Item 1. Business
Item 1.
Business
References in this report to “Cardio,”
“we,” “us” or the “Company” refer to Cardio Diagnostics Holdings, Inc. References to our “management”
or our “management team” refer to the officers and directors of Cardio Diagnostics Holdings, Inc.
Our Company
Cardio Diagnostics, Inc. ("Legacy Cardio”)
was founded in 2017 in Coralville, Iowa by Meeshanthini (Meesha) Dogan, PhD, and Robert (Rob) Philibert, MD PhD. It was formed in January
2017 as an Iowa LLC and was subsequently incorporated as a Delaware C Corp in September 2019.
Cardio was formed to further develop and commercialize
a series of products for major types of cardiovascular disease and associated co-morbidities, including coronary heart disease (“CHD”),
stroke, heart failure and diabetes, by leveraging our Artificial Intelligence (“AI”)-driven Integrated Genetic-Epigenetic
Engine™. As a company, we aspire to give every American adult insight into their unique risk for various cardiovascular diseases.
Cardio aims to become one of the leading medical technology companies for enabling improved prevention, detection, treatment and management
of cardiovascular disease and associated co-morbidities. Cardio is transforming the approach to cardiovascular medicine from reactive
to proactive and hopes to accelerate the adoption of Precision Medicine for all. We believe that incorporating our solutions into routine
clinical practice in and prevention efforts can help alter the trajectory that nearly one in two Americans is expected to develop some
form of cardiovascular disease by 2035.
According to the CDC, epigenetics is the study
of how a person’s behaviors and environment can cause changes that affect the way a person’s genes work. Unlike genetic changes,
epigenetic changes are reversible and do not change one’s DNA sequence, but they can change how a person’s body reads a DNA
sequence. We believe that we are the first company to develop and commercialize epigenetics-based clinical tests for cardiovascular disease
that have clear value propositions for multiple stakeholders including (i) patients, (ii) clinicians, (iii) hospitals/health systems,
(iv) employers and (v) payors.
An estimated 80% of cardiovascular disease ("CVD”)
is preventable, yet, it is responsible for one in every four deaths and remains the number one killer in the United States for both men
and women. Coronary heart disease is the most common type of CVD and the major cause of heart attacks. The enormous number of unnecessary
heart attacks and deaths associated with CHD is attributable to the failure of current primary prevention approaches in clinical practice
to effectively detect, reduce and monitor risk for CHD prior to life altering and costly health complications. Several reasons for this
failure include (i) the current in-person risk screening approach is incompatible with busy everyday life; (ii) even if the current risk
screening tests are taken, they only identify 44% and 32% of men and women at high risk, respectively; and (iii) the lack of patient care
plan personalization. We believe that a highly accessible, personalized and precise solution for CHD prevention is not currently available.
Furthermore, with the ongoing COVID-19 pandemic,
preventable illnesses such as CHD are expected to spike. Therefore, now more than ever, there is an urgent need for a highly sensitive,
scalable, at-home risk screening tool that can help physicians better direct care and allow patients to receive the help they need sooner.
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Our first test, Epi+Gen CHD™, which
was introduced for market testing in 2021, is a three-year symptomatic CHD risk assessment clinical blood test targeting CHD events,
including heart attacks. In March 2023, we announced the launch of our second product, PrecisionCHD™, an integrated
epigenetic-genetic clinical blood test for the detection of coronary heart disease. The Epi+Gen CHD™ and
PrecisionCHD™ tests are coupled to Actionable Clinical Intelligence (ACI), a platform that offers new epigenetic and genetic
insights to clinicians prescribing the to help improve chronic care management. In May 2023, we launched
CardioInnovate360 TM , a research-use-only (RUO) solution to support the discovery, development and validation of novel
biopharmaceuticals for the assessment and management of cardiovascular diseases. In February 2024, we announce the launch of
HeartRisk™, a cardiovascular risk intelligence platform. The Company earned only $950 and $17,065 in revenue for the
years ended December 31, 2022 and 2023, respectively. We are continuing to focus our efforts on establishing relationships with
larger organizations and channel partners to increase adoption of our solutions. However, this process can take many months and up
to as much as a year or more to finalize, depending on the sales channel. For example, hospitals routinely take a year or longer to
make purchasing decisions. While these relationships take considerable time to establish, we believe that our strategy to pursue
larger organizations can provide far greater revenue potential for our existing and future products. We have begun to see results
from this recent shift in marketing focus: In October 2023, we announced that we have secured an Innovative Technology Contract from
Vizient, Inc., the nation’s largest provider-driven healthcare performance improvement company, with a customer base
encompassing over 60% of hospitals and 97% of academic medical centers in the United States. In November 2023, we announced that
Family Medicine Specialists (FMS), a leading Illinois primary care provider with eight locations, is implementing our heart attack
risk assessment test, Epi+Gen CHD™, covering at least 1,200 BlueCross BlueShield Medicare, Medicaid, HMO and PPO health plan
and other health plan patients with CHD risk factors.
We believe that our Epi+Gen CHD™ and
PrecisionCHD™ tests are categorized as laboratory-developed tests, or “LDTs.” Under current FDA enforcement discretion
policy, an LDT does not require FDA premarket authorization, or other FDA clearance or approval. As such, we believe that the Epi+Gen
CHD™ and PrecisionCHD™ tests do not require FDA premarket evaluation of our performance claims or marketing authorization,
and such premarket authorization has not been obtained. Although submissions that are pending before the FDA or that have been denied
are not publicly available, to the best of our knowledge, no epigenetic-based clinical test for cardiovascular disease has, to date, been
cleared or approved by the FDA.
As a company in the early stages of its development,
we continuously reevaluate our business, the market in which we operate and potential new opportunities. We may seek other alternatives
within the healthcare field in order to grow our business and increase revenues. Such alternatives may include, but not be limited to,
combinations or strategic partnerships with other laboratory companies or with medical practices such as hospitalists or behavioral health.
I ndustry
Background
According to the American Heart Association
(“AHA”), even though an estimated 80% of cardiovascular disease (“CVD”) is preventable, it remains the leading
cause of death in the United States and globally. The AHA also reported that over 650,000 deaths in the United States each year are attributable
to heart disease, which amounts to one in every four deaths. The Centers for Disease Control and Prevention (“CDC”) estimates
that in the United States, one person dies every 36 seconds from CVD. Unfortunately, the incidence of CVD is expected to continue to rise
with the AHA projecting that by 2035, nearly half of Americans will have some form of CVD.
CVD represents conditions that affect the
heart and blood vessels such as coronary heart disease (“CHD”), stroke, and congestive heart failure (“CHF”).
CHD is the most common type of heart disease and according to the CDC, was responsible for nearly 370,000 deaths in 2019. The National
Center for Health Statistics reported that the prevalence of CHD is approximately 6.7%, and according to the AHA, over 20 million adults
aged 20 or older in the United States have CHD. CHD is also the major cause of heart attacks. According to the AHA, every 40 seconds,
someone in the United States has a heart attack, with over 800,000 Americans having a heart attack each year. The CDC reported that in
2020, stroke was responsible for one in six CVD-related deaths. The AHA estimates that every year, nearly 800,000 Americans have a stroke
which is the leading cause of major long-term disability, with a stroke-related death occurring every 3.5 minutes. According to the AHA,
over six million adults have heart failure and nearly 380,000 deaths in 2018 were attributable to heart failure. There are numerous risk
factors that could increase an individual’s risk for CVD. Several key risk factors include diabetes, high blood cholesterol, and
high blood pressure. For example, according to the CDC, over 34 million adults have diabetes and according to Johns Hopkins Medicine,
those with diabetes are two to four times more likely to develop CVD. Alongside genetics, age, sex, and ethnicity, lifestyle factors such
as smoking, unhealthy diet, physical inactivity, and being overweight can also increase the risk for CVD.
In addition to the enormous morbidity and
mortality associated with CVD, the economic burden of CVD is also staggering as depicted in the figure below from the Cardiovascular Disease:
A Costly Burden For America, Projections Through 2035 report by the AHA. CVD is the costliest disease in the United States and the economic
burden associated with CVD is expected to continue to soar. According to the CDC Foundation, every year, one in six United States healthcare
dollars is expended on CVD.
The AHA reports that in 2016, the cost
of CVD was $555 billion and is expected to rise to over $1 trillion by 2035. Of the $555 billion, $318 billion was associated with medical
costs, and the remaining $237 billion with indirect costs such as lost productivity. By 2035, the medical costs associated with CVD are
expected to increase 135% to $749 billion, while the indirect costs are expected to rise by 55% to $368 billion. Currently, among the
various types of CVD, the medical costs of CHD are the highest at $89 billion and are expected to rise to $215 billion by 2035 as depicted
in the figure below from the Cardiovascular Disease: A Costly Burden For America, Projections Through 2035 report by the AHA.
To address this expected significant rise
in human health and economic burdens, the United States healthcare market is seeking more efficient and effective methods to better prevent
CVD. This same trend is playing out across developed nations around the globe as the burden of CVD continues to grow due to a rise in
major risk factors such as obesity, poor diet and Type 2 diabetes. This is consistent with the cardiovascular diagnostic testing market
trends reported by Research and Markets in their Outlook on the Cardiovascular Diagnostic Testing Global Market to 2027 - Increasing Number
of Insurance Providers Presents Opportunities press release published on July 4, 2022. They estimate that the Global Cardiovascular Diagnostic
Testing Market is estimated to grow from $8.47 billion in 2022 to $12.41 billion by 2027, with a CAGR of 7.94%.
There are several healthcare tailwinds
that are driving this expected growth and are expected to support the large-scale adoption of our solutions:
·
The aging population: According to the Population
Reference Bureau, by 2060, the number of Americans aged 65 and over is projected to more than double from 46 million to over 98 million.
This demographic shift will result in increased demand for healthcare services in general and for CVD specifically because the risk for
CVD increases with age. According to the AHA, the risk for CVD at age 24 is about 20% and more than doubles to 50% by age 45, with 90%
of those over the age of 80 having some form of CVD.
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·
The rise of chronic diseases: Chronic diseases
such as heart disease, cancer, and diabetes are rising in the United States. The rise of these conditions is further driven by less-than-ideal
lifestyle choices such as smoking, an unhealthy diet, and sedentary behavior. As a result, better predictive and diagnostic tools are
needed to get ahead of these conditions alongside the need for improved treatment and management of these conditions.
·
The shift to value-based care: The shift to
value-based care drives healthcare providers to focus on quality rather than quantity of care. The shift to value-based care is a crucial
driver of growth for Cardio because it incentivizes health care providers to focus on providing quality care rather than simply providing
more care. Cardio believes providers can tackle the costliest and deadliest disease category with its solutions while reducing costs.
·
The growth of telemedicine: Driven largely
by the COVID-19 pandemic, telemedicine is a growing trend in healthcare, as it allows patients to receive care from providers remotely.
Remote, telemedicine-based preventative programs and tests can serve those who are already undergoing routine screening, but more importantly,
expand reach to most Americans who currently are not receiving preventative healthcare, including rural and underserved populations.
our evidence-based solutions can be deployed remotely, which is expected to further drive adoption by patients and clinicians.
·
The adoption of Artificial Intelligence (AI): AI
is increasingly incorporated into many aspects of healthcare, including administrative tasks, diagnosis and treatment. AI has the potential
to improve the quality of care while reducing costs. Machine learning, which is a type of AI, is instrumental to our cutting-edge solutions,
powering their clinical performance and differentiating them from other technologies for CVD.
·
The rise of patient engagement: Thanks to technology, patients are becoming more engaged in their healthcare. They use online tools to research their conditions and treatments and are more likely to participate in their care. This includes demanding cutting-edge clinical tests that can help them better prevent chronic diseases such as CVD while improving the length and quality of life. As a result, healthcare providers and organizations that offer such services including our solutions are likely to have an edge over those who do not.
