ITEM
1. BUSINESS
Our fiscal year ends
on March 31 of each calendar year. Each reference to a fiscal year in this Report, refers to the fiscal year ended March 31 of the calendar
year indicated (for example, fiscal 2022 refers to the fiscal year ended March 31, 2022). Unless the context requires otherwise,
references to “we,” “us,” “our,” and the “Company” refer to Modular Medical, Inc. and
its consolidated subsidiary.
Overview
We are a development
stage medical device company focused on the design, development, and commercialization of an innovative insulin pump using modernized
technology to increase pump adoption in the diabetes marketplace. Through the creation of a novel two-part patch pump, our MODD1 product
candidate, or MODD1, we seek to fundamentally alter the trade-offs between cost and complexity and access to the higher standards of
care that presently available insulin pumps provide. By simplifying and streamlining the user experience from introduction, prescription,
reimbursement, training and day-to-day use, we seek to expand the wearable insulin delivery device market beyond the highly motivated
“super users” and expand the category into the mass market. The product candidate seeks to serve both the Type 1 and the
rapidly growing especially in terms of device adoption, type 2 diabetes markets.
Differentiation
We believe that there
are a number of shortcomings and issues with currently available insulin pumps that prevent a substantial number of people who require
insulin on a daily basis from choosing an insulin pump to treat their diabetes. We believe, that by tailoring our insulin pump to address
such factors, we can expand the scope and adoption rate of insulin pump usage. We believe that to achieve broader market acceptance,
an insulin pump must be easier to learn to use, be less time consuming to operate, more intuitive to both patients and physicians, and
meet the standards for coverage by insurance providers so that co-payments required from patients are affordable and the hurdles to insurance
coverage are significantly reduced.
Among the more
prominent issues are:
| · | Complexity:
Many existing pumps are highly complex and require significant technical expertise to use
effectively. We believe such pumps were designed for “super users,” who have
high levels of motivation and technical competence. The complexity of pumps proves daunting
to less technically inclined users. |
| · | Cumbersome:
We believe that a majority of existing pumps are bulky and difficult to manage, in many cases
requiring additional equipment to introduce a catheter to the patient’s body and up
to 48 inches of tubing, which must be replaced frequently, to connect the catheter to a pump.
This requires users to carry spare parts and other equipment adding to the difficulty of
using the pump. |
| · | Costs:
Costs associated with insulin pump therapy are high and can be prohibitive, especially
for those on fixed or limited incomes. These costs vary by pump, but multi-thousand-dollar
upfront payments, often with substantial co-payments in addition to possible daily co-payments
on consumables, can easily place current pumps out of reach for patients. This makes insurance
providers hesitant to pay for them, leading to limited or absent reimbursement/coverage and
high hurdles for patients to gain access. |
| · | Outdated
style: Consumer electronics devices have evolved in both form and function. Diabetes
pumps have not experienced similar progress. We believe that consumers will be more receptive
of products designed with the user experience in mind and that many have low tolerance for
complex, difficult procedures for use and maintenance of products. |
| · | Pump
mechanism limitations: Traditional pumps generally utilize a syringe and plunger mechanism
to deliver insulin. We believe this design limits the ability to reduce the size of the pump,
and also potentially exposes the user to the unintended delivery of the full volume of insulin
within the pump, which can cause hypoglycemia or death. We believe that the fear of adverse
health events due to technical malfunctions related to traditional pump mechanism limitations
deters the adoption of insulin pump therapy. |
Our team has substantial
knowledge of the diabetes industry and experience in developing, obtaining regulatory authorization for, and bringing insulin pumps to
market. Based on this experience, we believe that our innovative insulin pump, using a new and proprietary method of pumping insulin,
can address most or all of these shortcomings. It provides a state-of-the-art insulin pump capable of both basal (steady flow) and bolus
(mealtime dosing) insulin disbursement. It also has been designed considering a natural migration path to multi-chamber/multi-liquid
pumps, potentially offering an exciting array of new therapies to patients with diabetes and other conditions.
Our goal is to become
the leader in expanding access to insulin pump technology to a wider portion of diabetes sufferers and provide not just care for the
super users, but “diabetes care for the rest of us.” We believe there is a substantial opportunity to penetrate the type
2 MDI marketplace, whether through this new insulin pump or further simplification of pumps for the type 2 marketplace.
The MODD1 is a high-precision,
first-line pump that we believe represents the best choice for new pump patients because it is easy to afford, easy to learn, easy to
use, and has a revolutionary design and technology that enable precision with low-cost manufacture and high reproducibility.
Key features include:
| · | Two
parts - one reusable, one disposable - snap together to form the working system; |
| · | One
button interface, easy to learn and use; |
| · | 90-day
reusable, 3-day disposable; |
| · | Removable
at any time from an adhesive bracket; |
| · | No
external controller required, no charging, no battery replacement; and |
| · | Slim
profile, lighter weight. |
A proprietary survey
of American healthcare payors representing 50 million covered lives (approximately one-third of U.S. covered lives) performed for us
by industry leading survey firm ISA has demonstrated that payors are willing to grant equivalent or preferential coverage for a product
with this feature set at launch in exchange for rebates of approximately 20%. These costs are built into all of our models.
Diabetes
Classifications and Therapies
Diabetes is typically
classified as either type 1 or type 2:
|
· |
Type
1 diabetes is an auto-immune condition characterized by the body’s nearly complete inability to produce insulin. It is frequently
diagnosed during childhood or adolescence. Individuals with type 1 diabetes require daily insulin therapy to survive. |
|
· |
Type
2 diabetes represents over 90% of all individuals diagnosed with diabetes and is characterized by the body’s inability to either
properly utilize insulin or produce sufficient insulin. Initially, many people with type 2 diabetes attempt to manage their condition
with improvements in diet and exercise and/or the use of oral medications and/or injection of glucagon-like peptide-1 (GLP-1) drugs.
However, as their diabetes advances, patients often progress to require insulin therapies such as once-daily long-acting insulin
and ultimately to intensified mealtime rapid-acting insulin therapy. This represents an important portion of the diabetes
market with an estimated 1.6 million type 2 individuals with diabetes intensively treated with insulin currently in the United States |
Glucose,
the primary source of energy for cells, must be maintained at certain levels in the blood in order to permit optimal cell function and
health. In people with diabetes, blood glucose levels are not well controlled and frequently become very high, a condition known as hyperglycemia,
and very low, a condition called hypoglycemia. Hyperglycemia can lead to serious long-term complications, including blindness, kidney
disease, nervous system disease, occlusive vascular diseases, lower-limb amputation, stroke, cardiovascular disease, and death. Hypoglycemia
can lead to confusion or loss of consciousness, often requiring a visit to the emergency room or, in certain cases, result in seizures,
coma, and/or death.
All people with type
1 diabetes, which is our primary market, require daily insulin. According to the Seagrove 2021 Diabetes Blue Book, approximately 18%
of people with type 2 diabetes in the United States, or 4.7 million people, require insulin (basal alone represent 3.1 million and basal
plus mealtime represent 1.6 million) to manage their diabetes. In this Report, we refer to people with type 1 diabetes and people with
type 2 diabetes who require mealtime insulin as “insulin-requiring people with diabetes.”
Currently, there are two primary therapies
available for insulin-requiring people with diabetes: multiple daily insulin injections directly into the body through syringes or insulin
pens, referred to as Multiple Daily Injection, or MDI therapy, or the use of an insulin pump to deliver mealtime insulin boluses (single
dose) to help with glucose absorption after carbohydrate consumption and a continuous subcutaneous insulin infusion, or CSII therapy,
into the body. Generally, CSII therapy is considered to provide a number of advantages over MDI therapy, primarily an improvement in
glycemic control, as measured by certain diabetes management tests such as hemoglobin A1c (HbA1c) measure and more recently Time in Range
(TIR) where a continuous glucose measuring device is used to calculate this test. Among other medical benefits, it has been demonstrated
that insulin pump use can decrease glucose variability, reduce the number of hypoglycemia, decrease the daily doses of insulin and reduce
the fear of hypoglycemia.
![(Graphic)](https://content.edgar-online.com/edgar_conv_img/2022/06/28/0001019056-22-000478_modular001.jpg)
Notwithstanding
these advantages, the difficulty in use resulting from the complexity and cumbersome design of available insulin pumps as well as high
and often prohibitive costs for both the patient and insurance provider has resulted not only in dissatisfaction among many existing
pump users (fewer than half purchase a new pump after warranty expires per Seagrove Partners (estimate), but also has severely limited
the adoption rate of insulin pumps by a large segment of the MDI diabetes population, who we refer to in this Report as “Almost
Pumpers.”
We define Almost Pumpers
as insulin-requiring people with diabetes who are aware of pumps and their potential benefits but, because of past experience, pump shortcomings,
cost, complexity and time and learning required to adopt and utilize available insulin pumps, continue to receive their daily insulin
through MDI therapy.
Our initial focus for
our insulin pump is the almost pumper segment population located in the United States.
Our research, along
with marketplace data, estimates that 32% of Americans with type 1 diabetes use insulin pump therapy and 28% of Americans with type 1
diabetes (44% of those who currently utilize MDI) can be classified as having an interest in pump adoption and meeting the American Diabetes
Association guidelines of glucose control if their objections to the currently available suite of products can be overcome. They do not
want to closely manage their glucose levels and incur the associated time and effort involved. They are the Almost Pumpers. We have developed
what we believe to be the most technologically advanced delivery system overcome the objections and provided motivation for this market.
We believe that there are four addressable hurdles to adoption:
| · | Usability:
the device needs to be easy to learn and to operate; |
| · | Affordability:
we will focus on overcoming copay and insurance hurdles rather than leaving the “insurance
journey” to the clinician and patient; |
| · | Accessibility
and Education: we will seek to engage patients to sample this new technology by supplying
clinicians with free samples and simple training to allow people to see first-hand the typical
barriers to adoption that have been overcome; and |
| · | Service
and Support: where we will answer their questions and concerns during this diabetes experience. |
We believe this conversion
process, engaging people to try and thereby receive the benefits of our technology will substantially increase adoption of insulin pumps
among both those with type 1 diabetes and type 2 diabetes who remain reliant upon multiple daily injections. Diabetes is a disease that
appears throughout the world. Therefore, we cannot segment the market by socioeconomics, education or level of care. We intend to create
an insulin pump that appeals to all Almost Pumpers.
Market
The International Diabetes
Federation, or IDF, estimates that, in 2019, approximately 460 million people were living with diabetes worldwide and, that by 2045,
this number will increase to approximately 700 million people.
An estimated 34 million
people in the United States live with diabetes. Within this group, type 1 diabetes accounts for approximately 1.8 million people (7%
of total) with the remainder being type 2 diabetes. However, of the people with type 2 diabetes about 1.6 million of them require intensive
insulin treatments to manage their diabetes. This represents a large and growing market with the effects of diabetes accounting for roughly
25% of all healthcare dollars spent annually in the United States.
According to
the National Diabetes Health Care Provider Survey conducted by Seagrove Partners, approximately 25% of the 1.6 million highly insulin intensive type 2
diabetes have considered going “on pump.”
Insulin pumps have
been shown to provide a higher level of care for insulin dependent people with diabetes and result in better glycemic control, fewer
comorbidities, fewer trips to the emergency room, and higher overall quality of life. They also result in lower overall costs to the
healthcare system, reducing typical expense per patient year from $27,195 to $16,992.
Despite these
benefits, only 1 in 3 (33%) of the 1.8 million Americans with type 1 diabetes and very few of the 1.6 million type 2 diabetes intensively
treated with insulin currently use an insulin pump, for a total of approximately 670,000 current users, with only a slow increase of
insulin pump use. The remaining 68% of type 1 diabetes’ and virtually all of the type 2 diabetes’ rely on multiple daily
injections (MDI) for glucose control. Decades of advances in technology advances have left these non-pumpers at a significant disadvantage
from a control perspective versus their “pumping” counterparts.
We have identified
a large segment of the market that we refer to as “Almost Pumpers.” Almost Pumpers are those insulin-requiring people with
diabetes (type 1 diabetes and type 2 diabetes) who feel that they would adopt the pump if it were less expensive, less time consuming,
less technically intimidating, and if there was no separate controller. They represent approximately 32% of the type 1 diabetes market
correlating to a $1.9 billion growth opportunity.
Insulin pumps on the
market today require a substantial amount of time to manage the therapy, have high out of pocket costs that place these technologies
out of reach for a large part of the population, and are feature-heavy with complex systems that have hampered adoption and intimidated
many users. The most commonly used insulin pumps today require extensive training and hours of daily management. The average pump user
must go through 42 steps of setup and refill process every 72 hours to “stay on track.”
The
current reluctance to adopt the insulin pump has had serious consequences on the healthcare system. In the United States, people
living with type 1 diabetes have struggled to attain glycemic targets. A 2019 analysis of the large type 1 diabetes Exchange clinical
registry found that only 21% of U.S. adults with type 1 diabetes achieved the ADA A1c goal (<7.0%). Further, according to a
study published in JAMA Internal Medicine, researchers found no significant improvements in diabetes care between 2005 and 2016,
with persistent gaps in care related to socioeconomic status.
The recent introduction
and rapid adoption of Abbott Labs’ Freestyle Libre, or the Libre, has made continuous glucose monitoring, or CGM, easier and more
affordable, expanding the product category, and doubling its size. Now for the first time, there is an easy, less painful (i.e., no more
finger sticks) way for patients to have the data they need to understand more about their glucose levels and their insulin requirements.
Access to such data has motivated patients to ask their diabetes clinician how they can achieve better glycemic control and made them
more comfortable with using technology and wearables to treat their diabetes. Pumps offer a clear pathway to better control and better
overall care. We believe that the insulin pump market is ready for a similar transition as that experienced in the CGM space. We believe our MODD1 pump
represents a new and better offering to assist and induce a wide variety of patients to make the transition and bridge the void to superior
control by becoming a “pumper.”
We believe the present
pump marketplace is approximately a $1.9 billion market, comprising approximately 33% of type 1 diabetes pumpers and a small group of
type 2 diabetes pumpers. Seagrove Partners estimates that 28% of type 1 diabetes patients and 25% of type 2 diabetes patients would adopt
technology that was easier to use, access and pay for. We believe the total addressable market approximates $3 billion, assuming revenue
of $4,128 per patient, per year. We expect to spend approximately 15% of our total revenue on discounts and free samples to encourage
adoption of our pump product.
