UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
☒
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2025
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 001-40133
ENVOY MEDICAL, INC.
(Exact name of registrant as specified in its
charter)
4875 White Bear Parkway, White Bear Lake, MN55110
(Address of principal executive offices)
(877)900-3277
(Registrant’s telephone number, including
area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Trading Symbol(s) Name of each exchange on which registered
Securities registered pursuant
to Section 12(g) of the Act: None
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 Exchange Act). Yes ☐
No ☒
The aggregate market value
of the registrant’s Class A common stock, par value $0.0001 per share, held by non-affiliates of the registrant computed by reference
to the last sales price of such stock, as of the last business day of the registrant’s most recently completed fiscal quarter,
which was December 31, 2025, was approximately $12.7 million. This calculation excludes shares of Class A common stock held by the registrant’s
officers and directors and each person known by the registrant to beneficially own more than 5% of the registrant’s outstanding
shares, as such persons may be deemed to be affiliates. This determination of affiliate status should not be deemed conclusive for any
other purpose.
There were 76,881,110 shares of the registrant’s
Class A common stock, par value $0.0001 per share, outstanding as of March 20, 2026.
DOCUMENTS INCORPORATED IN PART BY REFERENCE
Portions of the registrant’s
definitive proxy statement relating to its 2026 Annual Meeting of Stockholders are incorporated by reference into Part III of this Annual
Report on Form 10-K.
ENVOY MEDICAL, INC.
Annual Report on Form 10-K
For the Year Ended December 31, 2025
Table of Contents
Page
PART I
ITEM 1. Business 1
ITEM 1A. Risk Factors 28
ITEM 1B. Unresolved Staff Comments 54
ITEM 1C. Cybersecurity 54
ITEM 2. Properties 55
ITEM 3. Legal Proceedings 55
ITEM 4. Mine Safety Disclosures 55
PART II
ITEM 6. [Reserved] 56
ITEM 7A. Quantitative and Qualitative Disclosures About Market Risk 73
ITEM 8. Financial Statements and Supplementary Data F-1
ITEM 9A. Controls and Procedures 74
ITEM 9B. Other Information 75
ITEM 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections 75
PART III
ITEM 10. Directors, Executive Officers and Corporate Governance 76
ITEM 11. Executive Compensation 79
ITEM 14. Principal Accounting Fees and Services 79
PART IV
ITEM 15. Exhibits and Financial Statement Schedules 80
i
CERTAIN TERMS
Unless otherwise stated
in this Annual Report on Form 10-K (this “Report”), or the context otherwise requires, references to:
● “Acclaim CI” means the fully implanted Acclaim® cochlear implant;
● “Board” means the board of directors of the Company;
● “Bylaws” means the amended and restated bylaws of the Company;
● “Closing” means the closing of the Merger;
● “Exchange Act” means the Securities Exchange Act of 1934, as amended;
● “GAAP” means accounting principles generally accepted in the United States;
● “JOBS Act” means the Jumpstart Our Business Startups Act of 2012, as amended;
ii
● “Sarbanes-Oxley Act” means the Sarbanes-Oxley Act of 2002, as amended;
● “SEC” means the Securities and Exchange Commission;
● “Securities Act” means the Securities Act of 1933, as amended;
● “Warrants” means the GAT Warrants, Public Warrants, and Shortfall Warrants.
Additionally, references
in this Report to the “Company,” the “registrant,” “Envoy Medical,” “we,” “us”
and “our” in this Report refer to Envoy Medical, Inc. (formerly known as Anzu Special Acquisition Corp I), and references
to our “management” or our “management team” refer to our officers and directors, other than certain historical
information which refers to Legacy Envoy prior to the consummation of the Business Combination.
iii
CAUTIONARY NOTE REGARDING
FORWARD-LOOKING STATEMENTS
This Report contains certain
“forward-looking statements” within the meaning of the United States Private Securities Litigation Reform Act of 1995, Section
27A of the Securities Act and Section 21E of the Exchange Act. All statements other than statements of historical fact contained in this
Report, including statements as to future results of operations and financial position, revenue and other metrics, products, business
strategy and plans, objectives of management for future operations of the Company, market size and growth, competitive position and technological
and market trends, are forward-looking statements. The words “anticipate,” “believe,” “continue,”
“could,” “estimate,” “expect,” “intends,” “may,” “might,” “plan,”
“possible,” “potential,” “predict,” “project,” “should,” “will,”
“would” and similar expressions may identify forward-looking statements, but the absence of these words does not mean that
a statement is not forward-looking. All forward-looking statements are subject to risks, uncertainties, and other factors which could
cause actual results to differ materially from those expressed or implied by such forward-looking statements. These risks and uncertainties
include, but are not limited to:
● Changes in interest rates or rates of inflation;
Should one or more of these
risks or uncertainties materialize, or should any of the underlying assumptions prove incorrect, actual results may vary in material
respects from those expressed or implied by these forward-looking statements. Nothing in this Report should be regarded as a representation
by any person that the forward-looking statements set forth herein will be achieved or that any of the contemplated results of such forward-looking
statements will be achieved. You should not place undue reliance on these forward-looking statements. The Company does not give any assurance
that it will achieve its expected results and does not undertake any duty to update these forward-looking statements, except as required
by law.
