Item 1A. Risk Factors 23
Item 1B. Unresolved Staff Comments 37
Item 2. Properties 37
Item 3. Legal Proceedings 37
Item 4. Mine Safety Disclosures 37
Part II
Item 6. Reserved 39
Item 7A. Quantitative and Qualitative Disclosures about Market Risk 43
Item 8. Financial Statements and Supplementary Data 44
Item 9A. Controls and Procedures 62
Item 9B. Other Information 63
Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections 63
Part III
Item 10. Directors, Executive Officers and Corporate Governance 64
Item 11. Executive Compensation 71
Item 14. Principal Accountant Fees and Services 76
Part IV
Signatures 79
FORWARD-LOOKING
STATEMENTS
This Annual Report
on Form 10-K (this “Report”) contains “forward-looking statements” within the meaning of Section 27A of the Securities
Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange
Act”), that relate to future events or to our future operations or financial performance. Any forward-looking statement involves
known and unknown risks, uncertainties and other factors that may cause our actual results, levels of activity, performance or achievements
to differ materially from any future results, levels of activity, performance or achievements expressed or implied by such forward-looking
statement.
Words such as, but
not limited to, “believe,” “expect,” “anticipate,” “estimate,” “forecast,”
“intend,” “may,” “plan,” “potential,” “predict,” “project,” “targets,”
“likely,” “will,” “would,” “could,” “should,” “continue,” “scheduled”
and similar expressions or phrases, or the negative of those expressions or phrases, are intended to identify forward-looking statements,
although not all forward-looking statements contain these identifying words. Although we believe that we have a reasonable basis for
each forward-looking statement contained in this report, we caution you that these statements are based on our estimates or projections
of the future that are subject to known and unknown risks and uncertainties and other important factors that may cause our actual results,
level of activity, performance, experience or achievements to differ materially from those expressed or implied by any forward-looking
statement. Actual results, level of activity, performance, experience or achievements may differ materially from those expressed or implied
by any forward-looking statement as a result of various important factors, including our critical accounting policies and risks and uncertainties
relating, to:
· our strategies, prospects, plans, expectations, forecasts or objectives;
· our ability to expand, protect and maintain our intellectual property rights;
· our analysis of the target market for our insulin pump;
· regulatory developments in the United States and other countries;
· general economic, business, political and social conditions;
· our ability to generate significant revenues and achieve profitability;
· our ability to manage the growth of our business;
· the success of competing third-party products;
· various other matters, many of which are beyond our control.
PART
I
ITEM
1. BUSINESS
Our fiscal year ends
on March 31 of each calendar year. Each reference to a fiscal year in this Report, refers to the fiscal year ended March 31 of the calendar
year indicated (for example, fiscal 2022 refers to the fiscal year ended March 31, 2022). Unless the context requires otherwise,
references to “we,” “us,” “our,” and the “Company” refer to Modular Medical, Inc. and
its consolidated subsidiary.
Overview
We are a development
stage medical device company focused on the design, development, and commercialization of an innovative insulin pump using modernized
technology to increase pump adoption in the diabetes marketplace. Through the creation of a novel two-part patch pump, our MODD1 product
candidate, or MODD1, we seek to fundamentally alter the trade-offs between cost and complexity and access to the higher standards of
care that presently available insulin pumps provide. By simplifying and streamlining the user experience from introduction, prescription,
reimbursement, training and day-to-day use, we seek to expand the wearable insulin delivery device market beyond the highly motivated
“super users” and expand the category into the mass market. The product candidate seeks to serve both the Type 1 and the
rapidly growing especially in terms of device adoption, type 2 diabetes markets.
Differentiation
We believe that there
are a number of shortcomings and issues with currently available insulin pumps that prevent a substantial number of people who require
insulin on a daily basis from choosing an insulin pump to treat their diabetes. We believe, that by tailoring our insulin pump to address
such factors, we can expand the scope and adoption rate of insulin pump usage. We believe that to achieve broader market acceptance,
an insulin pump must be easier to learn to use, be less time consuming to operate, more intuitive to both patients and physicians, and
meet the standards for coverage by insurance providers so that co-payments required from patients are affordable and the hurdles to insurance
coverage are significantly reduced.
Among the more
prominent issues are:
Our team has substantial
knowledge of the diabetes industry and experience in developing, obtaining regulatory authorization for, and bringing insulin pumps to
market. Based on this experience, we believe that our innovative insulin pump, using a new and proprietary method of pumping insulin,
can address most or all of these shortcomings. It provides a state-of-the-art insulin pump capable of both basal (steady flow) and bolus
(mealtime dosing) insulin disbursement. It also has been designed considering a natural migration path to multi-chamber/multi-liquid
pumps, potentially offering an exciting array of new therapies to patients with diabetes and other conditions.
Our goal is to become
the leader in expanding access to insulin pump technology to a wider portion of diabetes sufferers and provide not just care for the
super users, but “diabetes care for the rest of us.” We believe there is a substantial opportunity to penetrate the type
2 MDI marketplace, whether through this new insulin pump or further simplification of pumps for the type 2 marketplace.
The MODD1 is a high-precision,
first-line pump that we believe represents the best choice for new pump patients because it is easy to afford, easy to learn, easy to
use, and has a revolutionary design and technology that enable precision with low-cost manufacture and high reproducibility.
