Item 1A. Risk Factors
ITEM 1A. RISK FACTORS
Investing in our securities carries a significant
degree of risk. You should carefully consider the risks described below, together with all of the other information in this Form 10-K,
including our consolidated financial statements and related notes included elsewhere in this Form 10-K, before deciding whether to invest
in our securities. If any or a combination of the following risks were to materialize, our results of operations, financial condition
and prospects could be materially adversely affected. If that were to be the case, the market price of our securities could decline, and
investors could lose all or part of their investment. The risks and uncertainties described below are not the only ones we face. Additional
risks and uncertainties not presently known to us or that we currently believe to be immaterial may also adversely affect our business.
Risks Related to Our Financial Condition and
Capital Requirements
We have incurred significant losses since
inception and we will continue to incur net losses for the foreseeable future.
Since our inception, we have engaged primarily
in development activities, including planning and implementing clinical trials to support commercialization and FDA approval of our Symphony
platform. We have funded our operations primarily through debt and equity financings, and have incurred losses since inception, including
a net loss of approximately $9.8 million and approximately $9.3 million for the years ended December 31, 2023 and 2022, respectively.
We currently have no product revenue and we may
not be able to commercialize our Symphony technology platform or achieve significant revenues or profitability. Our ability to generate
revenue and achieve profitability depends upon our ability, alone or with others, to complete the development process of our product candidates,
including regulatory approvals, and thereafter achieve substantial acceptance in the marketplace for our products. We may be unable to
achieve any or all of these goals.
We will require additional funding to finance
our operations to continue as a going concern, which may not be available to us on acceptable terms, or at all, and our lack of cash resources
has slowed the timeline of our clinical trial work and could cause us to run out of cash resources in the near-term.
To date, we have relied primarily on private debt
and equity financing to carry on our business. We have limited financial resources, negative cash flow from operations and no assurance
that sufficient funding will be available to us to fund our operating expenses and to further our product development efforts and pursue
clinical trials for FDA approval. Based on these and other factors, in our audited consolidated financial statements for the years ended
December 31, 2023 and 2022, we concluded that this circumstance raised substantial doubt about our ability to continue as a going concern
within one year from the original issuance date of such financial statements. Similarly, in its report on the consolidated financial statements
for the years ended December 31, 2023 and 2022, our independent registered public accounting firm included an emphasis of matter paragraph
stating that our recurring losses from operations and continued cash outflows from operating activities raised substantial doubt about
our ability to continue as a going concern. Our consolidated financial statements for the years ended December 31, 2023 and 2022 do not
include any adjustments that may result from the outcome of this uncertainty.
Absent further funding, we currently expect to
run out of available cash resources during the third quarter of 2024. As such, we anticipate that we will need to raise additional capital
to fund our operations while we implement and execute our business plan. There can be no assurance that such additional capital will be
available on a timely basis or on terms that will be acceptable to us. We currently do not have any contracts or commitments for additional
financing. In addition, any additional equity financing may involve substantial dilution to our existing stockholders.
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As a result of our lack of cash resources, we
have recently slowed the timeline of our clinical trial work to preserve cash resources in the near-term, and we expect that this will
delay our Symphony platform regulatory submission timeline until 2025. If we fail to obtain additional financing, this timeline could
be delayed further, and we could be forced to abandon such activities entirely, with the possible loss of such properties or assets. We
may also be forced to pursue strategic alternatives, such as a potential sale of the Company or its assets or other restructuring efforts.
As a result, any inability to obtain additional financing in the near-term could have a material adverse effect on our business, results
of operations, cash flow, financial condition and prospects.
The number of shares
of common stock underlying our outstanding warrants is significant in relation to our currently outstanding common stock, which could
have a negative effect on the market price of our common stock and make it more difficult for us to raise funds through future equity
offerings. In addition, in connection with any merger, consolidation or sale of all or substantially all of our assets, holders of our
outstanding warrants would be entitled to receive consideration in excess of their reported beneficial ownership of our common stock and
this could adversely impact the consideration our other stockholders would receive.
As part of our public
offerings of common stock in August 2023 and January 2024, we issued common stock warrants to purchase an aggregate of 2,908,308 shares
of our common stock, and pre-funded warrants to purchase up to an aggregate of 2,154,540 shares of our common stock. As of the date hereof,
the two holders of pre-funded warrants, Armistice Capital Master Fund Ltd. and Sabby Volatility Warrant Master Fund, have collectively
exercised pre-funded warrants to purchase 911,540 shares of common stock, and pre-funded warrants remain exercisable to purchase 1,243,000
shares of common stock. Each pre-funded warrant has an exercise price per share of common stock equal to $0.0001 per share, which has
previously been funded by the Company, and is exercisable from the date of issuance until exercised in full, and the exercise price has
previously been funded to the Company. Common stock warrants to purchase 216,000 shares of common stock are exercisable at a price of
$7.24 per share, and common stock warrants to purchase 2,692,308 shares of common stock are exercisable at a price of $1.30 per share.
Each common stock warrant is exercisable for five years from the date of issuance (until August 24, 2028 or January 2, 2029, respectively).
The common stock warrants
are generally only exercisable solely by means of a cash exercise. The common stock warrants include certain rights upon “fundamental
transactions” as described in the common stock warrants, including the right of the holders thereof to receive from us or a successor
entity the same type or form of consideration (and in the same proportion) that is being offered and paid to the holders of common stock
in such fundamental transaction in the amount of the Black Scholes value (as described in such common stock warrants) of the unexercised
portion of the applicable common stock warrants on the date of the consummation of such fundamental transaction. A holder of common stock
warrants (together with its affiliates) may not exercise any portion of a common stock warrant to the extent that the holder would beneficially
own more than 4.99% (or, at the election of the holder, 9.99%) of our outstanding common stock immediately after exercise.
Although these warrants
are subject to beneficial ownership limitations, upon exercise in full of the warrants, the shares issuable upon exercise would represent
a significant portion of our outstanding common stock. As a result, the holders of these warrants may be able to exert substantial influence
over our business. The concentration of voting power resulting from the exercise of the warrants could delay, defer or prevent a change
of control, or delay or prevent a merger, consolidation, takeover or other business combination involving us on terms that other stockholders
may desire. In addition, conflicts of interest could arise in the future between us, on the one hand, and the holders of these warrants,
concerning the issuance of additional securities and other matters. In addition, sales of these shares could cause the market price of
our common stock to decline significantly.
We have registered the
issuance of shares upon exercise of these warrants under registration statements. As a result, the shares issuable upon exercise of these
warrants can be freely sold in the public market upon issuance. Sales of these shares could cause the market price of our common stock
to decline significantly. Furthermore, if our stock price rises, the holders of these warrants may be more likely to exercise their warrants
and sell a large number of shares, which could negatively impact the market price of our common stock and reduce or eliminate any appreciation
in our stock price that might otherwise occur.
Given the amount and
terms of these warrants, we may find it more difficult to raise additional equity capital on favorable terms or at all while these warrants
are outstanding.
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As a result of
our January 2024 public offering, we have reserved for issuance substantially all of our available authorized shares of common stock,
and will not be able to issue additional shares for future capital raising transactions or strategic transactions unless and until we
obtain stockholder approval to amend our restated certificate of incorporation to increase the number of authorized shares of common stock.
Under
our amended and restated certificate of incorporation, as amended, w e have 7,500,000 shares of common stock and 5,000,000 shares
of preferred stock authorized for issuance. As of March 28, 2024, we had (i) 2,688,448 shares of common stock outstanding, (ii) zero shares
of preferred stock outstanding, (iii) 37,645 shares of common stock issuable upon the exercise of outstanding stock options or settlement
of outstanding restricted stock units, 4,523,454 shares of common stock issuable upon the exercise of outstanding warrants, and 53,490
shares reserved for future issuance under our 2018 Stock Incentive Plan or 2021 Stock Incentive Plan. As a result, as of such date, we
had only 196,963 additional authorized shares of common stock available for issuance (in addition to the 5,000,000 shares of preferred
stock that remain available). We intend to seek shareholder approval at our 2024 annual meeting of shareholders to amend our amended
and restated certificate of incorporation to further increase the number of authorized shares of common stock available for issuance.
Unless and until such amendment is approved by our shareholders, we will be limited in our ability to issue further shares of common stock,
including in connection with potential future capital raising transactions.
Our ability to
raise additional capital via a registered public offering on Form S-3 will be limited in the near-term as a result of the SEC’s
“baby shelf” rules.
