ITEM 1A. RISK FACTORS
Risk Factor Summary
The following summary highlights the material risks
that may affect our business, operating results, financial condition and prospects, as more fully described in the pages that follow this
summary.
Risks Related to Our Financial Condition and Capital Requirements
We are subject to the risks associated with
new businesses.
We entered into a license agreement
with Toray in October 2020 and are effectively a new business with a plan to commercialize our licensed technology. Our limited operating
history may not be adequate to enable you to fully assess our ability to develop and market our Symphony platform and test cartridges,
assuming we receive regulatory clearances for which there is no assurance, and respond to competition. Our efforts to date have related
to the organization and formation of our company, research and development and preparation for commencing regulatory trials. We have no
approved products, have not yet generated revenue, and we cannot guarantee we will ever be able to generate revenues. Therefore, we are,
and expect for the foreseeable future to be, subject to all the risks and uncertainties, inherent in a new business focused on the development
and sale of new medical devices. As a result, we may be unable to further develop, obtain regulatory approval for, manufacture, market,
sell and derive revenues from our Symphony platform and test cartridges and the other product candidates in our pipeline, and our inability
to do so would materially and adversely impact our viability. In addition, we still must optimize many functions necessary to operate
a business, including expanding our managerial, personnel and administrative structure, continuing product research and development, and
assessing and commencing our marketing activities.
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Accordingly, you should consider
our prospects in light of the costs, uncertainties, delays and difficulties frequently encountered by companies that have not yet commercialized
their products, particularly those in the medical device field. In particular, potential investors should consider that there is a significant
risk that we will not be able to:
● maintain our management team and Board of Directors;
● attract, enter into or maintain contracts with, and retain customers; and
In the event that we do not
successfully address these risks, our business, prospects, financial condition, and results of operations could be materially and adversely
affected.
We have incurred significant losses since
inception and may not be able to achieve significant revenues or profitability.
Since our inception, we have
engaged primarily in development activities. We have funded our operations primarily through debt and equity financings, and have incurred
losses since inception, including a net loss of $3.5 million and $1.2 million for the years ended December 31, 2021 and 2020, respectively.
We do not know whether or when we will become profitable. Our ability to generate revenue and achieve profitability depends upon our
ability, alone or with others, to complete the development process of our product candidates, including regulatory approvals, and thereafter
achieve substantial acceptance in the marketplace for our products. We may be unable to achieve any or all of these goals.
We will require substantial additional
funding, which may not be available to us on acceptable terms, or at all, and, if not so available, may require us to delay, limit, reduce
or cease our operations.
To date, we have relied primarily
on private debt and equity financing to carry on our business. We have limited financial resources, negative cash flow from operations
and no assurance that sufficient funding will be available to us to fund our operating expenses and to further our product development
efforts and pursue clinical trials for FDA approval. We expect that our current cash position will enable us to fund our operating expenses
and capital expenditure requirements for at least the next twelve months. Thereafter, unless we achieve profitability, we anticipate
that we will need to raise additional capital to fund our operations while we implement and execute our business plan. We currently do
not have any contracts or commitments for additional financing. In addition, any additional equity financing may involve substantial
dilution to our existing shareholders. There can be no assurance that such additional capital will be available on a timely basis or
on terms that will be acceptable to us. Failure to obtain such additional financing could result in delay or indefinite postponement
of operations or the further development of our business with the possible loss of such properties or assets. If adequate funds are not
available or are not available on acceptable terms, we may not be able to fund our business or the expansion thereof, take advantage
of strategic acquisitions or investment opportunities or respond to competitive pressures. Such inability to obtain additional financing
when needed could have a material adverse effect on our business, results of operations, cash flow, financial condition and prospects.
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Risks Related to Our Business
The license agreement with Toray, which
covers the license of the core technology used in our Symphony platform and test cartridge product candidates, contains significant risks
that may threaten our viability or otherwise have a material adverse effect on us and our business, assets and its prospects.
We have an exclusive license
with Toray for the entire world, excluding Japan, to use their patents and know-how related to our Symphony platform and test cartridges
for the manufacturing, marketing and sale of such products. We also have a nonexclusive license for the same
purposes in Japan. We have no contractual rights to the intellectual property covered in the license agreement other than as expressly
set forth therein. Our plans, business, prospects and viability are substantially dependent on that intellectual property and subject
to the limitations relating thereto as set forth in the license agreement:
In addition, see the risks
in “Risks Related to Our Intellectual Property” below. These risks are not the only risks inherent in the license agreement.
You are encouraged to read the complete text of the license agreement, which is filed as an exhibit to this annual report.
We have not yet launched any products and
the ability to do so will depend on the acceptance of our Symphony platform in the healthcare market.
We have not yet launched or
received regulatory approvals in any country or territory for our Symphony platform or test cartridges. Even if we receive regulatory
approvals, we are faced with the risk that our Symphony platform will not be accepted over competing products and that we will be unable
to enter the marketplace or compete effectively. We cannot assure you that our Symphony platform or test cartridges will gain market acceptance.
If the market for our future products fails to develop or develops more slowly than expected, or if any of the technology and standards
supported by us do not achieve or sustain market acceptance, our business and operating results would be materially and adversely affected.
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We cannot accurately predict the volume
or timing of any sales, making the timing of any revenues difficult to predict.