Our Strategy
·
Building compelling evidence. Our AI-driven Integrated Genetic-Epigenetic Engine™ enables rapid design, development, and launch of diagnostic solutions resulting from a decade of research studies. Our solutions that result from this technology, including our Epi+Gen CHD™ test for coronary heart disease risk assessment and PrecisionCHD™ for the early detection of coronary heart disease, were developed through rigorous studies that are peer-reviewed and published and others that are being prepared for peer-reviewed publication in collaboration with leading healthcare and research institutions. In addition to the superior sensitivity of the Epi+Gen CHD™ and PrecisionCHD™ tests, the evidence bases for the Epi+Gen CHD™ test also include an economic case to drive a more holistic and compelling argument for adoption. We plan to continue such studies including similar health economic studies for the PrecisionCHD™ test.
·
Engaging experts and key stakeholders. At Cardio, we understand that engaging experts and key healthcare stakeholders is critical to realizing our solutions’ full potential and ensuring that these solutions reach as many people as possible.
·
Prioritizing and executing strategic acquisitions. Our expertise at several intersections across biology, machine learning, lab assay development, and cardiovascular disease, provide an array of strategic acquisition opportunities to better serve the cardiovascular disease market by horizontally and vertically integrating the cardiac care continuum.
·
Prioritizing payor coverage. We believe that to continue to grow the market traction of our solutions, it would require pursuing additional payor coverage. We are engaging the appropriate experts, building necessary evidence, and have a roadmap in place for this. As part of this priority, we are pursuing pilots and strategic collaborations. We expect that it will take six to twelve months to engage additional payors.
·
Evaluating FDA pathway. Cardio is evaluating an FDA regulatory pathway to enable broader access to our tests.
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·
Targeting multiple revenue channels. To ensure that our revenue stream is diversified, Cardio has and will continue to target multiple revenue channels for which our solutions have compelling value propositions. This strategy includes, but is not limited to providers, health systems, and employers.
·
Launching synergistic products. To more fully address cardiovascular health, Cardio is leveraging our AI-driven Integrated Genetic-Epigenetic Engine™ to develop a series of clinical tests for major types of cardiovascular disease and associated co-morbidities, including coronary heart disease, stroke, congestive heart failure and diabetes. We have also started to develop additional synergistic products other than new clinical blood tests. Our first such product, HeartRisk™, is a cardiovascular risk intelligence platform, designed to augment our clinical blood tests.
Our Technology
At the core of Cardio is our proprietary
AI-driven Integrated Genetic-Epigenetic Engine™, an engine invented and built by three key employees/officers over the past decade.
Our technology enables rapid design, development and launch of new diagnostic solutions through the identification of robust integrated
genetic-epigenetic biomarkers and their translation into clinical tests for cardiovascular disease. This engine consists of multiple layers.
It begins with genome-wide genetic (single nucleotide polymorphisms or SNPs), genome-wide epigenetic (DNA methylation) and clinical data
points. Using high-performance computing, ML/AI techniques and deep domain expertise in medicine, molecular biology and engineering, a
panel of SNP-DNA methylation biomarkers and mined, modeled and translated into standalone laboratory assays.
As
a result, our products, which are clinical tests, consist of two components. The first is a laboratory component, which involves epigenetic
DNA biomarkers. Genetic biomarkers (“SNPs”) represent an individual’s inherited risk for the disease, have been reported
to drive less than 20% of the risk for cardiovascular disease (Hou, K et al, Aug
2019, Nature Genetics) and do not change with intervention ( i.e. , static). Epigenetic biomarkers (DNA methylation) represent an
individual’s acquired risk for the disease that is influenced by lifestyle and environment which is a larger driver for cardiovascular
risk compared to genetics, is largely confounded by genetics and has been shown to change over time with intervention or changes in one’s
lifestyle and environment ( i.e. , dynamic). The second is an analytical component, which involves
applying a proprietary interpretive predictive machine learning model to predict
risk and provide personalized insights to assist physicians in tailoring a prevention and care plan. The combination of biomarkers and
predictive machine learning model is unique to each clinical test we develop.
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Our Products and Services
We have and will continue to leverage our
AI-driven Integrated Genetic-Epigenetic Engine™ to develop a series of clinical tests for cardiovascular disease. As of March 2024,
we have leveraged this Engine to develop two clinical products: Epi+Gen CHD™ and PrecisionCHD™.
We believe that our first product, Epi+Gen
CHD™, is the first epigenetics-based clinical blood test capable of assessing near-term (three-year) risk for coronary heart disease
(“CHD”) and our second product, PrecisionCHD™, is the first epigenetics-based clinical blood test for the detection
of CHD.
Both Epi+Gen CHD and PrecisionCHD are accompanied
by our provider-only Actionable Clinical Intelligence™ platform, which maps a patient’s unique biomarker profile and other
information onto modifiable factors such as diabetes, hypertension, hypercholesterolemia and smoking, known to be critical drivers of
coronary heart disease.
CardioInnovate360™ is a research use only (RUO) solution we launched to support the discovery, development
and validation of novel biopharmaceuticals for the assessment and management of cardiovascular diseases.
Recently, we launched our first software
product, HeartRisk™. HeartRisk™ is a cardiovascular risk intelligence platform that combines insights from HIPAA-compliant
anonymized and aggregated clinical cardiovascular data obtained through our Epi+Gen CHD™ and PrecisionCHD™ clinical
blood tests, with industry and geographic data to enable real-time population-level cardiovascular disease (“CVD”) risk insights.
These insights are customized for the stakeholder implementing our clinical solutions.
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Clinicians’ Current Approach to Cardiovascular Disease
Currently, a patient’s risk for CVD
is generally assessed using two common lipid-based clinical tests known as Framingham Risk Score (FRS) and ASCVD Pooled Cohort Equation
(PCE). FRS and PCE are 10-year CVD risk calculators that aggregate common clinical variables such as cholesterol and diabetes, demographics
and subjective, self-reported information such as smoking status. For the early detection of CHD, tests that are routinely used in a provider
setting include stress echocardiograms. These tests have several limitations and are less effective for several reasons:
·
In a peer-reviewed published study by Cardio in collaboration with Intermountain Healthcare (Dogan, Meeshanthini & Knight, Stacey & Dogan, Timur & Knowlton, Kirk & Philibert, Robert. (2021). External validation of integrated genetic-epigenetic biomarkers for predicting incident coronary heart disease. Epigenomics. 13. 10.2217/epi-2021-0123), we found that for three-year coronary heart disease risk assessment, the average sensitivity of FRS and PCE was 44% in men and 32% in women. This means that for every 100 men and 100 women deemed "at-risk” for a coronary heart disease event, the test only correctly identifies 44 men and 32 women. Similar study was performed for PrecisionCHD that demonstrates its high sensitivity and is undergoing the process to be peer-reviewed and published.
·
In a peer-reviewed published study by Cardio in collaboration with Intermountain Healthcare and University of Iowa Hospitals and Clinics (Philibert, Robert & Dogan, Timur & Knight, Stacey & Ahmad, Ferhaan & Lau, Stanley & Miles, George & Knowlton, Kirk & Dogan, Meeshanthini. (2023). Validation of integrated genetic-epigenetic test for the assessment of coronary heart disease. Journal of American Heart Association. 12:e030934. DOI: 10.1161/JAHA.123.030934), we found that the overall average area under the curve, sensitivity, and specificity in three independent test cohorts for detecting coronary heart disease were 82%, 79%, and 76%, respectively.
·
The fasting requirement for current tests could be cumbersome for patients to comply, and the lack of fasting could affect test results.
·
The patient care plan that results from these tests generally lack personalization.
·
Lipid-based risk assessment tests depend on self-reported, subjective information such as smoking status from patients, and inaccurate information could affect the accuracy of test results.
·
Undergoing these tests requires an in-person clinic visit to collect blood samples and other necessary data points such as blood pressure, which may delay or prevent access to primary prevention, e.g., for those who are unable to make time for the visit, have transportation issues or live in rural areas are likely to delay primary prevention altogether. Similarly, to undergo a stress echocardiogram for instance, an in-person visit is required, and such a visit can take weeks to schedule that could delay care for patients especially if they are experiencing symptoms such as chest pain.
·
Risk assessment tests were also developed predominantly using data from men and therefore, may be less effective for women.
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Epi+Gen CHD™ is the Only Epigenetics-based Clinical
Test for Coronary Heart Disease Risk Assessment
Epi+Gen CHD™ is a scientifically backed
clinical blood test that is based on an individual’s objective genetic and epigenetic DNA biomarkers for assessing the three-year
risk for a coronary heart disease such as a heart attack. In a peer-reviewed study done in collaboration with Intermountain Healthcare
(Dogan, Meeshanthini & Knight, Stacey & Dogan, Timur & Knowlton, Kirk & Philibert, Robert. (2021). External validation
of integrated genetic-epigenetic biomarkers for predicting incident coronary heart disease. Epigenomics. 13. 10.2217/epi-2021-0123),
this test demonstrated a 76% and 78% sensitivity for men and women, respectively, for three-year CHD risk. This means that for every
100 men and 100 women deemed "at-risk” for a coronary heart disease event, the test correctly identifies 76 men and 78 women.
In comparison, the average sensitivity of the Framingham Risk Score and the ASCVD Pooled Cohort Equation was found to be 44% and 32%
for men and women, respectively. The performance of the test in this study was evaluated across two cohorts that were independent of
each other. One cohort was used for the development of this test and the other was used to independently validate the performance of
the test, showing Epi+Gen CHD™ to be approximately 1.7 times and 2.4 times more sensitive than the current lipid-based clinical
risk estimators in men and women, respectively. In another peer-reviewed study focusing on the cost utility of Epi+Gen CHD™ (Jung,
Younsoo & Frisvold, David & Dogan, Timur & Dogan, Meeshanthini & Philibert, Robert. (2021). Cost-utility analysis of
an integrated genetic/epigenetic test for assessing risk for coronary heart disease. Epigenomics. 13. 10.2217/epi-2021-0021), this test
was associated with up to $42,000 in cost savings per quality adjusted life year and improved survival compared to the ASCVD Pooled Cohort
Equation. In another peer-reviewed study, (Philibert, Willem & Andersen, Allan & Hoffman, Eric & Philibert, Robert &
Dogan, Meeshanthini. (2021). The reversion of DNA methylation at coronary heart disease risk loci in response to prevention therapy.
Processes. 9, 699. https://doi.org/10.3390/pr9040699), DNA methylation of this test was shown to change within 90 days of intervention
in the form of smoking cessation, demonstrating that this test could potentially also be leveraged to evaluate the effectiveness of interventions.
The blood-based version of this test was
introduced for market testing in 2021 The pricing of the test varies based on factors such as organization type and test volume. The price
of the test and revenue streams could change in the future depending on market forces and payor requirements, as well as on the customer
and the region in which the test is being sold. We are building additional clinical and health economics evidence to pursue payor coverage.
A key first step in expanding critical payor coverage is to have this test be assigned a CPT PLA code, and recently, the American Medical
Association awarded the Epi+Gen CHD™ a CPT PLA code, 0439U.
We believe that the Epi+Gen CHD™
test can benefit numerous healthcare stakeholders. For instance, we believe that this test will enable clinicians to identify patients
at-risk in the near-term for CHD-related events, including a heart attack and utilize actionable insights from this test to provide more
personalized care for their patients to help prevent the event and improve outcomes. These actionable insights are conveyed via our provider-only
Actionable Clinical Intelligence™ platform, which maps a patient’s unique biomarker profile and other information onto modifiable
factors such as diabetes, hypertension, hypercholesterolemia and smoking, known to be critical drivers of coronary heart disease. In addition
to clinicians, we believe that this test can enable healthcare organizations and payors to reduce the cost of care, and employers to understand
and manage business risks including healthcare costs. Insights for these stakeholders upon leveraging the Epi+Gen CHD™ test are
provided via our new software product, HeartRisk™, which is a cardiovascular risk intelligence platform. The pricing for this platform
will be customized based on the organization type and size.
