ACLARION, INC. 10-K
Table of Contents
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_________________
FORM 10-K
_________________
☒ ANNUAL REPORT PURSUANT TO SECTION 13
OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2023.
or
☐ TRANSITION REPORT PURSUANT TO SECTION
13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from
to
Commission File Number: 001-41358
ACLARION, INC.
(Exact name of registrant as specified in its charter)
(Address of principal executive offices) (Zip Code)
Registrant’s telephone number, including
area code (833)275-2266
Securities registered pursuant to Section 12(b)
of the Act:
Title of each class Trading Symbol(s) Name of each exchange on which registered
Common Stock, par value $0.00001 per share ACON The Nasdaq Stock Market LLC
Indicate by check mark if the registrant is a
well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐ No ☒
Indicate by check mark if the registrant is not
required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ☐ No ☒
Indicate by check mark whether the registrant
(1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12
months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements
for the past 90 days. Yes ☐ No ☒
Indicate by check mark whether the registrant
has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405
of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐
Indicate by check mark whether the registrant
is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company.
See the definitions of “large accelerated filer,” “accelerated filer”, “smaller reporting company”,
and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer ☐ Accelerated filer ☐
Non-accelerated filer ☒ Smaller reporting company ☒
Emerging growth company ☒
If an emerging growth company, indicate by check
mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting
standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant
has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial
reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or
issued its audit report. ☐
If securities are registered pursuant to Section
12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the correction
of an error to previously issued financial statements. ☒
Indicate by check mark whether any of those error
corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the registrant’s
executive officers during the relevant recovery period pursuant to §240.10D-1(b).
☐
Indicate by check mark whether the registrant
is a shell company (as defined in Rule 12b-2 of the Act). Yes ☐ No ☒
As of June 30, 2023, the last business day of
the registrant’s most recently completed second fiscal quarter, the aggregate market value of the registrant’s common stock
held by non-affiliates of the registrant was approximately $4,672,826 based on a closing price of $0.69 per share as quoted by the Nasdaq
Capital Market as of such date. In determining the market value of non-affiliate common stock, shares of the registrant’s common
stock beneficially owned by officers, directors and affiliates have been excluded. This determination of affiliate status is not necessarily
a conclusive determination for other purposes.
As of March 28, 2024, 7,153,500 shares of the
registrant’s common stock, $0.0001 par value per share, were outstanding.
TABLE OF CONTENTS
PART I
ITEM 1. Business 6
ITEM 1A. Risk Factors 34
ITEM 1B. Unresolved Staff Comments 80
ITEM 1C. Cybersecurity 80
ITEM 2. Properties 81
ITEM 3. Legal Proceedings 81
ITEM 4. Mine Safety Disclosures 81
PART II
ITEM 6. [Reserved] 83
ITEM 7A. Quantitative and Qualitative Disclosures About Market Risk 90
ITEM 8. Financial Statements and Supplementary Data 90
ITEM 9A. Controls and Procedures 121
ITEM 9B. Other Information 122
ITEM 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections 122
PART III
ITEM 10. Directors, Executive Officers and Corporate Governance 123
ITEM 11. Executive Compensation 131
ITEM 14. Principal Accountant Fees and Services 139
PART IV
ITEM 15. Exhibit and Financial Statement Schedules 141
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Annual Report on Form 10-K, or Annual Report,
contains forward-looking statements that involve risks and uncertainties. We make such forward-looking statements pursuant to the safe
harbor provisions of the Private Securities Litigation Reform Act of 1995 and other federal securities laws. All statements other than
statements of historical facts contained in this Annual Report are forward-looking statements. In some cases, you can identify forward-looking
statements by terminology such as “may”, “will”, “should”, “expects”, “intends”,
“plans”, “anticipates”, “believes”, “estimates”, “predicts”, “potential”,
“continue” or the negative of these terms or other comparable terminology.
Forward-looking statements are neither historical
facts nor assurances of future performance, and are based only on our current beliefs, expectations and assumptions regarding the future
of our business, future plans and strategies, projections, anticipated events and trends, the economy and other future conditions. Because
forward-looking statements relate to the future, they are subject to inherent uncertainties, risks and changes in circumstances that are
difficult to predict and many of which are outside of our control. Therefore, you should not rely on any of these forward-looking statements.
Important factors that could cause our actual results and financial condition to differ materially from those indicated in the forward-looking
statements include, among others, those set forth below in Part I, Item 1A, “Risk Factors” of this Annual Report.
These forward-looking statements speak only as
of the date of this Form 10-K and are subject to business and economic risks. We do not undertake any obligation to update or revise the
forward-looking statements to reflect events that occur or circumstances that exist after the date on which such statements were made,
except to the extent required by law.
MARKET AND INDUSTRY
DATA
Certain of the market data and other statistical
information contained in this Annual Report, such as the size, growth and share of the services industry, are based on information from
independent industry organizations and other third-party sources, industry publications, surveys and forecasts. The size of the market
information referenced in this Annual Report is based on articles published in the Journal of the American Medical Association (“JAMA”).
Some market data and statistical information contained in this Annual Report are also based on our management’s estimates and calculations,
which we derived from our review and interpretation of the independent sources, our internal market and brand research and our knowledge
of the industries in which we operate. While we believe that each of these studies and publications is reliable, neither we nor the underwriters
have independently verified market or industry data from third-party sources and the Company is responsible for such disclosure.