iv
Summary
Risk Factors
Our Company is subject to
numerous risks described in Item 1A. Risk Factors and elsewhere in this Report. You should carefully consider these risks before
making an investment. Some of these risks relating to our business objectives, our organization and structure and our securities include:
v
vi
PART I
ITEM 1.
Business
Unless otherwise noted
or the context otherwise requires, all references in this section to “Envoy Medical,” “we,” “us”
or “our” refer to Envoy Medical, Inc. following the Business Combination, other than certain historical information which
refers to the business of Legacy Envoy prior to the consummation of the Business Combination.
Overview
We are a hearing health
company focused on providing innovative medical technologies across the hearing loss spectrum. Our technologies are designed to shift
the paradigm within the hearing industry and bring both providers and patients the hearing devices they desire. We are dedicated to pushing
beyond the status quo to provide patients with improved access, usability, independence, and quality of life. We believe leveraging the
ear’s natural anatomy, rather than external or sub-dermal artificial microphone, is the ideal way for people to hear.
To leverage the natural
ear’s benefits, an implanted sensor was created to pick up incoming sound energy from the ossicular chain (i.e., the three tiny
hearing bones that connect the eardrum to the cochlea). The sensor absorbs the mechanical energy from ossicular chain and turns it into
a signal that can be processed, improved, and increased for a patient’s particular hearing needs.
Our first product, the Esteem
FI-AMEI, received FDA approval in 2010. The Esteem FI-AMEI remains the only FDA approved fully implanted active hearing implant on the
market. The Esteem FI-AMEI failed to gain commercial traction, primarily because the Centers for Medicaid and Medicare Services (“CMS”)
classified it as a hearing aid and therefore not eligible for coverage. We believe hearing aid classification is improper for the Esteem
FI-AMEI and we continue to work towards having the Esteem FI-AMEI properly classified as a Fully Implanted Active Middle Ear Implant.
Despite the commercial challenges
of the Esteem FI-AMEI, roughly 1,000 devices were implanted globally. Some devices were implanted in the early 2000s during clinical
trials, providing us with over two decades of experience with its implantable sensor technology. Throughout our experience, our sensor
technology proved a viable alternative to external or implanted microphones.
In late 2015, we made the
decision to shift our focus from the Esteem FI-AMEI to a new product that would leverage our sensor technology and incorporate it into
a cochlear implant. As a result, we have developed the investigational Acclaim CI. We now believe we have the possibility to disrupt
the cochlear implant market currently dominated by three main incumbents.
Our Product
Cochlear
Implants — Fully Implanted vs. Partially Implanted
The cochlea converts vibrations
from the ossicular chain into nerve signals that are transmitted through the auditory nerve for processing by the brain. Cochlear implants
use electronic signals to directly stimulate the auditory nerve via the cochlea.
Partially implanted cochlear
implants have two main components: a large external component that sits on or behind the patient’s ear and a surgically implanted
internal component. The external component contains a microphone, sound processer, and batteries. A magnetic coil on the external component
lines up with an internal magnetic coil in the internal component. The signal from the external component is transferred to the internal
coil where it is delivered to the electrode array, which is implanted in the cochlea, to electrically stimulate the cochlea.
1
The Acclaim CI is fully
implanted and does not have the need for any external component to be worn on the ear. Unlike partially implanted devices, the Acclaim
CI uses the ear to capture sound via a piezoelectric sensor that is implanted in the middle ear. The sound processor and power source
are also implanted.
CAUTION: Investigational Device — Limited by Federal Law to Investigational Use.
2
Acclaim
CI — A Breakthrough Device
The Acclaim CI received
the Breakthrough Device Designation from the U.S. Food and Drug Administration (“FDA”) in 2019. However, the process
of medical device development is inherently uncertain and there is no guarantee that this designation will accelerate the timeline for
approval or make it more likely that the Acclaim CI will be approved.
