10-K
1
form10-k.htm
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM
10-K
(Mark
One)
For
the fiscal year ended December 31, 2020
For
the transition period from _________________________ to _________________________
Commission
file number 000-54785
INTEGRITY
APPLICATIONS, INC.
(Exact
name of registrant as specified in its charter)
(Address of principal executive offices) (Zip Code)
Registrant’s
telephone number, including area code 972 (8) 675-7878
Securities
registered pursuant to Section 12(b) of the Act: None
Securities
registered pursuant to Section 12(g) of the Act: Common stock, par value $0.001 per share
Indicate
by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
Yes
[ ] No [X]
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 [X]
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
[X] No [ ]
Indicate
by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive
Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such
shorter period that the registrant was required to submit and post such files).
Yes
[X] No [ ]
Indicate
by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not
be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference
in Part III of this Form 10-K or any amendment to this Form 10-K [X].
Indicate
by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller
reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller
reporting company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer [ ] Accelerated filer [ ]
Non-accelerated filer [X] Smaller Reporting Company [X]
Securities
registered pursuant to Section 12(b) of the Act:
Title of each class Trading Symbol(s) Name of each exchange on which registered
None.
The
aggregate market value of the voting stock held by non-affiliates is $48,840,000 based on the closing price of $0.37
per share of the registrant’s common stock, as reported on the OTCQB on June 30, 2020, the last business
day of the registrants most recently completed second fiscal quarter of 2020.
As
of April 13, 2021, 200,781,596 shares of the registrant’s common stock, par value $0.001 per share, were
outstanding.
DOCUMENTS
INCORPORATED BY REFERENCE:
None,
except as noted for Part III information in the Company's Schedule 14A to be filed on or before April 15, 2021.
TABLE
OF CONTENTS
GENERAL 3
CAUTIONARY NOTE REGARDING FORWARD LOOKING STATEMENTS 3
PART I 4
Item 1. Business. 4
Item 1A. Risk Factors. 24
Item 1B. Unresolved Staff Comments. 39
Item 2. Properties. 39
Item 3. Legal Proceedings. 40
Item 4. Mine Safety Disclosures 40
Item 6. Selected Financial Data 40
Item 7A. Quantitative and Qualitative Disclosures About Market Risk. 45
Item 8. Financial Statements and Supplementary Data. 45
Item 9A. Controls and Procedures. 45
Item 9B. Other Information. 46
PART III 46
Item 10. Directors, Executive Officers and Corporate Governance. 46
Item 11. Executive Compensation. 46
Item 14. Principal Accounting Fees and Services. 46
Item 15. Exhibits, Financial Statement Schedules. 47
SIGNATURES 50
GENERAL
Unless
the context otherwise requires, the terms “we”, “our”, “ours” “us” and “Integrity”,
refer to A.D. Integrity Applications, Ltd., an Israeli corporation (“Integrity Israel”), for all periods prior to
July 15, 2010 and to Integrity Israel and Integrity Applications, Inc., a Delaware corporation, on a combined basis, for all periods
from and including July 15, 2010.
CAUTIONARY
NOTE REGARDING FORWARD LOOKING STATEMENTS
This
Annual Report on Form 10-K includes forward-looking statements. These forward-looking statements include statements about our
expectations, beliefs or intentions regarding our product development efforts, business, financial condition, results of operations,
strategies or prospects. All statements other than statements of historical fact included in this Annual Report on Form 10-K,
including statements regarding our future activities, events or developments, including such things as future revenues, product
development, clinical trials, regulatory approval, market acceptance, responses from competitors, capital expenditures (including
the amount and nature thereof), business strategy and measures to implement strategy, competitive strengths, goals, expansion
and growth of our business and operations, plans, references to future success, projected performance and trends, and other such
matters, are forward-looking statements. Risks that could affect our business
include the duration and scope of the COVID-19 pandemic and the impact on the demand for our products; actions by governments,
businesses and individuals taken in response to the pandemic; the length of time of the COVID-19 pandemic and the possibility
of its reoccurrence; the timing required to develop effective treatments and a vaccine in the event of future outbreaks; the eventual
impact of the pandemic and actions taken in response to the pandemic on global and regional economies; and the pace of recovery
when the COVID-19 pandemic subsides. The words “believe,” “expect,” “intend,” “anticipate,”
“estimate,” “plan,” “may,” “will,” “could,” “would,” “should”
and other similar words and phrases or the negative of such terms, are intended to identify forward-looking statements. The forward-looking
statements made in this Annual Report on Form 10-K are based on certain historical trends, current conditions and expected future
developments, as well as other factors we believe are appropriate in the circumstances. These statements relate only to events
as of the date on which the statements are made and we undertake no obligation to update publicly any forward-looking statements,
whether as a result of new information, future events or otherwise, except as required by law. All of the forward-looking statements
made in this Annual Report on Form 10-K are qualified by these cautionary statements and there can be no assurance that the actual
results anticipated by us will be realized or, even if substantially realized, that they will have the expected consequences to
or effects on us or our business or operations. Whether actual results will conform to our expectations and predictions is subject
to a number of risks and uncertainties that may cause actual results to differ materially. Risks and uncertainties, the occurrence
of which could adversely affect our business, include the risks identified in this Annual Report on Form 10-K under the caption
“Risk Factors,” beginning on page 30. We undertake no obligation to publicly update or revise any forward-looking
statements to reflect events or circumstances that may arise after the date of this report unless required by law.