We also believe our internal company research is reliable and the definitions of our market and industry are appropriate, though neither
this research nor these definitions have been verified by any independent source. Information that is based on estimates, forecasts, projections
or similar methodologies is inherently subject to uncertainties, and actual events or circumstances may differ materially from events
and circumstances that are assumed in this information.
Although we are not aware of any misstatements
regarding the industry data that we present in this prospectus, our estimates involve risks and uncertainties and are subject to change
based on various factors, including those discussed under “Risk Factors,” “Forward-Looking Statements,” and
“Management’s Discussion and Analysis of Financial Condition and Results of Operations” in this Annual Report.
Our company name was changed from “Nocimed,
Inc.”, to “Aclarion, Inc.” on December 3, 2021. NOCIMED® -, NOCISCAN® -, NOCIGRAM®, NOCISCORE®TM
-, NOCICALCTM - MRS NOCI+TM - NOCI-TM -, NOCImildTM -NOCIWEBTM - SI-SCORETM, VIRTUAL DISCOGRAMTM -
and the Nocimed logo are our trademarks. All other service marks, trademarks and trade names appearing in this Annual Report are the property
of their respective owners. We do not intend our use or display of other companies’ trade names, trademarks or service marks to
imply a relationship with, or endorsement or sponsorship of us by, these other companies. Solely for convenience, trademarks and tradenames
referred to in this prospectus may appear without the ® or TM symbols, but such references are not intended to indicate
in any way that we will not assert, to the fullest extent under applicable law, our rights, or that the applicable owner will not assert
its rights, to these trademarks and tradenames. Unless the context otherwise requires, we use the terms “Nocimed,” “Company,”
“we,” “us” and “our” in this prospectus to refer to Aclarion, Inc.
GLOSSARY
Unless otherwise indicated
or the context otherwise requires, references in this Annual Report to the term:
“AI”
means Artificial Intelligence.
“Category I
Codes” means numeric codes that identify a procedure or service that is approved by the Food and Drug Administration (FDA),
performed by healthcare professionals nationwide, and is proven and documented.
“Category III
Codes” are CPT Category III codes that are a set of temporary codes assigned to emerging technologies, services, and procedures.
“CE mark” is
an administrative marking with which a manufacturer or importer affirms its products are in conformity with European health, safety, and
environmental protection standards for products sold within the European Economic Area (EEA).
"Covered Entity”
is a health care provider or other person or entity who acquires and transmits private health information of patients, as covered under
HIPAA and GDPR regulations (see e.g. 45 CFR §160.103).
“CPT”
means “Current Procedural Terminology”, and refers to a medical code set created and maintained by the American Medical Association
(“AMA”) and used by providers of healthcare services to bill insurance companies for their work. All new medical devices and
services are required to secure CPT codes to receive payment from government and private commercial payers.
“CT-Scan”
means a computerized tomography (CT) scan combines a series of X-ray images taken from different angles around the body and uses computer
processing to create cross-sectional images (slices) of the bones, blood vessels and soft tissues inside the body. CT scan images
provide more-detailed information than plain X-rays do.
“Cures Act” means the 21st
Century Cures Act, signed into law on December 13, 2016, as Public Law No: 114-255.
“Disc” means an intervertebral
disc which is made of a gel-like material (nucleus pulposus) surrounded by a thick fibrous ring (annulus fibrosus) is situated between
the vertebral bodies of the spine.
“DLBP”
means Discogenic Low Back Pain
“DOC” means “Declaration
of Conformity,” a document signed by us that declares that we have self-complied with applicable regulations for self-certifying
our CE Marking for our products.
“Fusion” means “Spinal
Fusion” which is surgery to permanently connect two or more vertebrae in the spine, eliminating motion between them.
"GDPR”
means the General Data Protection Regulation in the EU, originally effective May 25, 2018 and implemented in all local privacy laws across
the EU and EEA region, to protect a patient’s personally identifiable information (PII) and regulate how it must be collected, stored,
and used by others, and in certain situations applies concurrently with HIPAA requirements with respect to PII that is PHI for persons
located in the EU and received by companies or other persons or entities in the US.
“IRB”
means Institutional Review Board, which is typically an appointed board for reviewing and approving investigational clinical trials.
“Indications
for Use” means the limited scope of the intended uses and related medical indications for appropriately using our products.
“LBP”
means Lower Back Pain.
“Labeling”
means the scope of intended “Indications for Use” that is identified with the commercial sale and use of our products.
“Lumbar Spine”
means the five (5) lower vertebrae, L-1 to L-5.
“MR”
means Magnetic Resonance.
“MRI”
means Magnetic Resonance Imaging.
“MRS”
means Magnetic Resonance Spectroscopy and is a type of pulse sequence used by MR scanners that, unlike MRI pulse sequences which generate
images of tissue structures, generates a ‘spectrum’ with various peaks that represent different chemicals in the body tissue
being examined, and which allows for the quantitative measurement of the relative amounts of those chemicals in the examined tissues.
“Notified Body”
means an organization designated by an EU country to assess the conformity of certain products before being placed on the market, as is
required for certain medical products.
“NIH”
means the United States National Institutes of Health.
“PD TEST”
means a Provocation Discogram test which is a diagnostic test meant to confirm or exclude the intervertebral disc(s) as a source of back
pain. This technique involves puncture of the disc with a fine-gauge needle under fluoroscopic guidance and pressurization of the disc
via the injection of contrast media.
“PMA”
means Premarket Approval by the FDA.
"QMS”
means Quality Management System, which is a formalized system that documents processes, procedures, and responsibilities for achieving
quality policies and objectives, in particular to meet customer and regulatory requirements.