In June 2023 we filed a shelf registration statement
on Form S-3, which was declared effective by the SEC on June 20, 2023 (the “Shelf Registration Statement”). The Shelf Registration
Statement allows us to sell from time to time up to $25 million of common stock, preferred stock, debt securities, debentures,
warrants, rights or units comprised of any combination of these securities, for our own account in one or more offerings. In August 2023,
we completed a public offering under the Shelf Registration Statement pursuant to which we raised gross proceeds of approximately $1.6
million. Under applicable SEC rules, smaller companies like us are only permitted to raise up to 1/3 rd of their public float
under Form S-3 over a 12-month period. As a result, based on our current public float, we are unable to use Form S-3 for further offerings
by us at the present time, and absent a significant increase in the trading price of our common stock, we will be unable to raise further
capital under Form S-3 until late August of 2024 (at which time we will again be able to sell up to 1/3 rd of our public float
pursuant to Form S-3, assuming we continue the applicable eligibility requirements thereof. Our inability to use Form S-3 in the near-term
may make it more difficult for us to raise equity capital in the public markets, as we expect to be required to conduct any such fundraising
via private placements, or sales on Form S-1, which sales of Form S-1 may be more difficult for us to execute in a timely manner.
We have received a notification letter from
the Nasdaq Listing Qualifications Staff that our common stock does not satisfy Nasdaq’s $1.00 minimum price per share rule and we
could face delisting by Nasdaq if we are unable to regain compliance with this requirement, which could adversely affect our ability to
sell stock in the public markets, the liquidity of our common stock and our general ability to raise additional capital.
Our common stock currently is listed for quotation
on the Nasdaq Capital Market. We are required to meet specified financial requirements in order to maintain such listing. On February
28, 2024, we received a notification letter from the Nasdaq Listing Qualifications Staff of the Nasdaq Stock Market LLC (“Nasdaq”)
notifying us that the closing bid price for our common stock had been below $1.00 for the previous 30 consecutive business days and that
we therefore are not in compliance with the minimum bid price requirement for continued inclusion on the Nasdaq Capital Market under Nasdaq
Listing Rule 5550(a)(2). The notification has no immediate effect on the listing of our common stock on the Nasdaq Capital Market.
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Under the Nasdaq Listing Rules, we have a period
of 180 calendar days to regain compliance. To regain compliance, the closing bid price of our common stock must be at least $1.00 or higher
for a minimum of ten consecutive business days, and in such case, Nasdaq will provide us with written confirmation of compliance. If we
do not regain compliance by August 26, 2024, we may be eligible for an additional 180 calendar days, provided that we meet the continued
listing requirement for market value of publicly held shares and all other initial listing standards for Nasdaq, except the bid price
requirement. If we are not eligible or it appears to Nasdaq that we will not be able to cure the deficiency during the second compliance
period, Nasdaq will provide written notice to us that our common stock will be subject to delisting. In the event of such notification,
we may appeal Nasdaq’s determination to delist its securities, but there can be no assurance that Nasdaq would grant our request
for continued listing.
We intend to take all reasonable measures available
to us to achieve compliance to allow for continued listing on the Nasdaq Capital Market. However, there can be no assurance that we will
be able to regain compliance with the minimum bid price requirement or will otherwise be in compliance with other Nasdaq listing criteria.
If our common stock does not regain compliance with the minimum price requirement during the applicable compliance period, we may need
to effect a reverse stock split, whereby shares of our common stock are consolidated so that the per-share trading price becomes greater
than $1.00 per share. We intend to seek shareholder approval for such a reverse stock split at our 2024 annual meeting of shareholders.
If our common stock is delisted, we may seek to
have our common stock quoted on an over-the-counter marketplace, such as on the OTCQX. The OTCQX is not a stock exchange, and if our common
stock trades on the OTCQX rather than a securities exchange, there may be significantly less trading volume and analyst coverage of, and
significantly less investor interest in, our common stock, which may lead to lower trading prices for our common stock.
Any potential delisting
of our common stock from the Nasdaq Capital Market may have materially adverse consequences to our stockholders, including:
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A reduced market price and liquidity with respect to our shares of common stock;
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limited dissemination of the market price of our common stock;
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limited news coverage;
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limited interest by investors in our common stock;
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volatility of the prices of our common stock, due to low trading volume;
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our common stock being considered a “penny stock,” which would result in broker-dealers participating in sales of our common stock being subject to the regulations set forth in Rules 15g-2 through 15g-9 promulgated under the Exchange Act;
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increased difficulty in selling our common stock in certain states due to “blue sky” restrictions; and
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limited ability to issue additional securities or to secure additional financing.
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Risks Related to Our Business
We are subject to the risks associated with
new businesses.
We are effectively a new business with a plan
to commercialize our licensed technology. Our limited operating history may not be adequate to enable you to fully assess our ability
to develop and market our Symphony platform and test cartridges, assuming we receive regulatory clearances, for which there is no assurance,
and respond to competition. Our efforts to date have related to the organization and formation of our Company, research and development
and performing clinical trials. We have no approved products, have not yet generated sustainable revenue, and we cannot guarantee we will
ever be able to generate future revenues. Therefore, we are, and expect for the foreseeable future to be, subject to all the risks and
uncertainties, inherent in a new business focused on the development and sale of new medical devices. As a result, we may be unable to
further develop, obtain regulatory approval for, manufacture, market, sell and derive revenues from our Symphony platform and test cartridges
and the other product candidates in our pipeline, and our inability to do so would materially and adversely impact our viability. In addition,
we still must optimize many functions necessary to operate a business, including expanding our managerial, personnel and administrative
structure, continuing product research and development, and assessing and commencing our marketing activities.
Accordingly, you should consider our prospects
in light of the costs, uncertainties, delays and difficulties frequently encountered by companies that have not yet commercialized their
products, particularly those in the medical device field. In particular, potential investors should consider that there is a significant
risk that we will not be able to:
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implement or execute our current business plan, or that our business plan is sound;
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maintain our management team and Board of Directors;
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determine that the technologies that have been developed are commercially viable;
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attract, enter into or maintain contracts with, and retain customers; and
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raise any necessary additional funds in the capital markets or otherwise to effectuate our business plan.
In the event that we do not successfully address
these risks, our business, prospects, financial condition, and results of operations could be materially and adversely affected.
The New License
Agreement with Toray, which covers the license of the core technology used in our Symphony Cartridges , and the New Supply
Agreement with Toray, which covers the supply of cartridge intermediates from Toray to SanyoSeiko for SanyoSeiko to manufacture cartridges
for Bluejay, contain significant risks that may threaten our viability or otherwise have a material adverse effect on us and our business,
assets and its prospects.
We have an exclusive license with Toray for the
entire world, excluding Japan, to use their patents and know-how related to our Symphony test cartridges for the manufacturing, marketing
and sale of such products. We also have a nonexclusive license for manufacturing purposes in Japan. We have a right to sublicense these
Toray patents and know-how (upon either (a) obtaining consent from Toray prior to obtaining FDA approval or (b) giving notice to Toray
after obtaining FDA approval), and for the purpose of obtaining FDA approval, we will need to exercise this sublicence to have the cartridges
manufactured for Bluejay by a Japanese manufacturer, SanyoSeiko, Inc. (“SanyoSeiko”). We have no contractual rights to the
intellectual property covered in the New Toray License Agreement other than as expressly set forth therein. Our plans, business, prospects
and viability are substantially dependent on that intellectual property and subject to the limitations relating thereto as set forth in
the New Toray License Agreement. Some of the risks this may give rise to are described below.
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After the receipt of regulatory approval in a country, we are required to pay Toray a minimum royalty of $60,000 for the initial year that royalties are payable increasing to a minimum of $100,000 thereafter, regardless of the actual amount of sales by us of licensed products. Accordingly, we could be obligated to pay royalties even though we have generated no or limited revenue. Such payments could materially and adversely affect our profitability and could limit our investment in our business.
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Toray is only required to supply cartridge intermediates for a period of, in principle, two years ending in October 2025, and with extension for a maximum of six months thereafter. If Sanyoseiko is unable to manufacture intermediates within that period or we are unable to extend that period further, we could be without any cartridge supply in the future.
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Toray may not be able to provide all necessary know-how related to the test cartridges, which may increase the time and cost of remediating product defects, or impair our ability to timely scale up cartridge manufacturing.
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The license and regulatory approvals (once obtained) are non-assignable. These restrictions may limit our flexibility to structure our operations in the most advantageous manner.
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At our sole expense, we must file for, prosecute the application for, and obtain all regulatory approvals for the licensed products and obtain all legal permits necessary for promoting, marketing, offering or selling each licensed product. The regulatory approval process can be expensive and time consuming, and there can be no assurances that we will be able to obtain or maintain any or all required permits.
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We are required to use reasonable efforts to obtain market approval for the products in the United States or the European Union by October 2026 or the License Agreement could be terminated by Toray.