We are dedicated to
helping all people with diabetes gain access to high quality care. We aim to help people with diabetes, especially Almost Pumpers and
the historically underserved communities, gain access to insulin pump technology by making it affordable and easy to use.
Diabetes
Care is at an Inflection Point
We believe that
the insulin pump market stands at a crossroads as a confluence of events makes the timing for a new product introduction ideal.
2020 was a very
difficult year in diabetes. Between COVID-19 and a loss of glycemic control during quarantines and isolation, deaths from diabetes rose
by 17% in 2020 versus the prior year. This was sharpest among the young who saw deaths rise 29% in the 25 to 44 year-old demographic.
This has created a pain point and a desire to find new and better solutions and has raised awareness among patients, caregivers, payors,
and policy makers.
COVID-19 also
encouraged (and required) trial and adoption of telehealth models and a great many people have found them to their liking with a high
proportion of patients and of health care providers, or HCPs, that want to continue to use these technologies. We expect much of this
shift and newfound comfort with distance care models to persist and believes that this can provide a patient acquisition and engagement
model for insulin pumps and diabetes care, especially for pumps optimized for free trial and easy learning.
At the same
time, reimbursement for patch pumps has been increasingly moving to a pharmacy benefits manager, or PBM, model, which simplifies reimbursement
which will further aid in a “frictionless launch.” This represents a fundamental shift in the insulin pump market, making
onboarding rapid and simplifying a previously complex and time-consuming “insurance journey.”
The CGM space
(wearable devices that monitor blood glucose levels) has been experiencing explosive growth largely driven by the Libre. This product
was a more affordable, easier to use version of the popular Dexcom CGM product. Not only is it now a larger (by revenues) product than
Dexcom, but it accomplished this without seeming to slow Dexcom’s growth but rather by growing a new category with a new type of
user.
These users
are increasingly interested in adopting technology and wearables to manage their diabetes. We believe they are a natural market for a
new type of pump if it can meet their needs and address their objections and that the conjunction of the above trends represents a unique
opportunity in the insulin pump market’s history.
Diabetes technology
companies understand that we are at a turning point with new markets. This can be seen with increased discussion around this topic during
recent national diabetes conferences, as well as but also an increase in marketing promotion. For example, Dexcom aired a $5.5 million
30-second commercial during the 2021 Super Bowl.
All these recent changes
support the high proportion of type 1 diabetes and type 2 diabetes intensively treated with insulin that are considered as Almost Pumpers,
number that may grow in the next years and that may be more reachable with adequate marketing strategies.
Our
Insulin Pump
Instead of building
complex, bespoke, and difficult to manufacture and maintain pumping and control systems, we began with the technology and the user in
mind. Using proprietary and patented methods of insulin measurement, we were able to eschew complex mechanisms and instead built a product
candidate using only parts from high volume consumer electronics manufacturing lines, breaking the cost vs functionality curve that has
existed in the insulin pump space and representing the first truly modern insulin pump design. This is a new kind of product for a new
kind of patient.
The pre-production
models of our low-cost insulin pump are now undergoing the testing required to submit to the FDA for clearance to market them in the
United States. We continue to devote, substantial time and resources to better understand the needs and preferences of Almost Pumpers
and the specific patent/provider/payor requirements to motivate change from MDI.
MODD1 has several distinguishing
features:
![](https://content.edgar-online.com/edgar_conv_img/2022/06/28/0001019056-22-000478_modular003.jpg)
1 - The pump has a
simple button to press to deliver insulin as the patient requires it. The electronic pump uses a simple motor and rotating cam to motivate
the insulin into the patient along with a low power Bluetooth and near field communication chips to allow the patient to communicate
with their smart phone, tablet, or other mobile computing platform, as appropriate.
2 - The pump snaps
together with a three-day disposable cartridge that is patient filled with insulin for delivery. It includes the power source and a simple
coin cell that allows it to run through the 80-hour life of the cartridge.
3 - There is a set
(not shown) that contains a soft 6 millimeter cannula and an introducer for insertion into the skin and removal of the needle used to
transfer insulin to the body.
4 - MODD1 comes with
a variety of methods for the patient to wear the pump. Options include: a base plate with adhesive (shown) for attaching to the body
that has features for holding the pump to the patient; overwraps to hold the product candidate to the patient; and a velcro strap with
a base plate suitable for wrapping around the arm or leg of the patient.
The system will deliver
a small continuous rate called a basal that will provide approximately 50% of the total daily dose required and the user will use the
on-pump button to administer boluses, typically before and after meals.
The objective is to
make the product candidate simple to acquire and take home, simple to learn and most importantly, simple to use to expand the pump market,
drive adoption and ultimately better clinical outcomes.
Technological
Advantages
The adoption of new
ultra-high volume technologies will result in far easier manufacturing scale up as parts sourcing and assembly processes are far easier.
The MODD1 was designed from the beginning for mass manufacturing processes and “lights out” or near lights out production
assembly lines. This advantage is compounded by the high availability and already optimized cost reduction in its components. This has
resulted in a cost of goods, estimated on the competitors’ announced margins and sales, 50% lower than our closest patch pump competitor.
The adoption of modern,
miniaturized technologies has led to numerous other advantages as well. The MODD1 pump is smaller in overall volume than Insulet’s
popular Omnipod product, or the Omnipod, and has a lower profile to the skin. Despite this, it holds a full 3mL (300 units) of insulin
in line with full sized pumps such as Tandem and Medtronic, 50% more than the 2mL reservoir in the Omnipod. We believe that this volume
advantage over other patch pumps will be significant as 24% of type 1 and over 50% of the rapidly growing type 2 market require more
than 2mL of insulin every three days (the expected wear time of patch pumps).
In addition, our new
and patented pumping modality will provide what we believe is the most even (and thus closest to the function of a healthy pancreas)
delivery of basal insulin in the industry. Basal rate can be delivered almost continuously while other pumps are delivering micro-boluses
every 5 minutes for the Omnipod and Tandem and Medtronic pumps. We plan to demonstrate the impact of our system on glycemic control in
a future clinical study.
The technology allows
the patient to simply add insulin and operate. The battery is included in each cartridge and the device is operated without a controller.
Nothing needs charging. MODD1 has been made push button simple to appeal to a wider audience of users.
This new technology
has also made the MODD1 lighter than existing offerings. Compared to the Omnipod, MODD1 weighs 20 grams (vs. 26 grams) empty and 23 grams
(vs. 28 grams) fully filled (despite carrying 50% more insulin), a reduction of 23% and 18%, respectively. Also, unlike existing patch
pumps, the MODD1 can be removed from the needle and taken off and replaced later if the user desires. This avoids loss of insulin in
a pump due to accidental dislodging of the soft canula, an issue that users have expressed considerable dissatisfaction with on other
patch pumps.
This technology is
also uniquely suited to dual (or more) chamber pumps. We believe that such pumps will be integral to the realization of high time in
range artificial pancreas solutions that require no human intervention, the next step forward from the cumbersome and awkward solutions
today that require the user to announce meals, count and input carbs, and adjust delivery for exercise and sleep. The advantages of cost
and miniaturization are multiplied in a multi-chamber setup and we expect to be able to reach price points, ease of use, and form factor
unlike anything seen in the industry thus far. We believe that a prefilled, multi-hormone peel and stick patch pump able to function
in a fully autonomous closed loop system with CGM’s represents the next generation of diabetes care. We believe that we have demonstrated
our technology and are securing intellectual property protection on our approach.
We believe this technology,
especially in dual chamber, will open up numerous applications outside of diabetes where medication compliance of complex therapy regimes
is difficult addressing such spaces as weight loss, fertility, and simplifying complex delivery of multi-drug cocktails, especially those
with diverse and challenging dosing schedules.
Our
Solution
Our proposed pump is
being designed and developed to address the aforementioned shortcomings of the existing pump market and to appeal to: (i) the substantial
group of “Almost-Pumpers” who are currently interested in using an insulin pump, but have not done so because of the complexity,
cost or cumbersome nature of existing products, and (ii) people who are using one of the currently available insulin pumps but are dissatisfied
with such products. We believe that, owing to our new proprietary technology, our proposed insulin pump will be the simplest and least
expensive product on the market and the easiest for providers to prescribe.
Our current pump prototype
of our proposed pump has been built to test what we believe to be our novel approach to insulin pumps. By providing a pump that we believe
will establish industry standards in terms of technology, simplicity to understand, ease of use and price, we believe our proposed pump
will offer the vast majority of benefits afforded by more expensive and complex pumps but remain accessible to a substantially greater
percentage of diabetes sufferers requiring daily insulin therapy.
We believe people generally
will not use technology that intimidates them and physicians are hesitant to prescribe such technology. We believe mass market products,
such as is intended for our proposed pump, must be “user friendly” and affordable. We believe this approach is fundamentally
different from that applied to the existing pump market today where most pumps are continuously adding complex features and are “user
friendly” to only the most technically astute.
Our current goal is
to successfully design, develop and obtain all required regulatory approvals for our proposed insulin pump, and, thereafter, commercialize
the finished product. Our long-term goal is to become a leading provider of insulin pump therapy by focusing on both consumer and clinical
needs.
To achieve our above
stated immediate and current goals, we intend to pursue the following business strategies:
| · | Use
of innovative proprietary technology. |
Based upon the substantial
experience of Paul DiPerna, our president, chief financial officer, treasurer and chairman of our board of directors, in engineering
design and innovative technology in the medical device industry and, in particular, with insulin pumps, we have generated proprietary
technology that has been incorporated into our proposed insulin pump. Generally, this technology is involved in the delivery of insulin
to the user at the appropriate and necessary times. We believe this technology will greatly assist us in creating a simpler, user-friendly
pump. We believe the proposed design, engineering and technology being incorporated into our proposed pump will make it substantially
simpler and more affordable than those currently available. These features, together with the safety and reliability of our proposed
pump, are designed to create the next generation of insulin pumps that will feature important and well-differentiated attributes compared
to those currently available and make it available to consumers across mostly all socioeconomic groups in the United States and around
the world.
| · | Keep
costs low during our design and development process. |
To attempt to ensure
that we have sufficient funds to design, develop, and obtain all required regulatory approvals for our proposed insulin pump without
having to sacrifice quality and efficiency, we intend to maintain a tight budget and limit expenditures where possible. We believe this
will be possible because of the extensive knowledge and experience of Mr. DiPerna, not only in the diabetes industry and more specifically
in the insulin pump device market, but also his experience in designing and developing insulin pumps and other medical devices and his
ability to manage a small, focused development team. We currently expect that various other expenses, such as product scale up, and sales
and marketing costs, will not be incurred until such time as development work is completed and regulatory approvals obtained.
| · | Employ
experienced engineers selected, supervised, and led by Mr. DiPerna, a highly experienced
and respected engineer and executive in the insulin pump industry. |
To attempt to ensure
our proposed insulin pump is “state of the art,” functional, and efficient, as well as to conserve funds, substantially all
of our employees will initially be hand-picked engineers under the leadership of Mr. DiPerna. We believe that there is a strong pool
of engineers with significant applicable experience and knowledge who we will be able to initially employ on a contract and/or outsource
basis to help us design and develop our proposed insulin pump. We believe by hiring such persons on an out-source basis, we will save
substantial resources and by having Mr. DiPerna lead and focus the team on technological and mechanical aspects of our proposed insulin
pump, we believe our team will be well guided, focused, cost efficient, and able to efficiently design and develop our product candidate
that we believe can eventually be a competitive and popular choice for people with insulin requiring diabetes.
Commercialization
Strategy: Overcoming the Insurance Hurdles
Our goal is to establish
MODD1 as the best option for new pump patients as we expand the market into the Almost Pumpers (Type 1 and Type 2) and the newly motivated
CGM users. We seek to grow the market by providing first-line insulin pump therapy that is well suited to meet the needs of both diabetes
patients requiring insulin and their clinicians.
| · | MODD1
is approximately 50% less expensive to manufacture than the Omnipod. This low cost allows
us to spend more on patients and sampling. This will save money for payers. We can offer
the pump with no upfront cost to patients. Benefits of MODD1 include: |
| · | 20%
discount vs Insulet will drive preferred status; |
| · | Designed
to use PBM codes as a disposable; |
| · | No
new code needed to be reimbursed at launch; and |
| · | Saves
provider an estimated $1,062/patient/year vs the Omnipod. |
| · | The
MODD1 will be sampled and given to patients by the doctor or diabetes nurse educator at the
time of the patient visit. When a patient is motivated to make change, our starter kit will
make it easy for the clinician to initiate the new therapy that same day. We seek to eliminate
the currently challenging “insurance journey” and product acquisition timeline
and significantly reduce training time for the busy clinician, all major hurdles to pump
adoption. We intend to add telehealth support to help the patient throughout adoption and
use and to facilitate greater collaboration between patients and their physicians. |
Europe represents
another large potential market for MODD1. Approximately 60 million people in Europe live with diabetes, and approximately $161
billion is spent annually in diabetes healthcare costs in Europe. At present, cost containment is restricting pump uptake across
Europe. Current pump usage hovers between 10% and 20% in many markets. Single payor healthcare systems across the Europe traditionally
attempt to contain costs in the short term and seek low price technologies with moderate medical benefits. MODD1 will offer a
rebalance of this risk/reward strategy in that payors will incur only minor incremental short-term costs with the benefit of longer
-term cost savings associated with reliable pump use. We intend to employ a partnership strategy across Europe following in-house
managed regulatory and pricing activities in the major markets (e.g., the United Kingdom) and more cost receptive markets (e.g.,
the Nordic countries). We are targeting European and United Kingdom approval towards early 2023. Our initial target market for
our insulin pump is the Almost Pumper population located in the United States followed quickly by an effort to obtain Conformitè
Europëenne, or CE, mark approval for distribution throughout Europe.