“DICOM” means an acronym for
digital image communication, typically referring to standardized data architecture formats for managing, storing, and communicating or
transferring MRI images and other associated data.
“Disc” means intervertebral
disc that is located between two vertebral body bones of the spine, where it is bordered by superior and inferior disc end-plate structures,
and comprises an inner disc nucleus between the two end-plates and that is a circumferentially surrounded by, and normally contained by,
and outer disc annulus that is normally a fibrous collagen-based connective tissue structure.
“Spectroscopy” means the science
of deriving and evaluating a multi-peak spectrum for a material and in which different molecular bonds representing different components
of the material are represented by unique respective peaks at particular locations along the spectra, and with the different peaks typically
reflecting different resonant frequencies of the different components when subjected to a pulsed magnetic field; and in our current product,
relates to producing and evaluating spectra for the different chemical constituents of disc tissue as derived from MR pulse sequences
applied to those tissues for that chemical analysis.
PART I
Item 1. Business
Overview
Aclarion is a healthcare technology company that
leverages Magnetic Resonance Spectroscopy (“MRS”), and proprietary biomarkers to optimize clinical treatments. Aclarion’s
technology addresses the $134.5B U.S. low back and neck pain market, which according to a 2020 JAMA (Journal of the American Medical Association)
article is now the most costly healthcare condition in the United States. The Company is currently utilizing Artificial Intelligence (“AI”)
to assist in quality control processes that flag spectroscopy data indicative of a poor MRS study. The use of AI in this application is
early in its development cycle and is expected to evolve with further research and development. The Company is capturing in databases
both the raw spectroscopy data and the post-processed spectral data from every Nociscan completed in order to utilize this data as future
training data to teach a machine learning algorithms to associate MRS data with clinical outcomes. The use of AI in this application is
aspirational and we intend this type of AI research and development to be an ongoing process applied not only to the various treatment
paths associated with back pain, such as conservative therapies, regenerative and cell therapies and surgical intervention, but also to
potentially expand into other clinical explorations involving the diagnosis of brain, breast and prostate tumors.
The Company, which has limited sales to date,
is addressing the chronic low back pain market by initially focusing on improving the outcomes of surgical interventions to treat chronic
discogenic low back pain. In this initial application, Aclarion technology is intended to assist surgeons in determining the optimal surgical
procedure for a patient undergoing surgery for pain isolated to their lumbar spine (the “lumbar spine” is comprised of the
five (5) lower vertebrae, L-1 to L-5). Through clinical studies we intend to extend the application of our technology beyond surgical
decisioning to help with managing large segments of low back pain patients from the point of initial MRI through to episode resolution.
We believe this will expand the use of our technology to supporting treatment decisions for chronic low back pain patients undergoing
conservative therapies such as physical therapy or biologic and cell therapies aimed at regenerating the lumbar discs. We plan to expand
the application of our technology beyond the lumbar spine to address neck pain populations in addition to low back pain populations. To
expand the application of our technology for use in neck pain populations, we will need to overcome technical changes associated with
securing adequate MRS data from the cervical disc, which is significantly smaller than the lumbar disc, and there can be no assurance
the Company will be able to overcome these challenges.
The core technology Aclarion employs is MR Spectroscopy.
The patient experience when undergoing an MRS exam is exactly like that of a standard MRI, with the exception of an additional 3-5 minutes
for each disc undergoing a spectroscopy exam. Whereas a standard MRI produces a signal that is converted into anatomical images, an MRS
produces a signal that is converted into a waveform that identifies the chemical composition of tissues. Just like with standard MRIs,
the data from spectroscopy is useless without technologies that can process the data. Aclarion has developed proprietary signal processing
software that transforms spectroscopy data into clear biomarkers. These biomarkers, which are exclusively licensed from the Regents of
University of California, San Francisco (“UCSF”), are the key data inputs for our proprietary algorithms that, when applied,
determine if an intervertebral disc is consistent with pain. Our patent portfolio includes 22 U.S. Patents, 17 Foreign Patents, 6 pending
U.S. patent applications, and 7 pending Foreign patent applications, including patents and patent applications exclusively licensed from
Regents of the University of California.
We believe one of the biggest issues driving the
cost of treating low back and neck pain patients to the top of the list for healthcare spending is that there is no objective, cost effective
and noninvasive diagnostics to reliably identify the source of a patient’s pain. We believe the poor surgical outcomes for chronic
DLBP are largely due to difficulties in reliably and accurately diagnosing the specific spinal discs that are causing pain. The current
primary diagnostic standard is the MRI, which is useful for showing abnormal structures and tissue dehydration, but, we believe, cannot
reliably identify specific discs that are causing pain. To diagnose specific discs that are causing pain, a needle-based Provocation Discogram
test (“PD Test”) has been developed. PD Tests have been shown to be highly accurate when performed properly. However, a PD
Test is invasive, subjective, and unpleasant for the patient as the patient needs to be awake in order to tell the physician if the pain
the physician is purposefully causing in the disc is the same as the pain the patient feels when they are experiencing a back pain episode.
In addition, recent evidence has shown that the action of inserting a needle into a normal disc during a discogram procedure leads to
an increased rate of degeneration in these previously normal discs. Based on the limitations and concerns of the PD Test, we believe there
is a significant need for an objective, accurate, personalized, and noninvasive diagnostic test that can reliably determine if an individual
disc is a pain generator. By providing physicians information about whether a disc has the chemical and structural makeup consistent with
pain or not, we believe the treatment plan for each patient will lead to more efficient and targeted care that, will in turn, result in
lower costs and healthier patient outcomes.
