Item
1. Business.
Overview
We
are a medical device company focusing on the development and commercialization of our proprietary MicroNet™ stent platform
technology for the treatment of complex vascular and coronary disease. A stent is an expandable “scaffold-like” device,
usually constructed of a metallic material, that is inserted into an artery to expand the inside passage and improve blood flow.
Our MicroNet, a micron mesh sleeve, is wrapped over a stent to provide embolic protection in stenting procedures.
Our
CGuard™ carotid embolic prevention system (“CGuard EPS”) combines MicroNet and a self-expandable nitinol stent
in a single device for use in carotid artery applications. Our CGuard EPS received CE mark approval in the European Union in March
2013, and we launched its release on a limited basis in October 2014. In January 2015, a new version of CGuard, with a rapid exchange
delivery system, received CE mark approval in Europe and in September 2015, we announced the full market launch of CGuard EPS
in Europe. Subsequently, we launched CGuard EPS in Russia and certain countries in Latin America and Asia, and, in January 2018,
received regulatory approval to commercialize CGuard EPS in India. If we receive sufficient proceeds from future financings, we
plan to develop CGuard EPS with a smaller delivery catheter (5 French gauge), which we intend to submit for CE mark approval within
three calendar quarters of receiving such proceeds. We cannot give any assurance that we will receive sufficient (or any) proceeds
from any such financings or the timing of such financings, if ever. In addition, such additional financings may be costly or difficult
to complete.
Our
MGuard™ Prime™ Embolic Protection System (“MGuard Prime EPS”) is marketed for use in patients with acute
coronary syndromes, notably acute myocardial infarction (heart attack) and saphenous vein graft coronary interventions (bypass
surgery). MGuard Prime EPS combines MicroNet with a bare-metal cobalt-chromium based stent and, together with our first generation
MGuard stent combining MicroNet with a bare-metal stainless steel stent, unless otherwise indicated, we refer to both kinds of
bare-metal stents as our MGuard coronary products. We market and sell MGuard Prime EPS for the treatment of coronary disease in
the European Union. MGuard Prime EPS received CE mark approval in the European Union in October 2010 for improving luminal diameter
and providing embolic protection. However, as a result of a shift in industry preferences away from bare-metal stents in favor
of drug-eluting (drug-coated) stents, in 2014 we decided to curtail further development of this product in order to focus on the
development of a drug-eluting stent product, MGuard DES™. Due to limited resources, though, our efforts have been limited
to testing drug-eluting stents manufactured by potential partners for compatibility with MicroNet and seeking to incorporate MicroNet
onto a drug-eluting stent manufactured by a potential partner.
We
are also developing a neurovascular flow diverter (“NGuard”), which is an endovascular device that directs blood flow
away from cerebral aneurysms in order to ultimately seal the aneurysms. Our flow diverter would utilize an open cell, highly flexible
metal scaffold to which MicroNet would be attached. We have completed initial pre-clinical testing of this product in both simulated
bench models and standard in vivo pre-clinical models. However, as we plan to focus our resources on the further expansion of
our sales and marketing activities for CGuard EPS and MGuard Prime EPS and, provided that we have sufficient resources, the development
of CGuard EPS with a smaller delivery catheter (5 French gauge) and its submission for CE mark approval, we do not intend to resume
further development of NGuard until we obtain sufficient funding for such purpose.
We
also intend to develop a pipeline of other products and additional applications by leveraging our MicroNet technology to new applications
to improve peripheral vascular and neurovascular procedures, such as the treatment of the superficial femoral artery disease,
vascular disease below the knee and neurovascular stenting to seal aneurysms in the brain.
Presently,
none of our products may be sold or marketed in the United States.
In
2017, we decided to shift our commercial strategy to focus on sales of our products through local distribution partners and our
own internal sales initiatives to gain greater reach into all the relevant clinical specialties and to expand our geographic coverage.
Pursuant to our new strategy, we completed our transition away from a single distributor covering 18 European countries to a direct
distribution model intended to broaden our sales efforts to key clinical specialties. All territories previously covered by our
former European distributor have been transferred to local distributors by June 2017. We also have begun to participate in international
trade shows and industry conferences in an attempt to gain market exposure and brand recognition.
We
were organized in the State of Delaware on February 29, 2008.
Recent
Developments
On
March 14, 2017, we closed a “best efforts” public offering of 1,069,822 shares of Series C Convertible Preferred Stock
(the “Series C Preferred Stock”), Series B warrants to purchase 122,269 shares of common stock and Series C warrants
to purchase 122,269 shares of common stock. Each share of Series C Preferred Stock is convertible into 0.114 shares of common
stock at a conversion price equal to $56.00 per share. The Series B warrants are exercisable immediately and have a term of exercise
of five years from the date of issuance and have an exercise price of $70.00 per share of common stock. The Series C warrants
were exercisable immediately, had a term of six months and had an exercise price of $56.00 per share of common
stock. The Series C warrants expired on September 14, 2017. We received gross proceeds of approximately $6.8 million from
the offering, before deducting placement agent fees and offering expenses.
On
December 1, 2017, as part of a planned recapitalization, we sold 750 shares of Series D Convertible Preferred Stock (the “Series
D Preferred Stock”) to an institutional investor in a private placement (the “Series D Private Placement”) pursuant
to a securities purchase agreement (the “Series D Purchase Agreement”), dated November 28, 2017, for aggregate gross
proceeds of $750,000. The stated value of each share of Series D Preferred Stock is $1,000 and the conversion price is $7.00.
As a result of the issuance and sale of the Series D Preferred Stock, the conversion price of our outstanding shares of Series
B Convertible Preferred Stock (the “Series B Preferred Stock”) was reduced to $7.00 pursuant to the anti-dilution
adjustment provisions of the Series B Preferred Stock. There was no change to the conversion price of our outstanding Series C
Preferred Stock as a result of an amendment made to the terms of the Series C Preferred Stock exempting the issuance of the Series
D Preferred Stock from the anti-dilution adjustment provisions of the Series C Preferred Stock.
On
August 17, 2017, we received a notice from NYSE American LLC (“NYSE American”) indicating that we do not meet the
continued listing standards of the NYSE American as set forth in Part 10 of the NYSE American Company Guide (the “Company
Guide
”
). Specifically, we were not in compliance with Section 1003(a)(iii) of the Company Guide because we
reported stockholders’ equity of less than $6 million as of June 30, 2017, and net losses in our five most recent fiscal
years ended December 31, 2016. As a result, we became subject to the procedures and requirements of Section 1009 of the Company
Guide. On October 24, 2017, NYSE American accepted our plan to regain compliance with Section 1003(a)(iii) of the Company Guide
by February 7, 2019. We are subject to periodic review by the NYSE American staff during the period covered by the compliance
plan. Failure to make progress consistent with the plan or to regain compliance with the continued listing standards by the end
of the plan period could result in our common stock being delisted from the NYSE American.
On
November 22, 2017, we received an additional letter from the NYSE American indicating that we are not in compliance with
the stockholders’ equity and net income continued listing standards set forth in Section 1003(a)(ii) of the Company
Guide. We have until February 17, 2019, to regain compliance with the continued listing requirements.
On
January 16, 2018, we received notification from the NYSE American that we are not in compliance with certain NYSE American continued
listing standards. The deficiency letter states that our shares of common stock have been selling for a low price per share for
a substantial period of time. Pursuant to Section 1003(f)(v) of the Company Guide, the NYSE American staff determined that our
continued listing is predicated on us effecting a reverse stock split of our common stock or otherwise demonstrating sustained
price improvement within a reasonable period of time, which the staff determined to be until July 16, 2018.
Effective
as of 5:00 p.m. Eastern Time on February 7, 2018, we amended our amended and restated certificate of incorporation in order to
effectuate a 1-for-35 reverse stock split of our outstanding shares of common stock. Although we expect that the reverse stock
split will result in an increase in the market price of our common stock, the reverse stock split may not result in a permanent
increase in the market price of our common stock, which is dependent on many factors, including general economic, market and industry
conditions and other factors. We have adjusted all outstanding restricted stock units, stock options, preferred stock and warrants
entitling the holders to purchase shares of our common stock as a result of the reverse stock split, as required by the terms
of these securities. In particular, we have reduced the conversion ratio for each security, and increased the exercise price in
accordance with the terms of each security based on the reverse stock split ratio (i.e., the number of shares issuable
under such securities has been divided by thirty-five, and the exercise price per share has been multiplied by thirty-five). Also,
we reduced the number of shares reserved for issuance under the InspireMD, Inc. 2013 Long-Term Incentive Plan, proportionately
based on the reverse stock split ratio. The reverse stock split does not otherwise affect any of the rights currently accruing
to holders of our common stock, or options or warrants exercisable for our common stock. All share and related option and warrant
information presented in this Annual Report on Form 10-K have been retroactively adjusted to reflect the reduced number of shares
outstanding and the increase in share price which resulted from this action.
Business
Segment and Geographic Areas
For
the twelve months ended December 31, 2017, 70% of our revenue was derived from sales of CGuard EPS, with the remaining 30% of
our revenue from sales of MGuard Prime EPS. For financial information about our operating and reportable segment and geographic
areas, refer to “Part II—Item 7. Management’s Discussion and Analysis of Financial Condition and Results of
Operations” and “Part II—Financial Statements and Supplementary Data—Note 12 - Entity Wide Disclosures.”
Our
Industry
Carotid
Carotid
arteries are located on each side of the neck and provide the primary blood supply to the brain. Carotid artery disease, also
called carotid artery stenosis, is a type of atherosclerosis (hardening of the arteries) that is one of the major risk factors
for ischemic stroke. In carotid artery disease, plaque accumulates in the artery walls, narrowing the artery and disrupting the
blood supply to the brain. This disruption in blood supply, together with plaque debris breaking off the artery walls and traveling
to the brain, are the primary causes of stroke. According to the World Heart Federation (
http://www.world-heart-federation.org/cardiovascular-health/stroke/
,
last visited on Mar. 11, 2016), every year, 15 million people worldwide suffer a stroke, and nearly six million die and another
five million are left permanently disabled. According to the same source, stroke is the second leading cause of disability, after
dementia.
The
potential global market value of carotid stents is approximately $500 million, approximately $300 million of which consists of
the U.S. market and approximately $200 million of which consists of the rest of the world (
source: JMP Securities 2014 and
Cowen 2014)
. Carotid artery stenting is a minimally invasive treatment option for carotid artery disease and an alternative
to carotid endarterectomy, where a surgeon accesses the blocked carotid artery though an incision in the neck, and then surgically
removes the plaque. Endovascular techniques using stents and carotid embolic prevention system protect against plaque and debris
traveling downstream, blocking off the vessel and disrupting blood flow. We believe that the use of a stent with an embolic protection
system should increase the number of patients being treated since it would avoid the need for complex surgery.
Coronary
Physicians
and patients may select from a variety of treatments to address coronary artery disease, including pharmaceutical therapy, balloon
angioplasty, stenting with bare metal or drug-eluting stents, and coronary artery bypass graft procedures, with the selection
often depending upon the stage of the disease.
The
global market value of coronary products is estimated at $5.9 billion, of which $4.2 billion is for stable angina and $1.7 billion
is for acute myocardial infarctions according to Health Research International (June 2011). According to the 2014 MEDTECH OUTLOOK
produced in December 2013 by BMO Capital Markets (“MEDTECH OUTLOOK”), revenues from the global coronary stent market
are predicted to slightly decline, although in volume of stents the market is predicted to continue to grow. We believe the growth
in volume is due to the appeal for less invasive percutaneous coronary intervention (“PCI”) procedures and advances
in technology coupled with the increase in the elderly population, obesity rates and advances in technology.
Neurovascular
The
neurovascular market focuses on catheter-delivered products used to treat strokes that already happened or unruptured brain aneurysms
that could lead to strokes. In the latter case, coils are wound into blood vessel bulges to block blood flow entering the aneurysms
to prevent the aneurysms from rupturing. Endovascular treatment of arterial aneurysm has evolved substantially over the past two
decades, transitioning from an investigational therapy into routine clinical practice and ultimately emerging as the treatment
of choice for many lesions
(source: Medtech Ventures 2009, Aneurysm Flow Modulating Device Market).
We believe that the
market for aneurysm flow modulating devices is still in the embryonic stage with windows of opportunities for early entrance.
The
current global market for the aneurysm flow modulating devices is estimated at $550 million, and the current market value of the
flow diversion market segment is estimated to be $125 million. The neurovascular market includes over-the-wire, flow-guided microcatheters,
guiding catheters, coil and liquid embolics, neurovascular stents and flow diversion stents. According to iData Research, the
market is expected to be driven by the conversion from surgical procedures to endovascular techniques in the treatment of aneurysms
and arteriovenous malformations.
Peripheral
Peripheral
vascular diseases (“PVD”) are caused by the formation of atherosclerotic plaques in arteries, which carry blood to
organs, limbs and head. It is also known as peripheral artery occlusive disease or peripheral artery disease. It comprises diseases
pertaining to both peripheral veins and peripheral arteries, affecting the peripheral and cardiac circulation in the body. PVD
includes diseases outside of the heart and brain, but most times refers to the leg and foot.
The
global market value of PVDs is estimated at $1.6 billion by 2017 (
source: Global Data 2011
). The overall peripheral
vascular devices market consists of nine different product segments: peripheral vascular stents, chronic total occlusion devices,
peripheral transluminal angioplasty balloon catheters, atherectomy devices, percutaneous transluminal angioplasty guidewires,
aortic stents, embolic protection devices, synthetic surgical grafts and inferior vena cava filters
(source: Grand View Research
2014)
. Treatment modalities and methods have considerably improved during the last several years, and this trend is expected
to continue (
source: Global Data 2011
). Stents and balloons hold the majority of the share in the peripheral vascular devices
market. Peripheral stents are more often used in combination with balloon angioplasty to open the veins, so that blood can flow
through the blocked veins in the body.
The
growing prevalence of PVD is expected to cause increased demand for treatment options. The expansion of the elderly population
is contributing to increasing incidence rates of PVD. The percentage of the global population above the age of 50 is expected
to reach 17% by 2030. As the risk of developing PVD increases with age, a growing elderly population translates into a growing
incidence of PVD (
source: Global Data 2011
). The growing global geriatric population base also triggers increasing demand
for minimally invasive endovascular procedures on account of their shorter recovery time, lesser scaring and lesser chances of
post-surgery infections. In addition, a growing prevalence of disease causing lifestyle factors and eating habits such as high
consumption of alcohol and tobacco products is expected to boost peripheral vascular devices market demand by triggering the incidence
rates of cardiac arrest, blood clotting and other vascular diseases
(source: Grand View Research 2014).
Our
Products
Below
is a summary of our current products and products under development, and their intended applications.
MicroNet
MicroNet
is our proprietary circular knitted mesh which wraps around a stent to protect patients from plaque debris flowing downstream
upon deployment. MicroNet is made of a single fiber from a biocompatible polymer widely used in medical implantations. The size,
or aperture, of the current MicroNet ‘pore’ is only 150-180 microns in order to maximize protection against the potentially
dangerous plaque and thrombus.
CGuard
– Carotid Applications
Our
CGuard EPS combines our MicroNet mesh and a self-expandable nitinol stent (a stent that expands without balloon dilation pressure
or need of an inflation balloon) in a single device for use in carotid artery applications. MicroNet is placed over and attached
to an open cell nitinol metal stent platform which is designed to trap debris and emboli that can dislodge from the diseased carotid
artery and potentially travel to the brain and cause a stroke. This danger is one of the greatest limitations of carotid artery
stenting with conventional carotid stents and stenting methods. The CGuard EPS technology is a highly flexible stent system that
conforms to the carotid anatomy.
We
believe that our CGuard EPS design provides advantages over existing therapies in treating carotid artery stenosis, such as conventional
carotid stenting and surgical endarterectomy, given the superior embolic protection characteristics provided by the MicroNet.
We believe the MicroNet will provide acute embolic protection at the time of the procedure, but more importantly, we believe that
CGuard EPS will provide post-procedure protection against embolic dislodgement, which can occur up to 48 hours post-procedure.
It is in this post-procedure time frame that embolization is the source of post-procedural strokes in the brain. Schofer, et al.
(“Late cerebral embolization after emboli-protected carotid artery stenting assessed by sequential diffusion-weighted magnetic
resonance imaging,”
Journal of American College of Cardiology Cardiovascular Interventions
, Volume 1, 2008) have
shown that the majority of the incidents of embolic showers associated with carotid stenting occur post-procedure.
Our
CGuard EPS with over-the-wire delivery system received CE mark approval in the European Union in March 2013. In October 2014,
we initiated a limited market release of CGuard EPS with over-the-wire delivery system for use in carotid artery applications
in Germany, Poland and Italy.
In
September 2014, we reported the results of the CGuard CARENET trial at the Transcatheter Cardiovascular Therapeutics (“TCT”)
conference in Washington D.C. In the CARENET trial, the CGuard EPS system demonstrated better results over historical data using
conventional commercially available carotid stents. In the third quarter of 2015 the results of the CGuard CARENET trial were
published in the Journal of the American College of Cardiology. In November 2015, positive twelve month follow-up data from the
CGuard CARENET trial was presented at the 42
nd
Annual Symposium on Vascular and Endovascular Issues, documenting the
benefits of the CGuard MicroNet technology as well as the patency benefits (maintaining the artery open) of the internal and external
carotid arteries at twelve months.
In
the first quarter of 2015, we introduced CGuard RX, the new rapid exchange delivery system for CGuard EPS. The rapid exchange
delivery system has a guidewire that passes through the delivery system, running through the guiding catheter. It has one port,
and thus, can be operated by one operator, while an over-the-wire-delivery system has two lumens and ports and requires two operators
to perform the procedure. Our rapid exchange delivery system received CE mark approval in January 2015. We launched our CGuard
EPS in Europe with the rapid exchange delivery system in multiple medical specialties that perform carotid artery stenting. These
customers include interventional cardiologists, vascular surgeons, interventional neuroradiologists and interventional radiologists.
In
September 2015, we announced full market launch of CGuard EPS in Europe. Subsequently, we launched CGuard EPS in Russia and certain
countries in Latin America and Asia, and, in January 2018, received regulatory approval to commercialize CGuard EPS in India.
In
April 2017, we had a pre-investigational device exemption (“IDE”) submission meeting with the U.S. Food and Drug Administration
regarding CGuard EPS where we presented materials that we believed would support a formal IDE submission seeking approval to conduct
a human clinical trial in the United States which included our draft synopsis for the clinical trial design. We look forward to
proceeding with the formal submission once sufficient funds are available.
If
we receive sufficient proceeds from future financings, we plan to develop CGuard EPS with a smaller delivery catheter (5 French
gauge), which we intend to submit for CE mark approval within three calendar quarters of receiving such proceeds. Based on the
level of interest in this product that we have observed in our clinical trials, we believe that CGuard EPS with a smaller delivery
catheter will enable us to meet the market demand for minimally invasive devices, which, we believe, may have broader and easier
usage, and for a lower profile system used in procedures in which predilation could be problematic. We also believe that CGuard
EPS with a smaller delivery catheter will enable us to have a competitive advantage in penetrating the Asia Pacific market, since
its population is generally smaller than in Western countries. In addition, we believe that CGuard EPS with a smaller delivery
catheter will enable us to offer CGuard EPS for use in transradial catheterization, which, we believe, is gaining favor among
interventionalists. However, we cannot give any assurance that we will receive sufficient (or any) proceeds from any future financings
or the timing of such financings, if ever. In addition, such additional financings may be costly or difficult to complete. Even
if we receive sufficient proceeds from future financings, there is no assurance that we will be able to submit for CE mark approval
within three calendar quarters of receiving such proceeds.
MGuard
Products– Coronary Applications
Bare-Metal
Stent MGuard Product.
Our MGuard Prime EPS coronary product is comprised of MicroNet wrapped around a cobalt-chromium
based bare-metal stent. In comparison to a conventional bare-metal stent, we believe our MGuard Prime EPS coronary product with
MicroNet mesh provides protection from dangerous embolic showers in patients experiencing ST-segment elevation myocardial infarction,
the most severe form of a heart attack, referred to as STEMI. Standard stents were not engineered for heart attack patients. Rather,
they were designed for treating stable angina patients whose occlusion is different from that of an occlusion in a heart attack
patient. In acute heart attack patients, the plaque or thrombus is unstable and often breaks up as the stent is implanted causing
downstream blockages in a significant portion of heart attack patients. Our MGuard Prime EPS is integrated with a precisely engineered
micro net mesh that is designed to prevent the unstable arterial plaque and thrombus that caused the heart attack blockage from
breaking off.
During
the fourth quarter of 2014, due to a shift in industry preferences away from bare-metal stents in favor of drug-eluting (drug-coated)
stents, we decided to curtail developing and promoting our bare-metal stent platform and instead focus on the development of a
drug-eluting stent product, which, as further discussed below, has been tabled at this time. Although we have curtailed development
and promotion of MGuard Prime EPS, our distributors and sales staff generally cover all of our current products in the market,
including MGuard Prime EPS.
Drug-Eluting
Stent MicroNet Product Candidate.
