UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
For the fiscal year ended December 31, 2022
or
For the transition period fromto
Commission File Number: 001-39486
QUANTUM-SI INCORPORATED
(Exact name of registrant as specified in its charter)
530 Old Whitfield Street
Guilford, Connecticut 06437
(Address of principal executive offices) (Zip Code)
Registrant’s telephone number, including area code: (866) 688-7374
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Trading Symbols(s) Name of each exchange on which registered
Class A common stock, $0.0001 per share QSI The Nasdaq Stock Market LLC
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐ No ☒
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Exchange Act. Yes ☐
No ☒
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule
405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting
company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer ☐ Accelerated filer ☐
Non-accelerated filer ☒ Smaller reporting company ☒
Emerging growth company ☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with
any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its
internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☐
If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing
reflect the correction of an error to previously issued financial statements. ☐
Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by any of
the registrant’s executive officers during the relevant recovery period pursuant to §240.10D-1(b). ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
The aggregate market value of the registrant’s voting and non-voting equity held by non-affiliates of the registrant (without admitting that any
person whose securities are not included in such calculation is an affiliate) computed by reference to the price at which the Class A common stock was last sold as of June 30, 2022, the last business day of the registrant’s most recently
completed second fiscal quarter, was approximately $232.1 million.
As of March 10, 2023, the registrant had 120,006,757
shares of Class A common stock outstanding and 19,937,500 shares of Class B common stock outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Thefollowing documents (or parts thereof) are incorporated by reference into the following parts of this Form 10-K: Certain information required in Part III of this Annual Report on Form 10-K is incorporated by reference from the
Registrant’s Proxy Statement for the 2023 Annual Meeting of Stockholders to be filed with the Securities and Exchange Commission.
QUANTUM-SI INCORPORATED
FORM 10-K
For the fiscal year ended December 31, 2022
TABLE OF CONTENTS
Page
Cautionary Note Regarding Forward-Looking Statements 3
Part I 5
Item 1. Business 5
Item 1A. Risk Factors 29
Item 1B. Unresolved Staff Comments 60
Item 2. Properties 60
Item 3. Legal Proceedings 60
Item 4. Mine Safety Disclosures 60
Item 6. [Reserved] 61
Item 7A. Quantitative and Qualitative Disclosures About Mark Risk 74
Item 8. Financial Statements and Supplementary Data 74
Item 9A. Controls and Procedures 74
Item 9B. Other Information 75
Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections 75
Part III 76
Item 10. Directors, Executive Officers and Corporate Governance 76
Item 11. Executive Compensation 76
Item 14. Principal Accountant Fees and Services 76
Item 15. Exhibits and Financial Statement Schedules 77
Signatures 81
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CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Annual Report on Form 10-K includes 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, our future operations or financial performance, or our plans, strategies and prospects. These statements are based on the beliefs and assumptions of
our management team. Although we believe that our plans, intentions and expectations reflected in or suggested by these forward-looking statements are reasonable, we cannot assure that we will achieve or realize these plans, intentions or
expectations. Forward-looking statements are inherently subject to risks, uncertainties and assumptions. Generally, statements that are not historical facts, including statements concerning possible or assumed future actions, business strategies,
events or performance, are forward-looking statements. These statements may be preceded by, followed by or include the words “believes,” “estimates,” “expects,” “projects,” “forecasts,” “may,” “will,” “should,” “seeks,” “plans,” “scheduled,”
“anticipates” or “intends” or the negative of these terms, or other comparable terminology intended to identify statements about the future, although not all forward-looking statements contain these identifying words. The forward-looking
statements are based on projections prepared by, and are the responsibility of, the Company’s management. Forward-looking statements contained in this Annual Report on Form 10-K include, but are not limited to, statements about:
● changes in applicable laws or regulations;
● our ability to raise financing in the future;
● the success, cost and timing of our product development activities;
● our ongoing leadership transition;
● our ability to identify, in-license or acquire additional technology;
● our financial performance; and
● the impact of the COVID-19 pandemic on our business.
These forward-looking statements are based on information available as of the date of this report, and current expectations, forecasts and assumptions, and involve a number of judgments, risks and
uncertainties. Important factors could cause actual results, performance or achievements to differ materially from those indicated or implied by forward-looking statements such as those described under the caption “Risk Factors” in Item 1A. The
risks described under the heading “Risk Factors” are not exhaustive. New risk factors emerge from time to time, and it is not possible to predict all such risk factors, nor can we assess the impact of all such risk factors on our business or the
extent to which any factor or combination of factors may cause actual results to differ materially from those contained in any forward-looking statements. Forward-looking statements are not guarantees of performance. You should not put undue
reliance on these statements, which speak only as of the date hereof. All forward-looking statements attributable to us or persons acting on our behalf are expressly qualified in their entirety by the foregoing cautionary statements. We undertake
no obligation to update or revise publicly any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law.
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SUMMARY OF RISK FACTORS
We are providing the following summary of the risk factors contained in this Annual Report on Form 10-K to enhance the readability and accessibility of our risk factor disclosures. We encourage you
to carefully review the full risk factors contained in this Annual Report on Form 10-K in their entirety for additional information regarding the material factors that make an investment in our securities speculative or risky. These risks and
uncertainties include, but are not limited to, the following:
References in the summary below to “we”, “us”, “our” the “Company” and “Quantum-Si” refer to Quantum-Si and its subsidiaries.
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PART I
ITEM 1. BUSINESS
Overview
Prior to June 10, 2021, we were a blank check company incorporated as a Delaware corporation and formed for the purpose of effecting a merger, capital
stock exchange, asset acquisition, stock purchase, reorganization or similar business combination with one or more businesses. On June 10, 2021, we completed a business combination (the “Business Combination”) pursuant to the terms of the Business Combination Agreement dated February 18, 2021 (the “Business Combination Agreement”), by and among HighCape Capital Acquisition LLC
(“HighCape”), Tenet Merger Sub, Inc., a Delaware corporation (“Merger Sub”), and Quantum-Si Incorporated, a Delaware corporation (“Legacy Quantum-Si”). Immediately upon the consummation of the Business Combination and the other transactions
contemplated by the Business Combination Agreement (the “Closing”), Merger Sub merged with and into Legacy Quantum-Si, with Legacy Quantum-Si surviving the Business Combination as a whollyowned subsidiary of HighCape. In connection with the Closing, HighCape changed its name to “Quantum-Si Incorporated” and Legacy Quantum-Si changed its name to “Q-SI Operations Inc.”
We are an innovative life sciences company with the mission of transforming biomarker discovery and clinical research by providing researchers and
clinicians unique access to the proteome, the set of proteins expressed within a cell. We have developed a proprietary protein detection platform that leverages semiconductor technology and protein engineering technology to launch a completely
novel and differenced product to enable Next Generation Protein Sequencing (“NGPS”), the ability to sequence proteins in a massivelyparallel fashion (rather than
sequentially, one at a time). Current proteomic workflows to sequence proteins require days or weeks to complete and the data analysis requires specialized staff such as bioinformatics scientists. Our platform is designed to offer a rapid
workflow including both sample preparation and protein sequencing. Our platform is comprised of the CarbonTM automated sample preparation instrument, the PlatinumTM NGPS instrument, the Quantum-Si CloudTM software and reagent kits for use with our
instruments. In December 2022, we launched PlatinumTM, the world’s first next-generation single-molecule protein sequencing platform, for research use only (“RUO”). We are currently selling PlatinumTM and began commercial shipments of PlatinumTM in
January 2023. We plan to launch CarbonTM in 2023. We believe we are the first company to successfully enable NGPS, which allows for the identification and characterization of proteins and unlock new knowledge and research in cancer and
immunology.