Aclarion has taken the first steps to demonstrate
the potential use of our technology in helping to improve the outcome of surgical intervention for discogenic low back pain patients by
publishing a clinical study in the European Spine Journal in April 2019. The study illustrated that when all discs identified as consistent
with pain by our technology were included in a surgical treatment, 97% of the patients met the criteria for “clinical improvement”.
This compared to only 54% of patients meeting the criteria for clinical improvement if a disc that our technology identified as consistent
with pain, was not included in the surgical treatment.
In April 2023, Aclarion advanced the evidence
of our technology with a peer-reviewed journal article detailing the Gornet 2-year outcomes published in the European Spine Journal. The
2-year outcomes were durable with 1-year outcomes previously published in 2019. At 2-years follow-up, 85% of patients improved when disc(s)
identified as consistent with pain by our technology were included in a surgical treatment, compared to only 63% of patients when disc(s)
identified as consistent with pain were not treated or disc(s) identified as consistent without pain were treated.
The results of the 2019 published study led the
CPT committee to approve four Category III codes for our technology in January 2021. The NIH also included our technology as one of the
handful of technologies selected to participate in their $150 million Back Pain Consortium (BACPAC) Research Program, an NIH translational,
patient-centered effort to address the need for effective and personalized therapies for chronic low back pain. In 2022, the NIH subsequently
selected our technology to be included in their prospective randomized follow-on study that resulted from BACPAC. This new study is called
Biomarkers for the Evaluation of Spinal Treatments (BEST) and is designed to evaluate several technologies that provide data about a patient
to see if these technologies can identify subgroups of chronic LBP patients that do better with one of four treatments being evaluated
in the study.
Evolving science coupled with the understanding of degenerative painful
discs has suggested that lumbar discs may become painful due to certain chemical changes, which changes cannot be identified using standard
lumbar MRI imaging. However, an application of MRI scanners called Magnetic Resonance Spectroscopy has been developed by manufacturers
of MRI equipment. MRSs are different than MRIs. An MRI generates images of body structures, while an MRS analyzes the relative amounts
of various chemicals in body tissues.
Aclarion has developed a software application
called NOCISCAN® which uses the existing MRS capabilities of many commercially available scanners to non-invasively analyze the chemical
makeup of intervertebral discs in the spine. The software post-processes the MRS exam data and detects the presence of chemical biomarkers
that we, in conjunction with spine researchers at UCSF, have demonstrated to be associated with degenerative pain and structural integrity
of the lumbar discs. After processing the MRS exam data, we send the ordering clinician a report that details how to interpret the results
of the MRS exam. We believe these results help clinicians make quicker and more informed decisions about which lumbar discs are painful,
and which are not. We believe the ordering clinician can use this information to determine the optimal treatment plan for an individual
patient.
Because we believe that spectroscopy is not widely
used for any clinical purposes today, there are practical limitations to the market opportunity that must be addressed. We believe the
two biggest limitations may be the lack of deployment of spectroscopy software across the installed base of existing MRIs worldwide, and
the fact that only certain MR scanner models are compatible with our technology. For compatible MRI sites that do not currently have spectroscopy
software installed, the onetime cost of the software ranges from $25,000 to $50,000. Currently, our NOCISCAN platform is only compatible
with certain MR scanner models provided by SIEMENS, of which there are an estimated 1,500 in the United States, and 4,320 worldwide. We
plan to collaborate with other MRI scanner vendors, as well as SIEMENS, to establish compatibility with their respective scanners and
MRS capabilities for use with our products. That may allow us to include discounted pricing on spectroscopy software for MRI sites interested
in providing DLBP patients with the NOCISCAN offering.
The first application of Aclarion’s technology
is focused on improving surgical decision making when surgical intervention is being contemplated for patients with low back pain. The
Company’s first commercial product, which we have named “NOCISCAN”, utilizes our proprietary biomarkers and algorithms
to provide surgeons with information about which intervertebral discs are determined to be consistent with generating pain, and which
are not. We believe that surgeons can use this information to better plan their surgical treatments and improve outcomes in their patients.
In a clinical study published in the European Spine Journal in April 2019 it was shown that in patients where all discs identified as
painful by NOCISCAN were included in the surgical treatment that 97% of those patients met the criteria for significant clinical improvement.
This compared to only 54% of surgical patients meeting the criteria for significant clinical improvement when discs identified as painful
by NOCISCAN were omitted from the surgical treatment, or discs identified as not painful by NOCISCAN were included in the treatment. Some
authors of this study had a financial relationship with Aclarion, who sponsored the study.
In April 2023, Aclarion advanced the evidence
of our technology with a peer-reviewed journal article detailing the Gornet 2-year outcomes published in the European Spine Journal. The
2-year outcomes were durable with 1-year outcomes previously published in 2019. At 2-years follow-up, 85% of patients improved when disc(s)
identified as consistent with pain by our technology were included in a surgical treatment, compared to only 63% of patients when disc(s)
identified as consistent with pain were not treated or disc(s) identified as consistent without pain were treated.
Based on the results of this clinical study, the
Company believes that use of NOCISCAN could become the standard protocol for assisting in the treatment plan of patients with low back
pain undergoing surgical intervention. Utilizing the results of our European Spine Journal Study, we applied to the American Medical Association
for CPT codes to begin the process of securing insurance coverage to pay for NOCISCAN. On January 1, 2021, Category III CPT codes became
effective. The Company is now executing its plan to commercialize NOCISCAN. See “Reimbursement” below.