Key features include:
· One button interface, easy to learn and use;
· 90-day reusable, 3-day disposable;
· Removable at any time from an adhesive bracket;
· No external controller required, no charging, no battery replacement; and
· Slim profile, lighter weight.
A proprietary survey
of American healthcare payors representing 50 million covered lives (approximately one-third of U.S. covered lives) performed for us
by industry leading survey firm ISA has demonstrated that payors are willing to grant equivalent or preferential coverage for a product
with this feature set at launch in exchange for rebates of approximately 20%. These costs are built into all of our models.
Diabetes
Classifications and Therapies
Diabetes is typically
classified as either type 1 or type 2:
Glucose,
the primary source of energy for cells, must be maintained at certain levels in the blood in order to permit optimal cell function and
health. In people with diabetes, blood glucose levels are not well controlled and frequently become very high, a condition known as hyperglycemia,
and very low, a condition called hypoglycemia. Hyperglycemia can lead to serious long-term complications, including blindness, kidney
disease, nervous system disease, occlusive vascular diseases, lower-limb amputation, stroke, cardiovascular disease, and death. Hypoglycemia
can lead to confusion or loss of consciousness, often requiring a visit to the emergency room or, in certain cases, result in seizures,
coma, and/or death.
All people with type
1 diabetes, which is our primary market, require daily insulin. According to the Seagrove 2021 Diabetes Blue Book, approximately 18%
of people with type 2 diabetes in the United States, or 4.7 million people, require insulin (basal alone represent 3.1 million and basal
plus mealtime represent 1.6 million) to manage their diabetes. In this Report, we refer to people with type 1 diabetes and people with
type 2 diabetes who require mealtime insulin as “insulin-requiring people with diabetes.”
Currently, there are two primary therapies
available for insulin-requiring people with diabetes: multiple daily insulin injections directly into the body through syringes or insulin
pens, referred to as Multiple Daily Injection, or MDI therapy, or the use of an insulin pump to deliver mealtime insulin boluses (single
dose) to help with glucose absorption after carbohydrate consumption and a continuous subcutaneous insulin infusion, or CSII therapy,
into the body. Generally, CSII therapy is considered to provide a number of advantages over MDI therapy, primarily an improvement in
glycemic control, as measured by certain diabetes management tests such as hemoglobin A1c (HbA1c) measure and more recently Time in Range
(TIR) where a continuous glucose measuring device is used to calculate this test. Among other medical benefits, it has been demonstrated
that insulin pump use can decrease glucose variability, reduce the number of hypoglycemia, decrease the daily doses of insulin and reduce
the fear of hypoglycemia.
Notwithstanding
these advantages, the difficulty in use resulting from the complexity and cumbersome design of available insulin pumps as well as high
and often prohibitive costs for both the patient and insurance provider has resulted not only in dissatisfaction among many existing
pump users (fewer than half purchase a new pump after warranty expires per Seagrove Partners (estimate), but also has severely limited
the adoption rate of insulin pumps by a large segment of the MDI diabetes population, who we refer to in this Report as “Almost
Pumpers.”
We define Almost Pumpers
as insulin-requiring people with diabetes who are aware of pumps and their potential benefits but, because of past experience, pump shortcomings,
cost, complexity and time and learning required to adopt and utilize available insulin pumps, continue to receive their daily insulin
through MDI therapy.
Our initial focus for
our insulin pump is the almost pumper segment population located in the United States.
Our research, along
with marketplace data, estimates that 32% of Americans with type 1 diabetes use insulin pump therapy and 28% of Americans with type 1
diabetes (44% of those who currently utilize MDI) can be classified as having an interest in pump adoption and meeting the American Diabetes
Association guidelines of glucose control if their objections to the currently available suite of products can be overcome. They do not
want to closely manage their glucose levels and incur the associated time and effort involved. They are the Almost Pumpers. We have developed
what we believe to be the most technologically advanced delivery system overcome the objections and provided motivation for this market.
We believe that there are four addressable hurdles to adoption:
· Usability: the device needs to be easy to learn and to operate;
We believe this conversion
process, engaging people to try and thereby receive the benefits of our technology will substantially increase adoption of insulin pumps
among both those with type 1 diabetes and type 2 diabetes who remain reliant upon multiple daily injections. Diabetes is a disease that
appears throughout the world. Therefore, we cannot segment the market by socioeconomics, education or level of care. We intend to create
an insulin pump that appeals to all Almost Pumpers.
Market
The International Diabetes
Federation, or IDF, estimates that, in 2019, approximately 460 million people were living with diabetes worldwide and, that by 2045,
this number will increase to approximately 700 million people.
An estimated 34 million
people in the United States live with diabetes. Within this group, type 1 diabetes accounts for approximately 1.8 million people (7%
of total) with the remainder being type 2 diabetes. However, of the people with type 2 diabetes about 1.6 million of them require intensive
insulin treatments to manage their diabetes. This represents a large and growing market with the effects of diabetes accounting for roughly
25% of all healthcare dollars spent annually in the United States.
According to
the National Diabetes Health Care Provider Survey conducted by Seagrove Partners, approximately 25% of the 1.6 million highly insulin intensive type 2
diabetes have considered going “on pump.”
