ITEM 1A. RISK FACTORS
This Annual Report on Form 10-K contains
forward-looking statements that involve risks and uncertainties, such as statements of our objectives, expectations and intentions. The
cautionary statements made in this Annual Report on Form 10-K should be read as applicable to all forward-looking statements wherever
they appear in this report. Our actual results could differ materially from those discussed herein. Factors that could cause or contribute
to such differences include those discussed below, as well as those discussed elsewhere in this Annual Report on Form 10-K.
Summary of Risk Factors
The following summarizes the risks and
uncertainties that could materially adversely affect our business, financial condition, results of operation and stock price. You should
read this summary together with the more detailed description of each risk factor contained below.
Risks Related to Our Business,
Operations and Industry
● We might not be able to continue as a going concern.
● Our operations are substantially dependent upon key personnel.
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Risks Related to Our Securities
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Risks Related to Our Business,
Operations and Industry
We might not be able to continue
as a going concern.
Our consolidated
financial statements as of March 31, 2025 have been prepared under the assumption that we will continue as a going concern twelve
months from the date of issuance of this Report. At March 31, 2025, we had cash and cash equivalents of $13.1 million and an
accumulated deficit of $84.8 million. In March 2025, we completed a private placement of common stock and warrants for net proceeds
to us of approximately $11.4 million. In addition, in November 2024, we completed a public offering of common stock for net proceeds
to us of approximately $7.3 million. Even with these offering proceeds, we do not believe that our cash and cash equivalents will be
sufficient to fund our operations for the period of 12 months from the date of issuance of this report, and we would need to raise
additional capital. As a result of our expected operating losses and cash burn for the foreseeable future and recurring losses from
operations, if we are unable to raise sufficient capital through additional debt or equity arrangements, there will be uncertainty
regarding our ability to maintain liquidity sufficient to operate our business effectively, which raises substantial doubt as to our
ability to continue as a going concern. If we cannot continue as a viable entity, our stockholders would likely lose most or all of
their investment in us.
If we are unable to generate sustainable
operating profit and sufficient cash flows, then our future success will depend on our ability to raise capital. We intend to seek additional
financing and evaluate financing alternatives in order to meet our cash requirements for the foreseeable future. We cannot be certain
that raising additional capital, whether through selling additional debt or equity securities or obtaining a line of credit or other loan,
will be available to us or, if available, will be on terms acceptable to us. If we issue additional securities to raise funds, these securities
may have rights, preferences, or privileges senior to those of our common stock, and our current stockholders may experience dilution.
If we are unable to obtain funds when needed or on acceptable terms, we may be required to curtail our current product development programs,
cut operating costs, forego future development and other opportunities or even terminate our operations.
We are a pre-revenue medical
device company and have a history of significant operating losses; we expect to continue to incur operating losses, and we may never achieve
or maintain profitability.
We do not currently have revenues to generate
cash flows to cover operating expenses. Since our inception, we have incurred operating losses in each year due to costs incurred in connection
with research and development activities and general and administrative expenses associated with our operations. For the years ended March
31, 2025 and, 2024, we incurred net losses of approximately $18.9 million and $17.5 million, respectively. As a result, we will need to
raise additional capital in the future, which may or may not be available to us at all or only on unfavorable terms.
We expect to incur losses for the foreseeable
future as we continue the development of, and seek regulatory clearance and approvals for, our insulin pump. Our MODD1 insulin pump is
currently our only product, if it fails to gain market acceptance, we will not be able to generate any revenue, or explore other opportunities
to enhance stockholder value, such as through a sale. If we fail to generate revenue and eventually become profitable, or if we are unable
to fund our continuing losses, our stockholders could lose all or a substantial part of their investment.
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We will need substantial additional funding to complete subsequent
phases of the development of our insulin pump products and to operate our business and such funding may not be available or, if it is
available, such financing is likely to substantially dilute our existing stockholders.
The discovery, development, and commercialization
of new medical devices, such as our insulin pump, entails significant costs. We have completed the engineering and mechanical development
of our insulin pump and cartridge, and obtained FDA clearance. In addition, we have also implemented a production-level manufacturing
process, including purchasing required equipment for low-level manufacturing. We have developed a follow-on product, our Pivot pump, to,
among other things, meet the general needs and preferences of the Almost Pumper marketplace and the guidelines of third-party payors.
To enable us to accomplish these and other related items and continue to operate our business, we will need to raise substantial additional
capital and/or enter into strategic partnerships or joint ventures to enable us to:
● seek European regulatory approvals with appropriate clinical studies;
● develop, test, and, if approved, market our future product candidates;
● acquire or license additional internal systems and other infrastructure; and
Until we can generate a sufficient amount
of product revenue to finance our cash requirements, which we may never achieve, we expect to finance our cash needs primarily through
public or private equity offerings, debt financings or through the establishment of possible strategic alliances. We may in the future
seek additional capital from public or private offerings of our capital stock or borrow additional amounts under new credit lines or from
other sources. If we issue equity or debt securities to raise additional funds, our existing stockholders may experience dilution, we
may incur significant financing costs, and the new equity or debt securities may have rights, preferences and privileges senior to those
of our existing stockholders. In addition, if we raise additional funds through collaborations, licensing, joint ventures, strategic alliances,
partnership arrangements or other similar arrangements, it may be necessary to relinquish valuable rights to the MODD1 pump or our potential
future products or proprietary technologies or grant licenses on terms that are not favorable to us.
We cannot be certain that additional funding
will be available on acceptable terms, or at all. If we are not able to secure additional equity funding when needed, we may have to delay,
reduce the scope of, or eliminate one or more of our post-market clinical studies, development programs or future commercialization initiatives.
