Item
1. Business.
Overview
Incorporated
in Delaware in May 2010, we are a medical device company focused on the design, development and commercialization of non-invasive glucose
monitoring devices for use by people with diabetes and pre-diabetics. On July 15, 2010, we completed a reverse triangular merger with
Integrity Israel and Integrity Acquisition Corp. Ltd., an Israeli corporation and a wholly owned subsidiary of ours, pursuant to which
Integrity Acquisition Corp. Ltd. merged with and into Integrity Israel and all of the stockholders and option holders of Integrity Israel
became entitled to receive shares and options in us in exchange for their shares and options in Integrity Israel (the “Reorganization”).
Following the Reorganization, the former equity holders of Integrity Israel were entitled to the same proportional ownership in us as
they had in Integrity Israel prior to the Reorganization. As a result of the Reorganization, Integrity Israel became a wholly owned subsidiary
of ours. We operate primarily through Integrity Israel.
Integrity
Israel was founded in 2001 with a mission to develop, produce and market non-invasive glucose monitors for home use by diabetics. We
have developed a non-invasive glucose monitor, the GlucoTrack® glucose monitoring device, which is designed to help people with
diabetes and pre-diabetics obtain glucose level readings without the pain, inconvenience, cost and difficulty of conventional
(invasive) spot finger stick devices. The first generation GlucoTrack (“GlucoTrack 1.0”) utilizes a combination of
ultrasound, electromagnetic and thermal technologies to obtain glucose measurements in less than one minute via a small sensor that
is clipped onto one’s earlobe and connected to a small, handheld control and display unit, all without drawing blood or
interstitial fluid.
We
are currently developing our own companion applications and a cloud-based solution, as well as conducting ongoing discussions with potential
partners, to offer an effective platform to provide real time, data driven personalized tools to effectively help a user manage their
diabetes. In addition to being a critical and effective management tool for the end user, we believe that third parties such as insurers,
pharmaceutical companies and advertisers would be willing to pay for the de-identified data that we will obtain through our platform,
and that this is an opportunity for us to develop an additional revenue source.
After
a home-based short calibration process of approximately thirty minutes consisting of three typical blood glucose reference measurements,
GlucoTrack 1.0 can be used to non-invasively measure glucose levels for six months before a user is required to repeat the calibration
process. The entire calibration process can be performed by the user themselves without the need for a trained calibrator. We believe
the simple-to-perform calibration, as well as the infrequency of the required re-calibration are significant advantages over our competition.
GlucoTrack
1.0 received the initial Conformité Européene (CE) Mark (indicating the conformity of the Company’s product with
health, safety, and environmental protection standards for products sold within the European Economic Area) approval for the GlucoTrack
1.0 from DEKRA Certification B.V., our European notified body (the “Notified Body”), which is an entity that has been accredited
by a member state of the European Union (“EU”) to assess whether a product to be placed on the market meets certain preordained
standards. The intended use for GlucoTrack 1.0 received by the Notified Body is for both those subjects with Type 2 diabetes as well
as those suffering from pre-diabetes.
Receipt
of the CE Mark allows us to market and sell GlucoTrack 1.0 glucose monitoring device in EU member countries that have adopted the European
Medical Device Directive (the “MDD”) without being subject to additional national regulations with regard to demonstration
of performance and safety. However, although the MDD is applicable throughout the EU, in practice it does not ensure uniform regulation
throughout the EU. Accordingly, member countries may apply and enforce the MDD’s terms differently, and certain EU member countries
may request or require performance and/or safety data in addition to the MDD’s requirements from time to time, on a case-by-case
basis. The CE Mark also permits the sale in countries that have an MDD Mutual Recognition Agreement with the EU. This would include some
countries in South East Asia as well as in Latin America, opening new potential markets for Integrity on a global basis.
Safety
and quality are non-negotiables in the medical devices industry. Regulatory requirements are increasingly stringent throughout every
step of a product’s life cycle, including service and delivery. More and more, organizations in the industry are expected to demonstrate
their quality management processes and ensure best practice in everything they do. ISO 13485 is an internationally agreed standard that
sets out the requirements for a quality management system specific to the medical devices industry. On March 1, 2019, we received an
extension of our ISO 13485:2016 certificate and Annex II certification from the EU. The ISO 13485:2016 certification signifies that we
have met the standards required for company-wide implementation of device quality management system(s). The scope of the certification
is design, development, manufacture and service of non-invasive glucose monitoring systems for home use. Annex II also addresses quality
control systems. The certification allows us to self-certify certain modifications and changes and simplifies some of the reporting to
and review by the relevant Notified Body. This can shorten the CE-mark review process of future GlucoTrack enhancements or revisions,
including software updates and other improvements of the device that do not affect the intended use and/or safety performance. The ISO
13485:2016 and Annex II certifications enable us to potentially reduce the time to market for product sales on new, enhanced or modified
GlucoTrack devices.
Clinical
trials conducted in Germany by Pfutzner Science & Health Institute, GmbH, headed by Prof. Dr. Andreas Pfutzner, on subjects with
Type 2 diabetes and pre-diabetes, as well as at Soroka University Medical Center, Beer-Sheva, Israel, demonstrated favorable results.
Results from the trials show 99.3% of the study data points were within the clinically accepted A and B zones of the Clarke Error Grid
(which is a tool used to quantify the clinical accuracy of blood glucose estimates generated by meters as compared to a reference value),
and 17.0% Mean Absolute Relative Difference. In addition, the German trial concluded that the data confirms the performance of the GlucoTrack
among its intended users, including pre-diabetic patients.
In
addition, the Company has demonstrated (1) GlucoTrack 1.0 demonstrates consistent glucose measurement repeatability between different
GlucoTrack devices and on each earlobe of the same subject; (2) the repeatability of different GlucoTrack 1.0 devices is similar at all
tested glucose ranges and post-prandial time periods; and (3) the GlucoTrack 1.0 mean precision absolute relative difference (PARD) of
8.2% is equivalent or better than the independently reported PARD values of commercially available continuous glucose monitoring systems.
The
Company conducted an additional study that evaluated GlucoTrack accuracy in 172 adults with type 2 diabetes who were prescribed one or
more medications for major medical conditions associated with diabetes and presented key findings of this study at the European Association
for the Study of Diabetes Congress (EASD) in Lisbon, Portugal. The experiment stratified participants into five medication groups, focusing
on anti-cholesterolemia, anti-hypertension, anti-thrombotic, and anti-diabetic (prolonged duration and short and mixed duration) medications.
The study demonstrated that the use of these common concomitant medications in diabetes had no effect on the performance of GlucoTrack
1.0.
The
Company had begun the implementation of a proof-of-concept pilot program for GlucoTrack 1.0 in the Netherlands, a country chosen based
on the relatively smaller size of the marketplace to allow us to rapidly assess our performance and make adjustments as necessary. We
have been working closely with our exclusive distributor in the Netherlands, Medireva B.V., and have accomplished product and disease
area training across the organization and segmentation of the local target audiences including key opinion leaders, treating physicians,
and diabetes nurses. The most important aspect of our pilot program in the Netherlands are the discussions held with many health insurance
companies. Approval of full or partial reimbursement by the health insurance companies will be a key factor in enabling us to achieve
significant sales volume. The Company has made progress with several of these companies on initial programs with GlucoTrack 1.0 as an
important step towards reimbursement approval.
Talent
development, recruiting and organizational health have been a critical focus of the Company. A number of high-quality individuals have
joined the Company, each of whom bring extensive experience in their respective fields. We have bolstered our Senior Management with
the recruitment of Erez Ben-Zvi, a highly experienced MedTech development professional who joined us last year as Vice President of Product,
and later on took on the additional role of General Manager. Paul, V. Goode PhD, who has a decorated career developing innovative medical
technologies, including at DexCom and MiniMed and was a member of the Board of Directors of the Company, was appointed as President and
Chief Operating Officer. In addition, James P. Thrower PhD, a seasoned executive formerly of Sterling Medical Devices, Mindray DS
USA and DexCom, Inc. joined as Vice President of Engineering. Luis J. Malavé, formerly of Insulet Corp, Medtronic and MiniMed
has joined as an independent board member. Several highly talented and accomplished executives joined the Company as senior advisors
to the Board. These include Yair Briman, the former CEO of Philips Healthcare Informatics, Daniel McCaffrey MBA MA, a world-renowned
behavioral scientist and digital health expert formerly at Samsung Health and Dexcom, Inc., Dr. Alexander Raykhman PhD,
a measurement and artificial intelligence expert and Dr. David C. Klonoff, world renowned endocrinologist and diabetes technology thought
leader. We intend to continue to invest in our talent and to expand and strengthen all areas within the Company.
Recently,
the Company performed a top-down analysis of the GlucoTrack 1.0 model to identify areas of potential enhancement, as it relates to the
platform, integrations, sensor technologies, accuracy as well as manufacturing costs. The result of this comprehensive review is an accelerated
development plan for GlucoTrack 2.0. GlucoTrack 2.0 will be a completely wireless and rechargeable earclip to be paired with a smartphone,
with more capabilities and features, increased accuracy, significantly greater margins for the Company and lower cost to the end-user
as compared to GlucoTrack 1.0.
As
previously reported, the Company made significant progress towards receiving insurance reimbursement in the Netherlands. With the
new accelerated development plan for GlucoTrack 2.0, and all of the expected advantages over GlucoTrack 1.0, it became clear to the Company
that introducing GlucoTrack 2.0 rather than the GlucoTrack 1.0 would serve the diabetes market and the Company more effectively. We are
currently working with our European partners on the roadmap for distribution of GlucoTrack 2.0 when completed and ready to market.
In
addition to the European markets, the Company is now focused on the U.S. market as well, including building out its U.S. go-to-market
strategy and planning the required FDA clinical trials and field testing to support its entrance into the market. The Company is currently
in the process of identifying clinical sites in the U.S., interviewing Contract Research Organizations (CRO’s), and forming its
Scientific and Medical Advisory Boards. We intend to build out a team to support the U.S. activities while continuing our technology
development in our R&D facility located in Israel.
Recent
Events
On
June 22, 2021, Luis J. Malavé has been appointed to the Company’s Board of Directors. Mr. Malavé brings more than
30 years of leadership experience in the MedTech industry, primarily in diabetes management, spanning all company stages, from private
startups to large-cap publicly listed companies. He has extensive expertise in product development, operations, marketing, strategic
partnerships, and US FDA regulatory strategy.
Since
October 2017, Mr. Malavé has served as President of EOFLOW CO. Ltd., a company listed on the Korea Stock Exchange that has developed
a wearable disposable insulin pump. From October 2014 to June 2016, he was COO of Mikroscan Technologies. Prior to that, Mr. Malavé
was the President and CEO of Palyon Medical, maker of an implantable drug-delivery system that spun out from German medical-technology
giant Fresenius SE. Prior to Palyon, he spent nearly a decade at insulin pump maker Insulet Corp., including as its Senior Vice President
of Research, Development and Engineering, and as Chief Operating Officer. He also held various senior positions at Medtronic and MiniMed,
overseeing product development of various diabetes management devices. Mr. Malavé earned his Bachelor’s degree in Mathematics
and Computer Science from the University of Minnesota, a Master’s degree in Software Engineering from the University of St. Thomas,
and an MBA from the University of Maryland.
On
October 19, 2021, Paul V. Goode was appointed as President and Chief Operating Officer of the Company, effective November 1, 2021 (“Effective
Date”). He has served as a member of Integrity’s Board of Directors since December 17, 2020. Concurrent with his new appointment,
Mr. Goode will be stepping down from the Board. In this role, Goode will lead the company’s operations, overseeing strategy, design,
manufacturing, business and product development and begin to build the U.S. infrastructure in preparation for the U.S. clinical trials
of GlucoTrack. He will devote such time as necessary to perform his duties but shall be able to pursue other professional opportunities
at the same time. His base salary shall be $175,000 per year, and he shall be entitled to a cash bonus of up to 20% of his annual base
salary as determined by the Company’s Compensation Committee and shall be granted options to purchase up to One and half Percent
(1.5%) of the fully diluted common stock, par value $0.001 per share, of the Company (“Common Stock”) as of the Effective
Date, with a per share exercise price equal to the greater of (A) $5.20 per share or (B) the closing price of a share of Common Stock
on the Effective Date, as reported by Bloomberg L.P., which shall vest in equal monthly installments over a three year period following
the Effective Date. The bonus and equity incentives shall be subject to clawback rights if there is a misstatement of financials which
changes any metrics upon which a bonus or incentives are based and the clawback will be pro rata based upon the changes in the financials
with respect to the effect on any underlying metrics.
In
connection with our application to list our shares of common stock
on Nasdaq Capital Market (“NASDAQ”), on August 13, 2021, we effected a reverse split of our common stock in a ratio of
1 for 13 (the “Reverse Share Split”).
On
September 27, 2021, our shelf registration statement on Form S-3 (file no. 333-259664) was declared effective by the SEC. The shelf registration
statement permits us to register up to $100,000,000 of certain equity and debt securities of the Company via prospectus supplement.
On
December 8, 2021, we announced that our shares of common stock were approved for listing on the NASDAQ. Trading on NASDAQ commenced
on December 10, 2021 under its existing trading symbol, IGAP.
On
March 14, 2022, we changed our name to GlucoTrack, Inc. with Nasdaq and our trading symbol to GCTK.
On
March 22, 2022, Shalom Shushan, Chief Technology Officer, provided notice of his resignation from the Company, effective May 22, 2022,
for personal reasons. In connection with the Company’s previously announced plans to migrate certain aspects of product development
to the United States, James P. Thrower PhD, Vice President of Engineering, will be assuming Mr. Shushan’s responsibilities.
We
may be at risk as a result of the current COVID-19 pandemic. Risks that could affect our business include the duration and scope of the
COVID-19 pandemic and the impact on the demand for our products; actions by governments, businesses and individuals taken in response
to the pandemic; the length of time of the COVID-19 pandemic and the possibility of its reoccurrence; the timing required to develop
effective treatments and a vaccine in the event of future outbreaks; the eventual impact of the pandemic and actions taken in response
to the pandemic on global and regional economies; and the pace of recovery when the COVID-19 pandemic subsides.
Since
its inception date, the Company did not conduct any material operations other than those carried out by Integrity Israel. The development
and commercialization of the Product is expected to require substantial expenditures. The Group has not yet generated significant revenues
from operations, and therefore they are dependent upon external sources for financing their operations. As of December 31, 2021, the
Group has incurred accumulated deficit of $97,466 thousand. During the year ended December 31, 2021 the Company incurred losses from
ongoing operation and has negative cash flow from operating activity.