PART
I
Item
1. Business.
Overview
Incorporated
in Delaware in May 2010, we are a medical device company focused on the design, development and commercialization of non-invasive
glucose monitoring devices for use by people with diabetes and pre-diabetics. On July 15, 2010, we completed a reverse triangular
merger with Integrity Israel and Integrity Acquisition Corp. Ltd., an Israeli corporation and a wholly owned subsidiary of ours,
pursuant to which Integrity Acquisition Corp. Ltd. merged with and into Integrity Israel and all of the stockholders and option
holders of Integrity Israel became entitled to receive shares and options in us in exchange for their shares and options in Integrity
Israel (the “Reorganization”). Following the Reorganization, the former equity holders of Integrity Israel were entitled
to the same proportional ownership in us as they had in Integrity Israel prior to the Reorganization. As a result of the Reorganization,
Integrity Israel became a wholly owned subsidiary of ours. We operate primarily through Integrity Israel.
Integrity
Israel was founded in 2001 with a mission to develop, produce and market non-invasive glucose monitors for home use by diabetics.
We have developed a non-invasive glucose monitor, the GlucoTrack® glucose monitoring device, which is designed to help
people with diabetes and pre-diabetics obtain glucose level readings without the pain, inconvenience, cost and difficulty of conventional
(invasive) spot finger stick devices. The first generation GlucoTrack® (“GlucoTrack 1.0”) utilizes
a patented combination of ultrasound, electromagnetic and thermal technologies to obtain glucose measurements in less than one
minute via a small sensor that is clipped onto one’s earlobe and connected to a small, handheld control and display unit,
all without drawing blood or interstitial fluid.
We
are currently developing our own companion applications and a cloud-based solution, as well as conducting ongoing discussions
with potential partners, to offer an effective platform to provide real time, data driven personalized tools to effectively help
a user manage their diabetes. In addition to being a critical and effective management tool for the end user, we believe that
third parties such as insurers, pharmaceutical companies and advertisers would be willing to pay for the de-identified data that
we will obtain through our platform, and that this is an opportunity for us to develop an additional revenue source.
After
a short calibration process of approximately thirty minutes and consisting of three invasive reference measurements, GlucoTrack
1.0 can be used to non-invasively measure glucose levels for six months before a user is required to repeat the calibration process.
The entire calibration process can be performed by the user themselves without the need for a trained calibrator. We believe the
simple-to-perform calibration, as well as the infrequency of the required re-calibration are significant advantages over our competition.
GlucoTrack
1.0 has received the initial Conformité Européene
(CE) Mark (indicating the conformity of the Company’s product with health, safety, and environmental protection standards
for products sold within the European Economic Area) approval for the GlucoTrack® 1.0 from DEKRA Certification B.V.,
our European notified body (the “Notified Body”), which is an entity that has been accredited by a member state of
the European Union (“EU”) to assess whether a product to be placed on the market meets certain preordained standards.
The intended use for GlucoTrack 1.0 received by the Notified Body is for both those with Type 2 diabetes as well as those suffering
from pre-diabetes.
Receipt
of the CE Mark allows us to market and sell GlucoTrack® 1.0 glucose monitoring device in EU member countries that have
adopted the European Medical Device Directive (the “MDD”) without being subject to additional national regulations
with regard to demonstration of performance and safety. However, although the MDD is applicable throughout the EU, in practice
it does not ensure uniform regulation throughout the EU. Accordingly, member countries may apply and enforce the MDD’s terms
differently, and certain EU member countries may request or require performance and/or safety data in addition to the MDD’s
requirements from time to time, on a case-by-case basis. The CE Mark also permits the sale in countries that have an MDD Mutual
Recognition Agreement with the EU. This would include some countries in South East Asia as well as in Latin America, opening new
potential markets for Integrity on a global basis.
Safety
and quality are non-negotiables in the medical devices industry. Regulatory requirements are increasingly stringent throughout
every step of a product’s life cycle, including service and delivery. More and more, organizations in the industry are expected
to demonstrate their quality management processes and ensure best practice in everything they do. ISO 13485, is an internationally
agreed standard that sets out the requirements for a quality management system specific to the medical devices industry. On February
19, 2016, we received an extension of our ISO 13485:2003 certificate and Annex II certification from the EU. The ISO 13485:2003
certification signifies that we have met the standards required for company-wide implementation of device quality management system(s).
The scope of the certification is design, development, manufacture and service of non-invasive glucose monitoring systems for
home use. Annex II also addresses quality control systems. The certification allows us to self-certify certain modifications and
changes and simplifies some of the reporting to and review by the relevant Notified Body. This can shorten the CE-mark review
process of future GlucoTrack® enhancements or revisions, including software updates and other improvements of the device that
do not affect the intended use and/or safety performance. The ISO 13485:2003 and Annex II certifications enable us to potentially
reduce the time to market for product sales on new, enhanced or modified GlucoTrack® devices.