In addition, any additional equity funding that we do obtain will dilute the ownership held by our existing equity holders. The amount
of this dilution may be substantially increased if the trading price of our common stock is lower at the time of any financing. Regardless,
the economic dilution to stockholders will be significant if our stock price does not increase significantly, or if the effective price
of any sale is below the price paid by a particular stockholder. Any debt financing that we obtain in the future could involve substantial
restrictions on activities and creditors could seek a pledge of some or all of our assets. We have not identified potential sources for
such financing that we will require, and we do not have commitments from any third parties to provide any future debt financing. If we
fail to obtain funding as needed, we may be forced to cease or scale back operations, and our business, prospects, results of operations,
financial condition and stock price would be adversely affected.
We have a limited operating
history and historical financial information upon which you may evaluate our performance.
You should consider, among other factors,
our prospects for success in light of the risks and uncertainties encountered by companies that, like us, are in their early stages of
development. We may not successfully address these risks and uncertainties or successfully complete our studies and/or implement our existing
and new products. If we fail to do so, it could materially harm our business and impair the value of our common stock. Unanticipated problems,
expenses and delays are frequently encountered in establishing a new business, conducting research, and developing new products. These
include, but are not limited to, inadequate funding, failure to obtain regulatory approval, unforeseen research issues, lack of consumer,
physician or third-party payor acceptance, competition, sluggish product development, and inadequate sales and marketing. The failure
by us to meet any of these conditions would have a materially adverse effect upon us and may force us to reduce or curtail operations.
No assurance can be given that we can or will ever operate profitably.
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The amount of financing we
require will depend on a number of factors, many of which are beyond our control. Our results of operations, financial condition and stock
price are likely to be adversely affected if our funding requirements increase or are otherwise greater than we expect.
Our future funding requirements will depend
on many factors, including, but not limited to:
● our ability to manage administrative and other costs of our operations; and
● the presence or absence of adverse developments in our research program.
If any of these factors cause our funding
needs to be greater than expected, our operations, financial condition, ability to continue operations and stock price may be adversely
affected.
Our future cash requirements
may differ significantly from our current estimates.
Our cash requirements may differ significantly
from our estimates from time to time, depending on a number of factors, including:
● the time and costs involved in obtaining regulatory clearance and approvals;
If we fail to raise additional funds on
a timely basis, we will need to scale back our business plans, which would adversely affect our business, prospects, results of operations,
financial condition, and stock price, and we may even be forced to discontinue our operations and liquidate our assets.
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We may not be able to utilize a significant portion of our net
operating losses and tax credits.
As of March 31, 2025, our federal net operating
loss carryforwards totaled $45.6 million, of which $0.7 million will expire in 2037 and 2038 and $44.9 million will not expire. We have
federal R&D tax credit carryforwards of $2.6 million which will expire in various years between 2038 through 2045. U.S. federal net
operating losses arising in tax years beginning after December 31, 2017 can be carried forward indefinitely, but for taxable years beginning
after December 31, 2020, the deductibility of such U.S. federal NOLs is limited to 80% of current year taxable income. Additionally, we
have state net operating loss carryforwards of $68.0 million which will expire in various years between 2038 through 2045.
Under Sections 382 and 383 of the Internal Revenue
Code of 1986, as amended, a corporation that undergoes an “ownership change” is subject to limitations on its ability to utilize
its pre-change net operating losses and other tax attributes to offset future taxable income or income tax. In general, an “ownership
change” occurs if there is a greater than 50 percentage point change (by value) in a corporation’s equity ownership by certain
stockholders over a rolling three year period. We may have experienced ownership changes in the past and may experience ownership changes
in the future as a result of subsequent shifts in our stock ownership (many of which are outside our control). If it is determined that
we have in the past experienced an ownership change, or if we undergo one or more ownership changes as a result of future transactions
in our stock then we may not be able to utilize a material portion of our net operating losses prior to their expiration, even if we were
to achieve profitability. To the extent we are not able to offset future taxable income with our net operating losses, our net income
and cash flows may be adversely affected.
Technological breakthroughs in
diabetes monitoring, treatment or prevention could render our insulin pump products obsolete.
The diabetes treatment market is subject
to rapid technological change and product innovation. Our insulin pump products are based on our proprietary technology, but a number
of companies, medical researchers and existing pharmaceutical companies are pursuing new delivery devices, delivery technologies, sensing
technologies, procedures, drugs and other therapeutics for the monitoring, treatment and/or prevention of insulin-dependent diabetes.
Any technological breakthroughs in diabetes monitoring, treatment or prevention could render our products obsolete, which would have a
material adverse effect on our business, prospects, results of operations and financial condition and could result in stockholders losing
their entire investment.
Any failure to attract and
retain skilled directors, executives, employees and consultants could impair our product development and commercialization activities.
Our business depends on the skills, performance,
and dedication of our directors, executive officers and key engineering, scientific and technical advisors. Many of our current engineering
or scientific advisors are independent contractors and are either self- employed or employed by other organizations. As a result, they
may have conflicts of interest or other commitments, such as consulting or advisory contracts with other organizations, which may affect
their ability to provide services to us in a timely manner. We will need to recruit additional directors, executive management employees,
and advisers, particularly engineering, scientific and technical personnel, which will require additional financial resources. In addition,
there is currently intense competition for skilled directors, executives and employees with relevant engineering, scientific and technical
expertise, and this competition is likely to continue. If we are unable to attract and retain persons with sufficient engineering, scientific,
technical and managerial experience, we may be forced to limit or delay our product development activities or may experience difficulties
in successfully conducting our business, which would adversely affect our business, prospects, results of operations and financial condition.