During 2015, we completed the second phase of development work for our MGuard DES,
pursuant to which we incorporated our MicroNet with a drug-eluting stent manufactured by a prospective partner. We believe that
a drug-eluting stent with MicroNet has the potential to improve certain performance metrics over the MGuard Prime EPS and attract
a broader portion of the cardiologists in the worldwide stent market who are more accustomed to using drug-eluting stents. However,
due to our limited resources we have tabled further development of MGuard DES at this time.
NGuard
— Neurovascular Applications
We
began developing a neurovascular flow diverter, which we refer to as NGuard, which is an endovascular device that diverts blood
flow away from cerebral aneurysms and ultimately seals the aneurysms. Flow diversion is a growing market segment within the neurovascular
medical device field. Current commercial flow diverters are highly flexible dense metal mesh tubes that go across most types of
cerebral aneurysms and divert the blood flow away from the aneurysm with the desired end result of sealing the aneurysm. The challenges
with the current flow diverters are that they (i) are difficult to place given the high metal content in the device, which makes
it more difficult to move the device through the delivery system due to resistance from the metal, and to subsequently accurately
place it, (ii) need to be accurately placed to avoid crossing and blocking other cerebral vessels, which could cause additional
damage by cutting off blood flow to sections of the brain, (iii) require chronic use of anti-thrombotic medications due to the
amount of metal in the cerebral vasculature, which could cause thrombotic complications, and (iv) do not allow a physician to
re-access the aneurysm if the aneurysm does not seal, in which event the aneurysm may need to be treated with another therapy
such as aneurysm coils, due to the tight metal mesh that will not allow other devices to pass through the flow diverter.
Our
flow diverter prototype will include our MicroNet that has been employed in CGuard EPS and MGuard Prime EPS. MicroNet has already
demonstrated the ability to effectively seal aneurysms in human coronary arteries using the MGuard Prime EPS and aneurysms in
the carotid arteries using CGuard EPS in human clinical situations without the need for additional devices or procedures (coils
or a second stent) (
source: Journal of Medical Case Reports http://www.jmedicalcasereports.com/content/4/1/238
). For our
flow diverter, we plan to utilize an open cell, highly flexible metal scaffold to which MicroNet would be attached. We believe
our flow diverter could be more accurately delivered due to a lower metal content scaffold than current commercial flow diverters.
Lower metal content in our flow diverter may reduce the need for long-term anticoagulation; the open cell metal scaffold
combined with the MicroNet may allow passage of other devices through the MicroNet mesh without compromising the MicroNet, thus
allowing a physician to reaccess the aneurysm, if needed; and our flow diverter should be capable of being delivered through a
state-of-the-art microcatheter for accurate placement without constant repositioning. We have tested early flow diverter prototypes
in initial pre-clinical testing in both simulated aneurysm bench models using various MicroNet configurations with varying aperture
sizes, as well as in standard in vivo pre-clinical models, in which we observed aneurysm sealing and also wide open side branch
vessels across which the device was placed. We have suspended all further development activity of NGuard until we obtain
sufficient funding for such purpose.
PVGuard
— Peripheral Vascular Applications
We
intend to develop our MicroNet mesh sleeve and a self-expandable stent for use in peripheral vascular applications, to which we
refer to as PVGuard. PVDs are usually characterized by the accumulation of plaque in arteries in the legs. This accumulation can
lead to the need for amputation or even death, when untreated. PVD is treated either by trying to clear the artery of the blockage,
or by implanting a stent in the affected area to push the blockage out of the way of normal blood flow.
As
in carotid procedures, peripheral procedures are characterized by the necessity of controlling embolic showers both during and
post-procedure. Controlling embolic showers is so important in these indications that physicians often use fully covered stents,
at the risk of blocking branching vessels, to ensure that emboli do not fall into the bloodstream and move to the brain. We believe
that our MicroNet design will provide substantial advantages over existing therapies in treating peripheral artery stenosis.
However,
as we plan to focus our resources on the further expansion of our sales and marketing activities for CGuard EPS and MGuard Prime
EPS and, provided that we have sufficient resources, the development of CGuard EPS with a smaller delivery catheter (5 French
gauge) and its submission for CE mark approval, we do not intend to pursue the development of PVGuard in the near future.
Completed
Clinical Trials for CGuard EPS
CARENET
The
CARENET trial was the first multi-center study of CGuard EPS following the receipt of CE mark of this device in March 2013. The
CARENET trial was designed to evaluate feasibility and safety of CGuard EPS in treatment of carotid lesions in consecutive patients
suitable for coronary artery stenting (“CAS”) in a multi-operator, real-life setting. The acute, 30 day, magnetic
resonance imaging (“MRI”), ultrasound and six month clinical event results were presented at the LINC conference in
Leipzig, Germany in February, 2015. In the third quarter of 2015, the results of the CGuard CARENET trial were published in the
Journal of the American College of Cardiology. In November 2015, positive twelve month follow-up data from the CGuard CARENET
trial was presented at the 42
nd
Annual Symposium on Vascular and Endovascular Issues, documenting the benefits of the
CGuard MicroNet technology as well as the patency benefits (maintaining the artery open) of the internal and external carotid
arteries at twelve months.
MACCE
(myocardial infarction (“MI”), stroke or death) was 0.0% at 30 days. At six months, there was one case of death, which
was not stent or procedure-related, and MACCE was increased to 3.6%. At twelve months there were three cases of death, which were
not stent or procedure-related, and MACCE was 11.1%.
|
|
|
30
days
(n=30)
|
|
|
|
6
months (n=28)
|
|
|
|
12
months (n=27)
|
|
MACCE
(MI, stroke, death)
|
|
|
(0)
0.0
|
%
|
|
|
(1)
3.6
|
%
|
|
|
(3)
11.1
|
%
|
MI
|
|
|
(0)
0.0
|
%
|
|
|
(0)
0.0
|
%
|
|
|
(0)
0.0
|
%
|
stroke
|
|
|
(0)
0.0
|
%
|
|
|
(0)
0.0
|
%
|
|
|
(0)
0.0
|
%
|
death
|
|
|
(0)
0.0
|
%
|
|
|
(1)
3.6
|
%
|
|
|
(3)
11.1
|
%
|
In
addition, 30 day and 6 month follow-up data from the CARENET study determined the following MACCE events as compared to MACCE
events from studies using conventional carotid stents:
|
|
30
days
(14 trials, 5255
patients)
(1)
|
|
6
months
(3 trials,
1053 patients)
(2)
|
MACCE
(MI, stroke, death)
|
|
|
5.72
|
%
|
|
|
8.09
|
%
|
(1)
Trials included in analysis: ARCHeR pooled, ARMOUR, BEACH, CABERNET, CREATE, EMPIRE, EPIC, MAVErIC 1+2, MAVErIC International,
PRIAMUS, SAPPHIRE, SECURITY, PROFI, ICSS
(2)
Values extrapolated from event curves (
source: The CARENET all-comer trial using the CGuard micronet-covered carotid embolic
prevention stent, presented by Dr. Piotr Musialek at the LINC 2015 conference
)
CAS
carries the risk of cerebral embolization during and following the procedure, leading to life-threatening complications, mainly
cerebral ischemic events. Diffusion-weighted magnetic resonance imaging (DW-MRI) is a sensitive tool used to identify cerebral
emboli during CAS by measuring “lesions” within the brain which are areas that are ischemic and do not receive oxygenated
blood due to cerebral emboli. In the CARENET trial, 37.0% of patients treated with CGuard EPS had new ischemic lesions at 48 hours
after the procedure, with an average volume of 0.039 cm
3
. Of these lesions, there was only one that remained at 30
days following the procedure and all others had resolved. Complete details appear in the following table. Where there is a second
number shown below after a ±, it indicates the rate of error.
|
|
48
hours
n=27
|
|
|
30
days
n=26
|
|
Subjects
with new Acute Ischemic Lesions (“AIL”)
|
|
|
10
|
|
|
|
1
|
|
Incidence
of new lesions
|
|
|
37.0
|
%
|
|
|
4.0
|
%
|
Total
number new AIL
|
|
|
83
|
|
|
|
1
|
|
Avg.
number new AIL per patient
|
|
|
3.19
± 10.33
|
|
|
|
0.04
± 0.20
|
|
Average
lesion volume (cm
3
)
|
|
|
0.039
± 0.08
|
|
|
|
0.08
± 0.00
|
|
Maximum
lesion volume (cm
3
)
|
|
|
0.445
|
|
|
|
0.116
|
|
Permanent
AIL at 30 days
|
|
|
—
|
|
|
|
1
|
|
The
healing process of the tissue and in-stent restenosis can be measured by a non-invasive form of ultrasound called duplex ultrasound.
This type of ultrasound measures the velocity of the blood that flows within the carotid arteries, which increases exponentially
as the lumen of the internal carotid artery narrows and the percent stenosis increases. One of the measurements is called PSV
(peak systolic volume) and is known to be highly correlated to the degree of in-stent restenosis; PSV values higher than 300 cm/sec
are indicative of >70% stenosis, while PSV values lower than 104 cm/sec are indicative of <30% restenosis and healthy healing.
In the CARENET trial, duplex ultrasound measurements done at 30 days, 6 months and 12 months following the stenting procedure
all attest to healthy normal healing without restenosis concerns, as the PSV values were 60.96 cm/sec ± 22.31, 85.24 cm/sec
± 39.56, and 90.22 cm/sec ± 37.72 respectively. The internal carotid artery was patent in all patients (100%).
The
conclusions of the CARENET trial were:
|
●
|
CARENET
trial demonstrated safety of the CGuard EPS stent, with 30 day MACCE of 0%.
|
|
|
|
|
●
|
Incidence
of new ipsilateral lesions (percent of patients with new lesions on the ipsilateral side (same side where the stent was employed))
at 48 hours was reduced by almost half compared to published data, and volume was reduced almost tenfold.
|
|
|
|
|
●
|
All
but one lesion had resolved completely by 30 days.
|
|
|
|
|
●
|
Twelve
month data showed no change in peak systolic velocity between 6 months and 12 months, suggesting no restenosis concerns.
|
|
|
|
|
●
|
CGuard
EPS offers enhanced benefits for patients undergoing CAS with unprecedented safety.
|
Physician-Sponsored
Clinical Trials for CGuard—PARADIGM-101 Study
PARADIGM-101
(
P
rospective evaluation of
A
ll-comer pe
R
cutaneous c
A
roti
D
revascularization
I
n symptomatic and increased-risk asymptomatic carotid artery stenosis, using C
G
uard™
M
esh-covered embolic prevention stent system-101) was an investigator-led, single center study with the objective
of evaluating feasibility and outcome of routine anti-embolic stent system in 101 consecutive unselected all-comer patients referred
for carotid revascularization, initiated in 2015. In May 2016, the 30-day positive results were presented at the EuroPCR 2016
Late-Breaking Clinical Trial Session in Paris, and in the Journal of EuroIntervention. In November 2016, positive twelve month
follow-up data was presented at the Transcatheter Cardiovascular Therapeutics (TCT) 2016 conference, documenting the benefits
of the CGuard MicroNet technology at twelve months. In November 2017, preliminary 2 year follow-up results were presented at the
2017 VEITH Symposium in New York
.
Key
findings from the PARADIGM-101 study and the follow-up data are as follows:
|
●
|
CGuard
EPS delivery success was 99.1%. The clinical evaluation also found no device foreshortening or elongation;
|
|
|
|
|
●
|
Angiographic
diameter stenosis or vessel narrowing was reduced from 83±9% to only 6.7±5% (p<0.001);
|
|
|
|
|
●
|
Periprocedural
complications were 0%;
|
|
|
|
|
●
|
One
event was adjudicated by the Clinical Events Committee as a minor stroke (0.9%), with no change in NIH Stroke Scale or modified
Ranking scale;
|
|
|
|
|
●
|
At
12 months, no new adverse events (0%) were noted by independent neurologist evaluation; and
|
|
|
|
|
●
|
At
24 months, preliminary results show no new adverse events (0%).
|
The
results of the PARADIGM-101 study demonstrated that CGuard EPS can safely be used on a high risk, all-comer population of patients
with carotid artery stenosis and indicate that routine use of CGuard EPS may prevent cerebral events, such as strokes, by holding
plaque against the vessel wall, preventing emboli from being released into the blood stream. The PARADIGM-101 study found that
CGuard EPS is applicable in up to 90% of all-comer patients with carotid stenosis.
Clinical
Results and Mechanical Properties of the Carotid CGUARD Double-Layered Embolic Prevention Stent Study
Clinical
Results and Mechanical Properties of the Carotid CGUARD Double-Layered Embolic Prevention Stent Study was an investigator-led,
prospective single-center study which evaluated CGuard EPS in 30 consecutive patients with internal carotid artery stenosis disease
with the objective of reporting early clinical outcomes with a novel double-layer stent for the internal carotid artery and the
in vitro investigation of the stent’s mechanical properties. In October 2016, the 30-day positive results were published
online-ahead-of-print in the Journal of Enovascular Therapy.
Key
findings from the study are as follows:
|
●
|
100%
success in implanting CGuard EPS without residual stenosis;
|
|
|
|
|
●
|
No
peri- or post-procedural complications;
|
|
|
|
|
●
|
No
deaths, major adverse events, minor or major strokes, or new neurologic symptoms during the six months following the procedure;
|
|
|
|
|
●
|
Modified
Rankin Scale improved for the symptomatic patients from 1.56 prior to the procedure to 0 afterwards;
|
|
|
|
|
●
|
All
vessels treated with CGuard EPS remained patent (open) at six months; and
|
|
|
|
|
●
|
DW-MRI
performed in 19 of 30 patients found no new ipsilateral lesions after 30 days and after six months compared with the baseline
DW-MRI studies.
|
Additionally,
based on engineering evaluations, the study concluded that CGuard EPS provides a high radial force and strong support in stenotic
lesions. The stent is easy to use and safe to implant because it does not foreshorten and its structure adapts well to changes
in diameter and direction of tortuous vascular anatomies. The MicroNet mesh of CGuard did not cause any changes to specific mechanical
parameters of the underlying stent.
CGUARD
Mesh-Covered Stent in Real World: The IRON-Guard Registry
CGUARD
Mesh-Covered Stent in Real World: The IRON-Guard Registry using CGuard EPS was a physician initiated prospective multi-center
registry that included 200 patients from 12 medical centers in Italy. The objective of the study was to report 30-day outcomes
(including MACCE) in a prospective series of patients who received carotid artery stenting with CGuard EPS between April
2015 and June 2016. In January 2017, 30-day results were presented at the Leipzig Interventional Course (LINC) 2017.
Key
30-day results presented are as follows:
|
●
|
100%
success in implanting CGuard EPS;
|
|
|
|
|
●
|
No
MI, major stroke or death at 30 days;
|
|
●
|
All
vessels treated with CGuard EPS remained patent (open) at six months; and
|
|
|
|
|
●
|
DW-MRI
performed pre procedure and 24/72 hours post-procedure in 61 patients, of which 12 patients had new micro emboli ( 19% ).
|
Ongoing
Investigator Initiated
Independent
Randomized Trial in Carotid Artery Revascularization Comparing the Stent (Acculink™) Versus CGuard EPS: Siberia Trial
In
October 2017, the first patients were enrolled and treated in an investigator initiated independent randomized trial in
carotid artery revascularization. The objective of this ongoing trial is to assess the neuro protection and clinical superiority
of the minimally invasive interventional procedure with the CGuard EPS as compared to Abbott’s RX ACCULINK Carotid Stent
in subjects at high risk for carotid endarterectomy.
This
trial is a single-center randomized trial with two interventional arms comparing CGuard™ EPS to Acculink. The trial is planned
to enroll 100 consecutive eligible patients with 50 patients in each arm. The primary endpoint of the trial will be new ischemic
areas in the brain within 24 to 48 hours post procedure and new lesion permanence at 30-days as determined by Diffusion-Weighted
Magnetic Resonance Imaging (DWMRI). Each patient will receive clinical and ultrasound follow-up at 1 year post procedure. The
trial will be conducted at the Center of Vascular and Hybrid Surgery within the Scientific Research Institute of Circulation Pathology
in Novosibirsk, Russia, which is associated with the Novosibirsk State University.
Completed
Clinical Trials for MGuard Bare-Metal Coronary Products
We
have completed eight clinical trials with respect to our first generation stainless steel-based MGuard stent and our cobalt-chromium
based MGuard Prime EPS stent. Our first generation MGuard stent combining the MicroNet with a stainless steel stent received CE
mark approval for the treatment of coronary artery disease in the European Union in October 2007. We subsequently replaced the
stainless steel stent with a more advanced cobalt-chromium based stent for MGuard Prime EPS.
The
First in Men (FIM) study conducted in Germany from the fourth quarter of 2006 through the second quarter of 2008 focused on patients
with occlusion in their stent graft. This group is considered to be in “high risk” for complications during and shortly
after the procedure due to the substantial risk of occurrence of a thromboembolic event. The study demonstrated MGuard stent’s
safety in this high risk group. This study was followed by the GUARD study in Brazil in 2007 with a similar patient population
which reinforced the safety profile of MGuard stents in patients prone to procedural complications. The MAGICAL study was a pilot
study in STEMI patients conducted in Poland from 2008 through 2012 which demonstrated safety, measured by MACE rates at 30 days
following the stent procedure, as well as efficacy results, measured by the ability of MGuard to reestablish blood flow into the
infarcted area of the muscle. Furthermore, we conducted three registries (iMOS, IMR and iMOS Prime) that confirmed the feasibility
of MGuard and MGuard Prime EPS for the treatment of STEMI patients and the safety of MGuard and MGuard Prime EPS in the STEMI
patient group. Safety was repeatedly demonstrated in these trials and registries by the low mortality rate in the first month
after the procedure.
In
the second calendar quarter of 2011, we began the MGuard for Acute ST Elevation Reperfusion Trial (which we refer to as our “MASTER
I trial”), a prospective, randomized study, which demonstrated that among patients with acute STEMI undergoing emergency
PCI, patients treated with MGuard had superior rates of epicardial coronary flow (blood flow within the vessels that run along
the outer surface of the heart) and complete ST-segment resolution, or restoration of blood flow to the heart muscle after a heart
attack, compared to those treated with commercially-approved bare metal or drug-eluting stents. The results of this trial are
summarized in greater detail below.
Finally,
the MASTER II trial, which we initially initiated as part of our efforts to seek approval of our MGuard Prime EPS by the U.S.
Food and Drug Administration, was discontinued at our election in its current form in light of market conditions moving toward
the use of drug-eluting stents over bare-metal stents. Analysis of the patients already enrolled in the MASTER II trial prior
to its suspension, however, reconfirmed the MASTER I safety results due to a continued low mortality rate.
MASTER
I Trial
In
the second calendar quarter of 2011, we began the MASTER I trial, a prospective, randomized study in Europe, South America and
Israel to compare the MGuard with commercially-approved bare metal and drug-eluting stents in achieving superior myocardial reperfusion
(the restoration of blood flow) in primary angioplasty for the treatment of acute STEMI, the most severe form of heart attack.
The MASTER I trial enrolled 433 subjects, 50% of whom were treated with MGuard and 50% of whom were treated with a commercially-approved
bare metal or drug-eluting stent. The detailed acute and 30 days results from the trial were presented at the TCT conference on
October 24, 2012 and published (Prospective, Randomized, Multicenter Evaluation of a Polyethylene Terephthalate Micronet Mesh–Covered
Stent (MGuard) in ST-Segment Elevation Myocardial Infarction, Stone et. Al,
JACC
, 60; 2012). The results were as follows:
|
●
|
The
primary endpoint of post-procedure complete ST-segment resolution (restoration of blood flow to the heart muscle after a heart
attack) was statistically significantly improved in patients randomized to the MGuard compared to patients receiving a commercially-approved
bare metal or drug-eluting stent (57.8% vs. 44.7%).
|
|
|
|
|
●
|
Patients
receiving MGuard exhibited superior rates of thrombolysis in myocardial infarction (TIMI) 3 flow, which evidences normal coronary
blood flow that fills the distal coronary bed completely, as compared to patients receiving a commercially-approved bare metal
or drug-eluting stent (91.7% vs. 82.9%), with comparable rates of myocardial blush grade 2 or 3 (83.9% vs. 84.7%) and corrected
TIMI frame count (cTFC) (17.0 vs. 18.1), all markers of optimal blood flow to the heart.
|
|
|
|
|
●
|
Angiographic
success rates (attainment of <50% final residual stenosis of the target lesion and final TIMI 3 flow) were higher in the
MGuard group compared to commercially-approved bare metal or drug-eluting stents (91.7% vs 82.4%).
|
|
|
|
|
●
|
Mortality
(0% vs. 1.9%) and major adverse cardiac events (1.8% vs. 2.3%) at 30 days post procedure were not statistically significantly
different between patients randomized to MGuard as opposed to patients randomized to commercially-approved bare metal or drug-eluting
stents. All other major adverse cardiac event components, as well as stent thrombosis, were comparable between the MGuard
and commercially-approved bare metal or drug-eluting stents.
|
The
six month results from the MASTER I trial were presented at the 2013 EuroPCR Meeting, the official annual meeting of the European
Association for Percutaneous Cardiovascular Interventions, on May 23, 2013 in Paris, France. The results were as follows:
|
●
|
Mortality
(0.5% vs. 2.8%) and major adverse cardiac events (5.2% vs. 3.4%) at 6 months post procedure were not statistically significantly
different between patients randomized to the MGuard as compared to patients randomized to commercially-approved bare metal
or drug-eluting stents. All other major adverse cardiac event components, as well as stent thrombosis, were comparable between
patients treated with MGuard and those treated with commercially-approved bare metal or drug-eluting stents.
|
The
twelve month results from the MASTER I trial were presented at the TCT conference on October 29, 2013 and published (Mesh-Covered
Embolic Protection Stent Implantation in ST-Segment–Elevation Myocardial Infarction Final 1-Year Clinical and Angiographic
Results From the MGUARD for Acute ST Elevation Reperfusion Trial, Dudek e. el,
Coronary Interventions
, 2014). The
results were as follows:
|
●
|
Mortality
(1.0% vs. 3.3%) and major adverse cardiac events (9.1% vs. 3.3%) at 12 months post procedure were not statistically significantly
different between patients randomized to the MGuard as opposed to those randomized to commercially-approved bare metal or
drug-eluting stents. All other major adverse cardiac events, as well as stent thrombosis, were comparable between the MGuard
and commercially-approved bare metal or drug-eluting stents.
|
In
summary, the MASTER I trial demonstrated that among patients with acute STEMI undergoing emergency PCI patients treated with MGuard
had superior rates of epicardial coronary flow (blood flow within the vessels that run along the outer surface of the heart) and
complete ST-segment resolution compared to those treated with commercially-approved bare metal or drug-eluting stents. In addition,
patients treated with MGuard showed a slightly lower mortality rate and a slightly higher major adverse cardiac event rate as
compared to patients treated with commercially-approved bare metal or drug-eluting stents six and twelve months post procedure.
