so, we may need to pay higher compensation or fees to our employees or consultants than we currently
expect, and such higher compensation payments would have a negative effect on our operating results. Competition for experienced, high-quality
personnel is intense and we cannot assure that we will be able to recruit and retain such personnel. We may not be able to hire or retain
the necessary personnel to implement our business strategy. Our failure to hire and retain such personnel could impair our ability to
develop new products and manage our business effectively.
If we or our manufacturers fail to comply
with the regulatory quality system regulations or any applicable equivalent regulations, our proposed operations could be interrupted,
and our operating results would suffer.
We and any third-party manufacturers
and suppliers of ours will be required, to the extent of applicable regulation, to follow the quality system regulations of each jurisdiction
we will seek to penetrate and also will be subject to the regulations of these jurisdictions regarding the manufacturing processes. If
we or any third-party manufacturers or suppliers of ours are found to be in significant non-compliance or fail to take satisfactory corrective
action in response to adverse regulatory findings in this regard, regulatory agencies could take enforcement actions against us and such
manufacturers or suppliers, which could impair or prevent our ability to produce our products in a cost-effective and timely manner in
order to meet customers’ demands. Accordingly, our operating results would suffer.
Product liability suits, whether or not
meritorious, could be brought against us due to an alleged defective product or for the misuse of our Symphony platform or test cartridges.
These suits could result in expensive and time-consuming litigation, payment of substantial damages, and an increase in our insurance
rates.
If our Symphony platform or
test cartridges, or any future tests based on our Symphony platform, are defectively designed or manufactured, contain defective components
or are misused, or if someone claims any of the foregoing, whether or not meritorious, we may become subject to substantial and costly
litigation. Misusing our devices or failing to adhere to the operating guidelines or our devices producing inaccurate readings could cause
significant harm to patients. In addition, if our operating guidelines are found to be inadequate, we may be subject to liability. Product
liability claims could divert management’s attention from our core business, be expensive to defend and result in sizable damage
awards against us. While we expect to maintain product liability insurance, we may not have sufficient insurance coverage for all future
claims. Any product liability claims brought against us, with or without merit, could increase our product liability insurance rates or
prevent us from securing continuing coverage, could harm our reputation in the industry and could reduce revenue. Product liability claims
in excess of our insurance coverage would be paid out of cash reserves harming our financial condition and adversely affecting our results
of operations.
If we are found to have violated laws protecting
the confidentiality of patient health information, we could be subject to civil or criminal penalties, which could increase our liabilities
and harm our reputation or our business.
There are a number of laws
around the world protecting the confidentiality of certain patient health information, including patient records, and restricting the
use and disclosure of that protected information. Privacy rules protect medical records and other personal health information by limiting
their use and disclosure, giving individuals the right to access, amend and seek accounting of their own health information and limiting
most use and disclosures of health information to the minimum amount reasonably necessary to accomplish the intended purpose. We may face
difficulties in holding such information in compliance with applicable law. If we are found to be in violation of the privacy rules, we
could be subject to civil or criminal penalties, which could increase our liabilities, harm our reputation and have a material adverse
effect on our business, financial condition and results of operations.
Significant raw material shortages, supplier capacity constraints,
supplier disruptions, and sourcing issues may adversely impact or limited our products sales and or impact our product margins.
In connection with effects
related to the COVID-19 pandemic, we are operating in a supply-constrained environment and are facing, and may continue to face, supply-chain
shortages, inflationary pressures, logistics challenges and manufacturing disruptions that impact our revenues, profitability, and timeliness
in fulfilling customer orders. In addition, our key contract manufacturers are limited- or sole-source suppliers. Disruptions in deliveries,
capacity constraints, production disruptions up- or down-stream, price increases, or decreased availability of raw materials or commodities,
including as a result of war, natural disasters (including the effects of climate change such as sea level rise, drought, flooding, wildfires
and more intense weather events), actual or threatened public health emergencies or other business continuity events, adversely affect
our operations and, depending on the length and severity of the disruption, can limit our ability to meet our commitments to customers
or significantly impact our operating profit or cash flows.
Risks Related to Product Development and Regulatory Approval
The regulatory approval process which we
may be required to navigate may be expensive, time-consuming, and uncertain and may prevent us from obtaining clearance for our planned
products.
We intend to market our Symphony
platform or test cartridges following regulatory approval. To date, we have not received regulatory approval in any jurisdiction. The
research, design, testing, manufacturing, labeling, selling, marketing, and distribution of medical devices are subject to extensive regulation
by country-specific regulatory authorities, which regulations differ from country to country. There can be no assurance that, even after
such time and expenditures, we will be able to obtain necessary regulatory approvals for clinical testing or for the manufacturing or
marketing of any products. In addition, during the regulatory process, other companies may develop other technologies with the same intended
use as our products.