Marketing
MODD1 tackles the most
significant barriers to pump use-access and affordability-and makes it easier for clinicians, caregivers and individuals to manage diabetes
care. Our commercialization plan will drive adoption and is designed to expand the market and is intended to do the following:
| · | Maximize
adoption with a comprehensive frictionless launch program. We will seek to decrease the
level of reimbursement effort and cost to encourage HCPs to offer our pumps and encourage
patient trials. Our product candidate reduces the technical hurdles to widen appeal, new
starts and increase adherence. We will encourage MDI patients who want or need more control
to make the switch to the pump earlier in their treatment-ideally right at diagnosis. |
| · | Leverage
technology to support sales and new patient acquisition. We intend to set up tech enabled
sales teams backed with a full omnichannel program to drive awareness and trial with HCPs
and patients. We will focus on educating providers that our product candidate is simple to
teach and easy to support making it an ideal front line offering. |
| · | Facilitate
patient trials. To facilitate patient trials, we intend to: |
| · | Provide
a free pump and a 30-day supply of cartridges, insurance verification, co-pay coupons and
telehealth support to patients thereby reducing outlay of time and money |
| · | Partner
with connected care companies to provide superb support of patients from trial through the
first year |
We believe
that MODD1 will be the only insulin pump that patients can take home immediately from the doctor’s office.
| · | Leverage
MODD1 300-unit chamber to increase adoption with Type 2 patients. MODD1 has a major advantage
over existing patch pumps in that the chamber carries enough insulin to meet the high doses
many type 2 patients need. We intend to promote this advantage and capture a significant
share of the existing type 2 pump users as well as new starts. |
| · | Work
with key organizations and policy makers to pave the way for greater access to pumps. We
will promote MODD1 technology among the underserved, who are typically low users
of health technology. We will identify individuals, patient organizations, professional societies,
and policy and DEI organizations that are critically important to the adoption of new technologies
in the diabetes space and build relationships with these influential stakeholders. |
| · | Initiate
a clinical study program (with key diabetes centers) to provide additional clinical support
for MODD1 in special patient types and clinical setting. After obtaining 510(k) clearance,
we intend to conduct a soft launch and clinical research program in major markets to pave
the way for the full launch in late 2022. We will work with our advisors and key diabetes
associations to educate the community about the MODD1. In addition, we will conduct clinical
studies to develop competitive claims and market expansion. |
| · | Work
with major health plans to establish MODD1 as the first line pump for Type 2 patients.
We believe MODD1 will be payor preferred for both type 1 and type 2 patients. It was designed
to attain preferential reimbursement and avoid the coverage pitfalls many other pumps have
experienced. |
| · | Payors
want a simple product that is less expensive. We will launch with a discount program for
payers of 20% less than Omnipod to drive uptake. |
| · | Designed
to use existing PBM codes as a disposable |
| · | No
new code: Reimbursed at launch |
Tie-in
with the massive movement to telehealth.
2020 saw personal telehealth
go from beta test to mainstream. Customers and providers have become comfortable with it. There are only 4,000 patient-facing endocrinologists
in the United States. The treatment of diabetes will be significantly enhanced with telehealth to drive more volume and clinical enhancements
through their practices. Telemedicine is a force multiplier for a small group of doctors to better serve a large market. MODD1 was designed
to be affordable enough for free sampling and trial, and simple enough for self-guided user training. We believe that by combining telehealth
support with MODD1, we will decrease the burden of diabetes care and improve the lives of people with diabetes.
Pre-Launch/Trial
We intend to initiate
a “soft launch” following FDA clearance of the MODD1 device. Our plan is to select a group of clinicians who are well trained,
experienced and have the support infrastructure to take on initial patients and monitor them carefully to provide clinical feedback on
our performance to further refine our product candidate and support infrastructure prior to full commercial launch. Many of these clinicians
will have been those who assisted in the development of the MODD1 offering.
We intend to continue
to modify, refine and finalize our system to best meet:
| · | The
general needs and preferences of our almost pumper target market based upon our knowledge
of the diabetes industry and information available and/or obtained by us from Almost Pumpers
and their caregivers; and |
| · | The
general guidelines of third-party payors, private and public insurance companies, preferred
provider organizations and other managed care providers with particular focus on the guidelines
established by the Center for Medicare and Medicaid Services, or CMS, which administrates
the United States Medicare program, or Medicare. To assist us in making such modifications
and refinements, we have retained independent consultants to focus on ensuring that our product
candidate satisfies the existing coverage and reimbursement criteria of such third-party
payors. |
Manufacturing
Manufacturing requires
the production of pumps, cartridges, and baseplates as well as assembly with sets. In connection therewith:
· | We
plan to build an automation machine for implementation in Southern California, close to the
design engineers, that will be capable of assembling the cassettes at a rate sufficient to
supply 50,000 patients in a single shift (500,000 per month). This equipment will require
nine months to design and build and three months to verify and validate into our manufacturing
process. |
| |
| · | The
packaging equipment and boxing will start as manual operations while the automation is refined.
This equipment will be purchased and implemented as the second phase of automation of the
cassette. |
| · | The
sets will be purchased through third party suppliers with expertise in the product to time
and cost-effectively introduce the product and focus on our core expertise. |
| · | The
standard cost of the cartridge is estimated to be $7.68 at the point we are manufacturing
for 3,000 users or more. The pump is estimated to cost $34.00 at similar volumes. |
| · | Our
internal estimates project potential gross margins as high as 78% and a 20% operating margin,
approximately 30 months after launch. |
The pumps will be built
and tested in our San Diego facility while we build volume and expertise. When the production methodology has matured and the volumes
have risen, we will consider a transition to outside and offshore manufacturing, as appropriate.
FDA
Clearance
The FDA requires us
to meet all applicable regulations for insulin pumps, a subcategory of infusion pumps, which are generally considered Class 2 devices.
The design of the MODD1 pump has been completed, units have been built and testing is underway to verify that the design meets all FDA
requirements. There are 17 specific tests required to submit for 510(k) clearance. We break these required tests into four testing categories:
wetted surface, electrical safety, usability and internal. Appropriate design control and standard operating procedures have been implemented
to allow us, when testing is completed, to submit for clearance under the premarket notification (or 510(k)) process. To achieve this,
we will continue to work closely with our regulatory consultants to complete, finalize and file our submission to the FDA for 510(k)
clearance and all other documentation necessary to obtain marketing authorization of our insulin pump.
· | We
have engaged the FDA in two pre-submission conferences to ensure that we understand and meet
the FDA’s requirements, expectations and standards with regard to clearance of our
product candidate. At these meetings, our team, including our FDA regulatory consultant,
received FDA comments and guidance regarding our proposed submission during the pre-market
notification period for 510(k) clearance (including any suggested modifications to the device
description, indications for use or summary of supporting data contained in the notification); |
| |
· | We
are currently preparing and ensuring that our premarket notification, which will be part
of our FDA submission in order to demonstrate that our insulin pump is substantially equivalent
to an insulin pump previously cleared by the FDA and legally marketed to the public and generally
safe and effective for its intended use. We are also preparing our submission to the FDA,
which will include the relevant results of our performance and human factor tests (relating
to, among other things, user effectiveness, sterility, pump efficiency and shipping compatibility)
demonstrating the accuracy and usability of our insulin pump, which we believe will satisfy
the mandates of the FDCA and any applicable performance standards. |
Commercialization
Steps
While we have substantially
completed the general engineering and mechanical aspects of our insulin pump prototype, prior to commercializing, we still must successfully
complete a number of material steps including:
| · | Continue
to modify, refine and finalize our prototype so that it meets: |
| · | the
general needs and preferences of our almost-pumper target market based upon our knowledge
of the diabetes industry and information available and/or obtained by us from Almost Pumpers
and their caregivers; and |
| · | the
general guidelines of third-party payors, private and public insurance companies, preferred
provider organizations and other managed care providers with particular focus on the guidelines
established by CMS, which administers Medicare. To assist us in making such modifications
and refinements, we have retained independent consultants to focus on ensuring that our product
candidate satisfies the existing coverage and reimbursement criteria of such third-party
payors. |
| · | Refine
our manufacturing process during the submission process to identify and select a manufacturer
of our insulin pump through a competitive bidding process, as we prepare for our product
introduction; |
| · | Take
such actions, if any, as may be required by the FDA as a condition to granting approval and
providing 510(k) clearance for our insulin pump; and |
| · | Hire
and retain appropriate sales and marketing personnel to develop, implement and launch a promotional
campaign for our insulin pump substantially focused on our target market. |
As with any medical
device attempting to enter and successfully compete with existing products in an established and competitive marketplace, we will face
significant hurdles to accomplish the above steps to commercialization including:
| · | Obtaining
FDA 510(k) clearance to market and sell our insulin pump to the public; |
| · | Obtaining
any other FDA-required authorizations with regard to our product candidate, as required by
the FDCA; |
| · | Educating
endocrinologists, physician’s assistants, nurse practitioners and nurse educators,
who typically prescribe pump usage, and certified diabetes educators and dieticians, who
provide education and guidance to diabetes patients, as to what we believe to be the superior
qualities of our product candidate; |
| · | Demonstrating
to select general practitioners, who have historically been skeptical of the heightened support
inherent in insulin pumps, our product candidate’s ease of use and convenience; |
| · | Ensuring
that our final product does, in fact, meet the needs of Almost-Pumpers; |
| · | Overcoming
the historic obstacles and reluctance of Almost-Pumpers to using insulin pumps to treat their
diabetes; and |
| · | Ensuring
that third party payors agree to cover all or a substantial portion of the purchase price
and recurring costs of the use of our insulin pump. |
Looking
Forward
Going forward, we expect
to continue to evolve the MODD1 pumps and their capabilities and functionality, both in response to patient needs and as part of our
current platform roadmap.
| · | In
our next generation product, or MODD2, we will seek to add phone-based control and alternate
controller enabled, or ACE, and automated insulin delivery, or AID, capability to allow integration
with popular continuous glucose monitors. This will expand our available market to include
many existing pumpers. The new model has the same modular design and low-cost components
as MODD1 and provides a much desired breakthrough for patients - two-factor command authentication
that allows the wearer to use his/her own cell phone as the controller. |
| · | Additionally,
adds AID control functionality via an ACE designation |
| · | Any
approved algorithm controller can drive insulin delivery in “auto” mode |
| · | CGM
integration allows the controller to potentially adjust basal insulin rate for meals and
exercise with an approved algorithm. |
| · | With
MODD2, we will seek to move to a full featured multi chamber pump optimized for high time
in range fully autonomous close loop insulin delivery utilizing the form factor and cost
advantages of its pumping designs to create an affordable, easy to use drug delivery system
to realize the aspiration of true “artificial pancreas” systems. We envision
moving to a drug prefill model such that cartridges can be filled with therapeutics and shipped
cold chain to patients, further simplifying the use process. |
Government
Regulation
Our operations are
subject to comprehensive federal, state, and local laws and regulations in the jurisdictions in which we or our research and development
partners do business. The laws and regulations governing our business and interpretations of those laws and regulations and are subject
to frequent change. Our ability to operate profitably will depend in part upon our ability, and that of our research and development
partners and affiliates, to operate in compliance with applicable laws and regulations. The laws and regulations relating to medical
products and healthcare services that apply to our business and that of our partners and affiliates continue to evolve, and we must,
therefore, devote significant resources to monitoring developments in legislation, enforcement, and regulation in such areas. As the
applicable laws and regulations change, we are likely to make conforming modifications in our business processes from time to time. We
cannot provide assurance that a review of our business by courts or regulatory authorities will not result in determinations that could
adversely affect our operations or that the regulatory environment will not change in a way that restricts our operations.
FDA
Regulation
In the United States,
medical devices are strictly regulated by the FDA. Under the FDCA, a medical device is defined as “an instrument, apparatus, implement,
machine, contrivance, implant, in vitro reagent, or other similar or related article, including a component, part or accessory which
is, among other things: intended for use in the diagnosis of disease or other conditions, or in the cure, mitigation, treatment, or prevention
of disease, in man or other animals; or intended to affect the structure or any function of the body of man or other animals, and which
does not achieve its primary intended purposes through chemical action within or on the body of man or other animals and which is not
dependent upon being metabolized for the achievement of any of its primary intended purposes.” This definition provides a clear
distinction between a medical device and other FDA regulated products such as drugs. If the primary intended use of a medical product
is achieved through chemical action or by being metabolized by the body, the product is usually a drug or biologic. If not, it is generally
a medical device.
We are currently developing
an insulin pump delivery system, which is regulated by the FDA as a medical device under the FDCA, as implemented and enforced by the
FDA. The FDA regulates the development, testing, manufacturing, labeling, packaging, storage, installation, servicing, advertising, promotion,
marketing, distribution, import, export, and market surveillance of our medical devices.
Device
Premarket Regulatory Requirements
Before being introduced
into the U.S. market, each medical device must obtain marketing clearance or approval from the FDA through the premarket notification
(or 510(k)) process, the de novo classification process, or the
premarket approval, or PMA, process, unless they are determined to be Class I devices or to otherwise qualify for an exemption from one
of these available forms of premarket review and authorization by the FDA. Under the FDCA, medical devices are classified into one of
three classes - Class I, Class II or Class III - depending on the degree of risk associated with each medical device and the extent of
control needed to provide reasonable assurance of safety and effectiveness. Classification of a device is important because the class
to which a device is assigned determines, among other things, the necessity and type of FDA review required prior to marketing the device.
Class I devices are those for which reasonable assurance of safety and effectiveness can be maintained through adherence to general controls
which include compliance with the applicable portions of the FDA’s Quality System Regulation, or the QSR, as well as regulations
requiring facility registration and product listing, reporting of adverse medical events, and appropriate, truthful and non-misleading
labeling, advertising, and promotional materials. The Class I designation also applies to devices for which there is insufficient information
to determine that general controls are sufficient to provide reasonable assurance of the safety and effectiveness of the device or to
establish special controls to provide such assurance, but that are not life-supporting or life-sustaining or for a use which is of substantial
importance in preventing impairment of human health, and that do not present a potential, unreasonable risk of illness or injury.
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.” These special controls can include performance standards, post-market surveillance
requirements, patient registries and FDA guidance documents describing device-specific special controls. While most Class I devices are
exempt from the premarket notification requirement, most Class II devices require a premarket notification prior to commercialization
in the United States; however, the FDA has the authority to exempt Class II devices from the premarket notification requirement under
certain circumstances. As a result, manufacturers of most Class II devices must submit premarket notifications to the FDA under Section
510(k) of the FDCA (21 U.S.C. § 360(k)) in order to obtain the necessary clearance to market or commercially distribute such devices.
To obtain 510(k) clearance, manufacturers must submit to the FDA adequate information demonstrating that the proposed device is “substantially
equivalent” to a “predicate device” that is already on the market. A predicate device is a legally marketed device
that is not subject to PMA, meaning, (i) a device that was legally marketed prior to May 28, 1976 (“pre-amendments device”)
and for which a PMA is not required, (ii) a device that has been reclassified from Class III to Class II or I or (iii) a device that
was found substantially equivalent through the 510(k) process. If the FDA agrees that the device is substantially equivalent to the predicate
device identified by the applicant in a premarket notification submission, the agency will grant 510(k) clearance for the new device,
permitting the applicant to commercialize the device. Premarket notifications are subject to user fees, unless a specific exemption applies.