A
detailed table with the results from the MASTER I trial is set forth below. The “p-Value” refers to the probability
of obtaining a given test result. Any p value less than 0.05 is considered statistically significant.
|
|
MGuard
|
|
|
Bare
Metal Stents/Drug Eluting Stents
|
|
|
p-Value
|
|
Number
of Patients
|
|
|
217
|
|
|
|
216
|
|
|
|
—
|
|
TIMI 0-1
|
|
|
1.8
|
|
|
|
5.6
|
|
|
|
0.01
|
|
TIMI 3
|
|
|
91.7
|
|
|
|
82.9
|
|
|
|
0.006
|
|
Myocardial
blush grade 0-1
|
|
|
16.1
|
|
|
|
14.8
|
|
|
|
0.71
|
|
Myocardial
blush grade 3
|
|
|
74.2
|
|
|
|
72.1
|
|
|
|
0.62
|
|
ST
segment resolution >70
|
|
|
57.8
|
|
|
|
44.7
|
|
|
|
0.008
|
|
30
day major adverse cardiac event
|
|
|
1.8
|
|
|
|
2.3
|
|
|
|
0.75
|
|
6
month major adverse cardiac event
|
|
|
5.2
|
|
|
|
3.4
|
|
|
|
0.34
|
|
12
month major adverse cardiac event
|
|
|
9.1
|
|
|
|
3.3
|
|
|
|
0.02
|
|
Future
Clinical Trials for CGuard EPS and MGuard Prime EPS
Post-marketing
clinical trials (outside the United States) could be conducted to further evaluate the safety and efficacy of CGuard EPS in specific
indications. These trials would be designed to facilitate market acceptance and expand the use of the product. We expect to be
able to rely upon CE mark approval of the product and other supporting clinical data to obtain local approvals.
We
do not anticipate conducting additional post-marketing clinical trials for our bare-metal MGuard coronary products.
Growth
Strategy
Our
primary business objective is to utilize our proprietary MicroNet technology and products to become the industry standard
for treatment of complex vascular and coronary disease and to provide a superior solution to the common acute problems caused
by current stenting procedures, such as restenosis, embolic showers and late thrombosis. We are pursuing the following business
strategies to achieve this objective.
|
●
|
Grow
our presence in existing and new markets for CGuard EPS.
We have launched CGuard EPS in most European and Latin American
countries through a comprehensive distributor sales organizations network. We are also pursuing additional product registrations
and distribution contracts with local distributors in other countries in Europe, the Middle East, Asia and Latin America.
|
|
|
|
|
●
|
Continue
to leverage our MicroNet technology to develop additional applications for interventional cardiologists and vascular surgeons.
In
addition to the applications described above, we believe that we will eventually be able to utilize our proprietary MicroNet
technology to address imminent market needs for new product innovations to significantly improve patients’ care. We
continue to broadly develop and protect intellectual property using our mesh technology. Examples of some areas include peripheral
vascular disease, neurovascular disease, renal artery disease and bifurcation disease.
|
|
|
|
|
●
|
Establish
relationships with collaborative and development partners to fully develop and market our existing and future products.
We
are seeking strategic partners for collaborative research, development, marketing, distribution, or other agreements, which
could assist with our development and commercialization efforts for CGuard EPS and NGuard, as well as future efforts with
MGuard Prime EPS, MGuard DES, and other potential products that are based on our MicroNet technology.
|
|
●
|
Continue
to protect and expand our portfolio of patents.
Our MicroNet technology and the use
of patents to protect it are critical to our success. We own numerous patents for our MicroNet technology. Seventeen patent
applications have been filed (eight of which are now pending) in the United States, some of which have corresponding
patent applications and/or issued patents in Canada, China, Europe, Israel, India, and South Africa. We believe these patents
and patent applications collectively cover all of our existing products, and may be useful for protecting our future technological
developments. We intend to aggressively continue patenting new technology, and to actively pursue any infringement covered
by any of our patents. We believe that our patents, and patent applications once allowed, are important for maintaining the
competitive differentiation of our products and maximizing our return on research and development investments.
|
|
|
|
|
●
|
Resume
development and successfully commercialize MGuard DES.
While we have limited the focus of product development to
carotid and neurovascular products, if we resume development of our coronary products, we plan to evaluate opportunities to
further develop MGuard DES.
|
Competition
The
markets in which we compete are highly competitive, subject to change and impacted by new product introductions and other activities
of industry participants.
Carotid
The
carotid stent markets in the United States and Europe are dominated by Abbott Laboratories, Boston Scientific Corporation, Covidien
Ltd. (currently part of Medtronic, Inc.), and Cordis Corporation (currently part of Cardinal Health, Inc.). Gore Medical and Terumo
Medical Corporation produce a polytetrafluoroethylene mesh-covered stent and a double layer metal stent, respectively. All of
these larger companies have substantially greater capital resources, larger customer bases, broader product lines, larger sales
forces, greater marketing and management resources, larger research and development staffs and larger facilities than ours and
have established reputations and relationships with our target customers, as well as worldwide distribution methods that are more
effective than ours. However, we believe that the European market is somewhat fragmented, and, in our opinion, smaller competitors
may be able to gain market share with greater flexibility.
Coronary
The
bare-metal stent and the drug-eluting stent markets in the United States and Europe are dominated by Abbott Laboratories, Boston
Scientific Corporation, and Medtronic, Inc. In the future, we believe that physicians will look to next-generation stent technology
to compete with existing therapies. These new technologies will likely include bio-absorbable stents, stents that focus on treating
bifurcated lesions, and stents with superior polymer and drug coatings, and many industry participants are working to improve
stenting procedures in the future as the portfolio of available stent technologies rapidly increases.
According
to the MEDTECH OUTLOOK, the three major players (Abbott Laboratories, Boston Scientific Corporation and Medtronic, Inc.) in the
worldwide coronary stent market have a combined total market share of approximately 92%. To date, our sales are not significant
enough to register in market share. As such, one of the challenges we face to further our product growth is the competition from
numerous pharmaceutical and biotechnology companies in the therapeutics area, as well as competition from academic institutions,
government agencies and research institutions. Most of our current and potential competitors, including but not limited to those
listed above, have, and will continue to have, substantially greater financial, technological, research and development, regulatory
and clinical, manufacturing, marketing and sales, distribution and personnel resources than we do. Due to ongoing consolidation
in the industry, there are high barriers to entry for small manufacturers in both the European and the United States markets.
Neurovascular
Stryker
Corporation dominated the global interventional neurology market in 2014. The other key players in this market include Medtronic
plc, Johnson & Johnson, Terumo Corporation, Penumbra, Abbott Laboratories, Merit Medical Systems, Inc., W. L. Gore & Associates,
Inc., Microport Scientific Corporation, and Medikit Co., Ltd., among others. (
Source: Markets and Markets 2015).
Research
and Development Expenses
During
each of the twelve months ended December 31, 2017 and 2016, we spent $1.3 million, on research and development.
Sales
and Marketing
Sales
and Marketing
Currently,
we are actively selling our MGuard coronary products with a bio-stable MicroNet through local distributors in Europe, Latin America,
the Middle East and Asia.
Based
on the positive CGuard EPS clinical data, we initiated the commercial launch of CGuard EPS in CE marked countries in early 2015.
In September 2015, we announced full market launch of CGuard EPS in Europe.
In
2017, we decided to shift our commercial strategy to focus on sales of our products through local distribution partners and our
own internal sales initiatives to gain greater reach into all the relevant clinical specialties and to expand our geographic coverage.
Pursuant to our new strategy, we completed our transition away from a single distributor covering 18 European countries to a direct
distribution model. Through our former distributor in Europe, CGuard EPS was largely sold to interventional neuroradiologists.
Our current strategy is intended to broaden our sales efforts to other key clinical specialties that implant carotid stents, the
vascular surgeons, interventional cardiologists and interventional radiologists. All territories previously covered by our former
European distributor have been transferred to local distributors by June 2017. We plan to focus our marketing efforts primarily
on Europe, Asia Pacific region and Latin America, expanding our direct distribution model in those markets, especially in countries
with current or near-term regulatory approval. In addition, we are using international trade shows and industry conferences to
gain market exposure and brand recognition. We plan to work with leading physicians to enhance our marketing efforts.
Product
Positioning
The
MGuard coronary products have initially penetrated the market by entering segments with indications that present high risks of
embolic dislodgement, notably acute MI and saphenous vein graft coronary interventions. Even though MGuard technology has demonstrated
its advantages with clinical data, it is based on a bare-metal platform while the market demand has shifted away from bare-metal
stents in favor of drug-eluting stents.
When
treating carotid artery disease, we believe that there is an opportunity to enter the market with bare-metal stent platform and
to become a competitive player without a drug-eluting stent platform. Therefore, we believe that CGuard EPS is poised for commercial
growth in 2018 as more and more positive clinical data is presented. If we receive sufficient proceeds from future financings,
we plan to develop CGuard EPS with a smaller delivery catheter (5 French gauge), which we intend to submit for CE mark approval
within three calendar quarters of receiving such proceeds. Based on the level of interest in this product that we have observed
in our clinical trials, we believe that CGuard EPS with a smaller profile delivery catheter will enable us to meet the market
demand for minimally invasive devices, which, we believe, may have broader and easier usage, and for a lower profile system used
in procedures in which predilation could be problematic. We also believe that CGuard EPS with a smaller profile delivery catheter
will enable us to have a competitive advantage in penetrating the Asia Pacific market, since its population is generally smaller
than in Western countries. In addition, we believe that CGuard EPS with a smaller profile delivery catheter will enable us to
offer CGuard EPS for use in transradial catheterization, which, we believe, is gaining favor among interventionalists. Finally,
we do not expect that it would be crucial to use a drug-eluting stent platform to compete in certain new markets such as the neurovascular
market, and hence, we plan to continue to explore this area of opportunity.
Insurance
Reimbursement
In
most countries, a significant portion of a patient’s medical expenses is covered by third-party payers. Third-party payers
can include both government funded insurance programs and private insurance programs. While each payer develops and maintains
its own coverage and reimbursement policies, the vast majority of payers have similarly established policies. The MGuard coronary
product and CGuard product sold to date have been designed and labeled in such a way as to facilitate the utilization of existing
reimbursement codes, and we intend to continue to design and label our present and future products in a manner consistent with
this goal.
While
most countries have established reimbursement codes for stenting procedures, certain countries may require additional clinical
data before recognizing coverage and reimbursement for the MGuard coronary products and CGuard products or in order to obtain
a higher reimbursement price. In these situations, we intend to complete the required clinical studies to obtain reimbursement
approval in countries where it makes economic sense to do so.
Intellectual
Property
Patents
We
have twenty-seven pending patent applications, ten of which are pending in the United States, many of which cover aspects of our
MGuard and CGuard technology. Some of the corresponding patent applications outside the U.S. are filed in Canada, China, Europe,
Israel, India and South Africa. We hold an aggregate total of over 65 patents and pending applications including eight issued
U.S. patents. These patent rights are directed to cover the following eight (8) patent families:
Base
Title of Patent Family
|
|
Country
Pending
|
|
Country/Patent
No.
|
|
Issue
Date
|
Bifurcated
Stent Assemblies
|
|
India
|
|
Israel
198,188
China
ZL200780046676.2
|
|
5/1/2014
9/26/2012
|
Deformable
Tip for Stent Delivery and Methods of Use
|
|
US
PCT/WIPO
|
|
—
—
|
|
—
—
|
In
Vivo Filter Assembly
|
|
US
India
|
|
Canada
2,666,712
Canada
2,881,557
US
8,043,323
US
9,132,261
Israel
198,189
China
ZL200780046659.9
China
ZL201210119132.7
EP
07827228.3
(Germany,
France, UK)
|
|
3/31/2015
10/11/2016
10/25/2011
9/15/2015
2/1/2014
6/13/2012
6/24/2015
8/30/2017
|
Knitted
Stent Jackets
|
|
Canada
India
US
|
|
Canada
2,666,728
China
ZL200780046697.4
China
ZL201210320950.3
Israel
198,190
EP
07827229.1
(Germany,
France, UK)
|
|
6/23/2015
10/10/2012
12/2/2015
2/1/2014
3/29/2017
|
Optimized
Stent Jacket
|
|
Canada
India
Israel
US
|
|
China
ZL201210454357.8
China
ZL200780043259.2
Israel
198,665
US
9,132,003
US
9,526,644
US
9,782,281
EP
07827415.6
(9
EP countries)
|
|
12/9/2015
1/2/2013
5/28/2014
9/15/2015
12/27/2016
10/10/2017
10/11/2017
|
Stent
Apparatuses for Treatment Via Body Lumens and Methods of Use
|
|
US
Israel
Europe
(EPO)
|
|
South
Africa 2007/10751
Canada
2609687
Canada
2,843,097
US
8,961,586
|
|
10/27/2010
4/22/2015
10/27/2015
2/24/2015
|
Stent
Thermoforming Apparatus and Methods
|
|
Australia
Canada
Europe
(EPO)
India
Japan
US
|
|
US
9,527,234
US
9,782,278
|
|
12/27/2016
10/10/2017
|
Stent
with Sheath and Metal Wire Retainer
|
|
US
|
|
—
|
|
—
|
In
lay terms, these patent applications generally cover three aspects of our products: the mesh sleeve with and without a drug, the
product and the delivery mechanism of the stent. We also believe that one or more additional pending patent applications, upon
issuance, will cover our existing products. We also believe that the patent applications we have filed, in particular those covering
the use of a knitted micron-level mesh sleeve over a stent for various indications, if issued as patents with claims substantially
in their present form, would likely create a significant barrier for another company seeking to use similar technology.
Trade
Secrets
We
also rely on trade secret protection to protect our interests in proprietary know-how and/or for processes for which patents are
difficult to obtain or enforce. As part of this, we rely on non-disclosure and confidentiality agreements with employees, consultants
and other parties to protect, in part, trade secrets and other proprietary technology.
Trademarks
We
use the InspireMD
®
, MGuard
®
, CGuard
®
, and MGuard Prime
®
trademarks
in connection with our products. We have registered these trademarks in the European Union. The trademarks are renewable indefinitely,
so long as we make the appropriate filings when required. We also have registrations for Carenet
®
, NGuard
®
,
PVGuard®and the MNP Micronet Protection Logo in the European Union and a supplemental registration for Micronet
®
in the United States. We have also applied to register the names PVGuard™ as a trademark in the European Union, as
well as Carenet™, CGuard™ InspireMD™, SmartFit™, PVGuard
TM
, NGuard
TM
, AGuard
TM
,
and MGuard Prime™ as trademarks in the United States. We also use and may have common law rights to various trademarks,
trade names, and service marks.
Government
Regulation
The
manufacture and sale of our products are subject to regulation by numerous governmental authorities, principally the European
Union CE mark and other corresponding foreign agencies.
Sales
of medical devices outside the United States are subject to foreign regulatory requirements that vary widely from country to country.
These laws and regulations range from simple product registration requirements in some countries to complex approval process,
clinical trials and production controls in others. As a result, the processes and time periods required to obtain foreign marketing
approval may be longer or shorter than those necessary to obtain U.S. Food and Drug Administration market authorization. These
differences may affect the timeliness of international market introduction of our products. For the European Union nations, medical
devices must obtain a CE mark before they may be placed on the market. In order to obtain and maintain the CE mark, we must comply
with the Medical Device Directive 93/42/EEC by presenting comprehensive technical files for our products demonstrating safety
and efficacy of the product to be placed on the market and passing initial and annual quality management system audit as per ISO
13485 standard by an European Notified Body. We have obtained ISO 13485 quality system certification and the products we currently
distribute into the European Union display the required CE mark. In order to maintain certification, we are required to pass an
annual surveillance audit conducted by Notified Body auditors.
As
noted below, we have regulatory approval and have made sales of MGuard Prime EPS, CGuard EPS or both products either through distributors
pursuant to distribution agreements or directly, in the following countries: Argentina, Austria, Belarus, Belgium, Brazil, Bulgaria,
Chile, Colombia, Croatia, Cyprus, Czech Republic, Denmark, Estonia, Finland, France, Germany, Hong Kong, Hungary, Ireland, Israel,
Italy, Latvia, Lithuania, Luxembourg, Malta, Mexico, Netherlands, Norway, Poland, Portugal, Romania, Russia, Saudi Arabia, Slovakia,
Slovenia, South Africa, Spain, Sweden, Switzerland, and the United Kingdom. We have temporary regulatory approval to sell MGuard
Prime EPS in Malaysia while we are in the registration process due to a regulatory change in November 2015. In addition, we are
awaiting regulatory approval to sell our products in Ecuador, Peru, Australia, Mexico, Serbia, Turkey, Taiwan and Vietnam (for
CGuard EPS). While each of the European Union member countries accepts the CE mark as its sole requirement for marketing approval,
some of these countries still require us to take additional steps in order to gain reimbursement rights for our products. Furthermore,
while we believe that certain of the above-listed countries that are not members of the European Union accept the CE mark as a
primary requirement for marketing approval, each such country requires additional regulatory requirements for final marketing
approval of our products. Furthermore, we are currently targeting additional countries in Europe, Asia, and Latin America, however,
even if all governmental regulatory requirements are satisfied in each such country, we anticipate that obtaining marketing approval
in each country could take as few as three months or as many as twelve months or more, due to the nature of the approval process
in each individual country, including typical wait times for application processing and review, as discussed in greater detail
below.
In
October 2007, our first generation MGuard stent combining the MicroNet with a stainless steel stent received CE mark approval
for the treatment of coronary artery disease in the European Union. We subsequently replaced the first generation MGuard product
with MGuard Prime EPS, which uses a more advanced cobalt-chromium based stent. Our MGuard Prime EPS received CE mark approval
in the European Union in October 2010 and marketing approval in those countries listed in the table below.
The
CGuard EPS received CE mark approval in the European Union on March 14, 2013 and marketing approval in those countries listed
in the table below. We are currently seeking marketing approval for CGuard EPS in Ecuador, Peru, Australia, Mexico, Serbia, Turkey,
Taiwan and Vietnam.
Please
refer to the table below setting forth the approvals and sales made for CGuard EPS and the MGuard Prime EPS on a country-by-country
basis.