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PrecisionCHD™ is the Only Epigenetics-based Clinical
Test for the Early Detection of Coronary Heart Disease
PrecisionCHD™ is a scientifically backed
clinical blood test that is based on an individual’s objective genetic and epigenetic DNA biomarkers for the detection of coronary
heart disease. In a peer-reviewed published study by Cardio in collaboration with Intermountain Healthcare and University of Iowa Hospitals
and Clinics (Philibert, Robert & Dogan, Timur & Knight, Stacey & Ahmad, Ferhaan & Lau, Stanley & Miles, George &
Knowlton, Kirk & Dogan, Meeshanthini. (2023). Validation of integrated genetic-epigenetic test for the assessment of coronary heart
disease. Journal of American Heart Association. 12:e030934. DOI: 10.1161/JAHA.123.030934), this test demonstrated an overall average
area under the curve, sensitivity, and specificity in three independent test cohorts for detecting coronary heart disease of 82%, 79%,
and 76%, respectively. The average sensitivity for men and women were 80% and 76%, respectively. This means that for every 100 men and
100 women deemed "to have” coronary heart disease, the test correctly identifies 80 men and 76 women. In comparison, the most
commonly used and least invasive test for detecting coronary heart disease, exercise ECG, has a sensitivity of only 58%. The performance
of the test in this study was evaluated across three cohorts that were independent of each other. One cohort was used for the development
of this test and the other two were used to independently validate the performance of the test, showing PrecisionCHD™ to be approximately
1.4 times and 1.3 times more sensitive than an exercise ECG in men and women, respectively, for detecting coronary heart disease. In
another peer-reviewed study, (Broyles, Damon & Philibert, Robert. (2023). Precision epigenetics provides a scalable pathway for improving
coronary heart disease care globally. Epigenomics. 10.2217/epi-2023-0233), the global scalability of PrecisionCHD was outlined in comparison
to commonly used coronary heart disease tests such as exercise ECG and CCTA. Similar to the Epi+Gen CHD™ test, a peer-reviewed
study was conducted to evaluate if the DNA methylation biomarkers of PrecisionCHD could be potentially leveraged to evaluate the effectiveness
of interventions. In this peer-reviewed study, (Philibert, Robert & Moody, Joanna & Philibert, Willem & Dogan, Meeshanthini
& Hoffman, Eric. (2023). The reversion of epigenetic signature of coronary heart disease in response to smoking cessation. Genes.
14, 1233. https://doi.org/10.3390/genes14061233), DNA methylation of this test was shown to change within 90 days of intervention in
the form of smoking cessation.
The blood-based version of this test was introduced for market testing in 2023. The pricing of the test
varies based on factors such as organization type and test volume. Recently, the American Medical Association awarded the PrecisionCHD™
a CPT PLA code, 0440U. The price of the test and revenue streams could change in the future depending on market forces and payor
requirements, as well as on the customer and the region in which the test is being sold. We are continuing to build clinical and health
economics evidence to pursue payor coverage.
We believe that the PrecisionCHD™
test can benefit numerous healthcare stakeholders. For instance, we believe that this test will enable clinicians to identify patients
with CHD with a simple blood test and utilize actionable insights from this test to provide more personalized care for their patients
to help improve outcomes. These actionable insights are conveyed via our provider-only Actionable Clinical Intelligence™ platform,
which maps a patient’s unique biomarker profile and other information onto modifiable factors such as diabetes, hypertension, hypercholesterolemia,
and smoking, known to be critical drivers of coronary heart disease. In addition to clinicians, we believe that this test can enable healthcare
organizations and payors to reduce the cost of care, and employers to understand and manage business risks including healthcare cost.
Insights for these stakeholders upon leveraging the PrecisionCHD™ test are provided via our new software product, HeartRisk™,
which is a cardiovascular risk intelligence platform. The pricing for this platform will be customized based on the organization
type and size. Cardio intends to accelerate the adoption of Epi+Gen CHD™ and PrecisionCHD™ by:
·
developing strategic clinical partnerships to reach as many patients as possible;
·
leveraging industry organizations to engage and educate providers;
·
launching a piloting program to for innovative providers and key strategic partners;
·
developing strategic partnerships with other healthcare stakeholders such as payors and employers; and
·
developing a customized customer portal to reduce transaction friction.
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Cardio foresees potential opportunities
to increase the gross margin of the Epi+Gen CHD™ and PrecisionCHD™ by:
·
establishing a laboratory to potentially reduce cost associated with processing samples;
·
processing patient samples in the laboratory in larger batches;
·
shipping sample collection kits in larger batches; and
·
increasing the level of automation to reduce manual processing.
FDA Pathway
We have completed a pre-submission with the
FDA pertaining to our PrecisionCHD product and have received feedback from the FDA on that submission. We may complete additional pre-submissions
to the FDA as we continue to evaluate FDA’s feedback and further develop our regulatory strategy. We have engaged outside expertise
for this process.
Product Pipeline
In March 2023, we announced the debut of the
PrecisionCHD™ test, our second clinical blood test for the detection of CHD. In May 2023, we launched CardioInnovate360™ a research-use-only
(RUO) solution to support the discovery, development and validation of novel biopharmaceuticals for the assessment and management of
cardiovascular diseases. In February 2024, we announced the launch of HeartRisk™, our first software product that is a cardiovascular
risk intelligence platform. We have several other tests in our product pipeline at various stages of development for congestive heart
failure, stroke and diabetes. However, as a company in the early stages of its development, we continuously reevaluate our business,
the market in which we operate and potential new opportunities. We may modify our product pipeline, seek other alternatives within the
healthcare field in order to grow the Company’s business and increase revenues. Such alternatives may include, but not be limited
to, combinations or strategic partnerships with other laboratory companies or with medical practices such as hospitalists or behavioral
health.
Our Market Opportunity
Cardiovascular disease (“CVD”)
is the leading cause of death in the United States, accounting for one in four deaths. Despite being largely preventable, the American
Heart Association projects that by 2035, nearly 45% of Americans will have some form of CVD. One of the key ways to address the prevalence
of CVD is to shift the approach for CVD from reactive treatment to proactive prevention and earlier detection. As such, technologies that
can more precisely assess the risk for and detect CVD before symptoms emerge or a catastrophic cardiac event occurs becomes even more
critical.
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According to Research and Markets in their
Outlook on the Cardiovascular Diagnostic Testing Global Market to 2027 - Increasing Number of Insurance Providers Presents Opportunities
press release published on July 4, 2022, the Global Cardiovascular Diagnostic Testing Market is estimated to grow from $8.47 billion in
2022 to $12.41 billion by 2027, with a CAGR of 7.94%. The increasing prevalence of cardiovascular diseases, technological advancements
in cardiovascular disease diagnostics, and the growing number of initiatives to promote cardiovascular disease testing are the major factors
driving the growth of this market.
Our principal mission is to enable better
detection of the presence and risk of major cardiovascular diseases through a series of clinical tests developed by leveraging our proprietary
AI-driven Integrated Genetic-Epigenetic Engine™. Our initial product, Epi+Gen CHD™, is a highly sensitive and accessible clinical
test for three-year coronary heart disease (“CHD”) risk assessment. Our second product, PrecisionCHD™, is a highly sensitive
and accessible clinical test for the detection of CHD.
Using data from the US Census Bureau, Cardio
estimates that 146 million adults would potentially benefit from our Epi+Gen CHD™ test, 157 million adults for our PrecisionCHD
test, 152 million adults for the congestive heart failure test, 153 million adults for the stroke test and 140 million adults for the
diabetes test. The pricing of each of our tests may vary, but the US addressable market equates to $51 billion for Epi+Gen CHD™,
assuming a pricing of $350/test, $134 billion for PrecisionCHD™, assuming a price of $850/test, $53 billion for congestive heart
failure, assuming a pricing of $350/test, $53 billion for stroke, assuming a pricing of $350/test and $49 billion for diabetes, assuming
a pricing of $350/test for a total US addressable market of $340 billion. This total addressable market evaluation also assumes that one
patient could be tested with multiple tests, and each test is administered to each patient a single time in a year although some patients
may benefit from being re-tested in less than a year.
Go-To-Market Strategy for Epi+Gen CHD™ and PrecisionCHD™
Our current go-to-market (“GTM”)
strategy is predominantly a product-led innovation growth strategy that emphasizes enterprise-wide adoption across key healthcare sub-verticals
with a particular emphasis on deeply centralized key opinion and health trend leaders like innovative providers, health systems, and employers.
This strategy is augmented with a bottom-up consumer-led sales focused on directly acquiring and retaining savvy and health-conscious
consumers interested in using the latest technologies to address their cardiovascular disease risk concerns.
Healthcare Sub-Vertical Priorities for Epi+Gen CHD™
and PrecisionCHD™
By assessing the risk for CHD early and/or
detecting CHD early to potentially avert a heart attack, we believe that the clinical and economic utility of the Epi+Gen CHD™ and
PrecisionCHD™ tests will support their commercial adoption. We believe that Epi+Gen CHD™ and PrecisionCHD™
can address a significant addressable market opportunity even before these tests are covered and reimbursed by payors. While we believe
that such coverage and reimbursement would be necessary to gain widespread adoption, obtaining such coverage and reimbursement from federal
and private payors may take several years, if it is obtained at all. We intend to focus on the following key channels as part of our GTM
strategy:
·
Innovative Health Systems
As innovative health systems diversify
their business models and care delivery pathways, there is a renewed emphasis on using precision medical technologies to better manage
expensive and chronic conditions, including CHD. By assessing the risk for CHD before a cardiac event, Epi+Gen CHD™ has the potential
to improve population health. We believe that the improved performance of our test compared to other risk calculators, coupled with evidence
of cost savings and enhanced survival, will drive the adoption of Epi+Gen CHD™ by health systems to continue improving the health
of their patients. Similarly, with PrecisionCHD™, innovative health systems are able to help test their patients detect CHD earlier
with a simple blood test, potentially leading to better patient outcomes.
·
Physician-Directed Channels, Including Concierge Practices
Early adoption is driven by practices committed
to innovation in medicine for patients who are more focused on preventive health and wellness and have the financial means to pay out-of-pocket
for concierge subscription services. There is a convergence in innovative providers, health-conscious consumers, and best-in-class tests
and technologies in concierge medicine practices to provide on-demand elite personalized and readily accessible healthcare. With an estimated
2,000 to 5,000 concierge practices in the United States, there is robust growth in high-end healthcare services with an equal demand for
innovative diagnostic tools. Additionally, concierge practices are not price-sensitive, so reimbursement is not a top priority.
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·
Employers
Early adoption in the employer space is
likely to be driven by self-insured employers and employers looking to provide employee perks relevant to health. Self-insured employers
are consistently seeking solutions to help manage their biggest cost centers such as heart disease. In a post-pandemic world, the health
and wellbeing of employees are also top-of-mind for many employers to ensure that their employees are healthy and productive. Employers
view healthcare investments as another investment in the business. Employers leveraging innovative diagnostic solutions can connect better
health for employees to drive overall business objectives and have a competitive advantage in managing business risks while attracting
and retaining talent.
·
Telemedicine and Marketplaces
Many Americans are concerned about being
proactive with their health needs. Understanding their personalized risk with tests at the forefront of medicine is crucial for those
with financial resources. According to the U.S. Census Bureau based on the 2020 census, there are nearly 44 million households that earn
$100,000 or more annually. We expect high-earning Americans who are proactive about their health to constitute the initial attainable
market.