We also will be subject to
numerous post-marketing regulatory requirements, which may include labeling regulations and medical device reporting regulations, which
may require us to report to different regulatory agencies if our device causes or contributes to a death or serious injury, or malfunctions
in a way that would likely cause or contribute to a death or serious injury. In addition, these regulatory requirements may change in
the future in a way that adversely affects us. If we fail to comply with present or future regulatory requirements that are applicable
to us, we may be subject to enforcement action by regulatory agencies, which may include, among others, any of the following sanctions:
| ● | warning letters, fines, injunctions, consent decrees and civil
penalties; |
|
● |
customer notification, or orders for repair, replacement, or refunds; |
| ● | voluntary or mandatory recall or seizure of our products; |
|
● |
imposing operating restrictions, suspension, or shutdown of production; |
| ● | refusing our requests for clearance or pre-market approval of
new products, new intended uses or modifications to any products; |
| ● | rescinding clearance or suspending or withdrawing pre-market
approvals that have already been granted; and |
The occurrence of any of these
events may have a material adverse effect on our business, financial condition and results of operations.
Product clearances and approvals can often be denied or significantly
delayed.
Under FDA regulations, unless
exempt, a new medical device may only be commercially distributed after it has received 510(k) clearance, is authorized through the de
novo classification process, or is the subject of an approved PMA. The FDA will clear marketing of a medical device through the 510(k)
process if it is demonstrated that the new product is substantially equivalent to another legally marketed product not subject to a PMA.
Sometimes, a 510(k) clearance must be supported by preclinical and clinical data.
The PMA process typically is
more costly, lengthy, and stringent than either the 510(k) process or the de novo classification process. Unlike a 510(k) review, which
determines “substantial equivalence,” a PMA requires that the applicant demonstrate reasonable assurance that the device is
safe and effective by producing valid scientific evidence, including data from preclinical studies and human clinical trials. Therefore,
to obtain regulatory clearance or approvals, we typically must, among other requirements, provide the FDA and similar foreign regulatory
authorities with preclinical and clinical data that demonstrate to their satisfaction that our products satisfy the criteria for approval.
Preclinical testing and clinical trials must comply with the regulations of the FDA and other government authorities in the United States
and similar agencies in other countries.
We may be required to obtain
PMAs, PMA supplements, de novo classification, or additional 510(k) pre-market clearances to market modifications to our products once
they are approved and commercialized. The FDA requires device manufacturers to make and document a determination of whether a device modification
requires approval or clearance; however, the FDA can review a manufacturer’s decision. The FDA may not agree with our decisions
not to seek approvals or clearances for particular device modifications. If the FDA requires us to obtain PMAs, PMA supplements or pre-market
clearances for any modification to a previously cleared or approved device, we may be required to cease manufacturing and marketing of
the modified device and perhaps also to recall such modified device until we obtain FDA clearance or approval. We may also be subject
to significant regulatory fines or penalties.
The FDA may not clear or approve
our product submissions or applications on a timely basis or at all. Such delays or refusals could have a material adverse effect on our
business, financial condition, and results of operations.
The FDA may also change its
clearance and approval policies, adopt additional regulations, or revise existing regulations, or take other actions which may prevent
or delay approval or clearance of our products under development or impact our ability to modify our currently approved or cleared products
on a timely basis. Any of these actions could have a material adverse effect on our business, financial condition, and results of operations.
International regulatory approval
processes may take more or less time than the FDA clearance or approval process. If we fail to comply with applicable FDA and comparable
non-U.S. regulatory requirements, we may not receive regulatory clearances or approvals or may be subject to FDA or comparable non-U.S.
enforcement actions. We may be unable to obtain future regulatory clearance or approval in a timely manner, or at all, especially if existing
regulations are changed or new regulations are adopted. For example, the FDA clearance or approval process can take longer than anticipated
due to requests for additional clinical data and changes in regulatory requirements. A failure or delay in obtaining necessary regulatory
clearances or approvals would materially adversely affect our business, financial condition, and results of operations.
Our Symphony IL-6 product candidate is
currently being distributed as a research use only product. The FDA could disagree with this distribution strategy and subject the
product to regulation as a regulated medical device, which could increase our costs and delay our commercialization efforts, thereby
materially and adversely affecting our business and results of operations.
In the United States, our Symphony IL-6 is currently
labeled and sold for research use only, and not for the diagnosis or treatment of disease. Our future product candidates also may
follow this same pathway to market. Because such products are not intended for use in clinical practice in diagnostics, and the products
cannot include clinical or diagnostic claims, they are exempt from many regulatory requirements otherwise applicable to medical devices.
In particular, while the FDA regulations require that RUO products be labeled, “For Research Use Only. Not for use in diagnostic
procedures,” the regulations do not otherwise subject such products to the FDA’s pre- and post-market controls for medical
devices.
A significant change in the
laws governing RUO products or how they are enforced may require us to change our business model in order to maintain compliance. For
instance, in November 2013 the FDA issued a guidance document entitled “Distribution of In Vitro Diagnostic Products Labeled for Research
Use Only or Investigational Use Only” (the “RUO Guidance”) which highlights the FDA’s interpretation that
distribution of RUO products with any labeling, advertising or promotion that suggests that clinical laboratories can validate the test
through their own procedures and subsequently offer it for clinical diagnostic use as a laboratory developed test is in conflict with
RUO status. The RUO Guidance further articulates the FDA’s position that any assistance offered in performing clinical validation
or verification, or similar specialized technical support, to clinical laboratories, conflicts with RUO status. If we engage in any activities
that the FDA deems to be in conflict with the RUO status held by the products that we sell, we may be subject to immediate, severe and
broad FDA enforcement action that would adversely affect our ability to continue operations. Accordingly, if the FDA finds that we are
distributing our RUO products in a manner that is inconsistent with its regulations or guidance, we may be forced to stop distribution
of our RUO tests until we are in compliance, which would reduce our revenue, increase our costs and adversely affect our business, prospects,
results of operations and financial condition. In addition, the FDA’s proposed implementation for a new framework for the regulation
of LDTs may negatively impact the LDT market and thereby reduce demand for RUO products.