Insulin pumps have
been shown to provide a higher level of care for insulin dependent people with diabetes and result in better glycemic control, fewer
comorbidities, fewer trips to the emergency room, and higher overall quality of life. They also result in lower overall costs to the
healthcare system, reducing typical expense per patient year from $27,195 to $16,992.
Despite these
benefits, only 1 in 3 (33%) of the 1.8 million Americans with type 1 diabetes and very few of the 1.6 million type 2 diabetes intensively
treated with insulin currently use an insulin pump, for a total of approximately 670,000 current users, with only a slow increase of
insulin pump use. The remaining 68% of type 1 diabetes’ and virtually all of the type 2 diabetes’ rely on multiple daily
injections (MDI) for glucose control. Decades of advances in technology advances have left these non-pumpers at a significant disadvantage
from a control perspective versus their “pumping” counterparts.
We have identified
a large segment of the market that we refer to as “Almost Pumpers.” Almost Pumpers are those insulin-requiring people with
diabetes (type 1 diabetes and type 2 diabetes) who feel that they would adopt the pump if it were less expensive, less time consuming,
less technically intimidating, and if there was no separate controller. They represent approximately 32% of the type 1 diabetes market
correlating to a $1.9 billion growth opportunity.
Insulin pumps on the
market today require a substantial amount of time to manage the therapy, have high out of pocket costs that place these technologies
out of reach for a large part of the population, and are feature-heavy with complex systems that have hampered adoption and intimidated
many users. The most commonly used insulin pumps today require extensive training and hours of daily management. The average pump user
must go through 42 steps of setup and refill process every 72 hours to “stay on track.”
The
current reluctance to adopt the insulin pump has had serious consequences on the healthcare system. In the United States, people
living with type 1 diabetes have struggled to attain glycemic targets. A 2019 analysis of the large type 1 diabetes Exchange clinical
registry found that only 21% of U.S. adults with type 1 diabetes achieved the ADA A1c goal (<7.0%). Further, according to a
study published in JAMA Internal Medicine, researchers found no significant improvements in diabetes care between 2005 and 2016,
with persistent gaps in care related to socioeconomic status.
The recent introduction
and rapid adoption of Abbott Labs’ Freestyle Libre, or the Libre, has made continuous glucose monitoring, or CGM, easier and more
affordable, expanding the product category, and doubling its size. Now for the first time, there is an easy, less painful (i.e., no more
finger sticks) way for patients to have the data they need to understand more about their glucose levels and their insulin requirements.
Access to such data has motivated patients to ask their diabetes clinician how they can achieve better glycemic control and made them
more comfortable with using technology and wearables to treat their diabetes. Pumps offer a clear pathway to better control and better
overall care. We believe that the insulin pump market is ready for a similar transition as that experienced in the CGM space. We believe our MODD1 pump
represents a new and better offering to assist and induce a wide variety of patients to make the transition and bridge the void to superior
control by becoming a “pumper.”
We believe the present
pump marketplace is approximately a $1.9 billion market, comprising approximately 33% of type 1 diabetes pumpers and a small group of
type 2 diabetes pumpers. Seagrove Partners estimates that 28% of type 1 diabetes patients and 25% of type 2 diabetes patients would adopt
technology that was easier to use, access and pay for. We believe the total addressable market approximates $3 billion, assuming revenue
of $4,128 per patient, per year. We expect to spend approximately 15% of our total revenue on discounts and free samples to encourage
adoption of our pump product.
We are dedicated to
helping all people with diabetes gain access to high quality care. We aim to help people with diabetes, especially Almost Pumpers and
the historically underserved communities, gain access to insulin pump technology by making it affordable and easy to use.
Diabetes
Care is at an Inflection Point
We believe that
the insulin pump market stands at a crossroads as a confluence of events makes the timing for a new product introduction ideal.
2020 was a very
difficult year in diabetes. Between COVID-19 and a loss of glycemic control during quarantines and isolation, deaths from diabetes rose
by 17% in 2020 versus the prior year. This was sharpest among the young who saw deaths rise 29% in the 25 to 44 year-old demographic.
This has created a pain point and a desire to find new and better solutions and has raised awareness among patients, caregivers, payors,
and policy makers.
COVID-19 also
encouraged (and required) trial and adoption of telehealth models and a great many people have found them to their liking with a high
proportion of patients and of health care providers, or HCPs, that want to continue to use these technologies. We expect much of this
shift and newfound comfort with distance care models to persist and believes that this can provide a patient acquisition and engagement
model for insulin pumps and diabetes care, especially for pumps optimized for free trial and easy learning.
At the same
time, reimbursement for patch pumps has been increasingly moving to a pharmacy benefits manager, or PBM, model, which simplifies reimbursement
which will further aid in a “frictionless launch.” This represents a fundamental shift in the insulin pump market, making
onboarding rapid and simplifying a previously complex and time-consuming “insurance journey.”
The CGM space
(wearable devices that monitor blood glucose levels) has been experiencing explosive growth largely driven by the Libre. This product
was a more affordable, easier to use version of the popular Dexcom CGM product. Not only is it now a larger (by revenues) product than
Dexcom, but it accomplished this without seeming to slow Dexcom’s growth but rather by growing a new category with a new type of
user.
These users
are increasingly interested in adopting technology and wearables to manage their diabetes. We believe they are a natural market for a
new type of pump if it can meet their needs and address their objections and that the conjunction of the above trends represents a unique
opportunity in the insulin pump market’s history.
