Item
1.
Description of Business.
The
Company
We
are a pre-clinical medical device company specializing in the research, design and development of next generation micro-robotics
assisted medical technologies targeting the minimally invasive surgery space. The Company is primarily focused on leveraging its
micro-robotic technologies with the goal of improving surgical outcomes for patients.
Microbot
is currently developing its first two product candidates: the Self Cleaning Shunt, or SCS, for the treatment of hydrocephalus
and Normal Pressure Hydrocephalus, or NPH; and TipCAT, a self-propelling, semi-disposable endoscope that is being developed initially
for use in colonoscopy procedures. Microbot’s product candidates are being designed to bring greater functionality to conventional
medical devices and to reduce the known risks associated with such devices. Microbot is currently aiming to complete pre-clinical
studies required for regulatory submission for both product candidates within the next 12 months.
Microbot
currently holds an intellectual property portfolio that comprises nine patent families, which include nine patents granted in
the United States, twelve patents granted outside the United States, and fifteen patent applications pending worldwide. We have
an exclusive license to key components of our existing technology.
On
January 4, 2018, we entered into an agreement to acquire a novel patent-protected technology from CardioSert Ltd., a privately-held
medical device company based in Israel. The acquisition is expected to close within 90 days of the agreement, at which time, with
the addition of CardioSert’s issued U.S. patent and three patent applications pending worldwide, Microbot would have a patent
portfolio of 25 issued/allowed patents and 15 patent applications pending worldwide.
Our
Company was incorporated on August 2, 1988 in the State of Delaware under the name Cellular Transplants, Inc. The original Certificate
of Incorporation was restated on February 14, 1992 to change the name of the Company to CytoTherapeutics, Inc. On May 24, 2000,
the Certificate of Incorporation as restated was further amended to change the name of the Company to StemCells, Inc. On November
28, 2016, C&RD Israel Ltd. (“Merger Sub”), a wholly-owned subsidiary of the Company, completed its merger with
and into Microbot Medical Ltd. (“Microbot Israel”), with Microbot Israel surviving as a wholly-owned subsidiary of
the Company (the “Merger”). On November 28, 2016, in connection with the Merger, the Company changed its name from
“StemCells, Inc.” to Microbot Medical Inc., and each outstanding share of Microbot Israel capital stock was converted
into the right to receive shares of our common stock. In addition, all outstanding options to purchase the ordinary shares of
Microbot Israel were assumed by the Company and converted into options to purchase shares of the Common Stock of Microbot Medical
Inc. On November 29, 2016, the stock of the Company began trading on the Nasdaq Capital Market under the symbol “MBOT”.
Prior to the Merger, the Company was a biopharmaceutical company that operated in one segment, the research, development, and
commercialization of stem cell therapeutics and related technologies. Substantially all of the material assets relating to the
stem cell business were sold on November 29, 2016.
Industry
Overview
Shunt
Systems
Hydrocephalus
is a medical condition in which there is an abnormal accumulation of cerebrospinal fluid, or CSF, in the brain that can cause
increased intracranial pressure. It is estimated that one in every 500 babies are born with hydrocephalus, and over 1,000,000
people in the United States currently live with hydrocephalus.
Symptoms
of hydrocephalus vary with age, disease progression and individual tolerance to the condition, but they can include convulsion,
tunnel vision, mental disability or dementia-like symptoms and even death. Normal Pressure Hypocephalus (“NPH”) is
a type of hydrocephalus that usually occurs in older adults. NPH is generally treated as distinct from other types of hydrocephalus
because it develops slowly over time. In NPH, the drainage of CSF is blocked gradually and the excess fluid builds up slowly.
This slow accumulation means that the fluid pressure may not be as high as in other types of hydrocephalus. It is estimated that
more than 700,000 Americans have NPH, but less than 20% receive an appropriate diagnosis.
Hydrocephalus
is most often treated by the surgical insertion of a shunt system. The shunt system diverts the flow of CSF from the brain’s
ventricles (or the lumbar subarachnoid space) to another part of the body where the fluid can be more readily absorbed. Hydrocephalus
shunt designs have changed little since their introduction in the 1950s. A shunt system typically consists of three parts: the
distal tubing or shunt (a flexible and sturdy plastic tube), the ventricular catheter (the proximal catheter), and a valve. The
end of the shunt system with the proximal catheter is placed in the ventricles (within the CSF) and the distal catheter is placed
in the site of the body where the CSF can be drained. A valve is located along the shunt to maintain and regulate the rate of
CSF flow. Current systems can be created from separate components or bought as complete units.
The
treatment of hydrocephalus with existing shunt systems often includes complications as well. For example, approximately 50% of
shunts used in the pediatric population fail within two years of placement and repeated neurosurgical operations are often required.
Ventricular catheter blockage, or occlusions, is by far the most frequent event that results in shunt failure. Shunt occlusion
occurs when there is a partial or complete blockage of the shunt that causes it to function intermittently or not at all. Such
a shunt blockage can be caused by the accumulation of blood cells, tissue, or bacteria in any part of the shunt system. In the
event of shunt occlusion, CSF begins to accumulate in the brain or lumbar region again and the symptoms of untreated hydrocephalus
can reappear until a shunt replacement surgery is performed.
Although
several companies are active in the field of hydrocephalus treatment and the manufacturing of shunt systems and shunt components,
Microbot believes that the majority of those companies are focusing on the development of valves. The development of a “smart
shunt” – a shunt that could provide data to the physician on patient conditions and shunt function with sensor-based
controls, or correct the high failure rate of existing shunt systems – is for the most part at an academic and conceptual
level only. Reports of smart shunt technologies are typically focused on a subset of components with remaining factors left unspecified,
such as hardware, control algorithms or power management. Microbot does not believe that a smart shunt that can prevent functional
failures has been developed to date. Because of the limited innovation in this area, Microbot believes an opportunity exists to
provide patients suffering from hydrocephalus or NPH with a more effective instrument for treating their condition.
Endoscopic
Equipment
Endoscopes
are medical devices used to look inside a body cavity or organ with minimally invasive surgery. The North American flexible endoscopes
market was valued at $1.27 billion in 2013, and is expected to reach $1.91 billion by 2018, at a CAGR of 8.5% during the period
2013 to 2018.
Colonoscopy
is a procedure that allows a physician to examine the colon using an endoscope. It is a commonly performed procedure for the diagnosis
and treatment of a range of conditions, including for the screening and surveillance of colorectal neoplasia, or colorectal cancer.
Annually, between 15 and 20 million endoscopy procedures are conducted in the United States with reusable endoscope devices to
screen various sections of a patient’s gastrointestinal, or GI, tract. However, according to data from the American Cancer
Society, it is estimated that over 50,000 Americans will die from colorectal cancer and approximately 95,500 new cases of colon
cancer will be diagnosed in 2017. It is the third leading cause of cancer deaths in spite of being highly preventable with early
identification and removal of colorectal adenomas, or polyps. Colonoscopy with removal of colorectal polyps has been shown to
be the most effective way of preventing colorectal cancer. And colonoscopy is generally considered the gold standard for the detection
and treatment of adenomas. However, using current colonoscopic technology, approximately 30% of polyps are missed. In addition,
the technique remains underutilized – less than 50% of eligible Americans, based on guidelines established by organizations
including the American Cancer Society, United States Preventive Services Task Force, and U.S. Multi-Society Task Force on Colorectal
Cancer, have undergone screening, with more than 45% of colon cancers being diagnosed at a time when the cancer has become incurable.
This reluctance can be linked to patients’ general discomfort associated with the colonoscopy screening procedure, due to
the use of mechanical force to insert the endoscope into the colon. The procedure is widely perceived to be uncomfortable, and
it also can sometimes damage or perforate the bowel wall.
Colonoscopy
techniques that improve the Adenoma Detection Rate, or ADR, and reduce patient discomfort could optimize the potential of colonoscopy
for the prevention of colorectal cancer. Microbot believes that it has the potential to develop a robotic endoscope product that
addresses this issue of patient discomfort, which it believes will improve patients’ willingness to get this important screening
test – with the additional benefit of providing a new tool to health care practitioners for use in the identification and
treatment of colorectal polyps.
Microbot’s
Product Pipeline
Self-Cleaning
Shunt (SCS)
The
Self-Cleaning Shunt, or SCS, device is designed to act as the ventricular catheter portion of a CSF shunt system that is used
to relieve hydrocephalus and NPH. It is designed to work as an alternative to any ventricular catheter options currently on the
market and to connect to all existing shunt system valves currently on the market; therefore, the successful commercialization
of the SCS is not dependent on any single shunt system. Initially, Microbot expects the SCS device to be an aftermarket purchase
that would be deployed to modify existing products by the end user. Microbot believes that the use of its SCS device will be able
to reduce, and potentially eliminate, shunt occlusions, and by doing so Microbot believes its SCS has the potential to become
the gold-standard ventricular shunt in the treatment of Hydrocephalus and NPH.
The
SCS device embeds an internal robotic cleaning mechanism in the lumen, or inside space, of the ventricular catheter which prevents
cell accumulation and tissue ingrowth into the catheter. The SCS device consists of a silicone tube with a perforated titanium
tip, which connects to a standard shunt valve at its distal end. The internal cleaning mechanism is embedded in the lumen of the
titanium tip. Once activated, the cleaning mechanism keeps tissue from entering the catheter perforations while maintaining the
CSF flow in the ventricular catheter.
The
internal cleaning mechanism of the SCS device is activated by means of an induced magnetic field, which is currently designed
to be externally generated by the patient through a user-friendly headset that transmits the magnetic field at a pre-determined
frequency and operating sequence protocol. The magnetic field that is created by the headset is then captured by a flexible coil
and circuit board that is placed just under the patient’s scalp in the location where the valve is located. The circuit
board assembly converts the magnetic field into the power necessary to activate the cleaning mechanism within the proximal part
of the ventricular catheter.
Microbot
has completed the development of an SCS prototype and is currently completing the safety testing, general proof of concept testing
and performance testing for the device, which Microbot began in mid-2013. Microbot had a pre-submission meeting with the FDA in
mid-2014. On January 27, 2017, Microbot entered into a research agreement with The Washington University in St. Louis to develop
the protocol for and to execute the necessary animal study to determine the effectiveness of the Microbot’s SCS prototype.
The initial research was completed in 2017, and a comprehensive study is expected to be completed in 2018. Upon the completion
of animal studies, Microbot may conduct clinical trials if they are requested by the FDA or if Microbot decides that the data
from such trials would improve the marketability of the product candidate. Microbot believes that the study results of its first
generation SCS device should be submitted to the FDA by late 2018. The proposed indication for use of the SCS device would be
for the treatment of hydrocephalus as a component of a shunt system when draining or shunting of CSF is indicated.
Additionally,
Carolyn Harris, PhD at Wayne State University (WSU) in Detroit, runs an in vitro study of our SCS device. The main objective of
this study is to test and finalize the design of Microbot’s SCS, using Dr. Harris’ bio-reactor system that mimics
human brain tissue three-dimensionally.
Microbot
may also conduct clinical trials for the SCS in other countries where such trials are necessary for Microbot to sell its SCS device
in such country’s market, although it has no current plans to do so.
TipCAT
The
TipCAT is a semi-disposable, flexible, self-propelled endoscope. A mechanism comprising a series of interconnected balloons at
the device’s tip provides the TipCAT with its forward locomotion capability. The device has the capability to self-propel
within natural tubular lumens such as the colon, blood vessels, and the urinary tract. The TipCAT is designed to be fully-equipped
with a contemporary endoscope, including a high-quality camera, steering capability while maintaining a standard working channel
for treatments. The TipCAT thus offers functionality and visualization features equivalent to modern endoscopes, along with unique
advantages associated with its physiologically adapted self-propelling mechanism, flexibility, and design.
The
TipCAT consists of two parts:
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A
disposable self-propulsion module, which is a series of interconnected, sequentially inflatable balloons constructed on an
inner tube (i.e., the working channel); and
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A
re-usable module isolated from contact with the tissue/body fluids, containing a camera, LED lighting and a steering system.
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In
the self-propulsion module, the air to inflate the balloons is supplied from a single channel. The sequential inflating and deflating
of the balloons creates an inchworm-like forward motion. Therefore, unlike standard endoscopes, the TipCAT does not need to be
mechanically forced into the patient’s lumen using external pressure; rather, it will gently advance itself through the
organ’s anatomy. As a result, the TipCAT is designed to be able to reach every part of the lumen under examination regardless
of the topography, be less operator dependent, and greatly reduce the likelihood of damage to lumen structure.
Furthermore,
Microbot believes that use of the TipCAT will improve ADR by straightening the intestinal topography, smoothing colon topography
and improving tissue visualization. In addition, by incorporating the TipCAT in therapeutic procedures, Microbot believes that
the inflated balloons will provide the additional benefits of assisting the physician in centralizing endoscope optics and allowing
for the colonoscope to be secured in each treatment position throughout the procedure, resulting in more efficient and effective
procedures.
The
TipCAT is also designed such that only disposable parts are in direct contact with the lumen tissue, which should eliminate the
risk of cross contamination between patients and the need for post-use reprocessing. Reducing dependence on reprocessing procedures
is important from a regulatory perspective because safety issues related to the reprocessing of reusable medical devices are a
growing concern for regulatory authorities.
A
TipCAT prototype was shown to self-propel and self-navigate in curved plastic pipes and curved ex-vivo colon. In addition, in
its first feasibility study, the prototype device was tested in a live animal experiment and successfully self-propelled through
segments of the animal’s colon, with no post-procedural damage. All tests were conducted at AMIT (Alfred Mann Institute
of Technology at the Technion), prior to the licensing of TipCAT by Microbot. Microbot is currently reviewing the design and general
proof of concept of the TipCAT and working with experts in the field to define the optimal design, which is expected to be followed
by animal studies during 2017 and 2018. Upon completion, Microbot may conduct clinical trials if they are requested by the FDA
or if Microbot decides that the data from such trials would improve the marketability of the product candidate. Regulatory approval
or clearance for marketing the TipCAT colonoscope in the United States is targeted to occur soon after the applicable animal and/or
clinical trials are completed, depending on when the applicable premarket submission is finalized and filed with FDA, and Microbot’s
ability to raise money and conduct the necessary trials for approval.
Microbot
also plans to further develop the TipCAT for application for other diagnostic and therapeutic endoscopic procedures outside of
colonoscopy, such as Chronic Total Occlusion, or CTO, urethroscopy and catheterization.