Clinical data obtained in the future may
not meet the required objectives, which could delay, limit or prevent any regulatory approval.
There can be no assurance that
we will successfully complete any clinical evaluations necessary to receive regulatory approvals. While preliminary results have been
encouraging and indicative of the potential performance of our Symphony platform and test cartridges, data already obtained, or in the
future obtained, from clinical studies do not necessarily predict the results that will be obtained from later clinical evaluations. The
failure to adequately demonstrate the performance characteristics of the device under development could delay or prevent regulatory approval
of the device, which could prevent or result in delays to market launch and could materially harm our business. There can be no assurance
that we will be able to receive approval for any potential applications of our principal technology, or that we will receive regulatory
clearances from targeted regions or countries.
We may be unable to complete required clinical
evaluations, or we may experience significant delays in completing such clinical evaluations, which could prevent or significantly delay
our targeted product launch timeframe and impair our viability and business plan.
The completion of any future
clinical evaluations of our Symphony platform or test cartridges, or other studies that we may be required to undertake in the future,
could be delayed, suspended, or terminated for several reasons, including:
| ● | we may fail to or be unable to conduct the clinical evaluation
in accordance with regulatory requirements; |
| ● | sites participating in the trial may drop out of the trial,
which may require us to engage new sites for an expansion of the number of sites that are permitted to be involved in the trial; |
| ● | patients may not enroll in, remain in or complete, the clinical
evaluation at the rates we expect; and |
| ● | clinical investigators may not perform our clinical evaluation
on our anticipated schedule or consistent with the clinical evaluation protocol and good clinical practices. |
If our clinical evaluations
are delayed it will take us longer to ultimately launch our Symphony platform and test cartridges in the market and generate revenues.
Moreover, our development costs will increase if we have material delays in our clinical evaluation or if we need to perform more or larger
clinical evaluations than planned.
We and our suppliers may not meet regulatory quality standards
applicable to our manufacturing processes, which could have an adverse effect on our business, financial condition, and results of operations.
As a medical device manufacturer, we will need to
register with the FDA and various non-U.S. regulatory agencies, and will be are subject to periodic inspection by the FDA and foreign
regulatory agencies, for compliance with certain Good Manufacturing Practices (“cGMP”), including design controls, product
validation and verification, in process testing, quality control and documentation procedures. Compliance with applicable regulatory requirements
is subject to continual review and is rigorously monitored through periodic inspections by the FDA and foreign regulatory agencies. Our
product and component suppliers may also be required to meet certain standards applicable to their manufacturing processes.
We cannot assure you that we or our products or
component suppliers will comply with all regulatory requirements. The failure by us or one of our suppliers to achieve or maintain compliance
with these requirements or quality standards may disrupt our ability to supply products sufficient to meet demand until compliance is
achieved or, until a new supplier has been identified and evaluated. Our or any product or component supplier’s failure to comply
with applicable regulations could cause sanctions to be imposed on us, including warning letters, fines, injunctions, civil penalties,
failure of regulatory authorities to grant marketing approval of our products, delays, suspension or withdrawal of approvals or clearances,
license revocation, seizures or recalls of products, operating restrictions and criminal prosecutions, which could harm our business.
We cannot assure you that if we need to engage new suppliers to satisfy our business requirements, we can locate new suppliers in compliance
with regulatory requirements at a reasonable cost and in an acceptable timeframe. Our failure to do so could have a material adverse effect
on our business, financial condition and results of operations.
We may be liable if the FDA or another regulatory agency concludes
that we have engaged in the off-label promotion of our products.
Our promotional materials
and training methods must comply with FDA and other applicable laws and regulations, including the prohibition of the promotion of the
off-label use of our products. Once our products are cleared or approved for clinical use, healthcare providers may use our products for
off-label uses, as the FDA does not restrict or regulate a physician’s choice of treatment within the practice of medicine. However,
if the FDA determines that our promotional, or training materials for sales representatives or physicians constitute promotion of an off-label
use, the FDA could request that we modify our training, promotional materials and/or subject us to regulatory or enforcement actions,
including the issuance of an untitled letter, a warning letter, injunction, seizure, disgorgement of profits, significant penalties, including
civil fines and criminal penalties. Other federal, state or foreign governmental authorities also might take action if they consider our
promotion, reimbursement or training materials to constitute promotion of an off-label use, which could result in significant fines or
penalties under other statutory authorities, such as laws prohibiting false claims for reimbursement. In those possible events, our reputation
could be damaged, and adoption of the products would be impaired.
Our products may be subject to recalls after receiving FDA or
foreign approval or clearance or cause or contribute to a death or a serious injury or malfunction in certain ways prompting voluntary
corrective actions or agency enforcement actions, which could divert managerial and financial resources, harm our reputation, and adversely
affect our business.