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Toray has the right to terminate the New Toray License Agreement or make it non-exclusive if we do not generate commercial sales by October 2028, or by October 2030 if the lack of commercial sales is due to events within our control and not due to Toray’s failure to perform its obligations in a timely manner. The exclusive license shall be extended for an additional six months, repeatedly if necessary, provided that such additional extension period shall not exceed twenty four months.
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Except with respect to (a) Toray’s ownership of, or rights to license, all intellectual property rights in respect of the licensed property and (b) Toray’s applicable patents being duly maintained and in effect, Toray provides no, and disclaims all, representations, warranties or covenants relating to the licensed intellectual property or any other matters under the New Toray License Agreement and in particular disclaims any fitness of the intellectual property for any purpose or any warranty against infringement of any third-party patent. These provisions limit our recourse in the event that the licensed intellectual property is flawed, defective, inadequate, incomplete, uncommercial, wrongly described or otherwise not useful for our purposes. We have not independently verified any of the technical, scientific, commercial, legal, medical or other circumstances or nature of the licensed intellectual property and therefore there can be no assurances that any of the foregoing risks have been reduced or eliminated. These provisions represent a significant risk of a material adverse impact on us, our business and our prospects.
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While Bluejay is in principle permitted, even after the New Toray License Agreement expires or is terminated, to continue manufacturing and selling products that incorporate Toray intellectual property and the royalties for which are fully paid up, if Bluejay commits certain material breaches of the agreement, Bluejay may be obligated to use reasonable efforts to arrange for the transfer to Toray of FDA or any other regulatory approvals for any products the royalties for which are not fully paid up. Where any such transfer is possible and approved by the regulator (if necessary), then depending on the nature of the material breach, Bluejay may be required to undertake the transfer at no cost to Toray or on reasonable terms and conditions. The loss of any such market approvals, especially if we are unable to receive any consideration for them, could have a material adverse impact on us, our business and our prospects, and depending on the timing and extent of the loss, it could even threaten our viability.
In addition, see the risks in “ Risks
Related to Our Intellectual Property ” below. These risks are not the only risks inherent in the New Toray License Agreement.
You are encouraged to read the complete text of the New Toray License Agreement, which was filed as an exhibit to our Form 8-K filed on
October 26, 2023.
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We depend on, and
are liable for, SanyoSeiko as our primary contract manufacturing organization (CMO), so its inability or failure to perform appropriately
in that capacity may threaten our viability or have a material adverse effect on us and our business, assets and its prospects.
We are dependent on SanyoSeiko
not only to appropriately utilize Toray’s know-how and other intellectual property, but also to continuously manufacture and supply
us with our Symphony cartridges. If SanyoSeiko is unable to do so for any reason and we are unable to activate a new CMO to produce cartridges,
we may be unable to obtain FDA approval and commence any commercial sales or unable to supply products to our customers in a timely manner
or at all, either of which could threaten our viability.
We are also liable for
SanyoSeiko’s performance and actions as our CMO, and any breach by SanyoSeiko of the New Toray License Agreement or the New Toray
Supply Agreement may have a material adverse effect on us and our business.
We have not yet launched any products and
the ability to do so will depend on the acceptance of our Symphony platform in the healthcare market.
We have not yet launched or received regulatory
approvals in any country or territory for our Symphony platform or test cartridges. Even if we receive regulatory approvals, we are faced
with the risk that our Symphony platform will not be accepted over competing products and that we will be unable to enter the marketplace
or compete effectively. We cannot assure you that our Symphony platform or test cartridges will gain market acceptance. If the market
for our future products fails to develop or develops more slowly than expected, or if any of the technology and standards supported by
us do not achieve or sustain market acceptance, our business and operating results would be materially and adversely affected.
We cannot accurately predict the volume
or timing of any sales, making the timing of any revenues difficult to predict.
We may be faced with lengthy and unpredictable
customer evaluation and approval processes associated with our Symphony platform. Consequently, we may incur substantial expenses and
devote significant management effort and expense in developing customer adoption of our Symphony platform, which may not result in revenue
generation. We must also obtain regulatory approvals of our Symphony platform and test cartridges in jurisdictions in which we pursue
approvals, which is subject to risk and potential delays. The same risks apply to other tests we may develop based on our Symphony platform.
As such, we cannot accurately predict the volume, if any, or timing of any future sales.
If third-party payors do not provide coverage
and reimbursement for the use of our platform, our business and prospects may be negatively impacted.
Third-party payors, whether governmental or commercial,
are developing increasingly sophisticated methods of controlling healthcare costs. In addition, in certain countries, no uniform policy
of coverage and reimbursement for medical device products and services exists among third-party payors. Therefore, coverage and reimbursement
for medical device products and services can differ significantly from payor to payor. In addition, payors continually review new technologies
for possible coverage and can, without notice, deny coverage for these new products and procedures. As a result, the coverage determination
process is often a time-consuming and costly process that will require us to provide scientific and clinical support for the use of our
products to each payor separately, with no assurance that coverage and adequate reimbursement will be obtained.
Our Symphony platform, including its software
and systems, may contain undetected errors, which could limit our ability to provide our products and diminish the attractiveness of our
offerings.
Our Symphony platform may contain undetected errors,
defects, or bugs. As a result, our customers or end users may discover errors or defects in our products, software or systems, or our
products, software or systems may not operate as expected. We may discover significant errors or defects in the future that we may not
be able to fix. Our inability to fix any of those errors could limit our ability to provide our products and services, impair the reputation
of our brand and diminish the attractiveness of our product and service offerings to our customers.
In addition, we may utilize third party technology
or components in our products, and we rely on those third parties to provide support services to us. The existence of errors, defects,
or bugs in third party technology or components, or the failure of those third parties to provide necessary support services to us, could
materially adversely impact our business.
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We will rely on the proper function, security
and availability of our information technology systems and data to operate our business, and a breach, cyber-attack or other disruption
to these systems or data could materially and adversely affect our business, results of operations, financial condition, cash flows, reputation,
or competitive position.
We will depend on sophisticated software and other
information technology systems to operate our business, including to process, transmit and store sensitive data, and our future products
and services may include information technology systems that collect data regarding patients. We could experience attempted or actual
interference with the integrity of, and interruptions in, our technology systems, as well as data breaches, such as cyber-attacks, malicious
intrusions, breakdowns, interference with the integrity of our products and data or other significant disruptions. Furthermore, we may
rely on third-party vendors to supply and/or support certain aspects of our information technology systems. These third-party systems
could also become vulnerable to cyber-attack, malicious intrusions, breakdowns, interference, or other significant disruptions, and may
contain defects in design or manufacture or other problems that could result in system disruption or compromise the information security
of our own systems.
If in the future we pursue foreign jurisdictions,
such international operations will mean that we are subject to laws and regulations, including data protection and cybersecurity laws
and regulations, in many jurisdictions. Furthermore, there has been a developing trend of civil lawsuits and class actions relating to
breaches of consumer data held by large companies or incidents arising from other cyber-attacks. Any data security breaches, cyber-attacks,
malicious intrusions or significant disruptions could result in actions by regulatory bodies and/or civil litigation, any of which could
materially and adversely affect our business, results of operations, financial condition, cash flows, reputation, or competitive position.
In addition, our information technology systems
require an ongoing commitment of significant resources to maintain, protect, and enhance existing systems and develop new systems to keep
pace with continuing changes in information processing technology, evolving legal and regulatory standards, the increasing need to protect
patient and customer information, changes in the techniques used to obtain unauthorized access to data and information systems, and the
information technology needs associated any new products and services. There can be no assurance that our process of consolidating, protecting,
upgrading and expanding our systems and capabilities, continuing to build security into the design of our products, and developing new
systems to keep pace with continuing changes in information processing technology will be successful or that additional systems issues
will not arise in the future.
If our information technology systems, products
or services or sensitive data are compromised, patients or employees could be exposed to financial or medical identity theft or suffer
a loss of product functionality, and we could lose existing customers, have difficulty attracting new customers, have difficulty preventing,
detecting, and controlling fraud, be exposed to the loss or misuse of confidential information, have disputes with customers, physicians,
and other health care professionals, suffer regulatory sanctions or penalties, experience increases in operating expenses or an impairment
in our ability to conduct our operations, incur expenses or lose revenues as a result of a data privacy breach, product failure, information
technology outages or disruptions, or suffer other adverse consequences including lawsuits or other legal action and damage to our reputation.
If we are not able to attract and retain
highly skilled managerial, scientific and technical personnel, we may not be able to implement our business model successfully, and our
limited cash resources could require us to make further cost reductions.