Hearing loss is currently
an irreversible and debilitating human condition. Significant hearing loss is correlated with increased anxiety, depression, social isolation,
falls, and other costly health issues. An article published in the journal Acta Otorhinolaryngol Italica in June 2016 suggests that
untreated or undertreated moderate to profound hearing loss correlates with earlier loss of cognitive function and poorer cardiovascular
health.1 While some solutions for hearing loss already exist
(e.g., hearing aids, traditional cochlear implants) these have inherent limitations in being fully or partially external, which limit
patients in initial time to adoption, hours of use during the day (inherent compliance restrictions), lifestyle, and quality of
life.
We believe that the Acclaim
CI will be able to offer hearing benefit over the patient’s baseline condition and may also offer other important advantages over
alternative hearing loss treatments, such as:
3
The Acclaim CI is implanted
by a surgeon through a procedure that we believe will average around two and a half to three hours under general anesthesia. We expect
that patients will experience mild to moderate discomfort after the procedure and benefit from several days of rest after surgery.
A four-week waiting period is required before the Acclaim CI can be activated to allow the middle ear to heal and fluid from surgery
to dissipate. It is expected that the Acclaim CI battery pack will be replaced every 8-12 years via a less invasive surgical procedure
that only replaces the Acclaim CI battery pack in the pectoral region (i.e., the whole system does not need to be replaced, just the
Acclaim CI battery pack).
All of the competitive advantages
referred to above require that the Acclaim CI obtain FDA approval in its current form and substantially on our planned timeline. If FDA
approval is materially delayed for any reason, it is possible that competitors will offer products with similar features before we are
able to market the Acclaim CI.
4
Market
Overview
Overview
of Hearing Loss
According to the
National Center for Health Statistics, hearing loss impacts about 15% of the adult population in the United States.2
Among older adults, nearly 25% of people aged 65 to 74 have disabling hearing loss, and 50% of those aged 75 and older have
disabling hearing loss, according to the National Institute on Deafness and Other Communications Disorders.3
Organizations such as the Centers for Disease Control and Prevention (“CDC”) and the World Health Organization
(“WHO”) have recognized significant hearing loss as one of the most common disabilities impacting people around the
world.4 The WHO estimates economic
impact of untreated or undertreated hearing loss is approximately $750 billion each year.5
In common parlance, the
terms “hearing loss,” “hard of hearing,” or “deafness” are often used to describe a variety of types,
levels, and causes of hearing loss that are treated differently clinically. The hearing loss market can be classified based on causes
and severity of hearing loss.
There are three main types
of hearing loss: sensorineural, conductive, and mixed. Sensorineural hearing loss is due to problems of the inner ear and is often caused
by damage to “hearing hair cells” in the cochlea. Common causes include normal aging, excessive noise exposure, viral infections,
and exposure to drugs that are toxic to the hearing system. According to data published in the Journal of the American Medical Association,
sensorineural hearing loss is the most common form of hearing loss, representing approximately 90% of all hearing loss.6
Conductive hearing loss
is due to mechanical or structural problems with a part of the hearing system, generally a result of congenital issues with or damage
to the ear canal, ear drum, or ossicular chain. Common causes include malformation of a particular part of the hearing system, middle
ear infection, perforation of the eardrum, wax buildup, or dislocation of the ossicles. Conductive hearing loss represents approximately
10% of all hearing loss, according to data published in the Journal of the American Medical Association.7
Finally, mixed hearing loss has some combination of both sensorineural and conductive components.
5
In addition to the three
main types of hearing loss, there are generally five levels of hearing loss severity: normal, mild, moderate, severe, and profound. Normal
hearing is often defined as 0-20 decibels (“dB”) of hearing loss and even with a slight loss most people do not notice
any impact. Mild hearing loss is often defined as 20-40 dB of hearing loss with some people reporting difficulty hearing soft spoken
people. Most people with mild hearing loss do not address their hearing loss.
As hearing loss progresses,
the impact on the individual becomes more noticeable. Moderate hearing loss is often defined as 40-70 dB of hearing loss and begins
to show up with people reporting the ability to “hear but not understand” speech. More words are missed in conversations,
and it is harder to hear in certain environments.
Moderate to profound hearing
loss is often defined as 70-90 dB of hearing loss. People with severe hearing loss are unable to hear most speech and miss large
portions of conversations without assistance. People with severe hearing loss may find that even with hearing aids they are not getting
enough benefit to hear and understand most of the words in a conversation.