The FDA and similar foreign governmental authorities
have the authority to require the recall of our products because of any failure to comply with applicable laws and regulations, or defects
in design or manufacture, or if there is a reasonable likelihood our products might cause or contribute to a death or a serious injury
or malfunction. A government mandated or voluntary product recall by us could occur because of, for example, component failures, device
malfunctions or other adverse events, such as serious injuries or deaths, or quality-related issues, such as manufacturing errors or design
or labeling defects. Any future recalls of our products could divert managerial and financial resources, harm our reputation, and adversely
affect our business.
If we initiate a correction or removal for one
of our devices to reduce a risk to health posed by the device, we would be required to submit a publicly available Correction and Removal
report to the FDA and, in many cases, similar reports to other regulatory agencies. This report could be classified by the FDA as a device
recall which could lead to increased scrutiny by the FDA, other international regulatory agencies and our customers regarding the quality
and safety of our devices. Furthermore, the submission of these reports has been and could be used by competitors against us in competitive
situations and cause customers to delay purchase decisions or cancel orders and would harm our reputation.
In addition, we will be subject
to medical device reporting regulations that will require us to report to the FDA or similar foreign governmental authorities if one of
our products may have caused or contributed to a death or serious injury or if we become aware that it has malfunctioned in a way that
would likely cause or contribute to a death or serious injury if the malfunction recurred. Failures to properly identify reportable events
or to file timely reports, as well as failure to address each of the observations to the FDA’s satisfaction, can subject us to sanctions
and penalties, including warning letters and recalls. Physicians, hospitals, and other healthcare providers may make similar reports to
regulatory authorities. Any such reports may trigger an investigation by the FDA or similar foreign regulatory bodies, which could divert
managerial and financial resources, harm our reputation, and have a material adverse effect on our business, financial condition and results
of operations. Any adverse event involving our products also could result in future voluntary corrective actions, such as recalls or customer
notifications, or agency action, such as inspection or enforcement action. Any corrective action, whether voluntary or involuntary, as
well as defending ourselves in a lawsuit, would require our time and capital, distract management from operating our business and may
harm our reputation and have a material adverse effect on our business, financial condition, and results of operations.
Risks Related to Our Intellectual Property
We depend on intellectual property licensed
from Toray, and any dispute over the license would significantly harm our business.
We are dependent on the intellectual
property licensed from Toray. Disputes may arise between us and Toray regarding intellectual property subject to the license agreement.
If disputes over intellectual property that we have licensed prevent or impair our ability to maintain our current licensing arrangements
on acceptable terms, or are insufficient to provide us the necessary rights to use the intellectual property, we may be unable to successfully
develop and launch our Symphony platform and our other product candidates. If we or Toray fail to adequately protect this intellectual
property, our ability to launch our products in the market also could suffer. For so long as we are dependent on the intellectual property
covered by the license agreement for the pursuit of our business, any such disputes relating to the license agreement or failure to protect
the intellectual property could threaten our viability.
We will depend primarily on Toray to file,
prosecute, maintain, defend and enforce intellectual property that we license from it and that is material to our business.
The intellectual property relating
to our Symphony platform is owned by Toray. Under the license agreement, Toray generally has the right to file, prosecute, maintain and
defend the intellectual property we have licensed from Toray. If Toray fails to conduct these activities for intellectual property protection
covering any of our product candidates, our ability to develop and launch those product candidates may be adversely affected and we may
not be able to prevent competitors from making, using or selling competing products. In addition, pursuant to the terms of the license
agreement, Toray generally has the right to control the enforcement of our licensed intellectual property and the defense of any claims
asserting the invalidity of that intellectual property. We cannot be certain that Toray will allocate sufficient resources to and otherwise
prioritize the enforcement of such intellectual property or the defense of such claims to protect our interests in the licensed intellectual
property. In the absence of action by Toray, we may be unable to protect and enforce the proprietary rights on which our business relies.
Even if we are not a party to these legal actions, an adverse outcome could harm our business because it might prevent us from continuing
to use the licensed intellectual property that we need to operate our business. In addition, even if we take control of the prosecution
of licensed intellectual property and related applications, enforcement of licensed intellectual property, or defense of claims asserting
the invalidity of that intellectual property, we may still be adversely affected or prejudiced by actions or inactions of Toray and its
counsel that took place prior to or after our assuming control, and we cannot ensure the cooperation of Toray in any such action. Furthermore,
if we take action to protect, enforce or defend the licensed intellectual property, we may incur significant costs and the attention of
our management may be diverted from our normal business operations. As a result, our business, results of operations and financial condition
could be materially and adversely affected.
We and Toray may be unable to protect or
enforce the intellectual property rights licensed to us, which could impair our competitive position.
In order for our business to
be viable and to compete effectively, the proprietary rights with respect to the technologies and intellectual property used in our products
must be developed and maintained. Toray relies primarily on patent protection and trade secrets to protect its technology and intellectual
property rights. There are significant risks associated with Toray’s ability (or our ability, in the absence of action by Toray)
to protect the intellectual property licensed to us, including:
| ● | pending intellectual property applications may not
be approved or may take longer than expected to result in approval in one or more of the countries in which we operate; |
| ● | Toray’s intellectual property rights may not provide
meaningful protection; |
| ● | other companies may challenge the validity or extent of Toray’s
patents and other proprietary intellectual property rights through litigation, oppositions and other proceedings. These proceedings can
be protracted as well as unpredictable; |
| ● | other companies may have independently developed (or may
in the future independently develop) similar or alternative technologies, may duplicate Toray’s technologies or may design their
technologies around Toray’s technologies; |
| ● | enforcement of intellectual property rights is complex, uncertain
and expensive, and may be subject to lengthy delays. In the event we take control of any such action under the license agreement, our
ability to enforce our intellectual property protection could be limited by our financial resources; and |
| ● | the other risks described in “— Risks Related
to Our Intellectual Property.” |
If any of Toray’s patents
or other intellectual property rights fail to protect the technology licensed by us, it would make it easier for our competitors to offer
similar products. Any inability on Toray’s part (or on our part, in the absence of action by Toray) to adequately protect its intellectual
property may have a material adverse effect on our business, financial condition and results of operations.