There is an immense opportunity to better characterize and understand the full complexity of the proteome through improved understanding of proteoforms (different versions of proteins) and
post-translational modifications that impact a protein’s location and function within a cell. In general, the proteome has been relatively unexplored because of a lack of tools. We believe that our PlatinumTM with provide a broader, unbiased view
of the proteome, which is foundational for accelerating biological insights and has vast utility in a number of end markets, including basic research and discovery, translational research, diagnostics and medical applications.
We believe that our platform offers a differentiated end-to-end workflow solution in a rapidly evolving proteomics tools market. Within our initial focus market of proteomics we will focus on
applications such as protein/proteoform identification as our workflow is designed to provide users a seamless opportunity to gain key insights into the immediate state of biological pathways and cell state. Our platform aims to address many of
the key challenges and bottlenecks of legacy proteomic solutions, such as mass spectrometry (“MS”), which are complicated and often limited by complex manual sample preparation workflows, and high instrument costs, both in terms of acquisition
and ownership and complexity with data analysis, which together prevent broad adoption. We believe our platform, which is designed to streamline sample preparation, sequencing, and data analysis at a lower instrument cost than legacy proteomic
solutions, could allow for wide utility across the study of the proteome. For example, our platform could be used for biomarker discovery and disease detection, pathway analysis, immune response, and vaccine development, among other
applications.
According to SVB Leerink Research, proteomics represented a $75 billion market opportunity spanning from life science research through diagnostics in 2021. Within this, proteomics research represented $20 billion,
while proteomic diagnostics represented the remaining $55 billion. Based on this, we believe that the current total addressable market (“TAM”) for our research use only platform is at least $20 billion.
Our team has decades of cumulative experience in developing, commercializing and scaling tools in the life sciences industry. Our management team has employed a similar approach at other companies
previously to launch other disruptive technologies, including market leading single molecule proteomics and genomics technology including next generation DNA sequencing technologies. We believe this experience will allow us to introduce our
platform in a structured manner to demonstrate its use, value and practicality, while working directly with our key customers, to help ensure a positive experience.
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We were founded in 2013 by Dr. Jonathan Rothberg, a serial entrepreneur who received the Presidential Medal of Technology & Innovation in 2016 for inventing next generation DNA sequencing. Dr.
Rothberg has founded more than 10 healthcare technology companies, including 454 Life Sciences, Ion Torrent and Butterfly Network. We received net proceeds of $512.8 million from the Closing of the Business Combination in 2021 to help support
our platform development.
We launched PlatinumTM in December 2022 and we expect to generate revenue in the first quarter of 2023. We incurred
net losses of $132.4 million, $95.0 million and $36.6 million for the fiscal years ended December 31, 2022, 2021 and 2020, respectively.
Industry Background and Key Challenges
In 2003, the first draft of the human genome was completed, igniting a desire for new ways to study genomes at scale. The creation of NGS transitioned the genomics market from analog arrays to
digital sequences. The ability to sequence DNA in a massively parallel fashion provided an unbiased view of the genome, leading to an expansion of our understanding of biology. Sequencing the human genome also resulted in the categorization of
the genes and their products, the proteins and led to a new field of study called proteomics. We believe that proteomics is positioned to follow a rapid expansion path similar to that of the genomics market. We believe our low-cost benchtop
platform will play a critical role in driving this expansion.
Importance of Proteomics
Central Dogma of Biology
The central dogma of biology describes the flow of information within a cell, first originating with information encoded as DNA; subsequent transcription to RNA; and ultimate translation to
proteins. While our genomes contain approximately 20,000 genes, current estimates are that these genes ultimately code for more than 1,000,000 different protein variants called proteoforms. Thus, the majority of diversity that exists in our
cells comes from proteins. Proteins are organic compounds made up of amino acids. Aside from water, proteins make up the majority of the molecules in our bodies. They are found throughout the body, including cells, blood, urine, spinal fluid,
feces, amniotic fluids, saliva and pleural fluid. Proteins play a central role in the body’s biological processes, from the immune system response and signalizing pathways to transporting oxygen molecules and providing our cells with structure.
Proteins or a group of interacting proteins are responsible for virtually every biological function within a living organism. Unlike the genome, the proteome is in constant flux depending on the state of the cell. However, even with the
knowledge of the proteome’s influence, the proteome remains largely unexplored relative to the genome. Over the past decades, genomics has ushered in a greater understanding of human biology and disease through the decoding of the human genome,
providing a greater understanding of the genes that lay out the instructions for the function, development and reproduction of organisms. While genomics has allowed the interrogation of genetic variation, protein variants hold information yet to
be explored or connected to the network of genomic knowledge to better understand cellular function and disease. The protein’s elaborate structure, complicated composition, and vast number of variants, provide a dynamic look into the functions
they provide. For example, proteins function as antibodies that bind to specific particles like viruses to protect the body; they act as enzymes to carry out chemical reactions in cells; they act as messengers like hormones to transmit signals;
they exist as structural components; and form the basis for storage to carry additional molecules throughout the body.
Proteomic discovery provides insight into what is immediately happening biologically. This insight may be based on both genetic as well as environmental factors that influence protein structure and
function. Proteins, while they are complex structures, given their dynamic nature are an excellent indicator that we believe can be used to track therapeutic response, disease progression and person’s overall health. In a sense, DNA tells us
“what could happen,” and proteins tell us “what is happening.”
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Proteomics tools have been broadly used across a wide range of applications, including:
Legacy Proteomic Technologies
There is a much higher diversity and level of complexity related to proteins than genes. Depending on the combination of genes, specific proteins
are built to perform specialized functions in the body. A single gene can encode multiple proteoforms depending on the role the protein will ultimately play in the cell. Protein synthesis happens in two stages. First is transcription, where
DNA is converted into messenger RNA. Second is translation, where a cell’s ribosomes read the RNA instructions to assemble the protein. An increase in the complexity of the proteome is facilitated by post translational modifications (PTMs)
where pieces of the protein are modified to either activate or inactivate the protein as part of a signaling pathway to localize the protein to a certain cellular compartment. Legacy proteomic techniques can be grouped into various lower-plex
and higher-plex methods to better analyze complex proteins:
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Limitations of Legacy Proteomic Techniques
Our Market Opportunity
The proteomic market is dynamic and includes legacy solutions and new entrants all aiming to become market leaders. The proteomics market is less concentrated, with no single technology dominating
the majority of the market.
Proteomics is an emerging research area and highly fragmented with numerous technologies that address a variety of points along a typical protein analysis workflow, such as sample preparation,
analysis, target number, dynamic range and sample throughput. There are limited commercial product options available that have the power to address the entire workflow from sample to answer. We believe that our platform will enable an
end-to-end workflow solution, driven in part by our proprietary chip, to enable next-generation single-molecule protein sequencing. Moreover, aspects of our platform are designed to operate with other sample workflows. For example, our Carbon
sample preparation instrument is designed to be used with various reagents to prepare digest peptides, which could then be analyzed either with our Platinum instrument or with legacy MS instruments. The figure below illustrates the end-to-end
workflow solution we aim to provide as compared to select companies that offer point solutions within an overall proteomic analysis workflow.