Microbot
may conduct clinical trials for the TipCAT in other countries where such trials are necessary for Microbot to sell its TipCAT
device in such country’s market, although it has no current plans to do so.
Strategy
Microbot’s
goal is to generate sales of its products, once they have received regulatory approval, by establishing SCS and TipCAT devices
as the standard-of-care in the eyes of doctors, surgeons, patients and medical facilities, as well as getting the support of payors
and insurance companies. Microbot believes that it can achieve this objective by working with hospitals to demonstrate the key
benefits of its products. Microbot’s strategy includes the following key elements:
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Continue
to refine existing product candidates and develop additional micro-robotic solutions
. As Microbot prepares to bring its
initial product candidates through pre-clinical and clinical trials, if necessary, and eventually to market, it continues
to focus on improving its product candidates to respond to clinical data and patient and physician feedback. Microbot also
expects to continue to innovate in the micro-robotics field by continuing to find ways of using its technology to solve unmet
needs, with the overarching goal of providing a safer, more effective and more efficient surgical environment for patients
and physicians.
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Establish
and leverage relationships with key institutions and leading clinicians
. Microbot intends to develop relationships with
a relatively small number of hospitals and clinics through its clinical stage. Microbot’s objective will be to maintain
clinical focus with such hospitals and clinics so as to establish the SCS and TipCAT as the standard of care in such institutions
for their respective procedures. Microbot also expects to identify key clinicians in the hydrocephalus and colonoscopy specialties
with the expectation that such clinical focus will accelerate the adoption of its candidate products.
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Continuously
invest in research and development
. Microbot’s most significant expense has historically been research and development,
and Microbot expects that this will continue in the foreseeable future, including expenses it expects to incur to improve
on its prototype products in order to respond to clinical data, to develop additional applications using its technologies
and to develop future product candidates.
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Explore
partnerships for the introduction of Microbot’s products
. Microbot intends to focus its marketing and sales efforts
initially on pursuing collaborations with global medical device companies that have established sales and distribution networks.
Microbot will seek to enter collaborations and partnerships with strategic players that offer synergies with Microbot’s
product candidates and expertise.
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Seek
additional IP and technologies to complement and strengthen Microbot’s current IP portfolio
. Microbot intends to
continue exploring new technologies, IP and know-how to add to its current portfolio and to allow Microbot to enter new spaces
and strengthen its overall product portfolio.
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SCS
Opportunities
The
SCS is designed to prevent shunt occlusions in hydrocephalus and NPH patients who have undergone or are undergoing the surgical
insertion of a shunt system. For purposes of its marketing strategy, Microbot has split the market for shunt systems into two
sub-markets:
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Primary
shunt placement; and
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Shunt
replacement.
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Microbot’s
SCS device is universal (meaning that it is designed to be attachable to any valve on the market); therefore, Microbot’s
initial go-to-market strategy is the development of strategic partnerships with leading global medical device companies with ready
sales and distribution channels. Outside of a strategic partnership, it is most likely that Microbot’s SCS product will
be initially used in shunt replacement surgeries to replace occluded ventricular catheters. Accordingly, Microbot intends to establish
key hospital and clinic relationships that will allow it to diffuse the technology among experts and other stakeholders. Microbot
is also planning to apply for the SCS device to be covered under the current reimbursement codes in the United States for use
in hydrocephalus and NPH shunt procedures.
TipCAT
Opportunities
Microbot
expects that its initial go-to-market strategy for the TipCAT will be to establish key hospital and clinic relationships in the
field of colonoscopy that will allow Microbot to introduce and then diffuse the technology among colonoscopy experts and other
stakeholders. Generally, Microbot expects the hospitals and clinics selected for the TipCAT clinical trials to also start using
the product commercially, which will help to promote and support market uptake of the TipCAT product. Because Microbot expects
the use of the TipCAT to increase the number of colonoscopy procedures that can be performed at any such facility, Microbot will
seek to promote the technology among the doctors and experts involved in the distribution and buying groups within such selected
partner hospitals.
Competition
SCS
Competitive Landscape
Several
academic research groups, such as at the New Jersey Institute of Technology, are currently researching sensing and obstruction-resistant
catheter designs, and the Smart Sensors and Integrated Microsystems (SSIM) Program at Wayne State University has publicized that
it is engaging in smart shunt development activity. However, based on its knowledge of the patented technologies, Microbot believes
that these technologies are still early in the research and development cycle. The SCS also faces non-direct competition from
Aqueduct Neurosciences, Inc., which is developing a non-shunt, electro-mechanical technology platform to control the draining
of cerebrospinal fluid.
Microbot
does not expect its SCS device to directly compete against shunt systems currently available in the market. The SCS device is
designed to replace a component of existing shunt systems and is expected to be an aftermarket purchase that would be used to
modify existing products by the end user. However, there can be no assurance that Microbot’s product candidate will be accepted
by the shunt market as an alternative component.
TipCAT
Competitive Landscape
The
market for endoscopy products is highly competitive with several players operating both at a global and regional level. The leading
players in the colonoscopy space are Pentax, Fuji and Olympus, which dominate the U.S. market for reusable colonoscopes. However,
Microbot believes that the most relevant competitors to TipCAT are smaller companies such as GI View and SMART Medical Systems,
which produce disposable, self-propelled colonoscopes.
GI
View produces a colonoscope with 360° omni-directional visualization and offers self-propelled intubation created using balloons
and low pressure CO
2
gas. In addition, the GI View product is single use and disposable.
SMART
Medical Systems’ product, which, according to publicly available information is being commercialized by Pentax, is introduced
by a physician through a standard colonoscope’s tool channel and uses its balloon technology to anchor the bowel, which
enables the colonoscope to be maneuvered beyond challenging lumen sections.
Microbot
believes the TipCAT can successfully compete against its relevant competitors in that it offers all of the following attributes:
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the
ability to have varied dimensions during insertion and any subsequent point of a procedure, so as to accommodate the particular
diameters of the organ at any moment, allows for the straightening of an organ’s topography and improved visualization;
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disposability,
which protects against cross-contamination;
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a
working channel for therapeutic interventions (and additional visualization capabilities);
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lower
cost; and
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a
self-propelling mechanism, allowing for passage through challenging anatomical structures while eliminating tissue trauma.
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Some
of Microbot’s competitors currently have significantly greater resources than Microbot does; have established relationships
with healthcare professionals, customers and third-party payors; and have long-term contracts with group purchasing organizations
in the United States. In addition, many of Microbot’s competitors have established distributor networks, greater resources
for product development, sales and marketing, additional lines of products and the ability to offer financial incentives such
as rebates, bundled products or discounts on other product lines that Microbot cannot provide.
Microbot’s
products could also be rendered obsolete or uneconomical by technological advances developed in the future by existing or new
competitors.
Intellectual
Property
General
Microbot
is currently developing its first two product candidates, the SCS and TipCAT based on technological platforms licensed from The
Technion Research and Development Foundation Ltd., or TRDF, as further discussed below, and Microbot plans to develop other micro-robotic
solutions through internal research and development, to strengthen its intellectual property position, and continue exploring
strategic collaborations and accretive acquisition opportunities. Microbot currently holds an intellectual property portfolio
that includes 9 patent families, which include 9 patents granted in the US, 12 patents granted outside the US, and 15 patent applications
pending worldwide. In addition, if and when we acquire a novel patent-protected technology from CardioSert Ltd., a privately-held
medical device company based in Israel, with the addition of CardioSerts’ issued U.S. patent and three patent applications
pending worldwide, Microbot would have a patent portfolio of 25 issued/allowed patents and 15 patent applications pending worldwide.
Microbot
relies or intends to rely on intellectual property licensed or developed, including patents, trade secrets, trademarks, technical
innovations, laws of unfair competition and various licensing agreements, to provide its future growth, to build its competitive
position and to protect its intellectual property. As Microbot continues to expand its intellectual property portfolio, it is
critical for Microbot to continue to invest in filing patent applications to protect its technology, inventions, and improvements.
Microbot
requires its employees and consultants to execute confidentiality agreements in connection with their employment or consulting
relationships with Microbot. Microbot also requires its employees and consultants who work on its product candidates to agree
to disclose and assign to Microbot all inventions conceived during the term of their service, while using Microbot property, or
which relate to Microbot’s business.
Patent
applications in the United States and in foreign countries are maintained in secrecy for a period of time after filing, which
results in a delay between the actual discoveries and the filing of related patent applications and the time when discoveries
are published in scientific and patent literature. Patents issued and patent applications filed relating to medical devices are
numerous, and there can be no assurance that current and potential competitors and other third parties have not filed or in the
future will not file applications for, or have not received or in the future will not receive, patents or obtain additional proprietary
rights relating to product candidates, products, devices or processes used or proposed to be used by Microbot. Microbot believes
that the technologies it employs in its products and systems do not infringe the valid claims of any third party patents. There
can be no assurance, however, that third parties will not seek to assert that Microbot devices and systems infringe their patents
or seek to expand their patent claims to cover aspects of Microbot’s products and systems.
The
medical device industry in general has been characterized by substantial litigation regarding patents and other intellectual property
rights. Any such claims, regardless of their merit, could be time-consuming and expensive to respond to and could divert Microbot’s
technical and management personnel. Microbot may be involved in litigation to defend against claims of infringement by other patent
holders, to enforce patents issued to Microbot, or to protect Microbot’s trade secrets. If any relevant claims of third-party
patents are upheld as valid and enforceable in any litigation or administrative proceeding, Microbot could be prevented from practicing
the subject matter claimed in such patents, or would be required to obtain licenses from the patent owners of each such patent,
or to redesign Microbot’s products, devices or processes to avoid infringement. There can be no assurance that such licenses
would be available or, if available, would be available on terms acceptable to Microbot or Microbot would be successful in any
attempt to redesign products or processes to avoid infringement. Accordingly, an adverse determination in a judicial or administrative
proceeding or failure to obtain necessary licenses could prevent Microbot from manufacturing and selling its products.
Issued
U.S. patents which cover Microbot’s product candidates will expire between 2026 and 2032, excluding any patent term extensions
that might be available following the grant of marketing authorization. Issued patents outside of the United States directed to
Microbot’s product candidates will expire between 2026 and 2032.
License
Agreement with the Technion
In
June 2012, Microbot entered into a license agreement with TRDF, the technology transfer subsidiary of The Technion Institute of
Technology, pursuant to which it obtained an exclusive, worldwide, royalty-bearing, sub-licensable license to certain patents
and inventions relating to the SCS and TipCAT technology platforms invented by Professor Moshe Shoham, a director of and advisor
to the Company, and in certain circumstances other TRDF-related persons. Pursuant to the terms of the license agreement, in order
to maintain the license with respect to each platform, Microbot must use commercially reasonable efforts to develop products covered
by the license, including meeting certain agreed upon development milestones. The milestones for SCS include commencing initial
studies in humans by December 2018 and commencing a full clinical trial, if necessary, by December 2019. The milestones for TipCAT
include commencing initial studies in humans, if needed, by December 2018 and commencing a full clinical trial, if necessary,
by December 2020. Failure to meet any development milestone will give TRDF the right to terminate the license with respect to
the technology underlying the missed milestone. Although Microbot expects to meet the milestone requirements, TRDF has demonstrated
flexibility with respect to amending the terms of the license to extend the milestone dates.
As
partial consideration for the grant of the licenses under the agreement, Microbot issued a number of shares to TRDF equal to 3%
of its issued and outstanding shares at such time on a fully diluted basis. Such shares were initially subject to antidilution
protections but are no longer subject to adjustment. In addition, as partial consideration for the licenses granted, Microbot
agreed to pay TRDF royalties of between 1.5% and 3.0% of net sales of products covered by the licenses, subject to certain reductions,
and certain percentages of amounts received by Microbot in the event of sublicensing.
In
the case of termination of the license by Microbot without cause or by TRDF for cause, TRDF has the right to receive a non-exclusive
license from Microbot with respect to improvements to the licensed technologies made by Microbot. In such cases, TRDF would pay
a royalty of 10% of the income received by TRDF in connection its sublicensing of such patent right and related intellectual property.
If the license from TRDF were to be terminated with respect with either of the technology platforms underlying the SCS or the
TipCAT, Microbot would no longer be able to continue its development of the related product candidate. However, Microbot believes
that its current intellectual property portfolio, and its ongoing efforts to expand into other micro-robotic surgical technologies,
will give it the flexibility to shift its resources towards developing and commercializing related products.
Research
and Development
Microbot’s
research and development programs are generally pursued by engineers and scientists employed by Microbot in its offices in Israel
on a full-time basis or as consultants, or through partnerships with industry leaders in manufacturing and design and researchers
in academia. Microbot is also working with subcontractors in developing specific components of its technologies.
The
primary objectives of Microbot’s research and development efforts are to continue to introduce incremental enhancements
to the capabilities of its candidate products and to advance the development of proposed products.
Microbot
has received funds from the Israeli Innovation Authority (formerly known as the Office of the Chief Scientist in Israel), for
research and development activities. Microbot received a grant from the Israeli Innovation Authority in 2012, which grant reimbursed
Microbot for 50% of its research and development expenses, up to $764,466. This first grant from the Israeli Innovation Authority
ended in 2014. After the expiration of the first grant, Microbot received approval for an additional grant from the Israeli Innovation
Authority which reimbursed Microbot for 50% of its research and development expenses for the period from May 1, 2014 through September
30, 2015, up to $924,166. After the expiration of the second grant, Microbot received an approval for a third grant from the Israeli
Innovation Authority which reimbursed Microbot for 50% of its research and development expenses for the period from May 1, 2016
through April 30, 2017, up to $1,026,050.
In
November 2017, Microbot was awarded an additional non-dilutive grant of up to 2,610,000 Israeli New Shekels (approximately $735,000)
from the Israel Innovation Authority. The grant provides additional sources to be utilized by Microbot for the continued development
of the Self-Cleaning Shunt for the treatment of hydrocephalus and Normal Pressure Hydrocephalus. The grant funds may be used for
or applied towards a number of research and development expenses, such as employees’ salaries, research and development
expenses (including materials, as well as professional and consulting fees. The recoveries are recognized in the corresponding
period when such expenses are incurred. With respect to such grant, Microbot is committed to pay royalties, as, if and when it
successfully commercializes the SCS and generates revenue from sales of the SCS, at a rate of between 3% to 3.5% on sales proceeds
up to the total amount of grants received, linked to the dollar, plus interest at an annual rate of USD LIBOR. Under the terms
of the grant and applicable law, Microbot is restricted from transferring any technologies, know-how, manufacturing or manufacturing
rights developed using the grant outside of Israel without the prior approval of the Israel Innovation Authority. Microbot has
no obligation to repay the grant, if the SCS project fails, is unsuccessful or aborted before any sales are generated. The financial
risk is assumed completely by the IIA.