We and/or Toray may be subject to claims
alleging the violation of the intellectual property rights of others.
We may face significant expense
and liability as a result of litigation or other proceedings relating to intellectual property rights of others. In the event that another
party has intellectual property protection relating to an invention or technology licensed by us from Toray, we and/or Toray may be required
to participate in an interference proceeding declared by the regulatory authorities to determine priority of invention, which could result
in substantial uncertainties and costs for us, even if the eventual outcome was favorable to us. We and/or Toray also could be required
to participate in interference proceedings involving intellectual property of another entity. An adverse outcome in an interference proceeding
could require us and/or Toray to cease using the technology, to substantially modify it or to license rights from prevailing third parties,
which could delay or prevent the launch of our products in the market or adversely affect our profitability.
The cost to us of any intellectual
property litigation or other proceeding relating the intellectual property licensed by us from Toray, even if resolved in our favor, could
be substantial, especially given our early stage of development. A third party may claim that we and/or Toray are using inventions claimed
by their intellectual property and may go to court to stop us and/or Toray from engaging in our normal operations and activities, such
as research, development and the sale of any future products. Such lawsuits are expensive and would consume significant time and other
resources. There is a risk that a court will decide that we and/or Toray are infringing the third party’s intellectual property
and will order us to stop the activities claimed by the intellectual property. In addition, there is a risk that a court will order us
and/or Toray to pay the other party damages for having infringed their intellectual property. Moreover, there is no guarantee that any
prevailing intellectual property owner would offer us a license so that we could continue to engage in activities claimed by the intellectual
property, or that such a license, if made available to us, could be acquired on commercially acceptable terms.
We and Toray may be subject to claims challenging
the invention of the intellectual property that we license from Toray.
We and Toray may be subject
to claims that former employees, collaborators or other third parties have an interest in intellectual property as an inventor or co-inventor.
For example, we and Toray may have inventorship disputes arising from conflicting obligations of consultants or others who are involved
in developing our product candidates. Litigation may be necessary to defend against these and other claims challenging inventorship. If
we and Toray fail in defending any such claims, in addition to paying monetary damages, we and Toray may lose valuable intellectual property
rights, such as exclusive ownership of, or right to use, valuable intellectual property. Such an outcome could have a material adverse
effect on our business. Even if we are successful in defending against such claims, litigation could result in substantial costs and be
a distraction to management and other employees. As a result, it is unclear whether and, if so, to what extent employees of ours and Toray
may be able to claim compensation with respect to our future revenue. We may receive less revenue from future products if any of employees
of Toray or us successfully claim compensation for their work in developing our intellectual property, which in turn could impact our
future profitability.
Risks Related to Our Industry
We face intense competition in the diagnostic
testing market, particularly in the IL-6 space, and as a result we may be unable to effectively compete in our industry.
We expect to compete directly
and primarily with large medical device companies. These large companies have most of the diagnostic testing business and strong research
and development capacity. Their dominant market position and significant control over markets could significantly limit our ability to
introduce our Symphony platform or effectively market and generate sales of our products.
We have not yet entered the
revenue stage and most of our competitors have long histories and strong reputations within the industry. They have significantly greater
brand recognition, financial and human resources than we do. They also have more experience and capabilities in researching and developing
testing devices, obtaining and maintaining regulatory clearances and other requirements, manufacturing and marketing those products than
we do. There is a significant risk that we may be unable to overcome the advantages held by our competition, and our inability to do so
could lead to the failure of our business.
Competition in the diagnostic
testing markets is intense, which can lead to, among other things, price reductions, longer selling cycles, lower product margins, loss
of market share and additional working capital requirements. To succeed, we must, among other critical matters, gain consumer acceptance
for our products, technical solutions, prices and response time, or a combination of these factors. If our competitors offer significant
discounts on certain products, we may need to lower our prices or offer other favorable terms in order to compete successfully. Moreover,
any broad-based changes to our prices and pricing policies could make it difficult to generate revenues or cause our revenues, if established,
to decline. Moreover, if our competitors develop and commercialize products that are more desirable than the products that we may develop,
we may not convince customers to use our products. Any such changes would likely reduce our commercial opportunity and revenue potential
and could materially adversely impact our operating results.
If we or Toray fail to respond quickly to
technological developments, our products may become uncompetitive and obsolete.
The diagnostic testing market
may experience rapid technology developments, changes in industry standards, changes in customer requirements and frequent new product
introductions and improvements. If we or Toray are unable to respond to these developments, we may lose competitive position, and our
products or technology may become uncompetitive or obsolete, causing our business and prospects to suffer. In order to compete, we and
Toray may have to develop, license or acquire new technology on a schedule that keeps pace with technological developments and the requirements
for products addressing a broad spectrum and designers and designer expertise in our industries.