Recent GTM Progress and Announcements
Since our last 10Q filing for the period
ending in September 30, 2023, we have announced several key milestones, initiatives and progress. Some of those include:
· Planned launch of a new lab and fulfillment center to expand testing capacity, reduce costs, reduce
turnaround time and improved margins.
· Entering into a Supply and Distribution Agreement with one of India’s premier organizations, Aimil
Ltd, to lay the pre-marketing groundwork via Aimil’s extensive healthcare network.
· Receiving an Innovative Technology Contract from Vizient, the largest group purchasing organization
with a customer base encompassing 60% of hospitals and 97% of academic medical centers in the US.
· Publication of a key peer-reviewed study on PrecisionCHD development and validation for the detection
of coronary heart disease in the Journal of American Heart Association.
· An agreement with Family Medicine Specialists to test at least 1,200 of their BlueCross BlueShield
and other health plan patients across four locations.
· Obtained two Current Procedural Terminology (CPT) Proprietary Laboratory Analysis (PLA) codes from the
American Medical Association, 0440U for PrecisionCHD and 0439U for Epi+Gen CHD.
· The launch of HeartRisk, a cardiovascular risk intelligence platform, initially for employers
to provide insights that combine HIPAA-compliant anonymized and aggregated clinical cardiovascular risk data with industry and geographic
data, with the aim of helping employers understand the cardiovascular risks in their workforce compared to population and industry benchmarks.
Sales and Marketing for Epi+Gen CHD™ and PrecisionCHD™
with a Focus on Strategic Channel Partnerships
While our overall sales and marketing initiatives
will span the gamut across traditional, print, and digital media, our primary sales and marketing strategy consists of the branding, collaboration,
co-marketing, and co-sales opportunities involved in strategic channel partnerships. By prioritizing strategic channel partnerships, we
believe we can accelerate our market penetration into the key healthcare sub-verticals we intend to prioritize for our growth. The key
to our efforts is a well-defined and executed channel partnership integration strategy that will serve to accelerate the sales cycles
for each of our distribution channels. The sales cycles are generally defined as the period in which such distribution channel will turn
over its inventory of our tests, which may vary for each distribution channel. Utilizing and developing such strategic channel partnerships,
we believe, will generate revenue in a myriad of ways including larger contracts for our Epi+Gen CHD ™ and PrecisionCHD™
clinical blood tests, and bundling our solutions alongside other synergistic technologies, services, and products.
Strategic channel partnerships are key
for the growth of our solutions. There are several key revenue and strategy benefits to developing a robust channel partnership strategy,
including:
·
Defensibility and Displacement
Strategic channel partners may have exclusivity
agreements for Epi+Gen CHD™ and PrecisionCHD™, which forecloses distribution channels to potential competitors.
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·
Distribution and Network Effects
Channel partners under consideration for
Epi+Gen CHD™ and PrecisionCHD™ strategic partnerships have large, related healthcare and life science networks that we expect
to leverage as part of the relationship.
·
Bi-Directional Value
The cardiovascular disease space is of paramount
concern to stakeholders across the healthcare continuum; the scale of the disease across the population and the associated costs ensures
that addressing cardiovascular disease from a payment, cost, patient outcome, and prevention standpoint for stakeholders across the spectrum.
·
Pricing Differentiation
The economics of each channel partnership
can be crafted independently to offer each strategic partner a per-unit cost relevant to the size of their network.
·
Complementary Goods
Bundling Epi+Gen CHD™, PrecisionCHD™,
HeartRisk™ and future Cardio solutions alongside complementary clinical, analytics, treatment pathways, and services-consulting
for primary prevention optimization with key partners expands the ROI of the investment in our solutions.
Hiring and Talent to Accelerate Growth
Our growth strategy will require investment
in internal and external healthcare enterprise sales, marketing and deep customer insights. By combining best-in-class revenue operations
technologies with seasoned healthcare sales and marketing experts, we believe we can quickly scale the selling approaches we have outlined
and validated to transform the cardiovascular healthcare experience, driving revenue and increased margins. New hires will be targeting
the entire continuum of revenue needs, including opportunity identification, campaign design, and execution.
Manufacture/Supply Chain
The content of the sample collections kits
for both Epi+Gen CHD™ and PrecisionCHD™ are identical, and we rely on third-party suppliers for kit contents required to collect
and transport a blood sample to the lab for processing. These are commonly used supplies that are and can be sourced from multiple distributors.
Upon sourcing these contents, they are assembled into lancet-based and vacutainer-based sample collection kits internally and fulfilled.
We intend to maintain an inventory of fully assembled kits to meet expected demand for at least six months. However, since there are no
particular or unique assembly protocols and assembly is handled internally, the lead time to assemble additional sample collection kits
would be minimal after the contents are sourced.
Proprietary genetic and DNA methylation
components are sourced from large manufacturers and manufactured under good manufacturing practices (“cGMP”). There are alternative
manufacturers for each of these components, and no additional lead time is expected. Laboratory assays that are manufactured under cGMP
to specifications are expected to be available to meet anticipated demand for at least six months.
Both the Epi+Gen CHD™ and PrecisionCHD™
clinical blood tests currently are offered as LDTs through an experienced laboratory with the appropriate Clinical Laboratory Improvement
Amendments of 1988 (“CLIA”) certification and state licensure. However, we are currently setting up an internal operational
hub that includes a CLIA laboratory. We anticipate completing this process in 2024. However, we are moving at a measured pace in order
to preserve resources, so the timing of completion of the internal CLIA laboratory could be delayed until 2025. We will continue to use
the services of our outside laboratory without interruption until our laboratory is operational.
Our Competitive Strengths
Innovation
is the key to success. In the rapidly moving cardiac diagnostics space, we believe that we have the team, differentiated technology, and
deep technical and business expertise to deliver a market differentiating suite of products for our customers to address unmet
clinical needs in the cardiovascular space and help us dominate our market.
The pillar of our strategy has been innovation,
from the onset with our technology development and intellectual property that account for future growth, to our commercialization and
partnership efforts that bring together key healthcare stakeholders.
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We believe that,
among other reasons, the future belongs to Cardio based on the following competitive strengths:
·
Technology and products are strongly backed by science.
Our
technology and products stem from over a decade of rigorous scientific research by the Founders in collaboration with other clinical and
research experts from leading organizations. Our founders are experts in machine learning approaches in healthcare and in epigenetics
with highly-cited peer-reviewed publications. The technology and products are developed and validated with extensive clinical data. The
key findings have been published after undergoing stringent independent third-party peer review.
·
Broad intellectual property portfolio protects our current and future products and their applications.
As
of March 2024, our patent portfolio includes five patent families, which encompasses issued patents in the U.S., United Kingdom, France,
Germany, Italy, Switzerland, Ireland, Hong Kong, Australia, China, and India, one allowed U.S. patent application, two pending PCT International
applications, and more than thirty patent applications pending worldwide, and which are generally directed to
methods and compositions for detecting biomarkers associated with cardiovascular disease and diabetes
for diagnosis and other applications. In addition, we have extensive trade secrets and know-how, including algorithms and assay designs,
that that are critical for the continued development and improvement of our current and future products.
·
Big data and artificial intelligence (machine learning) expertise drive future product development.
Our
expertise in processing billions of clinical genotypic, epigenetic and phenotypic data points
to generate critical insights allows us to continue to develop innovative products.
·
Proprietary cutting-edge AI-driven Integrated Genetic-Epigenetic Engine™ accelerates product development.
We
have built a proprietary AI-driven Integrated Genetic-Epigenetic Engine™ that is made up of layers of big data, our algorithms
informed by biology and its expert domain knowledge that was designed and built over the past decade
and can be leveraged to enable rapid design, development and launch of new diagnostic solutions.
·
Multiple potential product offerings with strong value propositions for key healthcare stakeholders.
We
have built a robust product pipeline for various types of cardiovascular disease and other indications that leverage our AI-driven Integrated
Genetic-Epigenetic Engine™ to continue to build market traction. We believe that our current and future products have
strong value propositions for various key stakeholders in healthcare. As a result, we believe that our customers will adopt and champion
our products.
·
Products that can potentially drive value in multiple ways.
We
believe that our tests are the first epigenetics-based clinical tests for heart disease. Unlike genetic biomarkers that are static, the
DNA methylation (epigenetic) biomarkers included in our products are generally dynamic. Therefore, DNA methylation biomarkers can change
over time and as a result, in addition to initial assessment , our products could potentially
be used to personalize interventions and help monitor the effectiveness of these interventions.
·
Commercial processes that are inherently scalable to meet demand.
Our
commercial pipeline is inherently scalable. Laboratory testing kits consist of easy to synthesize oligonucleotide products, readily available
PCR reagents, and can be kitted months in advance. Our lancet and vacutainer-based sampling kits incorporate readily available components
that can be sourced from several vendors. Our propriety algorithms can be scaled and automated to process data from thousands of samples.
In addition, the laboratory processes can be automated and scaled by adding existing commercial equipment.
·
A leadership team of seasoned healthcare professionals and executives that is led by a visionary founder.
Cardio is led by a management team with experience
in inventing innovative technologies, developing and commercializing clinical products, and building high growth companies.
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Competition
Even though we believe that our solutions
provide significant advantages over solutions that are currently available from other sources, we expect continued intense competition.
This includes companies that are entering the cardiovascular diagnostics market or existing companies that are looking to capitalize on
the same or similar opportunities as Cardio is in the clinical and non-clinical spaces. Some of our potential and current competitors
have longer operating histories and have, or will have, substantially greater financial, technical, research, and other resources than
we do, along with larger, more established marketing, sales, distribution, and service organizations. This could enable our competitors
to respond more quickly or efficiently than it can to capture a larger market share, respond to changes in the regulatory landscape or
adapt to meet new trends in the market. Having access to more resources, these competitors may undertake more extensive research and development
efforts, substantially reduce the time to introducing new technologies, accelerate key hires to drive adoption of their technologies,
deploy more far-reaching marketing campaigns and implement a more aggressive pricing policy to build larger customer bases than we have.
In some cases, we are competing for the same resources our customers allocate for purchasing cardiovascular diagnostics products or for
establishing strategic partnerships. We expect new competitors to emerge and the intensity of competition to increase. There is a likelihood
that our competitors may develop solutions that are similar ours and ones that could achieve greater market acceptance than ours. This
could attract customers away from our solutions and reduce our market share. To compete effectively, we must scale our organization and
infrastructure appropriately and demonstrate that our products have superior value propositions, cost savings, and clinical performance.
The clinical cardiovascular diagnostic
space is perhaps the most intensely competitive market space in clinical medicine. Even though we believe our solutions offer significant
advantages to existing methods, we expect alternative biomarker assessment approaches to continue to exist and to be developed. With respect
to coronary heart disease (CHD) risk assessment and early detection, our competitors use a variety of technologies including genetic,
serum lipid-based, imaging, proteomic and "people tracking” approaches.
Genetic testing, both whole genome and
more focused panel modalities, is the first type of biomarker assessment and is used by many clinicians to assess lifetime risk for CHD.
However, whereas the scientific tenets for this approach are generally accepted, it does not identify when the CHD might develop, and
we believe that the relative power of this method for predicting CHD as compared to its Epi+Gen CHD™ test is limited. In addition,
whereas the use of this test may divert revenues for testing, this approach is in some respects complementary, and it is conceivable that
some clinicians may elect to get both forms of testing to have a more holistic assessment of both short term and lifetime risk.
The best-known biomarker approach is that
embodied by the American Heart Association/American College of Cardiology Atherosclerotic Cardiovascular Risk Calculator (referred to
ASCVD risk calculator or Pooled Cohort Equation). This method integrates laboratory assessment of serum lipids, blood pressure and self-reported
health variables to impute 10-year risk for all forms of atherosclerotic cardiovascular disease (mainly CHD, but also stroke and peripheral
artery disease) using a standard algebraic equation. This is the most commonly used method of assessing CHD risk and enjoys general acceptance
by the medical community. It is perhaps the most direct competitor for our Epi+Gen CHD™ test. We believe that our test has superior
performance, does not require overnight fasting and will eventually provide greater information to the clinician than this current market
standard. In addition, we note that our test assesses risk over a three-year window rather than a 10-year window which it believes is
a more relevant period of time for patient management.