We may be faced with lengthy
and unpredictable customer evaluation and approval processes associated with our Symphony platform. Consequently, we may incur substantial
expenses and devote significant management effort and expense in developing customer adoption of our Symphony platform, which may not
result in revenue generation. We must also obtain regulatory approvals of our Symphony platform and test cartridges in jurisdictions in
which we pursue approvals, which is subject to risk and potential delays. The same risks apply to other tests we may develop based on
our Symphony platform. As such, we cannot accurately predict the volume, if any, or timing of any future sales.
If third-party payors do not provide coverage
and reimbursement for the use of our platform, our business and prospects may be negatively impacted.
Third-party payors, whether
governmental or commercial, are developing increasingly sophisticated methods of controlling healthcare costs. In addition, in certain
countries, no uniform policy of coverage and reimbursement for medical device products and services exists among third-party payors. Therefore,
coverage and reimbursement for medical device products and services can differ significantly from payor to payor. In addition, payors
continually review new technologies for possible coverage and can, without notice, deny coverage for these new products and procedures.
As a result, the coverage determination process is often a time-consuming and costly process that will require us to provide scientific
and clinical support for the use of our products to each payor separately, with no assurance that coverage and adequate reimbursement
will be obtained.
Our Symphony platform, including its software
and systems, may contain undetected errors, which could limit our ability to provide our products and diminish the attractiveness of our
offerings.
Our Symphony platform may contain
undetected errors, defects, or bugs. As a result, our customers or end users may discover errors or defects in our products, software
or systems, or our products, software or systems may not operate as expected. We may discover significant errors or defects in the future
that we may not be able to fix. Our inability to fix any of those errors could limit our ability to provide our products and services,
impair the reputation of our brand and diminish the attractiveness of our product and service offerings to our customers.
In addition, we may utilize
third party technology or components in our products, and we rely on those third parties to provide support services to us. The existence
of errors, defects, or bugs in third party technology or components, or the failure of those third parties to provide necessary support
services to us, could materially adversely impact our business.
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We will rely on the proper function, security
and availability of our information technology systems and data to operate our business, and a breach, cyber-attack or other disruption
to these systems or data could materially and adversely affect our business, results of operations, financial condition, cash flows, reputation,
or competitive position.
We will depend on sophisticated
software and other information technology systems to operate our business, including to process, transmit and store sensitive data, and
our future products and services may include information technology systems that collect data regarding patients. We could experience
attempted or actual interference with the integrity of, and interruptions in, our technology systems, as well as data breaches, such as
cyber-attacks, malicious intrusions, breakdowns, interference with the integrity of our products and data or other significant disruptions.
Furthermore, we may rely on third-party vendors to supply and/or support certain aspects of our information technology systems. These
third-party systems could also become vulnerable to cyber-attack, malicious intrusions, breakdowns, interference, or other significant
disruptions, and may contain defects in design or manufacture or other problems that could result in system disruption or compromise the
information security of our own systems.
If in the future we pursue
foreign jurisdictions, such international operations will mean that we are subject to laws and regulations, including data protection
and cybersecurity laws and regulations, in many jurisdictions. Furthermore, there has been a developing trend of civil lawsuits and class
actions relating to breaches of consumer data held by large companies or incidents arising from other cyber-attacks. Any data security
breaches, cyber-attacks, malicious intrusions or significant disruptions could result in actions by regulatory bodies and/or civil litigation,
any of which could materially and adversely affect our business, results of operations, financial condition, cash flows, reputation, or
competitive position.
In addition, our information
technology systems require an ongoing commitment of significant resources to maintain, protect, and enhance existing systems and develop
new systems to keep pace with continuing changes in information processing technology, evolving legal and regulatory standards, the increasing
need to protect patient and customer information, changes in the techniques used to obtain unauthorized access to data and information
systems, and the information technology needs associated any new products and services. There can be no assurance that our process of
consolidating, protecting, upgrading and expanding our systems and capabilities, continuing to build security into the design of our products,
and developing new systems to keep pace with continuing changes in information processing technology will be successful or that additional
systems issues will not arise in the future.
If our information technology systems, products
or services or sensitive data are compromised, patients or employees could be exposed to financial or medical identity theft or suffer
a loss of product functionality, and we could lose existing customers, have difficulty attracting new customers, have difficulty preventing,
detecting, and controlling fraud, be exposed to the loss or misuse of confidential information, have disputes with customers, physicians,
and other health care professionals, suffer regulatory sanctions or penalties, experience increases in operating expenses or an impairment
in our ability to conduct our operations, incur expenses or lose revenues as a result of a data privacy breach, product failure, information
technology outages or disruptions, or suffer other adverse consequences including lawsuits or other legal action and damage to our reputation.
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Our future performance will depend on the
continued engagement of key members of our management team.
Our future performance depends
to a large extent on the continued services of members of our current management. In the event that we lose the continued services of
such key personnel for any reason, this could have a material adverse effect on our business, operations and prospects.
If we are not able to attract and retain
highly skilled managerial, scientific and technical personnel, we may not be able to implement our business model successfully.
We believe that our management
team must be able to act decisively to apply and adapt our business model in the markets in which we will compete. In addition, we will
rely upon technical and scientific employees or third-party contractors to effectively establish, manage and grow our business. Consequently,
we believe that our future viability will depend largely on our ability to attract and retain highly skilled managerial, sales, scientific
and technical personnel. In order to do so, we may need to pay higher compensation or fees to our employees or consultants than we currently
expect, and such higher compensation payments would have a negative effect on our operating results. Competition for experienced, high-quality
personnel is intense and we cannot assure that we will be able to recruit and retain such personnel. We may not be able to hire or retain
the necessary personnel to implement our business strategy. Our failure to hire and retain such personnel could impair our ability to
develop new products and manage our business effectively.