Clinical
trials conducted in Germany by Pfutzner Science & Health Institute, GmbH, headed by Prof. Dr. Andreas Pfutzner, on subjects
with Type 2 diabetes and pre-diabetes, as well as at Soroka University Medical Center, Beer-Sheva, Israel, demonstrated
favorable results. Results from the trials show 99.7% of the study data points within the clinically accepted A and B zones
of the Consensus Error Grid (which is a new tool for evaluating the accuracy of a blood glucose meter) (Type 2), 99.3% of the
study data points were within the clinically accepted A and B zones of the Clarke Error Grid (which is a tool used to quantify
the clinical accuracy of blood glucose estimates generated by meters as compared to a reference value), 17.0% Mean Absolute Relative
Difference, and 12.9% Median Absolute Relative Difference. In addition, the German trial concluded that the data confirms the
performance of the GlucoTrack® among its intended users, including pre-diabetic patients.
In
addition, the Company has demonstrated (1) the GlucoTrack® algorithm, which compensates for the tissue-lagging effect
relative to blood glucose changes post-meal intake, significantly improves GlucoTrack® accuracy at different post-prandial
(post- meal) states, and equalizes accuracy for pre- and post-meal glucose readings; (2) GlucoTrack® clinical accuracy as
measured by Consensus Error Grid (CEG) showed 100% of the pre-prandial readings in the A+B zones, and 98.2% of the post-prandial
readings in the A+B zones; (3) GlucoTrack® 1.0 demonstrates consistent glucose measurement repeatability between different
GlucoTrack® devices and on each earlobe of the same subject; (4) the repeatability of different GlucoTrack® devices is
similar at all tested glucose ranges and post-prandial time periods; and (5) the GlucoTrack® mean precision absolute relative
difference (PARD) of 8.2% is equivalent or better than the independently reported PARD values of commercially available continuous
glucose monitoring systems.
The
Company conducted a study that evaluated GlucoTracker accuracy in 172 adults with type 2 diabetes who were prescribed one or more
medications for major medical conditions associated with diabetes, and presented key findings of this study at the European Association
for the Study of Diabetes Congress (EASD) in Lisbon, Portugal. The experiment stratified participants into five medication groups,
focusing on anti-cholesterolemia, anti-hypertension, anti-thrombotic, and anti-diabetic (prolonged duration and short and mixed
duration) medications. The study demonstrated that the use of these common concomitant medications in diabetes had no effect on
the performance of GlucoTrack®.
In
2018, the Company presented at the 11th International Conference on Advanced Technologies & Treatments for Diabetes (ATTD
2018) in Vienna, Austria. The Company presented data on the performance of a non-invasive glucose monitoring device (GlucoTrack®)
with regard to accuracy and precision. Device accuracy data was presented for 37 people with type 2 diabetes using the consensus
error grid analysis for type 2 diabetes and measuring the median absolute relative difference (ARD). The results showed that 99.6%
of 257 measurements were in zones A and B of the Consensus error grid, with 90.3% of the measurements in zone A, the mean and
median ARD were 17.2% and 12.9%, respectively, and at various glucose levels, mean PARD ranged from 7.7%-8.7%. Data was also presented
on sensor to sensor precision in 20 people with type 2 diabetes where ~19 simultaneous measurements using two GlucoTrack®
devices, one on each earlobe. The results show that GlucoTrack® is highly accurate with sensor-to-sensor precision is comparable
to that of CGMs (GlucoTrack: 8.1%, Dexcom G6: 9.0%, Freestyle Navigator: 9.6%).
The
Company had begun the implementation of a proof
of concept pilot program for GlucoTrack 1.0 in the Netherlands, a country chosen based on the relatively smaller
size of the marketplace to allow us to be able to rapidly assess our performance and make adjustments as necessary.
We have been working closely with our exclusive distributor in the Netherlands, Medireva B.V., and have accomplished
product and disease area training across the organization and segmentation of the local target audiences including key
opinion leaders, treating physicians, and diabetes nurses. The most important aspect of our pilot program in the Netherlands
are the discussions held with many health insurance companies. Approval of full or partial reimbursement by the health insurance
companies will be a key factor in enabling us to achieve significant sales volume. The Company has made progress with several
of these companies on initial programs with GlucoTrack 1.0 as an important step towards reimbursement approval.
Talent
development, recruiting and organizational health have been a critical focus of the Company over the last 12 months. A number
of high-quality individuals have joined the Company, each of whom bring extensive experience in their respective fields. We have
bolstered our Senior Management with the recruitment of Erez Ben-Zvi, a highly experienced MedTech development professional who
joined us last year as Vice President of Product, and recently took on the additional role of General Manager, and Shalom Shushan,
a seasoned executive who joined us as Chief Technology Officer. Paul V. Goode PhD, who has a decorated career developing innovative
medical technologies, including at DexCom and MiniMed, joined our board of directors. Several highly talented and accomplished
executives joined the Company as senior advisors to the Board. These include Yair Briman, the former CEO of Philips Healthcare
Informatics, Daniel McCaffrey MBA MA, a world-renowned behavioral scientist and digital health expert currently at Samsung Health
and formerly of Dexcom, and Dr. Alexander Raykhman PhD, a measurement and artificial intelligence expert. We intend to continue
to invest in our talent and to expand and strengthen all areas within the company.
Recently,
the Company performed a top-down analysis of the GlucoTrack 1.0 model to identify areas of potential enhancement, as it relates
to the platform, integrations, sensor technologies, accuracy as well as costs to manufacture. The result of this comprehensive
review is an accelerated development plan for GlucoTrack 2.0. GlucoTrack 2.0 will be a completely wireless and rechargeable earclip
to be paired with a smartphone, with more capabilities and features, increased accuracy, significantly greater margins for the
Company and lower cost to the end-user as compared to GlucoTrack 1.0.