We believe that our management team must be able
to act decisively to apply and adapt our business model in the markets in which we will compete. Our future performance depends to a large
extent on the continued services of members of our current management, including our President and Chief Executive Officer, Neil Day,
and our Chief Technology Officer, Jason Cook. At present, our Interim Chief Financial Officer, Frances Scally, is not an employee of ours,
but instead provides services to us pursuant to a scope of work agreement and master services agreement with DLA LLC, where Ms. Scally
is an employee. In addition, we rely upon technical and scientific employees or third-party contractors to effectively establish, manage
and grow our business. Consequently, we believe that our future viability will depend largely on our ability to attract and retain highly
skilled managerial, sales, scientific and technical personnel. In order to do so, we may need to pay higher compensation or fees to our
employees or consultants than we currently expect, and such higher compensation payments would have a negative effect on our operating
results. Competition for experienced, high-quality personnel is intense and we cannot assure that we will be able to recruit and retain
such personnel, or that we will possess the cash resources to do so. For example, our limited cash resources could require us to implement
personnel-related cost reductions in the near-term. As such, we may not be able to hire or retain the necessary personnel to implement
our business strategy. Our failure to hire and retain such personnel could impair our ability to develop new products and manage our business
effectively. In the event that we lose the continued services of such key personnel for any reason, this could have a material adverse
effect on our business, operations and prospects.
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If we or our manufacturers fail to comply
with the regulatory quality system regulations or any applicable equivalent regulations, our proposed operations could be interrupted,
and our operating results would suffer.
We and any third-party manufacturers and suppliers
of ours will be required, to the extent of applicable regulation, to follow the quality system regulations of each jurisdiction we will
seek to penetrate and also will be subject to the regulations of these jurisdictions regarding the manufacturing processes. If we or any
third-party manufacturers or suppliers of ours are found to be in significant non-compliance or fail to take satisfactory corrective action
in response to adverse regulatory findings in this regard, regulatory agencies could take enforcement actions against us and such manufacturers
or suppliers, which could impair or prevent our ability to produce our products in a cost-effective and timely manner in order to meet
customers’ demands. Accordingly, our operating results would suffer.
Product liability suits, whether or not
meritorious, could be brought against us due to an alleged defective product or for the misuse of our Symphony platform or test cartridges.
These suits could result in expensive and time-consuming litigation, payment of substantial damages, and an increase in our insurance
rates.
If our Symphony platform or test cartridges, or
any future tests based on our Symphony platform, are defectively designed or manufactured, contain defective components or are misused,
or if someone claims any of the foregoing, whether or not meritorious, we may become subject to substantial and costly litigation. Misusing
our devices or failing to adhere to the operating guidelines or our devices producing inaccurate readings could cause significant harm
to patients. In addition, if our operating guidelines are found to be inadequate, we may be subject to liability. Product liability claims
could divert management’s attention from our core business, be expensive to defend and result in sizable damage awards against us.
While we expect to maintain product liability insurance, we may not have sufficient insurance coverage for all future claims. Any product
liability claims brought against us, with or without merit, could increase our product liability insurance rates or prevent us from securing
continuing coverage, could harm our reputation in the industry and could reduce revenue. Product liability claims in excess of our insurance
coverage would be paid out of cash reserves harming our financial condition and adversely affecting our results of operations.
If we are found to have violated laws protecting
the confidentiality of patient health information, we could be subject to civil or criminal penalties, which could increase our liabilities
and harm our reputation or our business.
There are a number of laws around the world protecting
the confidentiality of certain patient health information, including patient records, and restricting the use and disclosure of that protected
information. Privacy rules protect medical records and other personal health information by limiting their use and disclosure, giving
individuals the right to access, amend and seek accounting of their own health information and limiting most use and disclosures of health
information to the minimum amount reasonably necessary to accomplish the intended purpose. We may face difficulties in holding such information
in compliance with applicable law. If we are found to be in violation of the privacy rules, we could be subject to civil or criminal penalties,
which could increase our liabilities, harm our reputation and have a material adverse effect on our business, financial condition and
results of operations.
Significant raw material shortages, supplier
capacity constraints, supplier disruptions, and sourcing issues may adversely impact or limit our products sales and or impact our product
margins.
Our key suppliers are limited- or sole-source
suppliers. Disruptions in deliveries, capacity constraints, production disruptions up- or down-stream, price increases, or decreased availability
of raw materials or commodities, including as a result of war, natural disasters (including the effects of climate change such as sea
level rise, drought, flooding, wildfires and more intense weather events), actual or threatened public health emergencies or other business
continuity events, adversely affect our operations and, depending on the length and severity of the disruption, can limit our ability
to meet our commitments to customers or significantly impact our operating profit or cash flows.
16
Risks Related to Product Development and Regulatory
Approval
We adapted our
clinical trial design in 2023 to obtain more patient data to reflect recent FDA feedback, and our regulatory pathway remains subject to
further FDA review and feedback and the results of ongoing and future clinical studies.
Our current regulatory
strategy is designed to support commercialization of Symphony in the United States pending marketing authorization from the FDA. Previously,
our regulatory strategy involved clinical studies involving COVID-19 patients. However, we have shifted our focus away from COVID-19 patients
due to a significant decline in the number of COVID-19 related hospitalizations. Pursuant to this revised strategy, we are beginning to
conduct a clinical study to support an FDA regulatory submission with an initial indication for risk stratification of hospitalized sepsis
patients. We submitted a pre-submission application to the FDA presenting the new study design in May 2023 and participated in a pre-submission
meeting on August 11, 2023. At the meeting, the FDA provided feedback on the new study design, determined that the submission of a 510(k)
is the appropriate premarket submission pathway, and requested that certain data be provided in the 510(k). Based on this feedback, we
determined to proceed on this basis, which considers the FDA’s feedback.
In the first
quarter of 2024, we initiated the study at multiple sites, which study is intended to use the Symphony IL-6 test to monitor IL-6
concentrations in patients who are diagnosed with sepsis or septic shock and are admitted or intended to be admitted to the ICU. The
objective of this study is to establish IL-6 concentrations in these sepsis patients that best predict 28-day all-cause mortality.
We expect that we will need to bring several additional sites into the study in the future, which we believe will help support
initial commercialization and market penetration. We believe that this clinical trial expansion could also support additional
indications, but that any such expansion also could delay obtaining marketing authorization for the product. As a result of our lack
of cash resources, we have recently slowed the timeline of this study to preserve cash resources in the near-term, and we expect
that this will delay our Symphony platform regulatory submission timeline until 2025.
Although we believe that
we have a sound strategy for obtaining FDA regulatory approval and clearance, there can be no assurance that it will ultimately be obtained.
Reasons that approval and clearance might not be obtained, on our expected timeline or at all, include that we are unable to complete
our planned studies (due to lack of funding, delays or interruptions in the manufacturing of quality-sufficient cartridges needed to be
used in the study, or otherwise), that clinical results are not sufficient to demonstrate required efficacy, or that the FDA does not
agree with our study design or aspects of our submission. In addition, the FDA could also change its clearance and approval policies,
adopt additional regulations, or revise existing regulations, or take other actions which could prevent or delay approval or clearance.
Any of these actions could have a material adverse effect on our business, financial condition, and results of operations.
The regulatory approval process which we
may be required to navigate may be expensive, time-consuming, and uncertain and may prevent us from obtaining clearance for our planned
products.
We intend to market our Symphony platform and test
cartridges following regulatory approval. To date, we have not received regulatory approval in any jurisdiction. The research, design,
testing, manufacturing, labeling, selling, marketing, and distribution of medical devices are subject to extensive regulation by country-specific
regulatory authorities, which regulations differ from country to country. There can be no assurance that, even after such time and expenditures,
we will be able to obtain necessary regulatory approvals for clinical testing or for the manufacturing or marketing of any products. In
addition, during the regulatory process, other companies may develop other technologies with the same intended use as our products.
We also will be subject to numerous post-marketing
regulatory requirements, which may include labeling regulations and medical device reporting regulations, which may require us to report
to different regulatory agencies if our device causes or contributes to a death or serious injury, or malfunctions in a way that would
likely cause or contribute to a death or serious injury. In addition, these regulatory requirements may change in the future in a way
that adversely affects us. If we fail to comply with present or future regulatory requirements that are applicable to us, we may be subject
to enforcement action by regulatory agencies, which may include, among others, any of the following sanctions:
●
warning letters, fines, injunctions, consent decrees and civil penalties;
●
customer notification, or orders for repair, replacement, or refunds;
17
●
voluntary or mandatory recall or seizure of our products;
●
imposing operating restrictions, suspension, or shutdown of production;
●
refusing our requests for clearance or pre-market approval of new products, new intended uses or modifications to any products;
●
rescinding clearance or suspending or withdrawing pre-market approvals that have already been granted; and
●
criminal prosecution.
The occurrence of any of these events may have
a material adverse effect on our business, financial condition and results of operations.
Product clearances and approvals can often
be denied or significantly delayed.