Imaging modalities are also used to assess
risk for and detect CHD. Perhaps the most commonly used imaging method for predicting risk for CHD is Coronary Artery Calcium (“CAC”)
screening. In this method, a low intensity computed tomography (“CT”) scan is taken of the heart. Then using this data, the
amount of calcium laden plaque is determined and the result used to assess 10-year risk for CHD. Strengths of this approach include the
general acceptance of the medical community. Weaknesses include the necessity of exposing patients to x-ray radiation and the inability
of the CAC test to monitor patient response. In many ways, this test competes with our test. At the same time, we note that this test
is not yet recommended as a primary method for screening low risk individuals, uses a longer risk assessment window, and could actually
be used as secondary testing to evaluate patients who are not found to be at low risk using Epi+Gen CHD™ or who are flagged for
CHD by the PrecisionCHD™ test.
Proteomic methods, as exemplified by serologic
assessments of individual proteins such as c-reactive protein or of entire protein panels, such as that for the HART CADhs or CVE tests
from Prevencio are another risk assessment tool. The CADhs test is a good example of a proteomic competitor and predicts the one-year
risk for having ≥70% stenosis in a major coronary artery while another Prevencio test HART CVE, predicts one year risk for individuals
at risk for developing a major adverse cardiovascular event. Important differences between our tests and their offerings include the window
of prediction (three-year vs one-year), the type of technology employed (AI-guided interpretation of genotype and methylation sensitive
digital PCR results compared to algorithm interpretation of results from Luminex bead immunoassays). Because we believe that digital PCR
based methods are more scalable testing solutions than Luminex bead platforms, we believe that our approach has an advantage.
Finally, researchers have described methods
to use wearable devices, such as the Huami wrist device, to predict risk for cardiovascular disease. Although people doubtlessly use these
and similar methods derived from wearable devices to assess risk, their exact clinical market penetrance is currently low, and whether
they would pose as a direct competitor for our test remains uncertain.
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However, the aforementioned is only a snapshot
of the current market space in which we currently compete and which we intend to compete in the future. Our intellectual property claims
include methods to develop tests for coronary heart disease, as well as incident and prevalent heart failure, stroke and diabetes. The
test for prevalent coronary heart disease, whose basis was published in 2018, is well underway, and we expect this test to become a strong
competitor for other methods of establishing current CHD, such as exercise treadmill testing, and for monitoring response to CHD treatment.
In summary, the cardiovascular diagnostic
space is extremely competitive and fast moving. We believe that the serum lipid, proteomic and to a certain extent, imaging-based modalities
are direct competitors for customers and enjoy both large existing market share and substantial financial backing. In addition, it is
clear that these existing alternative assessment strategies have significant degrees of scientific literature supporting their use, enjoy
backing from key medical constituencies for their use in certain circumstances, and have established strategies for obtaining third party
reimbursement. As the population ages, this competition is likely to increase. At the same time, we believe that there are important differences
between the current tests offered and our solutions with respect to clinical performance, window of clinical assessment, scalability,
capacity for assisting with interventions and response monitoring. However, the other technologies are not static, and we expect refinements
and/or combination of existing approaches to vigorously compete for customers in our business space. We will need to scale our efforts,
orient our organization appropriately and demonstrate that our products provide better value for our customers.
Intellectual Property
We have made broad pending intellectual property
(“IP”) claims with respect to the use of epigenetic and gene-methylation interactions for the assessment and monitoring of
cardiovascular disease, specifically coronary heart disease, congestive heart failure and stroke, as well as diabetes. Our portfolio falls
into five patent families. These patent applications have been filed in the United States and a number of foreign jurisdictions including
the European Union, Japan, India, Canada and China. In the U.S., Patent No. 11,414,704, titled Compositions and Methods for Detecting
Predisposition to Cardiovascular Disease, was issued in 2022 to the University of Iowa Research Foundation (“UIRF”), the co-inventors
of which are Dr. Dogan and Dr. Philibert, our Chief Executive Officer and Chief Medical Officer, respectively. This patent family also
includes issued patents in Europe, China, Australia, India, a notice of allowance in the US, and a number of other pending applications.
We have a worldwide exclusive license agreement with UIRF. Under UIRF’s Inventions Policy, inventors are generally entitled to 25%
of income from earnings from their inventions. Consequently, Dr. Dogan and Dr. Philibert will benefit from this policy.
Our issued and pending patents cover general
methods as well as key technological steps that enable these core approaches while facilitating the continued patenting of material included
in the patent applications. In addition to the technology licensed from UIRF, we have other patent applications pending relating to improvements
to our technology, which are potentially valuable and of possible strategic importance to the Company. We expect to continue to file new
patent applications to protect additional products and methodologies as they emerge.
The initial work on our AI-driven Integrated
Genetic-Epigenetic Engine™ is derived from work done by our founders while at the University of Iowa. Follow-on work on our core
technology also is derived from work done by our founders while at the University of Iowa but was furthered by our founders and Cardio’s
Chief Technology Officer independent of the University of Iowa. The follow-on work is described in our second, third, fourth and fifth
families of patent applications.
The initial work is described in the first
family of patents and patent applications and is generally directed to a number of single nucleotide polymorphism (“SNP”)
biomarkers and a number of methylation site biomarkers that are associated with the presence or the early onset of a number of cardiovascular
diseases. The first family of patents and patent applications is owned solely by UIRF and is exclusively licensed by Cardio. As of March
2024, this family includes eleven granted patents, one soon-to-be issued patent (received notice of allowance), and seven pending patent
applications. Any and all patents issuing in this family will be solely owned by UIRF and, barring any changes to the UIRF exclusive license
agreement, will fall under the exclusive license to Cardio.
The first family is generally directed to biomarkers
associated with cardiovascular disease. This family includes issued patents in the US, United Kingdom, France, Germany, Italy, Switzerland,
Ireland, Hong Kong, Australia, China and India, an allowed application in the U.S., and pending applications in Australia, Canada, China,
Europe, Hong Kong, and Japan. The issued claims in the US, Australia, China and India are directed to methods and/or compositions (e.g.,
kits) for determining the methylation status of at least one CpG dinucleotide and the genotype of at least one single-nucleotide polymorphism
(SNP) that use or include at least one primer for detecting the presence or absence of methylation in a particular region of the genome
(referred to as cg12586707) and at least one primer for detecting the presence or absence of a SNP in a particular region of the genome
(referred to as rs11597065). The issued claims in the EP patent are similarly directed to compositions (e.g., a kit) for determining the
methylation status of at least one CpG dinucleotide and a genotype of at least one SNP that includes at least one primer that detects
the presence or absence of methylation in a particular region of the genome (referred to as cg26910465) and at least one primer that detects
a SNP in a particular region of the genome (referred to as rs10275666) or another SNP in linkage disequilibrium with the first SNP. The
allowed claims in the U.S. are directed to methods for determining the methylation status of at least one CpG dinucleotide and the genotype
of at least one SNP that includes at least one primer that detects the presence or absence of methylation in a particular region of the
genome (referred to as cg11964099) and at least one primer that detects a SNP in a particular region of the genome (referred to as rs9988960).
This family of patents is in-licensed under an exclusive license agreement with UIRF, and is expected to expire in 2037, absent any applicable
patent term adjustments or extensions.
17
The second family is generally directed to
biomarkers associated with diabetes. This family includes pending applications in the U.S., Australia, United Arab Emirates, Canada, China,
Europe, Hong Kong, India, Japan, Saudi Arabia, and Singapore, with claims directed to compositions (e.g., a kit) that include at least
one primer for determining the methylation status of at least one CpG dinucleotide from a group of five different methylation sites, or
a different CpG dinucleotide in linkage disequilibrium with one of the listed CpG dinucleotides, and at least one primer for determining
the genotype of at least one SNP from a group of five different SNPs, or a different SNP in linkage disequilibrium with one of the listed
SNPs. The pending applications also include claims to methods of determining the presence of biomarkers associated with diabetes, claims
to a computer-readable medium for performing such methods, and claims to a system for determining the methylation status of at least one
CpG dinucleotide and the genotype of at least one SNP. This family is co-owned by Cardio Diagnostics and UIRF, and the UIRF-owned portion
is in-licensed under the same exclusive license agreement as the first family. Patents issuing from this second family are expected to
expire in 2041, absent any applicable patent term adjustments or extensions.
The second family of patent applications is
co-owned by UIRF and Cardio, since Cardio expanded on and further refined some of the original research that was done at the University
of Iowa. The ownership of any and all patents that ultimately issue in this family will depend on the specific subject matter that is
claimed in each issued patent. For example, depending upon the specific biomarkers claimed and when those biomarkers were identified ( e.g .,
during the initial work at the University of Iowa or during the follow-on work at Cardio), ownership could lie solely with UIRF or Cardio,
or ownership could be shared between UIRF and Cardio ( e.g ., if a claimed biomarker was initially identified at the University of
Iowa and its significance with respect to diabetes was further refined by Cardio; or if one of the claimed biomarkers was identified at
the University of Iowa and another one of the claimed biomarkers was identified at Cardio).
The third family is generally directed to biomarkers
associated with predicting a three-year incidence of cardiovascular disease. This family includes applications pending in the U.S., Australia,
United Arab Emirates, Canada, China, Europe, Hong Kong, India, Japan, Saudi Arabia, and Singapore, with claims directed to compositions
(e.g., a kit) that include at least one primer for determining the methylation status of at least one CpG dinucleotide from a group of
three different methylation sites, or a different CpG dinucleotide in linkage disequilibrium with one of the listed CpG dinucleotides,
and at least one primer for determining the genotype of at least one SNP from a group of five different SNPs, or a different SNP in linkage
disequilibrium with one of the listed SNPs. The pending applications also include claims to methods of determining the presence of biomarkers
associated with three-year incidence of cardiovascular disease, claims to a computer-readable medium for performing such methods, and
claims to a system for determining the methylation status of at least one CpG dinucleotide and the genotype of a SNP. This family of patents
is owned exclusively by Cardio Diagnostics. Patents issuing from this third family are expected to expire in 2041, absent any applicable
patent term adjustments or extensions.
The fourth family is generally directed to
computer resources (e.g., a dashboard) designed by Cardio Diagnostics for use by their stakeholders (e.g., patients, physicians, researchers,
insurance companies, etc.). The computer resources are designed to provide results as well as information and context related to Cardio
Diagnostics tests and the specific biomarkers that are used. The pending claims are directed to methods of displaying relevant information
including genetic marker test results as well as probability analysis (based on, e.g., the population, age, and/or gender of patients),
and hyperlinks to relevant literature. The pending application also includes claims to computer-readable media containing instructions
for performing such methods and computer systems for executing such instructions. This family currently includes an International PCT
application and is solely owned by Cardio Diagnostics. Patents issuing from this fourth family are expected to expire in 2044, absent
any applicable patent term adjustments or extensions.
The
fifth family is generally directed to biomarkers associated with detecting cardiovascular disease. The pending claims are directed to
compositions (e.g., a kit) that include at least one primer for determining the methylation status of at least one CpG dinucleotide from
a group of six different methylation sites, or a different CpG dinucleotide in linkage disequilibrium with one of the listed CpG dinucleotides,
and at least one primer for determining the genotype of at least one SNP from a group of ten different SNPs, or a different SNP in linkage
disequilibrium with one of the listed SNPs. The pending application also includes claims to methods of determining the presence of biomarkers
associated with detecting cardiovascular disease, claims to a computer-readable medium for performing such methods, and claims to a system
for determining the methylation status of at least one CpG dinucleotide and the genotype of a SNP. This family currently includes an
International PCT application, a U.S. utility application, and an Indian application .