The core technology underlying NOCISCAN is the
use of MR spectroscopy to identify the chemical makeup of intervertebral discs with a focus on identifying specific proprietary biomarkers
known to be correlated to pain and to the structural degradation of discs. We believe this technology, in combination with advanced machine
learning and AI platforms, has the potential to not only become included in the standard of care for patients undergoing surgical intervention
for low back pain, but to become a core data input for optimally managing entire segments of patients suffering from low back and neck
pain.
Industry Overview
Low Back Pain
According to the Global Burden of Disease Study
2017, low back pain (LBP) is among the top three causes for years lived with disability. A 2020 JAMA (Journal of the American Medical
Association) article established the cost of low back and neck pain at $134.5B in the U.S, making it the most costly healthcare condition
in the United States, surpassing cardiac disease, diabetes and cancer.
Low back pain (LBP) can
be caused by many different problems and abnormalities along and around the spine, other than DLBP, including conditions such as spondylolisthesis
or instability of the vertebral bodies, vertebral body fractures, facet pathologies, central canal and foraminal stenosis, disc herniations,
pars fracture, congenital abnormalities and tumors. Many of the causes of low back pain are readily detected by standard MRI imaging of
the spine, which reveals clear structural abnormalities, i.e., fractures and tumors. However, in many cases the source of the pain is
not clear. As a result, the success rates of surgical care for LBP ranges from 41 to 57%, with 5-16% early complication and reoperation
rates also reported.
We believe that poor
surgical outcomes for discogenic LBP are largely due to difficulties in reliably and accurately diagnosing the specific spinal discs that
are causing pain. The current primary diagnostic standard, lumbar MRI, is useful for showing abnormal structures and tissue dehydration,
but, we believe, cannot reliably identify specific discs that are causing pain. To diagnose specific discs that are causing pain, a needle-based
Provocation Discogram test (“PD Test”) has been developed. A PD Test has been shown to be highly accurate when performed properly.
However, a PD Test is invasive, subjective and unpleasant for the patient, as the patient is required to be awake in order to tell the
physician if the pain the physician is purposefully causing in the disc is the same as the pain the patient feels when they are experiencing
a back pain episode. In addition, recent evidence has shown that the action of inserting a needle into a normal disc during PD Test, leads
to an increased rate of degeneration in these previously normal discs.
Due to the current lack
of uniform acceptance of a diagnostic platform to safely and reliably diagnose the specific discs that cause DLBP, patients with DLBP
are faced with the options of surgical intervention with a risk of a poor surgical outcomes, or, non-surgical treatment with powerful
pain killing drugs, such as opiates and synthetic opiates. Those patients who choose surgery and have a poor surgical outcome with no
surgical alternatives will be faced with the possibility of enduring disabling, intractable pain, and often extended dangerous pain medication
use.
Diagnostic Imaging
Diagnostic imaging involves
the use of non-invasive procedures to generate representations of internal anatomy and function that can be recorded on film or digitized
for display on a video monitor. Diagnostic imaging procedures facilitate the early diagnosis and treatment of diseases and disorders and
may reduce unnecessary invasive procedures, often minimizing the cost and amount of care for patients. Diagnostic imaging procedures include
MRI, CT, PET, nuclear medicine, ultrasound, mammography, X-ray and fluoroscopy.
While X-ray remains the
most commonly performed diagnostic imaging procedure, one of the fastest growing procedures is the MRI. The number of MRI scans performed
annually in the United States continues to grow due to its wider acceptance by physicians and third party payers, an increasing number
of applications for their use and a general increase in demand due to the aging population. MRI has long been a widely accepted diagnostic
standard of care for spine and low back pain, including discogenic low back pain patients, which is the target medical condition for our
diagnostic products.
Diagnostic Imaging
Settings
Diagnostic imaging services
are typically provided in one of the following settings:
Fixed-site,
freestanding outpatient diagnostic facilities
These facilities range
from single-modality to multi-modality facilities and are generally not owned by hospitals or clinics. These facilities depend upon physician
referrals for their patients and generally (although not always) do not maintain dedicated, contractual relationships with hospitals or
clinics. In fact, these facilities may compete with hospitals or clinics that have their own imaging systems to provide services to patients.
These facilities bill third-party payers, such as managed care organizations, insurance companies, Medicare or Medicaid, and workers’
compensation providers.
Hospitals
Many hospitals provide both inpatient and outpatient
diagnostic imaging services, typically on site or at a dedicated center located on or nearby the hospital campus. These can be owned and
operated by the hospital and provide imaging services to inpatients as ordered or outpatients through physician referrals. The hospital
normally bills third-party payors such as managed care organizations, insurance companies, Medicare or Medicaid, and workers’ compensation
providers. We have entered into joint ventures with certain hospitals both provide and manage their diagnostic imaging services, allowing
them to leverage our industry expertise.
Mobile
Imaging
While many hospitals
own or lease their own equipment, certain hospitals provide diagnostic imaging services by contracting with providers of mobile imaging
services. Using specially designed trailers, mobile imaging service providers transport imaging equipment and provide services to hospitals
and clinics on a part-time or full-time basis, thus allowing small to mid-size hospitals and clinics that do not have the patient demand
to justify fixed on-site access to advanced diagnostic imaging technology. Diagnostic imaging providers contract directly with the hospital
or clinic and are typically reimbursed directly by them. We do not provide mobile imaging services. The cloud-based software products
and services we do provide, however, are compatible for use for post-processing data that may be acquired by certain MR scanners that
are deployed in a mobile imaging setting and model.