If we or our manufacturers fail to comply
with the regulatory quality system regulations or any applicable equivalent regulations, our proposed operations could be interrupted,
and our operating results would suffer.
We and any third-party manufacturers
and suppliers of ours will be required, to the extent of applicable regulation, to follow the quality system regulations of each jurisdiction
we will seek to penetrate and also will be subject to the regulations of these jurisdictions regarding the manufacturing processes. If
we or any third-party manufacturers or suppliers of ours are found to be in significant non-compliance or fail to take satisfactory corrective
action in response to adverse regulatory findings in this regard, regulatory agencies could take enforcement actions against us and such
manufacturers or suppliers, which could impair or prevent our ability to produce our products in a cost-effective and timely manner in
order to meet customers’ demands. Accordingly, our operating results would suffer.
Product liability suits, whether or not
meritorious, could be brought against us due to an alleged defective product or for the misuse of our Symphony platform or test cartridges.
These suits could result in expensive and time-consuming litigation, payment of substantial damages, and an increase in our insurance
rates.
If our Symphony platform or
test cartridges, or any future tests based on our Symphony platform, are defectively designed or manufactured, contain defective components
or are misused, or if someone claims any of the foregoing, whether or not meritorious, we may become subject to substantial and costly
litigation. Misusing our devices or failing to adhere to the operating guidelines or our devices producing inaccurate readings could cause
significant harm to patients. In addition, if our operating guidelines are found to be inadequate, we may be subject to liability. Product
liability claims could divert management’s attention from our core business, be expensive to defend and result in sizable damage
awards against us. While we expect to maintain product liability insurance, we may not have sufficient insurance coverage for all future
claims. Any product liability claims brought against us, with or without merit, could increase our product liability insurance rates or
prevent us from securing continuing coverage, could harm our reputation in the industry and could reduce revenue. Product liability claims
in excess of our insurance coverage would be paid out of cash reserves harming our financial condition and adversely affecting our results
of operations.
If we are found to have violated laws protecting
the confidentiality of patient health information, we could be subject to civil or criminal penalties, which could increase our liabilities
and harm our reputation or our business.
There are a number of laws
around the world protecting the confidentiality of certain patient health information, including patient records, and restricting the
use and disclosure of that protected information. Privacy rules protect medical records and other personal health information by limiting
their use and disclosure, giving individuals the right to access, amend and seek accounting of their own health information and limiting
most use and disclosures of health information to the minimum amount reasonably necessary to accomplish the intended purpose. We may face
difficulties in holding such information in compliance with applicable law. If we are found to be in violation of the privacy rules, we
could be subject to civil or criminal penalties, which could increase our liabilities, harm our reputation and have a material adverse
effect on our business, financial condition and results of operations.
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Significant raw material shortages, supplier capacity constraints,
supplier disruptions, and sourcing issues may adversely impact or limited our products sales and or impact our product margins.
In connection with effects
related to the COVID-19 pandemic, we are operating in a supply-constrained environment and are facing, and may continue to face, supply-chain
shortages, inflationary pressures, logistics challenges and manufacturing disruptions that impact our revenues, profitability, and timeliness
in fulfilling customer orders. In addition, our key contract manufacturers are limited- or sole-source suppliers. Disruptions in deliveries,
capacity constraints, production disruptions up- or down-stream, price increases, or decreased availability of raw materials or commodities,
including as a result of war, natural disasters (including the effects of climate change such as sea level rise, drought, flooding, wildfires
and more intense weather events), actual or threatened public health emergencies or other business continuity events, adversely affect
our operations and, depending on the length and severity of the disruption, can limit our ability to meet our commitments to customers
or significantly impact our operating profit or cash flows.
Risks Related to Product Development and Regulatory Approval
The regulatory approval process which we
may be required to navigate may be expensive, time-consuming, and uncertain and may prevent us from obtaining clearance for our planned
products.
We intend to market our Symphony
platform or test cartridges following regulatory approval. To date, we have not received regulatory approval in any jurisdiction. The
research, design, testing, manufacturing, labeling, selling, marketing, and distribution of medical devices are subject to extensive regulation
by country-specific regulatory authorities, which regulations differ from country to country. There can be no assurance that, even after
such time and expenditures, we will be able to obtain necessary regulatory approvals for clinical testing or for the manufacturing or
marketing of any products. In addition, during the regulatory process, other companies may develop other technologies with the same intended
use as our products.
We also will be subject to
numerous post-marketing regulatory requirements, which may include labeling regulations and medical device reporting regulations, which
may require us to report to different regulatory agencies if our device causes or contributes to a death or serious injury, or malfunctions
in a way that would likely cause or contribute to a death or serious injury. In addition, these regulatory requirements may change in
the future in a way that adversely affects us. If we fail to comply with present or future regulatory requirements that are applicable
to us, we may be subject to enforcement action by regulatory agencies, which may include, among others, any of the following sanctions:
● warning letters, fines, injunctions, consent decrees and civil penalties;
● customer notification, or orders for repair, replacement, or refunds;
● voluntary or mandatory recall or seizure of our products;
● imposing operating restrictions, suspension, or shutdown of production;
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● criminal prosecution.
The occurrence of any of these
events may have a material adverse effect on our business, financial condition and results of operations.
Product clearances and approvals can often be denied or significantly
delayed.