Risks Related to Ownership of Our Common Stock
We may not be able to satisfy the continued
listing requirements of the NASDAQ Capital Market in order to maintain the listing of our common stock.
We must meet certain financial
and liquidity criteria to maintain the listing of our common stock on the NASDAQ Capital Market. If we fail to meet any of continued listing
standards, our common stock may be delisted. In addition, while we have no present intention to do so, our Board of Directors may determine
that the cost of maintaining our listing on a national securities exchange outweighs the benefits of such listing. A delisting of our
common stock from the NASDAQ Capital Market may have materially adverse consequences to our stockholders, including:
| ● | a reduced market price and liquidity with respect to our
shares of common stock; |
| ● | limited dissemination of the market price of our common stock; |
| ● | limited interest by investors in our common stock; |
| ● | volatility of the prices of our common stock, due to low
trading volume; |
| ● | our common stock being considered a “penny stock,”
which would result in broker-dealers participating in sales of our common stock being subject to the regulations set forth in Rules 15g-2
through 15g-9 promulgated under the Exchange Act; |
| ● | increased difficulty in selling our common stock in certain
states due to “blue sky” restrictions; and |
| ● | limited ability to issue additional securities or to secure
additional financing. |
If our common stock is delisted,
we may seek to have our common stock quoted on an over-the-counter marketplace, such as on the OTCQX. The OTCQX is not a stock exchange,
and if our common stock trades on the OTCQX rather than a securities exchange, there may be significantly less trading volume and analyst
coverage of, and significantly less investor interest in, our common stock, which may lead to lower trading prices for our common stock.
We could issue “blank check”
preferred stock without stockholder approval with the effect of diluting interests of then-current stockholders and impairing their voting
rights, and provisions in our charter documents and under Delaware law could discourage a takeover that stockholders may consider favorable.
Our Certificate of Incorporation
provides for the authorization to issue up to 5,000,000 shares of “blank check” preferred stock with designations, rights
and preferences as may be determined from time to time by our board of directors. Our board of directors is empowered, without stockholder
approval, to issue one or more series of preferred stock with dividend, liquidation, conversion, voting or other rights which could dilute
the interest of, or impair the voting power of, our common stockholders. The issuance of a series of preferred stock could be used as
a method of discouraging, delaying or preventing a change in control. For example, it would be possible for our board of directors to
issue preferred stock with voting or other rights or preferences that could impede the success of any attempt to change control of our
company. In addition, advanced notice is required prior to stockholder proposals, which might further delay a change of control.
Shares eligible for future sale may adversely
affect the market for our common stock.
The price of our common stock
could decline if there are substantial sales of our common stock, particularly sales by our directors, executive officers, employees,
and significant stockholders, or when there is a large number of shares of our common stock available for sale.
Our directors, officers and
certain existing stockholders entered into lock-up agreements pursuant to which, subject to certain exceptions, such persons will not
sell shares of our common stock (including common stock underlying options and warrants) that they own for six months after the date of
our IPO. As of December 31, 2021 the shares covered by the lock-up these agreements totaled 9,837,737.
Notwithstanding the foregoing, the lock-up provisions in these agreements may be waived, at any time and without notice by the representative
of the underwriter of our IPO.
Subject to the lock-up agreements,
our existing stockholders (including the holders of our preferred stock and warrants) may be eligible to sell all or some of their shares
of common stock by means of ordinary brokerage transactions in the open market, subject to the limitations of Rule 144, promulgated under
the Securities Act. In general, under Rule 144 as currently in effect, once we have been subject to public company reporting requirements
for at least 90 days, a person who is not deemed to have been one of our affiliates for purposes of the Securities Act at any time
during the 90 days preceding a sale and who has beneficially owned the shares proposed to be sold for at least six months, including
the holding period of any prior owner other than our affiliates, is entitled to sell those shares without complying with the manner of
sale, volume limitation or notice provisions of Rule 144, subject to compliance with the public information requirements of Rule 144.
If such a person has beneficially owned the shares proposed to be sold for at least one year, including the holding period of any prior
owner other than our affiliates, then that person is entitled to sell those shares without complying with any of the requirements of Rule
144. Our affiliates and other persons selling shares on behalf of our affiliates also are entitled to sell as long as they comply with
Rule 144’s manner of sale, volume limitation and notice provisions, in addition to the provisions applicable to non-affiliates described
above.
The market price of the shares
of our common stock could decline as a result of the sale of a substantial number of our shares of common stock in the public market or
the perception in the market that the holders of a large number of shares intend to sell their shares.
We do not currently intend to pay dividends
on our common stock in the foreseeable future, and consequently, your ability to achieve a return on your investment will depend on appreciation
in the price of our common stock.
We do not anticipate paying
any cash dividends to holders of our common stock in the foreseeable future. Consequently, investors must rely on sales of their common
stock after price appreciation, which may never occur, as the only way to realize any future gains on their investments. There is no guarantee
that shares of our common stock will appreciate in value or even maintain the price at which our stockholders have purchased their shares.
If securities industry analysts do not publish
research reports on us, or publish unfavorable reports on us, then the market price and market trading volume of our common stock could
be negatively affected.