On
February 14, 2020, the Company closed on a $15 million private placement of its common stock, for which it received net cash in
excess of $13,009 thousand. In addition, on September 27, 2021, the Company’s shelf registration statement on Form S-3
was declared effective by the Securities and Exchange Commission (SEC) which permits the Company to register up to $100,000 thousand
of certain equity and debt securities of the Company via prospectus supplement. To date, funds have not been raised through this
shelf registration statement
Management
believes the cash balance amounted to $6,062 thousand as of December 31, 2021, is sufficient to meet its capital needs of the Group for
at least 12 months from the issuance date of these consolidated financial statements. Thus, it is expected that the Company will be able
to operate as a going concern for at least 12 months from the date hereof.
Market
Opportunity
Diabetes
Diabetes
is a chronic, life-threatening disease for which there is no known cure. Diabetes is caused by the body’s inability to produce
or effectively utilize the hormone insulin. This inability prevents the body from adequately regulating blood glucose levels. Glucose,
the primary source of energy for cells, must be maintained at certain concentrations in the blood in order to permit optimal cell function
and health. Normally, the pancreas provides control of blood glucose levels by secreting the hormone insulin to decrease blood glucose
levels when concentrations are too high. In people with diabetes, blood glucose levels fluctuate between very high levels, a condition
known as hyperglycemia, and very low levels, a condition known as hypoglycemia. Hyperglycemia can lead to serious long-term complications,
such as blindness, kidney disease, nervous system disease, amputations, stroke and cardiovascular disease. Hypoglycemia can lead to confusion,
loss of consciousness or death.
Diabetes
is typically classified into two major groups: Type 1 and Type 2. Type 1 diabetes is characterized by the body’s inability to produce
insulin, resulting from destruction of the insulin producing cells of the pancreas. Individuals with Type 1 diabetes must rely on frequent
insulin injections in order to regulate and maintain blood glucose levels. Type 1 diabetes is frequently diagnosed during childhood or
adolescence, although disease onset can occur at any age. Type 2 diabetes, the more common form of diabetes, is characterized by the
body’s inability to either properly utilize insulin or produce enough insulin. Type 2 diabetes is associated with older age, obesity,
family history of diabetes, history of gestational diabetes, impaired glucose metabolism, physical inactivity and race or ethnicity.
Depending on the severity of Type 2 diabetes, individuals may require diet and nutrition management, exercise, oral medications or insulin
injections to regulate blood glucose levels.
According
to the Diabetes Atlas (Ninth Edition) published by the International Diabetes Federation in 2019, approximately 463 million adults worldwide,
between the ages of 20 and 79, or over 9% of the world’s adult population, were estimated to suffer from diabetes in 2019 (not
including those persons who suffer from impaired glucose tolerance or gestational diabetes, diabetic conditions first arising during
pregnancy). The International Diabetes Federation estimates that this number will grow to approximately 700 million adults worldwide
by 2045.
Glucose
Monitoring
Blood
glucose levels can be affected by many factors, including the carbohydrate and fat content of meals, exercise, stress, illness or impending
illness, hormonal releases, variability in insulin absorption and changes in the effects of insulin in the body. Given the many factors
that affect blood glucose levels, maintaining glucose within a normal range can be difficult. Diabetics generally manage their blood
glucose levels by administering insulin or ingesting carbohydrates throughout the day to maintain blood glucose within normal ranges.
Normal ranges in diabetics vary from person to person. In order to maintain blood glucose levels within normal ranges, diabetics must
first measure their blood glucose levels so that they can make the proper therapeutic adjustments. As adjustments are made, additional
blood glucose measurements may be necessary to gauge the individual’s response to the adjustments. More frequent testing of blood
glucose levels provides patients with information that can be used to better understand and manage their diabetes. Testing of blood glucose
levels is usually done before meals, after meals and before going to sleep. Diabetics who take insulin usually need to test more often
than those who do not take insulin.
Clinical
data supports the recommendation that frequent monitoring of blood glucose levels is an important component of effective diabetes management.
The Diabetes Control and Complications Trial1, consisting of patients with Type 2 diabetes, and the 1993 UK Prospective Diabetes
Study2, consisting of patients with Type 2 diabetes, demonstrated that patients who intensely managed blood glucose levels
delayed the onset and slowed the progression of diabetes-related complications. In the Diabetes Control and Complications Trial, a major
component of intensive management was monitoring blood glucose levels at least four times per day using conventional spot finger stick
blood glucose meters. The Diabetes Control and Complications Trial demonstrated that intensive management reduced the risk of complications
by 76% for eye disease, 60% for nerve disease and 50% for kidney disease. Furthermore, a recent meta-analysis of over 25 prospective
studies concluded that chronic hyperglycemia in type 2 diabetes is associated with increased risks of all-cause mortality and cardiovascular
outcomes independently from other conventional risk factors.3 However, despite the evidence that intensive glucose management
reduces the long-term complications associated with diabetes, Karter et al. reported in the 2000 issue of Diabetes Care that 67% of people
with type 2 diabetes fail to routinely monitor their glucose levels.4
Spot
finger stick devices are the most prevalent devices for blood glucose monitoring. These devices require users to insert a strip into
a glucose meter, take a blood sample with a finger stick and place a drop of blood on a test strip that yields a single point in time
blood glucose measurement. Despite continued developments in the field of blood glucose monitors, the routine measurement of glucose
levels remains invasive, painful, inconvenient, difficult and costly. This has resulted in a sub-optimal and irregular measurement regimen
for many diabetics.
1
Group, U. P. D. S. (UKPDS); others Intensive blood-glucose control with sulphonylureas or insulin compared with conventional treatment
and risk of complications in patients with type 2 diabetes (UKPDS 33). The Lancet 1998, 352, 837–853.
2
Diabetes Control and Complications Research Group; others The effect of intensive treatment of diabetes on the development and
progression of long-term complications in insulin-dependent diabetes mellitus. N Engl J Med 1993, 329, 977–986.
3
hang, Y.; Hu, G.; Yuan, Z.; Chen, L. Glycosylated Hemoglobin in Relationship to Cardiovascular Outcomes and Death in Patients with
Type 2 Diabetes: A Systematic Review and Meta-Analysis. PLOS ONE 2012, 7, e42551, doi:10.1371/journal.pone.0042551.
4
Karter, A. J.; Ferrara, A.; Darbinian, J. A.; Ackerson, L. M.; Selby, J. V. Self-monitoring of blood glucose: language and financial
barriers in a managed care population with diabetes. Diabetes Care 2000, 23, 477–483.
The
FDA has approved continuous glucose monitoring system (“CGMS”) devices for blood glucose monitoring, when prescribed by a
doctor. CGMS devices use sensors inserted under the skin to check glucose levels in interstitial fluid. The sensor stays in place for
up to fourteen days and then must be replaced. A transmitter sends information about glucose levels via radio waves from the sensor to
a pager-like wireless monitor. According to the National Institute of Diabetes and Digestive and Kidney Diseases at the National Institutes
of Health, CGMS device users must check blood samples with a conventional glucose meter to calibrate the CGMS devices, and because currently
approved CGMS devices are not as accurate as standard blood glucose meters, users should confirm glucose levels with a conventional glucose
meter when making treatment decisions.
The FDA has previously approved a single non-invasive product for glucose trend analysis, the
GlucoWatch®, so long as the device was used with conventional finger stick glucose monitoring devices. However, the device is no
longer available commercially. We are not aware of any other devices that have been approved for use in either the United Stated or the
EU for spot or continuous non-invasive blood glucose measurement.
We
believe that a significant market opportunity exists for a reliable, inexpensive, non-invasive blood glucose measurement device and that
such a device could greatly increase compliance with blood glucose measurement recommendations and help many diabetics better manage
their disease, providing significant benefits to both patients and payors.
The
Product
Our
first generation non-invasive blood glucose monitor, the GlucoTrack 1.0, utilizes a patented combination of ultrasound, electromagnetic
and thermal technologies to obtain blood glucose measurements in less than one minute via a small sensor that is clipped onto one’s
earlobe and connected to a handheld control and display unit. GlucoTrack 2.0, currently under development, utilizes substantially identical
underlying sensor technology, and is expected to be a completely wireless sensor to be clipped on the earlobe. GlucoTrack eliminates
the handheld unit and will transmit results directly to a user’s smartphone.
We
believe that GlucoTrack addresses the unmet need for more frequent monitoring of blood glucose among people with diabetes by overcoming
two of the most significant challenges facing the market:
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pain,
as GlucoTrack is a truly non-invasive device; and |
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cost,
as we anticipate that the total cost of purchasing a device and purchasing replacement ear clips every six months (anticipated to
be the only recurring cost) over the useful life of the device will be significantly lower than the cost of purchasing single use
glucose sticks over that same period. |
We
believe that the overall costs associated with owning and using a GlucoTrack® device are expected to be substantially lower than
the cost of purchasing and using single use invasive devices over an extended period of time. We intend to seek reimbursement approval
for GlucoTrack® from third-party payors, including government payors (such as the Medicare and Medicaid programs in the United States,
in the event GlucoTrack® is approved for commercial sale in the United States), managed care organizations and other third-party
payors. There can be no assurance that such third party-payors will provide reimbursement coverage for GlucoTrack® or, if so, whether
such reimbursement coverage will be adequate. See “Risk Factors - If GlucoTrack® or our future product candidates, if any,
fail to achieve market acceptance or reimbursement coverage from managed care organizations or third-party payors, we may not be able
to generate significant revenue or achieve or sustain profitability”.
Instead
of directly measuring the glucose level of a user’s blood, as conventional spot finger stick devices do, GlucoTrack® uses a
small, non-invasive sensor that is clipped onto a user’s earlobe to obtain certain body measurements using three technologies.
Within one minute, GlucoTrack® will produce a blood glucose measurement.
Since
the GlucoTrack® non-invasive measurement does not directly measure glucose levels in the blood, but rather measures a series of physiological
characteristics that correlate with glucose levels, each patient must be calibrated by using a reference to a measurement obtained from
an invasive device. Calibration consists of comparing an individual patient’s physiological measurements obtained using GlucoTrack®
to measurements obtained from an invasive device under different circumstances over a defined 30-minute period (three measurements that
require approximately 10 minutes each).
The
three different technologies used by GlucoTrack®, ultrasound, electromagnetic and thermal, simultaneously measure three independent
criteria. These three measurements (criteria) are combined together by a unique (online) algorithm to produce an acceptable measurement
of a user’s blood glucose level.
The
technologies operate as follows:
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Ultrasound:
GlucoTrack® uses ultrasound technology to measure the change of speed of sound through the earlobe, which is impacted by the
glucose concentration in the capillary blood vessels. |
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|
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Electromagnetic:
GlucoTrack’s electromagnetic technology uses a measurement of conductivity to measure the change in tissue impedance, which
is a function of glucose concentration. GlucoTrack’s electromagnetic technology analyzes criteria similar to those analyzed
by conventional invasive devices, such as spot finger stick devices, but does so in a non-invasive manner. |
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|
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Thermal:
GlucoTrack’s thermal technology uses a measurement of heat capacity characteristics of the tissue, which are influenced by
glucose concentration. |
Non-invasive
devices generally require frequent recalibration. The main reasons for calibration are that tissue parameters generally fluctuate in
the area of the measurement and are sensitive to the location of the sensor and the impact of potential disturbances. Disturbances are
less frequent in the earlobes, where GlucoTrack® takes its measurements. Utilizing three channels simultaneously reduces the noise
contribution in the measurement. In addition, the personal ear-clip contains sensors to help users attach the device to the proper part
of the ear lobe. The Notified Body for our CE Mark approval has determined that the initial calibration of the GlucoTrack 1.0 device
is valid for a period of six months which we believe is a significant competitive advantage, while to our knowledge, competing products
require recalibration significantly much more frequently. Therefore, we expect GlucoTrack® will require only an initial calibration
upon use of a new personal ear-clip (to be replaced every six months) and will not require further recalibration.
GlucoTrack®
does not use any optical method (either Infra-Red (IR) or Near Infra-Red (NIR) technology), which we understand are being used by other
developers of non-invasive blood glucose measurement devices. We believe that optical technologies are less reliable than the GlucoTrack’s
combination of ultrasound, electromagnetic and thermal technologies due to inherent physiological limitations with optical technology.
More specifically, optical technology is based on dispersion of a beam that is analyzed by spectrometric methods. As such devices are
non-invasive, the beam passes through other components in the fingertip, such as skin, bone, muscle and fat tissue, which interfere with
the measurements. Generally, most of these interferences have been overcome, but not the epidermis, primarily due to roughness, pigmentation
and perspiration, which act like lenses in optical wavelengths.
Unlike
conventional spot finger stick devices, which require single-use glucose test strips, GlucoTrack® requires no short- term disposables.
We believe that the GlucoTrack’s personal ear-clip will need to be replaced only once every six months, although regulatory authorities
may require that replacement occur more frequently. Since there is no additional cost or pain involved with each blood glucose measurement
using GlucoTrack®, we believe that users of our device would be encouraged to take multiple blood glucose measurements per day, significantly
increasing compliance with blood glucose measurement recommendations and helping diabetics better manage their disease. More frequent
testing of blood glucose levels may provide a patient with information that can be used to determine optimal timing and dosage for corrective
treatments such as insulin, and can also direct a patient to seek a clinical analysis or detailed testing and diagnosis.
We
do not have commercial manufacturing facilities and do not intend to build commercial manufacturing facilities of our own in the foreseeable
future. Our suppliers and their manufacturing facilities must comply with applicable regulations in the jurisdictions in which GlucoTrack®
is to be marketed (including ISO 13485 in the EU), current quality system regulations, which include current good manufacturing practices,
and to the extent laboratory analysis is involved, current good laboratory practices. There can be no assurance that we will be able
to enter into agreements with qualified manufacturers on terms acceptable to us, or at all, or that, once contracted, such manufacturers
will perform as expected.
Furthermore,
the manufacturing of GlucoTrack® may be impacted by the Recast Directive on the Restriction of Hazardous Substances in Electrical
and Electronic Equipment, 2011/65/EU (“RoHS 2”). RoHS 2 is a new EU directive that came into force on July 22, 2014. Like
the MDD, RoHS 2, a recast of Directive 2002/95/EC that will cover electrical and electronic medical devices, is relevant in order to
obtain CE Marking for certain products. RoHS 2 compliance requires medical device manufacturers to: draw up required technical documentation;
conduct an internal control procedure in accordance with Module A of Annex II to Decision No. 768/2008/EC; prepare a Declaration of Conformity;
and affix CE Marking to a finished product. Although these requirements are similar to those of the MDD, RoHS 2 does not require a Notified
Body assessment of compliance. However, if they are not compliant with RoHS 2, medical device manufacturers face the risk of being barred
from selling medical devices in the EU after July 22, 2014.