Our operations are substantially
dependent upon key personnel.
Our performance is substantially dependent
on the continued services and performance of our senior management and certain other key personnel. In particular, we are dependent on
the performance and continued engagement of Paul DiPerna, our chairman, president and principal financial officer. Although we believe
we will be able to engage qualified personnel for such purposes, an inability to do so could materially adversely affect our ability to
market, sell, and enhance our products. While Mr. DiPerna is currently devoting his full-time working efforts to us, other employees and
consultants may only be available to us on a part-time basis. The loss of services of one or more of our executive officers, especially
Mr. DiPerna, or other key employees or our inability to hire and retain other qualified employees, including but not limited to research
and development, sales, manufacturing, and administrative support staff, could have a material adverse effect on our business, prospects,
results of operations and financial condition.
We have and will need to outsource
and rely on third parties for various aspects relating to the development, manufacture, sales and marketing of our insulin pump products,
as well as in connection with assisting us in the preparation and filing of our regulatory submissions, and our future success will be
dependent on the timeliness and effectiveness of the efforts of these third parties.
We are dependent on third parties for important aspects of our business
strategy. We do not have the required financial resources and personnel to carry out independently all aspects of the development of our
products, and have limited resources to manufacture, market and sell our current product candidate. As a result, we contract with and
rely on third parties for important functions, including in connection with certain aspects of the development and finalization of our
products, the preparation and filing of our regulatory submissions and manufacturing and commercialization of our pump products. We have
in the past and will continue to enter into multiple agreements with third parties for such services. If problems develop in our relationships
with third parties, or if such parties fail to perform as expected, it could lead to delays or lack of progress in obtaining regulatory
clearance, significant cost increases, changes in our strategies, and even failure of our product initiatives.
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We may not be able to identify,
negotiate and maintain the strategic alliances necessary to develop and commercialize our products and technologies, and we will be dependent
on our corporate partners if we do.
We may seek to enter into a strategic
alliance with a diabetes-related service providing company for the further development and approval of our insulin pump product candidate.
At this time, we have not entered into any such strategic alliance. Strategic alliances, if entered into, could potentially provide us
with additional funds, expertise, access, and other resources in exchange for exclusive or non-exclusive licenses or other rights to the
product that we are currently developing or a product we may explore in the future. We cannot give any assurance that we will be able
to enter into strategic relationships with a diabetes-related service providing company or others in the near future or at all. In addition,
we cannot assure you that any agreements that we do reach will allow us to achieve our goals or that such grants will be on terms that
prove to be economically beneficial to us. When we do enter into strategic or contractual relationships, we become dependent on the successful
performance of our partners or counter-parties. If they fail to perform as expected, such failure could adversely affect our financial
condition, lead to increases in our capital needs, or hinder or delay our development efforts. See “Our Business -Employees”
below.
We may not receive the necessary regulatory clearance or approvals
for our insulin pump products, and failure to timely obtain necessary clearances and/or approvals could harm our then operations, including
our ability to commercialize our products.
Before we can market a new medical device,
such as our insulin pump, we must first receive clearance under Section 510(k) of the Federal Food, Drug, and Cosmetic Act, or the “FDCA.”
In the 510(k) clearance process, before a device may be marketed, the FDA must determine that such proposed device is “substantially
equivalent” to a legally-marketed “predicate” device, which includes a device that has been previously cleared through
the 510(k) process, a device that was legally marketed prior to May 28, 1976 (pre- amendments device), a device that was originally on
the U.S. market pursuant to a premarket approval (PMA) and later down- classified, or a 510(k)-exempt device. To be “substantially
equivalent,” the proposed device must have the same intended use as the predicate device, and either have the same technological
characteristics as the predicate device or have different technological characteristics and not raise different questions of safety or
effectiveness than the predicate device. In September 2024, we received FDA clearance to market and sell our initial pump product, our
MODD1, in the United States.
Our Pivot product, which will be our second product after our MODD1
product, will require a new 510(k) clearance. The 510(k) clearance process can be expensive, lengthy and uncertain. The FDA’s 510(k)
clearance process usually takes less than 12 months, but it can last longer. Despite the time, effort and cost, a device may not be approved
or cleared by the FDA. Any delay or failure to obtain necessary regulatory authorizations could harm our business, including our ability
to commercialize our future product candidates and our stockholders could lose their entire investment. Furthermore, even if we are granted
the required regulatory authorizations, such authorizations may be subject to significant limitations on the indicated uses for the device,
which may limit the market for our future product candidates.
If the FDA requires us to go through a lengthier, more rigorous examination
for our future product candidates than we had expected, product introductions or modifications could be delayed or canceled, which could
adversely affect our ability to grow our business.
The FDA can delay, limit or deny clearance or approval for our product
candidates for many reasons, including, for example:
● our inability to demonstrate that the benefits of our pump outweigh the risks;
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In addition, the FDA may change its clearance and approval policies,
adopt additional regulations or revise existing regulations, or take other actions, which may prevent or delay approval or clearance of
our future product candidates or impact our ability to modify our future product candidate after clearance on a timely basis. Such policy
or regulatory changes could impose additional requirements upon us that could delay our ability to obtain clearance for our proposed future
pump products, increase the costs of compliance or restrict our ability to maintain our current approval.