Under FDA regulations, unless
exempt, a new medical device may only be commercially distributed after it has received 510(k) clearance, is authorized through the de
novo classification process, or is the subject of an approved PMA. The FDA will clear marketing of a medical device through the 510(k)
process if it is demonstrated that the new product is substantially equivalent to another legally marketed product not subject to a PMA.
Sometimes, a 510(k) clearance must be supported by preclinical and clinical data.
The PMA process typically is
more costly, lengthy, and stringent than either the 510(k) process or the de novo classification process. Unlike a 510(k) review, which
determines “substantial equivalence,” a PMA requires that the applicant demonstrate reasonable assurance that the device is
safe and effective by producing valid scientific evidence, including data from preclinical studies and human clinical trials. Therefore,
to obtain regulatory clearance or approvals, we typically must, among other requirements, provide the FDA and similar foreign regulatory
authorities with preclinical and clinical data that demonstrate to their satisfaction that our products satisfy the criteria for approval.
Preclinical testing and clinical trials must comply with the regulations of the FDA and other government authorities in the United States
and similar agencies in other countries.
We may be required to obtain
PMAs, PMA supplements, de novo classification, or additional 510(k) pre-market clearances to market modifications to our products once
they are approved and commercialized. The FDA requires device manufacturers to make and document a determination of whether a device modification
requires approval or clearance; however, the FDA can review a manufacturer’s decision. The FDA may not agree with our decisions
not to seek approvals or clearances for particular device modifications. If the FDA requires us to obtain PMAs, PMA supplements or pre-market
clearances for any modification to a previously cleared or approved device, we may be required to cease manufacturing and marketing of
the modified device and perhaps also to recall such modified device until we obtain FDA clearance or approval. We may also be subject
to significant regulatory fines or penalties.
The FDA may not clear or approve
our product submissions or applications on a timely basis or at all. Such delays or refusals could have a material adverse effect on our
business, financial condition, and results of operations.
The FDA may also change its
clearance and approval policies, adopt additional regulations, or revise existing regulations, or take other actions which may prevent
or delay approval or clearance of our products under development or impact our ability to modify our currently approved or cleared products
on a timely basis. Any of these actions could have a material adverse effect on our business, financial condition, and results of operations.
International regulatory approval
processes may take more or less time than the FDA clearance or approval process. If we fail to comply with applicable FDA and comparable
non-U.S. regulatory requirements, we may not receive regulatory clearances or approvals or may be subject to FDA or comparable non-U.S.
enforcement actions. We may be unable to obtain future regulatory clearance or approval in a timely manner, or at all, especially if existing
regulations are changed or new regulations are adopted. For example, the FDA clearance or approval process can take longer than anticipated
due to requests for additional clinical data and changes in regulatory requirements. A failure or delay in obtaining necessary regulatory
clearances or approvals would materially adversely affect our business, financial condition, and results of operations.
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Our Symphony IL-6 product candidate is
currently being distributed as a research use only product. The FDA could disagree with this distribution strategy and subject the
product to regulation as a regulated medical device, which could increase our costs and delay our commercialization efforts, thereby
materially and adversely affecting our business and results of operations.
In the United States, our Symphony IL-6 is currently
labeled and sold for research use only, and not for the diagnosis or treatment of disease. Our future product candidates also may
follow this same pathway to market. Because such products are not intended for use in clinical practice in diagnostics, and the products
cannot include clinical or diagnostic claims, they are exempt from many regulatory requirements otherwise applicable to medical devices.
In particular, while the FDA regulations require that RUO products be labeled, “For Research Use Only. Not for use in diagnostic
procedures,” the regulations do not otherwise subject such products to the FDA’s pre- and post-market controls for medical
devices.
A significant change in the
laws governing RUO products or how they are enforced may require us to change our business model in order to maintain compliance. For
instance, in November 2013 the FDA issued a guidance document entitled “Distribution of In Vitro Diagnostic Products Labeled for Research
Use Only or Investigational Use Only” (the “RUO Guidance”) which highlights the FDA’s interpretation that
distribution of RUO products with any labeling, advertising or promotion that suggests that clinical laboratories can validate the test
through their own procedures and subsequently offer it for clinical diagnostic use as a laboratory developed test is in conflict with
RUO status. The RUO Guidance further articulates the FDA’s position that any assistance offered in performing clinical validation
or verification, or similar specialized technical support, to clinical laboratories, conflicts with RUO status. If we engage in any activities
that the FDA deems to be in conflict with the RUO status held by the products that we sell, we may be subject to immediate, severe and
broad FDA enforcement action that would adversely affect our ability to continue operations. Accordingly, if the FDA finds that we are
distributing our RUO products in a manner that is inconsistent with its regulations or guidance, we may be forced to stop distribution
of our RUO tests until we are in compliance, which would reduce our revenue, increase our costs and adversely affect our business, prospects,
results of operations and financial condition. In addition, the FDA’s proposed implementation for a new framework for the regulation
of LDTs may negatively impact the LDT market and thereby reduce demand for RUO products.
Clinical data obtained in the future may
not meet the required objectives, which could delay, limit or prevent any regulatory approval.
There can be no assurance that
we will successfully complete any clinical evaluations necessary to receive regulatory approvals. While preliminary results have been
encouraging and indicative of the potential performance of our Symphony platform and test cartridges, data already obtained, or in the
future obtained, from clinical studies do not necessarily predict the results that will be obtained from later clinical evaluations. The
failure to adequately demonstrate the performance characteristics of the device under development could delay or prevent regulatory approval
of the device, which could prevent or result in delays to market launch and could materially harm our business. There can be no assurance
that we will be able to receive approval for any potential applications of our principal technology, or that we will receive regulatory
clearances from targeted regions or countries.