Profound hearing loss is
often defined as 90 dB or more of hearing loss. People with profound hearing loss cannot hear speech or loud sounds such as sirens or
horns. Most people who are considered clinically “deaf” would have severe to profound hearing loss.
Overview
of Hearing Devices
There are several different
types of hearing devices to address hearing loss. It is common for hearing loss to progress (i.e. continue to get worse) over the course
of an individual’s life, so it is possible that a patient may have one or more hearing devices during the course of their lives.
Personal Sound Amplification
Devices (“PSAPs”) are small electronic devices used to make sounds louder but with little sophistication. They are limited
in ability and are only suitable for normal to mild hearing loss.
Hearing aids are the most
common form of hearing device. These are small sound-amplifying devices that come in a variety of shapes and sizes. They are always external
and pick up sound through a microphone and amplify the sound through a speaker in the ear canal. There are over-the-counter hearing aids
(no prescription required) designed to treat mild to moderate hearing loss and prescription hearing aids designed to treat more significant
hearing loss. Hearing aids can be used for all types of hearing loss and are typically the first device a person with hearing loss will
try.
Active middle ear implants
are implanted fully or partially in the middle ear (i.e., where the three ossicles or hearing bones are located). They are typically
designed to treat moderate to severe sensorineural hearing loss, but some also can address a certain level of mixed hearing loss. Middle
ear implants use mechanical energy to directly drive the cochlea with mechanical energy. Middle ear implants are not common due to the
lack of reimbursement coverage throughout the world. The Esteem FI-AMEI is the only fully implanted active middle ear device currently
with FDA approval and commercially available in the United States.
Cochlear implants are electrical
hearing devices. They deliver electrical stimulation to the cochlea via an electrode array. The electrical stimulation is picked up by
the hearing nerve and patients are able to perceive sound. Traditionally, all cochlear implants were partially implanted with an external
component. We believe the Acclaim CI will be the first-of-a-kind cochlear implant with no external component worn on the ear or required
for daily hearing and that leverages the ear to pick up sound (i.e., versus a microphone).
Auditory osseointegrated
implants (i.e. bone conduction implants) are used for conductive or certain types of mixed hearing loss. They are not used for sensorineural
hearing loss. They address a patient’s conductive hearing loss by transferring sound information through the patient’s skull
via vibration.
6
Acclaim
CI’s Market Opportunity
The Acclaim CI is designed
to address sensorineural hearing loss that is not adequately addressed by hearing aids. As part of the clinical trial, the Acclaim CI
will only be intended for adults with severe-to-profound sensorineural hearing loss who have been deemed adequate candidates by a qualified
physician.
We believe there is a significant
population of adults in the United States who are cochlear implant candidates but choose not to get traditional, partially-implanted
cochlear implants because of the external component required for daily hearing. We believe this is one of the main reasons why industry
sources, such as a 2018 paper published in the journal Trends in Hearing, and our own market research estimate 5-8% penetration
rate for cochlear implants in the adult population.8
Based on published literature
and industry sources (prior to candidacy expansion for cochlear implant candidates), including the American Journal of Public Health,
we believe there are approximately 6.6 million Americans age 12 or older with severe to profound hearing loss in at least one ear.9
Incorporating estimates for clinical indications (including limited benefit from hearing aids), we believe there are approximately 2.8 million
adults in the United States who could qualify for a cochlear implant. Based on an assumed selling price in the United States
for a traditional cochlear implant of $30,000 (a $5,000 premium over the average sale price of current partially-implanted devices),
we believe the adult cochlear implant market in the United States alone represents a potential market opportunity of over $80 billion.
Based on the published literature
and industry sources previously referenced, we believe there will be roughly 25,000 – 30,000 adults implanted with a
cochlear implant in the United States every year by 2026. Based on an assumed selling price of $30,000, that is an annual market
opportunity that exceeds $750 million for just the United States adult population.
In addition, many estimates
from published literature and industry sources were made prior to changing candidacy within the cochlear implant market. Two major shifts
in clinical candidacy have likely increased the market sizes: (a) the CMS has expanded coverage from 40% word recognition scores
to 60% word recognition scores and (b) there is more acceptance of treating single sided deafness with a cochlear implant.
While these numbers represent
the entire adult cochlear implant market in the United States, we believe that if we are able to establish distribution channels
and strategic relationships with clinics and healthcare professionals, the Acclaim CI will be in a unique position to capture existing
market share quickly and to also capture a healthy portion of the unserved market — those who are not pursuing a cochlear implant
because of the external components. Moreover, it is reasonable to believe that Acclaim CI will demand a higher average selling price
than existing partially implanted cochlear implants.