Microbot
expects to continue to access government funding in the future.
For
the fiscal year ended December 31, 2017, Microbot incurred research and development expenses of approximately $1,100,000 compared
to research and development expenses of $901,000 for the fiscal year ended December 31, 2016.
Microbot
has already made plans to develop a second version of its SCS device that will have an embedded controller and battery. This alternative
design will allow the cleaning mechanism to be automatically activated, without the need for the patient’s involvement in
the activation process.
On
January 27, 2017, Microbot entered into a research agreement with The Washington University in St. Louis to develop the protocol
for and to execute the necessary animal study to determine the effectiveness of the Microbot’s SCS prototype. The initial
research was completed in 2017, and a comprehensive study is expected to be completed in 2018. Upon the completion of animal studies,
Microbot may conduct clinical trials if they are requested by the FDA or if Microbot decides that the data from such trials would
improve the marketability of the product candidate.
Manufacturing
Microbot
does not have any manufacturing facilities or manufacturing personnel. Microbot currently relies, and expects to continue to rely,
on third parties for the manufacturing of its product candidates for preclinical and clinical testing, as well as for commercial
manufacturing if its product candidates receive marketing approval.
Commercialization
Microbot
has not yet established a sales, marketing or product distribution infrastructure for its product candidates, which are still
in development stages. Microbot plans to access the U.S. markets for hydrocephalus, NPH, and colonoscopy with its initial device
offerings through strategic partnerships but may develop its own focused, specialized sales force or distribution channels once
it has several commercialized products in its portfolio. Microbot has not yet developed a commercial strategy outside of the United
States.
Government
Regulation
General
Microbot’s
medical technology products and operations are subject to extensive regulation in the United States and other countries. Most
notably, if Microbot seeks to sell its products in the United States, its products will be subject to the Federal Food, Drug,
and Cosmetic Act (FDCA) as implemented and enforced by the U.S. Food and Drug Administration (FDA). The FDA regulates the development,
bench and clinical testing, manufacturing, labeling, storage, record-keeping, promotion, marketing, sales, distribution and post-market
support and reporting of medical devices in the United States to ensure that medical products distributed domestically are safe
and effective for their intended uses. Regulatory policy affecting its products can change at any time.
Advertising
and promotion of medical devices in the United States, in addition to being regulated by the FDA, are also regulated by the Federal
Trade Commission and by state regulatory and enforcement authorities. Recently, promotional activities for FDA-regulated products
of other companies have been the subject of enforcement action brought under healthcare reimbursement laws and consumer protection
statutes. In addition, under the federal Lanham Act and similar state laws, competitors and others can initiate litigation relating
to advertising claims.
Foreign
countries where Microbot wishes to sell its products may require similar or more onerous approvals to manufacture or market its
products. Government agencies in those countries also enforce laws and regulations that govern the development, testing, manufacturing,
labeling, advertising, marketing and distribution, and market surveillance of medical device products. These regulatory requirements
can change rapidly with relatively short notice.
Other
regulations Microbot encounters in the United States and in other jurisdictions are the regulations that are common to all businesses,
such as employment legislation, implied warranty laws, and environmental, health and safety standards, to the extent applicable.
In the future, Microbot will also encounter industry-specific government regulations that would govern its products, if and when
they are developed for commercial use.
U.S.
Regulation
The
FDA governs the following activities that Microbot performs, will perform, upon the clearance or approval of its product candidates,
or that are performed on its behalf, to ensure that medical products distributed domestically or exported internationally are
safe and effective for their intended uses:
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product
design, and development;
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product
safety, testing, labeling and storage;
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record
keeping procedures; and
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product
marketing.
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There
are numerous FDA regulatory requirements governing the approval or clearance and subsequent commercial marketing of Microbot’s
products. These include:
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the
timely submission of product listing and establishment registration information, along with associated establishment user
fees;
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continued
compliance with the Quality System Regulation, or QSR, which require specification developers and manufacturers, including
third-party manufacturers, to follow stringent design, testing, control, documentation and other quality assurance procedures
during all aspects of the manufacturing process;
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labeling
regulations and FDA prohibitions against the promotion of products for uncleared, unapproved or off-label use or indication;
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clearance
or approval of product modifications that could significantly affect the safety or effectiveness of the device or that would
constitute a major change in intended use;
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Medical
Device Reporting regulations (MDR), which require that manufacturers keep detailed records of investigations or complaints
against their devices and to report to the FDA if their device may have caused or contributed to a death or serious injury
or malfunctioned in a way that would likely cause or contribute to a death or serious injury if it were to recur;
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adequate
use of the Corrective and Preventive Actions process to identify and correct or prevent significant systemic failures of products
or processes or in trends which suggest same;
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post-approval
restrictions or conditions, including post-approval study commitments;
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post-market
surveillance regulations, which apply when necessary to protect the public health or to provide additional safety and effectiveness
data for the device; and
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notices
of correction or removal and recall regulations.
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Unless
an exemption applies, before Microbot can commercially distribute medical devices in the United States, Microbot must obtain,
depending on the classification of the device, either prior 510(k) clearance, 510(k) de-novo clearance or premarket approval (PMA),
from the FDA. The FDA classifies medical devices into one of three classes based on the degree of risk associated with each medical
device and the extent of regulatory controls needed to ensure the device’s safety and effectiveness:
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Class
I devices, which are low risk and subject to only general controls (e.g., registration
and listing, medical device labeling compliance, MDRs, Quality System Regulations, and
prohibitions against adulteration and misbranding) and, in some cases, to the 510(k)
premarket clearance requirements;
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Class
II devices, which are moderate risk and generally require 510(k) or 510(k) de-novo premarket
clearance before they may be commercially marketed in the United States as well as general
controls and potentially special controls like performance standards or specific labeling
requirements; and
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Class
III devices, which are devices deemed by the FDA to pose the greatest risk, such as life-sustaining,
life-supporting or implantable devices, or devices deemed not substantially equivalent
to a predicate device. Class III devices generally require the submission and approval
of a PMA supported by clinical trial data.
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Microbot
expect the medical products in its pipeline currently to be classified as Class II. Class II devices are those for which general
controls alone are insufficient to provide reasonable assurance of safety and effectiveness and there is sufficient information
to establish special controls. Special controls can include performance standards, post-market surveillance, patient histories
and FDA guidance documents. Premarket review and clearance by the FDA for these devices is generally accomplished through the
510(k) or 510(k) de-novo premarket notification process. As part of the 510(k) or 510(k) de-novo notification process, FDA may
require the following:
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Development
of comprehensive product description and indications for use;
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Comprehensive
review of predicate devices and development of data supporting the new product’s
substantial equivalence to one or more predicate devices; and
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If
appropriate and required, certain types of clinical trials (IDE submission and approval
may be required for conducting a clinical trial in the US).
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Clinical
trials involve use of the medical device on human subjects under the supervision of qualified investigators in accordance with
current Good Clinical Practices (GCPs), including the requirement that all research subjects provide informed consent for their
participation in the clinical study. A written protocol with predefined end points, an appropriate sample size and pre-determined
patient inclusion and exclusion criteria, is required before initiating and conducting a clinical trial. All clinical investigations
of devices to determine safety and effectiveness must be conducted in accordance with the FDA’s Investigational device Exemption,
or IDE, regulations that among other things, govern investigational device labeling, prohibit promotion of the investigational
device, and specify recordkeeping, reporting and monitoring responsibilities of study sponsors and study investigators. If the
device presents a “significant risk,” as defined by the FDA, the agency requires the device sponsor to submit an IDE
application, which must become effective prior to commencing human clinical trials. The IDE will automatically become effective
30 days after receipt by the FDA, unless the FDA denies the application or notifies the company that the investigation is on hold
and may not begin. If the FDA determines that there are deficiencies or other concerns with an IDE that requires modification,
the FDA may permit a clinical trial to proceed under a conditional approval. In addition, the study must be approved by, and conducted
under the oversight of, an Institutional Review Board (IRB) for each clinical site. If the device presents a non-significant risk
to the patient, a sponsor may begin the clinical trial after obtaining approval for the trial by one or more IRBs without separate
approval from the FDA, but it must still follow abbreviated IDE requirements, such as monitoring the investigation, ensuring that
the investigators obtain informed consent, and labeling and record-keeping requirements. 510(k) clearance typically involves the
following:
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Assuming
successful completion of all required testing, a detailed 510(k) premarket notification or 510(k) de-novo is submitted to
the FDA requesting clearance to market the product. The notification includes all relevant data from pertinent preclinical
and clinical trials, together with detailed information relating to the product’s manufacturing controls and proposed
labeling, and other relevant documentation.
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A
510(k) clearance letter from the FDA will authorize commercial marketing of the device for one or more specific indications
for use.
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After
510(k) clearance, Microbot will be required to comply with a number of post-clearance requirements, including, but not limited
to, Medical Device Reporting and complaint handling, and, if applicable, reporting of corrective actions. Also, quality control
and manufacturing procedures must continue to conform to QSRs. The FDA periodically inspects manufacturing facilities to assess
compliance with QSRs, which impose extensive procedural, substantive, and record keeping requirements on medical device manufacturers.
In addition, changes to the manufacturing process are strictly regulated, and, depending on the change, validation activities
may need to be performed. Accordingly, manufacturers must continue to expend time, money and effort in the area of production
and quality control to maintain compliance with QSRs and other types of regulatory controls.
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After
a device receives 510(k) clearance from FDA, any modification that could significantly affect its safety or effectiveness, or
that would constitute a major change in its intended use or technological characteristics, requires a new 510(k) clearance or
could require a PMA. The FDA requires each manufacturer to make the determination of whether a modification requires a new 510(k)
notification or PMA in the first instance, but the FDA can review any such decision. If the FDA disagrees with a manufacturer’s
decision not to seek a new 510(k) clearance or PMA for a particular change, the FDA may retroactively require the manufacturer
to seek 510(k) clearance or PMA. The FDA can also require the manufacturer to cease U.S. marketing and/or recall the modified
device until additional 510(k) clearance or PMA approval is obtained.
The
FDA and the Federal Trade Commission, or FTC, will also regulate the advertising claims of Microbot’s products to ensure
that the claims Microbot makes are consistent with its regulatory clearances, that there is scientific data to substantiate the
claims and that product advertising is neither false nor misleading.
To
obtain 510(k) clearance, Microbot must submit a notification to the FDA demonstrating that its proposed device is substantially
equivalent to a predicate device (i.e., a device that was in commercial distribution before May 28, 1976, a device that has been
reclassified from Class III to Class I or Class II, or a 510(k)-cleared device). The FDA’s 510(k) clearance process generally
takes from three to 12 months from the date the application is submitted but also can take significantly longer. If the FDA determines
that the device or its intended use is not substantially equivalent to a predicate device, the device is automatically placed
into Class III, requiring the submission of a PMA.
There
is no guarantee that the FDA will grant Microbot 510(k) clearance for its pipeline medical device products, and failure to obtain
the necessary clearances for its products would adversely affect Microbot’s ability to grow its business. Delays in receipt
or failure to receive the necessary clearances, or the failure to comply with existing or future regulatory requirements, could
reduce its business prospects.
Devices
that cannot be cleared through the 510(k) process due to lack of a predicate device but would be considered low or moderate risk
may be eligible for the 510(k) de-novo process. In 1997, the Food and Drug Administration Modernization Act, or FDAMA added the
de novo classification pathway now codified in section 513(f)(2) of the FD&C Act. This law established an alternate pathway
to classify new devices into Class I or II that had automatically been placed in Class III after receiving a Not Substantially
Equivalent, or NSE, determination in response to a 510(k) submission. Through this regulatory process, a sponsor who receives
an NSE determination may, within 30 days of receipt, request FDA to make a risk-based classification of the device through what
is called a “de novo request.” In 2012, section 513(f)(2) of the FD&C Act was amended by section 607 of the Food
and Drug Administration Safety and Innovation Act (FDASIA), in order to provide a second option for de novo classification. Under
this second pathway, a sponsor who determines that there is no legally marketed device upon which to base a determination of substantial
equivalence can submit a de novo request to FDA without first submitting a 510(k).
In
the event that Microbot receives a Not Substantially Equivalent determination for either of its device candidates in response
to a 510(k) submission, the Microbot device may still be eligible for the 510(k) de-novo classification process.
Devices
that cannot be cleared through the 510(k) or 510(k) de-novo classification process require the submission of a PMA. The PMA process
is much more time consuming and demanding than the 510(k) notification process. A PMA must be supported by extensive data, including
but not limited to data obtained from preclinical and/or clinical studies and data relating to manufacturing and labeling, to
demonstrate to the FDA’s satisfaction the safety and effectiveness of the device. After a PMA application is submitted,
the FDA’s in-depth review of the information generally takes between one and three years and may take significantly longer.
If the FDA does not grant 510(k) clearance to its products, there is no guarantee that Microbot will submit a PMA or that if Microbot
does, that the FDA would grant a PMA approval of Microbot’s products, either of which would adversely affect Microbot’s
business.
Foreign
Regulation
In
addition to regulations in the United States, Microbot will be subject to a variety of foreign regulations governing clinical
trials, marketing authorization and commercial sales and distribution of its products in foreign countries. The approval process
varies from country to country, and the time may be longer or shorter than that required for FDA approval or clearance. The requirements
governing the conduct of clinical trials, product licensing, pricing and reimbursement vary greatly from country to country.
International
sales of medical devices are subject to foreign governmental regulations which vary substantially from country to country. Whether
or not Microbot obtains FDA approval or clearance for its products, Microbot will be required to make new regulatory submissions
to the comparable regulatory authorities of foreign countries before Microbot can commence clinical trials or marketing of the
product in such countries. The time required to obtain certification or approval by a foreign country may be longer or shorter
than that required for FDA clearance or approval, and the requirements may differ. Below are summaries of the regulatory systems
for medical devices in Europe and Israel, where Microbot currently anticipates marketing its products. However, its products may
also be marketed in other countries that have different systems or minimal requirements for medical devices.
Europe
.
The primary regulatory body in Europe is the European Union, or E.U., which consists of 28 member states and has a coordinated
system for the authorization of medical devices.