We may be unable to complete required clinical
evaluations, or we may experience significant delays in completing such clinical evaluations, which could prevent or significantly delay
our targeted product launch timeframe and impair our viability and business plan.
The completion of any future
clinical evaluations of our Symphony platform or test cartridges, or other studies that we may be required to undertake in the future,
could be delayed, suspended, or terminated for several reasons, including:
If our clinical evaluations
are delayed it will take us longer to ultimately launch our Symphony platform and test cartridges in the market and generate revenues.
Moreover, our development costs will increase if we have material delays in our clinical evaluation or if we need to perform more or larger
clinical evaluations than planned.
We and our suppliers may not meet regulatory quality standards
applicable to our manufacturing processes, which could have an adverse effect on our business, financial condition, and results of operations.
As a medical device manufacturer, we will need to
register with the FDA and various non-U.S. regulatory agencies, and will be are subject to periodic inspection by the FDA and foreign
regulatory agencies, for compliance with certain Good Manufacturing Practices (“cGMP”), including design controls, product
validation and verification, in process testing, quality control and documentation procedures. Compliance with applicable regulatory requirements
is subject to continual review and is rigorously monitored through periodic inspections by the FDA and foreign regulatory agencies. Our
product and component suppliers may also be required to meet certain standards applicable to their manufacturing processes.
We cannot assure you that we or our products or
component suppliers will comply with all regulatory requirements. The failure by us or one of our suppliers to achieve or maintain compliance
with these requirements or quality standards may disrupt our ability to supply products sufficient to meet demand until compliance is
achieved or, until a new supplier has been identified and evaluated. Our or any product or component supplier’s failure to comply
with applicable regulations could cause sanctions to be imposed on us, including warning letters, fines, injunctions, civil penalties,
failure of regulatory authorities to grant marketing approval of our products, delays, suspension or withdrawal of approvals or clearances,
license revocation, seizures or recalls of products, operating restrictions and criminal prosecutions, which could harm our business.
We cannot assure you that if we need to engage new suppliers to satisfy our business requirements, we can locate new suppliers in compliance
with regulatory requirements at a reasonable cost and in an acceptable timeframe. Our failure to do so could have a material adverse effect
on our business, financial condition and results of operations.
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We may be liable if the FDA or another regulatory agency concludes
that we have engaged in the off-label promotion of our products.
Our promotional materials
and training methods must comply with FDA and other applicable laws and regulations, including the prohibition of the promotion of the
off-label use of our products. Once our products are cleared or approved for clinical use, healthcare providers may use our products for
off-label uses, as the FDA does not restrict or regulate a physician’s choice of treatment within the practice of medicine. However,
if the FDA determines that our promotional, or training materials for sales representatives or physicians constitute promotion of an off-label
use, the FDA could request that we modify our training, promotional materials and/or subject us to regulatory or enforcement actions,
including the issuance of an untitled letter, a warning letter, injunction, seizure, disgorgement of profits, significant penalties, including
civil fines and criminal penalties. Other federal, state or foreign governmental authorities also might take action if they consider our
promotion, reimbursement or training materials to constitute promotion of an off-label use, which could result in significant fines or
penalties under other statutory authorities, such as laws prohibiting false claims for reimbursement. In those possible events, our reputation
could be damaged, and adoption of the products would be impaired.
Our products may be subject to recalls after receiving FDA or
foreign approval or clearance or cause or contribute to a death or a serious injury or malfunction in certain ways prompting voluntary
corrective actions or agency enforcement actions, which could divert managerial and financial resources, harm our reputation, and adversely
affect our business.
The FDA and similar foreign governmental authorities
have the authority to require the recall of our products because of any failure to comply with applicable laws and regulations, or defects
in design or manufacture, or if there is a reasonable likelihood our products might cause or contribute to a death or a serious injury
or malfunction. A government mandated or voluntary product recall by us could occur because of, for example, component failures, device
malfunctions or other adverse events, such as serious injuries or deaths, or quality-related issues, such as manufacturing errors or design
or labeling defects. Any future recalls of our products could divert managerial and financial resources, harm our reputation, and adversely
affect our business.
If we initiate a correction or removal for one
of our devices to reduce a risk to health posed by the device, we would be required to submit a publicly available Correction and Removal
report to the FDA and, in many cases, similar reports to other regulatory agencies. This report could be classified by the FDA as a device
recall which could lead to increased scrutiny by the FDA, other international regulatory agencies and our customers regarding the quality
and safety of our devices. Furthermore, the submission of these reports has been and could be used by competitors against us in competitive
situations and cause customers to delay purchase decisions or cancel orders and would harm our reputation.
In addition, we will be subject
to medical device reporting regulations that will require us to report to the FDA or similar foreign governmental authorities if one of
our products may have caused or contributed to a death or serious injury or if we become aware that it has malfunctioned in a way that
would likely cause or contribute to a death or serious injury if the malfunction recurred. Failures to properly identify reportable events
or to file timely reports, as well as failure to address each of the observations to the FDA’s satisfaction, can subject us to sanctions
and penalties, including warning letters and recalls. Physicians, hospitals, and other healthcare providers may make similar reports to
regulatory authorities. Any such reports may trigger an investigation by the FDA or similar foreign regulatory bodies, which could divert
managerial and financial resources, harm our reputation, and have a material adverse effect on our business, financial condition and results
of operations. Any adverse event involving our products also could result in future voluntary corrective actions, such as recalls or customer
notifications, or agency action, such as inspection or enforcement action. Any corrective action, whether voluntary or involuntary, as
well as defending ourselves in a lawsuit, would require our time and capital, distract management from operating our business and may
harm our reputation and have a material adverse effect on our business, financial condition, and results of operations.