As
previously reported, the Company has made significant progress towards receiving insurance reimbursement in the Netherlands. With
the new accelerated development plan for GlucoTrack 2.0, with all of the expected advantages over GlucoTrack 1.0, it made clear
to the Company that introducing GlucoTrack 2.0 rather than the GlucoTrack 1.0 would serve the diabetes market and the Company
more effectively. We are currently working with our European partners on the roadmap for distribution of GlucoTrack 2.0 when completed
and ready to market.
In
addition to the European markets, the Company is now focused on the U.S. market as well, including building out its U.S. go-to-market
strategy and planning the required FDA clinical trials and field testing to support its entrance into the market. The Company
is currently in the process of identifying clinical sites in the U.S., interviewing Contract Research Organizations (CRO’s),
and forming its Scientific and Medical Advisory Boards. We intend to build out a team to support the U.S. activities, while continuing
our technology development in our R&D facility located in Israel.
On
February 14, 2020, the Company entered into a Securities Purchase Agreement and Registration Rights Agreement (collectively, the
“Agreements”) with an accredited investor, pursuant to which the accredited investor purchased 37,500,000 shares of
the Company’s common stock, par value $0.001 per share, for an aggregate gross purchase price of $15 million, less
cash expenses of approximately $2 million.
Effective
June, 2020, Erez Ben-Zvi has joined the Company as its Vice President of Product and as a member of the Company’s
executive leadership team. On February 8, 2021 the Company promoted Mr. Ben-Zvi to General Manager in addition to his role as
Vice President of Product
On,
February 2, 2021 David Malka resigned from his role as
President, effective April 6, 2021.
We
do not own commercial manufacturing facilities and do not intend to build commercial manufacturing facilities of our own in the
foreseeable future.
We
have not yet generated any material revenues from our operations and, as of December 31, 2020, have incurred an accumulated deficit
of $93,399 thousand and negative operating cash flows. We currently have no material sources of recurring revenue and therefore
are dependent upon external sources for financing our operations. However, on February 14, 2020, we closed on a private placement
of our common stock with gross proceeds of $15,000,000, so the Company has operating capital to last at least one year from the
date of this Annual Report without generating any revenue.
Market
Opportunity
Diabetes
Diabetes
is a chronic, life-threatening disease for which there is no known cure. Diabetes is caused by the body’s inability to produce
or effectively utilize the hormone insulin. This inability prevents the body from adequately regulating blood glucose levels.
Glucose, the primary source of energy for cells, must be maintained at certain concentrations in the blood in order to permit
optimal cell function and health. Normally, the pancreas provides control of blood glucose levels by secreting the hormone insulin
to decrease blood glucose levels when concentrations are too high. In people with diabetes, blood glucose levels fluctuate between
very high levels, a condition known as hyperglycemia, and very low levels, a condition known as hypoglycemia. Hyperglycemia can
lead to serious long-term complications, such as blindness, kidney disease, nervous system disease, amputations, stroke and cardiovascular
disease. Hypoglycemia can lead to confusion, loss of consciousness or death.
Diabetes
is typically classified into two major groups: Type 1 and Type 2. Type 1 diabetes is characterized by the body’s inability
to produce insulin, resulting from destruction of the insulin producing cells of the pancreas. Individuals with Type 1 diabetes
must rely on frequent insulin injections in order to regulate and maintain blood glucose levels. Type 1 diabetes is frequently
diagnosed during childhood or adolescence, although disease onset can occur at any age. Type 2 diabetes, the more common form
of diabetes, is characterized by the body’s inability to either properly utilize insulin or produce enough insulin. Type
2 diabetes is associated with older age, obesity, family history of diabetes, history of gestational diabetes, impaired glucose
metabolism, physical inactivity and race or ethnicity. Depending on the severity of Type 2 diabetes, individuals may require diet
and nutrition management, exercise, oral medications or insulin injections to regulate blood glucose levels.
According
to the Diabetes Atlas (Ninth Edition) published by the International Diabetes Federation in 2019, approximately 463 million adults
worldwide, between the ages of 20 and 79, or over 9% of the world’s adult population, were estimated to suffer from diabetes
in 2019 (not including those persons who suffer from impaired glucose tolerance or gestational diabetes, diabetic conditions first
arising during pregnancy). The International Diabetes Federation estimates that this number will grow to approximately 700 million
adults worldwide by 2045.
Glucose
Monitoring
Blood
glucose levels can be affected by many factors, including the carbohydrate and fat content of meals, exercise, stress, illness
or impending illness, hormonal releases, variability in insulin absorption and changes in the effects of insulin in the body.
Given the many factors that affect blood glucose levels, maintaining glucose within a normal range can be difficult. Diabetics
generally manage their blood glucose levels by administering insulin or ingesting carbohydrates throughout the day to maintain
blood glucose within normal ranges. Normal ranges in diabetics vary from person to person. In order to maintain blood glucose
levels within normal ranges, diabetics must first measure their blood glucose levels so that they can make the proper therapeutic
adjustments. As adjustments are made, additional blood glucose measurements may be necessary to gauge the individual’s response
to the adjustments. More frequent testing of blood glucose levels provides patients with information that can be used to better
understand and manage their diabetes. Testing of blood glucose levels is usually done before meals, after meals and before going
to sleep. Diabetics who take insulin usually need to test more often than those who do not take insulin.