If there is no adequate
predicate to which a manufacturer can compare its proposed device, the proposed device is automatically classified as a Class III device.
In such cases, a device manufacturer must then fulfill the more rigorous PMA requirements or can request a risk-based classification
determination for its device in accordance with the de novo classification process.
Devices that are intended
to be life sustaining or life supporting, devices that are implantable, devices that present a potential unreasonable risk of harm or
are of substantial importance in preventing impairment of health, and devices that are not substantially equivalent to a predicate device
and for which safety and effectiveness cannot be assured solely by the general controls and special controls are placed in Class III.
Such devices generally require FDA approval through the PMA process, unless the device is a pre-amendments device not yet subject to
a regulation requiring premarket approval. The PMA process is more demanding than the 510(k) process. For a PMA, the manufacturer must
demonstrate through extensive data, including data from preclinical studies and one or more clinical trials, that the device is safe
and effective for its proposed indication. The PMA must also contain a full description of the device and its components, a full description
of the methods, facilities and controls used for manufacturing, and proposed labeling. Following receipt of a PMA submission, the FDA
determines whether the application is sufficiently complete to permit a substantive review. If the FDA accepts the application for review,
it has 180 days under the FDCA to complete its review and determine whether the proposed device can be approved for commercialization,
although in practice, PMA reviews often take significantly longer, and it can take up to several years for the FDA to issue a final decision.
Before approving a PMA, the FDA generally also performs an on-site inspection of manufacturing facilities for the product to ensure compliance
with the QSR.
The de
novo classification process allows a manufacturer whose novel device is automatically classified into Class III to request
down-classification of its device to Class I or Class II, on the basis that the device presents low or moderate risk, as an alternative
to following the typical Class III device pathway requiring the submission and approval of a PMA application. Under the Food and Drug
Administration Safety and Innovation Act of 2012, the FDA is required to classify a device within 120 days following receipt of the de
novo classification request from an applicant; however, the most recent FDA premarket review goals state that in fiscal year
2021, FDA will attempt to issue a decision within 150 days of receipt on 65% of all de
novo classification requests received during the year and on 70% of de
novo requests received during fiscal year 2022. If the manufacturer seeks reclassification into Class II, the classification
request must include a draft proposal for special controls that are necessary to provide a reasonable assurance of the safety and effectiveness
of the medical device. The FDA may reject the classification request if it identifies a legally marketed predicate device that would
be appropriate for a 510(k) notification or determines that the device is not low to moderate risk or that general controls would be
inadequate to control the risks and special controls cannot be developed.
Clinical trials are
almost always required to support PMAs and are sometimes required to support 510(k) and de novo classification submissions. 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 govern investigational device labeling, prohibit promotion of investigational devices, 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 study sponsor to submit an IDE application to the FDA,
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 sponsor that the investigation is on hold and may not begin until the
sponsor provides supplemental information about the investigation that satisfies the agency’s concerns. If the FDA determines that
there are deficiencies or other concerns with an IDE that require modification of the study, the FDA may permit a clinical trial to proceed
under a conditional approval. The FDA may also notify the sponsor that the study is approved as proposed or approved with specific requested
modification. Furthermore, the agency may withdraw approval of an IDE under certain circumstances. In addition, the study must be approved
by, and conducted under the oversight of, an institutional review board, or IRB, for each clinical site. If the device presents a non-significant
risk to the patient according to criteria established by the FDA as part of the IDE regulations, a sponsor may begin the clinical trial
after obtaining approval for the trial by one or more IRBs without separate authorization from the FDA, but must still comply with abbreviated
IDE requirements, such as monitoring the investigation, ensuring that the investigators obtain informed consent, and labeling and record-keeping
requirements.
Post-Marketing
Restrictions and Enforcement
After a device is placed
on the market, numerous regulatory requirements apply. These include, but are not limited to:
| · | submitting
and updating establishment registration and device listings with the FDA; |
| · | compliance
with the QSR, which requires manufacturers to follow stringent design, testing, control,
documentation, record maintenance, including maintenance of complaint and related investigation
files, and other quality assurance controls during the manufacturing process; |
| · | unannounced
routine or for-cause device facility inspections by the FDA, which may include our suppliers’
facilities; |
| · | labeling
regulations, which prohibit the promotion of products for uncleared or unapproved (or “off-label”)
uses and impose other restrictions relating to promotional activities; |
| · | corrections
and removal reporting regulations, which require that manufacturers report to the FDA field
corrections or removals if undertaken to reduce a risk to health posed by a device or to
remedy a violation of the FDCA that may present a risk to health; and |
| · | post-market
surveillance regulations, which apply to certain Class II or III devices when necessary to
protect the public health or to provide additional safety and effectiveness data for the
device. |
In addition, under
the FDA medical device reporting, or MDR, regulations, medical device manufacturers are required to report to the FDA information that
a device has or may have caused or contributed to a death or serious injury or has malfunctioned in a way that would likely cause or
contribute to death or serious injury if the malfunction of the device or a similar device of such manufacturer were to recur. The decision
to file an MDR involves a judgment by the manufacturer. If the FDA disagrees with the manufacturer’s determination, the FDA can
take enforcement action.
The MDR
requirements also extend to health care facilities that use medical devices in providing care to patients, or “device user
facilities,” which include hospitals, ambulatory surgical facilities, nursing homes, outpatient diagnostic facilities, or
outpatient treatment facilities, but not physician offices. A device user facility must report any device-related death to both the
FDA and the device manufacturer, or any device-related serious injury to the manufacturer (or, if the manufacturer is unknown, to
the FDA) within 10 days of the event. Device user facilities are not required to report device malfunctions that would likely cause
or contribute to death or serious injury if the malfunction were to recur but may voluntarily report such malfunctions through
MedWatch, the FDA’s Safety Information and Adverse Event Reporting Program.
The FDA also has the
authority to require the recall of commercialized medical device products in the event of material deficiencies or defects in design
or manufacture. 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 adverse health consequences or death. Manufacturers may, under their own initiative, recall a product if any distributed
devices fail to meet established specifications, are otherwise misbranded or adulterated under the Federal Food, Drug, and Cosmetic Act, or the FDCA, or if any other material deficiency
is found. The FDA requires that certain classifications of recalls be reported to the FDA within ten working days after the recall is
initiated.
The failure to comply
with applicable regulatory requirements can result in enforcement action by the FDA, which may include any of the following sanctions:
| · | warning
letters, fines, injunctions or civil penalties; |
| · | recalls,
detentions or seizures of products; |
| · | delays
in the introduction of products into the market; |
| · | total
or partial suspension of production; |
| · | delay
or refusal of the FDA or other regulators to grant 510(k) clearance, PMA approvals, or other
marketing authorization to new products; |
| · | withdrawals
of marketing authorizations; or |
| · | in
the most serious cases, criminal prosecution. |
To ensure compliance
with regulatory requirements, medical device manufacturers are subject to market surveillance and periodic, pre-scheduled and unannounced
inspections by the FDA, and these inspections may include the manufacturing facilities of subcontractors.
Federal
Trade Commission Regulatory Oversight
Our advertising for
our products and services is subject to federal truth-in-advertising laws enforced by the Federal Trade Commission, or the FTC, as well
as comparable state consumer protection laws. Under the Federal Trade Commission Act, or FTC Act, the FTC is empowered, among other things,
to (a) prevent unfair methods of competition and unfair or deceptive acts or practices in or affecting commerce; (b) seek monetary redress
and other relief for conduct injurious to consumers; and (c) gather and compile information and conduct investigations relating to the
organization, business, practices, and management of entities engaged in commerce. The FTC has very broad enforcement authority, and
failure to abide by the substantive requirements of the FTC Act and other consumer protection laws can result in administrative or judicial
penalties, including civil penalties, injunctions affecting the manner in which we would be able to market services or products in the
future, or criminal prosecution.
Healthcare
Law and Regulation
United
States
If our MODD1 product
candidate or our other future product candidates are approved in the United States, we will have to comply with various U.S. federal
and state laws, rules and regulations pertaining to healthcare fraud and abuse, including anti-kickback laws and physician self-referral
laws, rules and regulations. Violations of the fraud and abuse laws are punishable by criminal and civil sanctions, including, in some
instances, exclusion from participation in federal and state healthcare programs, including Medicare and Medicaid. These laws include
the following:
| · | the
federal Anti-Kickback Statute prohibits, among other things, persons from knowingly and willfully
soliciting, offering, receiving or providing remuneration, directly or indirectly, in cash
or in kind, to induce or reward either the referral of an individual for, or the purchase,
order or recommendation of, any good or service, for which payment may be made, in whole
or in part, under a federal healthcare program such as Medicare and Medicaid; |
| · | the
federal False Claims Act imposes civil penalties, and provides for civil whistleblower or
qui tam actions, against individuals or entities for knowingly presenting, or causing to
be presented, to the federal government, claims for payment that are false or fraudulent
or making a false statement to avoid, decrease or conceal an obligation to pay money to the
federal government; |
| · | the
federal Health Insurance Portability and Accountability Act of 1996, or HIPAA, imposes criminal
and civil liability for executing a scheme to defraud any healthcare benefit program or making
false statements relating to healthcare matters; |
| · | HIPAA,
as amended by the Health Information Technology for Economic and Clinical Health Act and
its implementing regulations, also imposes obligations, including mandatory contractual terms,
with respect to safeguarding the privacy, security and transmission of individually identifiable
health information; |
| · | the
federal false statements statute prohibits knowingly and willfully falsifying, concealing
or covering up a material fact or making any materially false statement in connection with
the delivery of or payment for healthcare benefits, items or services; |
| · | the
federal transparency requirements under the Physician Payments Sunshine Act require manufacturers
of FDA-approved drugs, devices, biologics and medical supplies covered by Medicare or Medicaid
to report, on an annual basis, to the Department of Health and Human Services information
related to payments and other transfers of value to physicians, teaching hospitals, and certain
advanced non-physician health care practitioners and physician ownership and investment interests;
and |
| · | analogous
state and foreign laws and regulations, such as state anti-kickback and false claims laws,
may apply to sales or marketing arrangements and claims involving healthcare items or services
reimbursed by nongovernmental third-party payors, including private insurers. |
Some state laws require
pharmaceutical or medical device companies to comply with the relevant industry’s voluntary compliance guidelines and the relevant
compliance guidance promulgated by the federal government in addition to requiring drug and device manufacturers to report information
related to payments to physicians and other health care providers or marketing expenditures.
State and foreign laws
also govern the privacy and security of health information in some circumstances, many of which differ from each other in significant
ways and often are not preempted by HIPAA, thus complicating compliance efforts. We also may be subject to, or may in the future become
subject to, U.S. federal and state, and foreign laws and regulations imposing obligations on how we collect, use, disclose, store and
process personal information. Our actual or perceived failure to comply with such obligations could result in liability or reputational
harm and could harm our business. Ensuring compliance with such laws could also impair our efforts to maintain and expand our customer
base and thereby decrease our future revenues.
The European Union, or EU,
approves the use of medical devices in a very different way. They have similar regulations and requirements to adhere to, however a Notified
Body, in the form of a private company, will represent their interests and is required to have sufficient expertise to review all applications
and the company’s internal processes to ensure the safety of the product for which approval is being requested. We are in the process
of identifying a Notified Body to represent us, and we will follow our FDA submission process with regard to preparing the materials
and processes required to meet the regulations and gain clearance.
European
Union
European
Economic Area
In the European Economic
Area (which is comprised of the 27 member states of the European Union plus Norway, Iceland and Liechtenstein), or the EEA, manufacturers
of medical devices need to comply with the Essential Requirements laid out in Annex I to the EU Medical Devices Directive (Council Directive
93/42/EEC) or with the General Safety and Performance Requirements (GSPR) of the new EU Medical Devices Regulation (EU 2017/745). Compliance
with these requirements is a prerequisite to be able to affix the CE mark to medical devices, without which they cannot be marketed or
sold in the EEA. To demonstrate compliance with the Essential Requirements and the GSPR and obtain the right to affix the CE Mark, manufacturers
of medical devices must undergo a conformity assessment procedure, which varies according to the type of medical device and its classification.
Except for low-risk medical devices (Class I with no measuring function and which are not sterile), where the manufacturer can issue
an EC Declaration of Conformity based on a self-assessment of the conformity of its products with the Essential Requirements and the
GSPR, a conformity assessment procedure requires the intervention of a Notified Body, which is an organization designated by a competent
authority of an EEA country to conduct conformity assessments. Depending on the relevant conformity assessment procedure, the Notified
Body would audit and examine the Technical File and the quality system for the manufacture, design and final inspection of the devices.
The Notified Body issues a CE Certificate of Conformity following successful completion of a conformity assessment procedure conducted
in relation to the medical device and its manufacturer and their conformity with the Essential Requirements and GSPR. This Certificate
entitles the manufacturer to affix the CE mark to its medical devices after having prepared and signed a related EC Declaration of Conformity.
As a general rule, demonstration of conformity of medical devices and their manufacturers with the Essential Requirements and GSPR must
be based, among other things, on the evaluation of clinical data supporting the safety and performance of the products during normal
conditions of use. Specifically, a manufacturer must demonstrate that the device achieves its intended performance during normal conditions
of use, that the known and foreseeable risks, and any adverse events, are minimized and acceptable when weighed against the benefits
of its intended performance, and that any claims made about the performance and safety of the device are supported by suitable evidence.
All manufacturers placing
medical devices into the market in the EEA must comply with the EU Medical Device Vigilance System. Under this system, incidents must
be reported to the relevant authorities of the member states of the EEA, and manufacturers are required to take Field Safety Corrective
Actions, or FSCAs, to reduce a risk of death or serious deterioration in the state of health associated with the use of a medical device
that is already placed on the market. An incident is defined as any malfunction or deterioration in the characteristics and/or performance
of a device, as well as any inadequacy in the labeling or the instructions for use which, directly or indirectly, might lead to or might
have led to the death of a patient or user or of other persons or to a serious deterioration in their state of health. An FSCA may include
the recall, modification, exchange, destruction or retrofitting of the device. FSCAs must be communicated by the manufacturer or its
legal representative to its customers and/or to the end users of the device through Field Safety Notices. Where appropriate, our products
commercialized in Europe are CE marked and classified as either Class I or Class II.