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Proteomics Landscape
According to SVB Leerink Research, proteomics represented a $75 billion market opportunity spanning from life science research through diagnostics in
2021. Within this, proteomics research represented $20 billion, while proteomic diagnostics represented the remaining $55 billion. Based on this, we believe that the current TAM for our RUO platform is at least $20 billion. Our protein sequencing platform is currently intended for RUO applications, and any potential future use of our products for clinical use would require regulatory authorization. Many
technologies across these segments are decades old with limitations that have prevented broad spread adoption of proteomics research. We believe our products and technologies have the potential to provide users across life sciences research
market access to the proteome in a simple, cost effective, unbiased, and scalable manner.
Today, legacy proteomics users generally rely on MS for high throughput protein characterization. Typical MS workflows are disaggregated, expensive, and require significant training to perform,
which ultimately limits access to specialty facilities or core MS labs. A primary mission of our technology platform is to provide broad access to proteomics tools across academic research labs, core labs, and biopharma R&D labs. Our
expected price point, simplicity of workflow and end-to-end solution are designed to attract users who seek to replace a legacy technology or are entering the proteomics market as new customers. Some of our potential customers may have an
existing MS system but may choose our products to supplement their system. Some users may wish to add proteomics analysis capacity, particularly for low throughput needs. We believe these customers value the speed, data driven analytical
insights, affordability, and simplicity we expect our platform to provide to them. Additionally, we believe our platform will appeal to traditional customers of large MS cores. Rather than wait potentially weeks for core labs to analyze
samples, our platform aims to provide an affordable and accessible alternative.
Additionally, we believe that our proteomics platform may appeal to existing users of DNA sequencing technologies to directly augment their research and discovery of biomarkers and further deepen
their understanding of biology. We believe our benchtop proteomics instruments will allow genomics users the ability to pursue multi-omic approaches to tackle basic and applied research questions.
Further, we expect users within the analyte testing segment to adopt our technologies for a variety of clinical research and translational applications. The analyte testing market comprises
multiple technologies ranging from basic ELISA tests for interrogating a small number of targets to more complex, high throughput protein analyzers. Successful technologies for use in broad clinical testing generally require specificity and
sensitivity as well as the ability to scale to reliably meet volume demand. Developed to be a true single molecule detection platform, our products are designed to achieve the highest level of resolution for sensitivity by sequencing information
at the individual amino acid level, and therefore the specificity to meet fidelity requirements of clinical testing, if our products are ultimately authorized for such use. In addition, because our technology utilizes semiconductor chip
technology and is positioned to make use of the supply chain and fabrication of the semiconductor industry, our platform has the potential to scale to meet demand ultimately on a global scale.
Our Products
We have designed and developed a hardware, consumable and software solution to provide a full end-to-end solution.
Collectively, we believe our products provide a comprehensive and flexible platform. Each piece of our system is designed to address specific
bottlenecks in common proteomic workflows, which we believe will appeal to a broad audience of end users. We believe that our universal unbiased single molecule detection platform will enable a proteomics solution at an affordable cost and
provide users the opportunity to perform proteomics studies. Our launch product consists of PlatinumTM, Quantum-Si CloudTM and consumables. We believe we are the first company to successfully enable NGPS, thus digitizing a substantial
proteomics opportunity, for a scalable and massively parallel solution at the ultimate level of sensitivity — single molecule.
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Our Launch Platform Consists of Carbon, Platinum, and Quantum-Si CloudTM
Carbon System (left), Platinum Protein Sequencer (middle) Cloud Analytics (right)
Carbon — Sample Prep Instrument (under development)
The Carbon instrument is a universal automated sample preparation instrument. Carbon is designed to help automate the workflow by addressing a process that is traditionally complicated and manual. Carbon is designed to enable a wide range of
applications through a simple single-use fluidics cartridge. Specific features include the ability to:
● Transport and meter out small volumes of reagents/samples between reservoirs;
● Perform chemical or enzymatic incubations with or without temperature control;
● Purify target analyte; and
● Automate sample prep through to library creation.
For protein sequencing, Carbon is designed to automate the processes of loading the Chips and protein digestion, capping, conjugation and clean-up with walk-away operation.
Platinum — Single Molecule Detection Instrument
Platinum Instrument and Time-Domain SequencingTM Chip
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Our flagship sequencing instrument, Platinum, is designed to make the power of single-molecule detection and NGPS broadly accessible. While
traditional instruments like mass spectrometers may cost anywhere from $250,000 to over $1,000,000 per new instrument, our Platinum device retails for approximately $70,000. Platinum is designed to provide a streamlined rapid workflow compared to legacy MS workflows. Platinum uses our proprietary semiconductor chip that leverages Time-Domain SequencingTM with an initial focus on NGPS for an
unbiased view of the proteome. We believe the digital nature of the sequencing readout could enable users to answer three key questions:
Our semiconductor chip is the core of our technology. By leveraging developments in the semiconductor industry, we are developing our scalable single-molecule next generation protein sequencer.
Similar to the camera in a mobile phone, our chip is produced in standard semiconductor foundries and has been designed to provide insight into biology. The power of our approach is that rather than analyzing proteins one at a time, our chip is
designed to enable parallel sequencing across millions of independent chambers, and the number of parallel sequencing reactions to scale rapidly. Each independent sequencing reaction takes place at the ultimate level of sensitivity and
specificity, single molecules, which is critical to protein detection because there is no way to amplify protein, preventing existing amplification-based technologies to enable protein sequencing.
A Wafer of Quantum-Si Time-DomainTM Sequencing Chip (left) and Individual Chip Mounted to a Printed Circuit Board (right)
Our team has considerable experience in the fabrication processes for semiconductor chips, which is a complex process, and has successfully used chips to advance NGS previously at other companies.
We have developed and optimized processes with the third-party foundry that supplies our chips, which allows us to make integrated chips using standard foundry processes with sufficient performance for our commercial needs and to scale to meet
our customer demand. We believe that our proprietary chip is a core component in our ability to scale. Ultimately, we will need to utilize larger and more powerful chips capable of processing more complex biological samples.
In November 2021, we acquired Majelac Technologies LLC (“Majelac”), a semiconductor packaging company based in Garnet Valley, Pennsylvania. The acquisition brought our semiconductor chip assembly
and packaging capabilities in-house in order to secure our supply chain and support our commercialization efforts.
Consumables for Use in Carbon and Platinum
In addition, we expect to begin to derive recurring revenue from the sale of consumables. These consumables will be required for users to run samples through the Carbon and Platinum instruments.
Consumables consist of our reagent kits and chips and are designed for use only with our instruments.
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Quantum-Si CloudTM — Faster, Simpler, Data Analysis
Quantum-Si CloudTM
Our platform is designed to integrate a cloud-based solution into the instrument to stream data in real-time to the cloud where analytical workflows can then interpret the data. For example, while
we expect that sequencing data will be stored on the Platinum instrument itself, our cloud-based solution is designed to map peptide sequences to proteins and facilitate the required counting for protein identification and quantitation in the
cloud.
We are also developing our cloud-based solution to include the following features:
● User management for secured data access;
● Light-weight library information management system for data management;
● Multi-tenancy to enable data sharing and collaborations; and
We believe we have designed our cloud solution to address the key needs of researchers today, including to address potential bottlenecks that we believe might otherwise limit customer satisfaction
and routine use of our instruments, while providing the data governance and security required for clinical use in the future.