Company History
Aclarion’s technology was originally invented,
and initially tested, via successful proof of concept by Aclarion co-Founder and head of our Scientific Advisory Board, Jeffrey Lotz,
PhD, at the University of California San Francisco (“UCSF”). Early research, which was published in a major peer-reviewed
journal in 2005, was premised upon a growing suspicion and interest that discs may become painful due to chemical changes, in particular
elevated acidity related to hypoxia, that are not tested using a standard MRI. With that theory in mind, Dr. Lotz’s initial study
looked to identify chemical biomarkers for painful discs using MRS, which applies a pulsed magnetic field to tissues in order to vibrate
the different chemicals in that tissue and generate a spectrum that allows for measuring those different chemicals based on their different
peaks along that spectrum. NMR equipment was used to conduct MRS chemical analysis of painful discs that were surgically removed for DLBP
fusion surgery versus normal, non-painful discs that were surgically removed from spinal deformity (i.e. scoliosis) patients for lumbar
spine reconstruction. Those ex vivo 11T MRS spectral measurement results showed that all (n=9) of the painful discs were distinguished
from all of the non-painful discs based on the highly repeatable (100%) differences in their ratios between lactic acid, a painful chemical
resulting from hypoxia, and proteoglycan, a structural chemical of the disc that holds water for hydration. It was observed that with
degenerative painful discs, proteoglycan reduces with the degeneration, and lactic acid elevates with the pain. Hence, the MRS-based test
and identifiable structural and degenerative pain biomarkers were able to be identified.
This work became the subject of the first patent
granted to the Regents of the University of California and exclusively licensed to Aclarion. Thereafter, a strategic collaboration with
SIEMENS, a major MRI equipment manufacturer, was initiated and a clinical study, the Gornet Study, involving 73 surgical patients was
published in the European Spine Journal, a major peer-reviewed publication (See “Clinical Evidence” below). Our NOCICALC and
NOCOGRAM products were subsequently registered with the FDA, CE marked and launched in the US, EU, and UK markets through a customer pay
model since insurance codes were not yet in existence.
License Agreement with the Regents of the University of California
On January 8, 2008, the Company entered into an
Exclusive License Agreement which was amended and restated on December 9, 2014, (the “License Agreement”) with the Regents
of the University of California, and was further amended on March 31, 2017. The License Agreement encompassed certain intellectual property
and patents covering inventions generally characterized as systems, materials, and methods to localize and evaluate pain and degenerative
properties of tissue, molecular markers that differentiate painful from non-painful discs; and MR Spectroscopy System and Method for diagnosing
painful and non-painful intervertebral discs.
Pursuant to the License Agreement, the Company
obtained a worldwide, exclusive license to intellectual property including certain patent rights related to the patents and technology
which the Company utilizes. Under the License Agreement, we agreed to pay a royalty fee of 4% (subject to reduction to a minimum of 2%
of net sales, in the event the Company pays a royalty on revenues to a third party) of net sales of the licensed products or technology
and 10% of gross revenues we may receive from possible sub-licensees, affiliates or joint venture partners. Additionally, we agreed to
pay a minimum annual royalty fee of $50,000, accountable against actual earned royalties, plus other costs and expenses related to the
prosecution of existing or future patents related to the technology, and certain additional one-time fees that were contingent upon the
occurrence of certain defined milestones.
The License Agreement also provides that for so
long as we pay patent prosecution costs, the Regents of the University of California will diligently prosecute and maintain the United
States and foreign patents comprising the Patent Rights using counsel of its choice, and the UC Regents' counsel will take instructions
only from The Regents of the University of California.
Upon completion of our April 2022 IPO, we were
required to pay the Regents of the University of California a contingent one-time “Indexed Milestone Payment” of an amount
of cash determined by multiplying the amount of shares outstanding at such time the Company raises $1 million in capital, by 3% and then
multiplying the 3% number by the IPO price. On May 2, 2022, we paid the amount of $123,828 to satisfy the Indexed Milestone Payment obligation
included within the license agreement.
The Regents of the University of California has
the right to terminate the License Agreement upon advanced notice in the event of a default by us. The License Agreement will expire upon
the expiration or abandonment of the last of the licensed patents. The patents subject to the License Agreement expire between 2025 and
2029.
We rely on this license, as well as other aspects
of our own patented technology and intellectual property, in order to be able to use and sell various proprietary technologies that are
material to our business, as well as technologies which we intend to use in our future commercial activities. Our rights to use these
licensed technologies and the inventions claimed in the licensed patents, are subject to the continuation of, and our compliance with
the terms of the license. The loss of this license would materially negatively affect our ability to pursue our business objectives and
result in material harm to our business operations.
Transactions with NuVasive, Inc.
In 2015, NuVasive, Inc. (“NuVasive”)
purchased approximately $2.0 million of the Company’s Series B preferred shares. NuVasive and the Company also entered into a marketing
agreement pursuant to which NuVasive would be the exclusive, other than the Company, marketing provider for the Company’s technology
and NuVasive would receive a commission (the “Commission”) of all sales of the technology made by NuVasive. In conjunction
with the marketing agreement, the Company entered into a Right of First Offer (“ROFO”) Agreement pursuant to which the Company
agreed that in the event that the Company determined to enter into a sale event (defined to include a sale of 50% or more of the Company’s
outstanding voting securities, a sale of substantially all of the Company’s assets, or a sale or exclusive license of substantially
all of the Company’s intellectual property) NuVasive would have the right to receive notice (“ROFO Notice”), and NuVasive
would have a 60-day period to determine whether it wanted to acquire the Company on terms set forth in the ROFO Notice. The ROFO obligations
will expire 42 months after the FDA issues its first regulatory clearance of a Company product or service. The ROFO obligations do not
apply to any proposed sale event in which the acquisition price is $40 million or more.