Diabetes technology
companies understand that we are at a turning point with new markets. This can be seen with increased discussion around this topic during
recent national diabetes conferences, as well as but also an increase in marketing promotion. For example, Dexcom aired a $5.5 million
30-second commercial during the 2021 Super Bowl.
All these recent changes
support the high proportion of type 1 diabetes and type 2 diabetes intensively treated with insulin that are considered as Almost Pumpers,
number that may grow in the next years and that may be more reachable with adequate marketing strategies.
Our
Insulin Pump
Instead of building
complex, bespoke, and difficult to manufacture and maintain pumping and control systems, we began with the technology and the user in
mind. Using proprietary and patented methods of insulin measurement, we were able to eschew complex mechanisms and instead built a product
candidate using only parts from high volume consumer electronics manufacturing lines, breaking the cost vs functionality curve that has
existed in the insulin pump space and representing the first truly modern insulin pump design. This is a new kind of product for a new
kind of patient.
The pre-production
models of our low-cost insulin pump are now undergoing the testing required to submit to the FDA for clearance to market them in the
United States. We continue to devote, substantial time and resources to better understand the needs and preferences of Almost Pumpers
and the specific patent/provider/payor requirements to motivate change from MDI.
MODD1 has several distinguishing
features:
1 - The pump has a
simple button to press to deliver insulin as the patient requires it. The electronic pump uses a simple motor and rotating cam to motivate
the insulin into the patient along with a low power Bluetooth and near field communication chips to allow the patient to communicate
with their smart phone, tablet, or other mobile computing platform, as appropriate.
2 - The pump snaps
together with a three-day disposable cartridge that is patient filled with insulin for delivery. It includes the power source and a simple
coin cell that allows it to run through the 80-hour life of the cartridge.
3 - There is a set
(not shown) that contains a soft 6 millimeter cannula and an introducer for insertion into the skin and removal of the needle used to
transfer insulin to the body.
4 - MODD1 comes with
a variety of methods for the patient to wear the pump. Options include: a base plate with adhesive (shown) for attaching to the body
that has features for holding the pump to the patient; overwraps to hold the product candidate to the patient; and a velcro strap with
a base plate suitable for wrapping around the arm or leg of the patient.
The system will deliver
a small continuous rate called a basal that will provide approximately 50% of the total daily dose required and the user will use the
on-pump button to administer boluses, typically before and after meals.
The objective is to
make the product candidate simple to acquire and take home, simple to learn and most importantly, simple to use to expand the pump market,
drive adoption and ultimately better clinical outcomes.
Technological
Advantages
The adoption of new
ultra-high volume technologies will result in far easier manufacturing scale up as parts sourcing and assembly processes are far easier.
The MODD1 was designed from the beginning for mass manufacturing processes and “lights out” or near lights out production
assembly lines. This advantage is compounded by the high availability and already optimized cost reduction in its components. This has
resulted in a cost of goods, estimated on the competitors’ announced margins and sales, 50% lower than our closest patch pump competitor.
The adoption of modern,
miniaturized technologies has led to numerous other advantages as well. The MODD1 pump is smaller in overall volume than Insulet’s
popular Omnipod product, or the Omnipod, and has a lower profile to the skin. Despite this, it holds a full 3mL (300 units) of insulin
in line with full sized pumps such as Tandem and Medtronic, 50% more than the 2mL reservoir in the Omnipod. We believe that this volume
advantage over other patch pumps will be significant as 24% of type 1 and over 50% of the rapidly growing type 2 market require more
than 2mL of insulin every three days (the expected wear time of patch pumps).
In addition, our new
and patented pumping modality will provide what we believe is the most even (and thus closest to the function of a healthy pancreas)
delivery of basal insulin in the industry. Basal rate can be delivered almost continuously while other pumps are delivering micro-boluses
every 5 minutes for the Omnipod and Tandem and Medtronic pumps. We plan to demonstrate the impact of our system on glycemic control in
a future clinical study.
The technology allows
the patient to simply add insulin and operate. The battery is included in each cartridge and the device is operated without a controller.
Nothing needs charging. MODD1 has been made push button simple to appeal to a wider audience of users.
This new technology
has also made the MODD1 lighter than existing offerings. Compared to the Omnipod, MODD1 weighs 20 grams (vs. 26 grams) empty and 23 grams
(vs. 28 grams) fully filled (despite carrying 50% more insulin), a reduction of 23% and 18%, respectively. Also, unlike existing patch
pumps, the MODD1 can be removed from the needle and taken off and replaced later if the user desires. This avoids loss of insulin in
a pump due to accidental dislodging of the soft canula, an issue that users have expressed considerable dissatisfaction with on other
patch pumps.
This technology is
also uniquely suited to dual (or more) chamber pumps. We believe that such pumps will be integral to the realization of high time in
range artificial pancreas solutions that require no human intervention, the next step forward from the cumbersome and awkward solutions
today that require the user to announce meals, count and input carbs, and adjust delivery for exercise and sleep. The advantages of cost
and miniaturization are multiplied in a multi-chamber setup and we expect to be able to reach price points, ease of use, and form factor
unlike anything seen in the industry thus far. We believe that a prefilled, multi-hormone peel and stick patch pump able to function
in a fully autonomous closed loop system with CGM’s represents the next generation of diabetes care. We believe that we have demonstrated
our technology and are securing intellectual property protection on our approach.