In 2017, the European
Parliament passed the Medical Devices Regulation, which repeals and replaces the EU Medical Devices Directive. Unlike directives, which
must be implemented into the national laws of the EEA member states, the regulations would be directly applicable (i.e., without the
need for adoption of EEA member State laws implementing them) in all EEA member states and are intended to eliminate current differences
in the regulation of medical devices among EEA member States. The Medical Devices Regulation, among other things, is intended to establish
a uniform, transparent, predictable and sustainable regulatory framework across the EEA for medical devices and in vitro diagnostic devices
and ensure a high level of safety and health while supporting innovation.
The Medical Device
Regulation was meant to become applicable three years after publication (in May 2020). However, in April 2020, to allow EEA national
authorities, notified bodies, manufacturers and other actors to focus fully on urgent priorities related to the COVID-19 pandemic, the
European Council and Parliament adopted Regulation 2020/561, postponing the date of application of the Medical Device Regulation by one
year. The Medical Device Regulation became applicable on May 26, 2021. Devices lawfully placed on the market pursuant to the EU Medical
Devices Directive prior to May 26, 2021 may generally continue to be made available on the market or put into service until May 26, 2025.
The Medical Devices Regulation, among other things:
| · | strengthens
the rules on placing devices on the market and reinforces surveillance once they are available; |
| · | establishes
explicit provisions on manufacturers’ responsibilities for the follow-up of the quality,
performance and safety of devices placed on the market; |
| · | improves
the traceability of medical devices throughout the supply chain to the end-user or patient
through a unique identification number; |
| · | sets
up a central database to provide patients, healthcare professionals and the public with comprehensive
information on products available in the EU; and |
| · | strengthens
rules for the assessment of certain high-risk devices, such as implants, which may have to
undergo an additional check by experts before they are placed on the market. |
Competition
Today, in the United
States, only three companies are commercializing insulin pumps to type 1 diabetes patients and insulin treated type 2 diabetes patients:
| · | Medtronic
- commercializes the durable Minimed 770G also offering older durable pumps still in use
(e.g., the 670G, 630G etc.). In 2020, they held approximately 51% of the US insulin pump
market. |
| · | Tandem
- commercializes the durable t:slim X2 pump (with or without algorithms - Basal-IQ and Control-IQ).
In 2020, they held approximately 28% of the US insulin pump market. |
| · | Insulet
- commercializes the disposable Omnipod patch pump with about 19% of the US market in 2020. |
Older insulin pumps
are also still being used by a minority of patients previously provided by Roche or Animas, though these pumps are not commercialized
any longer. To a lesser extent, the pumps described below are also used in small numbers.
These three insulin
pump offerings are vying for the attention of the most motivated and well insured in hope of converting them away from their reliance
on multi-day insulin injections. The t:slim X2 and Minimed 770G each have a ~$5,000 list price that is covered through Durable Medical
Equipment (DME) reimbursement; daily consumables and insulin are also required to complete these offerings. These products have controllers
integrated into the pump, making them cumbersome and bulky, along with long (>20 inch) tubing between the pump and the cannular site.
The Omnipod is the third offering, a patch pump that attaches to the body for 72 hours and uses a separate controller to manage the insulin
delivery process. Insurance coverage can be provided via DME but also via Pharmacy Benefit (PB). The Omnipod patch pump is more expensive
per day and less accurate than other insulin pumps. Around 32% of people living with T1D are currently using insulin pumps; of these,
the vast majority are using one of these three offerings, a statistic that has not changed significantly over the last 5+ years.
All of these pump products
require extensive training to initiate and two to four hours per day to use and manage on an ongoing basis. This level of sophistication
and effort along with the cost and awkwardness of these products contribute to the limited uptake.
Although there are
purely mechanical pumps available to patients with a small percentage of T2D patients are using the Zealand V-Go patch pump, a fixed
basal rate and a button to deliver small boluses. This pump is simple to use though gives little performance decision to the user (no
possibility to change the basal rate, no possibility to stop bolus doses, small reservoir, pump that needs to be changed every day, etc.).
The last available patch pump is provided by Cequr, called Simplicity, a bolus-only delivery option without basal delivery that is yet
to be available.
In the future, Medtronic
intends to launch a new version of their insulin pump, the Minimed 780G, already available in some European countries with an advanced
algorithm, but no obvious change in hardware. Tandem is currently developing a patch pump called t:sport, coupled with an algorithm with
potential launch expected in summer 2022. The t:sport should have a small 2mL reservoir and would be controlled by a separate unit as
is the current Omnipod. Insulet should launch in the coming quarters the Omnipod 5, a similar patch pump to their offering today, that
includes an algorithm.
Approximately 71% of
the people who rely upon MDI choose to not administer a shot outside of their house, which creates a poorly controlled group. Our MODD1
product is designed to focus upon a segment of these people and mobilize them via a simple, easy to use, affordable product.
Intellectual
Property
Our success depends
in part on our ability to obtain patents and trademarks, maintain trade secret and know-how protection, enforce our proprietary rights
against infringers, and operate without infringing on the proprietary rights of third parties. Because of the length of time and expense
associated with developing new products and bringing them through the regulatory approval process, the health care industry places considerable
emphasis on obtaining patent protection and maintaining trade secret protection for new technologies, products, processes, know-how,
and methods.
As of March 31, 2022,
we had one issued U.S. utility patent, five published U.S. utility patents, two pending foreign patent applications, and two pending
international PCT patent applications covering various aspects of our technology, including our proprietary fluid movement technology.
There can be no assurance that the pending patent applications will result in the issuance of patents, that patents issued to or licensed
by us will not be challenged or circumvented by competitors, or that these patents will be found to be valid or sufficiently broad to
protect our technology or provide us with a competitive advantage.
Available
Information
Our annual reports
on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to such reports filed or furnished pursuant
to section 13(a) or 15(d) of the Securities Exchange Act of 1934, as well as section 16 reports on Form 3, 4, or 5, are available free
of charge on our website at www.modular-medical.com. as soon as it is reasonably practicable after they are filed or furnished with the
SEC. Our Code of Business Conduct and Ethics and the charters for the Audit Committee, Compensation Committee and Nominating and Governance
Committee are also available on our website. The Code of Business Conduct and charters are also available in print to any shareholder
upon request without charge. Requests for such documents should be directed to Corporate Secretary, at Modular Medical, Inc., 16772 W.
Bernardo Drive, San Diego CA 92127. Our Internet website and the information contained on it or connected to it are not part of, or incorporated
by, reference into this prospectus. Our filings with the SEC are also available on the SEC’s website at http://www.sec.gov.
Corporate
History and Background
We were formed as a
corporation under the laws of the State of Nevada in October 1998 under the name Bear Lake Recreation Inc. We had no material business
operations from 2002 until July 2017, when we acquired Quasuras, Inc., a Delaware corporation, in the Control Block Acquisition (as defined
below). Prior to the Control Block Acquisition, we were a shell company, as defined in Rule 12b-2 promulgated under the Securities Exchange
Act of 1934 (the “Exchange Act”).
The
Control Block Acquisition. On April 26, 2017, pursuant to a Common Stock Purchase
Agreement, dated as of April 5, 2017, by and among Manchester Explorer, LP, a Delaware limited partnership, we and certain persons named
therein, Manchester Explorer, LP purchased from us 966,667 shares of our Common Stock representing in excess of a majority of our then
issued and outstanding Common Stock, for a purchase price of $375,000 (the “Control Block Acquisition”), resulting in a change
in control of the Company. In connection with the Control Block Acquisition, James E. Besser was appointed president and a director and
Morgan C. Frank was appointed the chief executive officer, chief financial officer, secretary, treasurer and a director of ours and immediately
following such appointments, our then officers and directors resigned. Mr. Besser is the managing member of and Mr. Frank is the portfolio
manager and a consultant to Manchester Management Company, LLC, a Delaware limited liability company also referred to herein as MMC.
MMC is the general partner of Manchester Explorer, LP and Jeb Partners, L.P. (Jeb Partners, and together with Manchester Explorer, LP,
collectively, the Purchasing Funds).
The
Acquisition. On July 24, 2017, pursuant to a Reorganization and Share Exchange Agreement,
by and among us, Paul M. DiPerna, the sole officer, director and a controlling stockholder of Quasuras, Messrs. Besser and Frank (Messrs.
Besser, Frank and DiPerna, collectively, the “3 Quasuras Shareholders”), and Quasuras, Inc. (the “Share Exchange Agreement”),
we acquired all of the issued and outstanding shares of Quasuras, Inc. owned by the 3 Quasuras Shareholders, resulting in Quasuras, Inc.
becoming our wholly-owned subsidiary (the “Acquisition”). Simultaneously with the closing of the Acquisition, Manchester
Explorer, LP cancelled the 2,900,000 shares of our Common Stock purchased in the Control Block Acquisition, Mr. Besser resigned as our
president and a director and Mr. Frank resigned as our chief executive officer, chief financial officer, secretary, and treasurer, but
remained a director, and Mr. DiPerna was appointed our chairman of the board of directors, chief executive officer, chief financial officer,
president, secretary and treasurer. Mr. DiPerna served as our chief executive officer until August 2021 and as our secretary until October
2021.
Subsidiaries
Quasuras, Inc., a Delaware
corporation, is our only subsidiary.
Employees
As of March 31,
2022, we had 25 employees all of whom are located in the United States, consisting of 23 in research and development
and manufacturing operations and 2 in general and administrative functions.
ITEM
1A. RISK FACTORS
We
are a developmental stage medical device company and have a history of significant operating losses; we expect to continue to incur operating
losses, and we may never achieve or maintain profitability.
As a development-stage
enterprise, we do not currently have revenues to generate cash flows to cover operating expenses. Since our inception, we have incurred
operating losses in each year due to costs incurred in connection with research and development activities and general and administrative
expenses associated with our operations. For the years ended March 31, 2022 and 2021, we incurred net losses of approximately $18.6 million
and $7.4 million, respectively. At March 31, 2022, we had an accumulated deficit of approximately $34.6 million. As a result, we will
need to raise additional capital in the future, which may or may not be available to us at all or only on unfavorable terms.
We expect to incur
losses for the foreseeable future, as we continue the development of, and seek regulatory clearance and approvals for, our insulin pump.
As our prototype insulin pump is currently our only product, if it fails to gain regulatory approval and market acceptance, we will not
be able to generate any revenue, or explore other opportunities to enhance shareholder value, such as through a sale. If we fail to generate
revenue and eventually become profitable, or if we are unable to fund our continuing losses, our shareholders could lose all or a substantial
part of their investment.
The
full effects of COVID-19 and other potential future public health crises, epidemics, pandemics or similar events are uncertain and could
have a material and adverse effect on our business, financial condition, operating results and cash flows.
The global outbreak
of the coronavirus disease 2019, or COVID-19, was declared a pandemic by the World Health Organization and a national emergency by the
U.S. government in March 2020. This has negatively affected the world economy, disrupted global supply chains, significantly restricted
travel and transportation, resulted in mandated closures and orders to “shelter-in-place” and created significant disruption
of the financial markets. The extent of the impact on our operational and financial performance will depend on future developments, including
the duration and spread of the pandemic and related actions taken by U.S. and foreign government agencies to prevent
disease spread, all of which are uncertain, out of our control and cannot be predicted.
We have been
complying with county and state orders and, until May 2021, had implemented a teleworking policy for our employees and contractors and
significantly minimized the number of employees who visit our office. However, a facility closure, work slowdowns or temporary stoppage
at one of our suppliers could occur, which could have a longer-term impact and could delay our prototype production and ability to conduct
business.
If our workforce
is unable to work effectively, including because of illness, quarantines, absenteeism, government actions, facility closures, travel
restrictions or other restrictions in connection with the COVID-19 pandemic, our operations will be negatively impacted. We may be unable
to develop our product candidate, and our costs may increase as a result of the COVID-19 outbreak. The impacts could worsen if there
is an extended duration of any COVID-19 outbreak or a resurgence of COVID-19 infection in affected regions after they have begun to experience
improvement.
We rely on other
companies to provide components and to perform services for us. An extended period of supply chain disruption caused by the response
to COVID-19 could impact our ability to produce our initial product quantities, and, if we are not able to implement alternatives or
other mitigations, product deliveries would be adversely impacted and negatively impact our business, financial condition, operating
results and cash flows. Limitations on government operations can also impact regulatory approvals that are necessary for us to operate
our business.
The continued
spread of COVID-19 has also led to disruption and volatility in the global capital markets. We were recently able to raise additional
capital through equity offerings in February 2022 and May 2022, however, we will need to raise additional capital to support our operations
in the future. We may be unable to access the capital markets, and additional capital may only be available to us on terms that could
be significantly detrimental to our existing stockholders and to our business.
We
will need substantial additional funding to complete subsequent phases of our insulin pump product and to operate our business and such
funding may not be available or, if it is available, such financing is likely to substantially dilute our existing shareholders.
The discovery, development,
and commercialization of new medical devices, such as our insulin pump, entails significant costs. While we believe that we have generally
completed the engineering and mechanical aspects of our insulin pump prototype, we still must modify, refine and finalize our insulin
pump to, among other things, meet the general needs and preferences of the almost pumper marketplace and the guidelines of third-party
payors. To enable us to accomplish these and other related items and continue to operate our business, we will need to raise substantial
additional capital and/or enter into strategic partnerships or joint ventures to enable us to:
| · | fund
clinical studies and seek regulatory approvals; |
| · | build
or access manufacturing and commercialization capabilities; |
| · | develop,
test, and, if approved, market our product candidate; |
| · | acquire
or license additional internal systems and other infrastructure; and |
| · | hire
and support additional management, engineering and scientific personnel. |
Until we can generate
a sufficient amount of product revenue to finance our cash requirements, which we may never achieve, we expect to finance our cash needs
primarily through public or private equity offerings, debt financings or through the establishment of possible strategic alliances. We
may in the future seek additional capital from public or private offerings of our capital stock or borrow additional amounts under new
credit lines or from other sources. If we issue equity or debt securities to raise additional funds, our existing stockholders may experience
dilution, we may incur significant financing costs, and the new equity or debt securities may have rights, preferences and privileges
senior to those of our existing stockholders. In addition, if we raise additional funds through collaborations, licensing, joint ventures,
strategic alliances, partnership arrangements or other similar arrangements, it may be necessary to relinquish valuable rights to our
potential future products or proprietary technologies or grant licenses on terms that are not favorable to us.