As a general rule, demonstration of conformity
of medical devices and their manufacturers with the essential requirements must be based, among other things, on the evaluation of data
supporting the safety and performance of the product candidates during normal conditions of use. Specifically, a manufacturer must demonstrate
that the device achieves its intended performance during normal conditions of use, that the known and foreseeable risks, and any adverse
events, are minimized and acceptable when weighed against the benefits of its intended performance, and that any claims made about the
performance and safety of the device are supported by suitable evidence.
Obtaining marketing authorization
in the United States will not obviate the need to obtain marketing authorization in other jurisdictions We must obtain approval from foreign
regulatory authorities before we can market and sell any of our product candidates in countries outside the United States. We will incur
additional costs in seeking such approvals, may experience delays in obtaining such approvals and cannot be certain that such approvals
will be granted.
The development, manufacture, and marketing
of our product candidates outside the United States is subject to government regulation. In most foreign countries, we must complete rigorous
pre-clinical testing and extensive human clinical trials that demonstrate the safety and efficacy of a product in order to apply for regulatory
approval to market the product. If foreign regulatory authorities grant regulatory approval of a product, the approval may be limited
to specific indications or limited with respect to its distribution. Expanded or additional indications for approved devices may not be
approved, which could limit our potential revenues. Foreign regulatory authorities may refuse to grant any approval. Consequently, even
if we believe that pre- clinical and clinical data are sufficient to support regulatory approval for our products, foreign regulatory
authorities may not ultimately grant approval for commercial sale in any jurisdiction. If our product candidates are not approved in such
jurisdictions, our ability to generate revenues will be limited and our business will be adversely affected.
Our competitors may develop
products that are more effective, safer and less expensive than ours.
Existing insulin pumps are expensive, with the more popular models
receiving reimbursement exceeding $4,000 under durable medical equipment or pharmacy benefit coverage from individuals without health
insurance and often requiring significant patient copays. Others have daily use costs that exceed the reimbursement rates of many health
insurance plans, forcing some users to spend thousands of dollars a year in copays. We believe this makes insurers hesitant to pay for
any pumps and places pumps out of reach for many patients who cannot afford such out of pocket expenses.
We are engaged in the diabetes treatment
sector of the healthcare marketplace, which is intensely competitive. There are current products that are quite effective at addressing
the effects of diabetes, and we expect that new developments by other companies and academic institutions in the areas of diabetes treatment
will continue. If approved for marketing by the FDA, depending on the approved clinical indication, our product will be competing with
existing and future products related to treatments for diabetes.
Our competitors may:
We expect to compete against large medical device companies, such as
Medtronic, Inc., Tandem Diabetes Care, Inc. and Insulet Corporation, smaller companies that are collaborating with larger medical device
companies, new companies, academic institutions, government agencies and other public and private research organizations. These competitors,
in nearly all cases, produce similar products relative to the treatment of diabetes and have substantially greater financial resources
than we do. Some of our competitors also have significantly greater experience in:
● developing medical device and other product candidates;
● undertaking testing and clinical studies;
● building relationships with key customers and opinion-leading physicians;
● obtaining and maintaining FDA and other regulatory approvals;
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● formulating and manufacturing medical devices;
● launching, marketing and selling medical devices;
● obtaining insurance coverage and reimbursement for their competitive products.
If we fail to achieve acceptance over other existing or newly developed
products, we may be unable to obtain regulatory approval or successfully commercialize our future insulin pump product candidates. If
our competitors’ market medical devices that are less expensive, safer or more effective than our insulin pump, or that gain or
maintain greater market acceptance, we may not be able to compete effectively, which would adversely affect our business, prospects, results
of operations and financial condition. See “Business - Competition.”
We expect to rely on third-party
manufacturers and will be dependent on their quality and effectiveness.
Our insulin pump requires precise, high-quality
manufacturing. The failure to achieve and maintain high manufacturing standards, including failure to detect or control anticipated or
unanticipated manufacturing errors or the frequent occurrence of such errors, could result in patient injury or death, discontinuance
or delay of ongoing or planned clinical studies, delays or failures in product testing or delivery, cost overruns, product recalls or
withdrawals and other problems that could seriously hurt our business. Contract medical device manufacturers often encounter difficulties
involving production yields, quality control and quality assurance and shortages of qualified personnel. These manufacturers are subject
to stringent regulatory requirements, including the FDA’s current good-manufacturing-practices regulations. If our contract manufacturers
fail to maintain ongoing compliance at any time, the production of our product could be interrupted, resulting in delays or discontinuance
of our clinical studies, additional costs and loss of potential revenues.
We may not be able to successfully
scale-up manufacturing of our products in sufficient quality and quantity, which would delay or prevent us from commercializing our products.
In order to conduct larger-scale or late-stage clinical studies and
for commercialization of our insulin pump products, if 510(k) clearance is granted for any product, we will need to manufacture it in
larger quantities. We may not be able to successfully increase the manufacturing capacity for our MODD 1 product or future product candidates
in a timely or cost-effective manner, or at all. In addition, quality issues may arise during scale-up activities. If we are unable to
successfully scale up the manufacture of our product candidate in sufficient quality and quantity, the development and testing of our
product candidates and regulatory approval or commercial launch may be delayed, which could significantly harm our business.
We are dependent upon third-party
suppliers to manufacture our product, and this makes us vulnerable to supply shortages and price increases; we may not be able to obtain
an adequate supply of components on a timely basis or at all.
The future manufacture of our product
will require the timely delivery of sufficient amounts of components from multiple suppliers in various countries. We intend to work closely
with our suppliers to ensure continuity of supply, but we cannot guarantee these efforts will be successful. Due to the supply chain issues
experienced by the semiconductor industry, at times, we have experienced delays obtaining integrated circuits from certain suppliers.