We believe this technology,
especially in dual chamber, will open up numerous applications outside of diabetes where medication compliance of complex therapy regimes
is difficult addressing such spaces as weight loss, fertility, and simplifying complex delivery of multi-drug cocktails, especially those
with diverse and challenging dosing schedules.
Our
Solution
Our proposed pump is
being designed and developed to address the aforementioned shortcomings of the existing pump market and to appeal to: (i) the substantial
group of “Almost-Pumpers” who are currently interested in using an insulin pump, but have not done so because of the complexity,
cost or cumbersome nature of existing products, and (ii) people who are using one of the currently available insulin pumps but are dissatisfied
with such products. We believe that, owing to our new proprietary technology, our proposed insulin pump will be the simplest and least
expensive product on the market and the easiest for providers to prescribe.
Our current pump prototype
of our proposed pump has been built to test what we believe to be our novel approach to insulin pumps. By providing a pump that we believe
will establish industry standards in terms of technology, simplicity to understand, ease of use and price, we believe our proposed pump
will offer the vast majority of benefits afforded by more expensive and complex pumps but remain accessible to a substantially greater
percentage of diabetes sufferers requiring daily insulin therapy.
We believe people generally
will not use technology that intimidates them and physicians are hesitant to prescribe such technology. We believe mass market products,
such as is intended for our proposed pump, must be “user friendly” and affordable. We believe this approach is fundamentally
different from that applied to the existing pump market today where most pumps are continuously adding complex features and are “user
friendly” to only the most technically astute.
Our current goal is
to successfully design, develop and obtain all required regulatory approvals for our proposed insulin pump, and, thereafter, commercialize
the finished product. Our long-term goal is to become a leading provider of insulin pump therapy by focusing on both consumer and clinical
needs.
To achieve our above
stated immediate and current goals, we intend to pursue the following business strategies:
· Use of innovative proprietary technology.
Based upon the substantial
experience of Paul DiPerna, our president, chief financial officer, treasurer and chairman of our board of directors, in engineering
design and innovative technology in the medical device industry and, in particular, with insulin pumps, we have generated proprietary
technology that has been incorporated into our proposed insulin pump. Generally, this technology is involved in the delivery of insulin
to the user at the appropriate and necessary times. We believe this technology will greatly assist us in creating a simpler, user-friendly
pump. We believe the proposed design, engineering and technology being incorporated into our proposed pump will make it substantially
simpler and more affordable than those currently available. These features, together with the safety and reliability of our proposed
pump, are designed to create the next generation of insulin pumps that will feature important and well-differentiated attributes compared
to those currently available and make it available to consumers across mostly all socioeconomic groups in the United States and around
the world.
· Keep costs low during our design and development process.
To attempt to ensure
that we have sufficient funds to design, develop, and obtain all required regulatory approvals for our proposed insulin pump without
having to sacrifice quality and efficiency, we intend to maintain a tight budget and limit expenditures where possible. We believe this
will be possible because of the extensive knowledge and experience of Mr. DiPerna, not only in the diabetes industry and more specifically
in the insulin pump device market, but also his experience in designing and developing insulin pumps and other medical devices and his
ability to manage a small, focused development team. We currently expect that various other expenses, such as product scale up, and sales
and marketing costs, will not be incurred until such time as development work is completed and regulatory approvals obtained.
To attempt to ensure
our proposed insulin pump is “state of the art,” functional, and efficient, as well as to conserve funds, substantially all
of our employees will initially be hand-picked engineers under the leadership of Mr. DiPerna. We believe that there is a strong pool
of engineers with significant applicable experience and knowledge who we will be able to initially employ on a contract and/or outsource
basis to help us design and develop our proposed insulin pump. We believe by hiring such persons on an out-source basis, we will save
substantial resources and by having Mr. DiPerna lead and focus the team on technological and mechanical aspects of our proposed insulin
pump, we believe our team will be well guided, focused, cost efficient, and able to efficiently design and develop our product candidate
that we believe can eventually be a competitive and popular choice for people with insulin requiring diabetes.
Commercialization
Strategy: Overcoming the Insurance Hurdles
Our goal is to establish
MODD1 as the best option for new pump patients as we expand the market into the Almost Pumpers (Type 1 and Type 2) and the newly motivated
CGM users. We seek to grow the market by providing first-line insulin pump therapy that is well suited to meet the needs of both diabetes
patients requiring insulin and their clinicians.
· 20% discount vs Insulet will drive preferred status;
· Designed to use PBM codes as a disposable;
· No new code needed to be reimbursed at launch; and
· Saves provider an estimated $1,062/patient/year vs the Omnipod.
Europe represents
another large potential market for MODD1. Approximately 60 million people in Europe live with diabetes, and approximately $161
billion is spent annually in diabetes healthcare costs in Europe. At present, cost containment is restricting pump uptake across
Europe. Current pump usage hovers between 10% and 20% in many markets. Single payor healthcare systems across the Europe traditionally
attempt to contain costs in the short term and seek low price technologies with moderate medical benefits. MODD1 will offer a
rebalance of this risk/reward strategy in that payors will incur only minor incremental short-term costs with the benefit of longer
-term cost savings associated with reliable pump use. We intend to employ a partnership strategy across Europe following in-house
managed regulatory and pricing activities in the major markets (e.g., the United Kingdom) and more cost receptive markets (e.g.,
the Nordic countries). We are targeting European and United Kingdom approval towards early 2023. Our initial target market for
our insulin pump is the Almost Pumper population located in the United States followed quickly by an effort to obtain Conformitè
Europëenne, or CE, mark approval for distribution throughout Europe.