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Risks Related to Our Intellectual Property
We depend on intellectual property licensed
from Toray, and any dispute over the license would significantly harm our business.
We are dependent on the intellectual
property licensed from Toray. Disputes may arise between us and Toray regarding intellectual property subject to the license agreement.
If disputes over intellectual property that we have licensed prevent or impair our ability to maintain our current licensing arrangements
on acceptable terms, or are insufficient to provide us the necessary rights to use the intellectual property, we may be unable to successfully
develop and launch our Symphony platform and our other product candidates. If we or Toray fail to adequately protect this intellectual
property, our ability to launch our products in the market also could suffer. For so long as we are dependent on the intellectual property
covered by the license agreement for the pursuit of our business, any such disputes relating to the license agreement or failure to protect
the intellectual property could threaten our viability.
We will depend primarily on Toray to file,
prosecute, maintain, defend and enforce intellectual property that we license from it and that is material to our business.
The intellectual property relating
to our Symphony platform is owned by Toray. Under the license agreement, Toray generally has the right to file, prosecute, maintain and
defend the intellectual property we have licensed from Toray. If Toray fails to conduct these activities for intellectual property protection
covering any of our product candidates, our ability to develop and launch those product candidates may be adversely affected and we may
not be able to prevent competitors from making, using or selling competing products. In addition, pursuant to the terms of the license
agreement, Toray generally has the right to control the enforcement of our licensed intellectual property and the defense of any claims
asserting the invalidity of that intellectual property. We cannot be certain that Toray will allocate sufficient resources to and otherwise
prioritize the enforcement of such intellectual property or the defense of such claims to protect our interests in the licensed intellectual
property. In the absence of action by Toray, we may be unable to protect and enforce the proprietary rights on which our business relies.
Even if we are not a party to these legal actions, an adverse outcome could harm our business because it might prevent us from continuing
to use the licensed intellectual property that we need to operate our business. In addition, even if we take control of the prosecution
of licensed intellectual property and related applications, enforcement of licensed intellectual property, or defense of claims asserting
the invalidity of that intellectual property, we may still be adversely affected or prejudiced by actions or inactions of Toray and its
counsel that took place prior to or after our assuming control, and we cannot ensure the cooperation of Toray in any such action. Furthermore,
if we take action to protect, enforce or defend the licensed intellectual property, we may incur significant costs and the attention of
our management may be diverted from our normal business operations. As a result, our business, results of operations and financial condition
could be materially and adversely affected.
We and Toray may be unable to protect or
enforce the intellectual property rights licensed to us, which could impair our competitive position.
In order for our business to
be viable and to compete effectively, the proprietary rights with respect to the technologies and intellectual property used in our products
must be developed and maintained. Toray relies primarily on patent protection and trade secrets to protect its technology and intellectual
property rights. There are significant risks associated with Toray’s ability (or our ability, in the absence of action by Toray)
to protect the intellectual property licensed to us, including:
● Toray’s intellectual property rights may not provide meaningful protection;
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● the other risks described in “— Risks Related to Our Intellectual Property.”
If any of Toray’s patents
or other intellectual property rights fail to protect the technology licensed by us, it would make it easier for our competitors to offer
similar products. Any inability on Toray’s part (or on our part, in the absence of action by Toray) to adequately protect its intellectual
property may have a material adverse effect on our business, financial condition and results of operations.
We and/or Toray may be subject to claims
alleging the violation of the intellectual property rights of others.
We may face significant expense
and liability as a result of litigation or other proceedings relating to intellectual property rights of others. In the event that another
party has intellectual property protection relating to an invention or technology licensed by us from Toray, we and/or Toray may be required
to participate in an interference proceeding declared by the regulatory authorities to determine priority of invention, which could result
in substantial uncertainties and costs for us, even if the eventual outcome was favorable to us. We and/or Toray also could be required
to participate in interference proceedings involving intellectual property of another entity. An adverse outcome in an interference proceeding
could require us and/or Toray to cease using the technology, to substantially modify it or to license rights from prevailing third parties,
which could delay or prevent the launch of our products in the market or adversely affect our profitability.
The cost to us of any intellectual
property litigation or other proceeding relating the intellectual property licensed by us from Toray, even if resolved in our favor, could
be substantial, especially given our early stage of development. A third party may claim that we and/or Toray are using inventions claimed
by their intellectual property and may go to court to stop us and/or Toray from engaging in our normal operations and activities, such
as research, development and the sale of any future products. Such lawsuits are expensive and would consume significant time and other
resources. There is a risk that a court will decide that we and/or Toray are infringing the third party’s intellectual property
and will order us to stop the activities claimed by the intellectual property. In addition, there is a risk that a court will order us
and/or Toray to pay the other party damages for having infringed their intellectual property. Moreover, there is no guarantee that any
prevailing intellectual property owner would offer us a license so that we could continue to engage in activities claimed by the intellectual
property, or that such a license, if made available to us, could be acquired on commercially acceptable terms.
We and Toray may be subject to claims challenging
the invention of the intellectual property that we license from Toray.
We and Toray may be subject
to claims that former employees, collaborators or other third parties have an interest in intellectual property as an inventor or co-inventor.