Approvals
and Sales of MGuard Prime EPS and CGuard EPS on a Country-by-Country Basis
Countries
|
|
MGuard
Prime EPS Approval
|
|
MGuard
Prime EPS Sales
|
|
CGuard
EPS Approval
|
|
CGuard
EPS Sales
|
|
Argentina
|
|
Y
|
|
Y
|
|
Y
|
|
Y
|
|
Australia
|
|
N
|
|
Y
|
(1)
|
N
|
|
Y
|
(2)
|
Austria
|
|
Y
|
|
Y
|
|
Y
|
|
Y
|
|
Belarus
|
|
Y
|
|
Y
|
|
Y
|
|
Y
|
|
Belgium
|
|
Y
|
|
Y
|
|
Y
|
|
Y
|
|
Brazil
|
|
Y
|
|
Y
|
|
N
|
|
N
|
|
Bulgaria
|
|
Y
|
|
N
|
|
Y
|
|
Y
|
|
Chile
|
|
N
|
|
Y
|
(3)
|
Y
|
|
Y
|
|
Colombia
|
|
Y
|
|
Y
|
|
Y
|
|
Y
|
|
Croatia
|
|
Y
|
|
Y
|
|
Y
|
|
N
|
|
Cyprus
|
|
Y
|
|
Y
|
|
Y
|
|
Y
|
|
Czech
Republic
|
|
Y
|
|
Y
|
|
Y
|
|
Y
|
|
Denmark
|
|
Y
|
|
N
|
|
Y
|
|
Y
|
|
Estonia
|
|
Y
|
|
Y
|
|
Y
|
|
Y
|
|
Finland
|
|
Y
|
|
Y
|
|
Y
|
|
Y
|
|
France
|
|
Y
|
|
Y
|
|
Y
|
|
Y
|
|
Germany
|
|
Y
|
|
Y
|
|
Y
|
|
Y
|
|
Greece
|
|
Y
|
|
N
|
|
Y
|
|
N
|
|
Holland
(Netherlands)
|
|
Y
|
|
Y
|
|
Y
|
|
Y
|
|
Hong
Kong
|
|
N
|
|
N
|
|
Y
|
|
Y
|
|
Hungary
|
|
Y
|
|
Y
|
|
Y
|
|
Y
|
|
Iceland
|
|
Y
|
|
N
|
|
Y
|
|
N
|
|
India
|
|
Y
|
|
N
|
|
Y
|
|
N
|
|
Ireland
|
|
Y
|
|
Y
|
|
Y
|
|
N
|
|
Israel
|
|
Y
|
|
Y
|
|
Y
|
|
Y
|
|
Italy
|
|
Y
|
|
Y
|
|
Y
|
|
Y
|
|
Latvia
|
|
Y
|
|
Y
|
|
Y
|
|
Y
|
|
Lithuania
|
|
Y
|
|
Y
|
|
Y
|
|
Y
|
|
Liechtenstein
|
|
Y
|
|
N
|
|
Y
|
|
N
|
|
Luxembourg
|
|
Y
|
|
Y
|
|
Y
|
|
N
|
|
Malaysia
|
|
Y
|
(4)
|
Y
|
|
N
|
|
N
|
|
Malta
|
|
Y
|
|
Y
|
|
Y
|
|
N
|
|
Mexico
|
|
Y
|
|
Y
|
|
N
|
|
N
|
|
Norway
|
|
Y
|
|
Y
|
|
Y
|
|
N
|
|
Poland
|
|
Y
|
|
Y
|
|
Y
|
|
Y
|
|
Portugal
|
|
Y
|
|
N
|
|
Y
|
|
Y
|
|
Romania
|
|
Y
|
|
Y
|
|
Y
|
|
Y
|
|
Russia
|
|
Y
|
|
Y
|
|
Y
|
|
Y
|
|
Saudi
Arabia
|
|
Y
|
|
Y
|
|
N
|
|
N
|
|
Serbia
|
|
Y
|
|
N
|
|
N
|
|
N
|
|
Slovakia
|
|
Y
|
|
Y
|
|
Y
|
|
Y
|
|
Slovenia
|
|
Y
|
|
Y
|
|
Y
|
|
Y
|
|
South
Africa
|
|
Y
|
(5)
|
Y
|
|
N
|
|
N
|
|
Spain
|
|
Y
|
|
Y
|
|
Y
|
|
Y
|
|
Sweden
|
|
Y
|
|
Y
|
|
Y
|
|
Y
|
|
Switzerland
|
|
Y
|
|
Y
|
|
Y
|
|
Y
|
|
Taiwan
|
|
Y
|
|
N
|
|
N
|
|
N
|
|
United
Kingdom
|
|
Y
|
|
Y
|
|
Y
|
|
Y
|
|
(1)
|
We
have lost our approval due to administrative issues but are now in the process of renewing the approval.
|
|
|
(2)
|
The
Australia Regulatory Authority (TGA) allows patients to receive treatment with unapproved device via a compassionate route.
|
|
|
(3)
|
We
have made sales to distributors in this country, but based upon information from such distributors, we believe that the product
has not been sold to customers in this country.
|
|
|
(4)
|
Due
to the changes made to the relevant regulations in Malaysia that became effective in November 2015, we are required to register
our product. On November 29, 2015, we initiated the registration process required pursuant to the amended regulation. We have
temporary authorization to sell and market MGuard Prime EPS in Malaysia pending a final determination of our application for
registration which, we expect to receive around January 2019.
|
|
|
(5)
|
We
believe that we have regulatory approval for MGuard Prime EPS in South Africa based upon information from our former distributor
in such country, who was responsible for obtaining the regulatory approval for MGuard Prime EPS. However, the certificate
evidencing regulatory approval was held by our former distributor and we cannot guarantee that it is in full force and effect.
Our distribution agreement with the distributor in South Africa expired pursuant to the terms of such distribution agreement
on February 1, 2015.
|
U.S.
Food and Drug Administration Government Regulation of Medical Devices for Human Subjects
Certain
of our activities are subject to regulatory oversight by the U.S. Food and Drug Administration under provisions of the Federal
Food, Drug, and Cosmetic Act and regulations thereunder, including regulations governing the development, marketing, labeling,
promotion, manufacturing, and export of medical devices.
U.S.
Food and Drug Administration Approval/Clearance Requirements
Unless
an exemption applies, each medical device that we market or wish to market in the United States must receive 510(k) clearance
or premarket approval. Medical devices that receive 510(k) clearance are “cleared” by the U.S. Food and Drug Administration
to market, distribute, and sell in the United States. Medical devices that obtain a premarket approval by the U.S. Food and Drug
Administration are “approved” to market, distribute, and sell in the United States. We anticipate filing a premarket
approval application in the future and do not anticipate filing a 510(k) premarket notification. Even though we do not anticipate
filing a 510(k), we cannot be certain that the U.S. Food and Drug Administration will find it more appropriate for us to file
a 510(k) premarket notification instead of a premarket approval application. Further, we cannot be sure that we will ever obtain
a premarket approval. Descriptions of the premarket approval and 510(k) clearance processes are provided below.
The
U.S. Food and Drug Administration decides whether a device line must undergo either the 510(k) clearance or premarket approval
based on statutory criteria that utilize a risk-based classification system. Premarket approval is the U.S. Food and Drug Administration
process of scientific and regulatory review to evaluate the safety and effectiveness of Class III medical devices and, in many
cases, Class II medical devices. Class III devices are those that support or sustain human life, are of substantial importance
in preventing impairment of human health, or which present a potential, unreasonable risk of illness or injury. The U.S. Food
and Drug Administration uses these criteria to decide whether a premarket approval or a 510(k) is appropriate, including the level
of risk that the agency perceives is associated with the device and a determination by the agency of whether the product is a
type of device that is similar to devices that are already legally marketed. Devices deemed to pose relatively less risk are placed
in either Class I or II. In many cases, the U.S. Food and Drug Administration requires the manufacturer to submit a 510(k) requesting
clearance (also referred to as a premarket notification), unless an exemption applies. The 510(k) must demonstrate that the manufacturer’s
proposed device is “substantially equivalent” in intended use and in safety and effectiveness to a legally marketed
predicate device. A “predicate device” is a pre-existing medical device to which equivalence can be drawn, that is
either in Class I, Class II, or is a Class III device that was in commercial distribution before May 28, 1976, for which the U.S.
Food and Drug Administration has not yet called for submission of a premarket approval application.
Device
classification depends on many factors including the device’s intended use and its indications for use. In addition, classification
is risk-based, that is, the risk the device poses to the patient and/or the user is a major factor in determining the class to
which it is assigned. Class I includes devices with the lowest risk and Class III includes those with the greatest risk.
Class
I
devices are those for which safety and effectiveness can be assured by adherence to the U.S. Food and Drug Administration’s
general regulatory controls for medical devices, or the General Controls, which include compliance with the applicable portions
of the U.S. Food and Drug Administration’s quality system regulations, facility registration and product listing, reporting
of adverse medical events, and appropriate, truthful and non-misleading labeling, advertising, and promotional materials. Some
Class I devices also require premarket clearance by the U.S. Food and Drug Administration through the 510(k) process described
below.
Class
II
devices are subject to the U.S. Food and Drug Administration’s General Controls, and any other special controls as
deemed necessary by the U.S. Food and Drug Administration to ensure the safety and effectiveness of the device. Premarket review
and clearance by the U.S. Food and Drug Administration for Class II devices is accomplished through the 510(k) process. Pursuant
to the Medical Device User Fee and Modernization Act of 2002 (MDUFMA), as of October 2002, unless a specific exemption applies,
510(k) submissions are subject to user fees. Certain Class II devices are exempt from this premarket review process.
Class
III
includes devices with the greatest risk. Devices in this class must meet all of the requirements in Classes I and II.
In addition, Class III devices cannot generally be marketed until they receive a premarket approval. The safety and effectiveness
of Class III devices cannot be assured solely by the General Controls and the other requirements described above. These devices
require formal clinical studies to demonstrate safety and effectiveness. Under MDFUMA, premarket approval applications (and supplemental
premarket approval applications) are subject to significantly higher user fees than 510(k) applications, and they also require
considerably more time and resources.
Premarket
Approval Pathway
A
premarket approval application must be submitted if a device cannot be cleared through the 510(k) process. A premarket approval
application must be supported by extensive data including, but not limited to, analytical, preclinical, clinical trials, manufacturing,
statutory preapproval inspections, and labeling to demonstrate to the U.S. Food and Drug Administration’s satisfaction the
safety and effectiveness of the device for its intended use. Before a premarket approval application is submitted, a manufacturer
must apply for an IDE. If the device presents a “significant risk,” as defined by the U.S. Food and Drug Administration,
to human health, the U.S. Food and Drug Administration requires the device sponsor to file an IDE application with the U.S. Food
and Drug Administration and obtain IDE approval prior to initiation of enrollment of human subjects for clinical trials. The IDE
provides the manufacturer with a legal pathway to perform clinical trials on human subjects where without the IDE, only approved
medical devices may be used on human subjects.
The
IDE application must be supported by appropriate data, such as analytical, animal and laboratory testing results, manufacturing
information, and an Investigational Review Board (IRB) approved protocol showing that it is safe to test the device in humans
and that the testing protocol is scientifically sound. If the clinical trial design is deemed to have “non-significant risk,”
the clinical trial may be eligible for “abbreviated” IDE requirements.
A
clinical trial may be suspended by either the U.S. Food and Drug Administration or the IRB at any time for various reasons, including
a belief that the risks to the study participants outweigh the benefits of participation in the study. Even if a study is completed,
clinical testing results may not demonstrate the safety and efficacy of the device, or they may be equivocal or otherwise insufficient
to obtain approval of the product being tested. After the clinical trials have been completed, if at all, and the clinical trial
data and results are collected and organized, a manufacturer may complete a premarket approval application.
After
a premarket approval application is sufficiently complete, the U.S. Food and Drug Administration will accept the application and
begin an in-depth review of the submitted information. By statute, the U.S. Food and Drug Administration has 180 days to review
the “accepted application,” although, generally, review of the application can take between one and three years, but
it may take significantly longer. During this review period, the U.S. Food and Drug Administration may request additional information
or clarification of information already provided. Also, during the review period, an advisory panel of experts from outside the
U.S. Food and Drug Administration may be convened to review and evaluate the application and provide recommendations to the U.S.
Food and Drug Administration as to the approvability of the device. The preapproval inspections conducted by the U.S. Food and
Drug Administration include an evaluation of the manufacturing facility to ensure compliance with the Quality Systems Regulations,
as well as inspections of the clinical trial sites by the Bioresearch Monitoring group to evaluate compliance with good clinical
practice and human subject protections. New premarket approval applications or premarket approval supplements are required for
modifications that affect the safety or effectiveness of the device, including, for example, certain types of modifications to
the device’s indication for use, manufacturing process, labeling and design. Significant changes to an approved premarket
approval require a 180-day supplement, whereas less substantive changes may utilize a 30-day notice, or a 135-day supplement.
Premarket approval supplements often require submission of the same type of information as a premarket approval application, except
that the supplement is limited to information needed to support any changes from the device covered by the original premarket
approval application, and it may not require as extensive clinical data or the convening of an advisory panel.
510(k)
Clearance Pathway
We
do not currently market, distribute, or sell any products that have market clearance by the U.S. Food and Drug Administration
under its 510(k) process. If, in the future, we develop products where 510(k) clearance is required, we would be required to submit
a 510(k) demonstrating that such proposed devices are substantially equivalent to a respective previously cleared 510(k) device
or a device that was in commercial distribution before May 28, 1976, for which the U.S. Food and Drug Administration has not yet
called for the submission of 510(k). U.S. Food and Drug Administration's 510(k) clearance pathway usually takes from three to
twelve months but could take longer. In some cases, the U.S. Food and Drug Administration may require additional information,
including clinical data, to make a determination regarding substantial equivalence.
If
a device receives 510(k) clearance, any modification that could significantly affect its safety or effectiveness, or that would
constitute a new or major change in its intended use, will require a new 510(k) clearance or, depending on the modification, a
premarket approval. The U.S. Food and Drug Administration requires each device manufacturer to determine whether the proposed
change requires submission of a new 510(k) or a premarket approval, but the U.S. Food and Drug Administration can review any such
decision and can disagree with a manufacturer's determination. If the U.S. Food and Drug Administration disagrees with a manufacturer's
determination, the U.S. Food and Drug Administration can require the manufacturer to cease marketing and/or recall the modified
device until 510(k) clearance or premarket approval of the modified device is obtained.
Pervasive
and Continuing U.S. Food and Drug Administration Regulation
A
host of regulatory requirements apply to our approved devices, including the quality system regulation (which requires manufacturers
to follow elaborate design, testing, control, documentation and other quality assurance procedures), the Medical Device Reporting
regulations (which require that manufacturers report to the U.S. Food and Drug Administration specified types of adverse events
involving their products), labeling regulations, and the U.S. Food and Drug Administration’s general prohibition against
promoting products for unapproved or “off-label” uses. Class II devices also can have special controls such as performance
standards, post-market surveillance, patient registries, and U.S. Food and Drug Administration guidelines that do not apply to
Class I devices.
A
noncomprehensive list of the regulatory requirements that apply to our approved products classified as medical devices include:
|
●
|
product
listing and establishment registration, which helps facilitate U.S. Food and Drug Administration inspections and other regulatory
action;
|
|
|
|
|
●
|
Quality
Systems Regulations, which requires manufacturers, including third-party manufacturers, to follow stringent design, testing,
control, documentation and other quality assurance procedures during all aspects of the development and manufacturing process;
|
|
|
|
|
●
|
labeling
regulations and U.S. Food and Drug Administration prohibitions against the promotion of products for uncleared, unapproved
or off-label use or indication;
|
|
|
|
|
●
|
clearance
of product modifications that could significantly affect safety or efficacy or that would constitute a major change in intended
use of one of our cleared devices;
|
|
|
|
|
●
|
approval
of product modifications that affect the safety or effectiveness of one of our cleared devices;
|
|
●
|
medical
device reporting regulations, which require that manufacturers comply with U.S. Food and Drug Administration requirements
to report if their device may have caused or contributed to a death or serious injury, or has malfunctioned in a way that
would likely cause or contribute to a death or serious injury if the malfunction of the device or a similar device were to
recur;
|
|
|
|
|
●
|
post-approval
restrictions or conditions, including post-approval study commitments;
|
|
|
|
|
●
|
post-market
surveillance regulations, which apply when necessary to protect the public health or to provide additional safety and effectiveness
data for the device;
|
|
|
|
|
●
|
the
U.S. Food and Drug Administration’s recall authority, whereby it can ask, or under certain conditions order, device
manufacturers to recall from the market a product that is in violation of governing laws and regulations;
|
|
|
|
|
●
|
regulations
pertaining to voluntary recalls; and,
|
|
|
|
|
●
|
notices
of corrections or removals.
|
We
do not currently have a registered establishment with the U.S. Food and Drug Administration. If we are approved or cleared to
manufacture, prepare, or process a device in the United States, we and any third-party manufacturers that we may use must will
be required to register our establishments with the U.S. Food and Drug Administration. As such, we and our manufacturing facilities
will be subject to U.S. Food and Drug Administration inspections for compliance with the U.S. Food and Drug Administration’s
Quality System Regulation. Additionally, some of our subcontractors may also be subject to U.S. Food and Drug Administration announced
and unannounced inspections for compliance with the U.S. Food and Drug Administration’s Quality System Regulation. These
regulations will require that we manufacture our products and maintain our documents in a prescribed manner with respect to design,
manufacturing, testing and quality control activities. As a medical device manufacturer, we will further be required to comply
with U.S. Food and Drug Administration requirements regarding the reporting of adverse events associated with the use of our medical
devices, as well as product malfunctions that would likely cause or contribute to death or serious injury if the malfunction were
to recur. U.S. Food and Drug Administration regulations also govern product labeling and prohibit a manufacturer from marketing
a medical device for unapproved applications.
We
anticipate that our CGuard EPS will be classified as a Class III medical device by the U.S. Food and Drug Administration. Class
III medical devices are generally the highest risk devices and are therefore subject to the highest level of regulatory control
by the U.S. Food and Drug Administration, since the U.S. Food and Drug Administration process of premarket approval involves scientific
and regulatory review to evaluate the safety and effectiveness of Class III medical devices for the purpose(s) intended. The U.S.
Food and Drug Administration will either approve or deny a premarket approval application and we cannot market a device unless
or until the U.S. Food and Drug Administration approves a premarket approval application.
We
expect the approval process in the U.S. to take a significant amount of time, require the expenditure of significant resources,
involve rigorous clinical investigations and testing, and potentially require changes to products. The approval process may result
in limitations on the indicated uses of the medical devices for which we are able to obtain approval (since the U.S. Food and
Drug Administration can take action against a company that promotes off-label uses) and will also require increased post-market
surveillance.
The
U.S. Food and Drug Administration actively monitors compliance with laws and regulations through its review and inspection of
design and manufacturing practices, recordkeeping, reporting of adverse events, labeling and promotional practices. The U.S. Food
and Drug Administration can ban certain medical devices; detain or seize adulterated or misbranded medical devices (that is, medical
devices that do not comply with the Federal Food, Drug, and Cosmetic Act, including as implemented through the U.S. Food and Drug
Administration’s regulations); order repair, replacement or refund of these devices; and require notification of health
professionals and others with regard to medical devices that present unreasonable risks of substantial harm to the public health.
The U.S. Food and Drug Administration may also enjoin and restrain a company for certain violations of the Federal Food, Drug,
and Cosmetic Act and other amending laws pertaining to medical devices, or initiate action for criminal prosecution of such violations.
Any adverse regulatory action, depending on its magnitude, may restrict us from effectively marketing and selling our products,
may limit our ability to obtain premarket approvals, and could result in a substantial modification to our business practices
and operations.
U.S.
Healthcare Laws and Regulations
In
addition to the U.S. Food and Drug Administration regulations, there are a variety of other healthcare laws and regulations to
which we are subject once are products are marketed, sold, distributed, and/or utilized in the United States. Of specific note
are federal and state fraud and abuse laws which prohibit the payment or receipt of kickbacks, bribes or other remuneration intended
to induce the purchase or recommendation of health care products and services. Other provisions of federal and state laws prohibit
presenting, or causing to be presented, to third party payers for reimbursement, claims that are false or fraudulent, or which
are for items or services that were not provided as claimed. In addition, other health care laws and regulations may apply, such
as transparency and reporting requirements, and privacy and security requirements. Violations of these laws can lead to civil
and criminal penalties, including exclusion from participation in federal and state health care programs. These laws are potentially
applicable to manufacturers of products regulated by the U.S. Food and Drug Administration as medical devices, such as us, and
hospitals, physicians and other potential purchasers of such products. The health care laws that may be applicable to our business
or operations include:
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The
federal Anti-Kickback Statute, which prohibits the offer, payment, solicitation or receipt of any form of remuneration in
return for referring, ordering, leasing, purchasing or arranging for, or recommending the ordering, purchasing or leasing
of, items or services payable by Medicare, Medicaid or any other federal health care program. Federal false claims laws and
civil monetary penalty laws, including the False Claims Act, that prohibit, among other things, individuals or entities from
knowingly presenting, or causing to be presented, claims for payment from Medicare, Medicaid or other government health care
programs that are false or fraudulent, or making a false statement to avoid, decrease or conceal an obligation to pay money
to the federal government.
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The
federal Health Insurance Portability and Accountability Act of 1996 (“HIPAA”), which prohibits knowingly and willfully
executing, or attempting to execute, a scheme to defraud any healthcare benefit program or obtain, by means of false or fraudulent
pretenses, representations, or promises, any of the money or property owned by, or under the custody or control of, any health
care benefit program, and for knowingly and willfully falsifying, concealing or covering up a material fact or making any
materially false statements in connection with the delivery of or payment for health care benefits, items or services.
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HIPAA,
as amended by the Health Information Technology for Economic and Clinical Health Act of 2009, and its implementing regulations,
also imposes obligations and requirements on health care providers, health plans, and healthcare clearinghouses as well as
their respective business associates that perform certain services for them that involve the use or disclosure of individually
identifiable health information, with respect to safeguarding the privacy and security of certain individually identifiable
health information.