The
E.U. has adopted legislation, in the form of directives to be implemented in each member state, concerning the regulation of medical
devices within the European Union. The directives include, among others, the Medical Device Directive, or MDD, that establishes
certain requirements with which medical devices must comply before they can be commercialized in the European Economic Area, or
EEA (which comprises the member states of the E.U. plus Norway, Liechtenstein and Iceland). Under the MDD, medical devices are
classified into four Classes, I, IIa, IIb, and III, with Class I being the lowest risk and Class III being the highest risk. However,
the E.U. authorities, including the European Commission, do not have direct regulatory over medical device manufacturers under
the MDD. Rather, the MDD directs E.U. Member States to implement laws and regulations consistent with the provisions set forth
in the directive.
Under
the MDD, to demonstrate compliance of a medical device with the essential requirements, manufacturers must undergo a conformity
assessment procedure, which varies according to the type of medical device and its classification. An accredited body known as
a “Notified Body”, which is an entity designated by an E.U. Member State (or competent authority) to perform conformity
assessments, will typically audit and examine the manufacturer’s quality system for the production, quality, design and
final inspection of the medical devices and review a Technical File containing technical documents regarding the device, including
but limited to, detailed device description, manufacturing information, preclinical and clinical tests, risk analysis, compliance
with essential requirements, etc., before issuing a certification demonstrating compliance with the essential requirements. Medical
devices that comply with the essential requirements are entitled to bear the Conformité Européene, or CE Mark. Medical
devices properly bearing the CE Mark may be commercially distributed throughout the EEA. Under the MDD, notified bodies are also
charged with performing periodic inspections to verify that a manufacturer’s quality system, particularly the production
and quality controls, is adequately executed and maintained.
In
addition, the MDD requires all medical device manufacturers to inform the competent authorities of their respective Member States
of the address(es) of any business facilities and descriptions of any certified medical device products. The MDD also requires
manufacturers to file vigilance reports in the event a device malfunction, deterioration in performance, or inadequate instructions
or labeling results in, or could lead to, death or serious harm to a patient.
In
September 2012, the European Commission published proposals for the revision of the EU regulatory framework for medical devices.
The proposal would replace the MDD with a new regulation, the Medical Devices Regulation, or MDR. Unlike the MDD that must be
implemented into national laws, the Medical Devices Regulation would be directly applicable in all EEA member states and so is
intended to eliminate current national differences in regulation of medical devices. E.U. lawmakers published a revised draft
of the proposed MDR in June 2016, which continues to be discussed within the Council of the European Union and the European Parliament.
Final
formal adoption is expected both by the European Council and the European Parliament during the second quarter of 2017. If finally
adopted, the MDR is expected to become applicable three years thereafter. The adoption of the MDR may, however, be materially
delayed due to disagreements about specific portions of the regulation, as well as the implementation process. In its current
form it would, among other things, impose additional reporting requirements on manufacturers of high risk medical devices, impose
an obligation on manufacturers to appoint a “qualified person” responsible for regulatory compliance, and provide
for more strict clinical evidence requirements. These new rules and procedures will likely result in increased regulatory oversight
of all medical devices marketed in the E.U., and this may, in turn, increase the costs, time and requirements that need to be
met in order to place a medical devices on the EEA market.
Microbot
intends to apply for the CE Mark for each of its medical device products. There is no guarantee that Microbot will be granted
a CE Mark for all or any of its pipeline products and failure to obtain the CE Mark would adversely affect its ability to grow
its business.
Israel
.
Israel’s Medical Devices Law generally requires the registration of all medical products with the Ministry of Health, or
MOH, Registrar as a precondition for production and distribution in Israel. Special exemptions may apply under limited circumstances
and for purposes such as the provision of essential medical treatment, research and development of the medical device, and personal
use, among others.
Registration
of medical devices requires the submission of an application to the Ministry of Health Medical Institutions and Devices Licensing
Department, or AMAR. An application for the registration of a medical device includes the following:
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Name
and address of the manufacturer, and of the importer as applicable;
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Description
of the intended use of the medical device and of its medical indications;
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Technical
details of the medical device and of its components, and in the event that the device or the components are not new, information
should be provided on the date or renovation;
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Certificate
attesting to the safety of the device, issued by a competent authority of one of the following countries: Australia, Canada,
European Community (EC), Member States (MSs), Israel, Japan, or the United States;
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Information
on any risk which may be associated with the use of the device (including precautionary measures to be taken);
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Instructions
for use of the device in Hebrew; the MOH may allow the instructions to be in English for certain devices;
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Details
of the standards to which the device complies;
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Description
of the technical and maintenance services, including periodic checks and inspections; and
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Declaration,
as appropriate: of the local manufacturer/importer, and of the foreign manufacturer.
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If
the application includes a certificate issued by a competent authority of one of the following “recognized” countries:
Australia, Canada, European Community (CE) Member States (MSs), Japan, or the United States, the registration process is generally
expedited, but could still take 6-9 months for approval. If such certificate is not available, the registration process will take
significantly longer and a license is rarely issued. Furthermore, the MOH will determine what type of testing is needed. In general,
in the case of Israeli manufactured devices that are not registered or authorized in any “recognized” country, the
application requires presentation of a risk analysis, a clinical evaluation, a summary of the clinical trials, and expert opinions
regarding the device’s safety and effectiveness. Additional requirements may apply during the registration period, including
follow-up reviews, to improve the quality and safety of the devices.
According
to regulations issued by Israel’s Minister of Health in June 2013, a decision on a request to register a medical device
must be delivered by AMAR within 120 days from the date of the request, although this rarely occurs. The current rules for the
registration of medical devices do not provide for an expedited approval process.
Once
granted by the MOH, a license (marketing authorization) for a medical device is valid for five years from the date of registration
of the device, except for implants with a life-supporting function, for which the validity is for only two years from the date
of registration. Furthermore, the holder of the license, the Israeli Registration Holder, or IRH, must do the following to maintain
its license:
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Reside
and maintain a place of business in Israel and serve as the regulatory representative.
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Respond
to questions from AMAR concerning the registered products.
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Report
adverse events to AMAR.
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Renew
the registration on time to keep the market approval active.
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Comply
with post-marketing requirements, including reporting of adverse and unexpected events occurring in Israel or in other countries
where the device is in use.
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Getting
a device listed on Israel’s four major Sick Funds (health insurance entities) is also necessary in order for Israeli hospitals
and health care providers to order such products.
Microbot
intends to apply for a license from the MOH for each of its medical devices. There is no guarantee that Microbot will be granted
licenses for its pipeline products and failure to obtain such licenses would adversely affect its ability to grow its business.
Employees
Microbot’s
Chief Executive Officer, President and Chairman, Harel Gadot, along with one full-time employee, are based in Microbot’s
U.S. office located in Hingham, Massachusetts. Additionally, Microbot currently has 6 full-time employees and 1 part time employee
based in its office located in Caesarea, Israel. These employees oversee day-to-day operations of the Company supporting management
and leading engineering, manufacturing, intellectual property and administration functions of the Company. As required, Microbot
also engages consultants to provide services to the Company, including regulatory, legal and corporate services. Microbot has
no unionized employees.
Microbot
currently plans to hire an additional 4-6 full-time employees within the next 12 months subject to the availability of funds,
whose principal responsibilities will be the support of its operational, research and development, regulatory and clinical development
activities.
Item
1A.
Risk Factors
This
Annual Report on Form 10-K contains forward-looking statements that involve risks and uncertainties. Our business, operating results,
financial performance, and share price may be materially adversely affected by a number of factors, including but not limited
to the following risk factors, any one of which could cause actual results to vary materially from anticipated results or from
those expressed in any forward-looking statements made by us in this Annual Report on Form 10-K or in other reports, press releases
or other statements issued from time to time. Additional factors that may cause such a difference are set forth elsewhere in this
Annual Report on Form 10-K. Forward-looking statements speak only as of the date of this report. We do not undertake any obligation
to publicly update any forward-looking statements.
Risks
Relating to Microbot’s Financial Position and Need for Additional Capital
Microbot
has had no revenue and has incurred significant operating losses since inception and is expected to continue to incur significant
operating losses for the foreseeable future. The Company may never become profitable or, if achieved, be able to sustain profitability.
Microbot
has incurred significant operating losses since its inception and expects to incur significant losses for the foreseeable future
as Microbot continues its preclinical and clinical development programs for its existing product candidates, SCS and TipCAT; its
research and development of any other future product candidates; and all other work necessary to obtain regulatory clearances
or approvals for its product candidates in the United States and other markets. In the future, Microbot intends to continue conducting
micro-robotics research and development; performing necessary animal and clinical testing; working towards medical device regulatory
compliance; and, if SCS, TipCAT or other future product candidates are approved or cleared for commercial distribution, engaging
in appropriate sales and marketing activities that, together with anticipated general and administrative expenses, will likely
result in Microbot incurring further significant losses for the foreseeable future.
Microbot
is a development-stage medical device company and currently generates no revenue from product sales, and may never be able to
commercialize SCS, TipCAT or other future product candidates, including the potential acquisition of technology from CardioSert
Ltd. Microbot does not currently have the required approvals or clearances to market or test in humans SCS, TipCAT or any other
future product candidates and Microbot may never receive them. Microbot does not anticipate generating significant revenues until
it can successfully develop, commercialize and sell products derived from its product pipeline, of which Microbot can give no
assurance. Even if Microbot or any of its future development partners succeed in commercializing any of its product candidates,
Microbot may never generate revenues significant enough to achieve profitability.
Because
of the numerous risks and uncertainties associated with its product development pipeline and strategy, Microbot cannot accurately
predict when it will achieve profitability, if ever. Failure to become and remain profitable would depress the value of the Company
and could impair its ability to raise capital, which may force the Company to curtail or discontinue its research and development
programs and/or day-to-day operations. Furthermore, there can be no assurance that profitability, if achieved, can be sustained
on an ongoing basis.
Microbot’s
business depends on the success of the SCS and the TipCAT, both of which are still in pre-clinical development. If Microbot is
unable to obtain regulatory approval for or to successfully commercialize these products, its business will be materially harmed.
To
date, the primary focus of Microbot’s product development has been on SCS, for the treatment of hydrocephalus and normal
pressure hydrocephalus, or NPH, and TipCAT, a self-propelling, semi-disposable endoscope being developed initially for use in
colonoscopy procedures. Successful continued development and ultimate regulatory approval or clearance of both SCS and TipCAT
are critical to the future success of Microbot’s business. Microbot has invested, and will continue to invest, a significant
portion of its time and financial resources in the development, pre-clinical and clinical testing of and obtaining regulatory
authorization for SCS and TipCAT. Microbot will need to raise sufficient funds to successfully complete its development of these
products. The future regulatory and commercial success of SCS and TipCAT is subject to a number of risks, including the following:
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Microbot
may not have sufficient financial and other resources to complete the necessary clinical trials for SCS and TipCAT;
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If
clinical trials are required for FDA clearance or approval of SCS or TipCAT, Microbot may not be able to obtain adequate evidence
from such clinical trials of safety and effectiveness in order to receive the applicable clearance or approval from the FDA;
and
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Microbot
does not know the degree to which SCS or TipCAT will be accepted and adopted by physicians, patients and payors, even if approved
or cleared by FDA for commercial marketing.
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If
Microbot is unable to successfully navigate these risks and achieve commercial success for its products, its business will be
significantly harmed and Microbot may never become profitable. These risks would also apply to the CardioSert technology if and
when we close that transaction.
Microbot
has a limited operating history, which may make it difficult to evaluate the prospects for the Company’s future viability.
Microbot
has a limited operating history upon which an evaluation of its business plan or performance and prospects can be made. The business
and prospects of Microbot must be considered in the light of the potential problems, delays, uncertainties and complications that
may be encountered in connection with a newly established business. The risks include, but are not limited to, the possibility
that Microbot will not be able to develop functional and scalable products, or that although functional and scalable, its products
will not be economical to market; that its competitors hold proprietary rights that may preclude Microbot from marketing such
products; that its competitors market a superior or equivalent product; that Microbot is not able to upgrade and enhance its technologies
and products to accommodate new features and expanded service offerings; or the failure to receive necessary regulatory clearances
or approvals for its products. To successfully introduce and market its products at a profit, Microbot must establish brand name
recognition and competitive advantages for its products. There are no assurances that Microbot can successfully address these
challenges. If it is unsuccessful, Microbot and its business, financial condition and operating results could be materially and
adversely affected.
Microbot’s
operations to date have been limited to organizing the company, entering into licensing arrangements to initially obtain rights
to its technologies, developing and securing its technologies, raising capital, developing regulatory and reimbursement strategies
for its product candidates and preparing for pre-clinical and clinical trials of the SCS and TipCAT. Microbot has not yet demonstrated
its ability to successfully complete development of any product candidate, obtain marketing clearance or approval, manufacture
a commercial-scale product or arrange for a third party to do so on its behalf, or conduct sales and marketing activities necessary
for successful product commercialization. Consequently, any predictions made about Microbot’s future success or viability
may not be as accurate as they could be if Microbot had a longer operating history.
Microbot
will need substantial additional funding. If Microbot is unable to raise capital when needed, it could be forced to delay, reduce
or eliminate its product development programs or commercialization efforts.
To
date, Microbot has funded its operations primarily through offerings of debt and equity securities, grants and loans. Microbot
does not know when, or if, it will generate any revenue, but does not expect to generate significant revenue unless and until
it obtains regulatory clearance or approval of and commercializes one of its current or future product candidates. It is anticipated
that the Company will continue to incur losses for the foreseeable future, and that losses will increase as it continues the development
of, and seeks regulatory review of, its product candidates, and begins to commercialize any approved or cleared products following
a successful regulatory review.
Microbot
expects the research and development expenses of the Company to increase substantially in future periods as it conducts pre-clinical
studies in large animals and potentially clinical trials for its product candidates, and especially if it initiates additional
research programs for future product candidates, including the CardioSert technology. In addition, if the Company obtains marketing
clearance or approval for any of its product candidates, it expects to incur significant commercialization expenses related to
product manufacturing, marketing and sales. Furthermore, Microbot expects to incur additional costs associated with operating
as a public company in the United States. Accordingly, the Company will need to obtain substantial additional funding in connection
with its continuing operations. If the Company is unable to raise capital when needed or on attractive terms, it could be forced
to delay, reduce or eliminate its research and development programs or any future commercialization efforts.
Microbot
believes that the net cash of the Company will be sufficient to fund the Company for at least 12 months and fund operations necessary
to continue development activities of the SCS and TipCAT.