We cannot be certain
that additional funding will be available on acceptable terms, or at all. If we are not able to secure additional equity funding when
needed, we may have to delay, reduce the scope of, or eliminate one or more of our clinical studies, development programs or future commercialization
initiatives. In addition, any additional equity funding that we do obtain will dilute the ownership held by our existing equity holders.
The amount of this dilution may be substantially increased if the trading price of our common stock is lower at the time of any financing.
Regardless, the economic dilution to shareholders will be significant if our stock price does not increase significantly, or if the effective
price of any sale is below the price paid by a particular shareholder. Any debt financing that we obtain in the future could involve
substantial restrictions on activities and creditors could seek a pledge of some or all of our assets. We have not identified potential
sources for such financing that we will require, and we do not have commitments from any third parties to provide any future debt financing.
If we fail to obtain funding as needed, we may be forced to cease or scale back operations, and our results, financial condition and
stock price would be adversely affected.
We
have a limited operating history and historical financial information upon which you may evaluate our performance.
You should consider,
among other factors, our prospects for success in light of the risks and uncertainties encountered by companies that, like us, are in
their early stages of development. We may not successfully address these risks and uncertainties or successfully complete our studies
and/or implement our existing and new products. If we fail to do so, it could materially harm our business and impair the value of our
common stock. Unanticipated problems, expenses and delays are frequently encountered in establishing a new business, conducting research,
and developing new products. These include, but are not limited to, inadequate funding, failure to obtain regulatory approval, unforeseen
research issues, lack of consumer acceptance, competition, sluggish product development, and inadequate sales and marketing. The failure
by us to meet any of these conditions would have a materially adverse effect upon us and may force us to reduce or curtail operations.
No assurance can be given that we can or will ever operate profitably.
The
amount of financing we require will depend on a number of factors, many of which are beyond our control. Our results of operations, financial
condition and stock price are likely to be adversely affected if our funding requirements increase or are otherwise greater than we expect.
Our future funding
requirements will depend on many factors, including, but not limited to:
| · | the
testing costs for our insulin pump product and other development activities conducted by
us directly, and our ability to successfully conclude the studies and activities and achieve
favorable results; |
| · | our
ability to attract future strategic partners to pay for or share costs related to our product
development efforts; |
| · | the
costs and timing of seeking and obtaining regulatory clearance and approvals for our product
candidate; |
| · | the
costs of filing, prosecuting, maintaining and enforcing any patents and other intellectual
property rights that we may have and defending against potential claims of infringement; |
| · | decisions
to hire additional scientific, engineering or administrative personnel or consultants; |
| · | our
ability to manage administrative and other costs of our operations; and |
| · | the
presence or absence of adverse developments in our research program. |
If any of these factors
cause our funding needs to be greater than expected, our operations, financial condition, ability to continue operations and stock price
may be adversely affected.
Our
future cash requirements may differ significantly from our current estimates.
Our cash requirements
may differ significantly from our estimates from time to time, depending on a number of factors, including:
| · | the
costs and results of our clinical studies regarding our insulin pump product candidate; |
| · | the
time and costs involved in obtaining regulatory clearance and approvals; |
| · | whether
we are able to obtain funding under future licensing agreements, strategic partnerships,
or other collaborative relationships, if any; |
| · | the
costs of compliance with laws, regulations, or judicial decisions applicable to us; and |
| · | the
costs of general and administrative infrastructure required to manage our business and protect
corporate assets and shareholder interests. |
If we fail to raise
additional funds on a timely basis, we will need to scale back our business plans, which would adversely affect our business, financial
condition, and stock price, and we may even be forced to discontinue our operations and liquidate our assets.
Technological
breakthroughs in diabetes monitoring, treatment or prevention could render our insulin pump obsolete.
The diabetes treatment
market is subject to rapid technological change and product innovation. Our insulin pump is based on our proprietary technology, but
a number of companies, medical researchers and existing pharmaceutical companies are pursuing new delivery devices, delivery technologies,
sensing technologies, procedures, drugs and other therapeutics for the monitoring, treatment and/or prevention of insulin-dependent diabetes.
Any technological breakthroughs in diabetes monitoring, treatment or prevention could render our insulin pump obsolete, which, since
our insulin pump is our only product, would have a material adverse effect on our business, financial condition and results of operations
and could result in shareholders losing their entire investment.
Any
failure to attract and retain skilled directors, executives, employees and consultants could impair our product development and commercialization
activities.
Our business depends
on the skills, performance, and dedication of our directors, executive officers and key engineering, scientific and technical advisors.
Many of our current engineering or scientific advisors are independent contractors and are either self-employed or employed by other
organizations. As a result, they may have conflicts of interest or other commitments, such as consulting or advisory contracts with other
organizations, which may affect their ability to provide services to us in a timely manner. We will need to recruit additional directors,
executive management employees, and advisers, particularly engineering, scientific and technical personnel, which will require additional
financial resources. In addition, there is currently intense competition for skilled directors, executives and employees with relevant
engineering, scientific and technical expertise, and this competition is likely to continue. If we are unable to attract and retain persons
with sufficient engineering, scientific, technical and managerial experience, we may be forced to limit or delay our product development
activities or may experience difficulties in successfully conducting our business, which would adversely affect our operations and financial
condition.
We
have limited internal research and development personnel, making us dependent on consulting relationships.
We consider research
and development to be an important part of the process of designing, developing, obtaining regulatory required approvals and the eventual
commercialization of our insulin pump. We continue to incur increased research and development expenditures, which are attributable to
effort and expenses incurred in designing and developing our innovative insulin pump. We expect to continue to incur substantial costs
related to research and development.
We
will need to outsource and rely on third parties for various aspects relating to the development, manufacture, sales and marketing of
our insulin pump as well as in connection with assisting us in the preparation and filing of our FDA submission, and our future success
will be dependent on the timeliness and effectiveness of the efforts of these third parties.
We are dependent on
consultants for important aspects of our product development strategy. We do not have the required financial resources and personnel
to carry out independently the development of our product candidate, and do not have the capability or resources to manufacture, market
or sell our current product candidate. As a result, we contract with and rely on third parties for important functions, including in
connection with the development and finalization of our insulin pump, the preparation and filing of our FDA submission and eventual manufacturing
and commercialization of our product candidate. We have recently entered into several agreements with third parties for such services.
If problems develop in our relationships with third parties, or if such parties fail to perform as expected, it could lead to delays
or lack of progress in obtaining FDA clearance, significant cost increases, changes in our strategies, and even failure of our product
initiatives.
We
may not be able to identify, negotiate and maintain the strategic alliances necessary to develop and commercialize our products and technologies,
and we will be dependent on our corporate partners if we do.
We may seek to enter
into a strategic alliance with a diabetes related service providing company for the further development and approval of our insulin pump
product candidate. At this time, we have not entered into any such strategic alliance. Strategic alliances, if entered into, could potentially
provide us with additional funds, expertise, access, and other resources in exchange for exclusive or non-exclusive licenses or other
rights to the product that we are currently developing or a product we may explore in the future. We cannot give any assurance that we
will be able to enter into strategic relationships with a diabetes related service providing company or others in the near future or
at all. In addition, we cannot assure you that any agreements that we do reach will achieve our goals or be on terms that prove to be
economically beneficial to us. When we do enter into strategic or contractual relationships, we become dependent on the successful performance
of our partners or counter-parties. If they fail to perform as expected, such failure could adversely affect our financial condition,
lead to increases in our capital needs, or hinder or delay our development efforts.
We
may not receive the necessary regulatory clearance or approvals for our insulin pump, and failure to timely obtain necessary clearances
and/or approvals could harm our then operations, including our ability to commercialize our product candidate.
Before we can market
a new medical device, such as our insulin pump, we must first receive clearance under Section 510(k) of the Federal Food, Drug, and Cosmetic
Act, or the FDCA. In the 510(k) clearance process, before a device may be marketed, the FDA must determine that such proposed device
is “substantially equivalent” to a legally-marketed “predicate” device, which includes a device that has been
previously cleared through the 510(k) process, a device that was legally marketed prior to May 28, 1976 (pre-amendments device), a device
that was originally on the U.S. market pursuant to an approved pre-market approval (PMA) and later down-classified, or a 510(k)-exempt
device. To be “substantially equivalent,” the proposed device must have the same intended use as the predicate device, and
either have the same technological characteristics as the predicate device or have different technological characteristics and not raise
different questions of safety or effectiveness than the predicate device.
Certain future modifications
made to our product, which we currently expect to be cleared through 510(k), may require a new 510(k) clearance. The 510(k) clearance
process can be expensive, lengthy and uncertain. The FDA’s 510(k) clearance process usually takes from three to 12 months, but
can last longer. Despite the time, effort and cost, a device may not be approved or cleared by the FDA. Any delay or failure to obtain
necessary regulatory authorizations could harm our business, including our ability to commercialize our product candidate and our shareholders
could lose their entire investment. Furthermore, even if we are granted the required regulatory authorizations, such authorizations may
be subject to significant limitations on the indicated uses for the device, which may limit the market for our product candidate.
If the FDA requires
us to go through a lengthier, more rigorous examination for our product candidate than we had expected, product introductions or modifications
could be delayed or canceled, which could adversely affect our ability to grow our business.
The FDA can delay,
limit or deny clearance or approval for our insulin pump medical device for many reasons, including:
| · | our
inability to demonstrate to the satisfaction of the FDA that our product candidate is substantially
equivalent to the proposed predicate device; |
| · | the
disagreement of the FDA with the design or implementation of our performance testing protocols
or the interpretation of data from our performance testing; |
| · | the
data from performance testing may be insufficient to support a determination of substantial
equivalence or that our device meets required special controls or applicable performance
standards; |
| · | our
inability to demonstrate that the benefits of our pump outweigh the risks; |
| · | the
manufacturing process or facilities we intend to use may not meet applicable requirements;
and |
| · | the
potential for approval policies or regulations of the FDA to change significantly in a manner
rendering our data or regulatory filings insufficient for clearance or approval. |
In addition, the FDA
may change its clearance and approval policies, adopt additional regulations or revise existing regulations, or take other actions, which
may prevent or delay approval or clearance of our product candidate or impact our ability to modify our product candidate after clearance
on a timely basis. Such policy or regulatory changes could impose additional requirements upon us that could delay our ability to obtain
clearance for our pump, increase the costs of compliance or restrict our ability to maintain our current approval.
As a general rule,
demonstration of conformity of medical devices and their manufacturers with the essential requirements must be based, among other things,
on the evaluation of data supporting the safety and performance of the product candidates during normal conditions of use. Specifically,
a manufacturer must demonstrate that the device achieves its intended performance during normal conditions of use, that the known and
foreseeable risks, and any adverse events, are minimized and acceptable when weighed against the benefits of its intended performance,
and that any claims made about the performance and safety of the device are supported by suitable evidence.
Obtaining
marketing authorization in the United States will not obviate the need to obtain marketing authorization in other jurisdictions We must
obtain approval from foreign regulatory authorities before we can market and sell any of our product candidates in countries outside
the United States. We will incur additional costs in seeking such approvals, may experience delays in obtaining such approvals and cannot
be certain that such approvals will be granted.
The development, manufacture,
and marketing of our product candidates outside the United States is subject to government regulation. In most foreign countries, we
must complete rigorous pre-clinical testing and extensive human clinical trials that demonstrate the safety and efficacy of a product
in order to apply for regulatory approval to market the product. If foreign regulatory authorities grant regulatory approval of a product,
the approval may be limited to specific indications or limited with respect to its distribution. Expanded or additional indications for
approved devices may not be approved, which could limit our potential revenues. Foreign regulatory authorities may refuse to grant any
approval. Consequently, even if we believe that pre-clinical and clinical data are sufficient to support regulatory approval for our
products, foreign regulatory authorities may not ultimately grant approval for commercial sale in any jurisdiction. If our product candidates
are not approved in such jurisdictions, our ability to generate revenues will be limited and our business will be adversely affected.
Our
competitors may develop products that are more effective, safer and less expensive than ours.
Existing insulin pumps
are expensive, with the more popular models having purchase prices exceeding $4,000 for individuals without health insurance and often
require significant patient copays. Others have daily use costs that exceed the reimbursement rates of many health insurance plans, forcing
some users to spend thousands of dollars a year in copays. We believe this makes insurers hesitant to pay for any pumps and places pumps
out of reach for many patients whom cannot afford such out of pocket expenses.
We are engaged in the
diabetes treatment sector of the healthcare marketplace, which is intensely competitive. There are current products that are quite effective
at addressing the effects of diabetes, and we expect that new developments by other companies and academic institutions in the areas
of diabetes treatment will continue. If approved for marketing by the FDA, depending on the approved clinical indication, our product
will be competing with existing and future products related to treatments for diabetes.
Our competitors may:
| · | develop
product candidates and market products that increase the levels of safety or efficacy that
our product candidates will need to show in order to obtain regulatory approval; |
| · | develop
product candidates and market products that are less expensive or more effective than ours; |
| · | commercialize
competing products before we can launch any products we are working to develop; |
| · | hold
or obtain proprietary rights that could prevent us from commercializing our products; or |
| · | introduce
therapies or market medical products that render our potential product candidates obsolete. |
We expect to
compete against large medical device companies, such as Medtronic, Inc., Tandem Diabetes Care, Inc. and Insulet Corporation and smaller
companies that are collaborating with larger medical device companies, new companies, academic institutions, government agencies and
other public and private research organizations. These competitors, in nearly all cases, produce similar products relative to the treatment
of diabetes that have substantially greater financial resources than we do. Our competitors also have significantly greater experience
in:
| · | developing
medical device and other product candidates; |
| · | undertaking
testing and clinical studies; |
| · | building
relationships with key customers and opinion-leading physicians; |
| · | obtaining
and maintaining FDA and other regulatory approvals; |
| · | formulating
and manufacturing medical devices; |
| · | launching,
marketing and selling medical devices; and |
| · | providing
management oversight for all of the above-listed operational functions. |
If we fail to achieve
superiority over other existing or newly developed products, we may be unable to obtain regulatory approval. If our competitors’
market medical devices that are less expensive, safer or more effective than our insulin pump, or that gain or maintain greater market
acceptance, we may not be able to compete effectively. See “Our Business – Competition” below.
We
expect to rely on third-party manufacturers and will be dependent on their quality and effectiveness.