Any trading market for our
common stock will be influenced in part by any research reports that securities industry analysts publish about us. We do not currently
have and may never obtain research coverage by securities industry analysts. If no securities industry analysts commence coverage of us,
the market price and market trading volume of our common stock could be negatively affected. In the event we are covered by analysts,
and one or more of such analysts downgrade our securities, or otherwise reports on us unfavorably, or discontinues coverage or us, the
market price and market trading volume of our common stock could be negatively affected.
As an “emerging growth company”
under applicable law, we will be subject to lessened disclosure requirements, which could leave our stockholders without information or
rights available to stockholders of other public companies that are not “emerging growth companies.”
For as long as we remain an
“emerging growth company” as defined in the JOBS Act, we have elected to take advantage of certain exemptions from various
reporting requirements that are applicable to other public companies that are not “emerging growth companies” including, but
not limited to:
| ● | not being required to comply with the auditor attestation
requirements of Section 404 of the Sarbanes-Oxley Act; |
| ● | reduced disclosure obligations regarding executive compensation
in our periodic reports and proxy statements; and |
| ● | exemptions from the requirements of holding a nonbinding
advisory vote on executive compensation and stockholder approval of any golden parachute payments not previously approved. |
We expect to take advantage
of these reporting exemptions until we are no longer an “emerging growth company”. We could be an emerging growth company
for up to five years, although circumstances could cause us to lose that status earlier. We will remain an emerging growth company until
the earlier of (1) December 31, 2026, (2) the last day of the fiscal year in which we have total annual gross revenue of at least $1.07
billion, (3) the date on which we are deemed to be a large accelerated filer, which is the end of the fiscal year in which the market
value of our common stock that is held by non-affiliates exceeds $700.0 million as of the end of our most recent second fiscal quarter,
and (4) the date on which we have issued more than $1.0 billion in non-convertible debt securities during the prior three-year period.
Because of these lessened regulatory
requirements, our stockholders would be left without information or rights available to stockholders of other public companies that are
not “emerging growth companies.” In addition, we cannot predict if investors will find our common stock less attractive because
we 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 suffer or be more volatile.
Because we have elected to use the extended
transition period for complying with new or revised accounting standards for an “emerging growth company” our financial statements
may not be comparable to companies that comply with public company effective dates.
We have elected to use the
extended transition period for complying with new or revised accounting standards under Section 102(b)(1) of the JOBS Act. This election
allows us to delay the adoption of new or revised accounting standards that have different effective dates for public and private companies
until those standards apply to private companies. While we are not currently delaying the implementation of any relevant accounting standards,
in the future we may avail ourselves of these rights, and as a result of this election, our financial statements may not be comparable
to companies that comply with public company effective dates. Because our financial statements may not be comparable to companies that
comply with public company effective dates, investors may have difficulty evaluating or comparing our business, performance or prospects
in comparison to other public companies, which may have a negative impact on the value and liquidity of our common stock.
Anti-takeover provisions in our charter
documents and Delaware law could discourage, delay or prevent a change in control of our company and may affect the trading price of our
common stock.
We are a Delaware corporation
and the anti-takeover provisions of the Delaware General Corporation Law may discourage, delay or prevent a change in control by prohibiting
us from engaging in a business combination with an interested stockholder for a period of three years after the person becomes an interested
stockholder, even if a change in control would be beneficial to our existing stockholders. In addition, our amended and restated certificate
of incorporation and by-laws may discourage, delay or prevent a change in our management or control over us that stockholders may consider
favorable. Our amended and restated certificate of incorporation and bylaws will:
| ● | provide for the issuance of “blank check” preferred
stock that could be issued by our Board of Directors to thwart a takeover attempt; |
| ● | provide that stockholders will not be able to take action
by written consent, and special meetings of stockholders may only be called by our Chief Executive Officer, our President, our Board
of Directors or a majority of our stockholders; |
| ● | provide that our stockholders are required to provide advance
notice and additional disclosures in order to nominate individuals for election to our Board of Directors or to propose matters that
can be acted upon at a stockholders’ meeting, which may discourage or deter a potential acquirer from conducting a solicitation
of proxies to elect the acquirer’s own slate of directors or otherwise attempting to obtain control of our company; and |
| ● | do not provide stockholders with the ability to cumulate
their votes, which limits the ability of minority stockholders to elect director candidates. |
These provisions could also
limit the price that investors might be willing to pay in the future for shares of our common stock, thereby depressing the market price
of our common stock.
We are be obligated to develop and maintain
a system of effective internal control over financial reporting. We may not complete our analysis of our internal control over financial
reporting in a timely manner, or these internal controls may not be determined to be effective, which may harm investor confidence in
our company and, as a result, the value of our common stock.
We are required, pursuant to
Section 404 of the Sarbanes-Oxley Act, to furnish a report by management on, among other things, the effectiveness of our internal control
over financial reporting in the annual report we file with the SEC for the year ending December 31, 2022. This assessment will need to
include disclosure of any material weaknesses identified by our management in our internal control over financial reporting. However,
our auditors will not be required to formally attest to the effectiveness of our internal control over financial reporting pursuant to
Section 404 until we are no longer an “emerging growth company” as defined in the JOBS Act, if we take advantage of the exemptions
available to us through the JOBS Act. Even after we cease to be an “emerging growth company,” our auditors will not be required
to formally attest to the effectiveness of our internal control over financial reporting unless we are an accelerated filer or a large
accelerated filer (as defined under the Exchange Act).