Clinical
data supports the recommendation that frequent monitoring of blood glucose levels is an important component of effective diabetes
management. The Diabetes Control and Complications Trial1, consisting of patients with Type 2 diabetes, and the 1993
UK Prospective Diabetes Study2, consisting of patients with Type 2 diabetes, demonstrated that patients who intensely
managed blood glucose levels delayed the onset and slowed the progression of diabetes-related complications. In the Diabetes Control
and Complications Trial, a major component of intensive management was monitoring blood glucose levels at least four times per
day using conventional spot finger stick blood glucose meters. The Diabetes Control and Complications Trial demonstrated that
intensive management reduced the risk of complications by 76% for eye disease, 60% for nerve disease and 50% for kidney disease.
Furthermore, a recent meta-analysis of over 25 prospective studies concluded that chronic hyperglycemia in type 2 diabetes is
associated with increased risks of all-cause mortality and cardiovascular outcomes independently from other conventional risk
factors.3 However, despite the evidence that intensive glucose management reduces the long-term complications associated
with diabetes, Karter et al. reported in the 2000 issue of Diabetes Care that 67% of people with type 2 diabetes fail to routinely
monitor their glucose levels.4
Spot
finger stick devices are the most prevalent devices for blood glucose monitoring. These devices require users to insert a strip
into a glucose meter, take a blood sample with a finger stick and place a drop of blood on a test strip that yields a single point
in time blood glucose measurement. Despite continued developments in the field of blood glucose monitors, the routine measurement
of glucose levels remains invasive, painful, inconvenient, difficult and costly. This has resulted in a sub-optimal and irregular
measurement regimen for many diabetics.
1
Group, U. P. D. S. (UKPDS); others Intensive blood-glucose control with sulphonylureas or insulin compared with conventional
treatment and risk of complications in patients with type 2 diabetes (UKPDS 33). The Lancet1998, 352, 837–853.
2
Diabetes Control and Complications Research Group; others The effect of intensive treatment of diabetes on the development
and progression of long-term complications in insulin-dependent diabetes mellitus. N Engl J Med1993, 329,
977–986.
3
hang, Y.; Hu, G.; Yuan, Z.; Chen, L. Glycosylated Hemoglobin in Relationship to Cardiovascular Outcomes and Death in Patients
with Type 2 Diabetes: A Systematic Review and Meta-Analysis. PLOS ONE2012, 7, e42551, doi:10.1371/journal.pone.0042551.
4
Karter, A. J.; Ferrara, A.; Darbinian, J. A.; Ackerson, L. M.; Selby, J. V. Self-monitoring of blood glucose: language and
financial barriers in a managed care population with diabetes. Diabetes Care2000, 23, 477–483.
The
FDA has approved continuous glucose monitoring system (“CGMS”) devices for blood glucose monitoring, when prescribed
by a doctor. CGMS devices use sensors inserted under the skin to check glucose levels in interstitial fluid. The sensor stays
in place for up to fourteen days and then must be replaced. A transmitter sends information about glucose levels via radio waves
from the sensor to a pager-like wireless monitor. According to the National Institute of Diabetes and Digestive and Kidney Diseases
at the National Institutes of Health, CGMS device users must check blood samples with a conventional glucose meter to calibrate
the CGMS devices, and because currently approved CGMS devices are not as accurate as standard blood glucose meters, users should
confirm glucose levels with a conventional glucose meter when making treatment decisions.
To
our knowledge, with the exception of one other device, the GlucoTrack 1.0 is still the only approved device for use in
the EU for spot non-invasive blood glucose measurement. The FDA has previously approved a single non-invasive product for glucose
trend analysis, the GlucoWatch®, so long as the device was used with conventional finger stick glucose monitoring devices.
However, the device is no longer available commercially. We are not aware of any other devices that have been approved for use
in either the United Stated or the EU for spot or continuous non-invasive blood glucose measurement.
We
believe that a significant market opportunity exists for a reliable, inexpensive, non-invasive blood glucose measurement device
and that such a device could greatly increase compliance with blood glucose measurement recommendations and help many diabetics
better manage their disease, providing significant benefits to both patients and payors.
The
Product
Our
first generation non-invasive blood glucose monitor, the GlucoTrack 1.0, utilizes a patented combination of ultrasound,
electromagnetic and thermal technologies to obtain blood glucose measurements in less than one minute via a small sensor that
is clipped onto one’s earlobe and connected to a handheld control and display unit. GlucoTrack 2.0, currently under development,
utilizes substantially identical underlying sensor technology, and is expected to be a completely wireless sensor to be clipped
on the earlobe. GlucoTrack eliminates the handheld unit and will transmit results directly to a user’s smartphone.
We
believe that GlucoTrack addresses the unmet need for more frequent monitoring of blood glucose among people with diabetes by overcoming
two of the most significant challenges facing the market:
● pain, as GlucoTrack is a truly non-invasive device; and
We
believe that the overall costs associated with owning and using a GlucoTrack® device are expected to be substantially lower
than the cost of purchasing and using single use invasive devices over an extended period of time. We intend to seek reimbursement
approval for GlucoTrack® from third-party payors, including government payors (such as the Medicare and Medicaid programs
in the United States, in the event GlucoTrack® is approved for commercial sale in the United States), managed care organizations
and other third-party payors. There can be no assurance that such third party-payors will provide reimbursement coverage for GlucoTrack®
or, if so, whether such reimbursement coverage will be adequate. See “Risk Factors - If GlucoTrack® or our future product
candidates, if any, fail to achieve market acceptance or reimbursement coverage from managed care organizations or third-party
payors, we may not be able to generate significant revenue or achieve or sustain profitability”.