Marketing
MODD1 tackles the most
significant barriers to pump use-access and affordability-and makes it easier for clinicians, caregivers and individuals to manage diabetes
care. Our commercialization plan will drive adoption and is designed to expand the market and is intended to do the following:
· Facilitate patient trials. To facilitate patient trials, we intend to:
We believe
that MODD1 will be the only insulin pump that patients can take home immediately from the doctor’s office.
· Designed to use existing PBM codes as a disposable
· No new code: Reimbursed at launch
Tie-in
with the massive movement to telehealth.
2020 saw personal telehealth
go from beta test to mainstream. Customers and providers have become comfortable with it. There are only 4,000 patient-facing endocrinologists
in the United States. The treatment of diabetes will be significantly enhanced with telehealth to drive more volume and clinical enhancements
through their practices. Telemedicine is a force multiplier for a small group of doctors to better serve a large market. MODD1 was designed
to be affordable enough for free sampling and trial, and simple enough for self-guided user training. We believe that by combining telehealth
support with MODD1, we will decrease the burden of diabetes care and improve the lives of people with diabetes.
Pre-Launch/Trial
We intend to initiate
a “soft launch” following FDA clearance of the MODD1 device. Our plan is to select a group of clinicians who are well trained,
experienced and have the support infrastructure to take on initial patients and monitor them carefully to provide clinical feedback on
our performance to further refine our product candidate and support infrastructure prior to full commercial launch. Many of these clinicians
will have been those who assisted in the development of the MODD1 offering.
We intend to continue
to modify, refine and finalize our system to best meet:
Manufacturing
Manufacturing requires
the production of pumps, cartridges, and baseplates as well as assembly with sets. In connection therewith:
The pumps will be built
and tested in our San Diego facility while we build volume and expertise. When the production methodology has matured and the volumes
have risen, we will consider a transition to outside and offshore manufacturing, as appropriate.
FDA
Clearance
The FDA requires us
to meet all applicable regulations for insulin pumps, a subcategory of infusion pumps, which are generally considered Class 2 devices.
The design of the MODD1 pump has been completed, units have been built and testing is underway to verify that the design meets all FDA
requirements. There are 17 specific tests required to submit for 510(k) clearance. We break these required tests into four testing categories:
wetted surface, electrical safety, usability and internal. Appropriate design control and standard operating procedures have been implemented
to allow us, when testing is completed, to submit for clearance under the premarket notification (or 510(k)) process. To achieve this,
we will continue to work closely with our regulatory consultants to complete, finalize and file our submission to the FDA for 510(k)
clearance and all other documentation necessary to obtain marketing authorization of our insulin pump.
Commercialization
Steps
While we have substantially
completed the general engineering and mechanical aspects of our insulin pump prototype, prior to commercializing, we still must successfully
complete a number of material steps including:
· Continue to modify, refine and finalize our prototype so that it meets:
As with any medical
device attempting to enter and successfully compete with existing products in an established and competitive marketplace, we will face
significant hurdles to accomplish the above steps to commercialization including:
Looking
Forward
Going forward, we expect
to continue to evolve the MODD1 pumps and their capabilities and functionality, both in response to patient needs and as part of our
current platform roadmap.
· Additionally, adds AID control functionality via an ACE designation
· Any approved algorithm controller can drive insulin delivery in “auto” mode
Government
Regulation
Our operations are
subject to comprehensive federal, state, and local laws and regulations in the jurisdictions in which we or our research and development
partners do business. The laws and regulations governing our business and interpretations of those laws and regulations and are subject
to frequent change. Our ability to operate profitably will depend in part upon our ability, and that of our research and development
partners and affiliates, to operate in compliance with applicable laws and regulations. The laws and regulations relating to medical
products and healthcare services that apply to our business and that of our partners and affiliates continue to evolve, and we must,
therefore, devote significant resources to monitoring developments in legislation, enforcement, and regulation in such areas. As the
applicable laws and regulations change, we are likely to make conforming modifications in our business processes from time to time. We
cannot provide assurance that a review of our business by courts or regulatory authorities will not result in determinations that could
adversely affect our operations or that the regulatory environment will not change in a way that restricts our operations.
FDA
Regulation
In the United States,
medical devices are strictly regulated by the FDA. Under the FDCA, a medical device is defined as “an instrument, apparatus, implement,
machine, contrivance, implant, in vitro reagent, or other similar or related article, including a component, part or accessory which
is, among other things: intended for use in the diagnosis of disease or other conditions, or in the cure, mitigation, treatment, or prevention
of disease, in man or other animals; or intended to affect the structure or any function of the body of man or other animals, and which
does not achieve its primary intended purposes through chemical action within or on the body of man or other animals and which is not
dependent upon being metabolized for the achievement of any of its primary intended purposes.” This definition provides a clear
distinction between a medical device and other FDA regulated products such as drugs. If the primary intended use of a medical product
is achieved through chemical action or by being metabolized by the body, the product is usually a drug or biologic. If not, it is generally
a medical device.