Time-Domain SequencingTMand Next Generation Protein Sequencing (NGPS)
With proteins, there are 20 amino acids, therefore technologies that use color alone, would not be able to scale to that number of characters. Our proprietary chip is designed to use time, instead of color, to detect amino acids, and we combine time with intensity and single-molecule kinetics to capture three
dimensions of data. We expect that three dimensions of data will ultimately enable us to cover all 20 amino acids.
The core of our proprietary detection method, which we refer to as Time-Domain SequencingTM, is based on the fluorescence lifetime of dyes. Fluorescence lifetime is a measure of the time a
fluorophore dye spends in the excited state before returning to the ground state by emitting a photon of light. Different dyes emit photons of light at different rates that follow a known distribution.
Example Photon Emission Distribution of a Dye After Excitation
Our Platinum instrument includes a proprietary mode-locked laser, which provides the excitation light pulse, and our semiconductor chip allows us to
reject the laser light and then rapidly collect, bin and measure the arrival time of emitted photons of a fluorescently labeled molecule. By binning and
measuring the arrival times of photons we can then calculate the fluorescence lifetime, which can be used as a surrogate for the wavelength/color measurements. By using time instead of color to analyze proteins, we can leverage semiconductors’
ability to measure time.
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For NGPS, we fluorescently label recognizer molecules, which are designed to bind to the terminal end of a peptide (piece of a protein) that has been immobilized to the bottom of the reaction
chamber. A single recognizer is capable of uniquely identifying more than one amino acid. By leveraging the fluorescent lifetime and intensity of the dye, our technology is designed to accurately determine the recognizer. By measuring the on
and off rate (kinetic information) of a recognizer as it interacts with the terminal amino acid tens to hundreds of times, we believe our technology can accurately identify the amino acid.
After removing the terminal amino acid, the recognition process repeats until the full peptide chain is sequenced. While traditional single-molecule platforms rely on single measurement for the
detection of an event, the advantage of our approach is that our technology can actually obtain tens to hundreds of data points for each amino acid. Cumulatively, we expect the multiple measurements to deliver high amino acid call accuracy.
Overview of the Protein Sequencing Process
Our Competitive Strengths
We believe that our competitive strengths include the following:
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Our Strategies
Our strategies include the following:
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Commercial Strategy and Launch Plan
Our proprietary platform has been specifically designed to provide full, rapid insight into the proteome at various scales. Our end-to-end workflow
solution, at launch, will be comprised of instruments, consumables, and software and has been designed at a favorable price point relative to legacy technologies to promote easy adoption, while simplifying and automating the single molecule
proteomics workflow. Our commercial strategy is designed to place our instruments initially with a wide variety of customer types, and ultimately to improve our products by increasing throughput and developing additional applications to expand
our users and increase the consumable utilization by our installed base. In December 2022, we launched PlatinumTM for RUO. We expect to start our Carbon beta testing program in 2023 as well. As our instruments are placed with research customers
and we build the installed base, we expect to derive recurring revenue from the sale of consumables.
As we continue to commercialize our platform, we plan to build out our commercial operations infrastructure necessary to sell and support our platform,
across a growing number of market segments and geographies. We are focusing our direct sales and marketing efforts primarily on principal investigators, directors, and other core personnel at academic research and biopharma labs that are
critical to their organization’s buying decisions. In addition, we have manufacturing partnerships that we believe will allow us to rapidly expand our capacity, with the ability to create new manufacturing lines to meet potential customer
demand. We will expand into other geographies through a combination of our own direct sales force as well as the use of third-party channel partners.
Members of our team have previously successfully utilized this approach to launch other disruptive technologies at other companies. We believe this approach will allow us to introduce our platform
in a structured manner to demonstrate its use and practicality, while working directly with key potential customers to help ensure a positive experience. Our core leadership team has decades of experience working directly in the life sciences
industry with many of the companies and research centers that have the potential to become key customers and we expect to build into our prospective customer pipeline.
Our commercial launch plan is comprised of the following phases following beta testing in product development:
Product Roadmap
Our product roadmap is designed to position us as a potential leader in the proteomic analysis market. We believe we are the first company to successfully enable NGPS on a semiconductor chip.
Following our expected commercial launch, we plan to continue to improve our platform through product improvements and to eventually offer lower-throughput instruments at a lower price point.
Following our commercial launch, we are focused on building our installed
base and expanding global access to our platform. We expect to make product enhancements to our initial platform and to make them available to our new and then existing customers. Potential improvements could include an increase in the
capacity of our semiconductor chips or chemistry enhancements to our instruments, which may improve accuracy, coverage, and speed. In the future, we may seek to expand our product line, such as by increasing, or decreasing, the throughput of
our Platinum instrument to offer specialized products to address key markets and applications.
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In addition to potential future advancements in hardware, we plan to expand our computational capabilities by developing firmware and data analytics tools. We believe that our software solutions
could be a key differentiating advantage relative to legacy systems. We believe the integration of our cloud system solution directly into the platform can ensure seamless real time data streaming real time to the cloud where analytical
workflows can help simplify data interpretation.
Through this product roadmap, we have the potential to become a leader in the proteomic analysis market, with the mission of transforming single molecule analysis and democratizing its use by
directly enabling researchers and clinicians access to the proteome. We believe we are the first company to successfully enable NGPS on a semiconductor chip, thus digitizing a substantial proteomics opportunity, which allows for a massively
parallel solution at the ultimate level of sensitivity — single molecule detection.
Suppliers and Manufacturing
Our products are built using both custom-made and off-the-shelf components supplied by outside manufacturers and vendors located in Asia, Europe, and the United States. One key custom-made
component is the disposable semiconductor chip. Others include the proprietary mode-locked laser and enzymes, and buffers used for protein sequencing. The majority of other components for the instruments are off-the-shelf.
We purchase some of our components and materials used in manufacturing, including the semiconductor chip, from single source suppliers. We believe
that alternatives would be available; however, it may take time to identify and validate replacement components, which could negatively affect our ability to supply our products on a timely basis. To mitigate this future risk, we and our
third-party contractors will typically carry a significant inventory of our critical components and develop a second source strategy.
All our instruments are co-manufactured tested, and supported by our manufacturer partner with which we have long-standing relationships, including our key manufacturing partners for the manufacture
of instruments and chips which we have worked with for the past four-to-five years. We believe that our manufacturing strategy is efficient and conserves capital. However, we do not have long-term supply or manufacturing commitments from our
suppliers or manufacturers, as our products and components are currently supplied on a purchase order basis. In addition, we will need to increase the supply and manufacturing of our products as we continue to commercialize our platform. In the
event it becomes necessary to utilize a different contract manufacturer for our products, we may experience additional costs, delays and difficulties in doing so, and our business could be harmed. We are continually evaluating our supply chain
to help ensure our manufacturing and supply chain footprint will meet our business objectives.
In November 2021, we acquired Majelac, a semiconductor packaging company based in Garnet Valley, Pennsylvania. The acquisition brought our semiconductor chip assembly and packaging capabilities
in-house to secure our supply chain and support our commercialization efforts.
Human Capital
Our people are the reason for our success, and we have structured our organization to maximize productivity and performance. Our future success largely depends upon our continued ability to attract
and retain highly skilled employees.As of December 31, 2022, we employed 196 full-time employees in the United States and 6 full-time employees internationally with the majority of our employees engaged
directly in research and development, and are actively building our commercial organization as demand increases; 43% of whom hold PhDs. None of our employees are covered by collective bargaining agreements. We understand that our success depends
on our highly talented employees, and our human capital management practices focus on attracting and retaining a diverse and engaged workforce.