We may need to enter into “take or pay” contracts with suppliers. We have also seen price increases for various components.
We do not have supply agreements with any of our suppliers, and we make purchases based on individual purchase orders. An interruption,
delay, or inability to obtain components from our third-party suppliers at acceptable prices in a timely manner, could hinder our ability
to manufacture our products and have a material adverse effect on our business, prospects, financial condition and results of operations.
We may be subject to potential
product liability and other claims that could materially impact our business and financial condition.
The marketing and sale of our insulin
pump exposes us to the risk of significant damages from product liability and other claims, and the use of our product in clinical studies
may result in adverse effects from liability claims. We cannot predict all the possible harms or adverse effects that may result. We intend
to obtain product liability insurance to provide some protection from claims. Nonetheless, we may not have sufficient resources to pay
for any liabilities resulting from a personal injury or other claim, even if it is partially covered by insurance. In addition to the
possibility of direct claims, we may be required to indemnify third parties against damages and other liabilities arising out of our development,
commercialization and other business activities, which would increase our liability exposure. If third parties that have agreed to indemnify
us fail to do so, we may be held responsible for those damages and other liabilities as well.
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Legislative, regulatory, or
medical cost reimbursement changes may adversely impact our business.
New laws, regulations and judicial decisions,
or new interpretations of existing laws, regulations and decisions, that relate to the health care system in the U.S. and in other jurisdictions
may change the nature of and regulatory requirements relating to innovations in medical devices, testing and regulatory approvals, limit
or eliminate payments for medical procedures and treatments, or subject the pricing of medical devices to government control. In addition,
third-party payors in the U.S. are increasingly attempting to contain health care costs by limiting both coverage and the level of reimbursement
of new products. Consequently, significant uncertainty exists as to the reimbursement status of newly approved health care products. Significant
changes in the health care system in the U.S. or elsewhere, including changes resulting from adverse trends in third-party reimbursement
programs, could have a material adverse effect on our projected future operating results and our ability to raise capital, commercialize
products, and remain in business.
We are subject to extensive regulation by the FDA, which could restrict
the sales and marketing of our insulin pump products and could cause us to incur significant costs.
Our insulin pump products are subject to extensive regulation by the
FDA. These regulations relate to manufacturing, labeling, sale, promotion, distribution and shipping. Before a new medical device, or
a new intended use of a legally marketed device, can be marketed in the United States, it must be cleared or approved by the FDA through
the applicable premarket review process (510(k), PMA, or de novo classification), unless an exemption applies. While we have received
510(k) clearance for our initial insulin pump product, the MODD1, we may be required to obtain new 510(k) clearances for significant post-market
modifications to the pump. For example, our Pivot product, which we expect over time to replace the MODD1 product, will require 510(k)
clearance. Each premarket submission and review process can be expensive and lengthy, and entail significant user fees, unless exempt.
Medical devices may be marketed only for
the indications for which they are approved or cleared. Further, 510(k) clearance can be revoked if safety or effectiveness problems develop
once the device is on the market.
The current regulatory requirements to
which we are subject may change in the future in a way that adversely affects us. If we fail to comply with present or future regulatory
requirements that are applicable to us, we may be subject to enforcement action by the FDA, which may include any of the following sanctions:
● customer notification, or orders for repair, replacement or refunds;
● voluntary or mandatory recall or seizure of our current or future products;
● imposing operating restrictions, suspension or shutdown of production;
● rescinding 510(k) clearance that has already been granted; and
● criminal prosecution.
The occurrence of any of these events
would have a material adverse effect on our business, financial condition and results of operations and could result in stockholders losing
their entire investment.
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Although our insulin pump products do not presently require clinical
trials to apply to the FDA for clearance, and even if a clinical trial is completed, the results of our clinical testing may not demonstrate
the safety and efficacy of the device or may be equivocal or otherwise not be sufficient for us to obtain approval of our product candidates.
Clinical trials are almost always required
to support a PMA application and may also be required to support 510(k) submissions, although at this time our products do not require
a PMA. If the device presents a “significant risk” to human health as defined by the FDA, the FDA requires the study sponsor
to submit an investigational device exemption, or IDE, application and obtain IDE approval prior to commencing human clinical trials.
The IDE must be supported by appropriate data, such as animal and laboratory testing results, showing that it is safe to test the device
in humans and that the testing protocol is scientifically sound. An 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. The FDA may also notify the sponsor
that the study is approved as proposed. 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 conditional approval. Furthermore, the agency may withdraw approval
of an IDE under certain circumstances. Clinical trials for a significant risk device may begin once an IDE is approved by the FDA and
the appropriate Institutional Review Board, or IRB, at each clinical trial site. If the product is deemed a “non-significant risk”
device, IDE approval from the FDA would not be required, but the clinical trial would need to meet other requirements including IRB approval.
Our clinical trials must be conducted in accordance with FDA regulations and federal and state regulations concerning human subject protection,
including informed consent and healthcare privacy. A clinical trial may be suspended by the FDA or at a specific site by the relevant
IRB at any time for various reasons, including a determination that the risks to the trial participants outweigh the benefits of participation
in the clinical trial. Even if a clinical trial is completed, the results of our clinical testing may not demonstrate the safety and efficacy
of the device or may be equivocal or otherwise not be sufficient for us to obtain approval of our product.
Our success depends substantially upon our ability to obtain and maintain
intellectual property protection relating to our insulin pump products and research technologies.
We have applied to the U.S. Patent and
Trademark Office, or the USPTO, and various foreign patent agencies for patents on our proprietary fluid movement technology and our insulin
delivery methodology. To date, the USPTO has granted five patents to us, and we have been awarded two patents by foreign jurisdictions.