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The
federal transparency requirements under the Affordable Care Act, including the provision commonly referred to as the Physician
Payments Sunshine Act, which requires certain manufacturers of drugs, devices, biologics and medical supplies that are reimbursable
under Medicare, Medicaid or Children’s Health Insurance Program to report annually to Centers for Medicare and Medicaid
Services, or CMS, information related to payments and other transfers of value to physicians and teaching hospitals, and ownership
and investment interests held by physicians and their immediate family members.
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Analogous
state and foreign laws and regulations, such as state anti-kickback and false claims laws, which may be broader in scope and
apply to referrals and items or services reimbursed by both governmental and non-governmental third-party payers, including
private insurers, many of which differ from each other in significant ways and often are not preempted by federal law, thus
complicating compliance efforts.
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Customers
Our
customer base is varied. We began shipping our product to customers in Europe in January 2008 and have since expanded our global
distribution network to Southeast Asia, India, Latin America and Israel. We currently have distribution agreements for our CE
mark-approved MGuard Prime EPS and/or CGuard EPS with medical product distributors based in Europe, the Middle East, Asia Pacific
and Latin America. We are currently in discussions with additional distribution companies in Europe, Asia, and Latin America.
For
the twelve months ended December 31, 2017, 82% of our revenue was generated in Europe, and 15% of our revenue was generated in
Latin America, with the remaining 3% of our revenue generated in the rest of the world. Our major customers in the twelve months
ended December 31, 2017, were AB Medica, Deutschland GmbH & Co. KG., a distributor in Germany that accounted for 14% of our
revenues, Nerin Assets OU, an Estonian distributor distributing our products in Russia that accounted for 12% of our revenues
and Crossmed S.r.l., a distributor in Italy that accounted for 12% of our revenues.
Most
of our current agreements with our distributors stipulate that, and we expect our future agreements with our distributors to stipulate
that, while we shall assist in training by providing training materials, marketing guidance, marketing materials, and technical
guidance, each distributor will be responsible for carrying out local registration, sales and marketing activities. In addition,
in most cases, all sales costs, including sales representatives, incentive programs, and marketing trials, will be borne by the
distributor. Under current agreements, distributors purchase stents from us at a fixed price. Our current agreements with distributors
are generally for a term of two to three years.
Manufacturing
and Suppliers
The
polymer fiber for MicroNet is supplied by Biogeneral, Inc., a San Diego, California-based specialty polymer manufacturer for medical
and engineering applications.
Natec
Medical Ltd. supplies us with catheters that help create the base for our CGuard EPS stents. Our agreement with Natec Medical
Ltd., as amended, may be terminated by us upon eight months’ notice. On August 1, 2017, we amended the agreement with Natec
Medical Ltd., so that we are responsible for purchasing and handling inventory of CGuard EPS delivery system, and Natec Medical
Ltd.is responsible for the manufacturing process.
Natec
Medical Ltd. supplies us with catheters that help create the base for our MGuard Prime EPS. Our agreement with Natec Medical Ltd.,
which may be terminated by either party upon six months’ notice, calls for non-binding minimum orders.
The
cobalt-chromium stent for our MGuard Prime EPS was designed by Svelte Medical Systems Inc. We have an agreement with Svelte Medical
Systems Inc., as amended, that grants us a non-exclusive, worldwide license for production and use of the MGuard Prime cobalt-chromium
stent for the life of the stent’s patent, subject to the earlier termination of the agreement upon the bankruptcy of either
party or the uncured default by either party under any material provision of the agreement. Our royalty payments to Svelte Medical
Systems Inc. are determined by the sales volume of MGuard Prime EPS. Currently, the royalty rate is 2.9% of all net sales.
We
manufacture our CGuard EPS and MGuard Prime EPS at our own facility. The bare-metal cobalt-chromium stents for our MGuard Prime
EPS and the self-expanding bare-metal stents for our CGuard EPS are being manufactured and supplied by MeKo Laserstrahl-Materialbearbeitung.
Our agreement with MeKo Laserstrahl-Materialbearbeitung for the production of electro polished L605 bare-metal stents for MGuard
Prime EPS and CGuard EPS is priced on a per-stent basis, subject to the quantity of stents ordered. The complete assembly process
for MGuard Prime EPS and CGuard EPS, including knitting and securing the sleeve to the stent and the crimping of the sleeve stent
on to a delivery catheter, is done at our Israel manufacturing site. Once MGuard Prime EPS and CGuard EPS have been assembled,
they are sent for sterilization in Germany, and then back to Israel for final packaging and distribution.
Each
MGuard stent is manufactured from two main components, the stent and the mesh polymer. The stent is made out of cobalt chromium.
This material is readily available and we acquire it in the open market. The mesh is made from polyethylene terephthalate (polyester).
This material is readily available in the market as well, because it is used for many medical applications. In the event that
our supplier can no longer supply this material in fiber form, we would need to qualify another supplier, which could take several
months. In addition, in order to retain the approval of the CE mark, we are required to perform periodic audits of the quality
control systems of our key suppliers in order to insure that their products meet our predetermined specifications.
A
CGuard EPS consists of a CGuard stent and the delivery system. Each CGuard stent is manufactured from two main components, a self-expending
nickel-titanium stent and the mesh polymer. This material is readily available and we acquire it in the open market. The mesh
is made from polyethylene terephthalate (polyester). We have pending patent rights that cover the proposed CGuard stent with mesh.
This material is readily available in the market as well, because it is used for many medical applications. In the event that
our supplier can no longer supply this material in fiber form, we would need to qualify another supplier, which could take several
months. The delivery system for CGuard is made out of polymer tubes we acquire from an original equipment manufacturer. In the
event that our supplier can no longer supply this material, we would need to qualify another supplier, which could take several
months. In addition, in order to retain the approval of the CE mark, we are required to perform periodic audits of the quality
control systems of our key suppliers in order to insure that their products meet our predetermined specifications.
Employees
As
of February 12, 2018, we had 36 full-time employees. Except for one of our employees in Europe, our employees are not party to
any collective bargaining agreements. We do not expect the collective bargaining agreements to which our employees are party to
have a material effect on our business or results of operations. We consider our relations with our employees to be good. We believe
that our future success will depend, in part, on our continued ability to attract, hire and retain qualified personnel.
Item
1A. Risk Factors.
There
are numerous and varied risks, known and unknown, that may prevent us from achieving our goals. You should carefully consider
the risks described below and the other information included in this Annual Report on Form 10-K, including the consolidated financial
statements and related notes. If any of the following risks, or any other risks not described below, actually occur, it is likely
that our business, financial condition, and/or operating results could be materially adversely affected. The risks and uncertainties
described below include forward-looking statements and our actual results may differ from those discussed in these forward-looking
statements.
Risks
Related to Our Business
We
have a history of net losses and may experience future losses.
We
have yet to establish any history of profitable operations. We reported a net loss of $8.4 million for the fiscal year ended December
31, 2017, and had a net loss of approximately $8.5 million during the fiscal year ended December 31, 2016. As of December
31, 2017, we had an accumulated deficit of $140 million. We expect to incur additional operating losses for the foreseeable future.
There can be no assurance that we will be able to achieve sufficient revenues throughout the year or be profitable in the future.
The
report of our independent registered public accounting firm contains an explanatory paragraph as to our ability to continue as
a going concern, which could prevent us from obtaining new financing on reasonable terms or at all.
Because
we have had recurring losses and negative cash flows from operating activities, substantial doubt exists regarding our ability
to remain as a going concern at the same level at which we are currently performing. Accordingly, the report of Kesselman &
Kesselman, our independent registered public accounting firm, with respect to our financial statements for the year ended December
31, 2017, includes an explanatory paragraph as to our potential inability to continue as a going concern. The doubts regarding
our potential ability to continue as a going concern may adversely affect our ability to obtain new financing on reasonable terms
or at all.
We
will need to raise additional capital to meet our business requirements in the future, and such capital raising may be
costly or difficult to obtain and could dilute our stockholders’ ownership interests.
Without
materially curtailing our operations, we estimate that we
only have sufficient capital to finance our operations through the next four months. As such, in
order for us to pursue our business objectives, we will need to raise additional capital, which additional capital may
not be available on reasonable terms or at all. For instance, we will need to raise additional funds to accomplish the following:
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development
of our current and future products, including CGuard EPS with a smaller delivery catheter;
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furthering
our efforts to obtain an IDE approval for CGuard EPS, to ultimately seek the U.S. Food and Drug Administration approval for
commercial sales in the United States;
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pursuing
growth opportunities, including more rapid expansion and funding regional distribution systems;
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making
capital improvements to improve our infrastructure;
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hiring
and retaining qualified management and key employees;
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responding
to competitive pressures;
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complying
with regulatory requirements such as licensing and registration; and
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maintaining
compliance with applicable laws.
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Any
additional capital raised through the sale of equity or equity-backed securities may dilute our stockholders’ ownership
percentages and could also result in a decrease in the market value of our equity securities. See “
Risk Factors
—
Risks
Related to Our Organization and Our Common Stock, Preferred Stock and Warrants
—
The certificate of designation
for the Series B Preferred Stock and the Series C Preferred Stock and the Series D Purchase Agreement contains anti-dilution provisions
that may result in the reduction of the conversion price in the future. This feature may result in an indeterminate number of
shares of common stock being issued upon conversion of the Series B Preferred Stock, the Series C Preferred Stock or the Series
D Preferred Stock. Sales of these shares will dilute the interests of other security holders and may depress the price of our
common stock
.”
The
terms of any securities issued by us in future capital transactions may be more favorable to new investors, and may include preferences,
superior voting rights and the issuance of warrants or other derivative securities, which may have a further dilutive effect on
the holders of any of our securities then outstanding.
Furthermore,
any additional debt or equity financing that we may need may not be available on terms favorable to us, or at all. In connection
with the Series D Private Placement closed in December 2017, we entered into the Series D Purchase Agreement, pursuant to which
we agreed, among other things, (1) to refrain from issuing shares of common stock until March 1, 2018, except that we may
commence an offering of our common stock or common stock equivalents for gross proceeds of at least $8 million (a “Qualified
Offering”) at any time after February 26, 2018, and make certain other exempt issuances, and (2) to refrain from
entering into certain variable rate transactions until June 1, 2018. In addition, pursuant to the Series D Purchase Agreement,
upon consummation of a Qualified Offering, each share of outstanding Series B Preferred Stock and the shares of Series C Preferred
Stock held by the investor that participated in the Series D Private Placement will be automatically exchanged into the
securities we sell in a Qualified Offering (to the extent that stockholder approval for such exchange of Series C Preferred
Stock is not required under the Company Guide). The holders of our Series D Preferred Stock also have the option
to exchange their Series D Preferred Stock into the securities issued in a subsequent offering or into the securities we sell
in a Qualified Offering upon consummation of a Qualified Offering. Furthermore, the certificate of designation for our Series
B Preferred Stock and Series C Preferred Stock contains a full ratchet anti-dilution price protection to be triggered upon issuance
of equity or equity-linked securities at an effective common stock purchase price of less than the conversion price in effect.
Such obligations may make any additional financing difficult to obtain or unavailable to us. If we are unable to obtain additional
financing on a timely basis, we may have to curtail our development activities and growth plans and/or be forced to sell assets,
perhaps on unfavorable terms, which would have a material adverse effect on our business, financial condition and results of operations,
and ultimately could be forced to discontinue our operations and liquidate, in which event it is unlikely that stockholders would
receive any distribution on their shares. Further, we may not be able to continue operating if we do not generate sufficient revenues
from operations needed to stay in business.
In
addition, we may incur substantial costs in pursuing future capital financing, including investment banking fees, legal fees,
accounting fees, securities law compliance fees, printing and distribution expenses and other costs. We may also be required to
recognize non-cash expenses in connection with certain securities we issue, such as convertible notes and warrants, which may
adversely impact our financial condition.
Our
products may in the future be subject to product notifications, recalls, or voluntary market withdrawals that could harm our reputation,
business and financial results.
The
manufacturing and marketing of medical devices involves an inherent risk that our products may prove to be defective and cause
a health risk even after regulatory clearances have been obtained. Medical devices may also be modified after regulatory clearance
is obtained to such an extent that additional regulatory clearance is necessary before the device can be further marketed. In
these events, we may voluntarily implement a recall or market withdrawal or may be required to do so by a regulatory authority.
In
the European Economic Area, we must comply with the EU Medical Device Vigilance System. Under this system, manufacturers are required
to take Field Safety Corrective Actions (“FSCAs”) to reduce a risk of death or serious deterioration in the state
of health associated with the use of a medical device that is already placed on the market. A FSCA may include the recall, modification,
exchange, destruction or retrofitting of the device. FSCAs must be communicated by the manufacturer or its legal representative
to its customers and/or to the end users of the device through Field Safety Notices.
Any
adverse event involving our products could result in other future voluntary corrective actions, such as recalls or customer notifications,
or agency action, such as inspection or enforcement action. Adverse events have been reported to us in the past, and we cannot
guarantee that they will not occur in the future. Any corrective action, whether voluntary or involuntary, as well as defending
ourselves in a lawsuit, would require the dedication of our time and capital, distract management from operating our business
and could harm our reputation and financial results.
We
expect to derive our revenue from sales of our CGuard EPS and MGuard Prime EPS stent products and other products we may
develop, such as CGuard EPS with a smaller delivery catheter. If we fail to generate revenue from these sources, our results of
operations and the value of our business would be materially and adversely affected.
We
expect our revenue to be generated from sales of our CGuard EPS and MGuard Prime EPS stent products and other products
we may develop. Future sales of CGuard EPS will be subject to the receipt of regulatory approvals and commercial and market uncertainties
that may be outside our control. In addition, sales of MGuard Prime EPS have been hampered by weakened demand for bare metal stents,
which may never improve, and we may not be successful in developing a drug-eluting stent product. In addition, there may be insufficient
demand for other products we are seeking to develop, such as CGuard EPS with a smaller delivery catheter. If we fail to generate
expected revenues from these products, our results of operations and the value of our business and securities would be materially
and adversely affected.
If
we are unable to obtain and maintain intellectual property protection covering our products, others may be able to make, use or
sell our products, which would adversely affect our revenue.
Our
ability to protect our products from unauthorized or infringing use by third parties depends substantially on our ability to obtain
and maintain valid and enforceable patents. Similarly, the ability to protect our trademark rights might be important to prevent
third party counterfeiters from selling poor quality goods using our designated trademarks/trade names. Due to evolving legal
standards relating to the patentability, validity and enforceability of patents covering medical devices and pharmaceutical inventions
and the scope of claims made under these patents, our ability to enforce patents is uncertain and involves complex legal and factual
questions. Accordingly, rights under any of our pending patent applications and patents may not provide us with commercially meaningful
protection for our products or may not afford a commercial advantage against our competitors or their competitive products or
processes. In addition, patents may not be issued from any pending or future patent applications owned by or licensed to us, and
moreover, patents that may be issued to us now or in the future may not be valid or enforceable. Further, even if valid and enforceable,
our patents may not be sufficiently broad to prevent others from marketing products like ours, despite our patent rights.
The
validity of our patent claims depends, in part, on whether prior art references exist that describe or render obvious our inventions
as of the filing date of our patent applications. We may not have identified all prior art, such as U.S. and foreign patents or
published applications or published scientific literature, that could adversely affect the patentability of our pending patent
applications. For example, some material references may be in a foreign language and may not be uncovered during examination of
our patent applications. Additionally, patent applications in the United States are maintained in confidence for up to 18 months
after their filing. In some cases, however, patent applications remain confidential in the U.S. Patent and Trademark Office for
the entire time prior to issuance as a U.S. patent. Patent applications filed in countries outside the U.S. are not typically
published until at least 18 months from their first filing date. Similarly, publication of discoveries in the scientific or patent
literature often lags behind actual discoveries. Therefore, we cannot be certain that we were the first to invent, or the first
to file patent applications relating to, our stent technologies. In the event that a third party has also filed a U.S. patent
application covering our stents or a similar invention, we may have to participate in an adversarial proceeding, known as an interference,
declared by the U.S. Patent and Trademark Office to determine priority of invention in the United States. It is possible that
we may be unsuccessful in the interference, resulting in a loss of some portion or all of our position in the United States.
In
addition, statutory differences in patentable subject matter depending on the jurisdiction may limit the protection we obtain
on certain of the technologies we develop. The laws of some foreign jurisdictions do not offer the same protection to, or may
make it more difficult to effect the enforcement of, proprietary rights as in the United States, risk that may be exacerbated
if we move our manufacturing to certain countries in Asia. If we encounter such difficulties or are otherwise precluded from effectively
protecting our intellectual property rights in any foreign jurisdictions, our business prospects could be substantially harmed.
We
may initiate litigation to enforce our patent rights on any patents issued on pending patent applications, which may prompt adversaries
in such litigation to challenge the validity, scope, ownership, or enforceability of our patents. Third parties can sometimes
bring challenges against a patent holder to resolve these issues, as well. If a court decides that any such patents are not valid,
not enforceable, not wholly owned by us, or are of a limited scope, we may not have the right to stop others from using our inventions.
Also, even if our patent rights are determined by a court to be valid and enforceable, they may not be sufficiently broad to prevent
others from marketing products similar to ours or designing around our patents, despite our patent rights, nor do they provide
us with freedom to operate unimpeded by the patent and other intellectual property rights of others that may cover our products.
We may be forced into litigation to uphold the validity of the claims in our patent portfolio, as well as our ownership rights
to such intellectual property, and litigation is often an uncertain and costly process.
We
also rely on trade secret protection to protect our interests in proprietary know-how and for processes for which patents are
difficult to obtain or enforce. We may not be able to protect our trade secrets adequately. In addition, we rely on non-disclosure
and confidentiality agreements with employees, consultants and other parties to protect, in part, trade secrets and other proprietary
technology. These agreements may be breached and we may not have adequate remedies for any breach. Moreover, others may independently
develop equivalent proprietary information, and third parties may otherwise gain access to our trade secrets and proprietary knowledge.
Any disclosure of confidential data into the public domain or to third parties could allow competitors to learn our trade secrets
and use the information in competition against us.
If
our manufacturing facilities are unable to provide an adequate supply of products, our growth could be limited and our business
could be harmed.
We
currently manufacture our MGuard Prime EPS and CGuard EPS products at our facility in Tel Aviv, Israel. If there were a disruption
to our existing manufacturing facility, we would have no other means of manufacturing our MGuard Prime EPS or CGuard EPS stents
until we were able to restore the manufacturing capability at our facility or develop alternative manufacturing facilities. If
we were unable to produce sufficient quantities of our MGuard Prime EPS or CGuard EPS stents to meet market demand or for use
in our current and planned clinical trials, or if our manufacturing process yields substandard stents, our development and commercialization
efforts would be delayed.
Additionally,
any damage to or destruction of our Tel Aviv facility or its equipment, prolonged power outage or contamination at our facility
would significantly impair our ability to produce either MGuard Prime EPS or CGuard EPS stents.
Finally,
the production of our stents must occur in a highly controlled, clean environment to minimize particles and other yield and quality-limiting
contaminants. In spite of stringent quality controls, weaknesses in process control or minute impurities in materials may cause
a substantial percentage of defective products in a lot. If we are unable to maintain stringent quality controls, or if contamination
problems arise, our clinical development and commercialization efforts could be delayed, which would harm our business and results
of operations.
Pre-clinical
and clinical trials will be lengthy and expensive, and any delay or failure of clinical trials could prevent us from commercializing
our MicroNet products, which would materially and adversely affect our results of operations and the value of our business.
As
part of the regulatory process, we must conduct clinical trials for each product candidate to demonstrate safety and efficacy
to the satisfaction of the regulatory authorities, including, if we seek in the future to sell our products in the United States,
the U.S. Food and Drug Administration. Clinical trials are subject to rigorous regulatory requirements and are expensive and time-consuming
to design and implement. They require the enrollment of a large number of patients, and suitable patients may be difficult to
identify and recruit, which may cause a delay in the development and commercialization of our product candidates. In some trials,
a greater number of patients and a longer follow-up period may be required. Patient enrollment in clinical trials and the ability
to successfully complete patient follow-up depends on many factors, including the size of the patient population, the nature of
the trial protocol, the proximity of patients to clinical sites, the eligibility criteria for the clinical trial and patient compliance.
For example, patients may be discouraged from enrolling in our clinical trials if the trial protocol requires them to undergo
extensive post-treatment procedures or follow-up to assess the safety and efficacy of our products, or they may be persuaded to
participate in contemporaneous clinical trials of competitive products. In addition, patients participating in our clinical trials
may die before completion of the trial or suffer adverse medical events unrelated to or related to our products. Delays in patient
enrollment or failure of patients to continue to participate in a clinical trial may cause an increase in costs and delays or
result in the failure of the clinical trial.
In
addition, the length of time required to complete clinical trials for pharmaceutical and medical device products varies substantially
according to the degree of regulation and the type, complexity, novelty and intended use of a product, and can continue for several
years and cost millions of dollars. The commencement and completion of clinical trials for our existing products and those under
development may be delayed by many factors, including governmental or regulatory delays and changes in regulatory requirements,
policy and guidelines or our inability or the inability of any potential licensee to manufacture or obtain from third parties
materials sufficient for use in preclinical studies and clinical trials. In addition, market demand may change for products being
tested due to the length of time needed to complete requisite clinical trials.