The
Company may need to raise additional funds through equity offerings or otherwise in order to meet expected future liquidity needs,
including the introduction of the SCS device into the hydrocephalus and NPH market, and introducing the TipCAT as a next-generation
colonoscope. The Company’s future capital requirements, generally, will depend on many factors, including:
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the
timing and outcomes of the product candidates’ regulatory reviews, subsequent approvals or clearances, or other regulatory
actions;
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the
costs, design, duration and any potential delays of the clinical trials that could be conducted at the FDA’s request
using Microbot’s product candidates;
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the
costs of acquiring, licensing or investing in new and existing businesses, product candidates and technologies;
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the
costs to maintain, expand and defend the scope of Microbot’s intellectual property portfolio;
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the
costs to secure or establish sales, marketing and commercial manufacturing capabilities or arrangements with third parties
regarding same;
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the
Company’s need and ability to hire additional management and scientific and medical personnel; and
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the
costs to operate as a public company in the United States, including the need to implement additional financial and reporting
systems and other internal systems and infrastructure for the Company’s business.
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Raising
additional capital may cause dilution to the Company’s investors, restrict its operations or require it to relinquish rights
to its technologies or product candidates.
Until
such time, if ever, as the Company can generate substantial product revenues, it expects to finance its cash needs through a combination
of equity offerings, licensing, collaboration or similar arrangements, grants and debt financings. The Company does not have any
committed external source of funds. To the extent that the Company raises additional capital through the sale of equity or convertible
debt securities, the ownership interest of its stockholders will be diluted, and the terms of these securities may include liquidation
or other preferences that adversely affect the rights of holder of the Company’s common stock. Debt financing, if available,
may involve agreements that include covenants limiting or restricting the Company’s ability to take specific actions, such
as incurring additional debt, making capital expenditures, declaring dividends or other distributions, selling or licensing intellectual
property rights, and other operating restrictions that could adversely affect the Company’s ability to conduct its business.
If
the Company raises additional funds through licensing, collaboration or similar arrangements, it may have to relinquish valuable
rights to its technologies, future revenue streams, research and development programs or product candidates or to grant licenses
on terms that may not be favorable to the Company. If the Company is unable to raise additional funds through equity or debt financings
or other arrangements when needed, it may be required to delay, limit, reduce or terminate its product development or future commercialization
efforts or grant rights to develop and market product candidates that it would otherwise prefer to develop and market itself.
Risks
Relating to the Development and Commercialization of Microbot’s Product Candidates
Microbot’s
business depends heavily on the success of its lead product candidates, the SCS and the TipCAT. If Microbot is unable to commercialize
the SCS or the TipCAT or experiences significant delays in doing so, Microbot’s business will be materially harmed.
On
January 27, 2017 Microbot entered into a research agreement with The Washington University to develop the protocol for and to
execute the necessary animal study to determine the effectiveness of the Microbot’s SCS prototype. The initial research
was completed in 2017, with a comprehensive study expected to be completed in 2018. Upon the completion of animal studies, Microbot
may conduct clinical trials if they are requested by the FDA or if Microbot decides that the data from such trials would improve
the marketability of the product candidate. Additionally, Microbot is currently reviewing the design and general proof of concept
of the TipCAT and working with experts in the field to define the optimal design, which is expected to be followed by animal studies
during 2017 and 2018. Upon completion, Microbot may conduct clinical trials if they are requested by the FDA or if Microbot decides
that the data from such trials would improve the marketability of the product candidate. After all necessary clinical and performance
data supporting the safety and effectiveness of each product candidate are collected, Microbot must still obtain FDA clearance
or approval to market the device and those regulatory processes can take several months to several years to be completed. Therefore,
Microbot’s ability to generate product revenues will not occur for at least the next few years, if at all, and will depend
heavily on the successful commercialization of SCS and TipCAT in their respective intended markets. The success of each of these
product candidates will depend on a number of factors, including the following:
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the
Company’s ability to obtain additional capital;
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successful
completion of animal studies and, if necessary, human clinical trials and the collection
of sufficient data to demonstrate that the device is safe and effective for its intended
use;
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receipt
of marketing approvals or clearances from FDA and other applicable regulatory authorities;
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establishing
commercial manufacturing arrangements with one or more third parties;
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obtaining
and maintaining patent and trade secret protections;
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protecting
Microbot’s rights in its intellectual property portfolio;
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establishing
sales, marketing and distribution capabilities;
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generating
commercial sales of SCS and TipCAT, as applicable, if and when approved, whether alone
or in collaboration with other entities;
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acceptance
of SCS and TipCAT, as applicable, if and when commercially launched, by the medical community,
patients and third-party payors;
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effectively
competing with existing shunt and endoscope products on the market and any new competing
products that may enter the market; and
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maintaining
quality and an acceptable safety profile of SCS and TipCAT, as applicable, following
clearance or approval.
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If
Microbot does not achieve one or more of these factors in a timely manner or at all, it could experience significant delays or
an inability to successfully commercialize SCS and/or TipCAT, which would materially harm its business.
Microbot’s
product candidates are subject to an uncertain and potentially lengthy domestic regulatory review process. If Microbot does not
obtain and maintain the necessary regulatory authorizations from the Food and Drug Administration, Microbot will not be able to
sell its product candidates in the United States.
Microbot’s
product candidates and operations are subject to extensive regulation in the United States by the FDA under the agency’s
medical device authorities. The FDA regulates the development, bench and clinical testing, manufacturing, labeling, storage, record-keeping,
promotion, marketing sales, distribution and post-market support and reporting of medical devices in the United States to ensure
that medical products distributed domestically are safe and effective for their intended uses. Microbot expects its product candidates
to be classified as Class II. In order to market Class II products for use in the United States, Microbot must first obtain clearance
from the FDA pursuant to Section 510(k) of the Federal Food, Drug, and Cosmetic Act. Clearance under Section 510(k) requires a
demonstration that a new device is substantially equivalent to another device with 510(k) clearance or grandfathered status or
to a device that was reclassified from Class III to Class II or Class I.
If
the FDA determines that the device or its intended use is not substantially equivalent to a predicate device, the device is automatically
placed into Class III, requiring the submission of a premarket approval application (PMA). There is no guarantee that the FDA
will agree with Microbot’s determination that a 510(k) notification is the appropriate regulatory pathway for its products,
or that FDA will grant Microbot 510(k) clearance for its pipeline medical device products even if that pathway is accepted. Failure
to obtain the necessary clearances for its products would adversely affect Microbot’s ability to grow its business. Delays
in receipt or failure to receive the necessary clearances, or the failure to comply with existing or future regulatory requirements,
could reduce our business prospects.
Devices
that cannot be cleared through the 510(k) process due to lack of a predicate device but would be considered low or moderate risk
(in other words, they do not rise to the level of requiring the approval of a PMA) may be eligible for the 510(k) de novo classification
process. If FDA determines that either of Microbot’s product candidates is not eligible for a traditional 510(k), the Microbot
device may still be eligible for the 510(k) de novo process.
Even
if one or both of Microbot’s product candidates receives 510(k) clearance from FDA, under either the traditional pathway
or the de novo 510(k) pathway, any subsequent modification that could significantly affect the device’s safety or effectiveness,
or that would cause them to be marketed for additional indications for use, may require a new 510(k) clearance or a PMA for the
modified products before Microbot will be permitted to market them in the United States. The FDA can require a manufacturer to
cease U.S. marketing and/or recall the modified device until it is satisfied that the appropriate 510(k) clearance or PMA approval
is obtained.
The
FDA may not act favorably or quickly in its review of Microbot’s 510(k), de novo 510(k), or PMA submissions, as applicable,
or Microbot may encounter significant difficulties and costs in its efforts to obtain FDA clearance or approval, any of which
could delay or preclude its sale of its product candidates in the United States. Furthermore, the FDA may request additional data
or require Microbot to conduct further testing, or compile more data, including clinical data and clinical studies, in support
of its 510(k) submission or potentially a de novo 510(k).
Moreover,
the regulatory policies affecting Microbot’s proposed product candidates can change at any time. The changes and their potential
impact on Microbot’s business cannot be accurately predicted. For example, in 2011, the FDA announced a Plan of Action to
modernize and improve the FDA’s premarket review of medical devices, and has implemented, and continues to implement, reforms
intended to streamline the premarket review process. In addition, as part of the Food and Drug Administration Safety and Innovation
Act of 2012, Congress enacted several reforms through the Medical Device Regulatory Improvements and additional miscellaneous
provisions which will further affect both pre- and post-approval medical device regulation. Changes in the FDA 510(k) process
could make clearance more difficult to obtain, increase delay, add uncertainty and have other significant adverse effects on Microbot’s
ability to obtain and maintain clearance for its product candidates.
The
FDA may also, instead of accepting any kind of 510(k) submission, classify a product as high-risk and require Microbot to submit
a PMA for the initial clearance, which is typically a much more complex, lengthy and burdensome application than a 510(k) submission.
To support a PMA, the FDA would likely require that Microbot conduct one or more clinical studies to demonstrate that the device
is safe and effective. In some cases such studies may be requested for a 510(k) or de novo 510(k) as well. Microbot may not be
able to meet the requirements to obtain 510(k) clearance or PMA approval, in which case the FDA may not grant any necessary clearances
or approvals. In addition, the FDA may place significant limitations upon the intended use of its product candidates as a condition
to a 510(k) clearance or PMA approval. Product applications can also be denied or withdrawn due to failure to comply with regulatory
requirements or the occurrence of unforeseen problems following clearance or approval. Any delays or failure to obtain FDA clearance
or approval of new products Microbot develops, any limitations imposed by the FDA on new product use or the costs of obtaining
FDA clearance or approvals could have a material adverse effect on Microbot’s business, financial condition and results
of operations.
Failure
to comply with the regulations or obtain the approvals described above could have a material adverse effect on Microbot’s
business, financial condition and results of operations. There can be no assurance that clinical trials will meet desired endpoints,
produce meaningful or useful data and be free of unexpected adverse effects, and such uncertainty could preclude or delay market
clearance or authorizations resulting in significant financial costs and reduced revenue.
At
this time, Microbot does not know whether the FDA will require it to submit clinical data in support of its future marketing applications
for either product candidate.
Microbot
anticipates that each of its existing product candidates, SCS and TipCAT, will be classified by the FDA as Class II and thus be
eligible for marketing pursuant to a cleared 510(k) notification. However, there is no guarantee that the FDA will agree with
the Company’s determination or that the FDA would accept the predicate devices that Microbot intends to submit in its 510(k)
notifications in order to establish that its new device product is substantially equivalent to one or more predicate devices.
The FDA also may request additional data in response to a 510(k) notification, or require Microbot to conduct further testing
or compile more data in support of its 510(k) submission or de novo 510(k), as appropriate. Such additional data could include
clinical data that must be derived from human clinical studies that are designed appropriately to address the potential questions
from the FDA regarding a proposed product’s safety or effectiveness.
In
order to conduct a clinical investigation involving human subjects for the purpose of demonstrating the safety and effectiveness
of a medical device, a company must, among other things, apply for and obtain Institutional Review Board, or IRB, approval of
the proposed investigation. In addition, if the clinical study involves a “significant risk” (as defined by the FDA)
to human health, the sponsor of the investigation must also submit and obtain FDA approval of an Investigational Device Exemption,
or IDE, application. Microbot may not be able to obtain FDA and/or IRB approval to undertake clinical trials in the United States
for any new devices Microbot intends to market in the United States in the future. Any type of clinical study in humans requires
the investment of substantial expense, professional resources and time. Moreover, the timing of the commencement, continuation
and completion of any future clinical trial may be subject to significant delays attributable to various causes, including scheduling
conflicts with participating clinicians and clinical institutions, difficulties in identifying and enrolling patients who meet
trial eligibility criteria, failure of patients to complete the clinical trial, delay in or failure to obtain IRB approval to
conduct a clinical trial at a prospective site, and shortages of supply in the investigational device.
The
addition of one or more mandatory clinical trials to the development timeline for one or both Microbot product candidates would
significantly increase the costs associated with developing and commercializing the product and delay the timing of U.S. regulatory
authorization.
Unsuccessful
animal studies, clinical trials or procedures relating to product candidates under development could have a material adverse effect
on Microbot’s prospects.
The
regulatory approval process for new products and new indications for existing products requires extensive data and procedures,
including the development of regulatory and quality standards and, potentially, certain clinical studies. Unfavorable or inconsistent
data from current or future clinical trials or other studies conducted by Microbot or third parties, including the studies now
being performed by The Washington University or perceptions regarding such data, could adversely affect Microbot’s ability
to obtain necessary device clearance or approval and the market’s view of Microbot’s future prospects. Failure to
successfully complete these studies in a timely and cost-effective manner could have a material adverse effect on Microbot’s
prospects. Because animal trials, clinical trials and other types of scientific studies are inherently uncertain, there can be
no assurance that these trials or studies will be completed in a timely or cost-effective manner or result in a commercially viable
product. Clinical trials or studies may experience significant setbacks even if earlier preclinical or animal studies have shown
promising results. Furthermore, preliminary results from clinical trials may be contradicted by subsequent clinical analysis.
Results from clinical trials may also not be supported by actual long-term studies or clinical experience. If preliminary clinical
results are later contradicted, or if initial results cannot be supported by actual long-term studies or clinical experience,
Microbot’s business could be adversely affected. Clinical trials also may be suspended or terminated by us, the FDA or other
regulatory authorities at any time if it is believed that the trial participants face unacceptable health risks.
Microbot
has no prior experience in conducting clinical trials and will depend upon the ability of third parties, including contract research
organizations, collaborative academic groups, future clinical trial sites and investigators, to conduct or to assist the Company
in conducting clinical trials for its product candidates, if such trials become necessary.
As
a development-stage, pre-clinical company, Microbot has no prior experience in designing, initiating, conducting and monitoring
human clinical trials, if data from such trials become necessary in order to obtain regulatory clearance or approval of our product
candidates. Should the FDA or another regulatory agency in a foreign market request clinical data to support the safety and effectiveness
of Microbot’s product candidates, Microbot will depend upon its ability and/or the ability of future collaborators, contract
research organizations, clinical trial sites and investigators to successfully design, initiate, conduct and monitor such clinical
trials.
Failure
by Microbot or by any of these future collaborating parties to timely and effectively initiate, conduct and monitor a future clinical
trial could significantly delay or materially impair Microbot’s ability to complete those clinical trials and/or obtain
regulatory clearance or approval of its product candidates and, consequently, could delay or materially impair its ability to
generate revenues from the commercialization of those products.
If
the commercial opportunity for SCS and TipCAT is smaller than Microbot anticipates, Microbot’s future revenue from SCS and
TipCAT will be adversely affected and Microbot’s business will suffer.