Instead
of directly measuring the glucose level of a user’s blood, as conventional spot finger stick devices do, GlucoTrack®
uses a small, non-invasive sensor that is clipped onto a user’s earlobe to obtain certain body measurements using three
technologies. Within one minute, GlucoTrack® will produce a blood glucose measurement.
Since
the GlucoTrack® non-invasive measurement does not directly measure glucose levels in the blood, but rather measures
a series of physiological characteristics that correlate with glucose levels, each patient must be calibrated by using a reference
to a measurement obtained from an invasive device. Calibration consists of comparing an individual patient’s physiological
measurements obtained using GlucoTrack® to measurements obtained from an invasive device under different circumstances over
a defined 30-minute period (three measurements that require approximately 10 minutes each).
The
three different technologies used by GlucoTrack®, ultrasound, electromagnetic and thermal, simultaneously measure three independent
criteria. These three measurements (criteria) are combined together by a unique (online) algorithm to produce an acceptable measurement
of a user’s blood glucose level.
The
technologies operate as follows:
Non-invasive
devices generally require frequent recalibration. The main reasons for calibration are that tissue parameters generally fluctuate
in the area of the measurement and are sensitive to the location of the sensor and the impact of potential disturbances. Disturbances
are less frequent in the earlobes, where GlucoTrack® takes its measurements. Utilizing three channels simultaneously reduces
the noise contribution in the measurement. In addition, the personal ear-clip contains sensors to help users attach the device
to the proper part of the ear lobe. The Notified Body for our CE Mark approval has determined that the initial calibration of
the GlucoTrack 1.0 device is valid for a period of six months which we believe is a significant competitive advantage,
while to our knowledge, competing products require recalibration significantly much more frequently. Therefore, we expect GlucoTrack®
will require only an initial calibration upon use of a new personal ear-clip (to be replaced every six months) and will not require
further recalibration.
GlucoTrack®
does not use any optical method (either Infra-Red (IR) or Near Infra-Red (NIR) technology), which we understand are being used
by other developers of non-invasive blood glucose measurement devices. We believe that optical technologies are less reliable
than the GlucoTrack’s combination of ultrasound, electromagnetic and thermal technologies due to inherent physiological
limitations with optical technology. More specifically, optical technology is based on dispersion of a beam that is analyzed by
spectrometric methods. As such devices are non-invasive, the beam passes through other components in the fingertip, such as skin,
bone, muscle and fat tissue, which interfere with the measurements. Generally, most of these interferences have been overcome,
but not the epidermis, primarily due to roughness, pigmentation and perspiration, which act like lenses in optical wavelengths.
Unlike
conventional spot finger stick devices, which require single-use glucose test strips, GlucoTrack® requires no short- term
disposables. We believe that the GlucoTrack’s personal ear-clip will need to be replaced only once every six months,
although regulatory authorities may require that replacement occur more frequently. Since there is no additional cost or pain
involved with each blood glucose measurement using GlucoTrack®, we believe that users of our device would be encouraged to
take multiple blood glucose measurements per day, significantly increasing compliance with blood glucose measurement recommendations
and helping diabetics better manage their disease. More frequent testing of blood glucose levels may provide a patient with information
that can be used to determine optimal timing and dosage for corrective treatments such as insulin, and can also direct a patient
to seek a clinical analysis or detailed testing and diagnosis.
The
GlucoTrack 1.0 has received CE Mark approval, which allows us to market and sell GlucoTrack® 1.0 in EU member
countries that have adopted the MDD without being subject to additional national regulations with regard to demonstration of performance
and safety. While the MDD is applicable throughout the EU, it requires only a minimum level of harmonization among member countries.
Accordingly, member countries may apply and enforce the MDD’s terms differently, and certain EU member countries may request
or require performance and/or safety data additional to the MDD’s requirements from time to time, on a case-by-case basis.
Moreover, the MDD notwithstanding, because the regulatory regimes of the EU member countries are significantly diverse, it is
difficult to predict future regulatory developments and risks. GlucoTrack® 1.0 has not yet been cleared or approved
for commercial sale in the United States. See “Government Regulatory - Regulation of the Design, Manufacture and Distribution
of Medical Devices” below for a discussion of the approval process for commercial sale in the United States. There can
be no assurance that approval for commercial sale in any additional jurisdiction will be obtained on a timely basis or at all.
On
January 21, 2020, we announced receipt of a CE Mark for a significant improvement to our product, an enhancement which allows
a user to perform the calibration process by themselves, without the need for a certified
calibrator.
We
do not have commercial manufacturing facilities and do not intend to build commercial manufacturing facilities of our own in the
foreseeable future. Our suppliers and their manufacturing facilities must comply with applicable regulations in the jurisdictions
in which GlucoTrack® is to be marketed (including ISO 13485 in the EU), current quality system regulations, which include
current good manufacturing practices, and to the extent laboratory analysis is involved, current good laboratory practices. There
can be no assurance that we will be able to enter into agreements with qualified manufacturers on terms acceptable to us, or at
all, or that, once contracted, such manufacturers will perform as expected.