Under FDA regulations, unless exempt, a new medical
device may only be commercially distributed after it has received 510(k) clearance, is authorized through the de novo classification process,
or is the subject of a PMA. The FDA will clear marketing of a medical device through the 510(k) process if it is demonstrated that the
new product is substantially equivalent to another legally marketed product not subject to a PMA. Sometimes, a 510(k) clearance must be
supported by preclinical and clinical data.
The PMA process typically is more costly, lengthy,
and stringent than either the 510(k) process or the de novo classification process. Unlike a 510(k) review, which determines “substantial
equivalence,” a PMA requires that the applicant demonstrate reasonable assurance that the device is safe and effective by producing
valid scientific evidence, including data from preclinical studies and human clinical trials. Therefore, to obtain regulatory clearance
or approvals, we typically must, among other requirements, provide the FDA and similar foreign regulatory authorities with preclinical
and clinical data that demonstrate to their satisfaction that our products satisfy the criteria for approval. Preclinical testing and
clinical trials must comply with the regulations of the FDA and other government authorities in the United States and similar agencies
in other countries.
We may be required to obtain PMAs, PMA supplements,
de novo classification, or additional 510(k) pre-market clearances to market modifications to our products once they are approved and
commercialized. The FDA requires device manufacturers to make and document a determination of whether a device modification requires approval
or clearance; however, the FDA can review a manufacturer’s decision. The FDA may not agree with our decisions not to seek approvals
or clearances for particular device modifications. If the FDA requires us to obtain PMAs, PMA supplements or pre-market clearances for
any modification to a previously cleared or approved device, we may be required to cease manufacturing and marketing of the modified device
and perhaps also to recall such modified device until we obtain FDA clearance or approval. We may also be subject to significant regulatory
fines or penalties.
The FDA may not clear or approve our product submissions
or applications on a timely basis or at all. Such delays or refusals could have a material adverse effect on our business, financial condition,
and results of operations.
The FDA may also change its clearance and approval
policies, adopt additional regulations, or revise existing regulations, or take other actions which may prevent or delay approval or clearance
of our products under development or impact our ability to modify our currently approved or cleared products on a timely basis. Any of
these actions could have a material adverse effect on our business, financial condition, and results of operations.
International regulatory approval processes
may take more or less time than the FDA’s clearance or approval process. If we fail to comply with applicable FDA and
comparable non-U.S. regulatory requirements, we may not receive regulatory clearances or approvals or may be subject to FDA or
comparable non-U.S. enforcement actions. We may be unable to obtain future regulatory clearance or approval in a timely manner, or
at all, especially if existing regulations are changed or new regulations are adopted. For example, the FDA’s clearance or
approval process can take longer than anticipated due to requests for additional clinical data and changes in regulatory
requirements. Any failure or delay in obtaining necessary regulatory clearances or approvals would materially adversely affect our
business, financial condition, and results of operations.
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Our Symphony platform may be sold as a research
use only product. The FDA could disagree with this strategy and subject the product to regulation as a regulated medical device,
which could increase our costs and delay our commercialization efforts, thereby materially and adversely affecting our business and results
of operations.
In the United States, we may decide to label and
sell our Symphony platform for research use only, and not for the diagnosis or treatment of disease. Our future product candidates
also may follow this same pathway to market. Because such products are not intended for use in clinical practice in diagnostics, and the
products cannot include clinical or diagnostic claims, they are exempt from many regulatory requirements otherwise applicable to medical
devices. In particular, while FDA regulations require that RUO products be labeled, “For Research Use Only. Not for use in
diagnostic procedures,” the regulations do not otherwise subject such products to the FDA’s pre- and post-market controls
for medical devices.
A significant change in the laws governing
RUO products or how they are enforced may require us to change our ability to consider generating revenue via this path in order to
maintain compliance. For instance, in November 2013 the FDA issued a guidance document entitled “Distribution of In Vitro
Diagnostic Products Labeled for Research Use Only or Investigational Use Only” (the “RUO Guidance”)
which highlights the FDA’s interpretation that distribution of RUO products with any labeling, advertising or promotion that
suggests that clinical laboratories can validate the test through their own procedures and subsequently offer it for clinical
diagnostic use as a laboratory developed test is in conflict with RUO status. The RUO Guidance further articulates the FDA’s
position that any assistance offered in performing clinical validation or verification, or similar specialized technical support, to
clinical laboratories, conflicts with RUO status. If we engage in any activities that the FDA deems to be in conflict with the RUO
status held by the products that we sell, we may be subject to immediate, severe and broad FDA enforcement action that would
adversely affect our ability to continue operations. Accordingly, if the FDA finds that we are distributing our RUO products in a
manner that is inconsistent with its regulations or guidance, we may be forced to stop distribution of our RUO tests until we are in
compliance, which would reduce our revenue, increase our costs and adversely affect our business, prospects, results of operations
and financial condition. In addition, the FDA’s proposed implementation for a new framework for the regulation of laboratory
developed tests (LDTs) may negatively impact the LDT market and thereby reduce demand for RUO products.
Clinical data obtained in the future may
not meet the required objectives, which could delay, limit or prevent any regulatory approval.
There can be no assurance that we will successfully
complete any clinical evaluations necessary to receive regulatory approvals. While preliminary results have been encouraging and indicative
of the potential performance of our Symphony platform and test cartridges, data already obtained, or in the future obtained, from clinical
studies do not necessarily predict the results that will be obtained from later clinical evaluations. The failure to adequately demonstrate
the performance characteristics of the device under development could delay or prevent regulatory approval of the device, which could
prevent or result in delays to market launch and could materially harm our business. There can be no assurance that we will be able to
receive approval for any potential applications of our principal technology, or that we will receive regulatory clearances from targeted
regions or countries.
We may be unable to complete required clinical
evaluations, or we may experience significant delays in completing such clinical evaluations, which could prevent or significantly delay
our targeted product launch timeframe and impair our viability and business plan.
The completion of any future clinical evaluations
of our Symphony platform or test cartridges, or other studies that we may be required to undertake in the future, could be delayed, suspended,
or terminated for several reasons, including:
●
we may fail to or be unable to conduct the clinical evaluation in accordance with regulatory requirements;
●
sites participating in the trial may drop out of the trial, which may require us to engage new sites for an expansion of the number of sites that are permitted to be involved in the trial;
●
patients may not enroll in, remain in or complete, the clinical evaluation at the rates we expect; and
●
clinical investigators may not perform our clinical evaluation on our anticipated schedule or consistent with the clinical evaluation protocol and good clinical practices.
If our clinical evaluations are delayed it will
take us longer to ultimately launch our Symphony platform and test cartridges in the market and generate revenues. Moreover, our development
costs will increase if we have material delays in our clinical evaluation or if we need to perform more or larger clinical evaluations
than planned.
19
We and our suppliers may not meet regulatory
quality standards applicable to our manufacturing processes, which could have an adverse effect on our business, financial condition,
and results of operations.
As a medical device manufacturer, we will need
to register with the FDA and various non-U.S. regulatory agencies and will be subject to periodic inspection by the FDA and foreign regulatory
agencies, for compliance with certain Good Manufacturing Practices, including design controls, product validation and verification, in
process testing, quality control and documentation procedures. Compliance with applicable regulatory requirements is subject to continual
review and is rigorously monitored through periodic inspections by the FDA and foreign regulatory agencies. Our product and component
suppliers may also be required to meet certain standards applicable to their manufacturing processes.
We cannot assure you that we or our products or
component suppliers will comply with all regulatory requirements. The failure by us or one of our suppliers to achieve or maintain compliance
with these requirements or quality standards may disrupt our ability to supply products sufficient to meet demand until compliance is
achieved or, until a new supplier has been identified and evaluated. Our or any product or component supplier’s failure to comply
with applicable regulations could cause sanctions to be imposed on us, including warning letters, fines, injunctions, civil penalties,
failure of regulatory authorities to grant marketing approval of our products, delays, suspension or withdrawal of approvals or clearances,
license revocation, seizures or recalls of products, operating restrictions and criminal prosecutions, which could harm our business.
We cannot assure you that if we need to engage new suppliers to satisfy our business requirements, we can locate new suppliers in compliance
with regulatory requirements at a reasonable cost and in an acceptable timeframe. Our failure to do so could have a material adverse effect
on our business, financial condition and results of operations.
We may be liable if the FDA or another regulatory
agency concludes that we have engaged in the off-label promotion of our products.