If
the size of the commercial opportunities in any of Microbot’s target markets is smaller than it anticipates, Microbot may
not be able to achieve profitability and growth. Microbot is developing SCS as a device for the treatment of hydrocephalus and
NPH and is developing TipCAT as an endoscopic tool, with colonoscopy as the most immediate application of the TipCAT technology.
Microbot expects its future revenues to be primarily derived from the sales of the SCS and TipCAT, neither of which has undergone
an FDA pre-market review process necessary to commercialize the product candidate in the United States. It is difficult to predict
the penetration, future growth rate or size of the market for Microbot’s product candidates.
The
commercial success of the SCS and TipCAT will require broad acceptance of the devices by the doctors and other medical professionals
who specialize in the procedures targeted by each device, a limited number of whom may be able to influence device selection and
purchasing decisions. If Microbot’s technologies are not broadly accepted and perceived as having significant advantages
over existing medical devices, then it will not meet its business objectives. Such perceptions are likely to be based on a determination
by medical facilities and physicians that Microbot’s product candidates are safe and effective, are cost-effective in comparison
to existing devices, and represent acceptable methods of treatment. Microbot cannot assure that it will be able to establish the
relationships and arrangements with medical facilities and physicians necessary to support the market uptake of its product candidates.
In addition, its competitors may develop new technologies for the same markets Microbot is targeting that are more attractive
to medical facilities and physicians. If doctors and other medical professionals do not consider Microbot product candidates to
be suitable for application in the procedures we are targeting and an improvement over the use of existing or competing products,
Microbot’s business goals will not be realized.
Customers
will be unlikely to buy the SCS or the TipCAT unless Microbot can demonstrate that they can be produced for sale to consumers
at attractive prices.
To
date, Microbot has focused primarily on research and development of the first generation versions of the SCS and the TipCAT. Consequently,
Microbot has no experience in manufacturing its product candidates, and intends to manufacture its product candidates through
third-party manufacturers. Microbot can offer no assurance that either it or its manufacturing partners will develop efficient,
automated, low-cost manufacturing capabilities and processes to meet the quality, price, engineering, design and production standards
or production volumes required to successfully mass produce its commercial products. Even if its manufacturing partners are successful
in developing such manufacturing capability and quality processes, including the assurance of GMP-compliant device manufacturing,
there can be no assurance that Microbot can timely meet its product commercialization schedule or the production and delivery
requirements of potential customers. A failure to develop such manufacturing processes and capabilities could have a material
adverse effect on Microbot’s business and financial results.
The
proposed price of Microbot’s product candidates, once approved for sale, will be dependent on material and other manufacturing
costs. Microbot cannot offer any assurances that its manufacturing partner will be able manufacture its product candidates at
a competitive price or that achieving cost reductions will not cause a reduction in the performance, reliability and longevity
of its product candidates.
Microbot
has relied on, and intends to continue to rely on, third-party manufacturers to produce its product candidates.
Microbot
currently relies, and expects to rely for the foreseeable future, on third-party manufacturers to produce and supply its product
candidates, and it expects to rely on third parties to manufacture the commercialized products as well, should they receive the
necessary regulatory clearance or approval. Reliance on third-party manufacturers entails risks to which Microbot would not be
subject if Microbot manufactured its product candidates or future commercial products itself, including:
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limitations
on supply availability resulting from capacity, internal operational problems or scheduling constraints of third parties;
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potential
regulatory non-compliance or other violations by the third-party manufacturer that could result in quality assurance issues
or government enforcement action that has a negative effect on Microbot’s product candidates and distribution strategy;
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the
possible breach of manufacturing agreements by third parties because of various factors beyond Microbot’s control; and
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the
possible termination or non-renewal of manufacturing agreements by third parties for various reasons beyond Microbot’s
control, at a time that is costly or inconvenient to Microbot.
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If
Microbot is not able to maintain its key manufacturing relationships, Microbot may fail to find replacement manufacturers or develop
its own manufacturing capabilities, which could delay or impair Microbot’s ability to obtain regulatory clearance or approval
for its product candidates and could substantially increase its costs or deplete profit margins, if any. If Microbot does find
replacement manufacturers, Microbot may not be able to enter into agreements with them on terms and conditions favorable to it
and there could be a substantial delay before new facilities could be qualified and registered with the FDA and other foreign
regulatory authorities.
If
Microbot’s product candidates are not considered to be a safe and effective alternative to existing technologies, Microbot
will not be commercially successful.
The
SCS and TipCAT rely on new technologies, and Microbot’s success will depend on acceptance of these technologies by the medical
community as safe, clinically effective, cost effective and a preferred device as compared to products of its competitors. Microbot
does not have long-term data regarding efficacy, safety and clinical outcomes associated with the use of SCS or TipCAT. Any data
that is generated in the future may not be positive or may not support the product candidates’ regulatory dossiers, which
would negatively affect market acceptance and the rate at which its product candidates are adopted. Equally important will be
physicians’ perceptions of the safety of Microbot’s product candidates because Microbot’s technologies are relatively
new. If, over the long term, Microbot’s product candidates do not meet surgeons’ expectations as to safety, efficacy
and ease of use, they may not become widely adopted.
Market
acceptance of Microbot’s product candidates will also be affected by other factors, including Microbot’s ability to
convince key opinion leaders to provide recommendations regarding its product candidates; convince distributors that its technologies
are attractive alternatives to existing and competing technologies; supply and service sufficient quantities of products directly
or through marketing alliances; and price products competitively in light of the current macroeconomic environment, which is becoming
increasingly price sensitive.
Microbot
may be subject to penalties and may be precluded from marketing its product candidates if Microbot fails to comply with extensive
governmental regulations.
Microbot
believes that its medical device product candidates will be categorized as Class II devices, which typically require a 510(k)
or 510(k) de-novo premarket submission to the FDA. However, the FDA has not made any determination about whether Microbot’s
medical product candidates are Class II medical devices and may disagree with that classification. If the FDA determines that
Microbot’s product candidates should be reclassified as Class III medical devices, Microbot could be precluded from marketing
the devices for clinical use within the United States for months, years or longer, depending on the specifics of the change in
classification. Reclassification of any of Microbot’s product candidates as Class III medical devices could significantly
increase Microbot’s regulatory costs, including the timing and expense associated with required clinical trials and other
costs.
The
FDA and non-U.S. regulatory authorities require that Microbot product candidates be manufactured according to rigorous standards.
These regulatory requirements significantly increase Microbot’s production costs, which may prevent Microbot from offering
products within the price range and in quantities necessary to meet market demands. If Microbot or one of its third-party manufacturers
changes an approved manufacturing process, the FDA may need to review the process before it may be used. Failure to comply with
applicable pre-market and post-market regulatory requirements could subject Microbot to enforcement actions, including warning
letters, fines, injunctions and civil penalties, recall or seizure of its products, operating restrictions, partial suspension
or total shutdown of its production, and criminal prosecution.
If
Microbot is not able to both obtain and maintain adequate levels of third-party reimbursement for procedures involving its product
candidates after they are approved for marketing and launched commercially, it would have a material adverse effect on Microbot’s
business.
Healthcare
providers and related facilities are generally reimbursed for their services through payment systems managed by various governmental
agencies worldwide, private insurance companies, and managed care organizations. The manner and level of reimbursement in any
given case may depend on the site of care, the procedure(s) performed, the final patient diagnosis, the device(s) utilized, available
budget, or a combination of these factors, and coverage and payment levels are determined at each payor’s discretion. The
coverage policies and reimbursement levels of these third-party payors may impact the decisions of healthcare providers and facilities
regarding which medical products they purchase and the prices they are willing to pay for those products. Microbot cannot assure
you that its sales will not be impeded and its business harmed if third-party payors fail to provide reimbursement for Microbot
products that healthcare providers view as adequate.
In
the United States, Microbot expects that its product candidates, once approved, will be purchased primarily by medical institutions,
which then bill various third-party payors, such as the Centers for Medicare & Medicaid Services, or CMS, which administers
the Medicare program through Medicare Administrative Contractors, and other government health care programs and private insurance
plans, for the healthcare products and services provided to their patients. The process involved in applying for coverage and
incremental reimbursement from CMS is lengthy and expensive. Moreover, many private payors look to CMS in setting their reimbursement
policies and amounts. If CMS or other agencies limit coverage for procedures utilizing Microbot’s products or decrease or
limit reimbursement payments for doctors and hospitals utilizing Microbot’s products, this may affect coverage and reimbursement
determinations by many private payors.
If
a procedure involving a medical device is not reimbursed separately by a government or private insurer, then a medical institution
would have to absorb the cost of Microbot’s products as part of the cost of the procedure in which the products are used.
At this time, Microbot does not know the extent to which medical institutions would consider insurers’ payment levels adequate
to cover the cost of its products. Failure by hospitals and surgeons to receive an amount that they consider to be adequate reimbursement
for procedures in which Microbot products are used could deter them from purchasing Microbot products and limit sales growth for
those products.
Microbot
has no control over payor decision-making with respect to coverage and payment levels for its medical device product candidates,
once they are approved. Additionally, Microbot expects many payors to continue to explore cost-containment strategies (e.g., comparative
and cost-effectiveness analyses, so-called “pay-for-performance” programs implemented by various public government
health care programs and private third-party payors, and expansion of payment bundling initiatives, and other such methods that
shift medical cost risk to providers) that may potentially impact coverage and/or payment levels for Microbot’s current
product candidates or products Microbot develops in the future.
As
Microbot’s product offerings are used across diverse healthcare settings, they will be affected to varying degrees by the
different payment systems.
Clinical
outcome studies for the SCS may not provide sufficient data to make Microbot’s product candidates the standard of care.
Microbot’s
business plan relies on the broad adoption by surgeons of the SCS for primary shunt placement procedures to prevent shunt occlusions.
Although Microbot believes the occurrence of shunt occlusion complications is well known among physicians practicing in the relevant
medical fields, SCS may be adopted for replacement shunt surgeries only. Neurosurgeons may adopt SCS for primary shunt placement
procedures only upon additional clinical studies with longer follow up periods, if at all. It may also be necessary to provide
outcome studies on the preventative capabilities of the SCS in order to convince the medical community of its safety and efficacy.
Clinical studies may not show an advantage in SCS based procedures in a timely manner, or at all, and outcome studies have not
been designed at this time, and may be too large and too costly for Microbot to conduct. Both situations could prevent broad adoption
of the SCS and materially impact Microbot’s business.
Microbot
products may in the future be subject to mandatory product recalls that could harm its reputation, business and financial results.
The
FDA and similar foreign governmental authorities have the authority to require the recall of commercialized products in the event
of material deficiencies or defects in design or manufacture that could pose a risk of injury to patients. In the case of the
FDA, the authority to require a recall must be based on an FDA finding that there is a reasonable probability that the device
would cause serious injury or death, although in most cases this mandatory recall authority is not used because manufacturers
typically initiate a voluntary recall when a device violation is discovered. In addition, foreign governmental bodies have the
authority to require the recall of Microbot products in the event of material deficiencies or defects in design or manufacture.
Manufacturers may, under their own initiative, recall a product if any material deficiency in a device is found. A government-mandated
or voluntary recall by Microbot or one of its distributors could occur as a result of component failures, manufacturing errors,
design or labeling defects or other deficiencies and issues. Recalls of any Microbot products would divert managerial and financial
resources and have an adverse effect on Microbot’s financial condition and results of operations, and any future recall
announcements could harm Microbot’s reputation with customers and negatively affect its sales. In addition, the FDA could
take enforcement action, including any of the following sanctions for failing to timely report a recall to the FDA:
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letters, warning letters, fines, injunctions, consent decrees and civil penalties;
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detention
or seizure of Microbot products;
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operating
restrictions or partial suspension or total shutdown of production;
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refusing
or delaying requests for 510(k) clearance or premarket approval of new products or modified products;
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withdrawing
510(k) clearances or other types of regulatory authorizations -that have already been granted;
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refusing
to grant export approval for Microbot products; or
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criminal
prosecution.
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If
Microbot’s future commercialized products cause or contribute to a death or a serious injury, Microbot will be subject to
Medical Device Reporting regulations, which can result in voluntary corrective actions or agency enforcement actions.
Under
FDA regulations, Microbot will be required to report to the FDA any incident in which a marketed medical device product may have
caused or contributed to a death or serious injury or in which a medical device malfunctioned and, if the malfunction were to
recur, would likely cause or contribute to death or serious injury. In addition, all manufacturers placing medical devices in
European Union markets are legally bound to report any serious or potentially serious incidents involving devices they produce
or sell to the relevant authority in whose jurisdiction the incident occurred.
Microbot
anticipates that in the future it is likely that we may experience events that would require reporting to the FDA pursuant to
the Medical Device Reporting (MDR) regulations. Any adverse event involving a Microbot product could result in future voluntary
corrective actions, such as product actions or customer notifications, or agency actions, such as inspection, mandatory recall
or other enforcement action. Any corrective action, whether voluntary or involuntary, as well as defending Microbot in a lawsuit,
will require the dedication of our time and capital, distract management from operating our business, and may harm our reputation
and financial results.
Microbot
could be exposed to significant liability claims if Microbot is unable to obtain insurance at acceptable costs and adequate levels
or otherwise protect itself against potential product liability claims.
The
testing, manufacture, marketing and sale of medical devices entail the inherent risk of liability claims or product recalls. Product
liability insurance is expensive and may not be available on acceptable terms, if at all. A successful product liability claim
or product recall could inhibit or prevent the successful commercialization of Microbot’s products, cause a significant
financial burden on Microbot, or both, which in any case could have a material adverse effect on Microbot’s business and
financial condition.
The
results of Microbot’s research and development efforts are uncertain and there can be no assurance of the commercial success
of Microbot’s product candidates.
Microbot
believe that its success will depend in part on its ability to expand its product offerings and continue to improve its existing
product candidates in response to changing technologies, customer demands and competitive pressures. As such, Microbot expects
to continue dedicating significant resources in research and development. The product candidates and services being developed
by Microbot may not be technologically successful. In addition, the length of Microbot’s product candidates and service
development cycle may be greater than Microbot originally expected.
We
cannot assure you that we will complete the acquisitions of CardioSert we have under contract on a timely basis or at all.
The
proposed acquisition of certain technologies of CardioSert Ltd. may not be completed, or may not be completed in the time frame,
on the terms or in the manner currently anticipated, as a result of a number of factors, including the failure of the parties
to satisfy one or more of the conditions to closing. There can be no assurance that the conditions to closing of these acquisitions
will be satisfied or waived or that other events will not intervene to delay or result in the failure to close these acquisitions.