7
We also believe there are
substantial total market and annual market opportunities outside the United States. Currently, our analysis estimates that approximately
50% of the hearing device market is international. Given the greater number of hearing loss patients outside the United States,
we also believe the international market is currently significantly underserved and offers significant opportunity for expansion if we
are able to obtain the necessary regulatory approvals and expand our international distribution capabilities. However, we will be unable
to expand into international markets if we are unable to obtain these regulatory approvals.
Market
Competition
There are currently three
major cochlear implant manufacturers — Cochlear Ltd., Advanced Bionics (“Sonova”), and Med-El. Oticon Medical (“Demant”)
was set to become the fourth global cochlear implant player, but Cochlear Ltd purchased the cochlear implant business portion of Oticon
Medical from Demant. There are a few other minor regional players, such as Nurotron in China, which appears to be focused on developing
countries.
Cochlear Ltd. (ASX: COH)
is the leading cochlear implant device manufacturer with approximately 65% of global market share and a market capitalization of approximately
$12 billion USD as of December 31, 2025.
In comparison to Envoy Medical,
the three current primary providers of cochlear implants have a greater penetration into the hearing loss treatment market, which has
allowed them to develop relationships with audiologists, otolaryngologists (ENT physicians), hearing loss centers, and the other physicians
on whom providers rely for referrals. The current providers also have existing relationships with patients who have used their devices.
In addition, current providers also have substantially greater financial and operational resources, which may give them an advantage
in capitalizing on new technology and responding to other changes to the marketplace.
If we are able to obtain
regulatory approval of the Acclaim CI, we believe physicians and patients will be receptive to its competitive advantage as a fully implanted
cochlear implant. However, based on our lack of history in the market, we will need to make material investments in patient advertising,
provider education and training, distribution capabilities, and physician strategic relationships to capitalize on such advantages and
gain market share. We will be unable to begin investing in these areas until we obtain FDA approval.
Market
Trends
The first documented cochlear
implant was completed in 1961. The initial devices were crude single electrode cochlear implants with the intended purpose of giving
some basic environmental and situational awareness to adults with profound hearing loss. A few years later, multi-channel devices
were introduced. Over time, multi-channel devices evolved more quickly and allowed for more robust processing and mapping strategies.
By the 1980s, cochlear implants were an accepted standard of care for adults with profound hearing loss with the multi-channel devices
becoming the preferred design by most healthcare professionals.
The next two to three decades
focused on the evolution of multi-channel electrodes and creating new sound processing and electrode mapping techniques to focus on speech
understanding. As a result, most cochlear implant patients can understand speech quite well with the appropriate follow-up and speech
therapy. Candidacy was expanded to include children and people with different levels or types of hearing loss.
8
Over the last few years,
the trends of the cochlear implant industry have mirrored that of the hearing aid industry, with less emphasis on hardware design and
more placed on appearance and usability. The physical form and function have not changed significantly, although new sound processing
strategies have been implemented to improve patient outcomes. While product reliability has gradually improved, clinical efficacy seems
to have plateaued.
To increase market share,
manufacturers have focused on making cochlear implants more visibly appealing (e.g., slightly smaller external components, color “kits”
for the external components), user friendly (e.g., connectivity), environmentally robust (e.g., water resistance), and more reliable
(e.g., fewer recalls).
We believe that the trend
over the next decade will be a continuation of the focus on usability, connectivity, lifestyle, and miniaturization. As cochlear implants
become more accepted as a therapy for individuals with moderate to profound sensorineural hearing loss, manufacturers will pay attention
to ways of making patients interested in their device over a similarly performing competing device.
Another major trend within
the industry is the loosening of the clinical candidacy requirements. In addition to people with “better” hearing levels
being considered for cochlear implants (e.g., people with moderate hearing in the lower frequencies) there has also been a movement to
implant people with “single sided deafness” (“SSD”). Both Med El (in 2019) and Cochlear (in 2021) achieved
FDA approval for treatment of those with SSD and asymmetric hearing loss. As a result, more patients are eligible for cochlear implants
than ever before.
Finally, industry
participants have made material investments to inform more adult candidates about cochlear implants to increase usage. Currently,
industry sources, including a 2018 paper published in the journal Trends in Hearing,10
and our own market research estimate that less than 10% of adults who meet the indications for cochlear implant candidacy are
implanted, leaving more than 90% of the current adult market as untapped potential for new technologies. However, we will require
FDA approval for the Acclaim CI and significant investment in our training and distribution network before we can access such
market.