Patents issuing from this fifth family are expected to expire in 2044, absent any applicable patent term adjustments or extensions.
The
Exclusive License Agreement entered into with UIRF and those licenses granted under that license agreement terminate on the expiration
of the patent rights licensed under the license agreement, unless certain proprietary, non-patented technical information is still being
used by Cardio, in which case the license agreement will not terminate until the date of termination of such use. The licenses under
the license agreement could terminate prior to the expiration of the licensed patent rights if we materially breach our obligations under
the license agreement, including failing to pay the applicable license fees and any interest on such fees, and failing to fully remedy
such breach within the period specified in the license agreement, or if we enter liquidation, have a receiver or administrator appointed
over any assets related to the license agreement, or if we cease to carry on business, file for bankruptcy or if an involuntary bankruptcy
petition is filed against the Cardio
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Additionally, we have considerable IP in
the form of trade secrets, including bioinformatics and high-performance computing techniques and artificial intelligence and machine
learning algorithms used to identify genetic and epigenetic biomarkers for various products and to interpret genetic and epigenetic data
from patient samples to generate clinically actionable information, as well as the methods to develop new methylation sensitive assays.
We protect our proprietary information, which includes, but is not limited to, trade secrets, know-how, and copyrights. Our
future success depends on protecting that knowledge, obtaining trademarks on our products, copyright on key materials, and avoiding infringing
on the IP rights of others. Where appropriate, we will assess the operating space and acquire licenses for critical technologies that
we do not possess or cannot create. We continue to invest in technological innovation and will seek mutualistic and symbiotic licensing
opportunities to promote and maintain our competitive position.
In order to provide our products, we currently
use a variety of third party technologies including, for example, genotyping, digital methylation assessment and data processing technologies.
The terms of these agreements for the non-exclusive use of these technologies are subject to change without notice and could affect our
ability to deliver our solutions. In addition, from time to time, we may face claims from third parties asserting ownership of, or demanding
release of, the open-source software or derivative works that we developed using such software (which could include our proprietary source
code), or otherwise seeking to enforce the terms of the applicable open-source license. These claims could result in litigation that could
be costly to defend, have a negative effect on our operating results and financial condition or require us to devote additional research
and development resources to change our existing or future solutions. Responding to any infringement or noncompliance claim by an open-source
vendor, regardless of its validity, discovering certain open-source software code in our products, or a finding that we have breached
the terms of an open-source software license, could harm our business, results of operations and financial condition. In each case, we
would be required to either seek licenses to software or services from other parties and redesign our products to function with such other
parties’ software or services or develop these components internally, which would result in increased costs and could result in
delays to product launches. Furthermore, we might be forced to limit the features available in our current or future solutions.
Government Regulation
The laboratory testing and healthcare industry
and the practice of medicine are extensively regulated at both the state and federal levels, and additionally, the practice of medicine
is similarly extensively regulated by the various states. our ability to operate profitably will depend in part upon its ability, and
that of its vendor partners, to maintain all necessary licenses and to operate in compliance with applicable laws and rules. Those laws
and rules continue to evolve, and therefore we devote significant resources to monitoring relevant developments in FDA, CLIA, healthcare
and medical practice regulation. Those laws and rules include, but are not limited to, ones that govern the regulation of clinical laboratories
in general and the regulation of LDTs in particular. As discussed below, legislation has been introduced in Congress that, if enacted,
would substantially alter federal regulation of diagnostic tests, including LDTs. As the applicable laws and rules change, we are likely
to make conforming modifications in our business processes from time to time. In many jurisdictions where we operate, neither our current
nor our anticipated business model has been the subject of judicial or administrative interpretation. We cannot be assured that a review
of our business by courts or regulatory authorities will not result in determinations that could adversely affect our operations or that
the laboratory and healthcare regulatory environment will not change in a way that restricts our operations.
State and Federal Regulatory Issues
Clinical Laboratory Improvement Amendments
of 1988 and State Regulation
Clinical laboratories are required to hold
certain federal and state licenses, certifications and permits to conduct our business. As to federal certifications, in 1988, Congress
passed the Clinical Laboratory Improvement Amendments of 1988, or (“CLIA”), establishing more rigorous quality standards for
all commercial laboratories that perform testing on human specimens for the purpose of providing information for the diagnosis, prevention,
or treatment of disease or the assessment of the health of human beings. CLIA requires such laboratories to be certified by the federal
government and mandates compliance with various operational, personnel, facilities administration, validation, quality and proficiency
testing requirements intended to ensure the accuracy, reliability and timeliness of patient test results. CLIA certification is also a
prerequisite to be eligible to bill state and federal healthcare programs, as well as many commercial third-party payers, for laboratory
testing services. The Centers for Medicare & Medicaid Services (“CMS”) regulates laboratories that perform testing on
individuals in the U.S. through CLIA.
Laboratories must comply with all applicable
CLIA requirements. If a clinical laboratory is found not to comply with CLIA standards, the government may impose sanctions, limit or
revoke the laboratory’s CLIA certificate (and prohibit the owner, operator or laboratory director from owning, operating, or directing
a laboratory for two years following license revocation), subject the laboratory to a directed plan of correction, on-site monitoring,
civil monetary penalties, civil actions for injunctive relief, criminal penalties, or suspension or exclusion from the Medicare and Medicaid
programs.
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CLIA provides that a state may adopt laboratory
licensure requirements and regulations that are more stringent than those under federal law and requires compliance with such laws and
regulations. New York State in particular, has implemented its own more stringent laboratory regulatory requirements. State laws may require
the laboratory to obtain state licensure and/or laboratory personnel to meet certain qualifications, specify certain quality control procedures
or facility requirements, or prescribe record maintenance requirements. Moreover, several states impose the same or similar state requirements
on out-of-state laboratory testing specimens collected or received from, or test results reported back to, residents within that state.
Therefore, the laboratory is required to meet certain laboratory licensing requirements for those states in which we offer services or
from which we accept specimens and that have adopted regulations beyond CLIA. For more information on state licensing requirements, see
"— California Laboratory Licensing,” "— New York Laboratory Licensing” and "— Other State
Laboratory Licensing Laws.”
California Laboratory Licensing
In addition to federal certification requirements
for laboratories under CLIA, the laboratory is required under California law to maintain a California state license and comply with California
state laboratory laws and regulations. Similar to the federal CLIA regulations, the California state laboratory laws and regulations establish
standards for the operation of a clinical laboratory and performance of test services, including the education and experience requirements
of the laboratory director and personnel (including requirements for documentation of competency), equipment validations, and quality
Management practices. All testing personnel must maintain a California state license or be supervised by licensed personnel.
Clinical laboratories are subject to both routine
and complaint-initiated on-site inspections by the state. If a clinical laboratory is found to be out of compliance with California laboratory
standards, the California Department of Public Health (“CDPH”), may suspend, restrict or revoke the California state laboratory
license to operate the clinical laboratory (and exclude persons or entities from owning, operating, or directing a laboratory for two
years following license revocation), assess civil money penalties, and/or impose specific corrective action plans, among other sanctions.
Clinical laboratories must also provide notice to CDPH of any changes in the ownership, directorship, name or location of the laboratory.
Failure to provide such notification may result in revocation of the state license and sanctions under the CLIA program. Any revocation
of a CLIA certificate or exclusion from participation in Medicare or Medicaid programs may result in suspension of the California state
laboratory license.
New York Laboratory Licensing
We currently do not conduct tests on specimens
originating from New York State. In order to test specimens originating from, and return results to New York State, a clinical laboratory
is required to obtain a New York state laboratory permit and comply with New York state laboratory laws and regulations. The New York
state laboratory laws, regulations and rules are equal to or more stringent than the CLIA regulations and establish standards for the
operation of a clinical laboratory and performance of test services, including education and experience requirements of a laboratory director
and personnel, physical requirements of a laboratory facility, equipment validations, and quality Management practices. The laboratory
director(s) must maintain a Certificate of Qualification issued by the New York State Department of Health (“NYS DOH”) in
the permitted test categories.
A clinical laboratory conducting tests on specimens
originating in New York is subject to proficiency testing and on-site survey inspections conducted by the Clinical Laboratory Evaluation
Program (“CLEP”) under the NYS DOH. If a laboratory is found to be out of compliance with New York’s CLEP standards,
the NYS DOH, may suspend, limit, revoke or annul the New York laboratory permit, censure the holder of the license or assess civil money
penalties. Statutory or regulatory noncompliance may result in a laboratory’s operator, owners and/or laboratory director being
found guilty of a misdemeanor under New York law. Clinical laboratories must also provide notice to CLEP of any changes in ownership,
directorship, name or location of the laboratory. Failure to provide such notification may result in revocation of the state license and
sanctions under the CLIA program. Any revocation of a CLIA certificate or exclusion from participation in the Medicare or Medicaid programs
may result in suspension of the New York laboratory permit.
The NYS DOH also must approve each LDT
before that test is offered to patients located in New York.
Other State Laboratory Licensing Laws
In addition to New York and California,
certain other states require licensing of out-of-state laboratories under certain circumstances. We have obtained licenses in the states
that we believe require us to do so and believe we are in compliance with applicable state laboratory licensing laws, including Maryland
and Pennsylvania. We currently do not conduct tests on specimens originating from Rhode Island.
Potential sanctions for violation of state
statutes and regulations can include significant monetary fines, the rejection of license applications, the suspension or loss of various
licenses, certificates and authorizations, and in some cases criminal penalties, which could harm our business. CLIA does not preempt
state laws that have established laboratory quality standards that are more stringent than federal law.
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Laboratory-Developed Tests
The FDA generally considers an LDT to be a
test that is designed, manufactured, and used within a single laboratory that is certified under CLIA and meets the regulatory requirements
under CLIA to perform high complexity testing. LDTs are performed using a variety of laboratory instruments and reagents and may also
incorporate FDA-authorized in vitro diagnostics (“IVDs”) that the laboratory modifies in some way and validates for its new
use. The FDA has historically taken the position that it has the authority to regulate LDTs as medical devices under the Federal Food,
Drug and Cosmetic Act (“FDC Act”), but it has generally exercised enforcement discretion with regard to LDTs. This means that
even though the FDA believes it can impose regulatory requirements on LDTs, such as requirements to obtain premarket approval, de novo
authorization, or 510(k) clearance of LDTs, it has generally chosen not to enforce those requirements to date. Although FDA has generally
exercised enforcement discretion for LDTs, the FDA has stated it retains discretion to require compliance with premarket when FDA deems
it appropriate to address significant public health concerns.
In September 2023, the FDA announced a
proposed regulation that would, if adopted, alter the FDA’s historical exercise of enforcement discretion for LDTs by classifying
LDTs as medical devices. The proposed regulation would subject LDTs to a more stringent regulatory framework, including premarket
clearance or approval requirements, quality system regulations (“QSR”), and post-market surveillance obligations. Failure
to comply with these and other FDA regulations could result in legal actions, including fines and penalties. The FDA has indicated
it plans to finalize the proposed rule in the second quarter of 2024, though it is uncertain whether the FDA will finalize the proposed
rule on this timeline or at all or whether there would be litigation challenging the final rule.
Legislative
proposals addressing the FDA’s oversight of LDTs have been previously introduced. In March 2020, the Verifying Accurate, Leading-edge
IVCT Development (“VALID”) Act of 2020 was introduced in the Senate, which proposed a risk-based regulatory framework
for IVDs and LDTs and required premarket approval for some in vitro clinical tests. The VALID Act was reintroduced in
June 2021 and again most recently in March 2023; the prospects for enactment are uncertain. In March 2020, the Verified Innovative Testing
in American Laboratories (“VITAL”) Act of 2020 was introduced in the Senate, which would expressly shift the regulation of
LDTs from FDA to CMS. The VITAL Act was reintroduced in May 2021, and has not since been reintroduced. Neither statute has been enacted.