Mission and Core Values. Our mission is to make
proteomics available to researchers around the world by using our proprietary technology. We are committed to providing an unbiased view of all the molecules of
life through improved scale, resolution and sensitivity leading to better understanding of disease and improved general health. Employees are made aware of our values - Team, Accountability, Passion, Excellence, Transparency, Competitive and
Diversity. These values are the basis of our actions and decisions.
Diversity, Equity and Inclusion. Much of our
success is rooted in the diversity of our teams and our commitment to inclusion. We value diversity at all levels. We believe that our business benefits from the different perspectives a diverse workforce brings, and we strive to maintain a
strong, inclusive and positive culture based on our shared mission and values.
We believe in attracting, developing, and retaining diverse talent that is inclusive of every age, gender, gender identity, race, sexual orientation,
physical capability, ethnicity, belief and perspective. Each individual, regardless of their role makes a difference and impacts our progress. We continue to
focus on seeking diverse candidates for all open opportunities.
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Employee Engagement. We have established an annual employee survey process to gather feedback from our employees. The feedback received allows us to grow
stronger as a company and allows us to create an environment where employee contributions matter and employees feel valued.
Training and Development. We listen to our employees to understand their training needs. Employees are encouraged to take advantage of our Learning
Management System which has a plethora of online learning courses. We conduct monthly seminars to update employees on what is happening throughout our Company.
Compensation and Benefits. Healthcare
technology companies, both large and small compete for a limited number of qualified applicants to fill specialized positions. To attract qualified applicants
and retain employees, we offer a total rewards package consisting of base salary, cash bonus, and equity compensation. Bonus opportunity and equity compensation increase as a percentage of total compensation based on level of responsibility. The actual bonus payout is based on performance. In addition, we also provide a comprehensive benefits package inclusive of medical, dental, and vision healthcare
coverage including a paid reimbursement account, life insurance and disability coverage, 401(k) investment plans, tax advantaged savings account, generous paid time off and leaves of absence, employee assistance programs, and wellness programs.
Employee Health and Safety. We have training programs for general, chemical and biological safety. We are continuously evaluating the guidance from federal
and local authorities and have created strict policies and guidelines that put our employees’ health and safety first.
Information About Our Executive Officers and Directors
The following persons were our executive officers and directors as of March 1, 2023:
Name Position
Executive Officers
Jeffrey Hawkins Chief Executive Officer and Director
Claudia Drayton Chief Financial Officer
Patrick Schneider, Ph.D. President and Chief Operating Officer
Grace Johnston, Ph.D. Chief Commercial Officer
Christian LaPointe, Ph.D. General Counsel and Corporate Secretary
Directors
Jonathan M. Rothberg, Ph.D. Chairman of the Board of Directors
Vikram Bajaj, Ph.D. Managing Director, Foresite Capital Management, LLC
Marijn Dekkers, Ph.D. Founder and Chairman, Novalis LifeSciences LLC
Brigid A. Makes Independent Consultant
Michael Mina, M.D., Ph.D. Chief Science Officer, eMed
Kevin Rakin Co-Founder and Partner, HighCape Capital
Competition
We face significant competition in the life sciences technology market. We currently compete with life sciences technology and the diagnostic companies that are supplying components, products and
services that serve customers engaged in proteomics analysis. These companies include Agilent Technologies, Bio-Rad Laboratories, Danaher, Luminex, Merck KGaA (and its subsidiary MilliporeSigma) and Thermo Fisher Scientific.
We also may compete with a number of emerging growth companies that have developed, or are developing, proteomic products and solutions, such as Nautilus Biotechnology, Olink Proteomics, Quanterix,
Seer and SomaLogic.
We believe there are currently no commercially available NGPS platforms. The legacy proteomics market today is largely served by companies that offer a variety of analytical instruments, such as MS
and microarray instruments and associated reagents and consumables. There are also a number of companies that provide proteomic analysis services and have developed or are developing novel proteomic technologies. Additional competing products
may emerge from various sources, including life sciences tools, diagnostics, pharmaceutical and biotechnology companies, third-party service providers, academic research institutions, governmental agencies and/or public and private research
institutions, among others. Many of the companies with which we compete have substantially greater resources than we have.
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The life science instrumentation industry is highly competitive and expected to grow more competitive with the increasing knowledge gained from ongoing research and development. Given the potential
market opportunity and scientific importance of proteomic analysis, we expect increased competition and competitor technologies to emerge in the future. We believe the principal competitive factors in our target markets include:
● resolution and sensitivity;
● cost of instruments and consumables;
● efficiency and speed of workflows;
● throughput to meet lab testing volume;
● reputation among customers and key thought leaders;
● innovation in product offerings;
● accuracy and reproducibility of results;
● strength of intellectual property portfolio;
● operational and manufacturing footprint;
● customer support infrastructure; and
We believe that there are currently no other commercially available products that provide the same level of end-to-end NGPS analysis at the same scale and sensitivity that we expect our platform
will provide. Following our commercial launch for RUO, we aim to enhance our position through our ongoing product development, commercial strategy, potential new products and ongoing collaborations and partnerships with key thought leaders.
Intellectual Property
Protection of our intellectual property is a strategic priority for our business. We rely on a combination of patents, trademark, copyright, trade secret and other intellectual property rights
protection and contractual restrictions to protect our proprietary technologies.
Patented Technologies
The patents owned and in-licensed by us provide comprehensive coverage of our sample preparation, peptide sequencing and nucleic acid sequencing devices and are directed to aspects including sample
preparation, instrument and laser light source architecture, pixel design, waveguide architecture, lifetime discrimination methods, machine learning, and surface chemistry. We have developed a portfolio of issued patents and pending patent
applications directed to commercial products and technologies for potential development. We believe that our intellectual property is a core strength of our business, and our strategy includes the continued development of our patent portfolio.
Patent Portfolio
As of December 31, 2022, we owned 214 issued patents and 797 pending patent applications. Of our 214 issued patents, 61 were issued U.S. utility patents. Of our 797 pending patent applications,
124 were pending U.S. utility patent applications, 4 of which were allowed. In addition, we owned 153 issued patents in foreign jurisdictions, including Australia, Europe, Japan, China, Brazil, Hong Kong, Mexico, Taiwan, Korea, and India, and
673 pending patent applications in foreign jurisdictions, including Australia, Canada, Europe, Japan, China, Brazil, Hong Kong, Mexico, Taiwan, Korea, India, Malaysia, Singapore, and Thailand, 16 of which were allowed. In total, we owned 115
patent families generally directed to our sample preparation, peptide sequencing and nucleic acid sequencing devices. These issued patents and pending patent applications (if they were to issue as patents) have expected expiration dates ranging
between 2025 and 2042.
Trademark Portfolio
We also protect important marks through trademark registrations. As of December 31, 2022, we owned 43 trademark registrations and 56 trademark applications, of which 14 are U.S. trademark
applications. 12 of the U.S. trademark applications have been allowed.
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Other Intellectual Property
In addition to patents, we also rely on trade secrets, technical know-how and continuing innovation to develop and maintain our competitive position. We seek to protect our proprietary information
and other intellectual property by generally requiring our employees, consultants, contractors, suppliers, outside scientific collaborators and other advisors to execute non-disclosure and assignment of invention agreements on commencement of
their employment or engagement. Agreements with our employees also forbid them from using or incorporating the proprietary rights of third parties during their engagement with us.
We also generally require confidentiality or material transfer agreements from third parties that receive our confidential data or materials.