Reimbursement
Strategy
Cochlear implants enjoy
a fully developed reimbursement pathway. Cochlear implants have been deemed a coverable benefit by CMS and enjoy an existing National
Coverage Determination (“NCD”). In the United States, many private and public payors cover at least one cochlear
implant per adult. There is existing coding, coverage, and payment for cochlear implants.
9
Unlike the Esteem FI-AMEI,
which was classified as a hearing aid by CMS and therefore statutorily excluded from being a coverable benefit under Medicare and Medicaid,
the Acclaim CI is expected to be eligible for Medicare and Medicaid coverage as a cochlear implant.
As mentioned above, the
Acclaim CI received Breakthrough Device Designation. There are potential reimbursement-related benefits to the designation (i.e., the
ability to receive higher reimbursements than are received by incumbent devices); however, the implementation of these benefits has not
been finalized by Congress and CMS and there is no guarantee that Breakthrough Device Designation will offer any benefit with respect
to reimbursement.
Pre-Clinical
Work and Early Feasibility Study
The Acclaim CI has undergone
extensive benchtop and laboratory testing throughout the design and development process. Animal testing was done to demonstrate the reliability
of the Acclaim CI’s rechargeable battery and charging safety algorithm.
In the third quarter of
2022, we received an Investigational Device Designation (“IDE”) approved by the FDA to undergo a small Early Feasibility
Study (“EFS”) at Mayo Clinic in Rochester, Minnesota. The principal investigator is Dr. Colin Driscoll, a respected
veteran in the global cochlear implant industry. There were three patients enrolled, implanted, and activated in the fourth quarter of
2022.
The purpose of this early
feasibility study was to demonstrate that the Acclaim CI is capable of operating as it was designed. In other words, there are no safety
or efficacy endpoints. The study is essentially designed to elicit patient and professional feedback regarding their experience using
the device and inform any necessary design changes prior to beginning the pivotal clinical study.
We believe that the initial
results of the EFS were primarily promising. All EFS subjects have achieved hearing percepts through activation of the implant stimulator
and achieve unique pitch percepts on each electrode, typical of all other cochlear implant recipients. The patients use their devices
daily.
A few design shortcomings
were identified and addressed. The primary concern was a signal to noise issue that limited programmability and performance. Mitigation
and resolution strategies were put in place.
Two of the three patients
chose to wear a hearing aid on top of their Acclaim CI. This combination helped to mitigate the noise and provide patients with a signal
to noise ratio that allows them to use and enjoy the performance of the device. It was an unanticipated discovery during the EFS that
a hearing aid on top of the Acclaim CI could provide patients with additional improvement. We are intrigued by the possibility of offering
a fully implanted cochlear implant that could also allow for the use of a hearing aid or other ear accessory (e.g., ear buds) because
the Acclaim CI leverages the ear to pick up sound.
10
Timeline
to Commercialization of Acclaim CI
In the United States, before
we can market a new Class III medical device, which the Acclaim CI is, we must first receive FDA approval via the Premarket Approval
(“PMA”) approval process. We currently anticipate obtaining FDA approval in late 2027 or early 2028, although the process
of obtaining FDA approval is uncertain, and we may not obtain approval on that timeline or at all.
A large component of our
PMA will be a successful pivotal clinical study. We received approval for our IDE on October 31, 2024. However, FDA approved our IDE
based on a staged clinical study that required approval from the FDA to move from the first stage to the second stage. We received approval
to expand the study to the second and final stage on October 3, 2025.
The objective of this pivotal
clinical study is to demonstrate the safety and efficacy of the Acclaim cochlear implant for the treatment of severe to profound sensorineural
hearing loss and is designed as a prospective, multicenter, non-randomized, open label clinical trial to evaluate the safety and efficacy
of the Acclaim CI. The pivotal clinical study protocol currently requires 56 total patients enrolled and followed for 12 months. We completed
enrollment of all 56 patients on March 10, 2025.
The pivotal clinical study
protocol has primary efficacy and safety endpoints, many secondary endpoints and few exploratory endpoints. The primary efficacy endpoint
will compare speech perception (CNC words) from baseline to twelve-month follow-up and the safety endpoint will characterize incidence
and frequency of adverse events. The total pivotal clinical study duration is estimated to be approximately two and a half years. There
is no guarantee that we will meet any of the safety, efficacy, secondary, or exploratory endpoints or enroll all patients.