For example, we and Toray may have inventorship disputes arising from conflicting obligations of consultants or others who are involved
in developing our product candidates. Litigation may be necessary to defend against these and other claims challenging inventorship. If
we and Toray fail in defending any such claims, in addition to paying monetary damages, we and Toray may lose valuable intellectual property
rights, such as exclusive ownership of, or right to use, valuable intellectual property. Such an outcome could have a material adverse
effect on our business. Even if we are successful in defending against such claims, litigation could result in substantial costs and be
a distraction to management and other employees. As a result, it is unclear whether and, if so, to what extent employees of ours and Toray
may be able to claim compensation with respect to our future revenue. We may receive less revenue from future products if any of employees
of Toray or us successfully claim compensation for their work in developing our intellectual property, which in turn could impact our
future profitability.
Risks Related to Our Industry
We face intense competition in the diagnostic
testing market, particularly in the IL-6 space, and as a result we may be unable to effectively compete in our industry.
We expect to compete directly
and primarily with large medical device companies. These large companies have most of the diagnostic testing business and strong research
and development capacity. Their dominant market position and significant control over markets could significantly limit our ability to
introduce our Symphony platform or effectively market and generate sales of our products.
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We have not yet entered the
revenue stage and most of our competitors have long histories and strong reputations within the industry. They have significantly greater
brand recognition, financial and human resources than we do. They also have more experience and capabilities in researching and developing
testing devices, obtaining and maintaining regulatory clearances and other requirements, manufacturing and marketing those products than
we do. There is a significant risk that we may be unable to overcome the advantages held by our competition, and our inability to do so
could lead to the failure of our business.
Competition in the diagnostic
testing markets is intense, which can lead to, among other things, price reductions, longer selling cycles, lower product margins, loss
of market share and additional working capital requirements. To succeed, we must, among other critical matters, gain consumer acceptance
for our products, technical solutions, prices and response time, or a combination of these factors. If our competitors offer significant
discounts on certain products, we may need to lower our prices or offer other favorable terms in order to compete successfully. Moreover,
any broad-based changes to our prices and pricing policies could make it difficult to generate revenues or cause our revenues, if established,
to decline. Moreover, if our competitors develop and commercialize products that are more desirable than the products that we may develop,
we may not convince customers to use our products. Any such changes would likely reduce our commercial opportunity and revenue potential
and could materially adversely impact our operating results.
If we or Toray fail to respond quickly to
technological developments, our products may become uncompetitive and obsolete.
The diagnostic testing market
may experience rapid technology developments, changes in industry standards, changes in customer requirements and frequent new product
introductions and improvements. If we or Toray are unable to respond to these developments, we may lose competitive position, and our
products or technology may become uncompetitive or obsolete, causing our business and prospects to suffer. In order to compete, we and
Toray may have to develop, license or acquire new technology on a schedule that keeps pace with technological developments and the requirements
for products addressing a broad spectrum and designers and designer expertise in our industries.
Risks Related to Ownership of Our Common Stock
We may not be able to satisfy the continued
listing requirements of the NASDAQ Capital Market in order to maintain the listing of our common stock.
We must meet certain financial
and liquidity criteria to maintain the listing of our common stock on the NASDAQ Capital Market. If we fail to meet any of continued listing
standards, our common stock may be delisted. In addition, while we have no present intention to do so, our Board of Directors may determine
that the cost of maintaining our listing on a national securities exchange outweighs the benefits of such listing. A delisting of our
common stock from the NASDAQ Capital Market may have materially adverse consequences to our stockholders, including:
● limited dissemination of the market price of our common stock;
● limited news coverage;
● limited interest by investors in our common stock;
● volatility of the prices of our common stock, due to low trading volume;
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If our common stock is delisted,
we may seek to have our common stock quoted on an over-the-counter marketplace, such as on the OTCQX. The OTCQX is not a stock exchange,
and if our common stock trades on the OTCQX rather than a securities exchange, there may be significantly less trading volume and analyst
coverage of, and significantly less investor interest in, our common stock, which may lead to lower trading prices for our common stock.
We could issue “blank check”
preferred stock without stockholder approval with the effect of diluting interests of then-current stockholders and impairing their voting
rights, and provisions in our charter documents and under Delaware law could discourage a takeover that stockholders may consider favorable.
Our Certificate of Incorporation
provides for the authorization to issue up to 5,000,000 shares of “blank check” preferred stock with designations, rights
and preferences as may be determined from time to time by our board of directors. Our board of directors is empowered, without stockholder
approval, to issue one or more series of preferred stock with dividend, liquidation, conversion, voting or other rights which could dilute
the interest of, or impair the voting power of, our common stockholders. The issuance of a series of preferred stock could be used as
a method of discouraging, delaying or preventing a change in control. For example, it would be possible for our board of directors to
issue preferred stock with voting or other rights or preferences that could impede the success of any attempt to change control of our
company. In addition, advanced notice is required prior to stockholder proposals, which might further delay a change of control.
Shares eligible for future sale may adversely
affect the market for our common stock.
The price of our common stock
could decline if there are substantial sales of our common stock, particularly sales by our directors, executive officers, employees,
and significant stockholders, or when there is a large number of shares of our common stock available for sale.
Our directors, officers and
certain existing stockholders entered into lock-up agreements pursuant to which, subject to certain exceptions, such persons will not
sell shares of our common stock (including common stock underlying options and warrants) that they own for six months after the date of
our IPO. As of December 31, 2021 the shares covered by the lock-up these agreements totaled 9,837,737.