We are currently developing
an insulin pump delivery system, which is regulated by the FDA as a medical device under the FDCA, as implemented and enforced by the
FDA. The FDA regulates the development, testing, manufacturing, labeling, packaging, storage, installation, servicing, advertising, promotion,
marketing, distribution, import, export, and market surveillance of our medical devices.
Device
Premarket Regulatory Requirements
Before being introduced
into the U.S. market, each medical device must obtain marketing clearance or approval from the FDA through the premarket notification
(or 510(k)) process, the de novo classification process, or the
premarket approval, or PMA, process, unless they are determined to be Class I devices or to otherwise qualify for an exemption from one
of these available forms of premarket review and authorization by the FDA. Under the FDCA, medical devices are classified into one of
three classes - Class I, Class II or Class III - depending on the degree of risk associated with each medical device and the extent of
control needed to provide reasonable assurance of safety and effectiveness. Classification of a device is important because the class
to which a device is assigned determines, among other things, the necessity and type of FDA review required prior to marketing the device.
Class I devices are those for which reasonable assurance of safety and effectiveness can be maintained through adherence to general controls
which include compliance with the applicable portions of the FDA’s Quality System Regulation, or the QSR, as well as regulations
requiring facility registration and product listing, reporting of adverse medical events, and appropriate, truthful and non-misleading
labeling, advertising, and promotional materials. The Class I designation also applies to devices for which there is insufficient information
to determine that general controls are sufficient to provide reasonable assurance of the safety and effectiveness of the device or to
establish special controls to provide such assurance, but that are not life-supporting or life-sustaining or for a use which is of substantial
importance in preventing impairment of human health, and that do not present a potential, unreasonable risk of illness or injury.
Class II devices are
those for which general controls alone are insufficient to provide reasonable assurance of safety and effectiveness and there is sufficient
information to establish “special controls.” These special controls can include performance standards, post-market surveillance
requirements, patient registries and FDA guidance documents describing device-specific special controls. While most Class I devices are
exempt from the premarket notification requirement, most Class II devices require a premarket notification prior to commercialization
in the United States; however, the FDA has the authority to exempt Class II devices from the premarket notification requirement under
certain circumstances. As a result, manufacturers of most Class II devices must submit premarket notifications to the FDA under Section
510(k) of the FDCA (21 U.S.C. § 360(k)) in order to obtain the necessary clearance to market or commercially distribute such devices.
To obtain 510(k) clearance, manufacturers must submit to the FDA adequate information demonstrating that the proposed device is “substantially
equivalent” to a “predicate device” that is already on the market. A predicate device is a legally marketed device
that is not subject to PMA, meaning, (i) a device that was legally marketed prior to May 28, 1976 (“pre-amendments device”)
and for which a PMA is not required, (ii) a device that has been reclassified from Class III to Class II or I or (iii) a device that
was found substantially equivalent through the 510(k) process. If the FDA agrees that the device is substantially equivalent to the predicate
device identified by the applicant in a premarket notification submission, the agency will grant 510(k) clearance for the new device,
permitting the applicant to commercialize the device. Premarket notifications are subject to user fees, unless a specific exemption applies.
If there is no adequate
predicate to which a manufacturer can compare its proposed device, the proposed device is automatically classified as a Class III device.
In such cases, a device manufacturer must then fulfill the more rigorous PMA requirements or can request a risk-based classification
determination for its device in accordance with the de novo classification process.
Devices that are intended
to be life sustaining or life supporting, devices that are implantable, devices that present a potential unreasonable risk of harm or
are of substantial importance in preventing impairment of health, and devices that are not substantially equivalent to a predicate device
and for which safety and effectiveness cannot be assured solely by the general controls and special controls are placed in Class III.
Such devices generally require FDA approval through the PMA process, unless the device is a pre-amendments device not yet subject to
a regulation requiring premarket approval. The PMA process is more demanding than the 510(k) process. For a PMA, the manufacturer must
demonstrate through extensive data, including data from preclinical studies and one or more clinical trials, that the device is safe
and effective for its proposed indication. The PMA must also contain a full description of the device and its components, a full description
of the methods, facilities and controls used for manufacturing, and proposed labeling. Following receipt of a PMA submission, the FDA
determines whether the application is sufficiently complete to permit a substantive review. If the FDA accepts the application for review,
it has 180 days under the FDCA to complete its review and determine whether the proposed device can be approved for commercialization,
although in practice, PMA reviews often take significantly longer, and it can take up to several years for the FDA to issue a final decision.
Before approving a PMA, the FDA generally also performs an on-site inspection of manufacturing facilities for the product to ensure compliance
with the QSR.
The de
novo classification process allows a manufacturer whose novel device is automatically classified into Class III to request
down-classification of its device to Class I or Class II, on the basis that the device presents low or moderate risk, as an alternative
to following the typical Class III device pathway requiring the submission and approval of a PMA application. Under the Food and Drug
Administration Safety and Innovation Act of 2012, the FDA is required to classify a device within 120 days following receipt of the de
novo classification request from an applicant; however, the most recent FDA premarket review goals state that in fiscal year
2021, FDA will attempt to issue a decision within 150 days of receipt on 65% of all de
novo classification requests received during the year and on 70% of de
novo requests received during fiscal year 2022. If the manufacturer seeks reclassification into Class II, the classification
request must include a draft proposal for special controls that are necessary to provide a reasonable assurance of the safety and effectiveness
of the medical device. The FDA may reject the classification request if it identifies a legally marketed predicate device that would
be appropriate for a 510(k) notification or determines that the device is not low to moderate risk or that general controls would be
inadequate to control the risks and special controls cannot be developed.