Furthermore,
the manufacturing of GlucoTrack® may be impacted by the Recast Directive on the Restriction of Hazardous Substances in Electrical
and Electronic Equipment, 2011/65/EU (“RoHS 2”). RoHS 2 is a new EU directive that came into force on July 22, 2014.
Like the MDD, RoHS 2, a recast of Directive 2002/95/EC that will cover electrical and electronic medical devices, is relevant
in order to obtain CE Marking for certain products. RoHS 2 compliance requires medical device manufacturers to: draw up required
technical documentation; conduct an internal control procedure in accordance with Module A of Annex II to Decision No. 768/2008/EC;
prepare a Declaration of Conformity; and affix CE Marking to a finished product. Although these requirements are similar to those
of the MDD, RoHS 2 does not require a Notified Body assessment of compliance. However, if they are not compliant with RoHS 2,
medical device manufacturers face the risk of being barred from selling medical devices in the EU after July 22, 2014.
Sales
& Marketing
We
have a limited number of dedicated sales and marketing personnel, as we intend to collaborate with third parties with established
sales and marketing operations in the medical device industry (such as the distributors described below) to market and sell GlucoTrack®
to point of sale end users and/or local distributors. However, there can be no assurance that we will be able to enter
into additional distribution agreements on terms acceptable to us or at all or that, once contracted, our distributors will perform
as expected.
GlucoTrack®
1.0 has been cleared and approved for commercial sale in the following jurisdictions: EU (subject to registration by the
local distributors with the respective countries), Israel, Turkey, South Korea, Hong Kong, New Zealand and numerous Arab countries.
We cannot provide any assurance that we will receive the required local regulatory approvals in any of the countries in which
such approvals are required, and therefore we may never be permitted to commence commercial sales of our products in such territories.
Further discussions with other potential distributors are in different stages.
We
are currently in the process of developing our wireless 2.0 model and upon readiness, we intend to conduct clinical trials in
the U.S. for eventual domestic commercialization.
Research
& Development
We
focus significant time and resources on research and development in connection with our efforts to continue to develop, improve
and commercialize GlucoTrack®, as well as in connection with our development of other GlucoTrack® models. Our continuing
research and development activities are primarily focused on software and algorithm improvements intended to improve the accuracy
of the device, clinical trials to test the performance of the GlucoTrack® device when used by children and teenagers between
the ages of six and 18, preparation for future FDA trials, testing new characteristics of the device, development of a new device
in the GlucoTrack® family and seeking to streamline and continue to simplify the calibration process. See “Item 7 –
Management’s Discussion and Analysis of Financial Condition and Results of Operation – Results of Operation”
below for a discussion of the research and development expenses for the fiscal years ended 2020 and 2019.
Our
strategic priorities include the research and development of product enhancements that will improve the ease and usability of
GlucoTrack for patients with a future generation of products. We are focusing our research and development activities around 2
main strategic areas:
1. GlucoTrack® 2.0
The
objective of this project is to transform the existing device into a simple, easy to use wireless ear-clip which would measure
glucose and communicate the results seamlessly to any other platform through a wireless connection or a Bluetooth connection to
a smart device such as a smartphone, tablet or computer, eliminating the current handheld display. The result would be a user-friendly,
inconspicuous measuring device for the management of diabetes and pre-diabetes. We expect this new device to have much greater
patient desire to purchase and user acceptance. We also expect this new device will have a significantly lower cost to manufacture
than our current device.
2. Digital Health Applications
We
are currently developing smart device applications (“Apps”) to facilitate the interaction of users with Glucotrack®
and the glucose data collected. The Apps will be compatible with both IOS and Android operating systems. We intend to develop
Apps that support the management of Type 2 diabetes and pre-diabetic patients by providing immediate feedback and insights that
can be derived from glucose measurements. Enhanced capabilities within the Apps may include goal setting, alarms and reminders,
and diabetes management tips and tools. It will also be designed to provide analyses of trends over multiple time periods. The
goal is to provide relevant information to guide patients in their journey to change behaviors and improve the management of their
condition. The Apps are expected to have a user-directed capability to connect with third party healthcare providers (physicians,
dieticians, and nurse practitioners) in order to receive professional guidance based on the accumulated information leading to
improved management of the condition and better disease outcomes.
Regulatory
Considerations
Healthcare
is heavily regulated by federal, state and local governments in the United States, and by similar authorities in other countries.
Any product that we develop must receive all relevant regulatory approvals or clearances, as the case may be, before it may be
marketed in a particular country. The laws and regulations affecting healthcare change regularly, thereby increasing the uncertainty
and risk associated with any healthcare- related venture. The United States government has in the past considered, is currently
considering and may in the future consider healthcare policies and proposals intended to curb rising healthcare costs, including
those that could significantly and adversely affect reimbursement for healthcare products such as GlucoTrack® devices. These
policies have included, and may in the future include: basing reimbursement policies and rates on clinical outcomes, the comparative
effectiveness and costs of different treatment technologies and modalities; imposing price controls and taxes on medical device
providers; and other measures. Future significant changes in the healthcare systems in any jurisdiction in which GlucoTrack®
or our future products, if any, may be cleared for sale could also have a negative impact on the demand for the GlucoTrack®
or our future products, if any. These include changes that may reduce reimbursement or payment rates for such products.