Sales
& Marketing
We
have a limited number of dedicated sales and marketing personnel, as we intend to collaborate with third parties with established sales
and marketing operations in the medical device industry (such as the distributors described below) to market and sell GlucoTrack®
to point of sale end users and/or local distributors. However, there can be no assurance that we will be able to enter into additional
distribution agreements on terms acceptable to us or at all or that, once contracted, our distributors will perform as expected.
We
are currently in the process of developing our wireless 2.0 model and upon readiness, we intend to conduct clinical trials in the U.S.
for eventual domestic commercialization.
Research
& Development
We
focus significant time and resources on research and development in connection with our efforts to continue to develop, improve and commercialize
GlucoTrack®, as well as in connection with our development of other GlucoTrack® models. Our continuing research and development
activities are primarily focused on software and algorithm improvements intended to improve the accuracy of the device, clinical trials
to test the performance of the GlucoTrack® device when used by children and teenagers between the ages of six and 18, preparation
for future FDA trials, testing new characteristics of the device, development of a new device in the GlucoTrack® family and seeking
to streamline and continue to simplify the calibration process. See “Item 7 – Management’s Discussion and Analysis
of Financial Condition and Results of Operation – Results of Operation” below for a discussion of the research and development
expenses for the fiscal years ended 2021 and 2020.
Our
strategic priorities include the research and development of product enhancements that will improve the ease and usability of GlucoTrack
for patients with a future generation of products. We are focusing our research and development activities around 2 main strategic areas:
The
objective of this project is to transform the existing device into a simple, easy to use wireless ear-clip which would measure glucose
and communicate the results seamlessly to any other platform through a wireless connection or a Bluetooth connection to a smart device
such as a smartphone, tablet or computer, eliminating the current handheld display. The result would be a user-friendly, inconspicuous
measuring device for the management of diabetes and pre-diabetes. We expect this new device to have much greater patient desire to purchase
and user acceptance. We also expect this new device will have a significantly lower cost to manufacture than our current device.
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2. |
Digital
Health Applications |
We
are currently developing smart device applications (“Apps”) to facilitate the interaction of users with Glucotrack® and
the glucose data collected. The Apps will be compatible with both IOS and Android operating systems. We intend to develop Apps that support
the management of Type 2 diabetes and pre-diabetic patients by providing immediate feedback and insights that can be derived from glucose
measurements. Enhanced capabilities within the Apps may include goal setting, alarms and reminders, and diabetes management tips and
tools. It will also be designed to provide analyses of trends over multiple time periods. The goal is to provide relevant information
to guide patients in their journey to change behaviors and improve the management of their condition. The Apps are expected to have a
user-directed capability to connect with third party healthcare providers (physicians, dieticians, and nurse practitioners) in order
to receive professional guidance based on the accumulated information leading to improved management of the condition and better disease
outcomes.
Regulatory
Considerations
Healthcare
is heavily regulated by federal, state and local governments in the United States, and by similar authorities in other countries. Any
product that we develop must receive all relevant regulatory approvals or clearances, as the case may be, before it may be marketed in
a particular country. The laws and regulations affecting healthcare change regularly, thereby increasing the uncertainty and risk associated
with any healthcare- related venture. The United States government has in the past considered, is currently considering and may in the
future consider healthcare policies and proposals intended to curb rising healthcare costs, including those that could significantly
and adversely affect reimbursement for healthcare products such as GlucoTrack® devices. These policies have included, and may in
the future include: basing reimbursement policies and rates on clinical outcomes, the comparative effectiveness and costs of different
treatment technologies and modalities; imposing price controls and taxes on medical device providers; and other measures. Future significant
changes in the healthcare systems in any jurisdiction in which GlucoTrack® or our future products, if any, may be cleared for sale
could also have a negative impact on the demand for the GlucoTrack® or our future products, if any. These include changes that may
reduce reimbursement or payment rates for such products.
In
the United States, the federal government regulates healthcare through various agencies, including but not limited to the following:
(i) the FDA, which administers the Food, Drug, and Cosmetic Act, as well as other relevant laws; (ii) the Centers for Medicare &
Medicaid Services (“CMS”), which administers the Medicare and Medicaid programs; (iii) the Office of Inspector General, which
enforces various laws aimed at curtailing fraudulent or abusive practices including, by way of example, the Anti-Kickback Law, the Anti-Physician
Referral Law, commonly referred to as the Stark Law, the Anti-Inducement Law, the Civil Money Penalty Law, and the laws that authorize
the Office of Inspector General to exclude health care providers and others from participating in federal healthcare programs; and (iv)
the Office of Civil Rights which administers the privacy and security aspects of the Health Insurance Portability and Accountability
Act of 1996 (“HIPAA”). All of the aforementioned are agencies within the Department of Health and Human Services. Healthcare
is also provided or regulated, as the case may be, by the Department of Defense through its TriCare program, the Department of Veterans
Affairs under, among other laws, the Veterans Health Care Act of 1992, the Public Health Service within the Department of Health and
Human Services under the Public Health Service Act, the Department of Justice through the Federal False Claims Act and various criminal
statutes, and state governments under the Medicaid program and their internal laws regulating all healthcare activities. If and when
we receive FDA approval to market GlucoTrack® in the United States, we will be subject to regulation by some or all of the foregoing
agencies.
The
applicable regulatory schemes in the EU are significantly more diverse than those in the United States and do not lend themselves to
similar summary. Although the CE Mark system and the MDD require a minimum level of harmonization in the EU, each EU member country may
impose additional regulatory requirements. Because there are numerous EU member countries with distinct legal systems, the scope of potential
regulatory requirements in each of the EU countries (additional to the harmonized EU requirements) is difficult to summarize or predict.
Regulation
of the Design, Manufacture and Distribution of Medical Devices
Any
product that we develop must receive all relevant regulatory clearances or approvals, as the case may be, before it may be marketed in
a particular country.
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 clearance 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 FDA approval (as described below). These differences may affect the efficiency and timeliness of international
market introduction of GlucoTrack®. For countries in the EU, medical devices must display a CE Mark before they may be imported or
sold and must comply with the requirements of the MDD or the Active Implantable Medical Device Directive. On June 4, 2013, we received
our CE Mark approval for the first generation GlucoTrack® non-invasive glucose monitoring device from the Notified Body. Receipt
of the CE Mark allows us to market and sell the GlucoTrack® 1.0 model glucose monitoring device in EU member countries that have
adopted the MDD without being subject to additional national regulations with regard to demonstration of performance and safety. However,
although the MDD is applicable throughout the EU, in practice it does not ensure uniform regulation throughout the EU. Rather, the MDD
requires only a minimum level of harmonization in the EU. Accordingly, member countries may apply and enforce the MDD’s terms differently,
and certain EU member countries may request or require performance and/or safety data in addition to the MDD’s requirements from
time to time, on a case-by-case basis. The CE Mark also permits the sale in countries that have an MDD Mutual Recognition Agreement with
the EU. On August 31, 2015, we received approval from the Notified Body for improvements to the GlucoTrack® 1.0 model which simplify
and shorten (from approximately 2.5 hours to approximately half an hour) the initial calibration process for the device. These improvements
are intended to reduce the backlog created as purchasers of the device await calibration. In addition, we received approval from the
Notified Body on the updated intended use for the device, which expands the intended user population to include not only Type 2 diabetics,
but persons suffering from pre-diabetes conditions as well, which we believe represents a material expansion of the potential market
for the device. In December 2015, we received approval from the Notified Body for further improvements to the GlucoTrack® model 1.0
that increase the accuracy and efficacy of the device. On February 19, 2016, we received an extension of our ISO 13485:2003 certificate
and Annex II certification from the EU. The ISO 13485:2003 certification signifies that we have met the standards required for company-wide
implementation of device quality management system(s). The scope of the certification is design, development, manufacture and service
of non-invasive glucose monitoring systems for home use. Annex II also addresses quality control systems. The certification allows us
to self-certify certain modifications and changes and simplifies some of the reporting to and review by the relevant Notified Body. This
can shorten CE-mark review process of future GlucoTrack® enhancements or revisions. Without an Annex II certification, each new device
enhancement or modified version would be subject to the full EU CE-mark review process. The ISO 13485:2003 and Annex II certifications
enable us to potentially improve the time to market for product sales on new, enhanced or modified GlucoTrack® devices. On January
21, 2020, the Company announced that it has received CE Mark approval for a major enhancement to GlucoTrack, allowing for a user to perform
the calibration process by themselves, without the need for a certified calibrator. The initial CE Mark approval received for GlucoTrack
required a calibration process that took three hours to complete, required eight invasive finger stick reference measurements, needed
to be repeated every thirty days and required a certified calibrator to perform the calibration. After a series of successful enhancements
and approvals, the calibration process now takes just thirty minutes, requires just three invasive reference measurements, and needs
to be repeated only once every six months. With self-calibration, a user can now perform this simplified process in the privacy and convenience
of their own home.
In
the United States, under Section 201(h) of the Food, Drug, and Cosmetic Act, a medical device is an article which, among other things,
is intended for use in the diagnosis of disease or other conditions or in the cure, mitigation, treatment or prevention of disease in
man or other animals. We believe that GlucoTrack® devices will be classified as medical devices and subject to regulation by numerous
agencies and legislative bodies, including the FDA and its foreign counterparts. Devices are subject to varying levels of regulatory
control, the most comprehensive of which requires that a clinical evaluation be conducted before a device receives approval for commercial
distribution. The FDA classifies medical devices into one of three classes. Class I devices are relatively simple and can be manufactured
and distributed with general controls. Class II devices are somewhat more complex and require greater scrutiny. Class III devices are
new and frequently help sustain life.
In
the United States, a company generally can obtain permission to distribute a new device in two ways – through a so-called “510(k)”
premarket notification application or through a Section 515 premarket approval (“PMA”) application. The 510(k) submission
applies to any device that is substantially equivalent to a device first marketed prior to May 28, 1976 or to another device marketed
after that date, but which was substantially equivalent to a pre-May 28, 1976 device. These devices are either Class I or Class II devices.
Under the 510(k) submission process, the FDA will issue an order finding substantial equivalence to a predicate device (pre-May 28, 1976
or post-May 28, 1976 device that was substantially equivalent to a pre- May 28, 1976 device) and permitting commercial distribution of
that device for its intended use. A 510(k) submission must provide information supporting its claim of substantial equivalence to the
predicate device. The FDA permits certain low risk medical devices to be marketed without requiring the manufacturer to submit a premarket
notification. In other instances, the FDA may require that a premarket notification not only be submitted, but also be accompanied by
clinical data. If clinical data from human experiments are required to support the 510(k) submissions, these data must be gathered in
compliance with investigational device exemption regulations for investigations performed in the United States. The FDA review process
for premarket notifications submitted pursuant to section 510(k) should take about 90 days, but it can take substantially longer if the
FDA has concerns, and there is no guarantee that the FDA will clear the device for marketing, in which case the device cannot be lawfully
distributed in the United States. If the FDA finds that the device subject to the premarket notification is substantially equivalent
to a proper predicate device, then the FDA may “clear” that device for marketing. These devices are not “approved”
by the FDA. There is no guarantee, however, that the FDA will deem the device subject to the 510(k) process, as opposed to the more time-consuming,
resource intensive and problematic PMA application process described below.
The
more comprehensive PMA process applies to a new device that either is not substantially equivalent to a pre-May 28, 1976 product or is
to be used in supporting or sustaining life or preventing impairment. These devices are normally Class III devices and can only be marketed
following approval of a PMA application. For example, most implantable devices are subject to the PMA approval process. Two steps of
FDA approval generally are required before a company can market a product in the U.S. that is subject to Section 515 PMA approval, as
compared to a Section 510(k) clearance. First, a company must comply with investigational device exemption regulations in connection
with any human clinical investigation of the device; however, those regulations permit a company to undertake a clinical study of a “non-significant
risk” device without formal FDA approval. Prior express FDA approval is required if the device is a significant risk device. If
there is any doubt as to whether a device is a “non-significant risk” device, companies normally seek prior approval from
the FDA. Normally, clinical studies of new diagnostic products are conducted in tandem with a cleared or approved device and treatment
decisions are based on the results from the existing diagnostic device. In such a setting, the FDA may consider the clinical trial as
one not posing a significant risk. However, FDA action is always uncertain and dependent on the contours of the design of the clinical
trial and the device and there is no assurance that the FDA would consider any proposed clinical trial as one posing a non-significant
risk. Moreover, before undertaking any clinical trial, the company sponsoring the trial and the investigator conducting the trial are
required by federal law to seek and obtain the approval of institutional review boards (“IRB”). An IRB weighs the risks and
benefits of a proposed trial to ensure that the human subjects are not exposed to unnecessary risk and reviews the informed consent form
to ensure that it meets federal requirements and accurately describes the risks and benefits, if any, of the clinical trial. IRB review
occurs annually, and annual re-approval is required. University medical centers as well as other entities maintain and operate IRB. Second,
the FDA must review a company’s PMA, which contains, among other things, clinical information acquired under the investigational
device exemption. The FDA will approve the PMA if it finds there is reasonable assurance that the device is safe and effective for its
intended use. The premarket approval process takes substantially longer than the 510(k) process.
The
GlucoTrack® 1.0 has not been approved for commercial sale in the United States. The GlucoTrack® 2.0 is still under development
and has not yet been approved for commercial sale in or outside the United States. In discussions with the FDA regarding the regulatory
pathway, the FDA is not yet entirely sure whether a de novo pathway is acceptable and recommended that the Company should plan to support
this approach through risk analysis and an explanation of why the new measurement paradigm it is proposing does not introduce greater
risks. FDA noted that no decision has been made that a PMA will be required.
On
August 10, 2015, we submitted pre-submission documents to the FDA in connection with our proposed future application for FDA approval
of our U.S. clinical trial protocol. The pre-submission documentation was submitted to the FDA in order to obtain the FDA’s guidance
regarding the U.S. regulatory pathway for the GlucoTrack® 1.0, the proper approach to refining the trial protocol, and preparing
the pre-marketing application. On October 19, 2015, we met with the FDA to discuss the pre-submission documents, including the approach
to and details of the clinical trial protocol for the GlucoTrack® 1.0. On May 10, 2016, we submitted a pre-submission supplement
(including clinical trial protocol) to the FDA which modifies the pre-submission documentation to reflect the feedback received from
the FDA at the meeting. On July 18, 2016, we completed a teleconference with the FDA to further discuss our pre-submission supplement.