There can be no assurance that we will be able to complete this acquisition or to find suitable alternative acquisitions on a
timely basis.
Our
business strategy in part relies on identifying, acquiring and developing complementary technologies and products, which entails
risks which could negatively affect our business, operations and financial condition.
We
may pursue other acquisitions of businesses and technologies. Acquisitions entail numerous risks, including:
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difficulties
in the integration of acquired operations, services and products;
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failure
to achieve expected synergies;
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diversion
of management’s attention from other business concerns;
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assumption
of unknown material liabilities of acquired companies;
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amortization
of acquired intangible assets, which could reduce future reported earnings;
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potential
loss of clients or key employees of acquired companies; and
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dilution
to existing stockholders.
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As
part of our growth strategy, we may consider, and from time to time may engage in, discussions and negotiations regarding transactions,
such as acquisitions, mergers and combinations within our industry. The purchase price for possible acquisitions could be paid
in cash, through the issuance of common stock or other securities, borrowings or a combination of these methods.
We
cannot be certain that we will be able to identify, consummate and successfully integrate acquisitions, and no assurance can be
given with respect to the timing, likelihood or business effect of any possible transaction. For example, we could begin negotiations
that we subsequently decide to suspend or terminate for a variety of reasons. However, opportunities may arise from time to time
that we will evaluate. Any transactions that we consummate would involve risks and uncertainties to us. These risks could cause
the failure of any anticipated benefits of an acquisition to be realized, which could have a material adverse effect on our business,
financial condition, results of operations and prospects.
If
Microbot fails to retain certain of its key personnel and attract and retain additional qualified personnel, Microbot might not
be able to pursue its growth strategy effectively.
Microbot
is dependent on its senior management, in particular Harel Gadot, Microbot’s Chairman, President and Chief Executive Officer.
Although Microbot believes that its relationship with members of its senior management is positive, there can be no assurance
that the services of any of these individuals will continue to be available to Microbot in the future. Microbot’s future
success will depend in part on its ability to retain its management and scientific teams, to identify, hire and retain additional
qualified personnel with expertise in research and development and sales and marketing, and to effectively provide for the succession
of senior management, when necessary. Competition for qualified personnel in the medical device industry is intense and finding
and retaining qualified personnel with experience in the industry is very difficult. Microbot believes that there are only a limited
number of individuals with the requisite skills to serve in key positions at Microbot, particularly in Israel, and it competes
for key personnel with other medical equipment and technology companies, as well as research institutions.
Microbot
does not carry, and does not intend to carry, any key man life insurance policies on any of its existing executive officers.
Risks
Relating to International Business
If
Microbot fails to obtain regulatory clearances in other countries for its product candidates under development, Microbot will
not be able to commercialize these product candidates in those countries.
In
order for Microbot to market its product candidates in countries other than the United States, it must comply with the safety
and quality regulations in such countries.
In
Europe, these regulations, including the requirements for approvals, clearance or grant of Conformité Européenne,
or CE, Certificates of Conformity and the time required for regulatory review, vary from country to country. Failure to obtain
regulatory approval, clearance or CE Certificates of Conformity (or equivalent) in any foreign country in which Microbot plans
to market its product candidates may harm its ability to generate revenue and harm its business. Approval and CE marking procedures
vary among countries and can involve additional product testing and additional administrative review periods. The time required
to obtain approval or CE Certificate of Conformity in other countries might differ from that required to obtain FDA clearance.
The regulatory approval or CE marking process in other countries may include all of the risks detailed above regarding FDA clearance
in the United States. Regulatory approval or the CE marking of a product candidate in one country does not ensure regulatory approval
in another, but a failure or delay in obtaining regulatory approval or a CE Certificate of Conformity in one country may negatively
impact the regulatory process in others. Failure to obtain regulatory approval or a CE Certificate of Conformity in other countries
or any delay or setback in obtaining such approval could have the same adverse effects described above regarding FDA clearance
in the United States.
Microbot
cannot be certain that it will be successful in complying with the requirements of the CE Certificate of Conformity and receiving
a CE Mark for its product candidates or in continuing to meet the requirements of the Medical Devices Directive in the European
Economic Area (EEA).
Israel’s
Medical Devices Law generally requires the registration of all medical products with the Ministry of Health, or MOH, Registrar
through the submission of an application to the Ministry of Health Medical Institutions and Devices Licensing Department, or AMAR.
If the application includes a certificate issued by a competent authority of a “recognized” country, which includes
Australia, Canada, the European Community Member States, Japan or the United States, the registration process is expedited, but
is generally still expected to take 6 to 9 months for approval. If certification from a recognized country is not available, the
registration process takes significantly longer and a license is rarely issued under such circumstances, as the MOH may require
the presentation of significant additional clinical data. Once granted, a license (marketing authorization) for a medical device
is valid for five years from the date of registration of the device, except for implants with a life-supporting function, for
which the validity is for only two years from the date of registration. Furthermore, the holder of the license must meet several
additional requirements to maintain the license. Microbot cannot be certain that it will be successful in applying for a license
from the MOH for its product candidates.
Microbot
operations in international markets involve inherent risks that Microbot may not be able to control.
Microbot’s
business plan includes the marketing and sale of its proposed product candidates internationally, and specifically in Europe and
Israel. Accordingly, Microbot’s results could be materially and adversely affected by a variety of factors relating to international
business operations that it may or may not be able to control, including:
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adverse
macroeconomic conditions affecting geographies where Microbot intends to do business;
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foreign
currency exchange rates;
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political
or social unrest or economic instability in a specific country or region;
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higher
costs of doing business in certain foreign countries;
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infringement
claims on foreign patents, copyrights or trademark rights;
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difficulties
in staffing and managing operations across disparate geographic areas;
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difficulties
associated with enforcing agreements and intellectual property rights through foreign
legal systems;
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trade
protection measures and other regulatory requirements, which affect Microbot’s
ability to import or export its product candidates from or to various countries;
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adverse
tax consequences;
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unexpected
changes in legal and regulatory requirements;
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military
conflict, terrorist activities, natural disasters and medical epidemics; and
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Microbot’s
ability to recruit and retain channel partners in foreign jurisdictions.
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Microbot’s
financial results may be affected by fluctuations in exchange rates and Microbot’s current currency hedging strategy may
not be sufficient to counter such fluctuations.
Microbot’s
financial statements are denominated in U.S. dollars and the financial results of the Company are denominated in U.S. dollars,
while a significant portion of Microbot’s business is conducted, and a substantial portion of its operating expenses are
payable, in currencies other than the U.S. dollar. Exchange rate fluctuations may have an adverse impact on Microbot’s future
revenues or expenses as presented in the financial statements. Microbot may in the future use financial instruments, such as forward
foreign currency contracts, in its management of foreign currency exposure. These contracts would primarily require Microbot to
purchase and sell certain foreign currencies with or for U.S. dollars at contracted rates. Microbot may be exposed to a credit
loss in the event of non-performance by the counterparties of these contracts. In addition, these financial instruments may not
adequately manage Microbot’s foreign currency exposure. Microbot’s results of operations could be adversely affected
if Microbot is unable to successfully manage currency fluctuations in the future.
Risks
Relating to Microbot’s Intellectual Property
Microbot’s
right to develop and commercialize its existing product candidates are subject to the terms and condition of a license granted
to Microbot by Technion Research and Development Foundation Ltd. and termination of the license with respect to one or both of
the technology platforms underlying the product candidates would result in Microbot ceasing its development efforts for the applicable
product candidate(s).
Microbot
entered into a license agreement with Technion Research and Development Foundation Ltd., or TRDF, in 2012 pursuant to which Microbot
obtained an exclusive, worldwide, royalty-bearing, sub-licensable license to certain patents and inventions relating to the SCS
and TipCAT technology platforms. Pursuant to the terms of the license agreement, in order to maintain the license with respect
to each platform, Microbot must use commercially reasonable efforts to develop products covered by the license, including meeting
certain agreed upon development milestones. TRDF has the option to terminate a license granted with respect a particular technology
in the event Microbot fails to meet a development milestone associated with such technology. Therefore, the failure to meet development
milestones may lead to a complete termination of the applicable license agreement and result in Microbot ceasing its development
efforts for the applicable product candidate. The milestones for SCS include commencing initial studies in humans by December
2018 and commencing a clinical trial, if necessary, by December 2019. The milestones for TipCAT include commencing initial studies
in humans by December 2018 and commencing a full clinical trial, if necessary, by December 2020. Failure to meet any development
milestone will give TRDF the right to terminate the license with respect to the technology underlying the missed milestone. Although
Microbot expects to meet the milestone requirements, TRDF has demonstrated flexibility with respect to amending the terms of the
license to extend the milestone dates, although we can give no assurance at this time that TRDF will continue to be so flexible
with respect to amending the terms of the license.
Under
the license agreement, Microbot is also subject to various other obligations, including obligations with respect to payment upon
the achievement of certain milestones and royalties on product sales. TRDF may terminate the license agreement under certain circumstances,
including material breaches by Microbot or under certain bankruptcy or insolvency events. In the case of termination of the license
by Microbot without cause or by TRDF for cause, TRDF has the right to receive a non-exclusive license from Microbot with respect
to improvements to the licensed technologies made by Microbot.
If
TRDF were to terminate the license agreement or if Microbot was to otherwise lose the ability to exploit the licensed patents,
Microbot’s competitive advantage could be reduced or terminated, and Microbot will likely not be able to find a source to
replace the licensed technology.
However,
if there is any future dispute between Microbot and TRDF regarding the respective parties’ rights under the license agreement,
Microbot’s ability to develop and commercialize the SCS and TipCAT may be materially harmed.
Microbot
may not meet its product candidates’ development and commercialization objectives in a timely manner or at all.
Microbot
has established internal goals, based upon expectations with respect to its technologies, which Microbot has used to assess its
progress toward developing its product candidates. These goals relate to technology and design improvements as well as to dates
for achieving specific development results. If the product candidates exhibit technical defects or are unable to meet cost or
performance goals, Microbot’s commercialization schedule could be delayed and potential purchasers of its initial commercialized
products may decline to purchase such products or may opt to pursue alternative products, which would materially harm its business.
Intellectual
property litigation and infringement claims could cause Microbot to incur significant expenses or prevent Microbot from selling
certain of its product candidates.
The
medical device industry is characterized by extensive intellectual property litigation. From time to time, Microbot might be the
subject of claims by third parties of potential infringement or misappropriation. Regardless of outcome, such claims are expensive
to defend and divert the time and effort of Microbot’s management and operating personnel from other business issues. A
successful claim or claims of patent or other intellectual property infringement against Microbot could result in its payment
of significant monetary damages and/or royalty payments or negatively impact its ability to sell current or future products in
the affected category and could have a material adverse effect on its business, cash flows, financial condition or results of
operations.
If
Microbot or TRDF are unable to protect the patents or other proprietary rights relating to Microbot’s product candidates,
or if Microbot infringes on the patents or other proprietary rights of others, Microbot’s competitiveness and business prospects
may be materially damaged.
Microbot’s
success depends on its ability to protect its intellectual property (including its licensed intellectual property) and its proprietary
technologies. Microbot’s commercial success depends in part on its ability to obtain and maintain patent protection and
trade secret protection for its product candidates, proprietary technologies, and their uses, as well as its ability to operate
without infringing upon the proprietary rights of others.
Microbot
currently holds, through licenses or otherwise, an intellectual property portfolio that includes U.S. and international patents
and pending patents, and other patents under development. Microbot intends to continue to seek legal protection, primarily through
patents, including the TRDF licensed patents, for its proprietary technology. Seeking patent protection is a lengthy and costly
process, and there can be no assurance that patents will be issued from any pending applications, or that any claims allowed from
existing or pending patents will be sufficiently broad or strong to protect its proprietary technology. There is also no guarantee
that any patents Microbot holds, through licenses or otherwise, will not be challenged, invalidated or circumvented, or that the
patent rights granted will provide competitive advantages to Microbot. Microbot’s competitors have developed and may continue
to develop and obtain patents for technologies that are similar or superior to Microbot’s technologies. In addition, the
laws of foreign jurisdictions in which Microbot develops, manufactures or sells its product candidates may not protect Microbot’s
intellectual property rights to the same extent as do the laws of the United States.
Adverse
outcomes in current or future legal disputes regarding patent and other intellectual property rights could result in the loss
of Microbot’s intellectual property rights, subject Microbot to significant liabilities to third parties, require Microbot
to seek licenses from third parties on terms that may not be reasonable or favorable to Microbot, prevent Microbot from manufacturing,
importing or selling its product candidates, or compel Microbot to redesign its product candidates to avoid infringing third parties’
intellectual property. As a result, Microbot may be required to incur substantial costs to prosecute, enforce or defend its intellectual
property rights if they are challenged. Any of these circumstances could have a material adverse effect on Microbot’s business,
financial condition and resources or results of operations.
Microbot
has the first right, but not the obligation, to control the prosecution, maintenance or enforcement of the licensed patents from
TRDF. However, there may be situations in which Microbot will not have control over the prosecution, maintenance or enforcement
of the patents that Microbot licenses, or may not have sufficient ability to consult and input into the patent prosecution and
maintenance process with respect to such patents. If Microbot does not control the patent prosecution and maintenance process
with respect to the TRDF licensed patents, TRDF may elect to do so but may fail to take the steps that are necessary or desirable
in order to obtain, maintain and enforce the licensed patents.
Microbot’s
ability to develop intellectual property depends in large part on hiring, retaining and motivating highly qualified design and
engineering staff and consultants with the knowledge and technical competence to advance its technology and productivity goals.
To protect Microbot’s trade secrets and proprietary information, Microbot has entered into confidentiality agreements with
its employees, as well as with consultants and other parties. If these agreements prove inadequate or are breached, Microbot’s
remedies may not be sufficient to cover its losses.
Dependence
on patent and other proprietary rights and failing to protect such rights or to be successful in litigation related to such rights
may result in Microbot’s payment of significant monetary damages or impact offerings in its product portfolios.
Microbot’s
long-term success largely depends on its ability to market technologically competitive product candidates. If Microbot fails to
obtain or maintain adequate intellectual property protection, it may not be able to prevent third parties from using its proprietary
technologies or may lose access to technologies critical to our product candidates. Also, Microbot currently pending or future
patent applications may not result in issued patents, and issued patents are subject to claims concerning priority, scope and
other issues.