Physicians
may not widely adopt our products unless they determine, based on experience, long-term clinical data and published peer reviewed
journal articles, that the use of our stents provides a safe and effective alternative to other existing treatments for coronary
artery disease and carotid artery disease.
We
believe that physicians will not widely adopt our products unless they determine, based on experience, long-term clinical data
and published peer reviewed journal articles, that the use of our products provide a safe and effective alternative to other existing
treatments for the conditions we are seeking to address.
If
we fail to demonstrate safety and efficacy that is at least comparable to existing and future therapies available on the market,
our ability to successfully market our products will be significantly limited. Even if the data collected from clinical studies
or clinical experience indicate positive results, each physician’s actual experience with our products will vary. Clinical
trials conducted with our products may involve procedures performed by physicians who are technically proficient and are high-volume
stent users of such products. Consequently, both short-term and long-term results reported in these clinical trials may be significantly
more favorable than typical results of practicing physicians, which could negatively affect rates of adoptions of our products.
We also believe that published peer-reviewed journal articles and recommendations and support by influential physicians regarding
our products will be important for market acceptance and adoption, and we cannot assure you that we will receive these recommendations
and support, or that supportive articles will be published.
Physicians
currently consider drug-eluting stents to be the industry standard for treatment of coronary artery disease. None of our current
coronary products is a drug-eluting stent, and this may adversely affect our business.
Our
ability to attract customers depends to a large extent on our ability to provide goods that meet the customers’ and the
market’s demands and expectations. If we do not have a product that is expected by the market, we may lose customers. The
market demand has shifted away from bare metal stents in favor of drug-eluting stents. Our MGuard Prime EPS is a bare-metal stent
product and has experienced a substantial reduction in sales over the past three years. Such sales may never recover and we do
not currently have the resources to develop a drug-eluting stent product. Our failure to provide industry standard devices could
adversely affect our business, financial condition and results of operations.
Our
products are based on a new technology, and we have only limited experience in regulatory affairs, which may affect our ability
or the time required to navigate complex regulatory requirements and obtain necessary regulatory approvals, if such approvals
are received at all. Regulatory delays or denials may increase our costs, cause us to lose revenue and materially and adversely
affect our results of operations and the value of our business.
Because
our products are new and long-term success measures have not been completely validated, regulatory agencies may take a significant
amount of time in evaluating product approval applications. Treatments may exhibit a favorable measure using one metric and an
unfavorable measure using another metric. Any change in accepted metrics may result in reconfiguration of, and delays in, our
clinical trials. Additionally, we have only limited experience in filing and prosecuting the applications necessary to gain regulatory
approvals, and our clinical, regulatory and quality assurance personnel are currently composed of only four employees. As a result,
we may experience delays in connection with obtaining regulatory approvals for our products.
In
addition, the products we and any potential licensees license, develop, manufacture and market are subject to complex regulatory
requirements, particularly in the United States, Europe and Asia, which can be costly and time-consuming. There can be no assurance
that such approvals will be granted on a timely basis, if at all. Furthermore, there can be no assurance of continued compliance
with all regulatory requirements necessary for the manufacture, marketing and sale of the products we will offer in each market
where such products are expected to be sold, or that products we have commercialized will continue to comply with applicable regulatory
requirements. If a government regulatory agency were to conclude that we were not in compliance with applicable laws or regulations,
the agency could institute proceedings to detain or seize our products, issue a recall, impose operating restrictions, enjoin
future violations and assess civil and criminal penalties against us, our officers or employees and could recommend criminal prosecution.
Furthermore, regulators may proceed to ban, or request the recall, repair, replacement or refund of the cost of, any device manufactured
or sold by us. Furthermore, there can be no assurance that all necessary regulatory approvals will be obtained for the manufacture,
marketing and sale in any market of any new product developed or that any potential licensee will develop using our licensed technology.
Even
if our products are approved by regulatory authorities, if we or our suppliers fail to comply with ongoing regulatory requirements,
or if we experience unanticipated problems with our products, these products could be subject to restrictions or withdrawal from
the market.
Any
regulatory approvals that we receive for our products will require surveillance to monitor the safety and efficacy of the product
and may require us to conduct post-approval clinical studies. In addition, if a regulatory authority approves our products, the
manufacturing processes, labeling, packaging, distribution, adverse event reporting, storage, advertising, promotion, import,
export and recordkeeping for our products will be subject to extensive and ongoing regulatory requirements.
Moreover,
if we obtain regulatory approval for any of our products, we will only be permitted to market our products for the indication
approved by the regulatory authority, and such approval may involve limitations on the indicated uses or promotional claims we
may make for our products. In addition, later discovery of previously unknown problems with our products, including adverse events
of unanticipated severity or frequency, or with our suppliers or manufacturing processes, or failure to comply with regulatory
requirements, may result in, among other things:
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restrictions
on the marketing or manufacturing of our product candidates, withdrawal of the product from the market, or voluntary or mandatory
product recalls;
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fines,
warning letters, or untitled letters;
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holds
on clinical trials;
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refusal
by the regulatory authority to approve pending applications or supplements to approved applications filed by us or suspension
or revocation of license approvals;
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product
seizure or detention, or refusal to permit the import or export of our product candidates; and
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injunctions,
the imposition of civil penalties or criminal prosecution.
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The
applicable regulatory authorities’ policies may change and additional government regulations may be enacted that could prevent,
limit or delay regulatory approval of our products. We cannot predict the likelihood, nature or extent of government regulation
that may arise from future legislation or administrative action, either in the United States or abroad. If we are slow or unable
to adapt to changes in existing requirements or the adoption of new requirements or policies, or if we are not able to maintain
regulatory compliance, we may lose any marketing approval that we may have obtained and we may not achieve or sustain profitability.
Further,
healthcare laws and regulations may change significantly in the future. Any new healthcare laws or regulations may adversely affect
our business. A review of our business by courts or regulatory authorities may result in a determination that could adversely
affect our operations. In addition, the healthcare regulatory environment may change in a way that restricts our operations.
We
are subject to federal, state and foreign healthcare laws and regulations and implementation of or changes to such healthcare
laws and regulations could adversely affect our business and results of operations.
In
both the United States and certain foreign jurisdictions, there are laws and regulations specific to the healthcare industry
which may affect all aspects of our business, including development, testing, marketing, sales, pricing, and reimbursement. Additionally,
there have been a number of legislative and regulatory proposals in recent years to change the healthcare system in ways that
could impact our ability to sell our products. If we are found to be in violation of any of these laws or any other federal or
state regulations, we may be subject to administrative, civil and/or criminal penalties, damages, fines, individual imprisonment,
exclusion from federal health care programs and the restructuring of our operations. Any of these could have a material adverse
effect on our business and financial results. Since many of these laws have not been fully interpreted by the courts, there is
an increased risk that we may be found in violation of one or more of their provisions. Any action against us for violation of
these laws, even if we ultimately are successful in our defense, will cause us to incur significant legal expenses and divert
our management’s attention away from the operation of our business.
We
may be subject, directly or indirectly, to applicable U.S. federal and state anti-kickback, false claims laws, physician payment
transparency laws, fraud and abuse laws or similar healthcare and security laws and regulations, which could expose us to criminal
sanctions, civil penalties, contractual damages, reputational harm and diminished profits and future earnings
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Healthcare
providers, physicians and others will play a primary role in the recommendation, ordering and utilization of any products for
which we obtain regulatory approval. If we obtain U.S. Food & Drug Administration approval for any of our products and begin
commercializing those products in the United States, our operations may be subject to various federal and state fraud and abuse
laws, including, without limitation, the federal Anti-Kickback Statute, the federal False Claims Act, and physician payment sunshine
laws and regulations. These laws may impact, among other things, our potential sales, marketing and education programs. In addition,
we may be subject to patient privacy regulation by both the federal government and the states in which we conduct our business.
The laws that may affect our ability to operate include:
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the federal Anti-Kickback Statute, which prohibits, among other things, knowingly and willfully soliciting, receiving, offering
or paying any remuneration (including any kickback, bribe, or rebate), directly or indirectly, overtly or covertly, in cash or
in kind, to induce, or in return for, either the referral of an individual, or the purchase, lease, order or recommendation of
any good, facility, item or service for which payment may be made, in whole or in part, under a federal healthcare program, such
as the Medicare and Medicaid programs;
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federal civil and criminal false claims laws and civil monetary penalty laws, including the False Claims Act, which may be pursued
through civil whistleblower or qui tam actions, impose criminal and civil penalties against individuals or entities for knowingly
presenting, or causing to be presented, to the federal government, claims for payment or approval from Medicare, Medicaid or other
third-party payors that are false or fraudulent or making a false statement to avoid, decrease or conceal an obligation to pay
money to the federal government;
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federal criminal statutes created through the Health Insurance Portability and Accountability Act of 1996 (“HIPAA”),
which prohibit knowingly and willfully executing, or attempting to execute, a scheme to defraud any healthcare benefit program
or obtain, by means of false or fraudulent pretenses, representations, or promises, any of the money or property owned by, or
under the custody or control of, any healthcare benefit program, regardless of the payor (e.g., public or private) and knowingly
and willfully falsifying, concealing or covering up by any trick or device a material fact or making any materially false statements
in connection with the delivery of, or payment for, healthcare benefits, items or services relating to healthcare matters;
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HIPAA, as amended by the Health Information Technology for Economic and Clinical Health Act of 2009 and their respective implementing
regulations, which imposes requirements on certain covered healthcare providers, health plans, and healthcare clearinghouses as
well as their respective business associates that perform services for them that involve the use, or disclosure of, individually
identifiable health information, relating to the privacy, security and transmission of individually identifiable health information;
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the federal transparency requirements under The Patient Protection and Affordable Care Act and the Health Care and Education Reconciliation
Act, enacted into law in the United States in March 2010 (known collectively as the “Affordable Care Act”), including
the provision commonly referred to as the Physician Payments Sunshine Act, which requires manufacturers of drugs, biologics, devices
and medical supplies for which payment is available under Medicare, Medicaid or the Children’s Health Insurance Program
to report annually to the U.S. Department of Health and Human Services information related to payments or other transfers of value
made to physicians and teaching hospitals, as well as ownership and investment interests held by physicians and their immediate
family members; and
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federal consumer protection and unfair competition laws, which broadly regulate marketplace activities and activities that potentially
harm consumers.
Additionally,
we may be subject to state and non-U.S. equivalents of each of the healthcare laws described above, among others, some of which
may be broader in scope and may apply regardless of the payor. Many U.S. states have adopted laws similar to the federal Anti-Kickback
Statute, some of which apply to the referral of patients for healthcare services reimbursed by any source, not just governmental
payors, including private insurers. Several states impose marketing restrictions or require medical device companies to make marketing
or price disclosures to the state. There are ambiguities as to what is required to comply with these state requirements and if
we fail to comply with an applicable state law requirement we could be subject to penalties.
Because
of the breadth of these laws and the narrowness of the statutory exceptions and safe harbors available, it is possible that some
of our future business activities could be subject to challenge under one or more of such laws. In addition, recent health care
reform legislation has strengthened these laws. For example, the Affordable Care Act, among other things, amends the intent requirement
of the federal Anti-Kickback and criminal healthcare fraud statutes. As a result of such amendment, a person or entity no longer
needs to have actual knowledge of these statutes or specific intent to violate them in order to have committed a violation. Moreover,
the Affordable Care Act provides that the government may assert that a claim including items or services resulting from a violation
of the federal Anti-Kickback Statute constitutes a false or fraudulent claim for purposes of the False Claims Act.
Violations
of fraud and abuse laws may be punishable by criminal and/or civil sanctions, including penalties, fines and/or exclusion or suspension
from federal and state healthcare programs such as Medicare and Medicaid and debarment from contracting with the U.S. government.
In addition, private individuals have the ability to bring actions on behalf of the U.S. government under the False Claims Act
as well as under the false claims laws of several states.
Efforts
to ensure that our business arrangements with third parties will comply with applicable healthcare laws and regulations will involve
substantial costs. It is possible that governmental authorities will conclude that our business practices do not comply with current
or future statutes, regulations or case law involving applicable fraud and abuse or other healthcare laws and regulations. If
any such actions are instituted against us, and we are not successful in defending ourselves or asserting our rights, those actions
could have a significant impact on our business, including the imposition of civil, criminal and administrative penalties, damages,
disgorgement, monetary fines, possible exclusion from participation in Medicare, Medicaid and other federal healthcare programs,
contractual damages, reputational harm, diminished profits and future earnings, and curtailment of our operations, any of which
could adversely affect our ability to operate our business and our results of operations. In addition, the approval and commercialization
of any of our products outside the United States will also likely subject us to non-U.S. equivalents of the healthcare laws mentioned
above, among other non-U.S. laws.
If
any of the physicians or other providers or entities with whom we expect to do business with are found to be not in compliance
with applicable laws, they may be subject to criminal, civil or administrative sanctions, including exclusions from government
funded healthcare programs. This could adversely affect our ability to operate our business and our results of operations.
Failure
to obtain regulatory approval in foreign jurisdictions will prevent us from marketing our products in such jurisdictions.
We
market our products in international markets. In order to market our products in other foreign jurisdictions, we must obtain separate
regulatory approvals from those obtained in the United States and Europe. The approval procedure varies among countries and can
involve additional testing, and the time required to obtain approval may differ from that required to obtain CE mark or U.S. Food
and Drug Administration approval. Foreign regulatory approval processes may include all of the risks associated with obtaining
CE mark or U.S. Food and Drug Administration approval in addition to other risks. We may not obtain foreign regulatory approvals
on a timely basis, if at all. CE mark approval or any future U.S. Food and Drug Administration approval does not ensure approval
by regulatory authorities in other countries. We may not be able to file for regulatory approvals and may not receive necessary
approvals to commercialize our products in certain markets.
We
operate in an intensely competitive and rapidly changing business environment, and there is a substantial risk our products could
become obsolete or uncompetitive.
The
medical device market is highly competitive. We compete with many medical device companies globally in connection with our current
products and products under development. We face competition from numerous pharmaceutical and biotechnology companies in the therapeutics
area, as well as competition from academic institutions, government agencies and research institutions. We face intense competition
from Boston Scientific Corporation, Guidant Corporation, Medtronic, Inc., Abbott Vascular Devices, Johnson & Johnson, Terumo
Corporation, Covidien Ltd., Cordis Corporation (currently part of Cardinal Health, Inc.) and others. Most of our current and potential
competitors, including but not limited to those listed above, have, and will continue to have, substantially greater financial,
technological, research and development, regulatory and clinical, manufacturing, marketing and sales, distribution and personnel
resources than we do. There can be no assurance that we will have sufficient resources to successfully commercialize our products,
if and when they are approved for sale. The worldwide market for stent products is characterized by intensive development efforts
and rapidly advancing technology. Our future success will depend largely upon our ability to anticipate and keep pace with those
developments and advances. Current or future competitors could develop alternative technologies, products or materials that are
more effective, easier to use or more economical than what we or any potential licensee develop. If our technologies or products
become obsolete or uncompetitive, our related product sales and licensing revenue would decrease. This would have a material adverse
effect on our business, financial condition and results of operations.
We
may become subject to claims by much larger and better capitalized competitors seeking to invalidate our intellectual property
or our rights thereto.
Based
on the prolific litigation that has occurred in the stent industry and the fact that we may pose a competitive threat to some
large and well-capitalized companies that own or control patents relating to stents and their use, manufacture and delivery, we
believe that it is possible that one or more third parties will assert a patent infringement claim against the manufacture, use
or sale of our stents based on one or more of these patents. These companies also own patents relating to the use of drugs to
treat restenosis, stent architecture, catheters to deliver stents, and stent manufacturing and coating processes and compositions,
as well as general delivery mechanism patents like rapid exchange that might be alleged to cover one or more of our products.
A number of stent-related patents are owned by very large and well-capitalized companies that are active participants in the stent
market. In addition, it is possible that a lawsuit asserting patent infringement, misappropriation of intellectual property, or
related claims may have already been filed against us of which we are not aware. As the number of competitors in the stent market
grows and as the geographies in which we commercially market grow in number and scope, the possibility of patent infringement
by us, and/or a patent infringement or misappropriation claim against us, increases.
Our
competitors
have maintained their position in the market by,
among other things, establishing intellectual property rights relating to their products and enforcing these rights aggressively
against their competitors and new entrants into the market. All of the major companies in the stent and related markets, including
Boston Scientific Corporation, C.R. Bard, Inc., W.L. Gore & Associates, Inc. and Medtronic, Inc., have been repeatedly involved
in patent litigation relating to stents since at least 1997. The stent and related markets have experienced rapid technological
change and obsolescence in the past, and our competitors have strong incentives to stop or delay the introduction of new products
and technologies. We may pose a competitive threat to many of the companies in the stent and related markets. Accordingly, many
of these companies will have a strong incentive to take steps, through patent litigation or otherwise, to prevent us from commercializing
our products. Such litigation or claims would divert attention and resources away from the development and/or commercialization
of our products and product development, and could result in an adverse court judgment that would make it impossible or impractical
to sell our products in one or more territories.
If
we fail to maintain or establish satisfactory agreements or arrangements with suppliers or if we experience an interruption of
the supply of materials from suppliers, we may not be able to obtain materials that are necessary to develop our products.
We
depend on outside suppliers for certain raw materials. These raw materials or components may not always be available at our standards
or on acceptable terms, if at all, and we may be unable to locate alternative suppliers or produce necessary materials or components
on our own.
Some
of the components of our products are currently provided by only one vendor, or a single-source supplier. For MGuard Prime EPS
and CGuard EPS, we depend on MeKo Laserstrahl-Materialbearbeitung for the laser cutting of the stent, Natec Medical Ltd. for the
supply of catheters, and Biogeneral Inc. for the fiber. We may have difficulty obtaining similar components from other suppliers
that are acceptable to the U.S. Food and Drug Administration or foreign regulatory authorities if it becomes necessary.
If
we have to switch to a replacement supplier, we will face additional regulatory delays and the interruption of the manufacture
and delivery of our stents for an extended period of time, which would delay completion of our clinical trials or commercialization
of our products. In addition, we will be required to obtain prior regulatory approval from the U.S. Food and Drug Administration
or foreign regulatory authorities to use different suppliers or components that may not be as safe or as effective. As a result,
regulatory approval of our products may not be received on a timely basis or at all.
We
may be exposed to product liability claims and insurance may not be sufficient to cover these claims.
We
may be exposed to product liability claims based on the use of any of our products, or products incorporating our licensed technology,
in the market or clinical trials. We may also be exposed to product liability claims based on the sale of any products under development
following the receipt of regulatory approval. Product liability claims could be asserted directly by consumers, health-care providers
or others. We have obtained product liability insurance coverage; however such insurance may not provide full coverage for our
future clinical trials, products to be sold, and other aspects of our business. Insurance coverage is becoming increasingly expensive
and we may not be able to maintain current coverage, or expand our insurance coverage to include future clinical trials or the
sale of new products or existing products in new territories, at a reasonable cost or in sufficient amounts to protect
against losses due to product liability or at all. A successful product liability claim or series of claims brought against us
could result in judgments, fines, damages and liabilities that could have a material adverse effect on our business, financial
condition and results of operations. We may incur significant expense investigating and defending these claims, even if they do
not result in liability. Moreover, even if no judgments, fines, damages or liabilities are imposed on us, our reputation could
suffer, which could have a material adverse effect on our business, financial condition and results of operations.
We
face risks associated with litigation and claims.
We
may, in the future, be involved in one or more lawsuits, claims or other proceedings. These suits could concern issues including
contract disputes, employment actions, employee benefits, taxes, environmental, health and safety, fraud and abuse, personal
injury and product liability matters.
We
are subject to a lawsuit
filed by Medpace Inc. in July 2016,
seeking $1,967,822 in damages plus interest, costs, attorneys’ fees and expenses. See “Business — Legal Proceedings”
for more information. While we believe that the claims in this suit are without merit, due to the uncertainties of litigation,
however, we can give no assurance that we will prevail on the claims made against us in such lawsuit. Also, we can give
no assurance that any other lawsuits or claims brought in the future will not have an adverse effect on our financial condition,
liquidity or operating results. Adverse outcomes in some or all of these claims may result in significant monetary damages that
could adversely affect our ability to conduct our business.
The
loss of key members of our senior management team or our inability to attract and retain highly skilled scientists and laboratory
and field personnel could adversely affect our business.
We
depend on the skills, experience and performance of our senior management and research personnel. The efforts of each of these
persons will be critical to us as we continue to further develop our products, increase sales and broaden our product offerings.
If we were to lose one or more of these key employees, we may experience difficulties in competing effectively, developing our
technologies and implementing our business strategies. Our research and development programs and commercial laboratory operations
depend on our ability to attract and retain highly skilled scientists and technicians. We may not be able to attract or retain
qualified scientists and technicians in the future due to the intense competition for qualified personnel among life science businesses.