At the end of this discussion, we received verbal confirmation from the FDA that clinical trials of the GlucoTrack® 1.0 constitute
non-significant risk device studies, which allows the trials to proceed without an Investigational Device Exemption (IDE) application.
Such trials are assessed by the FDA and not considered to present a potential for serious risk to the health, safety or the welfare of
subjects. The initiation of clinical trials in the USA requires adequate financing to fund the clinical program through completion. With
the closing of our recent financing, we have restarted out internal planning for commencing such clinical trials.
Even
when a clinical study has been approved or cleared by the FDA or a notified body or deemed approved, the study is subject to factors
beyond a manufacturer’s control, including, but not limited to the fact that the IRB at a given clinical site might not approve
the study, might decline to renew approval which is required annually, or might suspend or terminate the study before the study has been
completed. Also, the interim results of a study may not be satisfactory, in which case the sponsor may terminate or suspend the study
on its own initiative or the FDA or a notified body may terminate or suspend the study. There is no assurance that a clinical study at
any given site will progress as anticipated; there may be an insufficient number of patients who qualify for the study or who agree to
participate in the study, or the investigator at the site may have priorities other than the study. Also, there can be no assurance that
the clinical study will provide sufficient evidence to assure the FDA or a notified body that the product is safe and effective, a prerequisite
for FDA approval of a PMA, or substantially equivalent in terms of safety and effectiveness to a predicate device, a prerequisite for
clearance under 510(k). Even if the FDA or a notified body approves or clears a device, it may limit its intended uses in such a way
that manufacturing and distributing the device may not be commercially feasible.
After
clearance or approval to market is given, the FDA and foreign regulatory agencies, upon the occurrence of certain events, are authorized
under various circumstances to withdraw the clearance or approval or require changes to a device, its manufacturing process or its labeling
or additional proof that regulatory requirements have been met.
A
manufacturer of a device approved through the PMA process is not permitted to make changes to the device which affects its safety or
effectiveness without first submitting a supplement application to its PMA and obtaining FDA approval for that supplement. In some instances,
the FDA may require clinical trials to support a supplement application. A manufacturer of a device cleared through a 510(k) submission
must submit another premarket notification if it intends to make a change or modification in the device that could significantly affect
the safety or effectiveness of the device, such as a significant change or modification in design, material, chemical composition, energy
source or manufacturing process. Any change in the intended uses of a PMA device or a 510(k) device requires an approval supplement or
cleared premarket notification. Exported devices are subject to the regulatory requirements of each country to which the device is exported,
as well as certain FDA export requirements.
The
Patient Protection and Affordable Care Act was signed into law on March 23, 2010, and on March 30, 2010, a reconciliation bill that modifies
certain provisions of the same was signed into law. These two laws are jointly referred to as the “Affordable Care Act” or
“ACA.”
The
principal aim of the ACA was to expand health insurance coverage to approximately 32 million Americans who were uninsured. The law’s
most far-reaching changes did not take effect until 2014, including a requirement that most Americans carry health insurance. The consequences
of these significant coverage expansions on the sales of our products is still unknown and speculative at this point, although the ACA
and certain state initiatives may compel private insurers to reduce coverage or reimbursement for various items and services, including
medical devices of the type that we contemplate distributing.
This
legislation contains many provisions designed to generate the revenues necessary to fund the coverage expansions. The most relevant of
these provisions are those that impose fees or taxes on certain health-related industries, including medical device manufacturers. Beginning
in 2013, each medical device manufacturer is required to pay an excise tax (or sales tax) in an amount equal to 2.3% of the price for
which such manufacturer sells its medical devices. The tax applies to all medical devices, including our products and product candidates.
The ACA also provides for increased enforcement of the fraud and abuse regulations previously mentioned.
There
are ongoing discussions in the EU regarding amending the relevant regulatory framework. It is difficult to predict what effect any amendments
to the existing EU legislation may have. Furthermore, each individual EU member country has the authority to amend its regulations and
requirements additional to the minimum harmonization required by the MDD. Because the EU member countries have diverse legal systems,
it is difficult to predict what, if any, amendments may be implemented in each of the EU member countries and whether they may adversely
affect us.
We
anticipate that sales volumes and prices of GlucoTrack® and any other products we commercialize will depend in large part on the
availability of reimbursement from third-party payors. Third-party payors include governmental programs such as Medicare and Medicaid,
private insurance plans and workers’ compensation plans. These third-party payors may deny reimbursement for a product or therapy
if they determine that the product was not medically appropriate or necessary. Also, third-party payors are increasingly challenging
the prices charged for medical products and services. Some third-party payors must also approve coverage for new or innovative devices
before they will reimburse health care providers who use the products. Even though a new product may have been cleared for commercial
distribution, it may find limited demand for the device until reimbursement approval has been obtained from governmental and private
third-party payors.
Inasmuch
as a percentage of the projected patient population that could potentially benefit from GlucoTrack® is elderly, Medicare would likely
be a potential source of reimbursement in the United States. Medicare is a federal program that provides certain hospital and medical
insurance benefits to persons age 65 and over, certain disabled persons, persons with end-stage renal disease and those suffering from
Lou Gehrig’s disease. In contrast, Medicaid is a medical assistance program jointly funded by United States federal and state governments
and administered by each state pursuant to which benefits are available to certain indigent patients. The Medicare and Medicaid statutory
framework is subject to administrative rulings, interpretations and discretion that affect the amount and timing of reimbursement made
under Medicare and Medicaid.
Medicare
reimburses for medical devices in a variety of ways depending on where and how the device is used. However, Medicare only provides reimbursement
if CMS determines that the device should be covered and that the use of the device is consistent with the coverage criteria. A coverage
determination can be made at the local level by the Medicare administrative contractor (formerly called carriers and fiscal intermediaries)
or a private contractor that processes and pays claims on behalf of CMS for the geographic area where the services were rendered, or
at the national level by CMS. There are new statutory provisions intended to facilitate coverage determinations for new technologies
under the Medicare Prescription Drug Improvement and Modernization Act of 2003 §731 and §942, but it is unclear how these new
provisions will be implemented. Coverage presupposes that the device has been cleared or approved by the FDA and, further, that the coverage
will be no broader than the approved intended uses of the device (i.e., the device’s label) as cleared or approved by the FDA,
but coverage can be narrower. In that regard, a narrow Medicare coverage determination may undermine the commercial viability of a device.
Obtaining
a coverage determination, whether local or national, is a time-consuming, expensive and highly uncertain proposition, especially for
a new technology, and inconsistent local determinations are possible. On average, according to an industry report, Medicare coverage
determinations for medical devices lag 15 months to five years or more behind FDA approval for respective devices. Moreover, Medicaid
programs and private insurers are frequently influenced by Medicare coverage determinations. A key component in the reimbursement decision
by most private insurers will be whether GlucoTrack® is reimbursed by virtue of a national coverage determination by CMS. We may
negotiate contracted rates for GlucoTrack® with private insurance providers for the purchase of GlucoTrack® by their members
pending a coverage determination by CMS. Our inability to obtain a favorable coverage determination for GlucoTrack® may adversely
affect our ability to market GlucoTrack® and thus, the commercial viability of the product. In international markets, reimbursement
and healthcare payment systems vary significantly by country and many countries have instituted price ceilings on specific product lines.
Distributors expressly support the reimbursement process and, depending on the distribution agreement and geographic area, may assume
responsibility for the process.
We
believe that the overall escalating cost of medical products and services has led to, and will continue to lead to, increased pressures
on the healthcare industry to reduce the costs of products and services. Furthermore, deficit reduction and austerity measures in the
United States and abroad may put further pressure on governments to limit coverage of, and reimbursement for, our products. There can
be no assurance that third-party reimbursement and coverage will be available or adequate, or that future legislation, regulation, or
reimbursement policies of third-party payors will not adversely affect the demand for our products or our ability to sell these products
on a profitable basis. The unavailability or inadequacy of third-party payor coverage or reimbursement could have a material adverse
effect on our business, operating results and financial condition. Until reimbursement or insurance coverage is established, patients
will have to bear the financial cost of GlucoTrack®. Third-party coverage may be particularly difficult to obtain while GlucoTrack®
is not approved by the FDA as a replacement for existing single-point finger stick devices.
Outside
the United States, availability of reimbursement from third parties varies widely from country to country. Within the EU, member countries’
medical reimbursement and healthcare coverage regulations and systems differ significantly. It is, therefore, difficult to analyze and
predict the prospect of consistent availability of adequate reimbursement in the various EU member countries.
Anti-Fraud
and Abuse Rule
There
are extensive United States federal and state laws and regulations prohibiting fraud and abuse in the healthcare industry that can result
in significant criminal and civil penalties that can materially affect us, if and when we receive FDA approval to market GlucoTrack®
in the United States. These federal laws include, by way of example, the following:
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The
anti-kickback statute (Section 1128B(b) of the Social Security Act), which prohibits certain business practices and relationships
that might affect the provision and cost of healthcare services reimbursable under Medicare, Medicaid and other federal healthcare
programs, including the payment or receipt of remuneration for the referral of patients whose care will be paid by Medicare or other
governmental programs; |
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The
physician self-referral prohibition (Ethics in Patient Referral Act of 1989, as amended, commonly referred to as the Stark Law, Section
1877 of the Social Security Act), which prohibits referrals by physicians of Medicare or Medicaid patients to providers of a broad
range of designated healthcare services in which the physicians (or their immediate family members) have ownership interests or with
which they have certain other financial arrangements; |
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The
anti-inducement provisions of the Civil Monetary Penalties Law (Section 1128A(a)(5) of the Social Security Act), which prohibit providers
from offering anything to a Medicare or Medicaid beneficiary to induce that beneficiary to use items or services covered by either
program; |
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The
False Claims Act (31 U.S.C. § 3729 et seq.), which prohibits any person from knowingly presenting or causing to be presented
false or fraudulent claims for payment to the federal government (including the Medicare and Medicaid programs); and |
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The
Civil Monetary Penalties Law (Section 1128A of the Social Security Act), which authorizes the United States Department of Health
and Human Services to impose civil penalties administratively for fraudulent or abusive acts. |
Sanctions
for violating these federal laws include criminal and civil penalties that range from punitive sanctions, damage assessments, monetary
penalties, imprisonment and/or denial of Medicare and Medicaid payments or exclusion from the Medicare and Medicaid programs, or both.
These laws also impose an affirmative duty on those receiving Medicare or Medicaid funding to ensure that they do not employ or contract
with persons excluded from the Medicare and other government programs.
Many
states have adopted or are considering legislative proposals similar to the federal fraud and abuse laws, some of which extend beyond
the Medicare and Medicaid programs, to prohibit the payment or receipt of remuneration for the referral of patients and physician self-referrals
regardless of whether the service was reimbursed by Medicare or Medicaid. Many states have also adopted or are considering legislative
proposals to increase patient protections, such as limiting the use and disclosure of patient specific health information. These state
laws also impose criminal and civil penalties similar to the federal laws.
Similarly,
the EU and EU member countries may have similar fraud and abuse laws which would regulate our business in those jurisdictions. However,
given the diversity of legal systems within the EU, it is difficult to predict with specificity what anti-fraud legislation and regulations
may be implemented and the penalties that they impose.
In
the ordinary course of their business, medical device manufacturers and suppliers have been and are subject regularly to inquiries, investigations
and audits by federal and state agencies that oversee these laws and regulations. Recent federal and state legislation has greatly increased
funding for investigations and enforcement actions, which have increased dramatically over the past several years. This trend is expected
to continue. Private enforcement of healthcare fraud also has increased due in large part to amendments to the civil False Claims Act
in 1986 that were designed to encourage private persons to sue on behalf of the government. These whistleblower suits by private persons,
known as qui tam relators, may be filed by almost anyone, including present and former patients or nurses and other employees, as well
as competitors. HIPAA, in addition to its privacy provisions, created a series of new healthcare-related crimes.
As
federal and state budget pressures continue, federal and state administrative agencies may also continue to escalate investigation and
enforcement efforts to root out waste and to control fraud and abuse in governmental healthcare programs. A violation of any of these
federal and state fraud and abuse laws and regulations could have a material adverse effect on a supplier’s liquidity and financial
condition. An investigation into the use of a device by physicians may dissuade physicians from recommending that their patients use
the device. This could have a material adverse effect on our ability to commercialize GlucoTrack®.
The
Privacy Provisions of HIPAA
In
the United States, HIPAA, among other things, protects the privacy and security of individually identifiable health information by limiting
its use and disclosure. HIPAA directly regulates “covered entities,” such as healthcare providers, insurers and clearinghouses,
and regulates “business associates,” with respect to the privacy of patients’ medical information. All entities that
receive and process protected health information are required to adopt certain procedures to safeguard the security of that information.
It is uncertain whether we would be deemed to be a covered entity under HIPAA and, owing to changes in the law, it is uncertain, based
on our current business model, whether we would be a business associate. Nevertheless, we will likely be contractually required to physically
safeguard the integrity and security of any patient information that we receive, store, create or transmit in the United States. If we
fail to adhere to our contractual commitments, then our physician, hospital or insurance customers may be subject to civil monetary penalties,
which could adversely affect our ability to market our devices. Changes in the law wrought by the provisions of Health Information Technology
for Economic and Clinical Health (HITECH) Act, enacted as part of the American Recovery and Reinvestment Act of 2009, increase the duties
of business associates and covered entities with respect to protected health information that thereby subject them to direct government
regulation, increasing its compliance costs and exposure to civil monetary penalties and other government sanctions. While HITECH does
not alter the definition of a business associate, it makes it more likely that covered entities with whom we are likely to do business
in the United States, if and when we receive FDA approval to market GlucoTrack® in the United States, will require us to enter into
business associate agreements.
Intellectual
Property
We
maintain a proactive intellectual property strategy, which includes patent filings in multiple jurisdictions, including the United States
and other commercially significant markets. We currently hold 59 issued patents in various regions including patents issued by the United
States, Australian, Brazilian, Canadian, Chinese, European, Hong Kong, Indian, Israeli, Japanese, Korean, Mexican, Philippine, Russian,
South African, and Taiwanese patent offices that cover various parts of our technology, which include A Method Of Monitoring Glucose
Levels, Device For Non-Invasively Measuring Glucose, Individual Measuring Channels For Non-Invasively Measuring Glucose, Ear Clip For
Medical Monitoring Device.
We
understand the importance of obtaining patent and trade secret protection for new technologies, products and processes. Our success will
depend in large part on our ability to file for and obtain patent protection of our principal products and procedures, to defend existing
or future patents, to maintain trade secrets and to operate without infringing upon the proprietary rights of others.