Furthermore,
Microbot has not filed applications for all of our patents internationally and it may not be able to prevent third parties from
using its proprietary technologies or may lose access to technologies critical to its product candidates in other countries.
Risks
Relating to Operations in Israel
Microbot
has facilities located in Israel, and therefore, political conditions in Israel may affect Microbot’s operations and results.
Microbot
has facilities located in Israel. In addition, three of its seven directors (one of whom is also its Chief Operating Officer)
and its Chief Financial Officer, are residents of Israel. Accordingly, political, economic and military conditions in Israel will
directly or indirectly affect Microbot’s operations and results. Since the establishment of the State of Israel, a number
of armed conflicts have taken place between Israel and its Arab neighbors. An ongoing state of hostility, varying in degree and
intensity has led to security and economic problems for Israel. For a number of years there have been continuing hostilities between
Israel and the Palestinians. This includes hostilities with the Islamic movement Hamas in the Gaza Strip, which have adversely
affected the peace process and at times resulted in armed conflicts. Such hostilities have negatively influenced Israel’s
economy as well as impaired Israel’s relationships with several other countries. Israel also faces threats from Hezbollah
militants in Lebanon, from ISIS and rebel forces in Syria, from the government of Iran and other potential threats from additional
countries in the region. Moreover, some of Israel’s neighboring countries have recently undergone or are undergoing significant
political changes. These political, economic and military conditions in Israel could have a material adverse effect on Microbot’s
business, financial condition, results of operations and future growth.
Political
relations could limit Microbot’s ability to sell or buy internationally.
Microbot
could be adversely affected by the interruption or reduction of trade between Israel and its trading partners. Some countries,
companies and organizations continue to participate in a boycott of Israeli firms and others doing business with Israel, with
Israeli companies or with Israeli-owned companies operating in other countries. Foreign government defense export policies towards
Israel could also make it more difficult for us to obtain the export authorizations necessary for Microbot’s activities.
Also, over the past several years there have been calls in Europe and elsewhere to reduce trade with Israel. There can be no assurance
that restrictive laws, policies or practices directed towards Israel or Israeli businesses will not have an adverse impact on
Microbot’s business.
Israel’s
economy may become unstable.
From
time to time, Israel’s economy may experience inflation or deflation, low foreign exchange reserves, fluctuations in world
commodity prices, military conflicts and civil unrest. For these and other reasons, the government of Israel has intervened in
the economy employing fiscal and monetary policies, import duties, foreign currency restrictions, controls of wages, prices and
foreign currency exchange rates and regulations regarding the lending limits of Israeli banks to companies considered to be in
an affiliated group. The Israeli government has periodically changed its policies in these areas. Reoccurrence of previous destabilizing
factors could make it more difficult for Microbot to operate its business and could adversely affect its business.
Exchange
rate fluctuations between the U.S. dollar and the NIS currencies may negatively affect Microbot’s operating costs.
A
significant portion of Microbot’s expenses are paid in New Israeli Shekels, or NIS, but its financial statements are denominated
in U.S. dollars. As a result, Microbot is exposed to the risks that the NIS may appreciate relative to the U.S. dollar, or the
NIS instead devalues relative to the U.S. dollar, and the inflation rate in Israel may exceed such rate of devaluation of the
NIS, or that the timing of such devaluation may lag behind inflation in Israel. In any such event, the U.S. dollar cost of Microbot’s
operations in Israel would increase and Microbot’s U.S. dollar-denominated results of operations would be adversely affected.
Microbot cannot predict any future trends in the rate of inflation in Israel or the rate of devaluation (if any) of the NIS against
the U.S. dollar.
Microbot’s
primary expenses paid in NIS that are not linked to the U.S. dollar are employee expenses in Israel and lease payments on its
Israeli facility. If Microbot is unsuccessful in hedging against its position in NIS, a change in the value of the NIS compared
to the U.S. dollar could increase Microbot’s research and development expenses, labor costs and general and administrative
expenses, and as a result, have a negative impact on Microbot’s profits.
Funding
and other benefits provided by Israeli government programs may be terminated or reduced in the future and the terms of such funding
may have a significant impact on future corporate decisions.
Microbot
participates in programs under the auspices of the Israeli Innovation Authority, for which it receives funding for the development
of its technologies and product candidates. If Microbot fails to comply with the conditions applicable to this program, it may
be required to pay additional penalties or make refunds and may be denied future benefits. From time to time, the government of
Israel has discussed reducing or eliminating the benefits available under this program, and therefore these benefits may not be
available in the future at their current levels or at all.
Microbot’s
research and development efforts from inception until now have been financed in part through such Israeli Innovation Authority
royalty bearing grants in an aggregate amount of approximately $1,183,000 through December 31, 2017. With respect to such grants
Microbot is committed to pay royalties at a rate of between 3% to 3.5% on sales proceeds up to the total amount of grants received,
linked to the dollar, plus interest at an annual rate of USD LIBOR. In addition, as a recipient of Israeli Innovation Authority
grants, Microbot must comply with the requirements of the Israeli Encouragement of Industrial Research and Development Law, 1984,
or the R&D Law, and related regulations. Under the terms of the grants and the R&D Law, Microbot is restricted from transferring
any technologies, know-how, manufacturing or manufacturing rights developed using Israeli Innovation Authority grants outside
of Israel without the prior approval of Israeli Innovation Authority. Therefore, if aspects of its technologies are deemed to
have been developed with Israeli Innovation Authority funding, the discretionary approval of an Israeli Innovation Authority committee
would be required for any transfer to third parties outside of Israel of the technologies, know-how, manufacturing or manufacturing
rights related to such aspects. Furthermore, the Israeli Innovation Authority may impose certain conditions on any arrangement
under which it permits Microbot to transfer technology or development outside of Israel or may not grant such approvals at all.
If
approved, the transfer of Israeli Innovation Authority-supported technology or know-how outside of Israel may involve the payment
of significant fees, which will depend on the value of the transferred technology or know-how, the total amount Israeli Innovation
Authority funding received by Microbot, the number of years since the funding and other factors. These restrictions and requirements
for payment may impair Microbot’s ability to sell its technology assets outside of Israel or to outsource or transfer development
or manufacturing activities with respect to any product or technology outside of Israel. Furthermore, the amount of consideration
available to Microbot’s shareholders in a transaction involving the transfer of technology or know-how developed with Israeli
Innovation Authority funding outside of Israel (such as through a merger or other similar transaction) may be reduced by any amounts
that Microbot is required to pay to the Israeli Innovation Authority.
Some
of Microbot’s employees and officers are obligated to perform military reserve duty in Israel.
Generally,
Israeli adult male citizens and permanent residents are obligated to perform annual military reserve duty up to a specified age.
They also may be called to active duty at any time under emergency circumstances, which could have a disruptive impact on Microbot’s
workforce.
It
may be difficult to enforce a non-Israeli judgment against Microbot or its officers and directors.
The
operating subsidiary of the Company is incorporated in Israel. Some of Microbot’s executive officers and directors are not
residents of the United States, and a substantial portion of Microbot’s assets and the assets of its executive officers
and directors are located outside the United States. Therefore, a judgment obtained against Microbot, or any of these persons,
including a judgment based on the civil liability provisions of the U.S. federal securities laws, may not be collectible in the
United States and may not necessarily be enforced by an Israeli court. It also may be difficult to affect service of process on
these persons in the United States or to assert U.S. securities law claims in original actions instituted in Israel. Additionally,
it may be difficult for an investor, or any other person or entity, to initiate an action with respect to U.S. securities laws
in Israel. Israeli courts may refuse to hear a claim based on an alleged violation of U.S. securities laws reasoning that Israel
is not the most appropriate forum in which to bring such a claim. In addition, even if an Israeli court agrees to hear a claim,
it may determine that Israeli law and not U.S. law is applicable to the claim. If U.S. law is found to be applicable, the content
of applicable U.S. law often involves the testimony of expert witnesses, which can be a time consuming and costly process. Certain
matters of procedure will also be governed by Israeli law. There is little binding case law in Israel that addresses the matters
described above. As a result of the difficulty associated with enforcing a judgment against Microbot in Israel, it may be impossible
to collect any damages awarded by either a U.S. or foreign court.
Risks
Relating to Microbot’s Securities, Governance and Other Matters
If
we fail to comply with the continued listing requirements of The Nasdaq Capital Market, our common stock may be delisted and the
price of our common stock and our ability to access the capital markets could be negatively impacted.
Our
common stock is currently listed on the Nasdaq Capital Market. In order to maintain that listing, we must satisfy minimum financial
and other continued listing requirements and standards, including those regarding director independence and independent committee
requirements, minimum stockholders’ equity, minimum share price, and certain corporate governance requirements. There can
be no assurances that we will be able to comply with the applicable listing standards.
On
March 23, 2018, we were notified by The Nasdaq Stock Market, LLC (“Nasdaq”) that it was not in compliance with the
minimum bid price requirements set forth in Nasdaq Listing Rule 5550(a)(2) for continued listing on The Nasdaq Capital Market.
Nasdaq Listing Rule 5550(a)(2) requires listed securities to maintain a minimum bid price of $1.00 per share, and Nasdaq Listing
Rule 5810(c)(3)(A) provides that a failure to meet the minimum bid price requirement exists if the deficiency continues for a
period of 30 consecutive business days. The notification provided that we have 180 calendar days, or until September 18, 2018,
to regain compliance with Nasdaq Listing Rule 5550(a)(2). During that time, our shares of common stock will continue to be listed
and traded on The Nasdaq Capital Market. To regain compliance, the closing bid price of our shares of common stock needed to meet
or exceed $1.00 per share for at least 10 consecutive business days during the 180 calendar day compliance period,
No
assurance can be given that we will regain compliance with Nasdaq Listing Rule 5550(a)(2) or meet applicable Nasdaq continued
listing standards in the future. Failure to meet applicable Nasdaq continued listing standards could result in a delisting of
our common stock. A delisting of our common stock from The Nasdaq Capital Market could materially reduce the liquidity of our
common stock and result in a corresponding material reduction in the price of our common stock. In addition, delisting could harm
our ability to raise capital on terms acceptable to us, or at all, and may result in the potential loss of confidence by investors,
employees and fewer business opportunities. Additionally, if we are not eligible for quotation or listing on another exchange,
trading of our common stock could be conducted only in the over-the-counter market or on an electronic bulletin board established
for unlisted securities such as the Pink Sheets or the OTC Bulletin Board. In such event, it could become more difficult to dispose
of, or obtain accurate price quotations for, our common stock, and there would likely also be a reduction in our coverage by securities
analysts and the news media, which could cause the price of our common stock to decline further.
Our
executive officers and directors, through their ownership of common stock, can substantially influence the outcome of matters
requiring shareholder approval and may prevent you and other stockholders from influencing significant corporate decisions, which
could result in conflicts of interest that could cause the Company’s stock price to decline.
Our
executive officers and directors collectively beneficially own shares of Common Stock equal to approximately 25% of our outstanding
shares of Common Stock. As a result, such individuals will have the ability, acting together, to substantially influence the election
of our directors and the outcome of corporate actions requiring shareholder approval, such as: (i) a merger or a sale of our Company,
(ii) a sale of all or substantially all of our assets, and (iii) amendments to our articles of incorporation and bylaws. This
concentration of voting power and control could have a significant effect in delaying, deferring or preventing an action that
might otherwise be beneficial to our other shareholders and be disadvantageous to our shareholders with interests different from
those individuals. These individuals also have significant control over our business, policies and affairs as officers and/or
directors of our Company. These stockholders may exert influence in delaying or preventing a change in control of the Company,
even if such change in control would benefit the other stockholders of the Company. Lastly, the significant concentration of stock
ownership may adversely affect the market value of the Company’s common stock due to investors’ perception that conflicts
of interest may exist or arise. Therefore, you should not invest in reliance on your ability to have any control over the Company.
We
do not expect to pay cash dividends on our common stock.
We
anticipate that we will retain our earnings, if any, for future growth and therefore do not anticipate paying cash dividends on
our Common Stock in the future. Investors seeking cash dividends should not invest in our Common Stock for that purpose.
Anti-takeover
provisions in the Company’s charter and bylaws under Delaware law may prevent or frustrate attempts by stockholders to change
the board of directors or current management and could make a third-party acquisition of the Company difficult.
Provisions
in the Company’s certificate of incorporation and bylaws may delay or prevent an acquisition or a change in management.
These provisions include a classified board of directors. In addition, because the Company is incorporated in Delaware, it is
governed by the provisions of Section 203 of the DGCL, which prohibits stockholders owning in excess of 15% of outstanding voting
stock from merging or combining with the Company. Although the Company believes these provisions collectively will provide for
an opportunity to receive higher bids by requiring potential acquirors to negotiate with the Company’s board of directors,
they would apply even if the offer may be considered beneficial by some stockholders. In addition, these provisions may frustrate
or prevent any attempts by the Company’s stockholders to replace or remove then current management by making it more difficult
for stockholders to replace members of the board of directors, which is responsible for appointing members of management.
The
market price for our Common Stock may be volatile.
The
market price for our Common Stock may be volatile and subject to wide fluctuations in response to factors including the following:
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actual
or anticipated fluctuations in our quarterly or annual operating results;
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changes
in financial or operational estimates or projections;
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conditions
in markets generally;
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changes
in the economic performance or market valuations of companies similar to ours;
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announcements
by us or our competitors of new products, acquisitions, strategic partnerships, joint
ventures or capital commitments;
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our
intellectual property position; and
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general
economic or political conditions in the United States, Israel or elsewhere.
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addition, the securities market has from time to time experienced significant price and volume fluctuations that are not related
to the operating performance of particular companies. These market fluctuations may also materially and adversely affect the market
price of shares of our Common Stock.
The
issuance of shares upon exercise of outstanding warrants and options could cause immediate and substantial dilution to existing
stockholders.
The
issuance of shares upon exercise of warrants and options could result in substantial dilution to the interests of other stockholders
since the holders of such securities may ultimately convert and sell the full amount issuable on conversion.
We
are subject to litigation and may be subject to similar or other litigation in the future, which may divert management’s
attention and have a material adverse effect on our business, financial condition and results of operations.
We
are subject to litigation with investors in our June 2017 securities offering. Litigation in general can be expensive, lengthy,
and disruptive to normal business operations. Moreover, the results of legal proceedings are difficult to predict. Responding
to lawsuits brought against us, or legal actions that we may initiate, can often be expensive and time-consuming. Unfavorable
outcomes from these claims and/or lawsuits could materially adversely affect our business, results of operations, and financial
condition, and we could incur substantial monetary liability and/or be required to change our business plans or practices.