There can be no assurance that we will be able to attract and retain necessary personnel on acceptable terms given the intense
competition among medical device, biotechnology, pharmaceutical and healthcare companies, universities and non-profit research
institutions for experienced management, scientists, researchers, sales and marketing and manufacturing personnel. If we are unable
to attract, retain and motivate our key personnel to accomplish our business objectives, we may experience constraints that will
adversely affect our ability to support our operations, and our results of operations may be materially and adversely affected.
We
are an international business, and we are exposed to various global and local risks that could have a material adverse effect
on our financial condition and results of operations.
We
operate globally and develop and market products in multiple countries. Consequently, we face complex legal and regulatory requirements
in multiple jurisdictions, which may expose us to certain financial and other risks. International sales and operations are subject
to a variety of risks, including:
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foreign
currency exchange rate fluctuations;
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greater
difficulty in staffing and managing foreign operations;
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greater
risk of uncollectible accounts;
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longer
collection cycles;
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logistical
and communications challenges;
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potential
adverse changes in laws and regulatory practices, including export license requirements, trade barriers, tariffs and tax laws;
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changes
in labor conditions;
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burdens
and costs of compliance with a variety of foreign laws;
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political
and economic instability;
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the
escalation of hostilities in Israel, which could impair our ability to manufacture our products;
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increases
in duties and taxation;
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foreign
tax laws and potential increased costs associated with overlapping tax structures;
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greater
difficulty in protecting intellectual property;
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the
risk of third party disputes over ownership of intellectual property and infringement of third party intellectual property
by our products; and
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general
economic and political conditions in these foreign markets.
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International
markets are also affected by economic pressure to contain reimbursement levels and healthcare costs. Profitability from international
operations may be limited by risks and uncertainties related to regional economic conditions, regulatory and reimbursement approvals,
competing products, infrastructure development, intellectual property rights protection and our ability to implement our overall
business strategy. We expect these risks will increase as we pursue our strategy to expand operations into new geographic markets.
We may not succeed in developing and implementing effective policies and strategies in each location where we conduct business.
Any failure to do so may harm our business, results of operations and financial condition.
If
we fail to obtain an adequate level of reimbursement for our products by third party payors, there may be no commercially viable
markets for our products or the markets may be much smaller than expected.
The
availability and levels of reimbursement by governmental and other third party payors affect the market for our products. The
efficacy, safety, performance and cost-effectiveness of our products and of any competing products will determine the availability
and level of reimbursement. Reimbursement and healthcare payment systems in international markets vary significantly by country,
and include both government sponsored healthcare and private insurance. To obtain reimbursement or pricing approval in some countries,
we may be required to produce clinical data, which may involve one or more clinical trials, that compares the cost-effectiveness
of our products to other available therapies. We may not obtain international reimbursement or pricing approvals in a timely manner,
if at all. Our failure to receive international reimbursement or pricing approvals would negatively impact market acceptance of
our products in the international markets in which those approvals are sought.
We
believe that future reimbursement may be subject to increased restrictions both in the U.S. and in international markets. There
is increasing pressure by governments worldwide to contain health care costs by limiting both the coverage and the level of reimbursement
for therapeutic products and by refusing, in some cases, to provide any coverage for products that have not been approved by the
relevant regulatory agency. Future legislation, regulation or reimbursement policies of third party payors may adversely affect
the demand for our products and limit our ability to sell our products on a profitable basis. In addition, third party payors
continually attempt to contain or reduce the costs of healthcare by challenging the prices charged for healthcare products and
services. If reimbursement for our products is unavailable or limited in scope or amount or if pricing is set at unsatisfactory
levels, market acceptance of our products would be impaired and future revenues, if any, would be adversely affected.
In
the United States and in the European Union, our business could be significantly and adversely affected by healthcare reform legislation
and other administration and legislative proposals.
The
Affordable Care Act, enacted into law in the United States in March 2010, contains certain provisions which are
not yet fully implemented and for which it is unclear what the full impact will be from the legislation. The legislation
levies a 2.3% excise tax, that began on January 1, 2013, on all sales of any U.S. medical device listed with the U.S. Food and
Drug Administration under Section 510(j) of the Federal Food, Drug, and Cosmetic Act and 21 C.F.R. Part 807, unless the device
falls within an exemption from the tax, such as the exemption governing direct retail sale of devices to consumers or for foreign
sales of these devices. If we commence sales of our MGuard Prime EPS or CGuard EPS stent in the United States, this new tax may
materially and adversely affect our business and results of operations. The legislation also focuses on a number of provisions
aimed at improving quality, broadening access to health insurance, enhancing remedies for fraud and abuse, adding transparency
requirements, and decreasing healthcare costs, among others. Uncertainties remain regarding what negative unintended consequences
these provisions will have on patient access to new technologies, pricing and the market for our products, and the healthcare
industry in general. The Affordable Care Act includes provisions affecting the Medicare program, such as value-based payment programs,
increased funding of comparative effectiveness research, reduced hospital payments for avoidable readmissions and hospital acquired
conditions, and pilot programs to evaluate alternative payment methodologies that promote care coordination (such as bundled physician
and hospital payments). Additionally, the provisions include a reduction in the annual rate of inflation for hospitals which started
in 2011 and the establishment of an independent payment advisory board to recommend ways of reducing the rate of growth in Medicare
spending. Any reduction in reimbursement from Medicare or other government programs may result in a similar reduction in payments
from private payors. Judicial challenges as well as legislative initiatives to modify, limit, or repeal the Affordable Care Act
have been initiated and continue to evolve, including an Executive Order signed by the U.S. President directing executive departments
and federal agencies to waive, defer, grant exemptions from, or delay the implementation of provisions of the Affordable Care
Act that would impose a fiscal or regulatory burden on individuals and certain entities to the maximum extent permitted by law.
Recently, there have been renewed efforts to repeal or replace the Affordable Care Act following the 2017 changes in the U.S.
presidential administrations and U.S. Congress. We cannot predict what healthcare programs and regulations will be implemented
or changed at the federal or state level in the United States, or the effect of any future legislation or regulation. However,
any changes that lower reimbursements for our products or reduce medical procedure volumes could adversely affect our business
plan to introduce our products in the United States.
On
September 26, 2012, the European Commission adopted a package of legislative proposals designed to replace the existing regulatory
framework governing medical devices in the European Union. These proposals are currently being reviewed by the European Parliament
and the Council and may undergo significant amendments as part of the legislative process. If adopted by the European Parliament
and the Council in their present form, these proposed revisions would, among other things, impose stricter requirements on medical
device manufacturers and strengthen the supervising competences of the competent authorities of European Union Member States and
the notified bodies. As a result, if and when adopted, the proposed new legislation could prevent or delay the CE marking of our
products under development or impact our ability to modify our currently CE marked products on a timely basis. The regulation
of advanced therapy medicinal products is also in continued development in the European Union, with the European Medicines Agency
publishing new clinical or safety guidelines concerning advanced therapy medicinal products on a regular basis. Any of these regulatory
changes and events could limit our ability to form collaborations and our ability to continue to commercialize our products, and
if we fail to comply with any such new or modified regulations and requirements it could adversely affect our business, operating
results and prospects.
Risks
Related to Operating in Israel
We
anticipate being subject to fluctuations in currency exchange rates because we expect a substantial portion of our revenues will
be generated in Euros and U.S. dollars, while a significant portion of our expenses will be incurred in New Israeli Shekels.
We
expect a substantial portion of our revenues will be generated in U.S. dollars and Euros, while a significant portion of our expenses,
principally salaries and related personnel expenses, is paid in New Israeli Shekels, or NIS. As a result, we are exposed to the
risk that the rate of inflation in Israel will exceed the rate of devaluation of the NIS in relation to the Euro or the U.S. dollar,
or that the timing of this devaluation will lag behind inflation in Israel. Because inflation has the effect of increasing the
dollar and Euro costs of our operations, it would therefore have an adverse effect on our dollar-measured results of operations.
The value of the NIS, against the Euro, the U.S. dollar, and other currencies may fluctuate and is affected by, among other things,
changes in Israel’s political and economic conditions. Any significant revaluation of the NIS may materially and adversely
affect our cash flows, revenues and financial condition. Fluctuations in the NIS exchange rate, or even the appearance of instability
in such exchange rate, could adversely affect our ability to operate our business.
If
there are significant shifts in the political, economic and military conditions in Israel and its neighbors, it could have a material
adverse effect on our business relationships and profitability.
Our
sole manufacturing facility and certain of our key personnel are located in Israel. Our business is directly affected by the political,
economic and military conditions in Israel and its neighbors. Since the establishment of the State of Israel in 1948, a number
of armed conflicts have occurred between Israel and its Arab neighbors. A state of hostility, varying in degree and intensity,
has caused security and economic problems in Israel. Although Israel has entered into peace treaties with Egypt and Jordan, and
various agreements with the Palestinian Authority, there has been a marked increase in violence, civil unrest and hostility, including
armed clashes, between the State of Israel and the Palestinians since September 2000. The establishment in 2006 of a government
in the Gaza Strip by representatives of the Hamas militant group has created heightened unrest and uncertainty in the region.
In mid-2006, Israel engaged in an armed conflict with Hezbollah, a Shiite Islamist militia group based in Lebanon, and in June
2007, there was an escalation in violence in the Gaza Strip. From December 2008 through January 2009 and again in November and
December 2012, Israel engaged in an armed conflict with Hamas, which involved missile strikes against civilian targets in various
parts of Israel and negatively affected business conditions in Israel. In July 2014, Israel launched an additional operation against
Hamas operatives in the Gaza strip in response to Palestinian groups launching rockets at Israel. Recent political uprisings and
social unrest in Syria are affecting its political stability, which has led to the deterioration of the political relationship
between Syria and Israel and have raised new concerns regarding security in the region and the potential for armed conflict. Similar
civil unrest and political turbulence is currently ongoing in many countries in the region. The continued political instability
and hostilities between Israel and its neighbors and any future armed conflict, terrorist activity or political instability in
the region could adversely affect our operations in Israel and adversely affect the market price of our shares of common stock.
In addition, several countries restrict doing business with Israel and Israeli companies have been and are today subjected to
economic boycotts. The interruption or curtailment of trade between Israel and its present trading partners could adversely affect
our business, financial condition and results of operations.
In
addition, many of our officers or key employees may be called to active duty at any time under emergency circumstances for extended
periods of time. See “— Our operations could be disrupted as a result of the obligation of certain of our personnel
residing in Israel to perform military service.”
Our
operations could be disrupted as a result of the obligation of certain of our personnel residing in Israel to perform military
service.
Many
of our officers and employees reside in Israel and may be required to perform annual military reserve duty. Currently, all male
adult citizens and permanent residents of Israel under the age of 40 (or older, depending on their position with the Israeli Defense
Forces reserves), unless exempt, are obligated to perform military reserve duty annually and are subject to being called to active
duty at any time under emergency circumstances. Our operations could be disrupted by the absence for a significant period of one
or more of our key officers and employees due to military service. Any such disruption could have a material adverse effect on
our business, results of operations and financial condition.
We
may not be able to enforce covenants not-to-compete under current Israeli law.
We
have non-competition agreements with most of our employees, many of which are governed by Israeli law. These agreements generally
prohibit our employees from competing with us or working for our competitors for a specified period following termination of their
employment. However, Israeli courts are reluctant to enforce non-compete undertakings of former employees and tend, if at all,
to enforce those provisions for relatively brief periods of time in restricted geographical areas and only when the employee has
unique value specific to that employer’s business and not just regarding the professional development of the employee. Any
such inability to enforce non-compete covenants may cause us to lose any competitive advantage resulting from advantages provided
to us by such confidential information.
We
may become subject to claims for remuneration or royalties for assigned service invention rights by our employees, which could
result in litigation and adversely affect our business.
A
significant portion of our intellectual property has been developed by our Israeli employees in the course of their employment
for us. Under the Israeli Patent Law, 5727-1967 (the “Israeli Patent Law”), inventions conceived by an employee during
the term and as part of the scope of his or her employment with a company are regarded as “service inventions,” which
belong to the employer, absent a specific agreement between the employee and employer giving the employee service invention rights.
The Israeli Patent Law also provides that if there is no such agreement between an employer and an employee, the Israeli Compensation
and Royalties Committee (the “C&R Committee”), a body constituted under the Israeli Patent Law, shall determine
whether the employee is entitled to remuneration for his inventions. The C&R Committee (decisions of which have been upheld
by the Israeli Supreme Court) has held that employees may be entitled to remuneration for their service inventions despite having
specifically waived any such rights. We generally enter into intellectual property assignment agreements with our employees pursuant
to which such employees assign to us all rights to any inventions created in the scope of their employment or engagement with
us. Although our employees have agreed to assign to us service invention rights and have specifically waived their right to receive
any special remuneration for such assignment beyond their regular salary and benefits, we may face claims demanding remuneration
in consideration for assigned inventions. As a consequence of such claims, we could be required to pay additional remuneration
or royalties to our current or former employees, or be forced to litigate such claims, which could negatively affect our business.
It
may be difficult for investors in the United States to enforce any judgments obtained against us or some of our directors or officers.
The
majority of our assets other than cash are located outside the U.S. In addition, certain of our officers are nationals and/or
residents of countries other than the U.S., and all or a substantial portion of such persons’ assets are located outside
the U.S. As a result, it may be difficult for investors to enforce within the United States any judgments obtained against us
or any of our non-U.S. officers, including judgments predicated upon the civil liability provisions of the securities laws of
the U.S. or any state thereof. Additionally, it may be difficult to assert U.S. securities law claims in actions originally instituted
outside of the U.S. Israeli courts may refuse to hear a U.S. securities law claim because Israeli courts may not be the most appropriate
forums in which to bring such a claim. Even if an Israeli court agrees to hear a claim, it may determine that the Israeli law,
and not U.S. law, is applicable to the claim. Further, if U.S. law is found to be applicable, certain content of applicable U.S.
law must be proved as a fact, which can be a time-consuming and costly process, and certain matters of procedure would still be
governed by the Israeli law. Consequently, you may be effectively prevented from pursuing remedies under U.S. federal and state
securities laws against us or any of our non-U.S. directors or officers.
The
tax benefits that are currently available to us under Israeli law require us to satisfy specified conditions. If we fail to satisfy
these conditions, we may be required to pay increased taxes and would likely be denied these benefits in the future.
InspireMD
Ltd. has been granted a “Beneficiary Enterprise” status by the Investment Center in the Israeli Ministry of Industry
Trade and Labor, and we are therefore eligible for tax benefits under the Israeli Law for the Encouragement of Capital Investments,
1959. The main benefit is a two-year exemption from corporate tax, commencing when we begin to generate net income derived from
the beneficiary activities in facilities located in Israel, and a reduced corporate tax rate for an additional five to eight years,
depending on the level of foreign investment in each year. In addition, under the January 1, 2011 amendment to the Israeli Law
for the Encouragement of Capital Investments, 1959, a uniform corporate tax rate of 16% applies to all qualifying income of “Preferred
Enterprise,” which we may be able to apply as an alternative tax benefit.
The
tax benefits available to a Beneficiary Enterprise or a Preferred Enterprise are dependent upon the fulfillment of conditions
stipulated under the Israeli Law for the Encouragement of Capital Investments, 1959 and its regulations, as amended, which include,
among other things, maintaining our manufacturing facilities in Israel. If we fail to comply with these conditions, in whole or
in part, the tax benefits could be cancelled and we could be required to refund any tax benefits that we received in the past.
If we are no longer eligible for these tax benefits, our Israeli taxable income would be subject to regular Israeli corporate
tax rates. The standard corporate tax rate for Israeli companies in 2017 is 24% and in 2018 is 23% of taxable income. The termination
or reduction of these tax benefits would increase our tax liability, which would reduce our profits.
In
addition to losing eligibility for tax benefits currently available to us under Israeli law, if we do not maintain our manufacturing
facilities in Israel, we will not be able to realize certain tax credits and deferred tax assets, if any, including any net operating
losses to offset against future profits.
The
tax benefits available to Beneficiary Enterprises may be reduced or eliminated in the future. This would likely increase our tax
liability.
The
Israeli government may reduce or eliminate in the future tax benefits available to Beneficiary Enterprises and Preferred Enterprises.
Our Beneficiary Enterprise status and the resulting tax benefits may not continue in the future at their current levels or at
any level. The tax benefit period is twelve years from the year of election, which means that after a year of election, the two-year
exemption and eight years of reduced tax rate can only be used within the next twelve years. The Company elected the year 2007,
as a year of election and 2011 as an additional year of election. The 2011 amendment regarding Preferred Enterprise may not be
applicable to us or may not fully compensate us for the change. The termination or reduction of these tax benefits would likely
increase our tax liability. The amount, if any, by which our tax liability would increase will depend upon the rate of any tax
increase, the amount of any tax benefit reduction, and the amount of any taxable income that we may earn in the future.
Risks
Related to Our Organization and Our Common Stock, Preferred Stock and Warrants
The
market prices of our common stock and our publicly traded warrants are subject to fluctuation and have been and may continue to
be volatile, which could result in substantial losses for investors.
The
market prices of our common stock and our Series A Warrants and Series B Warrants have been and are likely to continue to be highly
volatile and could fluctuate widely in response to various factors, many of which are beyond our control, including the following:
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technological
innovations or new products and services by us or our competitors;
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additions
or departures of key personnel;
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our
ability to execute our business plan;
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operating
results that fall below expectations;
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loss
of any strategic relationship;
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industry
developments;
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economic,
political and other external factors; and
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period-to-period
fluctuations in our financial results.
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In
addition, the securities markets have from time to time experienced significant price and volume fluctuations that are unrelated
to the operating performance of particular companies. These market fluctuations may also significantly affect the market prices
of our common stock and our publicly traded warrants.
Our
common stock could be delisted from the NYSE American if we fail to regain compliance with the NYSE American’s stockholders’
equity continued listing standards on the schedule required by the NYSE American or if our common stock continues to trade
for a substantil period of time at law selling prices. Our ability to publicly or privately sell equity securities and the liquidity
of our common stock could be adversely affected if we are delisted from the NYSE American.
On
August 17, 2017, we received a notice indicating that we do not meet certain of the NYSE American’s continued listing standards
as set forth in Part 10 of the Company Guide. Specifically, we were not in compliance with Section 1003(a)(iii) of the Company
Guide because we reported stockholders’ equity of less than $6 million as of June 30, 2017, and had net losses in our five
most recent fiscal years ended December 31, 2016. As a result, we have become subject to the procedures and requirements of Section
1009 of the Company Guide. The notice also included an early warning of our potential noncompliance with Section 1003(a)(iv) of
the Company Guide because the uncertainty regarding our ability to generate sufficient cash flows and liquidity to fund operations
raises substantial doubt about its ability to continue as a going concern. In order to maintain our listing on NYSE American,
we submitted a plan of compliance to NYSE American addressing how we intend to regain compliance with Section 1003(a)(iii) of
the Company Guide, which was accepted by NYSE American on October 19, 2017. On November 22, 2017, we received an additional letter
from the NYSE that we are not in compliance with Section 1003(a)(ii) of the Company Guide indicating that we are not in compliance
with the stockholders’ equity and net income continued listing standards. We have until February 17, 2019, to regain compliance
with the continued listing requirements.
We
believe, based on our current estimate, we will be required to complete one or more offerings that will provide us with gross
proceeds of at least $20 million prior to February 17, 2019, in order to regain compliance with Sections 1003(a)(ii)-(iii) of
the Company Guide and demonstrate to NYSE American that our estimated stockholder’s equity will be at least $6 million as
of February 17, 2019 (which should also make us in compliance with Section(a)(ii) by having stockholders’ equity of greater
than $4 million). Even if the net proceeds from our future capital raises provide us with sufficient stockholders’ equity
to regain compliance with Sections 1003(a)(ii)-(iii) of the Company Guide by February 19, 2019, we will be subject to ongoing
review for compliance with NYSE American requirements, and there can be no assurance that we will continue to remain in compliance
with this standard. If we do not regain compliance by February 19, 2019, or fail to remain in compliance as of February 19, 2019,
or anytime thereafter, with Sections 1003(a)(ii)-(iii) of the Company Guide, or if we do not maintain our progress consistent
with the plan during the applicable plan period, the NYSE American will initiate delisting proceedings.
In
addition to our non-compliance with Sections 1003(a)(ii)-(iii) of the Company Guide, on January 16, 2018, we received notification
from the NYSE American that our shares of common stock have been selling for a low price per share for a substantial period of
time. Pursuant to Section 1003(f)(v) of the Company Guide, the NYSE American staff determined that our continued listing is predicated
on us effecting a reverse stock split of our common stock or otherwise demonstrating sustained price improvement within a reasonable
period of time, which the staff determined to be until July 16, 2018. The NYSE American has also advised us that its policy is
to immediately suspend trading in shares of, and commence delisting procedures with respect to, a listed company if the market
price of its shares falls below $0.06 per share at any time during the trading day.