As mentioned above, separately, CMS oversees clinical laboratory operations through the CLIA program.
Regulation by the U.S. Food and Drug
Administration
Should the FDA decide to no longer exercise enforcement
discretion for LDTs, LDTs would be subject to extensive regulation as medical devices under the FDC Act and its implementing regulations,
which govern, among other things, medical device development, testing, labeling, storage, premarket clearance or approval, advertising
and promotion and product sales and distribution. To be commercially distributed in the United States, medical devices, including some
collection devices used to collect samples for testing, and certain types of software, must receive from the FDA prior to marketing, unless
subject to an exemption, clearance of a premarket notification (“510(k) clearance”), premarket approval (“PMA”),
or a de novo authorization.
IVDs are a type of medical device that are
intended to be used in the diagnosis or detection of diseases or conditions, including a determination of the state of health, through
collection, preparation and examination of specimens taken from the human body. IVDs may be used to detect the presence of certain chemicals,
genetic information or other biomarkers related to diagnosis or detection of diseases or conditions. IVDs may include tests for disease
prediction, prognosis, diagnosis, and screening.
The FDC Act classifies medical devices into
one of three categories based on the risks associated with the device and the level of control necessary to provide reasonable assurance
of safety and effectiveness. Class I devices are deemed to be low risk and are subject to the fewest regulatory controls. Many Class I
devices are exempt from FDA premarket review requirements. Class II devices, including some software products to the extent that they
qualify as a device, are deemed to be moderate risk, and generally require clearance through the premarket notification, or 510(k) clearance,
process. Class III devices are generally the highest risk devices and are subject to the highest level of regulatory control to provide
reasonable assurance of the device's safety and effectiveness. Class III devices typically require a PMA by the FDA before they are marketed.
A clinical trial is almost always required to support a PMA application or de novo authorization and is sometimes required for 510(k)
clearance. All clinical studies of investigational devices must be conducted in compliance with any applicable FDA and Institutional Review
Board requirements. Devices that are exempt from FDA premarket review requirements must nonetheless comply with post-market general controls
as described below, unless the FDA has indicated otherwise.
510(k) clearance pathway. To obtain
510(k) clearance, a manufacturer must submit a premarket notification demonstrating to the FDA’s satisfaction that the new device
is substantially equivalent to a “predicate device.” A predicate device is a legally marketed device to which a new device
may be compared to for a determination regarding substantial equivalence. A legally marketed device is a device that was previously 510(k)-cleared,
a device that received de novo authorization, or a device that was in commercial distribution before May 28, 1976 for which the FDA has
not called for submission of a PMA application. The FDA’s 510(k) clearance pathway usually takes from three to 12 months from submission,
but it can take longer, particularly for a novel type of product.
PMA pathway. The PMA pathway requires
proof of the safety and effectiveness of the device to the FDA’s satisfaction. The PMA pathway is costly, lengthy, and uncertain.
A PMA application must provide extensive preclinical and clinical trial data as well as information about the device and its components
regarding, among other things, device design, manufacturing, and labeling. As part of its PMA review process, the FDA will typically
inspect the manufacturer’s facilities for compliance with QSR requirements, which impose extensive testing, control, documentation,
and other quality assurance procedures. The PMA review process typically takes one to three years from submission but can take longer.
De novo pathway. If no predicate device
can be identified, a device is automatically classified as Class III, requiring a PMA application. However, the FDA can reclassify, either
on its own initiative or in response to a request for de novo classification, for a device for which there was no predicate device if
the device is low- or moderate-risk. If the device is reclassified as Class II, the FDA will identify special controls that the manufacturer
must implement, which may include labeling, testing, performance standards, or other requirements. Subsequent applicants can rely upon
the de novo device as a predicate for a 510(k) clearance, unless the FDA exempts subsequent devices from the need for a 510(k). The de
novo route is intended to be less burdensome than the PMA process.
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Post-market general controls. After a device,
including a device exempt from FDA premarket review, is placed on the market, numerous regulatory requirements apply. These include: the
QSR, labeling regulations, registration and listing, the Medical Device Reporting regulation (which requires that manufacturers report
to the FDA if their device may have caused or contributed to a death or serious injury or malfunctioned in a way that would likely cause
or contribute to a death or serious injury if it were to recur), and the Reports of Corrections and Removals regulation (which requires
manufacturers to report to the FDA corrective actions made to, or removal of, products in the field, if such actions were initiated to
reduce a risk to health posed by the device or to remedy a violation of the FDC Act which may present a health risk). Depending on the
severity of the legal violation that led to correction or removal, the FDA may classify the manufacturer’s action as a recall.
The FDA enforces compliance with its requirements
through inspection and market surveillance. If the FDA finds a violation, it can institute a wide variety of actions, ranging from an
untitled or warning letter sent to manufacturers to enforcement actions such as fines, injunctions, and civil penalties; recall or seizure
of products; operating restrictions, partial suspension or total shutdown of production; refusing requests for 510(k) clearance or PMA
approval of new products; withdrawal of PMAs already granted; and criminal prosecution.
The FDA has become increasingly
active in addressing the regulation of software used to support clinical decision making. In 2016, the 21st Century Cures Act,
(the “Cures Act”), among other things, amended the medical device definition in the FDC Act to exclude certain software from
FDA regulation, including clinical decision support (“CDS software”) that meets certain criteria. CDS software is exempt
from the medical device definition if it: (a) displays, analyzes or prints medical information about a patient or other medical information;
(b) is intended for the purpose of supporting or providing recommendations about a patient’s care to a health care professional,
(“HCP”), user; and (c) provides sufficient information about the basis for the recommendations to the HCP user, so that the
HCP user does not rely primarily on any of the recommendations to make a clinical decision about an individual patient; unless (d) the
software function acquires, processes, or analyzes a medical image, a signal from an in vitro diagnostic device, or a pattern or signal
from a signal acquisition system.
On September 28, 2022, the FDA issued a final guidance document interpreting the Cures Act as it pertains
to CDS software. Among other views expressed, the final guidance stated that software functions that assess or interpret the clinical
implications or clinical relevance of a signal or pattern, such as those that process or analyze an electrochemical or photometric response
generated by an assay and instrument to generate a clinical test result, are not exempt from medical device regulation. The final
guidance also stated that software functions that generate risk probabilities or risk scores are not exempt because they provide a specific
diagnostic, preventive, or treatment output.
Corporate Practice of Medicine; Fee-Splitting
We contract with various healthcare companies
to deliver services to patients. This contractual relationship is subject to various state laws, including those of New York, Texas and
California, that prohibit fee-splitting or the practice of medicine by lay entities or persons and are intended to prevent unlicensed
persons from interfering with or influencing the physician’s professional judgment. In addition, various state laws also generally
prohibit the sharing of professional services income with nonprofessional or business interests. Activities other than those directly
related to the delivery of healthcare may be considered an element of the practice of medicine in many states. Under the corporate practice
of medicine restrictions of certain states, decisions and activities such as scheduling, contracting, setting rates and the hiring and
management of non-clinical personnel may implicate the restrictions on the corporate practice of medicine.
State corporate practice of medicine and
fee-splitting laws vary from state to state and are not always consistent among states. In addition, these requirements are subject to
broad powers of interpretation and enforcement by state regulators. Some of these requirements may apply to any telemedicine company or
provider organization we contract with. Failure to comply with regulations could lead to adverse judicial or administrative action against
us and/or the providers we work with, civil or criminal penalties, receipt of cease-and-desist orders from state regulators, loss of provider
licenses, the need to make changes to the terms of engagement with any telemedicine company or provider organization we contract with
that interfere with our business and other materially adverse consequences.
Federal and State Fraud and Abuse
Laws
Healthcare Laws Generally
The federal Health Insurance Portability
and Accountability Act of 1996, as amended by the Health Information Technology for Economic and Clinical Health Act, or HITECH, and their
implementing regulations, which is collectively referred to as HIPAA, established several separate criminal penalties for making false
or fraudulent claims to insurance companies and other non-governmental payors of healthcare services. Under HIPAA, these two additional
federal crimes are: "Healthcare Fraud” and "False Statements Relating to Healthcare Matters.” The Healthcare Fraud
statute prohibits knowingly and recklessly executing a scheme or artifice to defraud any healthcare benefit program, including private
payors. A violation of this statute is a felony and may result in fines, imprisonment or exclusion from government-sponsored programs.
The False Statements Relating to Healthcare Matters statute prohibits knowingly and willfully falsifying, concealing or covering up a
material fact by any trick, scheme or device or making any materially false, fictitious or fraudulent statement in connection with the
delivery of or payment for healthcare benefits, items or services. A violation of this statute is a felony and may result in fines or
imprisonment. This statute could be used by the government to assert criminal liability if a healthcare provider knowingly fails to refund
an overpayment. These provisions are intended to punish some of the same conduct in the submission of claims to private payors as the
federal False Claims Act covers in connection with governmental health programs.
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In addition, the Civil Monetary Penalties
Law imposes civil administrative sanctions for, among other violations, inappropriate billing of services to federally funded healthcare
programs and employing or contracting with individuals or entities who are excluded from participation in federally funded healthcare
programs. Moreover, a person who offers or transfers to a Medicare or Medicaid beneficiary any remuneration, including waivers of co-payments
and deductible amounts (or any part thereof), that the person knows or should know is likely to influence the beneficiary’s selection
of a particular provider, practitioner or supplier of Medicare or Medicaid payable items or services may be liable for civil monetary
penalties of up to $10,000 for each wrongful act. Moreover, in certain cases, providers who routinely waive copayments and deductibles
for Medicare and Medicaid beneficiaries can also be held liable under the Anti-Kickback Statute and civil False Claims Act, which can
impose additional penalties associated with the wrongful act. One of the statutory exceptions to the prohibition is non-routine, unadvertised
waivers of copayments or deductible amounts based on individualized determinations of financial need or exhaustion of reasonable collection
efforts. The OIG emphasizes, however, that this exception should only be used occasionally to address special financial needs of a particular
patient. Although this prohibition applies only to federal healthcare program beneficiaries, the routine waivers of copayments and deductibles
offered to patients covered by commercial payers may implicate applicable state laws related to, among other things, unlawful schemes
to defraud, excessive fees for services, tortious interference with patient contracts and statutory or common law fraud.
Federal Stark Law
We are subject to the federal self-referral
prohibitions, commonly known as the Stark Law. Where applicable, this law prohibits a physician from referring Medicare patients to an
entity providing "designated health services” if the physician or a member of such physician’s immediate family has a
"financial relationship” with the entity, unless an exception applies. The penalties for violating the Stark Law include the
denial of payment for services ordered in violation of the statute, mandatory refunds of any sums paid for such services, civil penalties
of up to $15,000 for each violation and twice the dollar value of each such service and possible exclusion from future participation in
the federally-funded healthcare programs. A person who engages in a scheme to circumvent the Stark Law’s prohibitions may be fined
up to $100,000 for each applicable arrangement or scheme. The Stark Law is a strict liability statute, which means proof of specific intent
to violate the law is not required. In addition, the government and some courts have taken the position that claims presented in violation
of the various statutes, including the Stark Law can be considered a violation of the federal False Claims Act (described below) based
on the contention that a provider impliedly certifies compliance with all applicable laws, regulations and other rules when submitting
claims for reimbursement. A determination of liability under the Stark Law could have a material adverse effect on our business, financial
condition and results of operations.