We are in the very early stages
of the costly and challenging process of compiling the system and process documentation necessary to perform the evaluation needed to
comply with Section 404. In this regard, we will need to continue to dedicate internal resources, engage outside consultants and adopt
a detailed work plan to assess and document the adequacy of internal control over financial reporting, continue steps to improve control
processes as appropriate, validate through testing that controls are functioning as documented and implement a continuous reporting and
improvement process for internal control over financial reporting. As we transition to the requirements of reporting as a public company,
we may need to add additional finance staff. We may not be able to complete our evaluation and testing in a timely fashion. During the
evaluation and testing process, if we identify one or more material weaknesses in our internal control over financial reporting, we will
be unable to assert that our internal controls are effective. We may not be able to remediate any material weaknesses in a timely fashion.
If we are unable to complete our evaluation and testing, or if we are unable to assert that our internal control over financial reporting
is effective, particularly if we have been unable to remediate any material weaknesses identified, or if or our auditors, when required
to do so, are unable to express an opinion that our internal controls are effective, investors could lose confidence in the accuracy and
completeness of our financial reports, which could harm our stock price.
We have incurred increased costs as a result
of operating as a public company and our management has been required to devote substantial time to new compliance initiatives and corporate
governance practices. Moreover, our ability to comply with all applicable laws, rules and regulations is uncertain given our management’s
relative inexperience with operating United States public companies.
As a public company, and particularly
after we are no longer an “emerging growth company,” we have incurred significant legal, accounting and other expenses that
we did not incur as a private company. The Sarbanes-Oxley Act, the listing requirements of the NASDAQ Market and other applicable securities
rules and regulations impose various requirements on public companies. Our management and other personnel devote a substantial amount
of time to compliance with these requirements. Moreover, these rules and regulations have increased our legal and financial compliance
costs and will make some activities more time-consuming and costly. Furthermore, new or changing laws, regulations and standards are subject
to varying interpretations in many cases due to their lack of specificity, and, as a result, their application in practice may evolve
over time as new guidance is provided by regulatory and governing bodies, which could result in continuing uncertainty regarding compliance
matters and higher costs necessitated by ongoing revisions to disclosure and governance practices. We cannot predict or estimate the amount
of additional costs we will incur as a public company or the timing of such costs.
Moreover, our executive officers
have little experience in operating a United States public company, which makes our ability to comply with applicable laws, rules and
regulations uncertain. Our failure to company with all laws, rules and regulations applicable to United States public companies could
subject us or our management to regulatory scrutiny or sanction, which could harm our reputation and stock price.
Our amended and restated certificate of
incorporation will provide, subject to limited exceptions, that the Court of Chancery of the State of Delaware will be the sole and exclusive
forum for certain stockholder litigation matters, which could limit our stockholders’ ability to obtain a favorable judicial forum
for disputes with us or our directors, officers, employees or stockholders.
Our amended and restated certificate
of incorporation will require, to the fullest extent permitted by law, subject to limited exceptions, that derivative actions brought
in our name, actions against directors, officers and employees for breach of fiduciary duty and other similar actions may be brought only
in the Court of Chancery in the State of Delaware and, if brought outside of Delaware, the stockholder bringing the suit will be deemed
to have consented to service of process on such stockholder’s counsel in any action brought to enforce the exclusive forum provision.
Any person or entity purchasing or otherwise acquiring any interest in shares of our capital stock shall be deemed to have notice of and
consented to the forum provisions in our amended and restated certificate of incorporation.
Notwithstanding the foregoing,
Section 27 of the Exchange Act creates exclusive federal jurisdiction over all suits brought to enforce any duty or liability created
by the Exchange Act or the rules and regulations thereunder. In addition, Section 22 of the Securities Act creates concurrent jurisdiction
for federal and state courts over all suits brought to enforce any duty or liability created by the Securities Act or the rules and regulations
thereunder. As a result, the exclusive forum provision will provide that the Court of Chancery and the federal district court for the
District of Delaware will have concurrent jurisdiction over any action arising under the Securities Act or the rules and regulations thereunder,
and the exclusive forum provision will not apply to suits brought to enforce any duty or liability created by the Exchange Act or the
rules and regulations thereunder or any other claim for which the federal courts have exclusive jurisdiction. To the extent the exclusive
forum provision restricts the courts in which our stockholders may bring claims arising under the Securities Act and the rules and regulations
thereunder, there is uncertainty as to whether a court would enforce such provision. Investors cannot waive compliance with the federal
securities laws and the rules and regulations promulgated thereunder.
This exclusive forum provision
may limit a stockholder’s ability to bring a claim in a judicial forum that it finds favorable for disputes with us or any of our
directors, officers, other employees or stockholders, which may discourage lawsuits with respect to such claims. By requiring a stockholder
to bring such a claim in the Court of Chancery (or the federal district court for the District of Delaware, in the case of an action under
the Securities Act or the rules and regulations thereunder), the exclusive forum provision also may increase the costs to a stockholder
of bringing such a claim. Alternatively, if a court were to find the exclusive forum provision contained in our amended and restated certificate
of incorporation to be inapplicable or unenforceable in an action, we may incur additional costs associated with resolving such action
in other jurisdictions, which could harm our business, operating results and financial condition.