Licensed Intellectual Property
We have entered into exclusive and non-exclusive licenses in the ordinary course of business relating to our technologies or other intellectual property rights or assets.
Government Regulation
Life Sciences Research Use Only Technologies
Our protein sequencing products are currently intended for RUO applications, although the systems may provide data to customers and other third parties that are themselves engaged in the research
and development of potential diagnostic and therapeutic products and services for which they may later pursue clearance, authorization or approval from regulatory authorities, such as the U.S. Food and Drug Administration (“FDA”). All our
products will be labeled “For Research Use Only,” and, will be sold to academic and research life sciences institutions that conduct basic and translational research, and biopharmaceutical and biotechnology companies for non-diagnostic and
non-clinical purposes.
Under a long-standing FDA regulation, products that are intended for RUO and are labeled as RUO are not regulated by the FDA as IVD devices and are not subject to the regulatory requirements
discussed below for clinical diagnostic products. RUO products may therefore be used or distributed for research use without first obtaining FDA clearance, authorization, or approval. Such products must bear the statement: “For Research Use
Only. Not for Use in Diagnostic Procedures.” RUO products also cannot make any claims related to safety, effectiveness or diagnostic utility, and they cannot be intended for human clinical diagnostic use.
Accordingly, a product labeled RUO but intended or promoted for clinical diagnostic use may be viewed by the FDA as adulterated and misbranded under the Federal Food, Drug, and Cosmetic Act (“FDCA”)
and subject to FDA enforcement action. The FDA will consider the totality of the circumstances surrounding distribution and use of an RUO product, including how the product is marketed and to whom, when determining its intended use. If the FDA
disagrees with a company’s RUO status for its product, the company may be subject to FDA enforcement activities, including, without limitation, requiring the company to seek clearance, authorization or approval for the product.
Clinical Diagnostics in the United States
In the United States, medical devices are subject to extensive regulation by the FDA under the FDCA and its implementing regulations, and other federal and state statutes and regulations. The laws
and regulations govern, among other things, medical device design and development, pre-clinical and clinical testing, pre-market clearance, authorization or approval, establishment registration and product listing, product manufacturing, product
packaging and labeling, product storage, advertising and promotion, product distribution, recalls and field actions, servicing and post-market clinical surveillance. A number of U.S. states also impose licensing and compliance regimes on
companies that manufacture or distribute prescription devices into or within the state.
The Federal Trade Commission (“FTC”) also oversees the advertising and promotion of our current and future products pursuant to its broad authority to police deceptive advertising for goods or
services within the United States. Under the Federal Trade Commission 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. In the
context of performance claims for products such as our goods and services, compliance with the FTC Act includes ensuring that there is scientific data to substantiate the claims being made, that the advertising is neither false nor misleading,
and that any user testimonials or endorsements we or our agents disseminate related to the goods or services comply with disclosure and other regulatory requirements. In addition, with respect to any of our future products that are marketed as in vitro diagnostic or clinical products, FDA’s regulations applicable to medical device products prohibit them from being promoted for uses not within the scope of a given product’s intended use(s), among
other promotional and labeling rules applicable to products subject to the FDCA.
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When our products are marketed for clinical or diagnostic uses, they will be regulated by the FDA as IVD medical devices. The FDCA and FDA’s implementing regulations define a medical device as an
instrument, apparatus, implement, machine, contrivance, implant, in vitro reagent or other similar or related article, including any component part or accessory, which is (i) 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 (ii) intended to affect the structure or any function of the body of man or other animals and which does not achieve any of 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. IVDs are a type of medical device and include reagents and
instruments used in the diagnosis or detection of diseases, conditions or infections, including, without limitation, the presence of certain chemicals, genetic information or other biomarkers. Predictive, prognostic, and screening tests can also
be IVDs. Medical devices, including IVD products, must undergo pre-market review by and receive clearance, authorization, or approval from the FDA prior to commercialization, unless the device is of a type exempted from such review by statute,
regulation, or an FDA exercise of enforcement discretion. The FDA classifies medical devices into three classes based on risk. Regulatory control increases from Class I (lowest risk) to Class III (highest risk). The FDA generally must clear or
approve the commercial sale of most new medical devices that fall within product categories designated as Class II and III. Commercial sales of most Class II and III medical devices within the United States must be preceded either by pre-market
notification and FDA clearance pursuant to Section 510(k) of the FDCA (Class II) or by the granting of a pre-market approval (“PMA”) (Class III), after a pre-market application is submitted. Both 510(k) notifications and PMA applications must be
submitted to FDA with significant user fees, although reduced fees for small businesses are available. Class I devices are generally exempt from pre-market review and notification, as are some moderate-risk Class II devices. Manufacturers of all
classes of devices must comply with FDA’s Quality System Regulation (“QSR”), establishment registration, medical device listing, labeling requirements, and medical device reporting (“MDR”) regulations, which are collectively referred to as
medical device general controls. Class II devices may also be subject to special controls such as performance standards, post-market surveillance, FDA guidelines, or particularized labeling. Some Class I and Class II devices may be exempted by
regulation from the requirement of compliance with substantially all of the QSR.
Moreover, as electronic and digital medical devices have become increasingly connected to the Internet, hospital networks, and other medical devices to provide features that improve health care and
patient accessibility, FDA and other regulatory authorities have recognized that those same features also increase the risk of potential cybersecurity threats. These types of medical devices may be vulnerable to security breaches, potentially
impacting the safety and effectiveness of the device, and accordingly device manufacturers are responsible for identifying cybersecurity risks and hazards associated with their products. In recent years, the FDA has increased its scrutiny of this
issue as part of the review and marketing authorization process for new medical devices; the agency also monitors reports of cybersecurity risks as part of its post-marketing device surveillance activities. In addition, as part of the
Consolidated Appropriations Act for 2023, signed into law on December 29, 2022 (P.L. 117-328), Congress created new pre-market requirements for developers of “cyber devices,” defined as medical devices that include software, connect to the
Internet, and contain any technological features that could be vulnerable to cybersecurity threats.
510(k) Clearance Pathway
A 510(k) pre-market notification must contain information sufficient to demonstrate that the new device is substantially equivalent to a device commercially distributed prior to May 28, 1976 or to a
device that has been determined by the FDA to be substantially equivalent to such a so-called “pre-amendments” device. To obtain 510(k) clearance for a non-exempt Class II device, the product developer must submit a pre-market notification to
the FDA demonstrating that its product is substantially equivalent to such a predicate device. The FDA’s 510(k) clearance process generally takes from three to twelve months from the date the application is submitted, but it may take
significantly longer if FDA has significant questions or needs more information about the new device or its manufacturing or quality controls.
As part of the 510(k) notification process for Class II devices that have an existing classification regulation available for purposes of the regulatory filing, the FDA may require the following:
● Development of comprehensive product description and indications for use.
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Assuming successful completion of all required testing, a detailed 510(k) notification is submitted to the FDA requesting clearance to market the product. This pre-market notification includes all
relevant data from pertinent nonclinical studies and clinical trials (if applicable), together with detailed information relating to the product’s manufacturing controls and proposed labeling, and other relevant documentation. The FDA evaluates
all 510(k) submissions prior to filing for substantive review based on specific acceptance criteria and may issue a refuse-to-accept notification if the submission is deficient with respect to any of the established criteria. If the FDA
determines that the applicant’s device is substantially equivalent to the identified predicate device(s), the agency will issue a 510(k) clearance letter that authorizes commercial marketing of the device for one or more specific indications for
use. If the FDA determines that the applicant’s device is not substantially equivalent to the predicate device(s), the agency will issue a not-substantially-equivalent letter stating that the new device may not be commercially distributed.