In February 2020, NuVasive agreed to purchase
$308,720 of convertible notes, convertible into Series B-1 preferred shares and in connection with such purchase, was issued a warrant
to purchase 171,511 shares of common stock at an exercise price of $.18 per share.
In February 2020, NuVasive and the Company also
entered into an amended and restated commission agreement (the “Commission Agreement”), pursuant to which the Company agreed
to pay NuVasive a commission of 6% of certain revenues of the Company related to Aclarion’s Nociscan technology through December
31, 2023, and issued to NuVasive the right to receive the Company’s preferred shares subject to the terms of a $2 million “SAFE”
(Simple Agreement for Future Equity). The SAFE provided that NuVasive would receive $2 million of capital stock if the Company would
raise a minimum of $10.0 million of new capital on or before December 31, 2020, which was later extended to June 30, 2021. If the $10.0
million was not raised, the Company would issue to NuVasive 1,584,660 Series B-2 preferred
shares. The $10.0 million was not raised and the Company issued 1,584,660 Series B-2 preferred
shares to NuVasive in December 2021. In connection with the Commission Agreement, NuVasive agreed that: (i) NuVasive would cease to market
the Company’s technology, (ii) NuVasive would reduce their Commission to 6%, and (iii) Commissions to NuVasive would terminate
on December 31, 2023. In December 2021, NuVasive’s convertible notes were converted into Series B-3 preferred shares.
Products and Solutions
Aclarion has developed a software application
called NOCISCAN®. The product uses the existing MRS capabilities of many commercially available scanners to non-invasively analyze
the chemical makeup of intervertebral discs in the spine. The software post-processes the MRS exam data and detects the presence of chemical
biomarkers that Aclarion, in conjunction with spine researchers at UCSF, have demonstrated to be associated with degenerative pain and
structural integrity of the lumbar discs. After processing the MRS exam data, Aclarion sends the ordering clinician a report that details
how to interpret the results of the MRS exam. We believe these results help clinicians make faster and more informed decisions about which
lumbar discs are painful, and which are not. We believe the ordering clinician can then use this information to determine the optimal
treatment plan for an individual patient.
NOCISCAN is entirely non-invasive and only briefly
extends an otherwise standard MRI exam. The MRI scan is the most frequently used type of pulse sequence for operating Nuclear Magnetic
Resonance (NMR) scanners. It uses a powerful magnet to apply a pulsed magnetic field to a patient, sensors to detect radio waves that
emanate from the resonant vibrations of different chemicals in the body in response to that pulsed magnetic field and a computer to create
detailed images of tissue structures in the patient based on those detected chemical signals. Because water and fat are the most prevalent
chemicals in the body, standard MRI images are typically based on the different levels of water and fat between different tissues. MRS,
however, is another type of pulse sequence that uses NMR scanners in a similar way as an MRI, but instead of using the chemical resonances
to create an image, MRS creates a spectrum for a tissue with different peaks that represent many different chemicals, in addition to water
and fat, in that tissue. The relative amounts of those chemicals can be calculated by measuring their respective spectral peaks. While
MRS has been used previously for diagnosing certain cancers (e.g. brain, breast, prostate) by measuring unique chemical biomarkers for
tumors, NOCISCAN uses MRS for measuring the relative levels of degenerative pain and structural integrity biomarkers in discs. The relative
levels of degenerative pain and structural integrity biomarkers are derived through the use of proprietary post processing technologies.
The platform used to
conduct a NOCISCAN involves: (i) an MRS exam of an intervertebral disc performed according to a proprietary protocol, (ii) a data transfer
portal to securely transfer data from the MRS exam to Aclarion’s cloud based post-processer technology, (iii) post-processor technology
that identifies biomarker peaks and leverages calculation tables that evaluate a number of ratios of biomarker peaks, where pain biomarkers
are in the numerator and structural biomarkers are in the denominator, and (iv) a final diagnostic report called a Nocigram that identifies
discs as painful or not.
(a) NOCISCAN
MRS Exam Protocol: We have developed a custom software protocol and technique for using commercially available MRS pulse sequences
in scanning intervertebral discs which extends the time of a standard lumbar MRI exam by an average of about 30 minutes for 5 lumbar discs.
The custom protocol is a proprietary series of settings and instructions for MRS to conduct the NOCISCAN exam to obtain optimal and reliable
MRS data. This protocol is not a product sold by the Company. The software protocol was created by Aclarion for insertion within a pre-existing
software file format and is downloaded onto the MRS by the MRS owner, for use within the MRS’s operating system environment. Currently,
our software protocol is compatible with only certain MRS models and operating systems available from SIEMENS, as those SIEMENS models
specifically provide for user-defined customizations available for running our custom pulse sequences on SIEMENS MRS equipment.
(b) Data
Transfer: Data is routinely transferred from MR scanners to externally hosted cloud post-processors in many settings and applications,
with an existing market of products and protocols for doing so. Aclarion provides MR imaging providers two options for data transfer:
(1) a licensed proprietary imaging data transfer platform provided by AMBRA® Healthcare, and (2) NOCIWEB®, a custom developed
web-interface developed and offered by Aclarion.