We
have obtained trademark registrations for GlucoTrack® in 24 countries, including the US, Europe, China and Israel, and also own an
allowed trademark applications for GlucoTrack® in Canada. Trademark registrations were issued in ten countries for “JUST CLIP
IT,” including France and China, and additional applications are pending in three countries, including the United States. In addition,
trademark registrations were issued in seven countries for “YOUR TRACK TO HEALTH,” including France and China, and additional
applications are pending in three countries, including the United States. Trademark registrations have been issued in Israel to register
“Integrity,” the Company’s logo and the GlucoTrack logo. Registration have issued in Hong Kong and Taiwan and are pending
in China and Singapore to register GlucoTrack in Chinese characters. Our application in South Korea to register GlucoTrack in Korean
characters has been allowed.
We
believe that our patents and products do not and will not infringe patents or violate proprietary rights of others, although it is possible
that our existing patent rights may not be valid or that infringement of existing or future patents or proprietary rights may occur.
Litigation may be necessary to defend or enforce our patent rights or to determine the scope and validity of the proprietary rights of
others. Defense and enforcement of patent claims can be expensive and time consuming, even in those instances in which the outcome is
favorable, and could result in the diversion of substantial resources and management time and attention from our other activities. An
adverse outcome could subject us to significant liability to third parties, require us to obtain licenses from third parties, require
us to alter our products or processes, or require that we cease altogether any related research and development activities or product
sales.
Patent
protection is highly uncertain and involves complex legal and factual questions and issues. The patent application and issuance process
can be expected to take several years and entails considerable expense. There can be no assurance that patents will be issued as a result
of any applications or that any patents resulting from such applications or our existing patents will be sufficiently broad to afford
protection against competitors with similar or competing technology. Patents that we obtain may be challenged, invalidated or circumvented,
or the rights granted under such patents may not provide us with any competitive advantages.
Competition
The
market for blood glucose monitoring devices is intensely competitive, subject to rapid change and significantly affected by new product
introductions. Four companies, Roche; LifeScan, Inc., a division of Johnson & Johnson; Abbott Laboratories; and Ascensia, a spin
off from the Bayer Corporation, currently account for substantially all of the worldwide sales of self-monitored glucose testing systems.
These competitors’ products use a meter and disposable test strips to test blood obtained by pricking the finger or, in some cases,
the palm or forearm.
Within
the last few years, Continuous Glucose Monitoring (CGM) devices have been introduced into the market and will compete with GlucoTrack®
and our future devices. Currently, to our knowledge, three different brands have obtained FDA clearance to market and are selling CGM
devices in the U.S. and EU markets. These brands are sold by Medtronic plc. Abbott Laboratories and Dexcom, Inc. CGM devices are invasive
devices, in which a needle is inserted under the skin (either in the abdomen or the upper arm) and measures interstitial fluid. Although
we cannot predict what standards will be employed by applicable regulatory authorities as we seek FDA clearance, the results achieved
by GlucoTrack® 1.0 in our safety and performance clinical trial conducted were similar to the results obtained from the CGM devices
that have been introduced to the market, as of the time of their introduction.
In
addition, other companies are developing non-invasive glucose testing devices and technologies that could compete with our devices. There
are also a number of academic and other institutions involved in various phases of technology development regarding blood glucose monitoring
devices. We believe that the majority of non-invasive glucose monitors in development require frequent calibrations (from a few hours
to a few days, compared to the GlucoTrack® 1.0, which has a demonstrated efficacy period of six months from the initial calibration).
Other companies developing continuous measurement devices, based on minimally invasive methods, such as implants or subdermal needles
include Medtronic, Inc., Abbot Laboratories and Dexcom, Inc.
Some
of our competitors are either publicly traded or are divisions of publicly-traded companies, and they enjoy several competitive advantages,
including:
| |
● |
significantly
greater name recognition; |
| |
|
|
| |
● |
established
relations with healthcare professionals, customers and third-party payors; |
| |
|
|
| |
● |
established
distribution networks; |
| |
|
|
| |
● |
additional
lines of products, and the ability to offer rebates or bundle products to offer higher discounts or incentives to gain a competitive
advantage; |
| |
|
|
| |
● |
greater
experience in conducting research and development, manufacturing, clinical trials, obtaining regulatory approval for products and
marketing approved products; and |
| |
|
|
| |
● |
greater
financial and human resources for product development, sales and marketing, and patent litigation. |
Some
of our other non-publicly traded competitors also enjoy these competitive advantages. As a result, we cannot assure that we will be able
to compete effectively against these companies or their products.
To
our knowledge, a summary of potential competitors with non-invasive products in development is set forth below in Figure A.
Figure
A
| Company |
|
Product |
|
Technology |
|
Calibration
Required |
|
Measurement
Type |
|
Technology
Description |
| Mediwise |
|
Glucowise |
|
Radiowave
spectroscopy |
|
Yes |
|
Spot |
|
Measures
blood glucose in capillaries using high- frequency radio waves. Includes a wearable sensor and displays the data on smartphone.
Integrates
a range of measurements including exercise, diet, body mass index, medication and illness and includes cloud-based data management
system to store historical Glucowise data. |
| |
|
|
|
|
|
|
|
|
|
|
| Cnoga |
|
TensorTip
CGM
Combo
Glucometer |
|
Optical
lookup
table |
|
Yes |
|
Spot |
|
Four
LED signals are beamed through the finger; color image sensor executes a special algorithm |
| Diamontech |
|
DMT
Pocket/
DMT Band |
|
Mid-infrared
absorption spectroscopy |
|
Yes |
|
Spot |
|
Uses
mid-infrared pulses from an infrared laser to excite glucose molecules in the interstitial layer of skin. Absorption of these pulses
depends on the concentration of glucose and results in a heat wave migrating to the skin surface, where it is picked up by photo-thermal
detection. |
| |
|
|
|
|
|
|
|
|
|
|
| ESER |
|
GlucoGenius |
|
Metabolic
heat confirmation (MHC) |
|
Yes |
|
Spot |
|
Combination
of 9 independent measurements that are performed simultaneously and based on method of metabolic heat conformation (MHC) by radiation,
convection and evaporation with electromagnetic technologies. The device integrates 3 types of sensors: temperature, humidity and
infrared. |
| |
|
|
|
|
|
|
|
|
|
|
| GlucoActive |
|
Gluco Station |
|
Optical |
|
Yes |
|
Spot |
|
Using spectrophotometry to measure the scattering of
light by glucose molecules to determine glucose concentration. |
GlucoTrack®
does not directly measure the glucose level concentration in the blood. Rather, it measures several physiological phenomena that are
correlated with the glucose level. In order to correlate between the measured signal and the glucose level, a translation is needed.
This translation is accomplished through the individual calibration of the device by reference to a measurement obtained from an invasive
device.
Non-invasive
devices under different stages of development generally require frequent recalibration. For example, GlucoWatch, a single non-invasive
product for glucose trend analysis that was previously approved for sale by the FDA, but which is no longer available commercially, required
recalibrations approximately every 13 hours. The main reasons for calibration are that tissue parameters generally fluctuate in the area
of the measurement and are sensitive to the location of the sensor and the impact of potential disturbances. Disturbances are less frequent
in the earlobes, where GlucoTrack® takes its measurements. Utilizing three channels simultaneously reduces the noise contribution
in the measurement. In addition, the personal ear clip contains sensors to help users attach the device to the proper part of the ear
lobe.
GlucoTrack®
1.0 has received CE Mark approval, which allows us to market and sell GlucoTrack® 1.0 glucose monitoring device in EU member countries
that have adopted the MDD without being subject to additional national regulations with regard to demonstration of performance and safety.
While the MDD is applicable throughout the EU, it requires only a minimum level of harmonization among member countries. Accordingly,
member countries may apply and enforce the MDD’s terms differently, and certain EU member countries may request or require performance
and/or safety data additional to the MDD’s requirements from time to time, on a case-by-case basis. Moreover, the MDD notwithstanding,
because the regulatory regimes of the EU member countries are significantly diverse, it is difficult to predict future regulatory developments
and risks. GlucoTrack® 1.0 has not yet been cleared or approved for commercial sale in any other jurisdiction, including the United
States. See “Government Regulation - Regulation of the Design, Manufacture and Distribution of Medical Devices” below
for a discussion of the approval process for commercial sale in the United States. There can be no assurance that approval for commercial
sale in any additional jurisdiction will be obtained on a timely basis or at all. GlucoTrack 2.0 is currently under development.
Corporate
Information
Our
principal offices are located at 8 Ariel Sharon Street, P.O. Box 6037607, Or Yehuda, Israel, 7760049 and our telephone number is 972-8-675-7878.
Our website address is http://www.integrity-app.com; the reference to such website address does not constitute incorporation by reference
of the information contained on the website and such information should not be considered part of this report. There is no relationship
between us and Integrity Applications, Incorporated, the engineering and software services company based in Chantilly, Virginia.
Board
and Committees
We
have five members on our Board, four of whom are independent. The Board has an Audit Committee and a Compensation Committee and Nominating
and Corporate Governance Committee, the Audit consisting solely of independent directors. We are continuing to consider expansion of
the Board and the establishment of additional appropriate Board committees to support the Company.
Employees
As
of December 31, 2021, we had 5 full-time employees. None of our employees are represented by a collective bargaining agreement.
In addition, as of December 31, 2021, we had 5 consultants.
Item
1A. Risk Factors.
An
investment in our common stock involves a high degree of risk. Before making an investment decision, you should carefully consider the
following risk factors. If any of these risks actually occur, our business, financial condition and results of operations could be materially
harmed. In addition, risks and uncertainties not presently known to us or that we currently deem immaterial may also materially harm
our business, financial condition and results of operations. If this were to happen, the value of our common stock could decline significantly,
and you could lose all or part of your investment.
We
have a history of operating losses, and there is no assurance that we will generate material revenues or become profitable in the near
future.
We
are a medical device company with a limited operating history. We are not profitable and have incurred losses since our inception. To
date we have not generated material revenue from the sale of products, and we do not anticipate that we will report operating income
in the near future. Our initial product, GlucoTrack® 1.0, has not been approved for marketing in the United States and may not be
sold or marketed without FDA clearance or approval in the United States. Our next generation product, GlucoTrack® 2.0 is currently
under development. We continue to incur research and development and
selling, marketing and general and administrative expenses related to our operations, development and commercialization of our first
product. Our operating losses for the years ended December 31, 2021 and 2020 were approximately $4.0 million and $3.1 million,
respectively, and we had an accumulated deficit of approximately $97.5 million as of December 31, 2021. We expect to continue
to incur losses for the foreseeable future, and these losses will likely increase as we develop and prepare to commercialize GlucoTrack®
2.0. If we are not successful in developing, manufacturing and distributing GlucoTrack® 2.0, or if GlucoTrack® 2.0 does not achieve
market acceptance, we may never become profitable. Even if we achieve profitability in the future, we may not be able to sustain profitability
in subsequent periods.
We
have never declared or paid any cash dividends on our Common Stock and do not anticipate paying any dividends on our Common Stock in
the foreseeable future.
We
have never declared or paid any cash dividends on our Common Stock and do not anticipate paying any dividends on our Common Stock in
the foreseeable future. Any cash that might be available for payment of dividends will be used to expand our business. Payments of any
cash dividends in the future will depend on our financial condition, results of operation and capital requirements, as well as other
factors deemed relevant to our Board of Directors.
Economic
crises and market instability may materially and adversely affect the demand for our products, as well as our ability to obtain credit
or secure funds through sales of our stock, which may materially and adversely affect our business, financial condition and ability to
fund our operations.
Economic
crises may reduce the demand for new and innovative medical devices, resulting in delayed market acceptance of our products, if and when
they are approved. Such a delay could have a material adverse impact on our business, expected cash flows, results of operations and
financial condition. Additionally, we have funded our operations to date primarily through private sales of securities, including common
stock and other securities convertible into or exercisable for shares of our common stock. Economic turmoil and instability in the world’s
equity and credit markets and in the unstable world may materially adversely affect our ability to sell additional securities and/or
borrow cash. There can be no assurance that we will be able to raise additional working capital on acceptable terms or at all, and any
failure to do so may materially adversely affect our ability to continue operations.
GlucoTrack®
may not be approved for sale in the United States or other (non-CE Mark) jurisdictions.
We
will likely be required to undertake significant clinical trials to demonstrate to the FDA that GlucoTrack® is either safe and effective
for its intended use or is substantially equivalent in terms of safety and effectiveness to an existing, lawfully marketed non-Section
515 premarket approval (PMA) device (refer to “Management Discussion and Analysis - Government Regulatory”). We may
also be required to undertake clinical trials by non-U.S. regulatory agencies in non-CE Mark jurisdictions. Clinical trials are expensive
and uncertain processes that may take years to complete. Failure can occur at any point in the process and early positive results do
not ensure that the entire clinical trial will be successful. Product candidates in clinical trials may fail to show desired efficacy
and safety traits despite early promising results. A number of companies in the medical device industry have suffered significant setbacks
in advanced clinical trials, even after their product candidates demonstrated promising results at earlier points.
Positive
results from the limited pre-clinical trials and safety and performance clinical trial that we have conducted should not be relied upon
as evidence that later-stage or large-scale clinical trials will succeed. These trials involved limited patient populations and there
is no assurance that the experimental protocol or protocols, as the case may be, used in these informal trials will be methodologically
similar to ones submitted to the FDA or any other regulatory body for its approval. Because of the sample size, possible variation in
methodology, differences in exclusion/inclusion criteria, or differences in endpoints, the results of these pre-clinical trials may not
be indicative of future results. We will likely be required to demonstrate through well-controlled clinical trials that GlucoTrack®
or future product candidates, if any, are safe and effective for their intended uses. In the event that the FDA deems GlucoTrack®
to be a Class II device, which we do not believe is likely at this point, then we would be required to demonstrate that it is substantially
equivalent in terms of safety and effectiveness to a device lawfully marketed either through a premarket notification or prior to May
28, 1976.
Additionally,
although we have received our CE Mark approval for GlucoTrack® 1.0, EU member countries may request or require additional performance
and/or safety data from time to time, on a case-by-case basis. GlucoTrack® 2.0 is currently under development.