After a new medical device receives 510(k) clearance from the FDA, any modification that could significantly affect its safety or effectiveness, or that would constitute a major change in its
intended use, requires a new 510(k) clearance or could require the submission of a PMA. The FDA requires each manufacturer to make the determination of whether a device modification requires a new 510(k) notification or PMA in the first
instance, but the FDA may review any such decision. If the FDA disagrees with a manufacturer’s decision not to seek a new 510(k) clearance or PMA for a particular change, the FDA may retroactively require the manufacturer to submit a 510(k)
pre-market notification or a PMA. The FDA may also require the manufacturer to cease U.S. marketing and/or recall the modified device until 510(k) clearance or PMA approval for the modification is obtained.
De Novo Classification
If a previously unclassified new medical device does not qualify for the 510(k) pre-market notification process because no predicate device to which it is substantially equivalent can be identified,
the device is automatically classified into Class III. However, if such a device would be considered low or moderate risk (in other words, it does not rise to the level of requiring the approval of a PMA), it may be eligible for the De Novo
classification process. The De Novo classification process allows a device developer to request that the novel medical device be reclassified as either a Class I or Class II device, rather than having it regulated as a high-risk Class III device
subject to the PMA requirements. 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.
Under the FDCA, 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 performance review
goals state that in fiscal year 2023, the FDA will attempt to issue a decision within 150 days of receipt on 70% of all De Novo classification requests received during the year. De Novo classification requests are subject to user fees, unless a
specific exemption applies (over $132,000 in fiscal year 2023).
As with the 510(k) pre-market notification process described above, any modification to a device authorized through the De Novo process that could significantly affect the safety or effectiveness of
such device, or that would constitute a major change in its intended use, requires a new 510(k) clearance or could require the submission of a PMA.
As an alternative to the De Novo classification process, a company could also file a reclassification petition seeking to change the automatic Class III designation of a novel post-amendment device
under Section 513(f)(3) of the FDCA. The FDA can also initiate reclassification of an existing device type on its own initiative. To reclassify a device under Section 513(e) of the FDCA, the FDA must first publish a proposed reclassification
order that includes a summary of the valid scientific evidence that supports the reclassification; convene a device classification panel meeting; and consider comments to the public docket before it then publishes a final reclassification order
in the Federal Register.
Pre-market Approval Pathway
Products classified by the FDA as Class III generally require marketing approval via a PMA. A PMA application must be supported by valid scientific
evidence, which typically requires extensive data, including technical, nonclinical, clinical, manufacturing and labeling data, to demonstrate to the FDA’s satisfaction the safety and efficacy of the device for its intended use(s). A PMA
application also must include a complete description of the device and its components, a detailed description of the methods, facilities and controls used to manufacture the device, and proposed labeling. After a PMA application is submitted
and found to be sufficiently complete, it is considered “filed” and the FDA begins an in-depth review of the submitted information. During this substantive review period, the FDA may request additional information or clarification of
information already provided. Also, during the review period, an advisory panel of experts from outside the FDA may be convened to review and evaluate the
application and provide recommendations to the FDA. In addition, the FDA generally will conduct a pre-approval inspection of the manufacturing facility to evaluate compliance with the QSR, which requires manufacturers to implement and follow
design, testing, control, documentation and other quality assurance procedures.
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FDA review of a PMA application is required to be completed within 180 days of the application’s filing date although the process generally takes between one and three years, but may take
significantly longer. The current user fee agreement between the FDA and the medical device industry sets as a target for PMA reviews to be completed in under one year. The FDA can delay, limit or deny approval of a PMA application for many
reasons, including:
If an FDA evaluation of a PMA application or manufacturing facilities is favorable, the FDA will either issue an approval letter, or approvable letter, which usually contains a number of conditions
which must be met in order to secure final approval of the PMA. When and if those conditions have been fulfilled to the satisfaction of the FDA, the agency will issue a PMA approval letter authorizing commercial marketing of a device, subject to
the conditions of approval and the limitations established in the approval letter. If the FDA’s evaluation of a PMA application or manufacturing facilities is not favorable, the FDA will deny approval of the PMA or issue a not approvable letter.
The FDA may also determine that additional trials are necessary, in which case the PMA approval may be delayed for several months or years while the trials are conducted and data is submitted in an
amendment to the PMA. The PMA process can be expensive, uncertain and lengthy. PMA approval may also be granted with post-approval requirements such as the need for additional patient follow-up for an indefinite period of time.
New PMA applications or PMA supplements may be required for modifications to the manufacturing process, labeling, device specifications, materials or design of a device that is approved through the
PMA process. PMA supplements often require submission of the same type of information as an initial PMA application, except that the supplement is limited to information needed to support any changes from the device covered by the approved PMA
application and may or may not require as extensive clinical data or the convening of an advisory panel.
Clinical Investigations Using Devices in Development
Clinical trials are almost always required to support a PMA application and are sometimes required for a De Novo classification request or 510(k) pre-market notification. In order to conduct a
clinical investigation involving human subjects for the purpose of demonstrating the safety and effectiveness of a medical device, an investigator acting on behalf of the company must, among other things, apply for and obtain Institutional Review
Board (“IRB”) approval of the proposed investigation. In addition, if the clinical study involves a “significant risk” (as defined by the FDA) to human health, the company sponsoring the investigation (referred to as the “sponsor”) must also
submit and obtain FDA approval of an Investigational Device Exemption (“IDE”) application. An IDE application 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. The IDE application must be approved in advance by the FDA for a specified number of study participants, unless the product is deemed a non-significant risk device and eligible for
abbreviated IDE requirements. Generally, clinical trials for a significant risk device may begin once the IDE application is approved by the FDA and the study protocol and informed consent are approved by a duly-appointed IRB for each clinical
trial site. Most clinical studies of IVDs are exempt from the IDE requirements, if certain requirements are met.
FDA’s IDE regulations govern investigational device labeling, prohibit promotion, and specify an array of Good Clinical Practice, or GCP, requirements, which include, among other things,
recordkeeping, reporting and monitoring responsibilities of study sponsors and study investigators. Clinical trials must further comply with the FDA’s regulations for IRB approval and for informed consent and other human subject protections.
Required records and reports are subject to inspection by the FDA. The results of clinical testing may be unfavorable or, even if the intended safety and efficacy success criteria are achieved, may not be considered sufficient for the FDA to
grant approval or clearance of a product.
The Consolidated Appropriations Act for 2023 also recently amended the FDCA to require sponsors of most clinical studies of investigational medical devices intended to support marketing
authorization to develop and submit a diversity action plan for such clinical trial. The action plan must include the sponsor’s diversity goals for enrollment, as well as a rationale for the goals and a description of how the sponsor will meet
them. Depending on the type of medical device investigation, such diversity action plans would be submitted with the sponsor’s IDE application or with the device’s pre-market submission (in the case of human studies that may be IDE exempt). It is
unknown at this time how the diversity action plan may affect the planning and timing of medical device investigations or what specific information FDA will expect in such plans, but if FDA objects to a sponsor’s diversity action plan, it may
delay trial initiation or review of the pre-market submission.