(c) The
NOCISCAN Post-Processor Suite: This comprises the products that Aclarion currently markets and sells. The post-processor technology
requires MRS exam data acquired only according to Aclarion’s proprietary MRS exam protocols described in (a) above. The NOCISCAN
Post-Processor Suite comprises of two software products that interact with each other:
Advantages over current technology and procedures
NOCISCAN provides new information to help doctors
better diagnose which intervertebral discs may contribute to patients back pain and thereby assist in treatment planning and potentially
improve patient outcomes.
More specifically, current standards of care for
the diagnostic workup of LBP include lumbar X-Ray and MRI and less prevalently, needle-based provocative discography testing (PD Tests).
While lumbar X-Ray and MRI can show various pathologic structural abnormalities and degeneration and can be helpful for diagnosing certain
non-discogenic sources of pain, these techniques are unreliable for identifying painful discs in LBP patients. The PD TEST is another
test that typically follows MRI for the purpose of identifying painful discs. PD Tests have been shown to be highly accurate when performed
properly, however, a PD Test is invasive, subjective and unpleasant for the patient as the patient needs to be awake in order to tell
the physician if the pain the physician is purposefully causing in the disc is the same as the pain the patient feels when they are experiencing
a back pain episode. In addition, recent evidence has shown that the action of inserting a needle into a normal disc during a discogram
procedure leads to an increased rate of degeneration in these previously normal discs. We believe NOCISCAN advantages include: (a) enhancing
the ability and value of otherwise standard lumbar MRI exams to, for the first time, reliably identify chemically painful discs causing
DLBP; and (b) providing a “Virtual DiscogramTM” as an entirely non-invasive, objectively quantitative, pain-free, non-significant
risk, and more widely adoptable alternative to needle-based PD exams (which share none of those advantages).
More specifically, NOCISCAN offers many specific
advantages to the marketplace, from a diagnostic point of view, including:
1) Readily and widely adoptable;
2) Non-invasive;
3) Non-painful;
4) Nonsignificant risk to patients;
5) Objective, quantitative diagnostic information;
9) More informed ability to reliably diagnose painful vs. non-painful discs;
NOCISCAN incorporates many patented technologies
and features that we believe provide several technical advantages to the MRS field in general. Prior applications of MRS, e.g. for brain,
prostate, or breast cancer diagnosis encountered technical challenges related to acquiring reliably robust spectra for making accurate
quantitative chemical measurements. These technical challenges resulted in poor sensitivity and specificity for prior MRS products addressing
clinical applications. The novel features and advantages provided in the NOCISCAN platform are designed to address the technical and diagnostic
challenges of MRS in the past. Accordingly, we believe Aclarion improvements do not only propose benefits for disc MRS, but potentially
for other MRS applications more broadly. Improvements in processing raw MRS data incorporated in Aclarion IP are summarized below:
Clinical Evidence
We have pursued a clinical study (the “Gornet
Study”) to demonstrate the benefits of our technology to surgeons, imaging centers, third party payers, and patients. Without strong
clinical data in support of our technology to improve clinical outcomes, the opportunity to secure new reimbursement codes and change
existing treatment pathways would be limited.
In a clinical study sponsored by us, and authored
by, among others, a spine surgeon who has a financial interest in the Company. and published in the European Spine Journal in April 2019,
it was shown that 97% of the treated patients met the criteria for significant clinical improvement, where all discs identified as painful
by NOCISCAN were included in the surgical treatment. This compared to 54% of surgical patients achieving clinically significant improvement
when discs identified as painful by NOCISCAN were omitted from the surgical treatment, or discs identified as not painful by NOCISCAN
were included in the treatment. Some authors of this study had a financial relationship with Aclarion, who sponsored the study.
This clinical study included 139 chronic low back
pain patients who collectively underwent a NOCISCAN exam across 623 lumbar discs. Seventy-three patients underwent surgical intervention,
consisting of fusion or disc replacement, and reached six months follow up. Clinical improvement post surgically was evaluated using the
industry standard Oswestry Disability Index (ODI), and the Visual Analog Scale (VAS). ODI evaluates patient disability on a scale of 1-100
with a higher score indicating less impairment. VAS evaluates subjective pain on a scale of 1-10 with a lower score indicating less pain.
Significant clinical improvement in the study was defined as a 15-point improvement in ODI and a 2-point improvement in VAS. NOCISCAN
data was not used in surgical decision making.
Post-operatively, patients were separated into
various groups for analysis. One group consisted of patients where the surgical intervention included every disc that was identified by
NOCISCAN as painful. This group consisted of 36 patients with 26 undergoing a one-level surgical procedure and 10 undergoing a two-level
surgical procedure. 97% (35 of 36) of the patients in this category met the criteria for significant clinical improvement. The one failure
in this group did meet the VAS requirement and missed the ODI cutoff of 15 by only one point.
In another group consisting of 13 patients, a
disc identified as painful by NOCISCAN was not included in the surgical intervention. In this group only 54% (7 of 13) of patients met
the criteria for clinically significant improvement.
In April 2023, Aclarion advanced the evidence
of our technology with a peer-reviewed journal article detailing the Gornet 2-year outcomes published in the European Spine Journal. The
2-year outcomes were durable with 1-year outcomes previously published in 2019. At 2-years follow-up, 85% of patients improved when disc(s)
identified as consistent with pain by our technology were included in a surgical treatment, compared to only 63% of patients when disc(s)
identified as consistent with pain were not treated or disc(s) identified as consistent without pain were treated.
We believe the results of this study indicates
that using NOCISCAN data to help determine the appropriate level for surgical intervention will significantly improve the outcomes for
patients undergoing spine surgery for back pain. However, the Gornet Study was a single (relatively small) clinical study at a single