We have additional applications pending and in various stages of review by the USPTO and foreign patent agencies. There can be no assurance
that we will be issued additional patents by the USPTO or foreign patent agencies and that any of our patents will prevent other companies
from competing with us. We will continue to attempt to patent our innovations, as appropriate, to help ensure a sustainable competitive
advantage.
Due to evolving legal standards relating
to the patentability, validity and enforceability of patents covering health care product inventions, our ability to enforce our existing
patents and to obtain and enforce patents that may issue from any pending or future patent applications is uncertain and involves complex
legal, scientific and factual questions. To date, no consistent policy has emerged regarding the breadth of claims allowed in medical
device patents. Thus, we cannot be sure that any patents will issue from any pending or future patent applications owned by or licensed
to us. Even if patents do issue, we cannot be sure that the claims of these patents will be held valid or enforceable by a court of law,
will provide us with any significant protection against competing products, or will afford us a commercial advantage over competitive
products. If, at some point in the future, one or more products resulting from our product candidates is approved for sale by the FDA
and we do not have adequate intellectual property protection for those products, competitors could duplicate them for approval and sale
in the United States without repeating the extensive testing required of us to obtain FDA approval.
If we are sued for infringing
on third-party intellectual property rights, it will be costly and time-consuming, and an unfavorable outcome would have a significant
adverse effect on our business.
Our ability to commercialize our pump products depends on our ability
to use, manufacture and sell our product current and future product candidates without infringing the patents or other proprietary rights
of third parties. Numerous U.S. and foreign issued patents and pending patent applications owned by third parties exist in the diabetes
medical device area. There may be existing patents, unknown to us, on which our activities with our insulin pump products could infringe.
If a third party claims that our actions
infringe on its patents or other proprietary rights, we could face a number of issues that could materially harm our competitive position,
including, but not limited to:
If any of these events occur, it could
significantly harm our operations and financial condition and negatively affect our stock price.
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If we are unable to protect
the confidentiality of our proprietary information, the value of our technology and products could be adversely affected.
In addition to patented technology and
technology for which patent protection is being sought, we rely on our unpatented technology, trade secrets and know-how. We generally
seek to protect this information by confidentiality, non-disclosure and assignment of invention agreements with our officers, employees,
contractors and other service providers and with parties with which we do business. These agreements may be breached, which breach may
result in the misappropriation of such information, and we may not have adequate remedies for any such breach. We cannot be certain that
the steps we have taken will prevent unauthorized use or reverse engineering of our technology.
Moreover, our trade secrets may be disclosed
to or otherwise become known or be independently developed by competitors. To the extent that our officers, employees, contractors, other
service providers, or other third parties with whom we do business use intellectual property owned by others in their work for us, disputes
may arise as to the rights in related or resulting know-how and inventions. If, for any of the above reasons, our intellectual property
is disclosed or misappropriated, it would harm our ability to protect our rights and have a material adverse effect on our business, financial
condition, and results of operations.
Intellectual property rights
do not necessarily address all potential threats to our competitive advantage.
The degree of future protection afforded
by our intellectual property rights is uncertain because intellectual property rights have limitations, and may not adequately protect
our business, or permit us to gain and maintain a competitive advantage. The following examples are illustrative:
● we may not develop additional proprietary technologies that are patentable.
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Healthcare reform and drug-pricing reform laws could adversely affect
our products and financial condition.
In the United States, there have been,
and continue to be, a number of legislative initiatives to contain healthcare costs. In March 2010, the Patient Protection and Affordable
Care Act, as amended by the Health Care and Education Affordability Reconciliation Act (ACA), was enacted in the United States, which
made a number of substantial changes in the way healthcare is financed by both governmental and private insurers. Among other ways in
which it may affect our business, the ACA implemented payment system reforms, including a national pilot program on payment bundling to
encourage hospitals, physicians, and other providers to improve the coordination, quality, and efficiency of certain healthcare services
through bundled payment models and expanded the eligibility criteria for Medicaid programs. Since its enactment, there have been judicial,
executive, and Congressional challenges to certain aspects of the ACA. It is unclear how the ACA and its implementation, as well as efforts
to repeal or replace, or invalidate, the ACA, or portions thereof, will affect our insulin pump or our business. Additional legislative
changes, regulatory changes, and judicial challenges related to the ACA remain possible. It is possible that the ACA, as currently enacted
or as it may be amended in the future, and other healthcare reform measures that may be adopted in the future, could have an adverse effect
on our industry generally and on our ability to commercialize our insulin pump products and achieve profitability. We have assumed in
all of our financial projections that there is not an increase in the reimbursement for our products through the pharmacy or durable medical
equipment routes.
Drug pricing continues to be a subject
of debate at the executive and legislative levels of U.S. government. The American Rescue Plan Act of 2021 eliminated the statutory cap
on rebates that drug manufacturers pay to Medicaid beginning January 1, 2024. With the elimination of the rebate cap, manufacturers may
be required to compensate states in an amount greater than what the state Medicaid programs pay for the drug. Additionally, the Inflation
Reduction Act of 2022 contains substantial drug pricing reforms, including the establishment of a drug price negotiation program within
the U.S. Department of Health and Human Services that would require manufacturers to charge a negotiated “maximum fair price”
for certain selected drugs or pay an excise tax for noncompliance, the establishment of rebate payment requirements on manufacturers of
certain drugs payable under Medicare Parts B and D to penalize price increases that outpace inflation, and requires manufacturers to provide
discounts on Part D drugs. Substantial penalties can be assessed for noncompliance with the drug pricing provisions in the Inflation Reduction
Act of 2022. The Inflation Reduction Act of 2022 could have the effect of reducing the prices we can charge and reimbursement we receive
for our products, if approved, thereby reducing our profitability, and could have a material adverse effect on our financial condition,
results of operations and growth prospects. The effect of Inflation Reduction Act of 2022 on our business and the pharmaceutical industry
in general is not yet known.