Our promotional materials and training methods
must comply with FDA and other applicable laws and regulations, including the prohibition of the promotion of the off-label use of our
products. Once our products are cleared or approved for clinical use, healthcare providers may use our products for off-label uses, as
the FDA does not restrict or regulate a physician’s choice of treatment within the practice of medicine. However, if the FDA determines
that our promotional, or training materials for sales representatives or physicians constitute promotion of an off-label use, the FDA
could request that we modify our training, promotional materials and/or subject us to regulatory or enforcement actions, including the
issuance of an untitled letter, a warning letter, injunction, seizure, disgorgement of profits, significant penalties, including civil
fines and criminal penalties. Other federal, state or foreign governmental authorities also might take action if they consider our promotion,
reimbursement or training materials to constitute promotion of an off-label use, which could result in significant fines or penalties
under other statutory authorities, such as laws prohibiting false claims for reimbursement. In those possible events, our reputation could
be damaged, and adoption of the products would be impaired.
Our products may be subject to recalls after
receiving FDA or foreign approval or clearance or cause or contribute to a death or a serious injury or malfunction in certain ways prompting
voluntary corrective actions or agency enforcement actions, which could divert managerial and financial resources, harm our reputation,
and adversely affect our business.
The FDA and similar foreign governmental authorities
have the authority to require the recall of our products because of any failure to comply with applicable laws and regulations, or defects
in design or manufacture, or if there is a reasonable likelihood our products might cause or contribute to a death or a serious injury
or malfunction. A government mandated or voluntary product recall by us could occur because of, for example, component failures, device
malfunctions or other adverse events, such as serious injuries or deaths, or quality-related issues, such as manufacturing errors or design
or labeling defects. Any future recalls of our products could divert managerial and financial resources, harm our reputation, and adversely
affect our business.
20
If we initiate a correction or removal for one
of our devices to reduce a risk to health posed by the device, we would be required to submit a publicly available Correction and Removal
report to the FDA and, in many cases, similar reports to other regulatory agencies. This report could be classified by the FDA as a device
recall which could lead to increased scrutiny by the FDA, other international regulatory agencies and our customers regarding the quality
and safety of our devices. Furthermore, the submission of these reports has been and could be used by competitors against us in competitive
situations and cause customers to delay purchase decisions or cancel orders and would harm our reputation.
In addition, we will be subject to medical device
reporting regulations that will require us to report to the FDA or similar foreign governmental authorities if one of our products may
have caused or contributed to a death or serious injury or if we become aware that it has malfunctioned in a way that would likely cause
or contribute to a death or serious injury if the malfunction recurred. Failures to properly identify reportable events or to file timely
reports, as well as failure to address each of the observations to the FDA’s satisfaction, can subject us to sanctions and penalties,
including warning letters and recalls. Physicians, hospitals, and other healthcare providers may make similar reports to regulatory authorities.
Any such reports may trigger an investigation by the FDA or similar foreign regulatory bodies, which could divert managerial and financial
resources, harm our reputation, and have a material adverse effect on our business, financial condition and results of operations. Any
adverse event involving our products also could result in future voluntary corrective actions, such as recalls or customer notifications,
or agency action, such as inspection or enforcement action. Any corrective action, whether voluntary or involuntary, as well as defending
ourselves in a lawsuit, would require our time and capital, distract management from operating our business and may harm our reputation
and have a material adverse effect on our business, financial condition, and results of operations.
Legislative or regulatory reforms may make
it more difficult and costly for us to obtain regulatory clearance or approval of any future products and to manufacture, market and distribute
our products after clearance or approval is obtained.
From time to time, legislation is drafted and
introduced in Congress that could significantly change the statutory provisions governing the regulatory approval, manufacture and marketing
of regulated products or the reimbursement thereof. 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 future products
under development or impact our ability to modify our currently cleared products on a timely basis. Any new regulations or revisions or
reinterpretations of existing regulations may impose additional costs or lengthen review times of planned or future products. It is impossible
to predict whether legislative changes will be enacted, or FDA regulations, guidance or interpretations changed, and what the impact of
such changes, if any, may be.
FDA regulations and guidance are often revised
or reinterpreted by the FDA in ways that may significantly affect our business and our products. Any new statutes, regulations or revisions
or reinterpretations of existing regulations may impose additional costs or lengthen review times of any future products or make it more
difficult to obtain clearance or approval for, manufacture, market or distribute our products. We cannot determine what effect changes
in regulations, statutes, legal interpretation or policies, when and if promulgated, enacted or adopted may have on our business in the
future. Such changes could, among other things, require additional testing prior to obtaining clearance or approval; changes to manufacturing
methods; recall, replacement or discontinuance of our products; or additional record keeping.
Any change in the laws or regulations that govern
the clearance and approval processes relating to our current, planned and future products could make it more difficult and costly to obtain
clearance or approval for new products or to produce, market and distribute existing products. Significant delays in receiving clearance
or approval or the failure to receive clearance or approval for any new products would have an adverse effect on our ability to expand
our business. If we are slow or unable to adapt to changes in existing requirements or the adoption of new requirements or policies, or
if we are not able to maintain regulatory compliance, we may lose any marketing clearance that we may have obtained and we may not achieve
or sustain profitability.
21
Risks Related to Our Intellectual Property
We depend on intellectual property licensed
from Toray, and any dispute over the license would significantly harm our business.
We are dependent on the intellectual property
licensed from Toray. Disputes may arise between us and Toray regarding intellectual property subject to the New Toray License Agreement.
If disputes over intellectual property that we have licensed prevent or impair our ability to maintain our current licensing arrangements
on acceptable terms or are insufficient to provide us the necessary rights to use the intellectual property, we may be unable to successfully
develop and launch our Symphony platform and our other product candidates. If we or Toray fail to adequately protect this intellectual
property, our ability to launch our products in the market could be limited. For so long as we are dependent on the intellectual property
covered by the New Toray License Agreement for the pursuit of our business, any such disputes relating to the New Toray License Agreement
or failure to protect the intellectual property could threaten our viability.
We will depend primarily on Toray to file,
prosecute, maintain, defend and enforce intellectual property that we license from it and that is material to our business.
The key underlying intellectual property relating
to our Symphony platform is owned by Toray. Under the New Toray License Agreement, Toray generally has the right to file, prosecute, maintain
and defend the intellectual property we have licensed from Toray. If Toray fails to conduct these activities for intellectual property
protection covering any of our product candidates, our ability to develop and launch those product candidates may be adversely affected
and we may not be able to prevent competitors from making, using or selling competing products. In addition, pursuant to the terms of
the New Toray License Agreement, Toray generally has the right to control the enforcement of our licensed intellectual property and the
defense of any claims asserting the invalidity of that intellectual property. We cannot be certain that Toray will allocate sufficient
resources to and otherwise prioritize the enforcement of such intellectual property or the defense of such claims to protect our interests
in the licensed intellectual property. In the absence of action by Toray, we may be unable to protect and enforce the proprietary rights
on which our business relies. Even if we are not a party to these legal actions, an adverse outcome could harm our business because it
might prevent or impede us from continuing to use the licensed intellectual property that we need to operate our business or from realizing
the full commercial benefit contemplated by the agreement. In addition, even if we take control of the prosecution of licensed intellectual
property and related applications, enforcement of licensed intellectual property, or defense of claims asserting the invalidity of that
intellectual property, we may still be adversely affected or prejudiced by actions or inactions of Toray and its counsel that took place
prior to or after our assuming control, and we cannot ensure the cooperation of Toray in any such action. Furthermore, if we take action
to protect, enforce or defend the licensed intellectual property, we may incur significant costs and the attention of our management may
be diverted from our normal business operations. As a result, our business, results of operations and financial condition could be materially
and adversely affected.
We and Toray may be unable to protect or
enforce the intellectual property rights licensed to us, which could impair our competitive position.
In order for our business to be viable and to
compete effectively, the proprietary rights with respect to the technologies and intellectual property used in our products must be developed
and maintained. Toray relies primarily on patent protection and trade secrets to protect its technology and intellectual property rights.
There are significant risks associated with Toray’s ability (or our ability, in the absence of action by Toray) to protect the intellectual
property licensed to us, including:
●
pending intellectual property applications may not be approved or may take longer than expected to result in approval in one or more of the countries in which we operate;
●
Toray’s intellectual property rights may not provide meaningful protection;
●
other companies may challenge the validity or extent of Toray’s patents and other proprietary intellectual property rights through litigation, oppositions and other proceedings. These proceedings can be protracted as well as unpredictable;
●
other companies may have independently developed (or may in the future independently develop) similar or alternative technologies, may duplicate Toray’s technologies or may design their technologies around Toray’s technologies;
●
enforcement of intellectual property rights is complex, uncertain and expensive, and may be subject to lengthy delays. In the event we take control of any such action under the New Toray License Agreement, our ability to enforce our intellectual property protection could be limited by our financial resources; and
●
the other risks described in “— Risks Related to Our Intellectual Property.”
If any of Toray’s patents or other intellectual
property rights fail to protect the technology licensed by us, it would make it easier for our competitors to offer similar products.
Any inability on Toray’s part (or on our part, in the absence of action by Toray) to adequately protect its intellectual property
may have a material adverse effect on our business, financial condition and results of operations.