Once the pivotal study is
completed, the data will be analyzed and sent to the FDA with the PMA submission. The FDA review may take 6-12 months depending on what
comes up during the review and if the FDA review team recommends the device for a Panel Track review. There is no guarantee that PMA
approval will be obtained.
If FDA approval is delayed,
we will be unable to move forward with expansion of our corporate infrastructure, development of distribution capabilities, and implementation
of product technical support and provider training, and the costs associated with delayed approval may limit the funds available for
investment in these areas. Regulatory delays would also put us further behind our established competitors in the market and may allow
additional competitors into the market with products that have competitive advantages over ours.
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Moreover, if FDA approval
is delayed beyond our current plan or if delay is based on safety or efficacy concerns that require product redesign, we will be required
to raise significant additional capital to continue our operations. We may be unable to raise these additional funds on favorable terms
or at all, especially if approval is delayed based on device performance or other issues with the Acclaim CI. Because the Acclaim CI
is currently our only product candidate that we believe can be commercialized, we would be unable to continue operations if it were determined
that we could not obtain FDA approval for the Acclaim CI.
Go-To-Market
Strategy
Assuming PMA approval is
received, our commercialization strategy will be quality over quantity to facilitate the Acclaim CI gaining a meaningful foothold in
the marketplace without unnecessary complications stemming from attempting to grow too quickly.
The surgical professionals
believed to be best suited to implant the Acclaim CI are otologists and neurotologists (i.e., sub-specialties of otolaryngologists).
This community is relatively small compared to other specialties, with only a few hundred active professionals in the United States.
We anticipate carefully selecting roughly 30 sites to be trained and ready to implant upon commercialization. These 30 sites are expected
to be spread throughout the country and focus on quality of surgical care and capacity to serve a sufficient number of qualified patients.
Following the initial 30 sites, we intend to add an additional 30 sites every year until there are roughly 150 sites actively implanting
the Acclaim CI. However, this strategy will require significant investments in the development of our management team, corporate infrastructure,
and manufacturing capabilities, as well as expansion of our sales, distribution, and training network. We do not anticipate offering
the Acclaim CI at every cochlear implant center in the country.
The other key professional
group is audiologists. Each surgical site will have its own audiology team familiar with cochlear implants. The audiology team is critical
to the success of a surgical site’s performance. We will invest resources for in-person training, and technical and product support
as well as virtual training, and technical and product support for audiologists servicing patients with our products.
Outside of surgical sites,
there is a subset of audiologists who traditionally work with patients currently using hearing aids. These audiologists will be instrumental
in identifying and referring potential Acclaim CI patients to surgical sites. One of the largest barriers to more cochlear implant candidates
becoming cochlear implant recipients is the lack of awareness and understanding by the audiologists of the technology and associated
benefits available for their patients. We believe strong relationships can be built with both surgical teams and audiologists to ensure
both are able to understand the options and benefits of the technology and differentiate themselves from the marketplace by offering
and working with the Acclaim CI. However, we will be unable to commercialize until we are able to obtain FDA approval for the Acclaim
CI.
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Commercial
Activities Outside of the United States
We anticipate pursuing the Conformité Européenne mark
(“CE Mark”) in the European Union shortly after FDA approval. The CE Mark will allow the Acclaim CI to be sold throughout
the European Economic Area. We are currently focusing our resources on FDA approval and will address commercial activities outside of
the United States when the FDA approval process is more advanced.
Eventually, we anticipate
pursuing other markets based on the potential size of the markets and availability of reimbursement, such as Australia, Brazil, and parts
of Asia, although no such approval is guaranteed, and approval may take longer and involve greater cost than we currently anticipate.
Product
Evolution and Next Generation Products
The focus of research and
development over the next several years will be to improve upon the existing product design of the Acclaim CI. Quality and reliability
will be a primary focus of the team in the initial years of market release. We will also focus on the growing need for robust software
and user interfaces for both the patient and the professional.
Esteem
FI-AMEI — a potentially viable product with reimbursement
The Esteem FI-AMEI is a
unique technology that could serve a niche segment of the hearing market. FDA-approved since 2010, the Esteem FI-AMEI suffered from a
lack of reimbursement due to categorization as a hearing aid. We believe that this categorization is inaccurate as, unlike a hearing
aid which is essentially an externally worn microphone and speaker simply making sounds louder, the Esteem FI-AMEI is fully implanted
and replaces the function of the middle ear to directly stimulate the cochlear via the stapes. Although efforts to change that categorization
have been unsuccessful to date, a bipartisan Congressional bill, titled the Hearing Device Coverage Clarification Act was introduced
in both the House of Representatives and in the Senate. The bill seeks to clarify that fully implanted active middle ear hearing devices
(“FI-AMEIs”) are prosthetics and not subject to the current Medicare hearing aid coverage exclusion. If the bill is successful
clarifying that FI-AMEIs are eligible for coverage and then a change does happen to reimbursement policy for fully implanted active middle
ear implants, the Esteem FI-AMEI is an existing FDA approved product ready to capitalize on such a change.