Further,
GlucoTrack® or our future product candidates, if any, may not be cleared or approved, as the case may be, even if the clinical data
are satisfactory and support, in our view, its or their clearance or approval. The FDA or other non-U.S. regulatory authorities may disagree
with our trial design or interpretation of the clinical data. In addition, any of these regulatory authorities may change requirements
for the clearance or approval of a product candidate even after reviewing and providing comment on a protocol for a pivotal clinical
trial that has the potential to result in FDA approval. In addition, any of these regulatory authorities may also clear or approve a
product candidate for fewer or more limited uses than we request or may grant clearance or approval contingent on the performance of
costly post-marketing clinical trials. In addition, the FDA or other non-regulatory authorities may not approve the labeling claims necessary
or desirable for the successful commercialization of GlucoTrack® or our future product candidates, if any.
We
are highly dependent on the success of our next generation product candidate, GlucoTrack® 2.0, and cannot give any assurance that
it will receive regulatory approval or clearance or be successfully commercialized.
We
are highly dependent on the success of our next generation product candidate, GlucoTrack® model 2.0. We cannot give any assurance
that the FDA will permit us to clinically test the device, nor can we give any assurance that the clinical trials will be successful
or that GlucoTrack® 2.0 will receive regulatory clearance or approval or be successfully commercialized, for a number of reasons,
including, without limitation, the potential introduction by our competitors of more clinically-effective or cost-effective alternatives,
failure in our sales and marketing efforts, or the failure to obtain positive coverage determinations or reimbursement. Any failure to
obtain approval to conduct clinical trials, favorable clinical data, clearance or approval of or to successfully commercialize GlucoTrack®
2.0 would have a material adverse effect on our business.
If
our competitors develop and market products that are more effective, safer or less expensive than GlucoTrack® or our future product
candidates, if any, our commercial opportunities will be adversely affected.
The
life sciences industry is highly competitive and we face significant competition from many medical device companies that are researching
and marketing products designed to address the needs of persons suffering from diabetes. We are currently developing medical devices
that will compete with other medical devices that currently exist or are being developed. Some of our competitors have significantly
greater financial, manufacturing, marketing and product development resources than we do. Large medical device companies, in particular,
have extensive experience in clinical testing and in obtaining regulatory clearances or approvals for medical devices. These companies
also have significantly greater research and marketing capabilities than us. Some of the medical device companies that we expect to compete
with include Roche; LifeScan, Inc., a division of Johnson & Johnson; the MediSense and TheraSense divisions of Abbott Laboratories;
Ascensia, a spin off from Bayer Corporation; Dexcom, Inc. and Medtronic, Inc. In addition, many other universities and private and public
research institutions are or may become active in research involving blood glucose measurement devices.
We
believe that our ability to successfully compete will depend on, among other things:
| |
● |
our
ability to have partners manufacture and sell commercial quantities of any approved products to the market; |
| |
|
|
| |
● |
acceptance
of product candidates by physicians and other health care providers; |
| |
|
|
| |
● |
the
results of our clinical trials; |
| |
|
|
| |
● |
our
ability to recruit and enroll patients for our clinical trials; |
| |
|
|
| |
● |
the
efficacy, safety, performance and reliability of our product candidates; |
| |
|
|
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● |
the
speed at which we develop product candidates; |
| |
|
|
| |
● |
our
ability to obtain prompt and favorable IRB review and approval at each of our clinical sites; |
| |
|
|
| |
● |
our
ability to commercialize and market any of our product candidates that may receive regulatory clearance or approval; |
| |
|
|
| |
● |
our
ability to design and successfully execute appropriate clinical trials; |
| |
|
|
| |
● |
the
timing and scope of regulatory clearances or approvals; |
| |
|
|
| |
● |
appropriate
coverage and adequate levels of reimbursement under private and governmental health insurance plans, including Medicare; and |
| |
|
|
| |
● |
our
ability to protect intellectual property rights related to our products. |
If
our competitors market products that are more effective, safer, easier to use or less expensive than GlucoTrack® or our future product
candidates, if any, or that reach the market sooner than GlucoTrack® or our future product candidates, if any, we may not achieve
commercial success. In addition, the medical device industry is characterized by rapid technological change. It may be difficult for
us to stay abreast of the rapid changes in each technology. If we fail to stay at the forefront of technological change, we may be unable
to compete effectively. Technological advances or products developed by our competitors may render our technologies or product candidates
obsolete or less competitive.
Our
product development activities could be delayed or stopped.
We
do not know whether our future clinical trials will begin on time, or at all, and whether ongoing and/or future clinical trials will
be completed on schedule, or at all.
The
commencement of future clinical trials could be substantially delayed or prevented by several factors, including:
| |
● |
the
failure to obtain sufficient funding to pay for all necessary clinical trials; |
| |
|
|
| |
● |
limited
number of, and competition for, suitable patients that meet the protocol’s inclusion criteria and do not meet any of the exclusion
criteria; |
| |
|
|
| |
● |
limited
number of, and competition for, suitable sites to conduct the clinical trials, and delay or failure to obtain FDA approval, if necessary,
to commence a clinical trial; |
| |
|
|
| |
● |
delay
or failure to obtain sufficient supplies of the product candidate for clinical trials; |
| |
|
|
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● |
requirements
to provide the medical device required in clinical trials at cost, which may require significant expenditures that we are unable
or unwilling to make; |
| |
|
|
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● |
delay
or failure to reach agreement on acceptable clinical trial agreement terms or clinical trial protocols with prospective sites or
investigators; and |
| |
|
|
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● |
delay
or failure to obtain IRB approval or renewal of such approval to conduct a clinical trial at a prospective or accruing site, respectively. |
The
completion of clinical trials in connection with our application for FDA approval could also be substantially delayed or prevented by
several factors, including:
| |
● |
slower
than expected rates of patient recruitment and enrollment; |
| |
|
|
| |
● |
failure
of patients to complete the clinical trial; |
| |
|
|
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● |
unforeseen
safety issues; |
| |
|
|
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● |
lack
of efficacy evidenced during clinical trials; |
| |
|
|
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● |
termination
of clinical trials by one or more clinical trial sites; |
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|
|
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● |
inability
or unwillingness of patients or medical investigators to follow clinical trial protocols; and |
| |
|
|
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● |
inability
to monitor patients adequately during or after treatment. |
Our
clinical trials may be suspended or terminated at any time by the FDA, other regulatory authorities, the IRB for any given site, or us.
Any failure or significant delay in completing clinical trials for GlucoTrack® or future product candidates, if any, could materially
harm our financial results and the commercial prospects for our product candidates.
The
regulatory approval process is expensive, time-consuming and uncertain and may prevent us from obtaining approvals for the commercialization
of GlucoTrack® or our future product candidates, if any.
The
research, testing, manufacturing, labeling, approval, selling, marketing and distribution of medical devices are subject to extensive
regulation by the FDA and other non-U.S. regulatory authorities, which regulations differ from country to country. We are not permitted
to market our product candidates in the United States until we receive a clearance letter under the 510(k)-premarket notification process
or approval of a Section 515 premarket approval, from the FDA, depending on the nature of the device. We have not submitted an application
or premarket notification for or received marketing clearance or approval for any of our product candidates. Obtaining approval of any
premarket approval can be a lengthy, expensive and uncertain process. While the FDA normally reviews, and clears a premarket notification
in three months, there is no guarantee that our products will qualify for this more expeditious regulatory process, which is reserved
for Class I and II devices, nor is there any assurance that, even if a device is reviewed under the 510(k)-premarket notification process,
the FDA will review it expeditiously or determine that the device is substantially equivalent to a lawfully marketed non-premarket approval
device. If the FDA fails to make this finding, then we cannot market the device. In lieu of acting on a premarket notification, the FDA
may seek additional information or additional data which would further delay our ability to market the product. In addition, failure
to comply with FDA, non-U.S. regulatory authorities or other applicable U.S. and non-U.S. regulatory requirements may, either before
or after product clearance or approval, if any, subject us to administrative or judicially imposed sanctions, including:
| |
● |
restrictions
on the products, manufacturers or manufacturing process; |
| |
|
|
| |
● |
adverse
inspectional observations (Form 483), warning letters or non-warning letters incorporating inspectional observations, i.e., so-called
“untitled letter”; |
| |
|
|
| |
● |
civil
and criminal penalties; |
| |
|
|
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● |
injunctions; |
| |
|
|
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● |
suspension
or withdrawal of regulatory clearances or approvals; |
| |
|
|
| |
● |
product
seizures, detentions or import bans; |
| |
|
|
| |
● |
voluntary
or mandatory product recalls and publicity requirements; |
| |
|
|
| |
● |
total
or partial suspension of production; |
| |
|
|
| |
● |
imposition
of restrictions on operations, including costly new manufacturing requirements; and |
| |
|
|
| |
● |
refusal
to clear or approve pending applications or premarket notifications. |
Regulatory
approval of a PMA or PMA supplement or clearance pursuant to a 510(k)-premarket notification is not guaranteed, and the approval or clearance
process, as the case may be, is expensive and may, especially in the case of the PMA, take several years. The FDA also has substantial
discretion in the medical device clearance or approval processes. Despite the time and expense exerted, failure can occur at any stage
and we could encounter problems that cause us to abandon clinical trials or to repeat or perform additional pre-clinical studies and
clinical trials. The number of pre-clinical studies and clinical trials that will be required for FDA clearance or approval varies depending
on the medical device candidate, the disease or condition that the medical device candidate is designed to address, and the regulations
applicable to any particular medical device candidate. The FDA can delay, limit or deny clearance or approval of a medical device candidate
for many reasons, including:
| |
● |
a
medical device candidate may not be deemed safe or effective, in the case of a PMA; |
| |
|
|
| |
● |
a
medical device candidate may not be deemed to be substantially equivalent to a lawfully marketed non-premarket approval device in
the case of a 510(k)-premarket notification; |
| |
|
|
| |
● |
FDA
officials may not find the data from the clinical trials sufficient; |
| |
|
|
| |
● |
the
FDA might not approve our third-party manufacturer’s processes or facilities; or |
| |
|
|
| |
● |
the
FDA may change its clearance or approval policies or adopt new regulations. |
Further,
while we have received CE Mark approval for GlucoTrack® 1.0, the MDD requires only minimum harmonization. In practice, uniform regulation
throughout the EU is not ensured. Rather, member countries may apply and enforce the MDD’s terms differently, and certain EU member
countries may request or require performance and/or safety data additional to the MDD’s requirements from time to time, on a case-by-case
basis. Therefore, we cannot predict whether we will be able to successfully commercialize GlucoTrack® or our future product candidates,
if any, in the EU.
Failure
to recruit and enroll patients for clinical trials may cause the development of our product candidates to be delayed.
We
may encounter delays if we are unable to recruit and enroll and retain enough patients to complete clinical trials. Patient enrollment
depends on many factors, including the size of the patient population, the nature of the protocol, the proximity of patients to clinical
sites and the eligibility criteria for the trial. Delays in patient enrollment are not unusual. Any such delays in planned patient enrollment
may result in increased costs, which could harm our ability to develop products.
The
terms of clearances or approvals and ongoing regulation of our products may limit how we manufacture and market our product candidates,
which could materially impair our ability to generate anticipated revenues.
Once
regulatory clearance or approval has been granted, the cleared or approved product and its manufacturer are subject to continual review.
Any cleared or approved product may only be promoted for its indicated uses. In addition, if the FDA or other non-U.S. regulatory authorities
clear or approve GlucoTrack® or our future product candidates, if any, the labeling, packaging, adverse event reporting, storage,
advertising and promotion for the product will be subject to extensive regulatory requirements. We, and the manufacturers of our products,
if other than us, also will be required to comply with the FDA’s Quality System Regulation, which includes requirements relating
to quality control and quality assurance, as well as the corresponding maintenance of records and documentation. Moreover, device manufacturers
are required to report adverse events by filing Medical Device Reports with the FDA, which are publicly available. Further, regulatory
agencies must approve our manufacturing facilities before they can be used to manufacture products, and these facilities are subject
to ongoing regulatory inspection. If we fail to comply with the regulatory requirements of the FDA and other non-U.S. regulatory authorities,
or if previously unknown problems with our products, manufacturers or manufacturing processes are discovered, we could be subject to
administrative or judicially imposed sanctions, including:
| |
● |
restrictions
on the products, manufacturers or manufacturing process; |
| |
|
|
| |
● |
adverse
inspectional observations (Form 483), warning letters, or non-warning letters incorporating inspectional observations; |
| |
|
|
| |
● |
civil
or criminal penalties or fines; |
| |
|
|
| |
● |
injunctions; |
| |
|
|
| |
● |
product
seizures, detentions or import bans; |
| |
|
|
| |
● |
voluntary
or mandatory product recalls and publicity requirements; |
| |
|
|
| |
● |
suspension
or withdrawal of regulatory clearances or approvals; |
| |
|
|
| |
● |
total
or partial suspension of production; |
| |
|
|
| |
● |
imposition
of restrictions on operations, including costly new manufacturing requirements; and |
| |
|
|
| |
● |
refusal
to clear or approve pending applications or premarket notifications. |
In
addition, the FDA and other non-U.S. regulatory authorities, including the EU and each of the EU member countries individually, may change
their policies and additional regulations may be enacted that could prevent or delay regulatory clearance or approval of our product
candidates. 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 not able to maintain regulatory compliance, we will likely not be permitted
to market future product candidates and may not achieve or sustain profitability.
Even
if we receive regulatory clearance or approval to market GlucoTrack® or our future product candidates, if any, the market may not
be receptive to our products.
Even
if GlucoTrack® or our future product candidates, if any, obtain regulatory clearance or approval, resulting products may not gain
market acceptance among physicians, patients, health care payors or the medical community. We believe that the degree of market acceptance
will depend on a number of factors, including:
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timing
of market introduction of competitive products; |
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safety
and efficacy of our product; |
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prevalence
and severity of any side effects; |
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potential
advantages or disadvantages over alternative treatments; |
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strength
of marketing and distribution support; |
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price
of our product candidates, both in absolute terms and relative to alternative treatments; and |
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availability
of coverage and reimbursement from government and other third-party payors. |
If
the GlucoTrack® or our future product candidates, if any, fail to achieve market acceptance, we may not be able to generate significant
revenue or achieve or sustain profitability.
The
coverage and reimbursement status of newly cleared or approved medical devices is uncertain, and failure to obtain adequate coverage
and adequate reimbursement could limit our ability to market GlucoTrack® or future product candidates, if any, and may inhibit our
ability to generate revenue from GlucoTrack® or our future product candidates, if any, that may be cleared or approved.