Our insulin pump requires
precise, high-quality manufacturing. The failure to achieve and maintain high manufacturing standards, including failure to detect or
control anticipated or unanticipated manufacturing errors or the frequent occurrence of such errors, could result in patient injury or
death, discontinuance or delay of ongoing or planned clinical studies, delays or failures in product testing or delivery, cost overruns,
product recalls or withdrawals and other problems that could seriously hurt our business. Contract medical device manufacturers often
encounter difficulties involving production yields, quality control and quality assurance and shortages of qualified personnel. These
manufacturers are subject to stringent regulatory requirements, including the FDA’s current good-manufacturing-practices regulations.
If our contract manufacturers fail to maintain ongoing compliance at any time, the production of our product could be interrupted, resulting
in delays or discontinuance of our clinical studies, additional costs and loss of potential revenues.
We
may not be able to successfully scale-up manufacturing of our product candidate in sufficient quality and quantity, which would delay
or prevent us from developing our product candidate and commercializing our product candidate.
In order to conduct
larger-scale or late-stage clinical studies and for commercialization of our insulin pump, if 510(k) clearance is granted, we will need
to manufacture it in larger quantities. We may not be able to successfully increase the manufacturing capacity for our product in a timely
or cost-effective manner, or at all. In addition, quality issues may arise during scale-up activities. If we are unable to successfully
scale up the manufacture of our product in sufficient quality and quantity, the development and testing of our product candidate and
regulatory approval or commercial launch may be delayed, which could significantly harm our business.
We
may be subject to potential product liability and other claims that could materially impact our business and financial condition.
The development and
sale of our insulin pump exposes us to the risk of significant damages from product liability and other claims, and the use of our product
candidate in clinical studies may result in adverse effects. We cannot predict all the possible harms or adverse effects that may result.
We maintain a modest amount of product liability insurance to provide some protection from claims. Nonetheless, we may not have sufficient
resources to pay for any liabilities resulting from a personal injury or other claim, even if it is partially covered by insurance. In
addition to the possibility of direct claims, we may be required to indemnify third parties against damages and other liabilities arising
out of our development, commercialization and other business activities, which would increase our liability exposure. If third parties
that have agreed to indemnify us fail to do so, we may be held responsible for those damages and other liabilities as well.
Legislative,
regulatory, or medical cost reimbursement changes may adversely impact our business.
New laws, regulations
and judicial decisions, or new interpretations of existing laws, regulations and decisions, that relate to the health care system in
the U.S. and in other jurisdictions may change the nature of and regulatory requirements relating to innovations in medical devices,
testing and regulatory approvals, limit or eliminate payments for medical procedures and treatments, or subject the pricing of medical
devices to government control. In addition, third-party payors in the U.S. are increasingly attempting to contain health care costs by
limiting both coverage and the level of reimbursement of new products. Consequently, significant uncertainty exists as to the reimbursement
status of newly approved health care products. Significant changes in the health care system in the U.S. or elsewhere, including changes
resulting from adverse trends in third-party reimbursement programs, could have a material adverse effect on our projected future operating
results and our ability to raise capital, commercialize products, and remain in business.
We
are subject to extensive regulation by the FDA, which could restrict the sales and marketing of our insulin pump and could cause us to
incur significant costs.
Our insulin pump is
subject to extensive regulation by the FDA. These regulations relate to manufacturing, labeling, sale, promotion, distribution and shipping.
Before a new medical device, or a new intended use of a legally marketed device, can be marketed in the United States, it must be cleared
or approved by FDA through the applicable premarket review process (510(k), PMA, or de
novo classification), unless an exemption applies. If we receive 510(k) clearance for our insulin pump, we may be required
to obtain a new 510(k) clearance for significant post-market modifications to the pump. Each premarket submission and review process
can be expensive and lengthy, and entail significant user fees, unless exempt.
Medical devices may
be marketed only for the indications for which they are approved or cleared. Further, 510(k) clearances can be revoked if safety or effectiveness
problems develop once the device is on the market.
The current regulatory
requirements to which we are subject may change in the future in a way that adversely affects us. If we fail to comply with present or
future regulatory requirements that are applicable to us, we may be subject to enforcement action by the FDA, which may include any of
the following sanctions:
| · | untitled
letters, warning letters, fines, injunctions, consent decrees and civil penalties; |
| · | customer
notification, or orders for repair, replacement or refunds |
| · | voluntary
or mandatory recall or seizure of our current or future products; |
| · | administrative
detention by the FDA of medical devices believed to be adulterated or misbranded; |
| · | imposing
operating restrictions, suspension or shutdown of production; |
| · | refusing
our requests for 510(k) clearance, PMA, or de novo classification any new products,
new intended uses or modifications to our insulin pump; |
| · | rescinding
510(k) clearance that has already been granted; and |
The occurrence of any
of these events would have a material adverse effect on our business, financial condition and results of operations and could result
in shareholders losing their entire investment.
Although
our system does not presently require clinical trials to apply to the FDA for clearance and even if a clinical trial is completed, the
results of our clinical testing may not demonstrate the safety and efficacy of the device or may be equivocal or otherwise not be sufficient
for us to obtain approval of our product candidate.
Clinical trials are
almost always required to support a PMA application and may also be required to support 510(k) submissions although at this time ours
does not require a PMA. If the device presents a “significant risk” to human health as defined by the FDA, the FDA requires
the study sponsor to submit an investigational device exemption (“IDE”) application and obtain IDE approval prior to commencing
human clinical trials. The IDE must be supported by appropriate data, such as animal and laboratory testing results, showing that it
is safe to test the device in humans and that the testing protocol is scientifically sound. An IDE will automatically become effective
30 days after receipt by the FDA, unless the FDA denies the application or notifies the sponsor that the investigation is on hold and
may not begin until the sponsor provides supplemental information about the investigation that satisfies the agency’s concerns.
The FDA may also notify the sponsor that the study is approved as proposed. If the FDA determines that there are deficiencies or other
concerns with an IDE that require modification of the study, the FDA may permit a clinical trial to proceed under a conditional approval.
Furthermore, the agency may withdraw approval of an IDE under certain circumstances. Clinical trials for a significant risk device may
begin once an IDE is approved by the FDA and the appropriate Institutional Review Board (“IRB”) at each clinical trial site.
If the product is deemed a “non-significant risk” device, IDE approval from the FDA would not be required, but the clinical
trial would need to meet other requirements including IRB approval. Our clinical trials must be conducted in accordance with FDA regulations
and federal and state regulations concerning human subject protection, including informed consent and healthcare privacy. A clinical
trial may be suspended by the FDA or at a specific site by the relevant IRB at any time for various reasons, including a determination
that the risks to the trial participants outweigh the benefits of participation in the clinical trial. Even if a clinical trial is completed,
the results of our clinical testing may not demonstrate the safety and efficacy of the device or may be equivocal or otherwise not be
sufficient for us to obtain approval of our product.
Our
success depends substantially upon our ability to obtain and maintain intellectual property protection relating to our product and research
technologies.
We have applied to
the U.S. Patent and Trademark Office for patents on our proprietary fluid movement technology and the configuration of our insulin pump.
There is no assurance that these patents will be issued, and no assurance that they will prevent other companies from competing with
us. We will continue to attempt to patent our innovations as appropriate to help ensure a sustainable competitive advantage.
Due to evolving legal
standards relating to the patentability, validity and enforceability of patents covering health care product inventions, our ability
to enforce our existing patents and to obtain and enforce patents that may issue from any pending or future patent applications is uncertain
and involves complex legal, scientific and factual questions. To date, no consistent policy has emerged regarding the breadth of claims
allowed in medical device patents. Thus, we cannot be sure that any patents will issue from any pending or future patent applications
owned by or licensed to us. Even if patents do issue, we cannot be sure that the claims of these patents will be held valid or enforceable
by a court of law, will provide us with any significant protection against competing products, or will afford us a commercial advantage
over competitive products. If, at some point in the future, one or more products resulting from our product candidates is approved for
sale by the FDA and we do not have adequate intellectual property protection for those products, competitors could duplicate them for
approval and sale in the United States without repeating the extensive testing required of us to obtain FDA approval.
If
we are sued for infringing on third-party intellectual property rights, it will be costly and time-consuming, and an unfavorable outcome
would have a significant adverse effect on our business.
Our ability to commercialize
our product candidate depends on our ability to use, manufacture and sell our product candidate without infringing the patents or other
proprietary rights of third parties. Numerous U.S. and foreign issued patents and pending patent applications owned by third parties
exist in the diabetes medical device area. There may be existing patents, unknown to us, on which our activities with our insulin pump
candidate could infringe.
If a third-party claims
that our actions infringe on its patents or other proprietary rights, we could face a number of issues that could seriously harm our
competitive position, including, but not limited to:
| · | infringement
and other intellectual property claims that, even if meritless, can be costly and time-consuming,
delay the regulatory approval process and divert management’s attention from our core
business operations; |
| · | substantial
damages for infringement, including consequential damages for lost of profits or market share,
if a court determines that our products or technologies infringe on a third party’s
patent or other proprietary rights; |
| · | a
court prohibiting us from selling or licensing our products or technologies unless the holder
licenses the patent or other proprietary rights to us, which it is not required to do; and |
| · | even
if a license is available from a holder, we may have to pay substantial royalties or grant
cross-licenses to our patents or other proprietary rights. |
If any of these events
occur, it could significantly harm our operations and financial condition and negatively affect our stock price.
If
we are unable to protect the confidentiality of our proprietary information, the value of our technology and products could be adversely
affected.
In addition to patented
technology, we rely on our unpatented technology, trade secrets and know-how. We generally seek to protect this information by confidentiality,
non-disclosure and assignment of invention agreements with our officers, employees, contractors and other service providers and with
parties with which we do business. These agreements may be breached, which breach may result in the misappropriation of such information,
and we may not have adequate remedies for any such breach. We cannot be certain that the steps we have taken will prevent unauthorized
use or reverse engineering of our technology.
Moreover, our trade
secrets may be disclosed to or otherwise become known or be independently developed by competitors. To the extent that our officers,
employees, contractors, other service providers, or other third parties with whom we do business use intellectual property owned by others
in their work for us, disputes may arise as to the rights in related or resulting know-how and inventions. If, for any of the above reasons,
our intellectual property is disclosed or misappropriated, it would harm our ability to protect our rights and have a material adverse
effect on our business, financial condition, and results of operations.
Intellectual
property rights do not necessarily address all potential threats to our competitive advantage.
The degree of future
protection afforded by our intellectual property rights is uncertain because intellectual property rights have limitations, and may not
adequately protect our business, or permit us to gain and maintain a competitive advantage. The following examples are illustrative:
| · | others
may be able to make devices that are similar to our insulin pump but that are not covered
by the claims of the patents that we own; |
| · | we
or any collaborators might not have been the first to make the inventions covered by the
issued patents or pending patent applications that we own; |
| · | we
might not have been the first to file patent applications covering certain of our inventions; |
| · | others
may independently develop similar or alternative technologies or duplicate any of our technologies
without infringing our intellectual property rights; |
| · | it
is possible that our pending patent applications will not lead to issued patents; |
| · | issued
patents that we own may not provide us with any competitive advantages, or may be held invalid
or unenforceable as a result of legal challenges; |
| · | our
competitors might conduct research and development activities in the U.S. and other countries
that provide a safe harbor from patent infringement claims for certain research and development
activities, as well as in countries where we do not have patent rights, and then use the
information learned from such activities to develop competitive products for sale in our
major commercial markets; and |
| · | we
may not develop additional proprietary technologies that are patentable. |
Healthcare
reform laws could adversely affect our product candidate and financial condition.
In the United States,
there have been, and continue to be, a number of legislative initiatives to contain healthcare costs. In March 2010, the Patient Protection
and Affordable Care Act, as amended by the Health Care and Education Affordability Reconciliation Act (ACA), was enacted in the United
States, which made a number of substantial changes in the way healthcare is financed by both governmental and private insurers. Among
other ways in which it may affect our business, the ACA implemented payment system reforms, including a national pilot program on payment
bundling to encourage hospitals, physicians, and other providers to improve the coordination, quality, and efficiency of certain healthcare
services through bundled payment models and expanded the eligibility criteria for Medicaid programs.
Since its enactment,
there have been judicial, executive, and Congressional challenges to certain aspects of the ACA. On June 17, 2021, the U.S. Supreme Court
dismissed the most recent judicial challenge to the ACA without specifically ruling on the constitutionality of the ACA. Prior to the
Supreme Court’s decision, President Biden issued an executive order to initiate a special enrollment period from February 15, 2021
through August 15, 2021 for purposes of obtaining health insurance coverage through the ACA marketplace. The executive order also instructed
certain governmental agencies to review and reconsider their existing policies and rules that limit access to healthcare, including among
others, reexamining Medicaid demonstration projects and waiver programs that include work requirements, and policies that create unnecessary
barriers to obtaining access to health insurance coverage through Medicaid or the ACA. It is unclear how other healthcare reform measures
of the Biden administration or other efforts, if any, to challenge, repeal, or replace the ACA will impact the ACA or our business.
In addition, other
legislative changes have been proposed and adopted since the ACA was enacted. On August 2, 2011, the Budget Control Act of 2011 was signed
into law, which, among other things, reduced Medicare payments to providers by 2% per fiscal year, effective on April 1, 2013 and, due
to subsequent legislative amendments to the statute, will remain in effect through 2030, with the exception of a temporary suspension
implemented under various COVID-19 relief legislation from May 1, 2020 through the end of 2021, unless additional Congressional action
is taken. On January 2, 2013, the American Taxpayer Relief Act of 2012 was signed into law, which, among other things, further reduced
Medicare payments to several providers, including hospitals, and increased the statute of limitations period for the government to recover
overpayments to providers from three to five years.
Further, the Bipartisan
Budget Act of 2018 among other things, amended the Medicare statute, effective January 1, 2019, to reduce the coverage gap in most Medicare
drug plans, commonly known as the “donut hole,” by raising the manufacturer discount under the Medicare Part D coverage gap
discount program to 70%. It is unclear how the ACA and its implementation, as well as efforts to repeal or replace, or invalidate, the
ACA, or portions thereof, will affect our insulin pump or our business. Additional legislative changes, regulatory changes, and judicial
challenges related to the ACA remain possible. It is possible that the ACA, as currently enacted or as it may be amended in the future,
and other healthcare reform measures that may be adopted in the future, could have an adverse effect on our industry generally and on
our ability to commercialize our insulin pump and achieve profitability.