On
February 7, 2018, we effected the reverse stock split of our common stock. One of the primary intents for the reverse stock split
was that the anticipated increase in the price of our common stock immediately following and resulting from a reverse stock split
due to the reduction in the number of issued and outstanding shares of common stock would help us meet the price criteria for
continued listing on NYSE American. There can be no assurance that the market price of our new common stock after the reverse
stock split will remain above the levels viewed as abnormally low for a substantial period of time. It is not uncommon for the
market price of a company’s common stock to decline in the period following a reverse stock split. If the market price of
our common stock declines following the reverse stock split, the percentage decline may be greater than would occur in the absence
of a reverse stock split. In any event, other factors unrelated to the number of shares of our common stock outstanding, such
as negative financial or operational results, could adversely affect the market price of our common stock to fall below the levels
viewed as low selling price for a substantial period of time and lead the NYSE American to immediately suspend trading in our
common stock.
Delisting
from NYSE American would adversely affect our ability to raise additional financing through the public or private sale of equity
securities, would significantly affect the ability of investors to trade our securities and would negatively affect the value
and liquidity of our common stock. Delisting also could have other negative results, including the potential loss of confidence
by employees, the loss of institutional investor interest and fewer business development opportunities.
The
reverse stock split may decrease the liquidity of the shares of our common stock.
The
liquidity of the shares of our common stock may be affected adversely by the reverse stock split given the reduced number of shares
that are outstanding following the reverse stock split. In addition, the reverse stock split increased the number of stockholders
who own odd lots (less than 100 shares) of our common stock, creating the potential for such stockholders to experience an increase
in the cost of selling their shares and greater difficulty effecting such sales.
There
is no public market for our preferred stock.
There
is no established trading market for our preferred stock. A trading market for our preferred stock is not expected to develop,
and even if a market develops for our preferred stock, it may not provide meaningful liquidity. The absence of a trading market
or liquidity for our preferred stock may adversely affect their value.
The
certificate of designation for the Series B Preferred Stock and the Series C Preferred Stock and the Series D Purchase Agreement
contains anti-dilution provisions that may result in the reduction of the conversion price in the future. This feature may result
in an indeterminate number of shares of common stock being issued upon conversion of the Series B Preferred Stock, the Series
C Preferred Stock or the Series D Preferred Stock. Sales of these shares will dilute the interests of other security holders and
may depress the price of our common stock.
The
respective certificate of designation for our Series B Preferred Stock and Series C Preferred Stock contains anti-dilution provisions,
which provisions require the lowering of the applicable conversion price, as then in effect, to the purchase price of equity or
equity-linked securities issued in subsequent offerings. In accordance with this anti-dilution price protection, because the effective
common stock purchase price in the March 2017 offering was below the then current Series B Preferred Stock conversion price, we
reduced the Series B Preferred Stock conversion price upon closing of the March 2017 offering. The conversion price of our outstanding
shares of Series B Preferred Stock was further reduced to $7.00 upon closing of the sale of the Series D Preferred Stock. If in
the future, while any of our Series B Preferred Stock or Series C Preferred Stock is outstanding, we issue securities at an effective
common stock purchase price of less than the applicable conversion price of our Series B Preferred Stock or Series C Preferred
Stock, as then in effect, we will be required, subject to certain limitations and adjustments as provided in the respective certificate
of designation for the Series B Preferred Stock and the Series C Preferred Stock, to reduce the relevant conversion price, which
will result in a greater number of shares of common stock being issuable upon conversion of the Series B Preferred Stock or the
Series C Preferred Stock. In addition, as there is no floor price on the conversion price, we cannot determine the total number
of shares issuable upon conversion. As such, it is possible that we will not have a sufficient number of available shares to satisfy
the conversion of the Series B Preferred Stock or the Series C Preferred Stock if we enter into a future transaction that reduces
the applicable conversion price. Moreover, pursuant to the Series D Purchase Agreement and the certificate of designation for
the Series D Preferred Stock, the purchasers of Series D Preferred Stock have the option to exchange their Series D Preferred
Stock into the securities issued in a subsequent offering or in a Qualified Offering, and the shares of Series C Preferred Stock
held by the purchasers of Series D Preferred Stock will be automatically exchanged into the securities we sell in a Qualified
Offering (to the extent that stockholder approval for such exchange of Series C Preferred Stock is not required
under the Company Guide). In connection with the Series D Private Placement, the certificate of designation for the Series
B Preferred Stock was amended to provide that each share of outstanding Series B Preferred Stock will be automatically exchanged
into the securities we sell in a Qualified Offering. All of the foregoing features will increase the number of shares issuable
upon conversion or exchange, assuming that the effective offering price of our common stock in a subsequent financing or a Qualified
Offering is lower than the conversion price of these securities then in effect, and will result in a greater dilutive effect on
our shareholders. If we do not have a sufficient number of available shares for any Series B Preferred Stock or Series C Preferred
Stock conversions or upon exchange of Series B Preferred Stock, Series C Preferred Stock or Series D Preferred Stock, we
will be required to increase our authorized shares, which may not be possible and will be time consuming and expensive. The potential
for such additional issuances may depress the price of our common stock regardless of our business performance. We may find it
more difficult to raise additional equity capital while any of our Series B Preferred Stock, Series C Preferred Stock or Series
D Preferred Stock is outstanding.
The
mandatory exchange of shares of Series C Preferred Stock held by the purchasers of Series D Preferred Stock into the securities
we sell in a Qualified Offering, as contemplated by the Series D Purchase Agreement, may require us to obtain stockholder
approval under the Company Guide and delay or make it difficult for us to obtain additional financing.
The
Series D Purchase Agreement provides that the shares of Series C Preferred Stock held by the investor that participated
in the Series D Private Placement will be automatically exchanged into the securities we sell in a Qualified Offering. The Company
Guide Section 713(a)(ii) requires us to obtain stockholder approval in connection with a transaction other than a public offering
involving the sale, issuance or potential issuance by the issuer of additional shares of common stock (or securities convertible
into or exchangeable for common stock) equal to 20% or more of the number of shares of common stock outstanding before the issuance
for a price that is less than the greater of book or market value of the stock on the date the issuer enters into a binding agreement
for the issuance of such securities. Accordingly, if the effective offering price of our common stock is less than the greater
of book or market value of our common stock at the time of such offering, and the issuance of shares of common stock or
shares of common stock underlying securities convertible into common stock in a Qualified Offering upon the mandatory exchange
of the then outstanding shares of Series C Preferred Stock held by the investor in the Series D Private Placement is equal to
20% or more of the number of shares of our common stock outstanding immediately prior to the offering, we will be required
obtain stockholder approval under the Company Guide Section 713(a)(ii) to enable the exchange of the Series C Preferred
Stock for securities sold in the Qualified Offering pursuant to the Series D Purchase Agreement. Such requirement may make
any future financing to be both time consuming or difficult to obtain. In addition, if stockholder approval is required
for the issuance of securities upon mandatory exchange of Series C Preferred Stock pursuant to the Series D Purchase Agreement,
there is no assurance that our stockholders will approve such issuance. Furthermore, if we are not able to fully exchange the
shares of Series C Preferred Stock in a future offering, we might be deemed to be in breach of the terms of our Series D Purchase
Agreement, we could expose us to claims for damages.
We
do not expect to pay dividends in the future. As a result, any return on investment may be limited to the value of our common
stock.
We
do not anticipate paying cash dividends on our common stock in the foreseeable future. The payment of dividends on our common
stock will depend on our earnings, financial condition and other business and economic factors as our board of directors may consider
relevant. If we do not pay dividends, our common stock may be less valuable because a return on an investment in our common stock
will only occur if our stock price appreciates.
The
Series B Preferred Stock provides for the payment of dividends in cash or in shares of our common stock, and we may not be permitted
to pay such dividends in cash, which will require us to have shares of common stock available to pay the dividends.
Each
share of the Series B Preferred Stock is entitled to receive cumulative dividends at the rate per share of 15% per annum of the
stated value per share, until the fifth anniversary of the date of issuance of the Series B Preferred Stock. The dividends are
payable, at our discretion, in cash, out of any funds legally available for such purpose, or in pay-in-kind shares of common stock
calculated based on the conversion price, subject to adjustment as provided in the certificate of designation for the Series B
Preferred Stock. The conversion price is subject to reduction if in the future we issue securities for less than the conversion
price of our Series B Preferred Stock, as then in effect. As there is no floor price on the conversion price, we cannot determine
the total number of shares issuable upon conversion or in connection with the dividend. It is possible that we will not have a
sufficient number of available shares to pay the dividend in common stock, which would require the payment of the dividend in
cash. We will not be permitted to pay the dividend in cash unless we are legally permitted to do so under Delaware law, which
requires cash to be available from surplus or net profits, which may not be available at the time payment is due. In light of
our recurring losses and negative cash flows from operating activities, we do not expect to have cash available to pay the dividends
on our Series B Preferred Stock or to be permitted to make such payments under Delaware law, and will be relying on having available
shares of common stock to pay such dividends, which will result in dilution to our shareholders. If we do not have such available
shares, we may not be able to satisfy our dividend obligations.
We
are subject to financial reporting and other requirements that place significant demands on our resources.
We
are subject to reporting and other obligations under the Securities Exchange Act of 1934, as amended, including the requirements
of Section 404 of the Sarbanes-Oxley Act of 2002. Section 404 requires us to conduct an annual management assessment of the effectiveness
of our internal controls over financial reporting. These reporting and other obligations place significant demands on our management,
administrative, operational, internal audit and accounting resources. Any failure to maintain effective internal controls could
have a material adverse effect on our business, operating results and stock price. Moreover, effective internal control is necessary
for us to provide reliable financial reports and prevent fraud. If we cannot provide reliable financial reports or prevent fraud,
we may not be able to manage our business as effectively as we would if an effective control environment existed, and our business
and reputation with investors may be harmed.
There
are inherent limitations in all control systems, and misstatements due to error or fraud may occur and not be detected.
The
ongoing internal control provisions of Section 404 of the Sarbanes-Oxley Act of 2002 require us to identify material weaknesses
in internal control over financial reporting, which is a process to provide reasonable assurance regarding the reliability of
financial reporting for external purposes in accordance with accounting principles generally accepted in the United States. Our
management, including our chief executive officer and chief financial officer, does not expect that our internal controls and
disclosure controls will prevent all errors and all fraud. A control system, no matter how well conceived and operated, can provide
only reasonable, not absolute, assurance that the objectives of the control system are met. In addition, the design of a control
system must reflect the fact that there are resource constraints and the benefit of controls must be relative to their costs.
Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all
control issues and instances of fraud, if any, in our company have been detected. These inherent limitations include the realities
that judgments in decision-making can be faulty and that breakdowns can occur because of simple errors or mistakes. Further, controls
can be circumvented by individual acts of some persons, by collusion of two or more persons, or by management override of the
controls. The design of any system of controls is also based in part upon certain assumptions about the likelihood of future events,
and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions.
Over time, a control may be inadequate because of changes in conditions, such as growth of the company or increased transaction
volume, or the degree of compliance with the policies or procedures may deteriorate. Because of inherent limitations in a cost-effective
control system, misstatements due to error or fraud may occur and not be detected.
In
addition, discovery and disclosure of a material weakness, by definition, could have a material adverse impact on our financial
statements. Such an occurrence could discourage certain customers or suppliers from doing business with us and adversely affect
how our stock trades. This could in turn negatively affect our ability to access equity markets for capital.
Delaware
law and our corporate charter and bylaws contain anti-takeover provisions that could delay or discourage takeover attempts that
stockholders may consider favorable.
Our
board of directors is authorized to issue shares of preferred stock in one or more series and to fix the voting powers, preferences
and other rights and limitations of the preferred stock. Accordingly, we may issue shares of preferred stock with a preference
over our common stock with respect to dividends or distributions on liquidation or dissolution, or that may otherwise adversely
affect the voting or other rights of the holders of common stock. Issuances of preferred stock, depending upon the rights, preferences
and designations of the preferred stock, may have the effect of delaying, deterring or preventing a change of control, even if
that change of control might benefit our stockholders. In addition, we are subject to Section 203 of the Delaware General Corporation
Law. Section 203 generally prohibits a public Delaware corporation from engaging in a “business combination” with
an “interested stockholder” for a period of three years after the date of the transaction in which the person became
an interested stockholder, unless (i) prior to the date of the transaction, the board of directors of the corporation approved
either the business combination or the transaction which resulted in the stockholder becoming an interested stockholder; (ii)
the interested stockholder owned at least 85% of the voting stock of the corporation outstanding at the time the transaction commenced,
excluding for purposes of determining the number of shares outstanding (a) shares owned by persons who are directors and also
officers and (b) shares owned by employee stock plans in which employee participants do not have the right to determine confidentially
whether shares held subject to the plan will be tendered in a tender or exchange offer; or (iii) on or subsequent to the date
of the transaction, the business combination is approved by the board and authorized at an annual or special meeting of stockholders,
and not by written consent, by the affirmative vote of at least 66 2/3% of the outstanding voting stock which is not owned by
the interested stockholder.
Section
203 could delay or prohibit mergers or other takeover or change in control attempts with respect to us and, accordingly, may discourage
attempts to acquire us even though such a transaction may offer our stockholders the opportunity to sell their stock at a price
above the prevailing market price.
We
have a staggered board of directors, which could impede an attempt to acquire us or remove our management.
Our
board of directors is divided into three classes, each of which serves for a staggered term of three years. This division of our
board of directors could have the effect of impeding an attempt to take over our company or change or remove management, since
only one class will be elected annually. Thus, only approximately one-third of the existing board of directors could be replaced
at any election of directors.
Offers
or availability for sale of a substantial number of shares of our common stock may cause the price of our publicly traded securities
to decline.
Sales
of a significant number of shares of our common stock or our warrants in the public market could harm the market prices of our
common stock or warrants and make it more difficult for us to raise funds through future offerings of common stock or warrants.
Our stockholders and the holders of our options and warrants may sell substantial amounts of our common stock or our publicly
traded warrants in the public market. In addition, we will be required to issue additional shares of common stock to the holders
of our Series B Preferred Stock upon conversion of shares of our Series B Preferred Stock and the payment of the dividends thereunder
in common stock and to the holders of our Series C Preferred Stock upon conversion of shares of our Series C Preferred Stock,
as a result of the full ratchet anti-dilution price protection in the respective certificate of designation for the Series B Preferred
Stock and the Series C Preferred Stock, if the effective common stock purchase price in a subsequent offering is less than the
respective then current conversion price of the Series B Preferred Stock or the Series C Preferred Stock, which in turn will increase
the number of shares of common stock available for sale. Moreover, pursuant to the Series D Purchase Agreement and the certificate
of designation for the Series D Preferred Stock, the purchasers of Series D Preferred Stock have the option to exchange their
Series D Preferred Stock into the securities issued in a subsequent offering having more favorable terms, such as a lower
price, which would increase the number of shares of common stock issuable to the holders of Series D Preferred Stock following
the exercise of such option. The Series D Purchase Agreement also provides for an automatic exchange of all outstanding
shares of Series B Preferred Stock and Series C Preferred Stock held by the investor that participated in the Series D
Private Placement into the securities we sell in a Qualified Offering (to the extent that stockholder approval for such exchange
of Series C Preferred Stock is not required under the Company Guide), which, if the effective offering price of common stock
is lower than the conversion price of Series C Preferred Stock then in effect, would also increase the number of shares issuable
to the holder of Series C Preferred Stock. See “
Risk Factors — Risks Related to Our Organization and Our Common
Stock, Preferred Stock and Warrants
—
The certificate of designation for the Series B Preferred Stock and the
Series C Preferred Stock and the Series D Purchase Agreement contains anti-dilution provisions that may result in the reduction
of the conversion price in the future. This feature may result in an indeterminate number of shares of common stock being issued
upon conversion of the Series B Preferred Stock, the Series C Preferred Stock or the Series D Preferred Stock. Sales of these
shares will dilute the interests of other security holders and may depress the price of our common stock
.”
In
addition, the fact that our stockholders, option holders and warrant holders can sell substantial amounts of our common stock
or our publicly traded warrants in the public market, whether or not sales have occurred or are occurring, could make it more
difficult for us to raise additional financing through the sale of equity or equity-related securities in the future at a time
and price that we deem reasonable or appropriate, or at all.
As
a former shell company, resales of shares of our restricted common stock in reliance on Rule 144 of the Securities Act are subject
to the requirements of Rule 144(i).
We
previously were a “shell company” and, as such, sales of our securities pursuant to Rule 144 under the Securities
Act of 1933, as amended, cannot be made unless, among other things, at the time of a proposed sale, we are subject to the reporting
requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, and have filed all reports and
other materials required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 as amended, as applicable,
during the preceding 12 months, other than Form 8-K reports. Because, as a former shell company, the reporting requirements of
Rule 144(i) will apply regardless of holding period, restrictive legends on certificates for shares of our common stock cannot
be removed except in connection with an actual sale that is subject to an effective registration statement under, or an applicable
exemption from the registration requirements of, the Securities Act of 1933, as amended. Because our unregistered securities cannot
be sold pursuant to Rule 144 unless we continue to meet such requirements, any unregistered securities we issue will have limited
liquidity unless we continue to comply with such requirements.
No
industry analyst publishes research about our business.
The
trading market for our common stock will be influenced by the research and reports that industry or securities analysts publish
about us or our business. Because no industry analyst publishes research about us, we could lose visibility in the financial markets,
which in turn could cause our stock price or trading volume to decline.
Aspects
of the tax treatment of the securities may be uncertain.
The
tax treatment of our preferred stock and our warrants is uncertain and may vary depending upon whether you are an individual or
a legal entity and whether or not you are domiciled in the United States. In the event you are a non-U.S. investor, you should
consult your tax advisors as to the consequences, under the tax laws of the country where you are resident for tax purposes, of
acquiring, holding and disposing of our preferred stock and our warrants.
SPECIAL
NOTE REGARDING FORWARD-LOOKING STATEMENTS
This
Annual Report on Form 10-K contains “forward-looking statements,” which include information relating to future events,
future financial performance, strategies, expectations, competitive environment and regulation. Words such as “may,”
“should,” “could,” “would,” “predicts,” “potential,” “continue,”
“expects,” “anticipates,” “future,” “intends,” “plans,” “believes,”
“estimates,” and similar expressions, as well as statements in future tense, identify forward-looking statements.
Forward-looking statements should not be read as a guarantee of future performance or results and will probably not be accurate
indications of when such performance or results will be achieved. Forward-looking statements are based on information we have
when those statements are made or our management’s good faith belief as of that time with respect to future events, and
are subject to risks and uncertainties that could cause actual performance or results to differ materially from those expressed
in or suggested by the forward-looking statements. Important factors that could cause such differences include, but are not limited
to:
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our
history of recurring losses and negative cash flows from operating activities, significant future commitments and the uncertainty
regarding the adequacy of our liquidity to pursue our complete business objectives, and substantial doubt regarding our ability
to continue as a going concern;
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our
need to raise additional capital to meet our business requirements in the future and
such capital raising may be costly or difficult to obtain and could dilute out stockholders’
ownership interests;
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our
ability to regain compliance with NYSE American listing standards;
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our
ability to generate revenues from our products and obtain and maintain regulatory approvals for our products;
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our
ability to adequately protect our intellectual property;
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our
dependence on a single manufacturing facility and our ability to comply with stringent manufacturing quality standards and
to increase production as necessary;
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the
risk that the data collected from our current and planned clinical trials may not be sufficient to demonstrate that our technology
is an attractive alternative to other procedures and products;
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market
acceptance of our products;
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negative
clinical trial results or lengthy product delays in key markets;
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an
inability to secure and maintain regulatory approvals for the sale of our products;
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intense
competition in our industry, with competitors having substantially greater financial, technological, research and development,
regulatory and clinical, manufacturing, marketing and sales, distribution and personnel resources than we do;
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entry
of new competitors and products and potential technological obsolescence of our products;
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inability
to carry out research, development and commercialization plans;
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loss
of a key customer or supplier;
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technical
problems with our research and products and potential product liability claims;
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product
malfunctions;
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price
increases for supplies and components;
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adverse
economic conditions;
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insufficient
or inadequate reimbursement by governmental and other third-party payers for our products;
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our
efforts to successfully obtain and maintain intellectual property protection covering our products, which may not be successful;
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adverse
federal, state and local government regulation, in the United States, Europe or Israel and other foreign jurisdictions;
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the
fact that we conduct business in multiple foreign jurisdictions, exposing us to foreign currency exchange rate fluctuations,
logistical and communications challenges, burdens and costs of compliance with foreign laws and political and economic instability
in each jurisdiction;
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the
escalation of hostilities in Israel, which could impair our ability to manufacture our products; and
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loss
or retirement of key executives and research scientists.
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The
foregoing does not represent an exhaustive list of matters that may be covered by the forward-looking statements contained herein
or risk factors that we are faced with that may cause our actual results to differ from those anticipated in our forward-looking
statements. You should review carefully the risks and uncertainties described under the heading “Item 1A. Risk Factors”
in this Annual Report on Form 10-K for a discussion of these and other risks that relate to our business and investing in shares
of our common stock. The forward-looking statements contained in this Annual Report on Form 10-K are expressly qualified in their
entirety by this cautionary statement. We do not undertake any obligation to publicly update any forward-looking statement to
reflect events or circumstances after the date on which any such statement is made or to reflect the occurrence of unanticipated
events.