Notwithstanding the foregoing, the lock-up provisions in these agreements may be waived, at any time and without notice by the representative
of the underwriter of our IPO.
Subject to the lock-up agreements,
our existing stockholders (including the holders of our preferred stock and warrants) may be eligible to sell all or some of their shares
of common stock by means of ordinary brokerage transactions in the open market, subject to the limitations of Rule 144, promulgated under
the Securities Act. In general, under Rule 144 as currently in effect, once we have been subject to public company reporting requirements
for at least 90 days, a person who is not deemed to have been one of our affiliates for purposes of the Securities Act at any time
during the 90 days preceding a sale and who has beneficially owned the shares proposed to be sold for at least six months, including
the holding period of any prior owner other than our affiliates, is entitled to sell those shares without complying with the manner of
sale, volume limitation or notice provisions of Rule 144, subject to compliance with the public information requirements of Rule 144.
If such a person has beneficially owned the shares proposed to be sold for at least one year, including the holding period of any prior
owner other than our affiliates, then that person is entitled to sell those shares without complying with any of the requirements of Rule
144. Our affiliates and other persons selling shares on behalf of our affiliates also are entitled to sell as long as they comply with
Rule 144’s manner of sale, volume limitation and notice provisions, in addition to the provisions applicable to non-affiliates described
above.
The market price of the shares
of our common stock could decline as a result of the sale of a substantial number of our shares of common stock in the public market or
the perception in the market that the holders of a large number of shares intend to sell their shares.
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We do not currently intend to pay dividends
on our common stock in the foreseeable future, and consequently, your ability to achieve a return on your investment will depend on appreciation
in the price of our common stock.
We do not anticipate paying
any cash dividends to holders of our common stock in the foreseeable future. Consequently, investors must rely on sales of their common
stock after price appreciation, which may never occur, as the only way to realize any future gains on their investments. There is no guarantee
that shares of our common stock will appreciate in value or even maintain the price at which our stockholders have purchased their shares.
If securities industry analysts do not publish
research reports on us, or publish unfavorable reports on us, then the market price and market trading volume of our common stock could
be negatively affected.
Any trading market for our
common stock will be influenced in part by any research reports that securities industry analysts publish about us. We do not currently
have and may never obtain research coverage by securities industry analysts. If no securities industry analysts commence coverage of us,
the market price and market trading volume of our common stock could be negatively affected. In the event we are covered by analysts,
and one or more of such analysts downgrade our securities, or otherwise reports on us unfavorably, or discontinues coverage or us, the
market price and market trading volume of our common stock could be negatively affected.
As an “emerging growth company”
under applicable law, we will be subject to lessened disclosure requirements, which could leave our stockholders without information or
rights available to stockholders of other public companies that are not “emerging growth companies.”
For as long as we remain an
“emerging growth company” as defined in the JOBS Act, we have elected to take advantage of certain exemptions from various
reporting requirements that are applicable to other public companies that are not “emerging growth companies” including, but
not limited to:
We expect to take advantage
of these reporting exemptions until we are no longer an “emerging growth company”. We could be an emerging growth company
for up to five years, although circumstances could cause us to lose that status earlier. We will remain an emerging growth company until
the earlier of (1) December 31, 2026, (2) the last day of the fiscal year in which we have total annual gross revenue of at least $1.07
billion, (3) the date on which we are deemed to be a large accelerated filer, which is the end of the fiscal year in which the market
value of our common stock that is held by non-affiliates exceeds $700.0 million as of the end of our most recent second fiscal quarter,
and (4) the date on which we have issued more than $1.0 billion in non-convertible debt securities during the prior three-year period.
Because of these lessened regulatory
requirements, our stockholders would be left without information or rights available to stockholders of other public companies that are
not “emerging growth companies.” In addition, we cannot predict if investors will find our common stock less attractive because
we rely on these exemptions. If some investors find our common stock less attractive as a result, there may be a less active trading market
for our common stock and our stock price may suffer or be more volatile.
Because we have elected to use the extended
transition period for complying with new or revised accounting standards for an “emerging growth company” our financial statements
may not be comparable to companies that comply with public company effective dates.
We have elected to use the
extended transition period for complying with new or revised accounting standards under Section 102(b)(1) of the JOBS Act. This election
allows us to delay the adoption of new or revised accounting standards that have different effective dates for public and private companies
until those standards apply to private companies. While we are not currently delaying the implementation of any relevant accounting standards,
in the future we may avail ourselves of these rights, and as a result of this election, our financial statements may not be comparable
to companies that comply with public company effective dates. Because our financial statements may not be comparable to companies that
comply with public company effective dates, investors may have difficulty evaluating or comparing our business, performance or prospects
in comparison to other public companies, which may have a negative impact on the value and liquidity of our common stock.
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Anti-takeover provisions in our charter
documents and Delaware law could discourage, delay or prevent a change in control of our company and may affect the trading price of our
common stock.
We are a Delaware corporation
and the anti-takeover provisions of the Delaware General Corporation Law may discourage, delay or prevent a change in control by prohibiting
us from engaging in a business combination with an interested stockholder for a period of three years after the person becomes an interested
stockholder, even if a change in control would be beneficial to our existing stockholders. In addition, our amended and restated certificate
of incorporation and by-laws may discourage, delay or prevent a change in our management or control over us that stockholders may consider
favorable. Our amended and restated certificate of incorporation and bylaws will:
These provisions could also
limit the price that investors might be willing to pay in the future for shares of our common stock, thereby depressing the market price