22
We and/or Toray may be subject to claims
alleging the violation of the intellectual property rights of others.
We may face significant expense and liability
as a result of litigation or other proceedings relating to intellectual property rights of others. In the event that another party has
intellectual property protection relating to an invention or technology licensed by us from Toray, we and/or Toray may be required to
participate in an interference proceeding declared by the regulatory authorities to determine priority of invention, which could result
in substantial uncertainties and costs for us, even if the eventual outcome was favorable to us. We and/or Toray also could be required
to participate in interference proceedings involving intellectual property of another entity. An adverse outcome in an interference proceeding
could require us and/or Toray to cease using the technology, to substantially modify it or to license rights from prevailing third parties,
which could delay or prevent the launch of our products in the market or adversely affect our profitability.
The cost to us of any intellectual property litigation
or other proceeding relating the intellectual property licensed by us from Toray, even if resolved in our favor, could be substantial,
especially given our early stage of development. A third party may claim that we and/or Toray are using inventions claimed by their intellectual
property and may go to court to stop us and/or Toray from engaging in our normal operations and activities, such as research, development
and the sale of any future products. Such lawsuits are expensive and would consume significant time and other resources. There is a risk
that a court will decide that we and/or Toray are infringing the third party’s intellectual property and will order us to stop the
activities claimed by the intellectual property. In addition, there is a risk that a court will order us and/or Toray to pay the other
party damages for having infringed their intellectual property. Moreover, there is no guarantee that any prevailing intellectual property
owner would offer us a license so that we could continue to engage in activities claimed by the intellectual property, or that such a
license, if made available to us, could be acquired on commercially acceptable terms.
We and Toray may be subject to claims challenging
the invention of the intellectual property that we license from Toray.
We and Toray may be subject to claims that former
employees, collaborators or other third parties have an interest in intellectual property as an inventor or co-inventor. For example,
we and Toray may have inventorship disputes arising from conflicting obligations of consultants or others who are involved in developing
our product candidates. Litigation may be necessary to defend against these and other claims challenging inventorship. If we and Toray
fail in defending any such claims, in addition to paying monetary damages, we and Toray may lose valuable intellectual property rights,
such as exclusive ownership of, or right to use, valuable intellectual property. Such an outcome could have a material adverse effect
on our business. Even if we are successful in defending against such claims, litigation could result in substantial costs and be a distraction
to management and other employees. As a result, it is unclear whether and, if so, to what extent employees of ours and Toray may be able
to claim compensation with respect to our future revenue. We may receive less revenue from future products if any of our or Toray’s
employees successfully claim compensation for their work in developing our intellectual property, which in turn could impact our future
profitability.
Risks Related to Our Industry
We face intense competition in the diagnostic
testing market, particularly in the IL-6 space, and as a result we may be unable to effectively compete in our industry.
We expect to compete directly and primarily with
large medical device companies. These large companies have most of the diagnostic testing business and strong research and development
capacity. Their dominant market position and significant control over markets could significantly limit our ability to introduce our Symphony
platform or effectively market and generate sales of our products.
We have not yet entered the revenue stage and
most of our competitors have long histories and strong reputations within the industry. They have significantly greater brand recognition,
financial and human resources than we do. They also have more experience and capabilities in researching and developing testing devices,
obtaining and maintaining regulatory clearances and other requirements, manufacturing and marketing those products than we do. There is
a significant risk that we may be unable to overcome the advantages held by our competition, and our inability to do so could lead to
the failure of our business.
Competition in the diagnostic testing markets
is intense, which can lead to, among other things, price reductions, longer selling cycles, lower product margins, loss of market share
and additional working capital requirements. To succeed, we must, among other critical matters, gain consumer acceptance for our products,
technical solutions, prices and response time, or a combination of these factors. If our competitors offer significant discounts on certain
products, we may need to lower our prices or offer other favorable terms in order to compete successfully. Moreover, any broad-based changes
to our prices and pricing policies could make it difficult to generate revenues or cause our revenues, if established, to decline. Moreover,
if our competitors develop and commercialize products that are more desirable than the products that we may develop, we may not convince
customers to use our products. Any such changes would likely reduce our commercial opportunity and revenue potential and could materially
adversely impact our operating results.
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If we or Toray fail to respond quickly to
technological developments, our products may become uncompetitive and obsolete.
The diagnostic testing market may experience rapid
technology developments, changes in industry standards, changes in customer requirements and frequent new product introductions and improvements.
If we or Toray are unable to respond to these developments, we may lose competitive position, and our products or technology may become
uncompetitive or obsolete, causing our business and prospects to suffer. In order to compete, we and Toray may have to develop, license
or acquire new technology on a schedule that keeps pace with technological developments and the requirements for products addressing a
broad spectrum and designers and designer expertise in our industries.
Risks Related to Ownership of Our Common Stock
We could issue “blank check”
preferred stock without stockholder approval with the effect of diluting interests of then-current stockholders and impairing their voting
rights, and provisions in our charter documents and under Delaware law could discourage a takeover that stockholders may consider favorable.
Our Certificate of Incorporation provides for
the authorization to issue up to 5,000,000 shares of “blank check” preferred stock with designations, rights and preferences
as may be determined from time to time by our Board of Directors. Our Board of Directors is empowered, without stockholder approval, to
issue one or more series of preferred stock with dividend, liquidation, conversion, voting or other rights which could dilute the interest
of, or impair the voting power of, our common stockholders. The issuance of a series of preferred stock could be used as a method of discouraging,
delaying or preventing a change in control. For example, it would be possible for our Board of Directors to issue preferred stock with
voting or other rights or preferences that could impede the success of any attempt to change control of our Company. In addition, advanced
notice is required prior to stockholder proposals, which might further delay a change of control.
Shares eligible for future sale may adversely
affect the market for our common stock.
The price of our common stock could decline if
there are substantial sales of our common stock, particularly sales by our directors, executive officers, employees, and significant stockholders,
or when there is a large number of shares of our common stock available for sale.
Our existing stockholders (including the holders
of our preferred stock and warrants) may be eligible to sell all or some of their shares of common stock by means of ordinary brokerage
transactions in the open market, subject to the limitations of Rule 144, promulgated under the Securities Act. In general, under Rule
144 as currently in effect, once we have been subject to public company reporting requirements for at least 90 days, a person who
is not deemed to have been one of our affiliates for purposes of the Securities Act at any time during the 90 days preceding a sale
and who has beneficially owned the shares proposed to be sold for at least six months, including the holding period of any prior owner
other than our affiliates, is entitled to sell those shares without complying with the manner of sale, volume limitation or notice provisions
of Rule 144, subject to compliance with the public information requirements of Rule 144. If such a person has beneficially owned the shares
proposed to be sold for at least one year, including the holding period of any prior owner other than our affiliates, then that person
is entitled to sell those shares without complying with any of the requirements of Rule 144. Our affiliates and other persons selling
shares on behalf of our affiliates also are entitled to sell as long as they comply with Rule 144’s manner of sale, volume limitation
and notice provisions, in addition to the provisions applicable to non-affiliates described above.
The market price of the shares of our common stock
could decline as a result of the sale of a substantial number of our shares of common stock in the public market or the perception in
the market that the holders of a large number of shares intend to sell their shares.
We do not currently intend to pay dividends
on our common stock in the foreseeable future, and consequently, your ability to achieve a return on your investment will depend on appreciation
in the price of our common stock.
We do not anticipate paying any cash dividends
to holders of our common stock in the foreseeable future. Consequently, investors must rely on sales of their common stock after price
appreciation, which may never occur, as the only way to realize any future gains on their investments. There is no guarantee that shares
of our common stock will appreciate in value or even maintain the price at which our stockholders have purchased their shares.
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If securities industry analysts do not publish
research reports on us, or publish unfavorable reports on us, then the market price and market trading volume of our common stock could
be negatively affected.
Any trading market for our common stock will be
influenced in part by any research reports that securities industry analysts publish about us. We do not currently have and may never
obtain research coverage by securities industry analysts. If no securities industry analysts commence coverage of us, the market price
and market trading volume of our common stock could be negatively affected. In the event we are covered by analysts, and one or more of
such analysts downgrade our securities, or otherwise reports on us unfavorably, or discontinues coverage or us, the market price and market
trading volume of our common stock could be negatively affected.
As an “emerging growth company”
under applicable law, we are subject to lessened disclosure requirements, which could leave our stockholders without information or rights
available to stockholders of other public companies that are not “emerging growth companies.”
For as long as we remain an “emerging growth
company” as defined in the JOBS Act, we have elected to take advantage of certain exemptions from various reporting requirements
that are applicable to other public companies that are not “emerging growth companies” including, but not limited to:
●
not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act;
●
reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements; and
●
exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and stockholder approval of any golden parachute payments not previously approved.