At the state level, legislatures have
increasingly passed legislation and implemented regulations designed to control pharmaceutical product pricing, including price or patient
reimbursement constraints, discounts, restrictions on certain product access and marketing cost disclosure and transparency measures,
and, in some cases, designed to encourage importation from other countries and bulk purchasing. We expect that additional federal, state
and foreign healthcare reform measures will be adopted in the future, any of which could limit the amounts that federal and state governments
will pay for healthcare products and services, which could result in limited coverage and reimbursement and reduced demand for our products,
once approved, or additional pricing pressures.
These and other healthcare reform measures
that may be adopted in the future may result in more rigorous coverage criteria and in additional downward pressure on the price that
we receive for any current product or future product candidate. Any reduction in reimbursement from Medicare or other government healthcare
programs may result in a similar reduction in payments from private payors. The implementation of cost containment measures or other healthcare
reforms may prevent us from being able to generate revenue, attain profitability or commercialize our products. Legislative and regulatory
proposals have been made to expand post- approval requirements and restrict sales and promotional activities for drugs. We cannot be sure
whether additional legislative changes will be enacted, or whether the FDA regulations, guidance or interpretations will be changed, or
what the impact of such changes on the marketing approvals of any current or future product candidates, if any, may be. In addition, increased
Congressional scrutiny of the FDA’s approval process may significantly delay or prevent marketing approval, as well as subject us
to more stringent product labeling and post-marketing testing and other requirements.
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Even if we are able to obtain all regulatory
approvals and have completed all other steps needed to be taken to commercialize our insulin pump, if we or any contract manufacturers
we select fail to comply with the FDA’s quality system regulations, the manufacturing and distribution of our products could be
interrupted, and our sales and operating results could suffer.
We have established initial, low-volume manufacturing capability in
our facility and with a tier one medical device contract manufacturer. We and the contract manufacturer of our insulin pump products will
be required to comply with the FDA’s quality system regulations, which impose a complex regulatory framework that covers the procedures
and documentation of the design, testing, production, control, quality assurance, labeling, packaging, sterilization, storage and shipping
of medical devices. The FDA enforces its quality system regulations through periodic unannounced inspections. We cannot assure you that,
in the future, any manufacturing facilities owned by us or any contract manufacturer will pass any quality system inspection. In the event
that our or any contract manufacturer’s facilities fails a quality system inspection, the manufacturing or distribution of our products
could be interrupted and our operations disrupted. Failure to take adequate and timely corrective action in response to an adverse quality
system inspection could force a suspension or shutdown of any packaging and labeling operations or then manufacturing operations of any
contract manufacturers, or a recall of our insulin pump products. If any of these events were to occur, we at such time would not be able
to provide our customers with the quantity of insulin pumps that they require on a timely basis, our reputation could be harmed and we
could lose any customers we then have, any or all of which could have a material adverse effect on our business, financial condition and
results of operations.
We may bring infringement
claims or other legal proceedings against third parties, causing us to spend substantial resources on litigation and exposing our own
intellectual property portfolio to challenge.
We may come to believe that third parties
are infringing on our patents or other proprietary rights. To prevent infringement or unauthorized use, we may need to file infringement
and/or misappropriation suits, which are very expensive and time-consuming, could result in meritorious counterclaims against us and would
distract management’s attention. Also, in an infringement or misappropriation proceeding, a court may decide that one or more of
our patents is invalid, unenforceable, or both, in which case third parties may be able to use our technology without paying license fees
or royalties. Even if the validity of our patents is upheld, a court may refuse to stop the other party from using the technology at issue
on the grounds that the other party’s activities are not covered by our patents. See “Business - Patents,” below.
We may become involved in
disputes with our present or future contract partners over intellectual property ownership or other matters, which would have a significant
effect on our business.
Inventions discovered in the course of
performance of contracts with third parties or contractors may become jointly owned by such third-party contractors and us, in some cases,
and the exclusive property of one of us, in other cases. Under some circumstances, it may be difficult to determine who owns a particular
invention or whether it is jointly owned, and disputes could arise regarding ownership or use of those inventions or jointly developed
improvements thereto. Other disputes may also arise relating to the performance or alleged breach of our agreements with third parties.
Any disputes could be costly and time-consuming, and an unfavorable outcome could have a significant adverse effect on our business.
Our insulin pump products
will be subject to recalls, which would harm our reputation, business operations and financial results.
The FDA has the authority to require the recall of our pump products,
if we commence manufacturing of our insulin pumps, and we, or any contract manufacturers we retain, fail to comply with relevant regulations
pertaining to manufacturing practices, labeling, advertising or promotional activities, or if new information is obtained concerning the
safety or efficacy of the device. A government-mandated recall could occur if the FDA finds that there is a reasonable probability that
our device would cause serious, adverse health consequences or death. A voluntary recall by us could occur as a result of manufacturing
defects, labeling deficiencies, packaging defects or other failures to comply with applicable regulations. Any recall would divert management’s
attention and financial resources and harm our reputation with customers. A recall involving our insulin pump products would be particularly
harmful to our business, financial condition and results of operations because these are currently our only products.