Were the change in reimbursement
policy to occur and we were to focus on marketing the Esteem FI-AMEI, it would benefit from upgrades to its power source and chip design.
Such upgrades are not currently a priority of the organization as we view pursuing the commercialization of the Acclaim CI as the appropriate
focus and best use of resources.
Existing Esteem FI-AMEI
patients and professionals who work with those patients will continue to be supported. It is not only important for the market to know
we support our patients for life, but it is the right thing to do for the patients.
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New implantations of the
Esteem FI-AMEI are not expected to be more than a few per year until, and if, the reimbursement policy changes. Absent a change in reimbursement
policy, there only will be nominal revenue from replacement of sound processors for existing patients who need a new battery.
Intellectual
Property
We rely on a combination
of patent, copyright, trademark and trade secret laws and confidentiality and invention assignment agreements to protect our intellectual
property rights. As of March 2, 2026, we had rights to 40 issued U.S. patents, which are estimated to expire between 2028 and 2043 assuming
all required fees are paid, 9 pending U.S. patent applications, 48 issued foreign patents and 26 pending foreign and international patent
applications. Our patents cover, among other things, aspects of our current Acclaim CI system and future product concepts. Some of the
pending foreign and international patent applications preserve an opportunity to pursue patent rights in multiple countries.
Our pending patent applications
may not result in issued patents, and we cannot assure you that any current or subsequently issued patents will protect our intellectual
property rights or provide us with any competitive advantage. While there is no active litigation involving any of our patents or other
intellectual property rights and we have not received any notices of patent infringement, we may be required to enforce or defend our
intellectual property rights against third parties in the future. See “Risk Factors - Risks Relating to our Intellectual Property”
for additional information regarding these and other risks related to our intellectual property portfolio and their potential effect
on us.
Material
Patents
As of March 2, 2026, our
material patents, their jurisdiction, patent number, and expiration date are listed in the tables below:
Jurisdiction Patent No. Expiration Date Title
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Jurisdiction Patent No. Expiration Date Title
U.S. 9635478 03/09/2034 Coulomb counter and battery management for hearing aid
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Jurisdiction Patent No. Expiration Date Title
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Trademarks
As of March 2, 2026, we
had trademark registrations, covering “Acclaim”, “Envoy”, “Envoy Medical”, “EnvoyCEM”,
“Esteem”, “Invisible Hearing”, and “MEDCEM.” Our U.S. trademarks have registration dates between
2002 and 2021 and have upcoming renewal dates between 2027 and 2033. All of our trademarks are in current use, and we expect that they
will remain in use for the foreseeable future. We also have pending trademark applications covering “Nature’s Microphone”,
“Naturemic” and “America’s Hearing Implant Company” with application dates in 2024 and 2025 and use in
2025.
We also rely, in part, upon
unpatented trade secrets, know-how and continuing technological innovation, and may in the future rely upon licensing opportunities,
to develop and maintain our competitive position. We protect our proprietary rights through a variety of methods, including confidentiality
and assignment agreements with suppliers, employees, consultants and others who may have access to our proprietary information.
Manufacturing
and Supply
We currently do all final
manufacturing at our facility in White Bear Lake, Minnesota. We rely on a limited number of technicians and have some critical equipment
that would be difficult to replace in a timely manner. In order to scale quickly, we will need to expand our manufacturing capacity and
add additional shifts.
We rely on third-party suppliers
to manufacture some of our critical sub-assemblies. Outsourcing sub-assemblies manufacturing reduces our need for additional capital
investment. We select our suppliers carefully and require they adhere to all applicable regulations. We monitor our suppliers and always
inspect all components received. Our quality assurance process monitors and maintains supplier performance through qualification and
periodic supplier reviews and audits.
Certain components used
in our products are supplied by single-source suppliers, but we believe that we are able to plan supply in a manner that would minimize
the effect of losing any of our existing suppliers. Our suppliers manufacture the components they produce for us and test our components
and devices to our specifications. We intend to maintain sufficient levels of inventory to enable us to continue our operations while
we qualify additional potential suppliers in the event that one or more of our single-source suppliers were to encounter a delay in supply