We expect to take advantage of these reporting
exemptions until we are no longer an “emerging growth company.” We could be an emerging growth company for up to five years,
although circumstances could cause us to lose that status earlier. We will remain an emerging growth company until the earlier of: (1)
December 31, 2026, (2) the last day of the fiscal year in which we have total annual gross revenue of at least $1.235 billion, (3) the
date on which we are deemed to be a large accelerated filer, which is the end of the fiscal year in which the market value of our common
stock that is held by non-affiliates exceeds $700.0 million as of the end of our most recent second fiscal quarter, and (4) the date on
which we have issued more than $1.0 billion in non-convertible debt securities during the prior three-year period.
Because of these lessened regulatory requirements,
our stockholders would be left without information or rights available to stockholders of other public companies that are not “emerging
growth companies.” In addition, we cannot predict if investors will find our common stock less attractive because we rely on these
exemptions. If some investors find our common stock less attractive as a result, there may be a less active trading market for our common
stock and our stock price may suffer or be more volatile.
Because we have elected to use the extended
transition period for complying with new or revised accounting standards for an “emerging growth company” our financial statements
may not be comparable to companies that comply with public company effective dates.
We have elected to use the extended transition
period for complying with new or revised accounting standards under Section 102(b)(1) of the JOBS Act. This election allows us to delay
the adoption of new or revised accounting standards that have different effective dates for public and private companies until those
standards apply to private companies. While we are not currently delaying the implementation of any relevant accounting standards, in
the future we may avail ourselves of these rights, and as a result of this election, our financial statements may not be comparable to
companies that comply with public company effective dates. Because our financial statements may not be comparable to companies that comply
with public company effective dates, investors may have difficulty evaluating or comparing our business, performance or prospects in
comparison to other public companies, which may have a negative impact on the value and liquidity of our common stock.
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Anti-takeover provisions in our charter
documents and Delaware law could discourage, delay or prevent a change in control of our Company and may affect the trading price of our
common stock.
We are a Delaware corporation and the anti-takeover
provisions of the Delaware General Corporation Law may discourage, delay or prevent a change in control by prohibiting us from engaging
in a business combination with an interested stockholder for a period of three years after the person becomes an interested stockholder,
even if a change in control would be beneficial to our existing stockholders. In addition, our amended and restated certificate of incorporation
and by-laws may discourage, delay or prevent a change in our management or control over us that stockholders may consider favorable. Our
amended and restated certificate of incorporation and bylaws will:
●
provide for the issuance of “blank check” preferred stock that could be issued by our Board of Directors to thwart a takeover attempt;
●
provide that stockholders will not be able to take action by written consent, and special meetings of stockholders may only be called by our Chief Executive Officer, our President, our Board of Directors or a majority of our stockholders;
●
provide that our stockholders are required to provide advance notice and additional disclosures in order to nominate individuals for election to our Board of Directors or to propose matters that can be acted upon at a stockholders’ meeting, which may discourage or deter a potential acquirer from conducting a solicitation of proxies to elect the acquirer’s own slate of directors or otherwise attempting to obtain control of our Company; and
●
do not provide stockholders with the ability to cumulate their votes, which limits the ability of minority stockholders to elect director candidates.
These provisions could also limit the price that
investors might be willing to pay in the future for shares of our common stock, thereby depressing the market price of our common stock.
We will continue incurring increased costs
as a result of operating as a public company, and our management is now required to devote substantial time to new compliance initiatives
and corporate governance practices.
Our common stock began trading on the NASDAQ Global
Select Market in November 2021. As a public company, and particularly after we are no longer an EGC, we are incurring and will continue
to incur significant legal, accounting and other expenses that we did not incur as a private company. The Sarbanes-Oxley Act of 2002,
the Dodd-Frank Wall Street Reform and Consumer Protection Act, the listing requirements of the NASDAQ Global Market and other applicable
securities rules and regulations impose various requirements on public companies, including establishment and maintenance of effective
disclosure and financial controls and corporate governance practices. These requirements result in significant legal and financial compliance
costs and make some activities more time-consuming and costly. These rules and regulations are often subject to varying interpretations,
in many cases due to their lack of specificity, and, as a result, their application in practice may evolve over time as new guidance is
provided by regulatory and governing bodies. This results in continuing uncertainty regarding compliance matters and higher costs necessitated
by ongoing revisions to disclosure and governance practices.
Failure to maintain effective internal controls
in accordance with Section 404 of the Sarbanes-Oxley Act could have material adverse effect on our business and stock price, and
our limited internal staffing may enhance the likelihood of such a controls failure.
Pursuant to SOX Section 404 we are required
to furnish a report by our management on our internal control over financial reporting in our Annual Reports on Form 10-K with the
SEC since becoming a public company, including an attestation report on internal control over financial reporting issued by our independent
registered public accounting firm. However, while we remain an EGC, we are not be required to include an attestation report on internal
control over financial reporting issued by our independent registered public accounting firm. To comply with SOX Section 404, we
document and evaluate our internal control over financial reporting, which is both costly and challenging. In this regard, we have and
will need to continue to dedicate internal resources, potentially engage outside consultants and adopt a detailed work plan to assess
and document the adequacy of internal control over financial reporting, continue steps to improve control processes as appropriate, validate
through testing that controls are functioning as documented and implement a continuous reporting and improvement process for internal
control over financial reporting. Despite our efforts, we may identify one or more material weaknesses, which could result in an adverse
reaction in the financial markets due to a loss of confidence in the reliability of our financial statements. At present, our Interim
Chief Financial Officer, Frances Scally, is not an employee of ours, but instead provides services to us on a limited basis pursuant to
a scope of work agreement and master services agreement with DLA LLC, where Ms. Scally is an employee. We also do not presently employ
an internal legal officer. Our lack of a directly employed principal financial and accounting officer or principal legal officer may increase
the likelihood that we will fail to successfully maintain effective internal controls over financial reporting, or effective disclosure
controls and procedures.
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Our amended and restated certificate of
incorporation will provide, subject to limited exceptions, that the Court of Chancery of the State of Delaware will be the sole and exclusive
forum for certain stockholder litigation matters, which could limit our stockholders’ ability to obtain a favorable judicial forum
for disputes with us or our directors, officers, employees or stockholders.
Our amended and restated certificate of incorporation
will require, to the fullest extent permitted by law, subject to limited exceptions, that derivative actions brought in our name, actions
against directors, officers and employees for breach of fiduciary duty and other similar actions may be brought only in the Court of Chancery
in the State of Delaware and, if brought outside of Delaware, the stockholder bringing the suit will be deemed to have consented to service
of process on such stockholder’s counsel in any action brought to enforce the exclusive forum provision. Any person or entity purchasing
or otherwise acquiring any interest in shares of our capital stock shall be deemed to have notice of and consented to the forum provisions
in our amended and restated certificate of incorporation.
Notwithstanding the foregoing, Section 27 of the
Exchange Act creates exclusive federal jurisdiction over all suits brought to enforce any duty or liability created by the Exchange Act
or the rules and regulations thereunder. In addition, Section 22 of the Securities Act creates concurrent jurisdiction for federal and
state courts over all suits brought to enforce any duty or liability created by the Securities Act or the rules and regulations thereunder.
As a result, the exclusive forum provision will provide that the Court of Chancery and the federal district court for the District of
Delaware will have concurrent jurisdiction over any action arising under the Securities Act or the rules and regulations thereunder, and
the exclusive forum provision will not apply to suits brought to enforce any duty or liability created by the Exchange Act or the rules
and regulations thereunder or any other claim for which the federal courts have exclusive jurisdiction. To the extent the exclusive forum
provision restricts the courts in which our stockholders may bring claims arising under the Securities Act and the rules and regulations
thereunder, there is uncertainty as to whether a court would enforce such provision. Investors cannot waive compliance with the federal
securities laws and the rules and regulations promulgated thereunder.
This exclusive forum provision may limit a stockholder’s
ability to bring a claim in a judicial forum that it finds favorable for disputes with us or any of our directors, officers, other employees
or stockholders, which may discourage lawsuits with respect to such claims. By requiring a stockholder to bring such a claim in the Court
of Chancery (or the federal district court for the District of Delaware, in the case of an action under the Securities Act or the rules
and regulations thereunder), the exclusive forum provision also may increase the costs to a stockholder of bringing such a claim. Alternatively,
if a court were to find the exclusive forum provision contained in our amended and restated certificate of incorporation to be inapplicable
or unenforceable in an action, we may incur additional costs associated with resolving such action in other jurisdictions, which could
harm our business, operating results and financial condition.
Text extracted from the filing as submitted to EDGAR. Formatting, tables and exhibits are simplified for reading; the original document is authoritative for anything you rely on.