In
the United States, the federal government regulates healthcare through various agencies, including but not limited to the following:
(i) the FDA, which administers the Food, Drug, and Cosmetic Act, as well as other relevant laws; (ii) the Centers for Medicare
& Medicaid Services (“CMS”), which administers the Medicare and Medicaid programs; (iii) the Office of Inspector
General, which enforces various laws aimed at curtailing fraudulent or abusive practices including, by way of example, the Anti-Kickback
Law, the Anti-Physician Referral Law, commonly referred to as the Stark Law, the Anti-Inducement Law, the Civil Money Penalty
Law, and the laws that authorize the Office of Inspector General to exclude health care providers and others from participating
in federal healthcare programs; and (iv) the Office of Civil Rights which administers the privacy and security aspects of the
Health Insurance Portability and Accountability Act of 1996 (“HIPAA”). All of the aforementioned are agencies within
the Department of Health and Human Services. Healthcare is also provided or regulated, as the case may be, by the Department of
Defense through its TriCare program, the Department of Veterans Affairs under, among other laws, the Veterans Health Care Act
of 1992, the Public Health Service within the Department of Health and Human Services under the Public Health Service Act, the
Department of Justice through the Federal False Claims Act and various criminal statutes, and state governments under the Medicaid
program and their internal laws regulating all healthcare activities. If and when we receive FDA approval to market GlucoTrack®
in the United States, we will be subject to regulation by some or all of the foregoing agencies.
The
applicable regulatory schemes in the EU are significantly more diverse than those in the United States and do not lend themselves
to similar summary. Although the CE Mark system and the MDD require a minimum level of harmonization in the EU, each EU member
country may impose additional regulatory requirements. Because there are numerous EU member countries with distinct legal systems,
the scope of potential regulatory requirements in each of the EU countries (additional to the harmonized EU requirements) is difficult
to summarize or predict.
Regulation
of the Design, Manufacture and Distribution of Medical Devices
Any
product that we develop must receive all relevant regulatory clearances or approvals, as the case may be, before it may be marketed
in a particular country.
Sales
of medical devices outside the United States are subject to foreign regulatory requirements that vary widely from country to country.
These laws and regulations range from simple product registration requirements in some countries to complex clearance and production
controls in others. As a result, the processes and time periods required to obtain foreign marketing approval may be longer or shorter
than those necessary to obtain FDA approval (as described below). These differences may affect the efficiency and timeliness of international
market introduction of GlucoTrack®. For countries in the EU, medical devices must display a CE Mark before they may be imported or
sold and must comply with the requirements of the MDD or the Active Implantable Medical Device Directive. On June 4, 2013, we received
our CE Mark approval for the first generation GlucoTrack® non-invasive glucose monitoring device from the Notified Body. Receipt
of the CE Mark allows us to market and sell the GlucoTrack® 1.0 model glucose monitoring device in EU member countries that
have adopted the MDD without being subject to additional national regulations with regard to demonstration of performance and safety.
However, although the MDD is applicable throughout the EU, in practice it does not ensure uniform regulation throughout the EU. Rather,
the MDD requires only a minimum level of harmonization in the EU. Accordingly, member countries may apply and enforce the MDD’s
terms differently, and certain EU member countries may request or require performance and/or safety data in addition to the MDD’s
requirements from time to time, on a case-by-case basis. The CE Mark also permits the sale in countries that have an MDD Mutual Recognition
Agreement with the EU. On August 31, 2015, we received approval from the Notified Body for improvements to the GlucoTrack® 1.0
model which simplify and shorten (from approximately 2.5 hours to approximately half an hour) the initial calibration process for
the device. These improvements are intended to reduce the backlog created as purchasers of the device await calibration. In addition,
we received approval from the Notified Body on the updated intended use for the device, which expands the intended user population to
include not only Type 2 diabetics, but persons suffering from pre-diabetes conditions as well, which we believe represents a material
expansion of the potential market for the device. In December 2015, we received approval from the Notified Body for further improvements
to the GlucoTrack® model 1.0 that increase the accuracy and efficacy of the device. On February 19, 2016, we received an extension
of our ISO 13485:2003 certificate and Annex II certification from the EU. The ISO 13485:2003 certification signifies that we have met
the standards required for company-wide implementation of device quality management system(s). The scope of the certification is design,
development, manufacture and service of non-invasive glucose monitoring systems for home use. Annex II also addresses quality control
systems. The certification allows us to self-certify certain modifications and changes and simplifies some of the reporting to and review
by the relevant Notified Body. This can shorten CE-mark review process of future GlucoTrack® enhancements or revisions.
Without an Annex II certification, each new device enhancement or modified version would be subject to the full EU CE-mark review process.
The ISO 13485:2003 and Annex II certifications enable us to potentially improve the time to market for product sales on new, enhanced
or modified GlucoTrack® devices. On January 21, 2020, the Company announced that it has received CE Mark approval for
a major enhancement to GlucoTrack, allowing for a user to perform the calibration process by themselves, without the need for a certified
calibrator. The initial CE Mark approval received for GlucoTrack required a calibration process that took three hours to complete, required
eight invasive finger stick reference measurements, needed to be repeated every thirty days and required a certified calibrator to perform
the calibration. After a series of successful enhancements and approvals, the calibration process now takes just thirty minutes, requires