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The commencement or completion of any clinical trials may be delayed or halted, or be inadequate to support approval of a PMA application (or FDA’s grant of a De Novo classification request or
clearance of a 510(k) notification, as applicable), for numerous reasons, including, but not limited to, the following:
● participants do not enroll in clinical trials at the expected rate;
● participants do not comply with trial protocols;
● participant follow-up is not at the expected rate;
● participants experience adverse side effects;
Ongoing Post-Market Regulatory Requirements and FDA Enforcement
After a medical device is authorized for marketing and placed in commercial distribution (or, for 510(k)-exempt products, placed into commerce without first obtaining FDA clearance or approval),
numerous regulatory requirements apply. These general controls that must be met for all device classes include:
● establishment registration and device listing;
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 certain
state authorities. Failure to comply with applicable regulatory requirements can result in enforcement action by the FDA, which may lead to any of the following sanctions:
● Warning Letters or Untitled Letters that require corrective action;
● fines and civil penalties;
● unanticipated expenditures;
● suspension or withdrawal of FDA approval or clearance (as may be applicable);
● product recall or seizure;
● partial suspension or total shutdown of production;
● operating restrictions;
● injunctions or consent decrees; and
● civil or criminal prosecution.
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We, any contract manufacturers, and some suppliers of components or device accessories would also be required to manufacture medical device products
in compliance with current Good Manufacturing Practice requirements set forth in the QSR, unless explicitly exempted by regulation, should we develop and seek regulatory authorization for one or more diagnostic intended uses for our products.
The QSR requires a quality system for the design, manufacture, packaging, labeling, storage, installation and servicing of marketed devices, and includes extensive requirements with respect to quality management and organization, device design,
buildings, equipment, purchase and handling of components or services, production and process controls, packaging and labeling controls, device evaluation, distribution, installation, complaint handling, servicing, and record keeping. The FDA
evaluates compliance with the QSR through periodic pre-scheduled or unannounced inspections that may include registered manufacturing facilities. Following such inspections, FDA may issue reports known as Forms FDA 483 or Notices of
Inspectional Observations, which list instances where the FDA inspector believes the manufacturer has failed to comply with applicable regulations and/or procedures. If the observations are sufficiently serious or the manufacturer fails to
respond appropriately, the FDA may issue Warning Letters, which are notices of intended enforcement actions against the manufacturer. For less serious violations that may not rise to the level of regulatory significance, FDA may issue Untitled
Letters. The FDA may take more significant administrative or legal action if a manufacturer continues to be in substantial noncompliance with applicable
regulations.
For example, if the FDA believes a medical device developer or any of its contract manufacturers or regulated suppliers are not in compliance with these requirements and patients are being subjected
to serious risks, the agency can shut down manufacturing operations, require recalls of medical device products, refuse to approve new marketing applications for future products, initiate legal proceedings to detain or seize products, enjoin
future violations, or assess civil and criminal penalties against a manufacturer or its officers or other employees.
U.S. Fraud and Abuse Laws and Other Compliance Requirements
Successfully commercializing a medical device or technology depends not on only FDA authorization, but also on broad health insurance or third party payor coverage. Government and private payors
institute coverage criteria to ensure the appropriate utilization of products and services and to control costs. Limited third party payor coverage for a technology or procedure may limit adoption and commercial viability, while broader coverage
supports optimal market uptake. Favorable coverage decisions by government payors like Medicare or Medicaid is critical because private payors typically follow the government’s lead regarding reimbursement. However, manufacturers whose
technology is reimbursed by government payors are subject to various U.S. federal and state laws pertaining to healthcare fraud and abuse. These laws can be implicated by inappropriate sales and marketing arrangements with healthcare providers.
Many commonly accepted commercial practices are illegal in the healthcare industry and violations of these laws are punishable by criminal and civil sanctions, including, in some instances, exclusion from participation in U.S. federal and state
healthcare programs, including Medicare and Medicaid.
Anti-kickback Laws. The federal Anti-Kickback Statute (AKS) prohibits persons from knowingly and willfully soliciting, receiving, offering or paying
remuneration directly or indirectly to induce either the referral of an individual, or the furnishing, recommending, or arranging of a good or service, for which payment may be made under a federal healthcare program such as Medicare and
Medicaid. A person or entity does not need to have actual knowledge of the AKS or specific intent to violate it to have committed a violation. Certain arrangements are protected from enforcement through AKS safe harbors and exceptions, but an
arrangement must meet every element of the applicable safe harbor or exception in order to obtain this protection. The fact that an arrangement does not meet the requirements of a safe harbor or exception does not mean that it violates the AKS;
such arrangements would be subject to a facts and circumstances analysis to determine compliance with the AKS or lack thereof. The definition of “remuneration” has been broadly interpreted to include anything of value, including such items as
gifts, discounts, the furnishing of supplies or equipment, credit arrangements, waiver of payments, and providing anything at less than its fair market value. The AKS is broadly interpreted and aggressively enforced with the result that
beneficial commercial arrangements can be criminalized in the health care industry because of the AKS. The penalties for violating the federal AKS can be severe, include fines and imprisonment for up to ten years, as well as possible exclusion
from federal healthcare programs such as Medicare and Medicaid. Additionally, a claim including items or services resulting from a violation of the AKS constitutes a false or fraudulent claim for purposes of the False Claims Act.
Federal False Claims Act. The federal False
Claims Act (FCA) prohibits knowingly presenting or causing to be presented a false claim or the knowing use of false statements or records to obtain payment from the federal government. The FCA also prohibits the knowing retention of
overpayments (sometimes referred to as “reverse false claims”). When an entity is determined to have violated the FCA, it must pay three times the actual damages sustained by the government, plus mandatory and substantial civil penalties for
each separate false claim. The entity also faces the possibility of exclusion from federal health care programs. Suits filed under the False Claims Act, known as “qui tam” actions, can be brought by any individual on behalf of the government
and such individuals (known as “relators” or, more commonly, as “whistleblowers”) may share in any amounts paid by the entity to the government in fines or settlement.
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Civil Monetary Penalties Law. The Civil Monetary Penalties Law (CMPL) authorizes the imposition of substantial civil money penalties and the possibility of
exclusion against an entity that engages in certain prohibited activities including but not limited to violations of the Stark Law or Anti-Kickback Statute, knowing submission of a false or fraudulent claim, employment of an excluded individual,
and the provision or offer of anything of value to a Medicare or Medicaid beneficiary that the transferring party knows or should know is likely to influence beneficiary selection of a particular provider for which payment may be made in whole or
part by a federal health care program, commonly known as the Beneficiary Inducement CMP.
State Analogs of Federal Fraud and Abuse Laws.
Many U.S. states have their own laws intended to protect against fraud and abuse in the health care industry and more broadly. In some cases, these laws prohibit
or regulate additional conduct beyond what federal law affects. Penalties for violating these laws can range from fines to criminal sanctions.
HIPAA. The Health Insurance Portability and Accountability Act of 1996, as amended by the American Recovery and Reinvestment Act of 2009, and implementing
regulations (“HIPAA”), created two new federal crimes: healthcare fraud and false statements relating to healthcare matters. The healthcare fraud statute prohibits knowingly and willfully executing a scheme to defraud any healthcare benefit
program, including private payors. A violation of this statute is a felony and may result in fines, imprisonment or exclusion from government sponsored programs. The false statements statute prohibits knowingly and willfully falsifying,
concealing or covering up a material fact or making any materially false, fictitious or fraudulent statement in connection with the delivery of or payment for healthcare benefits, items or services.
FCPA and Other Anti-Bribery and Anti-Corruption Laws. The U.S. Foreign Corrupt Practices Act (“FCPA”) prohibits U.S. corporations and their representatives