There
is significant uncertainty related to the third-party coverage and reimbursement of newly cleared or approved medical devices. The commercial
success of GlucoTrack® or our future product candidates, if any, in both domestic and international markets will depend in part on
the availability of coverage and adequate reimbursement from third-party payors, including government payors, such as the Medicare and
Medicaid programs, managed care organizations and other third-party payors. Government and other third-party payors are increasingly
attempting to contain health care costs by limiting both coverage and the level of reimbursement for new products and, as a result, they
may not cover or provide adequate payment for GlucoTrack® or our future product candidates, if any. These payors may conclude that
our products are not as safe or effective as existing devices or that the overall cost of using one of our devices exceeds the overall
cost of the competing device, and third-party payors may not approve GlucoTrack® or our future product candidates, if any, for coverage
and adequate reimbursement. Furthermore, deficit reduction and austerity measures in the United States and abroad may put further pressure
on governments to limit coverage of, and reimbursement for, our products. The failure to obtain coverage and adequate reimbursement for
GlucoTrack® or our future product candidates, if any, or health care cost containment initiatives that limit or restrict reimbursement
for such products may reduce any future product revenue.
We
may not obtain insurance coverage to adequately cover all significant risk exposures.
We
will be exposed to liabilities that are unique to the products we provide. We currently maintain premises insurance and there can be
no assurance that we will acquire or maintain insurance for certain risks, that the amount of our insurance coverage will be adequate
to cover all claims or liabilities, or that we will not be forced to bear substantial costs resulting from risks and uncertainties of
business. It is also not possible to obtain insurance to protect against all operational risks and liabilities. The failure to obtain
adequate insurance coverage on terms favorable to us, or at all, could have a material adverse effect on our business, financial condition
and results of operations.
If
product liability lawsuits are brought against us, we may incur substantial liabilities.
We
face a potential risk of product liability as a result of any of the products that we offer for sale. For example, we may be sued if
any product we sell allegedly causes injury or is found to be otherwise unsuitable during product testing, manufacturing, marketing or
sale. Any such product liability claims may include allegations of defects in manufacturing, defects in design, a failure to warn of
dangers inherent in the product, negligence, strict liability and a breach of warranties. Claims could also be asserted under state consumer
protection acts. If we cannot successfully defend ourselves against product liability claims, we may incur substantial liabilities. Even
successful defense would require significant financial and management resources. Regardless of the merits or eventual outcome, liability
claims may result in:
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decreased
demand for products that we may offer for sale; |
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injury
to our reputation; |
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costs
to defend the related litigation; |
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a
diversion of management’s time and our resources; |
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substantial
monetary awards to trial participants or patients; |
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product
recalls, withdrawals or labeling, marketing or promotional restrictions; and |
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a
decline in our stock price. |
Our
inability to obtain and retain sufficient product liability insurance at an acceptable cost to protect against potential product liability
claims could prevent or inhibit the commercialization of products we develop. We currently maintain product liability insurance up to
$5,000 thousand per claim and in the aggregate. Although we have product liability coverage, we may have to pay amounts awarded by a
court or negotiated in a settlement that exceed our coverage limitations or that are not covered by our insurance, and we may not have,
or be able to obtain, sufficient capital to pay such amounts.
If
we fail to attract and retain key management and scientific personnel, we may be unable to successfully develop or commercialize GlucoTrack®
or our future product candidates, if any.
We
will need to expand and effectively manage our managerial, operational, financial, development and other resources in order to successfully
pursue our research, development and commercialization efforts for GlucoTrack® or our future product candidates, if any. Our success
depends on our continued ability to attract, retain and motivate highly qualified management and pre-clinical and clinical personnel.
The loss of the services of any of our senior management could delay or prevent the development or commercialization of GlucoTrack®
or our future product candidates, if any. At present, we do not have key man insurance policies with respect to any of our employees.
We will need to hire additional personnel as we continue to expand our research and development activities and build a sales and marketing
function.
We
may not be able to attract or retain qualified management and scientific personnel in the future due to the intense competition for qualified
personnel among medical device and other businesses. If we are not able to attract and retain the necessary personnel to accomplish our
business objectives, we may experience constraints that will significantly impede the achievement of our research and development objectives,
our ability to raise additional capital and our ability to implement our business strategy. In particular, if we lose any members of
our senior management team, we may not be able to find suitable replacements in a timely fashion or at all and our business may be harmed
as a result.
As
we continue to evolve from a company primarily involved in development to a company also involved in commercialization, we may encounter
difficulties in managing our growth and expanding our operations successfully.
We
anticipate that, as our operations expand, we will need to expand our manufacturing, marketing and sales capabilities by contracting
with third parties. Maintaining these relationships and managing our future growth will impose significant added responsibilities on
members of our management. We must be able to manage our development efforts effectively; manage our clinical trials effectively; hire,
train and integrate additional management, development, administrative and sales and marketing personnel; improve managerial, development,
operational and finance systems; and expand our facilities, all of which may impose a strain on our administrative and operational infrastructure.
We
rely on third parties to manufacture and supply our product.
We
do not own or operate manufacturing facilities for clinical or commercial production of GlucoTrack®, other than a prototype lab.
We have no experience in medical device manufacturing and lack the resources and the capability to manufacture the GlucoTrack® on
a commercial scale. To date we have manufactured GlucoTrack® with a third-party manufacturer in Israel.
If
our manufacturing partners are unable to produce our products in the amounts, timing or pricing that we require, we may not be able to
establish a contract and obtain a sufficient alternative supply from another supplier on a timely basis and in the quantities or pricing
we require. We expect to depend on third-party contract manufacturers for the foreseeable future.
GlucoTrack®
does, and our future product candidates, if any, likely will require precise, high quality manufacturing. Any of our contract manufacturers
will be subject to ongoing periodic unannounced inspections by the FDA and other non-U.S. regulatory authorities to ensure strict compliance
with quality system regulations, including current good manufacturing practices and other applicable government regulations and corresponding
standards. If our contract manufacturers fail to achieve and maintain high manufacturing standards in compliance with quality system
regulations, we may experience manufacturing errors resulting in patient injury or death, product recalls or withdrawals, delays or interruptions
of production or failures in product testing or delivery, delay or prevention of filing or approval of marketing applications for our
products, cost overruns or other problems that could seriously harm our business.
Any
performance failure on the part of our contract manufacturers could delay clinical development or regulatory clearance or approval of
our product candidates or commercialization of our future product candidates, depriving us of potential product revenue and resulting
in additional losses. In addition, our dependence on a third-party for manufacturing may adversely affect our future profit margins.
Our ability to replace an existing manufacturer may be difficult because the number of potential manufacturers is limited and the FDA
must approve any replacement manufacturer before it can begin manufacturing our product candidates. Such approval would require additional
non-clinical testing and compliance inspections. It may be difficult or impossible for us to identify and engage a replacement manufacturer
on acceptable terms in a timely manner, or at all.
We
are dependent on third-party distributors to market and sell our products.
We
have limited internal marketing, sales or distribution capabilities and currently we do not intend to develop extensive internal marketing,
sales or distribution capabilities in the future. Rather, we intend to utilize third-party distributors to market our products, and have
entered into exclusive distribution agreements with respect to certain territories. There is no assurance that third party distributors
will achieve acceptable levels of sales or that, if any of our existing arrangements expire or terminate, we will be able to replace
any distributors on terms advantageous to us, or at all. Further, there is no assurance that we will be able to expand our distribution
network by adding additional distributors. If third party distributors cease to promote our products, or if we are unable to make acceptable
arrangements with distributors or sales personnel in other markets, our business prospects, operating results or financial condition
could be materially adversely affected.
Independent
clinical investigators and contract research organizations that we engage to conduct our clinical trials may not be diligent, careful
or timely.
We
will depend on independent clinical investigators to conduct our clinical trials. Contract research organizations may also assist us
in the collection and analysis of data. These investigators and contract research organizations will not be our employees and we will
not be able to control, other than by contract, the amount of resources, including time that they devote to products that we develop.
If independent investigators fail to devote sufficient resources to the clinical trials, or if their performance is substandard, it will
delay the approval or clearance and commercialization of any products that we develop. Further, the FDA requires that we comply with
standards, commonly referred to as good clinical practice, for conducting, recording and reporting clinical trials to assure that data
and reported results are credible and accurate and that the rights, integrity and confidentiality of trial subjects are protected. If
our independent clinical investigators and contract research organizations fail to comply with good clinical practice, the results of
our clinical trials could be called into question and the clinical development of our product candidates could be delayed. Failure of
clinical investigators or contract research organizations to meet their obligations to us or comply with federal regulations could adversely
affect the clinical development of our product candidates and harm our business.
If
we are unable to obtain and enforce patent protection for our products, our business could be materially harmed.
Our
success depends, among other things, on our ability to protect proprietary methods and technologies that we develop under the patent
and other intellectual property laws of the United States and other countries, so that we can prevent others from unlawfully using our
inventions and proprietary information. However, we may not hold proprietary rights to some patents required for us to commercialize
proposed products. For this and other reasons, we may be unable to secure desired patent rights, thereby losing desired exclusivity.
Although we do not believe that we need any licenses for GlucoTrack®, we may need to obtain licenses in the future for other products
or in certain circumstances, such as if one of our patents were declared invalid in the future. If such licenses are not available to
us on acceptable terms, we will not be able to market the affected products or conduct the desired activities, unless we successfully
challenge the validity, enforceability or infringement of the third-party patent or otherwise circumvent the third-party patent.
Our
strategy depends on our ability to rapidly identify and seek patent protection for our discoveries. The process of obtaining patent protection
is expensive and time-consuming. Despite our efforts to protect our proprietary rights, unauthorized parties may be able to obtain and
use information that we regard as proprietary.
The
issuance of a patent does not guarantee that it is valid or enforceable. Any patents we have obtained, or which we may obtain in the
future, may be challenged, invalidated, unenforceable or circumvented. Moreover, the United States Patent and Trademark Office (the “USPTO”)
may commence interference proceedings involving our patents or patent applications. Any challenge to, finding of unenforceability or
invalidation or circumvention of our patents or patent applications would be costly, would require significant time and attention of
our management and could have a material adverse effect on our business. In addition, court decisions may introduce uncertainty in the
enforceability or scope of patents owned by medical device companies.
Our
pending patent applications may not result in issued patents. The patent position of medical device companies, including us, is generally
uncertain and involves complex legal and factual considerations. The standards that the USPTO and its foreign counterparts use to grant
patents are not always applied predictably or uniformly and can change. There is also no uniform, worldwide policy regarding the subject
matter and scope of claims granted or allowable in medical device patents. Accordingly, we do not know the degree of future protection
for our proprietary rights or the breadth of claims that will be allowed in any patents issued to us or to others. The legal systems
of certain countries do not favor the aggressive enforcement of patents, and the laws of foreign countries may not protect our rights
to the same extent as the laws of the United States. Therefore, the enforceability or scope of our patents in the United States or in
foreign countries cannot be predicted with certainty, and, as a result, any patents that we own may not provide sufficient protection
against competitors. We may not be able to obtain or maintain patent protection for our pending patent applications or those we may file
in the future.
We
cannot assure you that any patents that will issue, that may issue or that may be licensed to us will be enforceable or valid or will
not expire prior to the commercialization of our product candidates, thus allowing others to more effectively compete with us. Therefore,
any patents that we own may not adequately protect our product candidates or our future products.
If
we are unable to protect the confidentiality of our proprietary information and know-how, the value of our technology and products could
be adversely affected.
In
addition to patent protection, we also rely on other proprietary rights, including protection of trade secrets, know-how and confidential
and proprietary information. To maintain the confidentiality of trade secrets and proprietary information, we will seek to enter into
confidentiality and non- disclosure agreements with our employees, consultants and collaborators upon the commencement of their relationships
with us. These agreements generally require that all confidential information developed by the individual or made known to the individual
by us during the course of the individual’s relationship with us be kept confidential and not disclosed to third parties. Our agreements
with employees also generally provide and will generally provide that any inventions conceived by the individual in the course of rendering
services to us shall be our exclusive property. However, we may not obtain these agreements in all circumstances, and individuals with
whom we have these agreements may not comply with their terms. In the event of unauthorized use or disclosure of our trade secrets or
proprietary information, these agreements, even if obtained, may not provide meaningful protection, particularly for trade secrets or
other confidential information. To the extent that our employees, consultants or contractors use technology or know-how owned by third
parties in their work for us, disputes may arise between us and those third parties as to the rights in related inventions.
Adequate
remedies may not exist in the event of unauthorized use or disclosure of our confidential information. The disclosure of trade secrets
would impair our competitive position and may materially harm our business, financial condition and results of operations.
Some
jurisdictions may require us to grant licenses to third parties. Such compulsory licenses could be extended to include some of our product
candidates, which may limit potential revenue opportunities.
Many
countries, including certain countries in Europe, have compulsory licensing laws under which a patent owner may be compelled to grant
licenses to third parties. In addition, most countries limit the enforceability of patents against government agencies or government
contractors. In these countries, the patent owner may be limited to monetary relief and may be unable to enjoin infringement, which could
materially diminish the value of the patent. Compulsory licensing of life-saving products is also becoming increasingly popular in developing
countries, either through direct legislation or international initiatives. Such compulsory licenses could be extended to include some
of our product candidates, which may limit our potential revenue opportunities.
Our
commercial success depends significantly on our ability to operate without infringing the patents and other proprietary rights of third
parties.
Other
entities may have or obtain patents or proprietary rights that could limit our ability to manufacture, use, sell, offer for sale or import
products or impair our competitive position. In addition, to the extent that a third party develops new technology that covers our products,
we may be required to obtain licenses to that technology, which licenses may not be available on commercially reasonable terms, if at
all. If licenses are not available on acceptable terms, we will not be able to market the affected products or conduct the desired activities
unless we successfully challenge the validity, enforceability or infringement of the third-party patent or circumvent the third-party
patent, which would be costly and would require significant time and attention of our management. Third parties may have or obtain valid
and enforceable patents or proprietary rights that could block us from developing products using our technology. Our failure to obtain
a license to any technology that we require may materially harm our business, financial condition and results of operations.
If
we become involved in patent litigation or other proceedings related to a determination of rights, we could incur substantial costs and
expenses, substantial liability for damages or be required to stop our product development and commercialization efforts.
Third
parties may sue us for infringing their patent rights. Likewise, we may need to resort to litigation to enforce a patent issued or licensed
to us or to determine the scope and validity of proprietary rights of others. In addition, a third party may claim that we have improperly
obtained or used our confidential or proprietary information. The cost to us of any litigation or other proceeding relating to intellectual
property rights, even if resolved in our favor, could be substantial, and the litigation would divert management’s efforts. Some
of our competitors may be able to sustain the costs of complex patent litigation more effectively than we can because they have substantially
greater resources. Uncertainties resulting from the initiation and continuation of any litigation could limit our ability to continue
our operations.