Our current insulin pump product does not
yet have reimbursement and is not approved for insurance coverage. If in the future we are otherwise able to commercialize our insulin
pump products, but are unable to obtain adequate reimbursement or insurance coverage for such product from third-party payors, we will
be unable to generate significant revenue.
Our current insulin pump is not yet eligible for reimbursement and
is not approved for insurance coverage. The future availability of insurance coverage and reimbursement for newly approved medical devices
is highly uncertain. In the United States, patients using insulin pumps are generally reimbursed for all or part of the product cost by
Medicare or other third-party payors. Any future commercial success of our insulin pump products will be substantially dependent on whether
third-party coverage and reimbursement is available for future customers. Medicare, Medicaid, health maintenance organizations and other
third-party payors are increasingly attempting to contain healthcare costs by limiting both coverage and the level of reimbursement of
new medical devices, and, as a result, they may not cover or provide adequate reimbursement for our insulin pump, assuming we are able
to fully develop and obtain all regulatory approval to market it in the United States. In addition, in certain countries, no uniform policy
of coverage and reimbursement for medical device products and services exists among third- party payors. Therefore, coverage and reimbursement
for medical device products and services can differ significantly from payor to payor. In addition, payors continually review new technologies
for possible coverage and can, without notice, deny coverage for these new products and procedures. As a result, the coverage determination
process is often a time-consuming and costly process that will require us to provide scientific and clinical support for the use of our
products to each payor separately, with no assurance that coverage and adequate reimbursement will be obtained or maintained, if obtained.
Reimbursement systems in international markets vary significantly by country and by region within some countries, and reimbursement approvals
must be obtained on a country-by-country basis. In many international markets, a product must be approved for reimbursement before it
can be approved for sale in that country. Further, many international markets have government-managed healthcare systems that control
reimbursement for new devices and procedures. Accordingly, unless government and other third-party payors provide coverage and reimbursement
for our insulin pump products, patients may not use it, which would cause investors to lose their entire investment.
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Risks Related to Our Securities
Any disruption and/or instability
in economic conditions and capital markets could adversely affect our ability to access the capital markets, and thus adversely affect
our business and liquidity.
Negative economic conditions and instability
or uncertainty in the financial markets could have a negative impact on our ability to access the capital markets, and thus have a negative
impact on our then operations and liquidity. We face certain risks in the event of a sustained deterioration of financial market liquidity,
as well as in the event of sustained deterioration in the liquidity, or failure, of our banking, cash management and custodial financial
institutions. A general shortage of liquidity and credit combined with the substantial losses in worldwide equity markets could lead to
an extended worldwide recession in the future. If such occurred, we would face significant challenges if conditions in the capital markets
did not improve. Our ability to access the capital markets under such circumstances could be severely restricted at a time when we need
to access such markets, which could have a negative impact on our business plans. Even if we are able to raise capital under such circumstances,
it may not be at a price or on terms that are favorable to us. We cannot predict the occurrence of future disruptions or how long such
negative conditions might continue
International trade policies, including
protectionist trade policies, such as tariffs and sanctions, could adversely affect our business, results of operations and financial
condition.
Due to the interconnectedness of the global
economy, policy changes in one area of the world can have an immediate and material adverse impact on markets around the world. Changes
in international trade policies, including: (i) changes to existing trade agreements; (ii) greater restrictions on free trade generally;
and (iii) significant increases in customs duties and tariffs on goods imported into the United States and reciprocal actions by other
countries, could adversely affect our business, results of operations and financial condition.
Current or future tariffs or other restrictive
trade measures may raise the costs of raw materials, components or finished goods, which may adversely impact both our product offerings
and our operational expenses. Such cost increases may reduce our margins and require us to increase prices, which could harm our competitive
position, reduce customer demand and damage customer relationships.
Trade disputes, trade restrictions, tariffs
and other political tensions between the U.S. and other countries may also exacerbate unfavorable macroeconomic conditions including inflationary
pressures, foreign exchange volatility, financial market instability, and economic recessions or downturns, which may also negatively
impact customer demand for our products or services, delay purchases or renewals, limit expansion opportunities with customers, limit
our access to capital, or otherwise negatively impact our business and operations. Ongoing tariff, trade restrictions and macroeconomic
uncertainty has and may continue to contribute to volatility in the price of our common stock.
Ongoing uncertainty regarding trade policies
may also complicate our short- and long-term strategic planning, and that of our partners and customers, including decisions regarding
hiring, product strategy, capital investment, supply chain design and geographic expansion.
While we continue to monitor trade developments,
the ultimate impact of these risks remains uncertain and any prolonged economic downturn, escalation in trade tensions, or deterioration
in international perception of U.S.-based companies could materially and adversely affect our supply chain, as well as our business, results
of operations and financial condition. In addition, tariffs and other trade developments have and may continue to heighten the risks related
to the other risk factors described in this Report.
Third parties might attempt
to gain unauthorized access to our network or seek to compromise our products.
Our business is dependent on the security
and efficacy of our networks and computer and data management systems, and we rely on our internal computer networks for many of the systems
we use to operate our business generally. From time to time, we may face attempts by others to gain unauthorized access through the Internet
or otherwise or to introduce malicious software to our information technology systems. We or our products may be a target of computer
hackers, organizations or malicious attackers who attempt to:
● gain access to our network;
● interrupt our systems.
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From time to time, we may encounter attempts at gaining unauthorized
access to our network, and we periodically run security checks. While we seek to detect and investigate unauthorized attempts and attacks
against our network and products of which we become aware, and to prevent their recurrence where practicable through changes to our internal
processes and tools and/or changes to our products, we remain potentially vulnerable to additional known or unknown threats. In addition