Even
if we are able to obtain all regulatory approvals and have completed all other steps needed to be taken to commercialize our insulin
pump, if we or any contract manufacturers we select fails to comply with the FDA’s quality system regulations, the manufacturing
and distribution of our product candidate could be interrupted, and our product sales and operating results could suffer.
A material step in
the process of the commercialization of our product candidate will involve selecting a manufacturer or manufacturers for our pump. We
and any future contract manufacturers of our insulin pump will be required to comply with the FDA’s quality system regulations,
which impose a complex regulatory framework that covers the procedures and documentation of the design, testing, production, control,
quality assurance, labeling, packaging, sterilization, storage and shipping of medical devices. The FDA enforces its quality system regulations
through periodic unannounced inspections. We cannot assure you that, in the future, any manufacturing facilities owned by us or any contract
manufacturer will pass any quality system inspection. In the event that our or any contract manufacturer’s facilities fails a quality
system inspection, the manufacturing or distribution of our product candidate could be interrupted and our operations disrupted. Failure
to take adequate and timely corrective action in response to an adverse quality system inspection could force a suspension or shutdown
of any packaging and labeling operations or then manufacturing operations of any contract manufacturers, or a recall of our insulin pump.
If any of these events were to occur, we at such time would not be able to provide our customers with the quantity of insulin pumps that
they require on a timely basis, our reputation could be harmed and we could lose any customers we then have, any or all of which could
have a material adverse effect on our business, financial condition and results of operations.
We
may undertake infringement or other legal proceedings against third parties, causing us to spend substantial resources on litigation
and exposing our own intellectual property portfolio to challenge.
We may come to believe
that third parties are infringing on our patents or other proprietary rights. To prevent infringement or unauthorized use, we may need
to file infringement and/or misappropriation suits, which are very expensive and time-consuming, could result in meritorious counterclaims
against us and would distract management’s attention. Also, in an infringement or misappropriation proceeding, a court may decide
that one or more of our patents is invalid, unenforceable, or both, in which case third parties may be able to use our technology without
paying license fees or royalties. Even if the validity of our patents is upheld, a court may refuse to stop the other party from using
the technology at issue on the grounds that the other party’s activities are not covered by our patents. See “Our Business
– Patents,” below.
We
may become involved in disputes with our present or future contract partners over intellectual property ownership or other matters, which
would have a significant effect on our business.
Inventions discovered
in the course of performance of contracts with third parties or contractors may become jointly owned by such third party contractors
and us, in some cases, and the exclusive property of one of us, in other cases. Under some circumstances, it may be difficult to determine
who owns a particular invention or whether it is jointly owned, and disputes could arise regarding ownership or use of those inventions
or jointly developed improvements thereto. Other disputes may also arise relating to the performance or alleged breach of our agreements
with third parties. Any disputes could be costly and time-consuming, and an unfavorable outcome could have a significant adverse effect
on our business.
Assuming
our insulin pump receives FDA clearance or approval, our insulin pump will still be subject to recalls, which would harm our reputation,
business operations and financial results.
Even assuming we obtain
FDA approval or clearance with regard to our insulin pump, the FDA has the authority to require the recall of our pump if we commence
manufacturing of our insulin pump and we or any contract manufacturers we retain fail to comply with relevant regulations pertaining
to manufacturing practices, labeling, advertising or promotional activities, or if new information is obtained concerning the safety
or efficacy of the device. A government-mandated recall could occur if the FDA finds that there is a reasonable probability that our
device would cause serious, adverse health consequences or death. A voluntary recall by us could occur as a result of manufacturing defects,
labeling deficiencies, packaging defects or other failures to comply with applicable regulations. Any recall would divert management’s
attention and financial resources and harm our reputation with customers. A recall involving our insulin pump would be particularly harmful
to our business, financial condition and results of operations because it is currently our only product.
Any
disruption and/or instability in economic conditions and capital markets could adversely affect our ability to access the capital markets,
and thus adversely affect our business and liquidity.
Negative economic conditions
and issues with regard to the financial markets, could have a negative impact on our ability to access the capital markets, and thus
have a negative impact on our then operations and liquidity. A general shortage of liquidity and credit combined with the substantial
losses in worldwide equity markets could lead to an extended worldwide recession in the future. If such occurred, we would face significant
challenges if conditions in the capital markets did not improve. Our ability to access the capital markets under such circumstances could
be severely restricted at a time when we need to access such markets, which could have a negative impact on our business plans. Even
if we are able to raise capital under such circumstances, it may not be at a price or on terms that are favorable to us. We cannot predict
the occurrence of future disruptions or how long such negative conditions might continue.
Because
our current insulin pump prototype is still in the development stage, it does not have reimbursement and is not approved for insurance
coverage. If in the future we are approved for and are otherwise able to commercialize our insulin pump, but are unable to obtain adequate
reimbursement or insurance coverage for such product from third-party payors, we will be unable to generate significant revenue.
Because our current
insulin pump prototype is still in the development stage, it does not have reimbursement and is not approved for insurance coverage.
The future availability of insurance coverage and reimbursement for newly approved medical devices is highly uncertain. In the United
States, patients using insulin pumps are generally reimbursed for all or part of the product cost by Medicare or other third-party payors.
Any future commercial success of our insulin pump will be substantially dependent on whether third-party coverage and reimbursement is
available for future customers. Medicare, Medicaid, health maintenance organizations and other third-party payors are increasingly attempting
to contain healthcare costs by limiting both coverage and the level of reimbursement of new medical devices, and, as a result, they may
not cover or provide adequate reimbursement for our insulin pump, assuming we are able to fully develop and obtain all regulatory approval
to market it in the United States. In addition, in certain countries, no uniform policy of coverage and reimbursement for medical device
products and services exists among third-party payors. Therefore, coverage and reimbursement for medical device products and services
can differ significantly from payor to payor. In addition, payors continually review new technologies for possible coverage and can,
without notice, deny coverage for these new products and procedures. As a result, the coverage determination process is often a time-consuming
and costly process that will require us to provide scientific and clinical support for the use of our products to each payor separately,
with no assurance that coverage and adequate reimbursement will be obtained, or maintained if obtained. Reimbursement systems in international
markets vary significantly by country and by region within some countries, and reimbursement approvals must be obtained on a country-by-country
basis. In many international markets, a product must be approved for reimbursement before it can be approved for sale in that country.
Further, many international markets have government-managed healthcare systems that control reimbursement for new devices and procedures.
Accordingly, unless government and other third-party payors provide coverage and reimbursement for our insulin pump, patients may not
use it, which would cause investors to lose their entire investment.
We
are subject to the oversight of the SEC and other regulatory agencies. Investigations by those agencies could divert management’s
focus and could have a material adverse effect on our reputation and financial condition.
We are subject to the
regulation and oversight of the SEC and state regulatory agencies, in addition to the FDA. As a result, we may face legal or administrative
proceedings by these agencies. We are unable to predict the effect of any investigations on our business, financial condition or reputation.
In addition, publicity surrounding any investigation, even if ultimately resolved in our favor, could have a material adverse effect
on our business.
We
are a “smaller reporting company” and, as a result of the reduced disclosure and governance requirements applicable to smaller
reporting companies, our Common Stock may be less attractive to investors.
We are a “smaller
reporting company,” and are subject to lesser disclosure obligations in our SEC filings compared to other issuers. Specifically,
“smaller reporting companies” are able to provide simplified executive compensation disclosures in their filings, are exempt
from the provisions of Section 404(b) of the Sarbanes-Oxley Act requiring that independent registered public accounting firms provide
an attestation report on the effectiveness of internal control over financial reporting and have certain other decreased disclosure obligations
in their SEC filings, including, among other things, only being required to provide two years of audited financial statements in annual
reports. Decreased disclosures in our SEC filings due to our status as a “smaller reporting company” may make it harder for
investors to analyze our operating results and financial prospects.
We
do not expect any cash dividends to be paid on our shares of Common Stock for the foreseeable future.
We have never declared
or paid a cash dividend and we do not anticipate declaring or paying dividends on our Common Stock for the foreseeable future. We expect
to use future financing proceeds and earnings, if any, to fund operating expenses. Consequently, shareholders’ only opportunity
to achieve a return on their investment is if the price of our stock appreciates and they sell their shares at a profit. We cannot assure
shareholders of a positive return on their investment when they sell their shares or that shareholders will not lose the entire amount
of their investment.
If
the beneficial ownership of our Common Stock continues to be highly concentrated, it may prevent our shareholders from influencing significant
corporate decisions.
As of March 31, 2022,
our executive officers, directors and certain persons who may be deemed affiliates beneficially own in excess of 50.1% of our issued
and outstanding Common Stock. As a result, such persons may exercise substantial influence over the outcome of corporate actions requiring
shareholder approval including, without limitation, the election of directors, certain mergers, consolidations and sales of all or substantially
all of our assets or any other significant corporate transactions. Such persons may also vote against a change of control, even if such
a change of control would benefit our other shareholders.
Sale
of our Common Stock by shareholders could encourage short sales by third parties, which could contribute to the further decline of our
stock price.
The significant downward
pressure on the price of our Common Stock that would be caused by the sale of material amounts of our Common Stock could encourage short
sales by third parties. Such an event could place further downward pressure on the price of our Common Stock.
We
are an emerging growth company, and we cannot be certain if the reduced reporting requirements applicable to emerging growth companies
will make our Common Stock less attractive to investors.
We are an “emerging
growth company,” as defined in the Jumpstart Our Business Startups Act of 2012 (the JOBS Act). For as long as we continue to be
an emerging growth company, we may take advantage of exemptions from various reporting requirements that are applicable to other public
companies that are not emerging growth companies, including not being required to comply with the auditor attestation requirements of
Section 404 of the Sarbanes-Oxley Act, reduced disclosure obligations regarding executive compensation in this prospectus and our periodic
reports and proxy statements and exemptions from the requirements of holding nonbinding advisory votes on executive compensation and
stockholder approval of any golden parachute payments not previously approved. We will remain an emerging growth company until the earlier
of (i) the last day of the fiscal year (a) following the fifth anniversary of the completion of the first sale of shares covered by this
prospectus, (b) in which we have total annual gross revenue of at least $1.07 billion or (c) in which we are deemed to be a large accelerated
filer, which requires the market value of our common stock that is held by non-affiliates to exceed $700.0 million as of the prior September
30th, and (ii) the date on which we have issued more than
$1.0 billion in non-convertible debt during the prior three-year period.
Future
sales of our securities could adversely affect the market price of our Common Stock and our future capital-raising activities could involve
the issuance of equity securities, which would dilute your investment and could result in a decline in the trading price of our Common
Stock.
We may sell securities
in the public or private equity markets at prices per share below the current market price of our Common Stock, even if we do not have
an immediate need for additional capital at that time. Sales of substantial amounts of shares of our Common Stock, or the perception
that such sales could occur, could adversely affect the prevailing market price of our shares and our ability to raise capital. We may
issue additional shares of Common Stock in future financing transactions or as incentive compensation for our executive management and
other key personnel, consultants and advisors. Issuing any equity securities would be dilutive to the equity interests represented by
our then-outstanding shares of Common Stock. Moreover, sales of substantial amounts of shares in the public market, or the perception
that such sales could occur, may adversely affect the prevailing market price of our Common Stock and make it more difficult for us to
raise additional capital.
Our
articles of incorporation allows for our board of directors to create new series of preferred stock without further approval by our shareholders,
which could adversely affect the rights of the holders of our Common Stock.
Our board of directors
has the authority to fix and determine the relative rights and preferences of preferred stock. Currently, our board of directors has
the authority to designate and issue up to 5,000,000 shares of our preferred stock without further shareholder approval. In the future,
our board of directors could authorize the issuance of one or more series of preferred stock that would grant to holders, among other
rights, the preferred right to our assets upon liquidation, the right to receive dividend payments before dividends are distributed to
the holders of Common Stock and the right to the redemption of our preferred shares acquired by such persons, together with a premium,
prior to the redemption of our Common Stock. In addition, our board of directors could authorize the issuance of a series of preferred
stock that has greater voting power than our Common Stock or that is convertible into our Common Stock, which could decrease the relative
voting power of our Common Stock or result in dilution to our existing shareholders.
If
we fail to establish and maintain an effective system of internal controls, we may not be able to report our financial results accurately
or prevent fraud. Any inability to report and file our financial results accurately and timely could harm our reputation and adversely
affect the trading price of our Common Stock.
Effective
internal controls are necessary for us to provide reliable financial reports and prevent fraud. If we cannot provide reliable financial
reports or prevent fraud, we may not be able to manage our business as effectively as we would if an effective control environment existed,
and our business and reputation with investors may be harmed. If we are unable to maintain effective internal controls, we may not have
adequate, accurate or timely financial information, and we may be unable to meet our reporting obligations as a public company, including
the requirements of the Sarbanes-Oxley Act of 2002 (the Sarbanes-Oxley Act). In addition, we may be unable to accurately report
our financial results in future periods, or report them within the timeframes required by the requirements of the SEC or the Sarbanes-Oxley
Act. Failure to comply with the Sarbanes-Oxley Act, when and as applicable, could also potentially subject us to sanctions or investigations
by the SEC or other regulatory authorities. Any failure to maintain or implement required new or improved controls, or any difficulties
we encounter in their implementation, could result in identification of additional material weaknesses or significant deficiencies, cause
us to fail to meet our reporting obligations or result in material misstatements in our financial statements.
Furthermore,
Section 404 of the Sarbanes-Oxley Act and related regulations require our management to evaluate the effectiveness of our internal control
over financial reporting as of the end of each fiscal year. Based on its evaluation, our management concluded that our internal controls
over financial reporting were effective as of March 31, 2022. We cannot provide assurance that, in the future, a material weakness or
significant deficiency will not exist or otherwise be discovered. If that were to happen, it could harm our operating results and cause
shareholders to lose confidence in our reported financial information. Any such loss of confidence would have a negative effect on the
trading price of our securities.
Our
board of directors is able to adopt recapitalizations through forward or reverse splits of our outstanding shares of Common Stock without
shareholder approval.
Pursuant to our amended
and restated articles of incorporation, our board of directors has the power, without obtaining shareholder approval, to effectuate recapitalizations
of us through forward or reverse splits of our outstanding Common Stock. As a result of such provision, our board of directors can implement
recapitalizations of us by effectuating a forward or reverse stock split of our outstanding Common Stock, which would increase or decrease
each of our shareholder’s number of shares owned, and our shareholders will have no right to approve or disapprove any such action
even if such actions have a material adverse effect on them.