If
any parties successfully claim that our creation or use of proprietary technologies infringes upon their intellectual property rights,
we might be forced to pay damages, potentially including treble damages, if we are found to have willfully infringed on such parties’
patent rights. In addition to any damages we might have to pay, a court could require us to stop the infringing activity or obtain a
license. Any license required under any patent may not be made available on commercially acceptable terms, if at all. In addition, such
licenses are likely to be non-exclusive and, therefore, our competitors may have access to the same technology. If we fail to obtain
a required license and are unable to design around a patent, we may be unable to effectively market some of our technology and products,
which could limit our ability to generate revenues or achieve profitability and possibly prevent us from generating revenue sufficient
to sustain operations.
Failure
to obtain additional regulatory approvals outside the United States will prevent or limit us from marketing our product candidates abroad.
We
intend to market our product candidates in non-U.S. markets. In order to market product candidates in the EU and many other non-U.S.
jurisdictions, we must obtain separate regulatory approvals. In December 2012, we submitted our technical file to the Notified Body in
connection with our application to obtain CE Mark approval for GlucoTrack® 1.0. On June 4, 2013, we received CE Mark approval for
the GlucoTrack® 1.0 from the Notified Body. Receipt of the CE Mark allows us to market and sell the GlucoTrack® 1.0 in EU member
countries that have adopted the MDD without being subject to additional national regulations with regard to demonstration of performance
and safety. The CE Mark also permits the sale in countries that have an MDD Mutual Recognition Agreement with the EU. However, member
countries may apply and enforce the MDD’s terms differently, and certain EU member countries may request or require that we provide
performance and/or safety data additional to the MDD’s requirements from time to time, on a case-by-case basis, in order to be
cleared to market and sale GlucoTrack® in such countries. Receipt of FDA approval does not ensure approval by regulatory authorities
in countries, and approval by one or more non-U.S. regulatory authorities (including receipt of the CE Mark) does not ensure approval
by regulatory authorities in other countries or by the FDA. The non-U.S. regulatory approval process may include all of the risks associated
with obtaining FDA approval or clearance. We may not obtain additional non-U.S. regulatory approvals on a timely basis, if at all. We
may not be able to file for additional non-U.S. regulatory approvals and may not receive necessary approvals to commercialize our product
candidates in any market.
Non-U.S.
governments often impose strict price controls, which may adversely affect our future profitability.
We
intend to seek approval to market GlucoTrack® and our future product candidates, if any, in both the U.S. and in non-U.S. jurisdictions.
If we obtain approval in one or more non-U.S. jurisdictions, we will be subject to rules and regulations in those jurisdictions relating
to our products. In some countries, particularly countries of the EU, each of which has developed its own rules and regulations, pricing
may be subject to governmental control under certain circumstances. In these countries, pricing negotiations with governmental authorities
can take considerable time after the receipt of marketing approval for a medical device candidate. Each of the EU member states has its
own unique legal system and thus it is difficult to predict the particular requirements to which we may be subject. To obtain reimbursement
or pricing approval in some countries, we may be required to conduct a clinical trial that compares the cost-effectiveness of our product
to other available products. If reimbursement of our product candidates is unavailable or limited in scope or amount, or if pricing is
set at unsatisfactory levels, we may be unable to achieve or sustain profitability.
Our
business may become subject to economic, political, regulatory and other risks associated with international operations, which could
harm our business.
Our
business is subject to risks associated with conducting business internationally. Accordingly, our future results could be harmed by
a variety of factors, including:
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difficulties
in compliance with non-U.S. laws and regulations; |
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changes
in non-U.S. regulations and customs; |
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changes
in non-U.S. currency exchange rates and currency controls; |
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changes
in a specific country’s or region’s political or economic environment; |
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trade
protection measures, import or export licensing requirements or other restrictive actions by U.S. or non-U.S. governments; |
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negative
consequences from changes in tax laws; and |
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difficulties
associated with staffing and managing foreign operations, including differing labor relations. |
We
may not be able to enforce covenants not-to-compete under current Israeli law, which might result in added competition for our products.
We
have non-competition agreements or provisions with all of our employees and executive officers, all of which are governed by Israeli
law. These agreements or provisions prohibit our employees from competing with us or working for our competitors, generally during, and
for up to nine months after termination of, their employment with us. However, Israeli courts are reluctant to enforce non-compete undertakings
of former employees and tend, if at all, to enforce those provisions for only relatively brief periods of time or in restricted geographical
areas. In addition, Israeli courts typically require the presence of additional circumstances, such as a demonstration of an employer’s
legitimate interest which was damaged; breach of fiduciary duties, loyalty and acting not in good faith; a payment of a special consideration
for employee’s non-compete obligation; material concern for disclosing employer’s trade secrets; or a demonstration that
an employee has unique value to the employer specific to that employer’s business, before enforcing a non-competition undertaking
against such employee.
The
funding that we received through the Israeli Innovation Authority (IIA) for research and development activities restricts our
ability to manufacture products or to transfer technology outside of Israel.
On
March 4, 2004, the OCS agreed to provide us with a grant of 420 thousand New Israeli Shekels (“NIS”), or approximately $93
thousand at an exchange rate of 4.502 NIS/dollar (the exchange rate in effect on such date), for our plan to develop a non-invasive blood
glucose monitor (the “development plan”). This grant constituted 60% of our research and development budget for the development
plan at that time. Due to our acceptance of this grant, we are subject to the provisions of the Israeli Law for the Encouragement of
Industrial Research and Development, 1984 (the “R&D Law”). Among other things, the R&D Law restricts our ability
to sell or transfer rights in technology or know-how developed with OCS funding or transfer any Means of Control (as defined in the R&D
Law) of us to non-Israeli entities. The Industrial Research and Development Committee at the OCS (the “research committee”)
may, under special circumstances, approve the transfer outside of Israel of rights in technology or know-how developed with OCS funding
subject to certain conditions, including the condition that certain payments be made to the OCS. Additionally, we may not manufacture
products developed with OCS funding outside of Israel without the approval of the research committee. The restrictions regarding the
sale or transfer of technology or manufacturing rights out of Israel could have a material adverse effect on our ability to enter into
strategic alliances or enter into merger or acquisition transactions in the future that provide for the sale or transfer of our technology
or manufacturing rights.
We
are subject to certain employee severance obligations, which may result in an increase in our expenditures.
Under
Israeli law, employers are required to make severance payments to dismissed employees and employees leaving employment in certain other
circumstances, on the basis of the latest monthly salary for each year of service. This obligation results in an increase in our expenses,
including accrued expenses. Integrity Israel currently makes monthly deposits to insurance policies and severance pay funds in order
to provide for this liability.
The
Company’s and its Israeli subsidiary’s agreements with all of their Israeli employees are in accordance with Section 14 of
the Israeli Severance Pay Law -1963 (“Section 14”). Payments in accordance with Section 14 release the Company from any other
future severance payments in respect of those employees. Deposits under Section 14 are not recorded as an asset in the Company’s
balance sheet.
We
may be at risk for delay in product development and other economic repercussions as a result of the COVID-19 pandemic.
We
may be at risk as a result of the current COVID-19 pandemic. Risks that could affect our business include the duration and scope of the
COVID-19 pandemic and the impact on the demand for our products; actions by governments, businesses and individuals taken in response
to the pandemic; the length of time of the COVID-19 pandemic and the possibility of its reoccurrence; the timing required to develop
effective treatments and a vaccine in the event of future outbreaks; the eventual impact of the pandemic and actions taken in response
to the pandemic on global and regional economies; and the pace of recovery when the COVID-19 pandemic subsides.
We had identified a material weakness in
our internal control over financial reporting, and we may not be able to successfully implement remedial measures.
We
identified material weaknesses related to our internal control over financial reporting as of December 31, 2021 and concluded that internal
control over financial reporting as at December 31, 2021 were not effective. The ineffectiveness of the Company’s internal control
over financial reporting was due to identification of material weaknesses related to lack of sufficient internal accounting personnel,
segregation of duties, and lack of sufficient internal controls
(including IT general controls) that encompass the Company as a whole with respect to entity and transactions level controls in order
to ensure complete documentation of complex and non-routine transactions and adequate financial reporting.
We
expect to complete our remediation plan within the next 12 months. However, we have not tested the effectiveness of our internal control
over financial reporting and cannot assure you that we will be able to successfully remediate this material weakness and, even if we
do, we cannot assure you that we will not suffer from other material weaknesses in the future. Except for additional personnel costs,
the cost of systems and the costs of our third-party service providers, we do not expect to incur any material costs related to our remediation
plan.
Further,
there can be no assurance that we will not suffer from other material weaknesses or significant deficiencies in the future. If we fail
to remediate these material weaknesses or fail to otherwise maintain effective internal controls over financial reporting in the future,
such failure could result in a material misstatement of our annual or quarterly financial statements that would not be prevented or detected
on a timely basis and which could cause investors and other users to lose confidence in our financial statements, limit our ability to
raise capital and have a negative effect on the trading price of our common stock. Additionally, failure to remediate the material weakness
or otherwise maintain effective internal controls over financial reporting may also negatively impact our operating results and financial
condition, impair our ability to timely file our periodic and other reports with the SEC, subject us to additional litigation and regulatory
actions and cause us to incur substantial additional costs in future periods relating to the implementation of remedial measures.
The
market price of our common stock may fluctuate significantly.
The
market price of the common stock may fluctuate significantly in response to numerous factors, some of which are beyond our control, such
as:
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the
announcement of new products or product enhancements by us or our competitors; |
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developments
concerning intellectual property rights and regulatory approvals; |
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variations
in our and our competitors’ results of operations; |
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changes
in earnings estimates or recommendations by securities analysts, if the common stock is covered by analysts; |
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developments
in the medical device industry; |
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the
results of product liability or intellectual property lawsuits; |
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future
issuances of common stock or other securities; |
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the
addition or departure of key personnel; |
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announcements
by us or our competitors of acquisitions, investments or strategic alliances; and |
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general
market conditions and other factors, including factors unrelated to our operating performance. |
Further,
in recent years, the stock market in general, and the market for medical device companies in particular, have experienced extreme price
and volume fluctuations. Continued or renewed market fluctuations could result in extreme volatility in the price of our common stock,
which could cause a decline in the value of the common stock.
Because
our common stock is a “penny stock,” it may be more difficult for investors to sell shares of the common stock, and the market
price of the common stock may be adversely affected.
Our
common stock may be a penny stock if, among other things, the stock price is below $5.00 per share. Broker-dealers who sell penny
stocks must provide purchasers of these stocks with a standardized risk- disclosure document prepared by the SEC. This document provides
information about penny stocks and the nature and level of risks involved in investing in the penny-stock market. A broker must also
give a purchaser, orally or in writing, bid and offer quotations and information regarding broker and salesperson compensation, make
a written determination that the penny stock is a suitable investment for the purchaser and obtain the purchaser’s written agreement
to the purchase. Broker-dealers must also provide customers that hold penny stock in their accounts with such broker-dealer a monthly
statement containing price and market information relating to the penny stock. If a penny stock is sold to an investor in violation of
the penny stock rules, the investor may be able to cancel its purchase and get its money back.
If
applicable, the penny stock rules may make it difficult for investors to sell their shares of common stock. Because of the rules and
restrictions applicable to a penny stock, there is less trading in penny stocks and the market price of the common stock may be adversely
affected. Also, many brokers choose not to participate in penny stock transactions. Accordingly, investors may not always be able to
resell their shares of common stock publicly at times and prices that they feel are appropriate.
Compliance
with changing regulations concerning corporate governance and public disclosure may result in additional expenses.
There
have been changing laws, regulations and standards relating to corporate governance and public disclosure, including the Sarbanes-Oxley
Act of 2002, new regulations promulgated by the SEC and rules promulgated by the national securities exchanges. These new or changed
laws, regulations and standards are subject to varying interpretations in many cases due to their lack of specificity, and, as a result,
their application in practice may evolve over time as new guidance is provided by regulatory and governing bodies, which could result
in continuing uncertainty regarding compliance matters and higher costs necessitated by ongoing revisions to disclosure and governance
practices. As a result, our efforts to comply with evolving laws, regulations and standards are likely to continue to result in increased
general and administrative expenses and a diversion of management time and attention from revenue-generating activities to compliance
activities. Our directors, Chief Executive Officer and Chief Financial Officer could face an increased risk of personal liability in
connection with the performance of their duties. As a result, we may have difficulty attracting and retaining qualified directors and
executive officers, which could harm our business. If our efforts to comply with new or changed laws, regulations and standards differ
from the activities intended by regulatory or governing bodies, we could be subject to liability under applicable laws or our reputation
may be harmed.
Because
a certain portion of our expenses is incurred in currencies other than the NIS, our results of operations may be harmed by currency fluctuations
and inflation.
The
functional currency of Integrity Israel is the NIS, and we pay a substantial portion of our expenses in NIS. However, we expect a portion
of our future revenues to be denominated in U.S. dollars or in Euros. As a result, we will be exposed to the currency fluctuation risks
relating to the recording of our revenues in NIS. For example, if the NIS strengthens against either the U.S. dollar or the Euro, our
reported expenses in NIS may be higher than anticipated. The Israeli rate of inflation has not offset or compounded the effects caused
by fluctuations between the NIS and the U.S. dollar or the Euro. To date, we have not engaged in hedging transactions. Although the Israeli
rate of inflation has not had a material adverse effect on our financial condition to date, we may, in the future, decide to enter into
currency hedging transactions to decrease the risk of financial exposure from fluctuations in the exchange rates of the currencies mentioned
above in relation to the NIS. These measures, however, may not adequately protect us from material adverse effects.
The
adoption of the “Conflict Minerals” regulations may adversely affect the manufacturing of our current and future products.
Regulatory
requirements regarding the use of “conflict minerals” could affect the sourcing and availability of the raw materials used
by our third-party manufacturers. We may be subject to costs associated with the new regulations, including for the diligence pertaining
to the presence of any conflict minerals used in our products and the cost of remediation and other changes to products, processes, or
sources of supply as a consequence of such verification activities. The impact of the regulations may result in a limited pool of suppliers
who provide conflict free minerals, and we cannot assure that we will be able to obtain products in sufficient quantities or at competitive
prices. We may face reputational challenges with our customers and other stakeholders if we are unable to sufficiently verify the origins
for the metals used in the products we sell. As a result, we may not be able to obtain the materials necessary to manufacture our products,
which could force us to cease production or search for alternative supply sources, possibly at a higher cost. Such disruptions may have
a material adverse effect on our business, financial condition, results of operations and cash flows.