Clinical trials are
almost always required to support PMAs and are sometimes required to support 510(k) and de novo classification submissions. All clinical
investigations of devices to determine safety and effectiveness must be conducted in accordance with the FDA’s investigational
device exemption, or IDE, regulations that govern investigational device labeling, prohibit promotion of investigational devices, and
specify recordkeeping, reporting and monitoring responsibilities of study sponsors and study investigators. If the device presents a
“significant risk,” as defined by the FDA, the agency requires the study sponsor to submit an IDE application to the FDA,
which must become effective prior to commencing human clinical trials. The IDE will automatically become effective 30 days after receipt
by the FDA, unless the FDA denies the application or notifies the sponsor that the investigation is on hold and may not begin until the
sponsor provides supplemental information about the investigation that satisfies the agency’s concerns. If the FDA determines that
there are deficiencies or other concerns with an IDE that require modification of the study, the FDA may permit a clinical trial to proceed
under a conditional approval. The FDA may also notify the sponsor that the study is approved as proposed or approved with specific requested
modification. Furthermore, the agency may withdraw approval of an IDE under certain circumstances. In addition, the study must be approved
by, and conducted under the oversight of, an institutional review board, or IRB, for each clinical site. If the device presents a non-significant
risk to the patient according to criteria established by the FDA as part of the IDE regulations, a sponsor may begin the clinical trial
after obtaining approval for the trial by one or more IRBs without separate authorization from the FDA, but must still comply with abbreviated
IDE requirements, such as monitoring the investigation, ensuring that the investigators obtain informed consent, and labeling and record-keeping
requirements.
Post-Marketing
Restrictions and Enforcement
After a device is placed
on the market, numerous regulatory requirements apply. These include, but are not limited to:
In addition, under
the FDA medical device reporting, or MDR, regulations, medical device manufacturers are required to report to the FDA information that
a device has or may have caused or contributed to a death or serious injury or has malfunctioned in a way that would likely cause or
contribute to death or serious injury if the malfunction of the device or a similar device of such manufacturer were to recur. The decision
to file an MDR involves a judgment by the manufacturer. If the FDA disagrees with the manufacturer’s determination, the FDA can
take enforcement action.
The MDR
requirements also extend to health care facilities that use medical devices in providing care to patients, or “device user
facilities,” which include hospitals, ambulatory surgical facilities, nursing homes, outpatient diagnostic facilities, or
outpatient treatment facilities, but not physician offices. A device user facility must report any device-related death to both the
FDA and the device manufacturer, or any device-related serious injury to the manufacturer (or, if the manufacturer is unknown, to
the FDA) within 10 days of the event. Device user facilities are not required to report device malfunctions that would likely cause
or contribute to death or serious injury if the malfunction were to recur but may voluntarily report such malfunctions through
MedWatch, the FDA’s Safety Information and Adverse Event Reporting Program.
The FDA also has the
authority to require the recall of commercialized medical device products in the event of material deficiencies or defects in design
or manufacture. The authority to require a recall must be based on an FDA finding that there is a reasonable probability that the device
would cause serious adverse health consequences or death. Manufacturers may, under their own initiative, recall a product if any distributed
devices fail to meet established specifications, are otherwise misbranded or adulterated under the Federal Food, Drug, and Cosmetic Act, or the FDCA, or if any other material deficiency
is found. The FDA requires that certain classifications of recalls be reported to the FDA within ten working days after the recall is
initiated.
The failure to comply
with applicable regulatory requirements can result in enforcement action by the FDA, which may include any of the following sanctions:
· warning letters, fines, injunctions or civil penalties;
· recalls, detentions or seizures of products;
· operating restrictions;
· delays in the introduction of products into the market;
· total or partial suspension of production;
· withdrawals of marketing authorizations; or
· in the most serious cases, criminal prosecution.
To ensure compliance
with regulatory requirements, medical device manufacturers are subject to market surveillance and periodic, pre-scheduled and unannounced
inspections by the FDA, and these inspections may include the manufacturing facilities of subcontractors.
Federal
Trade Commission Regulatory Oversight
Our advertising for
our products and services is subject to federal truth-in-advertising laws enforced by the Federal Trade Commission, or the FTC, as well
as comparable state consumer protection laws. Under the Federal Trade Commission Act, or FTC Act, the FTC is empowered, among other things,
to (a) prevent unfair methods of competition and unfair or deceptive acts or practices in or affecting commerce; (b) seek monetary redress
and other relief for conduct injurious to consumers; and (c) gather and compile information and conduct investigations relating to the
organization, business, practices, and management of entities engaged in commerce. The FTC has very broad enforcement authority, and
failure to abide by the substantive requirements of the FTC Act and other consumer protection laws can result in administrative or judicial
penalties, including civil penalties, injunctions affecting the manner in which we would be able to market services or products in the
future, or criminal prosecution.
Healthcare
Law and Regulation
United