Federal Anti-Kickback Statute
We are also subject to the federal Anti-Kickback
Statute. The Anti-Kickback Statute is broadly worded and prohibits the knowing and willful offer, payment, solicitation or receipt of
any form of remuneration in return for, or to induce, (i) the referral of a person covered by Medicare, Medicaid or other governmental
programs, (ii) the furnishing or arranging for the furnishing of items or services reimbursable under Medicare, Medicaid or other
governmental programs or (iii) the purchasing, leasing or ordering or arranging or recommending purchasing, leasing or ordering of
any item or service reimbursable under Medicare, Medicaid or other governmental programs. Certain federal courts have held that the Anti-Kickback
Statute can be violated if "one purpose” of a payment is to induce referrals. In addition, a person or entity does not need
to have actual knowledge of this statute or specific intent to violate it to have committed a violation, making it easier for the government
to prove that a defendant had the requisite state of mind or "scienter” required for a violation. Moreover, the government
may assert that a claim including items or services resulting from a violation of the Anti-Kickback Statute constitutes a false or fraudulent
claim for purposes of the False Claims Act, as discussed below. Violations of the Anti-Kickback Statute can result in exclusion from Medicare,
Medicaid or other governmental programs as well as civil and criminal penalties, including fines of $50,000 per violation and three times
the amount of the unlawful remuneration. Imposition of any of these remedies could have a material adverse effect on our business, financial
condition and results of operations. In addition to a few statutory exceptions, the U.S. Department of Health and Human Services Office
of Inspector General, or OIG, has published safe-harbor regulations that outline categories of activities that are deemed protected from
prosecution under the Anti-Kickback Statute provided all applicable criteria are met. The failure of a financial relationship to meet
all of the applicable safe harbor criteria does not necessarily mean that the particular arrangement violates the Anti-Kickback Statute.
However, conduct and business arrangements that do not fully satisfy each applicable safe harbor may result in increased scrutiny by government
enforcement authorities, such as the OIG.
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False Claims Act
Both federal and state government agencies
have continued civil and criminal enforcement efforts as part of numerous ongoing investigations of healthcare companies and their executives
and managers. Although there are a number of civil and criminal statutes that can be applied to healthcare providers, a significant number
of these investigations involve the federal False Claims Act. These investigations can be initiated not only by the government but also
by a private party asserting direct knowledge of fraud. These "qui tam” whistleblower lawsuits may be initiated against any
person or entity alleging such person or entity has knowingly or recklessly presented, or caused to be presented, a false or fraudulent
request for payment from the federal government or has made a false statement or used a false record to get a claim approved. In addition,
the improper retention of an overpayment for 60 days or more is also a basis for a False Claim Act action, even if the claim was
originally submitted appropriately. Penalties for False Claims Act violations include fines ranging from $5,500 to $11,000 for each false
claim, plus up to three times the amount of damages sustained by the federal government. A False Claims Act violation may provide the
basis for exclusion from the federally-funded healthcare programs. In addition, some states have adopted similar fraud, whistleblower
and false claims provisions.
State Fraud and Abuse Laws
Several states in which we operate have
also adopted similar fraud and abuse laws as described above. The scope of these laws and the interpretations of them vary from state
to state and are enforced by state courts and regulatory authorities, each with broad discretion. Some state fraud and abuse laws apply
to items or services reimbursed by any third-party payor, including commercial insurers, not just those reimbursed by a federally-funded
healthcare program. A determination of liability under such state fraud and abuse laws could result in fines and penalties and restrictions
on our ability to operate in these jurisdictions.
State and Federal Health Information Privacy and Security
Laws
There are numerous U.S. federal and state
laws and regulations related to the privacy and security of personally identifiable information, or PII, including health information.
In particular, HIPAA establishes privacy and security standards that limit the use and disclosure of protected health information, or
PHI, and require the implementation of administrative, physical, and technical safeguards to ensure the confidentiality, integrity and
availability of individually identifiable health information in electronic form. Since the effective date of the HIPAA Omnibus Final Rule
on September 23, 2013, HIPAA’s requirements are also directly applicable to the independent contractors, agents and other "business
associates” of covered entities that create, receive, maintain or transmit PHI in connection with providing services to covered
entities. Although Cardio is a covered entity under HIPAA, Cardio is also a business associate of other covered entities when Cardio is
working on behalf of our affiliated medical groups.
Violations of HIPAA may result in civil
and criminal penalties. The civil penalties range from $100 to $50,000 per violation, with a cap of $1.5 million per year for violations
of the same standard during the same calendar year. However, a single breach incident can result in violations of multiple standards.
Cardio must also comply with HIPAA’s breach notification rule. Under the breach notification rule, covered entities must notify
affected individuals without unreasonable delay in the case of a breach of unsecured PHI, which may compromise the privacy, security or
integrity of the PHI. In addition, notification must be provided to the HHS and the local media in cases where a breach affects more than
500 individuals. Breaches affecting fewer than 500 individuals must be reported to HHS on an annual basis. The regulations also require
business associates of covered entities to notify the covered entity of breaches by the business associate.
State attorneys general also have the
right to prosecute HIPAA violations committed against residents of their states. While HIPAA does not create a private right of action
that would allow individuals to sue in civil court for a HIPAA violation, its standards have been used as the basis for the duty of care
in state civil suits, such as those for negligence or recklessness in misusing personal information. In addition, HIPAA mandates that
HHS conduct periodic compliance audits of HIPAA covered entities and their business associates for compliance. It also tasks HHS with
establishing a methodology whereby harmed individuals who were the victims of breaches of unsecured PHI may receive a percentage of the
Civil Monetary Penalty fine paid by the violator. In light of the HIPAA Omnibus Final Rule, recent enforcement activity, and statements
from HHS, we expect increased federal and state HIPAA privacy and security enforcement efforts.
HIPAA also required HHS to adopt national
standards establishing electronic transaction standards that all healthcare providers must use when submitting or receiving certain healthcare
transactions electronically. On January 16, 2009, HHS released the final rule mandating that everyone covered by HIPAA must implement
ICD-10 for medical coding on October 1, 2013, which was subsequently extended to October 1, 2015 and is now in effect.
Many states in which we operate and in
which patients reside also have laws that protect the privacy and security of sensitive and personal information, including health information.
These laws may be similar to or even more protective than HIPAA and other federal privacy laws. For example, the laws of the State of
California, in which we operate, are more restrictive than HIPAA. Where state laws are more protective than HIPAA, we must comply with
the state laws we are subject to, in addition to HIPAA. In certain cases, it may be necessary to modify our planned operations and procedures
to comply with these more stringent state laws. Not only may some of these state laws impose fines and penalties upon violators, but also
some, unlike HIPAA, may afford private rights of action to individuals who believe their personal information has been misused. In addition,
state laws are changing rapidly, and there is discussion of a new federal privacy law or federal breach notification law, to which we
may be subject.
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In addition to HIPAA, state health information
privacy and state health information privacy laws, we may be subject to other state and federal privacy laws, including laws that prohibit
unfair privacy and security practices and deceptive statements about privacy and security and laws that place specific requirements on
certain types of activities, such as data security and texting.
In recent years, there have been a number
of well-publicized data breaches involving the improper use and disclosure of PII and PHI. Many states have responded to these incidents
by enacting laws requiring holders of personal information to maintain safeguards and to take certain actions in response to a data breach,
such as providing prompt notification of the breach to affected individuals and state officials. In addition, under HIPAA and pursuant
to the related contracts that we enter into with our business associates, we must report breaches of unsecured PHI to our contractual
partners following discovery of the breach. Notification must also be made in certain circumstances to affected individuals, federal authorities
and others.
State Privacy Laws
Various states have enacted laws governing
the privacy of personal information collected and used by businesses online. For example, California adopted the California Consumer Privacy
Act of 2018 ("CCPA”), which went into effect on January 1, 2020 and was recently amended by the California Privacy Rights Act
of 2020 which significantly modified the CCPA in ways that affect businesses. This law, in part, requires that companies make certain
disclosures to consumers via their privacy policies, or otherwise at the time the personal data is collected. We will have to determine
what personal data it is collecting from individuals and for what purposes, and to update its privacy policy every 12 months to make the
required disclosures, among other things.
Employees and Human Capital Resources
As of April 1, 2024, we had seven
full-time employees and two part-time employees. Three of our employees hold Ph.D. or M.D. degrees. We also engage contractors and
consultants from time to time. None of our employees are represented by a labor union or covered under a collective bargaining
agreement.
Our human capital resources objectives include,
identifying, recruiting, retaining, incentivizing and integrating our existing and additional employees into our collaborative culture.
Our compensation program is designed to retain, motivate and attract highly qualified executives and talented employees and consultants.
We are committed to fostering a culture that supports diversity and an environment of mutual respect, equity and collaboration that helps
drive our business and our mission to become one of the leading medical technology companies for enabling improved prevention, detection,
treatment and management of cardiovascular disease.
Corporation Information
Our corporate headquarters is located at 311
West Superior Street, Suite 444, Chicago IL 60654. Our telephone number is (855) 226-9991 and our website address is cardiodiagnosticsinc.com.
The information contained on, or that can be accessed through, our website is not incorporated by reference in this Annual Report on Form
10-K and does not form a part of this Annual Report on Form 10-K. The reference to our website address does not constitute incorporation
by reference of the information contained at or available through our website, and you should not consider it to be a part of this registration
statement.
Emerging Growth Status
We are an “emerging growth company , ”
as defined in Section 2(a) of the Securities Act, as modified by the Jumpstart Our Business Startups Act of 2012 (the “JOBS
Act”), and we may 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 of 2002, as amended (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.
Further, Section 102(b)(1) of the JOBS
Act exempts emerging growth companies from being required to comply with new or revised financial accounting standards until private companies
(that is, those that have not had a registration statement under the Securities Act declared effective or do not have a class of securities
registered under the Securities Exchange Act of 1934, as amended the “Exchange Act”), are required to comply with the new
or revised financial accounting standards. The JOBS Act provides that a company can elect to opt out of the extended transition period
and comply with the requirements that apply to non-emerging growth companies but any such an election to opt out is irrevocable.
We have elected not to opt out of such extended transition period which means that when a standard is issued or revised and it has different
application dates for public or private companies, we, as an emerging growth company, can adopt the new or revised standard at the time
private companies adopt the new or revised standard. This may make comparison of our financial statements with another public company
which is neither an emerging growth company nor an emerging growth company which has opted out of using the extended transition period
difficult or impossible because of the potential differences in accounting standards used.
We will remain an emerging growth company until
the earlier of (1) the last day of the fiscal year (a) following the fifth anniversary of the completion of the IPO, (b) in
which we have total annual gross revenue of at least $1.07 billion, or (c) in which we are deemed to be a large accelerated
filer, which means the market value of our Common Stock held by non-affiliates equaled or exceeded $700 million as of the
prior June 30, and (2) the date on which we have issued more than $1.0 billion in non-convertible debt securities
during the prior three-year period.
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Additionally, we are a “smaller reporting
company” as defined in Item 10(f)(1) of Regulation S-K. Smaller reporting companies may take advantage of certain reduced
disclosure obligations, including, among other things, providing only two years of audited financial statements. We will remain a smaller
reporting company until the last day of the fiscal year in which (1) the market value of our Common Stock held by non-affiliates
equaled or exceeded $250 million as of the end of the prior June 30th, or (2) our annual revenues equaled or exceeded $100 million
during such completed fiscal year and the market value of our Common Stock held by non-affiliates equaled or exceeded $700 million
as of the prior June 30th.
Available Information
We are required to file Annual Reports on Form
10-K and Quarterly Reports on Form 10-Q with the SEC on a regular basis, and are required to disclose certain material events in a Current
Report on Form 8-K. The SEC maintains an Internet website that contains reports, proxy and information statements and other information
regarding issuers that file electronically with the SEC. The SEC’s Internet website is located at www.sec.gov. In addition, the
Company will provide copies of these documents without charge upon request from us in writing at 311 West Superior Street, Suite 444,
Chicago IL 60654.